28872 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

SECURITIES AND EXCHANGE 

COMMISSION 

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

249 

[Release No. 34–94615; File No. S7–14–22] 

RIN 3235–AK93 

Rules Relating to Security-Based Swap 

Execution and Registration and 

Regulation of Security-Based Swap 

Execution Facilities 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Proposed rule; withdrawal of 

proposed rules. 

SUMMARY: The Securities and Exchange 

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

is proposing a set of rules (‘‘Regulation 

SE’’) and forms under the Securities 

Exchange Act of 1934 (‘‘SEA’’) that 

would create a regime for the 

registration and regulation of securitybased swap execution facilities 

(‘‘SBSEFs’’) and address other issues 

relating to security-based swap (‘‘SBS’’) 

execution generally. One of the rules 

being proposed as part of Regulation SE 

would implement part of the DoddFrank Act, which is intended to mitigate 

conflicts of interest at SBSEFs and 

national securities exchanges that trade 

SBS (‘‘SBS exchanges’’). Other rules 

being proposed as part of Regulation SE 

would address the cross-border 

application of the SEA’s trading venue 

registration requirements and the trade 

execution requirement for SBS. In 

addition, the Commission is proposing 

to amend an existing rule to exempt, 

from the SEA definition of ‘‘exchange,’’ 

certain registered clearing agencies as 

well as registered SBSEFs that provide 

a market place only for SBS. The 

Commission also is proposing a new 

rule that, while affirming that an SBSEF 

would be a broker under the SEA, 

would exempt a registered SBSEF from 

certain broker requirements. Finally, the 

Commission is proposing certain new 

rules and amendments to its Rules of 

Practice to allow persons who are 

aggrieved by certain actions by an 

SBSEF to apply for review by the 

Commission. The Commission also is 

withdrawing all previously proposed 

rules regarding these subjects. 

DATES: Comments should be received on 

or before June 10, 2022. As of May 11, 

2022, the SEC is withdrawing or 

partially withdrawing the following 

previously proposed rules (see 

SUPPLEMENTARY INFORMATION for details): 

SEA Release No. 63825 (76 FR 10948, 

published on February 28, 2011); SEA 

Release No. 63107 (75 FR 65581, 

published on October 26, 2010); and 

SEA Release No. 69490 (78 FR 30968, 

published on May 23, 2013). 

ADDRESSES: Comments may be 

submitted by any of the following 

methods: 

Electronic Comments 

• Use the Commission’s internet 

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

rules/submitcomments.htm); or 

• Send an email to rule-comments@

sec.gov. Please include File No. S7–14– 

22 on the subject line. 

Paper Comments 

• Send paper comments to Secretary, 

Securities and Exchange Commission, 

100 F Street NE, Washington, DC 

20549–1090. 

All submissions should refer to File 

Number S7–14–22. This file number 

should be included on the subject line 

if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method of submission. The 

Commission will post all comments on 

the Commission’s internet website 

(http://www.sec.gov/rules/ 

proposed.shtml). Comments are also 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Operating conditions 

may limit access to the Commission’s 

public reference room. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that the Commission does not 

redact or edit personal identifying 

information from comment submissions. 

You should submit only information 

that you wish to make publicly 

available. 

Studies, memoranda, or other 

substantive items may be added by the 

Commission or staff to the comment file 

during this rulemaking. A notification of 

the inclusion in the comment file of any 

such materials will be made available 

on the Commission’s website. To ensure 

direct electronic receipt of such 

notifications, sign up through the ‘‘Stay 

Connected’’ option at www.sec.gov to 

receive notifications by email. 

FOR FURTHER INFORMATION CONTACT: 

Michael Gaw, Assistant Director, at 

(202) 551–5602; David Liu, Special 

Counsel, at (312) 353–6265; Leah 

Mesfin, Special Counsel, at (202) 551– 

5655; Michou Nguyen, Special Counsel, 

at (202) 551–7768; Geoffrey Pemble, 

Special Counsel, at (202) 551–5628; or 

Mark Sater, Counsel, at (202) 551–4729; 

all of whom are in the Division of 

Trading and Markets, Securities and 

Exchange Commission, 100 F Street, NE, 

Washington, DC 20549. 

SUPPLEMENTARY INFORMATION: The 

Commission is proposing new 17 CFR 

242.800 through 242.835 to create a 

regime for the registration and 

regulation of SBSEFs and address other 

issues relating to SBS execution 

generally. Regulation SE would consist 

of 17 CFR 242.800 through 242.835 

(proposed Rules 800 through 835). Key 

rules within Regulation SE would 

include Rule 803, which would 

establish a process for SBSEF 

registration; Rules 804 to 810, which 

would establish procedures for rule and 

product filings by SBSEFs; Rule 815, 

which would establish permissible 

execution methods for SBS that are 

subject to the SEA’s trade execution 

requirement; Rule 816, which would set 

out a procedure for SBSEFs to make an 

SBS available to trade and establish 

certain exemptions from the trade 

execution requirement; Rules 818 to 

831, which would implement the 14 

Core Principles for SBSEFs set forth in 

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

833, which would address cross-border 

matters; and Rule 834, which would 

impose requirements addressing 

conflicts of interest involving SBSEFs 

and SBS exchanges, as required by 

section 765 of the Dodd-Frank Act. 

In addition to the rules described 

above, the Commission is also 

proposing 17 CFR 249.2001 (Form 

SBSEF), which is the form that an entity 

would use to register with the 

Commission as an SBSEF; 17 CFR 

249.2002 (a submission cover sheet), 

which would be required to accompany 

filings with the Commission made by 

SBSEFs for rule and rule amendments 

and for product listings; amendments to 

17 CFR 232.405 (Rule 405 of Regulation 

S–T) to require various SBSEF filings to 

be provided in Inline eXtensible 

Business Reporting Language (‘‘Inline 

XBRL’’), a structured data language; 

amendments to 17 CFR 240.3a1–1 (Rule 

3a1–1 under the SEA) to exempt from 

the SEA definition of ‘‘exchange’’ 

certain registered clearing agencies as 

well as registered SBSEFs that provide 

a market place only for SBS; 17 CFR 

240.15a–12 (Rule 15a–12 under the 

SEA) that, while affirming that an 

SBSEF also would be a broker under the 

SEA, would exempt a registered SBSEF 

from certain broker requirements; to 

sunset an existing exemption from the 

requirement to register as a clearing 

agency for an entity performing the 

functions of an SBSEF but that is not yet 

registered as such; and certain new rules 

and amendments to 17 CFR part 201 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28873 

(the Commission’s Rules of Practice) to 

allow persons who are aggrieved by 

certain actions by an SBSEF to apply for 

review by the Commission. 

The Commission also is withdrawing 

all previously proposed rules, rule 

amendments, and interpretations 

regarding these subjects in view of the 

length of time that has passed since they 

were issued and significant changes to 

the swap and SBS markets that have 

taken place during that time. 

Table of Contents 

I. Background 

II. Relation to the SEF Market 

III. Approach to the Commission’s Proposed 

Requirements Relating to Security-Based 

Swap Execution 

IV. Introductory Provisions of Regulation SE 

A. Rule 800—Scope 

B. Rule 801—Applicable Provisions 

C. Rule 802—Definitions 

V. Registration of SBSEFs 

A. Rule 803—Requirements and 

Procedures for Registration 

B. Form SBSEF 

C. Abbreviated Registration Procedures for 

CFTC-Registered SEFs 

VI. Rule and Product Filings by SBSEFs 

A. Rule 804—Listing Products for Trading 

by Certification 

B. Rule 805—Voluntary Submission of 

New Products for Commission Review 

and Approval 

C. Rule 806—Voluntary Submission of 

Rules for Commission Review and 

Approval 

D. Rule 807—Self-Certification of Rules 

E. Submission Cover Sheet and 

Instructions 

F. Rule 808—Availability of Public 

Information 

G. Rule 809—Staying of Certification and 

Tolling of Review Period Pending 

Jurisdictional Determination 

H. Rule 810—Product Filings by SBSEFs 

That Are Not Yet Registered and by 

Dormant SBSEFs 

VII. Miscellaneous Requirements 

A. Rule 811—Information Relating to 

SBSEF Compliance 

1. Harmonization With § 37.5 

2. Harmonization With § 1.60 

B. Rule 812—Enforceability 

C. Rule 813—Prohibited Use of Data 

Collected for Regulatory Purposes 

D. Rule 814—Entity Operating Both a 

National Securities Exchange and SBSEF 

E. Rule 815—Methods of Execution for 

Required and Permitted Transactions 

F. Rule 816—Trade Execution Requirement 

and Exemptions Therefrom 

1. Process for an SBSEF To Make an SBS 

Product Available To Trade 

2. Exemptions From Trade Execution 

Requirement 

G. Rule 817—Trade Execution Compliance 

Schedule 

VIII. Implementation of Core Principles 

A. Rule 818—Core Principle 1— 

Compliance With Core Principles 

B. Rule 819—Core Principle 2— 

Compliance With Rules 

1. Rules Modelled on Subpart C of Part 37 

2. Provisions of Rule 819 Adapted From 

Other SEF Requirements 

a. Rule 819(h)—Activities of SBSEF’s 

Employees, Governing Board Members, 

Committee Members, and Consultants 

b. Rule 819(i)—Service on SBSEF 

Governing Boards or Committees by 

Persons With Disciplinary Histories 

c. Rule 819(j)—Notification of Final 

Disciplinary Action Involving Financial 

Harm to a Customer 

d. Rule 819(k)—Designation of Agent for 

Non-U.S. Member 

C. Rule 820—Core Principle 3—SBS Not 

Readily Susceptible to Manipulation 

D. Rule 821—Core Principle 4—Monitoring 

of Trading and Trade Processing 

E. Rule 822—Core Principle 5—Ability To 

Obtain Information 

F. Rule 823—Core Principle 6—Financial 

Integrity of Transactions 

G. Rule 824—Core Principle 7—Emergency 

Authority 

H. Rule 825—Core Principle 8—Timely 

Publication of Trading Information 

I. Rule 826—Core Principle 9— 

Recordkeeping and Reporting 

J. Rule 827—Core Principle 10—Antitrust 

Considerations 

K. Rule 828—Core Principle 11—Conflicts 

of Interest 

L. Rule 829—Core Principle 12—Financial 

Resources 

M. Rule 830—Core Principle 13—System 

Safeguards 

N. Rule 831—Core Principle 14— 

Designation of Chief Compliance Officer 

IX. Cross-Border Rules 

A. Rule 832—Cross-Border Mandatory 

Trade Execution 

B. Rule 833—Cross-Border Exemptions 

1. Exemptions for Foreign SBS Trading 

Venues 

2. Exemptions Relating to the Trade 

Execution Requirement 

X. Rule 834—Implementation of Section 765 

of the Dodd-Frank Act and Governance 

of SBSEFs and SBS Exchanges 

XI. Rule 835—Notice to Commission by 

SBSEF of Final Disciplinary Action, 

Denial or Conditioning of Membership, 

or Denial or Limitation of Access 

XII. Amendments to Existing Rule 3a1–1 

Under the SEA—Exemptions From the 

Definition of ‘‘Exchange’’ 

XIII. Rule 15a–12—SBSEFs as Registered 

Brokers; Relief From Certain Broker 

Requirements 

XIV. Proposed Sunsetting of Temporary 

Exemption From SEA Definition of 

‘‘Clearing Agency’’ for Unregistered 

SBSEFs 

XV. Electronic Filings Under Regulation SE 

XVI. Amendments to Commission’s Rules of 

Practice for Appeals of SBSEF Actions 

A. Amendment to Rule 101 

B. Amendment to Rule 202 

C. Amendment to Rule 210 

D. Amendment to Rule 401 

E. Rule 442—Right to Appeal 

F. Rule 443—Sua Sponte Review by 

Commission 

G. Amendment to Rule 450 

H. Amendment to Rule 460 

I. Request for Comment 

XVII. Conclusion 

XVIII. Compliance Schedule 

XIX. Economic Analysis 

A. Introduction 

B. Economic Baseline 

1. Available Data From the SBS Market 

2. SBS Market Activity and Participants 

a. SBS Entities 

b. Other SBS Market Participants 

c. SBS Market Participant Domiciles 

3. Distribution of Rransaction Size 

4. Other Markets and Regulatory 

Frameworks 

5. Number of Entities That Likely Will 

Register as SBSEFs 

6. SBS Trading on Platforms 

7. Global Regulatory Efforts 

8. Trading Models 

C. Benefits, Costs, and Reasonable 

Alternatives 

1. Overarching Benefits of the Proposal 

2. Benefits Associated With Specific 

Proposed Rules 

3. Costs 

a. Registration Requirements for SBSEFs 

and Form SBSEF 

b. Ongoing Compliance With Other 

Requirements That Are Similar to the 

Remainder of Part 37 

c. Rule and Product Filing Processes for 

SBSEFs 

d. Proposed Rules 809, 811, 819, 826, 833, 

834, and 835 

e. Assessment Costs 

f. Structured Data Costs 

4. Reasonable Alternatives 

D. Effects on Efficiency, Competition, and 

Capital Formation 

1. Competition 

2. Capital Formation 

3. Efficiency 

E. Request for Comment 

XX. Paperwork Reduction Act 

A. Summary of Collection of Information 

B. Proposed Use of Information 

1. Registration Requirements and Form 

SBSEF 

2. Requirements for SBSEFs To Establish 

Rules 

3. Reporting Requirements for SBSEFs 

4. Recordkeeping Required Under 

Regulation SE 

5. Timely Publication of Trading 

Information Requirement for SBSEFs 

6. Rule Filing and Product Filing Processes 

for SBSEFs 

7. Requirements Relating to the CCO 

8. Surveillance Systems Requirements for 

SBSEFs 

C. Respondents 

D. Total Annual Reporting and 

Recordkeeping Burden 

1. Overview 

2. Aggregate Burdens for Rules Modelled 

After CFTC Part 37 Rules 

a. Registration requirements for SBSEFs 

and Form SBSEF 

b. Ongoing Compliance With Other 

Requirements That Are Similar to the 

Remainder of Part 37 

3. Aggregate Burdens for Rules Modelled 

on CFTC Part 40 Rules 

a. Rule and Product Filing Processes for 

SBSEFs 

b. Burdens Related to Rules Modelled After 

Other Part 40 Rules 

i. Rule 802 


jspears on DSK121TN23PROD with PROPOSALS2
28874 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

1 15 U.S.C. 78c–4. In this release, the Commission 

is defining the Securities Exchange Act as the 

‘‘SEA’’ to distinguish it from the Commodity 

Exchange Act (‘‘CEA’’). 2Public Law 111–203, H.R. 4173, section 763(c). 

3See infra section VIII (listing the Core 

Principles). 4Ownership Limitations and Governance 

Requirements for Security-Based Swap Clearing 

Agencies, Security-Based Swap Execution Facilities, 

and National Securities Exchanges With Respect to 

Security-Based Swaps Under Regulation MC, SEA 

Release No. 63107 (October 14, 2010), 75 FR 65882 

(October 26, 2010) (‘‘Regulation MC Proposal’’). 

5Registration and Regulation of Security-Based 

Swap Execution Facilities, SEA Release No. 63825 

(February 2, 2011), 76 FR 10948 (February 28, 2011) 

(‘‘2011 SBSEF Proposal’’). 

6Cross-Border Security-Based Swap Activities; 

Re-Proposal of Regulation SBSR and Certain Rules 

and Forms Relating to the Registration of SecurityBased Swap Dealers and Major Security-Based 

Swap Participants, SEA Release No. 69490 (May 1, 

2013), 78 FR 30968 (May 23, 2013) (‘‘Cross-Border 

Proposing Release’’). 

7The ‘‘trade execution requirement’’ as used with 

respect to SBS refers to a provision mandated by 

Title VII and set forth in section 3C(h) of the SEA 

that requires a transaction involving an SBS that is 

subject to the clearing requirement of section 3C to 

be executed on a national securities exchange, a 

registered SBSEF, or an SBSEF that is exempt from 

registration under section 3D(e) of the SEA. See 

infra note 106 and accompanying text. A similar 

provision regarding swaps is set forth in section 

2(h)(8) of the CEA. 

8See id., 78 FR at 31053–58 (discussing potential 

exemptions for foreign SBS trading venues) and 

31081–85 (discussing a proposed rule to address the 

application of the trade execution requirement to 

cross-border SBS transactions). 

9Reopening of Comment Periods for Certain 

Proposed Rulemaking Releases and Policy 

Statements applicable to Security-Based Swaps, 

SEA Release No. 69491 (May 1, 2013), 78 FR 30800 

(May 23, 2013) (‘‘Reopening of Comment Periods 

Release’’). 

10The Commission notes, however, that Rule 834 

of proposed Regulation SE would implement 

section 765 only with respect to SBSEFs and SBS 

exchanges. 

11See CFTC, Core Principles and Other 

Requirements for Swap Execution Facilities, 78 FR 

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

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

Market or Swap Execution Facility To Make a Swap 

Available to Trade, Swap Transaction Compliance 

and Implementation Schedule, and Trade 

Execution Requirement Under the Commodity 

Exchange Act, 78 FR 33606 (June 4, 2013) (‘‘2013 

CFTC Final MAT Rules’’ and, together with the 

2013 CFTC Final SEF Rules Release, the ‘‘2013 

CFTC SEF Rules’’). 

12See CFTC, Swap Execution Facilities and Trade 

Execution Requirement, 83 FR 61946 (November 30, 

2018) (‘‘2018 SEF Proposal’’). 

13CFTC, Swap Execution Facilities and Trade 

Execution Requirement—Proposed rule; partial 

withdrawal, 86 FR 9304, 9304 (February 12, 2021). 

14 Id. 

15See id., 86 FR at 9304–05. 

16The Commission bases its preliminary analysis 

on trading of credit derivatives. Other swap asset 

classes that trade on SEFs, such as interest rate 

swaps (‘‘IRS’’) and foreign exchange swaps, have no 

analogs in the SBS market. While there are parallels 

ii. Rule 809 

4. Aggregate Burdens for Rules Modelled 

After CFTC Rules Other Than Parts 37 

and 40 

a. Rule 811(d) 

b. Rule 819(h) 

c. Rule 819(i) 

d. Rule 819(j) 

e. Rule 819(k) 

f. Rule 826(f) 

g. Rule 834 

5. Miscellaneous Burdens 

a. Rule 833 

b. Rule 835 

6. Total Paperwork Burden Under 

Proposed Regulation SE 

E. Collection of Information Is Mandatory 

F. Responses to Collection of Information 

Will Not Be Confidential 

G. Retention Period of Recordkeeping 

Requirements 

H. Request for Comment 

XXI. Regulatory Flexibility Certification 

A. SBSEFs 

B. Persons Requesting an Exemption Order 

Pursuant to Rule 833 

C. SBS Exchanges 

D. Certification 

XXII. Consideration of Impact on Economy 

Statutory Authority 

I. Background 

Section 3D of the SEA,1 enacted as 

part of Title VII of the Dodd-Frank Wall 

Street Reform and Consumer Protection 

Act (‘‘Dodd-Frank Act’’),2 provides for 

the registration and regulation of 

SBSEFs. Section 3D(a)(1) provides that 

no person may operate a facility for the 

trading or processing of SBS, unless the 

facility is registered as an SBSEF or as 

a national securities exchange. Section 

3D(d) enumerates 14 Core Principles 

with which SBSEFs must comply.3

Section 3D(f) requires the Commission 

to prescribe rules governing the 

regulation of SBSEFs. 

Section 765 of the Dodd-Frank Act 

directs the Commission to adopt rules to 

mitigate conflicts of interest with 

respect to clearing agencies that clear 

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

and national securities exchanges that 

post or make available for trading SBS 

(‘‘SBS exchanges’’). In October 2010, the 

Commission published for comment 

proposed Regulation MC to implement 

section 765.4

In February 2011, the Commission 

published for comment: (1) Proposed 

Regulation SBSEF that would govern 

the registration and regulation of 

SBSEFs, including rules to implement 

the 14 Core Principles and rules 

requiring SBSEFs to submit filings with 

the Commission to list SBS and to 

establish or amend rules; (2) proposed 

Form SBSEF for an entity to register 

with the Commission as an SBSEF; (3) 

a proposed interpretation of the 

definition of ‘‘security-based swap 

execution facility’’; and (4) proposed 

exemptions for registered SBSEFs 

relating to their status also as 

‘‘exchanges’’ and ‘‘brokers.’’ 5 On May 

23, 2013, the Commission issued a 

proposing release to address various 

cross-border aspects of its proposed 

Title VII rules 6—which included a 

proposed rule on the application of Title 

VII’s ‘‘trade execution requirement’’ 7 to 

cross-border SBS transactions and a 

proposed interpretation of when the 

SBSEF registration requirements would 

apply to a foreign venue that trades SBS 

(a ‘‘foreign SBS trading venue’’) 8—and 

reopened the comment period for 

various proposed rulemaking releases 

and policy statements under Title VII, 

including the 2011 SBSEF Proposal.9

In view of the passage of time since 

these earlier proposals were issued and 

the significant market and regulatory 

developments affecting swaps and SBS 

over those years, the Commission is 

issuing this new proposal relating to the 

registration and regulation of SBSEFs 

and to SBS execution generally. 

Accordingly, the Regulation MC 

Proposal, the 2011 SBSEF Proposal, and 

the elements of the Cross-Border 

Proposing Release relating to the trade 

execution requirement and the 

registration status of foreign SBS trading 

venues are withdrawn. The proposed 

rules discussed below supersede all 

previous Commission proposals on 

these subjects.10

II. Relation to the SEF Market 

The economic baseline for 

establishing a registration and 

regulatory regime for SBSEFs and SBS 

execution generally has changed 

considerably since the Commission 

issued the 2011 SBSEF Proposal. In June 

2013, the Commodity Futures Trading 

Commission (‘‘CFTC’’) adopted rules (in 

17 CFR chapter I) under Title VII of the 

Dodd-Frank Act for swap execution 

facilities (‘‘SEFs’’).11 The swap market 

has grown and matured within the 

framework established by the CFTC’s 

rules. In 2018, the CFTC proposed to 

make fundamental changes to the SEF 

regulatory structure.12 However, 

according to the CFTC, ‘‘[s]everal 

commenters expressed concern over the 

magnitude of changes’’ in the 

proposal.13 In 2021, the CFTC 

ultimately declined to finalize the 2018 

SEF Proposal and elected instead ‘‘to 

improve the SEF framework through 

targeted rulemakings that address 

distinct issues.’’14 Accordingly, the 

CFTC withdrew the unadopted portions 

of its 2018 proposal.15 Currently, the 

CFTC has no proposals outstanding to 

further amend its SEF rules. 

Because of the close relationship 

between the swap and SBS markets, an 

analysis of swap trading on CFTCregistered SEFs offers insights into the 

potential development of SBS trading 

on SEC-registered SBSEFs.16 Currently, 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28875 

between the equity swap and equity SBS markets, 

equity swap trading on SEFs appears to be minimal. 

17See CFTC, Trading Organizations—Swap 

Execution Facilities (SEF), https://sirt.cftc.gov/ 

SIRT/SIRT.aspx?Topic=SwapExecutionFacilities 

(accessed on January 25, 2022). 

18See infra note 376 and accompanying text. 

19See infra note 371 and accompanying text. 

20See id. 

21See infra section XIX(B)(5). 

22Consider the following example: § 37.1306(a) of 

the CFTC’s rules (17 CFR 37.1306(a)), which is 

among the rules that implements CEA Core 

Principle 13 (Financial resources), requires a SEF to 

submit a financial report to the CFTC every quarter 

(i.e., every three months). To implement the 

corresponding Core Principle under the SEA, the 

Commission could require an SBSEF to file only 

three financial reports per year, rather than four. All 

things being equal, filing three reports per year is 

less burdensome than filing four. But all things are 

not equal, because of the CFTC’s rules. In this case, 

requiring new ‘‘off cycle’’ reporting by a dually 

registered SEF/SBSEF would likely be more 

burdensome than allowing the dually registered 

entity to make the same four filings, on the same 

cycle, with both the SEC and CFTC. As discussed 

later in this release, the Commission is proposing 

a rule closely modelled on § 37.1306(a) that would 

require the same type of financial report as the 

CFTC rule, and for that report to be filed quarterly. 

See proposed Rule 829(g). 

there are 20 non-dormant entities 

registered with the CFTC as SEFs.17 In 

2021, volume in index credit default 

swaps (‘‘CDS’’) traded on CFTCregistered SEFs was distributed as 

follows: One SEF had the largest share 

of index CDS volume (in notional 

amount) at $8 trillion (69%); one SEF 

had the second largest share at $2.1 

trillion (18%); and the remaining 13% 

of volume was shared among five other 

SEFs.18 As discussed in section XIX 

below, only a small fraction of SBS 

trading occurs on platforms currently. 

Further, some trading occurs on 

platforms that do not include CFTCregistered SEFs. 

Based on research from publicly 

available sources as well as discussions 

with CFTC-registered SEFs, the 

Commission understands that the SBS 

market—both on organized platforms 

that are potential SBSEF registrants and 

on a purely over-the-counter (‘‘OTC’’) 

basis—is a small fraction of the overall 

swap market.19 Furthermore, the singlename CDS market, which falls under 

SEC jurisdiction, is smaller than the 

index CDS market, which falls under 

CFTC jurisdiction.20 Because the swap 

markets are larger than the SBS markets, 

the opportunities for revenue capture 

from swap execution are much larger 

than from SBS execution. In view of the 

SBS market’s size relative to the swap 

market, the Commission is sensitive to 

the economic impact that its final rules 

for SBSEFs could have. 

The entities that are most likely to 

register with the Commission as SBSEFs 

are those already registered with the 

CFTC as SEFs.21 These entities have 

made substantial investments in 

systems, policies, and procedures to 

comply with and adapt to the regulatory 

system developed by the CFTC. To the 

extent that the Commission harmonizes 

its SBSEF rules with the CFTC’s SEF 

rules, dually registered entities could 

utilize their existing systems, policies, 

and procedures to comply with the 

Commission’s SBSEF rules, and SEF 

market participants would face no or 

only incremental changes to trade SBS 

as well as swaps on those facilities, and 

to comply with the Commission’s rules 

regarding SBS trading. To the extent 

that the Commission establishes 

different or additive requirements, 

dually registered entities and their 

market participants might need to incur 

costs and burdens to modify their 

systems, policies, and procedures to 

comply with the SEC-specific rules. As 

indicated below, the Commission seeks 

comment on such costs and burdens in 

light of the CFTC’s SEF rules.22

Accordingly, as discussed below, the 

Commission is proposing to take the 

general approach of harmonizing closely 

with analogous CFTC SEF rules, except 

where differences in the SEC’s statutory 

authority relative to the CFTC’s 

statutory authority or differences in the 

SBS market relative to the swap market 

necessitate differences between the 

Commission’s rules and the CFTC’s, or 

where the Commission preliminarily 

believes that the benefits of deviating 

from the CFTC’s rules would otherwise 

justify the burdens and costs associated 

with imposing different or additional 

requirements than the corresponding 

CFTC rule. Throughout this release, the 

Commission will seek comment on the 

accuracy of these assumptions. In 

particular, the Commission seeks 

comment on the following: 

1. How many CFTC-registered SEFs 

do you believe will seek to register with 

the Commission as SBSEFs? Please 

explain. 

2. Are there any entities that will seek 

to register with the Commission as 

SBSEFs but not register with the CFTC 

as SEFs? If so, please explain and 

estimate how many. 

3. For SEFs that will likely seek 

registration with the Commission as 

SBSEFs, please estimate the size of their 

swaps business versus the anticipated 

size of their SBS business, using any 

metric(s) that you believe would be 

illustrative (e.g., number of products 

listed, trade count, aggregate notional 

size traded, number of counterparties 

trading swaps versus SBS, etc.). 

4. Please provide any information or 

market data that you believe would be 

illustrative regarding current SBS 

trading activity on entities that are not 

likely to register with the Commission 

as SBSEFs, and thus would have to 

cease SBS trading upon the compliance 

date of the Commission’s SBSEF rules. 

Do you believe that this activity would 

migrate to registered SBSEFs or would 

it migrate instead to the bilateral OTC 

market? 

5. What types of products do you 

anticipate could be listed by registered 

SBSEFs (e.g., CDS on individual 

corporate bonds, CDS on individual 

sovereign bonds, CDS on individual 

securitized bonds, swaps on securities 

options, swaps on narrow-based 

securities indexes, total return swaps on 

individual cash equities or crypto/ 

digital asset securities, etc.)? 

In the remainder of this release, the 

Commission describes its proposed 

registration and regulation regime for 

SBSEFs and SBS execution generally, 

and seeks comment on all aspects of its 

proposal. You are invited in particular 

to provide data and analysis regarding 

the economic and Paperwork Reduction 

Act (‘‘PRA’’) implications of this 

proposal. For example, the Commission 

seeks comment on the following: 

6. If, in a particular area, the 

Commission were to harmonize closely 

with a CFTC rule, to what extent would 

this reduce, or perhaps eliminate 

entirely, any incremental costs or 

burdens on dually registered SEF/ 

SBSEFs and their members? 

7. Should the Commission impose 

any different or additive requirements? 

For example, are there any statutory or 

market differences that would create 

benefits from different or additive 

requirements? If the Commission 

imposes different or additive 

requirements, what would be the impact 

on dually registered SEF/SBSEFs and 

their members? 

8. Are there provisions of the CFTC’s 

rules the Commission should not 

incorporate, even if the Commission 

were to opt for harmonization with the 

CFTC’s rules in other areas? In other 

words, are there areas where not 

harmonizing with a CFTC rule would 

reduce burdens on SBSEFs and/or their 

members? If so, please explain, with 

particular regard to the economic 

impacts and/or PRA burdens. 

9. Do you believe that the 

Commission should adopt different or 

additive requirements for SBSEFs, even 

if there is no analog to such provisions 

in the CFTC’s SEF rules? If so, please 

explain, with particular regards to the 

economic impacts and/or PRA burdens. 

For example, do you believe that the 

SEC-specific provision would impose 

additional costs or burdens on SBSEFs 


jspears on DSK121TN23PROD with PROPOSALS2
28876 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

23 15 U.S.C 78c–4. 

24 7 U.S.C. 7b–3. 

25Other rules, however, are designed to address 

certain issues relating to SBSEFs that are specific 

to the SEA. These include proposed amendments to 

existing Rule 3a1–1 under the SEA, proposed new 

Rule 15a–12, and various proposed amendments to 

the Commission’s Rules of Practice. 

26Part 249 is entitled ‘‘Forms, Securities 

Exchange Act of 1934.’’ 

27 ‘‘Registered entity’’ is defined under the CEA 

to include a SEF. See 7 U.S.C 1a(40). 

and/or their members that are 

nevertheless appropriate in view of new 

and additional benefits? Or do you 

believe that an SEC-specific provision 

would be appropriate because it would 

relieve costs or burdens that are 

imposed on the swap business by a 

CFTC rule that is unnecessary or 

inappropriate in the SBS market? 

10. If the Commission ultimately 

adopts SBSEF rules that are closely 

harmonized with the CFTC’s SEF rules, 

do you believe this could result in 

ambiguities or potential conflicts 

between the SEC’s SBSEF rules and the 

other SEC rules (pertaining, for 

example, to exchanges or alternative 

trading systems)? If so, please indicate 

where this might occur and suggest 

ways that the Commission could reduce 

these ambiguities or potential conflicts. 

III. Approach to the Commission’s 

Proposed Requirements Relating to 

Security-Based Swap Execution 

Most of the rules proposed in this 

release are designed to implement 

provisions of section 3D of the SEA,23

which is nearly identical to section 5h 

of the CEA.24 As described in detail 

throughout this release, when the 

Commission is proposing a rule to 

implement a provision of section 3D of 

the SEA, that rule generally will 

harmonize as closely as practicable with 

the analogous CFTC rule, unless a 

reason exists to do otherwise.25 Indeed, 

many of the rules proposed herein are 

adapted from the CFTC rules, with only 

minor changes to reflect differences in 

the Commission’s statutory authority 

(e.g., using the term ‘‘security-based 

swap’’ instead of ‘‘swap,’’ crossreferencing provisions of the SEA rather 

than the CEA, etc.). The Commission 

seeks to minimize occasions where 

differences in the wording between an 

SEC and a CFTC rule leads affected 

persons to believe that there is a 

difference in policy outcome, where no 

difference in outcome is intended. 

In cases where the Commission 

preliminarily believes that a reason 

exists for a proposed SEC rule to differ 

from an analogous CFTC rule, that 

reason is described and alternate rule 

language is proposed and explained. 

Here too, the Commission might be in 

general agreement with the policy 

behind the CFTC’s rule, but it might not 

be practicable to closely track the CFTC 

rule language, for reasons that are 

specific to each instance and which will 

be discussed herein. 

In proposing these rules, the 

Commission acknowledges that, in the 

abstract, there are a variety of ways of 

implementing a Core Principle or other 

policy goal where the benefits could 

justify the costs. Indeed, the 

Commission’s 2011 SBSEF Proposal 

includes many such alternate ways that 

differ from the CFTC’s current rules. But 

the CFTC’s rules for SEF—and swap 

execution more generally—have 

significantly reshaped the swap market, 

and indirectly the SBS market. The 

fundamental principles of the CFTC’s 

regulatory regime for SEFs and swap 

execution generally have established the 

existing environment, and any rules 

proposed by the SEC to implement the 

regulatory regime for SBSEFs and SBS 

execution more generally must be 

considered against the CFTC’s 

regulatory regime. SEFs and swap 

market participants have invested 

significant resources in systems, 

policies, and procedures to comply with 

the CFTC’s SEF rules. The Commission 

believes that the CFTC’s rules are 

reasonably designed to implement 

section 5h of the CEA, which is nearly 

identical to section 3D of the SEA, and 

have been effective in practice in 

facilitating fair, transparent, and 

competitive trading on SEFs. By 

proposing similar rules for SECregistered SBSEFs, the Commission 

seeks to obtain comparable regulatory 

benefits as the CFTC while minimizing 

costs imposed on SEF/SBSEFs and their 

members to the greatest extent 

practicable. 

The Commission recognizes that an 

entity might elect to register as an 

SBSEF with the SEC but not as a SEF 

with the CFTC. In such case, an SEConly registrant would not have any 

familiarity with the CFTC’s rules and 

would not have made any investments 

in systems, policies, and procedures to 

comply with them. Nevertheless, 

because the Commission preliminarily 

believes that most if not all entities that 

will seek SBSEF registration with the 

SEC are or will also be registered as 

SEFs with the CFTC, such dual 

registrants would benefit from 

harmonized rules. Furthermore, if the 

Commission adopts these rules 

substantially as proposed, it likely 

would be unnecessary to establish and 

apply one set of rules for dual 

registrants and a different set for SEConly SBSEFs. 

Proposed Regulation SE follows the 

basic structure of part 37 of the CFTC’s 

rules (17 CFR part 37). In the CFTC’s 

rules, subpart A of part 37 (General 

Provisions) consists of §§ 37.1 to 37.12. 

Subparts B to P of part 37 implement 

the 15 Core Principles for SEFs set forth 

in the CEA and consist of §§ 37.100 et 

seq. to 37.1500 et seq. Proposed Rules 

800 to 817 of Regulation SE are 

modelled on the ‘‘General Provisions’’ 

in subpart A, while proposed Rules 818 

to 831 would implement the 14 Core 

Principles for SBSEFs set forth in the 

SEA. Proposed Rules 832 to 833 address 

cross-border matters that have no direct 

counterpart in the CFTC’s rules 

applicable to SEFs. Proposed Rule 834 

is designed to implement section 765 of 

the Dodd-Frank Act, which requires the 

Commission to adopt rules addressing 

conflicts of interest involving SBSEFs 

and SBS exchanges, as well as to 

harmonize with certain of the CFTC’s 

governance rules. Proposed Rule 835 is 

designed to facilitate reviews of final 

disciplinary actions, denials or 

conditioning of membership, and 

denials or limitations of access by 

SBSEFs. In addition, the Commission is 

proposing a new subpart V to part 249 

of the Commission’s rules,26 entitled 

‘‘Forms for use by security-based swap 

execution facilities,’’ that would include 

proposed § 249.2001, setting forth Form 

SBSEF and its instructions, which 

would be used to register with the 

Commission as an SBSEF; and proposed 

§ 249.2002, setting forth the submission 

cover sheet (with instructions) that 

would be required to accompany filings 

with the Commission made by SBSEFs 

for rule and rule amendments, product 

listings, and determinations to make an 

SBS available to trade. 

Many parts of proposed Rules 800 to 

817 are very similar in substance to 

§§ 37.1 to 37.12. Other parts of proposed 

Rules 800 to 817 are derived from CFTC 

rules that are referenced in subpart A of 

part 37 but located outside of part 37. 

For example, § 37.4 is a short rule 

entitled ‘‘Procedures for listing products 

and implementing rules.’’ Section 37.4 

does not itself lay out the specific filing 

procedures for new products and new 

rules, but directs a SEF, after it has 

registered with the CFTC, to make such 

filings pursuant to part 40 (Provisions 

common to registered entities 27). Key 

rules in part 40 include §§ 40.2 (Listing 

products for trading by certification), 

40.3 (Voluntary submission of new 

products for Commission review and 

approval), 40.5 (Voluntary submission 

of rules for Commission review and 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28877 

28 Various provisions of part 40 apply to entities 

other than SEFs or relate to trading of products 

other than swaps. See, e.g., § 40.4 (Amendments to 

terms or conditions of enumerated agricultural 

products); § 40.11 (Review of event contracts based 

upon certain excluded commodities). 

29For example, certain CFTC rules that the 

Commission is proposing to adapt into Regulation 

SE utilize the term ‘‘board of directors,’’ while other 

CFTC rules use the term ‘‘governing board.’’ The 

Commission is proposing to use the term 

‘‘governing board’’ throughout Regulation SE and to 

define that term in proposed Rule 802 as the board 

of directors of an SBSEF, or for an SBSEF whose 

organizational structure does not include a board of 

directors, a body performing a function similar to 

a board of directors. This definition is closely 

modelled on the definition of ‘‘board of directors’’ 

found in § 37.1501(a) of the CFTC’s rules. 

30See appendix B to part 37, introductory 

paragraph (1) (‘‘The guidance for the core principle 

is illustrative only of the types of matters a swap 

execution facility may address, as applicable, and 

is not intended to be used as a mandatory 

checklist’’). 

31The term ‘‘prudential regulator’’ is defined in 

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

definition is incorporated by reference in section 

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

32Section 712(a)(2) of the Dodd-Frank Act 

provides in relevant part that the Commission shall 

‘‘consult and coordinate to the extent possible with 

the Commodity Futures Trading Commission and 

the prudential regulators for the purposes of 

assuring regulatory consistency and comparability, 

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

of the Dodd-Frank Act provides in relevant part that 

‘‘[i]n order to promote effective and consistent 

global regulation of swaps and security-based 

swaps, the Commodity Futures Trading 

Commission, the Securities and Exchange 

Commission, and the prudential regulators . . . as 

appropriate, shall consult and coordinate with 

foreign regulatory authorities on the establishment 

of consistent international standards with respect to 

the regulation (including fees) of swaps.’’ 

33The Commission participates in a number of 

international bodies working on OTC derivatives 

reforms. For example, the Commission is a member 

of the International Organization of Securities 

Commissions (‘‘IOSCO’’) and the Commission staff 

participates on IOSCO’s Committee on Derivatives. 

In addition, the Commission is a member of the 

Regulatory Oversight Committee, which serves as 

the international standard-setter for data elements 

and identifiers used in the reporting of OTC 

derivatives transactions. 

approval), and 40.6 (Self-certification of 

rules). 

To promote oversight of the SBS 

market and to assess that SBSEFs 

continue to operate in a manner 

consistent with the SEA, the 

Commission preliminarily believes that 

it would be appropriate to establish 

procedures whereby SBSEFs would 

submit filings to the Commission to list 

SBS products and to establish new 

rules, and that it would be appropriate 

to harmonize with the procedures that 

the CFTC applies to SEFs. These 

procedures are well articulated and well 

understood by SEFs, and appear to 

provide an effective process for 

establishing new rules and listing 

products. Therefore, the Commission is 

proposing Rules 804, 805, 806, and 807 

that are closely modelled on relevant 

provisions of §§ 40.2, 40.3, 40.5, and 

40.6, respectively. To implement such 

rules for SBSEFs and the SBS market, 

the Commission identifies only those 

parts of the CFTC rules that are most 

germane to the SBS market and adapts 

the wording accordingly.28 In the 

detailed discussions of each of these 

proposed rules, the Commission seeks 

comment on whether its proposed rule 

is appropriately tailored for the SBS 

market, particularly for dually registered 

SEF/SBSEFs that would be complying 

with substantially similar filing 

procedures under CFTC rules, or 

whether the proposed rule incorporates 

a part of the CFTC rule that is not 

relevant to the SBS market or should 

have incorporated additional or 

different language that is more relevant. 

Regulation SE includes proposed 

rules modelled on CFTC rules found in 

Parts 16, 36, 37, 40, 45, and elsewhere. 

In some cases, these disparate CFTC 

rules from outside part 37 that the 

Commission is proposing to adapt into 

Regulation SE use different terms than 

in part 37 for what appears to be the 

same concept. To promote uniformity 

within Regulation SE, the Commission 

is proposing certain definitions for use 

throughout the regulation—in a 

dedicated definitions rule, proposed 

Rule 802—that will sometimes require 

the replacement of a term used in the 

CFTC version of a rule with a different, 

newly defined term in the proposed SEC 

version.29 Any such changes in defined 

terms are noted below. Proposed Rule 

802 also includes terms derived from 

the SEA and certain SEC rules 

thereunder. 

Part 37 of the CFTC’s rules includes 

an appendix B, which sets out guidance 

and acceptable practices for 

demonstrating compliance with several 

of the rules that implement the Core 

Principles for SEFs. These provisions 

are, by their terms, non-binding.30 The 

Commission preliminarily believes that 

all of the provisions of Regulation SE 

should be enforceable. Therefore, the 

Commission is proposing to adapt some 

of the guidance and acceptable practices 

found in appendix B as proposed rule 

text in Regulation SE. As a result, some 

of the rules proposed in Regulation SE 

are a blend of the CFTC rule text with 

language adapted from the guidance 

and/or acceptable practices. Instances 

where this occurs in a particular rule 

will be noted below. The Commission 

requests comment on its overall 

approach to incorporating relevant 

portions of the part 37 guidance and 

acceptable practices into Regulation SE, 

as well as comment on how they are 

adapted in specific rules. 

In various places in the CFTC’s SEF 

rules, the CFTC has delegated to its staff 

authority to perform various functions 

relating to SEFs on the CFTC’s behalf. 

The Commission has not adapted any of 

these provisions into proposed 

Regulation SE and is not proposing any 

delegation-of-authority rules. The 

Commission may address delegations of 

its authority in the adopting release for 

Regulation SE. 

Finally, in developing this proposal, 

the Commission has consulted and 

coordinated with the CFTC and the 

prudential regulators,31 in accordance 

with the consultation mandate of the 

Dodd-Frank Act.32 The Commission 

also has consulted and coordinated with 

foreign regulatory authorities through 

Commission staff participation in 

numerous bilateral and multilateral 

discussions with foreign regulatory 

authorities addressing the regulation of 

OTC derivatives markets.33 Through 

these multilateral and bilateral 

discussions and the Commission staff’s 

participation in various international 

task forces and working groups, the 

Commission has gathered information 

about foreign regulatory reform efforts 

and their effect on and relationship with 

the U.S. regulatory regime. The 

Commission has taken and will 

continue to take these discussions into 

consideration in developing rules, 

forms, and interpretations for 

implementing Title VII of the DoddFrank Act. 

IV. Introductory Provisions of 

Regulation SE 

A. Rule 800—Scope 

Proposed Rule 800 is based on § 37.1 

of the CFTC’s rules, which provides that 

part 37 applies to every SEF that is 

registered or applying to become 

registered as a SEF under section 5h of 

the CEA. Section 37.1 further provides 

that the rule does not affect the 

eligibility of SEFs to operate under the 

provisions of part 38 or 49 of the CFTC’s 

rules. 

Proposed Rule 800 would provide 

that the provisions of Regulation SE 

would apply to every SBSEF that is 

registered or is applying to become 

registered as an SBSEF under section 3D 

of the SEA. 

B. Rule 801—Applicable Provisions 

Proposed Rule 801 is based on § 37.2 

of the CFTC’s rules, which provides that 

a SEF shall comply with the 

requirements of part 37 and all other 

applicable CFTC regulations, including 

§ 1.60 and part 9, and including any 

related definitions and cross-referenced 


jspears on DSK121TN23PROD with PROPOSALS2
28878 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

34 15 U.S.C. 78c. 35 15 U.S.C. 78c(a)(77). 36 15 U.S.C. 78q–1. 37See, e.g., Order Granting Temporary 

Exemptions Under the Securities Exchange Act of 

1934 in Connection With Request on Behalf of ICE 

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

Default Swaps, and Request for Comments, SEA 

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

10796 (March 12, 2009) (providing, inter alia, an 

exemption from sections 5 and 6 of the SEA 

because ‘‘ICE Trust will periodically require ICE 

Trust Participants to execute certain CDS trades at 

the applicable end-of-day settlement price. 

Requiring ICE Trust Participants to trade CDS 

periodically in this manner is designed to help 

ensure that such submitted prices reflect each ICE 

Trust Participant’s best assessment of the value of 

each of its open positions in Cleared CDS on a daily 

basis, thereby reducing risk by allowing ICE Trust 

to impose appropriate margin requirements’’); 

Order Extending and Modifying Temporary 

Exemptions Under the Securities Exchange Act of 

1934 in Connection With Request of Chicago 

Mercantile Exchange Inc. Related to Central 

Clearing of Credit Default Swaps, and Request for 

Comments, SEA Release No. 61164 (December 14, 

2009), 74 FR 67258, 67262 (December 18, 2009) 

(providing, inter alia, an exemption from sections 

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

clearing process, CME will periodically require CDS 

clearing members to trade at prices generated by 

their indicative settlement prices where those 

indicative settlement prices generate crossed bids 

and offers, pursuant to CME’s price quality auction 

methodology’’). 38See id. 

39 15 U.S.C. 78c–4(a)(1). 

40The term ‘‘security-based swap’’ is defined in 

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

include, among other things, a swap that is based 

on a single security or loan, including any interest 

therein or on the value thereof. A single security 

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

digital asset security, or a security option. 

41 15 U.S.C. 78mm(a)(1). 

42See SEA Release No. 64678 (June 15, 2011), 76 

FR 36287 (June 22, 2011) (temporarily exempting 

entities that meet the definition of ‘‘security-based 

swap execution facility’’ from the requirement to 

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

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

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

(temporarily exempting entities that meet the 

definition of ‘‘security-based swap execution 

facility’’ from exchange registration and other 

requirements of sections 5 and 6 of the SEA) (‘‘July 

2011 Exemptive Order’’). An entity that meets the 

definition of ‘‘security-based swap execution 

facility’’ is required to register as an SBSEF under 

section 3D of the SEA or as an exchange under 

sections 5 and 6 of the SEA. But because the 

Commission has not yet adopted final rules relating 

to SBSEFs, such entities cannot yet register with the 

Commission as SBSEFs. The Temporary SBSEF 

Exemptions allow such entities to continue trading 

SBS without needing to register either as SBSEFs 

or national securities exchanges before the 

compliance date of the SBSEF registration rules. 

sections. Proposed Rule 801 would 

require an SBSEF to comply with the 

requirements of Regulation SE and all 

other applicable Commission rules, 

including any related definitions and 

cross-referenced sections. 

C. Rule 802—Definitions 

Proposed Rule 802 would set forth 

definitions of terms that are used in 

multiple rules in proposed Regulation 

SE. The majority of such terms are 

adapted from a CFTC rule. Other terms 

are taken from section 3 of the SEA 34

or from a Commission rule under the 

SEA. Where appropriate, the definition 

is discussed below in the context of the 

proposed rule where it is used. 

In particular, paragraph (w) of 

proposed Rule 802 which would define 

the term ‘‘security-based swap 

execution facility’’ by cross-referencing 

the definition of that term provided in 

section 3(a)(77) of the SEA,35 but with 

one carve-out. An entity that is 

registered with the Commission as a 

clearing agency pursuant to section 17A 

of the SEA 36 and limits its SBSEF 

functions to operation of a trading 

session that is designed to further the 

accuracy of end-of-day valuations 

would be exempt from the definition of 

‘‘security-based swap execution 

facility.’’ This provision would codify a 

series of exemptions granted by the 

Commission to SBS clearing agencies 

that operate ‘‘forced trading’’ sessions.37

As part of the clearing and risk 

management process, an SBS clearing 

agency must establish an end-of-day 

valuation for any SBS in which any of 

its members has a cleared position and 

will calculate margin based on that 

variation. Certain SBS clearing agencies 

utilize a valuation mechanism whereby 

they require clearing members to submit 

indicative quotes for those SBS 

products, and can require them to trade 

as a way to promote accurate quote 

submissions. The precise means by 

which the clearing agency matches 

quotes from different clearing members 

could cause the clearing agency to fall 

within the SEA definition of 

‘‘exchange.’’ The Commission 

previously has found that it was 

necessary or appropriate in the public 

interest and consistent with the 

protection of investors to exempt 

clearing agencies that engage in this 

activity from the definition of 

‘‘exchange.’’ 38 The Commission is now 

proposing to codify this exemption with 

respect to the both exchange and SBSEF 

registration. 

The Commission preliminarily 

believes that it is necessary or 

appropriate in the public interest, and is 

consistent with the protection of 

investors, to exempt a registered 

clearing agency from the definition of 

‘‘security-based swap execution facility’’ 

that utilizes a forced trading 

functionality for SBS. Such an entity 

would continue to be registered as a 

clearing agency and subject to the 

requirements of section 17A of the SEA. 

Furthermore, a registered clearing 

agency is a self-regulatory organization 

(‘‘SRO’’); therefore, all of its rules— 

including those governing the forced 

trading session—would have to be 

submitted to the Commission pursuant 

to section 19 of the SEA. The 

Commission preliminarily believes, 

therefore, that codification of the 

exemption from the definitions of 

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

execution facility’’ would preserve the 

status quo and eliminate a largely 

duplicative and unnecessary set of 

regulatory requirements. This 

exemption would cover only the forcedtrading functionality of an SBS clearing 

agency; any other exchange or SBSEF 

activity in which a clearing agency 

might engage could subject the clearing 

agency to the SEA provisions and the 

Commission’s rules thereunder applying 

to exchanges or SBSEFs. 

The Commission seeks comment on 

the following: 

11. Do you believe that any 

definitions in proposed Rule 802 should 

be revised or clarified? If so, please 

indicate which one(s) and provide any 

suggested revisions or clarifications. 

12. Are there any terms used in 

proposed Regulation SE that are not 

defined in proposed Rule 802 but which 

you believe should be defined? If so, 

which term(s) and how would you 

define them? 

13. Do you agree with the proposed 

definition of ‘‘security-based swap 

execution facility’’? In particular, do 

you believe that registered clearing 

agencies that operate forced trading 

sessions for SBS should be exempted 

from the definition of ‘‘security-based 

swap execution facility’’ entirely? Or do 

you believe instead that such entities 

should fall within the definition of 

‘‘security-based swap execution facility’’ 

but be exempted from some or all 

registration and regulatory requirements 

that otherwise would apply to SBSEFs? 

Why? 

V. Registration of SBSEFs 

Section 3D(a)(1) of the SEA 39

provides that no person may operate a 

facility for the trading or processing of 

SBS 40 unless the facility is registered as 

an SBSEF or as a national securities 

exchange. After issuing the 2011 SBSEF 

Proposal, the Commission granted 

temporary exemptions pursuant to 

section 36(a)(1) of the SEA 41 to entities 

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

having to register with the Commission 

as an SBSEF or national securities 

exchange (‘‘Temporary SBSEF 

Exemptions’’).42 The Temporary SBSEF 

Exemptions will expire on the 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28879 

43See June 2011 Exemptive Order, 76 FR at 

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

39934, 39939. The July 2011 Exemptive Order also 

provided an exemption from the broker registration 

requirements of section 15(a)(1) of the SEA, 15 

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

and the Commission’s rules thereunder that apply 

to a broker, solely in connection with broker 

activities involving SBS (the ‘‘Broker Exemptions’’). 

The Broker Exemptions generally expired on 

October 6, 2021; however, because an entity that 

meets the definition of ‘‘security-based swap 

execution facility’’ also would also meet the 

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

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

Broker Exemptions solely for persons acting as an 

SBSEF until the expiration of the Temporary SBSEF 

Exemptions (i.e., the compliance date for the 

Commission’s final SBSEF rules). See SEA Release 

No. 87005 (September 19, 2019), 84 FR 68550, 

68602 (December 16, 2019). 

44See section 3(a)(77) of the SEA, 15 U.S.C. 

78c(a)(77) (defining ‘‘security-based swap execution 

facility’’ as ‘‘a trading system or platform in which 

multiple participants have the ability to execute or 

trade security-based swaps by accepting bids and 

offers made by multiple participants in the facility 

or system, through any means of interstate 

commerce, including any trading facility that . . . 

is not a national securities exchange’’ (emphasis 

added). 

45See infra section XII (discussing proposed 

paragraph (a)(4) of SEA Rule 3a1–1). 

46 15 U.S.C. 78c(a)(1) (defining ‘‘exchange’’ as 

‘‘any organization, association, or group of persons, 

whether incorporated or unincorporated, which 

constitutes, maintains, or provides a market place 

or facilities for bringing together purchasers and 

sellers of securities or for otherwise performing 

with respect to securities the functions commonly 

performed by a stock exchange as that term is 

generally understood, and includes the market 

place and the market facilities maintained by such 

exchange’’). 

47However, a national securities exchange could 

elect to operate an SBSEF and separately register 

that SBSEF with the Commission. See section 3D(c) 

of the SEA, 15 U.S.C. 78c–4(c); proposed Rule 814. 

48See proposed Rule 802. 

49As discussed below in section VII(E), the 

Commission is proposing to incorporate into 

Regulation SE the concepts of ‘‘Required 

Transaction’’ and ‘‘Permitted Transaction’’ in a 

manner closely modelled on the CFTC’s use of 

those terms. A Required Transaction would be a 

transaction involving an SBS that is subject to the 

trade execution requirement. 

compliance date for the Commission’s 

final SBSEF rules.43

A. Rule 803—Requirements and 

Procedures for Registration 

Rule 803 of Regulation SE is closely 

modelled on § 37.3 of the CFTC’s rules 

and would set forth a process for 

registration with the Commission as an 

SBSEF. 

Section 37.3(a)(1) provides that any 

person operating a facility that offers a 

trading system or platform in which 

more than one market participant has 

the ability to execute or trade swaps 

with more than one other market 

participant on the system or platform 

shall register the facility as a swap 

execution facility under this part or as 

a designated contract market (‘‘DCM’’) 

under part 38 of this chapter. Paragraph 

(a)(1) of proposed Rule 803 would track 

the language of § 37.3(a)(1) closely, 

except that a person meeting these 

criteria would be directed to register the 

facility under relevant provisions of the 

SEA rather than the CEA (i.e., to register 

as an SBSEF under proposed Rule 803 

or as a national securities exchange 

pursuant to section 6 of the SEA). 

A person that registers with the 

Commission as a national securities 

exchange pursuant to section 6 of the 

SEA does not fall within the statutory 

definition of ‘‘security-based swap 

execution facility’’ 44 and thus would 

not need to register as an SBSEF under 

proposed Rule 803. Furthermore, as 

discussed below,45 a person that 

registers as an SBSEF under proposed 

Rule 803 and provides a market place 

for no securities other than SBS would 

be exempt from the definition of 

‘‘exchange’’ 46 and would not need to 

register as such pursuant to section 6 of 

the SEA. The SEA definitions of 

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

execution facility’’ overlap 

substantially. The Commission 

preliminarily believes that it is 

appropriate to subject a trading venue 

for SBS to only one regulatory regime. 

Thus, under proposed Regulation SE, if 

a trading venue for SBS elects to register 

as a national securities exchange, it 

would not fall within the statutory 

definition of ‘‘security-based swap 

execution facility’’ and would not have 

to register as an SBSEF.47 If a trading 

venue for SBS elects to register as an 

SBSEF under proposed Rule 803 and 

provides a market place for no securities 

other than SBS, it would not—pursuant 

to a proposed amendment to Rule 3a1– 

1—fall within the statutory definition of 

‘‘exchange’’ and would not have to 

register as an exchange. 

Section 37.3(a)(2) of the CFTC’s rules 

sets out the minimum trading 

functionality that must be offered by a 

SEF. A SEF must, at a minimum, offer 

an ‘‘order book.’’ Section 37.3(a)(3) 

defines ‘‘order book’’ to mean an 

electronic trading facility, as that term is 

defined in section 1a(16) of the CEA; a 

trading facility, as that term is defined 

in section 1a(51) of the CEA; or a trading 

system or platform in which all market 

participants in the trading system or 

platform have the ability to enter 

multiple bids and offers, observe or 

receive bids and offers entered by other 

market participants, and transact on 

such bids and offers. 

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

like § 37.3(a)(2), would require an 

SBSEF, at a minimum, to offer an order 

book. The Commission is proposing, 

like § 37.3(a)(3), to define ‘‘order book’’ 

in Rule 802 to mean an electronic 

trading facility, a trading facility, or a 

trading system or platform in which all 

market participants in the trading 

system or platform have the ability to 

enter multiple bids and offers, observe 

or receive bids and offers entered by 

other market participants, and transact 

on such bids and offers. Section 

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

‘‘electronic trading facility’’ by crossreferencing definitions of those terms in 

the CEA. Rather than cross-referencing 

the CEA, the Commission is proposing 

instead to adapt the CEA definitions of 

those terms directly into Rule 802.48

The Commission preliminarily believes 

that it should harmonize as closely as 

possible with the CFTC on foundational 

terms such as ‘‘trading facility,’’ 

‘‘electronic trading facility,’’ and ‘‘order 

book’’ because the CFTC’s reliance on 

these terms over several years has 

created understanding of what type of 

functionality a SEF must offer. The 

Commission seeks to avoid a scenario 

where differences with the CFTC 

regarding these key definitions results 

in an entity’s functionality being 

allowed under one agency’s regime but 

disallowed under the other’s. 

Under § 37.3(a)(4), a SEF is not 

required to provide an order book for 

certain package transactions, although 

the SEF must provide an order book for 

a Required Transaction 49 when such 

Required Transaction is not executed as 

part of a package transaction. Paragraph 

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

modelled on § 37.3(a)(4) and would 

provide a narrow exception to allow an 

SBSEF not to offer an order book for the 

SBS component(s) of a package 

transaction that contains a mix of 

products that both are and are not 

subject to the trade execution 

requirement. 

Paragraph (b) of proposed Rule 803 is 

closely modelled on § 37.3(b) and would 

set out procedures for full registration of 

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

§ 37.3(b)(1), would provide that an 

applicant requesting registration must: 

(i) File electronically a complete Form 

SBSEF or any successor forms, and all 

information and documentation 

described in such forms with the 

Commission using the EDGAR system as 

an Interactive Data File in accordance 

with Rule 405 of Regulation S–T; and 

(ii) Provide to the Commission, upon 

the Commission’s request, any 

additional information and 

documentation necessary to review an 

application. 

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

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


jspears on DSK121TN23PROD with PROPOSALS2
28880 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

50Section 37.3(b)(2), like many other provisions 

in the CFTC’s SEF rules, states that a request for 

confidential treatment for parts of a required filing 

shall be made pursuant to § 145.9 of the CFTC’s 

rules, which contains the CFTC’s substantive 

requirements for requests for confidential treatment. 

Rather than adapting § 145.9 into proposed 

Regulation SE, the Commission instead is proposing 

that confidential treatment requests arising from 

SBSEF matters would be made and adjudicated 

pursuant to SEA Rule 24b–2, 17 CFR 240.24b–2. 

The Commission preliminarily believes that it is not 

necessary or appropriate to establish and utilize one 

set of procedures to handle confidential treatment 

requests made by SBSEFs while utilizing a different 

set of procedures for all other persons who request 

confidential treatment from the Commission under 

the SEA. 

51See § 37.3(c)(5). Notwithstanding the general 

sunset provision, SEFs that applied for temporary 

registration before the termination date were 

permitted to continue operating if they had not yet 

been either granted or denied full registration by 

that date. See id. 

52See proposed Rule 802 (defining ‘‘dormant 

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

security-based swap execution facility on which no 

trading has occurred for the previous 12 

consecutive calendar months; provided, however, 

that no security-based swap execution facility shall 

be considered to be a dormant security-based swap 

execution facility if its initial and original 

Commission order of registration was issued within 

the preceding 36 consecutive calendar months’’). 

This proposed definition is modelled on the 

definition of ‘‘dormant swap execution facility’’ 

found in § 40.1(f). 

53Here, and at several other places in § 37.3(e)(3), 

the CFTC uses the term ‘‘market participants’’ 

rather than ‘‘members.’’ However, there are other 

places in the CFTC’s rules that are being adapted 

by the Commission into proposed Regulation SE 

that use the term ‘‘member’’ synonymously with 

‘‘market participant.’’ When the context suggests 

that a rule is addressing participants of a particular 

SBSEF market, rather than market participants in 

the abstract, the Commission is proposing to use the 

term ‘‘member’’ throughout Regulation SE. 

applicant requesting registration as an 

SBSEF must identify with particularity 

any information in the application that 

will be subject to a request for 

confidential treatment pursuant to Rule 

24b–2 under the SEA.50 Paragraph (b)(2) 

also would provide that, as set forth in 

proposed Rule 808, certain information 

provided in an application shall be 

made publicly available. 

Paragraph (b)(3) of proposed Rule 803 

would address amendments to the 

SBSEF registration application. Like 

§ 37.3(b)(3), proposed Rule 803(b)(3) 

would provide that an applicant 

amending a pending application or 

requesting an amendment to an order of 

registration shall file an amended 

application electronically with the 

Commission using the EDGAR system as 

an Interactive Data File in accordance 

with Rule 405 of Regulation S–T. 

Subsequent to being registered, an 

SBSEF would be required to submit rule 

and product filings under Rule 806 or 

807, as well as provide other updates as 

may be required pursuant to other rules 

for SBSEFs. 

Paragraph (b)(4) of proposed Rule 803 

would address the effect of an 

incomplete application. Like 

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

would provide that, if an application is 

incomplete, the Commission shall notify 

the applicant that its application will 

not be deemed to have been submitted 

for purposes of the Commission’s 

review. 

Paragraph (b)(5) of proposed Rule 803 

would establish the Commission review 

period for an application to register as 

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

closely modelled on § 37.3(b)(5) and 

would require the Commission to 

approve or deny an application for 

registration as an SBSEF within 180 

days of the filing of the application. 

Proposed Rule 803(b)(5) would further 

provide that, if the Commission notifies 

the person that its application is 

materially incomplete and specifies the 

deficiencies in the application, the 

running of the 180-day period would be 

stayed from the time of such notification 

until the application is resubmitted in 

completed form. In such case, the 

Commission would have not less than 

60 days to approve or deny the 

application from the time the 

application is resubmitted in completed 

form. 

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

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

that the Commission shall issue an 

order granting registration upon a 

Commission determination, in its own 

discretion, that the applicant has 

demonstrated compliance with the SEA 

and the Commission’s rules applicable 

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

allow the Commission to issue an order 

granting registration, subject to 

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

proposed Rule 803, modelled on 

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

Commission may issue an order denying 

registration upon a Commission 

determination, in its own discretion, 

that the applicant has not demonstrated 

compliance with the SEA and the 

Commission’s rules applicable to 

SBSEFs. If the Commission denies an 

application under proposed Rule 

803(b)(6)(ii), it would be required to 

specify the grounds for the denial. 

Paragraph (c) of § 37.3, which allows 

the CFTC to grant SEFs temporary 

registration under certain conditions, 

was adopted with a sunset provision 

that generally terminated the 

applicability of the paragraph two years 

after it became effective in August 

2013.51 Because this provision is now 

obsolete, the Commission is not 

proposing an equivalent provision in 

Regulation SE. 

Paragraph (c) of proposed Rule 803, 

like § 37.3(d), would address 

reinstatement of a dormant registration. 

Proposed Rule 803(c) would provide 

that a dormant SBSEF 52 may reinstate 

its registration under the procedures of 

proposed Rule 803(b). Proposed Rule 

803(c) would further provide that the 

applicant may rely upon previously 

submitted materials if such materials 

accurately describe the dormant 

SBSEF’s conditions at the time that it 

applies for reinstatement of its 

registration. 

Paragraph (d) of proposed Rule 803, 

like § 37.3(e), would set out procedures 

for an SBSEF to request a transfer of 

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

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

provide that an SBSEF seeking to 

transfer its registration from its current 

legal entity to a new legal entity as a 

result of a corporate change shall file a 

request for approval to transfer such 

registration with the Commission in the 

form and manner specified by the 

Commission. Paragraph (d)(2), modelled 

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

request for transfer of registration shall 

be filed no later than three months prior 

to the anticipated corporate change; or 

in the event that the SBSEF could not 

have known of the anticipated change 

three months prior to the anticipated 

change, as soon as it knows of such 

change. 

Paragraph (d)(3) of proposed Rule 

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

SBSEF’s request for transfer of 

registration to include the following: 

• The underlying agreement that 

governs the corporate change; 

• A description of the corporate 

change, including the reason for the 

change and its impact on the SBSEF, 

including its governance and 

operations, and its impact on the rights 

and obligations of members; 53

• A discussion of the transferee’s 

ability to comply with the SEA, 

including the core principles applicable 

to SBSEFs and the Commission’s rules 

thereunder; 

• The governing documents of the 

transferee, including, but not limited to, 

articles of incorporation and bylaws; 

• The transferee’s rules marked to 

show changes from the current rules of 

the SBSEF; 

• A representation by the transferee 

that it: 

Æ Will be the surviving entity and 

successor-in-interest to the transferor 

SBSEF and will retain and assume, 

without limitation, all of the assets and 

liabilities of the transferor; 

Æ Will assume responsibility for 

complying with all applicable 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28881 

54The equivalent provision in § 37.3(e)(3)(vi)(D) 

requires a representation from the transferee that it 

‘‘[w]ill comply with all self-regulatory 

responsibilities except if otherwise indicated in the 

request, and will maintain and enforce all selfregulatory programs’’ (emphasis added). SBSEFs are 

not SROs under the SEA and therefore do not have 

self-regulatory responsibilities or self-regulatory 

programs. 

55 17 CFR 232.405. The proposed electronic filing 

requirement discussed above does not appear in the 

CFTC version of this provision. The Commission is 

adding this specification to implement the Inline 

XBRL and EDGAR electronic filing requirements for 

certain documents required by proposed Regulation 

SE. See infra section XV. 

provisions of the SEA and the 

Commission’s rules thereunder; 

Æ Will assume, maintain, and enforce 

all rules implementing and complying 

with the core principles applicable to 

SBSEFs, including the adoption of the 

transferor’s rulebook, as amended in the 

request, and that any such amendments 

will be submitted to the Commission 

pursuant to proposed Rules 806 or 807; 

Æ Will comply with all regulatory 

responsibilities 54 except if otherwise 

indicated in the request, and will 

maintain and enforce all regulatory 

programs; and 

Æ Will notify members of all changes 

to the transferor’s rulebook prior to the 

transfer and will further notify members 

of the concurrent transfer of the 

registration to the transferee upon 

Commission approval and issuance of 

an order permitting this transfer. 

• A representation by the transferee 

that upon the transfer: 

Æ It will assume responsibility for 

and maintain compliance with core 

principles for all SBS previously made 

available for trading through the 

transferor, whether by certification or 

approval; and 

Æ None of the proposed rule changes 

will affect the rights and obligations of 

any member. 

Paragraph (d)(4) of proposed Rule 

803, modelled on § 37.3(e)(4), would 

provide that, upon review of a request 

for transfer of registration, the 

Commission, as soon as practicable, 

shall issue an order either approving or 

denying the request. 

Paragraph (e) of proposed Rule 803, 

like § 37.3(f), would provide that an 

applicant for registration as an SBSEF 

may withdraw its application by filing 

a withdrawal request electronically with 

the Commission using the EDGAR 

system as an Interactive Data File in 

accordance with Rule 405 of Regulation 

S–T.55 Proposed Rule 803(e) would 

further provide that withdrawal of an 

application for registration shall not 

affect any action taken or to be taken by 

the Commission based upon actions, 

activities, or events occurring during the 

time that the application was pending 

with the Commission. 

Paragraph (f) of proposed Rule 803, 

like § 37.3(g), would provide that an 

SBSEF may request that its registration 

be vacated by filing a vacation request 

electronically with the Commission 

using the EDGAR system and must be 

provided as an Interactive Data File in 

accordance with Rule 405 of Regulation 

S–T at least 90 days prior to the date 

that the vacation is requested to take 

effect. Section 37.3(g) provides that a 

registration may be vacated under 

section 7 of the CEA. Since the 

Commission does not operate under the 

CEA, the Commission is proposing to 

adapt relevant language from section 7 

of the CEA directly into proposed Rule 

803(f). Thus, proposed Rule 803(f) 

would continue as follows, with 

language taken from section 7 italicized 

and language taken from § 37.3(g) in 

regular text: ‘‘Upon receipt of such 

request, the Commission shall promptly 

order the vacation to be effective upon 

the date named in the request and send 

a copy of the request and its order to all 

other security-based swap execution 

facilities, SBS exchanges, and registered 

clearing agencies that clear securitybased swaps. Vacation of registration 

shall not affect any action taken or to be 

taken by the Commission based upon 

actions, activities, or events occurring 

during the time that the security-based 

swap execution facility was registered 

by the Commission. From and after the 

date upon which the vacation became 

effective the said security-based swap 

execution facility can thereafter be 

registered again by applying to the 

Commission in the manner provided in 

paragraph (b) of this section for an 

original application.’’ 

The Commission seeks comment on 

the following: 

14. Do you believe in general that the 

Commission should closely harmonize 

the rules for SBSEF registration with the 

CFTC’s rules for SEF registration? Why 

or why not? 

15. In particular, do you agree with 

the language that the Commission is 

proposing to adapt from § 37.3 

(Requirements and procedures for 

registration) into Rule 803? If not, what 

language would you delete or revise, 

and why? 

16. Do you believe that the 

Commission should harmonize the 

application procedures and timeframes 

in proposed Rule 803 with § 37.3 of the 

CFTC’s rules? Why or why not? Are 

there aspects of § 37.3 that you believe 

are not necessary or appropriate to 

incorporate into Rule 803? If so, please 

describe. Are there different or 

additional requirements that the 

Commission should include in Rule 803 

that are not included in § 37.3? If so, 

please describe. 

17. Do you believe that any provisions 

of § 37.3(c) relating to temporary 

registration are still relevant and should 

be adapted into Rule 803? If so, which 

provisions and why? 

18. Do you believe in general that 

proposed Rule 803 should include 

provisions relating to vacation of an 

SBSEF registration? If so, do you agree 

with the specific language adapted by 

the Commission from section 7 of the 

CEA and § 37.3(g) into proposed Rule 

803(f)? If not, how would you revise that 

language? 

B. Form SBSEF 

As new § 249.2001, the Commission is 

proposing Form SBSEF, the application 

form for an entity to register with the 

Commission as an SBSEF. The proposed 

form would also be used for submitting 

any updates, corrections, or 

supplemental information to a pending 

application for registration. Proposed 

Form SBSEF is closely modelled on the 

CFTC’s Form SEF for entities that seek 

to register with the CFTC as SEFs, with 

only minor changes to remove the 

concept of post-registration 

amendments, as the proposed rule 

would not require any amendments to 

Form SBSEF post-registration. The 

exhibits being proposed along with 

Form SBSEF are very similar to the 

exhibits in Form SEF. Like with Form 

SEF, each applicant submitting a Form 

SBSEF would be required to provide the 

Commission with documents and 

descriptions pertaining to its business 

organization, financial resources, and 

compliance program, including various 

documents describing the applicant’s 

legal and financial status. An applicant 

would be required to disclose any 

affiliates and provide a brief description 

of the nature of the affiliation, and 

submit copies of any agreements 

between the SBSEF and third parties 

that would assist the applicant in 

complying with its duties under the 

SEA. In addition, an applicant would be 

required to demonstrate operational 

capability through documentation, 

including technical manuals and thirdparty service provider agreements. 

Under proposed Rule 803(b)(1), an 

applicant for SBSEF registration would 

be required to complete Form SBSEF 

and provide, upon the Commission’s 

request, any additional necessary 

information and documentation in order 

review the application. The 

determination as to when an application 

submission is complete would be at the 

sole discretion of the Commission. The 

Commission would review Form SBSEF 


jspears on DSK121TN23PROD with PROPOSALS2
28882 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

56 15 U.S.C. 78mm(a)(1). 

57 15 U.S.C. 78s(b). 

58 15 U.S.C. 78c–4. 

59See 15 U.S.C. 78c–4(d)(1)(A)(ii) (requiring an 

SBSEF, to be registered and to maintain registration, 

to comply with any requirement that the 

Commission may impose by rule or regulation); 15 

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

prescribe rules governing the regulation of SBSEFs). 

60See § 40.2(a)(2) (one of the conditions for a 

valid self-certification of a product is that the CFTC 

has received the submission by the open of business 

on the business day preceding the product’s listing). 

and, at the conclusion of its review, by 

order either: (i) Grant registration; (ii) 

deny the application for registration; or 

(iii) grant registration subject to certain 

conditions. After an applicant is granted 

registration, any updates or 

amendments to the information 

contained in its Form SBSEF by an 

active SBSEF would be required to be 

submitted as rules or rule amendments 

under proposed Rule 806 or 807 or as 

may be required by other rules in 

Regulation SE. 

The CFTC’s process for registering 

SEFs appears well understood by the 

industry and well designed for being 

adapted to the SBS market. Therefore, 

the Commission is using the CFTC’s 

process as a basis for its own process for 

registering SBSEFs. Assuming that most 

if not all SBSEFs will be dually 

registered as SEFs, the Commission 

preliminarily believes that it is not 

necessary to require the same registrant 

to provide relevant information in one 

manner to the Commission if the CFTC 

requires it in a different manner. 

The Commission seeks comment on 

the following: 

19. Are there parts of Form SEF that 

you believe are not necessary or 

appropriate to incorporate into Form 

SBSEF? If so, please describe. 

20. Are there different or additional 

requirements that the Commission 

should include in Form SBSEF that are 

not included in Form SEF? If so, please 

describe. What would be the benefits 

and costs of requiring that information 

in Form SBSEF that is not required by 

the CFTC in Form SEF? 

C. Abbreviated Registration Procedures 

for CFTC-Registered SEFs 

Many of the entities that will seek 

registration with the Commission as 

SBSEFs are already registered with the 

CFTC as SEFs. Entities that seek dual 

registration presumably see efficiencies 

in utilizing the same systems, policies, 

and procedures to trade both swaps and 

SBS. As noted throughout this release, 

the Commission seeks to harmonize the 

SBSEF regulatory regime as closely as 

practicable with the CFTC’s SEF 

regulatory regime, achieving similar 

regulatory benefits as the CFTC regime 

while imposing only marginal costs on 

dually-registered SEF/SBSEFs and their 

members. If the Commission ultimately 

adopts SBSEF rules that are closely 

harmonized with those of the CFTC, 

SEFs that seek dual registration with the 

SEC would likely need to make only 

minor adjustments to their rules and 

trading procedures to support trading of 

SBS in addition to the trading of swaps. 

The Commission preliminarily believes 

that whether an entity is registered as a 

SEF and in good standing with the 

CFTC is relevant when considering its 

application to register as an SBSEF, and 

that an abbreviated registration for 

CFTC-registered SEFs is appropriate. 

Furthermore, the Commission is 

preliminarily considering that, after 

adopting final rules establishing a 

registration process for SBSEFs, it could 

exercise its exemptive authority under 

section 36(a)(1) of the SEA 56 to relax or 

eliminate entirely certain of the 

registration requirements for entities 

that are already registered as SEFs with 

the CFTC. 

The Commission seeks comment on 

the following: 

21. Do you believe in general that the 

Commission should utilize its authority 

under section 36(a)(1) of the SEA to 

establish an abbreviated procedure for 

entities wishing to register as SBSEFs 

that are already registered with the 

CFTC as SEFs? Why or why not? 

22. If so, what registration 

requirements should the Commission 

relax or eliminate entirely for entities 

seeking dual registration? 

VI. Rule and Product Filings by SBSEFs 

Unlike section 19(b) of the SEA,57

which sets out a process whereby 

national securities exchanges and other 

SROs submit filings to the Commission 

to add, delete, or amend rules 

(including rules to list products), 

section 3D of the SEA 58 does not set out 

an equivalent process for SBSEFs. It can 

be expected, however, that an SBSEF 

will seek to change its rules over time 

in order, for example, to implement new 

trading methodologies and to expand its 

product offerings, with the intent to 

make its market more attractive to 

participants. The Commission 

preliminarily believes, therefore, that 

some review process is necessary to 

assess whether such changes to an 

SBSEF’s rules and product offerings are 

consistent with section 3D of the SEA 

and the Commission’s rules thereunder. 

The Commission preliminarily believes 

that the CFTC’s filing procedures are an 

appropriate model on which to base its 

own filing procedures. Furthermore, 

because of the likelihood that most if 

not all SBSEFs will be dually registered 

with the CFTC as SEFs and that many 

rule changes for a dual registrant will 

affect both its SBS and swap trading 

businesses, close harmonization with 

the CFTC’s filing procedures would 

allow a dual registrant to make a similar 

filing to each agency, allowing each 

agency to carry out its oversight 

functions while minimizing the burdens 

on dual registrants. 

Parts 37 and 40 of the CFTC’s rules set 

out processes whereby SEFs may 

establish or amend rules and list 

products. In short, these processes allow 

a SEF to voluntarily submit a rule, rule 

amendment, or new product for CFTC 

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

that a rule, rule amendment, or new 

product meets applicable standards 

under the CEA and the CFTC’s rules 

thereunder without obtaining CFTC 

approval, although the CFTC retains the 

ability, in certain circumstances, to stay 

the self-certification for further review 

before it may become effective. Using its 

general authority to impose any 

requirement on SBSEFs and to prescribe 

rules governing the regulation of 

SBSEFs,59 the Commission is proposing 

to establish similar filing processes for 

registered SBSEFs in proposed Rules 

804 to 810 of Regulation SE. 

A. Rule 804—Listing Products for 

Trading by Certification 

Proposed Rule 804 is modelled on 

§ 40.2 of the CFTC’s rules and would set 

forth procedures by which an SBSEF 

may list a product via certification. 

§ 40.2(a) specifies the filing 

requirements for DCMs and SEFs to 

certify a product for listing. Paragraph 

(a) of proposed Rule 804 would adapt 

these requirements for SBSEFs, with 

one exception, as explained in the next 

paragraph. Paragraph (a)(1) of proposed 

Rule 804 would require an SBSEF to file 

its submission electronically with the 

Commission using the EDGAR system as 

an Interactive Data File in accordance 

with Rule 405 of Regulation S–T. 

Paragraph (a)(2) of proposed Rule 804 

would provide that the Commission 

must receive the submission by the 

open of business on the business day 

that is ten business days preceding the 

product’s listing. By contrast, the 

parallel provision in § 40.2(a) provides 

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

before listing the product.60 The 

Commission preliminarily believes that 

a ten-business-day review period for 

self-certified SBS products before they 

can be listed strikes a reasonable 

balance between allowing SBSEFs to 

bring new products to market quickly 

while affording the Commission staff a 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28883 

61See § 40.6(a)(3) (one of the conditions for a 

valid self-certification of a rule or rule amendment 

is that the CFTC has received the submission not 

later than the open of business on the business day 

that is ten business days prior to the registered 

entity’s implementation of the rule or rule 

amendment). 

62See infra section VI(D). 

63The Commission is proposing, in new 

§ 249.2002, a submission cover sheet (with 

instructions) that is closely modelled on the CFTC’s 

submission cover sheet. 

64Under proposed Rule 804(a)(3)(vi), information 

that the SBSEF seeks to keep confidential could be 

redacted from the documents published on the 

SBSEF’s website but would have to be republished 

consistent with any determination made by the 

Commission pursuant to SEA Rule 24b–2. 

65Section 40.2(a)(3) instructs filers to make any 

request for confidential treatment pursuant to § 40.8 

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

§ 145.9. The Commission is proposing instead to 

direct filers to make any request for confidential 

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

supra note 50. 

66The Commission also is not proposing to 

adapt—either in Rule 807 or here in Rule 804— 

§ 40.6(c)(4), which relates to rules already 

implemented and permits the CFTC to stay the 

effectiveness of such rules during the pendency of 

proceedings for filing a false certification or of a 

petition to alter or amend the rule pursuant to 

section 8a(7) of the CEA. 

67See section 1a(19) of the CEA, 7 U.S.C. 1a(19) 

(defining ‘‘excluded commodity’’). 

reasonable period in which to assess 

them prior to listing. The Commission is 

concerned that one business day would 

not provide the SEC staff sufficient time 

to review a new product, especially a 

novel or complex product that might be 

difficult to analyze. As discussed below, 

the Commission is proposing that it 

could stay a product for reasons similar 

to those in the CFTC’s stay provision. If 

a product does warrant a stay, the 

Commission also would need sufficient 

time to go through the administrative 

steps of formally issuing the stay. The 

proposed ten-business-day review 

period for self-certified products 

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

rules,61 which the Commission is 

proposing to replicate in Rule 

807(a)(3).62

Paragraph (a)(3) of proposed Rule 804 

would require a self-certification to 

include: 

(1) A copy of the submission cover 

sheet; 63

(2) A copy of the product’s rules, 

including all rules related to its terms 

and conditions; 

(3) The intended listing date; 

(4) A certification by the SBSEF that 

the product to be listed complies with 

the SEA and the Commission’s rules 

thereunder; 

(5) A concise explanation and 

analysis of the product and its 

compliance with applicable provisions 

of the SEA, including core principles, 

and the Commission’s rules thereunder. 

This explanation and analysis shall 

either be accompanied by the 

documentation relied upon to establish 

the basis for compliance with applicable 

law, or incorporate information 

contained in such documentation, with 

appropriate citations to data sources; 

(6) A certification that the SBSEF 

posted a notice of pending product 

certification with the Commission and a 

copy of the submission, concurrent with 

the filing of a submission with the 

Commission, on the SBSEF’s website; 64

and 

(7) A request for confidential 

treatment, if appropriate, as permitted 

pursuant to SEA Rule 24b–2.65

Paragraph (b) of proposed Rule 804, 

modelled on § 40.2(b), would provide 

that, if requested by Commission staff, 

an SBSEF shall provide any additional 

evidence, information, or data that 

demonstrates that the SBS meets, 

initially or on a continuing basis, the 

requirements of the SEA or the 

Commission’s rules or policies 

thereunder. 

Section 40.2(c) provides that the 

CFTC may stay the listing of a contract 

pursuant to paragraph (a) of this section 

during the pendency of CFTC 

proceedings for filing a false 

certification or during the pendency of 

a petition to alter or amend the contract 

terms and conditions pursuant to 

section 8a(7) of the CEA. The SEA does 

not include the CEA’s provisions 

regarding altering or amending the 

terms and conditions of an SBS listed by 

an SBSEF like the authority granted to 

the CFTC with respect to products listed 

by SEFs, such that the Commission 

would be able to stay the listing of an 

SBS that it believes may be inconsistent 

with the SEA, pending proceedings to 

exercise that authority. Nor are 

proceedings for false certification of an 

SBS contemplated by the SEA. For this 

reason, in lieu of harmonizing with 

§ 40.2(c), the Commission is proposing, 

in Rule 804(c), a provision that would 

allow the Commission to stay the 

certification of a new product in the 

same manner that proposed Rule 

807(c)—which, as described below, is 

itself based on § 40.6(c) of the CFTC 

rules—would allow the Commission to 

stay the self-certifications of a new rule 

or rule amendment.66

Thus, paragraph (c)(1) of proposed 

Rule 804 would provide that the 

Commission may stay the certification 

of a new product by issuing a 

notification informing the SBSEF that 

the Commission is staying the 

certification on the grounds that the 

product presents novel or complex 

issues that require additional time to 

analyze, is accompanied by an 

inadequate explanation, or is potentially 

inconsistent with the SEA or the 

Commission’s rules thereunder. Under 

paragraph (c)(1), the Commission would 

have an additional 90 days from the 

date of the notification to conduct the 

review. Paragraph (c)(2) would require 

the Commission to provide a 30-day 

comment period during that 90 days, 

and to publish a notice of the 30-day 

comment period on the Commission’s 

website. Comments from the public 

could be submitted as specified in that 

notice. Paragraph (c)(3) would provide 

that the product that had been stayed 

would become effective, pursuant to the 

certification, at the expiration of the 90- 

day review period, unless the 

Commission withdraws the stay prior to 

that time, or the Commission notifies 

the SBSEF during the 90-day time 

period that it objects to the proposed 

certification on the grounds that the 

proposed product is inconsistent with 

the SEA or the Commission’s rules. 

Paragraph (d) of § 40.2 provides that 

a DCM or SEF may submit a class 

certification of swaps based on an 

‘‘excluded commodity,’’ 67 subject to 

certain conditions. The proposed rules 

do not provide for class certification of 

any SBS although, as noted below, the 

Commission seeks commenters’ views 

on whether the concept of class 

certification would be appropriate for 

SBSEFs. 

The Commission preliminarily 

believes that proposed Regulation SE 

should allow SBSEFs to introduce new 

SBS products to their market places as 

speedily as practicable while affording 

the Commission an effective mechanism 

to assess their consistency with section 

3D of the SEA. The Commission 

preliminarily believes that the CFTC’s 

self-certification procedures are well 

articulated and well understood by 

SEFs, and that harmonizing with these 

procedures for new product filings by 

SBSEF would yield comparable 

regulatory benefits while minimizing 

burdens on SBSEFs. At the same time, 

the Commission preliminarily believes 

that, for the reasons noted above, a tenbusiness-day pre-listing review period is 

more appropriate than a one-businessday review period for self-certified SBS 

products. 

The Commission seeks comment on 

the following: 

23. Do you believe in general that 

Regulation SE should include a rule that 

allows SBSEFs to list products for 

trading by certification? Why or why 

not? 


jspears on DSK121TN23PROD with PROPOSALS2
28884 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

68This explanation and analysis would have to 

either be accompanied by the documentation relied 

upon to establish the basis for compliance with the 

applicable law, or incorporate information 

contained in such documentation, with appropriate 

citations to data sources. 

69Section 40.3(a), like § 40.2(a)(3), instructs filers 

to make any request for confidential treatment 

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

turn cross-references § 145.9. As noted previously, 

the Commission proposes instead to direct filers to 

make any request for confidential treatment 

pursuant to SEA Rule 24b–2. See supra note 50. 

70 Information that the SBSEF seeks to keep 

confidential could be redacted from the documents 

published on the SBSEF’s website but would have 

to be republished consistent with any 

determination made by the Commission pursuant to 

SEA Rule 24b–2. 

24. In particular, should the 

Commission establish a procedure for 

listing SBS products for trading by 

certification by harmonizing closely 

with § 40.2 of the CFTC’s rules? Why or 

why not? 

25. Do you agree with the tenbusiness-day pre-listing review period 

for self-certified products in proposed 

Rule 804(a)(2) instead of the CFTC’s 

one-business-day review period? Why 

or why not? What economic harm might 

an SBSEF and/or its members suffer if 

the Commission ultimately adopted a 

review period other than one business 

day? If you believe that the Commission 

should adopt a review period of greater 

than one day (but other than ten), please 

explain. 

26. Do you believe that the 

Commission should adapt the concept 

of class certification from § 40.2(d) into 

proposed Rule 804? Why or why not? If 

so, how do you believe a ‘‘class’’ should 

be defined for purposes of listing SBS 

products on an SBSEF? Should there be 

any conditions for class certification? If 

so, what conditions and why? 

27. Are there any provisions of 

proposed Rule 804 that the Commission 

has adapted from § 40.2 that you believe 

would be inappropriate, or would not 

create any benefit, in a Commission rule 

to establish procedures for SBSEFs to 

list SBS products for trading by 

certification? If so, please identify any 

such provision, explain why it would be 

inappropriate or unnecessary for 

SBSEFs, and what economic benefit that 

you believe would result from omitting 

it from the Commission’s final rule. 

28. Do you believe that proposed Rule 

804(c), relating to stays of product 

certifications, mirroring the 

Commission’s proposed provisions 

relating to stays of self-certifications of 

new rules, is appropriate and workable? 

Why or why not? If not, what 

alternatives, if any, should be 

considered to enable the Commission to 

stay product certifications that it 

believes pose issues with respect to 

consistency with the SEA? 

B. Rule 805—Voluntary Submission of 

New Products for Commission Review 

and Approval 

Proposed Rule 805 is closely 

modelled on § 40.3 of the CFTC’s rules 

and would set forth procedures by 

which an SBSEF may voluntarily 

submit new SBS products for 

Commission review and approval. 

Section 40.3(a) provides that a SEF or 

DCM may request the CFTC to approve 

a new or dormant product prior to 

listing it for trading, and sets out the 

filing requirements. Paragraph (a) of 

proposed Rule 805 would adapt these 

requirements for SBSEFs. First, an 

SBSEF would be required to file its 

submission electronically with the 

Commission using the EDGAR system as 

an Interactive Data File in accordance 

with Rule 405 of Regulation S–T. The 

filing also would have to include a copy 

of the submission cover sheet, a copy of 

the rules that set forth the terms and 

conditions of the SBS to be listed, and 

an explanation and analysis of the 

product and its compliance with 

applicable provisions of the SEA, 

including the Core Principles and the 

Commission’s rules thereunder.68 The 

submission also would have to describe 

any agreements or contracts entered into 

with other parties that enable the SBSEF 

to carry out its responsibilities. 

Furthermore, paragraph (a) of 

proposed Rule 805, modelled on 

§ 40.3(a), would require the SBSEF to 

include, if requested by Commission 

staff, additional evidence, information, 

or data demonstrating that the SBS 

meets, initially or on a continuing basis, 

the requirements of the SEA, or other 

requirement for registration under the 

SEA, or the Commission’s rules or 

policies thereunder. The SBSEF would 

be required to submit the requested 

information by the open of business on 

the date that is two business days from 

the date of request by Commission staff, 

or at the conclusion of such extended 

period agreed to by Commission staff 

after timely receipt of a written request 

from the SBSEF. Paragraph (a) of 

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

permit the submitting SBSEF to include 

a request for confidential treatment 

regarding portions of its application.69

Finally, paragraph (a) of proposed Rule 

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

SBSEF to certify that it posted a notice 

of its request for Commission approval 

of the new product and a copy of the 

submission, concurrent with the filing 

of a submission with the Commission, 

on the SBSEF’s website.70

Paragraph (a) of proposed Rule 805 

would omit two provisions in § 40.3(a). 

First, § 40.3(a)(6) requires the submitting 

entity to include the certifications 

required in § 41.22 for product approval 

of a commodity that is a security future 

or a security futures product, as defined 

in sections 1a(44) or 1a(45) of the CEA, 

respectively. The Commission is not 

adapting this provision into proposed 

Regulation SE because it pertains to 

security futures and security futures 

products, not to swaps or SBS. Second, 

§ 40.3(a)(8) requires the submitting 

entity to include a filing fee. The 

Commission is not proposing to charge 

SBSEFs filing fees for submitting new 

product proposals. 

Paragraph (b) of proposed Rule 805, 

like § 40.3(b), would provide that the 

Commission shall approve a new 

product unless the terms and conditions 

of the product violate the SEA or the 

Commission’s rules thereunder. 

Paragraph (c) of proposed Rule 805, 

modelled on § 40.3(c), would provide 

that a product submitted for 

Commission approval under Rule 805 

shall be deemed approved by the 

Commission 45 days after receipt by the 

Commission, or at the conclusion of an 

extended period as provided under 

proposed Rule 805(d), unless notified 

otherwise within the applicable period, 

if the submission complies with the 

requirements of Rule 805(a) and the 

SBSEF does not amend the terms or 

conditions of the product or supplement 

the request for approval, except as 

requested by the Commission or for 

correction of typographical errors, 

renumbering, or other non-substantive 

revisions, during that period. Paragraph 

(c) also would provide that any 

voluntary, substantive amendment by 

the SBSEF would be treated as a new 

submission under Rule 805. 

Paragraph (d) of proposed Rule 805, 

modelled on § 40.3(d), would provide 

that the Commission may extend the 45- 

day review period in paragraph (c) for 

an additional 45 days, if the product 

raises novel or complex issues that 

require additional time to analyze, in 

which case the Commission shall notify 

the SBSEF within the initial 45-day 

review period and briefly describe the 

nature of the specific issue(s) for which 

additional time for review is required. 

Paragraph (d) also would provide that 

the Commission may extend the 45-day 

review period for any length of time to 

which the SBSEF agrees in writing. 

Paragraph (e) of proposed Rule 805 

would provide that the Commission, at 

any time during its review, may notify 

the SBSEF that it will not, or is unable 

to, approve the product. This 

notification would have to briefly 

specify the nature of the issues raised 

and the specific provision of the SEA or 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28885 

71The Commission does not discount the 

possibility that an entity might elect to register as 

an SBSEF with the SEC but not as a SEF with the 

CFTC. In such case, the SEC-only registrant would 

not have any familiarity with the CFTC’s rules and 

filing procedures. Nevertheless, because the 

Commission preliminarily believes that most if not 

all entities that will seek SBSEF registration with 

the SEC are or will also be registered as SEFs with 

the CFTC, such dual registrants would benefit from 

harmonized procedures. Furthermore, if the 

Commission ultimately adopts these procedures 

substantially as proposed, it likely would be 

unnecessary to establish and apply one set of 

procedures for dual registrants and a different set 

for SEC-only SBSEFs. 

72 Information that the SBSEF seeks to keep 

confidential could be redacted from the documents 

published on the SBSEF’s website, but would have 

to be republished consistent with any 

determination made pursuant to SEA Rule 24b–2. 

the Commission’s rules thereunder, 

including the form or content 

requirements of proposed Rule 805(a), 

that the product violates, appears to 

violate, or potentially violates but which 

cannot be ascertained from the 

submission. Paragraph (f) of proposed 

Rule 805, like § 40.3(f), would provide 

that such notification of the 

Commission’s determination not to 

approve a product does not prejudice 

the SBSEF from subsequently 

submitting a revised version of the 

product for Commission approval, or 

from submitting the product as initially 

proposed pursuant to a supplemented 

submission. Furthermore, such 

notification would be presumptive 

evidence that the entity may not 

truthfully certify under proposed Rule 

804 that the same, or substantially the 

same, product does not violate the SEA 

or the Commission’s rules thereunder. 

The Commission preliminarily 

believes that it is reasonable and 

appropriate to supplement the product 

certification procedures in proposed 

Rule 804 by also including in 

Regulation SE, as proposed Rule 805, 

procedures for voluntary submission of 

new products for Commission review 

and approval. The Commission 

preliminarily believes that providing 

this approval process, as the CFTC does, 

can be valuable to an SBSEF seeking the 

Commission’s concurrence that a new 

product is in compliance with the SEA 

prior to listing it. The Commission 

preliminarily believes that the CFTC’s 

procedures in this regard are well 

articulated and well understood by 

SEFs, and that closely harmonizing with 

these procedures would yield 

comparable regulatory benefits while 

minimizing burdens on SBSEFs.71

The Commission requests comment 

on the following: 

29. Do you believe in general that 

Regulation SE should include a rule 

setting forth procedures for an SBSEF to 

voluntarily submit new SBS products 

for Commission review and approval? 

Why or why not? 

30. In particular, should the 

Commission adopt procedures for 

voluntary submission of new SBS 

products for Commission review and 

approval by harmonizing closely with 

§ 40.3 of the CFTC’s rules? Why or why 

not? 

31. Are there any provisions of § 40.3 

that are adapted into proposed Rule 805 

that you believe would be 

inappropriate, or would not create any 

benefit, in a Commission rule applying 

to SBSEFs? If so, please identify any 

such provision, explain why it would be 

inappropriate or unnecessary for 

SBSEFs, and what economic benefit that 

you believe would result from omitting 

it from the Commission’s final rule. 

C. Rule 806—Voluntary Submission of 

Rules for Commission Review and 

Approval 

Proposed Rule 806 is closely 

modelled on § 40.5 of the CFTC’s rules 

and would set forth procedures by 

which an SBSEF may voluntarily 

submit rules, rule amendments, or 

dormant rules for Commission review 

and approval. 

Section 40.5(a) provides that a 

registered entity, including a SEF, may 

request that the CFTC approve a new 

rule, rule amendment, or dormant rule 

and sets out the filing requirements. 

Paragraph (a) of proposed Rule 805 

would adapt these requirements for 

SBSEFs. First, an SBSEF would be 

required to file its submission 

electronically with the Commission 

using the EDGAR system as an 

Interactive Data File in accordance with 

Rule 405 of Regulation S–T. The filing 

also would have to include a copy of the 

submission cover sheet and set forth the 

text of the rule or rule amendment (in 

the case of a rule amendment, deletions 

and additions must be indicated). 

Further, the SBSEF would be required 

to describe the proposed effective date 

of the rule or rule amendment and any 

action taken or anticipated to be taken 

to adopt the proposed rule by the SBSEF 

or by its governing board or by any 

committee thereof, and cite the rules of 

the SBSEF that authorize the adoption 

of the proposed rule. The SBSEF also 

would be required to provide an 

explanation and analysis of the 

operation, purpose, and effect of the 

proposed rule or rule amendment and 

its compliance with applicable 

provisions of the SEA, including the 

core principles relating to SBSEFs and 

the Commission’s rules thereunder, and, 

as applicable, a description of the 

anticipated benefits to market 

participants or others, any potential 

anticompetitive effects on market 

participants or others, and how the rule 

fits into the SBSEF’s framework of 

regulation. 

Moreover, the SBSEF would be 

required to provide additional 

information which may be beneficial to 

the Commission in analyzing the new 

rule or rule amendment. If a proposed 

rule affects, directly or indirectly, the 

application of any other rule of the 

SBSEF, the pertinent text of any such 

rule would have to be set forth and the 

anticipated effect described. The SBSEF 

also would be required to provide a 

brief explanation of any substantive 

opposing views expressed to the SBSEF 

by governing board or committee 

members, members of the SBSEF, or 

market participants that were not 

incorporated into the rule, or a 

statement that no such opposing views 

were expressed. 

The SBSEF could request confidential 

treatment for portions of its submission, 

as permitted by SEA Rule 24b–2. 

Finally, the SBSEF would have to 

certify that it posted a notice of the 

pending rule with the Commission and 

a copy of the submission, concurrent 

with the filing of a submission with the 

Commission, on the SBSEF’s website.72

Paragraph (b) of proposed Rule 806, 

modelled on § 40.5(b), would provide 

that the Commission shall approve a 

new rule or rule amendment unless the 

rule or rule amendment is inconsistent 

with the SEA or the Commission’s rules 

thereunder. Paragraph (c) of proposed 

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

that a rule or rule amendment submitted 

for Commission approval under Rule 

806 shall be deemed approved by the 

Commission 45 days after receipt by the 

Commission, or at the conclusion of 

such extended period as provided under 

paragraph (d) of this section, unless the 

SBSEF is notified otherwise within the 

applicable period, if the submission 

complies with the requirements of 

proposed Rule 806(a) and the SBSEF 

does not amend the proposed rule or 

supplemented the submission, except as 

requested by the Commission, during 

the pendency of the review period, 

other than for correction of 

typographical errors, renumbering, or 

other non-substantive revisions. 

Paragraph (c) also would provide that 

any amendment or supplementation not 

requested by the Commission would be 

treated as the submission of a new filing 

under Rule 806. 

Paragraph (d) of proposed Rule 806, 

modelled on § 40.5(d), would provide 

that the Commission may further extend 

the review period in paragraph (c) for an 

additional 45 days, if the proposed rule 


jspears on DSK121TN23PROD with PROPOSALS2
28886 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

73Also like § 40.6(a), proposed Rule 807(a) would 

include an exception that would allow an SBSEF 

to implement a certain kind of rule without having 

to comply with the full set of conditions set forth 

in paragraphs (a)(1) through (8) of proposed Rule 

807, the details of which are discussed below. 

Specifically, the exception would provide that, 

when submitting a rule delisting or withdrawing 

the certification of a product with no open interest, 

an SBSEF would be required only to meet the 

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

proposed Rule 807. The introductory language 

being proposed by the Commission in paragraph (a) 

of proposed Rule 807 generally tracks the language 

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

However, proposed Rule 807(a) would not include 

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

submissions under § 40.10, which concerns only 

systemically important derivatives clearing 

organizations and thus are not relevant to SBSEFs. 

74 Information that the SBSEF seeks to keep 

confidential could be redacted from the documents 

published on the SBSEF’s website but must be 

republished consistent with any determination 

made pursuant to SEA Rule 24b–2. 

or rule amendment raises novel or 

complex issues that require additional 

time for review or is of major economic 

significance, the submission is 

incomplete, or the requestor does not 

respond completely to Commission 

questions in a timely manner, in which 

case the Commission shall notify the 

submitting SBSEF within the initial 45- 

day review period and shall briefly 

describe the nature of the specific issues 

for which additional time for review 

shall be required. Paragraph (d) also 

would allow an extension to which the 

SBSEF agrees in writing. 

Paragraph (e) of proposed Rule 806, 

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

time during its review, the Commission 

may notify the SBSEF that it will not, 

or is unable to, approve the new rule or 

rule amendment. This notification 

would have to briefly specify the nature 

of the issues raised and the specific 

provision of the SEA or the 

Commission’s rules thereunder, 

including the form or content 

requirements of proposed Rule 806, 

with which the new rule or rule 

amendment is inconsistent or appears to 

be inconsistent with the SEA or the 

Commission’s rules thereunder. 

Paragraph (f) of proposed Rule 806, like 

§ 40.5(f), would provide that such 

notification to an SBSEF would not 

prevent the SBSEF from subsequently 

submitting a revised version of the 

proposed rule or rule amendment for 

Commission review and approval or 

from submitting the new rule or rule 

amendment as initially proposed in a 

supplemented submission. Paragraph (f) 

would further provide that the revised 

submission would be reviewed without 

prejudice. Finally, paragraph (f) would 

provide that such notification to an 

SBSEF of the Commission’s 

determination not to approve a 

proposed rule or rule amendment shall 

be presumptive evidence that the SBSEF 

may not truthfully certify the same, or 

substantially the same, proposed rule or 

rule amendment under proposed Rule 

807(a). 

Paragraph (g) of proposed Rule 806, 

like § 40.5(g), would provide that, 

notwithstanding Rule 806(c), changes to 

a proposed rule or a rule amendment, 

including changes to terms and 

conditions of a product that are 

consistent with the SEA and the 

Commission’s rules thereunder, may be 

approved by the Commission at such 

time and under such conditions as the 

Commission shall specify in the written 

notification; provided, however, that the 

Commission may, at any time, alter or 

revoke the applicability of such a notice 

to any particular product or rule 

amendment. 

The Commission preliminarily 

believes that Regulation SE should 

afford the Commission a means for 

assessing whether SBSEF rules and rule 

amendments are consistent with section 

3D of the SEA, and that it is appropriate 

to achieve this aim by aligning closely 

with the CFTC’s process for voluntary 

rule-approval submission in § 40.5. The 

CFTC’s procedures are well articulated 

and well understood by SEFs, and 

closely harmonizing with these 

procedures should yield comparable 

regulatory benefits while minimizing 

burdens on SBSEFs. As with the process 

for seeking Commission approval of 

new products, the Commission 

preliminarily believes that providing a 

process for voluntarily seeking 

Commission approval of rules, rule 

amendments, and dormant rules—as the 

CFTC does—can be valuable to an 

SBSEF seeking the Commission’s 

concurrence that the rule change is 

consistent with the SEA prior to 

implementing it. Moreover, for dually 

registered SEF/SBSEFs, it is likely that 

certain rules will apply to member 

behavior generally—and not to one 

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

exclusively—and so will have to be filed 

with both the SEC and CFTC. Closely 

harmonizing the SEC’s filing procedures 

with § 40.5 would allow dually 

registered entities to submit the same (or 

substantially the same) filing to both 

agencies for review and approval. The 

Commission preliminarily believes that 

it is not necessary to require SBSEFs to 

make a substantially different type of 

filing to the SEC than to the CFTC for 

the same underlying rule. 

The Commission seeks comment on 

the following: 

32. Do you believe in general that 

Regulation SE should include a rule 

establishing procedures for an SBSEF to 

voluntarily submit rules and rule 

amendments for Commission review 

and approval? Why or why not? 

33. In particular, should the 

Commission adopt procedures for 

voluntary submission of rules and rule 

amendments for Commission review 

and approval by harmonizing closely 

with § 40.5 of the CFTC’s rules? Why or 

why not? 

34. Are there any provisions of § 40.5 

that are adapted into proposed Rule 806 

that you believe would be 

inappropriate, or would not create any 

benefit, in a Commission rule applying 

to SBSEFs? If so, please identify any 

such provision, explain why it would be 

inappropriate or unnecessary for 

SBSEFs, and what economic benefit that 

you believe would result from omitting 

it from the Commission’s final rule. 

D. Rule 807—Self-Certification of Rules 

Proposed Rule 807 is closely 

modelled on § 40.6 of the CFTC’s rules 

and would set forth procedures by 

which an SBSEF may self-certify 

changes to its rules. Paragraph (a) of 

proposed Rule 807, modelled on 

§ 40.6(a), would set forth the conditions 

that an SBSEF must comply with before 

implementing a rule or rule amendment 

via self-certification. Like § 40.6(a), 

proposed Rule 807(a) would permit an 

SBSEF to implement a rule or rule 

amendment without obtaining the 

Commission’s prior approval under 

Rule 806, but only if it ‘‘self-certifies’’ 

the rule or rule amendment in 

compliance with the conditions set forth 

in Rule 807. Rule 807(a) also would 

permit an SBSEF to self-certify a rule or 

rule amendment that the Commission 

had previously approved under Rule 

806, or that the SBSEF had previously 

self-certified under this Rule 807, but 

that in the interim had become a 

dormant rule (i.e., unimplemented for 

12 consecutive calendar months).73

Paragraph (a)(1) of proposed Rule 807 

would require the SBSEF to file its 

submission electronically with the 

Commission using the EDGAR system as 

an Interactive Data File in accordance 

with Rule 405 of Regulation S–T. 

Paragraph (a)(2) would require the 

SBSEF to provide a certification that the 

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

copy of the submission, concurrent with 

the filing of a submission with the 

Commission, on the SBSEF’s website.74

Paragraph (a)(3) would provide that the 

Commission must have received the 

submission not later than the open of 

business on the business day that is ten 

business days before the SBSEF’s 

implementation of the rule or rule 

amendment. Paragraph (a)(4) would 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28887 

75See § 40.1(h) (defining ‘‘emergency’’ as ‘‘any 

occurrence or circumstance that, in the opinion of 

the governing board of a registered entity, or a 

person or persons duly authorized to issue such an 

opinion on behalf of the governing board of a 

registered entity under circumstances and pursuant 

to procedures that are specified by rule, requires 

immediate action and threatens or may threaten 

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

liquidation of or delivery pursuant to, any 

agreements, contracts, swaps or transactions or the 

timely collection and payment of funds in 

connection with clearing and settlement by a 

derivatives clearing organization’’). The definition 

goes on to list a series of circumstances that are 

deemed emergencies under the definition. The 

Commission is proposing a definition of 

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

from § 40.1(h). 

76Section 40.6(a)(7)(vii) directs the submitting 

entity to follow the procedures in § 40.8 when 

making a request for confidential treatment, which 

in turn cross-references § 145.9. As noted 

previously, the Commission proposes instead to 

direct filers to make any request for confidential 

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

note 50. 

77See supra note 66 and accompanying text. 

78See id. 

provide that the SBSEF may not 

implement the rule or rule amendment 

if the Commission has stayed it 

pursuant to proposed Rule 807(c), 

discussed below. 

Section 40.6(a)(5) sets forth an 

additional condition that the rule or rule 

amendment is not a rule or rule 

amendment of a DCM that materially 

changes a term or condition of a 

contract for future delivery of an 

agricultural commodity enumerated in 

section 1a(4) of the CEA or an option on 

such a contract or commodity in a 

delivery month having open interest. 

Because this provision applies to DCMs 

that trade contracts for future delivery of 

agricultural commodities, it is not 

germane to the SBS markets; therefore, 

the Commission is not adapting this 

condition into proposed Rule 807. 

Section 40.6(a)(6) sets out procedures 

for emergency rule certifications, which 

the Commission is proposing to adapt 

into paragraph (a)(5) of Rule 807. 

Paragraph (a)(5)(i) would require a new 

rule or rule amendment that establishes 

standards for responding to an 

emergency 75 to be submitted pursuant 

to Rule 807(a). Paragraph (a)(5)(ii) 

would provide that a rule or rule 

amendment implemented under 

procedures of the governing board to 

respond to an emergency shall, if 

practicable, be filed with the 

Commission prior to implementation or, 

if not practicable, be filed with the 

Commission at the earliest possible time 

after implementation, but in no event 

more than 24 hours after 

implementation. In addition, paragraph 

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

submission be subject to the 

certification and stay provisions of 

proposed Rules 807(b) and (c), 

described below. 

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

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

the required elements for a rule 

submission under Rule 807. These 

requirements would include a copy of 

the submission cover sheet (in the case 

of a rule or rule amendment that 

responds to an emergency, ‘‘Emergency 

Rule Certification’’ should be noted in 

the description section of the 

submission cover sheet); the text of the 

rule (in the case of a rule amendment, 

deletions and additions must be 

indicated); the date of intended 

implementation; a certification by the 

SBSEF that the rule complies with the 

SEA and the Commission’s rules 

thereunder; a concise explanation and 

analysis of the operation, purpose, and 

effect of the proposed rule or rule 

amendment and its compliance with 

applicable provisions of the SEA, 

including Core Principles relating to 

SBSEFs and the Commission’s rules 

thereunder; and a brief explanation of 

any substantive opposing views 

expressed to the SBSEF by governing 

board or committee members, members 

of the SBSEF, or market participants, 

that were not incorporated into the rule, 

or a statement that no such opposing 

views were expressed. Paragraph 

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

to request confidential treatment for 

portions of its submission.76

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

like § 40.6(a)(8), would require an 

SBSEF to provide, if requested by 

Commission staff, additional evidence, 

information, or data that may be 

beneficial to the Commission in 

conducting a due diligence assessment 

of the filing and the SBSEF’s 

compliance with any of the 

requirements of the SEA or the 

Commission’s rules or policies 

thereunder. 

Paragraph (b) of proposed Rule 807, 

modelled on § 40.6(b), would give the 

Commission ten business days to review 

the new rule or rule amendment before 

it is deemed certified and can be made 

effective, unless the Commission 

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

intends to issue a stay of the 

certification under proposed Rule 

807(c). 

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

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

that the Commission may stay the 

certification of a new rule or rule 

amendment by issuing a notification 

informing the SBSEF that the 

Commission is staying the certification 

on the grounds that it presents novel or 

complex issues that require additional 

time to analyze, is accompanied by an 

inadequate explanation, or is potentially 

inconsistent with the SEA or the 

Commission’s rules thereunder. In 

addition, paragraph (c)(1) would afford 

the Commission an additional 90 days 

from the date of the notification to 

conduct the review. 

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

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

the Commission to provide a 30-day 

comment period within the 90-day 

period in which the stay is in effect. The 

Commission would be required to 

publish a notice of the 30-day comment 

period on the Commission’s internet 

website, and comments from the public 

could be submitted as specified in that 

notice. 

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

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

that the new rule or rule amendment 

subject to the stay shall become 

effective, pursuant to the certification, at 

the expiration of the 90-day review 

period, unless the Commission 

withdraws the stay prior to that time, or 

the Commission notifies the SBSEF 

during the 90-day period that it objects 

to the proposed certification on the 

grounds that the proposed rule or rule 

amendment is inconsistent with the 

SEA or the Commission’s rules 

thereunder. 

Section 40.6(c)(4), relating to rules or 

rule amendments already implemented 

by a SEF (as opposed to rules or rule 

amendments that are the subject of a 

new submission) provides: ‘‘The 

Commission may stay the effectiveness 

of an implemented rule during the 

pendency of Commission proceedings 

for filing a false certification or during 

the pendency of a petition to alter or 

amend the rule pursuant to section 8a(7) 

of the Act. The decision to stay the 

effectiveness of a rule in such 

circumstances shall not be delegable to 

any employee of the Commission.’’ As 

previously noted,77 the SEA does not 

provide the Commission explicit 

authority to alter or amend the terms 

and conditions of an SBS like the 

authority granted to the CFTC with 

respect to swaps, and does not 

contemplate proceedings for a false 

certification. Hence the Commission is 

not proposing a provision 

corresponding to § 40.6(c)(4).78

Section 40.6(d) of the CFTC’s rules 

allows a registered entity to place 

certain rules or rule amendments into 

effect even without a self-certification, if 

certain enumerated conditions are met. 

Certain types of these rules or rule 

amendments must be disclosed on a 


jspears on DSK121TN23PROD with PROPOSALS2
28888 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

79These rules pertain to products that are only 

distantly related, if at all, to the types of products 

that are likely to trade on SBSEFs. See 

§ 40.6(d)(2)(ii) (delivery standards set by third 

parties); § 40.6(d)(2)(iii) (index products); 

§ 40.6(d)(2)(iv) (option contract terms); 

§ 40.6(d)(2)(viii) (delivery facilities and delivery 

service providers); § 40.6(d)(3)(ii)(F) (securities 

indexes); § 40.6(d)(3)(ii)(G) (option contract term). 

‘‘Weekly Notification of Rule 

Amendments,’’ pursuant to § 40.6(d)(1) 

and (2), while others can be put into 

effect without any notification to the 

CFTC at all, pursuant to § 40.6(d)(3). 

Paragraph (d) of proposed Rule 807, 

modelled on § 40.6(d), would provide 

that certain kinds of rules or rule 

amendments may be put into effect by 

an SBSEF without certification to the 

Commission if similar enumerated 

conditions are met. Some would be 

subject to a Weekly Notification of Rule 

Amendments, which is closely 

modelled on the CFTC notification; 

others would not be subject to any 

notification requirement. 

Under paragraph (d)(2) of proposed 

Rule 807, the following types of rules 

could be put into effect by an SBSEF 

without self-certification, so long as 

they are disclosed on the Weekly Notice 

of Rule Amendments: 

• Non-substantive revisions. 

Corrections of typographical errors, 

renumbering, periodic routine updates 

to identifying information about the 

SBSEF, and other such non-substantive 

revisions of a product’s terms and 

conditions that have no effect on the 

economic characteristics of the product; 

• Fees. Fees or fee changes, other 

than fees or fee changes associated with 

market making or trading incentive 

programs, that total $1.00 or more per 

contract, and are established by an 

independent third party or are unrelated 

to delivery, trading, clearing, or dispute 

resolution. 

• Survey lists. Changes to lists of 

banks, brokers, dealers, or other entities 

that provide price or cash market 

information to an independent third 

party and that are incorporated by 

reference as product terms; 

• Approved brands. Changes in lists 

of approved brands or markings 

pursuant to previously certified or 

Commission approved standards or 

criteria; 

• Trading months. The initial listing 

of trading months, which may qualify 

for implementation without notice, 

within the currently established cycle of 

trading months; or 

• Minimum tick. Reductions in the 

minimum price fluctuation (or ‘tick’). 

Under paragraph (d)(3)(ii) of proposed 

Rule 807, the following types of rules 

could be put into effect by an SBSEF 

without self-certification and without 

having to be disclosed on the Weekly 

Notice of Rule Amendments: 

• Transfer of membership or 

ownership. Procedures and forms for the 

purchase, sale, or transfer of 

membership or ownership, but not 

including qualifications for membership 

or ownership, any right or obligation of 

membership or ownership, or dues or 

assessments; 

• Administrative procedures. The 

organization and administrative 

procedures of governing bodies such as 

a governing board, officers, and 

committees, but not voting 

requirements, governing board, or 

committee composition requirements or 

procedures, decision-making 

procedures, use or disclosure of material 

non-public information gained through 

the performance of official duties, or 

requirements relating to conflicts of 

interest; 

• Administration. The routine daily 

administration, direction, and control of 

employees, requirements relating to 

gratuity and similar funds, but not 

guaranty, reserves, or similar funds; 

declaration of holidays; and changes to 

facilities housing the market, trading 

floor, or trading area; 

• Standards of decorum. Standards of 

decorum or attire or similar provisions 

relating to admission to the floor, 

badges, or visitors, but not the 

establishment of penalties for violations 

of such rules; 

• Fees. Fees or fee changes, other 

than fees or fee changes associated with 

market making or trading incentive 

programs that are less than $1.00 or 

relate to matters such as dues, badges, 

telecommunication services, booth 

space, real-time quotations, historical 

information, publications, software 

licenses, or other matters that are 

administrative in nature. 

• Trading months. The initial listing 

of trading months which are within the 

currently established cycle of trading 

months. 

Paragraphs (d)(2) and (3) of proposed 

Rule 807, which enumerate the types of 

rule and rule amendments that an 

SBSEF could put into effect without a 

self-certification, are adapted from the 

types of rules enumerated in § 40.6(d)(2) 

and (3). However, the Commission is 

not adapting into proposed Rules 

807(d)(2) and (d)(3) the other types of 

rules enumerated in § 40.6(d)(2) and 

(3).79

The Commission preliminarily 

believes that Regulation SE should 

afford the Commission a mechanism to 

assess new SBSEF rules and rule 

amendments for consistency with 

section 3D of the SEA, and to permit 

SBSEFs to submit new rules and rule 

amendments using a self-certification 

process closely aligned with the § 40.6. 

The CFTC’s procedures are well 

articulated and well understood by 

SEFs, and closely harmonizing with 

these procedures should yield 

comparable regulatory benefits while 

minimizing burdens on SBSEFs. It is 

likely that certain rules of dually 

registered SEF/SBSEFs will apply to 

member behavior generally—and not to 

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

exclusively—and so will have to be filed 

with both the SEC and CFTC. Closely 

harmonizing the SEC’s filing procedures 

with the CFTC’s would allow dually 

registered entities to submit the same (or 

substantially the same) filing to both 

agencies for review. The Commission 

preliminarily believes that it is not 

necessary to require SBSEFs to make a 

substantially different type of filing to 

the SEC than to the CFTC for the same 

underlying rule. 

The Commission requests comment 

on the following: 

35. Do you believe in general that 

Regulation SE should include a rule 

establishing procedures for an SBSEF to 

establish rules via self-certification? 

Why or why not? 

36. In particular, should the 

Commission adopt procedures for selfcertification of rules by harmonizing 

closely with § 40.6 of the CFTC’s rules? 

Why or why not? 

37. Are there any provisions of § 40.6 

that are adapted into proposed Rule 807 

that you believe would be 

inappropriate, or would not create any 

benefit, in a Commission rule applying 

to SBSEFs? If so, please identify any 

such provision, explain why it would be 

inappropriate or unnecessary for 

SBSEFs, and what economic benefit that 

you believe would result from omitting 

it from the Commission’s final rule. 

38. Do you disagree with the specific 

language that the Commission is 

proposing? If so, what revisions to the 

language would you suggest? 

39. Do you agree with the proposed 

list of the types of rules and rule 

amendments that the Commission 

would allow an SBSEF to make effective 

without a self-certification? Are there 

any types that you believe should be 

added to that list? If so, which types and 

why? Are there any types that you 

believe should be removed from that 

list? If so, which types and why? 

E. Submission Cover Sheet and 

Instructions 

As new § 249.2002, the Commission is 

proposing a submission cover sheet and 

instructions that an SBSEF would be 

required to use in conjunction with 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28889 

80The CFTC cover sheet and instructions, found 

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

designed for rule and product filings from a wider 

range of registered entities than just SEFs, and thus 

include entries that are omitted from the 

Commission’s proposed adaptation. 

81Proposed Rule 809 would provide that a 

product filing will be stayed or tolled, as applicable, 

if such a request for a joint interpretation is made 

by the SBSEF, the SEC, or the CFTC. See infra 

section VI(G). 

82See infra section VII(F). 

83See supra note 73. 

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

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

unique identification code (‘‘UIC’’) assigned to a 

platform on which an SBS is executed. See 17 CFR 

242.900(w). The term ‘‘platform’’ includes an 

SBSEF. See Rule 900(v), 17 CFR 242.900(v). A 

registered SBSEF is required by Rule 903(a) of 

Regulation SBSR, 17 CFR 242.903(a), to use as its 

platform ID an identifier issued by an 

internationally recognized standards-setting system 

(‘‘IRSS’’) if the IRSS meets enumerated criteria and 

has therefore been recognized by the Commission 

pursuant to Rule 903(a). This identification 

requirement stems from a registered SBSEF’s status 

as a ‘‘participant’’ of a registered SDR under Rule 

900(u), 17 CFR 242.900(u), because the term 

‘‘participant’’ includes a ‘‘platform,’’ as defined in 

Rule 900(v), 17 CFR 242.900(v), that incurs 

reporting duties under Rule 901(a), 17 CFR 

242.901(a). Currently, the Global Legal Entity 

Identifier System (‘‘GLEIS’’) is the only IRSS that 

has been recognized by the Commission under Rule 

903(a). See Regulation SBSR—Reporting and 

Dissemination of Security-Based Swap Information, 

SEA Release No. 74244 (February 11, 2015), 80 FR 

14564, 14631–32 (March 19, 2015) (‘‘Regulation 

SBSR Adopting Release I’’). Therefore, LEIs issued 

through the GLEIS are currently the only allowable 

platform IDs that may be used by registered 

SBSEFs. 

85Section 40.8(b) has no text and is marked 

‘‘reserved.’’ 

filings submitted pursuant to proposed 

Rules 804 through 807, 809, and 816. 

These are modelled on the cover sheet 

and instructions used by SEFs in 

conjunction with their analogous filings 

with the CFTC.80

The same cover sheet and instructions 

would be used for a new rule, rule 

amendment, or new product filing, with 

the SBSEF checking the appropriate box 

to indicate which of these types the 

filing represents. The SBSEF also would 

be required to check boxes to indicate 

whether the submission was seeking 

approval by the Commission or whether 

it was being filed as a certification by 

the SBSEF; and to identify the specific 

provision in the Commission’s rules 

pursuant to which the filing was being 

submitted. The submission cover sheet 

also would include a box that the 

SBSEF would check if it intends to 

submit a request for a joint 

interpretation from the Commission and 

the CFTC regarding whether the product 

is a swap, an SBS, or mixed swap 

pursuant to SEA Rule 3a68–2.81 Finally, 

the cover sheet would include a check 

box by which an SBSEF could indicate 

that it was requesting confidential 

treatment of materials in the 

submission. 

The cover sheet would divide the 

rules and rule amendment filings into 

two categories: One for general rules of 

the SBSEF and the other for rules 

relating to the terms and conditions of 

a product. Additional boxes would need 

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

specifically a determination by the 

SBSEF that a particular SBS was now to 

be considered MAT (‘‘made-availableto-trade’’); 82 or if the filing concerned 

the delisting of an SBS with no open 

interest.83 The cover sheet would need 

to be used in conjunction with the 

weekly notifications that SBSEFs would 

be required to file pursuant to Rule 

807(d) for certain changes that do not 

need to be approved or certified, as 

discussed above. 

Paragraph (a) of the submission cover 

sheet instructions would provide that a 

properly completed submission cover 

sheet must accompany all rule and 

product submissions submitted 

electronically to the Commission by an 

SBSEF, using the EDGAR system and 

must be provided as an Interactive Data 

File in accordance with Rule 405 of 

Regulation S–T. Per paragraph (a), a 

properly completed submission cover 

sheet would include all of the following: 

1. The name and platform ID of the 

SBSEF.84

2. The date of the filing. 

3. An indication as to whether the 

filing is a new rule, rule amendment, or 

new product. 

4. For rule filings, the rule number(s) 

being adopted or, in the case of rule 

amendments, the number of the rule(s) 

being modified. 

5. For rule or rule amendment filings, 

a description of the new rule or rule 

amendment, including a discussion of 

its expected impact on the SBSEF, its 

members, and the overall market. The 

instructions will state that the narrative 

should describe the substance of the 

submission with enough specificity to 

characterize all material aspects of the 

filing. 

Paragraph (b) of the proposed 

submission cover sheet instructions 

would state that a submission must 

comply with all applicable filing 

requirements for proposed rules, rule 

amendments, or products, and that the 

filing of the submission cover sheet 

would not obviate the SBSEF’s 

responsibility to comply with applicable 

filing requirements. 

Paragraph (c) of the proposed 

submission cover sheet would state that 

checking the box marked ‘‘confidential 

treatment requested’’ would not obviate 

the submitter’s responsibility to comply 

with all applicable requirements for 

requesting confidential treatment under 

SEA Rule 24b–2 and would not 

substitute for notice or full compliance 

with such requirements. 

The Commission contemplates 

establishing a system for electronic 

completion of the cover sheet and 

attachment of the submissions required 

by proposed Rules 804, 805, 806, 807, 

and 809, and will advise affected 

persons regarding its use by public 

announcement in advance of the 

effective date of these rules. 

The Commission seeks comment on 

the following: 

40. Do you agree in general that the 

submission cover sheet and instructions 

for SBSEF filings should be harmonized 

with the CFTC’s? Why or why not? 

41. Do you agree with the specific 

language proposed in the cover sheet 

and instructions? If not, how should the 

language be revised? Is there any 

information not included in the 

proposed cover sheet and instructions 

that you believe should be included? 

42. Do you agree with the requirement 

for an SBSEF to report its platform ID 

on the cover sheet? Should the 

disclosure of standard identifiers such 

as the LEI, the Financial Instrument 

Global Identifier (‘‘FIGI’’), and the 

Unique Product Identifier (‘‘UPI’’) be 

included in an SBSEF’s other reporting 

obligations under the proposed rules? 

43. Are any of the instructions in the 

submission cover sheet unclear? If so, 

what matters do you believe require 

clarification? 

F. Rule 808—Availability of Public 

Information 

Section 40.8 of the CFTC’s rules is 

entitled ‘‘Availability of public 

information.’’ § 40.8(a) provides that any 

part of an application to register as a 

SEF (among other CFTC-registered 

entities) that is not covered by a request 

for confidential treatment will be made 

publicly available. Section 40.8(a) also 

sets out the sections of an application to 

register as a SEF that shall be made 

publicly available. Section 40.8(c) 85

provides that rule and new product 

filings by a SEF, whether made under 

the self-certification procedures or 

pursuant to CFTC review and approval, 

will be treated as public information 

unless accompanied by a request for 

confidential treatment. Section 40.8(c) 

includes procedures for such requests 

for confidential treatment. Section 

40.8(d) provides that CFTC staff will not 

consider confidential treatment requests 

for information that is required to be 

made public under the CEA, and that 

the terms and conditions of a product 


jspears on DSK121TN23PROD with PROPOSALS2
28890 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

86An application for confidential treatment shall 

contain, among other things, a statement of the 

grounds of objection referring to, and containing an 

analysis of, the applicable exemption(s) from 

disclosure under the Freedom of Information Act, 

and a justification of the period of time for which 

confidential treatment is sought. See 17 CFR 

240.24b–2(b)(2)(ii). 87 17 CFR 240.3a68–2. 

submitted to the CFTC shall be made 

publicly available at the time of 

submission. 

Proposed Rule 808 is closely 

modelled on § 40.8. Section 40.8(a) does 

not provide a list of the exhibits 

required to be made public, but rather 

refers to a general description of items 

required to be made public. For 

purposes of clarity and ease of 

reference, however, the Commission is 

proposing to list the specific 

corresponding exhibits in proposed 

Rule 808 that would be made publicly 

available. Therefore, paragraph (a) of 

proposed Rule 808 would provide that 

the Commission shall make publicly 

available on its website the following 

parts of an application to register as an 

SBSEF, unless confidential treatment is 

obtained pursuant to SEA Rule 24b–2: 

the transmittal letter and first page of 

the application cover sheet; Exhibit C; 

Exhibit G; Exhibit L; and Exhibit M. 

Paragraph (b) of proposed Rule 808, 

adapted from § 40.8(c), would provide 

that the Commission shall make 

publicly available on its website, unless 

confidential treatment is obtained 

pursuant to SEA Rule 24b–2,86 an 

SBSEF’s filing of new products pursuant 

to the self-certification procedures of 

proposed Rule 804, new products for 

Commission review and approval 

pursuant to proposed Rule 805, new 

rules and rule amendments for 

Commission review and approval 

pursuant to proposed Rule 806, and new 

rules and rule amendments pursuant to 

the self-certification procedures of 

proposed Rule 807. Paragraph (c), 

adapted from § 40.8(d), would provide 

that the terms and conditions of a 

product submitted to the Commission 

pursuant to any of proposed Rules 804 

through 807 shall be made publicly 

available at the time of submission 

unless confidential treatment is 

obtained pursuant to SEA Rule 24b–2. 

The Commission preliminarily 

believes that it would be appropriate to 

include in proposed Regulation SE a 

rule similar to § 40.8 that would clarify 

how SBSEFs may request confidential 

treatment for their filings, and what 

information contained in those filings 

would be publicly available by the 

Commission. The Commission 

preliminarily believes that the items 

enumerated in proposed Rule 808 are 

not of the type that typically would 

constitute confidential information. 

The Commission requests comment 

on the following: 

44. Do you believe in general that 

Regulation SE should include a rule 

modelled on § 40.8? Why or why not? 

45. In particular, do you agree with 

the specific language proposed by the 

Commission to adapt § 40.8 into 

proposed Rule 808? If not, how would 

you revise that language? 

46. Are there any provisions of § 40.8 

that are adapted into proposed Rule 808 

that you believe would be 

inappropriate, or would not create any 

benefit, in a Commission rule applying 

to SBSEFs? If so, please identify any 

such provision, explain why it would be 

inappropriate or unnecessary for 

SBSEFs, and what economic benefit that 

you believe would result from omitting 

it from the Commission’s final rule. 

47. Do you prefer the Commission’s 

proposed approach of listing specific 

exhibits or the CFTC’s approach of 

providing in the rule only a general 

description of items required to be made 

public? If the former, are there any 

additional exhibits that you believe 

should be enumerated in Rule 808 that 

should be made publicly available? If 

so, which exhibits and why? 

G. Rule 809—Staying of Certification 

and Tolling of Review Period Pending 

Jurisdictional Determination 

Section 40.12 of the CFTC’s rules is 

entitled ‘‘Staying of certification and 

tolling of review period pending 

jurisdictional determination’’ and 

reflects the process described in section 

718 of the Dodd-Frank Act, which is 

entitled ‘‘Determining Status of Novel 

Derivative Products.’’ Section 718 of the 

Dodd-Frank Act sets forth a mechanism 

for addressing a situation where a 

person wishes to list or trade a novel 

derivative product that may have 

elements of both securities and 

contracts of sale of a commodity for 

future delivery (or options on such 

contracts or options on commodities)— 

i.e., it is unclear whether the product is 

a security under the jurisdiction of the 

SEC or a future under the jurisdiction of 

the CFTC. Section 718(a) provides that 

the SEC or the CFTC may request that 

the other agency issue a determination 

as to the classification of that product, 

and section 718(b) provides that the 

CFTC and SEC may petition for the 

judicial review of any such 

determination. Section 40.12 provides 

that if a SEF (among other registered 

entities) certifies, submits for approval, 

or otherwise files a proposal to list or 

trade such a novel derivative product, 

the product certification shall be stayed 

or the approval review period shall be 

tolled until a final determination order 

is issued under section 718. 

Proposed Rule 809 is loosely 

modelled on § 40.12, but modified to 

focus on the products and jurisdictional 

problems that are more likely to be 

relevant to SBSEFs. An SBSEF might 

seek to list a product where it is unclear 

whether the product is a swap or an 

SBS. While section 718 of the DoddFrank Act addresses situations where it 

is unclear if a product is a security or 

a future, the SEC and the CFTC have 

adopted separate rules—SEA Rule 

3a68–2 and § 1.8, respectively— 

governing requests for interpretation 

regarding a product that might be an 

SBS, a swap, or a mixed swap. 

Accordingly, the Commission believes 

that it would be appropriate for 

proposed Rule 809 to reflect the process 

set forth in SEA Rule 3a68–2. 

Nonetheless, the objective of proposed 

Rule 809 would be consistent with the 

objective of § 40.12—to provide for a 

stay or tolling of a product filing where 

it is unclear whether the product is 

under the jurisdiction of the SEC or the 

CFTC. 

Paragraph (a) of proposed Rule 809, 

modelled on § 40.12(b), would provide 

that a product certification made by an 

SBSEF pursuant to proposed Rule 804 

shall be stayed, or the review period for 

a product that has been submitted for 

Commission approval by an SBSEF 

pursuant to proposed Rule 805 shall be 

tolled, upon request for a joint 

interpretation of whether the product is 

a swap, SBS, or mixed swap made 

pursuant to Rule 3a68–2 under the 

SEA 87 by the SBSEF, the SEC, or the 

CFTC. Paragraph (b) is modelled on 

§ 40.12(b)(1) and would require the SEC 

to provide the SBSEF with a written 

notice of the stay or tolling pending 

issuance of a joint interpretation by the 

SEC and CFTC. Paragraph (c) is 

modelled on § 40.12(b)(2) and would 

provide that the stay shall be 

withdrawn, or the approval review 

period shall resume, if a joint 

interpretation finding that the SEC has 

jurisdiction over the product is issued. 

The Commission preliminarily 

believes that it is appropriate for 

Regulation SE to include a mechanism 

for the staying or tolling of a filing by 

an SBSEF where it is unclear whether 

the product is a swap or an SBS— 

should an SBSEF ever seek to list such 

a product. Although proposed Rule 809 

would deviate from § 40.12 in that it 

would apply where it is unclear 

whether a product is swap or an SBS, 

rather than where it is unclear whether 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28891 

the product is a security or a future, the 

Commission preliminarily believes that 

modifying the scope of proposed Rule 

809, in relation to § 40.12, would 

appropriately address the jurisdictional 

questions that are more likely to arise 

from a product listed by an SBSEF. 

The Commission seeks comment on 

the following: 

48. Do you believe in general that 

Regulation SE should include a rule 

setting out a procedure for staying a 

product certification or tolling a product 

review period if a request for a joint 

interpretation regarding the 

classification of the product is made 

pursuant to SEA Rule 3a68–2? Why or 

why not? 

49. In particular, do you agree with 

the specific language proposed by the 

Commission to adapt § 40.12 into 

proposed Rule 809? If not, how would 

you revise that language? 

50. Do you agree that Rule 809 should 

apply to a product that might be an SBS 

or a swap, rather than to a product that 

might be a security or a future? Why or 

why not? 

51. Are there any provisions of § 40.12 

that are adapted into proposed Rule 809 

that you believe would be 

inappropriate, or would not create any 

benefit, in a Commission rule applying 

to SBSEFs? If so, please identify any 

such provision, explain why it would be 

inappropriate or unnecessary for 

SBSEFs, and what economic benefit that 

you believe would result from omitting 

it from the Commission’s final rule. 

H. Rule 810—Product Filings by SBSEFs 

That Are Not Yet Registered and by 

Dormant SBSEFs 

Part 37 directs SEFs to submit product 

filings via self-certification or for CFTC 

review and approval, using § 40.2 or 

§ 40.3, respectively. However, these 

sections cannot be utilized by an entity 

that has submitted an application for 

SEF registration but has not yet been 

registered, or by a dormant SEF that has 

submitted an application to reinstate its 

registration. Under § 37.4, either entity 

may submit a swap’s terms and 

conditions before being registered or 

having its registration reinstated, and 

the CFTC will consider the swap listing 

request as part of the application for 

registration or reinstatement, 

respectively. 

Proposed Rule 810 is closely 

modelled on § 37.4. Paragraph (a) of 

proposed Rule 810 is closely modelled 

on § 37.4(a) and would provide that an 

applicant for registration as an SBSEF 

may submit an SBS’s terms and 

conditions prior to listing the product as 

part of its application for registration. 

Paragraph (b) is closely modelled on 

§ 37.4(b) and would provide that any 

SBS terms and conditions or rules 

submitted as part of an application for 

registration shall be considered for 

approval by the Commission at the time 

the Commission issues the SBSEF’s 

order of registration. Paragraph (c) is 

closely modelled on § 37.4(c) and would 

provide that, after the Commission 

issues the order of registration, the 

SBSEF shall submit an SBS’s terms and 

conditions, including amendments to 

such terms and conditions, new rules, 

or rule amendments pursuant to the 

procedures in proposed Rules 804 to 

807. Paragraph (d) is closely modelled 

on § 37.4(d), would provide that any 

SBS terms and conditions or rules 

submitted as part of an application to 

reinstate the registration of a dormant 

SBSEF shall be considered for approval 

by the Commission at the time the 

Commission approves the reinstatement 

of registration of the dormant SBSEF. 

The Commission preliminarily 

believes that it is appropriate for 

Regulation SE to include provisions that 

address new products submitted as part 

of an SBSEF registration by an entity 

that has not yet been registered, or by 

a dormant SBSEF seeking reinstatement 

of its registration, and that these 

provisions should align with the CFTC’s 

provisions as closely as possible. 

The Commission seeks comment on 

the following: 

52. Do you believe in general that 

Regulation SE should include a rule 

setting out how dormant SBSEFs and 

applicants for SBSEF registration can 

submit new products? Why or why not? 

53. In particular, do you agree with 

the specific language proposed by the 

Commission to adapt § 37.4 into 

proposed Rule 810? If not, how would 

you revise that language? 

54. Are there any provisions of § 37.4 

that are adapted into proposed Rule 810 

that you believe would be 

inappropriate, or would not create any 

benefit, in a Commission rule applying 

to SBSEFs? If so, please identify any 

such provision, explain why it would be 

inappropriate or unnecessary for 

SBSEFs, and what economic benefit that 

you believe would result from omitting 

it from the Commission’s final rule. 

VII. Miscellaneous Requirements 

Sections 37.5 to 37.12 of the CFTC’s 

rules impose miscellaneous 

requirements on SEFs. The Commission 

seeks to impose similar requirements on 

SBSEFs in proposed Rules 811 to 817 of 

Regulation SE. 

A. Rule 811—Information Relating to 

SBSEF Compliance 

1. Harmonization With § 37.5 

Paragraphs (a) to (c) of proposed Rule 

811 are modelled on § 37.5, which is 

entitled ‘‘Information regarding swap 

execution facility compliance.’’ Section 

37.5 provides that the CFTC may 

request various types of information 

from a SEF, and that the SEF must 

supply the information to the CFTC in 

a form and manner specified by the 

CFTC. Paragraph (a) of § 37.5 requires a 

SEF, at the CFTC’s request, to provide 

information related to its business as a 

SEF. Paragraph (b) states that a SEF may 

be required to provide a written 

demonstration, containing supporting 

data, information, and documents that it 

is in compliance with one or more core 

principles or with its other obligations 

under the CEA. Paragraph (c) sets out 

procedures for a SEF to notify the CFTC 

of any transfer of 50% or more of the 

equity interest in the SEF. 

Proposed Rules 811(a) to (c) are 

closely modelled on § 37.5. Paragraph 

(a) of proposed Rule 811 is closely 

modelled on § 37.5(a) and would 

provide that, upon the Commission’s 

request, an SBSEF shall file with the 

Commission information related to its 

business as an SBSEF in the form and 

manner, and within the timeframe, 

specified by the Commission. Paragraph 

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

would provide that, upon the 

Commission’s request, an SBSEF shall 

file with the Commission a written 

demonstration, containing supporting 

data, information, and documents, that 

it is in compliance with one or more 

Core Principles or with its other 

obligations under the SEA or the 

Commission’s rules thereunder, as the 

Commission specifies in its request. 

Also, under proposed Rule 811(b), the 

SBSEF would be required to file such 

written demonstration in the form and 

manner, and within the timeframe, 

specified by the Commission. 

Paragraph (c)(1) of proposed Rule 811 

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

would provide that an SBSEF shall file 

with the Commission a notification of 

any transaction involving the direct or 

indirect transfer of 50% or more of the 

equity interest in the SBSEF. Also, 

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

Commission could, upon receiving such 

notification, request supporting 

documentation of the transaction. 

Paragraph (c)(2) is closely modelled on 

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

equity interest transfer notice shall be 

filed with the Commission in a form and 

manner specified by the Commission at 

the earliest possible time, but in no 


jspears on DSK121TN23PROD with PROPOSALS2
28892 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

88Paragraphs (b) and (d) of § 1.60 apply to futures 

commission merchants and do not appear germane 

to SEFs or SBSEFs. Therefore, the Commission is 

not adapting these paragraphs into proposed Rule 

811(d). 

89Section 1.60(e) requires relevant documents to 

be ‘‘mailed via first-class or submitted by other 

more expeditious means.’’ 

event later than the open of business ten 

business days following the date upon 

which the SBSEF enters into a firm 

obligation to transfer the equity interest. 

Paragraph (c)(3) is closely modelled on 

§ 37.5(c)(3), would provide that, 

notwithstanding the foregoing, if any 

aspect of an equity interest transfer 

requires an SBSEF to file a rule, the 

SBSEF shall comply with the applicable 

rule filing requirements of proposed 

Rule 806 or 807. 

Paragraph (c)(4) of proposed Rule 811 

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

would provide that, upon a transfer of 

an equity interest of 50% or more in an 

SBSEF, the SBSEF shall file with the 

Commission, in a form and manner 

specified by the Commission, a 

certification that the SBSEF meets all of 

the requirements of section 3D of the 

SEA and the Commission rules 

thereunder, no later than two business 

days following the date on which the 

equity interest of 50% or more was 

acquired. 

The Commission preliminarily 

believes that it is appropriate for 

Regulation SE to include provisions 

requiring an SBSEF to provide the 

Commission with the information 

described above. Information about its 

business as an SBSEF and transfers of 

50% of its equity would promote 

understanding of its operations and 

ownership, which should facilitate 

oversight of the SBSEF; therefore, the 

Commission preliminarily believes that 

it should, similar to the CFTC, clarify 

that it may request such information 

from an SBSEF. In addition, should 

questions about compliance arise, the 

Commission should be able to obtain 

from an SBSEF supporting data, 

information, and documents that the 

SBSEF is in compliance with relevant 

obligations under the SEA. By 

modelling its proposed requirements on 

existing CFTC rules, the Commission 

seeks to obtain comparable regulatory 

benefits while imposing only marginal 

additional burdens on dually registered 

entities that are already subject to 

similar obligations. 

The Commission requests comment 

on the following: 

55. Do you believe in general that 

Regulation SE should include a rule that 

would require an SBSEF to provide the 

Commission with information about its 

business or its compliance with the 

SEA, as well as information regarding 

transfers of 50% or more of its equity 

interest? Why or why not? 

56. In particular, do you agree with 

the specific language proposed by the 

Commission to adapt § 37.5 into 

proposed Rule 811? If not, how would 

you revise that language? 

57. Are there any provisions of § 37.5 

that are adapted into proposed Rule 811 

that you believe would be 

inappropriate, or would not create any 

benefit, in a Commission rule applying 

to SBSEFs? If so, please identify any 

such provision, explain why it would be 

inappropriate or unnecessary for 

SBSEFs, and what economic benefit that 

you believe would result from omitting 

it from the Commission’s final rule. 

2. Harmonization With § 1.60 

Paragraph (d) of proposed Rule 811 is 

not modelled on § 37.5 but rather on 

§ 1.60 of the CFTC’s rules, which is 

entitled ‘‘Pending legal proceedings.’’ 

Because it is conceptually similar to 

§ 37.5 in that it requires another type of 

information relevant to the regulatory 

oversight of a SEF, the Commission is 

proposing to adapt this provision into 

Rule 811. 

Section 1.60 requires a SEF (among 

other entities) to provide the CFTC with 

copies of any legal proceeding to which 

it is a party, or to which its property or 

assets is subject. Paragraph (d) of 

proposed Rule 811 would adapt 

paragraphs (a), (c), and (e) of § 1.60 to 

apply to SBSEFs.88

Paragraph (d)(1) of proposed Rule 811 

is closely modelled on § 1.60(a) and 

would provide that an SBSEF shall 

submit to the Commission a copy of the 

complaint, any dispositive or partially 

dispositive decision, any notice of 

appeal filed concerning such decision, 

and such further documents as the 

Commission may thereafter request filed 

in any material legal proceeding to 

which the SBSEF is a party or its 

property or assets is subject. Paragraph 

(d)(2) is closely modelled on § 1.60(c) 

and would provide that an SBSEF shall 

submit to the Commission a copy of the 

complaint, any dispositive or partially 

dispositive decision, any notice of 

appeal filed concerning such decision, 

and such further documents as the 

Commission may thereafter request filed 

in any material legal proceeding 

instituted against any officer, director, 

or other official of the SBSEF from 

conduct in such person’s capacity as an 

official of the SBSEF and alleging 

violations of the SEA or any rule, 

regulation, or order thereunder; the 

constitution, bylaws, or rules of the 

SBSEF; or the applicable provisions of 

State law relating to the duties of 

officers, directors, or other officials of 

business organizations. 

Paragraph (d)(3) of proposed Rule 811 

is loosely modelled on § 1.60(e) and 

would provide that documents required 

by Rule 811(d) to be submitted to the 

Commission shall be submitted 

electronically in a form and manner 

specified by the Commission within ten 

days after the initiation of the legal 

proceedings to which they relate, after 

the date of issuance, or after receipt by 

the SBSEF of the notice of appeal, as the 

case may be.89

Paragraph (d)(4) of proposed Rule 811 

is closely modelled on the final two 

sentences of § 1.60(e) and would 

provide that, for purposes of Rule 

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

includes but is not limited to actions 

involving alleged violations of the SEA 

or the Commission rules thereunder, 

and that a legal proceeding is not 

‘‘material’’ for the purposes of Rule 811 

if the proceeding is not in a Federal or 

State court or if the Commission is a 

party. 

The Commission preliminarily 

believes that, to properly oversee an 

SBSEF, the Commission needs to be 

aware of any pending legal proceedings 

involving the SBSEF or any officer, 

director, or other official of the SBSEF 

from conduct in such person’s capacity 

as an official of the SBSEF. The 

Commission preliminarily believes, 

furthermore, that § 1.60 provides an 

established and well understood 

mechanism for obtaining this 

information, and therefore is using 

§ 1.60 as the model for proposed Rule 

811(d). 

The Commission seeks comment on 

the following: 

58. Do you believe in general that 

Regulation SE should include a rule that 

would require an SBSEF to provide the 

Commission with information about its 

pending legal proceedings? Why or why 

not? 

59. In particular, do you agree with 

the specific language proposed by the 

Commission to adapt § 1.60 into 

proposed Rule 811? If not, how would 

you revise that language? 

60. Are there any provisions of § 1.60 

that are adapted into proposed Rule 811 

that you believe would be 

inappropriate, or would not create any 

benefit, in a Commission rule applying 

to SBSEFs? If so, please identify any 

such provision, explain why it would be 

inappropriate or unnecessary for 

SBSEFs, and what economic benefit that 

you believe would result from omitting 

it from the Commission’s final rule. 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28893 

90The Commission is not adapting into proposed 

Rule 812 paragraphs (a)(2) and (a)(3) of § 37.6, 

which provide that a transaction on a SEF may not 

be invalidated by CFTC proceedings that alter or 

supplement SEF rules, terms, and conditions, 

because the Commission has no authority in the 

SEA analogous to the CFTC’s authority under 

section 8a(7) of the CEA to conduct such 

proceedings. See supra note 66 and accompanying 

text. 

91Section 37.6(b) requires a SEF to provide a 

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

which shall legally supersede any previous 

agreement and serve as a confirmation of the 

transaction.’’ In the adopting release for the final 

part 37 rules, the CFTC explained that, with respect 

to uncleared swaps, a SEF could satisfy this 

requirement by incorporating by reference terms set 

forth in agreements previously negotiated by the 

counterparties, provided that such agreements had 

been submitted to the SEF ahead of execution. See 

2013 CFTC Final SEF Rules Release, 78 FR at 

33491, n. 195. The CFTC staff has provided noaction relief with respect to the confirmation 

requirements for uncleared swaps in response to 

assertions by industry participants that it is 

impracticable for a SEF to satisfy the written 

confirmation requirements by incorporating by 

reference terms from previously negotiated 

agreements between the counterparties if the SEF 

must receive copies of such agreements prior to 

execution. See CFTC No Action Letter 17–17 

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

Market Oversight). In so doing, the CFTC staff 

indicated that it was continuing to assess 

confirmation requirements, including establishing a 

permanent solution to the issues raised. Given these 

circumstances, the Commission preliminarily 

believes that it is appropriate to require an SBSEF 

to provide counterparties with a written record of 

only those terms that are agreed to on the SBSEF. 92 17 CFR 240.15Fi–2(f)(1). 

B. Rule 812—Enforceability 

Section 37.6(a) of the CFTC’s rules 

provides that a transaction entered into 

on or pursuant to the rules of a SEF 

shall not be void, voidable, subject to 

rescission, otherwise invalidated, or 

rendered unenforceable as a result of a 

violation by the SEF of the Core 

Principles or the part 37 rules 

thereunder. Section 37.6(a) also 

provides generally that such a 

transaction would not be void or 

voidable as a result of a CFTC or other 

proceeding to alter or supplement a 

rule, term, or trading rule or procedure. 

Section 37.6(b) requires a SEF to 

provide each counterparty to a 

transaction that is entered into on or 

pursuant to the rules of the SEF with a 

written record of all of the terms of the 

transaction which shall legally 

supersede any previous agreement and 

serve as a confirmation of the 

transaction. Furthermore, under 

§ 37.6(b), the confirmation of all terms 

of the transaction must take place at the 

same time as execution, provided that 

specific customer identifiers for 

accounts included in bunched orders 

need not be included in confirmations 

if certain conditions are met. 

Proposed Rule 812 generally is 

modelled on § 37.6, but omits certain of 

its detailed provisions. Paragraph (a) of 

proposed Rule 812, which is based on 

§ 37.6(a)(1), would provide that a 

transaction on or pursuant to the rules 

of an SBSEF cannot be invalidated as a 

result of a violation by the SBSEF of 

section 3D of the SEA or the 

Commission’s rules thereunder.90 An 

SBS executed on an SBSEF should not 

be invalidated by the SBSEF’s violation 

of any of the securities laws, given that 

swaps executed on SEFs are afforded 

the same legal certainty under § 37.6(a). 

Paragraph (b) of proposed Rule 812 is 

modelled on the first sentence of 

§ 37.6(b) and would provide that an 

SBSEF shall, as soon as technologically 

practicable after the time of execution of 

a transaction entered into on or 

pursuant to the rules of the facility, 

provide a written record to each 

counterparty of all of the terms of the 

transaction that were agreed to on the 

facility, which shall legally supersede 

any previous agreement regarding such 

terms. The Commission preliminarily 

believes that it would be appropriate to 

require an SBSEF to inform 

counterparties as soon as 

technologically practicable after they 

have effected a trade on or pursuant the 

rules of the SBSEF, and to provide them 

with a written record of the terms to 

which they have agreed. The 

Commission also preliminarily believes 

that it would be appropriate to require 

that this written record legally 

supersede any previous agreement 

regarding the terms that were agreed to 

on the SBSEF. The Commission 

recognizes, however, that there may be 

other terms of an uncleared SBS 

transaction that are specified in one or 

more agreements previously negotiated 

between the counterparty pair (relating, 

e.g., to credit support). Because 

agreements between counterparty pairs 

likely are not known or easily obtained 

by an SBSEF, the Commission is not 

including a requirement that the SBSEF 

provide a written record of any such 

terms.91

The Commission seeks comment on 

the following: 

61. Do you believe in general that 

Regulation SE should include a rule 

regarding enforceability of contracts 

entered into on an SBSEF that is 

modelled on § 37.6? Why or why not? 

62. In particular, do you agree with 

the specific language proposed by the 

Commission to adapt § 37.6 into 

proposed Rule 812? If not, how would 

you revise that language? 

63. Are there any provisions of § 37.6 

that the Commission is proposing to 

adapt into Rule 812 that you believe 

would be inappropriate, or fail to create 

any benefit, in a Commission rule 

applicable to SBSEFs? If so, please 

identify any such provision, explain 

why it would be inappropriate or 

unnecessary for SBSEFs, and what 

economic benefit that you believe 

would result from omitting it from the 

Commission’s final rule. 

64. Do you believe that any of the 

provisions of § 37.6 for which the 

Commission has not proposed an analog 

warrant inclusion? If so, which one(s) 

and why? 

65. Rule 15Fi–2(f)(1) under the SEA 92

provides SBS dealers and major SBS 

participants with an exception from the 

trade acknowledgment and verification 

requirements for SBS transactions 

‘‘executed on [an SBSEF] or national 

securities exchange, provided that the 

rules, procedures or processes of the 

[SBSEF] or national securities exchange 

provide for the acknowledgment and 

verification of all terms of the securitybased swap transaction no later than the 

time required by [Rule 15Fi–2(b) and 

(d)(2)]’’ (emphasis added). Proposed 

Rule 812(b) would require an SBSEF to 

provide a written record only of the 

terms of the transaction that are agreed 

to on the SBSEF. As a result, if the 

Commission were to adopt Rule 812(b) 

substantially as proposed, the exception 

in Rule 15Fi–2(f)(1) would not be 

available where the counterparty pair 

has agreed to other terms of the SBS 

transaction away from the SBSEF. Do 

you agree with this result? If not, how 

would an SBSEF be able to provide a 

record of all terms of an SBS transaction 

effected on or pursuant to the rules of 

the SBSEF when there are one or more 

pre-existing agreements between the 

counterparty pair where the 

counterparties agree to additional 

terms? 

C. Rule 813—Prohibited Use of Data 

Collected for Regulatory Purposes 

Section 37.7 of the CFTC’s rules 

provides that a SEF shall not use for 

business or marketing purposes any 

proprietary data or personal information 

that it collects or receives from or on 

behalf of any person for the purpose of 

fulfilling its regulatory obligations. The 

SEF may use data or information for 

business or marketing purposes if the 

person consents, but the SEF may not 

condition access to the SEF on the 

person’s providing such consent. 

Finally, § 37.7 provides that a SEF, 

where necessary for regulatory 

purposes, may share such data or 

information with another SEF or a DCM. 

Proposed Rule 813 is modelled on 

§ 37.7. Persons who trade on an SBSEF 

may have to provide proprietary data or 


jspears on DSK121TN23PROD with PROPOSALS2
28894 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

93 15 U.S.C. 78c–4(c). 

94See 7 U.S.C. 2(h)(1)(A) (mandatory clearing for 

swaps) and 2(h)(8) (mandatory trade execution for 

swaps); 15 U.S.C. 78c–3(a)(1) (mandatory clearing 

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

for SBS). The heads of the Group of Twenty 

countries (‘‘G20’’) have also emphasized the 

importance of exchange-trading of OTC derivatives, 

noting in 2009 that ‘‘[a]ll standardized OTC 

derivative contracts should be traded on exchanges 

or electronic trading platforms, where appropriate, 

and cleared through central counterparties by end2012 at the latest.’’ See G20, Leaders’ Statement: 

The Pittsburgh Summit (September 24–25, 2009) at 

p. 9. 

95S. Rep. No. 111–176, at 34 (2010). See also 

Mark Jickling & Kathleen Ann Ruane, ‘‘The DoddFrank Wall Street Reform and Consumer Protection 

Act: Title VII, Derivatives,’’ Cong. Research Serv., 

R41398, at 7 (August 30, 2010) (explaining that the 

goal of the trade execution requirement is to 

promote pre-trade price transparency). 

96See id. at 34 (quoting Stanford University 

Professor Darrel Duffie: ‘‘The relative opaqueness of 

the OTC market implies that bid/ask spreads are in 

many cases not being set as competitively as they 

would be on exchanges. This entails a loss in 

market efficiency’’). See also id. (quoting 

International Risk Analytics co-founder Christopher 

Whalen: ‘‘The absence of an exchange trading 

mandate provides ‘supra normal returns paid to the 

dealers in the closed OTC derivatives market [and] 

are effectively a tax on other market participants, 

especially investors who trade on open, public 

exchanges’’). 

personal information to the SBSEF from 

time to time to allow the SBSEF to carry 

out its regulatory obligations. The 

Commission preliminarily believes, in 

general, that an SBSEF using that 

information for business or marketing 

purposes would be a misappropriation, 

because the SBSEF’s powers to compel 

production of that information by its 

members is for regulatory purposes, not 

for the benefit of the SBSEF’s business 

interests. While a member of the SBSEF 

could consent to the SBSEF using this 

information for business or marketing 

purposes, the Commission preliminarily 

believes that access to the SBSEF should 

not be conditioned on such consent 

being given. The Commission 

preliminarily believes that § 37.7 is well 

understood by market participants and 

well designed for adaptation to the SBS 

market to deter such misappropriation. 

Therefore, the Commission 

preliminarily believes that close 

harmonization with § 37.7 is 

appropriate. 

The Commission seeks comment on 

the following: 

66. Do you believe in general that 

Regulation SE should include a rule that 

prohibits an SBSEF from using for 

business or marketing purposes any 

proprietary data or personal information 

that it collects or receives from or on 

behalf of any person for the purpose of 

fulfilling its regulatory obligations? Why 

or why not? 

67. In particular, do you agree with 

the specific language proposed by the 

Commission to adapt § 37.7 into 

proposed Rule 813? If not, how would 

you revise that language? 

68. Are there any provisions of § 37.7 

that are adapted into proposed Rule 813 

that you believe would be 

inappropriate, or would not create any 

benefit, in a Commission rule applying 

to SBSEFs? If so, please identify any 

such provision, explain why it would be 

inappropriate or unnecessary for 

SBSEFs, and what economic benefit that 

you believe would result from omitting 

it from the Commission’s final rule. 

D. Rule 814—Entity Operating Both a 

National Securities Exchange and 

SBSEF 

Section 37.8 of the CFTC’s rules 

applies to a board of trade that operates 

both a DCM and a SEF. Paragraph (a) of 

§ 37.8 requires the board of trade to 

separately register the DCM and the SEF 

with the CFTC under the respective 

rules for each type of market. Paragraph 

(b) requires a board of trade that 

operates both types of market and that 

uses the same electronic trade execution 

system for executing and trading swaps 

on both markets to clearly identify to 

market participants whether an 

execution of a swap took place on the 

DCM or on the SEF. 

Proposed Rule 814 is modelled on 

§ 37.8. Paragraph (a) of proposed Rule 

814 would provide that an entity 

intending to operate both a national 

securities exchange and an SBSEF shall 

separately register the two facilities 

pursuant to section 6 of the SEA and 

Rule 803 thereunder. Paragraph (b), 

although adapted generally from 

§ 37.8(b), draws its specific language 

from section 3D(c) of the SEA.93 Section 

3D(c) contemplates that a single entity 

may operate both a national securities 

exchange and an SBSEF, and would 

provide that a national securities 

exchange shall, to the extent that the 

exchange also operates an SBSEF and 

uses the same electronic trade execution 

system for listing and executing trades 

of SBS on or through the exchange and 

the facility, identify whether electronic 

trading of SBS is taking place on or 

through the national securities exchange 

or the SBSEF. Proposed Rule 814(b) 

copies section 3D(c) of the SEA 

verbatim. 

The Commission preliminarily 

believes that it is appropriate for 

proposed Regulation SE to include a 

rule that clarifies the registration status 

of an entity that operates both an 

exchange and an SBSEF, and that 

broadly parallels § 37.8. 

The Commission seeks comment on 

the following: 

69. Do you believe in general that 

Regulation SE should include a rule that 

clarifies the registration status of an 

entity that operates both an exchange 

and an SBSEF? Why or why not? 

70. In particular, do you agree with 

the specific language proposed by the 

Commission in Rule 814? If not, how 

would you revise that language? 

71. Do you believe that more detailed 

rules are necessary to address the extent 

to which an entity should keep separate 

its exchange and its SBSEF or, 

conversely, areas where overlapping 

functionality or personnel should 

expressly be allowed? If so, please 

discuss. 

E. Rule 815—Methods of Execution for 

Required and Permitted Transactions 

A key goal of the Dodd-Frank Act is 

to bring trading of swaps and SBS onto 

regulated markets, as reflected in the 

statutory requirements for mandatory 

clearing and mandatory trade execution 

of certain swap and SBS products.94 If 

the relevant agency makes a mandatory 

clearing determination regarding a 

product, the product becomes subject to 

mandatory trade execution if at least 

one DCM/exchange or SEF/SBSEF 

makes the product ‘‘available to trade.’’ 

The legislative history of the DoddFrank Act indicates that exchange 

trading is a mechanism to ‘‘provide preand post-trade transparency for end 

users, market participants, and 

regulators.’’ 95 Exchange trading also 

enhances market efficiency by allowing 

multiple market participants the 

opportunity to compete for individual 

transactions on price, in contrast to the 

bilateral, dealer-driven market that 

prevailed before the Dodd-Frank Act.96

The Dodd-Frank Act does not require, 

however, that all products be subject to 

mandatory clearing and/or mandatory 

trade execution, and does not impose 

any execution requirements for 

transactions in such products. Section 

37.9 of the CFTC’s rules addresses these 

issues using the concepts of ‘‘Required 

Transaction’’ and ‘‘Permitted 

Transaction.’’ The Commission is 

proposing Rule 815 of Regulation SE to 

adapt § 37.9 for SBSEFs. 

Section 37.9(a) defines a ‘‘Required 

Transaction’’ as any transaction 

involving a swap that is subject to the 

trade execution requirement in section 

2(h)(8) of the CEA, subject to certain 

exceptions. Section 37.9(c) defines a 

‘‘Permitted Transaction’’ as the obverse 

of a Required Transaction: Any 

transaction involving a swap that is not 

subject to the CEA’s trade execution 

requirement. Section 37.9(c) provides 

that a SEF may offer any method of 

execution for a Permitted Transaction. 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28895 

97Section 37.9(a)(2)(i)(A) defines ‘‘order book’’ by 

cross-referencing to § 37.3(a)(3) for a definition of 

‘‘order book,’’ which in turn relies on crossreferences to other provisions of the CEA for the 

embedded terms ‘‘trading facility’’ and ‘‘electronic 

trading facility.’’ 

98Section 37.9(a)(3) defines ‘‘request for quote 

system’’ as a trading system or platform in which 

a market participant transmits a request for a quote 

to buy or sell a specific instrument to no less than 

three market participants in the trading system or 

platform, to which all such market participants may 

respond. § 37.9(a)(3) further provides that, to meet 

the definition, the three market participants shall 

not be affiliates or controlled by the requester, and 

shall not be affiliates of or controlled by each other. 

99Section 37.9(b) permits a SEF to adjust the 

time-delay requirement to something other than 15 

seconds, based on a swap’s liquidity or other 

product-specific considerations. However, any such 

adjustment must still be for a sufficient length so 

that an order is exposed to the market and other 

market participants have a meaningful opportunity 

to execute against it. 

100 15 U.S.C. 78c–4(d)(2)(C); 7 U.S.C. 7b– 

3(f)(2)(C). 

In addition, § 37.9(a) provides that a 

Required Transaction that is not a block 

trade must generally be executed by a 

SEF using an order book 97 or a requestfor-quote (‘‘RFQ’’) system.98

Under § 37.9(a)(3), a SEF that offers an 

RFQ system in connection with a 

Required Transaction must, at the same 

time that the requester receives the first 

responsive bid or offer, communicate to 

the requester any firm bid or offer 

pertaining to the same instrument 

resting on any of the SEF’s order books. 

In addition, the SEF must provide the 

requester with the ability to execute 

against such firm resting bids or offers 

along with any responsive orders. 

Finally, the SEF must ensure that its 

trading protocols provide each of its 

market participants with equal priority 

in receiving requests for quotes and in 

transmitting and displaying for 

execution responsive orders. 

Section 37.9(b) establishes a timedelay requirement for a Required 

Transaction on an order book. Under the 

rule, a SEF must require that a broker 

or dealer who seeks to either execute 

against its customer’s order or to 

execute two of its customers’ orders 

against each other through the SEF’s 

order book (following some form of prearrangement or pre-negotiation of such 

orders) be subject to at least a 15-second 

time delay between the entry of those 

two orders into the order book, such 

that one side of the potential transaction 

is disclosed and made available to other 

market participants before the second 

side of the potential transaction, 

whether for the broker’s or dealer’s own 

account or for the second customer, is 

submitted for execution.99

Paragraphs (a) through (c) of proposed 

Rule 815 are modelled on paragraphs (a) 

through (c) of § 37.9. Proposed Rule 

815(a)(1), based on § 37.9(a)(1), would 

define ‘‘Required Transaction’’ as ‘‘any 

transaction involving a security-based 

swap that is subject to the trade 

execution requirement in section 3C(h) 

of the Act.’’ Proposed Rule 815(a)(2), 

based on § 37.9(a)(2), would specify 

execution methods for Required 

Transactions. Proposed Rule 815(a)(3), 

based on § 37.9(a)(3), would define an 

RFQ system as ‘‘a trading system or 

platform in which a market participant 

transmits a request for a quote to buy or 

sell a specific instrument to no less than 

three market participants in the trading 

system or platform, to which all such 

market participants may respond’’ and 

specify other requirements for an RFQ 

system to be recognized as such under 

the rule. The three market participants 

could not be affiliates of or controlled 

by the requester and shall not be 

affiliates of or controlled by each other. 

Also, an SBSEF that offers an RFQ 

system in connection with a Required 

Transaction would be required, at the 

same time that the requester receives the 

first responsive bid or offer, to 

communicate to the requester any firm 

bid or offer pertaining to the same SBS 

resting on any of the SBSEF’s order 

books. In addition, the SBSEF would be 

required to provide the requester with 

the ability to execute against such firm 

resting bids or offers along with any 

responsive orders. Finally, the SBSEF 

would be required to ensure that its 

trading protocols provide each of its 

members with equal priority in 

receiving requests for quotes and in 

transmitting and displaying for 

execution responsive orders. 

Paragraph (b) of proposed Rule 815 is 

modelled on § 37.9(b) and would 

provide for a time delay requirement for 

Required Transactions on an order book. 

Section 37.9(b) recognizes that there are 

situations where a broker or dealer 

might seek to trade against a customer 

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

two customer orders (a ‘‘customer 

cross’’) where the product being traded 

is subject to mandatory trade execution. 

Under § 37.9(b), the broker or dealer 

must expose customer orders on the SEF 

order book for a required minimum 

period so that other market participants 

have the opportunity to offer a better 

price than the broker or dealer had 

intended for the cross. Proposed Rule 

815(b) closely follows the orderhandling requirements of § 37.9(b) for 

facilitation and customer crosses that 

are Required Transactions. 

The Commission preliminarily 

believes that the CFTC’s rules relating to 

Required Transactions are reasonably 

designed to promote price competition 

in products that are subject to the trade 

execution requirement. The 

Commission recognizes that, when 

considering rules for SBS that are 

subject to mandatory clearing and 

mandatory trade execution, additional 

or different criteria could plausibly 

achieve the goal of promoting price 

competition. It is debatable, for 

example, whether slightly different 

standards—such as RFQ-to-4 or RFQ-to2 in lieu of RFQ-to-3, or a 30-second 

book-exposure requirement instead of 

15 seconds—might promote these ends 

more effectively. However, the 

Commission’s determination to propose 

rules that are closely modelled on those 

in § 37.9 reflects the baseline 

established by the CFTC rules. Most if 

not all SBSEFs will be dually registered 

with the CFTC as SEFs, and most if not 

all market participants in the SBS 

market will likely be participants in the 

swap market. The Commission 

appreciates that different or additive 

requirements—particularly for the key 

concept of a ‘‘Required Transaction’’— 

could introduce complexity and 

confusion if one set of trading protocols 

applied to Required Transactions for 

SBS but different protocols—ones that 

have been understood and utilized for 

many years—applied to Required 

Transactions for swap transactions. 

Under both the CEA and SEA, Core 

Principle 2 requires a SEF/SBSEF to 

specify trading procedures to be used in 

entering and executing orders on the 

facility, including block trades.100 The 

CFTC implements this provision by 

excepting block trades from the required 

execution methods in § 37.9(a)(2). That 

rule cross-references § 43.2, which 

defines the term ‘‘block trade’’ for 

purposes of public dissemination of 

swap transactions. 

The Commission preliminarily 

believes that it should adopt an 

approach to block trades in Regulation 

SE that closely aligns with the approach 

taken by the CFTC. The purpose of 

having a block exception to the required 

methods of execution is to balance the 

promotion of price competition and allto-all trading against the potential costs 

to market participants who wish to trade 

large orders. Forcing a market 

participant who seeks liquidity to 

expose a large order to a SEF/SBSEF 

order book or to utilize RFQ-to-3 could 

cause the market to move against the 

liquidity requester before it can obtain 

an execution. Under the CFTC’s rules, a 

block trade in a product that is subject 

to mandatory trade execution may be 

traded on-SEF using flexible means of 

execution on the SEF’s non-order-book 

trading system or platform, or away 

from a SEF’s trading system or platform, 


jspears on DSK121TN23PROD with PROPOSALS2
28896 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

101See SEA Release No. 87780 (December 18, 

2019), 85 FR 6270, 6347 (February 4, 2020) (‘‘ANE 

Adopting Release and No-Action Statement’’) 

(stating, in relevant part, that there would not be a 

basis for a Commission enforcement action if ‘‘a 

registered SDR does not disseminate an SBS 

transaction in a manner consistent with Rule 902 

[of Regulation SBSR] but instead disseminates (or 

does not disseminate), the SBS transaction in a 

manner consistent with part 43 of the CFTC’s swap 

reporting rules in force at the time of the 

transaction, provided that for an SBS based on a 

single credit instrument or a narrow-based index of 

credit instruments having a notional size of $5 

million or greater, the registered SDR that receives 

the report of the SBS transaction does not utilize 

any capping or bucketing convention under part 43 

of the CFTC’s swap reporting rules but instead 

disseminates a capped size of $5 million (e.g., 

‘$5MM+’ or similar) in lieu of the true notional 

size’’). 

102See id. at n. 768 (citing FINRA Regulatory 

Notice 12–39, available at https://www.finra.org/ 

rules-guidance/notices/12-39). 

103To the extent that counterparties may be 

facilitating a package transaction that involves a 

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

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

sale of a commodity for future delivery (or option 

on such a contract), or any component agreement, 

contract, or transaction over which the Commission 

does not have exclusive jurisdiction, the 

Commission does not opine on whether such 

activity complies with other applicable law and 

regulations. 

provided that it is executed pursuant to 

the SEF’s rules and procedures. 

Proposed Rule 815(a)(2) would 

exclude block trades from the required 

execution methods using language 

closely modelled on § 37.9(a)(2). The 

Commission also preliminary believes 

that it should align the definition of 

‘‘block trade’’ in proposed Regulation 

SE as closely as possible to the CFTC’s 

definition. Therefore, the proposed 

definition—located in proposed Rule 

802 of Regulation SE—is based on the 

four-pronged definition found in 

§ 43.2(a), but with one modification. 

The third prong of the CFTC definition 

characterizes a block trade in a 

particular swap as having ‘‘a notional or 

principal amount at or above the 

appropriate minimum block size 

applicable to such swap.’’ Appendix F 

to the CFTC’s part 43 divides swap asset 

classes into a number of categories, and 

sets forth a minimum block size 

threshold to each category. SBS are not 

within the CFTC’s jurisdiction, so the 

CFTC has never considered what an 

appropriate minimum block size 

threshold would be for any SBS asset 

class. In this respect, there is no 

threshold for the SEC to harmonize 

with, so the Commission is proposing to 

establish a threshold tailored 

specifically for the SBS market. 

For the third prong of the ‘‘block 

trade’’ definition, the Commission is 

proposing that the SBS is based on a 

single credit instrument (or issuer of 

credit instruments) or a narrow-based 

index of credit instruments (or issuers of 

credit instruments) having a notional 

size of $5 million or greater. The 

Commission previously employed a $5 

million block threshold for credit SBS 

as a condition to one prong of its noaction statement regarding Regulation 

SBSR.101 In imposing that condition, the 

Commission noted that the Financial 

Industry Regulatory Authority 

(‘‘FINRA’’) applies a $5 million cap 

when disseminating transaction reports 

of economically similar cash debt 

securities.102

The proposed definition of ‘‘block 

trade’’ in Rule 802 does not include any 

equity SBS. In this regard, the 

Commission’s approach follows the 

CFTC’s; appendix F to the CFTC’s part 

43 does not include a block threshold 

for any type of equity swap. 

Accordingly, no equity swap may 

qualify for the exception to required 

means of execution for block trades 

provided in § 37.9(a)(2), and no equity 

SBS could qualify for the exception to 

required means of execution for block 

trades in proposed Rule 815(a)(2). 

Paragraphs (d) and (e) of § 37.9 

provide additional exceptions that allow 

for flexible methods of execution for 

what would otherwise be Required 

Transactions. The Commission would 

include similar exceptions in proposed 

Rules 815(d) and (e). 

Paragraph (d) of § 37.9 allows for 

flexible methods of execution for 

package transactions that meet certain 

enumerated criteria. § 37.9(d)(1) defines 

‘‘package transaction’’ as two or more 

component transactions executed 

between two or more counterparties 

where at least one component is a 

Required Transaction, execution of each 

component is contingent upon the 

execution of all other components, and 

the component transactions are priced 

or quoted together as one economic 

transaction with simultaneous (or nearsimultaneous) execution of all 

components. Section 37.9(d)(2) provides 

that a Required Transaction that is 

executed as a component of a package 

transaction that includes a component 

swap that is subject exclusively to the 

CFTC’s jurisdiction, but is not subject to 

mandatory clearing, may be executed on 

a SEF using any method of execution as 

if it were a Permitted Transaction. 

Section 37.9(d)(3) provides that a 

Required Transaction that is executed as 

a component of a package transaction 

that includes a component that is not a 

swap may be executed on a SEF using 

any method of execution as if it were a 

Permitted Transaction. Section 

37.9(d)(3) further states that this general 

exception, which allows flexible means 

of execution for certain package 

transactions, shall not apply to a 

Required Transaction that is executed as 

a component of a package transaction in 

which all other non-swap components 

are U.S. Treasury securities; a Required 

Transaction that is executed as a 

component of a package transaction in 

which all other non-swap components 

are contracts for the purchase or sale of 

a commodity for future delivery; a 

Required Transaction that is executed as 

a component of a package transaction in 

which all other non-swap components 

are agency mortgage-backed securities; 

or a Required Transaction that is 

executed as a component of a package 

transaction that includes a component 

transaction that is the issuance of a 

bond in a primary market. 

Proposed Rule 815(d) is closely 

modelled on § 37.9(d) and is designed to 

balance the goal of promoting 

transparency in the SBS market through 

required methods of execution against 

the market efficiency of allowing 

multiple instruments to trade as a 

package using flexible methods of 

execution.103 A rule that was too lenient 

could subvert the goal of promoting 

transparency and competition through 

all-to-all trading, while a rule that was 

too strict could cause market 

participants to break the package into its 

individual components, thereby 

increasing transaction costs and 

reducing the economic purpose and 

efficiency of the package transaction. 

The Commission preliminarily believes 

that the CFTC has struck an appropriate 

balance between these competing policy 

goals in § 37.9(d), and is therefore 

proposing to align its own rule closely 

with the CFTC’s. The Commission 

recognizes, however, that the kinds of 

packages described in § 37.9(d)(3) might 

be used only in the swap market and 

might not be utilized in the SBS market. 

The Commission seeks comment on that 

matter below. 

Section 37.9(e) sets out procedures for 

resolution of operational and clerical 

error trades, which could be for swaps 

that otherwise would be subject to 

required means of execution. Section 

37.9(e)(1) defines the terms ‘‘correcting 

trade,’’ ‘‘error trade,’’ and ‘‘offsetting 

trade’’ that are used in the rule. Section 

37.9(e)(2) requires a SEF to maintain 

rules and procedures that facilitate the 

resolution of error trades and sets forth 

certain requirements designed to 

promote resolution in a fair, transparent, 

and consistent manner. As their names 

suggest, these types of trades are 

necessary to reverse errors. They are not 

conducted for the purpose of 

competitive price discovery and thus 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28897 

104See proposed Rule 802 (defining ‘‘correcting 

trade’’ as a trade executed and submitted for 

clearing to a registered clearing agency with the 

same terms and conditions as an error trade other 

than any corrections to any operational or clerical 

error and the time of execution; defining ‘‘error 

trade’’ as any trade executed on or subject to the 

rules of an SBSEF that contains an operational or 

clerical error; and defining ‘‘offsetting trade’’ as a 

trade executed and submitted for clearing to a 

registered clearing agency with terms and 

conditions that economically reverse an error trade 

that was accepted for clearing). These proposed 

definitions are modelled on the definitions of the 

same terms in § 37.9(e)(1). 

105CFTC, Post Trade Name Give-Up on Swap 

Execution Facilities, 85 FR 44693, 44695 (July 24, 

2020). 

the pre-trade transparency goals for 

SEF/SBSEF trading are not implicated. 

Proposed Rule 815(e) is modelled on 

§ 37.9(e), although definitions of the 

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

and ‘‘offsetting trade’’ would be 

included in proposed Rule 802 rather 

than in proposed Rule 815(e).104 A fair 

and orderly market needs rules to 

address error trades when they occur, 

and such rules should be fair, 

transparent, and consistent. The market 

might need to make correcting trades or 

offsetting trades to reverse the effect of 

the original error trade. The CFTC’s 

rules for addressing error trades are well 

articulated and well understood by the 

market, so the Commission 

preliminarily believes that they serve as 

an appropriate model for the 

Commission’s rules. Furthermore, 

because most if not all SBSEFs also will 

be registered with the CFTC as SEFs, 

close harmonization in this regard 

would allow dually registered entities to 

employ the same procedures for 

addressing error trades, whether they 

arise in the context of swap trading or 

SBS trading. 

Section 37.9(f) addresses counterparty 

anonymity and is widely referred to as 

the prohibition on ‘‘post-trade name 

give-up.’’ Section 37.9(f) generally 

prohibits any person, directly or 

indirectly (including through a thirdparty service provider), from disclosing 

the identity of a counterparty to a swap 

that is executed anonymously on a SEF 

and intended to be cleared, and requires 

the SEF to establish and maintain rules 

to that effect. Section 37.9(f) provides 

that ‘‘executed anonymously’’ as used in 

the rule includes a swap that is prearranged or pre-negotiated 

anonymously, including by a SEF 

participant. Finally, § 37.9(f) provides 

that, where a package transaction 

includes a component swap that is not 

intended to be cleared, disclosing the 

identity of a counterparty would not 

violate § 37.9. 

Proposed Rule 815(f) is modelled on 

§ 37.9(f). The Commission preliminarily 

agrees with the CFTC that prohibiting 

post-trade name give-up is reasonably 

necessary to facilitate and promote 

trading on SEFs.105 The practice of 

requiring disclosure of one 

counterparty’s name to the other 

counterparty (i.e., ‘‘name give-up’’) 

increases the risk of information leakage 

and can deter participation by liquidity 

seekers on SEFs and SBSEFs. The 

Commission preliminarily believes, like 

the CFTC, that prohibiting post-trade 

name give-up will promote pre-trade 

price transparency by encouraging a 

greater number, and a more diverse set, 

of market participants to anonymously 

post bids and offers on regulated 

markets. Therefore, the Commission 

preliminarily that it should incorporate 

the same prohibition into Regulation SE. 

The Commission seeks comment on 

the following: 

72. Do you believe in general that the 

CFTC’s concepts of ‘‘Required 

Transactions’’ and ‘‘Permitted 

Transactions’’ should be incorporated 

into proposed Regulation SE? Why or 

why not? 

73. In particular, do you believe that 

the execution methods set forth in § 37.9 

for Required Transactions are 

appropriate for SBSEFs and the SBS 

market? Why or why not? Do you 

observe differences between swap and 

SBS products that warrant different or 

additional criteria for Required 

Transactions on SBSEFs? If so, please 

describe those differences, and suggest 

and justify any different execution 

methods for Required Transactions in 

SBS that you believe appropriate. 

74. Do you believe that proposed Rule 

815 should harmonize with the CFTC 

rule for handling facilitation and 

customer crosses in products subject to 

the trade execution requirement? Why 

or why not? If not, please suggest and 

justify any different order-handling 

requirements that you believe 

appropriate. 

75. Do you agree in general with 

excepting block trades from the required 

methods of execution? Why or why not? 

76. Do you agree in general with the 

Commission’s proposed approach of 

adapting the CFTC definition of ‘‘block 

trade’’ from § 43.2 for SBSEFs? Why or 

why not? 

77. Do you agree in particular with 

the $5 million prong of the SEC’s 

proposed definition of ‘‘block trade’’? 

Why or why not? Do you believe that a 

threshold other than $5 million would 

be appropriate? If so, what numerical 

threshold and why? Do you believe that 

there should be different thresholds for 

different asset classes (or sub-asset 

classes)? If so, please discuss. 

78. Do you believe in general that the 

Commission, like the CFTC in § 37.9(d), 

should allow for flexible means of 

execution for an SBS subject to the trade 

execution requirement when it is part of 

a package trade? Why or why not? 

79. If so, do you believe that the 

exceptions to required methods of 

execution for package transactions set 

forth in proposed Rule 815(d) are 

appropriate? Why or why not? Are there 

aspects of the CFTC’s criteria that are 

not relevant for the SBS market and 

should be omitted? If so, which 

provision(s) and why? Are there 

different types of packages that involve 

SBS that are not prevalent in the swap 

market that should be incorporated into 

the SEC’s exceptions? If so, please 

describe these packages and suggest an 

appropriate way to characterize them in 

Rule 815(d). 

80. Do you agree with how the 

Commission is proposing to harmonize 

with the § 37.9(d)(3)’s ‘‘exceptions to the 

exception’’ for package trades in 

proposed Rule 815(d)(3)? Why or why 

not? Are the kinds of packages 

described in § 37.9(d)(3) unique to the 

swap market? If there are other types of 

package transactions involving SBS that 

you believe should be subject to 

required means of execution despite 

allowing other types of packages to use 

flexible means of execution, please 

describe these types of packages and 

explain why you believe they should 

nevertheless be subject to required 

means of execution. 

81. Do you believe in general that the 

Commission, like the CFTC in § 37.9(e), 

should allow for flexible means of 

execution for products that otherwise 

would be subject to the trade execution 

requirement when an SBSEF is 

performing a correcting, error, or 

offsetting trade? Why or why not? 

82. If so, do you believe that the SEC’s 

proposed definitions for these terms, 

which are closely modelled on the 

CFTC’s definitions, are appropriate? 

Why or why not? If not, what alternative 

definition(s) would you suggest, and 

why? 

83. Do you agree in general that the 

SEC rules for SBSEFs, like the CFTC 

rules for SEFs, should prohibit posttrade name give-up? Why or why not? 

If so, do you agree with the manner in 

which the Commission is proposing to 

implement it (i.e., close harmonization 

with § 37.9(f))? Why or why not? 


jspears on DSK121TN23PROD with PROPOSALS2
28898 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

106 15 U.S.C. 78c–3. 

107An SBS exchange, like all national securities 

exchanges, must submit any rule change—including 

a rule change to list a new derivative securities 

product and/or to MAT an SBS product—pursuant 

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

Commission is not proposing to establish a new 

procedure for SBS exchanges to list or MAT SBS 

products. 

108See CFTC, Swap Execution Facility 

Requirements, 85 FR 82313, 82320 (December 18, 

2020). 

109 15 U.S.C. 78mm(a)(1). 

F. Rule 816—Trade Execution 

Requirement and Exemptions 

Therefrom 

Section 3C of the SEA 106 sets out a 

procedure whereby an SBS becomes 

subject to mandatory clearing. Section 

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

transaction involving an SBS is subject 

to the mandatory clearing requirement, 

the counterparties shall execute the 

transaction on an exchange, on an 

SBSEF registered under section 3D of 

the SEA, or on an SBSEF that is exempt 

from registration under section 3D(e) of 

the SEA, unless no exchange or SBSEF 

makes the SBS available to trade or if 

the SBS transaction is subject to an 

exception from the clearing requirement 

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

obligation under section 3C(h) is 

commonly referred to as the ‘‘trade 

execution requirement.’’ Proposed Rule 

816 of Regulation SE would establish 

procedures for an SBSEF to make an 

SBS available to trade (assuming it is 

also subject to the clearing requirement), 

thereby activating the trade execution 

requirement with respect to that SBS. 

Proposed Rule 816 also would include 

three proposed exemptions from the 

trade execution requirement. 

1. Process for an SBSEF To Make an 

SBS Product Available To Trade 

Paragraphs (a) through (d) of proposed 

Rule 816 are modelled on § 37.10 of the 

CFTC’s rules and would establish a 

process whereby an SBS product is 

‘‘made available to trade’’ (‘‘MAT’’) by 

an SBSEF. An SBSEF may list an SBS 

that is subject to mandatory clearing, 

but listing the product does not by itself 

subject the product to the trade 

execution requirement in section 3C(h) 

of the SEA. Only if a product that is 

subject to mandatory clearing is listed 

and MAT would the SBS then become 

subject to the trade execution 

requirement. A MAT determination 

would have to be made and filed by an 

SBSEF pursuant to proposed Rule 816 

to trigger the trade execution 

requirement, similar to the MAT process 

of § 37.10. 

Paragraph (a)(1) of proposed Rule 816, 

like § 37.10(a)(1), would provide that an 

SBSEF that makes an SBS available to 

trade in accordance with paragraph (b) 

of this section, must submit to the 

Commission its determination with 

respect to such SBS as a rule, pursuant 

to the procedures under proposed Rule 

806 or 807. Paragraph (a)(2), modelled 

on § 37.10(a)(2), would provide that an 

SBSEF that makes an SBS available to 

trade must demonstrate that it lists or 

offers that SBS for trading on its trading 

system or platform. 

Paragraph (b) of proposed Rule 816 

would set out the factors that an SBSEF 

must consider when making a MAT 

determination for an SBS product. 

Proposed Rule 816(b) would incorporate 

the same six factors enumerated in 

§ 37.10(b): (1) Whether there are ready 

and willing buyers and sellers; (2) The 

frequency or size of transactions; (3) The 

trading volume; (4) The number and 

types of market participants; (5) The 

bid/ask spread; and (6) The usual 

number of resting firm or indicative bids 

and offers. 

Paragraph (c) of proposed Rule 816, 

modelled on § 37.10(c), would provide 

that, upon a determination that an SBS 

is MAT on an SBSEF or SBS 

exchange,107 all other SBSEFs and SBS 

exchanges shall comply with the 

requirements of section 3C(h) of the 

SEA in listing or offering such SBS for 

trading. Paragraph (d) of proposed Rule 

816, like § 37.10(d), would provide that 

the Commission may issue a 

determination that an SBS is no longer 

MAT upon determining that no SBSEF 

or SBS exchange lists such SBS for 

trading. 

The Commission preliminarily 

believes that it is appropriate for 

Regulation SE to establish a mechanism 

whereby an SBSEF can MAT an SBS 

product, and that this mechanism 

should align with the CFTC’s as closely 

as possible. The CFTC’s procedures are 

well articulated and well understood by 

SEFs, so the Commission preliminarily 

believes that closely harmonizing with 

these procedures would yield 

comparable regulatory benefits while 

minimizing burdens on SBSEFs. In 

particular, the Commission 

preliminarily believes that the criteria 

for MAT consideration are equally 

applicable to the SEF and SBSEF 

markets, and thus the Commission is 

not proposing any different or 

additional criteria that would have to be 

considered by an SBSEF when it wishes 

to MAT an SBS product. 

The Commission seeks comment on 

the following: 

84. Do you believe in general that 

Regulation SE should establish a 

process whereby an SBSEF can MAT an 

SBS product that harmonizes closely 

with § 37.10? Why or why not? 

85. In particular, do you object to any 

of the specific language choices made to 

adapt § 37.10 into proposed Rules 816(a) 

to (d)? If so, what alternative language 

would you suggest? 

86. Are there any provisions of § 37.10 

that are adapted into proposed Rules 

816(a) to (d) that you believe would be 

inappropriate, or would not create any 

benefit, in a Commission rule applying 

to SBSEFs? If so, please identify any 

such provision, explain why it would be 

inappropriate or unnecessary for 

SBSEFs, and what economic benefit that 

you believe would result from omitting 

it from the Commission’s final rule. 

2. Exemptions From Trade Execution 

Requirement 

Paragraph (e) of proposed Rule 816 

has no analog in § 37.10, but instead is 

adapted from § 36.1, which sets out 

certain exemptions from the trade 

execution requirement. The exemptions 

incorporated into § 36.1 result from the 

CFTC’s many years of experience in 

administering the CEA’s trade execution 

requirement. The Commission 

preliminarily believes that it should 

borrow from the CFTC’s experience and 

incorporate the same exemptions into 

Regulation SE. 

Paragraph (e)(1) of proposed Rule 816, 

modelled on § 36.1(a), would provide 

that an SBS transaction that is executed 

as a component of a package transaction 

that also includes a component 

transaction that is the issuance of a 

bond in a primary market is exempt 

from the trade execution requirement in 

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

paragraph (e)(1), like § 36.1(a), would 

provide that, for purposes of paragraph 

(e), a package transaction would consist 

of two or more component transactions 

executed between two or more 

counterparties where at least one 

component transaction is subject to the 

trade execution requirement in section 

3C(h) of the SEA; execution of each 

component transaction is contingent 

upon the execution of all other 

component transactions; and the 

component transactions are priced or 

quoted together as one economic 

transaction with simultaneous or nearsimultaneous execution of all 

components. 

For the same reasons identified by the 

CFTC,108 the Commission, pursuant to 

section 36(a)(1) of the SEA,109

preliminarily believes that it is 

necessary or appropriate in the public 

interest, and is consistent with the 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28899 

110By its terms, section 2(h)(8) of the CEA 

provides that the trade execution requirement does 

not apply to swaps that are excepted from the 

clearing requirement pursuant to section 2(h)(7) of 

the CEA. However, when adopting § 36.1(b), the 

CFTC noted that it also has adopted exemptions 

from the clearing requirement pursuant to other 

statutory authority (i.e., its exemptive authority 

under CEA section 4(c)). See CFTC, Exemptions 

From Swap Trade Execution Requirement, 86 FR 

8993, 8995 (February 11, 2021) (‘‘CFTC Swap Trade 

Execution Exemptions Release’’) (discussing 

exemptions relating to cooperatives and interaffiliate swaps). 

111The Commission notes that section 3C(g) of 

the SEA is entitled ‘‘Exceptions,’’ not 

‘‘Exemptions.’’ 

112As with section 2(h)(8) of the CEA, section 

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

requirement does not apply to SBS that are 

excepted from the clearing requirement pursuant to 

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

could, like the CFTC, grant exemptions from the 

clearing requirement pursuant to other statutory 

authority, such as section 36 of the SEA. 

113See CFTC, Swap Trade Execution Exemptions 

Release, 86 FR at 8996. 

114See id. 

115See id. at 8997. 

116See id. 

117See id. 

118See id. at 8998. 

protection of investors, to exempt SBS 

from the trade execution requirement in 

section 3C(h) of the SEA if the criteria 

in proposed Rule 816(e)(1) are met. 

Section 36.1(b) provides that section 

2(h)(8) of the CEA does not apply to a 

swap transaction that qualifies for the 

exception under section 2(h)(7) of the 

CEA or an exception or exemption 

under part 50 of the CFTC’s rules, and 

for which the associated requirements 

are met.110 The Commission is 

proposing to adapt § 36.1(b) as 

paragraph (e)(2) of proposed Rule 816, 

to provide that section 3C(h) of the SEA 

does not apply to an SBS transaction 

that qualifies for an exception 111 under 

section 3C(g) of the SEA, or any 

exemption from the clearing 

requirement that is granted by the 

Commission, for which the associated 

requirements are met.112 Unlike the 

CFTC, the Commission does not have a 

specific rule to cite to regarding 

exemptions from the clearing 

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

would refer only generally to such 

exemptions. 

When adopting § 36.1(b), the CFTC 

found that exempting swaps that 

qualified for an exemption from or 

exception to the clearing requirement 

was consistent with its authority under 

section 4(c) of the CEA.113 The CFTC 

also noted Congress’s intent to link the 

clearing requirement with the trade 

execution requirement, so that a swap 

that was exempted or excepted from the 

former also should be exempted from 

the latter.114 For the same reasons 

identified by the CFTC, the 

Commission, pursuant to section 

36(a)(1) of the SEA, preliminarily 

believes that it is necessary or 

appropriate in the public interest, and is 

consistent with the protection of 

investors, to exempt an SBS from the 

trade execution requirement in section 

3C(h) of the SEA if the SBS qualifies for 

an exception under section 3C(g) of the 

SEA, or benefits from any exemption 

from the clearing requirement that is 

granted by the Commission, for which 

the associated requirements are met. 

Section 36.1(c) provides that section 

2(h)(8) of the CEA does not apply to a 

swap transaction that is executed 

between counterparties that have 

eligible affiliate counterparty status 

pursuant to paragraph (a) of § 50.52 of 

the CFTC’s rules, which provides an 

exception from the clearing requirement 

for inter-affiliate swaps, subject to 

conditions. Counterparties to a swap 

that have eligible affiliate counterparty 

status may rely on the § 36.1(c) even if 

they clear the swap transaction. The 

Commission is proposing to adapt 

§ 36.1(c) as paragraph (e)(3) of proposed 

Rule 816 to provide that section 3C(h) 

of the SEA does not apply to an SBS 

transaction that is executed between 

counterparties that qualify as ‘‘eligible 

affiliate counterparties.’’ Since the 

Commission does not have an 

equivalent to § 50.52 to reference, the 

Commission is proposing instead to 

define the term ‘‘eligible affiliate 

counterparties’’ directly in proposed 

Rule 816(e)(3). 

Counterparties would be ‘‘eligible 

affiliate counterparties’’ for purposes of 

proposed Rule 816(e)(3) if: (i) One 

counterparty, directly or indirectly, 

holds a majority ownership interest in 

the other counterparty, and the 

counterparty that holds the majority 

interest in the other counterparty 

reports its financial statements on a 

consolidated basis under Generally 

Accepted Accounting Principles or 

International Financial Reporting 

Standards, and such consolidated 

financial statements include the 

financial results of the majority-owned 

counterparty; or (ii) a third party, 

directly or indirectly, holds a majority 

ownership interest in both 

counterparties, and the third party 

reports its financial statements on a 

consolidated basis under Generally 

Accepted Accounting Principles or 

International Financial Reporting 

Standards, and such consolidated 

financial statements include the 

financial results of both of the 

counterparties. In addition, for purposes 

of proposed Rule 816(e)(3), a 

counterparty or third party directly or 

indirectly would hold a majority 

ownership interest if it directly or 

indirectly holds a majority of the equity 

securities of an entity, or the right to 

receive upon dissolution, or the 

contribution of, a majority of the capital 

of a partnership. These definitions 

closely are modelled on the equivalent 

definitions used in § 50.52, which are 

incorporated into § 36.1(c). 

When adopting § 36.1(c), the CFTC 

noted that it was codifying previously 

issued no-action relief.115 The CFTC 

also stated that these transactions are 

not intended to be arm’s-length, marketfacing, or competitively executed under 

any circumstance, irrespective of the 

type of swap involved. Therefore, these 

transactions would not contribute to the 

price discovery process if executed on a 

SEF or DCM.116 The CFTC recognized 

the efficiency benefits associated with 

entering into inter-affiliate swaps via 

internal processes and acknowledged 

that applying the trade execution 

requirement to such transactions could 

inhibit affiliated counterparties from 

efficiently executing these types of 

transactions for risk management, 

operational, and accounting 

purposes.117 The CFTC concluded, 

therefore, that—as with the exemptions 

set forth in § 36.1(a) and (b)—granting 

an exemption from the trade execution 

requirement for swap transactions that 

are executed between counterparties 

that have eligible affiliate counterparty 

status was consistent with its exemptive 

authority under the CEA, regardless of 

whether the swap is submitted to 

clearing.118 For the same reasons 

identified by the CFTC, the 

Commission, pursuant to section 

36(a)(1) of the SEA, preliminarily 

believes that it is appropriate to exempt 

from the trade execution requirement an 

SBS that is executed between 

counterparties that qualify as eligible 

affiliate counterparties, even if the 

counterparties clear the SBS transaction. 

The Commission also preliminarily 

believes that it is appropriate in the 

public interest to adapt into proposed 

Rule 816 the definition of ‘‘eligible 

affiliate counterparties’’ used in the 

CFTC’s rules because this term is 

generally well understood by market 

participants. Furthermore, the 

Commission preliminarily believes that 

market participants should be permitted 

to apply the same standard for 

determining whether an inter-affiliate 

swap or SBS will be exempt from the 

trade execution requirement. 

The Commission seeks comment on 

the following: 

87. Do you believe in general that 

Regulation SE should incorporate 

similar exemptions from the trade 


jspears on DSK121TN23PROD with PROPOSALS2
28900 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

119 17 CFR 240.3Ca–1. 

120 15 U.S.C. 78c–4(d). 

121Compare 7 U.S.C. 7b–3(f) (enumerating 15 

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

(enumerating 14 Core Principles for SBSEFs). CEA 

Core Principle 6 for SEFs (Position Limits or 

Accountability) has no analog in the SEA, so the 

numbering of the subsequent Core Principles 

between the two statutes differs by one. 

execution requirement that the CFTC 

provides in § 36.1? Why or why not? 

88. In particular, do you object to any 

of the specific language choices made to 

adapt § 36.1 into proposed Rule 816(e)? 

If so, what alternative language would 

you suggest? 

89. Do you believe that the exemption 

in proposed Rule 816(e)(1) is even 

necessary? In other words, do market 

participants engage in package 

transactions involving SBS and new 

issuance bonds of the type described in 

§ 36.1(a), or do these types of packages 

involve only IRS and thus would not be 

applicable to the SBS market? 

90. Are there any other provisions of 

§ 36.1 that are adapted into proposed 

Rule 816(e) that you believe would be 

inappropriate, or would not create any 

benefit, in a Commission rule applying 

to SBSEFs? If so, please identify any 

such provision, explain why it would be 

inappropriate or unnecessary for 

SBSEFs, and what economic benefit that 

you believe would result from omitting 

it from the Commission’s final rule. 

91. Are there any types of SBS that 

you believe should be exempt from the 

trade execution requirement that have 

no analog in the swap market and thus 

are not reflected in the CFTC’s list of 

exemptions to the CEA trade execution 

requirement in § 36.1? If so, please 

describe and justify any potential 

exemptions that you believe should be 

added to proposed Rule 816(e). 

G. Rule 817—Trade Execution 

Compliance Schedule 

Proposed Rule 817 is modelled on 

§ 37.12 of the CFTC’s rules, which is 

designed to inform market participants 

of the precise date on which the trade 

execution requirement for a particular 

product commences. Section 37.12(a) 

provides that a swap becomes subject to 

the trade execution requirement upon 

the later of the applicable deadline 

established under the compliance 

schedule provided under § 50.25(b) or 

30 days after the available-to-trade 

determination submission or 

certification for that swap is, 

respectively, deemed approved under 

§ 40.5 or deemed certified under § 40.6. 

The Commission does not have a 

close equivalent to § 50.25(b). However, 

Rule 3Ca–1 under the SEA 119 provides 

that the Commission may determine, 

following a submission from a clearing 

agency, that an SBS (or a group, 

category, type, or class of SBS) must be 

cleared. This determination could 

follow a stay of the clearing requirement 

for additional review. Accordingly, 

paragraph (a) of proposed Rule 817 

would provide that an SBS transaction 

shall be subject to the requirements of 

section 3C(h) of the SEA upon the later 

of (1) a determination by the 

Commission that the SBS is required to 

be cleared as set forth in section 3C(a) 

or any later compliance date that the 

Commission may establish as a term or 

condition of such determination or 

following a stay and review of such 

determination pursuant to section 3C(c) 

of the SEA and Rule 3Ca–1 thereunder; 

and (2) 30 days after the available-totrade determination submission or 

certification for that SBS is, 

respectively, deemed approved under 

Rule 806 or deemed certified under Rule 

807. 

Paragraph (b) of proposed Rule 817, 

modelled on § 37.12(b), would provide 

that a counterparty may voluntarily 

comply with the trade execution 

requirement sooner than required by 

paragraph (a). 

The Commission seeks comment on 

the following: 

92. Do you believe in general that 

Regulation SE should include a trade 

execution compliance schedule similar 

to that in § 37.12? Why or why not? 

93. In particular, do you agree with 

the language that the Commission is 

proposing to adapt from § 37.12 into 

Rule 817? If not, what alternative 

language would you suggest, and why? 

VIII. Implementation of Core Principles 

Section 3D(d) of the SEA 120 sets forth 

14 Core Principles with which SBSEFs 

must comply. These provisions, with 

one exception, correspond to the 15 

Core Principles for SEFs set forth in 

section 5h(f) of the CEA.121

Core principle title CEA No. SEA No. 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Commission preliminarily 

believes generally that it would be 

appropriate to closely harmonize with 

the CFTC rules that implement the SEF 

Core Principles, although there are some 

instances where close harmonization is 

not practicable. Where there are 

substantive differences between an 

existing CFTC rule and an SECproposed rule, the Commission will 

note and discuss the proposed 

difference and seek comment. The 

Commission also will note when there 

is not, or at least not intended to be, a 

difference between the SEC rule and the 

analogous CFTC rule. 

Part 37 of the CFTC’s rules includes 

an appendix B, setting forth ‘‘Guidance 

on, and Acceptable Practices in, 

Compliance with Core Principles.’’ The 

introduction to appendix B provides 

that the guidance for the Core Principle 

is illustrative only and ‘‘is not intended 

to be used as a mandatory checklist.’’ 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28901 

122Section 3D(d)(1) of the SEA, 15 U.S.C. 78c– 

4(d)(1). 

123 7 U.S.C. 7b–3(f)(1). 

124Section 3D(d)(2) of the SEA, 15 U.S.C. 78c– 

4(d)(2). 

125 7 U.S.C. 7b–3(f)(2). 126See 7 U.S.C. 7b–3(f)(2)(D). 

Where the CFTC includes guidance and/ 

or accepted practices pertaining to a 

Core Principle for SEFs, the 

Commission will explain how (if at all) 

the Commission proposes to incorporate 

the substance of these statements into 

Regulation SE. 

A. Rule 818—Core Principle 1— 

Compliance With Core Principles 

Core Principle 1 122 requires an 

SBSEF, to be registered and maintain 

registration as an SBSEF, to comply 

with the Core Principles and any 

requirement that the Commission may 

impose by rule or regulation. Core 

Principle 1 also provides that an SBSEF 

shall have reasonable discretion in 

establishing the manner in which it 

complies with the Core Principles. CEA 

Core Principle 1 123 is substantively 

identical. 

The CFTC implemented Core 

Principle 1 for SEFs in subpart B of part 

37. Section 37.100 repeats the statutory 

text of SEF Core Principle 1. There are 

no other rules in subpart B. Proposed 

Rule 818 also would repeat the statutory 

text of the Core Principle. 

The Commission seeks comment on 

the following: 

94. Do you agree with how the 

Commission is proposing to implement 

SEA Core Principle 1? Why or why not? 

B. Rule 819—Core Principle 2— 

Compliance With Rules 

Core Principle 2 124 requires an SBSEF 

to establish and enforce compliance 

with any rule that is established by the 

SBSEF, including the terms and 

conditions of the SBS that it trades or 

processes, and any limitation on access 

to the SBSEF. It further requires the 

SBSEF to establish and enforce trading, 

trade processing, and participation rules 

that will deter abuses, and to have the 

capacity to detect, investigate, and 

enforce those rules, including the means 

to provide market participants with 

impartial access to the market and to 

capture information that may be used in 

establishing whether rule violations 

have occurred. Finally, Core Principle 2 

requires an SBSEF to establish rules 

governing the operation of the facility, 

including rules specifying trading 

procedures to be used in entering and 

executing orders traded or posted on the 

facility, including block trades. Core 

Principle 2 for SEFs 125 is substantively 

identical, except that it includes an 

additional paragraph requiring a SEF to 

provide in its rules that, when a swap 

dealer or major swap participant enters 

into or facilitates a swap that is subject 

to the mandatory clearing requirement, 

the swap dealer or major swap 

participant shall be responsible for 

compliance with the trade execution 

requirement.126

1. Rules Modelled on Subpart C of Part 

37 

The CFTC implemented Core 

Principle 2 for SEFs in subpart C of part 

37. Section 37.200 of subpart C repeats 

the statutory text of CEA Core Principle 

2, including the paragraph not present 

in SEA Core Principle 2 pertaining to 

swaps subject to the mandatory clearing 

requirement. Section 37.201 requires a 

SEF to establish rules governing the 

operation of the facility, including, but 

not limited to, rules specifying trading 

procedures to be followed by members 

and market participants when entering 

and executing orders traded or posted 

on the SEF. Section 37.201 also requires 

a SEF to establish and impartially 

enforce compliance with the SEF’s 

rules, including, but not limited to the 

terms and conditions of any swaps 

traded or processed on or through the 

SEF, access to the SEF, trade practice 

rules, audit trail requirements, 

disciplinary rules, and mandatory 

trading requirements. 

Section 37.202 imposes access 

requirements on SEFs. Section 37.202(a) 

requires a SEF to provide any eligible 

contract participant (‘‘ECP’’) and any 

independent software vendor with 

impartial access to its market(s) and 

market services, including any 

indicative quote screens or any similar 

pricing data displays. Furthermore, the 

SEF must have criteria governing access 

that are impartial, transparent, and 

applied in a fair and nondiscriminatory 

manner; procedures whereby ECPs 

provide the SEF with written or 

electronic confirmation of their status as 

ECPs before obtaining access; and 

comparable fee structures for ECPs and 

independent software vendors receiving 

comparable access to, or services from, 

the SEF. Section 37.202(b) requires a 

SEF, before granting any ECP access to 

its facilities, to require that the ECP 

consent to its jurisdiction. Section 

37.202(c) requires the SEF to establish 

and impartially enforce rules governing 

any decision to allow, deny, suspend, or 

permanently bar access to the SEF, 

including when such decisions are 

made as part of a disciplinary or 

emergency action taken by the SEF. 

Section 37.203 requires a SEF to 

establish and enforce trading, trade 

processing, and participation rules that 

will deter abuses and to have the 

capacity to detect, investigate, and 

enforce those rules. Section 37.203 

includes lengthy and detailed 

provisions relating to that goal. Section 

37.203(a) requires a SEF to prohibit, 

among other things, front-running, wash 

trading, pre-arranged trading (except for 

block trades), fraudulent trading, money 

passes, and any other trading practices 

that the SEF deems to be abusive. 

Section 37.203(b) requires the SEF to 

have arrangements and resources to 

collect information and documents on 

both a routine and non-routine basis, 

including the authority to examine 

books and records kept by the SEF’s 

members. Section 37.203(c) requires the 

SEF to have sufficient compliance staff 

and resources to ensure that it can 

conduct effective audit trail reviews, 

trade practice surveillance, market 

surveillance, and real-time market 

monitoring. Section 37.203(d) requires 

the SEF to maintain an automated trade 

surveillance system capable of detecting 

potential trade practice violations, and 

imposes certain performance 

requirements on that system. Section 

37.203(e) requires the SEF to conduct 

real-time market monitoring of all 

trading activity to identify any market or 

system anomalies, and to have the 

authority to adjust trade prices or cancel 

trades when necessary to mitigate 

market disrupting events caused by 

system malfunctions. Section 37.203(f) 

requires the SEF to establish and 

maintain procedures that require its 

compliance staff to conduct 

investigations of possible rule violations 

and imposes various requirements 

relating to those investigations. 

Section 37.204 allows a SEF to 

contract with a regulatory services 

provider to assist in complying with the 

supervisory functions noted above. 

Section 37.204 also imposes 

requirements on the SEF’s relationship 

with the regulatory services provider 

and provides that the SEF must retain 

exclusive authority in all substantive 

decisions made by its regulatory service 

provider, including decisions involving 

the cancellation of trades, the issuance 

of disciplinary charges against members 

or market participants, and denials of 

access. 

Section 37.205 requires a SEF to 

capture and retain all audit trail data 

necessary to detect, investigate, and 

prevent customer and market abuses. 

Such data shall be sufficient to 

reconstruct all indications of interest, 

requests for quotes, orders, and trades 

within a reasonable period of time and 

to provide evidence of any violations of 

the rules of the swap execution facility. 


jspears on DSK121TN23PROD with PROPOSALS2
28902 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

127To promote uniformity throughout proposed 

Regulation SE, the Commission believes that it is 

appropriate to denote all persons who have a right 

to participate in an SBSEF’s market as ‘‘members.’’ 

Section 37.203(a) provides that a SEF shall prohibit 

abusive trading practices on its markets by members 

and market participants. The equivalent provision 

in proposed Rule 819(d) would provide that an 

SBSEF shall prohibit abusive trading practices on 

its markets by members (without reference to 

‘‘market participants’’). 

128Proposed Rule 819(d)(6)(v) would provide that 

the rules of an SBSEF may authorize its compliance 

staff to issue a warning letter to a person or entity 

under investigation or to recommend that a 

disciplinary panel take such an action, and that no 

more than one warning letter could be issued to the 

same person or entity found to have committed the 

same rule violation within a rolling 12-month 

period. The first provision is derived from the 

CFTC’s guidance pertaining to CEA Core Principle 

2 for SEFs; the second provision is from the text of 

§ 37.203(f)(5). 

129Under § 37.204(a), a regulatory services 

provider for a SEF can be a registered futures 

association, FINRA, or ‘‘another registered entity.’’ 

‘‘Registered entity’’ is a term of art in the CEA that 

does not exist in the SEA. Therefore, the 

Commission is proposing instead that a regulatory 

services provider for an SBSEF can be a registered 

futures association (under section 17 of the CEA), 

a national securities exchange, a national securities 

association (which would include FINRA), or 

another SBSEF. 

Section 37.205 includes lengthy and 

detailed provisions relating to the 

elements of an acceptable audit trail 

program, requirements for the 

transaction history database, electronic 

analysis capability, and safe storage 

capability. Furthermore, § 37.205 

requires a SEF to enforce its audit trail 

and recordkeeping requirements 

through at least annual reviews of all 

members to verify their compliance, and 

to establish a program for effective 

enforcement of its audit trail and 

recordkeeping requirements. An 

effective program must identify 

members subject to the SEF’s 

recordkeeping rules that have failed to 

maintain high levels of compliance with 

such requirements, and impose 

meaningful sanctions when deficiencies 

are found. 

Section 37.206 requires a SEF to 

establish trading, trade processing, and 

participation rules that will deter abuses 

and have the capacity to enforce such 

rules through prompt and effective 

disciplinary action, including 

suspension or expulsion of members or 

market participants that violate the 

SEF’s rules. Accordingly, § 37.206 

requires the SEF to establish 

disciplinary panels and procedures for 

disciplinary hearings that meet certain 

enumerated requirements, and provides 

that disciplinary sanctions imposed by 

the SEF shall be commensurate with the 

violations committed and shall be 

clearly sufficient to deter recidivism or 

similar violations by other market 

participants. 

Appendix B to part 37 includes 

detailed guidance to facilitate 

compliance with the rules that 

implement CEA Core Principle 2. The 

guidance addresses, for example, the 

use of warning letters by SEF 

compliance staff, potential conflicts of 

interest of the SEF’s enforcement staff, 

the serving of notices of charges, a 

respondent’s right to representation, 

providing sufficient time to answer a 

charge, consequences of a respondent 

admitting to or failing to deny a charge, 

right to a hearing, settlement offers, 

right of appeal and appeal procedures, 

final decisions, summary fines for 

violations of rules relating to the failure 

to timely submit accurate records 

required for clearing or verifying each 

day’s transactions, and emergency 

disciplinary actions. 

Proposed Rule 819 would implement 

Core Principle 2 and is adapted from 

subpart C of part 37. Paragraph (a) of 

proposed Rule 819, like § 37.200, would 

repeat the statutory text of Core 

Principle 2. Paragraph (b) is closely 

modelled on § 37.201 and would require 

an SBSEF to specify trading procedures 

(including for block trades, if offered) 

and to establish and impartially enforce 

compliance with the rules of the SBSEF. 

Paragraph (c) of proposed Rule 819 is 

closely modelled on § 37.202 and would 

require an SBSEF to provide any ECP 

and any independent software vendor 

with impartial access to its market(s) 

and market services, including any 

indicative quote screens or any similar 

pricing data displays. An SBSEF also 

would be required, among other things, 

to establish comparable fee structures 

for ECPs and independent software 

vendors receiving comparable access to, 

or services from the SBSEF, and to 

establish and impartially enforce rules 

governing any decision to allow, deny, 

suspend, or permanently bar an ECP’s 

access to the SBSEF, including when a 

decision is made as part of a 

disciplinary or emergency action taken 

by the SBSEF. 

Paragraph (d) of proposed Rule 819 is 

closely modelled on § 37.203. Paragraph 

(d)(1) of proposed Rule 819 would 

require an SBSEF to prohibit abusive 

trading practices generally, enumerating 

certain practices in particular.127

Paragraph (d)(2) would require an 

SBSEF to have arrangements and 

resources for effective enforcement of its 

rules, including the authority to collect 

information and documents on both a 

routine and non-routine basis and to 

supervise its market to determine 

whether a rule violation has occurred. 

Paragraph (d)(3) would require an 

SBSEF to establish and maintain 

sufficient compliance staff and 

resources to ensure that it can conduct 

effective audit trail reviews, trade 

practice surveillance, market 

surveillance, and real-time market 

monitoring. Paragraph (d)(4) would 

require an SBSEF to maintain an 

automated trade surveillance system 

that meets certain criteria. Paragraph 

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

monitoring of all trading activity on the 

SBSEF. The SBSEF also would be 

required to adjust trade prices or cancel 

trades when necessary to mitigate 

market disrupting events caused by 

malfunctions in its system(s) or 

platform(s) or errors in orders submitted 

by members. Paragraph (d)(6) is 

modelled on § 37.203(f), again using the 

same structure and rule text. Like 

§ 37.203(f), proposed Rule 819(d)(6) 

would address investigations and 

investigation reports and includes 

provisions relating to procedures, 

timeliness, when a reasonable basis 

does or does not exist for finding a 

violation, and warning letters.128

Paragraph (e) of proposed Rule 819 is 

modelled on § 37.204 and would allow 

an SBSEF to contract with a regulatory 

services provider. If it does so, the 

SBSEF would have to ensure that such 

provider has the capacity and resources 

necessary to provide timely and 

effective regulatory services, retain 

sufficient compliance staff to supervise 

the quality and effectiveness of the 

regulatory services provided on its 

behalf, hold regular meetings with the 

regulatory service provider, and conduct 

periodic reviews of the adequacy and 

effectiveness of services provided on its 

behalf. The SBSEF would at all times 

remain responsible for the performance 

of any regulatory services received and 

retain exclusive authority in all 

substantive decisions made by its 

regulatory service provider. Proposed 

Rule 819(e)(1) makes a slight 

modification to § 37.204(a)’s list of 

entities that can serve as a regulatory 

service provider.129

Paragraph (f) of proposed Rule 819 is 

modelled on § 37.205, using the same 

paragraph structure and rule text. 

Paragraph (f) would require an SBSEF to 

capture and retain all audit trail data 

necessary to detect, investigate, and 

prevent customer and market abuses 

and impose other requirements on the 

SBSEF’s audit trail pertaining to the 

records that must be kept, electronic 

analysis capability, safe-storage 

capability, and enforcement of the audit 

trail requirements. 

Paragraph (g) of proposed Rule 819 is 

based on § 37.206 and would generally 

track all of its rule text, but includes 

additional language derived from the 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28903 

130 In this bullet and the next bullet, the word 

used in the corresponding CFTC guidance was 

‘‘should’’ but the Commission is proposing the 

word ‘‘shall’’ in both places to convert the guidance 

into an enforceable rule. 

131Proposed Rule 834(d) would require each 

SBSEF and SBS exchange to ensure that its 

disciplinary processes preclude any member, or 

group or class of its members, from dominating or 

exercising disproportionate influence on the 

disciplinary process, and that each major 

disciplinary committee or hearing panel include 

sufficient different groups or classes of its members 

so as to ensure fairness and to prevent special 

treatment or preference for any person or member 

in the conduct of the responsibilities of the 

committee or panel. See infra section X. 

132The CFTC’s guidance in appendix B that is 

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

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

and in other similar instances. The Commission is 

proposing to use the word ‘‘shall’’ in such instances 

instead. 

133See infra section XVI(E) (discussing proposed 

Rule 442, which would establish the right to appeal 

to the Commission certain actions taken by an 

SBSEF, and setting out certain procedural matters 

relating to any such appeal). 

appendix B guidance that is interwoven 

throughout. In converting the guidance 

to proposed rule text, the Commission 

preliminarily believes that grouping 

conceptually related items together 

would yield the most coherent and 

readable ruleset, instead of 

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

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

is taken from § 37.206(a) and would 

require an SBSEF to establish and 

maintain sufficient enforcement staff 

and resources to effectively and 

promptly prosecute possible rule 

violations within the disciplinary 

jurisdiction of the SBSEF. Paragraphs 

(g)(1)(ii) through (iv) are taken from the 

appendix B guidance and would 

provide, respectively, that: 

• The enforcement staff of an SBSEF 

shall 130 not include members or other 

persons whose interests conflict with 

their enforcement duties. 

• A member of the enforcement staff 

shall not operate under the direction or 

control of any person or persons with 

trading privileges at the SBSEF. 

• The enforcement staff of an SBSEF 

may operate as part of the SBSEF’s 

compliance department. 

Paragraph (g)(2) of proposed Rule 819 

is modelled on § 37.206(b) and would 

require an SBSEF to establish one or 

more disciplinary panels that are 

authorized to fulfill their obligations 

under Rule 819. Section 37.206(b) 

provides that disciplinary panels must 

meet the composition requirements of 

part 40. To help ensure fairness and 

prevent special treatment or preference 

of any person or member and to provide 

for consistency of the makeup of 

members of SBSEF major disciplinary 

committees and hearing panels, the 

Commission is proposing instead to 

require the disciplinary panels 

established under proposed Rule 

819(g)(2) to meet the composition 

requirements of proposed Rule 834(d), 

which would apply to each major 

disciplinary committee and hearing 

panel of an SBSEF.131

Paragraphs (g)(3) through (8) of 

proposed Rule 819 have no parallel in 

§ 37.206 itself, but derive from the 

guidance in appendix B pertaining to 

§ 37.206, following the paragraph 

structure and wording of the guidance 

closely. Paragraph (g)(3) would impose 

procedural requirements relating to the 

notice of charges made to a respondent. 

Paragraph (g)(4) would provide that a 

respondent has a right to representation. 

Paragraph (g)(5) would provide that a 

respondent must be given adequate time 

to respond to any charges. Paragraph 

(g)(6) would state that the rules of an 

SBSEF may provide that, if a respondent 

admits or fails to deny any of the 

charges, a disciplinary panel may find 

that the violations alleged in the notice 

of charges have been committed. 

Paragraph (g)(6) would further state that, 

if the SBSEF’s rules so provide, then: (i) 

The disciplinary panel may impose a 

sanction for each violation found to 

have been committed; (ii) The 

disciplinary panel shall promptly notify 

the respondent in writing of any 

sanction to be imposed and shall advise 

the respondent that the respondent may 

request a hearing on such sanction 

within the period of time, which shall 

be stated in the notice; and (iii) The 

rules of the SBSEF may provide that, if 

a respondent fails to request a hearing 

within the period of time stated in the 

notice, the respondent will be deemed 

to have accepted the sanction. 

Paragraph (g)(7) of proposed Rule 819 

would provide that, where a respondent 

has requested a hearing on a charge that 

is denied, or on a sanction set by the 

disciplinary panel, the respondent shall 

be given an opportunity for a hearing in 

accordance with the rules of the 

security-based swap execution facility. 

Paragraph (g)(8) would address 

settlement offers. 

Paragraph (g)(9) of proposed Rule 819 

returns to the text of § 37.206(c) for 

provisions regarding hearings. 

Paragraph (g)(9)(i) is modelled on 

§ 37.206(c)(1) and would require an 

SBSEF to have rules requiring a hearing 

to be fair, conducted before members of 

the disciplinary panel, and promptly 

convened after reasonable notice to the 

respondent. The Commission is 

proposing an additional provision, 

which derives from the guidance, that 

an SBSEF need not apply the formal 

rules of evidence for a hearing; 

nevertheless, the procedures for the 

hearing may not be so informal as to 

deny a fair hearing. 

Paragraphs (g)(9)(ii) through (vi) of 

proposed Rule 819 are also adapted 

from the guidance. Paragraph (g)(9)(ii) 

would bar a member of the disciplinary 

panel for the hearing from having a 

financial, personal, or other direct 

interest in the matter under 

consideration. Paragraph (g)(9)(iii) 

would address the respondent’s access 

to evidence in the SBSEF’s possession. 

Paragraph (g)(9)(iv) would provide that 

the SBSEF’s enforcement and 

compliance staffs shall 132 be parties to 

the hearing, and the enforcement staff 

shall present their case on those charges 

and sanctions that are the subject of the 

hearing. Paragraph (g)(9)(v) would 

provide that the respondent shall be 

entitled to appear personally at the 

hearing, to cross-examine any persons 

appearing as witnesses at the hearing, to 

call witnesses, and to present such 

evidence as may be relevant to the 

charges. Paragraph (g)(9)(vi) would 

provide that the SBSEF shall require 

persons within its jurisdiction who are 

called as witnesses to participate in the 

hearing and produce evidence. 

Paragraph (g)(9)(vii) of proposed Rule 

819 is modelled on the text of 

§ 37.206(c)(2) and would require that, if 

the respondent has requested a hearing, 

a copy of the hearing shall be made and 

shall become a part of the record of the 

proceeding. Paragraph (g)(9)(vii) would 

not require the record to be transcribed 

unless the transcript is requested by 

Commission staff or the respondent, the 

decision is appealed pursuant to the 

rules of the SBSEF, or the decision is 

reviewed by the Commission pursuant 

to § 201.442.133 In all other instances, a 

summary record of a hearing is 

permitted. 

Paragraph (g)(10) of proposed Rule 

819 is modelled on § 37.206(d) and 

would provide that, promptly following 

a hearing conducted in accordance with 

the rules of the SBSEF, the disciplinary 

panel shall render a written decision 

based upon the weight of the evidence 

contained in the record of the 

proceeding and shall provide a copy to 

the respondent. The written decision 

would have to include six enumerated 

elements, all of which are closely 

modelled on those in § 37.206(d). 

Paragraph (g)(11) of proposed Rule 

819 would address emergency 

disciplinary actions and is drawn from 

the appendix B guidance. It would 

provide that an SBSEF may impose a 

sanction, including suspension, or take 

other summary action against a person 


jspears on DSK121TN23PROD with PROPOSALS2
28904 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

134Compare proposed Rule 819(g)(11)(i) 

(allowing an SBSEF to impose a sanction, including 

suspension, or take other summary action against a 

person or entity subject to its jurisdiction upon a 

reasonable belief that such immediate action is 

necessary to protect the best interest of the market 

place) with proposed Rule 819(g)(11)(ii)(A) 

(providing that, if practicable, a respondent should 

be served with a notice before the action is taken, 

or otherwise at the earliest possible opportunity). 

135Neither § 37.206 or the associated guidance 

from appendix B requires a SEF to allow appeals. 

The guidance states, rather, that a SEF’s rules ‘‘may 

permit’’ appeals and includes certain procedural 

requirements only if the rules of a swap execution 

facility permit appeals. The Commission is 

adhering to this permissive approach in this 

proposal but seeks comment on whether the final 

rules should require an SBSEF to create an appeals 

procedure. 

136See supra note 131. 

or entity subject to its jurisdiction upon 

a reasonable belief that such immediate 

action is necessary to protect the best 

interest of the market place. 

Furthermore, any emergency 

disciplinary action would have to be 

taken in accordance with an SBSEF’s 

procedures that provide for notice (if 

practicable), rights for representation in 

all proceedings, an opportunity for a 

hearing as soon as reasonably 

practicable, and the rendering of a 

written decision promptly following the 

hearing based upon the weight of the 

evidence contained in the record. 

Proposed Rule 819(g)(11) seeks to 

balance the need to allow an SBSEF to 

take summary action against the need to 

afford due process to respondents.134

Paragraph (g)(12) of proposed Rule 

819 also is drawn from the appendix B 

guidance and provides that, if the rules 

of the SBSEF permit appeals,135 the 

SBSEF shall establish an appellate panel 

that is authorized to hear appeals. The 

composition of the panel would have to 

be consistent with proposed Rule 

834(d) 136 and could not include any 

members of the SBSEF’s compliance 

staff or any person involved in 

adjudicating any other stage of the same 

proceeding. Promptly following the 

appeal or review proceeding, the 

appellate panel would be required to 

issue a written decision and to provide 

a copy to the respondent. 

Paragraph (g)(13) of proposed Rule 

819 is adapted partly from § 37.206(e) 

and partly from the appendix B 

guidance. Paragraph (g)(13)(i) is drawn 

from § 37.206(e) and would provide that 

all disciplinary sanctions imposed by an 

SBSEF or its disciplinary panels shall be 

commensurate with the violations 

committed and shall be clearly 

sufficient to deter recidivism or similar 

violations by other members. All 

disciplinary sanctions, including 

sanctions imposed pursuant to an 

accepted settlement offer, would be 

required to take into account the 

respondent’s disciplinary history. In the 

event of demonstrated customer harm, 

any disciplinary sanction would also be 

required to include full customer 

restitution, except where the amount of 

restitution or to whom it should be 

provided cannot be reasonably 

determined. Paragraph (g)(13)(i) is 

adapted from the guidance and would 

allow an SBSEF to adopt a summary 

fine schedule for violations of rules 

relating to the failure to timely submit 

accurate records required for clearing or 

verifying each day’s transactions. 

The Commission preliminarily 

believes that combining text from 

§ 37.206 with the associated guidance 

from appendix B provides a logical set 

of procedures for addressing Core 

Principle 2 (Compliance with Rules), 

from requirements relating to 

enforcement staff generally (proposed 

Rule 819(g)(1)); to the composition of 

disciplinary panels and notices of 

charges (proposed Rules 819(g)(1) and 

(g)(2)); to rights to representation 

(proposed Rule 819(g)(4)), answer to 

charges and admission or failure to deny 

charges (proposed Rules 819(g)(5) and 

(g)(6)), denial of charges and right to a 

hearing (proposed Rule 819(g)(7)), 

settlement offers (proposed Rule 

819(g)(8)); and, finally, hearings 

(proposed Rule 819(g)(9)), decisions 

(proposed Rule 819(g)(10)), emergency 

disciplinary actions (proposed Rule 

819(g)(11)), right to appeal (proposed 

Rule 819(g)(12)), and disciplinary 

sanctions (proposed Rule 819(g)(13)). 

The Commission recognizes that a set 

of rules that govern compliance and 

enforcement matters for SBSEFs could, 

in the abstract, differ in a number of 

details from the rules adopted by the 

CFTC in subpart C of part 37 and still 

plausibly satisfy the requirements of 

Core Principle 2. However, in light of 

the baseline set by the CFTC’s rules, the 

Commission is concerned that 

implementing rules for SBSEFs having 

major or even minor differences with 

the rules applicable to SEFs could 

increase compliance costs and cause 

confusion for dually registered SEF/ 

SBSEFs and market participants. This 

would particularly be the case if a 

potential violation involved a rule that 

was not specific to the swap or SBS 

market, but rather involved member 

conduct generally. No regulatory 

purpose would be served if the SEF/ 

SBSEF had to pursue one cause of 

action against a member pursuant to a 

CFTC rule and a slightly different cause 

of action pursuant to an SEC rule, for 

the same underlying facts. 

The Commission seeks comment on 

the following: 

95. Do you agree generally with the 

manner in which the Commission is 

proposing to implement Core Principle 

2? Why or why not? 

96. In particular, do you agree with 

the proposed access requirements in 

Rule 819(c)? Why or why not? Do you 

see differences between the swap and 

SBS markets that warrant different 

requirements for access to a SEF than to 

an SBSEF? If so, please describe. 

97. Do you see differences between 

the swap and SBS markets that warrant 

different audit trail requirements or 

trade surveillance capability for SBSEFs 

than for SEFs? If so, please describe. 

98. Do you believe that SBSEFs, like 

SEFs, should be able to utilize 

regulatory service providers? What 

entities currently serve as regulatory 

service providers for SEFs? Do you 

believe that the types of regulatory 

service providers that could be utilized 

by SBSEFs under proposed Rule 

819(e)(1) are appropriate? If not, what 

other regulatory service providers 

should be permitted? 

99. Do you agree with how the 

Commission is proposing to implement 

requirements for disciplinary 

procedures and sanctions in proposed 

Rule 819(g)? Why or why not? 

100. In particular, do you agree with 

the manner in which the Commission is 

proposing to incorporate significant 

portions of the appendix B guidance 

into proposed Rule 819(g)? Why or why 

not? Are there provisions from the 

guidance that the Commission is 

proposing to incorporate that you 

believe should be revised or omitted 

entirely? If so, please describe. Are there 

provisions from the guidance that the 

Commission has not proposed to 

incorporate but that you believe should 

be incorporated? If so, please describe. 

101. Do existing SEFs treat the 

appendix B guidance as if it were 

mandatory? By converting the nonbinding guidance applicable to SEFs 

into formal rules that would apply to 

SBSEFs, would dually registered 

entities be compelled to deviate from 

their present practices? If so, please 

describe. 

102. Do you believe that proposed 

Rule 819(g)(12) should be revised to 

require an SBSEF to permit appeals of 

enforcement decisions to an appellate 

panel established by the SBSEF, despite 

the fact that neither subpart C of part 37 

nor the CFTC’s associated guidance 

requires appeals? Why or why not? 

2. Provisions of Rule 819 Adapted From 

Other SEF Requirements 

Proposed Rule 819 includes four 

paragraphs—(h), (i), (j), and (k)—that are 

not derived from subpart C of part 37, 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28905 

137See § 1.59(a)(8) (defining ‘‘commodity 

interest’’ to mean ‘‘any commodity futures, 

commodity option or swap contract traded on or 

subject to the rules of a contract market, a swap 

execution facility or linked exchange, or cleared by 

a derivatives clearing organization, or cash 

commodities traded on or subject to the rules of a 

board of trade which has been designated as a 

contract market’’). 

138See § 1.59(a)(9) (defining ‘‘related commodity 

interest’’ to mean ‘‘any commodity interest which 

is traded on or subject to the rules of a contract 

market, swap execution facility, linked exchange, or 

other board of trade, exchange, or market, or cleared 

by a derivatives clearing organization, other than 

the self-regulatory organization by which a person 

is employed, and with respect to which: (i) such 

employing self-regulatory organization has 

recognized or established intermarket spread 

margins or other special margin treatment between 

that other commodity interest and a commodity 

interest which is traded on or subject to the rules 

of the employing self-regulatory organization; or (ii) 

such other self-regulatory organization has 

recognized or established intermarket spread 

margins or other special margin treatment with 

another commodity interest as to which the person 

has access to material, nonpublic information’’). 

139See § 1.59(a)(10) (defining ‘‘pooled investment 

vehicle’’ to mean ‘‘a trading vehicle organized and 

operated as a commodity pool within the meaning 

of § 4.10(d) of this chapter, and whose units of 

participation have been registered under the 

Securities Act of 1933, or a trading vehicle for 

which § 4.5 of this chapter makes available relief 

from regulation as a commodity pool operator, i.e., 

registered investment companies, insurance 

company separate accounts, bank trust funds, and 

certain pension plans’’). 

which directly implements CEA Core 

Principle 2, or from the associated 

guidance in appendix B to part 37. 

Instead, these four paragraphs are 

modelled on requirements for SEFs 

located in other parts of the CFTC’s 

rules. Because these requirements fall 

under the general heading of 

‘‘Compliance with Rules,’’ the 

Commission is proposing them as part 

of Rule 819, which implements SEA 

Core Principle 2. 

a. Rule 819(h)—Activities of SBSEF’s 

Employees, Governing Board Members, 

Committee Members, and Consultants 

Paragraph (h) of proposed Rule 819 

generally would prohibit persons who 

are employees of an SBSEF, or who 

otherwise might have access to 

confidential information because of 

their role with the SBSEF, from 

improperly utilizing that information. 

Proposed Rule 819(h) is modelled on 

§ 1.59 of the CFTC’s rules, which 

requires an SRO (which term, under 

§ 1.3 of the CFTC regulations, includes 

a SEF) to place restrictions on trading by 

its governing board members, committee 

members, consultants, and employees 

and to prohibit any such person from 

disclosing any material, non-public 

information obtained as a result of their 

official duties with the SRO. 

In particular, § 1.59(b)(1)(i) requires 

an SRO to maintain in effect rules that, 

at a minimum, prohibit employees of 

the SRO from trading, directly or 

indirectly, in: 

• Any ‘‘commodity interest’’ 137

traded on or cleared by the employing 

contract market, SEF, or clearing 

organization; 

• Any ‘‘related commodity 

interest’’; 138

• A commodity interest traded on a 

contract market or SEF or cleared by a 

DCO other than the employing SRO if 

the employee has access to material, 

non-public information concerning such 

commodity interest; 

• A commodity interest traded on or 

cleared by a ‘‘linked exchange’’ if the 

employee has access to material, nonpublic information concerning such 

commodity interest. 

The Commission is proposing to 

adapt § 1.59(b)(1) into Regulation SE in 

a simplified way. The Commission 

preliminarily believes that, in the SBS 

market, the policy goals of the rule can 

be achieved without the complexities of 

the CFTC definitions of ‘‘commodity 

interest’’ and ‘‘related commodity 

interest.’’ Paragraph (h)(2)(i) of proposed 

Rule 819 would require an SBSEF to 

maintain in effect rules that, at a 

minimum, prohibit an employee of the 

SBSEF from trading, directly or 

indirectly, any ‘‘covered interest.’’ 

Proposed Rule (h)(1)(i) would define 

‘‘covered interest’’ to mean, with respect 

to an SBSEF: An SBS that trades on the 

SBSEF; a security of an issuer that has 

issued a security that underlies an SBS 

that is listed on the SBSEF; or a 

derivative based on a security that falls 

within the immediately preceding 

prong. The Commission preliminarily 

believes that the opportunity to observe 

order submission and trading in an SBS 

on an SBSEF could yield material nonpublic information about the future 

performance not just of that SBS, but of 

all securities issued by that entity. The 

single-name CDS market, in particular, 

is a market for assessing the 

creditworthiness of particular issuers. 

Non-public information derived from 

activity on the SBSEF pertaining to the 

market’s assessment of an issuer’s 

creditworthiness is likely to be material 

to the markets for that issuer’s cash 

securities as well as to markets for 

derivatives based on the issuer’s cash 

securities (e.g., single-stock options). 

Paragraph (h)(2)(ii), modelled on 

§ 1.59(b)(1)(ii), would prohibit an 

SBSEF employee from disclosing to any 

other person any material non-public 

information which such employee 

obtains as a result of their employment 

at the SBSEF, and where such employee 

has or should have a reasonable 

expectation that the information 

disclosed may assist another person in 

trading any covered interest. In 

addition, paragraph (h)(2)(ii), like 

§ 1.59(b)(1)(ii), would provide an 

exception for disclosures made in the 

course of an employee’s duties, or 

disclosures made to another SBSEF, 

court of competent jurisdiction, or 

representative of any agency or 

department of the Federal or State 

government acting in their official 

capacity. 

Paragraph (h)(3) of Rule 819, 

modelled on § 1.59(b)(2), would allow 

an SBSEF to adopt rules setting forth 

circumstances under which exemptions 

from the employee trading prohibition 

may be granted. In particular, paragraph 

(h)(3) would include the following 

possible carve-outs from the employee 

trading prohibition: (1) Participation by 

an employee in a ‘‘pooled investment 

vehicle’’ where the employee has no 

direct or indirect control with respect to 

transactions executed for or on behalf of 

such vehicle; (2) trading by an employee 

in a derivative based on such a pooled 

investment vehicle; (3) trading by an 

employee in a derivative based on an 

index in which no covered interest 

constitutes more than 10% of the index; 

and (4) trading by an employee under 

circumstances enumerated in rules 

which the SBSEF determines are not 

contrary to applicable law, the public 

interest, or just and equitable principles 

of trade. The first and the fourth carveouts listed above are comparable to 

those listed in § 1.59(b)(2). The 

Commission is proposing to include the 

second and third carve-outs to permit an 

SBSEF employee to trade derivatives 

that provide indirect exposure to a 

covered interest where the exposure to 

the covered interest is sufficiently 

diluted. In such cases, it would be 

unlikely that the employee would be 

using material non-public information 

about the covered interest to gain an 

unfair advantage when trading the 

derivative. 

The Commission is proposing to 

depart from the CFTC definition of 

‘‘pooled investment vehicle’’ 139 to 

adapt it for the SBS and securities 

markets. Proposed Rule (h)(1)(ii) would 

define ‘‘pooled investment vehicle’’ to 

mean an investment company registered 

under the Investment Company Act of 

1940 in which no covered interest 

constitutes more than 10% of the 

investment company’s assets. Thus, 

under this definition, if an SBSEF were 

to list a single-name CDS on company 

XYZ, a ‘‘pooled investment vehicle’’ 

would include a broad-based mutual 

fund or ETF that contains a security 

issued by company XYZ, assuming that 


jspears on DSK121TN23PROD with PROPOSALS2
28906 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

140Section 1.59(c) applies only to national futures 

associations and is not considered here. 

141Section 1.63 uses the term ‘‘governing board’’ 

throughout. Certain other CFTC rules that the 

Commission is proposing to adapt into Regulation 

SE use ‘‘board of directors’’ to denote the same 

concept. As noted above, the Commission is 

proposing to utilize the term ‘‘governing board’’ 

throughout Regulation SE, even when the parallel 

CFTC rule on which an SEC rule is based uses 

‘‘board of directors.’’ See supra note 29. 

the XYZ security does not exceed 10% 

of the fund’s holdings. The proposed 

10% limit on a covered interest’s 

composition of the fund is designed to 

permit SBSEF employees to trade most 

index-based mutual funds and ETFs that 

contain covered interests, except those 

where a component of the fund becomes 

sufficiently large that material nonpublic information about an issuer 

derived from activity on the SBSEF 

could provide an unfair advantage to an 

SBSEF employee when trading that 

fund. 

Finally, the Commission notes that, 

under proposed Rule 819(h)(3)—as with 

§ 1.59(b)(2)—the exemptions from the 

trading restrictions would not be 

automatically available to SBSEF 

employees. Proposed Rule 819(h)(3) still 

would require the SBSEF to adopt rules 

that set forth circumstances under 

which exemptions from the trading 

prohibition may be granted. 

Furthermore, proposed Rule 819(h)(3), 

which is modelled on § 1.59(b)(2), 

would state that any exemption must be 

administered by the SBSEF ‘‘on a caseby-case basis.’’ 

Paragraph (h)(4) of proposed Rule 

819, like § 1.59(d),140 would address 

prohibited conduct not just of 

employees of an SBSEF, but also of 

governing board members, committee 

members, and consultants of the SBSEF. 

Paragraph (h)(4)(i)(A) is modelled on 

§ 1.59(d)(1)(i) and would prohibit any 

employee, governing board member, 

committee member, or consultant of the 

SBSEF from trading for such person’s 

own account, or for or on behalf of any 

other account, in any covered interest 

on the basis of any material, non-public 

information obtained through special 

access related to the performance of 

such person’s official duties as an 

employee, governing board member, 

committee member, or consultant. 

Paragraph (h)(4)(i)(B), modelled on 

§ 1.59(d)(1)(ii), would prohibit any 

employee, governing board member, 

committee member, or consultant of the 

SBSEF from disclosing for any purpose 

inconsistent with the performance of 

such person’s official duties as an 

employee, governing board member, 

committee member, or consultant any 

material, non-public information 

obtained through special access related 

to the performance of such duties. 

Paragraph (h)(4)(ii), modelled on 

§ 1.59(d)(2), would provide that no 

person shall trade for such person’s own 

account, or for or on behalf of any other 

account, in any covered interest on the 

basis of any material, non-public 

information that such person knows was 

obtained in violation of paragraph (h)(4) 

of this section from an employee, 

governing board member, committee 

member, or consultant. 

The Commission preliminarily 

believes that persons who have 

professional duties with an SBSEF 

should not trade on material non-public 

information derived from the SBSEF or 

improperly disclose that information to 

third parties, and therefore that 

harmonizing with the comparable CFTC 

rule as closely as practicable, taking into 

account the difference in products 

subject to the respective jurisdictions of 

the SEC and CFTC, is an appropriate 

means of furthering that policy goal. If 

the Commission adopts Rule 819(h) in 

substantially the same form as proposed 

herein, dually registered SEF/SBSEFs 

would be able to utilize the same rules 

and procedures for complying with Rule 

819(h) as they do for § 1.59. The 

Commission recognizes that the scope of 

assets under restriction would differ in 

Rule 819(h) than in § 1.59, as reflected 

in the SEC’s use of the term ‘‘covered 

interest’’ rather than ‘‘commodity 

interest’’ in the analogous CFTC 

provisions, as well as the significant 

differences in the potential exemptions 

from the trading restriction (including 

in the ‘‘pooled investment vehicle’’ 

definition). Nevertheless, SBS are 

different from swaps, so the material 

non-public information that can be 

obtained from observing order 

submission and SBS trading on an 

SBSEF is different from the material 

non-public information that can be 

obtained from observing order 

submission and swap trading on a SEF. 

The Commission preliminarily believes, 

therefore, that it is appropriate for Rule 

819(h) to utilize a definition of ‘‘covered 

interest’’ to denote the scope of the 

trading restrictions in the proposed 

rule—and a definition of ‘‘pooled 

investment vehicle’’ to denote the scope 

of one of the potential exemptions from 

those restrictions—that is customized 

for the SBS and securities markets. 

The Commission seeks comment on 

the following: 

103. Do you believe in general that the 

Commission should incorporate into 

Regulation SE a rule that restricts how 

persons with official duties at an SBSEF 

may utilize information that they obtain 

in the course of their official duties? 

Why or why not? 

104. Do you agree with the specific 

language proposed by the Commission 

to adapt § 1.59 into proposed Rule 

819(h)? If not, how would you revise the 

proposed rule? 

105. In particular, do you agree with 

the Commission’s proposed definition 

of ‘‘covered interest’’? Why or why not? 

Do you believe that the term ‘‘covered 

interest’’ should be expanded to include 

securities underlying an index swap and 

other securities issued by an issuer 

whose securities underlie an index 

swap that trade on a dually registered 

SEF/SBSEF? Why or why not? 

106. Do you agree with the proposed 

potential exemptions from the trading 

restrictions in proposed Rule 819(h)(3)? 

For example, do you believe in general 

that an SBSEF should be permitted to 

allow its employees, governing board 

members, committee members, and 

consultants to hold covered interests 

through pooled investment vehicles? 

Why or why not? 

107. Do you agree with the 

Commission’s proposed definition of 

‘‘pooled investment vehicle’’? Why or 

why not? Do you agree with the 

Commission’s proposed requirement 

that no covered interest may constitute 

more than 10% of the pooled 

investment vehicle? Why or why not? If 

you believe another threshold would be 

more appropriate, please justify that 

threshold. 

108. Are there additional provisions 

of § 1.59 that the Commission has 

omitted but which you believe should 

be incorporated into Regulation SE? If 

so, which provisions and why? 

b. Rule 819(i)—Service on SBSEF 

Governing Boards or Committees by 

Persons With Disciplinary Histories 

Paragraph (i) of proposed Rule 819 

would bar persons with specified 

disciplinary histories from serving on 

the governing board or committees of an 

SBSEF and impose certain other duties 

on the SBSEF associated with that 

fundamental requirement. Proposed 

Rule 819(i) is modelled on § 1.63 of the 

CFTC’s rules, which imposes similar 

requirements in connection with SROs 

(which term, under the CEA, includes 

SEFs). 

Section 1.63(b) requires each SRO to 

maintain in effect rules that render a 

person ineligible to serve on its 

disciplinary committees, arbitration 

panels, oversight panels, or governing 

board 141 who meets any of six 

enumerated criteria. These criteria 

generally relate to a disciplinary offense 

having been committed by that person 

within the past three years. While 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28907 

142Section 1.63(b), in relevant part, requires a 

SEF to maintain rules that have been submitted to 

the Commission pursuant to section 5c(c) of the 

CEA and part 40 of the CFTC’s rules. As noted 

above, the Commission is proposing to adapt 

§§ 40.5 (Voluntary submission of rules for 

Commission review and approval) and 40.6 (Selfcertification of rules) into proposed Rules 806 and 

807, respectively. Therefore, proposed Rule 

819(i)(1) would require an SBSEF to maintain in 

effect rules which have been submitted to the 

Commission pursuant to Rules 806 or 807. 

143Proposed Rule 802 would define ‘‘disciplinary 

committee’’ as any person or committee of persons, 

or any subcommittee thereof, that is authorized by 

an SBSEF or SBS exchange to issue disciplinary 

charges, to conduct disciplinary proceedings, to 

settle disciplinary charges, to impose disciplinary 

sanctions, or to hear appeals thereof in cases 

involving any violation of the rules of the SBSEF 

or SBS exchange, except those cases where the 

person or committee is authorized summarily to 

impose minor penalties for violating rules regarding 

decorum, attire, the timely submission of accurate 

records for clearing or verifying each day’s 

transactions, or other similar activities. The CFTC 

rules contain two slightly different definitions of 

‘‘disciplinary committee’’ that appear in § 1.63(a)(2) 

and § 1.69(a)(1), respectively. Because the definition 

in § 1.69(a)(1) is more comprehensive, the 

Commission is modelling its proposed definition of 

‘‘disciplinary committee’’ on § 1.69(a)(1) rather than 

on § 1.63(a)(2). The Commission is locating the 

definition in proposed Rule 802, since the term is 

used by multiple rules in Regulation SE. 

144Proposed Rule 802 would define ‘‘oversight 

panel’’ as any panel, or any subcommittee thereof, 

authorized by an SBSEF or SBS exchange to 

recommend or establish policies or procedures with 

respect to the surveillance, compliance, rule 

enforcement, or disciplinary responsibilities of the 

SBSEF or SBS exchange. The CFTC’s definitions of 

‘‘oversight panel’’ are contained in § 1.63(a)(4) and 

§ 1.69(a)(4), respectively. Because the definition in 

§ 1.69(a)(4) is more comprehensive, the Commission 

is modelling its proposed definition of ‘‘oversight 

panel’’ on § 1.69(a)(4) rather than on § 1.63(a)(4). As 

with the definition of ‘‘disciplinary committee,’’ the 

Commission is locating the definition of ‘‘oversight 

panel’’ in proposed Rule 802, since the term is used 

by multiple rules in Regulation SE. 

145Section 1.63(b)(5) provides that one criterion 

for the bar would be that the person in question is 

subject to or has had imposed on him within the 

prior three years a CFTC registration revocation or 

suspension in any capacity for any reason, or has 

been convicted within the prior three years of any 

of the felonies listed in section 8a(2)(D)(ii) through 

(iv) of the CEA. Since the SEC is not subject to the 

CEA and cannot cross-reference those provisions, 

the Commission is proposing for the equivalent 

criterion in Rule 819(i)(1)(v) that a person would be 

barred for having been convicted within the prior 

three years of any felony, without limitation on the 

type of felony. 

146Proposed Rule 819(i)(6)(i) would define 

‘‘arbitration panel’’ as any person or panel 

empowered by an SBSEF to arbitrate disputes 

involving the SBSEF’s members or their customers. 

Proposed Rule 819(i)(6)(ii) would define 

‘‘disciplinary offense’’ as: Any violation of the rules 

of an SBSEF, except a violation resulting in fines 

aggregating to less than $5,000 within a calendar 

year involving decorum or attire, financial 

requirements, or reporting or recordkeeping; any 

rule violation which involves fraud, deceit, or 

conversion or results in a suspension or expulsion; 

any violation of the SEA or the Commission’s rules 

thereunder; or any failure to exercise supervisory 

responsibility when such failure is itself a violation 

of either the rules of the SBSEF, the SEA, or the 

Commission’s rules thereunder. Proposed Rule 

819(i)(6)(iii) would define ‘‘final decision’’ as a 

decision of an SBSEF which cannot be further 

appealed within the SBSEF, is not subject to the 

stay of the Commission or a court of competent 

jurisdiction, and has not been reversed by the 

Commission or any court of competent jurisdiction; 

or any decision by an administrative law judge, a 

court of competent jurisdiction, or the Commission 

which has not been stayed or reversed. 

147Since these terms are used only in proposed 

Rule 819(i) and not elsewhere in Regulation SE, the 

Commission is defining them in proposed Rule 

819(i) and not the omnibus definitions rule in 

Regulation SE (Rule 802). 

§ 1.63(b) requires the SRO to implement 

rules imposing a bar, § 1.63(c) in 

addition imposes a bar on such persons 

directly, stating that no person may 

serve on a disciplinary committee, 

arbitration panel, oversight panel or 

governing board of an SRO if such 

person is subject to any of the 

conditions listed in § 1.63(b). Section 

1.63(d) requires an SRO to maintain, 

keep current, and provide to the CFTC 

and the public a list of the rule 

violations which constitute disciplinary 

offenses that would trigger the bar in 

§ 1.63. Section 1.63(e) requires an SRO 

to submit to the CFTC, within 30 days 

of the end of each calendar year, a 

certified list of any persons who have 

been removed from its disciplinary 

committees, arbitration panels, 

oversight panels, or governing board 

pursuant to § 1.63 during the prior year. 

Paragraph (i) of proposed Rule 819 is 

closely modelled on § 1.63. Paragraph 

(i)(1), like § 1.63(b), would require an 

SBSEF to maintain rules 142 that render 

a person ineligible to serve on its 

disciplinary committees,143 arbitration 

panels, oversight panels,144 or governing 

boards who falls into any of six 

enumerated criteria, all of which are 

modelled closely on the criteria in 

§ 1.63(b).145 Paragraph (i)(2), modelled 

on § 1.63(c), would impose a direct bar 

on any person from serving on a 

disciplinary committee, arbitration 

panel, oversight panel, or governing 

board of an SBSEF who meets any of the 

six criteria enumerated in proposed 

Rule 819(i)(1). Paragraph (i)(3), 

modelled on § 1.63(d), would require an 

SBSEF to submit to the Commission a 

schedule listing the rule violations 

which constitute disciplinary offenses 

that would trigger the bar and, to the 

extent necessary to reflect revisions, 

would have to submit an amended 

schedule within 30 days of the end of 

each calendar year. The SBSEF would 

be required to maintain and keep 

current this schedule and post it on its 

website so that it is in a public place 

designed to provide notice to members 

and otherwise ensure its availability to 

the general public. Paragraph (i)(4), like 

§ 1.63(e), would require an SBSEF to 

submit to the Commission within 30 

days of the end of each calendar year a 

certified list of any persons who have 

been removed from its disciplinary 

committees, arbitration panels, 

oversight panels, or governing board 

pursuant to Rule 819(i) during the prior 

year. Paragraph (i)(5), modelled on 

§ 1.63(f), would provide that, whenever 

an SBSEF finds by final decision that a 

person has committed a disciplinary 

offense and such finding makes such 

person ineligible to serve on that 

SBSEF’s disciplinary committees, 

arbitration panels, oversight panels, or 

governing board, the SBSEF shall 

inform the Commission of that finding 

and the length of the ineligibility, in a 

form and manner specified by the 

Commission. 

Paragraph (i)(6) of proposed Rule 

819(i) would define the terms 

‘‘arbitration panel,’’ ‘‘disciplinary 

offense,’’ and ‘‘final decision’’ which are 

used in proposed Rule 819(i).146 These 

definitions are closely modelled on 

those provided in § 1.63(a).147

The Commission preliminarily 

believes that it is appropriate to bar 

persons with inappropriate disciplinary 

histories from serving on the 

disciplinary committees, arbitration 

panels, oversight panels, or governing 

board of an SBSEF, and that closely 

modelling a rule in Regulation SE on 

§ 1.63 would be an appropriate means of 

furthering that policy goal. The 

requirements of § 1.63 should be well 

understood by SEFs, who have been 

complying with them for several years, 

and incorporating similar requirements 

into Regulation SE should impose few if 

any additional costs on dually registered 

SEF/SBSEFs. The Commission 

preliminarily believes, in particular, 

that establishing criteria for the bar that 

are as similar as possible to the CFTC’s 

criteria would avoid a situation where a 

person is ineligible under one agency’s 

rules to serve on a disciplinary 

committee, arbitration panel, oversight 

panel, or the governing board, but 

would be eligible under the other 

agency’s rules. 

The Commission seeks comment on 

the following: 

109. Do you believe in general that 

Regulation SE should include a rule that 

prohibits persons having an 

inappropriate disciplinary history from 

serving on the disciplinary committees, 

arbitration panels, oversight panels, or 

governing board of an SBSEF? Why or 

why not? 

110. In particular, do you agree with 

the specific language proposed by the 

Commission to adapt § 1.63 into 

proposed Rule 819(i)? If not, how would 

you revise the rule? 


jspears on DSK121TN23PROD with PROPOSALS2
28908 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

148See § 1.67(a) (defining ‘‘final disciplinary 

action’’ as any decision by or settlement with a 

contract market or swap execution facility in a 

disciplinary matter which cannot be further 

appealed at the contract market or swap execution 

facility, is not subject to the stay of the Commission 

or a court of competent jurisdiction, and has not 

been reversed by the Commission or any court of 

competent jurisdiction). 

149See § 1.3 (defining ‘‘customer’’ as any person 

who uses a futures commission merchant, 

introducing broker, commodity trading advisor, or 

commodity pool operator as an agent in connection 

with trading in any commodity interest; Provided, 

however, an owner or holder of a proprietary 

account as defined in this section shall not be 

deemed to be a customer within the meaning of 

section 4d of the CEA, the regulations that 

implement sections 4d and 4f of the CEA and 

§ 1.35, and such an owner or holder of such a 

proprietary account shall otherwise be deemed to 

be a customer within the meaning of the CEA and 

§§ 1.37 and 1.46 and all other sections of these 

rules, regulations, and orders which do not 

implement sections 4d and 4f of the CEA). 

150The provision on which proposed Rule 

819(j)(1)(i)(B) is based, § 1.67(b)(1)(ii), requires a 

futures commission merchant or other registrant 

that receives such a notice to forward it to the 

injured customer. Because of differences in the 

respective agencies’ statutory authority, the 

Commission is proposing to require the SBSEF to 

establish a rule that requires the relevant member 

to forward the notice, not to propose a Commission 

rule that would impose such a duty on the member 

directly. 

151See proposed Rule 819(j)(3)(ii) (defining ‘‘final 

disciplinary action’’ as any decision by or 

settlement with an SBSEF in a disciplinary matter 

which cannot be further appealed at the SBSEF, is 

not subject to the stay of the Commission or a court 

of competent jurisdiction, and has not been 

reversed by the Commission or any court of 

competent jurisdiction). 152The Commission notes, finally, that the 

definitions of ‘‘customer’’ and ‘‘final disciplinary 

action’’ would apply only within proposed Rule 

819(j), so they are not included in the omnibus 

definitions rule for proposed Regulation SE (Rule 

802). 

153A ‘‘reporting market’’ is defined in § 15.00(q) 

to mean a DCM or registered entity under section 

1a(40) of the CEA. The term ‘‘registered entity’’ as 

defined in section 1a(40) of the CEA includes SEFs, 

among other entities. 

111. Are there additional provisions 

of § 1.63 that the Commission has not 

adapted into proposed Rule 819(i) but 

which you believe should be 

incorporated? If so, which provisions 

and why? 

112. Proposed Rule 819(i)(1)(iv) 

would require an SBSEF to have rules 

that render a person ineligible to serve 

on its disciplinary committees, 

arbitration panels, oversight panels, or 

governing board if that person is subject 

to an agreement with the Commission, 

an SBSEF, or an SRO not to apply for 

registration with the Commission or 

membership in any SRO. Should similar 

agreements with any other types of 

entities be included in the ineligibility 

provision of proposed Rule 819(i)(1)(iv)? 

For example, should registered futures 

associations such as the NFA be 

included in this list? Why or why not? 

c. Rule 819(j)—Notification of Final 

Disciplinary Action Involving Financial 

Harm to a Customer 

Paragraph (j) of proposed Rule 819 is 

a modified version of § 1.67 of the 

CFTC’s rules. Section 1.67(b) provides, 

in relevant part, that upon any final 

disciplinary action 148 in which a 

contract market or SEF finds that a 

member has committed a rule violation 

that involved a transaction for a 

customer,149 whether executed or not, 

and that resulted in harm to the 

customer, the contract market or SEF 

must promptly provide notice of the 

disciplinary action to the futures 

commission merchant or other 

registrant. The futures commission 

merchant or other registrant that 

receives the notice must promptly 

provide written notice of the 

disciplinary action to the customer as 

disclosed on its books and records. Such 

written notice must include the 

principal facts of the disciplinary action 

and a statement that the contract market 

or SEF has found that the member has 

committed a rule violation that involved 

a transaction for the customer, whether 

executed or not, and that resulted in 

financial harm to the customer. 

Paragraph (j)(1) of proposed Rule 819 

is designed to replicate for SBSEFs the 

fundamental duty of § 1.67 and would 

provide that, upon any final 

disciplinary action in which an SBSEF 

finds that a member has committed a 

rule violation that involved a 

transaction for a customer, whether 

executed or not, and that resulted in 

financial harm to the customer, the 

SBSEF must promptly provide written 

notice of the disciplinary action to the 

member. In addition, the SBSEF would 

be required to have established a rule 

pursuant to Rule 806 or 807 that 

requires a member that receives such a 

notice to promptly provide that notice 

to the customer, as disclosed on the 

member’s books and records.150

Paragraph (j)(2) would provide that the 

written notice must include the 

principal facts of the disciplinary action 

and a statement that the SBSEF has 

found that the member has committed a 

rule violation that involved a 

transaction for the customer, whether 

executed or not, and that resulted in 

financial harm to the customer. 

Paragraph (j)(3) of proposed Rule 819 

would provide definitions for two terms 

used in Rule 819(j). The proposed 

definition for ‘‘final disciplinary action’’ 

is closely modelled on the CFTC’s 

definition in § 1.67(a).151 The proposed 

definition of ‘‘customer’’ is only loosely 

modelled on the definition of 

‘‘customer’’ provided in § 1.3, which 

includes complexities deriving from the 

CEA that the Commission does not 

believe are necessary or appropriate to 

adapt into a rule that applies to 

SBSEFs.152 The Commission is 

proposing to define ‘‘customer’’ in 

proposed Rule 819(j)(3)(i) as a person 

that utilizes an agent in connection with 

trading on an SBSEF. 

The Commission preliminarily 

believes that, if an SBSEF member 

commits a rule violation that involved 

a transaction for the customer and 

financial harm to the customer results, 

the customer should be apprised of that 

fact. The Commission preliminarily 

believes, therefore, that closely 

modelling a rule in Regulation SE on 

§ 1.67 would be an appropriate means of 

furthering that policy goal. The 

requirements of § 1.67 should be well 

understood by SEFs, who have been 

complying with them for several years, 

and incorporating similar requirements 

into Regulation SE should impose lower 

compliance costs on dually registered 

SEF/SBSEFs. 

The Commission seeks comment on 

the following: 

113. Do you believe in general that 

Regulation SE should include a rule 

designed to provide a customer of an 

SBSEF member notice if the member 

commits a violation of an SBSEF rule 

that results in harm to the customer? 

Why or why not? 

114. In particular, do you agree with 

the specific language proposed by the 

Commission to adapt § 1.67 into 

proposed Rule 819(j)? If not, how would 

you revise that language? 

115. Do you agree with the proposed 

definition of ‘‘customer’’ in proposed 

Rule 819(j)? If not, how would you 

revise it? 

d. Rule 819(k)—Designation of Agent for 

Non-U.S. Member 

Paragraph (k) of proposed Rule 819 

would require non-U.S. persons who 

trade on an SBSEF to have an agent for 

service process, which could be an 

agent of its own choosing or, by default, 

the SBSEF. Proposed Rule 819(k) is 

modelled on § 15.05(i) of the CFTC’s 

rules, which concerns the designation of 

agents for foreign persons participating 

on ‘‘reporting markets,’’ a category in 

the CFTC’s rules that includes SEFs.153

With respect to SEFs, § 15.05(i) provides 

that a SEF that permits a foreign trader 

to effect contracts, agreements, or 

transactions on the SEF shall be deemed 

to be the agent of the foreign trader with 

respect to any such contracts, 

agreements, or transactions executed by 

the foreign trader. § 15.05(i) further 

provides that service or delivery of any 

communication issued by or on behalf 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28909 

154 ‘‘Non-U.S. member’’ would be a defined term 

in proposed Rule 819(k) that does not appear in 

§ 15.05 of the CFTC’s rules but which, the 

Commission preliminarily believes, appropriately 

conveys the meaning of the CFTC rule for purposes 

of SBSEFs in proposed Rule 819(k). A foreign trader 

that executes contracts on a trading platform such 

as an SBSEF must be a member of that platform. 

Therefore, to promote uniformity throughout 

Regulation SE, the Commission is using the term 

‘‘member’’ for this concept. Furthermore, the 

Commission has defined the term ‘‘U.S. person’’ for 

purposes of the cross-border application of its Title 

VII rules—see Rule 3a71–3(a)(4), § 240.3a71–3(a)(4) 

—and thus is proposing to define ‘‘non-U.S. 

member’’ in Rule 802 as ‘‘a member of a securitybased swap execution facility that is not a U.S. 

person.’’ 

155Section 3D(d)(3) of the SEA, 15 U.S.C. 78c– 

4(d)(3). 

156See section 5h(f)(3) of the CEA, 7 U.S.C. 7b– 

3(f)(3). 

157Appendix C to part 38 provides, inter alia, that 

careful consideration should be given to the 

potential for manipulation or distortion of the cash 

settlement price of a swap, as well as the reliability 

of that price as an indicator of cash market values. 

Appropriate consideration also should be given to 

the commercial acceptability, public availability, 

and timeliness of the price series that is used to 

calculate the cash settlement price. Documentation 

demonstrating that the settlement price index is a 

reliable indicator of market values and conditions 

and is highly regarded by industry/market agents 

should be provided. Such documentation may take 

on various forms, including carefully documented 

interviews with principal market trading agents, 

pricing experts, marketing agents, etc. Appropriate 

consideration also should be given to the 

commercial acceptability, public availability, and 

timeliness of the price series that is used to 

calculate the cash flows of the swap. 

of the CFTC to the SEF shall constitute 

valid and effective service upon the 

foreign trader, and that a SEF that has 

been served with, or to which there has 

been delivered, a communication issued 

by or on behalf of the CFTC to a foreign 

trader shall transmit the communication 

promptly and in a manner which is 

reasonable under the circumstances, or 

in a manner specified by the CFTC in 

the communication, to the foreign 

trader. 

Paragraph (i)(1) of § 15.05 provides, 

with respect to SEFs, that it shall be 

unlawful for a SEF to permit a foreign 

trader to effect contracts on the SEF 

unless the SEF has informed the foreign 

trader of the requirements of § 15.05. 

Paragraph (i)(2) of § 15.05 permits a 

foreign trader to appoint its own agent 

for service of process if it provides a 

copy of the agency agreement to the 

SEF, and the SEF files the agreement 

with the CFTC. Paragraph (i)(3) of 

§ 15.05 provides that the foreign trader 

would have to notify the CFTC 

immediately if that agreement is no 

longer in effect. 

Paragraph (k)(1) of proposed Rule 819 

is modelled on § 15.05(i) and would 

provide that an SBSEF that admits a 

non-U.S. person as a member shall be 

deemed to be the agent of the ‘‘non-U.S. 

member’’ 154 with respect to any SBS 

executed by the non-U.S. member. 

Under proposed Rule 819(k)(1), service 

or delivery of any communication 

issued by or on behalf of the 

Commission to the SBSEF shall 

constitute valid and effective service 

upon the non-U.S. member. If an SBSEF 

is served with a communication issued 

by or on behalf of the Commission to a 

non-U.S. member, the SBSEF would be 

required to transmit the communication 

to the non-U.S. member. Paragraph 

(k)(2) of proposed Rule 819 is modelled 

on § 15.05(i)(1) and would provide that 

it shall be unlawful for an SBSEF to 

permit a non-U.S. member to execute 

SBS transactions on the facility unless 

the SBSEF informs the non-U.S. 

member in writing of the requirements 

of proposed Rule 819(k). 

Paragraph (k)(3) of proposed Rule 819 

is modelled on § 15.05(i)(2) and would 

permit a non-U.S. member of an SBSEF 

to utilize an agent for service of process 

other than the SBSEF. The non-U.S. 

member would have to provide a copy 

of its agreement with the alternate agent 

to the SBSEF, and the SBSEF would 

then have to file the agreement with the 

Commission, before executing any 

transaction on the SBSEF. Paragraph 

(k)(4) of proposed Rule 819, modelled 

on § 15.05(i)(3), would require the nonU.S. member to notify the Commission 

if the agency agreement is no longer in 

effect. 

The Commission preliminarily 

believes that, for an SBSEF to have an 

effective regulatory program and thereby 

comply with Core Principle 2 

(Compliance with Rules), the SBSEF 

must have jurisdiction over all of its 

members, including members who are 

not U.S. persons. Proposed Rule 819(k) 

would further an SBSEF’s ability to 

ensure compliance by its non-U.S. 

members with its rules by requiring 

each non-U.S. member of the SBSEF to 

have an agent for service of process, 

whether an agent of its own choosing 

that has been disclosed to the SBSEF 

and the Commission or, as a default, the 

SBSEF itself. This would eliminate any 

question of how to provide valid notice 

to a non-U.S. member of any 

proceedings involving potential rule 

violations. 

The Commission preliminarily 

believes that the CFTC has adequately 

addressed these concerns with 

§ 15.05(i), and therefore that proposed 

Rule 819 should include provisions 

adapted from § 15.05(i) for application 

to SBSEFs. If the Commission ultimately 

adopts Rule 819(k) in the same or 

similar form as it is proposed, non-U.S. 

members of dually registered SEF/ 

SBSEFs that trade both swaps and SBS 

should already be in compliance with 

these requirements. 

The Commission seeks comment on 

the following: 

116. Do you believe in general that 

Regulation SE should include a 

provision making an SBSEF the default 

agent for service of process for its nonU.S. members? Why or why not? 

117. Do you agree with the specific 

language proposed by the Commission 

to adapt § 15.05(i) into proposed Rule 

819(k)? If not, how would you revise the 

rule? 

118. Are there additional provisions 

of § 15.05 that the Commission has 

omitted but which you believe should 

be incorporated into proposed Rule 

819(k)? If so, which provisions and 

why? 

119. Do you anticipate that SBSEFs 

will have any non-U.S. members? Do 

you believe that proposed Rule 819(k) 

will even be necessary? 

120. Do you agree with the proposed 

definition of ‘‘non-U.S. member’’ in 

Rule 802? If not, how would you revise 

it? 

C. Rule 820—Core Principle 3—SBS Not 

Readily Susceptible to Manipulation 

Core Principle 3 155 provides that an 

SBSEF may permit trading only in SBS 

that are not readily susceptible to 

manipulation. CEA Core Principle 3 for 

SEFs is substantively identical.156

The CFTC implemented Core 

Principle 3 in subpart D of part 37. 

Section 37.300 of subpart D repeats the 

statutory text of CEA Core Principle 3. 

§ 37.301 provides that, for a SEF to 

demonstrate its compliance with the 

core principle, it must, at the time it 

submits a new swap contract pursuant 

to part 40, provide the applicable 

information as set forth in appendix C 

to part 38 (Demonstration of 

Compliance That a Contract is not 

Readily Susceptible to 

Manipulation).157 Section 37.301 also 

states that a SEF may refer to the 

guidance provided in appendix B of part 

37, which provides in relevant part that, 

when identifying a reference price, a 

SEF should either calculate its own 

reference price using suitable and wellestablished acceptable methods or 

carefully select a reliable third-party 

index. 

Proposed Rule 820 would implement 

Core Principle 3. Although, like 

§ 37.300, proposed Rule 820 repeats the 

statutory text of the Core Principle, the 

Commission preliminarily believes that 

it is not necessary or appropriate to 

harmonize with the CFTC guidance 


jspears on DSK121TN23PROD with PROPOSALS2
28910 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

158Section 3D(d)(4) of the SEA, 15 U.S.C. 78c– 

4(d)(4). 

159Section 5h(f)(4) of the CEA, 7 U.S.C. 7b– 

3(f)(4). 

160The guidance pertaining to Core Principle 4 

has subsections entitled ‘‘general requirements,’’ 

‘‘physical-delivery swaps,’’ ‘‘cash-settled swaps,’’ 

‘‘ability to obtain information,’’ and ‘‘risk controls 

for trading.’’ 

referenced in § 37.301, as this guidance 

was developed for products other than 

SBS. 

The Commission seeks comment on 

the following: 

121. Do you agree with how the 

Commission is proposing to implement 

Core Principle 3? Why or why not? If 

not, what other rules would you 

suggest? 

D. Rule 821—Core Principle 4— 

Monitoring of Trading and Trade 

Processing 

Core Principle 4 158 requires an SBSEF 

to establish and enforce rules or terms 

and conditions defining or 

specifications detailing: (1) Trading 

procedures to be used in entering and 

executing orders traded on or through 

the facilities of the SBSEF; and (2) 

procedures for trade processing of SBS 

on or through the facilities of the 

SBSEF. Core Principle 4 also requires an 

SBSEF to monitor trading in SBS to 

prevent manipulation, price distortion, 

and disruptions of the delivery or cash 

settlement process through surveillance, 

compliance, and disciplinary practices 

and procedures, including methods for 

conducting real-time monitoring of 

trading and comprehensive and accurate 

trade reconstructions. CEA Core 

Principle 4 for SEFs 159 is substantively 

identical. 

The CFTC implemented Core 

Principle 4 in subpart E of part 37. 

Section 37.401 of subpart E provides 

that a SEF must collect and evaluate 

data on its market participants’ market 

activity; demonstrate an effective 

program for conducting real-time 

monitoring to detect and resolve 

abnormalities; demonstrate the ability to 

comprehensively and accurately 

reconstruct daily trading; and 

demonstrate that it has access to 

sufficient information to assess whether 

trading in the swaps on its market, in 

the index or instruments used as a 

reference price, or other underlying 

instruments is being used to affect 

prices on its market. Sections 37.402 

and 37.403 impose additional 

requirements for physical-delivery 

swaps and cash-settled swaps, 

respectively. Section 37.404(a) requires 

a SEF to demonstrate that it has access 

to sufficient information to assess 

whether trading in swaps listed on its 

market, in the index or instrument used 

as a reference price, or in the underlying 

commodity for its listed swaps is being 

used to affect prices on its market. 

Section 37.404(b) requires a SEF to have 

rules that require its market participants 

to keep records of their trading, 

including records of their activity in the 

index or instrument used as a reference 

price, the underlying commodity, and 

related derivatives markets, and make 

such records available, upon request, to 

the SEF or, if applicable, to its 

regulatory service provider, and the 

CFTC. Section 37.405 requires a SEF to 

establish and maintain risk control 

mechanisms to prevent and reduce the 

potential risk of market disruptions, 

including, but not limited to, market 

restrictions that pause or halt trading 

under market conditions prescribed by 

the SEF. Section 37.406 requires a SEF 

to have the ability to reconstruct all 

trading on its facility, and requires that 

all audit-trail data and reconstructions 

shall be made available to the CFTC in 

a form, manner, and time that is 

acceptable to the CFTC. Section 37.407 

requires a SEF to comply with subpart 

E of part 37 through a dedicated 

regulatory department or by contracting 

with a regulatory services provider. 

Section 37.408 provides that SEFs may 

refer to the guidance in appendix B to 

part 37 to demonstrate compliance with 

subpart E of part 37.160

Proposed Rule 821 would implement 

Core Principle 4 and is closely modelled 

on the rules in subpart E of part 37. The 

Commission preliminarily believes that 

the CFTC has implemented Core 

Principle 4 for SEFs in an appropriate 

way, and that closely harmonizing with 

the CFTC rule would yield comparable 

regulatory benefits while imposing only 

marginal additional costs. The 

Commission does not observe any 

differences between the swap and SBS 

markets sufficient to warrant a different 

approach to how a SEF/SBSEF should 

monitor trading and trade processing. 

As noted above, the Commission 

preliminarily believes, in attempting to 

harmonize with the CFTC’s regulatory 

regime for SEFs, that it would be 

preferable to adapt the CFTC’s guidance 

and acceptable practices from appendix 

B to part 37 into formal rules, where 

appropriate. Although the Commission 

considered proposing a stand-alone rule 

that adapts the guidance pertaining to 

Core Principle 4, the Commission is 

proposing instead to weave concepts— 

and, in some cases, specific language— 

from the guidance together with the 

CFTC’s original rule text, as the 

guidance itself follows the structure of 

the rule. The Commission illustrates its 

approach in the following proposed 

rules, where the analogous CFTC rule 

language is in plain text and language 

adapted from the guidance is italicized: 

• Proposed Rule 821(b)(3): An SBSEF 

shall: ‘‘Demonstrate an effective 

program for conducting real-time 

monitoring of trading for the purpose of 

detecting and resolving abnormalities. A 

security-based swap execution facility 

shall employ automated alerts to detect 

abnormal price movements and unusual 

trading volumes in real time and 

instances or threats of manipulation, 

price distortion, and disruptions on at 

least a T+1 basis. The T+1 detection 

and analysis should incorporate any 

additional data that becomes available 

on a T+1 basis, including the trade 

reconstruction data.’’ 

• Proposed Rule 821(d)(2): ‘‘For cashsettled security-based swaps listed on 

the security-based swap execution 

facility where the reference price is 

formulated and computed by the 

security-based swap execution facility, 

the security-based swap execution 

facility shall demonstrate that it 

monitors the continued appropriateness 

of its methodology for deriving that 

price and shall promptly amend any 

methodologies that result, or are likely 

to result, in manipulation, price 

distortions, or market disruptions, or 

impose new methodologies to resolve 

the threat of disruptions or distortions.’’ 

• Proposed Rule 821(d)(3): ‘‘For cashsettled security-based swaps listed on 

the security-based swap execution 

facility where the reference price relies 

on a third-party index or instrument, 

including an index or instrument traded 

on another venue, the security-based 

swap execution facility shall 

demonstrate that it monitors for pricing 

abnormalities in the index or instrument 

used to calculate the reference price and 

shall conduct due diligence to ensure 

that the reference price is not 

susceptible to manipulation.’’ 

• Proposed Rule 821(e)(1): ‘‘A 

security-based swap execution facility 

shall demonstrate that it has access to 

sufficient information to assess whether 

trading in security-based swaps listed 

on its market, in the index or instrument 

used as a reference price, or in the 

underlying asset for its listed securitybased swaps is being used to affect 

prices on its market. The security-based 

swap execution facility shall 

demonstrate that it can obtain position 

and trading information directly from 

members that conduct substantial 

trading on its facility or through an 

information-sharing agreement with 

other venues or a third-party regulatory 

service provider. If the position and 

trading information is not available 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28911 

161Section 3D(d)(5) of the SEA, 15 U.S.C. 78c– 

4(d)(5). 

162Section 5h(f)(5) of the CEA, 7 U.S.C. 7b– 

3(f)(5). 

163While § 37.502 of subpart F uses the term 

‘‘market participant,’’ proposed Rule 822 substitutes 

the term ‘‘member’’ in these places, since the rule 

pertains to market participants who are acting as 

members of the SEF/SBSEF. See supra note 53. 

directly from its members but is 

available through information-sharing 

agreements with other trading venues or 

a third-party regulatory service provider, 

the security-based swap execution 

facility should cooperate in such 

information-sharing agreements.’’ 

• Proposed Rule 821(e)(2): ‘‘A 

security-based swap execution facility 

shall have rules that require its members 

to keep records of their trading, 

including records of their activity in the 

underlying asset, and related derivatives 

markets, and make such records 

available, upon request, to the securitybased swap execution facility or, if 

applicable, to its regulatory service 

provider and the Commission. The 

security-based swap execution facility 

may limit the application of this 

requirement to only those members that 

conduct substantial trading on its 

facility.’’ 

• Proposed Rule 821(f): ‘‘A securitybased swap execution facility shall 

establish and maintain risk control 

mechanisms to prevent and reduce the 

potential risk of market disruptions, 

including, but not limited to, market 

restrictions that pause or halt trading 

under market conditions prescribed by 

the security-based swap execution 

facility. Such risk control mechanisms 

shall be designed to avoid market 

disruptions without unduly interfering 

with that market’s price discovery 

function. The security-based swap 

execution facility may choose from 

among controls that include: pre-trade 

limits on order size, price collars or 

bands around the current price, 

message throttles, daily price limits, and 

intraday position limits related to 

financial risk to the clearing member, or 

design other types of controls, as well as 

clear error-trade and order-cancellation 

policies. Within the specific array of 

controls that are selected, the securitybased swap execution facility shall set 

the parameters for those controls, so 

that the specific parameters are 

reasonably likely to serve the purpose of 

preventing market disruptions and price 

distortions.’’ 

The Commission also is proposing a 

stand-alone provision derived from the 

appendix B guidance as Rule 821(b)(5), 

which would provide than an SBSEF 

must have rules in place that allow it to 

intervene to prevent or reduce market 

disruptions. Once a threatened or actual 

disruption is detected, the securitybased swap execution facility shall take 

steps to prevent the market disruption 

or reduce its severity. 

Finally, in several instances in 

subpart E of part 37, the CFTC uses the 

term ‘‘commodity’’ with respect to the 

swap underlier. In proposed Rule 821, 

the Commission is proposing instead to 

use the more generic term ‘‘asset’’ to 

refer to the underlier. 

The Commission seeks comment on 

the following: 

122. Do you agree in general with the 

Commission’s approach to 

implementing Core Principle 4? Why or 

why not? In particular, do agree with 

how the Commission is proposing to 

adapt the CFTC guidance on Core 

Principle 4 by converting appropriate 

parts of it into a formal rule? Why or 

why not? 

123. In particular, is there any 

language that the Commission is 

proposing to adapt from subpart E of 

part 37 into proposed Rule 821 that you 

believe is not appropriate? If so, how 

would you revise it? 

124. Are there any aspects of 

proposed Rule 821 that derive from the 

guidance that you believe are 

inappropriate for the Commission to 

incorporate into its own rules, or that 

you believe the Commission is 

proposing to incorporate 

inappropriately? If so, please discuss. 

125. Are there any aspects of the 

CFTC’s guidance that you believe 

should also be incorporated into the 

SEC rule but are not present in proposed 

Rule 821? If so, please describe. 

E. Rule 822—Core Principle 5—Ability 

To Obtain Information 

Core Principle 5 161 requires an SBSEF 

to establish and enforce rules that will 

allow the SBSEF to obtain any necessary 

information to perform any of the 

functions described in the Core 

Principles, provide the information to 

the Commission on request, and have 

the capacity to carry out such 

international information-sharing 

agreements as the Commission may 

require. CEA Core Principle 5 for 

SEFs 162 is substantively identical. 

The CFTC implemented Core 

Principle 5 in subpart F of part 37. 

Section 37.500 of subpart F repeats the 

statutory text of Core Principle 5. 

Section 37.501 requires a SEF to 

establish and enforce rules that will 

allow the SEF to have the ability and 

authority to obtain sufficient 

information to allow it to fully perform 

its operational, risk management, 

governance, and regulatory functions 

and any requirements under the rule, 

including the capacity to carry out 

international information-sharing 

agreements as the Commission may 

require. Section 37.502 requires a SEF to 

have rules that allow it to collect 

information on a routine basis, allow for 

the collection of non-routine data from 

its market participants, and allow for its 

examination of books and records kept 

by the market participants on its facility. 

Section 37.503 requires a SEF to provide 

information in its possession to the 

CFTC upon request, in a form and 

manner that the CFTC approves. Section 

37.504 requires a SEF to share 

information with other regulatory 

organizations, data repositories, and 

third-party data reporting services as 

required by the CFTC or as otherwise 

necessary and appropriate to fulfill its 

self-regulatory and reporting 

responsibilities. Section 37.504 further 

provides that appropriate informationsharing agreements can be established 

with such entities or the CFTC can act 

in conjunction with the SEF to carry out 

such information sharing. 

Proposed Rule 822 would implement 

Core Principle 5 and is substantively 

identical to subpart F of part 37. 

Paragraph (a) of proposed Rule 822 

repeats the statutory text of Core 

Principle 5. Paragraph (b), modelled on 

§ 37.501, would require that an SBSEF 

establish and enforce rules that will 

allow the SBSEF to have the ability and 

authority to obtain sufficient 

information to allow it to fully perform 

its operational, risk management, 

governance, and regulatory functions 

and any requirements under Regulation 

SE. Paragraph (c), like § 37.502, would 

require an SBSEF to have rules that 

allow it to collect information on a 

routine basis, allow for the collection of 

non-routine data from its members, and 

allow for its examination of books and 

records kept by members on its 

facility.163 Paragraph (d), like § 37.503, 

would require that an SBSEF provide 

information in its possession to the 

Commission upon request, in a form 

and manner specified by the 

Commission. Finally, paragraph (e), like 

§ 37.504, would require an SBSEF to 

share information with other regulatory 

organizations, data repositories, and 

third-party data reporting services as 

required by the Commission or as 

otherwise necessary and appropriate to 

fulfill its regulatory and reporting 

responsibilities, and that appropriate 

information-sharing agreements can be 

established with such entities, or the 

Commission can act in conjunction with 

the SBSEF to carry out such information 

sharing. 


jspears on DSK121TN23PROD with PROPOSALS2
28912 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

164Section 3D(d)(6) of the SEA, 15 U.S.C. 78c– 

4(d)(6). 

165 15 U.S.C. 78c–3(a)(1). See supra note 94 and 

accompanying text (discussing mandatory clearing 

provisions). 

166Section 5h(f)(7) of the CEA, 7 U.S.C. 7b– 

3(f)(7). 

167While subpart H of part 37 uses the term 

‘‘derivatives clearing organization,’’ proposed Rule 

823 substitutes the term ‘‘registered clearing 

agency’’ in these places, the analogous term under 

the SEA. 

168Section 3D(d)(7) of the SEA, 15 U.S.C. 78c– 

4(d)(7). 

169Section 5h(f)(8) of the CEA, 7 U.S.C. 7b– 

3(f)(8). 

The Commission preliminarily 

believes that closely harmonizing with 

the CFTC’s rules associated with CEA 

Core Principle 5 would appropriately 

implement SEA Core Principle 5. By 

harmonizing with the CFTC’s approach, 

a SEF/SBSEF could have the same 

information-collection rules and 

information-sharing agreements. The 

Commission could thus obtain 

comparable regulatory benefits while 

imposing few if any additional costs on 

SEF/SBSEFs. 

The Commission seeks comment on 

the following: 

126. Do you agree generally with how 

the Commission is proposing to 

implement Core Principle 5? Why or 

why not? 

127. In particular, do you believe that 

closely harmonizing with subpart F of 

the CFTC’s rules is appropriate? Why or 

why not? If not, please identify any 

provision(s) in the CFTC rules that you 

believe should not be adapted for 

SBSEFs and explain your reasoning. 

F. Rule 823—Core Principle 6— 

Financial Integrity of Transactions 

SEA Core Principle 6 164 requires an 

SBSEF to establish and enforce rules 

and procedures for ensuring the 

financial integrity of SBS entered on or 

through the facilities of the SBSEF, 

including the clearance and settlement 

of SBS pursuant to section 3C(a)(1) of 

the SEA.165 CEA Core Principle 7 for 

SEFs 166 is substantively identical to 

SEA Core Principle 6. 

The CFTC implemented CEA Core 

Principle 7 in subpart H of part 37. 

Section 37.700 of subpart H repeats the 

statutory text of Core Principle 7. 

Section 37.701 provides that 

transactions executed on or through the 

SEF that are required to be cleared or 

are voluntarily cleared by the 

counterparties shall be cleared through 

a registered or exempt DCO. Section 

37.702 requires a SEF to provide for the 

financial integrity of its transactions by 

establishing minimum financial 

standards for its members, which shall 

at a minimum require members to be 

ECPs. Section 37.702 further requires a 

SEF to provide for the financial integrity 

of its transactions by ensuring that the 

SEF, for transactions cleared by a DCO, 

has the capacity to route transactions to 

the DCO in a manner acceptable to the 

DCO; and by coordinating with each 

DCO to which it submits transactions 

for clearing in the development of rules 

and procedures to facilitate prompt and 

efficient transaction processing. Section 

37.703 requires a SEF to monitor its 

members to ensure that they continue to 

qualify as ECPs. 

Proposed Rule 823 would implement 

SEA Core Principle 6 and is 

substantively identical to subpart H of 

part 37. Paragraph (a) of proposed Rule 

823 repeats the statutory text of the Core 

Principle. Paragraph (b), like § 37.701, 

would require that transactions 

executed on or through the SBSEF that 

are required to be cleared under section 

3C(a)(1) of the SEA or are voluntarily 

cleared by the counterparties shall be 

cleared through a registered clearing 

agency 167 or a clearing agency that has 

obtained an exemption from clearing 

agency registration to provide central 

counterparty services for SBS. 

Paragraph (c), like § 37.702, would 

require an SBSEF to provide for the 

financial integrity of its transactions by 

establishing minimum financial 

standards for its members, which shall, 

at a minimum, require that each 

member qualify as an ECP. In addition, 

for transactions cleared by a registered 

clearing agency, an SBSEF must provide 

for the financial integrity of its 

transactions by ensuring that it has the 

capacity to route transactions to the 

registered clearing agency in a manner 

acceptable to the clearing agency for 

purposes of clearing, and by 

coordinating with each registered 

clearing agency to which it submits 

transactions for clearing, in the 

development of rules and procedures to 

facilitate prompt and efficient 

transaction processing. Finally, 

paragraph (d), like § 37.703, would 

require that an SBSEF monitor its 

members to ensure that they continue to 

qualify as ECPs. 

The Commission preliminarily 

believes that closely harmonizing with 

the CFTC’s rules associated with CEA 

Core Principle 7 would appropriately 

implement SEA Core Principle 6. By 

harmonizing with the CFTC’s approach, 

a SEF/SBSEF could have the same 

financial standards and requirements for 

its members, and develop the same 

processes for submitting swaps and SBS 

for clearing, thus promoting efficiency 

among its respective SEF and SBSEF 

operations. The Commission could thus 

obtain comparable regulatory benefits 

while imposing few if any additional 

costs on SEF/SBSEFs. 

The Commission seeks comment on 

the following: 

128. Do you agree generally with how 

the Commission is proposing to 

implement Core Principle 6? Why or 

why not? 

129. In particular, do you believe that 

closely harmonizing with subpart H of 

the CFTC’s rules is appropriate? Why or 

why not? If not, please identify any 

provision(s) in the CFTC rules that you 

believe should not be adapted for 

SBSEFs and explain your reasoning. 

130. Are there any differences in the 

SBS market relative to the swap market 

that warrant imposing different or 

additive requirements with respect to 

the rules for implementing SEA Core 

Principle 6? If so, please explain. 

G. Rule 824—Core Principle 7— 

Emergency Authority 

SEA Core Principle 7 168 requires an 

SBSEF to adopt rules to provide for the 

exercise of emergency authority, in 

consultation or cooperation with the 

Commission, as is necessary and 

appropriate, including the authority to 

liquidate or transfer open positions in 

any SBS or to suspend or curtail trading 

in an SBS. CEA Core Principle 8 for 

SEFs 169 is substantively identical. 

The CFTC implemented Core 

Principle 8 for SEFs in subpart I of part 

37. Section 37.800 of subpart I repeats 

the statutory text of the Core Principle. 

Section 37.801 provides that a SEF 

‘‘may refer’’ to the guidance in appendix 

B to part 37 ‘‘to demonstrate to the 

Commission compliance with [Core 

Principle 8].’’ Paragraph (a)(1) of that 

guidance states that a SEF should have 

rules that authorize it to take certain 

actions in the event of an emergency. 

Furthermore, a SEF should have the 

authority to intervene as necessary to 

maintain markets with fair and orderly 

trading and to prevent or address 

manipulation or disruptive trading 

practices, whether the need for 

intervention arises exclusively from the 

SEF’s market or as part of a coordinated, 

cross-market intervention. A SEF should 

have the flexibility and independence to 

address market emergencies in an 

effective and timely manner consistent 

with the nature of the emergency, as 

long as all such actions taken by the SEF 

are made in good faith to protect the 

integrity of the markets. However, the 

SEF should also have rules that allow it 

to take market actions as may be 

directed by the CFTC. Additionally, in 

situations where a swap is traded on 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28913 

170Section 3D(d)(8) of the SEA, 15 U.S.C. 78c– 

4(d)(8). 

171Section 5h(f)(9) of the CEA, 7 U.S.C. 7b– 

3(f)(9). 

more than one platform, emergency 

action to liquidate or transfer open 

interest shall be as directed, or agreed 

to, by the CFTC or its staff. The SEF’s 

rules should include procedures and 

guidelines for decision-making and 

implementation of emergency 

intervention that avoid conflicts of 

interest, and include alternate lines of 

communication and approval 

procedures to address emergencies 

associated with real time events. To 

address perceived market threats, the 

SEF should have rules that allow it to 

take emergency actions, including 

imposing or modifying position limits, 

imposing or modifying price limits, 

imposing or modifying intraday market 

restrictions, imposing special margin 

requirements, ordering the liquidation 

or transfer of open positions in any 

contract, ordering the fixing of a 

settlement price, extending or 

shortening the expiration date or the 

trading hours, suspending or curtailing 

trading in any contract, transferring 

customer contracts and the margin, or 

altering any contract’s settlement terms 

or conditions, or, if applicable, 

providing for the carrying out of such 

actions through its agreements with its 

third-party provider of clearing or 

regulatory services. 

Paragraph (a)(2) of the guidance 

provides that a SEF should promptly 

notify the CFTC of its exercise of 

emergency action, explaining its 

decision-making process, the reasons for 

using its emergency authority, and how 

conflicts of interest were minimized, 

including the extent to which the SEF 

considered the effect of its emergency 

action on the underlying markets and on 

markets that are linked or referenced to 

the contracts traded on its facility, 

including similar markets on other 

trading venues. Furthermore, 

information on all regulatory actions 

carried out pursuant to a SEF’s 

emergency authority should be included 

in a timely submission of a certified rule 

pursuant to part 40. 

Proposed Rule 824 would implement 

SEA Core Principle 7 and is closely 

modelled on subpart I of part 37 and the 

guidance for CEA Core Principle 8 in 

appendix B to part 37. Paragraph (a) of 

proposed Rule 824 would repeat the 

statutory text of the Core Principle. 

Paragraph (b) of proposed Rule 824 

would incorporate much of the language 

in paragraph (a)(1) of the CFTC’s 

guidance on CEA Core Principle 8. 

Under paragraph (b), an SBSEF would 

be required to adopt rules that are 

reasonably designed to: 

(1) Allow the SBSEF to intervene as 

necessary to maintain markets with fair 

and orderly trading and to prevent or 

address manipulation or disruptive 

trading practices, whether the need for 

intervention arises exclusively from the 

SBSEF’s market or as part of a 

coordinated, cross-market intervention; 

(2) Have the flexibility and 

independence to address market 

emergencies in an effective and timely 

manner consistent with the nature of the 

emergency, as long as all such actions 

taken by the SBSEF are made in good 

faith to protect the integrity of the 

markets; 

(3) Take market actions as may be 

directed by the Commission, including, 

in situations where an SBS is traded on 

more than one platform, emergency 

action to liquidate or transfer open 

interest as directed, or agreed to, by the 

Commission or the Commission’s staff; 

(4) Include procedures and guidelines 

for decision-making and 

implementation of emergency 

intervention that avoid conflicts of 

interest; 

(5) Include alternate lines of 

communication and approval 

procedures to address emergencies 

associated with real-time events; 

(6) Allow the SBSEF, to address 

perceived market threats, to impose or 

modify position limits, impose or 

modify price limits, impose or modify 

intraday market restrictions, impose 

special margin requirements, order the 

liquidation or transfer of open positions 

in any contract, order the fixing of a 

settlement price, extend or shorten the 

expiration date or the trading hours, 

suspend or curtail trading in any 

contract, transfer customer contracts 

and the margin, or alter any contract’s 

settlement terms or conditions, or, if 

applicable, provide for the carrying out 

of such actions through its agreements 

with its third-party provider of clearing 

or regulatory services. 

Paragraph (c) of proposed Rule 824 is 

based on paragraph (a)(2) of the CFTC’s 

guidance on CEA Core Principle 8 and 

would require an SBSEF to promptly 

notify the Commission of its exercise of 

emergency action, explaining its 

decision-making process, the reasons for 

using its emergency authority, and how 

conflicts of interest were minimized, 

including the extent to which the 

SBSEF considered the effect of its 

emergency action on the underlying 

markets and on markets that are linked 

or referenced to the contracts traded on 

its facility, including similar markets on 

other trading venues. In addition, 

proposed Rule 824(c) would require 

information on all regulatory actions 

carried out pursuant to an SBSEF’s 

emergency authority to be included in a 

timely submission of a certified rule 

pursuant to Rule 807. 

The Commission preliminarily 

believes that adapting the CFTC’s 

guidance associated with CEA Core 

Principle 8 into proposed Rule 824 

would appropriately implement SEA 

Core Principle 7. In particular, the 

Commission preliminarily agrees with 

the CFTC’s principles-based approach to 

emergency situations, requiring SEF/ 

SBSEFs to establish rules ex ante that 

generally would facilitate emergency 

actions but providing flexibility and 

independence with regard to specific 

actions that might be necessary. The 

Commission also preliminarily believes, 

as reflected in proposed Rule 824(c), 

that an SBSEF that exercises its 

emergency authority should be required 

to promptly notify the Commission of 

such exercise and to explain the basis 

for its actions. By harmonizing with the 

CFTC’s approach, the Commission’s 

intent is that, in many or even all 

instances, the SEF/SBSEF could file the 

same information regarding the 

situation to both agencies, rather than 

having to prepare one submission for 

the SEC and a different submission for 

the CFTC. 

The Commission seeks comment on 

the following: 

131. Do you agree generally with the 

Commission’s approach to 

implementing SEA Core Principle 7? 

Why or why not? 

132. In particular, do you agree with 

how the Commission is proposing to 

adapt the guidance from appendix B to 

part 37 regarding CEA Core Principle 8? 

Is there language adapted from the 

guidance into proposed Rule 824 that 

you believe should be omitted or 

revised? If so, please describe. 

H. Rule 825—Core Principle 8—Timely 

Publication of Trading Information 

SEA Core Principle 8 170 requires an 

SBSEF to make public timely 

information on price, trading volume, 

and other trading data on SBS to the 

extent prescribed by the Commission, 

and to have the capacity to 

electronically capture and transmit and 

disseminate trade information with 

respect to transactions executed on or 

through the facility. CEA Core Principle 

9 171 is substantively identical to SEA 

Core Principle 8. 

The CFTC implemented CEA Core 

Principle 9 in subpart J of part 37. 

Section 37.900 of subpart J repeats the 

statutory language of the Core Principle. 

§ 37.901 provides that, with respect to 

swaps traded on or through a SEF, the 


jspears on DSK121TN23PROD with PROPOSALS2
28914 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

172Section 13(m)(1) of the SEA, 15 U.S.C. 

78m(m)(1), authorizes the Commission to make SBS 

transaction, volume, and pricing data available to 

the public in such form and at such times as the 

Commission determines appropriate to enhance 

price discovery. The Commission has adopted rules 

relating to the reporting and public dissemination 

of SBS transaction and pricing data as Regulation 

SBSR. Rule 901(a)(1) of Regulation SBSR, 17 CFR 

242.901(a)(1), imposes certain reporting duties on 

SBSEFs. 

173Contra § 16.00(a) (requiring a reporting market 

to submit clearing member reports to the CFTC for 

each business day). 

174Each of these terms is defined in proposed 

Rule 802 and also used in proposed Rule 815. 

175See 17 CFR 242.606. 

176 XML (eXtensible Markup Language) is an open 

standard that defines, or ‘‘tags,’’ data using standard 

definitions. The tags establish a consistent structure 

of identity and context, which allows for automatic 

recognition and processing by software 

applications. 

177The presence of any such waiver requirements 

on a click-through screen could chill use of the 

Daily Market Data Report, because the user would 

be compelled to agree to the waiver even to view 

the report. The Commission recognizes that 

individual users may not have the time or the 

incentive to contest the appropriateness of any such 

waiver provisions in order to secure access. 

Proposed Rule 825(c)(3)(iv) is designed to assure 

such users that, even if an SBSEF were to insist on 

the waiver click-through as a condition of access, 

users would not in fact be sacrificing their ability 

to use the data free of charges and usage restrictions 

because the waiver would be null and void. 

SEF shall report specified swap data as 

provided in parts 43 and 45 of the 

CFTC’s rules. Section 37.901 also 

requires the SEF to comply with part 16 

of the CFTC’s rules, which requires a 

‘‘reporting market’’ (which term 

includes a SEF) to provide certain 

reports to the CFTC regarding trading 

activity on the SEF and to make certain 

of that information publicly available 

without charge. 

Proposed Rule 825 would implement 

SEA Core Principle 8 and is closely 

modelled on subpart J of part 37. 

Paragraph (a) of proposed Rule 825, like 

§ 37.900, repeats the statutory language 

of the Core Principle. While § 37.901 

provides that a SEF shall report swap 

transaction data pursuant to Parts 43 

and 45 of the CFTC’s rules, paragraph 

(b) of proposed Rule 825 would direct 

SBSEFs to report SBS transaction data 

in a manner specified in the SEC’s 

Regulation SBSR.172

In addition, the Commission 

preliminarily believes that it would be 

appropriate to incorporate requirements 

for SBSEFs that are modelled on the 

requirements for SEFs in the CFTC’s 

part 16. Unlike part 16, however, the 

Commission is not proposing to require 

SBSEFs to submit any information 

directly to the Commission.173 Rather, 

the Commission is proposing in 

paragraph (c) of Rule 825 to require only 

the publication, on an SBSEF’s website, 

of a ‘‘Daily Market Data Report.’’ The 

data fields that the Commission is 

proposing to require for the Daily 

Market Data Report approximate, 

although they are not the same as, those 

required by part 16. The Commission 

preliminarily believes that the 

differences in the product markets (i.e., 

SBS vs. swaps and futures products) 

necessitate certain adaptations in the 

data fields so as to render the reports 

published by SBSEFs meaningful to SBS 

market participants and market 

observers. 

Under proposed Rule 825(c)(1), the 

Daily Market Data Report for a business 

day would be required to contain the 

following information for each tenor of 

each SBS traded on that SBSEF during 

that business day: 

(i) The trade count (including block 

trades but excluding error trades, 

correcting trades, and offsetting trades); 

(ii) The total notional amount traded 

(including block trades but excluding 

error trades, correcting trades, and 

offsetting trades 174); 

(iii) The number of block trades; 

(iv) The total notional amount of 

block trades; 

(v) The opening and closing price; 

(vi) The price that is used for 

settlement purposes, if different from 

the closing price; and 

(vii) The lowest price of a sale or 

offer, whichever is lower, and the 

highest price of a sale or bid, whichever 

is higher, that the SBSEF reasonably 

determines accurately reflects market 

conditions. Bids and offers vacated or 

withdrawn shall not be used in making 

this determination. A bid is vacated if 

followed by a higher bid or price and an 

offer is vacated if followed by a lower 

offer or price. 

Paragraph (c)(2) of proposed Rule 825 

would require an SBSEF to provide 

certain explanatory information 

regarding data presented on the Daily 

Market Data Report: 

(i) The method used by the SBSEF in 

determining nominal prices and 

settlement prices; and 

(ii) If discretion is used by the SBSEF 

in determining the opening and/or 

closing ranges or the settlement prices, 

an explanation that certain discretion 

may be employed by the SBSEF and a 

description of the manner in which that 

discretion may be employed. 

Discretionary authority would have to 

be noted explicitly in each case in 

which it is applied (for example, by use 

of an asterisk or footnote). 

Paragraph (c)(3) of proposed Rule 825 

would set out various requirements 

regarding the form and manner by 

which an SBSEF makes available its 

Daily Market Data Report. Paragraph 

(c)(3)(i) would require the SBSEF to post 

on its website its Daily Market Data 

Report in a downloadable and machinereadable format using the most recent 

versions of the associated XML schema 

and PDF renderer as published on the 

Commission’s website. This proposed 

requirement is similar to existing 

Commission requirements for brokerdealer reports on order routing and 

execution 175 and is designed to allow 

the Daily Market Data Report to be 

automatically recognized and processed 

by a variety of software applications, 

thus making it immediately available for 

users to search, aggregate, compare, and 

analyze.176 This should enable SBS 

market participants and other market 

observers to obtain timely and 

consistent information on price, trading 

volume, and other SBSEF trading data 

in a manner that would facilitate search 

capabilities, and statistical and 

comparative analyses across SBSEFs 

and date ranges. In addition, requiring 

SBSEFs to use a PDF renderer as 

specified by the Commission would 

provide a corresponding humanreadable version of the machinereadable data, allowing end users 

without access to analytical software to 

read the disclosed information. 

Paragraph (c)(3)(ii) of proposed Rule 

825 would require the SBSEF to make 

available its Daily Market Data Report 

without fees or other charges. Paragraph 

(c)(3)(iii) would prohibit the SBSEF 

from imposing any encumbrances on 

access or usage restrictions with respect 

to the Daily Market Data Report. 

Paragraph (c)(3)(iv) would prohibit the 

SBSEF from requiring a user to agree to 

any terms before being allowed to view 

or download the Daily Market Data 

Report, such as by waiving any 

requirements of proposed Rule 

825(c)(3). Paragraph (c)(3)(iv) would 

further provide that any such waiver 

agreed to by a user would be null and 

void.177 The Commission preliminarily 

believes that proposed Rule 825(c)(3) 

could be subverted if an SBSEF could, 

for example, require that users—as a 

condition to viewing or downloading 

the Daily Market Data Report—waive 

any of the protections afforded under 

proposed Rule 825(c)(3). 

Proposed Rule 825(c)(3) is designed to 

promote wide use of the SBS trading 

information contained in the Daily 

Market Data Report by prohibiting an 

SBSEF from imposing any financial, 

legal, or operational burdens on that 

use. The approach taken in proposed 

Rule 825(c)(3) is similar to the approach 

taken by the Commission in Regulation 

SBSR, which uses the term ‘‘widely 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28915 

178See Rule 900(tt) of Regulation SBSR, 17 CFR 

242.900(tt) (defining ‘‘widely accessible’’). 

179See Regulation SBSR—Reporting and 

Dissemination of Security-Based Swap Information, 

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

53546, 53586–89 (August 12, 2016) (‘‘Regulation 

SBSR Adopting Release II’’). 

180 Id. at 53587. 

181 Id. (stating that: ‘‘The Commission continues 

to believe that allowing unencumbered 

redistribution best serves the policy goals of wide 

availability of the data and minimization of 

information asymmetries in the [SBS] market. 

Because the Commission is prohibiting registered 

SDRs from imposing a restriction on bulk 

redistribution, third parties . . . will be able to take 

in the full data set and scrub, reconfigure, aggregate, 

analyze, repurpose, or otherwise add value to those 

data, and potentially sell that value-added product 

to others’’). 

182Section 3D(d)(9) of the SEA, 15 U.S.C. 78c– 

4(d)(9). 

183As discussed below in this section, the 

Commission is proposing Rule 826 to require an 

SBSEF to maintain records of all activities relating 

to the business of the SBSEF for a period of not less 

than five years. Similarly, Rule 17a–1 under the 

SEA, 17 CFR 240.17a–1, requires a clearing agency 

to keep and preserve one copy of all documents 

made or received in the course of its business and 

conduct of its self-regulatory activities for a period 

of not less than five years. In addition, Rule 13n– 

7(b) under the SEA, 17 CFT 240.13n–7(b), requires 

an SBS data repository to keep and preserve a copy 

of all documents made or received by it in the 

course of its business for at least five years. 

184CEA Core Principle 10 includes a clause 

stating that a SEF shall keep any records relating 

to certain swaps open to inspection and 

examination by the SEC. See 7 U.S.C. 7b– 

3(f)(10)(A)(iii). 

accessible’’ 178 to prohibit registered 

SDRs from charging fees for or imposing 

usage restrictions on the SBS 

transaction data that they are required to 

publicly disseminate under Regulation 

SBSR.179 When adopting the definition 

of ‘‘widely accessible,’’ the Commission 

noted that a registered SDR has a 

monopoly position over the SBS 

transaction information that it publicly 

disseminates and stated that ‘‘there 

would be no other source from which 

the user could freely obtain this 

transaction information.’’ 180 The 

Commission preliminarily believes that 

a registered SBSEF is similarly situated, 

because it is the sole source of 

information about SBS trading activity 

on its market. The Commission also 

stated that the prohibition on usage 

restrictions encompasses an SDRimposed restriction on bulk 

redistribution by third parties of the 

regulatorily mandated transaction data 

that the registered SDR publicly 

disseminates.181 For the same reasons, 

the proposed prohibition against an 

SBSEF imposing any usage restrictions 

on its Daily Market Data Report 

necessarily would encompass a 

prohibition on bulk redistribution of the 

Daily Market Data Report or any 

information contained therein. The 

Commission seeks to encourage market 

observers to access the Daily Market 

Data Report and scrub, reconfigure, 

aggregate, analyze, repurpose, or 

otherwise add value to the information 

contained in the report as they see fit. 

Paragraph (c)(4) of proposed Rule 825 

would require the SBSEF to publish the 

Daily Market Data Report on its website 

no later than the SBSEF’s 

commencement of trading on the next 

business day after the day to which the 

information pertains. Proposed Rule 

825(c)(4) is designed to require an 

SBSEF to provide its market data in a 

timely fashion so that it can be assessed 

and utilized by the next business day. 

Finally, paragraph (c)(5) would require 

the SBSEF to keep each Daily Market 

Data Report available on its website in 

the same location as all other Daily 

Market Data Reports for no less than one 

year after the date of first publication. 

Proposed Rule 825(c)(5) is designed to 

allow market observers to consult a 

reasonable number of previous reports 

on the SBSEF’s website; the reports 

would be of less utility if an SBSEF 

could take down reports shortly after 

they are posted. 

The Commission seeks comment on 

the following: 

133. Do you agree in general with the 

Commission’s approach for 

implementing SEA Core Principle 8? 

Why or why not? 

134. Do you agree with the adaptions 

that the Commission is proposing to the 

CFTC’s part 16 for inclusion in 

proposed Rule 825(c)? In particular, do 

you concur with the Commission’s 

proposal to require only the Daily 

Market Data Report (to be published on 

the SBSEF’s website) and not to require 

any daily reports to the Commission? 

Why or why not? If not, what market 

data do you believe should be reported 

directly to the Commission, and why? 

135. Do you agree with the fields 

proposed by the Commission for the 

Daily Market Data Report in paragraphs 

(c)(1) and (2) of proposed Rule 825? If 

not, which fields do you believe are not 

appropriate, and why? 

136. Do you believe that any of the 

fields should be defined differently or 

more precisely? If so, please explain. 

137. Do you believe that the 

Commission should require additional 

fields? If so, what fields and why? 

138. Do you agree with the proposed 

requirement in Rule 825(c)(3) that the 

Daily Market Data Report should be 

available free of charge and without 

usage restrictions or encumbrances? 

Why or why not? Are there any 

clarifications that you would 

recommend to help promote free and 

unencumbered access to and use of the 

Daily Market Data Report and any 

information contained therein? If so, 

please discuss. 

139. Do you agree with the proposed 

requirement that the Daily Market Data 

Report should be made available in a 

downloadable and machine-readable 

format using the most recent version of 

the associated XML schema and PDF 

renderer as published on the 

Commission’s website? Why or why 

not? Is there some other format that the 

Commission should require? If so, what 

format and why? 

140. Do you agree with the proposed 

requirement in Rule 825(c)(4) that an 

SBSEF must publish the Daily Market 

Data Report on its website no later than 

the SBSEF’s commencement of trading 

on the next business day after the day 

to which the information pertains? Why 

or why not? What is the current practice 

for the approximate time of day at 

which CFTC reporting markets make 

available their daily market data? 

141. Do you agree with the proposed 

requirement in Rule 825(c)(5) that an 

SBSEF keep each Daily Market Data 

Report available on its website in the 

same location as all other Daily Market 

Data Reports for no less than one year 

after the date of first publication? Why 

or why not? Do you believe that a longer 

or shorter period would be appropriate? 

If so, please explain. 

I. Rule 826—Core Principle 9— 

Recordkeeping and Reporting 

SEA Core Principle 9 182 sets forth 

recordkeeping and reporting obligations 

for SBSEFs. Core Principle 9 requires an 

SBSEF to maintain records of all 

activities relating to the business of the 

facility, including a complete audit trail, 

in a form and manner acceptable to the 

Commission for a period of five years. 

The Core Principle further requires an 

SBSEF to report to the Commission, in 

a form and manner acceptable to the 

Commission, such information as the 

Commission determines to be necessary 

or appropriate for the Commission to 

perform its duties. Finally, under Core 

Principle 9, the Commission must adopt 

data collection and reporting 

requirements for SBSEFs that are 

comparable to requirements for clearing 

agencies and SBS data repositories.183

CEA Core Principle 10 for SEFs, 

although it includes an additional 

clause not present in the equivalent SEA 

Core Principle 9,184 is substantively 

identical. 

The CFTC implemented Core 

Principle 10 for SEFs in subpart K of 

part 37. Section 37.1000 of subpart K 

repeats the statutory language of the 

Core Principle. Section 37.1001 requires 

a SEF to maintain records of all 


jspears on DSK121TN23PROD with PROPOSALS2
28916 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

185See 7 CFR 45.2(c) (‘‘All records required to be 

kept pursuant to this section shall be retained with 

respect to each swap throughout the life of the swap 

and for a period of at least five years following the 

final termination of the swap’’). Section 45.2(b) 

imposes duties on certain swap counterparties and 

is not germane to SEFs; therefore, the Commission 

is not considering adapting it into proposed Rule 

826. 

186Section 45.2(f) and (g) are marked as 

‘‘reserved.’’ 

187See infra section XIII (discussing in the 

context of proposed new Rule 15a–12 that an 

SBSEF registered with the Commission is also a 

registered broker and, as such, is subject to the 

SEA’s recordkeeping and reporting requirements 

applicable to brokers). 188While § 1.31(a) defines the terms ‘‘regulatory 

records’’ and ‘‘electronic regulatory records’’ and 

utilizes them throughout § 1.31, the Commission is 

utilizing instead the term ‘‘records,’’ which is 

defined in section 3(a)(37) of the SEA, 15 U.S.C. 

78c(a)(37). In doing so, the Commission seeks to 

avoid any ambiguities or inconsistencies that could 

arise by using variants of a term that is defined in 

the Commission’s governing statute. The 

Commission is including a definition of ‘‘records’’ 

in proposed Rule 802 that cross-references section 

3(a)(37) of the SEA. 

189See 15 U.S.C. 78c–4(d)(9)(A)(i) (requiring an 

SBSEF to ‘‘maintain records of all activities relating 

to the business of the facility, including a complete 

audit trail, in a form and manner acceptable to the 

Commission, for a period of five years’’) (emphasis 

added). 

190See Rule 17a–4(b) under the SEA, 17 CFR 

240.17a–4(b). 

191 In this context, ‘‘prompt’’ or ‘‘promptly’’ 

means making reasonable efforts to produce records 

that are requested by the staff during an 

examination without delay. The Commission 

believes that, in many cases, an SBSEF could, and 

therefore would be required to, furnish records 

immediately or within a few hours of a request. An 

SBSEF should produce records within 24 hours 

unless there are unusual circumstances. 

activities relating to the business of the 

facility, in a form and manner 

acceptable to the CFTC, for a period of 

at least five years, and that a SEF shall 

maintain such records, including a 

complete audit trail for all swaps 

executed on or subject to the rules of the 

SEF, investigatory files, and disciplinary 

files. Section 37.1001 does not itself set 

forth detailed record retention 

requirements. Instead, § 37.1001 directs 

SEFs to maintain the required records in 

accordance with § 1.31 and part 45 of 

the CFTC’s rules. 

Section 1.31 imposes on ‘‘records 

entities’’ (which term includes SEFs) 

various requirements relating to record 

retention and production. Section 

1.31(a) sets out definitions of terms used 

throughout § 1.31. Section 1.31(b) sets 

out the duration of retention for 

different types of records. In particular, 

a records entity must keep regulatory 

records of any swap from the date that 

the regulatory record was created until 

at least five years after the termination, 

maturity, expiration, transfer, 

assignment, or novation of such swap. 

Section 1.31(c) sets out the required 

form and manner of retention. Section 

1.31(d) provides that a records entity 

must, at its own expense, produce or 

make regulatory records accessible for 

inspection to CFTC staff or to the U.S. 

Department of Justice, and includes 

other details regarding production 

requests. 

Section 45.2 imposes various 

recordkeeping, retention, and retrieval 

requirements applicable to SEFs (among 

others) to support trade reporting. 

Section 45.2(a), among other things, 

requires a SEF to keep all records 

required by part 37. Section 45.2(c) sets 

out a record retention requirement.185

Section 45.2(d) imposes requirements 

on the form of retention. § 45.2(e) 

imposes requirements on record 

retrievability. Section 45.2(h) 186

imposes requirements for record 

inspection; in particular, all records 

required to be kept by § 45.2 shall be 

open to inspection upon request by any 

representative of the CFTC, the U.S. 

Department of Justice, the SEC, or by 

any representative of a prudential 

regulatory as authorized by the CFTC. 

To implement SEA Core Principle 9, 

the Commission is proposing Rule 826, 

which would roughly approximate 

§§ 1.31 and 45.2 while also drawing on 

concepts from the books and records 

requirements applicable to brokers, 

SEC-registered SROs, and other SECregistered entities.187

Paragraph (a) of proposed Rule 826 

repeats the statutory text of the Core 

Principle. Paragraph (b) would require 

an SBSEF to keep full, complete, and 

systematic records,188 together with all 

pertinent data and memoranda, of all 

activities relating to its business with 

respect to SBS. Under paragraph (b), 

such records would be required to 

include, without limitation, the audit 

trail information required under 

proposed Rule 819(f) and all other 

records that an SBSEF is required to 

create or obtain under Regulation SE. 

Paragraph (c) of proposed Rule 826 

would require an SBSEF to keep records 

of any SBS from the date of execution 

until the termination, maturity, 

expiration, transfer, assignment, or 

novation date of the transaction, and for 

a period of not less than five years, the 

first two years in an easily accessible 

place, after such date. Paragraph (c) also 

would require an SBSEF to keep each 

record (other than a record of an SBS 

noted in the previous sentence) for a 

period of not less than five years, the 

first two years in an easily accessible 

place, from the date on which the record 

was created. The proposed five-year 

retention requirements are consistent 

with section 3D(d) of the SEA 189 and 

are modelled on the requirements for 

SEFs in §§ 1.31 and 45.2. The proposed 

requirement that the records be kept ‘‘in 

an easily accessible place’’ for the first 

two years derives from an analogous 

requirement in the Commission’s 

principal books and records rule for 

exchange members, brokers, and 

dealers.190

Paragraph (d)(1) of proposed Rule 826 

would require an SBSEF to retain all 

records in a form and manner that 

ensures the authenticity and reliability 

of such records in accordance with the 

Act and the Commission’s rules 

thereunder. Paragraph (d)(2) would 

require an SBSEF, upon request of any 

representative of the Commission, to 

promptly 191 furnish to the 

representative legible, true, complete, 

and current copies of any records 

required to be kept and preserved under 

Rule 826. Paragraph (d)(3) would 

provide that an electronic record shall 

be retained in a form and manner that 

allows for prompt production at the 

request of any representative of the 

Commission. Paragraph (d)(3) also 

would include provisions modelled on 

§ 1.31(c)(2) requiring an SBSEF that 

maintains electronic records to establish 

appropriate systems and controls that 

ensure the authenticity and reliability of 

electronic records, including, without 

limitation: 

(A) Systems that maintain the 

security, signature, and data as 

necessary to ensure the authenticity of 

the information contained in electronic 

records and to monitor compliance with 

the SEA and the Commission’s rules 

thereunder; 

(B) Systems that ensure that the 

SBSEF is able to produce electronic 

records in accordance with Rule 826, 

and ensure the availability of such 

electronic records in the event of an 

emergency or other disruption of the 

SBSEF’s electronic record retention 

systems; and 

(C) The creation and maintenance of 

an up-to-date inventory that identifies 

and describes each system that 

maintains information necessary for 

accessing or producing electronic 

records. 

Sections 1.31 and 43.2 include 

provisions that govern inspection and 

production of records. While the 

Commission believes that its rules for 

SBSEFs also should address those 

topics, the Commission does not believe 

that adapting a CFTC rule would be the 

most appropriate way to do so. 

Paragraph (e) of proposed Rule 826 

would provide instead that, because a 

registered SBSEF is also a registered 

broker, all records required to be kept by 

an SBSEF pursuant to Rule 826 would 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28917 

192Since a ‘‘foreign trader’’ in § 1.37(c) is 

executing transactions on the SEF, it must be a 

member of the SEF. Because the term ‘‘member’’ is 

used elsewhere in the CFTC rules pertaining to 

SEFs, the Commission is proposing to use the term 

‘‘member’’ throughout Regulation SE and would 

define ‘‘member’’ in Rule 802. The term ‘‘non-U.S. 

member,’’ also found in proposed Rule 802, would 

be defined as ‘‘a member of a security-based swap 

execution facility that is not a U.S. person.’’ 

193Section 3D(d)(10) of the SEA, 15 U.S.C. 78c– 

4(d)(10). 

194Section 5h(f)(11) of the CEA, 7 U.S.C. 7b– 

3(f)(11). 

195 7 U.S.C. 19(b) (providing that the CFTC shall 

take into consideration the public interest to be 

protected by the antitrust laws and endeavor to take 

the least anticompetitive means of achieving the 

objectives of this chapter of the CEA, as well as the 

policies and purposes of this chapter of the CEA, 

in issuing any order or adopting any CFTC rule or 

regulation (including any exemption), or in 

requiring or approving any bylaw, rule, or 

regulation of a contract market or registered futures 

association). 

196The guidance in appendix B of part 37 

pertaining to CEA Core Principle 10 for SEFs states: 

‘‘An entity seeking registration as a [SEF] may 

request that the [CFTC] consider under the 

provisions of section 15(b) of the [CEA], any of the 

entity’s rules, including trading protocols or 

policies, and including both operational rules and 

the terms or conditions of products listed for 

trading, at the time of registration or thereafter. The 

[CFTC] intends to apply section 15(b) of the [CEA] 

to its consideration of issues under this core 

principle in a manner consistent with that 

previously applied to contract markets.’’ Section 

15(b) of the CEA, 7 U.S.C. 19(b) states: ‘‘The [CFTC] 

shall take into consideration the public interest to 

be protected by the antitrust laws and endeavor to 

take the least anticompetitive means of achieving 

the objectives of this chapter, as well as the policies 

and purposes of this chapter, in issuing any order 

or adopting any [CFTC] rule or regulation 

(including any exemption under section 6(c) or 

6c(b) of this title), or in requiring or approving any 

bylaw, rule, or regulation of a contract market or 

registered futures association established pursuant 

to section 21 of this title.’’ The Commission does 

not believe that it is appropriate to adapt this 

guidance into a rule that applies to SBSEFs because 

the SEA (which applies to SBSEFs) does not have 

a provision that is closely comparable to section 

15(b) of the CEA (which applies to SEFs). 

Furthermore, the guidance pertaining to CEA Core 

Principle 10 for SEFs sets out only a general 

approach to how the CFTC addresses antitrust 

issues applying to SEFs and does not include 

provisions that can readily be adapted into rule 

text. 

be subject to examination by any 

representative of the Commission 

pursuant to section 17(b) of the SEA. As 

noted above, section 17(b) is the source 

of the Commission’s examination 

authority for registered brokers (among 

other types of registered entities). 

Proposed Rule 826(e) is designed only 

to remind SBSEFs of this statutory 

authority and does not seek to limit or 

expand that authority using the 

Commission’s powers over SBSEFs in 

section 3D of the SEA. 

Proposed Rule 826 includes a 

paragraph (f) that is not modelled on 

any provision of § 1.31 or 43.2, but 

rather on § 1.37(c) of the CFTC’s rules, 

which provides: ‘‘Each designated 

contract market and swap execution 

facility shall keep a record in permanent 

form, which shall show the true name, 

address, and principal occupation or 

business of any foreign trader executing 

transactions on the facility or exchange. 

In addition, upon request, a designated 

contract market or swap execution 

facility shall provide to the Commission 

information regarding the name of any 

person guaranteeing such transactions 

or exercising any control over the 

trading of such foreign trader.’’ 

Proposed Rule 826(f) is modelled 

closely on § 1.37(c), except that it uses 

the term ‘‘non-U.S. member’’ rather than 

‘‘foreign trader.’’ 192

The recordkeeping and reporting 

requirements proposed in Rule 826 are 

designed to be generally consistent with 

the requirements applicable to SEFs and 

with the Commission’s requirements 

under section 17(a) of the SEA. The 

Commission preliminarily believes that 

proposed Rule 826 would therefore 

achieve similar regulatory benefits as 

the CFTC rules applicable to SEFs while 

imposing only marginal costs, since 

dually registered SEF/SBSEFs are 

familiar with the CFTC requirements 

and have invested in systems, policies, 

and procedures to comply with them. 

The Commission intends that the same 

systems, policies, and procedures could 

be used to comply with parallel SEC 

requirements. 

The Commission seeks comment on 

the following: 

142. Do you agree in general with the 

Commission’s approach to 

implementing SEA Core Principle 9? 

Why or why not? 

143. Do you believe that the 

Commission should subject registered 

SBSEFs to section 17(a) of the SEA and 

the Commission’s rules thereunder? 

Why or why not? If not, are there 

nevertheless specific provisions of the 

Commission’s rules under section 17(a) 

that you believe should nevertheless be 

incorporated into Rule 826 using the 

Commission’s statutory authority over 

SBSEFs in section 3D of the SEA? If so, 

which provision(s) and why? 

144. Are there any provisions of 

proposed Rule 826 that are significantly 

different from, or even in conflict with, 

any recordkeeping requirements 

imposed on SEFs by any CFTC rule? If 

so, please discuss and suggest how you 

would resolve any such conflict. 

145. Are there any provisions of § 1.31 

or § 45.2 that the Commission has not 

proposed to incorporate into proposed 

Rule 826 that you believe should be 

applied to SBSEFs? If so, which 

provision(s) and why? 

146. Are there any recordkeeping 

provisions elsewhere in the CFTC rules 

that the Commission has not proposed 

to incorporate into proposed Rule 826 

that you believe should be applied to 

SBSEFs? If so, which provision(s) and 

why? 

147. Do you believe that the 

Commission should adapt § 1.37 into 

proposed Rule 826(f)? Why or why not? 

Do you believe that the Commission’s 

proposed term ‘‘non-U.S. member’’ used 

in Rule 826(f) is an appropriate 

substitute for ‘‘foreign trader’’ used in 

§ 1.37? Why or why not? 

J. Rule 827—Core Principle 10— 

Antitrust Considerations 

SEA Core Principle 10 193 provides 

that, unless necessary or appropriate to 

achieve the purposes of the SEA, an 

SBSEF shall not: (1) Adopt any rules or 

take any actions that result in any 

unreasonable restraint of trade, or (2) 

impose any material anticompetitive 

burden on trading or clearing. CEA Core 

Principle 11 194 is substantively 

identical. 

The CFTC implemented CEA Core 

Principle 11 in subpart L of part 37. 

Section 37.1100 of subpart L repeats the 

statutory text of Core Principle 11. 

Section 37.1101 provides that a SEF 

‘‘may refer’’ to the guidance in appendix 

B to part 37 to demonstrate compliance 

with Core Principle 11. The guidance 

states that an entity seeking registration 

as a SEF may request that the CFTC 

consider, under the provisions of 

section 15(b) of the CEA,195 any of the 

entity’s rules—including trading 

protocols or policies, and including 

both operational rules and the terms or 

conditions of products listed for 

trading—at the time of registration or 

thereafter. The guidance further states 

that the CFTC intends to apply CEA 

section 15(b) to its consideration of 

issues under CEA Core Principle 11 in 

a manner consistent with that 

previously applied to contract markets. 

Proposed Rule 827 would implement 

SEA Core Principle 10 and, like 

§ 37.1100, reiterates the statutory text of 

the Core Principle. The Commission is 

not adapting the guidance from 

appendix B pertaining to CEA Core 

Principle 11 into a proposed rule.196

The Commission seeks comment on 

the following: 

148. Do you agree with how the 

Commission is proposing to implement 

SEA Core Principle 10? Why or why 

not? 


jspears on DSK121TN23PROD with PROPOSALS2
28918 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

197Section 3D(d)(11) of the SEA, 15 U.S.C. 78c– 

4(d)(11). 

198 7 U.S.C. 7b–3(f)(12). 

199The CFTC has proposed additional rules 

regarding the mitigation of conflicts of interest but 

has not adopted any such rules. See CFTC, 

Requirements for Derivatives Clearing 

Organizations, Designated Contract Markets, and 

Swap Execution Facilities Regarding the Mitigation 

of Conflicts of Interest, 75 FR 63732 (October 18, 

2010); CFTC, Governance Requirements for 

Derivatives Clearing Organizations, Designated 

Contract Markets, and Swap Execution Facilities; 

Additional Requirements Regarding the Mitigation 

of Conflicts of Interest, 76 FR 722 (January 6, 2011). 

200See infra section X. 

201Section 3D(d)(12) of the SEA, 15 U.S.C. 78c– 

4(d)(12). 

202Section 5h(f)(13) of the CEA, 7 U.S.C. 7b– 

3(f)(13). 

K. Rule 828—Core Principle 11— 

Conflicts of Interest 

SEA Core Principle 11 197 requires an 

SBSEF to establish and enforce rules to 

minimize conflicts of interest in its 

decision-making process and to 

establish a process for resolving the 

conflicts of interest. CEA Core Principle 

12 198 is substantively identical. 

The CFTC implemented CEA Core 

Principle 12 in subpart M of part 37. 

Section 37.1200 of subpart M repeats 

the statutory text of Core Principle 12. 

There are no other provisions in subpart 

M, nor is there any guidance or 

acceptable practices associated with 

Core Principle 12 in appendix B to part 

37.199

Proposed Rule 828 would implement 

SEA Core Principle 11. Paragraph (a) of 

proposed Rule 828, like § 37.1200, 

repeats the statutory text of the Core 

Principle. Paragraph (b) would direct an 

SBSEF to comply with the requirements 

of proposed Rule 834, which, as 

discussed below, would implement 

section 765 of the Dodd-Frank Act for 

both SBSEFs and SBS exchanges.200

The Commission seeks comment on 

the following: 

149. Do you agree with how the 

Commission is proposing to implement 

SEA Core Principle 11 in Rule 828? 

Why or why not? 

150. The Commission is proposing to 

subject SBS exchanges and SBSEFs to 

the same conflicts-of-interest 

requirements, in Rule 834. Therefore, 

proposed Rule 828 cross-references 

proposed Rule 834 rather than 

enumerating conflicts-of-interest 

requirements for SBSEFs separate from 

those for SBS exchanges. Do you believe 

that this is an appropriate way to 

structure the proposed rules? Why or 

why not? Are there any conflicts-ofinterest requirements that you believe 

should be applied to SBSEFs but not to 

SBS exchanges? If so, what 

requirement(s) and why? 

L. Rule 829—Core Principle 12— 

Financial Resources 

SEA Core Principle 12 201 has a 

paragraph (A) that requires an SBSEF to 

have adequate financial, operational, 

and managerial resources to discharge 

each responsibility of the SBSEF, as 

determined by the Commission. 

Paragraph (B) of SEA Core Principle 12 

provides that the financial resources of 

an SBSEF shall be considered to be 

adequate if the value of the financial 

resources: (i) Enables the organization to 

meet its financial obligations to its 

members and participants 

notwithstanding a default by the 

member or participant creating the 

largest financial exposure for that 

organization in extreme but plausible 

market conditions; and (ii) exceeds the 

amount that would enable the SBSEF to 

cover operating costs of the SBSEF for 

a one-year period, as calculated on a 

rolling basis. CEA Core Principle 13 for 

SEFs 202 is substantively identical with 

respect to paragraphs (A) and (B)(ii) of 

SEA Core Principle 12, but lacks an 

equivalent to paragraph (B)(i) of SEA 

Core Principle 12. 

The CFTC implemented CEA Core 

Principle 13 for SEFs in subpart N of 

part 37. Section 37.1300 of subpart N 

repeats the statutory text of CEA Core 

Principle 13. Section 37.1301 provides 

that financial resources shall be 

considered adequate if their value 

exceeds the total amount that would 

enable a SEF to cover its projected 

operating costs necessary for the SEF to 

comply with section 5h of the CEA and 

applicable CFTC regulations for a oneyear period, calculated on a rolling 

basis. Section 37.1302 describes the 

types of financial resources that may 

satisfy the requirements of § 37.1301. 

Section 37.1303 provides that the 

financial resources allocated by the SEF 

to meet the financial resources 

requirements shall include 

unencumbered, liquid financial assets 

equal to at least the greater of three 

months of projected operating costs or 

the projected costs needed to wind 

down the SEF’s operations. If a SEF 

lacks sufficient unencumbered, liquid 

financial assets, it may satisfy this 

obligation by obtaining a committed line 

of credit in an amount at least equal to 

the deficiency. Section 37.1304 requires 

a SEF, each fiscal quarter, to make a 

reasonable calculation of its projected 

operating costs and wind-down costs in 

order to determine its applicable 

obligations under this section. It further 

provides that the SEF shall have 

reasonable discretion in determining the 

methodology used to compute such 

amounts, provided that the CFTC may 

review the methodology and require 

changes as appropriate. Section 37.1305 

provides that, no less than each fiscal 

quarter, a SEF must compute the current 

market value of each financial resource 

used to meet its obligations under 

§§ 37.1301 and 37.1303 and that 

reductions in value to reflect market and 

credit risk (‘‘haircuts’’) shall be applied 

as appropriate. 

Section 37.1306 addresses reporting 

to the CFTC. Paragraph (a) of § 37.1306 

provides that, each fiscal quarter, or at 

any time upon CFTC request, a SEF 

shall report the amount of financial 

resources necessary to meet the 

requirements of §§ 37.1301 and 37.1303 

and the market value of each financial 

resource available, and provide the 

CFTC with financial statements, 

including the balance sheet, income 

statement, and statement of cash flows 

of the SEF, prepared in accordance with 

U.S. generally acceptable accounting 

principles (‘‘GAAP’’). Paragraph (a) 

further provides that the financial 

statements of a SEF that is not 

domiciled in the United States and is 

not otherwise required to prepare 

financial statements in accordance with 

U.S. GAAP may instead prepare its 

financial statements in accordance with 

either International Financial Reporting 

Standards issued by the International 

Accounting Standards Board or a 

comparable international standard as 

the CFTC may otherwise accept in its 

discretion. Paragraph (b) provides that 

the calculations required under 

paragraph (a) shall be made as of the last 

business day of the SEF’s fiscal quarter. 

Paragraph (c) requires the SEF to 

provide the CFTC with sufficient 

documentation to explain its 

methodology for computing its financial 

requirements under §§ 37.1301 and 

37.1303. Further, paragraph (c) of 

§ 37.1306 requires that the 

documentation must allow the CFTC to 

reliably determine, without additional 

requests for information, that the SEF 

has made reasonable calculations 

pursuant to § 37.1304. Paragraph (d) of 

§ 37.1306 provides that these reports 

and supporting documentation shall be 

filed within 40 calendar days of the end 

of the SEF’s first three fiscal quarters, 

and within 90 calendar days of the end 

of the SEF’s fourth fiscal quarter, or at 

such later time as the CFTC may permit. 

Paragraph (e) requires a SEF to provide 

notice to the CFTC no later than 48 

hours after it knows or reasonably 

should know that it no longer meets its 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28919 

203However, paragraph (a)(2)(i) of proposed Rule 

829 would include the additional language in SEA 

Core Principle 12 that is not present in CEA Core 

Principle 13. As noted above, this language relates 

to an SBSEF meeting financial obligations to 

members and participants notwithstanding a 

default by the member or participant creating the 

largest financial exposure for the SBSEF in extreme 

but plausible market conditions. 

204Section 3D(d)(13)(A) of the SEA, 15 U.S.C. 

78c–4(d)(13). 

205Section 5h(f)(14) of the CEA, 7 U.S.C. 7b– 

3(f)(14). 

obligations under §§ 37.1301 and 

37.1303. 

Proposed Rule 829 would implement 

SEA Core Principle 12 and is based 

closely on subpart N of part 37.203

Because this Core Principle relates to 

the business operations of the trading 

venue, very few modifications are 

necessary to adapt the CFTC rule to 

apply to SBSEFs. Therefore, proposed 

Rule 829 is closely modelled on the 

rules in subpart N. 

However, one slight difference in the 

rule text stems from the Commission’s 

global approach to adapting the CFTC’s 

guidance and acceptable practices from 

appendix B to part 37 into formal rules, 

where appropriate. Although the 

Commission considered proposing a 

separate rule that adapts the guidance in 

appendix B pertaining to CEA Core 

Principle 13, the Commission is 

proposing instead to weave the concepts 

and some of the specific language from 

the CFTC guidance relating to financial 

resources into paragraph (e) of proposed 

Rule 829, as the guidance relates only to 

that portion of the proposed rule. 

Proposed Rule 829(e) begins by 

incorporating the provisions of 

§ 37.1304 regarding computation of 

costs to meet the financial resources 

requirement. Proposed Rule 829(e) then 

appends language based on the CFTC 

guidance concerning the following 

topics, all of which relate to 

computation of costs: (i) Reasonableness 

of calculating projected operating costs 

and what may be excluded from such 

calculation; (ii) proration of expenses; 

and (iii) allocation of expenses among 

affiliates. 

Another non-substantive difference 

between proposed Rule 829 and subpart 

N of part 37 is the requirement in 

proposed Rule 829(g)(6) for an SBSEF to 

submit reports and documentation to 

the Commission using the EDGAR 

system as an Interactive Data File, in 

accordance with Rule 405 of Regulation 

S–T. The Commission is proposing this 

requirement here and in other locations 

to implement the Inline XBRL and 

EDGAR electronic filing requirements 

for various documents that would have 

to be provided to the Commission under 

proposed Regulation SE. 

The Commission preliminarily 

believes that the CFTC has implemented 

its equivalent Core Principle in an 

appropriate way, and that closely 

harmonizing with the CFTC rule would 

provide comparable regulatory benefits 

while imposing only marginal 

additional costs. Given that most if not 

all entities that will seek to register with 

the SEC as SBSEFs are already 

registered with the CFTC as SEFs, these 

entities already have in place the 

processes and controls to designed to 

comply with subpart N. Furthermore, 

the Commission recognizes that the 

swap business of a dually registered 

SEF/SBSEF is likely to be much larger 

than its SBS business. Therefore, the 

greatest risk to a dually registered entity 

is likely to arise from the swap business 

rather than the SBS business, so it 

would be logical for the SEC to defer to 

the CFTC’s approach for ensuring that 

SEFs have adequate financial resources. 

Different or additive requirements 

imposed by the SEC could increase 

costs for SEF/SBSEFs while generating 

benefits that are marginal at best. The 

Commission does not observe any 

differences in the SBS market relative to 

the swap market that warrant imposing 

different or additive financial resource 

requirements on SBSEFs. 

The Commission seeks comment on 

the following: 

151. Do you agree in general with the 

Commission’s approach to 

implementing SEA Core Principle 12? 

Why or why not? 

152. In particular, do you agree with 

how the Commission is proposing to 

adapt the language of subpart N of part 

37 into proposed Rule 829? If not, how 

would you revise that language? 

153. How does the anticipated size of 

the SBS trading business on dually 

registered SEF/SBSEFs relative to the 

size of swap trading business affect your 

view of the financial resource 

requirements that the SEC should 

impose on dually registered entities? Do 

you agree that there would be only 

marginal additional costs imposed on 

dually registered entities to provide the 

same financial information at the same 

times to both the SEC and CFTC 

(pursuant to proposed Rule 829 and 

subpart N, respectively)? Why or why 

not? 

154. Are there provisions of subpart N 

that the SEC should not incorporate, 

even if you believe that the SEC should 

harmonize with the majority of subpart 

N? In other words, are there areas where 

omitting a subpart N provision would 

reduce burdens on SBSEFs and/or their 

members without lessening any 

regulatory benefits? If so, please explain, 

with particular regard to the economic 

impacts and/or PRA burdens. 

155. Should the Commission adopt 

different or additive financial resource 

requirements for SBSEFs, even if there 

are no analogous provisions in subpart 

N? If so, please explain, with particular 

regards to the economic impacts and/or 

PRA burdens. For example, do you 

believe that the SEC-specific provision 

would impose additional costs or 

burdens on SBSEFs and/or their 

members that are nevertheless 

appropriate in view of new and 

additional benefits? Or do you believe 

that the SEC-specific provision would 

be appropriate because it would relieve 

costs or burdens that are imposed on 

SEFs by subpart N that, in your view, 

are unnecessary or inappropriate for 

SBSEFs? 

156. Do you agree with how the 

Commission is proposing to adapt the 

CFTC guidance pertaining to its 

equivalent Core Principle by converting 

it into formal rule text? Why or why 

not? Would adapting the CFTC guidance 

into the Commission’s rules necessitate 

any changes in how financial resources 

are calculated? 

M. Rule 830—Core Principle 13— 

System Safeguards 

Paragraph (A) of SEA Core Principle 

13 204 provides that an SBSEF must 

establish and maintain a program of risk 

analysis and oversight to identify and 

minimize sources of operational risk, 

through the development of appropriate 

controls and procedures, and automated 

systems, that are reliable and secure and 

that have adequate scalable capacity. 

Paragraph (B) requires that an SBSEF 

also must establish and maintain 

emergency procedures, backup 

facilities, and a plan for disaster 

recovery that allow for the timely 

recovery and resumption of operations; 

and the fulfillment of the 

responsibilities and obligations of the 

SBSEF. Finally, paragraph (C) of SEA 

Core Principle 13 requires an SBSEF to 

periodically conduct tests to verify that 

the backup resources of the SBSEF are 

sufficient to ensure continued order 

processing and trade matching; price 

reporting; market surveillance; and 

maintenance of a comprehensive and 

accurate audit trail. CEA Core Principle 

14 205 is substantively identical to SEA 

Core Principle 13. 

Subpart O of part 37 is entitled 

‘‘System Safeguards’’ and implements 

CEA Core Principle 14. Section 37.1400 

of subpart O repeats the statutory text of 

the Core Principle. § 37.1401 sets forth 

detailed requirements for a SEF to 

comply with the Core Principle. 


jspears on DSK121TN23PROD with PROPOSALS2
28920 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

206See § 37.1401(c) (providing that SEFs 

determined by the CFTC to be critical financial 

markets are subject to more stringent requirements); 

§ 37.1401(d); § 37.1401(j) (providing that part 40 

governs the obligations of registered entities that the 

CFTC has determined to be critical financial 

markets, with respect to maintenance and 

geographic dispersal of disaster recovery resources 

sufficient to meet a same-day recovery time 

objective in the event of a wide-scale disruption). 

207The provisions in subpart O relating to 

‘‘critical financial markets’’ reference § 40.9 of the 

CFTC’s rules, which is marked as ‘‘Reserved.’’ 

208See Rule 1000 of Regulation SCI (defining 

‘‘SCI entity’’). In November 2014, the Commission 

adopted Regulation Systems Compliance and 

Integrity (‘‘SCI’’) to strengthen the technology 

infrastructure of the U.S. securities markets, reduce 

the occurrence of systems issues in those markets, 

improve their resiliency when technological issues 

arise, and establish an updated and formalized 

regulatory framework, thereby helping to ensure 

more effective Commission oversight of such 

systems. See Regulation Systems Compliance and 

Integrity, SEA Release No. 73639 (November 19, 

2014), 79 FR 72252 (December 5, 2014). 

209See id., 79 FR at 72363–64 (reviewing 

comments received regarding the potential 

application of Regulation SCI to SBSEFs, among 

others). 

210The Commission also notes that, while subpart 

O frequently uses the term ‘‘market participant,’’ 

proposed Rule 830 substitutes the term ‘‘member’’ 

in these places, since the rule pertains to market 

participants who are engaging as members of the 

SEF/SBSEF. See supra note 53. 

Paragraph (a) of § 37.1401 requires a 

SEF’s program of risk analysis and 

oversight to address enterprise risk 

management and governance, 

information security, business 

continuity-disaster recovery planning 

and resources, capacity and 

performance planning, systems 

operations, systems development and 

quality assurance, and physical security 

and operational controls. Paragraph (b) 

provides that, in addressing the 

categories of risk analysis and oversight 

required under paragraph (a), a SEF 

shall follow generally accepted 

standards and best practices with 

respect to the development, operation, 

reliability, security, and capacity of 

automated systems. Paragraph (c) 

requires a SEF to maintain a business 

continuity-disaster recovery plan and 

business continuity-disaster recovery 

resources, emergency procedures, and 

backup facilities that satisfy several 

enumerated criteria. Paragraph (d) 

explains how a SEF that is not 

determined by the CFTC to be a critical 

financial market may satisfy its 

requirement to be able to resume its 

operations and resume its ongoing 

fulfillment of its responsibilities and 

obligations during the next business day 

following any disruption of its 

operations. 

Paragraph (e) of § 37.1401 requires a 

SEF to notify the CFTC promptly of all 

electronic trading halts and material 

system malfunctions; cyber security 

incidents or targeted threats that 

actually or potentially jeopardize 

automated system operation, reliability, 

security, or capacity; and activations of 

SEF’s business continuity-disaster 

recovery plan. Paragraph (f) requires the 

SEF to provide CFTC staff timely 

advance notice of all material planned 

changes to automated systems that may 

impact the reliability, security, or 

adequate scalable capacity of such 

systems; and planned changes to the 

SEF’s program of risk analysis and 

oversight. Paragraph (g) sets forth 

recordkeeping requirements related to 

the SEF’s system safeguards. Paragraph 

(h) requires the SEF to conduct testing 

and review of its automated systems and 

business continuity-disaster recovery 

capabilities and provides several 

definitions for terms used in paragraph 

(h). Paragraph (h) also requires the SEF 

to conduct ‘‘vulnerability testing,’’ 

‘‘external penetration testing,’’ ‘‘internal 

penetration testing,’’ ‘‘controls testing,’’ 

‘‘security incident response plan 

testing,’’ and ‘‘enterprise technology risk 

assessment’’ subject to various 

enumerated criteria. 

Paragraph (i) of § 37.1401 provides 

that the SEF, to the extent practicable, 

shall coordinate its business continuitydisaster recovery plan with those of the 

market participants that it depends 

upon to provide liquidity, in a manner 

adequate to enable effective resumption 

of activity in its markets following a 

disruption causing activation of the 

SEF’s business continuity-disaster 

recovery plan. Paragraph (i) also 

requires the SEF to initiate and 

coordinate periodic, synchronized 

testing of its business continuitydisaster recovery plan with those of the 

market participants it depends upon to 

provide liquidity; and to ensure that its 

business continuity-disaster recovery 

plan takes into account the business 

continuity-disaster recovery plans of its 

telecommunications, power, water, and 

other essential service providers. 

Paragraph (j) of § 37.1401 provides 

that part 40 of the CFTC’s rules shall 

govern the obligations of those 

registered entities that the CFTC has 

determined to be critical financial 

markets, with respect to maintenance 

and geographic dispersal of disaster 

recovery resources sufficient to meet a 

same-day recovery time objective in the 

event of a wide-scale disruption. 

Paragraph (k) sets forth criteria for the 

scope for all system safeguard testing 

and assessment required under the rule. 

Paragraph (l) requires that both the 

senior management and the board of 

directors of the SEF shall receive and 

review reports setting forth the results of 

the testing and assessment required by 

the rule. Paragraph (m) requires the SEF 

to identify and document the 

vulnerabilities and deficiencies in its 

systems revealed by testing and 

assessment, conduct and document an 

appropriate analysis of the risks 

presented by such vulnerabilities and 

deficiencies, and remediate in a timely 

manner given the nature and magnitude 

of the associated risk. 

Proposed Rule 830 is closely 

modelled on subpart O of part 37 of the 

CFTC’s rules, except in one aspect. 

Subpart O includes language relating to 

‘‘critical financial markets,’’ 206 which is 

a designation applied by the CFTC to 

certain of its registrants that would 

subject them to more stringent 

requirements, although the CFTC has 

not yet adopted any such 

requirements.207 A similar concept in 

the SEC’s rules is ‘‘SCI entity.’’ 208 When 

adopting Regulation SCI, the 

Commission considered whether it 

should apply Regulation SCI to SBSEFs, 

among other entities, and determined 

not to do so.209 Because SBSEFs are not 

SCI entities and the corresponding 

CFTC rule has not imposed additional 

requirements on critical financial 

markets, the Commission preliminarily 

believes that it is not necessary or 

appropriate to adapt into Rule 830 the 

language of subpart O applicable to 

critical financial markets.210

The Commission preliminarily 

believes that subpart O is reasonably 

designed to promote SEF operational 

capability, and that the most 

appropriate way to implement SEA Core 

Principle 13 would be to closely 

harmonize with the CFTC’s rules that 

implement the corresponding Core 

Principle. As with SEA Core Principle 

12 (Financial resources), the 

Commission recognizes that the swap 

business of a dually registered SEF/ 

SBSEF is likely to be much larger than 

its SBS business. Therefore, the greatest 

operational risk to a dually registered 

entity is likely to arise from the swap 

business rather than the SBS business, 

so it would be logical for the SEC to 

defer to the CFTC’s approach for 

ensuring that SEFs have adequate 

system safeguards and business 

continuity protocols. Different or 

additive requirements imposed by the 

SEC could increase costs for SEF/ 

SBSEFs while generating benefits that 

are marginal at best. The Commission 

does not observe any differences in the 

SBS market relative to the swap market 

that warrant imposing different or 

additive operational capability 

requirements on SBSEFs. 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28921 

211See supra note 209 and accompanying text. 

212Section 3D(d)(14) of the SEA, 15 U.S.C. 78c– 

4(d)(14). 

213Section 5h(f)(15) of the CEA, 7 U.S.C. 7b– 

3(f)(15). 

214 In addition, the requirement in proposed Rule 

831 that the CCO’s annual compliance report be 

submitted electronically to the Commission, based 

on § 37.1501(e)(2), includes an added clause to 

provide that the submission must be made using the 

Continued 

The Commission seeks comment on 

the following: 

157. Do you agree in general with how 

the Commission is proposing to 

implement SEA Core Principle 13 in 

proposed Rule 830? Why or why not? 

158. In particular, do you believe that 

close harmonization with subpart O of 

the CFTC’s rules is appropriate? If not, 

is there another framework for system 

safeguards that would be more 

appropriate for SBSEFs? What would be 

the economic impact of the SEC 

adopting different or additive system 

safeguard requirements in the case of 

dually registered SEF/SBSEFs? 

159. As noted above,211 the 

Commission previously determined not 

to subject SBSEFs to Regulation SCI. Do 

you see any changes in the SBS market 

that should cause the Commission to 

revisit that decision? 

160. Do you believe it is appropriate 

to omit from Rule 830 the provisions of 

subpart O relating to critical financial 

markets? Why or why not? 

161. Are there provisions of subpart O 

that the SEC should not incorporate, 

even if the SEC opts to harmonize with 

most of subpart O? In other words, are 

there areas where omitting a subpart O 

provision would reduce burdens on 

SBSEFs and/or their members without 

lessening any regulatory benefits? If so, 

please explain, with particular regard to 

the economic impacts and/or PRA 

burdens. 

162. Should the Commission adopt 

different or additive system safeguard 

requirements for SBSEFs, even if there 

is no analog to such provisions in 

subpart O? If so, please explain, with 

particular regards to the economic 

impacts and/or PRA burdens. For 

example, do you believe that the SECspecific provision would impose 

additional costs or burdens on SBSEFs 

and/or their market participants that are 

nevertheless appropriate in view of new 

and additional benefits? Or do you 

believe that the SEC-specific provision 

would be appropriate because it would 

relieve costs or burdens that are 

imposed on SEFs by subpart O that, in 

your view, are unnecessary or 

inappropriate for SBSEFs? 

N. Rule 831—Core Principle 14— 

Designation of Chief Compliance Officer 

SEA Core Principle 14 212 requires 

each registered SBSEF to designate a 

chief compliance officer (‘‘CCO’’), and 

requires the CCO to review the SBSEF’s 

compliance with the Core Principles, 

resolve conflicts of interest, be 

responsible for establishing and 

administering policies and procedures 

required under the Core Principles, 

establish procedures for the remediation 

of noncompliance, prepare and sign an 

annual report that describes the SBSEF’s 

compliance, certify that the report is 

accurate and complete, and submit the 

report to the Commission. CEA Core 

Principle 15 for SEFs 213 is substantively 

identical. 

The CFTC implemented CEA Core 

Principle 15 in subpart P of part 37. 

Section 37.1500 of subpart P repeats the 

statutory text of CEA Core Principle 15. 

Section 37.1501(a) sets forth definitions 

for the terms ‘‘board of directors’’ and 

‘‘senior officer.’’ Section 37.1501(b)(1) 

provides that the position of CCO shall 

carry with it the authority and resources 

to develop, in consultation with the 

board of directors or senior officer, and 

enforce the SEF’s policies and 

procedures, and that the CCO shall have 

supervisory authority over all staff 

acting at the direction of the CCO. 

Section 37.1501(b)(2) through (4) 

include provisions relating to the 

qualifications of the CCO, appointment 

and removal of the CCO, and 

compensation of the CCO. Section 

37.1501(b)(5) through (6) state that the 

CCO must meet with the SEF’s board of 

directors or senior officer at least 

annually, and the CCO must provide 

any information regarding the SEF’s 

self-regulatory program as requested by 

the board of directors or the senior 

officer. 

Section 37.1501(c) sets out the duties 

of the CCO, including overseeing and 

reviewing the SEF’s compliance with 

the Core Principles; taking reasonable 

steps, in consultation with the board of 

directors or senior officer, to resolve any 

material conflicts of interest; 

establishing and administering written 

policies and procedures reasonably 

designed to prevent violations of the 

CEA and the rules of the CFTC; taking 

reasonable steps to ensure compliance 

with the CEA and CFTC rules; 

establishing procedures reasonably 

designed to handle, respond, remediate, 

retest, and resolve noncompliance 

issues identified by the CCO; 

establishing and administering a 

compliance manual and a written code 

of ethics for the SEF; supervising the 

self-regulatory program of the SEF with 

respect to trade practice surveillance, 

market surveillance, real-time market 

monitoring, compliance with audit trail 

requirements, enforcement and 

disciplinary proceedings, audits, 

examinations, and other regulatory 

responsibilities; and supervising the 

effectiveness and sufficiency of any 

regulatory services provided to the SEF 

by a regulatory service provider. 

Section 37.1501(d) requires the CCO 

to prepare and sign an annual 

compliance report that covers the prior 

fiscal year. The report must contain, at 

a minimum: A description and selfassessment of the effectiveness of the 

SEF’s written policies and procedures, 

code of ethics, and conflict of interest 

policies; any material changes made to 

compliance policies and procedures 

during the coverage period for the report 

and any areas of improvement or 

recommended changes to the 

compliance program; a description of 

the financial, managerial, and 

operational resources set aside for 

compliance with the CEA and 

applicable CFTC regulations; any 

material non-compliance matters 

identified and an explanation of the 

corresponding action taken to resolve 

them; and CCO certification that the 

annual compliance report is accurate 

and complete. 

Section 37.1501(e) requires the CCO 

to provide the annual compliance report 

to the SEF’s board of directors or a 

senior officer for review before 

submitting it to the CFTC, and the board 

or the senior office may not require the 

CCO to make any changes to the report. 

Section 37.1501(e) further provides that 

the annual compliance report shall be 

submitted electronically to the CFTC 

not later than 90 calendar days after the 

end of the SEF’s fiscal year and 

concurrently with the fourth-quarter 

financial report pursuant to § 37.1306. 

Section 37.1501(e) also addresses 

amendments to and requests for 

extensions for the annual compliance 

report. 

Section 37.1501(f) requires the SEF to 

maintain all records demonstrating 

compliance with the duties of the CCO 

and the preparation and submission of 

annual compliance report, consistent 

with §§ 37.1000 and 37.1001. Finally, 

appendix B to part 37 includes 

‘‘acceptable practices’’ regarding the 

qualifications of a CCO and the SEF’s 

discretion in choosing one, as well as 

the need to be vigilant regarding 

conflicts of interest when appointing a 

CCO. 

Proposed Rule 831 would implement 

SEA Core Principle 14 and is closely 

modelled on subpart P of part 37, with 

two minor substantive exceptions.214


jspears on DSK121TN23PROD with PROPOSALS2
28922 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

EDGAR system and must be provided as an 

Interactive Data File in accordance with Rule 405 

of Regulation S–T, in conformance with other rules 

in Regulation SE requiring electronic submissions. 

See proposed Rule 831(j)(2); supra note 55. 215 7 U.S.C. 12a(2) and 12a(3). 216The Commission notes that subpart P uses the 

term ‘‘board of directors,’’ while the Commission is 

proposing to use the term ‘‘governing board’’ 

instead throughout proposed Regulation SE. See 

supra note 29. 217See supra section VIII(B)(2)(b). 218Proposed Rule 831(c) provides that, in 

determining whether the background and skills of 

a potential CCO are appropriate for fulfilling the 

responsibilities of the role of the CCO, an SBSEF 

has the discretion to base its determination on the 

totality of the qualifications of the potential CCO, 

including, but not limited to, compliance 

experience, related career experience, training, 

potential conflicts of interest, and any other 

relevant factors. 219See supra note 106 and accompanying text. 

220Even if an SBS is subject to mandatory 

clearing, it will not be subject to the trade execution 

requirement if no exchange or SBSEF makes the 

SBS available to trade or the SBS is subject to an 

exception from the clearing requirement under 

section 3C(g) of the SEA. In addition, as discussed 

above in section VII(F)(2), proposed Rule 816(e) 

would provide certain additional exemptions from 

the trade execution requirement. 

221The proposed term ‘‘covered person’’ is 

designed to apply on a transaction-by-transaction 

basis. In other words, if a non-U.S. person were 

guaranteed by a U.S. person on a specific SBS or 

utilized U.S. personnel in connection with its 

dealing activities to arrange, negotiate, or execute a 

specific SBS, that person would be a covered 

person with respect to that SBS, but not necessarily 

with respect to other SBS. Because domicile is 

generally static, a person who is a U.S. person 

would be a covered person with respect to all of its 

SBS transactions. 

The first relates to disqualification of 

the CCO. Section 37.1501(b)(2)(ii) states: 

‘‘No individual disqualified from 

registration pursuant to sections 8a(2) or 

8a(3) of the [CEA] may serve as a chief 

compliance officer.’’ The Commission 

preliminarily believes that SBSEFs, like 

SEFs, should be subject to a rule setting 

out criteria for disqualification of the 

CCO. However, the SEC cannot crossreference provisions of the CEA, since 

the CEA does not apply to SBSEFs. The 

Commission consulted Sections 8a(2) 

and 8a(3) of the CEA,215 but believes 

they are not easily adaptable into a rule 

applicable to SBSEFs and their CCOs. 

The Commission is proposing instead, 

in Rule 831(c)(2), that no individual that 

would be disqualified from serving on 

an SBSEF’s governing board 216 or 

committees pursuant to the criteria set 

forth in § 242.819(i) may serve as the 

CCO. As noted above,217 the 

disqualification criteria in proposed 

Rule 819(i) are adapted from § 1.63 of 

the CFTC’s rules. Second, the 

Commission has adapted the acceptable 

practices pertaining to CEA Core 

Principle 15 into paragraph (c) of 

proposed Rule 831.218

The Commission preliminarily 

believes that the CFTC has implemented 

CEA Core Principle 14 for SEFs in an 

appropriate way, and that closely 

harmonizing with subpart P of part 37 

would yield comparable regulatory 

benefits while imposing only marginal 

additional costs. The Commission 

recognizes that the swap business of a 

dually registered SEF/SBSEF is likely to 

be much larger than its SBS business. 

Therefore, the greatest compliance risks 

to a dually registered entity are likely to 

arise from the swap business rather than 

the SBS business, so it would be logical 

for the SEC to harmonize with the 

CFTC’s rules regarding the CCO. There 

are strong economic incentives for a 

dually registered entity to appoint the 

same individual to serve as the CCO for 

both the swap and SBS businesses, and 

for the CCO to carry out their functions 

under a similar set of rules. Different or 

additive requirements imposed by the 

SEC could increase costs for SEF/ 

SBSEFs while generating benefits that 

are marginal at best. The Commission 

does not observe any differences in the 

SBS market relative to the swap market 

that warrant imposing different or 

additive CCO requirements on SBSEFs 

relating to the CCO. 

The Commission seeks comment on 

the following: 

163. Do you agree in general with how 

the Commission is proposing to 

implement SEA Core Principle 14? Why 

or why not? 

164. In particular, do you agree that 

close harmonization with subpart P is 

appropriate? Are there provisions of 

subpart P that the SEC should not 

incorporate, even if the SEC opts to 

harmonize with most of subpart P? In 

other words, are there areas where 

omitting a subpart P provision would 

reduce burdens on SBSEFs and/or their 

members without lessening any 

regulatory benefits? If so, please explain, 

with particular regard to the economic 

impacts and/or PRA burdens. 

165. Should the Commission adopt 

different or additive CCO requirements 

for SBSEFs, even if there is no analog 

to such provisions in subpart P? If so, 

please explain, with particular regards 

to the economic impacts and/or PRA 

burdens. For example, do you believe 

that the SEC-specific provision would 

impose additional costs or burdens on 

SBSEFs and/or their members that are 

nevertheless appropriate in view of new 

and additional benefits? Or do you 

believe that the SEC-specific provision 

would be appropriate because it would 

relieve costs or burdens that are 

imposed on SEFs by subpart P that, in 

your view, are unnecessary or 

inappropriate for SBSEFs? 

166. Do you agree with how the 

Commission is proposing to adapt the 

acceptable practices from appendix B 

relating to CEA Core Principle 15 into 

proposed Rule 831(c)? Why or why not? 

167. Do you agree with proposed Rule 

831(c)(2) using a cross-reference to 

proposed Rule 819(i) to incorporate 

disqualification criteria for the CCO? 

Why or why not? If not, what alternate 

standard would you suggest for the 

disqualification criteria, and why? 

IX. Cross-Border Rules 

A. Rule 832—Cross-Border Mandatory 

Trade Execution 

As noted above,219 section 3C(h) of 

the SEA provides that an SBS that is 

subject to mandatory clearing can 

become subject to the trade execution 

requirement.220 The trade execution 

requirement, like other provisions of the 

SEA, is subject to jurisdictional 

constraints which are particularly 

germane in light of the global nature of 

the SBS market, where there is frequent 

interaction among counterparties 

domiciled in different jurisdictions. 

Proposed Rule 832 of Regulation SE is 

designed to address when the SEA’s 

trade execution requirement applies to a 

cross-border SBS transaction. 

Paragraph (a) of proposed Rule 832 

would provide that the trade execution 

requirement set forth in section 3C(h) of 

the SEA shall not apply to an SBS 

unless at least one counterparty to the 

SBS is a ‘‘covered person’’ as defined in 

paragraph (b). Paragraph (b) of proposed 

Rule 832 would define the term 

‘‘covered person,’’ with respect to a 

particular security-based swap, as any 

person that is a U.S. person; a non-U.S. 

person whose performance under an 

SBS is guaranteed by a U.S. person; or 

a non-U.S. person who, in connection 

with its SBS dealing activity, uses U.S. 

personnel located in a U.S. branch or 

office, or personnel of an agent of such 

non-U.S. person located in a U.S. 

branch or office, to arrange, negotiate, or 

execute a transaction.221

Thus, a particular SBS would fall 

within the jurisdictional reach of 

section 3C(h) of the SEA if at least one 

side had a connection to the United 

States of a type specified in paragraph 

(b)(1), (2), or (3) of proposed Rule 832. 

The trade execution requirement would 

not apply to an SBS transaction—even 

if the SBS were subject to mandatory 

clearing and MAT—if neither side had 

a connection to the United States of a 

type specified in proposed Rule 832. 

Proposed Rule 832 is consistent with 

the Commission’s territorial approach to 

applying Title VII requirements in other 

contexts. The Commission previously 

has stated that Title VII requirements 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28923 

222Regulation SBSR Adopting Release I, 80 FR at 

14652 (discussing cross-border application of Title 

VII requirements for regulatory reporting and public 

dissemination of SBS transactions). 

223See SEA Release No. 72472 (June 25, 2014), 79 

FR 47278, 47286 (‘‘Cross-Border Adopting Release’’) 

(stating that applying Title VII only to persons 

incorporated, organized, or established within the 

United States or only to SBS activity occurring 

entirely within the United States would 

inappropriately exclude from regulation a majority 

of SBS activity that involves U.S. persons or 

otherwise involves conduct within the United 

States, even though such activity raises the types of 

concerns that the Commission believed Congress 

intended to address through Title VII). 

224 17 CFR 242.908(a)(1). 

225Regulation SBSR Adopting Release I, 80 FR at 

14652. 

226 Id. See also Cross-Border Adopting Release, 79 

FR at 47289 (discussing the Commission’s rationale 

for viewing a foreign branch of an SBS dealer as an 

integral part of the SBS dealer). 

227See, e.g., Regulation SBSR Adopting Release I, 

80 FR at 14653. See also Cross-Border Adopting 

Release, 79 FR at 47290 (‘‘the guarantee provided 

by a U.S. person poses risk to U.S. persons and 

potentially to the U.S. financial system, and both 

the non-U.S. person whose dealing activity is 

guaranteed and its counterparty rely on the 

creditworthiness of the U.S. guarantor when 

entering into a security-based swap transaction and 

for the duration of the security-based swap. The 

economic reality of this transaction, even though 

entered into by a non-U.S. person, is substantially 

identical, in relevant respects, to a transaction 

entered into directly by a U.S. person. Accordingly, 

in our view, it is consistent with both the statutory 

text and with the purposes of the statute to identify 

such transactions as occurring within the United 

States for purposes of Title VII’’). 

228Regulation SBSR Adopting Release I, 80 FR at 

14653. In addition, section 30(c) of the SEA, 15 

U.S.C. 78dd(c), authorizes the Commission to apply 

Title VII requirements to persons transacting a 

business ‘‘without the jurisdiction of the United 

States’’ if they contravene rules that the 

Commission has prescribed as ‘‘necessary or 

appropriate to prevent the evasion of any 

provision’’ of Title VII. For the reasons described 

above, the Commission does not believe that 

applying the trade execution requirement to nonU.S. persons whose performance under an SBS is 

guaranteed by a U.S. person would cause the trade 

execution requirement to apply to persons that are 

‘‘transact[ing] a business in security-based swaps 

without the jurisdiction of the United States.’’ The 

Commission nonetheless preliminarily believes that 

applying the trade execution requirement to such 

persons is also necessary or appropriate as a 

prophylactic measure to help prevent the evasion 

of the provisions of the SEA that were added by the 

Dodd-Frank Act, and thus help prevent the relevant 

purposes of the Dodd-Frank Act from being 

undermined. See Cross-Border Adopting Release, 

79 FR at 47291–92 (interpreting the anti-evasion 

provisions of SEA section 30(c)). Without this rule, 

U.S. persons could have an incentive to evade the 

trade execution requirement by engaging in SBS via 

a guaranteed affiliate, while the economic reality of 

transactions arising from that activity—including 

the risks these transactions introduce to the U.S. 

market—would be no different in most respects 

than transactions entered into directly by U.S. 

persons. 

229Regulation SBSR Adopting Release II, 81 FR 

at 53591. See also SEA Release No. 87780 

(December 18, 2019), 85 FR 6270, 6271–76 

(February 4, 2020) (discussing other Title VII rules 

that incorporate ANE criteria and providing 

guidance on the meaning of the terms ‘‘arranged’’ 

and ‘‘negotiated’’ for purposes of these rules). 

230Regulation SBSR Adopting Release II, 81 FR 

at 53591. The Commission does not believe that 

applying the trade execution requirement to 

persons that satisfy the ANE criterion would cause 

the trade execution requirement to apply to persons 

that are ‘‘transact[ing] a business in security-based 

swaps without the jurisdiction of the United 

States,’’ within the meaning of section 30(c) of the 

SEA. See supra note 228. The Commission also 

believes that applying the trade execution 

requirement to such persons is necessary or 

appropriate as a prophylactic measure to help 

prevent the evasion of the provisions of the SEA 

that were added by the Dodd-Frank Act, and thus 

help prevent the relevant purposes of the DoddFrank Act from being undermined. Without this 

rule, non-U.S. persons could retain the benefits of 

operating in the United States while avoiding 

compliance with the trade execution requirement. 

‘‘apply to all SBS transactions that exist 

in whole or in part within the United 

States, unless an exception applies.’’ 222

Relevant activity need not occur wholly 

within the United States or solely 

between U.S. persons in order for Title 

VII requirements to apply.223 For 

example, under Rule 908(a)(1) of 

Regulation SBSR,224 the Title VII 

requirements for regulatory reporting 

and public dissemination apply to an 

SBS transaction even if only one 

counterparty to the transaction is a U.S. 

person. As the Commission previously 

stated, ‘‘any security-based swap 

executed by a U.S. person exists at least 

in part within the United States.’’ 225

This is true even if a transaction is 

effected through the foreign branch of a 

U.S. person, because ‘‘a foreign branch 

has no separate existence from the U.S. 

person itself.’’ 226

The Commission also has found it 

consistent with the territorial approach 

to apply Title VII requirements where 

one counterparty of an SBS transaction 

is a non-U.S. person whose performance 

under an SBS is guaranteed by a U.S. 

person.227 As the Commission stated 

when applying this criterion to Title VII 

reporting: ‘‘A security-based swap with 

a U.S.-person indirect counterparty [i.e., 

guarantor] is economically equivalent to 

a security-based swap with a U.S.- 

person direct counterparty, and both 

kinds of security-based swaps exist, at 

least in part, within the United States 

. . . [T]he presence of a U.S. guarantor 

facilitates the activity of the non-U.S. 

person who is guaranteed and, as a 

result, the security-based swap activity 

of the non-U.S. person cannot 

reasonably be isolated from the U.S. 

person’s activity in providing the 

guarantee.’’ 228

Finally, the Commission also has 

found it consistent with the territorial 

approach to apply Title VII 

requirements where one counterparty is 

a non-U.S.-person who, in connection 

with its SBS dealing activity, uses U.S. 

personnel located in a U.S. branch or 

office, or personnel of an agent of such 

non-U.S. person located in a U.S. 

branch or office, to arrange, negotiate, or 

execute (‘‘ANE’’) the transaction. As the 

Commission previously stated when 

applying the ANE criterion to Title VII 

requirements for regulatory reporting 

and public dissemination: ‘‘when a 

foreign dealing entity uses U.S. 

personnel to arrange, negotiate, or 

execute a transaction in a dealing 

capacity, that transaction occurs at least 

in part within the United States and is 

relevant to the U.S. security-based swap 

market.’’ 229 Declining to apply Title VII 

requirements to SBS transactions of 

foreign dealing entities that use U.S. 

personnel to engage in ANE transactions 

would allow such entities ‘‘to exit the 

Title VII regulatory regime without 

exiting the U.S. market.’’ 230

The Commission recognizes the 

difficulties that can arise when a binary 

requirement, such as the trade execution 

requirement, applies in two separate 

jurisdictions. In other words, if the 

counterparties to a cross-border SBS are 

subject to a trade execution requirement 

under the rules of each of their 

jurisdictions, the counterparties could 

violate the rules of one jurisdiction by 

executing the SBS in one jurisdiction 

but not the other, or in a manner that 

is consistent with the rules of one 

jurisdiction but potentially not of the 

other jurisdiction. The following 

section, regarding proposed Rule 833, 

will discuss conditions for allowing an 

SBS to trade on foreign venues not 

registered with the Commission, 

notwithstanding the SBS being subject 

to the SEA’s trade execution 

requirement and proposed Rule 832. 

The Commission seeks comment on 

the following: 

168. Of the SBS products that, in your 

view, are plausible candidates for 

mandatory clearing and mandatory 

trade execution under the SEA, how 

frequently do these products trade on 

foreign SBS trading venues? Do you 

believe that the SBS market is 

sufficiently regionalized such that crossborder application of the trade 

execution requirement might not be a 

significant issue? 

169. Do you believe that the proposed 

text of Rule 832 is sufficiently clear? If 

not, what aspects do you believe require 

clarification? 

B. Rule 833—Cross-Border Exemptions 

1. Exemptions for Foreign SBS Trading 

Venues 

As noted above in discussing 

proposed Rule 832, the swap and SBS 

markets are global in nature, and 

counterparties domiciled in different 

jurisdictions frequently trade with each 


jspears on DSK121TN23PROD with PROPOSALS2
28924 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

231See supra section IX(A). 

232See 15 U.S.C. 78c–4(a)(1) (stating that no 

person may operate a facility for the trading or 

processing of SBS, unless the facility is registered 

as an SBSEF or national securities exchange). 

233A ‘‘broker’’ is generally defined as a person 

engaged in the business of effecting transactions in 

securities for the account of others. See section 

3(a)(4) of the SEA, 15 U.S.C. 78c(a)(4). Section 

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

provides that it shall be unlawful for any broker to 

make use of the mails or any means or 

instrumentality of interstate commerce to effect any 

transactions in, or to induce or attempt to induce 

the purchase or sale of, any security unless such 

broker is registered in accordance with SEA section 

15(b). See also infra section XIII (discussing 

proposed new Rule 15a–12). 

234 15 U.S.C. 78mm(a)(1). 

235 17 CFR 240.0–12 (setting forth procedures for 

filing applications for orders for exemptive relief 

under section 36 of the SEA). 

236An application for an exemption under 

proposed Rule 833(a) could be submitted by a 

foreign SBS trading venue itself or another 

interested party. For example, a financial regulatory 

authority in a foreign jurisdiction could submit an 

application under proposed Rule 833(a) on behalf 

of one or more SBS trading venues licensed and 

regulated in that jurisdiction. 

237 15 U.S.C. 78c(a)(1). 

238 15 U.S.C. 78c(a)(77). 

239 15 U.S.C. 78c(a)(4). 

240 15 U.S.C. 78c–4(a)(1) (stating that no person 

may operate a facility for the trading or processing 

of SBS, unless the facility is registered as an SBSEF 

or national securities exchange). 

241For the remainder of this discussion, an 

exemption under SEA section 36 and Rule 833(a) 

will be referred to simply as a ‘‘Rule 833(a) 

exemption.’’ In addition, the Commission will use 

the term ‘‘trading venue covered by an exemption 

order under Rule 833’’ (or a similar formulation) 

rather than ‘‘exempt exchange,’’ ‘‘exempt SBSEF’’ 

or ‘‘exempt broker’’ because, pursuant to an 

exemption granted under proposed Rule 833(a), the 

covered trading venue would no longer be an 

exchange, SBSEF, or broker (as defined by the SEA). 

242However, as discussed further below, the Rule 

833(a) exemption is designed to address only 

activities related to providing a market place for 

SBS. An entity that engages in other SBS-related 

activity or any activity involving non-SBS securities 

would need other authority under the SEA. 

243 7 U.S.C. 7b–3(g). 

244See https://www.cftc.gov/International/ 

ForeignMarketsandProducts/ExemptSEFs (listing 

all exemption orders issued by the CFTC under 

section 5h(g) of the CEA and subsequent 

amendments to those orders). 

245Furthermore, section 5 of the SEA generally 

prohibits any broker, dealer, or exchange from using 

U.S. jurisdictional means to effect or report a 

transaction in a security on an exchange, unless the 

exchange is registered as a national securities 

exchange or has received a low-volume exemption 

from registration as a national securities exchange. 

See 15 U.S.C. 78e. Absent an exemption from the 

definition of ‘‘exchange,’’ this provision would 

apply to a foreign SBS trading venue (and brokers 

and dealers who are members of that trading venue) 

to the extent that it uses U.S. jurisdictional means. 

246See 15 U.S.C. 78mm(a)(1). Unlike the CFTC 

which has exemptive authority under section 5h(g) 

of the CEA, the Commission would not be required 

to find that the foreign trading venue is subject to 

comparable, comprehensive supervision and 

regulation by a U.S. or foreign regulator. 

247For example, although a foreign trading venue 

covered by a Rule 833(a) exemption would be 

exempt from the definition of ‘‘broker,’’ that 

exemption would extend only to the operation of 

a market place for SBS and would not permit the 

foreign trading venue to otherwise act as a 

securities broker using U.S. jurisdictional means. 

248The Commission considered the alternative of 

requiring that a Rule 833(a) exemption could apply 

to a foreign SBS trading venue only if it traded SBS 

and no other type of security. The Commission 

other.231 Proposed Rule 832 is designed 

to answer the question of when the 

trade execution requirement would 

apply to an individual cross-border SBS 

transaction. There might be instances 

where covered persons (as defined in 

proposed Rule 832) wish to be members 

of a foreign trading venue for SBS (a 

‘‘foreign SBS trading venue’’). Having 

members who are covered persons, as 

defined in Rule 832, with respect to SBS 

transacted on that venue, whether or not 

the SBS that they trade are subject to the 

SEA’s trade execution requirement, 

could require the foreign SBS trading 

venue to register with the Commission 

as a national securities exchange or 

SBSEF.232 In addition, because a foreign 

SBS trading venue would be facilitating 

the execution of SBS between persons, 

the foreign SBS trading venue also 

might be required to register with the 

Commission as a broker.233

A foreign SBS trading venue with 

members who are covered persons, as 

defined in Rule 832, with respect to SBS 

transacted on that venue and that 

wishes to avoid having to register in one 

or more of these capacities could 

request that the Commission grant it an 

exemption under section 36(a)(1) of the 

SEA 234 by submitting an application 

pursuant to SEA Rule 0–12.235 Proposed 

Rule 833(a) would provide that such an 

application, relating to the status of the 

foreign SBS trading venue under the 

SEA, may state that the application also 

is submitted pursuant to Rule 833(a).236

In such case, the Commission would 

consider the submission as an 

application to exempt the foreign SBS 

trading venue, with respect to its 

providing a market place for SBS, from 

the definition of ‘‘exchange’’ in section 

3(a)(1) of the SEA; 237 the definition of 

‘‘security-based swap execution facility’’ 

in section 3(a)(77) of the SEA; 238 the 

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

of the SEA; 239 and section 3D(a)(1) of 

the SEA.240 Because a foreign SBS 

trading venue that obtains an order 

under SEA section 36 and proposed 

Rule 833(a) 241 would be exempt from 

these definitions and from section 

3D(a)(1) of the SEA, the foreign SBS 

trading venue would not be required to 

register with the Commission as a 

national securities exchange, SBSEF, or 

broker, or comply with other 

requirements applicable to such entities 

under the SEA or Commission rules 

thereunder.242

Under section 5h(g) of the CEA,243 the 

CFTC may exempt, conditionally or 

unconditionally, a SEF from registration 

if the CFTC finds that the SEF is subject 

to comparable, comprehensive 

supervision and regulation on a 

consolidated basis by the SEC, a 

prudential regulator, or the appropriate 

governmental authorities in the home 

country of the facility. The CFTC has 

exercised this authority to grant 

exemptions from SEF registration to 

swap trading venues in the European 

Union, Japan, and Singapore.244

Proposed Rule 833(a) would set forth 

how interested parties could make 

similar requests for exemptive relief 

with respect to foreign SBS trading 

venues. For example, Rule 833(a) lists 

four separate provisions of the SEA that 

the Commission believes generally 

would have to be addressed in an 

exemption request relating to a foreign 

SBS trading venue’s status under the 

SEA. A foreign SBS trading venue that 

was exempted solely from section 

3D(a)(1) of the SEA, for example, might 

still be subject to various requirements 

under the SEA by virtue of falling 

within one or more of the above-noted 

definitions.245 The exemptive 

framework set out in proposed Rule 

833(a) is designed to avoid this result. 

As with applications for other 

exemptive relief under section 36 of the 

SEA, an applicant requesting a Rule 

833(a) exemption would be required to 

submit a complete application pursuant 

to SEA Rule 0–12. To issue a Rule 

833(a) exemption, like any other 

exemption issued pursuant to section 

36, the Commission would be required 

to find that the exemption is necessary 

or appropriate in the public interest, 

and consistent with the protection of 

investors.246 As contemplated by 

section 36(a)(1), the Commission may 

subject a Rule 833(a) exemption to any 

conditions that it deems appropriate. 

Proposed Rule 833(a) is designed to 

address only activities relating to 

providing a market place for SBS and 

would not extend to trading in any other 

type of security or to other activities 

with respect to SBS.247 A foreign SBS 

trading venue covered by an exemption 

order under Rule 833(a) might offer 

trading in other types of securities; 

however, the exemption order would 

permit covered persons to trade only 

SBS on that trading venue without 

causing the trading venue to have to 

register with the Commission as an 

exchange or SBSEF. The exemption 

order would not address any registration 

obligations that might arise from any 

other type of exchange activity by the 

foreign trading venue.248


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28925 

preliminarily believes, however, that this 

alternative is unnecessary. Other jurisdictions 

might have market structures where it is common 

to trade SBS and other types of securities on the 

same trading venue. The Commission preliminarily 

believes that it would be inequitable to disqualify 

such jurisdictions ex ante from qualifying for a Rule 

833(a) exemption. Nevertheless, a foreign SBS 

trading venue that benefits from a Rule 833(a) 

exemption and that offers trading in both SBS and 

non-SBS securities would have to take appropriate 

steps to prevent covered persons from trading nonSBS securities on that trading venue, because the 

Rule 833(a) exemption would not cover the trading 

activity in non-SBS securities. 

249 15 U.S.C. 78f(l). 

250Section 3D(e) of the SEA gives the 

Commission authority to exempt an SBSEF from 

registration if it is subject to comparable, 

comprehensive supervision and regulation by the 

CFTC. See 15 U.S.C. 78c–4(e). 

251For the remainder of this discussion, an 

exemption under SEA section 36 and Rule 833(b) 

will be referred to simply as a ‘‘Rule 833(b) 

exemption.’’ 

252An SBS can be subject to the SEA’s trade 

execution requirement only if it first becomes 

subject to the clearing requirement in section 3C(h) 

of the SEA, 15 U.S.C. 78c–3(h). A Rule 833(b) 

exemption would not have any impact on this 

clearing requirement, unless otherwise explicitly 

addressed in the exemption order. 

253See supra notes 94–96 and accompanying text. 

254A request for an exemption under proposed 

Rule 833(a) could be submitted at the same time— 

and by the same person(s)—as a request for an 

exemption under proposed Rule 833(b). For 

example, a financial regulatory authority in a 

foreign jurisdiction could combine a request for an 

exemption under proposed Rule 833(a) on behalf of 

one or more SBS trading venues licensed and 

regulated in that jurisdiction with a request for an 

exemption under proposed Rule 833(b) that would 

allow covered persons to trade on those venues SBS 

that would, absent an exemption, be subject to the 

SEA’s trade execution requirement. 

The Commission also emphasizes that 

a Rule 833(a) exemption would not have 

any impact on section 6(l) of the SEA,249

which makes it unlawful for any person 

to effect a transaction in an SBS with or 

for a person that is not an ECP, unless 

such transaction is effected on a 

national securities exchange registered 

pursuant to section 6(b) of the SEA. 

Because a foreign SBS trading venue 

covered by a Rule 833(a) exemption 

would not be registered as a national 

securities exchange, the foreign SBS 

trading venue would not be permitted to 

effect SBS transactions with or for a 

covered person that is not an ECP. 

2. Exemptions Relating to the Trade 

Execution Requirement 

Proposed Rule 833(b) would address 

requests for exemptive relief relating to 

the application of the trade execution 

requirement under section 3C(h) of the 

SEA to transactions executed on a 

foreign SBS trading venue. Pursuant to 

section 3C(h) of the SEA, an SBS that is 

subject to the trade execution 

requirement must be executed on an 

exchange, on an SBSEF registered under 

section 3D of the SEA, or on an SBSEF 

that is exempt from registration under 

section 3D(e) of the SEA.250 As a result, 

a covered person (as defined in 

proposed Rule 832) would not be 

permitted to execute an SBS that is 

subject to the trade execution 

requirement on a foreign SBS trading 

venue unless that venue has registered 

with the Commission as a national 

securities exchange or an SBSEF, or has 

received an exemption under section 

3D(e) of the SEA. 

A covered person seeking to execute 

such an SBS on a foreign SBS trading 

venue that does not fall within one of 

these categories could request that the 

Commission grant an exemption from 

this requirement under section 36(a)(1) 

of the SEA by submitting an application, 

as with Rule 833(a), pursuant to SEA 

Rule 0–12. Proposed Rule 833(b)(1) 

would provide that such an application, 

relating to the application of the trade 

execution requirement to SBS executed 

on a foreign SBS trading venue, may 

state that the application also is 

submitted pursuant to proposed Rule 

833(b).251 Proposed Rule 833(b) is 

intended to clarify how interested 

parties could make requests for 

exemptive relief from the trade 

execution requirement for SBS traded 

on one or more foreign SBS trading 

venues.252

To issue a Rule 833(b) exemption, like 

with any other section 36 exemption, 

the Commission would be required to 

find that the exemption is necessary or 

appropriate in the public interest, and 

consistent with the protection of 

investors. Furthermore, as contemplated 

by section 36(a)(1), the Commission may 

subject a Rule 833(b) exemption to any 

conditions that it deems appropriate. 

Proposed Rule 833(b)(2) would 

provide that, in considering whether to 

issue a Rule 833(b) exemption, the 

Commission may consider: (i) The 

extent to which the SBS traded in the 

foreign jurisdiction covered by the 

request are subject to a trade execution 

requirement comparable to that in 

section 3C(h) of the SEA and the 

Commission’s rules thereunder; (ii) the 

extent to which trading venues in the 

foreign jurisdiction covered by the 

request are subject to regulation and 

supervision comparable to that under 

the SEA, including section 3D of the 

SEA, and the Commission’s rules 

thereunder; (iii) whether the foreign 

trading venue or venues where covered 

persons intend to trade SBS have 

received an exemption order 

contemplated by proposed Rule 833(a); 

and (iv) any other factor that the 

Commission believes is relevant for 

assessing whether the exemption is in 

the public interest and consistent with 

the protection of investors. 

The first factor listed above is 

intended to highlight the Commission’s 

preliminary belief that, to grant an 

exemption from the SEA’s trade 

execution requirement to allow SBS 

subject to that requirement to trade in a 

foreign jurisdiction on one or more 

venues not registered with the 

Commission, there should be a 

comparable trade execution requirement 

in that jurisdiction. As part of any 

analysis regarding the comparability of 

the trade execution requirement, the 

Commission could consider not only 

whether the relevant SBS must be 

executed on a trading venue in the 

foreign jurisdiction, but also the 

permissible execution means for 

mandatory trade execution in the 

foreign jurisdiction. In general, the 

Commission preliminarily believes that 

a trade execution requirement in a 

foreign jurisdiction would not be 

comparable to the trade execution 

requirement under the SEA if the 

foreign jurisdiction’s rules did not 

require SBS products subject to that 

requirement to be executed through 

means comparable to Required 

Transactions as described in proposed 

Rule 815 (e.g., if the foreign jurisdiction 

allowed the use of single-dealer 

platforms to discharge any mandatory 

trading execution requirement in that 

jurisdiction). 

Under the second factor listed above, 

the Commission could consider whether 

the trading venues in the foreign 

jurisdiction are subject to regulation and 

supervision comparable to that under 

the SEA, including section 3D of the 

SEA and the Commission’s rules 

thereunder. The Commission 

preliminarily believes that the goals of 

Title VII regarding trade execution 253

could be subverted if it were to allow 

covered persons to trade SBS subject to 

the SEA’s trade execution requirement 

on foreign trading venues that are not 

subject to rules designed to foster 

comparable levels of pre- and post-trade 

transparency, access, and liquidity. 

The Commission also believes that it 

would be important to consider whether 

the foreign trading venue or venues 

where covered persons intend to trade 

SBS have received an exemption order 

contemplated by proposed Rule 833(a). 

The fact that covered persons are 

executing SBS on a foreign trading 

venue typically would require the venue 

to register with the Commission as a 

national securities exchange or 

SBSEF.254

Finally, the fourth factor listed above 

would emphasize that these 


jspears on DSK121TN23PROD with PROPOSALS2
28926 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

255 15 U.S.C. 8343. 

256See Ownership Limitations and Governance 

Requirements for Security-Based Swap Clearing 

Agencies, Security-Based Swap Execution 

Facilities, and National Securities Exchanges With 

Respect to Security-Based Swaps Under Regulation 

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

FR 65882 (October 26, 2010). 

considerations are not exhaustive. The 

Commission may consider any other 

factor that it believes is relevant for 

assessing whether the Rule 833(b) 

exemption is in the public interest and 

consistent with the protection of 

investors. 

The Commission seeks comment on 

the following: 

170. Do you believe in general that the 

Commission should establish a rule for 

granting exemptions regarding a foreign 

SBS trading venue’s status under the 

SEA and mandatory trade execution of 

cross-border SBS transactions? Why or 

why not? 

171. Do you disagree with any of the 

specific language proposed in Rule 833? 

If so, how would you revise it? 

172. Do you expect that there are 

foreign SBS trading venues that would 

seek an exemption under proposed Rule 

833(a)? If so, how many? 

173. Do you agree with the factors that 

the Commission is proposing to 

consider for a Rule 833(b) exemption? 

Are there are any that you would 

eliminate or revise? If so, which ones 

and why? Are there any criteria that you 

believe should be added? If so, what and 

why? 

174. Are there any conditions or 

limitations that should be included in 

the rule? If so, what conditions or 

limitations would you suggest, and 

why? 

X. Rule 834—Implementation of 

Section 765 of the Dodd-Frank Act and 

Governance of SBSEFs and SBS 

Exchanges 

Section 765(a) of the Dodd-Frank 

Act 255 provides in relevant part that, to 

mitigate conflicts of interest, the 

Commission ‘‘shall adopt rules which 

may include numerical limits on the 

control of, or the voting rights with 

respect to’’ any clearing agency that 

clears SBS, or on the control of any 

SBSEF or SBS exchange by certain bank 

holding companies, certain nonbank 

financial companies, an affiliate of such 

a bank holding company or nonbank 

financial company, an SBS dealer, major 

SBS participant, or person associated 

with an SBS dealer or major SBS 

participant. Section 765(b) states that 

the purpose of the statutory provision is 

‘‘to improve the governance of, or to 

mitigate systemic risk, promote 

competition, or mitigate conflicts of 

interest in connection with’’ an SBS 

dealer or major SBS participant’s 

conduct of business with, a clearing 

agency, SBSEF, or SBS exchange and in 

which such SBS dealer or major SBS 

participant ‘‘has a material debt or 

equity investment.’’ Finally, section 

765(c) provides in relevant part that, in 

adopting rules pursuant to section 765, 

the Commission shall consider any 

conflicts of interest arising from the 

amount of equity owned by a single 

investor, the ability to vote, cause the 

vote of, or withhold votes entitled to be 

cast on any matters by the holders of the 

ownership interest. 

In 2010, the Commission proposed 

Regulation MC to implement section 

765.256 In view of the significant 

amount of time that has elapsed and the 

significant evolution in the swap and 

SBS markets since the proposal of 

Regulation MC, the Commission hereby 

withdraws that proposal. The 

Commission is now proposing Rule 834 

of Regulation SE to implement section 

765 of the Dodd-Frank Act with respect 

to SBSEFs and SBS exchanges. 

The Commission, in accordance with 

section 765 of the Dodd-Frank Act, has 

reviewed the potential for conflicts of 

interest arising from an SBS dealer or 

major SBS participant having voting 

rights in an SBSEF or SBS exchange in 

which it is a member. The Commission 

preliminarily believes that, to satisfy the 

requirements of section 765, it is 

appropriate to impose a cap on the size 

of the voting rights that an individual 

member of an SBSEF or SBS exchange 

may own or direct. Accordingly, 

paragraph (b) of proposed Rule 834 

would bar an SBSEF or SBS exchange 

from permitting any of its members, 

either alone or together with any officer, 

principal, or employee of the member, 

to: 

(1) Own, directly or indirectly, 20% 

or more of any class of voting securities 

or of other voting interest in the SBSEF 

or SBS exchange; or 

(2) Directly or indirectly vote, cause 

the voting of, or give any consent or 

proxy with respect to the voting of, any 

interest that exceeds 20% of the voting 

power of any class of securities or of 

other ownership interest in the SBSEF 

or SBS exchange. 

The 20% cap in proposed Rule 834(b) 

attempts to balance competing policy 

interests. On the one hand, execution 

venues need capital, expertise, and 

liquidity to establish and grow. 

Historically, market participants who 

become members of an execution venue 

are a source of all three components, 

and any person contributing capital to a 

new venture might reasonably expect to 

have a voting interest commensurate 

with the amount of capital contributed. 

The Commission considered proposing 

a cap in voting interest below 20%, but 

preliminarily believes that too low of a 

cap, even if imposed in the name of 

eliminating conflicts of interest, could 

have the unintended effect of retarding 

the development of execution venues 

for SBS altogether, if market 

participants who become members have 

no (or substantially limited) ability to 

vote their equity interest. 

On the other hand, allowing a 

member of an SBSEF or SBS exchange 

too large of a voting interest could 

undermine the public policy benefits of 

having transparent, fair, and regulated 

markets for the trading of SBS. A 

member of an SBSEF or SBS exchange 

with a sufficiently large voting interest 

could exercise undue influence over the 

rules and policies applicable to 

members, the venue’s access criteria, 

decisions regarding access, and 

disciplinary matters, among other 

things. In particular, members who are 

SBS dealers and conduct a significant 

amount of business in the bilateral OTC 

market have incentives to restrict the 

scope of SBS that an SBSEF or SBS 

exchange makes eligible for trading. 

Trading in a market with robust order 

competition and pre-trade transparency 

reduces search costs for end users and 

liquidity seekers, and reduces the 

information and bargaining asymmetry 

of end users and liquidity seekers 

relative to SBS dealers. An SBS dealer 

with a large voting interest in an SBSEF 

or SBS exchange, if it perceived that 

trading on the regulated venue was 

diminishing the rents obtained from its 

bilateral OTC business, might seek to 

utilize its voting influence in a number 

of ways to degrade the capability of the 

regulated venue, thus making the OTC 

market by comparison a more attractive 

option. 

The Commission preliminarily 

believes that capping a member’s voting 

interest at 20% strikes a reasonable 

balance between these competing 

interests. It would allow a single 

member to make an investment in an 

SBSEF or SBS exchange significant 

enough to give it a 20% voting interest, 

while reserving at least 80% to 

unrelated parties. The Commission 

preliminarily believes that the 20% cap 

would still afford an SBS dealer or 

major SBS participant that has made an 

investment in an SBSEF or SBS 

exchange a reasonable commercial 

means of monitoring and protecting that 

investment. But requiring 80% of the 

voting power to reside with unrelated 

parties would reduce the likelihood that 

the large member could tilt the playing 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28927 

257See SEA Release No. 49718 (May 17, 2004), 69 

FR 29611, 29624 (May 24, 2004) (approving PCX 

limitation of trading permit holder ownership to 

20% and stating that ‘‘a member who trades 

securities through the facilities of an exchange can 

have an ownership interest in the exchange. 

However, a member’s interest could become so 

large as to cast doubt on whether the exchange can 

fairly and objectively exercise its self-regulatory 

responsibilities with respect to that member. A 

member that also directly or indirectly controls an 

exchange might be tempted to exercise that 

controlling influence by directing the exchange to 

refrain from diligently surveilling the member’s 

conduct or from punishing any conduct that 

violates the rules of the exchange or the Federal 

securities laws. An exchange also might be 

reluctant to surveil and enforce its rules zealously 

against a member that the exchange relies on as its 

largest source of capital’’). See also, e.g., SEA 

Release No. 85828 (May 10, 2019), 84 FR 21841 

(May 15, 2019) (approving Long Term Stock 

Exchange’s registration as a national securities 

exchange with a 20% limit on LTSE ownership by 

members); SEA Release No. 62716 (August 13, 

2010), 75 FR 51295 (August 19, 2010) (approving 

BATS–Y Exchange’s registration as a national 

securities exchange with a 20% limit on exchange 

ownership by members); SEA Release No. 49067 

(January 13, 2004), 69 FR 2761 (January 20, 2004) 

(approving a voting collar on members that hold 

interests in BOX in excess of 20%); SEA Release 

No. 54399 (September 1, 2006), 71 FR 53728 

(September 12, 2006) (approving ISE’s limitation of 

a member’s ownership interest to 20%). 

258Proposed Rule 834(a) would define ‘‘major 

disciplinary committee’’ as a committee of persons 

who are authorized by an SBSEF to conduct 

disciplinary hearings, to settle disciplinary charges, 

to impose disciplinary sanctions, or to hear appeals 

thereof in cases involving any violation of the rules 

of the SBSEF except those which are related to 

decorum or attire, financial requirements, or 

reporting or recordkeeping and do not involved 

fraud, deceit, or conversion. 

field in its favor. In proposing this 20% 

threshold in Rule 834, the Commission 

is informed by long experience with 

handling questions of member influence 

over national securities exchanges 

raised in applications to register with 

the Commission on Form 1 and in 

governance rule filings made on SEA 

Form 19b–4.257

Proposed Rule 834(b) would cover 

both direct and indirect voting interests. 

The 20% cap could be circumvented if, 

for example, a member placed its voting 

interest in an SBSEF or SBS exchange 

of 20% or more in a shell company or 

other affiliate and directed how the 

shell company or affiliate casts those 

votes. Accordingly, proposed Rule 

834(b) would look through the nonmember entities holding interests in 

SBSEFs and SBS exchanges to consider 

whether any member could indirectly 

control 20% or more of the voting 

interest through the non-member entity 

having the direct interest. Furthermore, 

proposed Rule 834(b) would look 

through the corporate structure of the 

SBSEF or SBS exchange to consider 

whether any member could indirectly 

have 20% or more of the voting interest 

in the underlying trading venue. For 

example, an SBSEF or SBS exchange 

could be wholly owned by a holding 

company. In such a case, the voting 

restriction in proposed Rule 834(b) 

would apply to the voting interest in the 

parent holding company held by a 

member of the child SBSEF or SBS 

exchange, since a direct voting interest 

of 20% or more in the parent would 

equate to an indirect voting interest of 

20% or more in child trading venue. 

Similar to its approach to indirect 

voting interest, proposed Rule 834(b) 

would aggregate the voting interest of 

the member itself with the voting 

interest held by any officer, principal, or 

employee of the member for purposes of 

determining compliance with the 20% 

cap. Without this provision, the 

member—or an officer, principal, or 

employee of the member—could split 

the voting interest held in the SBSEF or 

SBS exchange across multiple persons 

who would likely be voting that interest 

in concert. 

Paragraph (c) of proposed Rule 834 

would include requirements designed to 

reinforce the 20% cap in paragraph (b). 

Paragraph (c) would require the rules of 

each SBSEF and SBS exchange to be 

reasonably designed, and have an 

effective mechanism, to: 

(1) Deny effect to the portion of any 

voting interest held by a member in 

excess of the 20% limitation; 

(2) Compel a member who possesses 

a voting interest in excess of the 20% 

limitation to divest enough of that 

voting interest to come within that limit; 

and 

(3) Obtain information relating to its 

ownership and voting interests owned 

or controlled, directly or indirectly, by 

its members. 

Under paragraph (c)(1) of proposed 

Rule 834, if a member of an SBSEF or 

SBS exchange managed to evade the 

20% voting restriction (e.g., by 

disguising its voting interest through 

one or more shell companies), the 

SBSEF or SBS exchange would be 

required to deny the effect of any part 

of the vote in excess of the 20% 

restriction when the evasion is 

discovered. This could, in close cases, 

cause the SBSEF or SBS exchange to 

have to reverse the outcome of a vote 

because of the invalidation of the part 

of the vote in excess of the 20% 

threshold. In addition, the Commission 

preliminarily believes—as reflected in 

paragraph (c)(2) of proposed Rule 834— 

that an SBSEF or SBS exchange should, 

if it discovers that a member has 

managed to evade the 20% voting 

restriction, compel the member to divest 

enough of that voting interest to come 

within the 20% limit. Finally, the 

Commission preliminarily believes—as 

reflected in paragraph (c)(3) of proposed 

Rule 834—that an SBSEF or SBS 

exchange must have an effective means 

of obtaining information about the 

ownership and voting interests owned 

or controlled, directly or indirectly, by 

its members. Proposed Rule 834(c)(3) is 

designed to promote compliance with 

proposed Rule 834(b) by requiring an 

SBSEF or SBS exchange to actively 

obtain information about the ownership 

and voting interests owned or 

controlled, directly or indirectly, by its 

members. The Commission 

preliminarily believes that ignorance of 

a member holding a voting interest in 

excess of the proposed 20% limitation 

should not excuse a violation of Rule 

834(b). Furthermore, the information 

obtained by an SBSEF or SBS exchange 

under proposed Rule 834(c)(3) should 

assist with any remedial actions 

necessary under proposed Rules 

834(c)(1) and (c)(2). 

Paragraph (d) of proposed Rule 834 is 

designed to mitigate conflicts of interest 

in the disciplinary process of an SBSEF 

or SBS exchange and would provide as 

follows: ‘‘Each security-based swap 

execution facility and SBS exchange 

shall ensure that its disciplinary 

processes preclude any member, or 

group or class of its members, from 

dominating or exercising 

disproportionate influence on the 

disciplinary process. Each major 

disciplinary committee or hearing panel 

thereof shall include sufficient different 

groups or classes of its members so as 

to ensure fairness and to prevent special 

treatment or preference for any person 

or member in the conduct of the 

responsibilities of the committee or 

panel.’’ Proposed Rule 834(d) recognizes 

that one way that a conflict of interest 

could manifest itself is in the 

disciplinary process. Therefore, the 

Commission is proposing, as the first 

sentence of proposed Rule 834(d), that 

each SBSEF and SBS exchange should 

‘‘preclude any member, or group or 

class of its members, from dominating 

or exercising disproportionate influence 

on the disciplinary process.’’ 

The second sentence of proposed Rule 

834(d) is adapted from § 1.64 of the 

CFTC’s rules, which addresses the 

composition of various SRO governing 

boards and major disciplinary 

committees.258 Section 1.64(c)(4) 

requires an SRO (which term, under the 

CEA, includes a SEF) to maintain in 

effect rules that ‘‘each major 

disciplinary committee or hearing panel 

[of the SRO] include sufficient different 

membership interests so as to ensure 

fairness and to prevent special treatment 

or preference for any person in the 

conduct of a committee’s or the panel’s 


jspears on DSK121TN23PROD with PROPOSALS2
28928 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

259Proposed Rule 834(e)(1)(ii), read together with 

proposed Rule 834(b), would have the effect of 

allowing four members of an SBSEF or SBS 

exchange to control up to 80% of the voting interest 

(assuming that each of the four holds 20%). Under 

proposed Rule 834(e)(1)(ii), at least 20% of the 

voting interest would have to be held by nonmembers. 

260Section 1.64(b)(3) provides in relevant part 

that the governing board of an SRO must include 

‘‘a diversity of membership interests.’’ Section 

1.64(a)(4) provides a definition of ‘‘membership 

interest’’ that lists six classes of members, each of 

which is considered a different membership 

interest. Many of these specifically enumerated 

classes—e.g., ‘‘floor traders,’’ ‘‘floor brokers,’’ 

‘‘futures commission merchants,’’ ‘‘producers, 

consumers, processors, distributors, and 

merchandisers of commodities traded on the 

particular contract market’’—might not be relevant 

to SBSEFs and SBS exchanges. Rather than crafting 

its own definition of ‘‘membership interest,’’ the 

Commission is opting for a principles-based 

approach to incorporating § 1.64(b)(3) into Rule 

834, by proposing that an SBSEF or SBS exchange 

must be able to demonstrate that the board 

membership fairly represents the diversity of 

interests at such SBSEF or SBS exchange. See 

proposed Rule 834(e)(2). 

261See proposed Rule 834(a) (defining ‘‘family 

relationship’’ of a person to be person’s spouse, 

former spouse, parent, step-parent, child, stepchild, sibling, step-brother, step-sister, grandparent, 

grandchild, uncle, aunt, nephew, niece, or in-law). 

The Commission’s proposed definition is adapted 

from the CFTC’s definition of ‘‘family relationship’’ 

in § 1.69(a)(2). 

262Proposed Rule 834(a) would define ‘‘named 

party in interest’’ as a person or entity that is 

identified by name as a subject of any matter being 

considered by a governing board, disciplinary 

committee, or oversight panel. 

responsibilities.’’ Proposed Rule 834(d) 

reflects the Commission’s preliminary 

belief that an SBSEF or SBS exchange 

should be mindful of its different 

membership interests, and how they are 

represented on disciplinary committees 

and hearing panels in particular matters, 

to avoid potential conflicts of interest. 

To further implement section 765 and 

promote good governance generally for 

SBSEFs and SBS exchanges, the 

Commission is proposing additional 

requirements in Rule 834 that are 

closely modelled on §§ 1.64 and 1.69 of 

the CFTC’s rules. 

Section 1.64(b) requires an SRO to 

maintain in effect standards and 

procedures that ensure that 20% or 

more of the regular voting members of 

the SRO’s governing board are persons 

who are knowledgeable of futures 

trading or financial regulation or are 

otherwise capable of contributing to 

governing board deliberations. Section 

1.64(b) also requires an SRO to maintain 

in effect standards and procedures that 

ensure that 20% or more of the regular 

voting members of the governing board 

are not: Members of the SRO; currently 

salaried employees of the SRO; 

primarily performing services for the 

SRO in a capacity other than as a 

member of the SRO’s governing board; 

or officers, principals, or employees of 

a firm which holds a membership at the 

SRO either in its own name or through 

an employee on behalf of the firm. 

Paragraph (e) of proposed Rule 834 is 

closely modelled on § 1.64(b). Paragraph 

(e)(1)(i) would require each SBSEF and 

SBS exchange to ensure that 20% or 

more of the persons who are eligible to 

vote routinely on matters being 

considered by the governing board 

(excluding those members who are 

eligible to vote only in the case of a tie 

vote by the governing board) are persons 

who are knowledgeable of SBS trading 

or financial regulation, or otherwise 

capable of contributing to governing 

board deliberations. Paragraphs (e)(1)(ii) 

through (v) of proposed Rule 834 are 

based on four of the prongs in 

§ 1.64(b)(1)(ii) which provide that 20% 

or more of the persons who are eligible 

to vote routinely on matters being 

considered by the governing board 

(excluding those members who are 

eligible to vote only in the case of a tie 

vote by the governing board) must not 

be: Members of the SBSEF or SBS 

exchange; 259 salaried employees of the 

SBSEF or SBS exchange; primarily 

performing services for the SBSEF or 

SBS exchange in a capacity other than 

as a member of the governing board; or 

officers, principals, or employees of a 

firm which holds a membership at the 

SBSEF or SBS exchange, either in its 

own name or through an employee on 

behalf of the firm. 

Paragraph (e)(2) of proposed Rule 834, 

modelled on § 1.64(b)(3), would require 

each SBSEF and SBS exchange to 

ensure that membership of its governing 

board includes a diversity of groups or 

classes of its members.260

The Commission is not adapting the 

detailed provisions of § 1.64(c) into 

proposed Rule 834. However, the key 

principle of § 1.64(c)—that each major 

disciplinary committee or hearing panel 

should include sufficient different 

membership interests so as to ensure 

fairness and to prevent special treatment 

or preference in the conduct of the 

committee’s or panel’s responsibilities, 

which is located in paragraph 

§ 1.64(c)—is being adapted into 

proposed Rule 834(d), as discussed 

above. 

Paragraph (f) of proposed Rule 834 is 

based closely on § 1.64(d) and would 

require each SBSEF and SBS exchange 

to submit to the Commission, within 30 

days after each governing board 

election, a list of the governing board’s 

members, the groups or classes of 

members that they represent, and how 

the composition of the governing board 

otherwise meets the requirements of 

Rule 834. This provision would provide 

the Commission information to help it 

assess an SBSEF’s compliance with Rule 

834. 

Paragraph (g) of proposed Rule 834 is 

modelled on § 1.69, which requires an 

SRO to further address the avoidance of 

conflicts of interest in the execution of 

its self-regulatory functions. Section 

1.69(b)(1)(i) requires an SRO to maintain 

in effect rules that require a member of 

its governing board, disciplinary 

committee, or oversight panel to abstain 

from such body’s deliberations and 

voting on any matter involving a named 

party in interest, where such member: Is 

a named party in interest; is an 

employer, employee, or fellow 

employee of a named party in interest; 

is associated with a named party in 

interest through a ‘‘broker association’’; 

has any other significant, ongoing 

business relationship with a named 

party in interest; or has a family 

relationship 261 with a named party in 

interest. 

Section 1.69(b)(1)(ii) requires an SRO 

to maintain in effect rules that require 

each member of its governing board, 

disciplinary committee, or oversight 

panel to disclose to the appropriate SRO 

staff, before consideration of any matter 

involving a named party in interest, 

whether the member has one of the 

relationships listed in § 1.69(b)(1)(i) 

with a named party in interest. Section 

1.69(b)(1)(iii) requires the SRO to 

establish procedures for determining 

whether a member of its governing 

board, disciplinary committees, or 

oversight committees is subject to a 

conflicts restriction in any matter 

involving a named party in interest.262

Section 1.69(b)(2)(i) requires a 

member of the SRO’s governing board, 

disciplinary committee, or oversight 

committee to abstain from such body’s 

deliberations and voting on any 

significant action, if the member 

knowingly has a direct and substantial 

financial interest in the result of the 

vote based upon either exchange or nonexchange positions that could 

reasonably be expected to be affected by 

the action. Section 1.69(b)(2)(ii) requires 

a member of the SRO’s governing board, 

disciplinary committee, or oversight 

committee, before consideration of any 

significant action, to disclose to the 

appropriate SRO staff that position 

information, although this requirement 

does not apply to members who choose 

to abstain from deliberations and voting 

on the subject significant action. Section 

1.69(b)(2)(iii) requires an SRO to 

establish procedures for determining 

whether any member of its governing 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28929 

263The Commission is not proposing to include 

a prong about being associated with a named party 

of interest through a ‘‘broker association,’’ as 

defined in § 156.1 of the CFTC’s rules, as that 

concept does not exist under the SEA. 

264Proposed Rule 834(a) would define a 

‘‘member’s affiliated firm’’ as a firm in which the 

member is a principal or an employee. 

265Proposed Rule 834(a) would define 

‘‘significant action’’ to include several types of 

actions or rule changes by an SBSEF or SBS 

exchange that could be implemented without the 

Commission’s prior approval related to addressing 

an emergency and certain changes in margin levels. 266 17 CFR 240.19b–4. 

board, disciplinary committees, or 

oversight committees is subject to a 

conflicts restriction under § 1.69 in any 

significant action. Such determination is 

required to include a review of various 

types of positions enumerated in the 

rule, including: ‘‘Any other types of 

positions, whether maintained at that 

self-regulatory organization or 

elsewhere, held in the member’s 

personal accounts or the proprietary 

accounts of the member’s affiliated firm 

that the self-regulatory organization 

reasonably expects could be affected by 

the significant action.’’ Section 

1.69(b)(2)(iv) sets out the sources that 

the SRO should review in determining 

a member’s positions, including a catchall provision in paragraph (b)(2)(iv)(C) 

for ‘‘[a]ny other source of information 

that is held by and reasonably available 

to the self-regulatory organization.’’ 

Section 1.69(b)(3)(i) provides that an 

SRO governing board, disciplinary 

committee, or oversight panel may 

permit a member to participate in 

deliberations prior to a vote on a 

significant action for which that 

member otherwise would be required to 

abstain, if such participation would be 

consistent with the public interest and 

the member recuses from voting on such 

action. Section 1.69(b)(3)(ii) requires the 

deliberating body, when determining 

whether to permit the exception 

contemplated in paragraph (b)(3)(i), to 

consider whether the member’s 

participation in deliberations is 

necessary for the deliberating body to 

achieve a quorum in the matter; and 

whether the member has unique or 

special expertise, knowledge, or 

experience in the matter under 

consideration. Section 1.69(b)(3)(iii) 

requires the deliberating body also to 

consider, when determining whether to 

permit an exception to ‘‘fully consider 

the position information which is the 

basis for the member’s direct and 

substantial financial interest in the 

result of a vote on a significant action.’’ 

Section 1.69(b)(4) requires an SRO’s 

governing board, disciplinary 

committees, and oversight panels to 

reflect in their minutes or otherwise 

document that the conflicts 

determination procedures required 

under § 1.69 have been followed. Such 

records also must include: The names of 

all members who attended the meeting 

in person or who otherwise were 

present by electronic means; the name 

of any member who voluntarily recused 

himself or herself or was required to 

abstain from deliberations and/or voting 

on a matter and the reason for the 

recusal or abstention, if stated; and 

information on the position information 

that was reviewed for each member. 

Proposed Rule 834(g) closely follows 

the paragraph structure and language of 

§ 1.69, with a few minor exceptions 

(beyond modifying the rule’s 

application to SBSEFs and SBS 

exchanges, rather than, in the CFTC 

original, all SROs). First, paragraph 

(g)(1)(i)(A) of proposed Rule 834 is 

based closely on § 1.69(b)(1)(i) and 

would set out the types of relationships 

with the named party of interest that 

would create a conflict of interest for a 

member of the governing board, 

disciplinary committee, or oversight 

panel. Paragraph (g)(1)(i)(A), however, 

would incorporate only four of the five 

prongs in § 1.69(b)(1)(i).263 Second, 

§ 1.69(b)(2)(iii) sets out five types of 

financial positions that could be held by 

a member of the governing board, 

disciplinary committee, or oversight 

panel that an SRO must review to 

ascertain if there is a conflicts 

restriction in a significant action. 

Proposed Rule 834(g)(1)(ii)(C) is a 

simplified version of § 1.69(b)(2)(iii); it 

would not include the five prongs set 

forth in § 1.69(b)(2)(iii), but rather 

would incorporate only the final, catchall prong (‘‘Such determination must 

include a review of any positions, 

whether maintained at that securitybased swap execution facility, SBS 

exchange, or elsewhere, held in the 

member’s personal accounts or the 

proprietary accounts of the member’s 

affiliated firm 264 that the security-based 

swap execution facility or SBS exchange 

reasonably expects could be affected by 

the significant action’’).265 Third, 

proposed Rule 834(g)(1)(ii)(C) would 

omit a requirement in § 1.69(b)(2)(iv) 

that an SRO, when making a 

determination of whether a conflict of 

interest exists, must take into 

consideration ‘‘[t]he most recent large 

trader reports and clearing records 

available to the self-regulatory 

organization.’’ These types of reports 

may not be as prevalent in the securities 

and SBS markets as the swaps markets. 

The Commission believes that the final, 

catch-all prong in § 1.69(b)(2)(iv)—‘‘Any 

other source of information that is held 

by and reasonably available to the selfregulatory organization’’—would 

suffice, and is proposing it as Rule 

834(g)(1)(ii)(C)(2). 

Proposed Rule 834(h) would require 

each SBSEF and SBS exchange to 

maintain in effect various rules that 

would be required under proposed Rule 

834. An SBSEF would be required to file 

such rules under proposed Rule 806 or 

807 of Regulation SE; an SBS exchange 

would be required to file such rules 

under existing SEA Rule 19b–4.266

Proposed Rule 834(h) is loosely 

modelled on various provisions in 

§§ 1.64 and 1.69 providing that the SRO 

rules required under those CFTC rules 

must be filed with the CFTC pursuant 

to relevant provisions of the CEA and 

the CFTC’s rules thereunder. 

The Commission preliminarily 

believes that §§ 1.64 and 1.69 are 

reasonably designed to promote good 

governance of trading venues and is 

therefore proposing to adapt them into 

Rule 834. These CFTC rules identify 

various instances of potential conflicts 

of interest that might involve a member 

of the governing board or an important 

committee of a SEF, and require 

proactive measures to address those 

conflicts. The Commission preliminarily 

believes that SBSEFs and SBS 

exchanges should have the same types 

of rules because the same types of 

conflicts that arise with SEFs could 

arise with SBS trading venues. 

Furthermore, various provisions of 

§§ 1.64 and 1.69 would further the 

policy goals of section 765 of the DoddFrank Act. For example, proposed Rule 

834(e)(1)(ii), modelled on 

§ 1.64(b)(1)(ii)(A), would require that at 

least 20% of the regular voting members 

of the governing board of an SBSEF or 

SBS exchange not be members, and 

proposed Rule 834(e)(1)(v), which is 

modelled on § 1.64(b)(1)(ii)(D), would 

require that at least 20% of the regular 

voting members of the governing board 

not be persons affiliated with members. 

These requirements, by reserving at 

least 20% of the governing board’s seats 

for persons not associated with any 

member of an SBSEF or SBS exchange, 

would reduce the possibility that a 

combination of members who are SBS 

dealers or major SBS participants could 

create a conflict of interest for the 

SBSEF or SBS exchange. 

In addition, proposed Rule 834(d), 

which incorporates language from 

§ 1.64(c), would require each major 

disciplinary committee or hearing panel 

thereof to include sufficient different 

groups or classes of its members so as 

to ensure fairness and to prevent special 

treatment or preference for any person 

or member. The Commission 


jspears on DSK121TN23PROD with PROPOSALS2
28930 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

preliminarily believes that it is 

appropriate to impose such a 

requirement on SBSEFs and SBS 

exchanges to further lessen the potential 

for members of an SBSEF or SBS 

exchange who are SBS dealers or major 

SBS participants from benefitting from a 

conflict of interest. Furthermore, 

proposed Rule 834(e), which is 

modelled on § 1.64(d), would require an 

SBSEF or SBS exchange to submit to the 

Commission, within 30 days after each 

governing board election, a list of the 

governing board’s members, the groups 

or classes of members that they 

represent, and how the composition of 

the governing board otherwise meets the 

requirements of Rule 834. Proposed 

Rule 834(e) is designed to reinforce the 

other requirements of the rule by 

causing each SBSEF and SBS exchange 

to actively consider how the 

composition of its governing board 

comports with Rule 834, and to make an 

accurate representation to the 

Commission regarding such compliance. 

The Commission preliminarily 

believes that § 1.69 also includes 

provisions that would further the policy 

goals of section 765 and is, therefore, 

proposing to adapt them into Rule 834. 

Under proposed Rule 834(b), an SBSEF 

or SBS exchange generally may not 

permit any member to hold 20% or 

more of the voting interest in that 

trading venue. Nothing in proposed 

Rule 834, however, would prohibit a 

member—including an SBS dealer or 

major SBS participant (or a person 

associated with such a member, such as 

a firm principal)—from serving on a 

governing board, disciplinary 

committee, or oversight panel of an 

SBSEF or SBS exchange. Section 1.69 is 

designed to address various types of 

conflicts of interest that might involve 

members of a governing board, 

disciplinary committee, or oversight 

panel. For example, § 1.69 specifies 

when a member must abstain from the 

body’s deliberations and voting because 

the member has a relationship to the 

named party in interest or because the 

member has ‘‘a direct and substantial 

financial interest in the result of the 

vote.’’ Furthermore, § 1.69 requires a 

member to disclose its relationships to 

a named party in interest and provide 

position information to the SRO so that 

the SRO can assess whether the member 

has a conflict, and also requires the SRO 

to follow its own procedures for 

determining whether a conflict exists. 

Because these provisions further the 

goals of section 765—to mitigate 

conflicts of interest created by an SBS 

dealer or major SBS participant that 

holds an interest in an SBSEF or SBS 

exchange—and because they are 

reasonably designed to promote good 

governance more generally, the 

Commission is proposing to incorporate 

them into Rule 834. 

The Commission recognizes that 

promulgating rules under section 765 

alone will not result in a highly 

competitive market for SBS. There 

could be other ways for anticompetitive 

forces to impede the growth of SBS 

trading on transparent, regulated 

platforms other than by misuse of a 

large voting interest in the trading 

venue. For example, a large SBS dealer 

or coalition of SBS dealers, even absent 

any voting interest in any SBSEF or SBS 

exchange, could threaten to move their 

business elsewhere unless given an 

unfair advantage by the trading venue. 

A large SBS dealer or coalition of SBS 

dealers also could conspire to shut out 

end users who sought to trade more 

actively on these transparent, regulated 

venues rather than continuing to trade 

in the bilateral OTC markets. The 

Commission will be alert to any such 

anticompetitive practices and consider 

appropriate prophylactic measures. At 

present, the Commission believes that 

adopting rules under section 765 is a 

necessary and appropriate first step to 

guard against conflicts of interest arising 

on SBSEFs and SBS exchanges. 

The Commission seeks comment on 

the following: 

175. In general, do you agree with 

how the Commission is proposing to 

implement section 765 of the DoddFrank Act? Why or why not? 

176. In particular, do you believe that 

the 20% ownership cap in proposed 

Rule 834(b) is appropriate? Why or why 

not? Do you believe that a different 

numerical threshold would be 

appropriate? If so, what numerical 

threshold and why? 

177. Do you believe that there are 

other means (such as ownership of nonvoting equity, holding a sizeable amount 

of the debt issuance, etc.) by which an 

SBS dealer or major SBS participant 

could exercise an undue influence over 

an SBSEF or SBS exchange of which it 

is a member? If so, please discuss 

whether and how these other means 

should be incorporated into Rule 834. 

178. Do you believe that proposed 

Rule 834(b) is sufficiently clear about 

when a member would be deemed to 

have an indirect 20% voting interest in 

an SBSEF or SBS exchange? If not, 

please provide other scenarios where 

you believe the Commission should 

offer clarification. 

179. Do you agree in general with the 

Commission’s proposal to adapt the 

major provisions of § 1.64 into Rule 

834? Why or why not? 

180. Are there provisions of § 1.64 

that the Commission has incorporated 

into proposed Rule 834 that you think 

inappropriate? If so, what provisions 

and why? 

181. Conversely, are there provisions 

of § 1.64 that the Commission has not 

incorporated into proposed Rule 834 

that you think should be incorporated? 

If so, what provisions and why? 

Specifically, do you believe that the 

Commission should incorporate a 

definition of ‘‘membership interest’’—as 

the CFTC does in § 1.64(a)(4)—to more 

precisely delineate the different 

interests that an SBSEF or SBS exchange 

should take into account? 

182. Do you agree in general with the 

Commission’s proposal to incorporate 

the major provisions of § 1.69 into Rule 

834? Why or why not? 

183. Are there provisions of § 1.69 

that the Commission has incorporated 

into proposed Rule 834 that you think 

inappropriate? If so, what provisions 

and why? 

184. Do you believe generally that the 

same rules for mitigating conflicts of 

interest should apply to both SBSEFs 

and SBS exchanges, or should different 

restrictions apply to each type of trading 

venue? If you believe different 

restrictions should apply, please explain 

why and what different restrictions you 

believe should be incorporated into 

Rule 834? 

185. Are there any proposed 

requirements in Rule 834 that existing 

national securities exchanges, which 

could in the future elect to list SBS and 

thereby become SBS exchanges, would 

find difficult to comply with? Would 

any of the requirements proposed in 

Rule 834 conflict with their existing 

rules? If so, please describe. 

186. Are there other types of conflict 

of interest that SBS dealers and major 

SBS participants might enjoy as 

members of an SBSEF or SBS exchange? 

If so, discuss how any such conflict 

could be addressed via Commission 

rulemaking. 

187. Do you believe that SBS dealers 

and major SBS participants can exercise 

anticompetitive influence over one or 

more SBSEFs or SBS exchanges even if 

not members of those trading venues? If 

so, what additional measures would you 

recommend to combat that 

anticompetitive influence? 

XI. Rule 835—Notice to Commission by 

SBSEF of Final Disciplinary Action, 

Denial or Conditioning of Membership, 

or Denial or Limitation of Access 

The Commission is also proposing 

new Rule 835 to require an SBSEF to 

provide the Commission notice of a 

final disciplinary action, a final action 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28931 

267 15 U.S.C. 78c–4(d)(2). 268As discussed above, see supra section 

VIII(B)(1), proposed Rule 819(g)(13)(ii) would 

permit an SBSEF to adopt a summary fine schedule 

for violations of rules relating to the failure to 

timely submit accurate records required for clearing 

or verifying each day’s transactions, which may be 

summarily imposed against persons within the 

SBSEF’s jurisdiction for violating such rules. 

Furthermore, an SBSEF’s summary fine schedule 

could allow for warning letters to be issued for firsttime violations or violators. If adopted, a summary 

fine schedule would be required by proposed Rule 

819(g)(13)(ii) to provide for progressively larger 

fines for recurring violations. 

269A summary fine schedule, if an SBSEF elects 

to adopt one, would have to be part of the SBSEF’s 

rules, and thus would need to be submitted to the 

Commission. See proposed Rule 819(g)(13)(ii). 

270See 17 CFR 9.1(b)(2). 

271 15 U.S.C. 78c(a)(1). 

272 17 CFR 240.3b–16 (providing that an entity 

generally is considered to meet the definition of 

‘‘exchange’’ if it brings together the orders for 

securities of multiple buyers and sellers and uses 

established, non-discretionary methods—whether 

by providing a trading facility or by setting rules— 

under which such orders interact with each other, 

and the buyers and sellers entering such orders 

agree to the terms of a trade). 

with respect to a denial or conditioning 

of membership, or a final action with 

respect to a denial or limitation of 

access. Such notice is designed to 

ensure that the Commission is kept 

aware of significant disciplinary actions, 

denials or conditionings of membership, 

or denials or limitations on access by 

SBSEFs that could be the subject of an 

aggrieved person’s request for review by 

the Commission. The requirement to 

provide notice to the Commission also 

would obligate an SBSEF to be 

cognizant of, and make records for, each 

such instance, and such records would 

become a necessary part of the record 

should the aggrieved person seek 

Commission review of the SBSEF’s 

action. 

Specifically, paragraph (a) of 

proposed Rule 835 would provide that, 

if an SBSEF issues a final disciplinary 

action against a member, or takes a final 

action with respect to a denial or 

conditioning of membership, or a final 

action with respect to a denial or 

limitation of access of a person to any 

services offered by the SBSEF, the 

SBSEF shall file a notice of such action 

with the Commission within 30 days 

and serve a copy on the affected person. 

Proposed Rule 835(a) uses the phrase 

‘‘final disciplinary action against a 

member’’ (emphasis added) because an 

SBSEF may utilize its disciplinary 

authority under Core Principle 2 

(Compliance with Rules) in section 3D 

of the SEA 267 only with respect to its 

members; but uses the phrase ‘‘denies or 

limits access of a person’’ (emphasis 

added) because the person whose access 

is denied or limited might not be a 

member. For example, a person that is 

denied membership by an SBSEF would 

fall under this category. 

Paragraph (b)(1) of proposed Rule 835 

would provide that, for purposes of 

paragraph (a), a disciplinary action 

would not be considered final unless: 

(1) The affected person has sought an 

adjudication or hearing with respect to 

the matter, or otherwise exhausted their 

administrative remedies at the SBSEF; 

and (2) the disciplinary action is not a 

summary action permitted under 

proposed Rule 819(g)(13)(ii).268 In 

addition, paragraph (b)(2) of proposed 

Rule 835 would provide that, for 

purposes of paragraph (a), a disposition 

of a matter with respect to a denial or 

conditioning of membership, or a denial 

or limitation of access, would not be 

considered final unless such person has 

sought an adjudication or hearing, or 

otherwise exhausted their 

administrative remedies at the SBSEF 

with respect to such matter. The 

Commission preliminarily believes that 

it is appropriate to exclude disciplinary 

actions that are summary actions under 

an SBSEF’s summary fine schedule 269

because the Commission expects such 

summary actions, if applicable, to 

comprise lesser disciplinary actions that 

do not warrant appeal. The CFTC has 

parallel procedures relating to review of 

SEF disciplinary actions also excludes 

summary actions under an SEF’s 

summary fine schedule.270

Paragraph (c) of proposed Rule 835 

would provide that the notice required 

under Rule 835(a) must include the 

name of the member or the associated 

person and last known address, as 

reflected in the SBSEF’s records, of the 

member or associated person, as well as 

the name of the person, committee, or 

other organizational unit of the SBSEF 

that initiated the disciplinary action or 

access restriction. In the case of a final 

disciplinary action, the notice would be 

required to include a description of the 

acts or practices, or omissions to act, 

upon which the sanction is based, 

including, as appropriate, the specific 

rules that the SBSEF has found to have 

been violated; a statement describing 

the respondent’s answer to the charges; 

and a statement of the sanction imposed 

and the reasons for such sanction. In the 

case of a denial or conditioning of 

membership or a denial or limitation of 

access, the notice would be required to 

include: The financial or operating 

difficulty of the prospective member or 

member (as the case may be) upon 

which the SBSEF determined that the 

prospective member or member could 

not be permitted to do, or continue to 

do, business with safety to investors, 

creditors, other members, or the SBSEF; 

the pertinent failure to meet 

qualification requirements or other 

prerequisites for membership or access 

and the basis upon which the SBSEF 

determined that the person concerned 

could not be permitted to have 

membership or access with safety to 

investors, creditors, other members, or 

the SBSEF; or the default of any 

delivery of funds or securities to a 

clearing agency by the member. Finally, 

the notice must include the effective 

date of such final disciplinary action, 

denials or conditioning of membership, 

or denial or limitation of access, as well 

as any other information that the SBSEF 

may deem relevant. 

The Commission seeks comment on 

the following: 

188. Do you agree with the proposed 

definition of ‘‘final disciplinary action’’ 

in proposed Rule 835? Why or why not? 

If not, how would you revise the 

definition? Do you think it would be 

appropriate to exclude disciplinary 

actions that are summary actions under 

an SBSEF’s summary fine schedule from 

such definition? Why or why not? 

189. Do you agree with how the 

proposed rules and rule amendments 

address when an aggrieved party may 

seek Commission review of a denial or 

conditioning of membership, or a denial 

or limitation of access? Why or why 

not? If not, how would you revise those 

provisions? 

190. In particular, do the proposed 

rules contain sufficient detail to address 

all types of denials or conditionings of 

membership or denials or limitations on 

access? Are there particular scenarios 

that commenters believe the 

Commission should address in Rule 

835? If so, please describe in detail. 

191. Are the contents of the required 

notice to the Commission in proposed 

Rule 835 appropriate? Do you believe 

these would provide the Commission 

with enough detail regarding final 

disciplinary actions, denials or 

conditionings of membership, and 

denials or limitations on access? If not, 

what other information should be 

required in the notice? 

XII. Amendments to Existing Rule 

3a1–1 Under the SEA—Exemptions 

From the Definition of ‘‘Exchange’’ 

An entity that meets the definition of 

‘‘security-based swap execution facility’’ 

also would likely meet the definition of 

‘‘exchange’’ set forth in section 3(a)(1) of 

the SEA 271 and the interpretation of 

that definition set forth in Rule 3b–16 

thereunder.272 Thus, absent an 

exemption, an entity needing to register 

with the Commission as an SBSEF also 

would likely need to register with the 


jspears on DSK121TN23PROD with PROPOSALS2
28932 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

273See section 3D(a)(1) of the SEA, 15 U.S.C. 78c– 

4(a)(1) (‘‘No person may operate a facility for the 

trading or processing of security-based swaps, 

unless the facility is registered as a security-based 

swap execution facility or as a national securities 

exchange under this section’’). 

274 2011 SBSEF Proposal, 76 FR at 10958. 

275 15 U.S.C. 78mm(a)(1). 

276 17 CFR 240.3a1–1. 

277The amended rule would provide that an 

organization, association, or group of persons shall 

be exempt from the definition of the term 

‘‘exchange’’ if such organization, association, or 

group of persons has registered with the 

Commission as an SBSEF pursuant to Rule 803 and 

provides a market place for no securities other than 

SBS. 

278See supra note 37. 

279See id. 

Commission as a national securities 

exchange.273 The Commission 

previously has stated that it ‘‘believes 

that Congress specifically provided a 

comprehensive regulatory framework 

for SBSEFs in the [SEA], as amended by 

the Dodd Frank Act, and therefore that 

such entities that are registered as 

SBSEFs should not also be required to 

register and be regulated as national 

securities exchanges.’’ 274

Therefore, the Commission is 

proposing to exercise its authority under 

section 36(a)(1) of the SEA 275 to exempt 

an SBSEF from the definition of 

‘‘exchange’’—and thus the obligation to 

register as a national securities 

exchange—if it provides a market place 

solely for the trading of SBS (and no 

other securities) and has registered with 

the Commission as an SBSEF. To effect 

this exemption, the Commission is 

proposing to amend Rule 3a1–1 under 

the SEA 276 by adding new paragraph 

(a)(4).277

The proposed amendment provides 

that an entity that has registered with 

the Commission as an SBSEF pursuant 

to proposed Rule 803 and provides a 

market place for no securities other than 

SBS would not fall within the definition 

of ‘‘exchange,’’ and thus would not be 

subject to the requirement in section 5 

of the SEA to register as a national 

securities exchange or obtain a lowvolume exemption. Section 5 also 

provides that a broker or dealer may not 

‘‘us[e] any facility of an exchange within 

or subject to the jurisdiction of the 

United States to effect any transaction in 

a security, or to report any such 

transaction, unless such exchange (1) is 

registered as a national securities 

exchange . . . or (2) is exempted from 

such registration . . . by reason of the 

limited volume of transactions effected 

on such exchange.’’ Brokers and dealers 

who are members of a registered SBSEF 

would not be in violation of section 5 

by effecting or reporting any SBS 

transactions on that SBSEF, because an 

SBSEF that qualifies for the exemption 

under proposed Rule 3a1–1(a)(4) would 

not be an exchange within the meaning 

of section 5. 

In addition, the Commission is 

proposing a new paragraph (a)(5) to 

existing Rule 3a1–1 under the SEA 

which would provide that an 

organization, association, or group of 

persons shall be exempt from the 

definition of the term ‘‘exchange’’ if 

such organization, association, or group 

of persons has registered with the 

Commission as a clearing agency 

pursuant to section 17A of the SEA and 

limits its exchange functions to 

operation of a trading session that is 

designed to further the accuracy of endof-day valuations. As noted above, this 

provision would codify a series of 

exemptions that the Commission has 

granted over several years to SBS 

clearing agencies that operate ‘‘forced 

trading’’ sessions.278 As part of the 

clearing and risk management 

processes, an SBS clearing agency must 

establish an end-of-day valuation for 

any SBS in which any of its members 

has a cleared position. Certain SBS 

clearing agencies utilize a valuation 

mechanism whereby they require 

clearing members to submit indicative 

quotes for those SBS products, and can 

require them to trade as a way to 

promote accurate submissions. The 

precise means by which the clearing 

agency matches quotes from different 

clearing members could cause the 

clearing agency to fall within the 

definition of ‘‘exchange’’ in section 

3(a)(1) of the SEA. The Commission 

previously has found that it was 

necessary or appropriate in the public 

interest and consistent with the 

protection of investors to exempt 

clearing agencies that engage in this 

activity from the definition of 

‘‘exchange.’’ 279 The Commission is now 

proposing to codify this exemption. 

This exemption would cover only the 

forced-trading session of an SBS 

clearing agency; any other exchange 

activity that a clearing agency might 

engage in could remain subject to the 

SEA provisions and the Commission’s 

rules thereunder applying to exchanges. 

Finally, the Commission is proposing 

to amend the introductory language of 

existing paragraph (b) of Rule 3a1–1, 

which states: ‘‘Notwithstanding 

paragraph (a) of this rule, an 

organization, association, or group of 

persons shall not be exempt under this 

rule from the definition of ‘exchange’ if 

. . .’’ Paragraph (b) then sets out 

procedural and substantive criteria for 

the Commission to retract an exemption 

under paragraph (a) of Rule 3a1–1 if an 

exchange’s share of the market in any 

one of the specified classes of securities 

exceeds a defined threshold. The 

Commission is proposing to amend the 

introductory language of paragraph (b) 

of Rule 3a1–1 to cover only paragraphs 

(a)(1) through (3), not paragraph (a) as 

a whole. 

The changed language is designed to 

clarify that the retraction provisions 

would not apply to organizations, 

associations, or groups of persons who 

fall within proposed Rule 3a1–1(a)(4) or 

(a)(5). Thus, even if a registered SBSEF 

were to grow very large, Rule 3a1–1(b), 

as proposed to be amended, would not 

afford a basis for the Commission to 

retract an SBSEF’s exemption from the 

definition of ‘‘exchange’’ under 

proposed Rule 3a1–1(a)(4), which 

would force the SBSEF to register as a 

national securities exchange (to avoid 

being a registered exchange). The 

Commission preliminarily believes that, 

in adopting section 3D of the SEA, 

Congress gave the Commission a 

mechanism to regulate SBSEFs of any 

size. Nothing in section 3D suggests 

that, if an SBSEF were to grow above a 

certain size, the Commission should be 

able to withdraw that entity’s ability to 

operate as an SBSEF and instead compel 

it to register as a national securities 

exchange. 

Finally, the Commission preliminarily 

believes that it is not necessary to apply 

the retraction provisions in Rule 3a1– 

1(b) to registered clearing agencies that 

engage in forced trading sessions and 

are covered by proposed Rule 3a1– 

1(a)(5). SBS transactions effected using 

this functionality are designed to 

facilitate the clearance and settlement 

process by rendering more accurate the 

daily valuation that is used to calculate 

margin requirements. The entities that 

utilize this functionality are already 

registered with the Commission—as 

clearing agencies—and carry out these 

operations under rules that have been 

approved by the Commission. This 

trading functionality is not effected for 

the purpose of conducting open-market 

transactions between parties who are 

seeking to increase or decrease their 

positions for investment or hedging 

purposes. Therefore, the Commission 

preliminarily believes that it would not 

be appropriate to apply the retraction 

provisions of Rule 3a1–1(b) to clearing 

agencies that would be covered by 

proposed Rule 3a1–1(a)(5), as this 

would force these clearing agencies also 

to register as national securities 

exchanges. 

The Commission seeks comment on 

the following: 

192. Do you agree in general with the 

Commission’s proposal to exempt from 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28933 

280See section 3(a)(4) of the SEA, 15 U.S.C. 

78c(a)(4). 

281 15 U.S.C. 78o(a) and 78o(b). Section 15(a)(1) 

generally provides that, absent an exception or 

exemption, a broker or dealer that uses the mails 

or any means of interstate commerce to effect 

transactions in, or to induce or attempt to induce 

the purchase or sale of, any security must register 

with the Commission. Section 15(b) generally 

provides the manner of registration of brokers and 

dealers and other requirements applicable to 

registered brokers and dealers. 

282As discussed in note 43 supra, a person that 

is acting as a broker solely because it is acting as 

an SBSEF is currently exempt from the requirement 

to register with the Commission as a broker and the 

Commission’s rules under the SEA that apply to 

brokers. This exemption will expire upon the 

compliance date for the Commission’s final SBSEF 

rules. 

283See 17 CFR 240.10b–10 and 240.10b–16. 

284 15 U.S.C. 78q(a). 285 15 U.S.C. 78q(b) (providing that the records of 

registered brokers, among other types of registered 

entity, are subject to examination by representatives 

of the Commission). 286See 15 U.S.C. 78o(b)(8) and 240.15b9–1. 287See 17 CFR 240.15c3–1 and 240.15c3–3. 288See 17 CFR 240.17a–3, 240.17a–4, and 

240.17a–5. 289See 2011 SBSEF Proposal, 76 FR at 10959 

(noting that this framework indicates that Congress 

did not intend for entities that meet the definition 

of SBSEF also to be subject to all of the 

requirements set forth in the SEA and the rules and 

regulations thereunder applicable to brokers). 290A foreign SBS trading venue covered by an 

exemption under proposed Rule 833(a) would be 

exempt from the SEA’s definition of ‘‘broker’’ and, 

as a result, would not need rely on proposed Rule 

15a–12. 

291 15 U.S.C. 78o(b)(4). 

292 15 U.S.C. 78o(b)(6). 

293 15 U.S.C. 78q(b). 

the statutory definition of ‘‘exchange’’ 

any registered SBSEF that provides a 

market place for no securities other than 

SBS and any SBS clearing agency that 

engages in forced trading sessions? Why 

or why not? 

193. Do you agree with the particular 

language of proposed paragraphs (a)(4) 

and (a)(5) of Rule 3a1–1? If not, how 

would you amend the language? 

194. Do you agree with the 

Commission’s preliminary view, 

reflected in the proposed new 

introductory language to paragraph (b) 

of Rule 3a1–1, that entities qualifying 

for an exemption from the definition of 

‘‘exchange’’ under proposed paragraphs 

(a)(4) and (a)(5) of Rule 3a1–1 should 

not be subject to the retraction 

provisions of Rule 3a1–1(b)? Why or 

why not? 

XIII. Rule 15a–12—SBSEFs as 

Registered Brokers; Relief From Certain 

Broker Requirements 

An SBSEF, by facilitating the 

execution of SBS between persons, also 

is engaged in the business of effecting 

transactions in securities for the account 

of others and therefore meets the SEA 

definition of ‘‘broker.’’ 280 Absent an 

exception or exemption, an SBSEF—in 

addition to being subject to the 

registration and regulatory requirements 

for SBSEFs—also would be required to 

register with the Commission as a 

broker pursuant to sections 15(a) and 

15(b) of the SEA 281 and would be 

subject to all regulatory requirements 

applicable to brokers.282 For example, 

brokers and dealers must comply with 

a number of rules that govern their 

conduct, including those relating to 

customer confirmations and disclosure 

of credit terms in margin 

transactions.283

The Commission is proposing a new 

Rule 15a–12 under the SEA that would 

deem registration with the Commission 

as an SBSEF also to constitute 

registration as a broker, and would 

exempt a registered SBSEF from many 

broker requirements in light of the 

SBSEF regulatory regime to which it 

would also be subject. 

One statutory provision from which a 

registered SBSEF would be exempted is 

section 17(a) of the SEA,284 which 

requires a registered broker (among 

other types of registered entity) to make 

and keep records as prescribed by 

Commission rule. Because SBSEFs are 

required to make and keep records as 

prescribed by Commission rule under 

section 3D(d)(9) of the SEA, imposing 

section 17(a) on SBSEFs would be 

redundant. By contrast, one statutory 

provision that would continue to apply 

to registered SBSEFs in their dual 

capacity as registered brokers would be 

section 17(b) of the SEA.285

In addition, under section 15(b)(8) of 

the SEA, it is unlawful for any 

registered broker or dealer to effect 

transactions in securities unless it is a 

member of an SRO.286 Brokers and 

dealers also must comply with a number 

of financial responsibility regulations, 

such as the net capital and customer 

protection rules.287 A registered broker 

or dealer also must make and keep 

current books and records relating to its 

business and detailing, among other 

things, securities transactions, money 

balances, and securities positions; keep 

records for required periods and furnish 

copies of those records to the 

Commission on request; and file certain 

financial reports with the 

Commission.288

The Commission preliminarily 

believes that Congress did not intend to 

subject SBSEFs that act only as SBSEFs 

to a dual regulatory regime.289

Therefore, using its authority under 

section 36(a)(1) of the SEA and its 

authority to establish procedures 

regarding the registration of brokers, the 

Commission is proposing new Rule 

15a–12 under the SEA that would allow 

an SBSEF that is a broker, solely due to 

its activity with respect to SBS executed 

on or through the SBSEF, to satisfy the 

requirement to register as a broker by 

registering as an SBSEF.290 Proposed 

Rule 15a–12(b) would provide that such 

an entity, if it registered as an SBSEF 

pursuant proposed Rule 803, would be 

deemed also to have registered with the 

Commission pursuant to sections 15(a) 

and (b) of the SEA. The Commission is 

not proposing to exempt SBSEFs from 

registration as brokers; rather, given the 

registration and regulatory requirements 

being proposed for SBSEFs through 

Regulation SE, it is proposing to 

eliminate a separate registration process 

for broker/SBSEFs and much of the 

additive layer of regulation for brokers 

that the Commission preliminarily 

believes is not necessary in light of the 

regulatory regime for SBSEFs. 

Proposed Rule 15a–12 could not be 

utilized by an SBSEF that engaged in 

other types of brokerage activity. 

Paragraph (a) of proposed Rule 15a–12 

would define the term ‘‘SBSEF–B’’ to 

mean an SBSEF that does not engage in 

any securities activity other than 

facilitating the trading of SBS on or 

through the SBSEF. Thus, an SBSEF 

that acts as agent to SBS counterparties 

or that acts in a discretionary manner 

with respect to the execution of SBS 

transactions, could not avail itself of 

proposed Rule 15a–12. Also, if an interdealer broker elects not to separate its 

inter-dealer broker functions from its 

SBSEF (by, for example, housing them 

in separate legal entities), and instead 

chooses to operate the SBSEF in the 

same legal entity as the inter-dealer 

broker, the entity could not avail itself 

of proposed Rule 15a–12 because it 

would not be an SBSEF–B under the 

rule. 

Paragraphs (c) to (e) of proposed Rule 

15a–12 would set out the scope of 

broker requirements from which an 

SBSEF–B would be exempted and 

which broker requirements would 

continue to apply. Paragraph (c) would 

provide that an SBSEF–B would be 

exempt from any provision of the SEA 

or the Commission’s rules thereunder 

applicable to brokers that by its terms 

requires, prohibits, restricts, limits, 

conditions, or affects the activities of a 

broker, unless such provision specifies 

that it applies to an SBSEF. Paragraph 

(d) of proposed Rule 15a–12 would 

provide that, notwithstanding paragraph 

(c), an SBSEF–B would still be subject 

to sections 15(b)(4),291 15(b)(6),292 and 

17(b) of the SEA.293

Sections 15(b)(4) and 15(b)(6) of the 

SEA serve as the basis for enforcing the 


jspears on DSK121TN23PROD with PROPOSALS2
28934 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

294 Id. 295See https://www.sipc.org/about-sipc/sipcmission (‘‘In a liquidation under the Securities 

Investor Protection Act, SIPC and the courtappointed Trustee work to return customers’ 

securities and cash as quickly as possible. Within 

limits, SIPC expedites the return of missing 

customer property by protecting each customer up 

to $500,000 for securities and cash (including a 

$250,000 limit for cash only)’’). 

296See 15 U.S.C. 78ddd(d). 

297 15 U.S.C. 78bbb. 

298 15 U.S.C. 78mm(a)(1) (giving the Commission 

broad exemptive authority, including the ability to 

exempt any person or classes of persons from any 

provision of the SEA or any rules thereunder, to the 

extent that such exemption is necessary or 

appropriate in the public interest, and is consistent 

with the protection of investors). 

299 17 CFR 240.17Ad–24. 

300 15 U.S.C. 78c(a)(23). 

301See SEA Release No. 90667 (December 16, 

2020), 86 FR 7637 (February 1, 2021). 

302See id., 86 FR at 7650; SEA Release No. 64796 

(July 1, 2011), 76 FR 39963, 39964 (July 7, 2011) 

(‘‘2011 Temporary Exemption’’). 

Federal securities laws against 

registered brokers. Section 15(b)(4) 

provides that the Commission, upon the 

making of specified findings, shall 

censure; place limitations on the 

activities, functions, or operations of; 

suspend for a period not exceeding 12 

months; or revoke the registration of any 

broker or dealer. Similarly, section 

15(b)(6) of the SEA requires the 

Commission, upon the making of 

specified findings, to censure, place 

limitations on, suspend, or bar such 

person an associated person. Section 

17(b) of the SEA is the legal basis under 

which the Commission may examine 

registered brokers for compliance with 

the Federal securities laws. Section 

17(b) authorizes the Commission to 

conduct reasonable periodic, special, or 

other examinations of all records 

maintained by entities described in 

section 17(a), including registered 

brokers. These examinations may be 

conducted at any time, or from time to 

time, as the Commission deems 

necessary or appropriate in the public 

interest, for the protection of investors, 

or otherwise in furtherance of the 

purposes of the SEA.294 Proposed Rule 

15a–12 would specify that these 

examination and statutory 

disqualification provisions pertaining to 

registered brokers continue to apply, 

despite Rule 15a–12 exempting an 

SBSEF–B from other broker 

requirements under the SEA. 

Finally, paragraph (e) of proposed 

Rule 15a–12 would exempt an SBSEF– 

B from the Securities Investor Protection 

Act (‘‘SIPA’’). SIPA established the 

Securities Investor Protection 

Corporation (‘‘SIPC’’), which oversees 

the liquidation of member firms that 

close when a member firm is bankrupt 

or in financial trouble, and customer 

assets are missing.295 SIPC protection is 

funded by assessments made on 

member firms.296

Section 2 of SIPA 297 states that, 

unless otherwise provided, the SEA 

shall apply as if SIPA constituted an 

amendment to, and was included as a 

section of, the SEA. An SBSEF–B, by 

definition, would operate only as an 

SBSEF. The Commission preliminarily 

believes that it would not be equitable 

to require an SBSEF–B to become a 

member of SIPC and pay SIPC 

assessments, since the SBSEF–B would 

not have brokerage customers and 

would not hold any customer funds or 

securities. Accordingly, under section 

36(a)(1) of the SEA,298 the Commission 

preliminarily believes that it is 

necessary or appropriate in the public 

interest, and is consistent with the 

protection of investors, to exempt 

SBSEF–Bs from any requirement under 

SIPA, including the requirement to pay 

assessments to the SIPC insurance fund. 

The Commission is proposing to codify 

this exemption as Rule 15a–12(e). 

The Commission seeks comment on 

the following: 

195. Do you agree in principle with 

proposed Rule 15a–12? Why or why 

not? 

196. Do you agree with the specific 

language of proposed Rule 15a–12? If 

not, how would you revise the rule 

language, and why? 

197. Are there any provisions listed in 

paragraph (d) of proposed Rule 15a–12 

to which an SBSEF–B should not be 

subject? If so, what provisions and why? 

Are there any other provisions or broker 

requirements to which an SBSEF–B 

should be subject (and thus added to 

paragraph (d) of proposed Rule 15a–12)? 

If so, what provisions or requirements 

and why? 

198. Do you believe that it is 

appropriate to exempt SBSEF–Bs from 

SIPA, as reflected in proposed Rule 

15a–12(e)? Why or why not? 

XIV. Proposed Sunsetting of Temporary 

Exemption From SEA Definition of 

‘‘Clearing Agency’’ for Unregistered 

SBSEFs 

In 2020, the Commission adopted 

Rule 17Ad–24 under the SEA 299 to 

exempt from the definition of ‘‘clearing 

agency’’ in section 3(a)(23) of the 

SEA 300 certain entities, including a 

registered SBSEF, that would be deemed 

to be a clearing agency solely by reason 

of (a) functions performed by such 

institution as part of customary dealing 

activities or providing facilities for 

comparison of data respecting the terms 

of settlement of securities transactions 

effected on such registered SBSEF, 

respectively; or (b) acting on behalf of a 

clearing agency or participant therein in 

connection with the furnishing by the 

clearing agency of services to its 

participants or the use of services of the 

clearing agency by its participants.301 In 

adopting the rule, the Commission 

explained that an entity performing 

such functions that triggers the 

requirement to register as a clearing 

agency—but that is not yet registered 

with the Commission as an SBSEF— 

could rely on a temporary exemption 

from the requirement to register as a 

clearing agency that the Commission 

issued in 2011.302 The Commission 

preliminarily believes that, if it adopts 

a framework for the registration of 

SBSEFs, the 2011 Temporary Exemption 

would no longer be necessary because 

entities carrying out the functions of 

SBSEFs would be able to register with 

the Commission as such, thereby falling 

within the exemption from the 

definition of ‘‘clearing agency’’ in 

existing Rule 17Ad–24. 

The Commission seeks comment on 

the following: 

199. Should the Commission sunset 

the 2011 Temporary Exemption to 

coincide with the compliance date for 

Regulation SE, if adopted? If not, what 

timeline for sunsetting the 2011 

Temporary Exemption would be 

appropriate? 

XV. Electronic Filings Under 

Regulation SE 

Various provisions of proposed 

Regulation SE would require registered 

SBSEFs (or SBSEF applicants) to file 

specified information electronically 

with the Commission using the 

Electronic Data Gathering, Analysis, and 

Retrieval (‘‘EDGAR’’) system in Inline 

XBRL, a structured, machine-readable 

data language. Such provisions include: 

• Proposed Rule 803(b)(1)(i) and 

(b)(3), regarding filings of, and 

amendments to, a Form SBSEF 

application. 

• Proposed Rules 803(e) and 803(f), 

regarding requests to withdraw or vacate 

an application for registration. 

• Proposed Rule 804(a)(1), regarding 

filings for listing products for trading by 

certification. 

• Proposed Rule 805(a)(1), regarding 

filings for voluntary submission of new 

products for Commission review and 

approval. 

• Proposed Rule 806(a)(1), regarding 

filings for voluntary submission of rules 

for Commission review and approval. 

• Proposed Rule 807(a)(1), regarding 

filings for self-certification of rules. 

• Proposed Rule 807(d), regarding 

filings of weekly notifications to the 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28935 

303See Release No. 33–10514 (June 28, 2018), 83 

FR 40846, 40847 (August 16, 2018). Inline XBRL 

allows filers to embed XBRL data directly into an 

HTML document, eliminating the need to tag a copy 

of the information in a separate XBRL exhibit. See 

id., 83 FR at 40851. 

304The Commission’s EFFS/SRTS system was not 

designed to support filings using an open structured 

data language such as Inline XBRL. As a result, 

requiring registrants to submit filings via the EFFS/ 

SRTS system may not be compatible with a 

requirement to use Inline XBRL or any other open 

structured data language for the filings. 

305See supra section VIII(B). 

306See, e.g., 15 U.S.C. 78c–4(d)(2)(A) (directing 

an SBSEF to ‘‘establish and enforce compliance’’ 

with its rules) (emphasis added); 15 U.S.C. 78c– 

4(d)(2)(C) (directing an SBSEF to ‘‘establish and 

enforce trading, trade processing, and participation 

rules that will deter abuses and have the capacity 

to detect, investigate, and enforce those rules’’) 

(emphasis added). 

307See supra section VIII(B). See also proposed 

Rule 819(c)(3) (relating to limitations on access, 

including suspensions and permanent bars); 

proposed Rule 819(g) (relating to disciplinary 

procedures and sanctions). 

308See 15 U.S.C. 78c–4(d)(2)(A)(ii) (directing an 

SBSEF to establish and enforce compliance with 

any rule that imposes any limitation on access to 

the facility); 15 U.S.C. 78c–4(d)(2)(B)(i) (requiring 

an SBSEF to provide market participants with 

impartial access to the market). 

309See part 9 of the CFTC’s rules (Rules Relating 

to Review of Exchange Disciplinary, Access Denial 

or Other Adverse Actions). For purposes of part 9, 

the term ‘‘exchange’’ includes a SEF. 

310 17 CFR 201.101. 

311 17 CFR 201.202. 

312See infra sections XVI(E) and (F). 

313 17 CFR 201.210. 

Commission of rules and rule 

amendments that were not required to 

be certified. 

• Proposed Rule 829(g)(6), regarding 

submission to the Commission of 

reports related to financial resources 

and related documentation. 

• Proposed Rule 831(j)(2), regarding 

submission to the Commission of the 

annual compliance report of SBSEF’s 

CCO. 

Requiring SBSEFs to file this 

information in EDGAR would provide 

the Commission and the public with a 

centralized, publicly accessible 

electronic database for the information, 

thereby facilitating its use. EDGAR 

would also enable technical validation 

of the disclosures, thus potentially 

reducing the incidence of nondiscretionary errors (e.g., including text 

for a disclosure that should contain only 

numbers). Moreover, requiring Inline 

XBRL tagging of the reported 

disclosures, which would specifically 

comprise Inline XBRL block text tags for 

any narrative disclosures, as well as 

detail tags for individual data points, 

would make the disclosures more easily 

available and accessible to, and reusable 

by, market participants and the 

Commission for retrieval, aggregation, 

and comparison across different SBSEFs 

and time periods, as compared to an 

unstructured PDF, HTML, or ASCII 

format requirement for the reports.303

The Commission seeks comment on 

the following: 

200. Would EDGAR be an appropriate 

system for these filings? Or should the 

Commission use its Electronic Form 

Filing System/SRO Rule Tracking 

System (‘‘EFFS/SRTS’’) or another file 

transfer system instead? 304 Would 

requiring these materials to be filed in 

EDGAR, EFFS/SRTS, or another file 

transfer system be more beneficial for 

SBSEFs and other market participants? 

If so, why? How would the use of these 

different systems impact the usability 

and accessibility of the materials for 

data users? Is there another method of 

electronic submission that is preferable? 

If so, please identify that method, why 

you believe it should be used, and the 

estimated costs of such system for filers. 

201. Should all filings be made 

through the same electronic system, or 

would different filing systems be 

appropriate for different types of filings? 

If the latter, please discuss. 

202. Would Inline XBRL be an 

appropriate data language for these 

filings? Or should the Commission use 

a different structured data language? If 

so, which data language should be 

required, and why? Would requiring a 

different structured data language be 

more beneficial for SBSEFs and other 

market participants? How would the use 

of a different data language impact the 

usability and accessibility of the 

materials for data users? What time or 

expense is associated with your 

recommended structured data language? 

Would a particular structured data 

language require any filers or users to 

license commercial software they 

otherwise would not, and, if so, at what 

expense? 

XVI. Amendments to Commission’s 

Rules of Practice for Appeals of SBSEF 

Actions 

As noted above,305 SEA Core 

Principle 2 directs an SBSEF to exercise 

regulatory powers over its market.306

Under proposed Rule 819 of Regulation 

SE, an SBSEF could take a variety of 

disciplinary actions against a member 

that is found to violate the SBSEF’s 

rules, including fining the member, 

limiting the member’s access, or barring 

the member entirely.307 SEA Core 

Principle 2 also requires an SBSEF to 

establish rules governing access to its 

market.308 An SBSEF could apply those 

rules in such a way as to limit a person’s 

access to the SBSEF or to deny access 

entirely. The Commission preliminarily 

believes that general principles of due 

process necessitate an appeals 

procedure for final disciplinary actions 

taken by an SBSEF, for denials or 

conditionings of membership, and for 

limitations or denials of access. 

Accordingly, the Commission is 

proposing a number of amendments to 

its Rules of Practice to allow for such 

appeals, and notes that the CFTC has 

similar procedures with respect to 

SEFs.309

A. Amendment to Rule 101 

Existing Rule 101 of the Commission’s 

Rules of Practice 310 sets out definitions 

for several terms used in the Rules of 

Practice. In particular, existing Rule 

101(a)(9) defines ‘‘proceeding’’ with 

respect to applications of review of 

actions by a variety of entities that are 

subject to the Commission’s 

jurisdiction. The Commission is 

proposing a new paragraph (a)(9)(ix) of 

Rule 101 that would provide that an 

application for a review of a 

determination (such as a final 

disciplinary action or a limitation or 

denial of access to any service) by an 

SBSEF would be a ‘‘proceeding’’ and 

thereby trigger applicability of the Rules 

of Practice. 

B. Amendment to Rule 202 

Existing Rule 202 of the Commission’s 

Rules of Practice 311 permits a party in 

certain proceedings before the 

Commission to make a motion to specify 

certain procedures with respect to such 

proceeding. Rule 202(a) excludes certain 

types of proceedings, including 

enforcement or disciplinary 

proceedings, proceedings to review a 

determination by an SRO, and 

proceedings to review a determination 

of the PCAOB. Because the Commission 

is proposing new Rules 442 and 443, 

which set out specific procedures with 

respect to proceedings to review a 

determination of an SBSEF,312 the 

Commission is proposing to revise Rule 

202(a) to add such SBSEF-related 

proceedings to the list of exclusions. 

C. Amendment to Rule 210 

Existing Rule 210 of the Commission’s 

Rules of Practice 313 sets out 

Commission rules with respect to 

parties, limited participants, and amici 

curiae in various proceedings before the 

Commission. Paragraph (a)(1) of Rule 

210 states that persons shall not be 

granted leave to become a party or nonparty participant on a limited basis in 

an enforcement or disciplinary 

proceeding, a proceeding to review a 

determination by an SRO, or a 

proceeding to review a determination by 


jspears on DSK121TN23PROD with PROPOSALS2
28936 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

314See infra sections XVI(E) and (F). 

315 17 CFR 201.442. 316Such application would be required to 

identify the SBSEF’s determination complained of, 

set forth in summary form a statement of alleged 

errors in the action and supporting reasons therefor, 

and state an address where the applicant can be 

served. The application would be expected not to 

exceed two pages in length, and the notice of 

appearance required by § 201.102(d) would have to 

accompany the application if the applicant is to be 

represented by a representative. Any exception to 

an action not supported in an opening brief that 

complies with § 201.450(b) could, at the discretion 

of the Commission, be deemed to have been waived 

by the applicant. 

317 17 CFR 201.442(c). 

318 17 CFR 201.442(d)–(e). 

319 17 CFR 201.443. 

the PCAOB, except as authorized by 

paragraph (c) of Rule 210 (which 

permits limited instances in which 

persons may participate for Commission 

disciplinary and enforcement 

proceedings). Because the Commission 

is proposing new Rules 442 and 443, 

which set out specific procedures with 

respect to proceedings to review a 

determination of an SBSEF,314 the 

Commission is proposing to revise Rule 

210 to exclude proceedings to review a 

determination by an SBSEF among 

those types of proceedings from which 

persons may be granted leave to become 

a party or a non-party participant on a 

limited basis. 

D. Amendment to Rule 401 

The Commission is proposing to 

amend existing Rule 401 of its Rules of 

Practice by adding a new paragraph (f). 

New paragraph (f)(1) of existing Rule 

401 would permit any person aggrieved 

by a stay of action by an SBSEF entered 

in accordance with proposed Rule 

442(c) to make a motion to lift the stay. 

The Commission could also, at any 

time, on its own motion determine 

whether to lift the automatic stay. New 

paragraph (f)(2) would provide that the 

Commission may lift a stay summarily, 

without notice and opportunity for 

hearing. Finally, new paragraph (f)(3) 

would provide that the Commission 

may expedite consideration of a motion 

to lift a stay of action by an SBSEF, 

consistent with the Commission’s other 

responsibilities. Where consideration is 

expedited, persons opposing the lifting 

of the stay could file a statement in 

opposition within two days of service of 

the motion requesting lifting of the stay 

unless the Commission, by written 

order, specifies a different period. 

The Commission preliminarily 

believes that it is appropriate to allow 

persons affected by certain stays of 

action by an SBSEF the opportunity to 

make a motion to request the lifting of 

the stay. As discussed below, pursuant 

to proposed Rule 442, an aggrieved 

person could file an application for 

review with the Commission with 

respect to a final disciplinary action, a 

final action with respect to a denial or 

conditioning of membership, or a final 

action with respect to a denial or 

limitation of access. The filing of such 

application would operate as a stay of 

the SBSEF’s determination. The 

Commission preliminarily believes that, 

because of this automatic stay 

procedure, an aggrieved person or the 

SBSEF itself should be afforded a 

mechanism by which it could request 

the Commission to lift the stay, in 

addition to the Commission’s ability 

under proposed Rule 401(f)(2) to lift a 

stay summarily, without notice and 

opportunity of hearing. 

E. Rule 442—Right To Appeal 

Proposed new Rule 442 315 would 

establish the right to an appeal to the 

Commission of certain determinations 

made by an SBSEF, and set out certain 

procedural matters relating to any such 

appeal. Paragraph (a) of proposed Rule 

442 would provide that an application 

for review by the Commission may be 

filed by any person who is aggrieved by 

a determination of an SBSEF with 

respect to any: (1) Final disciplinary 

action, as defined in proposed Rule 

835(b)(1); (2) final action with respect to 

a denial or conditioning of membership, 

as defined in proposed Rule 835(b)(2); 

or (3) final action with respect to a 

denial or limitation of access to any 

service offered by the SBSEF, as defined 

in proposed Rule 835(b)(2). Paragraph 

(b) of proposed Rule 442 would set forth 

the procedure in such cases. 

Specifically, an aggrieved person could 

file an application for review with the 

Commission (pursuant to existing Rule 

151) within 30 days after the notice filed 

by the SBSEF with the Commission 

pursuant to proposed Rule 835 is 

received by the aggrieved person, and 

must serve the application on the 

SBSEF at the same time.316 Paragraph 

(c) of proposed Rule 442 would provide 

that filing an application for review 

with the Commission pursuant to 

proposed Rule 835(b) would operate as 

a stay of the SBSEF’s determination, 

unless the Commission otherwise orders 

either pursuant to a motion filed in 

accordance with proposed Rule 401(f) or 

upon its own motion.317 The 

Commission preliminarily believes that 

it is appropriate for the filing of an 

application for review to operate as an 

automatic stay of the SBSEF’s 

determination, because such 

determination could have the effect of 

significantly or even permanently 

damaging an aggrieved person’s 

business while the Commission was 

conducting a review, which could take 

substantial time. In addition, the 

Commission is proposing in Rule 401(f) 

a procedure whereby a person aggrieved 

by such stay, including the SBSEF, 

could request that the Commission lift 

the stay. The proposed rules also 

contain certain requirements relating to 

certification of the record and service of 

the index.318 Specifically, within 14 

days after receipt of an application for 

review, an SBSEF would be required to 

certify and file with the Commission 

one unredacted copy of the record upon 

which it took the complained-of action. 

The SBSEF would be required to file 

electronically with the Commission one 

copy of an index of such record, and 

serve one copy of the index on each 

party, subject to the requirements in 

proposed Rule 442(d)(2) relating to 

sensitive personal information; if 

applicable, such filings would have to 

be certified that they have complied 

with such requirements relating to 

sensitive personal information. The 

Commission believes these 

requirements are appropriate to ensure 

that sensitive personal information is 

not improperly or inadvertently 

disseminated by an SBSEF as part of its 

filing of the record relating to the appeal 

review. 

F. Rule 443—Sua Sponte Review by 

Commission 

New proposed Rule 443 319 would 

provide that the Commission, on its 

own initiative, could order review of 

any determination by an SBSEF (which 

would include a final disciplinary 

action, a final action with respect to a 

denial or conditioning of membership, 

or a final action with respect to a denial 

or limitation of access to any services) 

that could be subject to an application 

for review pursuant to proposed Rule 

442(a) within 40 days after the SBSEF 

filed notice thereof. 

Proposed Rule 443 would further 

provide that the Commission could at 

any time before issuing its decision raise 

or consider any matter that it deems 

material, whether or not raised by the 

parties. If the Commission did so, under 

proposed Rule 443 the Commission 

would give notice to the parties and an 

opportunity for supplemental briefing 

with respect to issues not briefed by the 

parties, where the Commission believes 

that such briefing could significantly aid 

the decisional process. The Commission 

preliminarily believes that it is 

appropriate that it have the ability to 

review any determination filed by an 

SBSEF that could be subject to an 

application for review under proposed 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28937 

320 17 CFR 201.450. 

321 17 CFR 201.460. 

322See Public Law 111–203 Preamble. 

323The regulation of SBSEFs includes, among 

other things, requiring SBSEFs to comply with the 

Core Principles set forth in section 3D(d) of the 

SEA. See supra section VIII. 

324Among other things, the Commission is 

proposing Form SBSEF for persons seeking to 

register with the Commission as an SBSEF and a 

submission cover sheet and instructions to be used 

in rule and product filings made by SBSEFs. 

Rule 442(a), even without an appeal of 

such determination by an aggrieved 

party, should it believe that further 

consideration is warranted. Therefore, 

the proposed rule would provide the 

Commission authority to obtain 

additional information through 

supplemental briefings, as needed. 

G. Amendment to Rule 450 

Existing Rule 450 of the Commission’s 

Rules of Practice 320 sets out 

requirements for briefs filed with the 

Commission. Rule 450(a) sets out a 

briefing schedule, and paragraph (a)(2) 

provides that the briefing schedule 

order shall be issued within 21 days, or 

such longer time as provided by the 

Commission, of receipt by the 

Commission of various types of appeals. 

The Commission is proposing to amend 

Rule 450(a)(2) by adding a new 

paragraph (iv) providing that the 21 

days would be triggered by ‘‘[r]eceipt by 

the Commission of an index to the 

record of a determination by a securitybased swap execution facility filed 

pursuant to § 201.442(d).’’ 

H. Amendment to Rule 460 

Existing Rule 460 of the Commission’s 

Rules of Practice 321 states that the 

Commission shall determine each 

matter on the basis of the record. Rule 

460(a) defines the contents of the record 

with respect to various types of action. 

The Commission is proposing a new 

paragraph (a)(4) of Rule 460 that would 

state that, in a proceeding for a final 

decision before the Commission 

reviewing a determination of an SBSEF, 

the record shall consist of: (i) The record 

certified by the SBSEF pursuant to 

§ 201.442(d); (ii) any application for 

review; and (iii) any submissions, 

moving papers, and briefs filed on 

appeal or review. 

I. Request for Comment 

The Commission requests comment 

on all aspects of its proposed rules and 

rule amendments to provide for 

applications for review by the 

Commission of an SBSEF’s final 

disciplinary action or denial or 

limitation of access. In particular: 

203. Do you agree in general that final 

disciplinary action and denials or 

limitations of access by an SBSEF be 

afforded a review process under the 

Commission’s Rules of Practice? Why or 

why not? 

204. Should aggrieved parties be 

permitted to submit a motion for a stay 

of an action by an SBSEF under 

proposed Rule 401(f)? Do you believe 

that there may be instances in which a 

motion for a stay may be necessary? 

Why or why not? Are there any 

particular provisions that should be 

added or should not be included in such 

a process? If so, please describe. 

205. Are the provisions relating to 

SBSEFs under proposed Rule 442 

appropriate? Are there additional 

requirements that should be included or 

items that should be omitted? Are the 

provisions relating to sensitive personal 

information and exceptions under 

proposed paragraph (d)(2) appropriate? 

Why or why not? 

206. Is it appropriate for the 

Commission to be able to review 

determinations of an SBSEF sua sponte 

under proposed Rule 443? Why or why 

not? 

XVII. Conclusion 

The Commission requests comment 

on all aspects of proposed Regulation 

SE, including any provision of a 

proposed rule about which the 

Commission did not ask a specific 

question above. In addition, the 

Commission seeks commenters’ views 

on whether Regulation SE should 

address any other aspects of SBSEFs or 

SBS execution generally where the 

Commission has not proposed a specific 

rule. In particular: 

207. Are there any other CFTC rules, 

or provisions of the CEA itself, relating 

to SEFs that you believe should be 

adapted by the Commission to apply to 

SBSEFs? If so, which rules or provisions 

and why? 

208. Are there any other requirements 

that the Commission should apply to 

SBSEF members, or which the 

Commission should require SBSEFs to 

apply to their members? If so, what 

requirements and why? What would be 

the legal basis for those additional 

requirements? 

XVIII. Compliance Schedule 

To facilitate the efficient registration 

of SBSEFs and compliance with 

Regulation SE, the Commission intends 

to include a compliance schedule along 

with any final rules, if adopted. To 

assist it in developing an appropriate 

compliance schedule, the Commission 

seeks comment on the following 

matters: 

209. If the Commission were to 

substantially harmonize its SBSEF rules 

and registration procedures with those 

of the CFTC, as proposed, how long 

would respondents need to submit a 

Form SBSEF to the Commission after 

Regulation SE and Form SBSEF are 

adopted (assuming that the applicant is 

not registered as a SEF with the CFTC)? 

210. Please provide your view of the 

optimal compliance schedule(s) and 

explain your rationale. 

211. Should the compliance date for 

foreign SBS trading venues that seek an 

exemption order under Rule 833(a) 

coincide with the date by which SBSEF 

applicants would have to be registered 

by the Commission? If you believe that 

such foreign SBS trading venues should 

have a different compliance date, what 

date should that be and why? 

XIX. Economic Analysis 

A. Introduction 

To increase the transparency and 

oversight of the OTC derivatives 

market,322 Title VII of the Dodd-Frank 

Act requires the Commission to 

undertake a number of rulemakings to 

implement the regulatory framework for 

SBS that is set forth in the legislation, 

including among other things, (1) the 

registration and regulation 323 of 

SBSEFs; and (2) mitigating conflicts of 

interest with respect to SBSEFs, SBS 

exchanges, and SBS clearing agencies. 

To satisfy these statutory mandates, the 

Commission is proposing Regulation SE 

and associated forms that would create 

a regime for the registration and 

regulation of SBSEFs and address other 

issues relating to SBS execution 

generally.324 One of the rules being 

proposed as part of Regulation SE, Rule 

834, would implement section 765 of 

the Dodd-Frank Act, which is intended 

to mitigate conflicts of interest at 

SBSEFs and SBS exchanges. Other rules 

being proposed as part of Regulation SE 

would address the cross-border 

application of the SEA’s trading venue 

registration requirements and the trade 

execution requirement for SBS. 

In addition, the Commission is 

proposing to amend existing Rule 3a1– 

1 under the SEA to exempt, from the 

SEA definition of ‘‘exchange,’’ 

registered SBSEFs that provide a market 

place for no securities other than SBS 

and certain registered clearing agencies. 

The Commission also is proposing new 

Rule 15a–12 under the SEA that, while 

affirming that an SBSEF also would be 

a broker under the SEA, would exempt 

a registered SBSEF from certain broker 

requirements. The Commission also is 

proposing certain new rules and 

amendments to its Rules of Practice to 


jspears on DSK121TN23PROD with PROPOSALS2
28938 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

325See also section IX(A) supra and XIX(B)(2)(c) 

infra (discussing the global nature of the SBS 

market). 

326See Further Definition of ‘‘Swap Dealer,’’ 

‘‘Security-Based Swap Dealer,’’ ‘‘Major Swap 

Participant,’’ ‘‘Major Security-Based Swap 

Participant’’ and ‘‘Eligible Contract Participant,’’ 

SEA Release No. 66868 (April 27, 2012), 77 FR 

30596 (May 23, 2012) (‘‘Intermediary Definitions 

Adopting Release’’). 

327See Application of ‘‘Security-Based Swap 

Dealer’’ and ‘‘Major Security-Based Swap 

Participant’’ Definitions to Cross-Border SecurityBased Swap Activities, SEA Release No. 72472 

(June 25, 2014), 79 FR 47278 (August 12, 2014) 

(‘‘Cross-Border Adopting Release’’). 

328See Security-Based Swap Data Repository 

Registration, Duties, and Core Principles, SEA 

Release No. 74246 (February 11, 2015), 80 FR 14438 

(March 19, 2015) (‘‘SDR Rules and Core Principles 

Adopting Release’’). 

329See supra note 84. 

330See Registration Process for Security-Based 

Swap Dealers and Major Security-Based Swap 

Participants, SEA Release No. 75611 (August 5, 

2015), 80 FR 48964 (August 14, 2015) (‘‘Registration 

Adopting Release’’). 

331See Security-Based Swap Transactions 

Connected with a Non-U.S. Person’s Dealing 

Activity That Are Arranged, Negotiated, or 

Executed By Personnel Located in a U.S. Branch or 

Office or in a U.S. Branch or Office of an Agent; 

Security-Based Swap Dealer De Minimis Exception, 

SEA Release No. 77104 (February 10, 2016), 81 FR 

8598 (February 19, 2016) (‘‘ANE Adopting 

Release’’). 

332See Business Conduct Standards for SecurityBased Swap Dealers and Major Security-Based 

Swap Participants, SEA Release No. 77617 (April 

14, 2016), 81 FR 29960 (May 13, 2016) (‘‘Business 

Conduct Adopting Release’’). 

333See Trade Acknowledgment and Verification 

of Security-Based Swap Transactions, SEA Release 

No. 78011 (June 8, 2016), 81 FR 39808 (June 17, 

2016) (‘‘Trade Acknowledgment and Verification 

Adopting Release’’). 

334See supra note 229. 

335See Applications by Security-Based Swap 

Dealers or Major Security-Based Swap Participants 

for Statutorily Disqualified Associated Persons To 

Effect or Be Involved in Effecting Security-Based 

Swaps, SEA Release No. 84858 (December 19, 

2018), 84 FR 4906–47 (February 19, 2019) (‘‘Rule of 

Practice 194 Adopting Release’’). 

336See Capital, Margin, and Segregation 

Requirements for Security-Based Swap Dealers and 

Major Security-Based Swap Participants and 

Capital and Segregation Requirements for BrokerDealers, SEA Release No. 86175 (June 21, 2019), 84 

FR 43872 (August 22, 2019) (‘‘Capital, Margin, and 

Segregation Adopting Release’’). 

337See Requirements for Security-Based Swap 

Dealers, Major Security-Based Swap Participants, 

and Broker-Dealers; Capital Rule for Certain 

Security-Based Swap Dealers, SEA Release No. 

87005 (September 19, 2019), 84 FR 68550 

(December 16, 2019) (‘‘Recordkeeping and 

Reporting Adopting Release’’). 

338See Risk Mitigation Techniques for Uncleared 

Security-Based Swaps, SEA Release No. 87782 

(December 18, 2019), 85 FR 6359 (February 4, 2020) 

(‘‘Risk Mitigation Adopting Release’’). 

339See Cross-Border Application of Certain 

Security-Based Swap Requirements, SEA Release 

No. 87780 (December 18, 2019), 85 FR 6270 

(February 4, 2020) (‘‘Cross-Border Amendments 

Adopting Release’’). 

340See Exemption from the Definition of 

‘‘Clearing Agency’’ for Certain Activities of SecurityBased Swap Dealers and Security-Based Swap 

Execution Facilities, SEA Release No. 90667 

(December 16, 2020), 86 FR 7637 (February 1, 2021) 

(‘‘Clearing Exemption Adopting Release’’). 

341See supra section V and note 42. 

342The Commission also relies on qualitative 

information regarding market structure and 

evolving market practices provided by commenters 

and knowledge and expertise of Commission staff. 

allow persons who are aggrieved by 

certain determinations by an SBSEF to 

apply for review by the Commission. 

The Commission also is withdrawing all 

previously proposed rules regarding 

these subjects. 

Currently, SBS trade in the OTC 

market, rather than on regulated 

markets. The existing market for SBS is 

opaque, with little, if any, pre-trade 

transparency. With limited 

transparency, the information 

asymmetry between liquidity providers 

(i.e., SBS dealers) and end users could 

be significant. Specifically, liquidity 

providers may observe information 

about the trading process (e.g., trading 

interest, quotes, order flows, and trades) 

that end users typically cannot observe. 

The SBS market also is decentralized 

such that market participants incur 

search costs to locate other market 

participants in order to trade. 

While the SBS market is 

decentralized, it also is interconnected 

and global in scope.325 SBS dealers can 

have hundreds of counterparties, 

consisting of end users and other SBS 

dealers. Trading venues may serve 

hundreds of participants, consisting of 

SBS dealers and end users. SBS 

transactions arranged, negotiated, or 

executed by personnel located in the 

U.S. may involve wholly foreign 

counterparties. Furthermore, U.S. 

persons may choose to trade SBSs on 

foreign venues, which are subject to 

OTC derivatives regulations imposed by 

local regulatory authorities. 

The Commission is mindful of the 

economic effects, including the costs 

and benefits, of the proposal. Section 

3(f) of the SEA, 15 U.S.C. 78c(f), directs 

the Commission, when engaging in 

rulemaking where it is required to 

consider or determine whether an action 

is necessary or appropriate in the public 

interest, to consider, in addition to the 

protection of investors, whether the 

action will promote efficiency, 

competition, and capital formation. In 

addition, section 23(a)(2) of the SEA 15 

U.S.C. 78w(a)(2), requires the 

Commission, when making rules under 

the SEA, to consider the impact that the 

rules would have on competition, and 

prohibits the Commission from adopting 

any rule that would impose a burden on 

competition not necessary or 

appropriate in furtherance of the 

purposes of the SEA. 

The analysis below addresses the 

likely economic effects of the proposal, 

including its anticipated and estimated 

benefits and costs and its likely effects 

on efficiency, competition, and capital 

formation. The Commission also 

discusses the potential economic effects 

of certain alternatives to the approaches 

taken in this release. 

B. Economic Baseline 

To assess the economic effects of the 

proposed rules and amendments, the 

Commission is using as the baseline the 

SBS market as it currently exists, 

including applicable rules the 

Commission has already adopted, but 

excluding rules the Commission has 

proposed but not yet finalized. The 

analysis includes provisions of the SEA, 

as amended by the Dodd-Frank Act, that 

currently govern the SBS market, and 

rules adopted by the Commission 

thereunder, including in the 

Intermediary Definitions Adopting 

Release,326 the Cross-Border Adopting 

Release,327 the SDR Rules and Core 

Principles Adopting Release,328 the 

Regulation SBSR Adopting Release I,329

the Registration Adopting Release,330

the ANE Adopting Release,331 the 

Business Conduct Adopting Release,332

the Trade Acknowledgement and 

Verification Adopting Release,333 the 

Regulation SBSR Adopting Release II,334

the Rule of Practice 194 Adopting 

Release,335 the Capital, Margin, and 

Segregation Adopting Release,336 the 

Recordkeeping and Reporting Adopting 

Release,337 the Risk Mitigation Adopting 

Release,338 the Cross-Border 

Amendments Adopting Release,339 and 

the Clearing Exemption Adopting 

Release.340 The baseline also includes 

the Temporary SBSEF Exemptions 341

and the CFTC rules that apply to CFTCregistered SEFs. The following sections 

discuss available data from the SBS 

market; SBS activity and market 

participants; distribution of transaction 

size; other markets and existing 

regulatory frameworks; number of 

entities that likely will register as 

SBSEFs; SBS trading on platforms; 

global regulatory efforts; and trading 

models. 

1. Available Data From the SBS Market 

The Commission’s understanding of 

the market is informed, in part, by 

available data on SBS transactions, 

though the Commission acknowledges 

that limitations in the data limit the 

extent to which it is possible to 

quantitatively characterize the 

market.342 Since these data do not cover 

the entire market, the Commission has 

analyzed market activity using a sample 

of transaction data that includes only 

certain segments of the market. The 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28939 

343The Commission explains below that data 

related to single-name CDS provide reasonably 

comprehensive information for the purpose of this 

analysis. 

344The global notional amount outstanding 

represents the total face amount used to calculate 

payments under outstanding contracts. The gross 

market value is the cost of replacing all open 

contracts at current market prices. 

345See Global OTC Derivatives Market: Table 

D5.2 Commodity Contracts, Credit Default Swap, 

BIS (updated January 13, 2022), available at https:// 

stats.bis.org/statx/srs/table/d5.2. 

346See id. 

347These totals include swaps and SBS, as well 

as products that are excluded from the definition 

of ‘‘swap,’’ such as certain equity forwards. See 

Global OTC Derivatives Market: Table D5.1 Foreign 

Exchange, Interest Rate, Equity Linked Contracts, 

BIS (updated January 13, 2022), available at https:// 

stats.bis.org/statx/srs/table/d5.1. For the purposes 

of this analysis, the Commission assumes that 

multi-name index CDS are not narrow-based index 

CDS and therefore do not fall within the definition 

of ‘‘security-based swap.’’ See 15 U.S.C. 

78c(a)(68)(A). See also Further Definition of 

‘‘Swap,’’ ‘‘Security-Based Swap,’’ and ‘‘SecurityBased Swap Agreement’’; Mixed Swaps; SecurityBased Swap Agreement Recordkeeping, 77 FR 

48208. The Commission also assumes that all 

instruments reported as equity forwards and swaps 

are SBS, potentially resulting in underestimation of 

the proportion of the SBS market represented by 

single-name CDS. Therefore, when measured on the 

basis of gross notional outstanding, single-name 

CDS appear to constitute roughly 49% of the SBS 

market. Although the BIS data reflect the global 

OTC derivatives market and not just the U.S. 

market, the Commission has no reason to believe 

that this ratio differs significantly in the U.S. 

market. 

348Following publication of the Warehouse Trust 

Guidance on CDS data access, TIW surveyed market 

participants, asking for the physical address 

associated with each of their accounts (i.e., where 

the account is organized as a legal entity). This 

physical address is designated the registered office 

location by TIW. When an account reports a 

registered office location, the Commission has 

assumed that the registered office location reflects 

the place of domicile for the fund or account. When 

an account does not report a registered office 

location, the Commission has assumed that the 

settlement country reported by the investment 

adviser or parent entity to the fund or account is 

the place of domicile. Thus, for purposes of this 

analysis, the Commission has classified accounts as 

‘‘U.S. counterparties’’ when they have reported a 

registered office location in the United States. The 

Commission notes, however, that this classification 

is not necessarily identical in all cases to the 

definition of ‘‘U.S. person’’ under SEA Rule 3a71– 

3(a)(4). 

349The challenges the Commission faces in 

estimating measures of current market activity stem, 

in part, from the absence of comprehensive 

reporting requirements for SBS market participants. 

The Commission has adopted rules regarding 

regulatory reporting and public dissemination of 

SBS transactions that are designed, when fully 

implemented, to provide the Commission with 

additional measures of market activity that will 

allow the Commission to better understand and 

monitor activity in the SBS market. See Regulation 

SBSR Adopting Release II, 81 FR at 53545. 

350See Key Dates for Registration of SecurityBased Swap Dealers and Major Security-Based 

Swap Participants, available at: https://

www.sec.gov/page/key-dates-registration-securitybased-swap-dealers-and-major-security-basedswap-participants. 

351See List of Registered Security-Based Swap 

Dealers and Major Security-Based Swap 

Participants, available at: https://www.sec.gov/files/ 

list_of_sbsds_msbsps-_01-03-2022locked-final.xlsx 

(providing the list of registered SBS dealers and 

major SBS participants that was updated as of 

January 3, 2022). 

352The Commission staff analysis of TIW 

transaction records indicates that approximately 

99% of single-name CDS price-forming transactions 

in 2020 involved an ISDA-recognized dealer. 

353Many dealer entities and financial groups 

transact through numerous accounts. Given that 

individual accounts may transact with hundreds of 

counterparties, the Commission may infer that 

entities and financial groups may transact with at 

least as many counterparties as the largest of their 

accounts. 

Commission believes, however, that the 

data underlying this analysis provides 

reasonably comprehensive information 

regarding single-name CDS transactions 

and the composition of the participants 

in the single-name CDS market. 

Specifically, the analysis of the 

current state of the SBS market is based 

on data obtained from the DTCC 

Derivatives Repository Limited Trade 

Information Warehouse (‘‘TIW’’), 

especially data regarding the activity of 

market participants in the single-name 

CDS market during the period from 

2008 to 2020. Although SBS are not 

limited to single-name CDS,343 singlename CDS contracts make up a majority 

of SBS, and we believe that the singlename CDS data are sufficiently 

representative of the market to inform 

our analysis of the current SBS market. 

According to data published by the 

Bank for International Settlements 

(‘‘BIS’’), as of December 2020, the global 

notional amount outstanding in singlename CDS was approximately $3.5 

trillion,344 in multi-name index CDS 

was approximately $4.5 trillion, and in 

multi-name, non-index CDS was 

approximately $347 billion.345 The total 

gross market value outstanding in 

single-name CDS was approximately 

$77 billion, and in multi-name CDS 

instruments was approximately $125 

billion.346 The global notional amount 

outstanding in equity forwards and 

swaps as of December 2020 was $3.6 

trillion, with total gross market value of 

$321 billion.347

The data available from TIW does not 

encompass those CDS transactions that 

both: (i) Do not involve U.S. 

counterparties; 348 and (ii) are based on 

non-U.S. reference entities. 

Notwithstanding this limitation, the 

TIW single-name CDS data should 

provide sufficient information to permit 

the Commission to identify the types of 

market participants active in the SBS 

market and the general pattern of 

dealing within that market.349

In addition to the TIW single-name 

CDS data, the Commission uses data on 

SBS transactions reported to registered 

security-based swap data repositories 

(SDRs) to describe the baseline. 

Beginning on November 8, 2021, market 

participants are required to report SBS 

transactions to registered SDRs pursuant 

to Regulation SBSR. The Commission 

uses data on SBS transactions in the 

credit, equity, and interest rate asset 

classes that were executed between 

November 8, 2021 and February 28, 

2022 to quantify the extent of SBS 

trading on platforms. 

2. SBS Market Activity and Participants 

a. SBS Entities 

Final SBS Entity registration rules 

have been adopted and compliance was 

required as of November 1, 2021.350 As 

of January 3, 2022, 44 entities had 

registered with the Commission as SBS 

dealers and no entity had registered as 

a major SBS participant.351

Firms that act as SBS dealers play a 

central role in the SBS market. Based on 

an analysis of 2020 single-name CDS 

data in TIW, accounts of registered SBS 

dealer firms intermediated transactions 

with a gross notional amount of 

approximately $1.99 trillion, with 

approximately 55% of the gross notional 

intermediated by the top five SBS dealer 

accounts.352

These SBS dealers transact with 

hundreds or thousands of 

counterparties. Approximately 8% of 

accounts of SBS dealer firms observable 

in TIW have entered into SBS with over 

1,000 unique counterparty accounts as 

of year-end 2020.353 Another 23% of 

these accounts transacted with 500 to 

1,000 unique counterparty accounts; 

38% transacted with 100 to 500 unique 

accounts; and 31% of these accounts 

intermediated SBS with fewer than 100 

unique counterparties in 2020. The 

median SBS dealer account transacted 

with 276 unique accounts (with an 

average of approximately 416 unique 

accounts). Non-SBS dealer 

counterparties transacted almost 

exclusively with these SBS dealers. In 

2020, the median non-SBS dealer 

counterparty transacted with 1.3 SBS 

dealer accounts (with an average of 

approximately 2.5 SBS dealer accounts). 

b. Other SBS Market Participants 

In addition to SBS dealers, thousands 

of other participants appear as 

counterparties to SBS transactions in 

our sample, including but not limited 

to: Investment companies, pension 

funds, private funds, sovereign entities, 

and industrial companies. The 

Commission observes that most nonSBS dealer users of SBS do not engage 

in trading directly, but trade through 

banks, investment advisers, or other 


jspears on DSK121TN23PROD with PROPOSALS2
28940 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

354These 2,321 entities, which are presented in 

more detail in Table 1, include all DTCC-defined 

‘‘firms’’ shown in TIW as transaction counterparties 

that report at least one transaction to TIW as of 

December 2020. The staff in the Division of 

Economic and Risk Analysis classified these firms, 

which are shown as transaction counterparties, by 

machine matching names to known third-party 

databases and by manual classification. See, e.g., 

ANE Adopting Release, 81 FR at 8602, at n. 43. 

Manual classification was based in part on searches 

of the EDGAR and Bloomberg databases, the SEC’s 

Investment Adviser Public Disclosure database, and 

a firm’s public website or the public website of the 

account represented by a firm. The staff also 

referred to ISDA protocol adherence letters 

available on the ISDA website. 

355See 15 U.S.C. 80b1–80b21. Transacting agents 

participate directly in the SBS market, without 

relying on an intermediary, on behalf of principals. 

For example, a university endowment might hold 

a position in SBS that is established by an 

investment adviser that transacts on the 

endowment’s behalf. In this case, the university 

endowment is a principal that uses the investment 

adviser as its transacting agent. 

356For the purpose of this analysis, the ISDArecognized SBS dealers are those identified by ISDA 

as belonging to the G14 or G16 dealer group during 

the period: J.P. Morgan Chase NA (and Bear 

Stearns), Morgan Stanley, Bank of America NA (and 

Merrill Lynch), Goldman Sachs, Deutsche Bank AG, 

Barclays Capital, Citigroup, UBS, Credit Suisse AG, 

RBS Group, BNP Paribas, HSBC Bank, Lehman 

Brothers, Socie ́te ́ Ge ́ne ́rale, Cre ́dit Agricole, Wells 

Fargo, and Nomura. See, e.g., ISDA, 2010 ISDA 

Operations Benchmarking Survey (2010), available 

at https://www.isda.org/a/5eiDE/isda-operationssurvey-2010.pdf. 

357This category excludes clearing counterparties 

(CCPs). Same-day cleared trades are recorded in the 

DTCC dataset as two clearing legs, each between a 

CCP (ICE Clear Credit, ICE Clear Europe, and 

LCH.Clearnet) and the original counterparty in the 

underlying trade. As these are not price-forming 

trades, the counts in the last column in Table 1 are 

adjusted to reflect the original counterparties, 

excluding a CCP. Though original counterparties 

cannot be paired up to same-day cleared trades, to 

adjust for same-day clearing each leg against the 

CCP is counted as one half of a transaction and the 

notional amount of the trade is halved as well. 

358 ‘‘Accounts’’ as defined in the TIW context are 

not equivalent to ‘‘accounts’’ in the definition of 

‘‘U.S. person’’ in SEA Rule 3a71–3(a)(4)(i)(C). They 

also do not necessarily represent separate legal 

persons. One entity or legal person might have 

multiple accounts. For example, a bank may have 

one DTCC account for its U.S. headquarters and one 

DTCC account for one of its foreign branches. 

359Unregistered investment advisers include all 

investment advisers not registered under the 

Investment Advisers Act and might include 

investment advisers registered with a State or a 

foreign authority, as well as investment advisers 

that are exempt reporting advisers under section 

203(l) or 203(m) of the Investment Advisers Act. 

360For the purposes of this discussion, ‘‘private 

fund’’ encompasses various unregistered 

investment vehicles, including hedge funds, private 

equity funds, and venture capital funds. There 

remain over 5,800 DTCC accounts unclassified by 

type. Although unclassified, each account was 

manually reviewed to verify that it was not likely 

to be a special entity within the meaning of the 

Dodd-Frank Act and instead was likely to be an 

entity such as a corporation, an insurance company, 

or a bank. 

types of firms acting as SBS dealers or 

agents. Based on an analysis of the 

counterparties to trades reported to the 

TIW, there are 2,321 entities that 

engaged directly in trading between 

November 2006 and December 2020.354

As shown in Table 1 below, close to 

three-quarters of these entities (DTCCdefined ‘‘firms’’ shown in TIW, which 

we refer to here as ‘‘transacting agents’’) 

were identified as investment advisers, 

of which approximately 40% (about 

32% of all transacting agents) were 

registered as investment advisers under 

the Investment Advisers Act.355

Although investment advisers are the 

vast majority of transacting agents, the 

transactions they executed account for 

only 14.2% of all single-name CDS 

trading activity reported to the TIW, 

measured by number of transactionsides (each transaction has two 

transaction sides, i.e., two transaction 

counterparties). The vast majority of 

transactions (82.1%) measured by 

number of transaction-sides were 

executed by ISDA-recognized SBS 

dealers. 

TABLE 1—THE NUMBER OF TRANSACTING AGENTS BY COUNTERPARTY TYPE AND THE FRACTION OF TOTAL TRADING

ACTIVITY, FROM NOVEMBER 2006 THROUGH DECEMBER 2020, REPRESENTED BY EACH COUNTERPARTY TYPE

Transacting agents Number Percent 

Transaction 

share 

% 

Investment Advisers .................................................................................................................... 1,823 78.5 14.2 

—SEC registered ......................................................................................................................... 734 31.6 9.5 

Banks ........................................................................................................................................... 274 11.8 3.3 

Pension Funds ............................................................................................................................. 30 1.3 0.1 

Insurance Companies .................................................................................................................. 48 2.1 0.2 

ISDA-Recognized SBS Dealers 356 ............................................................................................. 17 0.7 82.1 

Other 357 ....................................................................................................................................... 129 5.6 0.2 

Total ...................................................................................................................................... 2,321 100.0 100 

Principal holders of CDS risk 

exposure are represented by ‘‘accounts’’ 

in the TIW.358 The staff’s analysis of 

these accounts in TIW shows that the 

2,321 transacting agents classified in 

Table 1 represent 15,187 principal risk 

holders. Table 2 below classifies these 

principal risk holders by their 

counterparty type and whether they are 

represented by a registered or 

unregistered investment adviser.359 For 

instance, banks in Table 1 allocated 

transactions across 370 accounts, of 

which 35 were represented by 

investment advisers. In the remaining 

instances, banks traded for their own 

accounts. Meanwhile, ISDA-recognized 

SBS dealers in Table 1 allocated 

transactions across 104 accounts. 

Private funds are the largest type of 

account holders that the Commission 

was able to classify, and although not 

verified through a recognized database, 

most of the funds we were not able to 

classify appear to be private funds.360


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28941 

361This column reflects the number of 

participants who are also trading for their own 

accounts. 

362These estimates were calculated by 

Commission staff using TIW data. 

363See Charles Levinson, U.S. banks moved 

billions in trades beyond the CFTC’s reach, Reuters 

(August 21, 2015) (retrieved from Factiva database). 

The estimates of 21 and 25 were calculated by 

Commission staff using TIW data. 

364The available data do not include all SBS 

transactions but only transactions in single-name 

CDS that involve either (1) at least one account 

domiciled in the United States (regardless of the 

reference entity); or (2) single-name CDS on a U.S. 

reference entity (regardless of the U.S.-person status 

of the counterparties). 

TABLE 2—THE NUMBER AND PERCENTAGE OF ACCOUNT HOLDERS—BY TYPE—WHO PARTICIPATE IN THE SBS MARKET

THROUGH A REGISTERED INVESTMENT ADVISER, AN UNREGISTERED INVESTMENT ADVISER, OR DIRECTLY AS A

TRANSACTING AGENT, FROM NOVEMBER 2006 THROUGH DECEMBER 2020 

Account holders by 

type 

Number Represented by a registered 

investment adviser 

Represented by an unregistered 

investment adviser 

Participant is transacting 

agent 361

Private Funds ............... 4,447 2,283 51% 2,089 47% 75 2% 

DFA Special Entities .... 1,542 1,476 96% 43 3% 23 1% 

Registered Investment 

Companies ............... 1,382 1,295 94% 82 6% 5 0% 

Banks (non-ISDA-recognized SBS dealers) 370 26 7% 9 2% 335 91% 

Insurance Companies .. 341 210 62% 46 13% 85 25% 

ISDA-Recognized SBS 

Dealers ..................... 104 0 0% 0 0% 104 100% 

Foreign Sovereigns ...... 93 67 72% 6 6% 20 22% 

Non-Financial Corporations .......................... 125 93 74% 10 8% 22 18% 

Finance Companies ..... 59 43 73% 0 0% 16 27% 

Other/Unclassified ........ 6,724 4,081 61% 2,348 35% 295 4% 

All .......................... 15,187 9,574 63% 4,633 31% 980 6% 

c. SBS Market Participant Domiciles 

As depicted in Figure 1 below, 

domiciles of new accounts participating 

in the SBS market have shifted over 

time. It is unclear whether these shifts 

represent changes in the types of 

participants active in this market, 

changes in reporting, or changes in 

transaction volumes in particular 

underliers. For example, the percentage 

of new entrants that are foreign accounts 

increased from 24.4% in the first quarter 

of 2008 to approximately 50% in the 

last quarter of 2020, which might reflect 

an increase in participation by foreign 

account holders in the SBS market, 

though the total number of new entrants 

that are foreign accounts decreased from 

112 in the first quarter of 2008 to 38 in 

the last quarter of 2020.362 Additionally, 

the percentage of the subset of new 

entrants that are foreign accounts 

managed by U.S. persons increased from 

4.6% in the first quarter of 2008 to 

11.8% in the last quarter of 2020, and 

the absolute number changed from 21 to 

9, which also might reflect more 

specifically the flexibility with which 

market participants can restructure their 

market participation in response to 

regulatory intervention, competitive 

pressures, and other incentives.363 At 

the same time, apparent changes in the 

percentage of new accounts with foreign 

domiciles might also reflect 

improvements in reporting by market 

participants to TIW, an increase in the 

percentage of transactions between U.S. 

and non-U.S. counterparties, and/or 

increased transactions in single-name 

CDS on U.S. reference entities by 

foreign persons.364

BILLING CODE 8011–01–P 


jspears on DSK121TN23PROD with PROPOSALS2
28942 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

365The start of this decline predates the 

enactment of the Dodd-Frank Act and the proposal 

of rules thereunder, which is important to note for 

the purpose of understanding the economic 

baseline for this rulemaking. 

366This estimate is lower than the gross notional 

amount of $3.5 trillion noted in section XIX(B)(1), 

supra, as it includes only the subset of single-name 

CDS referencing North American corporate 

documentation. 

BILLING CODE 8011–01–C 

Figure 2 below describes the 

percentage of global, notional 

transaction volume in North American 

corporate single-name CDS reported to 

TIW between January 2011 and 

December 2020, separated by whether 

transactions are between two ISDArecognized SBS dealers (‘‘interdealer 

transactions’’) or whether a transaction 

has at least one non-SBS dealer 

counterparty. Figure 2 also shows that 

the portion of the notional volume of 

North American corporate single-name 

CDS represented by interdealer 

transactions has remained fairly 

constant through 2015, before falling 

from approximately 68% in 2015 to 

under 40% in 2020. This fall 

corresponds to the availability of 

clearing to non-SBS dealers. Interdealer 

transactions continue to represent a 

significant fraction of trading activity, 

even as notional volume has declined 

over the past ten years,365 from just 

under $2 trillion in 2011 to less than 

$500 billion in 2020.366


jspears on DSK121TN23PROD with PROPOSALS2EP11MY22.000</GPH>
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28943 

367For purposes of this discussion, the 

Commission has assumed that the registered office 

location reflects the place of domicile for the fund 

or account, but the Commission notes that this 

domicile does not necessarily correspond to the 

location of an entity’s sales or trading desk. See 

ANE Adopting Release, 81 FR at 8607, n. 83. 

The high level of interdealer trading 

activity reflects the central position of a 

small number of SBS dealers, each of 

which intermediates trades with many 

hundreds of counterparties. While the 

Commission is unable to quantify the 

current level of trading costs for singlename CDS, these SBS dealers appear to 

enjoy market power as a result of their 

small number and the large proportion 

of order flow that they privately 

observe. 

Against this backdrop of declining 

North American corporate single-name 

CDS activity, about half of the trading 

activity in North American corporate 

single-name CDS reflected in the set of 

data that the Commission analyzed was 

between counterparties domiciled in the 

United States and counterparties 

domiciled abroad, as shown in Figure 3 

below. Using the self-reported registered 

office location of the TIW accounts as a 

proxy for domicile, the Commission 

estimates that only 13% of the global 

transaction volume by notional volume 

between 2008 and 2020 was between 

two U.S.-domiciled counterparties, 

compared to 49% entered into between 

one U.S.-domiciled counterparty and a 

foreign-domiciled counterparty, and 

38% entered into between two foreigndomiciled counterparties.367

If the Commission instead considers 

the number of cross-border transactions 

from the perspective of the domicile of 

the corporate group (e.g., by classifying 

a foreign bank branch or foreign 

subsidiary of a U.S. entity as domiciled 

in the United States), the percentages 

shift significantly. Under this approach, 

the fraction of transactions entered into 

between two U.S.-domiciled 

counterparties increases to 35%, and to 

50% for transactions entered into 

between a U.S.-domiciled counterparty 

and a foreign-domiciled counterparty. 

By contrast, the proportion of activity 

between two foreign-domiciled 

counterparties drops from 38% to 15%. 

This change in respective shares based 

on different classifications suggests that 

the activity of foreign subsidiaries of 

U.S. firms and foreign branches of U.S. 

banks accounts for a higher percentage 

of SBS activity than U.S. subsidiaries of 

foreign firms and U.S. branches of 

foreign banks. It also demonstrates that 

financial groups based in the United 

States are involved in an overwhelming 

majority (approximately 85%) of all 

reported transactions in North American 

corporate single-name CDS. 

Financial groups based in the United 

States are also involved in a majority of 

interdealer transactions in North 


jspears on DSK121TN23PROD with PROPOSALS2EP11MY22.001</GPH>
28944 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

368Since the Commission is unable to pair up the 

same-day cleared trades, this 81% estimate is based 

on bilateral trades that were not same-day cleared. 

369See proposed Rule 802. In considering a block 

trade definition, the Commission also took into 

consideration that FINRA applies a $5 million cap 

when disseminating transaction reports of 

economically similar cash debt securities. See supra 

section VII(E). 

American corporate single-name CDS. 

Of the 2020 transactions on North 

American corporate single-name CDS 

between two ISDA-recognized SBS 

dealers and their branches or affiliates, 

81% of transaction notional volume 

involved at least one account of an 

entity with a U.S. parent.368 The 

Commission notes, in addition, that a 

majority of North American corporate 

single-name CDS transactions occur in 

the interdealer market or between SBS 

dealers and foreign non-SBS dealers, 

with the remaining portion of the 

market consisting of transactions 

between SBS dealers and U.S.-person 

non-SBS dealers. Specifically, 81% of 

North American corporate single-name 

CDS transactions involved either two 

ISDA-recognized SBS dealers or an 

ISDA-recognized SBS dealer and a 

foreign non-SBS dealer. Approximately 

19% of such transactions involved an 

ISDA-recognized SBS dealer and a U.S.- 

person non-SBS dealer. 

BILLING CODE 8011–01–C 

3. Distribution of Transaction Size 

In proposing the definition of a block 

trade, the Commission has considered 

the distribution of transaction size in 

the single-name CDS market, which the 

Commission believes is representative 

of the market for SBS based on a single 

credit instrument (or issuer of credit 

instruments) or a narrow-based index of 

credit instruments (or issuers of credit 

instruments).369 Table 3 reports the total 

number of newly initiated price-forming 

CDS transactions referencing North 

American corporate single-name 

reference entities. The table also reports 

the number and percentage of such 

transactions with a size (notional 

amount) of at least $5 million. These 

statistics are reported for each year 

between 2011 and 2020 and for the 

entire ten-year period. 

Overall, the number of newly initiated 

price-forming transactions exhibited a 

declining trend between 2011 and 2020. 

The number of such transactions 

decreased from around 180,000 in 2011 

to around 90,000 in 2019, with an 

uptick to around 127,000 transactions in 

2020. The number of newly initiated 

price-forming transactions with a 

notional size of at least $5 million also 

exhibits a declining trend between 2011 

and 2020, but without an uptick in 

2020. As a percentage of all newly 

initiated price-forming transactions, 

those with a notional size of at least $5 

million fell from 88% to 23% between 

2011 and 2020. 


jspears on DSK121TN23PROD with PROPOSALS2EP11MY22.002</GPH>
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28945 

370See Rule 194 Proposing Release, 80 FR at 

51711. 

371According to data published by BIS, as of 

December 2020, the global swap market 

(comprising, for purposes of this discussion, IRS, 

foreign exchange swaps, multi-name index CDS, 

and commodity swaps) had a global notional 

amount outstanding of approximately $571 trillion, 

while the global SBS market (comprising, for 

purposes of this discussion, single-name equity 

swaps and forwards and single-name CDS) had a 

global notional amount outstanding of 

approximately $7.1 trillion. The global notional 

amount outstanding in single-name CDS was 

approximately $3.5 trillion and in multi-name 

index CDS was approximately $4.5 trillion. The 

Commission preliminarily believes that the relative 

magnitudes presented by these statistics for the 

global OTC derivatives market are also 

representative of the U.S. OTC derivatives markets. 

See Table D5.2, BIS, supra note 345; Table D5.1, 

BIS, supra note 347. See also supra section 

XIX(B)(1). 

372 ‘‘Correlation’’ typically refers to linear 

relationships between variables; ‘‘dependence’’ 

captures a broader set of relationships that may be 

more appropriate for certain swaps and SBS. See, 

e.g., George Casella & Roger L. Berger, Statistical 

Inference 171 (2nd ed. 2002). 

373See Business Conduct Adopting Release, 81 

FR at 30108; Christopher L. Culp, Andria van der 

Merwe, & Bettina J. Starkle, Single-name Credit 

Default Swaps: A Review of the Empirical 

Academic Literature 71–85 (ISDA Study, September 

2016), available at https://www.isda.org/a/KSiDE/ 

single-name-cdsliterature-review-culp-van-dermerwe-staerkleisda.pdf; Patrick Augustin, Marti G. 

Subrahmanyam, Dragon Y. Tang, & Sarah Q. Wang, 

Credit Default Swaps: Past, Present, and Future, 8 

Ann. Rev. Fin. Econ. 175 (2016). 374See supra note 17. 

375For purposes of this discussion, options on 

index CDS and index CDS tranches are included as 

part of index CDS. For SEFs that list index CDS for 

trading, see BGC SEF Contract Specifications 

(January 21, 2022), available at http://

www.bgcsef.com/wp-content/uploads/2022/01/ 

BGC-SEF-Contract-Specifications_01-21-22.pdf; 

Bloomberg SEF LLC Rulebook (February 24, 2022), 

available at https://assets.bbhub.io/professional/ 

sites/10/BSEF-Rulebook.pdf; GFI Swaps Exchange: 

Products & Contract Specifications, GFI Group, 

available at http://www.gfigroup.com/markets/gfisef/products/; ICE Swap Trade, LLC, Swap 

Execution Facility Rulebook Version: 2.38 (effective 

December 15, 2021), available at https://

www.theice.com/publicdocs/swap_trade/ 

Rulebook.pdf; Letter from Ron Steinfeld, CCO, 

MarketAxess SEF Corp., to CFTC regarding Listing 

Products for Trading by Certification Pursuant to 

CFTC Rule 40.2 (January 13, 2015), available at 

https://content.marketaxess.com/sites/default/files/ 

marketaxess-sef-product-listing-filing-andappendices-january-13-2015.pdf; TW SEF LLC, 

Swap Execution Facility Rules (effective October 1, 

2021), available at https://www.tradeweb.com/ 

4a7851/globalassets/our-businesses/marketregulation/sef-rulebook-oct-1-2021/tw-sef-rulebook_

9.17.21.pdf; Category: Rulebook, Tradition SEF, 

available at https://www.traditionsef.com/ 

Continued 

TABLE 3—THE DISTRIBUTION OF NORTH AMERICAN CORPORATE SINGLE-NAME CDS TRADE SIZES

Number of 

transactions 

Number of 

transactions 

with size of 

at least $5 

million 

Percentage of 

transactions 

with size of 

at least 

$5 million 

2011 ............................................................................................................................................. 180,700 159,061 88 

2012 ............................................................................................................................................. 165,479 121,151 73 

2013 ............................................................................................................................................. 130,570 87,515 67 

2014 ............................................................................................................................................. 127,410 80,122 63 

2015 ............................................................................................................................................. 107,698 53,991 50 

2016 ............................................................................................................................................. 97,459 37,273 38 

2017 ............................................................................................................................................. 80,513 33,695 42 

2018 ............................................................................................................................................. 88,787 34,840 39 

2019 ............................................................................................................................................. 89,823 34,811 39 

2020 ............................................................................................................................................. 127,379 29,354 23 

2011–2020 ................................................................................................................................... 1,195,816 671,810 56 

4. Other Markets and Regulatory 

Frameworks 

The numerous financial markets are 

integrated, often attracting the same 

market participants that trade across 

corporate bond, swap, and SBS markets, 

among others.370 This is 

notwithstanding the fact that the SBS 

market is a small fraction of the swap 

market and the single-name CDS 

market, which falls under SEC 

jurisdiction, is smaller than the index 

CDS market, which falls under CFTC 

jurisdiction.371 For example, persons 

who register as SBS dealers and major 

SBS participants are likely also to be 

engaged in swap activity. In part, this 

overlap reflects the relationship 

between single-name CDS contracts, 

which are SBS, and index CDS 

contracts, which may be swaps or SBS. 

A single-name CDS contract covers 

default events for a single reference 

entity or reference security. Index CDS 

contracts and related products make 

payouts contingent on the default of 

index components and allow 

participants in these instruments to gain 

exposure to the credit risk of the basket 

of reference entities that comprise the 

index, which is a function of the credit 

risk of the index components. A default 

event for a reference entity that is an 

index component will result in payoffs 

on both single-name CDS written on the 

reference entity and index CDS written 

on indices that contain the reference 

entity. Because of this relationship 

between the payoffs of single-name CDS 

and index CDS products, the prices of 

these products depend upon one 

another,372 creating hedging 

opportunities across these markets. 

These hedging opportunities mean 

that participants that are active in one 

market are likely to be active in the 

other. Commission staff analysis of 

approximately 4149 TIW accounts that 

participated in the market for singlename CDS in 2020 revealed that 

approximately 3096 of those accounts, 

or 75%, also participated in the market 

for index CDS. Of the accounts that 

participated in both markets, data 

regarding transactions in 2020 suggest 

that, conditional on an account 

transacting in notional volume of index 

CDS in the top third of accounts, the 

probability of the same account landing 

in the top third of accounts in terms of 

single-name CDS notional volume is 

approximately 61%; by contrast, the 

probability of the same account landing 

in the bottom third of accounts in terms 

of single-name CDS notional volume is 

only 11%. As a result of cross-market 

participation, informational efficiency, 

pricing and liquidity may spill over 

across markets.373

Of the 44 registered SBS dealers, 41 

are dually registered with the CFTC as 

swap dealers and are therefore subject to 

CFTC requirements for entities 

registered with the CFTC as swap 

dealers. Further, of the 44 registered 

SBS dealers, 27 have a prudential 

regulator. 

5. Number of Entities That Likely Will 

Register as SBSEFs 

Entities that will seek to register with 

the Commission as SBSEFs are likely to 

be SEFs that are active in the index CDS 

market. Currently, 20 SEFs have 

permanent or temporary registration 

with the CFTC.374 Of these SEFs, eight 

list index CDS for trading.375 If these 


jspears on DSK121TN23PROD with PROPOSALS2
28946 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

regulatory/filter/rulebook/all/all; tpSEF Inc. 

rulebook, tpSEF Inc., tpSEF Inc. Rulebook 

Appendix B: tpSEF Inc. Swap Specifications 

(effective July 2, 2021), available at https://

www.tullettprebon.com/swap_execution_facility/ 

documents/tpSEF%20-%20Rulebook%20- 

%20Appendix%20B%20- 

%20Swap%20Specifications.pdf?20211031. 

376 Index CDS volume traded on SEFs is from 

Futures Industry Association’s SEF Tracker. See 

SEF Tracker Historical Volume, FIA, available at 

https://www.fia.org/monthly-volume. 

377Beginning on November 8, 2021, market 

participants were required to report SBS 

transactions to registered SDRs pursuant to 

Regulation SBSR. 

378See G20, Leaders’ Statement: The Pittsburgh 

Summit (September 24–25, 2009) at paragraph 13. 

379See, e.g., G20, Toronto Summit Declaration 

(June 27, 2010) at Annex II paragraph 25; Cannes 

Summit Final Declaration—Building Our Common 

Future: Renewed Collective Action for the Benefit of 

All (November 4, 2011) at paragraph 24. 

380See supra note 94. 

381Apart from the 12 foreign jurisdictions, the 

United States is considered to have platform trading 

requirements in place based on the CFTC’s 

implementation of platform trading requirements. 

See FSB, OTC Derivatives Market Reforms: 

Implementation Progress in 2021 Tables 1 & K 

(December 3, 2021), available at https://

www.fsb.org/2021/12/otc-derivatives-marketreforms-implementation-progress-in-2021/ 

(describing progress made towards implementing 

platform trading requirements in 2021); FSB, OTC 

Derivatives Market Reforms: 2019 Progress Report 

on Implementation Table A (October 15, 2019), 

available at https://www.fsb.org/2019/10/otcderivatives-market-reforms-2019-progress-reporton-implementation/ (discussing the CFTC’s 

implementation of platform trading requirements). 

382These jurisdictions are China (bond forwards; 

certain currency forwards, options, and swaps); the 

European Union (certain index CDS; certain IRS 

denominated in Euro, U.S. dollar, and British 

pound); India (certain overnight index swaps); 

Indonesia (equity and commodity derivative 

products); Japan (selected Yen-denominated IRS); 

Mexico (certain Peso-denominated IRS); and 

Singapore (certain IRS denominated in Euro, US 

dollar, and British pound). See FSB, 2019 Progress 

Report, supra note 381, Table R. In its 2021 report, 

see supra note 381, the FSB noted no change in 

status in the implementation of platform trading 

requirements, including platform trading 

determinations, since its 2019 report. 

SEFs were to list single-name CDS or 

other SBS for trading, they would be 

required to register as SBSEFs with the 

Commission. In 2021, index CDS 

volume on U.S. SEFs was distributed as 

follows: One SEF had the largest share 

of index CDS volume (in notional 

amount) at $8 trillion (69%); one SEF 

had the second largest share at $2.1 

trillion (18%); and the remaining 13% 

of volume was shared among the other 

five SEFs.376 The Commission 

preliminarily believes that the number 

of SBSEF registrants most likely falls 

between two and eight, but 

acknowledges uncertainty around the 

upper end of this estimate. The 

Commission preliminarily believes that 

the likely number of SBSEF registrants 

would be five. The Commission invites 

commenters to provide feedback on the 

number of entities that will register as 

SBSEFs. 

6. SBS Trading on Platforms 

By analyzing SBS transactions 

reported to registered SDRs,377 the 

Commission has obtained a 

preliminarily estimate of the extent of 

SBS trading on platforms. Of the new 

transactions in credit SBS executed 

between November 8, 2021 and 

February 28, 2022, 6,131 were executed 

on platforms (2% of all new transactions 

in credit SBS transactions). During the 

same period, 44 new transactions in 

equity SBS were executed on platforms 

(less than 0.01% of all new transactions 

in equity SBS transactions), while no 

new transactions in interest rate SBS 

were executed on platforms. These 

observations suggest that the vast 

majority of SBS trading continues to be 

conducted bilaterally in the OTC 

market. The Commission invites 

commenters to provide feedback on the 

extent of SBS trading on platforms. 

The Commission preliminarily 

identifies 11 platforms on which new 

SBS transactions were executed 

between November 8, 2021 and 

February 28, 2022. Of these 11 

platforms, ten are foreign SBS trading 

venues and one is a U.S. SBS trading 

venue that is affiliated with a CFTCregistered SEF. Of the new transactions 

in credit SBS executed between 

November 8, 2021 and February 28, 

2022, 2,126 were executed on non-U.S. 

platforms and involved at least one 

counterparty that is a U.S. person or a 

non-U.S. person whose performance 

under the SBS is guaranteed by a U.S. 

person (0.7% of all new transactions in 

credit SBS transactions). During the 

same period, 30 new transactions in 

equity SBS were executed on a non-U.S. 

platform and involved at least one 

counterparty that is a U.S. person or a 

non-U.S. person whose performance 

under the SBS is guaranteed by a U.S. 

person (less than 0.01% of all new 

transactions in equity SBS transactions). 

7. Global Regulatory Efforts 

In 2009, the G20 leaders—whose 

membership includes the United States, 

18 other countries, and the European 

Union—addressed global improvements 

in the OTC derivatives market. They 

expressed their view on a variety of 

issues relating to OTC derivatives 

contracts.378 In subsequent summits, the 

G20 leaders have returned to OTC 

derivatives regulatory reform and 

encouraged international consultation 

in developing standards for these 

markets.379

Foreign legislative and regulatory 

efforts have generally focused on five 

areas: (1) Moving standardized OTC 

derivatives onto organized trading 

platforms; (2) requiring central clearing 

of OTC derivatives; 380 (3) requiring 

post-trade reporting of transaction data 

to trade repositories; (4) establishing or 

enhancing capital requirements for noncentrally cleared OTC derivatives 

transactions; and (5) establishing or 

enhancing margin and other risk 

mitigation requirements for noncentrally-cleared OTC derivatives 

transactions. The rules being proposed 

in this release concern the registration 

and regulation of SBSEFs, a type of 

organized trading platform. 

As of the end of 2021, platform 

trading requirements were in force in 12 

foreign jurisdictions while seven 

jurisdictions were in the process of 

proposing legislation or rules to 

implement platform trading 

requirements.381 Seven foreign 

jurisdictions have made determinations 

with respect to the specific OTC 

derivatives that are required to be traded 

on platforms.382

8. Trading Models 

Unlike the markets for cash equity 

securities and listed options, the market 

for SBS currently is characterized by 

bilateral negotiation in the OTC swap 

market; is largely decentralized; has 

many non-standardized instruments; 

and has many SBS that are not centrally 

cleared. The lack of uniform rules 

concerning the trading of SBS and the 

one-to-one nature of trade negotiation in 

SBS has resulted in different models for 

the trading of these securities, ranging 

from bilateral negotiations carried out 

over the telephone, to RFQ systems (e.g., 

single-dealer and multi-dealer RFQ 

platforms) and central limit order books 

outside the United States, as more fully 

described below. The use of electronic 

media to execute transactions in SBS 

varies greatly across trading models, 

with some models being highly 

electronic whereas others rely almost 

exclusively on non-electronic means 

such as the telephone. The reasons for 

use of, or lack of use of, electronic 

media vary from such factors as user 

preference to limitations in the existing 

infrastructure of certain trading 

platforms. The description below of the 

ways in which SBS may be traded is 

based in part on discussions with 

market participants. The Commission 

solicits comments on the accuracy of 

this description. 

The Commission uses the term 

‘‘bilateral negotiation’’ to refer to the 

model whereby one party uses the 

telephone, email, or other 

communications to contact directly a 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28947 

383See, e.g., Trade Acknowledgement and 

Verification Adopting Release, 81 FR at 39809. 

384See Lynn Riggs, Esen Onur, David Reiffen, and 

Haoxiang Zhu, Swap Trading After Dodd-Frank: 

Evidence from Index CDS, 137 J. Financial 

Economics 857 (2020) (finding that, in the index 

CDS market, an initiating participant is more likely 

to send RFQs to its relationship dealers, i.e., its 

clearing members or dealers with whom it has 

traded more actively in the recent past). 

385See id. (finding that, in the index CDS market, 

a dealer’s response rate to an RFQ declines with the 

number of dealers included in the RFQ). 

386See Amendments to Exchange Act Rule 3b–16 

Regarding the Definition of ‘‘Exchange’’; Regulation 

ATS for ATSs That Trade U.S. Government 

Securities, NMS Stocks, and Other Securities; 

Regulation SCI for ATSs That Trade U.S. Treasury 

Securities and Agency Securities SEA Release No. 

94062 (January 26, 2022), 87 FR 15496 (March 18, 

2022) (‘‘ATS–G Proposal’’), section VIII(B)(1)(a) 

therein. 

387Under CFTC rules applicable to the swap 

market, § 37.9(f) prohibits the practice of post-trade 

name give-up for swaps that are executed, prearranged, or pre-negotiated anonymously on or 

pursuant to the rules of a SEF and intended to be 

cleared, subject to an exception related to certain 

package transactions. See supra section VII(E) 

(discussing proposed Rule 815). 

388See Public Law 111–203, section 763(a) 

(adding section 3C(a)(1) of the SEA). 

389See Public Law 111–203, section 763(a) 

(adding section 3C(h) of the SEA). See also Public 

Law 111–203, section 761(a) (adding section 

3(a)(77) of the SEA to define the term ‘‘securitybased swap execution facility’’). 

potential counterparty to negotiate an 

SBS transaction. Once the terms are 

agreed, the SBS transaction is executed 

and the terms are memorialized.383 In a 

bilateral negotiation, there might be no 

pre-trade or post-trade transparency 

available to the market place because 

only the two parties to the transaction 

are aware of the terms of the negotiation 

and the final terms of the agreement. 

Further, no terms of the proposed 

transaction are firm until the transaction 

is executed. However, reputational costs 

generally serve as a deterrent to either 

party’s failing to honor any quoted 

terms. Dealer-to-customer bilateral 

negotiation currently is used for all SBS 

asset classes, and particularly for 

trading in less liquid SBS, in situations 

where the parties prefer a privately 

negotiated transaction, such as for a 

large notional transaction, or in other 

circumstances in which it is not costeffective for a party to the trade to use 

one of the execution methods described 

below. 

Another model for the trading of SBS 

is the RFQ system. An RFQ system 

typically allows market participants to 

obtain quotes for a particular SBS by 

simultaneously sending messages to one 

or more potential respondents (SBS 

dealers).384 The initiating participant is 

typically required to provide 

information related to the request in a 

message, which may include the name 

of the initiating participant, SBS 

identifier, side, and size. SBS dealers 

that observe the initiating participant’s 

request have the option to respond to 

the request with a price quote.385 These 

respondents are often, though not 

always, pre-selected. The initiating 

participant can then select among the 

respondents by either accepting one of 

multiple responses or rejecting all 

responses, usually within a ‘‘good for’’ 

time period. After the initiating 

participant and a respondent agree on 

the terms of the trade, the trade will 

then proceed to post-trade processing. 

RFQ systems provide a certain degree 

of pre-trade transparency in that the 

initiating participant can observe the 

quotes it receives (if any) in response to 

its RFQ. The number of quotes received 

depends, in part, on the number of 

respondents that are invited to 

participate in the RFQ. As the 

Commission discussed elsewhere, 

several factors may influence the 

number of respondents that are invited 

to participate in an RFQ.386 First, the 

RFQ system itself may limit the total 

number of respondents that can be 

selected for a single RFQ, typically to 

five counterparties. This limitation may 

encourage SBS dealers to respond to 

RFQs, since it reduces the number of 

other SBS dealers they would compete 

with in any give request session. 

Second, the initiating participant may 

have an incentive to limit the degree of 

information leakage. If the trade the 

initiating participant is seeking to 

complete with the help of the RFQ is 

not completely filled in that one 

session, and other participants know 

this, quotes the initiating participant 

receives elsewhere may be affected, 

including in subsequent RFQ sessions. 

Third, respondents and initiators both 

have an incentive to limit price impact 

because of the expense it will add to the 

offsetting trade that must follow. 

Specifically, an SBS dealer who takes a 

position to fill a customer order through 

an RFQ will often subsequently offset 

that position in the interdealer market. 

If a large number of SBS dealers are 

invited to participate in an RFQ, this 

would lead to widespread knowledge 

that the SBS dealer with the winning 

bid will now try to offset that position, 

which could impact the prices available 

to that dealer in the interdealer market. 

A third model for the trading of SBS 

is a limit order book system or similar 

system, which the Commission 

understands is not yet in operation for 

the trading of SBS in the United States 

but exists for the trading of SBS in 

Europe. Today, securities and futures 

exchanges in the United States display 

a limit order book in which firm bids 

and offers are posted for all participants 

to see, with the identity of the parties 

withheld until a transaction occurs.387

Bids and offers are then matched based 

on price-time priority or other 

established parameters and trades are 

executed accordingly. The quotes on a 

limit order book system are firm. In 

general, a limit order book system also 

provides greater pre- trade transparency 

than the two models described above, 

because participants can view bids and 

offers before placing their bids and 

offers. However, broadly 

communicating trading interest, 

particularly about a large trade, might 

increase hedging costs, and thus costs to 

investors, as reflected in the prices from 

the SBS dealers. The system can also 

provide post-trade transparency, to the 

extent that participants can see the 

terms of executed transactions. 

The three models described above 

represent broadly the types of trading of 

SBS in the OTC market today. These 

examples may not represent every 

method in existence today, but the 

discussion above is intended to give an 

overview of the models without 

providing the nuances of each particular 

type. 

C. Benefits, Costs, and Reasonable 

Alternatives 

This section discusses the benefits 

and costs of the proposal. The section 

also discusses a number of alternatives 

that the Commission considered when 

formulating the proposed rules and 

amendments. 

The Commission’s consideration of 

the benefits and costs of the proposal 

takes into account the connection 

between the trade execution 

requirement and the mandatory clearing 

requirement mandated by Congress. The 

Dodd-Frank Act amends the SEA to 

require, among other things, the 

following with respect to SBS 

transactions: (1) Transactions in SBS 

must be cleared through a clearing 

agency if they are required to be 

cleared; 388 and (2) if the SBS is subject 

to the clearing requirement, the 

transaction must be executed on an 

exchange or on an SBSEF registered 

under section 3D of the SEA or an 

SBSEF exempt from registration under 

section 3D(e) of the SEA, unless no 

SBSEF or exchange makes such SBS 

available for trading or the SBS is 

subject to the clearing exception in 

section 3C(g) of the SEA.389 The benefits 

and costs associated with the trade 

execution requirement would not 

materialize unless and until the 

Commission makes mandatory clearing 

determinations, i.e., determining what 


jspears on DSK121TN23PROD with PROPOSALS2
28948 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

390 In section XX infra, for purposes of the PRA, 

the Commission preliminarily estimates burdens 

applicable to a stand-alone SBSEF. However, the 

Commission preliminarily believes that most if not 

all SBSEFs will be dually registered with the CFTC 

as SEFs, and thus will already be complying with 

relevant CFTC rules that have analogs to rules 

contained within proposed Regulation SE. 

Therefore, the Commission’s burden estimates may 

be larger for stand-alone SBSEF than may exist in 

practice, considering the effect of overlapping CFTC 

rules. 

391 In certain prior Title VII releases, the 

Commission had referred to such costs and benefits 

as programmatic costs and benefits. See, e.g., 

Regulation SBSR Adopting Release I. 

392For example, proposed Rule 826 would, 

among other things, require an SBSEF to maintain 

records of its business activities (including a 

complete audit trail) for a period of five years and 

report to the Commission such information as the 

Commission determines to be necessary or 

appropriate for performing the duties of the 

Commission under the SEA. See also the discussion 

below on how the proposal would provide the 

means for the Commission to gain better insight 

into and oversight of SBSEFs and the SBS market. 

393Proposed Rules 803(a)(2) and (3) would 

require an SBSEF to offer, at a minimum, an order 

book for SBS trading, subject to certain exceptions 

related to package transactions. Proposed Rule 815 

would require SBS transactions subject to the trade 

execution requirement to be executed using either 

an order book or via an RFQ-to-3 system. Proposed 

Rule 816 would set forth the process by which an 

SBSEF would subject an SBS to the trade execution 

requirement. Proposed Rule 832 would describe 

those cross-border SBS transactions that would be 

subject to the trade execution requirement. 

394See, e.g., Ananth Madhavan, Market 

Microstructure: A Practitioner’s Guide, Fin. 

Analysts J., Vol. 58, at 38 (2002) (nondisclosure of 

pre-trade price information benefits dealers by 

reducing price competition). 

395See, e.g., Ekkehart Boehmer, et al., Lifting the 

Veil: An Analysis of Pre-trade Transparency at the 

NYSE, J. Fin., Vol. LX (2005) (greater pre-trade price 

transparency leads to more efficient pricing). 

396See Evangelos Benos, Richard Payne, and 

Michalis Vasios, Centralized Trading, 

Transparency, and Interest Rate Swap Market 

Liquidity: Evidence from the Implementation of the 

Dodd-Frank Act, 55 J. Fin. and Quantitative 

Analysis 159 (2020) (finding, among other things, 

that imposition of the CFTC’s trade execution 

requirement improved the liquidity of IRS that were 

subject to the requirement, and that the liquidity 

improvement was associated with more intense 

competition between swap dealers); Y.C. Loon and 

Zhaodong (Ken) Zhong, Does Dodd-Frank Affect 

OTC Transaction Costs and Liquidity? Evidence 

from Real-Time CDS Trade Reports, 119 J. Fin. 

Econ. 645 (2016) (finding that index CDS 

transactions executed on SEFs have lower 

transaction costs and improved liquidity than index 

CDS transactions executed bilaterally). 

SBS transactions must be cleared by a 

clearing agency. 

The Commission preliminarily 

believes that the general approach to 

proposing requirements relating to SBS 

execution could mitigate costs 

associated with the proposal. As 

discussed in section III, the 

Commission’s approach is to harmonize 

as closely as practicable with analogous 

CFTC rules for SEFs, unless a reason 

exists to do otherwise in a particular 

area. Based on the Commission’s 

preliminarily belief that SBSEF 

registrants likely would be registered 

SEFs that have established systems and 

policies and procedures to comply with 

CFTC rules, the Commission’s general 

approach likely would result in 

compliance costs for registered SBSEFs 

that are lower than compliance costs 

that would have resulted had the 

Commission chosen not to follow the 

CFTC’s approach.390

In assessing the economic impact of 

the proposed rules, the Commission 

considers the broader costs and benefits 

associated with the application of the 

proposed rules, including the costs and 

benefits of applying the substantive 

Title VII requirements to the trading of 

SBS.391 The Commission’s analysis also 

considers ‘‘assessment’’ costs—i.e., 

those that arise from current and future 

market participants expending resources 

to assess how they will be affected by 

Regulation SE, and could incur 

expenses in making this assessment 

even if they ultimately are not subject to 

rules for which they made an 

assessment. 

Many of the benefits and costs 

discussed below are difficult to 

quantify. These benefits and costs 

would depend on how potential SBSEFs 

and their prospective members respond 

to the proposed rules, if adopted by the 

Commission. If potential SBSEFs 

perceive the costs associated with 

operating registered SBSEFs to be high, 

such that few or no entities come 

forward to register as SBSEFs, there 

could be no triggering of the trade 

execution requirement, which depends 

on MAT determinations made by 

registered SBSEFs (or exchanges). Under 

this scenario, the future state of the SBS 

market likely would not differ from the 

current baseline and the potential costs 

and benefits discussed below would not 

materialize. An alternative scenario is 

that prospective SBSEFs perceive the 

costs associated with operating 

registered SBSEFs to be high but 

nevertheless register as SBSEFs because 

they expect to be able to pass on such 

costs to their members to help maintain 

the commercial viability of operating a 

registered SBSEF. MAT determinations 

by registered SBSEFs would move 

trading of the products covered by the 

determinations onto SBSEFs, which 

could generate benefits and costs 

associated with increased pre-trade 

transparency, in addition to benefits and 

costs associated with the operation of 

regulated markets. A third possibility is 

that entities come forward to register as 

SBSEFs because they perceive the 

associated costs of operating SBSEFs to 

be low in light of the close 

harmonization of the proposed rules 

with analogous CFTC SEF rules. If these 

registered SBSEFs do not make MAT 

determinations and thus do not trigger 

the trade execution requirement, the 

benefits and costs associated with 

increased pre-trade transparency likely 

would not arise. If SBSEF trading is 

limited because of an absence of MAT 

determinations, the benefits and costs 

associated with the operation of 

regulated markets potentially would be 

limited as well. A fourth possibility is 

that entities do come forward to register 

as SBSEFs because they perceive the 

associated costs of operating SBSEFs to 

be low and these registered SBSEFs 

make MAT determinations and trigger 

the trade execution requirement. Under 

this scenario, the benefits and costs 

associated with increased pre-trade 

transparency and regulated markets 

likely would arise. The Commission 

does not have the data to determine 

which of the above possibilities will 

prevail should the proposed rules be 

adopted. 

The Commission has attempted to 

quantify economic effects where 

possible, but much of the discussion of 

economic effects is necessarily 

qualitative. The Commission requests 

comment and, with regard to any 

comments, such comments are of 

greatest assistance if they are 

accompanied by supporting data and 

analysis of the issues addressed. 

1. Overarching Benefits of the Proposal 

Broadly, the Commission anticipates 

that proposed Regulation SE may bring 

several overarching benefits to the SBS 

market. 

Improved Transparency. The proposal 

would enable the Commission to obtain 

information about SBSEFs, thereby 

facilitating the Commission’s oversight 

of these entities.392

In addition, the proposed 

requirements relating to pre-trade 

transparency would increase pre-trade 

transparency in the market for SBS.393

Increased pre-trade price transparency 

should allow an increased number of 

market participants to better see the 

trading interest of other market 

participants prior to trading, which 

should lead to increased price 

competition among market 

participants.394 The Commission 

preliminarily believes that the proposed 

requirements with respect to pre-trade 

price transparency should lead to more 

efficient pricing in the SBS market.395

Evidence from the swap market 

suggests that an increase in pre-trade 

transparency is associated with 

improved liquidity and reduced 

transaction costs.396 The Commission is 

not aware of any difference between the 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28949 

397See, e.g., Ananth Madhavan, et al., Should 

Securities Markets Be Transparent?, J. of Fin. 

Markets, Vol. 8 (2005) (finding that an increase in 

pre-trade price transparency leads to lower liquidity 

and higher execution costs, because limit-order 

traders are reluctant to submit orders given that 

their orders essentially represent free options to 

other traders). 

398See proposed Rules 819, 821, 822, and 826. 

399See supra section XIX(B)(2). 

400See proposed Rules 442 and 443; proposed 

amendments to Rules 101, 202, 210, 401, 450, and 

460. 

401See Public Law 111–203, Preamble. 

402See proposed Rules 804, 805, 806, and 807. 

403See proposed Rule 811. 

404See proposed Rules 819(d)(4) and 826. 

swap market and the SBS market that 

would cause the empirical findings 

regarding the impact of pre-trade price 

transparency on liquidity and 

transaction costs not to carry over into 

the SBS market, when implemented. 

The Commission is mindful that, under 

certain circumstances, pre-trade price 

transparency could also discourage the 

provision of liquidity by some market 

participants.397 However, the 

Commission preliminarily believes that 

by proposing two execution methods for 

Required Transactions (limit order book 

and RFQ-to-3), market participants have 

flexibility in the degree of pre-trade 

transparency they wish to employ, 

which should attenuate potential 

concerns associated with the exposure 

of pre-trade trading interest. 

Improved oversight of trading. 

Regulation SE would require, among 

other things, that SBSEFs maintain an 

audit trail and automated trade 

surveillance system; conduct real-time 

market monitoring; establish and 

enforce rules for information collection; 

and comply with reporting and 

recordkeeping requirements.398 These 

requirements are designed to provide an 

SBSEF with sufficient information to 

oversee trading on its market, including 

detecting and deterring abusive trading 

practices. 

This framework could enhance 

investor protection and increase 

confidence in a well-regulated market 

among SBS market participants, which 

could in turn make them more willing 

to increase their participation or entice 

new participants. An increase in 

participation in the SBS market would, 

all else being equal, benefit the SBS 

market as a whole. Further, to the extent 

that market participants utilize SBS to 

better manage their risk with respect to 

a position in underlying securities or 

assets, their participation in the SBS 

market could impact their willingness to 

participate in the underlying asset 

markets. Thus, the Commission 

preliminarily believes that the proposal 

could benefit the securities markets 

overall by encouraging a more efficient, 

and potentially higher, level of capital 

investment. 

Improved access and competition. 

Currently, the SBS market is dominated 

by a small group of SBS dealers.399 A 

mandatory clearing determination by 

the Commission, followed by a MAT 

determination by one or more SBSEFs 

or exchanges, should help foster greater 

competition in the trading of SBS by 

promoting greater order interaction and 

increasing access to and participation 

on SBSEFs. The proposed rules would 

provide a framework for allowing a 

number of trading venues to register as 

SBSEFs and thus more effectively 

compete for business in SBS. 

Furthermore, proposed Rule 827 is 

designed to promote competition 

generally by prohibiting an SBSEF from 

adopting any rules or taking any actions 

that unreasonably restrain trade, or 

imposing any material anticompetitive 

burden on trading or clearing. In 

addition, proposed Rule 819(c) would, 

among other things, require an SBSEF to 

provide any ECP with impartial access 

to its market(s) and market services. 

The proposed new rules and 

amendments to the Commission’s Rules 

of Practice would allow persons who are 

aggrieved by a final disciplinary action, 

a final action with respect to a denial or 

conditioning of membership, or a final 

action with respect to a denial or 

limitation of access by an SBSEF to seek 

an application for review by the 

Commission.400 These proposed rules 

and amendments are designed to 

improve access to SBSEFs by creating a 

procedure for making appeals to the 

Commission, thereby limiting the ability 

of an SBSEF to make a disciplinary 

action, denial or conditioning of 

membership, or denial or limitation of 

access without any recourse by the 

affected party. Taken together, these 

proposed rules and amendments should 

foster greater access to SBSEFs by SBS 

market participants, which in turn 

could promote greater participation by 

liquidity providers on SBSEFs. 

Increased participation could increase 

competition in liquidity provision and 

lower trading costs, which may lead to 

increased participation in the SBS 

market. 

Improved Commission oversight. One 

of the goals of the Dodd-Frank Act is to 

increase regulatory oversight of SBS 

trading relative to the existing OTC SBS 

market.401 The proposal would provide 

the means for the Commission to gain 

better insight into and oversight of 

SBSEFs and the SBS market by, among 

other things, allowing the Commission 

to review new rules, rule amendments, 

and product listings by SBSEFs 402 and 

to obtain other relevant information 

from SBSEFs.403

Additionally, proposed Rule 826(b) 

would require every SBSEF to keep full, 

complete, and systematic records of all 

activities relating to its business with 

respect to SBS. In addition, proposed 

Rule 819(f) would require an SBSEF to 

capture and retain a full audit trail of 

activity on its facility. The records 

required to be kept by an SBSEF would 

help the Commission to determine 

whether an SBSEF is operating in 

compliance with the SEA and the 

Commission’s rules thereunder. The 

audit trail data required to be captured 

and retained would facilitate the ability 

of the SBSEF and the Commission to 

carry out their respective obligations 

under the SEA, by facilitating the 

detection of abusive or manipulative 

trading activity, allowing 

reconstructions of activity on the 

SBSEF, and generally understanding the 

causes of both specific trading events 

and general market activity. 

Furthermore, proposed Rule 835 

would require an SBSEF to provide the 

Commission notice of a final 

disciplinary action, a final action with 

respect to a denial or conditioning of 

membership, or a final action with 

respect to a denial or limitation of 

access, which would allow the 

Commission to review the SBSEF’s 

disciplinary process and exercise of its 

regulatory powers, providing the 

Commission an additional tool to carry 

out its oversight responsibilities. The 

proposed registration requirements and 

related proposed Form SBSEF, and the 

CCO’s annual compliance report, which 

are further discussed below, would also 

help the Commission with its oversight 

responsibilities. 

Improved automation. To comply 

with the requirements of proposed 

Regulation SE relating to recordkeeping 

and surveillance, an SBSEF potentially 

would need to invest in and develop 

automated technology systems to store, 

monitor, and communicate a variety of 

trading data, including orders, RFQs, 

RFQ responses, and quotations.404 The 

proposed rules should promote 

increased automation in the SBS 

market, although CFTC-registered SEFs 

that plan to register as SBSEFs are 

already deploying automated systems 

that could be supplemented to support 

an SBS business. In addition, the 

automation and systems development 

associated with the regulation of 

SBSEFs could provide SBS market 

participants with new platforms and 

tools to execute and process 


jspears on DSK121TN23PROD with PROPOSALS2
28950 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

405See section 3D(a)(1) of the SEA, 15 U.S.C. 78c– 

4(a)(1). 

406See supra section V, note 43. 

407Proposed paragraphs (e)(1), (2), and (3) of Rule 

816 would exempt from the trade execution 

requirement, respectively: An SBS transaction that 

is executed as a component of a package transaction 

that also includes a component transaction that is 

the issuance of a bond in a primary market; an SBS 

that qualifies for an exception under section 3C(g) 

of the SEA or any exemption from the clearing 

requirement that is granted by the Commission, for 

which the associated requirements are met; and an 

SBS transaction that is executed between 

counterparties that qualify as ‘‘eligible affiliate 

counterparties.’’ 

408The Commission previously estimated that an 

entity would incur costs of $301,400 to register as 

a broker-dealer and become a member of a national 

transactions in SBS at a lower expense 

per transaction. Such increased 

efficiency could enable members of the 

SBSEF to handle increased volumes of 

SBS with greater efficiency. 

2. Benefits Associated With Specific 

Proposed Rules 

In addition to the broad benefits that 

the Commission anticipates as a result 

of proposed Regulation SE, individual 

rules could bring particular benefits to 

the SBS market. These include the 

following: 

Registration requirements and Form 

SBSEF. SBSEF registration is required 

under the Dodd-Frank Act.405 Proposed 

Rule 818(a) incorporates the 

requirement under the Dodd-Frank Act 

that an SBSEF, in order to be registered 

and maintain registration, must comply 

with the Core Principles in section 

3D(d) of the SEA and the Commission’s 

rules thereunder. The registration 

process described in proposed Rule 803 

would implement this statutory 

requirement and assist the Commission 

in overseeing and regulating the SBS 

market. The information to be provided 

on proposed Form SBSEF is designed to 

enable the Commission to assess 

whether an applicant has the capacity 

and the means to perform the duties of 

an SBSEF and to comply with the Core 

Principles and other requirements 

imposed on SBSEFs. Proposed Rule 803 

is closely modelled on analogous CFTC 

registration requirements for SEFs. The 

choice to align the Commission’s 

registration requirements for SBSEFs 

with the CFTC’s requirements for SEFs 

is designed to achieve the 

abovementioned benefits while 

imposing only marginal costs on SBSEF 

registrants, who likely are SEFs. 

Proposed exemptions (proposed Rule 

833, proposed Rule 816(e), proposed 

amendments to Rule 3a1–1, and 

proposed Rule 15a–12). Proposed Rule 

833 is designed to preserve access to 

foreign markets by ‘‘covered persons’’ 

(as defined in proposed Rule 832). As 

discussed in section XIX(B)(6), an 

analysis of SBS transaction data 

indicates that certain trades executed on 

foreign SBS trading venues involve at 

least one counterparty that is a covered 

person. Absent the proposed rule, these 

trading venues might elect to avoid 

having members that are covered 

persons if those venues do not wish to 

register with the Commission in some 

capacity (such as an exchange or 

SBSEF). In addition, covered persons 

would not be permitted to execute SBS 

that are subject to the trade execution 

requirement on these venues if the 

venues do not register with the 

Commission in some capacity (such as 

an exchange or SBSEF) or obtain an 

appropriate exemption. This would 

limit access to foreign SBS trading 

venues by covered persons, potentially 

making it harder for them to locate 

counterparties and obtain liquidity for 

SBS that trade on those venues. This in 

turn could increase their trading costs, 

because they might spend more time 

and effort to locate counterparties or 

because they have less bargaining power 

relative to the remaining pool of 

potential counterparties with which 

they could trade. To the extent that a 

foreign SBS trading venue can obtain a 

Rule 833(a) exemption, it could 

continue to provide members that are 

covered persons with access to and 

liquidity on its market. Furthermore, a 

Rule 833(b) exemption would allow 

covered persons to continue accessing 

foreign SBS trading venues to execute 

SBS that are subject to the SEA’s trade 

execution requirement. 

Currently, all trading venues that 

trade SBS—whether domestic or 

foreign—are exempt from having to 

register as a national securities exchange 

or SBSEF on account of the SBS trading 

business. This exemption expires when 

the Commission’s rules for registering 

and regulating SBSEFs come into 

force.406 Thus, removal of the existing 

exemption would merely restore the 

status quo ante, where the SEA itself, as 

amended by the Dodd-Frank Act, 

requires entities meeting the definition 

of ‘‘security-based swap execution 

facility’’ or ‘‘exchange’’ and falling 

within the territorial jurisdiction of the 

SEA to register with the Commission. 

By offering foreign SBS trading venues 

the possibility of an exemption from the 

definitions of ‘‘security-based swap 

execution facility’’ and ‘‘exchange’’ as 

well as from section 3D(a)(1) of the SEA, 

proposed Rule 833(a) would allow 

foreign SBS trading venues to operate in 

conditions similar to the current 

baseline (if the Commission ultimately 

grants an exemption under Rule 833(a)). 

Currently, market participants that 

trade SBS that would be covered by 

proposed Rule 816(e) 407 do not trade 

these products on registered exchanges 

or registered SBSEFs. Proposed Rule 

816(e), by providing exemptions from 

the trade execution requirement for 

these SBS, would preserve the status 

quo for these SBS. 

Proposed paragraph (a)(4) of Rule 

3a1–1 would provide that an entity that 

has registered with the Commission as 

an SBSEF and provides a market place 

for no securities other than SBS would 

not fall within the definition of 

‘‘exchange’’ and thus would not be 

subject to the requirement in section 5 

of the SEA to register as a national 

securities exchange (or obtain a lowvolume exemption). The Commission 

preliminarily believes that the benefit of 

the proposed amendment would be to 

clarify to prospective SBSEF applicants 

that, if they register with the 

Commission as SBSEFs, they would not 

face duplicative registration and 

regulatory requirements as exchanges. 

In addition, proposed paragraph (a)(5) of 

Rule 3a1–1 would codify a series of 

exemptions that the Commission has 

granted over several years to SBS 

clearing agencies that operate ‘‘forced 

trading’’ sessions. Because the proposed 

amendment is intended to codify 

existing exemptions, the Commission 

preliminarily believes that any 

associated economic effects would be 

minimal. 

Proposed new Rule 15a–12 is 

designed to minimize overlapping 

compliance burdens for SBSEFs, which 

are also brokers under the SEA, that 

restrict their activity to engaging in the 

business of operating an SBSEF (and no 

other broker activities). Absent the 

proposed rule, such SBSEFs (defined as 

‘‘SBSEF–Bs’’ for purposes of Rule 15a– 

12) would need to register as SBSEFs 

and be subject to the SBSEF regulatory 

regime, in addition to registering as 

brokers and being subject to the broker 

regulatory regime. Proposed Rule 15a– 

12 would allow an SBSEF–B to satisfy 

the requirement to register as a broker 

by registering as an SBSEF under 

proposed Rule 803, and would exempt 

an SBSEF–B from SIPA and other broker 

requirements, except for sections 

15(b)(4), 15(b)(6), and 17(b) of the SEA. 

As a result of the proposed rule, SBSEF– 

Bs could avoid incurring what the 

Commission preliminarily believes to be 

duplicative and unnecessary 

compliance burdens. Each SBSEF–B 

could save an estimated $324,849 in 

initial broker registration costs 408 and 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28951 

securities association. See Cross-Border 

Amendments Adopting Release, 85 FR at 6312. 

Adjusted for inflation through December 2021, 

these costs are $324,849. 409The Commission previously estimated that an 

entity would incur ongoing annual costs of $54,800 

to maintain broker-dealer registration and 

membership of a national securities association. See 

Cross-Border Amendments Adopting Release, 85 FR 

at 6312. Adjusted for inflation through December 

2021, these costs are $59,063. The estimation of 

ongoing annual costs is based on the assumption 

that the entity would use existing staff to perform 

the functions of the registered broker-dealer and 

would not incur incremental costs to hire new staff. 

To the extent that the entity chooses to hire new 

staff, the ongoing annual costs would likely be 

higher. 

410The Commission preliminarily believes that, 

absent the proposed rule, an SBSEF–B would 

comply with the minimum net capital requirement 

of $5,000 for a registered broker-dealer because it 

would not receive, owe, or hold customer funds or 

securities; carry customer accounts; and engage in 

certain other activities. See Rule 15c3–1(a)(2)(vi) 

under the SEA, 17 CFR 240.15c3–1(a)(2)(vi). The 

Commission preliminarily estimates the cost of 

capital using the annual stock returns on a valueweighted portfolio of financial stocks from 1986 to 

2021 (see website of Professor Ken French, available 

at http://mba.tuck.dartmouth.edu/pages/faculty/ 

ken.french/ftp/48_Industry_Portfolios_CSV.zip 

(accessed on March 14, 2022). These returns were 

averaged to arrive at an estimate of 16.45%. The 

cost of capital = 16.45% × $5,000 = $823. 

411The Commission preliminarily estimates the 

number of SBSEF-Bs as the number of entities that 

likely will register as SBSEFs. See supra section 

XIX(B)(5). Aggregate initial savings = $324,849 × 5 

(number of SBSEF–Bs) = $1,624,245. Aggregate 

annual ongoing savings = ($59,063 + $823) × 5 

(number of SBSEFs) = $299,430. 

412See proposed Rules 804(a)(3)(iv) and 

807(a)(6)(iv) . 413See proposed Rules 831(a)(2)(iii) and (h)(2). 

$59,063 in annual ongoing costs of 

meeting broker registration 

requirements.409 In deriving these 

estimates, the Commission assumes that 

the activities an SBSEF–B performs to 

register and maintain registration as a 

broker do not overlap with those that it 

performs to register and maintain 

registration as an SBSEF–B. If there is 

an overlap in such activities, the 

estimated cost savings could be smaller. 

Each SBSEF–B could save an estimated 

$823 in ongoing costs associated with 

satisfying broker minimum capital 

requirements.410 The estimated 

aggregate initial and annual ongoing 

savings are $1,624,245 and $299,430, 

respectively.411

Rule and product filings. Proposed 

Rules 806 and 807 would set forth 

alternative filing processes for a new 

rule or rule amendment of a registered 

SBSEF, and proposed Rules 804 and 805 

would set forth alternative filing 

processes for an SBSEF to file an SBS 

product that it wishes to list. Proposed 

Rule 810 would address new product 

filings by an entity that has applied for 

SBSEF registration but has not yet been 

registered, or by a dormant SBSEF 

seeking reinstatement of its registration. 

The self-certification processes of Rules 

804 and 807 would require SBSEFs to 

include a certification that the product, 

rule, or rule amendment, as the case 

may be, complies with the SEA and 

Commission rules thereunder.412 The 

information to be provided by the 

SBSEF under proposed Rules 804, 805, 

and 810 would further the ability of the 

Commission to obtain information 

regarding SBS that an SBSEF intends to 

list on its market. The proposed rules 

would assist the Commission in 

overseeing and regulating the trading of 

SBS and to help ensure that SBSEFs 

operate in compliance with the SEA. 

In addition, proposed Rule 806(a)(5), 

which would require an SBSEF to 

explain the anticipated benefits and 

potential anticompetitive effects on 

market participants of a proposed new 

rule or rule amendment potentially 

could help foster a competitive SBS 

market because it could prompt SBSEFs 

to consider the positive as well as 

negative aspects of their proposed rules 

or rule amendments. Proposed Rule 808 

is designed to facilitate the public’s 

ability to obtain information from 

SBSEF applications as well as rule and 

product filings. Proposed Rule 808(a) 

would specify the parts of an SBSEF 

application that shall be made publicly 

available unless confidential treatment 

is obtained pursuant to SEA Rule 24b– 

2. Proposed Rule 808(b) would provide 

that an SBSEF’s rule and product filings 

shall be made publicly available unless 

confidential treatment is obtained 

pursuant to SEA Rule 24b–2. Proposed 

Rule 808(c) would provide that the 

terms and conditions of a product 

submitted to the Commission pursuant 

to any of proposed Rules 804 through 

807 shall be made publicly available at 

the time of submission unless 

confidential treatment is obtained 

pursuant to SEA Rule 24b–2. 

Proposed Rule 809 would provide a 

mechanism for the staying or tolling of 

a filing by an SBSEF relating to a 

product while the appropriate 

jurisdictional classification of that 

product is determined. The proposed 

rule is designed to provide regulatory 

certainty for SBSEFs and market 

participants who may be interested in 

trading products whose classification as 

an SBS subject to SEC jurisdiction or a 

swap subject to CFTC jurisdiction is 

unclear. In particular, proposed Rule 

809 would help ensure that 

determinations regarding whether the 

SEC or CFTC appropriately has 

jurisdiction over a product are made 

before the product is traded. 

The Commission’s election to model 

proposed Rules 804 through 810 closely 

on analogous rules in part 40 of the 

CFTC’s rules that apply to SEFs (and 

other registered entities) is designed to 

promote efficiency. Utilizing the same 

processes for rule and product filings, 

with which dually registered SEF/ 

SBSEFs are familiar, would impose only 

minimal burdens on such entities while 

obtaining the similar regulatory benefits 

as the CFTC rules. In some cases, where 

a new rule or rule amendment affects 

both the swap and SBS business of a 

dually registered entity, the same or a 

very similar filing could be made to 

each of the CFTC and SEC, in lieu of 

having to make different filings to 

support the same rule change. 

Chief Compliance Officer. Proposed 

Rule 831 would, among other things, 

require the CCO of an SBSEF to submit 

an annual compliance report and annual 

financial report to the Commission. 

These reports would assist the 

Commission in carrying out its oversight 

of the SBSEFs and the SBS market by 

providing the Commission with 

information about the compliance 

activities and financial state of SBSEFs. 

Furthermore, by requiring an SBSEF to 

designate an individual as the CCO and 

making the CCO responsible for 

ensuring compliance with the SEA and 

the Commission’s rules thereunder, 

proposed Rule 831 would promote 

regulatory compliance on SBSEFs and 

the SBS market generally. This in turn 

would further the goal of moving SBS 

trading away from opaque and 

unregulated OTC markets and onto 

transparent and regulated markets by 

promoting effective regulation of the 

latter. 

Conflicts of Interest. Proposed Rule 

831 would, among other things, require 

the CCO to resolve material conflicts of 

interest that may arise in consultation 

with the governing board or the senior 

officers of the SBSEF.413 Proposed Rule 

828(a) would require an SBSEF to 

establish and enforce rules to minimize 

conflicts of interest in its decisionmaking process and establish a process 

for resolving the conflicts of interest. 

Proposed Rule 828(b) would require an 

SBSEF to comply with the requirements 

of proposed Rule 834 which is designed 

to implement section 765 of the DoddFrank Act with respect to SBSEFs and 

SBS exchanges. Proposed Rule 834 

would, among other things, impose a 

20% cap on the voting interest held by 

an individual member of an SBSEF or 

SBS exchange, mitigate conflicts of 

interest in the disciplinary process of an 

SBSEF or SBS exchange, set forth 

certain minimum requirements for the 

composition of the governing board of 

an SBSEF or SBS exchange, set forth 


jspears on DSK121TN23PROD with PROPOSALS2
28952 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

414See proposed Rules 834(b) to (g). 

415See, e.g., proposed Rule 834(b) (proposing a 

20% cap on the voting interest held by an 

individual member of an SBSEF or SBS exchange). 

416See supra note 392 and accompanying text. 

417 In addition, the associated PDF renderer 

would provide users with a human-readable 

document for those who prefer to review manually 

individual reports, while still providing a uniform 

presentation. 

418This includes the documents required under: 

proposed Rule 803(b)(1)(i) and (3) (filings of, and 

amendments to, a Form SBSEF application); 

proposed Rules 803(e) and 803(f) (requests to 

withdraw or vacate an application for registration); 

proposed Rule 804(a)(1) (filings for listing products 

for trading by certification); proposed Rule 805(a)(1) 

(filings for voluntary submission of new products 

for Commission review and approval); proposed 

Rule 806(a)(1) (filings for voluntary submission of 

rules for Commission review and approval); 

proposed Rule 807(a)(1) (filings for self-certification 

of rules); proposed Rule 807(d) (filings of weekly 

notifications to the Commission of rules and rule 

amendments that were not required to be certified); 

proposed Rule 829(g)(6) (submission to the 

Commission of reports related to financial resources 

and related documentation); proposed Rule 

831(j)(2) (submission to the Commission of the 

annual compliance report of SBSEF’s CCO). See 

supra section XV. 

419See proposed Rule 804(c)(3)(v). 

420For example, because Inline XBRL enables the 

block tagging of textual narrative disclosures and 

the individual tagging of numeric disclosures 

nested within those textual narrative disclosures, it 

facilitates the comprehensive capture and 

communication of information contained in notes 

to financial statements. 

421See section XIX(C) (noting that the benefits 

and costs associated with the trade execution 

requirement would not materialize unless and until 

the Commission makes mandatory clearing 

determinations). 

reporting requirements related to 

governing board elections, and address 

the avoidance of conflicts of interest in 

the execution of regulatory functions by 

an SBSEF or SBS exchange.414

The Commission preliminarily 

believes that the proposed rules would 

mitigate conflicts of interest between an 

SBSEF or SBS exchange and its 

members as discussed in section X. 

Relative to the bilateral OTC SBS 

market, SBSEFs and SBS exchanges 

promote competition between liquidity 

providers, potentially forcing them to 

lower their prices for supplying 

liquidity (e.g., narrowing bid-ask 

spread) and reducing their profits from 

liquidity provision. However, if SBS 

dealers or major SBS participants were 

able to restrict access to such venues by, 

for example, exercising their voting 

interest in an SBSEF or SBS exchange, 

they could stifle competition in SBSEFs 

and SBS exchanges and preserve their 

profits from liquidity provision. The 

proposal, by mitigating such conflicts of 

interest 415 could help ensure access to 

SBSEFs and SBS exchanges and in turn 

increase competition in liquidity 

provision and lower transaction costs. 

The Commission preliminarily believes 

that proposed Rules 834(e), (f), and (g) 

also may promote good governance at 

SBSEFs and SBS exchanges. To the 

extent that improved governance result 

in more effective oversight by SBSEFs 

and SBS exchanges of their markets, 

market participants may benefit. These 

benefits could be limited to the extent 

that prospective SBSEFs and SBS 

exchanges already have rules in place 

that comply with the proposed rules. 

Structured Data Requirement. 

Proposed Rule 825(c)(3) would require 

an SBSEF to publish a Daily Market 

Data Report on its website without 

charge or usage restrictions and in a 

downloadable and machine-readable 

format using the most recent version of 

the associated XML schema and PDF 

renderer as published on the 

Commission’s website.416 The 

Commission preliminarily believes that 

requiring the Daily Market Data Report 

to be provided in a structured, machinereadable format (using a Commissioncreated XML schema) would facilitate 

the use of the price, trading volume, and 

other trading data on the report by end 

users such as SBS market participants 

and market observers. By including a 

structured data requirement, the 

information in the report would be 

made available in a consistent and 

openly accessible manner that would 

allow for automatic processing by 

software applications, thus enabling 

search capabilities and statistical and 

comparative analyses across SBSEFs 

and date ranges.417 Absent a structured 

data requirement, any SBS market 

participants and market observers 

seeking to use the data would have to 

spend time manually collecting and 

entering the data into a format that 

allows for analysis, thus increasing the 

time needed to analyze the data and 

potentially leading to data errors. 

Alternatively, data users could choose 

to subscribe to a service provider 

specializing in such a data aggregation 

and comparison process. Under that 

scenario, data users would be unable to 

access the posted data on as timely a 

basis as they would if the disclosures 

were machine-readable upon posting, 

and users would also incur monetary 

costs in paying for the aggregated data. 

Proposed Regulation SE would 

require SBSEFs to file documents 

required under various provisions in the 

EDGAR system using Inline XBRL, a 

structured (machine-readable) data 

language.418 Requiring a centralized 

filing location and a machine-readable 

data language for the filings would 

facilitate access, retrieval, analysis, and 

comparison of the disclosed information 

across different SBSEFs and time 

periods by the Commission and the 

public, thus potentially augmenting the 

informational benefits of the various 

disclosure requirements discussed 

herein. Also, because EDGAR provides 

basic technical validation capabilities, 

the use of EDGAR could reduce the 

incidence of technical errors (e.g., letters 

instead of numbers in a field requiring 

only numbers) and thereby improve the 

quality of the disclosures. 

Unlike the XML schema that would 

be used for Daily Market Data Reports, 

Inline XBRL would provide the ability 

to tag detailed facts within narrative text 

blocks, and is thus likely more wellsuited to accommodate the other filings 

required under proposed Regulation SE, 

many of which require narrative 

discussions (e.g., the explanation and 

analysis of the product and its 

compliance with applicable provisions 

of the SEA for a product filing required 

under Rule 804).419 In addition, certain 

proposed SBSEF disclosures consist of 

financial information (e.g., the financial 

statements of the SBSEF required under 

Exhibit I to Form SBSEF), and Inline 

XBRL is designed specifically for the 

accurate capture and communication of 

financial information, among other 

uses.420

3. Costs 

Although the Commission 

preliminarily believes that proposed 

Regulation SE would benefit the SBS 

market, the Commission recognizes that 

the proposed Regulation SE also would 

entail certain costs. Some costs are 

difficult to precisely quantify and are 

discussed below. The Commission is 

mindful that any rules it may adopt 

with respect to SBSEFs under the DoddFrank Act may impact the incentives of 

market participants with respect to 

where and how they trade SBS. If the 

rules proposed by the Commission are, 

or are perceived to be, too costly for 

trading venues to comply with, fewer 

entities than expected may seek to 

register as SBSEFs, which would not 

further the goal of moving a greater 

percentage of SBS trading from opaque 

and unregulated OTC markets to 

transparent and regulated trading 

venues. In addition, if the proposed 

rules for trading on an SBSEF are 

perceived as too burdensome by market 

participants, SBS trading may continue 

in the OTC market absent a mandatory 

clearing determination and a triggering 

of the mandatory trade execution 

requirement, thus frustrating the goals 

of the Dodd-Frank Act.421 At the same 

time, if the proposed rules relating to 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28953 

422See, e.g., Ananth Madhavan, Market 

Microstructure: A Survey, J. of Fin. Markets, Vol. 3 

(2000). 

423See infra section XIX(C)(3)(c) (discussing the 

costs that these entities might incur to list SBS 

products). 

424 In the 2011 SBSEF Proposal, the Commission 

estimated that an entity owning or operating a 

platform for the trading of OTC derivatives would 

incur costs of between $50,000 and $3 million to 

enhance its platform to be compatible with 

proposed requirements in that release. Further, 

such an entity would incur annual ongoing costs of 

between $2 million and $4 million to maintain such 

enhancements. See 2011 SBSEF Proposal, 76 FR at 

11041. The Commission is revising these estimates 

downward by 50%, taking into account any 

potential inflationary effects, because harmonizing 

proposed Regulation SE closely with CFTC rules 

likely would reduce the one-time and annual 

ongoing costs incurred by SEFs to change their 

systems, policies, and procedures to comply with 

proposed Regulation SE, if they choose to register 

as SBSEFs. Therefore, the Commission 

preliminarily estimates that the one-time costs 

associated with changes to systems, policies, and 

procedures would range between $50,000/2 = 

$25,000 and $3 million/2 = $1.5 million per SBSEF, 

depending on the changes needed. The annual 

ongoing costs are preliminarily estimated to be 

between $2 million/2 = $1 million and $4 million/ 

2 = $2 million. 

425 In section XX infra, for purposes of the PRA, 

the Commission preliminarily estimates burdens 

applicable to a stand-alone SBSEF. However, most 

if not all SBSEFs will be dually registered with the 

CFTC as SEFs and thus will already be complying 

with relevant CFTC rules that have analogs to rules 

proposed in Regulation SE. Therefore, the 

Commission’s burden estimates are greater for 

stand-alone SBSEFs than may exist in practice, 

considering the effect of overlapping CFTC rules. 

426 $94,400 = 1,475 burden hours × $64/hour 

blended hourly rate. The $64/hour blended hourly 

rate is the $59/hour blended hourly rate computed 

by the CFTC and adjusted for CPI inflation through 

December 2021. The CFTC used the blended hourly 

wage to estimate PRA costs associated with part 37. 

See infra section XX(D)(2)(a); OMB, Supporting 

Statement for New and Revised Information 

Collections: Core Principles and Other 

Requirements for Swap Execution Facilities, OMB 

Control Number 3038–0074, Attachment A (July 7, 

2021), available at https://omb.report/icr/202107- 

3038-004/doc/113431800.pdf. CPI inflation 

adjustment is based on data published by the 

Bureau of Labor Statistics. See CPI Inflation 

Calculator, U.S. Bureau of Labor Statistics, available 

at https://www.bls.gov/data/inflation_

calculator.htm. 

427See infra section XX(D)(2)(b). This estimate 

excludes the paperwork burdens associated with 

registration requirements for SBSEFs and Form 

SBSEF and provisions of certain proposed rules to 

be discussed subsequently. 

SBSEFs are too lenient, they may have 

little or no impact on the market 

structure and surveillance of the SBS 

market relative to the status quo, which 

could result in the loss of many of the 

benefits discussed above and fail to 

achieve the goals of the Dodd-Frank Act. 

In addition, SBS traded on SBSEFs 

may be perceived to be subject to 

increased costs, monetary and 

otherwise. For example, the proposed 

requirements related to pre-trade 

transparency could cause market 

participants to reveal valuable economic 

information regarding their trading 

interest more broadly than they may 

believe would be economically prudent 

and could discourage participation in 

the SBS market. An additional impact of 

pre-trade transparency are perceived 

costs associated with front running, if 

customers or SBS dealers are required to 

show their trading interest before a trade 

is executed. These potential costs of pretrade transparency may change market 

participants’ trading strategies, which 

could result in them working more 

orders or finding ways to attempt to 

hide their interest.422 If market 

participants view the Commission’s 

proposal as too burdensome with 

respect to pre-trade transparency, SBS 

dealers may be less willing to supply 

liquidity for SBS that trade on SBSEFs 

or exchanges, thus adversely affecting 

liquidity and competition. However, 

such effects could be mitigated by MAT 

determinations that would require SBS 

trading to occur on SBSEFs or 

exchanges. On the other hand, if the 

proposed requirements with respect to 

pre-trade transparency are too loose, the 

result could be that there would be no 

substantive change from the status quo, 

including no benefits of alleviating 

informational asymmetries, increasing 

price competition, and supplying better 

executions beyond the changes in 

response to the other requirements of 

the Dodd-Frank Act. This actual impact 

would depend on the degree of pretrade transparency required and the 

characteristics of the trading market. 

The proposed rules are intended to 

provide for greater pre-trade 

transparency than currently exists 

without requiring pre-trade 

transparency in a manner that would 

cause participants to avoid providing 

liquidity on SBSEFs. 

The Commission preliminarily 

believes that there would be transaction 

costs, such as fees and connectivity 

costs, that trading counterparties would 

incur in executing or trading SBS 

subject to the trade execution 

requirement on SBSEFs. Likewise, 

although unregulated trading venues 

exist in today’s OTC derivatives market, 

the Commission does not have 

information regarding what, if any, fees 

and connectivity costs are associated 

with transacting on these unregulated 

trading venues. The Commission invites 

commenters to provide feedback on the 

likely fees and costs associated with 

transacting on SBSEFs as well as fees 

and costs associated with transacting on 

unregulated trading venues that exist in 

today’s OTC derivatives market. 

As discussed in section XIX(B), the 

Commission preliminarily believes that 

prospective SBSEF registrants are likely 

to be CFTC-registered SEFs that are 

active in the index CDS market. Because 

the proposed rules are harmonized as 

closely as practicable with analogous 

CFTC rules for SEFs, unless a reason 

exists to do otherwise in a particular 

area, the Commission preliminarily 

believes that much of the systems, 

policies, and procedures that are used to 

support SEF trading also could be used 

to support SBSEF trading. The 

prospective SBSEF registrants likely 

would incur marginal costs associated 

with listing SBS products on their 

venues 423 and making limited changes 

to their systems, policies, and 

procedures to comply with proposed 

SEC rules that differ slightly from 

analogous CFTC rules. The Commission 

preliminarily estimates the one-time 

costs associated with such changes to 

systems, policies, and procedures would 

range between $25,000 and $1.5 million 

per SBSEF, depending on the changes 

needed. The annual ongoing costs of 

maintaining the technology (e.g., 

ensuring any necessary technological 

updates and improvements are made) 

and applying the technology to ongoing 

compliance requirements are estimated 

to be in the range of $1 million to $2 

million.424 The Commission invites 

commenters to provide feedback on the 

costs that SEFs may incur should they 

register as SBSEFs. 

We detail below cost estimates for 

specifics parts of the proposed rules. 

Many of these costs estimates are based 

on the PRA estimates of costs and 

burdens from section XX.425

a. Registration Requirements for SBSEFs 

and Form SBSEF 

The Commission preliminarily 

believes that the proposed registration 

provisions would impose costs on 

entities that seek registration as SBSEFs. 

The Commission preliminarily 

estimates that initial filings on Form 

SBSEF by prospective SBSEFs seeking 

to register with the Commission 

pursuant to proposed Rule 803 would 

result in aggregate initial costs of 

$94,400 for prospective SBSEFs.426

b. Ongoing Compliance With Other 

Requirements That Are Similar to the 

Remainder of Part 37 

As discussed in section XX(D)(2)(b), 

the Commission preliminarily estimates 

the aggregate annual paperwork burden 

for SBSEFs to comply with all of the 

proposed SBSEF rules that have analogs 

in part 37 to be 1935 hours.427 These 

burdens are estimated to impose 


jspears on DSK121TN23PROD with PROPOSALS2
28954 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

428 $123,840 = 1,935 burden hours × $64/hour 

blended hourly rate. See supra note 426 (derivation 

of the $64/hour blended hourly rate). 429 $31,200 = 300 hours × $104/hour blended 

hourly rate. The $104/hour blended hourly rate is 

the $96.26/hour blended hourly rate computed by 

the CFTC and adjusted for CPI inflation through 

December 2021. The CFTC used the blended hourly 

rate to estimate PRA costs associated with part 40. 

See section XX(D)(3)(a); OMB, Supporting 

Statement for Information Collection Renewal: 

OMB Control Number 3038–0093, Attachment A 

(July 10, 2020), available at https://omb.report/icr/ 

202005-3038-001/doc/101274002.pdf. CPI inflation 

adjustment is based on data published by the 

Bureau of Labor Statistics. See U.S. Bureau of Labor 

Statistics, supra note 426. The platform ID 

requirement on the submission cover sheet would 

not impose burdens for obtaining a platform ID, 

because an SBSEF (whether registered or exempt) 

is already required under Rule 903(a) of Regulation 

SBSR to obtain an LEI to identify itself as its 

platform ID. See supra note 84. 

430 $108 = 1.25 hours × $86/hour hourly rate for 

a compliance officer. The $86/hour hourly rate for 

a compliance officer is the $70/hour hourly rate for 

a compliance officer computed by the CFTC and 

adjusted for CPI inflation through December 2021. 

The CFTC used the hourly rate to estimate PRA 

costs associated with § 40.12 after which proposed 

Rule 809 is modelled. See infra section 

XX(D)(3)(b)(ii); Revised Supporting Statement for 

New Information Collections: part 40, Provisions 

Common to Registered Entities, OMB Control 

Number 3038–AD07, Attachment A (October 14, 

2011), available at: https://omb.report/icr/201203- 

3038-005/doc/31042501. CPI inflation adjustment is 

based on data published by the Bureau of Labor 

Statistics. See U.S. Bureau of Labor Statistics, supra 

note 426. 

431 $88 = 1 hour × $88/hour hourly rate for an 

attorney. The $88/hour hourly rate is the $80/hour 

hourly rate computed by the CFTC and adjusted for 

CPI inflation through December 2021. The CFTC 

used the hourly rate to estimate PRA costs 

associated with Part 1.6. See infra section 

XX(D)(4)(a); OMB, Supporting Statement for New 

and Revised Information Collections: OMB Control 

Number 3038–0033 (August 23, 2018), available at 

https://omb.report/icr/201808-3038-004/doc/ 

85625801.pdf. CPI inflation adjustment is based on 

data published by the Bureau of Labor Statistics. 

See U.S. Bureau of Labor Statistics, supra note 426. 

432 $25,546 = 399.15 hours × $64/hour blended 

hourly rate. The Commission preliminarily believes 

that the burdens associated with this proposed rule 

are not different from burdens associated with 

proposed rules that have part 37 analogs. Thus, the 

Commission preliminarily believes that it would be 

appropriate to apply the $64/hour blended hourly 

rate to estimate the paperwork related costs 

associated with this proposed rule. See infra section 

XX(D)(4)(c). See also supra note 426 (derivation of 

the $64/hour blended hourly rate). 

433 $1,135 = 2.5 hours × $454/hour national 

hourly rate for an attorney. See infra section 

XX(D)(4)(d). The per-hour figure for an attorney is 

from SIFMA’s Management and Professional 

Earnings in the Securities Industry—2013, as 

modified by Commission staff to adjust for inflation 

(through December 2021) and to account for an 

1,800-hour work-year, and multiplied by 5.35 to 

account for bonuses, firm size, employee benefits, 

and overhead. 

434 $152 = 2 hours × $76/hour national hourly rate 

for a compliance clerk. See infra section XX(D)(4)(f). 

The per-hour figure for a compliance clerk is from 

SIFMA’s Office Salaries in the Securities Industry— 

2013, as modified by Commission staff to adjust for 

inflation (through December 2021) and to account 

for an 1,800-hour work-year, and multiplied by 5.35 

to account for bonuses, firm size, employee 

benefits, and overhead. 

435First year costs: $108,960 = 240 hours × $454/ 

hour national hourly rate for an attorney. Costs in 

each subsequent year: $72,640 = 160 hours × $454/ 

hour national hourly rate for an attorney. See infra 

section XX(D)(5)(a). See also supra note 433 

(derivation of the national hourly rate for an 

attorney). 

436 $47,880 = 120 hours × $399/hour national 

hourly rate for a compliance attorney. The estimate 

of 120 burden hours is based on the Commission’s 

preliminary estimate that five SBSEFs and three 

SBS exchanges will incur paperwork burdens 

associated with proposed Rules 834(b) and (c). See 

infra section XX(D)(4)(g). The per-hour figure for a 

compliance attorney is from SIFMA’s Management 

and Professional Earnings in the Securities 

Industry—2013, as modified by Commission staff to 

adjust for inflation (through December 2021) and to 

account for an 1,800-hour work-year, and 

multiplied by 5.35 to account for bonuses, firm size, 

employee benefits, and overhead. 

437 $640 = 10 hours × $64/hour blended hourly 

rate. Further, the costs incurred by SBSEFs = 5 

(number of SBSEFs) × 1.25 hours per SBSEF × $64/ 

hour blended hourly rate = $400. The Commission 

preliminarily believes that the burdens associated 

with this proposed rule are not different from 

burdens associated with proposed rules that have 

part 37 analogs. Thus, the Commission 

preliminarily believes that it would be appropriate 

to apply the $64/hour blended hourly rate to 

estimate the paperwork related costs associated 

with this proposed rule. See infra section 

XX(D)(4)(g). See also supra note 426 (derivation of 

the $64/hour blended hourly rate). 

438 $1,024 = 16 hours × $64/hour blended hourly 

rate. The Commission preliminarily believes that 

the burdens associated with this proposed rule are 

not different from burdens associated with 

proposed rules that have part 37 analogs. Thus, the 

Commission preliminarily believes that it would be 

appropriate to apply the $64/hour blended hourly 

rate to estimate the paperwork related costs 

associated with this proposed rule. See infra section 

XX(D)(4)(g). See also supra note 426 (derivation of 

the $64/hour blended hourly rate). 

439 $20,430 = 45 hours × $454/hour national 

hourly rate for an attorney. See infra section 

XX(D)(5)(b). See also supra note 433 (derivation of 

the national hourly rate for an attorney). 

440The Commission preliminarily estimates the 

financial resources that SBSEFs would need to hold 

pursuant to proposed Rule 829(b) as their projected 

operating costs. See proposed Rule 829(b). Further, 

the Commission preliminarily estimates SBSEFs’ 

projected operating costs as the sum of the aggregate 

ongoing annual costs incurred by SBSEFs to comply 

with proposed Regulation SE. Thus, SBSEFs’ 

estimated projected operating costs = $123,840 

(ongoing compliance with other proposed 

requirements that are similar to the remainder of 

part 37) + $31,200 (rule and product filing 

processes by SBSEFs) + $108 (proposed Rule 809) 

+ $88 (proposed Rule 811(d)) + $25,546 (proposed 

Rule 819(i)) + $1,135 (proposed Rule 819(j)) + $152 

(proposed Rule 826(f)) + $400 (proposed Rules 

834(d), (e), and (f)) + $20,430 (proposed Rule 835) 

aggregate ongoing annual costs of 

$123,840 on SBSEFs.428

c. Rule and Product Filing Processes for 

SBSEFs 

The Commission preliminarily 

estimates that the aggregate ongoing 

annual costs incurred by all SBSEFs to 

prepare and submit rule and product 

filings under proposed Rules 804, 805, 

806, and 807 (including the cover sheet) 

would be $31,200.429

d. Proposed Rules 809, 811, 819, 826, 

829, 833, 834, and 835 

The Commission preliminarily 

estimates the aggregate ongoing annual 

costs incurred by SBSEFs to comply 

with proposed Rule 809 would be 

$108.430

The Commission preliminarily 

estimates the aggregate ongoing annual 

costs incurred by SBSEFs to comply 

with requests for documents or 

information pursuant to proposed Rule 

811(d) would be $88.431

The Commission preliminarily 

estimates the aggregate ongoing annual 

costs incurred by SBSEFs to comply 

with proposed Rule 819(i) would be 

$25,546.432

The Commission preliminarily 

estimates the aggregate ongoing annual 

costs incurred by SBSEFs to comply 

with proposed Rule 819(j) would be 

$1,135.433

The Commission preliminarily 

estimates the aggregate ongoing annual 

costs incurred by SBSEFs to update 

information required by proposed Rule 

826(f) would be $152.434 The 

Commission preliminarily estimates 

that interested parties would incur 

aggregate one-time costs of $108,960 in 

the first year and $72,640 in each 

subsequent year to submit exemption 

requests under one or both paragraphs 

of proposed Rule 833.435

The Commission preliminarily 

estimates that SBSEFs and SBS 

exchanges would incur aggregate onetime costs of $47,880 associated with 

drafting and implementing rules to 

comply with proposed Rules 834(b) and 

(c).436

The Commission preliminarily 

estimates that SBSEFs and SBS 

exchanges would incur aggregate 

ongoing annual costs of $640 to comply 

with proposed Rules 834(d), 834(e), and 

834(f).437

The Commission preliminarily 

estimates that SBSEFs and SBS 

exchanges would incur aggregate onetime costs of $1,024 to comply with 

proposed Rule 834(g).438

The Commission preliminarily 

estimates that SBSEFs would incur 

aggregate ongoing annual costs of 

$20,430 to comply with proposed Rule 

835.439

The Commission preliminarily 

believes that SBSEFs likely would incur 

costs to comply with the financial 

resources requirement of proposed Rule 

829(b). Assuming that SBSEFs satisfy 

this requirement by holding financial 

resources in the form of their own 

capital pursuant to proposed Rule 

829(c)(1), the Commission preliminarily 

estimates that SBSEFs would incur an 

aggregate annual cost of capital of 

$33,377.440 SBSEFs could lower this 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28955 

= $202,898. Thus, the Commission preliminarily 

estimates that SBSEFs would hold $203,221 in the 

form of their own capital to comply with proposed 

Rule 829(b). The Commission preliminarily 

estimates SBSEFs’ cost of capital using the annual 

stock returns on a value-weighted portfolio of 

financial stocks from 1986 to 2021. See website of 

Professor Ken French, available at http://

mba.tuck.dartmouth.edu/pages/faculty/ken.french/ 

ftp/48_Industry_Portfolios_CSV.zip (accessed on 

March 14, 2022). These returns were averaged to 

arrive at an estimate of 16.45%. SBSEFs’ aggregate 

annual cost of capital = $202,898 × 16.45% = 

$33,377. The Commission acknowledges that there 

is uncertainty associated with this estimate. The 

estimate does not account for the fact that SBSEFs 

may use reasonable discretion in determining the 

methodologies used to calculate projected operating 

costs and wind down costs, pursuant to proposed 

Rule 829(e). Depending on how SBSEFs exercise 

this reasonable discretion, the resulting 

methodologies could yield projected operating costs 

and in turn, required financial resources, that may 

be higher or lower than the Commission’s estimate. 

441The CFTC’s experience overseeing SEFs 

would appear to support the preliminarily belief 

that SBSEFs would hold unencumbered, liquid 

financial assets rather than obtain a line of credit 

to comply with proposed Rule 829(d). In a previous 

rulemaking, the CFTC noted that most SEFs satisfy 

the liquidity requirement of § 37.1303 (the analog 

of proposed Rule 829(d)) through maintaining 

liquid assets rather than obtaining a line of credit. 

See CFTC, Swap Execution Facilities, 86 FR 9224, 

9242, n. 247 (February 11, 2021) (‘‘2021 SEF 

Amendments Adopting Release’’). 

442 $18,160 = 40 hours × $454/hour national 

hourly rate for an attorney. This estimate is based 

on an estimated 40 hours of in-house legal or 

compliance staff’s time to establish a procedure of 

requesting and collecting representations from 

trading counterparties, taking into account that 

such representations may be built into a form of 

standardized trading documentation. See supra 

note 433 (derivation of the national hourly rate for 

an attorney). 

443This is based on an estimate of the time 

required for a programmer analyst to modify the 

software to track the covered person status of a 

counterparty, including consultation with internal 

personnel, and an estimate of the time such 

personnel would require to ensure that these 

modifications conformed to the definition of 

‘‘covered person’’ (as defined in proposed Rule 

832). $14,802 = (2 hours × $399/hour national 

hourly rate for a compliance attorney) + (4 hours 

× $338/hour national hourly rate for a compliance 

manager) + (40 hours × $263/hour national hourly 

rate for a programmer analyst) + (4 hours × $250/ 

hour national hourly rate for a senior internal 

auditor) + (2 hours × $566/hour rate for a Chief 

Financial Officer). The per-hour figures for 

compliance attorney, compliance manager, 

programmer analyst, and senior internal auditor are 

from SIFMA’s Management & Professional Earnings 

in the Securities Industry—2013, as modified by 

Commission staff to adjust for inflation (through 

December 2021) and to account for an 1,800-hour 

work-year, and multiplied by 5.35 to account for 

bonuses, firm size, employee benefits, and 

overhead. The hourly rate for a Chief Financial 

Officer is the $473 hourly rate for the same position 

used in the Cross-Border Proposing Release (see 78 

FR at 31140, n. 1425) and adjusted for inflation 

through December 2021. 

444Total one-time costs per entity = $18,160 

(compliance policy and procedure) + $14,802 

(systems) = $32,962. Aggregate one-time costs = 87 

entities × $32,962 = $2,867,694. 

445See 17 CFR 242.907(a)(2) (requiring 

information to be submitted to SDRs in an ‘‘opensource structured data format that is widely used 

by participants’’). 

446See infra note 424 and accompanying text. 

cost if their capital consists of financial 

assets that generate a return that would 

serve to offset the cost of capital. 

However, this cost mitigation is 

potentially limited by proposed Rule 

829(d), which would require an SBSEF 

to include among the financial resources 

it holds, a certain amount of 

unencumbered, liquid financial assets 

(i.e., cash and/or highly liquid 

securities),441 that tend to generate little 

or no return. 

e. Assessment Costs 

The Commission preliminarily 

believes that 87 entities likely would 

incur assessment costs as a result of 

proposed Rule 832, based on an analysis 

of counterparties to U.S. single-name 

CDS. Such costs would be related 

primarily to the identification of the 

counterparty status and origination 

location of the transaction to determine 

whether the trade execution 

requirement would apply. The 

Commission preliminarily believes that 

market participants would request 

representations from their transaction 

counterparties to determine the U.S.- 

person status of their counterparties. In 

addition, if the transaction is guaranteed 

by a U.S. person, the guarantee would 

be part of the trading documentation 

and, therefore, the existence of the 

guarantee would be a readily 

ascertainable fact. Similarly, market 

participants would be able to rely on 

their counterparties’ representations as 

to whether a transaction is arranged, 

negotiated or executed by a person 

within the United States. Therefore, the 

Commission preliminarily believes that 

the assessment costs associated with 

proposed Rule 832 should be limited to 

the costs of establishing a compliance 

policy and procedure of requesting and 

collecting representations from trading 

counterparties and maintaining the 

collected representations as part of the 

market participants’ recordkeeping 

procedures. The Commission 

preliminarily believes that such 

assessment costs would be 

approximately $18,160 per entity.442

The Commission preliminarily believes 

that requesting and collecting 

representations would be part of the 

standardized transaction process 

reflected in the policies and procedures 

regarding SBS transactions and trading 

practices and should not result in 

separate assessment costs. 

The Commission also considers the 

likelihood that market participants 

could implement systems to keep track 

of counterparty status for purposes of 

future trading of SBS that are similar to, 

if not the same as, the systems 

implemented by market participants for 

purposes of assessing SBS dealer or 

major SBS participant status. 

Implementation of such a system would 

involve one-time programming costs of 

$14,802 per entity.443 Therefore, the 

Commission estimates the total one-time 

costs per entity associated with 

proposed Rule 832 could be $32,962 

and the aggregate one-time costs could 

be $2,867,694.444 To the extent that 

market participants have incurred costs 

relating to similar or the same 

assessments with respect to 

counterparty status and transaction 

location for other Title VII requirements, 

their assessment costs with respect to 

proposed Rule 832 may be less. 

f. Structured Data Costs 

The Commission preliminarily 

believes that SBSEFs would likely incur 

limited costs to comply with the 

proposed requirement in Rule 825(c)(3) 

to publish Daily Market Data Reports 

using the most recent versions of the 

associated XML schema and PDF 

renderer as published on the 

Commission’s website. Because SBSEFs 

are required to use a structured format 

to fulfill their reporting requirements 

under Regulation SBSR, the compliance 

cost associated with the Rule 825(c)(3) 

requirement would be limited to the 

cost prospective SBSEF registrants 

would incur to update their systems to 

incorporate the Commission’s XML 

schema for Daily Market Data 

Reports.445 Such costs are included 

among the costs for prospective SBSEF 

registrants in making limited changes to 

their systems, policies, and procedures 

to comply with proposed SEC rules that 

differ slightly from analogous CFTC 

rules, as discussed in further detail 

above.446

With respect to the proposed Inline 

XBRL requirement for other documents 

required under proposed Regulation SE, 

the Commission preliminarily believes 

that SBSEFs would incur initial Inline 

XBRL implementation costs (such as the 

cost of training in-house staff to prepare 

filings in Inline XBRL, and the cost to 

license Inline XBRL filing preparation 

software from vendors) and ongoing 

Inline XBRL compliance burdens that 

would result from the proposed tagging 

requirement, because prospective 

SBSEF registrants are not currently 

subject to Inline XBRL requirements. 

Similarly, because prospective SBSEF 

registrants are not currently subject to 

EDGAR requirements, the Commission 

preliminarily believes they will incur a 

one-time compliance burden of 

submitting a Form ID as required by 


jspears on DSK121TN23PROD with PROPOSALS2
28956 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

447See 17 CFR 232.10(b). 

448See infra note 424 and accompanying text. 

449See § 40.2(a)(2) (one condition for a valid selfcertification of a product is that the CFTC has 

received the submission by the open of business on 

the business day preceding the product’s listing). 450See § 40.6(a)(3) (one condition for a valid selfcertification of a rule or rule amendment is that the 

CFTC has received the submission not later than the 

open of business on the business day that is ten 

business days prior to the SEF’s implementation of 

the rule or rule amendment). 451See infra section VI(D). 452See supra section XIX(C)(2). 

Rule 10(b) of Regulation S–T.447 The 

aforementioned costs are included 

among the costs for prospective SBSEF 

registrants in making limited changes to 

their systems, policies, and procedures 

to comply with proposed SEC rules that 

differ slightly from analogous CFTC 

rules, as discussed in further detail 

above.448

4. Reasonable Alternatives 

The Commission considered a 

number of alternatives when 

formulating the proposed rules and 

amendments. 

In developing proposed Regulation 

SE, the Commission considered the 

alternative of not harmonizing its rules 

with analogous CFTC rules. As 

discussed in sections II and XIX(B), the 

entities that are most likely to register 

with the Commission as SBSEFs are 

those already registered with the CFTC 

as SEFs. These entities have made 

substantial investments in systems, 

policies, and procedures to comply with 

and adapt to the regulatory system 

developed by the CFTC. Under the 

proposed approach of harmonizing with 

CFTC rules to the extent possible, 

dually registered entities could utilize 

their existing systems, policies, and 

procedures to comply with the 

Commission’s SBSEF rules, and SEF 

market participants would face no or 

only incremental changes to trade SBS 

as well as swaps on those facilities, and 

to comply with the Commission’s rules 

regarding SBS trading. Under the 

alternative approach whereby the 

Commission establishes different or 

additive requirements, dually registered 

entities and their market participants 

might need to incur costs and burdens 

to modify their systems, policies, and 

procedures to comply with the SECspecific rules. Further, proposed 

requirements that are significantly 

different from the rules that apply to the 

swap market could cause SEFs to 

question whether it is economically 

viable to enter the SBS market and to 

register with the Commission as 

SBSEFs. The Commission preliminary 

believes that the proposed approach 

would deliver to the SBS market the 

regulatory benefits generated by the 

CFTC regulatory framework and help 

promote the trading of SBS on regulated 

platforms, while imposing only limited 

costs on SBSEFs. The Commission 

preliminarily believes that this trade-off 

is preferable to the trade-off associated 

with the alternative approach. 

In formulating the proposed 

definition of ‘‘block trade,’’ the 

Commission considered the alternative 

of harmonizing the third prong of the 

proposed definition with the third 

prong of the CFTC definition of ‘‘block 

trade.’’ The third prong of the CFTC 

definition characterizes a block trade in 

a particular swap as having ‘‘a notional 

or principal amount at or above the 

appropriate minimum block size 

applicable to such swap.’’ As discussed 

in section VII(E), because SBS are not 

within the CFTC’s jurisdiction, the 

CFTC has never considered what an 

appropriate minimum block size 

threshold would be for any SBS asset 

class. There is no CFTC-defined 

threshold with which to harmonize 

when formulating the third prong of the 

proposed definition of ‘‘block trade.’’ 

Accordingly, the Commission 

preliminarily believes that establishing 

a threshold tailored specifically for the 

SBS market is preferable to the 

alternative. 

In formulating proposed Rule 

804(a)(2), the Commission considered 

the alternative of proposing a onebusiness-day review of a self-certified 

SBS product before an SBSEF could list 

the product. This alternative would 

harmonize with the parallel provision in 

§ 40.2(a).449 The Commission 

preliminarily believes that a tenbusiness-day review period for selfcertified SBS products before they can 

be listed strikes a reasonable balance 

between allowing SBSEFs to bring new 

products to market quickly while 

affording the Commission staff a 

reasonable period in which to assess 

them. The proposed ten-business-day 

review period for self-certified products 

also accords with the CFTC’s tenbusiness-day review period for selfcertified rules,450 which the 

Commission is proposing to replicate in 

Rule 807(a)(3).451 Thus, the Commission 

preliminarily believes the proposed 

approach is preferable to the alternative. 

In formulating proposed Rule 825(c), 

which would require an SBSEF to 

publish a ‘‘Daily Market Data Report’’ 

on its website, the Commission 

considered the alternative of requiring 

SBSEFs to submit the information in 

such reports directly to the Commission. 

The Commission believes that the 

regulatory data that it is receiving 

pursuant to Regulation SBSR would 

generate the same information as that 

contained in such reports. Thus, the 

Commission preliminarily believes that 

the proposed approach is preferable to 

the alternative because it would relieve 

SBSEFs of the need to send daily reports 

to Commission while preserving the 

Commission’s ability to be informed 

about SBSEF market activity via the 

regulatory data it receives pursuant to 

Regulation SBSR. 

The Commission also considered the 

alternative of requiring a structured data 

language other than Inline XBRL for 

SBSEF filings. For example, the 

Commission could create an XML-based 

data language (i.e., an XML schema) 

specific to SBSEF filings, similar to the 

XML schema to be used for Daily 

Market Data Reports under proposed 

Rule 825. The Commission 

preliminarily believes, however, that 

Inline XBRL would be more suitable for 

SBSEF filings to the Commission. As 

noted, unlike an XML schema that 

would be used under this alternative, 

Inline XBRL would provide the ability 

to tag detailed facts within narrative text 

blocks, and is thus likely more wellsuited to accommodate the other filings 

required under proposed Regulation SE, 

many of which require narrative 

discussions (e.g., the explanation and 

analysis of the product and its 

compliance with applicable provisions 

of the SEA for a product filing required 

under Rule 804). In addition, certain 

proposed SBSEF disclosures consist of 

financial information (e.g., the financial 

statements of the SBSEF required under 

Exhibit I to Form SBSEF), and Inline 

XBRL is designed specifically for the 

accurate capture and communication of 

financial information, among other 

uses.452

Another alternative that the 

Commission considered is to require 

that an exemption order under proposed 

Rule 833(a) could apply to a foreign 

trading venue only if it traded SBS and 

no other types of securities. Under this 

alternative, an exemption order would 

be unavailable to a foreign trading 

venue that trades SBS and other types 

of securities. The Commission 

preliminarily believes, however, that 

this alternative is unnecessary. Other 

jurisdictions might have market 

structures where it is common to trade 

SBS and other types of securities on the 

same trading venue. The Commission 

preliminarily believes that it would be 

inequitable to disqualify such 

jurisdictions ex ante from qualifying for 

a Rule 833(a) exemption. 

In connection with the proposed 

amendments to Rule 3a1–1, the 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28957 

453 15 U.S.C. 78q(a). 

454See supra section XIX(B)(2). 

455See supra section XIX(C)(1) (discussing 

improved access and competition as an overarching 

benefit of the proposal). 

456See proposed Rules 819, 821, 822, and 826. 

457See supra section XIX(C)(1) (discussing 

improved oversight of trading by SBSEFs as an 

overarching benefit of the proposal). 

458See supra section XIX(C)(1) (discussing 

improved Commission oversight as an overarching 

benefit of the proposal). 459See supra section XIX(C)(2) (discussing the 

benefits associated with proposed Rule 831). 

460See supra note 455. 

Commission considered the alternative 

of applying the retraction provisions of 

Rule 3a1–1(b) to SBSEFs and clearing 

agencies that are covered by proposed 

paragraphs (a)(4) and (a)(5), 

respectively, of Rule 3a1–1. Under this 

alternative, if a registered SBSEF or a 

registered clearing agency were to grow 

above a certain size, its exemption 

under proposed paragraph (a)(4) or 

(a)(5), respectively, could be retracted, 

forcing it to register as a national 

securities exchange. 

The Commission preliminarily 

believes that, in adopting section 3D of 

the SEA, Congress gave the Commission 

a mechanism to regulate SBSEFs of any 

size. Nothing in section 3D suggests 

that, if an SBSEF were to grow above a 

certain size, the Commission should be 

able to withdraw that entity’s ability to 

operate as an SBSEF and instead compel 

it to register as a national securities 

exchange. The Commission 

preliminarily believes that it is not 

necessary to apply the retraction 

provisions in Rule 3a1–1(b) to registered 

clearing agencies that engage in forced 

trading sessions and are covered by 

proposed Rule 3a1–1(a)(5). SBS 

transactions effected using this 

functionality are designed to facilitate 

the clearance and settlement process, 

and forced trading sessions are carried 

out by registered clearing agencies 

under rules that have been approved by 

the Commission. This trading 

functionality is not effected for the 

purpose of conducting open-market 

transactions. Therefore, the Commission 

preliminarily believes that it would not 

be appropriate to apply the retraction 

provisions of Rule 3a1–1(b) to clearing 

agencies that would be covered by 

proposed Rule 3a1–1(a)(5), as this 

would force these clearing agencies also 

to register as national securities 

exchanges. For the above reasons, the 

Commission preliminarily believes that 

the proposed approach is preferable to 

this alternative. 

In connection with proposed Rule 

15a–12, the Commission considered the 

alternative of not exempting SBSEF–Bs 

from section 17(a) of the SEA, which 

requires a registered broker (among 

other types of registered entity) to make 

and keep records as prescribed by 

Commission rule.453 This approach 

would subject SBSEF–Bs to the full 

scope of the Commission’s books and 

records rules under section 17(a). The 

Commission is proposing instead to 

utilize proposed Rule 15a–12 to exempt 

SBSEF–Bs from section 17(a), among 

other provisions applying to brokers, 

and instead to subject SBSEF–Bs to 

proposed new Rule 826, which derives 

its statutory authority from Core 

Principle 9 in section 3D of the SEA. 

This approach would allow the 

Commission to tailor a books and 

records rule specifically to the limited 

business as an SBSEF–B and to better 

harmonize with the books and records 

requirements of the CFTC to which the 

SBSEF–B would likely also be subject. 

D. Effects on Efficiency, Competition, 

and Capital Formation 

Proposed Regulation SE and the other 

proposed rules and rule amendments 

would likely affect competition, capital 

formation, and efficiency in various 

ways discussed below. 

1. Competition 

As discussed earlier, currently, the 

SBS market is dominated by a small 

group of SBS dealers.454 A mandatory 

clearing determination by the 

Commission, followed by a MAT 

determination by one or more SBSEFs, 

should help foster greater competition 

in the trading of SBS by promoting 

greater order interaction and increasing 

participation on SBSEFs. Further, 

proposed rules that improve access to 

SBSEFs by market participants could 

increase participation and competition 

in liquidity provision in the SBS 

market.455 To the extent that increased 

competition in liquidity provision 

reduces the price of liquidity provision 

(e.g., bid-ask spread), market 

participants could benefit in terms of 

lower transaction costs. 

2. Capital Formation 

The Commission preliminary believes 

that the proposal could promote capital 

formation by helping to improve 

regulatory oversight and market 

integrity. Regulation SE would require, 

among other things, that SBSEFs 

maintain an audit trail and automated 

trade surveillance system; conduct realtime market monitoring; establish and 

enforce rules for information collection; 

and comply with reporting and 

recordkeeping requirements.456 These 

requirements are designed to provide an 

SBSEF with sufficient information to 

oversee trading on its market, including 

detecting and deterring abusive trading 

practices.457 The proposed audit trail 

and recordkeeping and reporting 

requirements, by providing the 

Commission access to information about 

SBSEFs, would increase the 

Commission’s ability to assess risks in 

the SBS market and to oversee the 

market, which all else being equal 

should reduce the amount of risky or 

abusive behavior in the SBS market.458

Further, proposed Rule 831, the 

proposed requirements relating to the 

CCO, would promote regulatory 

compliance on SBSEFs and the SBS 

market generally.459 In addition, the 

proposal would provide for various 

safeguards to help promote market 

integrity, including proposed Rule 

819(c) relating to impartial access to the 

SBSEF 460 and proposed Rule 830 

relating to systems safeguards. Any 

resulting increase in regulatory 

oversight and market integrity likely 

would increase market participants’ 

confidence in the soundness and 

fairness of SBSEFs, which in turn could 

spill over into increased confidence in 

the soundness and fairness of the SBS 

market more broadly. Such increased 

confidence could lead to the greater use 

of SBS, particularly those traded on 

SBSEFs, by corporate entities to hedge 

their business risks and investors to 

hedge their portfolio risks with respect 

to positions in underlying securities. To 

the extent that corporate entities can 

improve their hedging efficiency with 

SBS, they may divert resources from 

precautionary savings into productive 

assets, thereby promoting capital 

formation. To the extent that investors 

can improve their hedging efficiency 

with SBS, they may be more willing to 

invest in the underlying securities, 

which should facilitate capital raising 

and formation by issuers. Therefore, the 

Commission preliminarily believes that 

the proposed rules would help 

encourage capital formation. 

By reducing the risk of trading 

disruptions on SBSEFs, proposed Rules 

829 and 830 could lead to the greater 

use of SBS traded on SBSEFs. This in 

turn could promote capital formation as 

discussed above. 

3. Efficiency 

The Commission preliminarily 

believes that the proposed requirements 

with respect to pre-trade price 

transparency could lead to more 

efficient pricing in the SBS market. The 

proposed rules are designed to increase 

pre-trade price transparency for SBS, 

which should aid market participants in 

evaluating current market prices for 


jspears on DSK121TN23PROD with PROPOSALS2
28958 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

461See supra section XIX(D)(1). 

462 44 U.S.C. 3501 et seq. 

463See supra section III. As proposed, Regulation 

SE contains 36 separately designated rules (800 to 

835, inclusive), which (if adopted) would be located 

in 17 CFR 242; a Form SBSEF (with instructions); 

and a submission cover sheet (with instructions). If 

adopted, the form and the submission cover sheet 

would be located in 17 CFR 249. 

SBS, thereby furthering more efficient 

price discovery. Price transparency, 

coupled with increased competition in 

liquidity provision as discussed 

above,461 could further decrease the 

spread in quoted prices, and thus could 

lead to higher efficiency in the trading 

of these securities. 

The Commission recognizes the 

possibility that pre-trade price 

transparency could cause market 

participants to reveal more information 

about trading interest than they believe 

would be economically desirable. If 

market participants consider that pretrade price transparency requirements 

are too burdensome and choose not to 

participate in the market, market 

efficiency could be reduced insofar as 

these market participants forgo any 

potential economic benefits that may 

have resulted from transacting in the 

SBS market. The Commission 

preliminarily believes that several 

factors mitigate such concerns. First, 

pursuant to proposed Rule 815(c)(2), an 

SBSEF may offer any execution method 

for Permitted Transactions. Thus, a 

market participant engaging in a 

Permitted Transaction may choose to 

use an execution method that reveals 

only the desired amount of information 

about trading interest. Second, pursuant 

to proposed Rule 815(a)(2), and as 

discussed earlier, an SBSEF would be 

required to offer two execution methods 

for Required Transactions (limit order 

book and RFQ-to-3). Thus, market 

participants have flexibility in the 

degree of pre-trade transparency they 

wish to employ, which should attenuate 

potential concerns associated with 

revealing too much information about 

trading interest. 

The Commission preliminarily 

believes that the proposed Rules 829 

and 830 may reduce the risk of trading 

disruptions on SBSEFs that may 

otherwise prevent market participants 

from impounding information into SBS 

prices through market activity (e.g., 

order submission), and thus could 

improve the price efficiency in the SBS 

market. 

F. Request for Comment 

The Commission is requesting 

comment regarding the economic 

analysis set forth herein. To the extent 

possible, the Commission requests that 

market participants and other 

commenters provide supporting data 

and analysis with respect to the 

benefits, costs, and effects on 

competition, efficiency, and capital 

formation of adopting the proposed 

rules and amendments or any 

reasonable alternatives. In addition, the 

Commission asks commenters to 

consider the following questions: 

212. What additional qualitative or 

quantitative information should the 

Commission include as part of the 

baseline for its economic analysis of the 

proposed rules and amendments? 

213. What additional information can 

the Commission use to estimate the 

costs and benefits of implementing the 

proposed rules and amendments? 

214. Has the Commission considered 

all relevant aspects of the proposed 

rules and amendments? Has the 

Commission accurately described the 

costs and benefits of the proposed rules 

and amendments? Why or why not? 

Please identify any other benefits 

associated with the proposed rules and 

amendments in detail. Please identify 

any costs associated with the proposed 

rules and amendments that the 

Commission has not identified. If 

possible, please provide quantification 

or data that would enable a 

quantification of such effects. 

215. What are the economic effects of 

the discussed reasonable alternatives? 

Are there any additional reasonable 

alternatives that the Commission should 

include? If so, please identify such 

alternatives and any economic effects 

associated with such alternatives. If 

possible, please provide data that would 

enable a quantification of such effects. 

216. The Commission preliminarily 

estimates that five CFTC-registered SEFs 

likely would register as SBSEFs. How 

many entities do you believe will seek 

to register with the Commission as 

SBSEFs? Of these, how many would be 

CFTC-registered SEFs seeking to be 

dually-registered SEF/SBSEFs and how 

many would be standalone SBSEFs? 

217. Are SBS products being traded 

on unregistered SBSEFs? If so, please 

provide data on (1) the types of SBS that 

are being traded on unregistered 

SBSEFs; and (2) the volume of such SBS 

that are being traded on unregistered 

SBSEFs. 

218. Does the Commission’s 

description of SBS trade execution 

practices accurately capture the trade 

execution practices currently used in 

the trading of SBS? If not, please 

identify and describe the execution 

practices that are currently used to trade 

SBS. 

219. What costs would CFTCregistered SEFs incur if they elect to 

register and operate as SBSEFs under 

proposed Regulation SE? Would these 

entities incur costs associated with the 

de novo formation of an SBSEF? 

Alternatively, would they incur costs 

associated with listing SBS products on 

their venues and making limited 

changes to their systems, policies, and 

procedures to the extent that the 

proposed rules differ from analogous 

CFTC rules? Are there other costs that 

have not been identified? 

220. What would be the likely fees 

and costs associated with transacting on 

SBSEFs? What are the fees and costs 

associated with transacting on 

unregulated trading venues that exist in 

today’s OTC derivatives market? 

XX. Paperwork Reduction Act 

Certain provisions of the proposed 

rules contain new ‘‘collection of 

information’’ requirements within the 

meaning of the Paperwork Reduction 

Act of 1995 (‘‘PRA’’).462 The 

Commission is submitting the proposed 

collection of information to the Office of 

Management and Budget (‘‘OMB’’) for 

review in accordance with 44 U.S.C. 

3507(d) and 5 CFR 1320.11. The title of 

the new collection of information is 

‘‘Regulation SE.’’ As proposed, 

Regulation SE would create a regime for 

the registration and regulation of 

SBSEFs and address other issues 

relating to SBS execution. 

In addition, the Commission is 

proposing to amend Rule 3a–1 under 

the SEA to exempt a registered SBSEF 

from the statutory definition of 

‘‘exchange.’’ Furthermore, the 

Commission is proposing new Rule 

15a–12 under the SEA that, while 

affirming that an SBSEF also would be 

a broker under the SEA, would exempt 

a registered SBSEF from certain broker 

requirements under the SEA. 

Proposed Regulation SE would 

include rules regarding the registration 

of a prospective SBSEF on Form SBSEF, 

the filing of new or amended rules or 

new products with the Commission, and 

rules harmonizing the Commission’s 

SBSEF regime with the CFTC’s parallel 

SEF regime.463 An agency may not 

conduct or sponsor, and a person is not 

required to respond to, a collection of 

information unless the agency displays 

a currently valid OMB control number. 

A. Summary of Collection of 

Information 

The proposed rules and rule 

amendments would include a collection 

of information within the meaning of 

the PRA for SBSEFs that would be 

required to comply with Regulation SE 

and file a Form SBSEF with the 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28959 

464See supra section IV(A) (discussing proposed 

Rule 800); section IV(B) (discussing proposed Rule 

801); section IV(C) (discussing proposed Rule 802); 

section V(A) (discussing the registration provisions 

contained in proposed Rule 803); section V(B) 

(discussing Form SBSEF); section VI(A) (discussing 

proposed Rule 804); section VI(B) (discussing 

proposed Rule 805); section VI(C) (discussing 

proposed Rule 806); section VI(D) (discussing 

proposed Rule 807); section VI(F) (discussing 

proposed Rule 808); section VI(G) (discussing 

proposed Rule 809); section VI(H) (discussing 

proposed Rule 810); section VII(A) (discussing 

proposed Rule 811); section VII(B) (discussing 

proposed Rule 812); section VII(C) (discussing 

proposed Rule 813); section VII(D) (discussing 

proposed Rule 814); section VII(E) (discussing 

proposed Rule 815); section VII(F) (discussing 

proposed Rule 816); section VII(G) (discussing 

proposed Rule 817); section VIII(A) (discussing 

proposed Rule 818); section VIII(B) (discussing 

proposed Rule 819); section VIII(C) (discussing 

proposed Rule 820); section VIII(D) (discussing 

proposed Rule 821); section VIII(E) (discussing 

proposed Rule 822); section VIII(F) (discussing 

proposed Rule 823); section VIII(G) (discussing 

proposed Rule 824); section VIII(H) (discussing 

proposed Rule 825); section VIII(I) (discussing 

proposed Rule 826); section VIII(J) (discussing 

proposed Rule 827); section VIII(K) (discussing 

proposed Rule 828); section VIII(L) (discussing 

proposed Rule 829); section VIII(M) (discussing 

proposed Rule 830); section VIII(N) (discussing 

proposed Rule 831); section IX(A) (discussing 

proposed Rule 832); section IX(B) (discussing 

proposed Rule 833); section X (discussing proposed 

Rule 834); section XI (discussing the notice required 

by proposed Rule 835); section XII (discussing 

proposed amendments to Rule 3a1–1); section XIII 

(discussing proposed Rule 15a-12); section XVI 

(discussing new rules and proposed amendments to 

the Commission’s Rules of Practice). 

465Each of the filings that would be required by 

proposed Rules 804 through 807, 809, and 816 

would have to include a submission cover sheet 

that is also being proposed herein. Because the 

cover sheet is an integral part of the filing—it is the 

mechanism whereby an SBSEF would inform the 

Commission what type of filing is enclosed—the 

paperwork burdens for the cover sheet are not 

estimated separately from the paperwork burden of 

the substantive filing. 

Commission. In addition, proposed Rule 

833 would include a collection of 

information within the meaning of the 

PRA for persons that wish to seek an 

exemption order under that rule, and 

proposed Rule 834 would include a 

collection of information within the 

meaning of the PRA for SBS exchanges 

(in addition to SBSEFs). 

Many of the proposed rules that 

comprise Regulation SE are modelled 

after analogous CFTC rules with only 

minor edits to reflect differences 

between the statutory regimes of the two 

agencies. Entities that are most likely to 

register with the Commission as SBSEFs 

are those already registered with the 

CFTC as SEFs. Such entities have made 

substantial investments in systems, 

policies, and procedures to comply with 

and adapt to the regulatory system 

developed by the CFTC. Harmonization 

would allow such dually-registered 

entities to utilize their existing systems, 

policies, and procedures to comply with 

the Commission’s SBSEF rules, and SEF 

members would likely face only 

marginal additional burdens to trade 

SBS as well as swaps on those SEF/ 

SBSEFs. In light of these factors, the 

Commission has based many of its 

paperwork burden estimates on CFTC 

burden estimates calculated for 

analogous CFTC rules. The CFTC 

estimated PRA burdens by aggregating 

the burdens produced by a group of 

related rules, as explained more fully in 

section XX(D) below. In most cases, the 

Commission has modelled its 

methodology, assumptions, and 

calculations on those of the CFTC, while 

making adjustments that reflect 

differences between the scale of the 

market for swaps relative to the market 

for SBS, such as the estimated number 

of SBSEFs, number of SBS market 

participants, and number of SBS 

transactions, as necessary. 

The following is a summary of the 

rules contained in proposed Regulation 

SE.464 The paperwork burdens 

associated with proposed Regulation SE 

are discussed in section XX(D) below. 

Proposed rule number and title Overview of proposed rule 

Paperwork 

burden 

created? 

800—Scope .............................................. would state that the provisions of this section shall apply to every SBSEF that is 

registered or is applying to become registered as an SBSEF under section 3D 

of the SEA.

No 

801—Applicable provisions ....................... would require an SBSEF to comply with all applicable Commission rules, including 

any related definitions and cross-referenced sections.

No 

802—Definitions ........................................ Definitions ................................................................................................................... No 

803—Requirements and procedures for 

registration.

would set out a process for registering with the Commission as an SBSEF, including the submission of Form SBSEF.Yes 

804—Listing products for trading by certification.procedures by which an SBSEF, via self-certification, may list a product for trading Yes 465

805—Voluntary submission of new products for Commission review and approval.procedures for voluntary submission of new products for Commission review and 

approval.

Yes 

806—Voluntary submission of rules for 

Commission review and approval.

procedures for voluntary submission of new rules or rule amendments for Commission review and approval.Yes 

807—Self-certification of rules .................. whereby an SBSEF can implement a new rule or rule amendment via self-certification.Yes 

808—Availability of public information ...... would set out the information that will be made public with respect to applications

to become an SBSEF as well as filings relating to rules and products.

No 

809—Staying of certification and tolling of 

review period pending jurisdictional determination.

would provide for a stay of a product certification or tolling of a review period for a 

product where it is unclear whether the product should be classified as an SBS 

under the jurisdiction of the SEC or a swap under the jurisdiction of the CFTC 

pending the issuance of a joint interpretation by the SEC and CFTC clarifying 

which agency has jurisdiction over the product.

Yes 

810—Product filings by SBSEFs that are 

not yet registered and by dormant 

SBSEFs.

would provide that an applicant for registration as an SBSEF may submit for Commission review and approval an SBS’s terms and conditions or rules prior to listing the product as part of its application for registration.Yes 

811—Information relating to SBSEF compliance.would provide that an SBSEF shall submit information to the Commission that the 

Commission requests, including demonstrations that the SBSEF is in compliance with one or more Core Principles, notification of a transfer 50% or more of 

the equity interest in the SBSEF, and information about pending legal proceedings.

Yes 


jspears on DSK121TN23PROD with PROPOSALS2
28960 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

Proposed rule number and title Overview of proposed rule 

Paperwork 

burden 

created? 

812—Enforceability ................................... would provide that a transaction entered into on or pursuant to the rules of an 

SBSEF shall not be void, voidable, subject to rescission, otherwise invalidated, 

or rendered unenforceable because of a violation by the SBSEF of section 3D 

of the SEA or the Commission’s rules thereunder; also would require an SBSEF 

to provide each counterparty to a transaction on the SBSEF with a written 

record of all the terms of the transaction that were agreed to on the SBSEF.

Yes 

813—Prohibited use of data collected for 

regulatory purposes.

would provide that an SBSEF shall not use for business or marketing purposes 

any proprietary data or personal information that it collects or receives, from or 

on behalf of any person, for the purpose of fulfilling its regulatory obligations, 

without such person’s consent; also would require the SBSEF not to condition 

access to its markets on such consent and provide that the SBSEF may, where 

necessary for regulatory purposes, share such data or information with other 

registered SBSEFs or exchanges.

No 

814—Entity operating both a national securities exchange and SBSEF.would provide that an entity that intends to operate both a national securities exchange and an SBSEF shall separately register the two facilities pursuant to 

section 6 of the SEA and Rule 803, respectively; also would provide that a national securities exchange shall, to the extent that the exchange also operates 

an SBSEF and uses the same electronic trade execution system, identify whether electronic trading of SBS is taking place on or through the national securities 

exchange or the SBSEF.

No 

815—Methods of execution for Required 

and Permitted Transactions.

would provide that a Required Transaction must be executed on an SBSEF 

through an order book or RFQ system, whereas a Permitted Transaction can be 

executed in any manner; also would require an SBSEF to maintain rules and 

procedures that facilitate the resolution of error trades and that an SBSEF shall 

not generally disclose the identity of a counterparty to an SBS that is executed 

anonymously and intended to be cleared.

Yes 

816—Trade execution requirement and 

exemptions therefrom.

would set out a process and standards for an SBSEF to MAT an SBS; also would 

establish certain exemptions from the trade execution requirement.

Yes 

817—Trade execution compliance schedule.would provide that an SBS transaction shall be required to be executed on an 

SBS exchange or SBSEF upon the later of a determination by the Commission 

that the SBS is required to be cleared and 30 days after a MAT determination 

submission or certification for that SBS is approved or certified, respectively.

No 

818—Core Principle 1 (Compliance with 

Core Principles).

would require a registered SBSEF to comply with the SEA’s Core Principles for 

SBSEFs.

Yes 

819—Core Principle 2 (Compliance with 

rules).

would require a registered SBSEF to establish, comply with, and enforce its own 

rules—including rules regarding market access; rules governing trading, trade 

processing, and participation that will deter abuses; rules governing the operation of the SBSEF; and rules to capture and retain an audit trail—and have the 

capacity to detect, investigate, and enforce those rules; also would require an 

SBSEF to establish rules that generally prohibit employees from trading any 

covered interest or disclosing any material, non-public information obtained as a 

result of their employment by the SBSEF; also would require an SBSEF to 

maintain in effect rules that render a person ineligible to serve on the SBSEF’s 

disciplinary committees, arbitration panels, oversight panels, or governing board 

who has been found to have committed enumerated offenses.

Yes 

820—Core Principle 3 (SBS not readily 

susceptible to manipulation).

would require that SBSEF to permit trading only in SBS that are not readily susceptible to manipulation.Yes 

821—Core Principle 4 (Monitoring of trading and trade processing).would require an SBSEF to establish and enforce rules detailing trading and trade 

processing procedures, and to monitor trading and market activity to prevent 

manipulation, price distortion, and delivery or settlement disruptions; also would 

require an SBSEF to demonstrate that it has access to sufficient information to 

assess whether trading on its market or in the underlying assets or indexes is 

being used to affect prices on its market.

Yes 

822—Core Principle 5 (Ability to obtain information).would require an SBSEF to establish and enforce rules that would allow it to obtain any information necessary to comply with section 3D of the SEA and to provide that information to the Commission on request.Yes 

823—Core Principle 6 (Financial integrity 

of transactions).

would require an SBSEF to establish and enforce rules for ensuring the financial 

integrity of SBS on its facility, including the clearance and settlement of the 

SBS; also would require that SBS that are required to be cleared shall be 

cleared by a registered clearing agency (or a clearing agency that has obtained 

an exemption from clearing agency registration to provide central counterparty 

services for SBS), that the SBSEF provide for minimum financial standards for 

its members, and that the SBSEF monitor its members for compliance with 

those standards.

Yes 

824—Core Principle 7 (Emergency authority).would require an SBSEF to adopt rules to provide for the exercise of emergency 

authority, in order for the SBSEF to maintain fair and orderly trading and prevent 

or address manipulation or disruptive trading practices.

Yes 

825—Core Principle 8 (Timely publication 

of trading information).

would require an SBSEF to make public timely information on price, trading volume, and other trading data on SBS transactions, as required by Regulation 

SBSR, and to publish on its website a Daily Market Data Report.

Yes 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28961 

466See, e.g., proposed Rule 803(b)(1) (requiring an 

entity that wishes to register with the Commission 

as an SBSEF to submit a Form SBSEF). 

Proposed rule number and title Overview of proposed rule 

Paperwork 

burden 

created? 

826—Core Principle 9 (Recordkeeping 

and reporting).

would set forth recordkeeping and reporting obligations for SBSEFs and require an 

SBSEF to maintain records of all activities relating to the business of the facility, 

including a complete audit trail, in a form and manner acceptable to the Commission for a period of five years.

Yes 

827—Core Principle 10 (Antitrust considerations).would provide that, unless necessary or appropriate to achieve the purposes of 

the SEA, an SBSEF shall not adopt any rules or take any actions that result in 

any unreasonable restraint of trade or impose any material anticompetitive burden on trading or clearing.

No 

828—Core Principle 11 (Conflicts of interest).would require an SBSEF to establish and enforce rules to minimize conflicts of interest in its decision-making process and establish a process for resolving such 

conflicts.

Yes 

829—Core Principle 12 (Financial resources).would require an SBSEF to have adequate financial, operational, and managerial 

resources to discharge its responsibilities; also would set forth the standards 

used to calculate the adequacy of such resources; and require certain reports to 

the Commission.

Yes 

830—Core Principle 13 (System safeguards).would require an SBSEF to establish and maintain a program of automated systems and risk analysis to identify and minimize sources of operational risk, 

through the development of appropriate controls and procedures; also would require an SBSEF to establish and maintain emergency procedures, backup facilities, and a plan for disaster recovery; conduct periodic tests to verify those resources are sufficient; and notify the Commission promptly of any cyber incidents and material planned changes to the SBSEF’s systems safeguards.

Yes 

831—Core Principle 14 (Designation of 

CCO).

would require an SBSEF to designate a CCO and set forth regulatory and reporting obligations for the CCO.Yes 

832—Cross-border mandatory trade execution.would explain when the SEA’s trade execution requirement applies to a cross-border SBS transaction.No 

833—Cross-border exemptions ................ would provide for a process by which the Commission, upon making the requisite 

findings, could grant exemptions from the SEA definitions of ‘‘exchange,’’ ‘‘security-based swap execution facility,’’ and ‘‘broker’’ and exempt cross-border SBS 

from the SEA’s trade execution requirement.

Yes 

834—Mitigation of conflicts of interest of 

SBSEFs and SBS exchanges.

would provide that each SBSEF and SBS exchange must create and maintain 

rules to mitigate conflicts of interest between SBSEFs and SBS exchanges and 

their members, including by prohibiting members from owning 20% or more of 

the voting securities of an SBSEF or SBS exchange, and from exercising disproportionate influence in disciplinary proceedings; also would require each 

SBSEF and SBS exchange to submit to the Commission after every governing 

board election a list of each governing board’s members, the groups they represent, and how the composition of the board complies with the requirements of 

Rule 834.

Yes 

835—Notice to Commission by SBSEF of 

final disciplinary action or denial or limitation of access.

would provide that, if an SBSEF issues a final disciplinary action against a member, denies or conditions membership, or denies or limits access of a person to 

any services offered by the SBSEF, the SBSEF shall file a notice of such action 

with the Commission within 30 days and serve a copy on the affected person.

Yes 

3a1–1 proposed amendments .................. would exempt from the SEA definition of ‘‘exchange’’ a registered SBSEF that provides a market place for no securities other than SBS, and an entity that has 

registered with the Commission as a clearing agency and limits its exchange 

functions to operation of a trading session that is designed to further the accuracy of end-of-day valuations.

No 

15a–12—Exemption for certain SBSEFs 

from certain broker requirements.

would exempt a registered SBSEF from certain broker requirements while affirming that an SBSEF is a broker under the SEA.No 

Proposed rules and amendments to the 

Commission’s Rules of Practice.

new rules and amendments to the Rules of Practice to allow persons who are aggrieved by a final disciplinary action, a denial or conditioning of membership, or 

a denial or limitation of access by an SBSEF to seek an application for review 

by the Commission.

No ** 

** The Commission finds, in accordance with section 553(b)(3)(A) of the Administrative Procedure Act (‘‘APA’’), 5 U.S.C. 553(b)(3)(A), that the 

proposed revisions to the Commission’s Rules of Practice relate solely to agency organization, procedure, or practice. They are therefore not 

subject to the provisions of the APA requiring notice, opportunity for public comment, and publication. However, the Commission believes that it 

would be useful to publish the rules for notice and comment. To the extent that these rules relate to agency information collections during the 

conduct of administrative proceedings, they are exempt from review under the PRA. 

B. Proposed Use of Information 

1. Registration Requirements and Form 

SBSEF 

Proposed Regulation SE would 

impose various requirements relating to 

SBSEF registration, which are set forth 

in proposed Rule 803.466

The information collected pursuant to 

these proposed rules would enhance the 

ability of the Commission to determine 

whether to approve the registration of 

an entity as an SBSEF; to monitor and 

oversee SBSEFs; to determine that 

SBSEFs initially comply, and continue 

to operate in compliance, with the SEA, 

including the Core Principles applicable 

to SBSEFs; to carry out its statutorily 

mandated oversight functions; and to 

maintain accurate and updated 

information regarding SBSEFs. Because 


jspears on DSK121TN23PROD with PROPOSALS2
28962 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

467See, e.g., proposed Rule 819(a)(2) (requiring an 

SBSEF to establish and enforce trading, trade 

processing, and participation rules). 

468See, e.g., proposed Rule 829 (requiring an 

SBSEF, quarterly or upon Commission request, to 

provide the Commission a report that includes the 

amount of financial resources necessary to meet the 

requirements of Rule 829). 

469See proposed Rule 826 (requiring an SBSEF to 

maintain records of all activities relating to the 

business of the facility, including a complete audit 

trail, and to report information to the Commission 

upon request). 

470See proposed Rule 825 (requiring an SBSEF to 

make publicly available a ‘‘Daily Market Data 

Report’’). 

the registration information would be 

publicly available, it could also be 

useful to an SBSEF’s members, other 

market participants, other regulators, 

and the public generally. 

2. Requirements for SBSEFs To 

Establish Rules 

Various provisions of proposed 

Regulation SE would require SBSEFs to 

establish certain rules, policies, and 

procedures to comply with applicable 

requirements of the SEA and the 

Commission’s rules thereunder.467 The 

rules also would help an SBSEF’s 

members to understand and comply 

with requirements of the SBSEF. 

3. Reporting Requirements for SBSEFs 

Various provisions of proposed 

Regulation SE would require SBSEFs 

and certain other persons to submit 

reports or provide specified 

information.468 This information 

generally would be used by the 

Commission in its oversight of SBSEFs 

and the SBS markets; certain of the 

information to be collected could be 

used by market participants to confirm 

their SBS transactions. 

4. Recordkeeping Required Under 

Regulation SE 

Proposed Regulation SE would 

require an SBSEF to keep specified 

records.469 The audit trail information 

required to be maintained under 

proposed Regulation SE would aid the 

SBSEF in detecting and deterring 

fraudulent and manipulative acts with 

respect to trading on its market, as well 

as help it to fulfill the statutory 

requirement in Core Principle 4 that an 

SBSEF monitor trading in SBS, 

including through comprehensive and 

accurate trade reconstructions. In 

addition, Commission access to these 

records would provide a valuable tool to 

help the Commission carry out its 

oversight responsibility over SBSEFs 

and the SBS markets in general. 

5. Timely Publication of Trading 

Information Requirement for SBSEFs 

Proposed Regulation SE would 

impose certain publication burdens on 

SBSEFs in proposed Rule 825.470

The requirement contained in 

proposed Rule 825 that an SBSEF have 

the capacity to electronically capture, 

transmit, and disseminate information 

on price, trading volume, and other 

trading data on all SBS executed on or 

through the SBSEF would assist the 

SBSEF in carrying out its regulatory 

responsibilities under the SEA and 

enable the SBSEF to comply with 

reasonable requests to provide 

information to others. Furthermore, 

proposed Rule 825 would require an 

SBSEF to publish a Daily Market Data 

Report that is designed to provide 

market observers with a daily snapshot 

of market activity on the SBSEF. 

6. Rule Filing and Product Filing 

Processes for SBSEFs 

Proposed Regulation SE would 

establish various filing requirements 

applicable to SBSEFs. Proposed Rules 

804 and 805 would provide mechanisms 

for an SBSEF to submit filings for new 

products that they seek to list either 

through a self-certification process or by 

voluntarily requesting approval of the 

Commission, respectively. Proposed 

Rules 806 and 807 would require an 

SBSEF to submit new rule or rule 

amendments either through a selfcertification process or by voluntarily 

requesting approval of the Commission, 

respectively. 

Proposed Rule 808 would address the 

public availability of certain 

information in an application to register 

as an SBSEF and SBSEF filings made 

under the self-certification procedures 

or pursuant to Commission review and 

approval. Proposed Rule 809 would 

establish procedures for addressing a 

situation where an SBSEF wishes to list 

a product and it is unclear whether the 

product is an SBS or swap (i.e., whether 

it properly falls under the jurisdiction of 

the SEC or the CFTC). Proposed Rule 

810 would provide that an applicant for 

registration as an SBSEF may submit for 

Commission review and approval an 

SBS’s terms and conditions or rules 

prior to listing the product as part of its 

application for registration. 

The information that would be 

collected under proposed Rules 804 and 

805 would help the Commission assess 

whether an SBS listed by an SBSEF 

complies with relevant provisions of the 

SEA. In addition, this information 

would assist the Commission in 

overseeing the SBSEF’s compliance 

with its regulatory obligations generally 

and to learn about developments in the 

SBS product market. Proposed Rules 

804 and 805 also would provide a 

mechanism whereby market 

participants, other SBSEFs, other 

regulators, and the public generally 

could learn what products an SBSEF 

intends to list, and to obtain information 

regarding such products. 

The information that would be 

collected under proposed Rules 806 and 

807 would help the Commission assess 

whether a new rule or rule amendment 

of an SBSEF complies with relevant 

provisions of the SEA, and assist the 

Commission in overseeing the SBSEF’s 

compliance with its regulatory 

obligations generally. Proposed Rules 

806 and 807 also would provide a 

mechanism whereby an SBSEF’s 

members (and prospective members) 

could learn what new rules or rule 

amendments the SBSEF intends to 

apply in its market. 

The information collected under 

proposed Rules 809 and 810 would help 

the Commission assess an SBSEF’s 

compliance with relevant provisions of 

the SEA, and assist the Commission in 

overseeing the SBSEF’s compliance 

with its regulatory obligations. This 

information also would be useful to the 

SBSEF’s members, because they would 

be subject to such new or amended rules 

or products and thus would have an 

interest in learning about those rules or 

products. Other market participants, 

other SBSEFs, and other regulators, as 

well as the public generally, may find 

information about proposed new or 

amended rules or products useful. 

7. Requirements Relating to the CCO 

Proposed Regulation SE includes Rule 

831 that would set out requirements 

relating to an SBSEF’s CCO. 

The information that would be 

collected under proposed Rule 831 

would help ensure compliance by 

SBSEFs with relevant provisions of the 

SEA and assist the Commission in 

overseeing SBSEFs generally. The 

Commission could use the annual 

compliance report to help it evaluate 

whether an SBSEF is carrying out its 

statutorily-mandated regulatory 

obligations and, among other things, to 

discern the scope of any denials of 

access or refusals to grant access by the 

SBSEF and to obtain information on the 

status of the SBSEF’s regulatory 

compliance program. The SBSEF’s 

fourth-quarter financial report would 

provide the Commission with important 

information on the financial health of 

the SBSEF. 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28963 

471See, e.g., proposed Rule 819(d)(3) (requiring 

an SBSEF to establish and maintain sufficient 

compliance staff and resources to ensure that it can 

conduct effective audit trail reviews, trade practice 

surveillance, market surveillance, and real-time 

market monitoring). 

472See supra note 254. 

473The Commission anticipates that such persons 

could include foreign SBS trading venues, foreign 

authorities that license and regulate those trading 

venues, or covered persons (as defined in proposed 

Rule 832) who are members of such trading venues. 

474See supra note 244. 

475See Core Principles and Other Requirements 

for Swap Execution Facilities (May 17, 2013), 78 FR 

33476, 33548–49 (June 4, 2013) (Final Rule PRA for 

CFTC part 37); Swap Execution Facility 

Requirements (November 27, 2020), 85 FR 82313, 

82324 (December 18, 2020) (Final Rule PRA for 

§ 36.1); Core Principles and Other Requirements for 

Swap Execution Facilities: OMB Control Number 

3038–0074 Supporting Statements (last updated 

July 26, 2021), available at https://omb.report/omb/ 

3038-0074 (PRA Supporting Statements for CFTC 

Core Principles for SEFs, § 36.1); Provisions 

Common to Registered Entities (July 19, 2011), 76 

FR 44776, 44789–90 (July 27, 2011) (Final Rule PRA 

for CFTC part 40); part 40, Provisions Common to 

Registered Entities: OMB Control Number 3038– 

0093 Supporting Statements (last updated February 

24, 2021), available at https://omb.report/omb/ 

3038-0093 (PRA Supporting Statements for CFTC 

part 40, § 36.1); Notification of Pending Legal 

Proceedings: OMB Control Number 3038–0033 

Supporting Statements (last updated August 24, 

2018), available at https://omb.report/omb/3038- 

0033 (PRA Supporting Statements for §§ 1.60(a), (c), 

and (e)); Adaptation of Regulations To Incorporate 

Swaps (October 16, 2012), 77 FR 66288, 66306–08 

(November 2, 2012) (Final Rule PRA for §§ 1.59 and 

1.37(c)); Recordkeeping (May 23, 2017), 82 FR 

24479, 24485 (May 30, 2017) (Final Rule PRA for 

§ 1.31); Adaptation of Regulations to Incorporate 

Swaps-Exclusion of Utility Operations-Related 

Swaps with Utility Special Entities from De 

Minimis Threshold: OMB Control Number 3038– 

0090 Supporting Statements (last updated July 1, 

2020), available at https://omb.report/omb/3038- 

0090 (PRA Supporting Statements for §§ 1.31, 

1.37(c), 1.59, and 1.67); Service on Self-Regulatory 

Organization Governing Boards or Committees by 

Persons with Disciplinary Histories (February 27, 

1990), 55 FR 7884, 7890 (March 6, 1990) (Final Rule 

PRA for § 1.63); Final Rule and Rule Amendments 

Concerning Composition of Various Self-Regulatory 

Organization Governing Boards and Major 

Disciplinary Committees (June 29, 1993), 58 FR 

37644, 37653 (July 13, 1993) (Final Rule PRA for 

§ 1.64); Voting by Interested Members of SelfRegulatory Organization Governing Boards and 

Committees (December 23, 1998), 64 FR 16, 22 

(January 4, 1999) (Final Rule PRA for § 1.69); Rules 

Pertaining to Contract Markets and Their Members: 

OMB Control Number 3038–0022 Supporting 

Statements (last updated December 21, 2010), 

available at https://omb.report/omb/3038-0022 

(PRA Supporting Statements for §§ 1.63, 1.64, and 

1.69); Swap Data Recordkeeping and Reporting 

Requirements (December 20, 2011), 77 FR 2136, 

2171–76 (January 13, 2012) (Final Rule PRA for 

§ 45.2); Swap Data Recordkeeping and Reporting 

Requirements: OMB Control Number 3038–0096 

Supporting Statements (last updated March 16, 

2021), available at https://omb.report/omb/3038- 

0096 (PRA Supporting Statements for § 45.2); 

Repeal of the Exempt Commercial Market and 

Exempt Board of Trade Exemptions (September 28, 

2015), 80 FR 59575, 59576 (October 2, 2015) (Final 

Rule PRA for § 15.05). 

476Proposed Rule 835, which would require 

SBSEFs to file with the Commission notices of final 

disciplinary actions and denials and limitations of 

access, is not based on a CFTC rule but rather on 

an existing Commission rule that imposes a similar 

filing requirement on SROs. Therefore, the 

Commission is utilizing the burden estimates in its 

rulemaking for SROs to estimate the burdens of this 

rule for SBSEFs. 

8. Surveillance Systems Requirements 

for SBSEFs 

The proposed rules that would 

require an SBSEF to maintain 

surveillance systems and to monitor 

trading 471 are designed to promote 

compliance by an SBSEF with its 

obligations under the SEA to oversee 

trading on its market, and to prevent 

manipulation and other unlawful 

activity or disruption of its market. 

C. Respondents 

The respondents subject to the 

collection of information burdens 

associated with proposed Regulation SE 

would be: (1) SBSEFs (and entities 

wishing to register with the Commission 

as SBSEFs); (2) in the case of Rule 833, 

persons that seek an exemption order 

under that rule; and (3) in the case of 

Rule 834, SBS exchanges. 

Currently there are no registered 

SBSEFs. Based on the number of SEFs 

registered with the CFTC that trade 

index CDS (the closest analog to singlename CDS, which is likely to be the 

product most frequently traded on SECregistered SBSEFs) and general industry 

information, the Commission 

preliminarily estimates that five entities 

will seek to register as SBSEFs and thus 

become subject to the collection of 

information requirements of these 

proposed rules. 

The Commission preliminarily 

estimates that three persons would 

request exemption orders under one or 

both paragraphs 472 of proposed Rule 

833.473 The CFTC has granted three 

exemptions similar to those 

contemplated by proposed Rule 833,474

which suggests that the number of 

jurisdictions having organized trading 

venues for swap and SBS products that 

overlap with products traded on similar 

venues in the United States is not large. 

The Commission preliminarily 

estimates that three entities will operate 

as SBS exchanges. These are likely to be 

existing national securities exchanges 

that, in the future, seek to list SBS and 

thereby become SBS exchanges. 

The Commission considered whether 

any provision of proposed Regulation 

SE would impose any burdens (as 

defined in the PRA) on SBSEF members, 

but has determined that they would not. 

D. Total Annual Reporting and 

Recordkeeping Burden 

1. Overview 

The CFTC, based on experience 

gained in developing rules for SEFs and 

regulating the SEF market, over the 

years has developed, refined, and 

received approval from OMB for 

paperwork burden hours estimates, both 

for SEF rules directly as well as for 

ancillary rules on which various rules in 

proposed Regulation SE are 

modelled.475 Those estimates are 

presented in the form of aggregate totals 

for compliance with: 

• Part 37 of the CFTC regulations 

regarding initial registration 

requirements applicable to SEFs; 

• Part 37 regarding other 

requirements applicable to SEFs, 

including the statutory Core Principles; 

• Part 40 of the CFTC regulations 

regarding requirements applicable to 

SEFs (and other CFTC-registered 

entities); and 

• §§ 1.60(a), 1.60(c), 1.60(e), 36.1, 

1.59, 1.63, 1.67, 15.05, 1.37(c), 1.64, and 

1.69 regarding requirements applicable 

to SEFs (and other CFTC-registered 

entities). 

The rules applicable to SBSEFs would 

be, with limited exceptions discussed 

above, substantively similar to those 

applicable to SEFs. Therefore, the 

Commission is basing its preliminary 

estimates for the paperwork burdens for 

SBSEFs on the CFTC’s paperwork 

burden calculations for analog rules that 

apply to SEFs, which have been 

approved by OMB.476 However, in 

certain cases, the paperwork burdens 

estimated by the CFTC are scaled down 

for SBSEFs to account for the likelihood 

that there will be fewer SBSEFs than 

SEFs and the SBS business of dually 

registered SEF/SBSEFs is likely to be 

smaller than the swap business. 

Although there are minor differences 

between the CFTC rules and the 

proposed Commission rules, the 

Commission does not believe it needs to 

substantially deviate from the CFTC’s 

estimates of aggregated burden hours for 

compliance (beyond scaling back the 

CFTC’s estimates to account for fewer 

SBSEFs than SEFs, and the smaller size 

of the SBS market relative to the swap 

market). These minor differences 

between the CFTC’s existing rules for 

SEFs and the Commission’s proposed 

rules for SBSEFs are prompted, in some 

cases, by minor differences between the 

statutory provisions that apply to SEFs 

under the CEA and the statutory 

provisions that apply to SBSEFs under 

the SEA, or, in other cases, by 

differences between the swap market 

and SBS market. In either case, 

however, the Commission preliminarily 

anticipates that the burdens on SBSEFs 

would be substantially similar to the 

burdens set out in the CFTC estimates, 


jspears on DSK121TN23PROD with PROPOSALS2
28964 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

477The Commission notes that, when the CFTC 

adopted the SEF rules in 2013, the CFTC took a 

similar approach to burden hours estimation. The 

CFTC relied on the aggregate burden hours for three 

types of entities that it regulated (DCMs, derivatives 

transaction execution facilities, and certain exempt 

commercial markets) and applied those burden 

hours to SEFs unadjusted, even though there are 

differences between the regulations that govern 

SEFs and those that govern the other entities. The 

CFTC noted that those entities, like SEFs, were 

subject to certain statutory core principles and rules 

thereunder, and despite variations in the applicable 

regulations, it was still appropriate to use the 

average aggregate burden number for those entities 

as the estimate for SEFs without adjustment. See 

CFTC, Core Principles and Other Requirements for 

Swap Execution Facilities, 78 FR at 33548–51. 

478However, the Commission will note instances 

where a proposed rule would require an SBSEF to 

generate the same paperwork that is already being 

created pursuant to a CFTC rule. In such cases, 

compliance with the existing CFTC requirement 

would satisfy the proposed SEC requirement, and 

in reality there would be few or perhaps even zero 

marginal burdens imposed on dually registered 

SEF/SBSEFs. 

479The burden hours discussed below represent 

annual/ongoing burdens, with three exceptions that 

represent initial, one-time burdens: registration 

burdens for SBSEFs under proposed Rule 803, 

exemption requests regarding foreign SBS trading 

venues under proposed Rule 833, and certain rules 

under proposed Rules 834(b) and (c). 

480See OMB, Supporting Statement for New and 

Revised Information Collections: Core Principles 

and Other Requirements for Swap Execution 

Facilities, OMB Control Number 3038–0074, 

Attachment A (July 7, 2021), available at https://

omb.report/icr/202107-3038-004/doc/ 

113431800.pdf. 

481 1,935 hours = 387 hours (annual burden per 

respondent) × 5 (number of respondents). 

482See OMB, Supporting Statement for New and 

Revised Information Collections, OMB Control 

Number 3038–0074, at 8 (estimating that on a net 

basis the total burden hours imposed on each SEF 

will be 387 hours). 

483As discussed previously, portions of the CFTC 

guidance have been incorporated into certain rules 

being proposed by the Commission in Regulation 

SE. The CFTC guidance clarifies portions of its 

rules by suggesting means for compliance and does 

not fundamentally alter those rules. Therefore, the 

Commission believes that no adjustments to the 

CFTC estimates, on which the Commission is 

basing its own estimates, would be appropriate 

despite adapting that guidance into the 

Commission’s proposed rules. 

which serve as the basis for the 

Commission’s estimates.477

Furthermore, the Commission 

preliminarily believes that basing the 

burden estimates for SBSEFs on the 

CFTC’s estimates for SEFs would be 

more accurate than using burden hours 

estimates for any other entity that the 

Commission currently regulates (e.g., 

national securities exchanges) because 

SBSEFs share many more similarities 

with SEFs than they do with any other 

SEC-registered entities. 

The Commission anticipates that most 

if not all entities that seek to register 

with the Commission as SBSEFs will 

also register, or will already be 

registered, with the CFTC as SEFs. With 

a few exceptions, the rules being 

proposed by the Commission are 

adapted from existing rules of the CFTC. 

With these proposed rules, the 

Commission intends to obtain 

comparable regulatory benefits as the 

CFTC rules while imposing only 

marginal additional burdens on SEF/ 

SBSEFs. However, for purposes of its 

PRA analysis, the Commission will 

estimate the burdens as if a respondent 

were subject only to the Commission’s 

rules.478 The Commission requests 

comments on its entire proposed 

approach to estimating burden hours.479

2. Aggregate Burdens for Rules 

Modelled After CFTC Part 37 Rules 

a. Registration Requirements for SBSEFs 

and Form SBSEF 

A submission by an entity wishing to 

register with the Commission as an 

SBSEF would be required to be made on 

Form SBSEF, pursuant to proposed Rule 

803, on a one-time basis. The 

Commission preliminarily estimates 

that five entities initially would seek to 

register with the Commission as 

SBSEFs. The Commission estimates the 

burdens of proposed Rule 803 and Form 

SBSEF to be 1,475 hours. These entities 

would incur initial, one-time burdens, 

because once an entity is registered as 

an SBSEF, its registration obligations are 

complete. The Commission’s estimate 

regarding the initial burden that an 

entity would incur to file a Form SBSEF 

is informed by the estimates made by 

the CFTC for the completion of Form 

SEF and compliance with § 37.3 of the 

CFTC regulations (which governs 

registration of SEFs). Proposed Form 

SBSEF would request almost exactly the 

same information as required by Form 

SEF. Proposed Rule 803 is substantially 

similar to § 37.3. The CFTC has 

estimated that the initial compliance 

burden associated with its registration 

requirements in § 37.3 and Form SEF to 

be 295 hours per SEF applicant.480 For 

purposes of calculating burden hours, 

the CFTC considered the entire SEF 

application process to constitute a 

single information collection; the 

Commission is utilizing the same 

approach for SBSEFs. The Commission 

preliminarily believes that SBSEFs 

would prepare Form SBSEF internally. 

The Commission requests comment on 

the accuracy of this estimate. 

b. Ongoing Compliance With Other 

Requirements That Are Similar to the 

Remainder of Part 37 

The Commission preliminarily 

estimates the aggregate ongoing annual 

hour burden for compliance with all of 

the proposed SBSEF rules that have 

analogs in part 37 to be 1,935 hours.481

The CFTC has estimated that the 

compliance burden for all of the 

sections of part 37 combined, other than 

the initial burden of 295 hours per SEF 

for registration-related compliance 

discussed above, to be an ongoing 

annual burden of 387 hours per SEF.482

With exception of § 37.600, which 

implements a CEA Core Principle for 

SEFs relating to position limits that is 

not in the SEA, every other section of 

part 37 has an analog in proposed 

Regulation SE that is substantively 

similar.483 Therefore, the Commission 

preliminarily estimates that the 

aggregate CFTC estimate of 387 hours 

per SEF per year serves as a reasonable 

estimate for the annual hourly burden 

on each SBSEF. 

As discussed in more detail below, 

certain SBSEF rules proposed in 

Regulation SE are derived from other 

parts of the CFTC rules (e.g., part 40) 

and the burdens for those section will 

be based on the appropriate burden 

hours of the corresponding CFTC part. 

For reference, the following table lists 

all sections of part 37 and the 

corresponding proposed SBSEF rule. 

Please see above for more detailed 

descriptions of a particular proposed 

SBSEF rule. 

CFTC part 37 section (387 aggregate 

burden hours per SEF not including § 37.3 

(registration) 

Topic 

Analogous SBSEF Rule No. (387 

aggregate burden hours per SBSEF not 

including proposed Rule 803 (registration) 

and certain other rules not modelled on 

part 37 rules (discussed separately in the 

following sections) 

37.1 ............................................................. scope ............................................................................... 800. 

37.2 ............................................................. applicable provisions ....................................................... 801. 

37.4 ............................................................. procedures for listing products ........................................ 810. 

37.5 ............................................................. compliance ...................................................................... 811. 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28965 

484The burdens of registering using Form SBSEF 

are discussed in the previous section. 

485See 75 FR 67282 (November 2, 2010) (CFTC 

proposal to amend 17 CFR 40.2 through 40.5); 

OMB, Supporting Statement for Information 

Collection Renewal: OMB Control Number 3038– 

0093, Attachment A (July 10, 2020), available at 

https://omb.report/icr/202005-3038-001/doc/ 

101274002.pdf (noting the estimated average 

number of hours to burden hours report is 2 hours, 

and the number of annual responses from each 

entity is 100). 

486Each of the filings that would be required by 

proposed Rules 804 through 807 would have to 

include a submission cover sheet that is modelled 

on the cover sheet and instructions used by SEFs 

in conjunction with analogous filings with the 

CFTC, with the submitting entity checking the 

appropriate box to indicate which type of the filing 

it is making. Any burden hours attributable to a 

respondent completing this cover sheet, which is an 

integral part of the filing, are not estimated 

separately from the paperwork burden of the 

substantive filing. Instead, they are contained 

within the aggregate burden hours estimate for rule 

and product filings pursuant to proposed Rules 804 

through 807, which are based upon the CFTC’s 

estimates. See supra note 465. 

487See id. 

488 60 hours = 30 (number of responses per year 

per respondent) × 2 hours (burden per response). 

CFTC part 37 section (387 aggregate 

burden hours per SEF not including § 37.3 

(registration) 

Topic 

Analogous SBSEF Rule No. (387 

aggregate burden hours per SBSEF not 

including proposed Rule 803 (registration) 

and certain other rules not modelled on 

part 37 rules (discussed separately in the 

following sections) 

37.6 ............................................................. enforceability ................................................................... 812. 

37.7 ............................................................. prohibited use of data ..................................................... 813. 

37.8 ............................................................. entities operating as SEFs and DCMs ........................... 814. 

37.9 ............................................................. methods of execution ...................................................... 815. 

37.10 ........................................................... process to make swaps available for trade .................... 816. 

37.11 ........................................................... reserved section .............................................................. not applicable. 

37.12 ........................................................... trade execution compliance schedule ............................. 817. 

37.100 ......................................................... CP 1 (compliance with Core Principles) ......................... 818 (CP1). 

37.200 through 37.206 ............................... CP 2 (compliance with rules) .......................................... 819 (CP2). 

37.300 through 37.301 ............................... CP 3 (manipulation) ........................................................ 820 (CP3). 

37.400 through 37.408 ............................... CP 4 (monitoring of trading and trade processing) ........ 821 (CP4). 

37.500 through 37.504 ............................... CP 5 (ability to obtain information) ................................. 822 (CP5). 

37.600 through 37.601 ............................... CP 6 (position limits) ....................................................... no equivalent requirement in the SEA; 

CP numbering diverges after this point. 

37.700 through 37.703 ............................... CP 7 (financial integrity of transactions) ......................... 823 (CP6). 

37.800 through 37.801 ............................... CP 8 (emergency authority) ............................................ 824 (CP7). 

37.900 through 37.901 ............................... CP 9 (publication of trading information) ........................ 825 (CP 8). 

37.1000 through 37.1001 ........................... CP 10 (recordkeeping and reporting) ............................. 826 (CP 9). 

37.1100 through 37.1101 ........................... CP 11 (anti-trust) ............................................................. 827 (CP10). 

37.1200 ....................................................... CP 12 (conflicts of interest) ............................................ 828 (CP 11). 

37.1300 through 37.1307 ........................... CP 13 (financial resources) ............................................ 829 (CP 12). 

37.1400 through 37.1401 ........................... CP 14 (system safeguards) ............................................ 830 (CP 13). 

37.1500 through 1501 ................................ CP 15 (CCO) ................................................................... 831 (CP 14). 

Appendix A (Form SEF) ............................. Form SEF ........................................................................ Form SBSEF.484

Appendix B ................................................. Guidance relating to Core Principles .............................. guidance incorporated throughout proposed rules 818 through 831. 

3. Aggregate Burdens for Rules 

Modelled on CFTC Part 40 Rules 

A number of rules contained in 

Proposed Regulation SE are modelled 

after rules in part 40 of the CFTC’s rules, 

including §§ 40.2 (Listing products for 

trading by certification), 40.3 (Voluntary 

submission of new products for 

Commission review and approval), 40.5 

(Voluntary submission of rules for 

Commission review and approval), and 

40.6 (Self-certification of rules). The 

Commission is proposing Rules 804, 

805, 806, and 807—which are closely 

modelled on §§ 40.2, 40.3, 40.5, and 

40.6, respectively—in order to 

harmonize with the procedures that the 

CFTC applies to SEFs with respect to 

establishing new rules and listing 

products. In addition, proposed Rule 

808 is modelled after § 40.8 and would 

provide that certain information in a 

Form SBSEF application or a rule or 

product filing would be made publicly 

available, notwithstanding the SBSEF’s 

request for confidential treatment. 

Proposed Rule 809 is loosely modelled 

after § 40.12 and would set forth a 

mechanism for a tolling of the period for 

consideration of a product pending the 

issuance by the SEC and the CFTC of 

joint interpretation clarifying which 

agency has jurisdiction over the 

product. 

a. Rule and Product Filing Processes for 

SBSEFs 

Under proposed Rules 804 and 805, 

an SBSEF would be required to submit 

filings for new products that it seeks to 

list. Under proposed Rules 806 and 807, 

an SBSEF would be required to submit 

rule filings for new rules or rule 

amendments, including changes to a 

product’s terms or conditions. The 

Commission’s estimate regarding the 

burdens that an SBSEF would incur to 

comply with the proposed rule and 

product filing processes in proposed 

Rules 804, 805, 806, and 807 is 

informed by the estimates made by the 

CFTC for compliance with §§ 40.2, 40.3, 

40.5, and 40.6, the burden hours for 

which have been approved by OMB.485

The Commission is estimating a total of 

five SBSEF respondents. The 

Commission preliminarily estimates 

that the aggregate ongoing annual 

hourly burden for all SBSEFs to prepare 

and submit rule and product filings 

under proposed Rules 804, 805, 806, 

and 807 (including the cover sheet) 486

would be 300 hours. 

Based on the CFTC’s experience with 

SEFs, the Commission estimates that on 

average an SBSEF would incur an 

ongoing annual burden of 2 hours of 

work per rule or product filing. 

Although the CFTC estimated an 

average of 100 responses per year per 

respondent,487 the Commission believes 

that an estimate of 30 responses is 

appropriate given the more limited 

scope of the SBS market, as opposed to 

the swap market. This would result in 

a total estimated ongoing annual burden 

of 60 hours per respondent 488 and 300 

hours for all the respondents 


jspears on DSK121TN23PROD with PROPOSALS2
28966 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

489 300 hours = 60 hours (annual burden per 

respondent pursuant to proposed Rules 804, 805, 

806, and 807) × 5 (number of respondents). 490 17 CFR 240.3a68–2. 491OMB recently approved an extension without 

change of the collection for Rule 3a68–2. See 

Supporting Statement for the Paperwork Reduction 

Act New Information Collection Submission for 

Rule 3a68–2 (Interpretation of Swaps, SecurityBased Swaps, and Mixed Swaps) and Rule 3a68– 

4(c) (Process for Determining Regulatory Treatment 

for Mixed Swaps), OMB Control Number 3235– 

0685, Supporting Statement A (December 23, 2021), 

available at https://omb.report/icr/202112-3235- 

018/doc/117438500.pdf. 

492See supra section VI(E). 

493The Commission preliminarily believes that 

the establishment of a registration regime and 

listing procedures for SBSEFs could affect the 

distribution, but likely not the total number, of 

requests for joint interpretations under Rule 3a68– 

2 of the SEA. SBS products may be developed in 

the bilateral market before they are listed on 

SBSEFs, and there are incentives to resolving 

jurisdictional issues before they can develop 

traction in the market. Accordingly, requests for a 

joint interpretation under Rule 3a68–2 could occur 

before such products are listed by an SBSEF, and 

such requests are already considered in the 

approved PRA burden estimates for Rule 3a68–2. 

494 1.25 hours = 1 (number of responses per year 

per respondent) × 0.25 hours (burden per response) 

× 5 (number of respondents). 

495 1 (number of responses per year per 

respondent) × 0.20 hours (burden per response) × 

5 (number of respondents) = 1 hour. 

496See OMB, Supporting Statement for New and 

Revised Information Collections: OMB Control 

Number 3038–0033 (August 23, 2018), available at 

https://omb.report/icr/201808-3038-004/doc/ 

85625801.pdf. 

annually.489 The Commission solicits 

comments regarding the accuracy of its 

estimates. 

b. Burdens Related to Rules Modelled 

After Other Part 40 Rules 

i. Rule 802 

Certain definitions contained in 

proposed Rule 802 are modelled after 

provisions of part 40. These definitions 

would not result in any paperwork 

burden. 

ii. Rule 809 

Proposed Rule 809 is loosely 

modelled on § 40.12 of the CFTC’s rules 

and would apply in situations where an 

SBSEF wishes to list a product and it is 

unclear whether the product should be 

classified as an SBS subject to the 

jurisdiction of the SEC or a swap subject 

to the jurisdiction of the CFTC. 

Proposed Rule 809 would provide that 

a product certification made by an 

SBSEF pursuant to proposed Rule 804 

shall be stayed, or the review period for 

a product that has been submitted for 

Commission approval by an SBSEF 

pursuant to proposed Rule 805 shall be 

tolled, upon request for a joint 

interpretation of whether the product is 

a swap, SBS, or mixed swap made 

pursuant to Rule 3a68–2 under the 

SEA 490 by the SBSEF, the SEC, or the 

CFTC. 

Proposed Rule 809 itself does not 

include a process for determining 

whether the SEC or CFTC has 

jurisdiction over a product. Proposed 

Rule 809 would enable the SEC to stay 

or toll the product filing while the SEC 

and CFTC consider a joint interpretation 

under existing SEA Rule 3a68–2, the 

burden hours of which have already 

been approved by OMB.491 The only 

burden imposed on an SBSEF under 

Rule 809 would be checking a box on 

the submission cover sheet if the SBSEF 

intends to request a joint interpretation 

from the Commission and the CFTC 

pursuant to SEA Rule 3a68–2.492 The 

Commission preliminarily estimates 

that each such indication would impose 

a burden of 0.25 hours. Furthermore, the 

Commission preliminarily estimates 

that each SBSEF would make one such 

indication per year.493 Accordingly, the 

aggregate ongoing annual burden for all 

SBSEFs to comply with Rule 809 would 

be 1.25 hours.494 The Commission 

believes that this work, should it be 

required, would be conducted 

internally. The Commission solicits 

comment as to the accuracy of these 

estimates. 

4. Aggregate Burdens for Rules 

Modelled After CFTC Rules Other Than 

Parts 37 and 40 

The proposed rules similar to rules of 

the CFTC other than part 37 and part 40 

are proposed Rules 811(d), 816(e), 

819(h), 819(i), 819(j), 819(k), 826(f), and 

834. These proposed rules generate 

various categories of burdens for 

SBSEFs or market participants. 

a. Rule 811(d) 

Section 1.60 of the CFTC’s rules 

requires a SEF to provide the CFTC with 

copies of any legal proceeding to which 

it is a party, or to which its property or 

assets is subject. 

Paragraph (d) of proposed Rule 811 

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

of § 1.60 to apply to SBSEFs. Paragraph 

(d)(1) would require an SBSEF to 

provide the Commission a copy of the 

complaint, any dispositive or partially 

dispositive decision, any notice of 

appeal filed concerning such decision, 

and such further documents as the 

Commission may thereafter request filed 

in any material legal proceeding to 

which the SBSEF is a party or its 

property or assets is subject. Paragraph 

(d)(2) would require an SBSEF to 

provide notices of similar actions 

against any officer, director, or other 

official of the SBSEF from conduct in 

such person’s capacity as an official of 

the SBSEF alleging violations of certain 

enumerated actions. 

The Commission preliminarily 

estimates that an SBSEF would provide 

the information required by proposed 

Rule 811(d) once per year, and that each 

submission would take 0.20 hours. 

Thus, the Commission preliminarily 

estimates that the aggregate ongoing 

annual burden for all SBSEFs to comply 

with requests for documents or 

information pursuant to proposed Rule 

811(d) would be 1 hour.495 The 

Commission is basing its estimate on the 

CFTC estimate included in its 

submission to OMB for § 1.60 of the 

CFTC’s rules, for which the CFTC 

estimated that each of the 79 entities to 

which the rule applies makes, on 

average, one submission of documents 

to the Commission per year. The CFTC 

further estimated that the time required 

to prepare one submission is 

approximately 0.20 hour, totaling 15.8 

hours (79 × 0.20) annually.496

For PRA purposes, the Commission 

preliminarily believes that it is 

reasonable to apply the CFTC’s 

approach to proposed Rule 811(d). The 

Commission believes that this work, 

should it be required, would be 

conducted internally. The Commission 

solicits comment as to the accuracy of 

these estimates. 

b. Rule 819(h) 

Paragraph (h) of proposed Rule 819 

generally would prohibit persons who 

are employees of an SBSEF, or who 

otherwise might have access to 

confidential information because of 

their role with the SBSEF, from 

improperly utilizing that information. 

Proposed Rule 819(h) is modelled on 

§ 1.59 of the CFTC’s rules. The 

Commission does not believe that this 

proposed rule would result in a 

paperwork burden. 

c. Rule 819(i) 

Paragraph (i) of proposed Rule 819 

would bar persons with specified 

disciplinary histories from serving on 

the governing board or committees of an 

SBSEF, and impose certain other duties 

on the SBSEF associated with that 

fundamental requirement. Proposed 

Rule 819(i) is modelled on § 1.63 of the 

CFTC’s rules. 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28967 

497 1 (number of responses per year per 

respondent) × 79.83 hours (burden per response) × 

5 (number of respondents) = 399.15 hours. 

498See CFTC, Service on Self-Regulatory 

Organization Governing Boards or Committees by 

Persons with Disciplinary Histories (February 27, 

1990), 55 FR 7884, 7890 (March 6, 1990) (final rule 

PRA for § 1.63). 

499Proposed Rule 819(j) would not address any 

of the requirements or process concerning taking 

final disciplinary actions; it merely would require 

that a notice be provided. A provision of Regulation 

SCI, Rule 1000(b)(4)(i), also requires providing a 

simple notice and the Commission estimated that 

it would take 0.5 hours to prepare and such a 

notice. See Regulation Systems Compliance and 

Integrity; Final Rule, SEA Release No. 73639 

(November 19, 2014), 79 FR 72251, 72381 

(December 5, 2014). 

500 2.5 hours (0.5 hours of in-house counsel time) 

× (1 responses per year) × (5 respondents). The once 

per year estimate is based on a previous CFTC 

estimate included in its submission to OMB for 

§ 1.67 along with other rules. 

501 1 (number of responses per year per 

respondent) × 0.40 hours (burden per response) × 

5 (number of respondents) = 2 hours. 

502 1 (number of responses per respondent) × 15 

hours (burden per response) × 8 (5 SBSEFs + 3 SBS 

exchanges) = 120 hours. 

503Regulation MC Proposal, 75 FR at 65916. 

504See id. 

505 10 hours = 1 (number of responses per 

respondent) × 1.25 hours (burden per response) × 

8 (number of SBSEF + SBS exchange respondents). 

506Regulation MC Proposal, 75 FR at 65932. 

The Commission preliminarily 

estimates that an SBSEF would provide 

the information required by proposed 

Rule 819(i) once per year, and that each 

submission would take 79.83 hours. 

Thus, the Commission preliminarily 

estimates that the aggregate ongoing 

annual burden for all SBSEFs to comply 

with proposed Rule 819(i) would be 

399.15 hours.497 The Commission is 

basing its estimate on the one that the 

CFTC included in its submission to 

OMB for its adoption of § 1.63, where 

the CFTC estimated that each 

respondent would make, on average, 

one submission to the CFTC per year. 

The CFTC further estimated that the 

time required to prepare one submission 

is approximately 79.83 hours.498

For PRA purposes, the Commission 

preliminarily believes that it is 

reasonable to apply the CFTC’s 

approach to proposed Rule 819(i), and 

that this work would be conducted 

internally. The Commission solicits 

comment as to the accuracy of these 

estimates. 

d. Rule 819(j) 

Paragraph (j) of proposed Rule 819 is 

modelled on § 1.67 of the CFTC’s rules. 

Rule 819(j)(1) would provide that, upon 

any final disciplinary action in which 

an SBSEF finds that a member has 

committed a rule violation that involved 

a transaction for a customer, whether 

executed or not, and that resulted in 

financial harm to the customer, the 

SBSEF must promptly provide written 

notice of the disciplinary action to the 

member. 

The Commission preliminarily 

estimates that an SBSEF would need 0.5 

hours to prepare a notice and provide it 

to a member. This estimate is based on 

a previous Commission estimate for the 

time that it would take to prepare and 

submit a simple notice.499 The 

Commission estimates that these notices 

would occur once per year at each 

SBSEF, resulting in an aggregate 

ongoing annual burden to comply with 

proposed Rule 819(j) of 2.5 hours.500

The Commission believes that this 

work, should it be required, would be 

conducted internally. The Commission 

solicits comment as to the accuracy of 

these estimates. 

e. Rule 819(k) 

Paragraph (k) of proposed Rule 819 

would require non-U.S. persons who 

trade on an SBSEF to have an agent for 

service process, which could be an 

agent of its own choosing or, by default, 

the SBSEF. Proposed Rule 819(k) is 

modelled on provisions of § 15.05 of the 

CFTC’s rules that apply to SEFs. The 

Commission does not believe that this 

proposed rule would result in a 

paperwork burden. 

f. Rule 826(f) 

Proposed Rule 826(f) is modelled on 

§ 1.37(c) and would require an SBSEF to 

keep a record in permanent form, which 

shall show the true name, address, and 

principal occupation or business of any 

non-U.S. member that executes 

transactions on the SBSEF and must, 

upon request, provide to the 

Commission information regarding the 

name of any person guaranteeing such 

transactions or exercising any control 

over the trading of such non-U.S. 

member. 

The Commission preliminarily 

estimates that each SBSEF would need 

to update information required by Rule 

826(f) once per year and that each 

submission would take 0.4 hours. Thus, 

the Commission preliminarily estimates 

that the aggregate ongoing annual 

burden for all SBSEFs to comply with 

requests for documents or information 

pursuant to proposed Rule 826(f) would 

be 2 hours.501 The Commission is basing 

its estimate on the estimate included by 

the CFTC in its submission to OMB 

regarding § 1.37(c), where the CFTC 

estimated that it would take a SEF 0.4 

hours to prepare each record in 

accordance with § 1.37(c). 

For PRA purposes, the Commission 

preliminarily believes that it is 

reasonable to apply the CFTC’s 

approach to proposed Rule 826(f). The 

Commission believes that this work, 

should it be required, would be 

conducted internally. The Commission 

solicits comment as to the accuracy of 

these estimates. 

g. Rule 834 

Proposed Rule 834 of Regulation SE 

would implement section 765 of the 

Dodd-Frank Act with respect to SBSEFs 

and SBS exchanges and, in addition, 

adapt certain CFTC rules that are 

designed to mitigate conflicts of interest 

at SEFs (and other CFTC-registered 

entities). Proposed Rule 834 would 

provide that each SBSEF and SBS 

exchange must create and maintain 

rules to mitigate conflicts of interest 

between SBSEFs and SBS exchanges 

and their members, including by 

prohibiting members from owning 20% 

or more of the voting rights of an SBSEF 

or SBS exchange and from exercising 

disproportionate influence in 

disciplinary proceedings. Proposed Rule 

834 also would require each SBSEF and 

SBS exchange to submit to the 

Commission after every governing board 

election a list of each governing board’s 

members, the groups they represent, and 

how the composition of the board 

complies with the requirements of Rule 

834. Establishing such rules and 

submitting such lists to the Commission 

would result in a paperwork burden for 

SBSEFs and SBS exchanges. 

The Commission preliminarily 

estimates that proposed Rules 834(b) 

and (c) together would have an initial, 

one-time paperwork burden of 15 hours 

per entity associated with drafting and 

implementing any such rules, for an 

aggregate one-time paperwork burden of 

120 hours.502 Proposed Rules 834(b) and 

(c) are substantially similar to proposed 

Rule 702(c) of Regulation MC.503 In its 

PRA analysis for proposed Rule 702(c), 

the Commission estimated that there 

would be a one-time paperwork burden 

of 15 hours per entity associated with 

drafting and implementation of any 

such rules by each SBSEF or SBS 

exchange.504

Additionally, the Commission 

preliminarily estimates that proposed 

Rule 834(d), proposed Rule 834(e), and 

proposed Rule 834(f), combined, would 

result in an aggregate ongoing annual 

paperwork burden of 10 hours.505

Proposed Rules 834(d), (e), and (f) are 

substantially similar to proposed Rule 

702(h) in Regulation MC in 2010 506 and 

CFTC § 1.64(c)(4), CFTC § 1.64(b), and 

CFTC § 1.64(d), respectively. The 

Commission is basing its estimate on the 


jspears on DSK121TN23PROD with PROPOSALS2
28968 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

507While § 1.41(d) created an exemption from the 

requirements of section 5a(a)(12)(A) of the CEA for 

contract market rules not related to terms and 

conditions, the CFTC did not break out the portion 

of the burden hours for which this amendment is 

responsible. Therefore, to be conservative, the 

Commission is including it in its estimate for the 

burden hours of proposed Rules 834(d), (e), and (f). 

508See 58 FR 37644, 37653. 

509 16 hours = 1 (number of responses per 

respondent) × 2 hours (burden per response) × 8 

(number of SBSEF + SBS exchange respondents). 

510See 64 FR at 16, 22. 

511 26 hours = 10 hours (from the second sentence 

of proposed Rules 834(d), 834(e), and 834(f)) + 16 

hours (from proposed Rule 834(g)) + 0 hours (from 

proposed Rule 834(h). 

512See supra note 244. 

513 240 hours (80 hours of in-house counsel time) 

× (3 respondents). 

514 160 hours (80 hours of in-house counsel time) 

× (2 respondents). This estimate is informed by Rule 

908(c) of the Commission’s Regulation SBSR, which 

sets forth the requirements surrounding requests 

under which regulatory reporting and public 

dissemination of SBS transactions can be satisfied 

by complying with the rules of a foreign jurisdiction 

rather than the parallel rules applicable in the 

United States. The materials necessary to support 

such a request under Rule 908(c) are broadly similar 

to the materials necessary to support a request for 

an exemption order under one or both paragraphs 

of proposed Rule 833. The Commission estimated 

that the burden of a request under Rule 908(c) 

would be 80 hours of in-house counsel time; 

therefore, the Commission preliminarily estimates 

that burden for submitting documents and 

information in support of a request for an 

exemption order under Rule 833 would be the 

same. 

515A provision of Regulation SCI, Rule 

1000(b)(4)(i), also requires providing a simple 

notice and the Commission estimated that it would 

take 0.5 hours to prepare and such a notice. See 

Regulation Systems Compliance and Integrity; Final 

Rule, SEA Release No. 73639 (November 19, 2014), 

79 FR 72251, 72381 (December 5, 2014). 

516 45 hours (0.75 hours of in-house counsel time) 

× (12 responses per year) × (5 respondents). 

517Three respondents in the first year and then 

two each subsequent year. 

CFTC’s estimate that Rules 1.41(d),507

1.63, 1.64, and 1.67 would result in an 

average annual paperwork burden of 

1.25 hours per response that was 

included in its submission to OMB.508

The Commission preliminarily 

estimates that proposed Rule 834(g) 

would have an aggregate ongoing annual 

burden of 16 hours.509 Proposed Rule 

834(g) is substantially similar to § 1.69 

of the CFTC’s rules, and the 

Commission is basing its estimate on the 

CFTC’s estimate for § 1.69 of 2 hours per 

response that was included in its 

submission to OMB.510

The Commission does not believe that 

proposed Rule 834(h) would result in a 

paperwork burden not already included 

in the above estimates. Proposed Rule 

834(h) collates into a single rule the 

requirements for an SBSEF to file rules 

to comply with proposed Rule 834. As 

it has already described the paperwork 

burdens of proposed Rules 834(b) 

through (g), the Commission does not 

believe that proposed Rule 834(h) 

would result in a separate paperwork 

burden not already included above. 

Thus, the total aggregate ongoing annual 

burden is estimated at 26 hours.511

5. Miscellaneous Burdens 

a. Rule 833 

Proposed Rule 833 would describe 

how exemptions could be obtained for 

foreign SBS trading venues from the 

SEA definitions of ‘‘exchange,’’ 

‘‘security-based swap execution 

facility,’’ and ‘‘broker’’ and how SBS 

executed on a foreign trading venue 

could become exempt from the SEA’s 

trade execution requirement. Based on 

the CFTC’s experience in the SEF 

market,512 the Commission 

preliminarily estimates that there would 

be three requests for an exemption order 

under either or both paragraphs (a) and 

(b) of Rule 833 in the first year and 2 

requests in each subsequent year; and 

that each submission would require an 

initial, one-time burden of 80 hours. 

Once an exemption has been granted to 

an applicant, no further action is 

required. The Commission preliminarily 

estimates the burden to submit an 

exemption request under one or both 

paragraphs of proposed Rule 833 would 

be 240 hours in the first year 513 and 160 

hours in each subsequent year.514 The 

Commission solicits comment as to the 

accuracy of these estimates. 

b. Rule 835 

Proposed Rule 835 would provide 

that, if an SBSEF issues a final 

disciplinary action against a member, 

takes final action with respect to a 

denial or conditioning membership, or 

takes final action with respect to a 

denial or limitation of access of a person 

to any services offered by the SBSEF, 

the SBSEF shall file a notice of such 

action with the Commission within 30 

days and serve a copy on the affected 

person. 

The Commission preliminarily 

estimates that it would take 0.5 hours to 

prepare this notice and provide it to the 

Commission and the affected person. 

This estimate is based on a previous 

Commission estimate for the time that it 

would take to prepare and submit a 

simple notice.515 The Commission 

preliminarily believes that it would take 

an additional 0.25 hours to create and 

serve a copy of that notice on the 

affected person. The Commission 

estimates that these notices would occur 

once per month at each SBSEF, 

resulting in an aggregate annual burden 

to comply with proposed Rule 835 of 45 

hours.516 The Commission believes that 

this work, should it be required, would 

be conducted internally. The 

Commission solicits comment as to the 

accuracy of these estimates. 

6. Total Paperwork Burden Under 

Proposed Regulation SE 

Based on the foregoing, the 

Commission preliminarily estimates 

that the total one-time burden for all 

SBSEFs, persons that seek an exemption 

order under proposed Rule 833, and 

SBS exchanges combined pursuant to 

the requirements under Regulation SE is 

equal to 1,995 hours. The Commission 

preliminarily estimates that annual 

ongoing burden for all SBSEFs, persons 

that seek an exemption order under 

proposed Rule 833, and SBS exchanges 

combined pursuant to the requirements 

under Regulation SE is equal to 2,711.9 

hours. 

SUMMARY OF AGGREGATE BURDEN HOURS

Proposed rule or provision 

Burden 

hours per 

respondent 

One-time or 

ongoing Respondents Total hours 

Registration (Rule 803, Form SBSEF) ............................................................ 295 One-Time ....... 5 1,475 

Rules modelled on CFTC part 37 (other than registration) ............................ 387 Ongoing ......... 5 1,935 

Rule and product filing processes (Rules 804 through 807) .......................... 60 Ongoing ......... 5 300 

809 ................................................................................................................... 0.25 Ongoing ......... 5 1.25 

811(d) .............................................................................................................. 0.2 Ongoing ......... 5 1 

819(i) ................................................................................................................ 79.83 Ongoing ......... 5 399.15 

819(j) ................................................................................................................ 0.5 Ongoing ......... 5 2.5 

826(f) ............................................................................................................... 0.4 Ongoing ......... 5 2 

833 ................................................................................................................... 80 One-Time ....... 517 3 & 2 240 & 160 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28969 

518 5 U.S.C. 601 et seq. 519 5 U.S.C. 603(a). 520Although section 601(b) of the RFA defines 

the term ‘‘small entity,’’ the statute permits agencies 

to formulate their own definitions. The Commission 

has adopted definitions for the term ‘‘small entity’’ 

for the purposes of Commission rulemaking in 

accordance with the RFA. Those definitions, as 

relevant to this proposed rulemaking, are set forth 

in Rule 0–10 under the SEA, 17 CFR 240.0–10. See 

SEA Release No. 18452 (January 28, 1982), 47 FR 

5215 (February 4, 1982) (File No. AS–305). 

521See 5 U.S.C. 605(b). 

SUMMARY OF AGGREGATE BURDEN HOURS—Continued 

Proposed rule or provision 

Burden 

hours per 

respondent 

One-time or 

ongoing Respondents Total hours 

834(b) through (c) ............................................................................................ 15 One-Time ....... 8 120 

834(d) through (g) ........................................................................................... 3.25 Ongoing ......... 8 26 

835 ................................................................................................................... 9 Ongoing ......... 5 45 

E. Collection of Information Is 

Mandatory 

The collections of information 

imposed on SBSEFs throughout 

Regulation SE would be mandatory for 

registered SBSEFs. The collection of 

information with respect to proposed 

Rule 833 would be mandatory for 

persons that seek an exemption order 

under Rule 833. The collection of 

information with respect to proposed 

Rule 834 would be mandatory for SBS 

exchanges. 

F. Responses to Collection of 

Information Will Not Be Confidential 

The collection of information required 

under Regulation SE would generally 

not be kept confidential, unless 

confidential treatment is requested and 

granted by the Commission pursuant to 

Rule 24b–2 under the SEA. 

G. Retention Period of Recordkeeping 

Requirements 

Although recordkeeping and retention 

requirements have not yet been 

established for SBSEFs, the Commission 

is authorized to adopt such rules under 

section 3D of the SEA. Proposed Rule 

826 under Regulation SE would 

implement section 3D(d)(9) of the SEA 

to require an SBSEF to maintain 

records, for a minimum of five years, of 

all activities relating to the business of 

the SBSEF, including a complete audit 

trail. 

H. Request for Comment 

The Commission solicits comment on 

all aspects of its PRA estimates 

regarding the above, particularly the 

following: 

221. Please provide any data or 

analysis bearing on whether the 

proposed collection of information is 

necessary for the proper performance of 

the functions of the agency, including 

whether the information shall have 

practical utility. 

222. Do you believe that the 

Commission’s estimate of the burden of 

the proposed collections of information 

is accurate? Why or why not? If not, 

what aspects (in your view) require 

adjustment? To the extent possible, 

please provide data to support your 

contention. 

223. Do you believe that there are 

ways to enhance the quality, utility, and 

clarity of the information proposed to be 

collected? If so, please describe. 

224. Do you believe that there are 

ways to minimize the burden of 

collection of information on 

respondents, including through the use 

of automated collection techniques or 

other forms of information technology? 

If so, please describe. 

225. Do you believe that the proposed 

rules and amendments would have any 

effects on any other collection of 

information not previously identified in 

this section? If so, please describe and 

quantify to the extent feasible. 

Pursuant to 44 U.S.C. 3506(c)(2)(B), 

the Commission solicits comments to: 

(1) Evaluate whether the proposed 

collection of information is necessary 

for the proper performance of the 

functions of the Commission, including 

whether the information will have 

practical utility; (2) evaluate the 

accuracy of the Commission’s estimate 

of the burden of the proposed collection 

of information; (3) determine whether 

there are ways to enhance the quality, 

utility, and clarity of the information to 

be collected; and (4) determine whether 

there are ways to minimize the burden 

of the collection of information on those 

who are to respond, including through 

the use of automated collection 

techniques or other forms of information 

technology. Persons wishing to submit 

comments on the collection of 

information requirements should direct 

them to the OMB Desk Officer for the 

Securities and Exchange Commission, 

MBX.OMB.OIRA.SEC_desk_officer@

omb.eop.gov, and should send a copy to 

Vanessa A. Countryman, Secretary, 

Securities and Exchange Commission, 

100 F Street NE, Washington, DC 

20549–1090 with reference to File No. 

S7–14–22. OMB is required to make a 

decision concerning the collection of 

information between 30 and 60 days 

after publication; therefore, a comment 

to OMB is best assured of having its full 

effect if OMB receives it within 30 days 

of publication. Requests for the 

materials submitted to OMB by the 

Commission with regard to this 

collection of information should be in 

writing, refer to File No. S7–14–22, and 

be submitted to the Securities and 

Exchange Commission, Office of FOIA 

Services, 100 F Street NE, Washington, 

DC 20549–2736. As OMB is required to 

make a decision concerning the 

collection of information between 30 

and 60 days after publication, a 

comment to OMB is best assured of 

having its full effect if OMB receives it 

within 30 days of publication. 

XXI. Regulatory Flexibility Act 

Certification 

The Regulatory Flexibility Act 

(‘‘RFA’’) 518 requires Federal agencies, in 

promulgating rules, to consider the 

impact of those rules on small entities. 

Section 603(a) of the Administrative 

Procedure Act,519 as amended by the 

RFA, generally requires the Commission 

to undertake a regulatory flexibility 

analysis of all proposed rules, or 

proposed rule amendments, to 

determine the impact of such 

rulemaking on ‘‘small entities.’’ 520

Section 605(b) of the RFA states that 

this requirement shall not apply to any 

proposed rule or proposed rule 

amendment which, if adopted, would 

not have a significant economic impact 

on a substantial number of small 

entities.521

A. SBSEFs 

Most of proposed Regulation SE, and 

the related rules and rule amendments, 

would apply to registered SBSEFs (or 

entities that are seeking to register with 

the Commission as SBSEFs). In the 

Dodd-Frank Act, Congress defined 

SBSEFs as a new type of trading venue 

for SBS and mandated the registration of 

these entities. Based on its 

understanding of the market, and review 

of and consultation with industry 

sources, the Commission preliminarily 

estimates that five entities will seek to 


jspears on DSK121TN23PROD with PROPOSALS2
28970 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

522See 17 CFR 240.0–10(a). 

523 17 CFR 240.17a–5(d). 

524See 17 CFR 240.0–10(c). 

525These entities would include firms involved 

in investment banking and securities dealing; 

securities brokerage; commodity contracts dealing; 

commodity contracts brokerage; securities and 

commodity exchanges; portfolio management; 

investment advice; trust, fiduciary and custody 

activities; miscellaneous intermediation; and 

miscellaneous financial investment activities. See 

SBA’s Table of Small Business Size Standards, 

Subsector 523. 

526See supra note 244. 

527 17 CFR 242.601. 

528See 17 CFR 240.0–10(e). 

529These entities would include firms involved 

in investment banking and securities dealing, 

securities brokerage, commodity contracts dealing, 

commodity contracts brokerage, securities and 

commodity exchanges, miscellaneous 

intermediation, portfolio management, investment 

advice, trust, fiduciary and custody activities, and 

miscellaneous financial investment activities. See 

SBA’s Table of Small Business Size Standards, 

Subsector 523. 

530Public Law 104–121, Title II, 110 Stat. 857 

(1996) (codified in various sections of 5 U.S.C., 15 

U.S.C., and as a note to 5 U.S.C. 601). 

register as SBSEFs and thus would be 

subject to Regulation SE and the related 

rules and rule amendments. 

For purposes of Commission 

rulemaking in connection with the RFA, 

a small entity includes: (1) When used 

with reference to an ‘‘issuer’’ or a 

‘‘person,’’ other than an investment 

company, an ‘‘issuer’’ or ‘‘person’’ that, 

on the last day of its most recent fiscal 

year, had total assets of $5 million or 

less; 522 or (2) a broker-dealer with total 

capital (net worth plus subordinated 

liabilities) of less than $500,000 on the 

date in the prior fiscal year as of which 

its audited financial statements were 

prepared pursuant to Rule 17a–5(d) 

under the SEA,523 or, if not required to 

file such statements, a broker-dealer 

with total capital (net worth plus 

subordinated liabilities) of less than 

$500,000 on the last business day of the 

preceding fiscal year (or in the time that 

it has been in business, if shorter); and 

is not affiliated with any person (other 

than a natural person) that is not a small 

business or small organization.524 Under 

the standards adopted by the Small 

Business Administration (‘‘SBA’’), 

entities in financial investments and 

related activities 525 are considered 

small entities if they have $41.5 million 

or less in annual receipts. 

The Commission preliminarily 

believes that most, if not all, SBSEFs 

would be large business entities or 

subsidiaries of large business entities, 

and that every SBSEF (or its parent 

entity) would have assets in excess of $5 

million and annual receipts in excess of 

$41,500,000. Therefore, the Commission 

preliminarily believes that none of the 

potential SBSEFs would be considered 

small entities. 

B. Persons Requesting an Exemption 

Order Pursuant to Rule 833 

Proposed Rule 833 would describe 

how foreign SBS trading venues could 

become exempt from the SEA 

definitions of ‘‘exchange,’’ ‘‘securitybased swap execution facility,’’ and 

‘‘broker’’ and how SBS executed on a 

foreign trading venue could become 

exempt from the SEA’s trade execution 

requirement. Based on the fact that the 

CFTC has granted similar exemptions 

with respect to three foreign 

jurisdictions,526 the Commission 

preliminarily estimates that there would 

be three requests under one or both 

paragraphs of proposed Rule 833 in the 

first year and two in each subsequent 

year. These requests would likely be 

submitted by foreign SBS trading 

venues, foreign authorities that license 

and regulate those trading venues, or 

covered persons (as defined in proposed 

Rule 832) who are members of such 

trading venues. 

Based on the Commission’s existing 

information about the SBS market, the 

Commission preliminarily believes that 

no person likely to request an 

exemption order pursuant to proposed 

Rule 833 would be considered a small 

entity. The Commission preliminarily 

believes that most, if not all, of the 

persons requesting exemptions would 

be large business entities or subsidiaries 

of large business entities, and on its 

own, or through its parent entity, would 

have assets in excess of $5 million (or 

in the case of a broker-dealer, total 

capital of less than $500,000) and 

annual receipts in excess of 

$41,500,000. Therefore, the Commission 

preliminarily believes that they would 

not be considered small entities. 

C. SBS Exchanges 

Certain rules under proposed 

Regulation SE would apply to SBS 

exchanges. Currently, there are no SBS 

exchanges. However, the Commission 

preliminarily estimates that there could 

be up to three entities would be 

considered SBS exchanges and would 

thus be subject to certain requirements 

of proposed Regulation SE. 

For purposes of Commission 

rulemaking in connection with the RFA, 

a small entity includes, when used with 

reference to an exchange, an exchange 

that has been exempted from the 

reporting requirements of Rule 601 of 

Regulation NMS 527 and is not affiliated 

with any person (other than a natural 

person) that is not a small business or 

small organization.528 Under the 

standards adopted by the SBA, entities 

involved in financial investments and 

related activities 529 are considered 

small entities if they have $41.5 million 

or less in annual receipts. 

Based on these definitions and the 

Commission’s existing information 

about national securities exchanges, the 

Commission preliminarily believes that 

the entities likely to be considered SBS 

exchanges would not be considered 

small entities. Under the standard 

requiring exemption from the reporting 

requirements of Rule 601 under the 

SEA, none of the exchanges subject to 

the proposed Regulation SE is a ‘‘small 

entity’’ for the purposes of the RFA. In 

addition, the Commission preliminarily 

believes that any SBS exchange would 

have annual receipts in excess of 

$41,500,000. Therefore, the Commission 

preliminarily believes that no potential 

SBS exchange would be considered 

small entities. 

D. Certification 

For the foregoing reasons, the 

Commission certifies that the proposed 

rules, form, and cover sheet under 

Regulation SE and the related rules and 

rule amendments, if adopted, would not 

have a significant economic impact on 

a substantial number of small entities 

for purposes of the RFA. The 

Commission invites commenters to 

address whether the proposed rules 

would have a significant economic 

impact on a substantial number of small 

entities, and, if so, what would be the 

nature of any impact on small entities. 

The Commission requests that 

commenters provide empirical data to 

illustrate the extent of the impact. 

XXII. Consideration of Impact on the 

Economy 

For purposes of the Small Business 

Regulatory Enforcement Fairness Act of 

1996, (‘‘SBREFA’’),530 the Commission 

requests comment on the potential effect 

of the proposed Regulation SE, and 

related proposed rules and rule 

amendments under the SEA, on the 

United States economy on an annual 

basis. The Commission also requests 

comment on any potential increases in 

costs or prices for consumers or 

individual industries, and any potential 

effect on competition, investment, or 

innovation. Commenters are requested 

to provide empirical data and other 

factual support for their views to the 

extent possible. 

Statutory Authority 

Pursuant to the SEA (particularly 

Sections 3(b), 3C, 3D, and 36 thereof, 15 

U.S.C. 78c, 78c–3, 78c–4, and 78mm, 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28971 

respectively) and the Dodd-Frank Act 

(particularly section 765 thereof, 15 

U.S.C. 8343), the Commission is 

proposing to amend §§ 201.101, 

201.202, 201.210, 201.401, 201.450, 

201.460, 232.405, and 240.3a1–1 of 

chapter II of title 17 of the Code of 

Federal Regulations and is proposing 

new §§ 201.442, 201.443, 240.15a–12, 

and 242.800 through 242.835, as set 

forth below. 

List of Subjects 

17 CFR Part 201 

Administrative practice and 

procedure. 

17 CFR Part 232 

Administrative practice and 

procedure, Confidential business 

information, Incorporation by reference, 

Reporting and recordkeeping 

requirements, Securities. 

17 CFR Part 240 

Brokers, Dealers, Registration, 

Securities. 

17 CFR 242 and 249 

Brokers, Security-based swap 

execution facilities, Reporting and 

recordkeeping requirements. 

For the reasons stated in the 

preamble, the Commission is proposing 

to amend title 17, chapter II of the Code 

of the Federal Regulations as follows: 

PART 201—RULES OF PRACTICE 

■ 1. The authority citation for part 201, 

subpart D, is revised to read as follows: 

Authority: 15 U.S.C. 77f, 77g, 77h, 77h– 

1, 77j, 77s, 77u, 78c(b), 78c–4, 78d–1, 78d– 

2, 78l, 78m, 78n, 78o(d), 78o–3, 78s, 78u–2, 

78u–3, 78v, 78w, 77sss, 77ttt, 80a–8, 80a–9, 

80a–37, 80a–38, 80a–39, 80a–40, 80a–41, 

80a–44, 80b–3, 80b–9, 80b–11, 80b–12, 7202, 

7215, and 7217. 

§ 201.101 Definitions. 

■ 2. Amend § 201.101 by adding 

paragraph (a)(9)(ix) to read as follows: 

* * * * * 

(a) * * * 

(9) * * * 

(ix) By the filing, pursuant to 

§ 201.442, of an application for review 

of a determination of a security-based 

swap execution facility; 

* * * * * 

■ 3. Amend § 201.202 by revising 

paragraph (a) to read as follows: 

§ 201.202 Specification of procedures by 

parties in certain proceedings. 

(a) Motion to specify procedures. In 

any proceeding other than an 

enforcement or disciplinary proceeding, 

a proceeding to review a determination 

by a self-regulatory organization 

pursuant to §§ 201.420 and 201.421, a 

proceeding to review a determination of 

the Board pursuant to §§ 201.440 and 

201.441, or a proceeding to review a 

determination by a security-based swap 

execution facility pursuant to 

§§ 201.442 and 201.443, a party may, at 

any time up to 20 days prior to the start 

of a hearing, make a motion to specify 

the procedures necessary or appropriate 

for the proceeding with particular 

reference to: 

(1) Whether there should be an initial 

decision by a hearing officer; 

(2) Whether any interested division of 

the Commission may assist in the 

preparation of the Commission’s 

decision; and 

(3) Whether there should be a 30-day 

waiting period between the issuance of 

the Commission’s order and the date it 

is to become effective. 

* * * * * 

■ 4. Amend § 201.210 by revising the 

paragraph (a) heading, paragraph (a)(1), 

paragraph (b) heading, paragraph (b)(1), 

and paragraph (c) introductory text to 

read as follows: 

§ 201.210 Parties, limited participants and 

amici curiae. 

(a) Parties in an enforcement or 

disciplinary proceeding, a proceeding to 

review a self-regulatory organization 

determination, a proceeding to review a 

Board determination, or a proceeding to 

review a determination by a securitybased swap execution facility—(1) 

Generally. No person shall be granted 

leave to become a party or a non-party 

participant on a limited basis in an 

enforcement or disciplinary proceeding, 

a proceeding to review a determination 

by a self-regulatory organization 

pursuant to §§ 201.420 and 201.421, a 

proceeding to review a determination by 

the Board pursuant to §§ 201.440 and 

201.441, or a proceeding to review a 

determination by a security-based swap 

execution facility pursuant to 

§§ 201.442 and 201.443, except as 

authorized by paragraph (c) of this 

section. 

* * * * * 

(b) Intervention as party—(1) 

Generally. In any proceeding, other than 

an enforcement proceeding, a 

disciplinary proceeding, a proceeding to 

review a self-regulatory determination, a 

proceeding to review a Board 

determination, or a proceeding to 

review a security-based swap execution 

facility determination, any person may 

seek leave to intervene as a party by 

filing a motion setting forth the person’s 

interest in the proceeding. No person, 

however, shall be admitted as a party to 

a proceeding by intervention unless it is 

determined that leave to participate 

pursuant to paragraph (c) of this section 

would be inadequate for the protection 

of the person’s interests. In a proceeding 

under the Investment Company Act of 

1940, any representative of interested 

security holders, or any other person 

whose participation in the proceeding 

may be in the public interest or for the 

protection of investors, may be admitted 

as a party upon the filing of a written 

motion setting forth the person’s interest 

in the proceeding. 

* * * * * 

(c) Leave to participate on a limited 

basis. In any proceeding, other than an 

enforcement proceeding, a disciplinary 

proceeding, a proceeding to review a 

self-regulatory determination, a 

proceeding to review a Board 

determination, or a proceeding to 

review a security-based swap execution 

facility determination, any person may 

seek leave to participate on a limited 

basis as a non-party participant as any 

matter affecting the person’s interests: 

* * * * * 

■ 5. Amend § 201.401 by adding 

paragraph (f) to read as follows: 

§ 201.401 Consideration of stays. 

* * * * * 

(f) Lifting of stay of action by a 

security-based swap execution facility— 

(1) Availability. Any person aggrieved 

by a stay of action by a security-based 

swap execution facility entered in 

accordance with § 201.442(c) may make 

a motion to lift the stay. The 

Commission may, at any time, on its 

own motion determine whether to lift 

the automatic stay. 

(2) Summary action. The Commission 

may lift a stay summarily, without 

notice and opportunity for hearing. 

(3) Expedited consideration. The 

Commission may expedite 

consideration of a motion to lift a stay 

of action by a security-based swap 

execution facility, consistent with the 

Commission’s other responsibilities. 

Where consideration is expedited, 

persons opposing the lifting of the stay 

may file a statement in opposition 

within two days of service of the motion 

requesting lifting of the stay unless the 

Commission, by written order, shall 

specify a different period. 

■ 6. Add § 201.442 to read as follows: 

§ 201.442 Appeal of determination by 

security-based swap execution facility. 

(a) Application for review; when 

available. An application for review by 

the Commission may be filed by any 

person who is aggrieved by a 

determination of a security-based swap 

execution facility with respect to any: 


jspears on DSK121TN23PROD with PROPOSALS2
28972 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

(1) Final disciplinary action, as 

defined in § 240.835(b)(1); 

(2) Final action with respect to a 

denial or conditioning of membership, 

as defined in § 240.835(b)(2); or 

(3) Final action with respect to a 

denial or limitation of access to any 

service offered by the security-based 

swap execution facility, as defined in 

§ 240.835(b)(2). 

(b) Procedure. An aggrieved person 

may file an application for review with 

the Commission pursuant to § 201.151 

within 30 days after the notice filed 

with the Commission pursuant to 

§ 242.835 by the security-based swap 

execution facility of the determination 

is received by the aggrieved person. The 

aggrieved person shall serve the 

application on the security-based swap 

execution facility at the same time. The 

application shall identify the 

determination complained of, set forth 

in summary form a statement of alleged 

errors in the action and supporting 

reasons therefor, and state an address 

where the applicant can be served. The 

application should not exceed two 

pages in length. If the applicant will be 

represented by a representative, the 

application shall be accompanied by the 

notice of appearance required by 

§ 201.102(d). Any exception to an action 

not supported in an opening brief that 

complies with § 201.450(b) may, at the 

discretion of the Commission, be 

deemed to have been waived by the 

applicant. 

(c) Stay of determination. Filing an 

application for review with the 

Commission pursuant to paragraph (b) 

of this section operates as a stay of the 

security-based swap execution facility’s 

determination, unless the Commission 

otherwise orders either pursuant to a 

motion filed in accordance with 

§ 201.401(f) or upon its own motion. 

(d) Certification of the record; service 

of the index. Within 14 days after 

receipt of an application for review, the 

security-based swap execution facility 

shall certify and file electronically in 

the form and manner specified by the 

Office of the Secretary one unredacted 

copy of the record upon which it took 

the complained-of action. 

(1) The security-based swap execution 

facility shall file electronically with the 

Commission one copy of an index of 

such record in the form and manner 

specified by the Commission, and shall 

serve one copy of the index on each 

party. If such index contains any 

sensitive personal information, as 

defined in paragraph (d)(2) of this 

section, the security-based swap 

execution facility also shall file 

electronically with the Commission one 

redacted copy of such index, subject to 

the requirements of paragraph (d)(2). 

(2) Sensitive personal information 

includes a Social Security number, 

taxpayer identification number, 

financial account number, credit card or 

debit card number, passport number, 

driver’s license number, State-issued 

identification number, home address 

(other than city and State), telephone 

number, date of birth (other than year), 

names and initials of minor children, as 

well as any unnecessary health 

information identifiable by individual, 

such as an individual’s medical records. 

Sensitive personal information shall not 

be included in, and must be redacted or 

omitted from, all filings. 

(i) Exceptions. The following 

information may be included and is not 

required to be redacted from filings: 

(A) The last four digits of a financial 

account number, credit card or debit 

card number, passport number, driver’s 

license number, and State-issued 

identification number; 

(B) Home addresses and telephone 

numbers of parties and persons filing 

documents with the Commission; and 

(C) Business telephone numbers. 

(ii) [Reserved] 

(e) Certification. Any filing made 

pursuant to this section, other than the 

record upon which the action 

complained of was taken, must include 

a certification that any information 

described in paragraph (d)(2) of this 

section has been omitted or redacted 

from the filing. 

■ 7. Add § 201.443 to read as follows: 

§ 201.443 Commission consideration of 

security-based swap execution facility 

determinations. 

(a) Commission review other than 

pursuant to an application for review. 

The Commission may, on its own 

initiative, order review of any 

determination by a security-based swap 

execution facility that could be subject 

to an application for review pursuant to 

§ 201.442(a) within 40 days after the 

security-based swap execution facility 

provided notice to the Commission 

thereof. 

(b) Supplemental briefing. The 

Commission may at any time before 

issuing its decision raise or consider any 

matter that it deems material, whether 

or not raised by the parties. The 

Commission will give notice to the 

parties and an opportunity for 

supplemental briefing with respect to 

issues not briefed by the parties where 

the Commission believes that such 

briefing could significantly aid the 

decisional process. 

■ 8. Amend § 201.450, by redesignating 

paragraphs (a)(2)(iv) and (a)(2)(v) as 

paragraphs (a)(2)(v) and (a)(2)(vi) and 

adding new paragraph (a)(2)(iv). 

The addition reads as follows: 

§ 201.450 Briefs filed with the 

Commission. 

* * * * * 

(a) * * * 

(2) * * * 

(iv) Receipt by the Commission of an 

index to the record of a determination 

by a security-based swap execution 

facility filed pursuant to § 201.442(d). 

* * * * * 

■ 9. Amend § 201.460 by adding 

paragraph (a)(4) to read as follows: 

§ 201.460 Record before the Commission. 

* * * * * 

(a) * * * 

(4) In a proceeding for final decision 

before the Commission reviewing a 

determination of a security-based swap 

execution facility, the record shall 

consist of: 

(i) The record certified pursuant to 

§ 201.442(d) by the security-based swap 

execution facility; 

(ii) Any application for review; and 

(iii) Any submissions, moving papers, 

and briefs filed on appeal or review. 

* * * * * 

PART 232—GENERAL RULES AND 

REGULATIONS FOR ELECTRONIC 

FILINGS 

■ 10. The general authority citation for 

part 232 continues to read as follows: 

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

77s(a), 77z–3, 77sss(a), 78c(b), 78l, 78m, 78n, 

78o(d), 78w(a), 78ll, 80a–6(c), 80a–8, 80a–29, 

80a–30, 80a–37, 7201 et seq.; and 18 U.S.C. 

1350, unless otherwise noted. 

* * * * * 

■ 11. Amend § 232.405 by: 

■ a. Revising the introductory text and 

paragraphs (a)(2) and (4); 

■ b. Adding paragraph (b)(1)(iii); and 

■ c. Revising Note 1 to § 232.405. 

The revisions and addition read as 

follows: 

§ 232.405 Interactive Data File 

submissions. 

This section applies to electronic 

filers that submit Interactive Data Files. 

Section 229.601(b)(101) of this chapter 

(Item 601(b)(101) of Regulation S–K), 

paragraph (101) of Part II—Information 

Not Required to be Delivered to Offerees 

or Purchasers of Form F–10 (§ 239.40 of 

this chapter), paragraph 101 of the 

Instructions as to Exhibits of Form 20– 

F (§ 249.220f of this chapter), paragraph 

B.(15) of the General Instructions to 

Form 40–F (§ 249.240f of this chapter), 

paragraph C.(6) of the General 

Instructions to Form 6–K (§ 249.306 of 

this chapter), General Instruction C.3.(g) 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28973 

of Form N–1A (§§ 239.15A and 274.11A 

of this chapter), General Instruction I of 

Form N–2 (§§ 239.14 and 274.11a–1 of 

this chapter), General Instruction C.3.(h) 

of Form N–3 (§§ 239.17a and 274.11b of 

this chapter), General Instruction C.3.(h) 

of Form N–4 (§§ 239.17b and 274.11c of 

this chapter), General Instruction C.3.(h) 

of Form N–6 (§§ 239.17c and 274.11d of 

this chapter), General Instruction C.4 of 

Form N–CSR (§§ 249.331 and 274.128 of 

this chapter), Rules 803(b)(1)(i), 

803(b)(3), 803(e), 804(a)(1), 805(a)(1), 

806(a)(1), 807(a)(1), 807(d), 829(g)(6), 

and 831(j)(2) of Regulation SE 

(§§ 242.803 through 807, 829, and 831 of 

this chapter), Registration Instructions 

to Form SBSEF (§ 249.2001 of this 

chapter), and Instruction A to the 

Security-Based Swap Execution Facility 

Submission Cover Sheet (§ 249.2002 of 

this chapter) specify when electronic 

filers are required or permitted to 

submit an Interactive Data File 

(§ 232.11), as further described in note 

1 to this section. This section imposes 

content, format, and submission 

requirements for an Interactive Data 

File, but does not change the 

substantive content requirements for the 

financial and other disclosures in the 

Related Official Filing (§ 232.11). 

(a) * * * 

(2) Be submitted only by an electronic 

filer either required or permitted to 

submit an Interactive Data File as 

specified by § 229.601(b)(101) of this 

chapter (Item 601(b)(101) of Regulation 

S–K), paragraph (101) of Part II— 

Information Not Required to be 

Delivered to Offerees or Purchasers of 

Form F–10 (§ 239.40 of this chapter), 

paragraph 101 of the Instructions as to 

Exhibits of Form 20–F (§ 249.220f of this 

chapter), paragraph B.(15) of the General 

Instructions to Form 40–F (§ 249.240f of 

this chapter), paragraph C.(6) of the 

General Instructions to Form 6–K 

(§ 249.306 of this chapter), General 

Instruction C.3.(g) of Form N–1A 

(§§ 239.15A and 274.11A of this 

chapter), General Instruction I of Form 

N–2 (§§ 239.14 and 274.11a–1 of this 

chapter), General Instruction C.3.(h) of 

Form N–3 (§§ 239.17a and 274.11b of 

this chapter), General Instruction C.3.(h) 

of Form N–4 (§§ 239.17b and 274.11c of 

this chapter), General Instruction C.3.(h) 

of Form N–6 (§§ 239.17c and 274.11d of 

this chapter), General Instruction C.4 of 

Form N–CSR (§§ 249.331 and 274.128 of 

this chapter), Rules 803(b)(1)(i), 

803(b)(3), 803(e), 804(a)(1), 805(a)(1), 

806(a)(1), 807(a)(1), 807(d), 829(g)(6), 

and 831(j)(2) of Regulation SE 

(§§ 242.803 through 242.807, 242.829, 

and 242.831 of this chapter), 

Registration Instructions to Form SBSEF 

(§ 249.2001 of this chapter), and 

Instruction A to the Security-Based 

Swap Execution Facility Submission 

Cover Sheet (§ 249.2002 of this chapter), 

as applicable; 

* * * * * 

(4) Be submitted in accordance with 

the EDGAR Filer Manual and, as 

applicable, Item 601(b)(101) of 

Regulation S–K (§ 229.601(b)(101) of 

this chapter), paragraph (101) of Part 

II—Information Not Required to be 

Delivered to Offerees or Purchasers of 

Form F–10 (§ 239.40 of this chapter), 

paragraph 101 of the Instructions as to 

Exhibits of Form 20–F (§ 249.220f of this 

chapter), paragraph B.(15) of the General 

Instructions to Form 40–F (§ 249.240f of 

this chapter), paragraph C.(6) of the 

General Instructions to Form 6–K 

(§ 249.306 of this chapter), General 

Instruction C.3.(g) of Form N–1A 

(§§ 239.15A and 274.11A of this 

chapter), General Instruction I of Form 

N–2 (§§ 239.14 and 274.11a–1 of this 

chapter), General Instruction C.3.(h) of 

Form N–3 (§§ 239.17a and 274.11b of 

this chapter), General Instruction C.3.(h) 

of Form N–4 (§§ 239.17b and 274.11c of 

this chapter), General Instruction C.3.(h) 

of Form N–6 (§§ 239.17c and 274.11d of 

this chapter), General Instruction C.4 of 

Form N–CSR (§§ 249.331 and 274.128 of 

this chapter), Rules 803(b)(1)(i), 

803(b)(3), 803(e), 804(a)(1), 805(a)(1), 

806(a)(1), 807(a)(1), 807(d), 829(g)(6), 

and 831(j)(2) of Regulation SE 

(§§ 242.803 through 242.807, 242.829, 

and 242.831 of this chapter), 

Registration Instructions to Form SBSEF 

(§ 249.2001 of this chapter), or 

Instruction A to the Security-Based 

Swap Execution Facility Submission 

Cover Sheet (§ 249.2002 of this chapter), 

as applicable. 

(b) * * * 

(1) * * * 

(iii) For electronic filers subject to 

Regulation SE (§§ 242.800 et seq.), the 

content of documents required to be 

filed electronically under Rules 

803(b)(1)(i), 803(b)(3), 803(e), 804(a)(1), 

805(a)(1), 806(a)(1), 807(a)(1), 807(d), 

829(g)(6), and 831(j)(2) of Regulation SE 

(§§ 242.803 through 807, 829, and 831 of 

this chapter), Registration Instructions 

to Form SBSEF (§ 249.2001 of this 

chapter), and Instruction A to the 

Security-Based Swap Execution Facility 

Submission Cover Sheet (§ 249.2002 of 

this chapter), as applicable. 

* * * * * 

Note 1 to § 232.405: Section 

229.601(b)(101) of this chapter (Item 

601(b)(101) of Regulation S–K) specifies the 

circumstances under which an Interactive 

Data File must be submitted and the 

circumstances under which it is permitted to 

be submitted, with respect to § 239.11 of this 

chapter (Form S–1), § 239.13 of this chapter 

(Form S–3), § 239.25 of this chapter (Form S– 

4), § 239.18 of this chapter (Form S–11), 

§ 239.31 of this chapter (Form F–1), § 239.33 

of this chapter (Form F–3), § 239.34 of this 

chapter (Form F–4), § 249.310 of this chapter 

(Form 10–K), § 249.308a of this chapter 

(Form 10–Q), and § 249.308 of this chapter 

(Form 8–K). Paragraph (101) of Part II— 

Information not Required to be Delivered to 

Offerees or Purchasers of § 239.40 of this 

chapter (Form F–10) specifies the 

circumstances under which an Interactive 

Data File must be submitted and the 

circumstances under which it is permitted to 

be submitted, with respect to Form F–10. 

Paragraph 101 of the Instructions as to 

Exhibits of § 249.220f of this chapter (Form 

20–F) specifies the circumstances under 

which an Interactive Data File must be 

submitted and the circumstances under 

which it is permitted to be submitted, with 

respect to Form 20–F. Paragraph B.(15) of the 

General Instructions to § 249.240f of this 

chapter (Form 40–F) and Paragraph C.(6) of 

the General Instructions to § 249.306 of this 

chapter (Form 6–K) specify the 

circumstances under which an Interactive 

Data File must be submitted and the 

circumstances under which it is permitted to 

be submitted, with respect to § 249.240f of 

this chapter (Form 40–F) and § 249.306 of 

this chapter (Form 6–K). Rules 803(b)(1)(i), 

803(b)(3), 803(e), 804(a)(1), 805(a)(1), 

806(a)(1), 807(a)(1), 807(d), 829(g)(6), and 

831(j)(2) of Regulation SE (§§ 242.803 

through 242.807, 242.829, and 242.831 of this 

chapter), Registration Instructions to Form 

SBSEF (§ 249.2001 of this chapter), and 

Instruction A to the Security-Based Swap 

Execution Facility Submission Cover Sheet 

(§ 249.2002 of this chapter), as applicable. 

Section 229.601(b)(101) (Item 601(b)(101) of 

Regulation S–K), paragraph (101) of Part II— 

Information not Required to be Delivered to 

Offerees or Purchasers of Form F–10, 

paragraph 101 of the Instructions as to 

Exhibits of Form 20–F, paragraph B.(15) of 

the General Instructions to Form 40–F, and 

paragraph C.(6) of the General Instructions to 

Form 6–K all prohibit submission of an 

Interactive Data File by an issuer that 

prepares its financial statements in 

accordance with 17 CFR 210.6–01 through 

210.6–10 (Article 6 of Regulation S–X). For 

an issuer that is a management investment 

company or separate account registered 

under the Investment Company Act of 1940 

(15 U.S.C. 80a et seq.) or a business 

development company as defined in Section 

2(a)(48) of the Investment Company Act of 

1940 (15 U.S.C. 80a–2(a)(48)), General 

Instruction C.3.(g) of Form N–1A (§§ 239.15A 

and 274.11A of this chapter), General 

Instruction I of Form N–2 (§§ 239.14 and 

274.11a–1 of this chapter), General 

Instruction C.3.(h) of Form N–3 (§§ 239.17a 

and 274.11b of this chapter), General 

Instruction C.3.(h) of Form N–4 (§§ 239.17b 

and 274.11c of this chapter), General 

Instruction C.3.(h) of Form N–6 (§§ 239.17c 

and 274.11d of this chapter), and General 

Instruction C.4 of Form N–CSR (§§ 249.331 

and 274.128 of this chapter), as applicable, 

specifies the circumstances under which an 

Interactive Data File must be submitted. 

* * * * * 


jspears on DSK121TN23PROD with PROPOSALS2
28974 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

PART 240—GENERAL RULES AND 

REGULATIONS, SECURITIES 

EXCHANGE ACT OF 1934 

■ 12. The general authority citation for 

part 240 continues to read as follows: 

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

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

77sss, 77ttt, 78c, 78c–3, 78c–5, 78d, 78e, 78f, 

78g, 78i, 78j, 78j–1, 78k, 78k–1, 78l, 78m, 

78n, 78n–1, 78o, 78o–4, 78o–10, 78p, 78q, 

78q–1, 78s, 78u–5, 78w, 78x, 78ll, 78mm, 

80a–20, 80a–23, 80a–29, 80a–37, 80b–3, 80b– 

4, 80b–11, 7201 et seq., and 8302; 7 U.S.C. 

2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. 

1350; Pub. L. 111–203, 939A, 124 Stat. 1376 

(2010); and Pub. L. 112–106, sec. 503 and 

602, 126 Stat. 326 (2012), unless otherwise 

noted. 

* * * * * 

■ 13. Amend § 240.3a1–1 by adding 

paragraphs (a)(4) and (5) and revising 

paragraph (b) introductory text to read 

as follows: 

§ 240.3a1–1 Exemption from the definition 

of ‘‘exchange’’ under Section 3(a)(1) of the 

Act. 

* * * * * 

(a) * * * 

(4) Has registered with the 

Commission as a security-based swap 

execution facility pursuant § 242.803 

and provides a market place for no 

securities other than security-based 

swaps; or 

(5) Has registered with the 

Commission as a clearing agency 

pursuant to section 17A of the Act (15 

U.S.C. 78q–1) and limits its exchange 

functions to operation of a trading 

session that is designed to further the 

accuracy of end-of-day valuations. 

(b) Notwithstanding paragraphs (a)(1) 

through (a)(3) of this section, an 

organization, association, or group of 

persons shall not be exempt under this 

section from the definition of 

‘‘exchange,’’ if: 

* * * * * 

■ 14. Add § 240.15a–12 to read as 

follows: 

§ 240.15a–12 Exemption for certain 

security-based swap execution facilities 

from certain broker requirements. 

(a) For purposes of this section, an 

SBSEF–B means a security-based swap 

execution facility that does not engage 

in any securities activity other than 

facilitating the trading of security-based 

swaps on or through the security-based 

swap execution facility. 

(b) An SBSEF–B that registers with 

the Commission pursuant to § 242.803 

shall be deemed also to have registered 

with the Commission pursuant to 

sections 15(a) and (b) of the Act (15 

U.S.C. 78o(a)(1) and (b)). 

(c) Except as provided in paragraph 

(d) of this section, an SBSEF–B shall be 

exempt from any provision of the Act or 

the Commission’s rules thereunder 

applicable to brokers that, by its terms, 

requires, prohibits, restricts, limits, 

conditions, or affects the activities of a 

broker, unless such provision specifies 

that it applies to a security-based swap 

execution facility. 

(d) Notwithstanding paragraph (c) of 

this section, the following provisions of 

the Act and the Commission’s rules 

thereunder shall apply to an SBSEF–B: 

(1) Section 15(b)(4) of the Act (15 

U.S.C. 78o(b)(4)); 

(2) Section 15(b)(6) of the Act (15 

U.S.C. 78o(b)(6)); and 

(3) Section 17(b) of the Act (15 U.S.C. 

78q(b)). 

(e) An SBSEF–B shall be exempt from 

the Securities Investor Protection Act. 

PART 242—REGULATIONS M, SHO, 

ATS, AC, NMS, AND SE AND 

CUSTOMER MARGIN REQUIREMENTS 

FOR SECURITY FUTURES 

■ 15. The general authority citation for 

part 242 is revised and an authority 

citation for §§ 242.800 through 242.835 

is added to read as follows: 

Authority: 15 U.S.C. 77g, 77q(a), 77s(a), 

78b, 78c, 78c–4, 78g(c)(2), 78i(a), 78j, 78k– 

1(c), 78l, 78m, 78n, 78o(b), 78o(c), 78o(g), 

78q(a), 78q(b), 78q(h), 78w(a), 78dd–1, 

78mm, 80a–23, 80a–29, 80a–37, and 8343. 

* * * * * 

Sections 242.800 through 242.835 are also 

issued under sec. 943, Pub. L. 111–203, 

Section 763. 

■ 16. The heading for part 242 is revised 

to read as set forth above. 

■ 17. Sections 242.800 through 242.835 

are added to read as follows: 

Sec. 

* * * * * 

242.800 Scope. 

242.801 Applicable provisions. 

242.802 Definitions. 

242.803 Requirements and procedures for 

registration. 

242.804 Listing products for trading by 

certification. 

242.805 Voluntary submission of new 

products for Commission review and 

approval. 

242.806 Voluntary submission of rules for 

Commission review and approval. 

242.807 Self-certification of rules. 

242.808 Availability of public information. 

242.809 Stay of certification and tolling of 

review period pending jurisdictional 

determination. 

242.810 Product filings by security-based 

swap execution facilities that are not yet 

registered and by dormant security-based 

swap execution facilities. 

242.811 Information relating to securitybased swap execution facility 

compliance. 

242.812 Enforceability. 

242.813 Prohibited use of data collected for 

regulation purposes. 

242.814 Entity operating both a national 

securities exchange and security-based 

swap execution facility. 

242.815 Methods of execution for Required 

and Permitted Transactions. 

242.816 Trade execution requirement and 

exemptions therefrom. 

242.817 Trade execution compliance 

schedule. 

242.818 Core Principle 1—Compliance with 

core principles. 

242.819 Core Principle 2—Compliance with 

rules. 

242.820 Core Principle 3—Security-based 

swaps not readily susceptible to 

manipulation. 

242.821 Core Principle 4—Monitoring of 

trading and trade processing. 

242.822 Core Principle 5—Ability to obtain 

information. 

242.823 Core Principle 6—Financial 

integrity of transactions. 

242.824 Core Principle 7—Emergency 

authority. 

242.825 Core Principle 8—Timely 

publication of trading information. 

242.826 Core Principle 9—Recordkeeping 

and reporting. 

242.827 Core Principle 10—Antitrust 

considerations. 

242.828 Core Principle 11—Conflicts of 

interest. 

242.829 Core Principle 12—Financial 

resources. 

242.830 Core Principle 13—System 

safeguards. 

242.831 Core Principle 14—Designation of 

chief compliance officers. 

242.832 Application of the trade execution 

requirement to cross-border securitybased swap transactions. 

242.833 Cross-border exemptions. 

242.834 Mitigation of conflicts of interest of 

security-based swap execution facilities 

and certain exchanges. 

242.835 Notice to Commission by securitybased swap execution facility of final 

disciplinary action or denial or 

limitation of access. 

§ 242.800 Scope. 

The provisions of this section shall 

apply to every security-based swap 

execution facility that is registered or is 

applying to become registered as a 

security-based swap execution facility 

under section 3D of the Securities 

Exchange Act (the ‘‘Act’’). 

§ 242.801 Applicable provisions. 

A security-based swap execution 

facility shall comply with the 

requirements of this section and all 

other applicable Commission rules, 

including any related definitions and 

cross-referenced sections. 

§ 242.802 Definitions. 

The following terms, and any other 

terms defined within a rule in this 

chapter, are defined as follows solely for 

purposes of this chapter: 

Block trade means a security-based 

swap transaction that is subject to 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28975 

public dissemination pursuant to 

§ 242.902 and: 

(1) Involves a security-based swap 

that is listed on a security-based swap 

execution facility or national securities 

exchange; 

(2) Is executed on a security-based 

swap execution facility’s trading system 

or platform that is not an order book or 

occurs away from the security-based 

swap execution facility’s or national 

securities exchange’s system or platform 

and is executed pursuant to the rules 

and procedures of the security-based 

swap execution facility or national 

securities exchange; 

(3) Is a security-based swap based on 

a single credit instrument (or issuer of 

credit instruments) or a narrow-based 

index of credit instruments (or issuers of 

credit instruments) having a notional 

size of $5 million or greater; and 

(4) Is reported subject to the rules and 

procedures of the security-based swap 

execution facility or national securities 

exchange. 

Business day means the intraday 

period of time starting at 8:15 a.m. and 

ending at 4:45 p.m. Eastern Standard 

Time or Eastern Daylight Savings Time, 

whichever is currently in effect in 

Washington, DC, on all days except 

Saturdays, Sundays, and Federal 

holidays in Washington, DC. 

Committee member means a member, 

or functional equivalent thereof, of any 

committee of a security-based swap 

execution facility. 

Correcting trade means a trade 

executed and submitted for clearing to 

a registered clearing agency with the 

same terms and conditions as an error 

trade other than any corrections to any 

operational or clerical error and the time 

of execution. 

Disciplinary committee means any 

person or committee of persons, or any 

subcommittee thereof, that is authorized 

by a security-based swap execution 

facility or SBS exchange to issue 

disciplinary charges, to conduct 

disciplinary proceedings, to settle 

disciplinary charges, to impose 

disciplinary sanctions, or to hear 

appeals thereof in cases involving any 

violation of the rules of the securitybased swap execution facility or SBS 

exchange, except those cases where the 

person or committee is authorized 

summarily to impose minor penalties 

for violating rules regarding decorum, 

attire, the timely submission of accurate 

records for clearing or verifying each 

day’s transactions, or other similar 

activities. 

Dormant product means: 

(1) Any security-based swap listed on 

security-based swap execution facility 

that has no open interest and in which 

no trading has occurred for a period of 

12 complete calendar months following 

a certification to, or approval by, the 

Commission; provided, however, that 

no security-based swap initially and 

originally certified to, or approved by, 

the Commission within the preceding 

36 complete calendar months shall be 

considered to be a dormant product; 

(2) Any security-based swap of a 

dormant security-based swap execution 

facility; or 

(3) Any security-based swap not 

otherwise a dormant product that a 

security-based swap execution facility 

self-declares through certification to be 

a dormant product. 

Dormant security-based swap 

execution facility means a securitybased swap execution facility on which 

no trading has occurred for the previous 

12 consecutive calendar months; 

provided, however, that no securitybased swap execution facility shall be 

considered to be a dormant securitybased swap execution facility if its 

initial and original Commission order of 

registration was issued within the 

preceding 36 consecutive calendar 

months. 

Dormant rule means: 

(1) Any rule of a security-based swap 

execution facility which remains 

unimplemented for 12 consecutive 

calendar months following a 

certification with, or an approval by, the 

Commission; or 

(2) Any rule or rule amendment of a 

dormant security-based swap execution 

facility. 

Electronic trading facility means a 

trading facility that operates by means 

of an electronic or telecommunications 

network and maintains an automated 

audit trail of bids, offers, and the 

matching orders or the execution of 

transactions on the facility. 

Emergency means any occurrence or 

circumstance that, in the opinion of the 

governing board of a security-based 

swap execution facility, or a person or 

persons duly authorized to issue such 

an opinion on behalf of the governing 

board of the security-based swap 

execution facility under circumstances 

and pursuant to procedures that are 

specified by rule, requires immediate 

action and threatens or may threaten 

such things as the fair and orderly 

trading in, or the liquidation of or 

delivery pursuant to, any security-based 

swaps, including: 

(1) Any manipulative or attempted 

manipulative activity; 

(2) Any actual, attempted, or 

threatened corner, squeeze, congestion, 

or undue concentration of positions; 

(3) Any circumstances which may 

materially affect the performance of 

security-based swaps or transactions, 

including failure of the payment system 

or the bankruptcy or insolvency of any 

market participant; 

(4) Any action taken by any 

governmental body, or any other 

security-based swap execution facility, 

market, or facility which may have a 

direct impact on trading or clearing and 

settlement; and 

(5) Any other circumstance which 

may have a severe, adverse effect upon 

the functioning of the security-based 

swap execution facility. 

Employee means any person hired or 

otherwise employed on a salaried or 

contract basis by a security-based swap 

execution facility, but does not include: 

(1) Any governing board member 

compensated by the security-based 

swap execution facility solely for 

governing board activities; or 

(2) Any committee member 

compensated by a security-based swap 

execution facility solely for committee 

activities; or 

(3) Any consultant hired by a 

security-based swap execution facility. 

Error trade means any trade executed 

on or subject to the rules of a securitybased swap execution facility that 

contains an operational or clerical error. 

Governing board means the board of 

directors of a security-based swap 

execution facility, or for a securitybased swap execution facility whose 

organizational structure does not 

include a board of directors, a body 

performing a function similar to a board 

of directors. 

Governing board member means a 

member, or functional equivalent 

thereof, of the governing board of a 

security-based swap execution facility. 

Member, with respect to a national 

securities exchange, has the same 

meaning as in section 3(a)(3) of the Act. 

Member, with respect to a securitybased swap execution facility, means an 

individual, association, partnership, 

corporation, or trust owning or holding 

a membership in, admitted to 

membership representation on, or 

having trading privileges on the 

security-based swap execution facility. 

Non-U.S. member means a member of 

a security-based swap execution facility 

that is not a U.S. person. 

Offsetting trade means a trade 

executed and submitted for clearing to 

a registered clearing agency with terms 

and conditions that economically 

reverse an error trade that was accepted 

for clearing. 

Order book means an electronic 

trading facility, a trading facility, or a 

trading system or platform in which all 

market participants in the trading 

system or platform have the ability to 


jspears on DSK121TN23PROD with PROPOSALS2
28976 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

enter multiple bids and offers, observe 

or receive bids and offers entered by 

other market participants, and transact 

on such bids and offers. 

Oversight panel means any panel, or 

any subcommittee thereof, authorized 

by an SBSEF or SBS exchange to 

recommend or establish policies or 

procedures with respect to the 

surveillance, compliance, rule 

enforcement, or disciplinary 

responsibilities of the SBSEF or SBS 

exchange. 

Records has the meaning as in section 

3(a)(37) of the Act (15 U.S.C. 78c(a)(37)). 

Rule means any constitutional 

provision, article of incorporation, bylaw, rule, regulation, resolution, 

interpretation, stated policy, advisory, 

terms and conditions, trading protocol, 

agreement, or instrument corresponding 

thereto, including those that authorize a 

response or establish standards for 

responding to a specific emergency, and 

any amendment or addition thereto or 

repeal thereof, made or issued by a 

security-based swap execution facility 

or by the governing board thereof or any 

committee thereof, in whatever form 

adopted. 

SBS exchange means a national 

securities exchange that posts or makes 

available for trading security-based 

swaps. 

Security-based swap execution facility 

has the same meaning as in section 

3(a)(77) of the Act (15 U.S.C. 78c(a)(77)) 

but does not include an entity that is 

registered with the Commission as a 

clearing agency pursuant to section 17A 

of the Act (15 U.S.C. 78q–1) and limits 

its security-based swap execution 

facility functions to operation of a 

trading session that is designed to 

further the accuracy of end-of-day 

valuations. 

Senior officer means the chief 

executive officer or other equivalent 

officer of a security-based swap 

execution facility. 

Terms and conditions means any 

definition of the trading unit or the 

specific asset underlying a securitybased swap, description of the payments 

to be exchanged under a security-based 

swap, specification of cash settlement or 

delivery standards and procedures, and 

establishment of buyers’ and sellers’ 

rights and obligations under the 

security-based swap. Terms and 

conditions of a security-based swap 

include provisions relating to the 

following: 

(1) Identification of the major group, 

category, type, or class in which the 

security-based swap falls (such as a 

credit or equity security-based swap) 

and of any further sub-group, category, 

type, or class that further describes the 

security-based swap; 

(2) Notional amounts, quantity 

standards, or other unit size 

characteristics; 

(3) Any applicable premiums or 

discounts for delivery of a non-par 

product; 

(4) Trading hours and the listing of 

security-based swaps; 

(5) Pricing basis for establishing the 

payment obligations under, and markto-market value of, the security-based 

swap including, as applicable, the 

accrual start dates, termination, or 

maturity dates, and, for each leg of the 

security-based swap, the initial cash 

flow components, spreads, and points, 

and the relevant indexes, prices, rates, 

coupons, or other price reference 

measures; 

(6) Any price limits, trading halts, or 

circuit breaker provisions, and 

procedures for the establishment of 

daily settlement prices; 

(7) Payment and reset frequency, day 

count conventions, business calendars, 

and accrual features; 

(8) If physical delivery applies, 

delivery standards and procedures, 

including fees related to delivery or the 

delivery process, alternatives to 

delivery, and applicable penalties or 

sanctions for failure to perform; 

(9) If cash-settled, the definition, 

composition, calculation, and revision 

of the cash settlement price, and the 

settlement currency; 

(10) Payment or collection of option 

premiums or margins; 

(11) Option exercise price, if it is 

constant, and method for calculating the 

exercise price, if it is variable; 

(12) Threshold prices for an option, 

the existence of which is contingent 

upon those prices; 

(13) Any restrictions or requirements 

for exercising an option; and 

(14) Life cycle events. 

Trading facility—(1) In general. The 

term trading facility means a person or 

group of persons that constitutes, 

maintains, or provides a physical or 

electronic facility or system in which 

multiple participants have the ability to 

execute or trade agreements, contracts, 

or transactions— 

(i) By accepting bids or offers made by 

other participants that are open to 

multiple participants in the facility or 

system; or 

(ii) Through the interaction of 

multiple bids or multiple offers within 

a system with a pre-determined nondiscretionary automated trade matching 

and execution algorithm. 

(2) Exclusions. (i) The term trading 

facility does not include: 

(A) A person or group of persons 

solely because the person or group of 

persons constitutes, maintains, or 

provides an electronic facility or system 

that enables participants to negotiate the 

terms of and enter into bilateral 

transactions as a result of 

communications exchanged by the 

parties and not from interaction of 

multiple bids and multiple offers within 

a predetermined, nondiscretionary 

automated trade matching and 

execution algorithm; 

(B) A government securities dealer or 

government securities broker, to the 

extent that the dealer or broker executes 

or trades agreements, contracts, or 

transactions in government securities, or 

assists persons in communicating about, 

negotiating, entering into, executing, or 

trading an agreement, contract, or 

transaction in government securities (as 

the terms government securities dealer, 

government securities broker, and 

government securities are defined in 

section 3(a) of the Act); or 

(C) A facility on which bids and 

offers, and acceptances of bids and 

offers effected on the facility, are not 

binding. 

(ii) Any person, group of persons, 

dealer, broker, or facility described in 

paragraphs (z)(2)(i)(A) through (C) is 

excluded from the meaning of the term 

‘‘trading facility’’ for the purposes of 

this chapter without any prior specific 

approval, certification, or other action 

by the Commission. 

(3) Special rule. A person or group of 

persons that would not otherwise 

constitute a trading facility shall not be 

considered to be a trading facility solely 

as a result of the submission to a 

registered clearing agency of 

transactions executed on or through the 

person or group of persons. 

U.S. person has the same meaning as 

in § 240.3a71–3(a)(4). 

§ 242.803 Requirements and procedures 

for registration. 

(a) Requirements for registration. (1) 

Any person operating a facility that 

offers a trading system or platform in 

which more than one market participant 

has the ability to execute or trade 

security-based swaps with more than 

one other market participant on the 

system or platform shall register the 

facility as a security-based swap 

execution facility under this section or 

as a national securities exchange 

pursuant to section 6 of the Act. 

(2) Minimum trading functionality. A 

security-based swap execution facility 

shall, at a minimum, offer an order 

book. 

(3) A security-based swap execution 

facility is not required to provide an 

order book under this section for 

transactions defined in § 242.815(d)(2), 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28977 

(3), and (4) except that a security-based 

swap execution facility must provide an 

order book under this section for 

Required Transactions that are 

components of transactions defined in 

§ 242.815(d)(2), (3), and (4) when such 

Required Transactions are not executed 

as components of transactions defined 

in § 242.815(d)(2), (3), and (4). 

(b) Procedures for full registration. (1) 

An entity requesting registration as a 

security-based swap execution facility 

shall: 

(i) File electronically a complete Form 

SBSEF as set forth in § 249.2001, or any 

successor forms, and all information 

and documentation described in such 

forms with the Commission using the 

EDGAR system as an Interactive Data 

File in accordance with § 232.405; and 

(ii) Provide to the Commission, upon 

the Commission’s request, any 

additional information and 

documentation necessary to review an 

application. 

(2) Request for confidential treatment. 

(i) An applicant requesting registration 

as a security-based swap execution 

facility shall identify with particularity 

any information in the application that 

will be subject to a request for 

confidential treatment pursuant to 

§ 240.24b–2. 

(ii) As set forth in § 242.808, certain 

information provided in an application 

shall be made publicly available. 

(3) Amendment of application prior to 

full registration. An applicant amending 

a pending application for registration as 

a security-based swap execution facility 

or requesting an amendment to an order 

of registration shall file an amended 

application electronically with the 

Commission using the EDGAR system as 

an Interactive Data File in accordance 

with § 232.405. 

(4) Effect of incomplete application. If 

an application is incomplete pursuant to 

paragraph (b)(1) of this section, the 

Commission shall notify the applicant 

that its application will not be deemed 

to have been submitted for purposes of 

the Commission’s review. 

(5) Commission review period. The 

Commission shall approve or deny an 

application for registration as a securitybased swap execution facility within 

180 days of the filing of the application. 

If the Commission notifies the person 

that its application is materially 

incomplete and specifies the 

deficiencies in the application, the 

running of the 180-day period shall be 

stayed from the time of such notification 

until the application is resubmitted in 

completed form, provided that the 

Commission shall have not less than 60 

days to approve or deny the application 

from the time the application is 

resubmitted in completed form. 

(6) Commission determination. (i) The 

Commission shall issue an order 

granting registration upon a 

Commission determination, in its own 

discretion, that the applicant has 

demonstrated compliance with the Act 

and the Commission’s rules applicable 

to security-based swap execution 

facilities. If deemed appropriate, the 

Commission may issue an order 

granting registration subject to 

conditions. 

(ii) The Commission may issue an 

order denying registration upon a 

Commission determination, in its own 

discretion, that the applicant has not 

demonstrated compliance with the Act 

and the Commission’s rules applicable 

to security-based swap execution 

facilities. If the Commission denies an 

application, it shall specify the grounds 

for the denial. 

(c) Reinstatement of dormant 

registration. A dormant security-based 

swap execution facility may reinstate its 

registration under the procedures of 

paragraph (b) of this section. The 

applicant may rely upon previously 

submitted materials if such materials 

accurately describe the dormant 

security-based swap execution facility’s 

conditions at the time that it applies for 

reinstatement of its registration. 

(d) Request for transfer of registration. 

(1) A security-based swap execution 

facility seeking to transfer its 

registration from its current legal entity 

to a new legal entity as a result of a 

corporate change shall file a request for 

approval to transfer such registration 

with the Commission in the form and 

manner specified by the Commission. 

(2) A request for transfer of 

registration shall be filed no later than 

three months prior to the anticipated 

corporate change; or in the event that 

the security-based swap execution 

facility could not have known of the 

anticipated change three months prior 

to the anticipated change, as soon as it 

knows of such change. 

(3) The request for transfer of 

registration shall include the following: 

(i) The underlying agreement that 

governs the corporate change; 

(ii) A description of the corporate 

change, including the reason for the 

change and its impact on the securitybased swap execution facility, including 

its governance and operations, and its 

impact on the rights and obligations of 

members; 

(iii) A discussion of the transferee’s 

ability to comply with the Act, 

including the core principles applicable 

to security-based swap execution 

facilities and the Commission’s rules 

thereunder; 

(iv) The governing documents of the 

transferee, including, but not limited to, 

articles of incorporation and bylaws; 

(v) The transferee’s rules marked to 

show changes from the current rules of 

the security-based swap execution 

facility; 

(vi) A representation by the transferee 

that it: 

(A) Will be the surviving entity and 

successor-in-interest to the transferor 

security-based swap execution facility 

and will retain and assume, without 

limitation, all of the assets and 

liabilities of the transferor; 

(B) Will assume responsibility for 

complying with all applicable 

provisions of the Act and the 

Commission’s rules thereunder; 

(C) Will assume, maintain, and 

enforce all rules implementing and 

complying with the core principles 

applicable to security-based swap 

execution facilities, including the 

adoption of the transferor’s rulebook, as 

amended in the request, and that any 

such amendments will be submitted to 

the Commission pursuant to § 242.806 

or § 242.807; 

(D) Will comply with all regulatory 

responsibilities except if otherwise 

indicated in the request, and will 

maintain and enforce all regulatory 

programs; and 

(E) Will notify members of all changes 

to the transferor’s rulebook prior to the 

transfer and will further notify members 

of the concurrent transfer of the 

registration to the transferee upon 

Commission approval and issuance of 

an order permitting this transfer. 

(vii) A representation by the 

transferee that upon the transfer: 

(A) It will assume responsibility for 

and maintain compliance with core 

principles for all security-based swaps 

previously made available for trading 

through the transferor, whether by 

certification or approval; and 

(B) None of the proposed rule changes 

will affect the rights and obligations of 

any member. 

(4) Upon review of a request for 

transfer of registration, the Commission, 

as soon as practicable, shall issue an 

order either approving or denying the 

request. 

(e) Request for withdrawal of 

application for registration. An 

applicant for registration as a securitybased swap execution facility may 

withdraw its application submitted 

pursuant to paragraph (b) of this section 

by filing a withdrawal request 

electronically with the Commission 

using the EDGAR system as an 

Interactive Data File in accordance with 


jspears on DSK121TN23PROD with PROPOSALS2
28978 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

§ 232.405. Withdrawal of an application 

for registration shall not affect any 

action taken or to be taken by the 

Commission based upon actions, 

activities, or events occurring during the 

time that the application was pending 

with the Commission. 

(f) Request for vacation of registration. 

A security-based swap execution facility 

may request that its registration be 

vacated by filing a vacation request 

electronically with the Commission 

using the EDGAR system as an 

Interactive Data File in accordance with 

§ 232.405 at least 90 days prior to the 

date that the vacation is requested to 

take effect. Upon receipt of such 

request, the Commission shall promptly 

order the vacation to be effective upon 

the date named in the request and send 

a copy of the request and its order to all 

other security-based swap execution 

facilities, SBS exchanges, and registered 

clearing agencies that clear securitybased swaps. Vacation of registration 

shall not affect any action taken or to be 

taken by the Commission based upon 

actions, activities, or events occurring 

during the time that the security-based 

swap execution facility was registered 

by the Commission. From and after the 

date upon which the vacation became 

effective the said security-based swap 

execution facility can thereafter be 

registered again by applying to the 

Commission in the manner provided in 

paragraph (b) of this section for an 

original application. 

§ 242.804 Listing products for trading by 

certification. 

(a) General. A security-based swap 

execution facility must comply with the 

submission requirements of this section 

prior to listing a product for trading that 

has not been approved under § 242.805 

or that remains a dormant product 

subsequent to being submitted under 

this section or approved under 

§ 242.805 of this section. A submission 

shall comply with the following 

conditions: 

(1) The security-based swap execution 

facility has filed its submission 

electronically with the Commission 

using the EDGAR system as an 

Interactive Data File in accordance with 

§ 232.405; 

(2) The Commission has received the 

submission by the open of business on 

the business day that is ten business 

days preceding the product’s listing; 

and 

(3) The submission includes: 

(i) A copy of the submission cover 

sheet in accordance with the 

instructions in § 249.2002; 

(ii) A copy of the product’s rules, 

including all rules related to its terms 

and conditions; 

(iii) The intended listing date; 

(iv) A certification by the securitybased swap execution facility that the 

product to be listed complies with the 

Act and the Commission’s rules 

thereunder; 

(v) A concise explanation and 

analysis of the product and its 

compliance with applicable provisions 

of the Act, including core principles, 

and the Commission’s rules thereunder. 

This explanation and analysis shall 

either be accompanied by the 

documentation relied upon to establish 

the basis for compliance with applicable 

law, or incorporate information 

contained in such documentation, with 

appropriate citations to data sources; 

(vi) A certification that the securitybased swap execution facility posted a 

notice of pending product certification 

with the Commission and a copy of the 

submission, concurrent with the filing 

of a submission with the Commission, 

on the security-based swap execution 

facility’s website. Information that the 

security-based swap execution facility 

seeks to keep confidential may be 

redacted from the documents published 

on the security-based swap execution’s 

website but must be republished 

consistent with any determination made 

pursuant to § 240.24b–2; and 

(vii) A request for confidential 

treatment, if appropriate, as permitted 

under § 240.24b–2. 

(b) Additional information. If 

requested by Commission staff, a 

security-based swap execution facility 

shall provide any additional evidence, 

information, or data that demonstrates 

that the security-based swap meets, 

initially or on a continuing basis, the 

requirements of the Act or the 

Commission‘s rules or policies 

thereunder. 

(c) Stay of certification of product. (1) 

General. The Commission may stay the 

certification of a product submitted 

pursuant to paragraph (a) of this section 

by issuing a notification informing the 

security-based swap execution facility 

that the Commission is staying the 

certification of the product on the 

grounds that the product presents novel 

or complex issues that require 

additional time to analyze, the product 

is accompanied by an inadequate 

explanation, or the product is 

potentially inconsistent with the Act or 

the Commission’s rules thereunder. The 

Commission will have an additional 90 

days from the date of the notification to 

conduct the review. 

(2) Public comment. The Commission 

shall provide a 30-day comment period 

within the 90-day period in which the 

stay is in effect, as described in 

paragraph (c)(1) of this section. The 

Commission shall publish a notice of 

the 30-day comment period on the 

Commission’s website. Comments from 

the public shall be submitted as 

specified in that notice. 

(3) Expiration of a stay of certification 

of product. A product subject to a stay 

pursuant to this paragraph shall become 

effective, pursuant to the certification, at 

the expiration of the 90-day review 

period described in paragraph (c)(1) of 

this section, unless the Commission 

withdraws the stay prior to that time, or 

the Commission notifies the securitybased swap execution facility during the 

90-day time period that it objects to the 

proposed certification on the grounds 

that the product is inconsistent with the 

Act or the Commission’s rules. 

§ 242.805 Voluntary submission of new 

products for Commission review and 

approval. 

(a) Request for approval. A securitybased swap execution facility may 

request that the Commission approve a 

new or dormant product prior to listing 

the product for trading, or if a product 

was initially submitted under § 242.804, 

subsequent to listing the product for 

trading. A submission requesting 

approval shall: 

(1) Be filed electronically with the 

Commission using the EDGAR system as 

an Interactive Data File in accordance 

with § 232.405; 

(2) Include a copy of the submission 

cover sheet in accordance with the 

instructions in § 249.2002; 

(3) Include a copy of the rules that set 

forth the security-based swap’s terms 

and conditions; 

(4) Include an explanation and 

analysis of the product and its 

compliance with applicable provisions 

of the Act, including the core principles 

and the Commission’s rules thereunder. 

This explanation and analysis shall 

either be accompanied by the 

documentation relied upon to establish 

the basis for compliance with the 

applicable law, or incorporate 

information contained in such 

documentation, with appropriate 

citations to data sources; 

(5) Describe any agreements or 

contracts entered into with other parties 

that enable the security-based swap 

execution facility to carry out its 

responsibilities; 

(6) Include, if appropriate, a request 

for confidential treatment as permitted 

under § 240.24b–2; 

(7) Certify that the security-based 

swap execution facility posted a notice 

of its request for Commission approval 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28979 

of the new product and a copy of the 

submission, concurrent with the filing 

of a submission with the Commission, 

on the security-based swap execution 

facility’s website. Information that the 

security-based swap execution facility 

seeks to keep confidential may be 

redacted from the documents published 

on the security-based swap execution 

facility’s website but must be 

republished consistent with any 

determination made pursuant to 

§ 240.24b–2; and 

(8) Include, if requested by 

Commission staff, additional evidence, 

information, or data demonstrating that 

the security-based swap meets, initially 

or on a continuing basis, the 

requirements of the Act, or other 

requirement for registration under the 

Act, or the Commission’s rules or 

policies thereunder. The security-based 

swap execution facility shall submit the 

requested information by the open of 

business on the date that is two business 

days from the date of request by 

Commission staff, or at the conclusion 

of such extended period agreed to by 

Commission staff after timely receipt of 

a written request from the securitybased swap execution facility. 

(b) Standard for review and approval. 

The Commission shall approve a new 

product unless the terms and conditions 

of the product violate the Act or the 

Commission’s rules thereunder. 

(c) 45-day review. A product 

submitted for Commission approval 

under this paragraph shall be deemed 

approved by the Commission 45 days 

after receipt by the Commission, or at 

the conclusion of an extended period as 

provided under paragraph (d) of this 

section, unless notified otherwise 

within the applicable period, if: 

(1) The submission complies with the 

requirements of paragraph (a) of this 

section; and 

(2) The submitting security-based 

swap execution facility does not amend 

the terms or conditions of the product 

or supplement the request for approval, 

except as requested by the Commission 

or for correction of typographical errors, 

renumbering, or other non-substantive 

revisions, during that period. Any 

voluntary, substantive amendment by 

the security-based swap execution 

facility will be treated as a new 

submission under this section. 

(d) Extension of time. The 

Commission may extend the 45-day 

review period in paragraph (c) of this 

section for: 

(1) An additional 45 days, if the 

product raises novel or complex issues 

that require additional time to analyze, 

in which case the Commission shall 

notify the security-based swap 

execution facility within the initial 45- 

day review period and shall briefly 

describe the nature of the specific 

issue(s) for which additional time for 

review is required; or 

(2) Any extended review period to 

which the security-based swap 

execution facility agrees in writing. 

(e) Notice of non-approval. The 

Commission, at any time during its 

review under this section, may notify 

the security-based swap execution 

facility that it will not, or is unable to, 

approve the product. This notification 

will briefly specify the nature of the 

issues raised and the specific provision 

of the Act or the Commission’s rules 

thereunder, including the form or 

content requirements of paragraph (a) of 

this section, that the product violates, 

appears to violate, or potentially 

violates but which cannot be 

ascertained from the submission. 

(f) Effect of non-approval. (1) 

Notification to a security-based swap 

execution facility under paragraph (e) of 

this section of the Commission’s 

determination not to approve a product 

does not prejudice the security-based 

swap execution facility from 

subsequently submitting a revised 

version of the product for Commission 

approval, or from submitting the 

product as initially proposed pursuant 

to a supplemented submission. 

(2) Notification to a security-based 

swap execution facility under paragraph 

(e) of this section of the Commission’s 

refusal to approve a product shall be 

presumptive evidence that the securitybased swap execution facility may not 

truthfully certify under § 242.804 that 

the same, or substantially the same, 

product does not violate the Act or the 

Commission’s rules thereunder. 

§ 242.806 Voluntary submission of rules 

for Commission review and approval. 

(a) Request for approval of rules. A 

security-based swap execution facility 

may request that the Commission 

approve a new rule, rule amendment, or 

dormant rule prior to implementation of 

the rule, or if the request was initially 

submitted under § 242.806 or 242.807, 

subsequent to implementation of the 

rule. A request for approval shall: 

(1) Be filed electronically with the 

Commission using the EDGAR system as 

an Interactive Data File in accordance 

with § 232.405; 

(2) Include a copy of the submission 

cover sheet in accordance with the 

instructions in appendix B to Regulation 

SE (17 CFR 242.800 through 242.835); 

(3) Set forth the text of the rule or rule 

amendment (in the case of a rule 

amendment, deletions and additions 

must be indicated); 

(4) Describe the proposed effective 

date of the rule or rule amendment and 

any action taken or anticipated to be 

taken to adopt the proposed rule by the 

security-based swap execution facility 

or by its governing board or by any 

committee thereof, and cite the rules of 

the security-based swap execution 

facility that authorize the adoption of 

the proposed rule; 

(5) Provide an explanation and 

analysis of the operation, purpose, and 

effect of the proposed rule or rule 

amendment and its compliance with 

applicable provisions of the Act, 

including the core principles relating to 

security-based swap execution facilities 

and the Commission’s rules thereunder 

and, as applicable, a description of the 

anticipated benefits to market 

participants or others, any potential 

anticompetitive effects on market 

participants or others, and how the rule 

fits into the security-based swap 

execution facility’s framework of 

regulation; 

(6) Certify that the security-based 

swap execution facility posted a notice 

of pending rule with the Commission 

and a copy of the submission, 

concurrent with the filing of a 

submission with the Commission, on 

the security-based swap execution 

facility’s website. Information that the 

security-based swap execution facility 

seeks to keep confidential may be 

redacted from the documents published 

on the security-based swap execution 

facility’s website but must be 

republished consistent with any 

determination made pursuant to 

§ 240.24b–2; 

(7) Provide additional information 

which may be beneficial to the 

Commission in analyzing the new rule 

or rule amendment. If a proposed rule 

affects, directly or indirectly, the 

application of any other rule of the 

security-based swap execution facility, 

the pertinent text of any such rule must 

be set forth and the anticipated effect 

described; 

(8) Provide a brief explanation of any 

substantive opposing views expressed to 

the security-based swap execution 

facility by governing board or committee 

members, members of the security-based 

swap execution facility, or market 

participants that were not incorporated 

into the rule, or a statement that no such 

opposing views were expressed; and 

(9) As appropriate, include a request 

for confidential treatment as permitted 

under § 240.24b–2. 

(b) Standard for review and approval. 

The Commission shall approve a new 

rule or rule amendment unless the rule 

or rule amendment is inconsistent with 


jspears on DSK121TN23PROD with PROPOSALS2
28980 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

the Act or the Commission’s rules 

thereunder. 

(c) 45-day review. A rule or rule 

amendment submitted for Commission 

approval under paragraph (a) of this 

section shall be deemed approved by 

the Commission 45 days after receipt by 

the Commission, or at the conclusion of 

such extended period as provided under 

paragraph (d) of this section, unless the 

security-based swap execution facility is 

notified otherwise within the applicable 

period, if: 

(1) The submission complies with the 

requirements of paragraph (a) of this 

section; 

(2) The security-based swap execution 

facility does not amend the proposed 

rule or supplement the submission, 

except as requested by the Commission, 

during the pendency of the review 

period, other than for correction of 

typographical errors, renumbering, or 

other non-substantive revisions. Any 

amendment or supplementation not 

requested by the Commission will be 

treated as the submission of a new filing 

under this section. 

(d) Extension of time for review. The 

Commission may further extend the 

review period in paragraph (c) of this 

section for: 

(1) An additional 45 days, if the 

proposed rule or rule amendment raises 

novel or complex issues that require 

additional time for review or is of major 

economic significance, the submission 

is incomplete, or the requestor does not 

respond completely to Commission 

questions in a timely manner, in which 

case the Commission shall notify the 

submitting security-based swap 

execution facility within the initial 45- 

day review period and shall briefly 

describe the nature of the specific issues 

for which additional time for review 

shall be required; or 

(2) Any period, beyond the additional 

45 days provided in paragraph (d)(1) of 

this section, to which the security-based 

swap execution facility agrees in 

writing. 

(e) Notice of non-approval. Any time 

during its review under this section, the 

Commission may notify the securitybased swap execution facility that it will 

not, or is unable to, approve the new 

rule or rule amendment. This 

notification will briefly specify the 

nature of the issues raised and the 

specific provision of the Act or the 

Commission’s rules thereunder, 

including the form or content 

requirements of this section, with which 

the new rule or rule amendment is 

inconsistent or appears to be 

inconsistent with the Act or the 

Commission’s rules thereunder. 

(f) Effect of non-approval. (1) 

Notification to a security-based swap 

execution facility under paragraph (e) of 

this section does not prevent the 

security-based swap execution facility 

from subsequently submitting a revised 

version of the proposed rule or rule 

amendment for Commission review and 

approval or from submitting the new 

rule or rule amendment as initially 

proposed in a supplemented 

submission. The revised submission 

will be reviewed without prejudice. 

(2) Notification to a security-based 

swap execution facility under paragraph 

(e) of this section of the Commission’s 

determination not to approve a 

proposed rule or rule amendment shall 

be presumptive evidence that the 

security-based swap execution facility 

may not truthfully certify the same, or 

substantially the same, proposed rule or 

rule amendment under § 242.807(a). 

(g) Expedited approval. 

Notwithstanding the provisions of 

paragraph (c) of this section, changes to 

a proposed rule or a rule amendment, 

including changes to terms and 

conditions of a product that are 

consistent with the Act and the 

Commission’s rules thereunder, may be 

approved by the Commission at such 

time and under such conditions as the 

Commission shall specify in the written 

notification; provided, however, that the 

Commission may, at any time, alter or 

revoke the applicability of such a notice 

to any particular product or rule 

amendment. 

§ 242.807 Self-certification of rules. 

(a) Required certification. A securitybased swap execution facility shall 

comply with the following conditions 

prior to implementing any rule—other 

than a rule delisting or withdrawing the 

certification of a product with no open 

interest and submitted in compliance 

with paragraphs (a)(1), (2) and (6) of this 

section—that has not obtained 

Commission approval under § 242.806, 

or that remains a dormant rule 

subsequent to being submitted under 

this section or approved under 

§ 242.806. 

(1) The security-based swap execution 

facility has filed its submission 

electronically with the Commission 

using the EDGAR system as an 

Interactive Data File in accordance with 

§ 232.405 of this chapter. 

(2) The security-based swap execution 

facility has provided a certification that 

it posted a notice of pending 

certification with the Commission and a 

copy of the submission, concurrent with 

the filing of a submission with the 

Commission, on the security-based 

swap execution facility’s website. 

Information that the security-based 

swap execution facility seeks to keep 

confidential may be redacted from the 

documents published on the securitybased swap execution facility’s website 

but it must be republished consistent 

with any determination made pursuant 

to § 240.24b–2 of this chapter. 

(3) The Commission has received the 

submission not later than the open of 

business on the business day that is ten 

business days prior to the security-based 

swap execution facility’s 

implementation of the rule or rule 

amendment. 

(4) The Commission has not stayed 

the submission pursuant to § 242.807(c). 

(5) A new rule or rule amendment 

that establishes standards for 

responding to an emergency shall be 

submitted pursuant to § 242.807(a). A 

rule or rule amendment implemented 

under procedures of the governing 

board to respond to an emergency shall, 

if practicable, be filed with the 

Commission prior to implementation or, 

if not practicable, be filed with the 

Commission at the earliest possible time 

after implementation, but in no event 

more than 24 hours after 

implementation. Any such submission 

shall be subject to the certification and 

stay provisions of paragraphs (b) and (c) 

of this section. 

(6) The rule submission shall include: 

(i) A copy of the submission cover 

sheet in accordance with the 

instructions in § 249.2002 of this 

chapter (in the case of a rule or rule 

amendment that responds to an 

emergency, ‘‘Emergency Rule 

Certification’’ should be noted in the 

description section of the submission 

cover sheet); 

(ii) The text of the rule (in the case of 

a rule amendment, deletions and 

additions must be indicated); 

(iii) The date of intended 

implementation; 

(iv) A certification by the securitybased swap execution facility that the 

rule complies with the Act and the 

Commission’s rules thereunder; 

(v) A concise explanation and 

analysis of the operation, purpose, and 

effect of the proposed rule or rule 

amendment and its compliance with 

applicable provisions of the Act, 

including core principles relating to 

security-based swap execution facilities 

and the Commission’s rules thereunder; 

(vi) A brief explanation of any 

substantive opposing views expressed to 

the security-based swap execution 

facility by governing board or committee 

members, members of the security-based 

swap execution facility, or market 

participants, that were not incorporated 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28981 

into the rule, or a statement that no such 

opposing views were expressed; and 

(vii) As appropriate, a request for 

confidential treatment pursuant to the 

procedures provided in § 240.24b–2 of 

this chapter. 

(7) The security-based swap execution 

facility shall provide, if requested by 

Commission staff, additional evidence, 

information, or data that may be 

beneficial to the Commission in 

conducting a due diligence assessment 

of the filing and the security-based swap 

execution facility’s compliance with any 

of the requirements of the Act or the 

Commission’s rules or policies 

thereunder. 

(b) Review by the Commission. The 

Commission shall have ten business 

days to review the new rule or rule 

amendment before the new rule or rule 

amendment is deemed certified and can 

be made effective, unless the 

Commission notifies the security-based 

swap execution facility during the tenbusiness-day review period that it 

intends to issue a stay of the 

certification under paragraph (c) of this 

section. 

(c) Stay—(1) Stay of certification of 

new rule or rule amendment. The 

Commission may stay the certification 

of a new rule or rule amendment 

submitted pursuant to paragraph (a) of 

this section by issuing a notification 

informing the security-based swap 

execution facility that the Commission 

is staying the certification of the rule or 

rule amendment on the grounds that the 

rule or rule amendment presents novel 

or complex issues that require 

additional time to analyze, the rule or 

rule amendment is accompanied by an 

inadequate explanation, or the rule or 

rule amendment is potentially 

inconsistent with the Act or the 

Commission’s rules thereunder. The 

Commission will have an additional 90 

days from the date of the notification to 

conduct the review. 

(2) Public comment. The Commission 

shall provide a 30-day comment period 

within the 90-day period in which the 

stay is in effect, as described in 

paragraph (c)(1) of this section. The 

Commission shall publish a notice of 

the 30-day comment period on the 

Commission website. Comments from 

the public shall be submitted as 

specified in that notice. 

(3) Expiration of a stay of certification 

of new rule or rule amendment. A new 

rule or rule amendment subject to a stay 

pursuant to this paragraph shall become 

effective, pursuant to the certification, at 

the expiration of the 90-day review 

period described in paragraph (c)(1) of 

this section, unless the Commission 

withdraws the stay prior to that time, or 

the Commission notifies the securitybased swap execution facility during the 

90-day time period that it objects to the 

proposed certification on the grounds 

that the proposed rule or rule 

amendment is inconsistent with the Act 

or the Commission’s rules thereunder. 

(d) Notification of rule amendments. 

Notwithstanding the rule certification 

requirement of paragraph (a) of this 

section, a security-based swap execution 

facility may place the following rules or 

rule amendments into effect without 

certification to the Commission if the 

following conditions are met: 

(1) The security-based swap execution 

facility provides to the Commission at 

least weekly a summary notice of all 

rule amendments made effective 

pursuant to this paragraph during the 

preceding week. Such notice must be 

labeled ‘‘Weekly Notification of Rule 

Amendments’’ and need not be filed for 

weeks during which no such actions 

have been taken. One copy of each such 

submission shall be furnished 

electronically using the EDGAR system 

as an Interactive Data File in accordance 

with § 232.405; and 

(2) The rule governs: 

(i) Non-substantive revisions. 

Corrections of typographical errors, 

renumbering, periodic routine updates 

to identifying information about the 

security-based swap execution facility, 

and other such non-substantive 

revisions of a product’s terms and 

conditions that have no effect on the 

economic characteristics of the product; 

(ii) Fees. Fees or fee changes, other 

than fees or fee changes associated with 

market making or trading incentive 

programs, that: 

(A) Total $1.00 or more per contract, 

and 

(B) Are established by an independent 

third party or are unrelated to delivery, 

trading, clearing, or dispute resolution. 

(iii) Survey lists. Changes to lists of 

banks, brokers, dealers, or other entities 

that provide price or cash market 

information to an independent third 

party and that are incorporated by 

reference as product terms; 

(iv) Approved brands. Changes in lists 

of approved brands or markings 

pursuant to previously certified or 

Commission approved standards or 

criteria; 

(v) Trading months. The initial listing 

of trading months, which may qualify 

for implementation without notice 

pursuant to paragraph (d)(3)(ii)(F) of 

this section, within the currently 

established cycle of trading months; or 

(vi) Minimum tick. Reductions in the 

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

(3) Notification of rule amendments 

not required. Notwithstanding the rule 

certification requirements of paragraph 

(a) of this section, a security-based swap 

execution facility may place the 

following rules or rule amendments into 

effect without certification or notice to 

the Commission if the following 

conditions are met: 

(i) The security-based swap execution 

facility maintains documentation 

regarding all changes to rules; and 

(ii) The rule governs: 

(A) Transfer of membership or 

ownership. Procedures and forms for the 

purchase, sale, or transfer of 

membership or ownership, but not 

including qualifications for membership 

or ownership, any right or obligation of 

membership or ownership, or dues or 

assessments; 

(B) Administrative procedures. The 

organization and administrative 

procedures of a security-based swap 

execution facility’s governing bodies 

such as a governing board, officers, and 

committees, but not voting 

requirements, governing board, or 

committee composition requirements or 

procedures, decision-making 

procedures, use or disclosure of material 

non-public information gained through 

the performance of official duties, or 

requirements relating to conflicts of 

interest; 

(C) Administration. The routine daily 

administration, direction, and control of 

employees, requirements relating to 

gratuity and similar funds, but not 

guaranty, reserves, or similar funds; 

declaration of holidays; and changes to 

facilities housing the market, trading 

floor, or trading area; 

(D) Standards of decorum. Standards 

of decorum or attire or similar 

provisions relating to admission to the 

floor, badges, or visitors, but not the 

establishment of penalties for violations 

of such rules; and 

(E) Fees. Fees or fee changes, other 

than fees or fee changes associated with 

market making or trading incentive 

programs, that: 

(1) Are less than $1.00; or 

(2) Relate to matters such as dues, 

badges, telecommunication services, 

booth space, real-time quotations, 

historical information, publications, 

software licenses, or other matters that 

are administrative in nature. 

(F) Trading months. The initial listing 

of trading months which are within the 

currently established cycle of trading 

months. 

§ 242.808 Availability of public 

information. 

(a) The Commission shall make 

publicly available on its website the 

following parts of an application to 

register as a security-based swap 


jspears on DSK121TN23PROD with PROPOSALS2
28982 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

execution facility, unless confidential 

treatment is obtained pursuant to 

§ 240.24b–2 of this chapter: 

(1) Transmittal letter and first page of 

the application cover sheet; 

(2) Exhibit C; 

(3) Exhibit G; 

(4) Exhibit L; and 

(5) Exhibit M. 

(b) The Commission shall make 

publicly available on its website, unless 

confidential treatment is obtained 

pursuant to § 240.24b–2 of this chapter, 

a security-based swap execution 

facility’s filing of new products 

pursuant to the self-certification 

procedures of § 242.804, new products 

for Commission review and approval 

pursuant to § 242.805, new rules and 

rule amendments for Commission 

review and approval pursuant to 

§ 242.806, and new rules and rule 

amendments pursuant to the selfcertification procedures of § 242.807. 

(c) The terms and conditions of a 

product submitted to the Commission 

pursuant to § 242.804, 242.805, 242.806, 

or 242.807 shall be made publicly 

available at the time of submission 

unless confidential treatment is 

obtained pursuant to § 240.24b–2 of this 

chapter. 

§ 242.809 Staying of certification and 

tolling of review period pending 

jurisdictional determination. 

(a) A product certification made by a 

security-based swap execution facility 

pursuant to § 242.804 shall be stayed, or 

the review period for a product that has 

been submitted for Commission 

approval by a security-based swap 

execution facility pursuant to § 242.805 

shall be tolled, upon request for a joint 

interpretation of whether the product is 

a swap, security-based swap, or mixed 

swap made pursuant to § 240.3a68–2 of 

this chapter by the security-based swap 

execution facility, the Commission, or 

the Commodity Futures Trading 

Commission. 

(b) The Commission shall provide the 

security-based swap execution facility 

with a written notice of the stay or 

tolling pending issuance of a joint 

interpretation. 

(c) The stay shall be withdrawn, or 

the approval review period shall 

resume, if a joint interpretation finding 

that the Commission has jurisdiction 

over the product is issued. 

§ 242.810 Product filings by securitybased swap execution facilities that are not 

yet registered and by dormant securitybased swap execution facilities. 

(a) An applicant for registration as a 

security-based swap execution facility 

may submit a security-based swap’s 

terms and conditions prior to listing the 

product as part of its application for 

registration. 

(b) Any security-based swap terms 

and conditions or rules submitted as 

part of a security-based swap execution 

facility’s application for registration 

shall be considered for approval by the 

Commission at the time the Commission 

issues the security-based swap 

execution facility’s order of registration. 

(c) After the Commission issues the 

order of registration, the security-based 

swap execution facility shall submit a 

security-based swap’s terms and 

conditions, including amendments to 

such terms and conditions, new rules, 

or rule amendments pursuant to the 

procedures in §§ 242.804, 242.805, 

242.806, and 242.807. 

(d) Any security-based swap terms 

and conditions or rules submitted as 

part of an application to reinstate the 

registration of a dormant security-based 

swap execution facility shall be 

considered for approval by the 

Commission at the time the Commission 

approves the reinstatement of 

registration of the dormant securitybased swap execution facility. 

§ 242.811 Information relating to securitybased swap execution facility compliance. 

(a) Request for information. Upon the 

Commission’s request, a security-based 

swap execution facility shall file with 

the Commission information related to 

its business as a security-based swap 

execution facility in the form and 

manner, and within the timeframe, 

specified by the Commission. 

(b) Demonstration of compliance. 

Upon the Commission’s request, a 

security-based swap execution facility 

shall file with the Commission a written 

demonstration, containing supporting 

data, information, and documents, that 

it is in compliance with one or more 

core principles or with its other 

obligations under the Act or the 

Commission’s rules thereunder, as the 

Commission specifies in its request. The 

security-based swap execution facility 

shall file such written demonstration in 

the form and manner, and within the 

timeframe, specified by the 

Commission. 

(c) Equity interest transfer—(1) Equity 

interest transfer notification. A securitybased swap execution facility shall file 

with the Commission a notification of 

any transaction involving the direct or 

indirect transfer of 50 percent or more 

of the equity interest in the securitybased swap execution facility. The 

Commission may, upon receiving such 

notification, request supporting 

documentation of the transaction. 

(2) Timing of notification. The equity 

interest transfer notice described in 

paragraph (c)(1) of this section shall be 

filed with the Commission in a form and 

manner specified by the Commission at 

the earliest possible time, but in no 

event later than the open of business ten 

business days following the date upon 

which the security-based swap 

execution facility enters into a firm 

obligation to transfer the equity interest. 

(3) Rule filing. Notwithstanding the 

foregoing, if any aspect of an equity 

interest transfer described in paragraph 

(c)(1) of this section requires a securitybased swap execution facility to file a 

rule, the security-based swap execution 

facility shall comply with the applicable 

rule filing requirements of § 242.806 or 

§ 242.807. 

(4) Certification. Upon a transfer of an 

equity interest of 50 percent or more in 

a security-based swap execution facility, 

the security-based swap execution 

facility shall file with the Commission, 

in a form and manner specified by the 

Commission, a certification that the 

security-based swap execution facility 

meets all of the requirements of section 

3D of the Act and the Commission rules 

thereunder, no later than two business 

days following the date on which the 

equity interest of 50 percent or more 

was acquired. 

(d) Pending legal proceedings. (1) A 

security-based swap execution facility 

shall submit to the Commission a copy 

of the complaint, any dispositive or 

partially dispositive decision, any 

notice of appeal filed concerning such 

decision, and such further documents as 

the Commission may thereafter request 

filed in any material legal proceeding to 

which the security-based swap 

execution facility is a party or its 

property or assets is subject. 

(2) A security-based swap execution 

facility shall submit to the Commission 

a copy of the complaint, any dispositive 

or partially dispositive decision, any 

notice of appeal filed concerning such 

decision, and such further documents as 

the Commission may thereafter request 

filed in any material legal proceeding 

instituted against any officer, director, 

or other official of the security-based 

swap execution facility from conduct in 

such person’s capacity as an official of 

the security-based swap execution 

facility and alleging violations of: 

(i) The Act or any rule, regulation, or 

order thereunder; 

(ii) The constitution, bylaws, or rules 

of the security-based swap execution 

facility; or 

(iii) The applicable provisions of State 

law relating to the duties of officers, 

directors, or other officials of business 

organizations. 

(3) All documents required by this 

paragraph (d) to be submitted to the 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28983 

Commission shall be submitted 

electronically in a form and manner 

specified by the Commission within ten 

days after the initiation of the legal 

proceedings to which they relate, after 

the date of issuance, or after receipt by 

the security-based swap execution 

facility of the notice of appeal, as the 

case may be. 

(4) For purposes of this paragraph (d), 

a ‘‘material legal proceeding’’ includes 

but is not limited to actions involving 

alleged violations of the Act or the 

Commission rules thereunder. However, 

a legal proceeding is not ‘‘material’’ for 

the purposes of this rule if the 

proceeding is not in a Federal or State 

court or if the Commission is a party. 

§ 242.812 Enforceability. 

(a) A transaction entered into on or 

pursuant to the rules of a security-based 

swap execution facility shall not be 

void, voidable, subject to rescission, 

otherwise invalidated, or rendered 

unenforceable as a result of a violation 

by the security-based swap execution 

facility of the provisions of section 3D 

of the Act or the Commission’s rules 

thereunder. 

(b) A security-based swap execution 

facility shall, as soon as technologically 

practicable after the time of execution of 

a transaction entered into on or 

pursuant to the rules of the facility, 

provide a written record to each 

counterparty of all of the terms of the 

transaction that were agreed to on the 

facility, which shall legally supersede 

any previous agreement regarding such 

terms. 

§ 242.813 Prohibited use of data collected 

for regulatory purposes. 

A security-based swap execution 

facility shall not use for business or 

marketing purposes any proprietary data 

or personal information it collects or 

receives, from or on behalf of any 

person, for the purpose of fulfilling its 

regulatory obligations; provided, 

however, that a security-based swap 

execution facility may use such data or 

information for business or marketing 

purposes if the person from whom it 

collects or receives such data or 

information clearly consents to the 

security-based swap execution facility’s 

use of such data or information in such 

manner. A security-based swap 

execution facility shall not condition 

access to its market(s) or market services 

on a person’s consent to the securitybased swap execution facility’s use of 

proprietary data or personal information 

for business or marketing purposes. A 

security-based swap execution facility, 

where necessary for regulatory 

purposes, may share such data or 

information with one or more securitybased swap execution facilities or 

national securities exchanges registered 

with the Commission. 

§ 242.814 Entity operating both a national 

securities exchange and security-based 

swap execution facility. 

(a) An entity that intends to operate 

both a national securities exchange and 

a security-based swap execution facility 

shall separately register the two 

facilities pursuant to section 6 of the Act 

and § 242.803, respectively. 

(b) A national securities exchange 

shall, to the extent that the exchange 

also operates a security-based swap 

execution facility and uses the same 

electronic trade execution system for 

listing and executing trades of securitybased swaps on or through the exchange 

and the facility, identify whether 

electronic trading of such security-based 

swaps is taking place on or through the 

national securities exchange or the 

security-based swap execution facility. 

§ 242.815 Methods of execution for 

Required and Permitted Transactions. 

(a) Execution methods for Required 

Transactions—(1) Required Transaction 

means any transaction involving a 

security-based swap that is subject to 

the trade execution requirement in 

section 3C(h) of the Act. 

(2) Execution methods. (i) Each 

Required Transaction that is not a block 

trade shall be executed on a securitybased swap execution facility in 

accordance with one of the following 

methods of execution, except as 

provided in paragraph (d) or (e) of this 

section: 

(A) An order book; or 

(B) A request-for-quote system that 

operates in conjunction with an order 

book. 

(ii) In providing either one of the 

execution methods set forth in 

paragraph (a)(2)(i)(A) or (B) of this 

section, a security-based swap execution 

facility may for purposes of execution 

and communication use any means of 

interstate commerce, including, but not 

limited to, the mail, internet, email, and 

telephone, provided that the chosen 

execution method satisfies the 

requirements for order books in 

§ 242.800(x) or in paragraph (a)(3) of 

this section for request-for-quote 

systems. 

(3) Request-for-quote system means a 

trading system or platform in which a 

market participant transmits a request 

for a quote to buy or sell a specific 

instrument to no less than three market 

participants in the trading system or 

platform, to which all such market 

participants may respond. The three 

market participants shall not be 

affiliates of or controlled by the 

requester and shall not be affiliates of or 

controlled by each other. A securitybased swap execution facility that offers 

a request-for-quote system in connection 

with Required Transactions shall 

provide the following functionality: 

(i) At the same time that the requester 

receives the first responsive bid or offer, 

the security-based swap execution 

facility shall communicate to the 

requester any firm bid or offer 

pertaining to the same instrument 

resting on any of the security-based 

swap execution facility’s order books; 

(ii) The security-based swap 

execution facility shall provide the 

requester with the ability to execute 

against such firm resting bids or offers 

along with any responsive orders; and 

(iii) The security-based swap 

execution facility shall ensure that its 

trading protocols provide each of its 

market participants with equal priority 

in receiving requests for quotes and in 

transmitting and displaying for 

execution responsive orders. 

(b) Time delay requirement for 

Required Transactions on an order 

book—(1) Time delay requirement. A 

security-based swap execution facility 

shall require that a broker or dealer who 

seeks to either execute against its 

customer’s order or execute two of its 

customers’ orders against each other 

through the security-based swap 

execution facility’s order book, 

following some form of pre-arrangement 

or pre-negotiation of such orders, be 

subject to at least a 15-second time 

delay between the entry of those two 

orders into the order book, such that one 

side of the potential transaction is 

disclosed and made available to other 

market participants before the second 

side of the potential transaction, 

whether for the broker’s or dealer’s own 

account or for a second customer, is 

submitted for execution. 

(2) Adjustment of time delay 

requirement. A security-based swap 

execution facility may adjust the time 

period of the 15-second time delay 

requirement described in paragraph 

(b)(1) of this section, based upon a 

security-based swap’s liquidity or other 

product-specific considerations; 

however, the time delay shall be set for 

a sufficient period of time so that an 

order is exposed to the market and other 

market participants have a meaningful 

opportunity to execute against such 

order. 

(c) Execution methods for Permitted 

Transactions—(1) Permitted 

Transaction means any transaction not 

involving a security-based swap that is 


jspears on DSK121TN23PROD with PROPOSALS2
28984 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

subject to the trade execution 

requirement in section 3C(h) of the Act. 

(2) Execution methods. A securitybased swap execution facility may offer 

any method of execution for each 

Permitted Transaction. 

(d) Exceptions to required methods of 

execution for package transactions. (1) 

For purposes of this paragraph, a 

package transaction consists of two or 

more component transactions executed 

between two or more counterparties 

where: 

(i) At least one component transaction 

is a Required Transaction; 

(ii) Execution of each component 

transaction is contingent upon the 

execution of all other component 

transactions; and 

(iii) The component transactions are 

priced or quoted together as one 

economic transaction with simultaneous 

or near-simultaneous execution of all 

components. 

(2) A Required Transaction that is 

executed as a component of a package 

transaction that includes a component 

security-based swap that is subject 

exclusively to the Commission’s 

jurisdiction, but is not subject to the 

clearing requirement under section 3C 

of the Act, may be executed on a 

security-based swap execution facility 

in accordance with paragraph (c)(2) of 

this section as if it were a Permitted 

Transaction; 

(3) A Required Transaction that is 

executed as a component of a package 

transaction that includes a component 

that is not a security-based swap may be 

executed on a security-based swap 

execution facility in accordance with 

paragraph (c)(2) of this section as if it 

were a Permitted Transaction. This 

provision shall not apply to: 

(i) A Required Transaction that is 

executed as a component of a package 

transaction in which all other nonsecurity-based swap components are 

U.S. Treasury securities; 

(ii) A Required Transaction that is 

executed as a component of a package 

transaction in which all other nonsecurity-based swap components are 

contracts for the purchase or sale of a 

commodity for future delivery; 

(iii) A Required Transaction that is 

executed as a component of a package 

transaction in which all other nonsecurity-based swap components are 

agency mortgage-backed securities; and 

(iv) A Required Transaction that is 

executed as a component of a package 

transaction that includes a component 

transaction that is the issuance of a 

bond in a primary market. 

(4) A Required Transaction that is 

executed as a component of a package 

transaction that includes a component 

security-based swap that is not 

exclusively subject to the Commission’s 

jurisdiction may be executed on a 

security-based swap in accordance with 

paragraph (c)(2) of this section as if it 

were a Permitted Transaction. 

(e) Resolution of operational and 

clerical error trades. (1) A securitybased swap execution facility shall 

maintain rules and procedures that 

facilitate the resolution of error trades. 

Such rules shall be fair, transparent, and 

consistent; allow for timely resolution; 

require members to provide prompt 

notice of an error trade—and, as 

applicable, offsetting and correcting 

trades—to the security-based swap 

execution facility; and permit members 

to: 

(i) Execute a correcting trade, in 

accordance with paragraph (c)(2) of this 

section, regardless of whether it is a 

Required or Permitted Transaction, for 

an error trade that has been rejected 

from clearing as soon as technologically 

practicable, but no later than one hour 

after a registered clearing agency 

provides notice of the rejection; or 

(ii) Execute an offsetting trade and a 

correcting trade, in accordance with 

paragraph (c)(2) of this section, 

regardless of whether it is a Required or 

Permitted Transaction, for an error trade 

that was accepted for clearing as soon as 

technologically practicable, but no later 

than three days after the error trade was 

accepted for clearing at a registered 

clearing agency. 

(2) If a correcting trade is rejected 

from clearing, then the security-based 

swap execution facility shall not allow 

the counterparties to execute another 

correcting trade. 

(f) Counterparty anonymity. (1) 

Except as otherwise required under the 

Act or the Commission’s rules 

thereunder, a security-based swap 

execution facility shall not directly or 

indirectly, including through a thirdparty service provider, disclose the 

identity of a counterparty to a securitybased swap that is executed 

anonymously and intended to be 

cleared. 

(2) A security-based swap execution 

facility shall establish and enforce rules 

that prohibit any person from directly or 

indirectly, including through a thirdparty service provider, disclosing the 

identity of a counterparty to a securitybased swap execution facility that is 

executed anonymously and intended to 

be cleared. 

(3) For purposes of paragraphs (f)(1) 

and (2) of this section, ‘‘executed 

anonymously’’ shall include a securitybased swap that is pre-arranged or prenegotiated anonymously, including by a 

member of the security-based swap 

execution facility. 

(4) For a package transaction that 

includes a component transaction that is 

not a security-based swap intended to 

be cleared, disclosing the identity of a 

counterparty shall not violate paragraph 

(f)(1) or (2) of this section. For purposes 

of this paragraph (f), a ‘‘package 

transaction’’ consists of two or more 

component transactions executed 

between two or more counterparties 

where: 

(i) Execution of each component 

transaction is contingent upon the 

execution of all other component 

transactions; and 

(ii) The component transactions are 

priced or quoted together as one 

economic transaction with simultaneous 

or near-simultaneous execution of all 

components. 

§ 242.816 Trade execution requirement 

and exemptions therefrom. 

(a) General. (1) Required submission. 

A security-based swap execution facility 

that makes a security-based swap 

available to trade in accordance with 

paragraph (b) of this section, shall 

submit to the Commission its 

determination with respect to such 

security-based swap as a rule, pursuant 

to the procedures under § 242.806 or 

242.807. 

(2) Listing requirement. A securitybased swap execution facility that 

makes a security-based swap available 

to trade must demonstrate that it lists or 

offers that security-based swap for 

trading on its trading system or 

platform. 

(b) Factors to consider. To make a 

security-based swap available to trade 

for purposes of section 3C(h) of the Act, 

a security-based swap execution facility 

shall consider, as appropriate, the 

following factors with respect to such 

security-based swap: 

(1) Whether there are ready and 

willing buyers and sellers; 

(2) The frequency or size of 

transactions; 

(3) The trading volume; 

(4) The number and types of market 

participants; 

(5) The bid/ask spread; or 

(6) The usual number of resting firm 

or indicative bids and offers. 

(c) Applicability. Upon a 

determination that a security-based 

swap is available to trade on a securitybased swap execution facility or 

national securities exchange, all other 

security-based swap execution facilities 

and SBS exchanges shall comply with 

the requirements of section 3C(h) of the 

Act in listing or offering such securitybased swap for trading. 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28985 

(d) Removal. The Commission may 

issue a determination that a securitybased swap is no longer available to 

trade upon determining that no securitybased swap execution facility or SBS 

exchange lists such security-based swap 

for trading. 

(e) Exemptions to trade execution 

requirement. (1) A security-based swap 

transaction that is executed as a 

component of a package transaction that 

also includes a component transaction 

that is the issuance of a bond in a 

primary market is exempt from the trade 

execution requirement in section 3C(h) 

of the Act. For purposes of paragraph (e) 

of this section, a package transaction 

consists of two or more component 

transactions executed between two or 

more counterparties where: 

(i) At least one component transaction 

is subject to the trade execution 

requirement in section 3C(h) of the Act; 

(ii) Execution of each component 

transaction is contingent upon the 

execution of all other component 

transactions; and 

(iii) The component transactions are 

priced or quoted together as one 

economic transaction with simultaneous 

or near-simultaneous execution of all 

components. 

(2) Section 3C(h) of the Act does not 

apply to a security-based swap 

transaction that qualifies for an 

exception under section 3C(g) of the 

Act, or any exemption from the clearing 

requirement that is granted by the 

Commission, for which the associated 

requirements are met. 

(3)(i) Section 3C(h) of the Act does not 

apply to a security-based swap 

transaction that is executed between 

counterparties that qualify as ‘‘eligible 

affiliate counterparties,’’ as defined 

below. 

(ii) For purposes of this paragraph 

(e)(3), counterparties will be ‘‘eligible 

affiliate counterparties’’ if: 

(A) One counterparty, directly or 

indirectly, holds a majority ownership 

interest in the other counterparty, and 

the counterparty that holds the majority 

interest in the other counterparty 

reports its financial statements on a 

consolidated basis under Generally 

Accepted Accounting Principles or 

International Financial Reporting 

Standards, and such consolidated 

financial statements include the 

financial results of the majority-owned 

counterparty; or 

(B) A third party, directly or 

indirectly, holds a majority ownership 

interest in both counterparties, and the 

third party reports its financial 

statements on a consolidated basis 

under Generally Accepted Accounting 

Principles or International Financial 

Reporting Standards, and such 

consolidated financial statements 

include the financial results of both of 

the counterparties. 

(iii) For purposes of this paragraph 

(e)(3), a counterparty or third party 

directly or indirectly holds a majority 

ownership interest if it directly or 

indirectly holds a majority of the equity 

securities of an entity, or the right to 

receive upon dissolution, or the 

contribution of, a majority of the capital 

of a partnership. 

§ 242.817 Trade execution compliance 

schedule. 

(a) A security-based swap transaction 

shall be subject to the requirements of 

section 3C(h) of the Act upon the later 

of: 

(1) A determination by the 

Commission that the security-based 

swap is required to be cleared as set 

forth in section 3C(a) or any later 

compliance date that the Commission 

may establish as a term or condition of 

such determination or following a stay 

and review of such determination 

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

§ 240.3Ca–1 of this chapter thereunder; 

and 

(2) Thirty days after the available-totrade determination submission or 

certification for that security-based 

swap is, respectively, deemed approved 

under § 242.806 or deemed certified 

under § 242.807. 

(b) Nothing in this section shall 

prohibit any counterparty from 

complying voluntarily with the 

requirements of section 3C(h) of the Act 

sooner than as provided in paragraph (a) 

of this section. 

§ 242.818 Core Principle 1—Compliance 

with core principles. 

(a) In general. To be registered, and 

maintain registration, as a securitybased swap execution facility, the 

security-based swap execution facility 

shall comply with the core principles 

described in section 3D of the Act, and 

any requirement that the Commission 

may impose by rule or regulation. 

(b) Reasonable discretion of securitybased swap execution facility. Unless 

otherwise determined by the 

Commission, by rule or regulation, a 

security-based swap execution facility 

described in paragraph (a) of this 

section shall have reasonable discretion 

in establishing the manner in which it 

complies with the core principles 

described in section 3D of the Act. 

§ 242.819 Core Principle 2—Compliance 

with rules. 

(a) General. A security-based swap 

execution facility shall: 

(1) Establish and enforce compliance 

with any rule established by such 

security-based swap execution facility, 

including the terms and conditions of 

the security-based swaps traded or 

processed on or through the facility, and 

any limitation on access to the facility; 

(2) Establish and enforce trading, 

trade processing, and participation rules 

that will deter abuses and have the 

capacity to detect, investigate, and 

enforce those rules, including means to 

provide market participants with 

impartial access to the market and to 

capture information that may be used in 

establishing whether rule violations 

have occurred; and 

(3) Establish rules governing the 

operation of the facility, including rules 

specifying trading procedures to be used 

in entering and executing orders traded 

or posted on the facility, including 

block trades. 

(b) Operation of security-based swap 

execution facility and compliance with 

rules. (1) A security-based swap 

execution facility shall establish rules 

governing the operation of the securitybased swap execution facility, 

including, but not limited to, rules 

specifying trading procedures to be 

followed by members when entering 

and executing orders traded or posted 

on the security-based swap execution 

facility, including block trades, if 

offered. 

(2) A security-based swap execution 

facility shall establish and impartially 

enforce compliance with the rules of the 

security-based swap execution facility, 

including, but not limited to: 

(i) The terms and conditions of any 

security-based swaps traded or 

processed on or through the securitybased swap execution facility; 

(ii) Access to the security-based swap 

execution facility; 

(iii) Trade practice rules; 

(iv) Audit trail requirements; 

(v) Disciplinary rules; and 

(vi) Mandatory trading requirements. 

(c) Access requirements—(1) 

Impartial access to markets and market 

services. A security-based swap 

execution facility shall provide any 

eligible contract participant and any 

independent software vendor with 

impartial access to its market(s) and 

market services, including any 

indicative quote screens or any similar 

pricing data displays, provided that the 

facility has: 

(i) Criteria governing such access that 

are impartial, transparent, and applied 

in a fair and non-discriminatory 

manner; 

(ii) Procedures whereby eligible 

contract participants provide the 

security-based swap execution facility 


jspears on DSK121TN23PROD with PROPOSALS2
28986 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

with written or electronic confirmation 

of their status as eligible contract 

participants, as defined by the Act and 

Commission rules thereunder, prior to 

obtaining access; and 

(iii) Comparable fee structures for 

eligible contract participants and 

independent software vendors receiving 

comparable access to, or services from, 

the security-based swap execution 

facility. 

(2) Jurisdiction. Prior to granting any 

eligible contract participant access to its 

facilities, a security-based swap 

execution facility shall require that the 

eligible contract participant consent to 

its jurisdiction. 

(3) Limitations on access. A securitybased swap execution facility shall 

establish and impartially enforce rules 

governing any decision to allow, deny, 

suspend, or permanently bar an eligible 

contract participant’s access to the 

security-based swap execution facility, 

including when a decision is made as 

part of a disciplinary or emergency 

action taken by the security-based swap 

execution facility. 

(d) Rule enforcement program. A 

security-based swap execution facility 

shall establish and enforce trading, trade 

processing, and participation rules that 

will deter abuses and it shall have the 

capacity to detect, investigate, and 

enforce those rules. 

(1) Abusive trading practices 

prohibited. A security-based swap 

execution facility shall prohibit abusive 

trading practices on its markets by 

members. A security-based swap 

execution facility that permits 

intermediation shall prohibit customerrelated abuses including, but not limited 

to, trading ahead of customer orders, 

trading against customer orders, 

accommodation trading, and improper 

cross trading. Specific trading practices 

that shall be prohibited include frontrunning, wash trading, pre-arranged 

trading (except for block trades or other 

types of transactions approved by or 

certified to the Commission pursuant 

§ 242.806 or § 242.807, respectively), 

fraudulent trading, money passes, and 

any other trading practices that a 

security-based swap execution facility 

deems to be abusive. A security-based 

swap execution facility shall also 

prohibit any other manipulative or 

disruptive trading practices prohibited 

by the Act or by the Commission 

pursuant to Commission regulation. 

(2) Capacity to detect and investigate 

rule violations. A security-based swap 

execution facility shall have 

arrangements and resources for effective 

enforcement of its rules. Such 

arrangements shall include the authority 

to collect information and documents 

on both a routine and non-routine basis, 

including the authority to examine 

books and records kept by the securitybased swap execution facility’s 

members and by persons under 

investigation. A security-based swap 

execution facility’s arrangements and 

resources shall also facilitate the direct 

supervision of the market and the 

analysis of data collected to determine 

whether a rule violation has occurred. 

(3) Compliance staff and resources. A 

security-based swap execution facility 

shall establish and maintain sufficient 

compliance staff and resources to ensure 

that it can conduct effective audit trail 

reviews, trade practice surveillance, 

market surveillance, and real-time 

market monitoring. The security-based 

swap execution facility’s compliance 

staff shall also be sufficient to address 

unusual market or trading events as they 

arise, and to conduct and complete 

investigations in a timely manner, as set 

forth in paragraph (d)(6) of this section. 

(4) Automated trade surveillance 

system. A security-based swap 

execution facility shall maintain an 

automated trade surveillance system 

capable of detecting potential trade 

practice violations. The automated trade 

surveillance system shall load and 

process daily orders and trades no later 

than 24 hours after the completion of 

the trading day. The automated trade 

surveillance system shall have the 

capability to detect and flag specific 

trade execution patterns and trade 

anomalies; compute, retain, and 

compare trading statistics; reconstruct 

the sequence of market activity; perform 

market analyses; and support system 

users to perform in-depth analyses and 

ad hoc queries of trade-related data. 

(5) Real-time market monitoring. A 

security-based swap execution facility 

shall conduct real-time market 

monitoring of all trading activity on its 

system(s) or platform(s) to identify any 

market or system anomalies. A securitybased swap execution facility shall have 

the authority to adjust trade prices or 

cancel trades when necessary to 

mitigate market disrupting events 

caused by malfunctions in its system(s) 

or platform(s) or errors in orders 

submitted by members. Any trade price 

adjustments or trade cancellations shall 

be transparent to the market and subject 

to standards that are clear, fair, and 

publicly available. 

(6) Investigations and investigation 

reports—(i) Procedures. A securitybased swap execution facility shall 

establish and maintain procedures that 

require its compliance staff to conduct 

investigations of possible rule 

violations. An investigation shall be 

commenced upon the receipt of a 

request from Commission staff or upon 

the discovery or receipt of information 

by the security-based swap execution 

facility that indicates a reasonable basis 

for finding that a violation may have 

occurred or will occur. 

(ii) Timeliness. Each compliance staff 

investigation shall be completed in a 

timely manner. Absent mitigating 

factors, a timely manner is no later than 

12 months after the date that an 

investigation is opened. Mitigating 

factors that may reasonably justify an 

investigation taking longer than 12 

months to complete include the 

complexity of the investigation, the 

number of firms or individuals involved 

as potential wrongdoers, the number of 

potential violations to be investigated, 

and the volume of documents and data 

to be examined and analyzed by 

compliance staff. 

(iii) Investigation reports when a 

reasonable basis exists for finding a 

violation. Compliance staff shall submit 

a written investigation report for 

disciplinary action in every instance in 

which compliance staff determines from 

surveillance or from an investigation 

that a reasonable basis exists for finding 

a rule violation. The investigation report 

shall include the reason the 

investigation was initiated; a summary 

of the complaint, if any; the relevant 

facts; compliance staff’s analysis and 

conclusions; and a recommendation as 

to whether disciplinary action should be 

pursued. 

(iv) Investigation reports when no 

reasonable basis exists for finding a 

violation. If after conducting an 

investigation, compliance staff 

determines that no reasonable basis 

exists for finding a rule violation, it 

shall prepare a written report including 

the reason the investigation was 

initiated; a summary of the complaint, 

if any; the relevant facts; and 

compliance staff’s analysis and 

conclusions. 

(v) Warning letters. The rules of a 

security-based swap execution facility 

may authorize its compliance staff to 

issue a warning letter to a person or 

entity under investigation or to 

recommend that a disciplinary panel 

take such an action. No more than one 

warning letter may be issued to the 

same person or entity found to have 

committed the same rule violation 

within a rolling 12-month period. 

(e) Regulatory services provided by a 

third party—(1) Use of regulatory 

service provider permitted. A securitybased swap execution facility may 

choose to contract with a registered 

futures association (under section 17 of 

the Commodity Exchange Act), a 

national securities exchange, a national 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28987 

securities association, or another 

security-based swap execution facility 

(each a ‘‘regulatory service provider’’), 

for the provision of services to assist in 

complying with the Act and 

Commission rules thereunder, as 

approved by the Commission. A 

security-based swap execution facility 

that chooses to contract with a 

regulatory service provider shall ensure 

that such provider has the capacity and 

resources necessary to provide timely 

and effective regulatory services, 

including adequate staff and automated 

surveillance systems. A security-based 

swap execution facility shall at all times 

remain responsible for the performance 

of any regulatory services received, for 

compliance with the security-based 

swap execution facility’s obligations 

under the Act and Commission rules 

thereunder, and for the regulatory 

service provider’s performance on its 

behalf. 

(2) Duty to supervise regulatory 

service provider. A security-based swap 

execution facility that elects to use the 

service of a regulatory service provider 

shall retain sufficient compliance staff 

to supervise the quality and 

effectiveness of the regulatory services 

provided on its behalf. Compliance staff 

of the security-based swap execution 

facility shall hold regular meetings with 

the regulatory service provider to 

discuss ongoing investigations, trading 

patterns, market participants, and any 

other matters of regulatory concern. A 

security-based swap execution facility 

shall also conduct periodic reviews of 

the adequacy and effectiveness of 

services provided on its behalf. Such 

reviews shall be documented carefully 

and made available to the Commission 

upon request. 

(3) Regulatory decisions required from 

the security-based swap execution 

facility. A security-based swap 

execution facility that elects to use the 

service of a regulatory service provider 

shall retain exclusive authority in all 

substantive decisions made by its 

regulatory service provider, including, 

but not limited to, decisions involving 

the cancellation of trades, the issuance 

of disciplinary charges against members, 

and denials of access to the trading 

platform for disciplinary reasons. A 

security-based swap execution facility 

shall document any instances where its 

actions differ from those recommended 

by its regulatory service provider, 

including the reasons for the course of 

action recommended by the regulatory 

service provider and the reasons why 

the security-based swap execution 

facility chose a different course of 

action. 

(f) Audit trail. A security-based swap 

execution facility shall establish 

procedures to capture and retain 

information that may be used in 

establishing whether rule violations 

have occurred. 

(1) Audit trail required. A securitybased swap execution facility shall 

capture and retain all audit trail data 

necessary to detect, investigate, and 

prevent customer and market abuses. 

Such data shall be sufficient to 

reconstruct all indications of interest, 

requests for quotes, orders, and trades 

within a reasonable period of time and 

to provide evidence of any violations of 

the rules of the security-based swap 

execution facility. An acceptable audit 

trail shall also permit the security-based 

swap execution facility to track a 

customer order from the time of receipt 

through execution on the security-based 

swap execution facility. 

(2) Elements of an acceptable audit 

trail program—(i) Original source 

documents. A security-based swap 

execution facility’s audit trail shall 

include original source documents. 

Original source documents include 

unalterable, sequentially-identified 

records on which trade execution 

information is originally recorded, 

whether recorded manually or 

electronically. Records for customer 

orders (whether filled, unfilled, or 

cancelled, each of which shall be 

retained or electronically captured) 

shall reflect the terms of the order, an 

account identifier that relates back to 

the account(s) owner(s), the time of 

order entry, and the time of trade 

execution. A security-based swap 

execution facility shall require that all 

orders, indications of interest, and 

requests for quotes be immediately 

captured in the audit trail. 

(ii) Transaction history database. A 

security-based swap execution facility’s 

audit trail program shall include an 

electronic transaction history database. 

An adequate transaction history 

database shall include a history of all 

indications of interest, requests for 

quotes, orders, and trades entered into 

a security-based swap execution 

facility’s trading system or platform, 

including all order modifications and 

cancellations. An adequate transaction 

history database shall also include: 

(A) All data that are input into the 

trade entry or matching system for the 

transaction to match and clear; 

(B) The customer type indicator code; 

and 

(C) Timing and sequencing data 

adequate to reconstruct trading. 

(iii) Electronic analysis capability. A 

security-based swap execution facility’s 

audit trail program shall include 

electronic analysis capability with 

respect to all audit trail data in the 

transaction history database. Such 

electronic analysis capability shall 

ensure that the security-based swap 

execution facility has the ability to 

reconstruct indications of interest, 

requests for quotes, orders, and trades, 

and identify possible trading violations 

with respect to both customer and 

market abuse. 

(iv) Safe-storage capability. A 

security-based swap execution facility’s 

audit trail program shall include the 

capability to safely store all audit trail 

data retained in its transaction history 

database. Such safe-storage capability 

shall include the capability to store all 

data in the database in a manner that 

protects it from unauthorized alteration, 

as well as from accidental erasure or 

other loss. Data shall be retained in 

accordance with the recordkeeping 

requirements of Core Principle 9 and 

§ 242.826. 

(3) Enforcement of audit trail 

requirements—(i) Annual audit trail 

and recordkeeping reviews. A securitybased swap execution facility shall 

enforce its audit trail and recordkeeping 

requirements through at least annual 

reviews of all members and persons and 

firms subject to the security-based swap 

execution facility’s recordkeeping rules 

to verify their compliance with the 

security-based swap execution facility’s 

audit trail and recordkeeping 

requirements. Such reviews shall 

include, but are not limited to, reviews 

of randomly selected samples of frontend audit trail data for order routing 

systems; a review of the process by 

which user identifications are assigned 

and user identification records are 

maintained; a review of usage patterns 

associated with user identifications to 

monitor for violations of user 

identification rules; and reviews of 

account numbers and customer type 

indicator codes in trade records to test 

for accuracy and improper use. 

(ii) Enforcement program required. A 

security-based swap execution facility 

shall establish a program for effective 

enforcement of its audit trail and 

recordkeeping requirements. An 

effective program shall identify 

members, persons, and firms subject to 

the security-based swap execution 

facility’s recordkeeping rules that have 

failed to maintain high levels of 

compliance with such requirements, 

and impose meaningful sanctions when 

deficiencies are found. Sanctions shall 

be sufficient to deter recidivist behavior. 

No more than one warning letter shall 

be issued to the same person or entity 

found to have committed the same 

violation of audit trail or recordkeeping 


jspears on DSK121TN23PROD with PROPOSALS2
28988 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

requirements within a rolling 12-month 

period. 

(g) Disciplinary procedures and 

sanctions. A security-based swap 

execution facility shall establish trading, 

trade processing, and participation rules 

that will deter abuses and have the 

capacity to enforce such rules through 

prompt and effective disciplinary 

action, including suspension or 

expulsion of members that violate the 

rules of the security-based swap 

execution facility. 

(1) Enforcement staff. (i) A securitybased swap execution facility shall 

establish and maintain sufficient 

enforcement staff and resources to 

effectively and promptly prosecute 

possible rule violations within the 

disciplinary jurisdiction of the securitybased swap execution facility. 

(ii) The enforcement staff of a 

security-based swap execution facility 

shall not include members or other 

persons whose interests conflict with 

their enforcement duties. 

(iii) A member of the enforcement 

staff shall not operate under the 

direction or control of any person or 

persons with trading privileges at the 

security-based swap execution facility. 

(iv) The enforcement staff of a 

security-based swap execution facility 

may operate as part of the securitybased swap execution facility’s 

compliance department. 

(2) Disciplinary panels. A securitybased swap execution facility shall 

establish one or more disciplinary 

panels that are authorized to fulfill their 

obligations under the rules of this 

section. Disciplinary panels shall meet 

the composition requirements of 

§ 242.834(d), and shall not include any 

members of the security-based swap 

execution facility’s compliance staff or 

any person involved in adjudicating any 

other stage of the same proceeding. 

(3) Notice of charges. If compliance 

staff authorized by a security-based 

swap execution facility or disciplinary 

panel thereof determines that a 

reasonable basis exists for finding a 

violation and adjudication is warranted, 

it shall direct that the person or entity 

alleged to have committed the violation 

be served with a notice of charges. A 

notice of charges shall adequately state 

the acts, conduct, or practices in which 

the respondent is alleged to have 

engaged; state the rule or rules alleged 

to have been violated (or about to be 

violated); advise the respondent that it 

is entitled, upon request, to a hearing on 

the charges; and prescribe the period 

within which a hearing on the charges 

may be requested. If the rules of the 

security-based swap execution facility 

so provide, a notice may also advise: 

(i) That failure to request a hearing 

within the period prescribed in the 

notice, except for good cause, may be 

deemed a waiver of the right to a 

hearing; and 

(ii) That failure to answer or to deny 

expressly a charge may be deemed to be 

an admission of such charge. 

(4) Right to representation. Upon 

being served with a notice of charges, a 

respondent shall have the right to be 

represented by legal counsel or any 

other representative of its choosing in 

all succeeding stages of the disciplinary 

process, except by any member of the 

security-based swap execution facility’s 

governing board or disciplinary panel, 

any employee of the security-based 

swap execution facility, or any person 

substantially related to the underlying 

investigations, such as a material 

witness or respondent. 

(5) Answer to charges. A respondent 

shall be given a reasonable period of 

time to file an answer to a notice of 

charges. The rules of a security-based 

swap execution facility governing the 

requirements and timeliness of a 

respondent’s answer to a notice of 

charges shall be fair, equitable, and 

publicly available. 

(6) Admission or failure to deny 

charges. The rules of a security-based 

swap execution facility may provide 

that, if a respondent admits or fails to 

deny any of the charges, a disciplinary 

panel may find that the violations 

alleged in the notice of charges for 

which the respondent admitted or failed 

to deny any of the charges have been 

committed. If the security-based swap 

execution facility’s rules so provide, 

then: 

(i) The disciplinary panel may impose 

a sanction for each violation found to 

have been committed; 

(ii) The disciplinary panel shall 

promptly notify the respondent in 

writing of any sanction to be imposed 

and shall advise the respondent that the 

respondent may request a hearing on 

such sanction within the period of time, 

which shall be stated in the notice; and 

(iii) The rules of a security-based 

swap execution facility may provide 

that, if a respondent fails to request a 

hearing within the period of time stated 

in the notice, the respondent will be 

deemed to have accepted the sanction. 

(7) Denial of charges and right to 

hearing. Where a respondent has 

requested a hearing on a charge that is 

denied, or on a sanction set by the 

disciplinary panel, the respondent shall 

be given an opportunity for a hearing in 

accordance with the rules of the 

security-based swap execution facility. 

(8) Settlement offers. (i) The rules of 

a security-based swap execution facility 

may permit a respondent to submit a 

written offer of settlement at any time 

after an investigation report is 

completed. The disciplinary panel 

presiding over the matter may accept 

the offer of settlement, but may not alter 

the terms of a settlement offer unless the 

respondent agrees. 

(ii) The rules of a security-based swap 

execution facility may provide that, in 

its discretion, a disciplinary panel may 

permit the respondent to accept a 

sanction without either admitting or 

denying the rule violations upon which 

the sanction is based. 

(iii) If an offer of settlement is 

accepted, the panel accepting the offer 

shall issue a written decision specifying 

the rule violations it has reason to 

believe were committed, including the 

basis or reasons for the panel’s 

conclusions, and any sanction to be 

imposed, which shall include full 

customer restitution where customer 

harm is demonstrated, except where the 

amount of restitution or to whom it 

should be provided cannot be 

reasonably determined. If an offer of 

settlement is accepted without the 

agreement of the enforcement staff, the 

decision shall adequately support the 

disciplinary panel’s acceptance of the 

settlement. Where applicable, the 

decision shall also include a statement 

that the respondent has accepted the 

sanctions imposed without either 

admitting or denying the rule violations. 

(iv) The respondent may withdraw its 

offer of settlement at any time before 

final acceptance by a disciplinary panel. 

If an offer is withdrawn after 

submission, or is rejected by a 

disciplinary panel, the respondent shall 

not be deemed to have made any 

admissions by reason of the offer of 

settlement and shall not be otherwise 

prejudiced by having submitted the 

offer of settlement. 

(9) Hearings. A security-based swap 

execution facility shall adopt rules that 

provide for the following minimum 

requirements for any hearing: 

(i) The hearing shall be fair, shall be 

conducted before members of the 

disciplinary panel, and shall be 

promptly convened after reasonable 

notice to the respondent. A securitybased swap execution facility need not 

apply the formal rules of evidence for a 

hearing; nevertheless, the procedures for 

the hearing may not be so informal as 

to deny a fair hearing; 

(ii) No member of the disciplinary 

panel for the hearing may have a 

financial, personal, or other direct 

interest in the matter under 

consideration; 

(iii) In advance of the hearing, the 

respondent shall be entitled to examine 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28989 

all books, documents, or other evidence 

in the possession or under the control 

of the security-based swap execution 

facility. The security-based swap 

execution facility may withhold 

documents that are privileged or 

constitute attorney work product; were 

prepared by an employee of the 

security-based swap execution facility 

but will not be offered in evidence in 

the disciplinary proceedings; may 

disclose a technique or guideline used 

in examinations, investigations, or 

enforcement proceedings; or disclose 

the identity of a confidential source; 

(iv) The security-based swap 

execution facility’s enforcement and 

compliance staffs shall be parties to the 

hearing, and the enforcement staff shall 

present their case on those charges and 

sanctions that are the subject of the 

hearing; 

(v) The respondent shall be entitled to 

appear personally at the hearing, to 

cross-examine any persons appearing as 

witnesses at the hearing, to call 

witnesses, and to present such evidence 

as may be relevant to the charges; 

(vi) The security-based swap 

execution facility shall require persons 

within its jurisdiction who are called as 

witnesses to participate in the hearing 

and produce evidence. The securitybased swap execution facility shall 

make reasonable efforts to secure the 

presence of all other persons called as 

witnesses whose testimony would be 

relevant. The rules of a security-based 

swap execution facility may provide 

that a sanction may be summarily 

imposed upon any person within its 

jurisdiction whose actions impede the 

progress of a hearing; and 

(vii) If the respondent has requested a 

hearing, a copy of the hearing shall be 

made and shall become a part of the 

record of the proceeding. The record 

shall not be required to be transcribed 

unless: 

(A) The transcript is requested by 

Commission staff or the respondent; 

(B) The decision is appealed pursuant 

to the rules of the security-based swap 

execution facility; or 

(C) The decision is reviewed by the 

Commission pursuant to § 201.442 of 

this chapter. In all other instances, a 

summary record of a hearing is 

permitted. 

(10) Decisions. Promptly following a 

hearing conducted in accordance with 

the rules of the security-based swap 

execution facility, the disciplinary panel 

shall render a written decision based 

upon the weight of the evidence 

contained in the record of the 

proceeding and shall provide a copy to 

the respondent. The decision shall 

include: 

(i) The notice of charges or a summary 

of the charges; 

(ii) The answer, if any, or a summary 

of the answer; 

(iii) A summary of the evidence 

produced at the hearing or, where 

appropriate, incorporation by reference 

of the investigation report; 

(iv) A statement of findings and 

conclusions with respect to each charge 

and a complete explanation of the 

evidentiary and other basis for such 

findings and conclusions with respect to 

each charge; 

(v) An indication of each specific rule 

that the respondent was found to have 

violated; and 

(vi) A declaration of all sanctions 

imposed against the respondent, 

including the basis for such sanctions 

and the effective date of such sanctions. 

(11) Emergency disciplinary actions. 

(i) A security-based swap execution 

facility may impose a sanction, 

including suspension, or take other 

summary action against a person or 

entity subject to its jurisdiction upon a 

reasonable belief that such immediate 

action is necessary to protect the best 

interest of the market place. 

(ii) Any emergency disciplinary 

action shall be taken in accordance with 

a security-based swap execution 

facility’s procedures that provide for the 

following: 

(A) If practicable, a respondent should 

be served with a notice before the action 

is taken, or otherwise at the earliest 

possible opportunity. The notice shall 

state the action, briefly state the reasons 

for the action, and state the effective 

time and date, and the duration of the 

action. 

(B) The respondent shall have the 

right to be represented by legal counsel 

or any other representative of its 

choosing in all proceedings subsequent 

to the emergency action taken. The 

respondent shall be given the 

opportunity for a hearing as soon as 

reasonably practicable and the hearing 

shall be conducted before the 

disciplinary panel pursuant to the rules 

of the security-based swap execution 

facility. 

(C) Promptly following the hearing, 

the security-based swap execution 

facility shall render a written decision 

based upon the weight of the evidence 

contained in the record of the 

proceeding and shall provide a copy to 

the respondent. The decision shall 

include a description of the summary 

action taken; the reasons for the 

summary action; a summary of the 

evidence produced at the hearing; a 

statement of findings and conclusions; a 

determination that the summary action 

should be affirmed, modified, or 

reversed; and a declaration of any action 

to be taken pursuant to the 

determination, and the effective date 

and duration of such action. 

(12) Right to appeal. The rules of a 

security-based swap execution facility 

may permit the parties to a proceeding 

to appeal promptly an adverse decision 

of a disciplinary panel in all or in 

certain classes of cases. Such rules may 

require a party’s notice of appeal to be 

in writing and to specify the findings, 

conclusions, or sanctions to which 

objection are taken. If the rules of a 

security-based swap execution facility 

permit appeals, then both the 

respondent and the enforcement staff 

shall have the opportunity to appeal 

and: 

(i) The security-based swap execution 

facility shall establish an appellate 

panel that is authorized to hear appeals. 

The rules of the security-based swap 

execution facility may provide that the 

appellate panel may, on its own 

initiative, order review of a decision by 

a disciplinary panel within a reasonable 

period of time after the decision has 

been rendered; 

(ii) The composition of the appellate 

panel shall be consistent with 

§ 242.834(d) and shall not include any 

members of the security-based swap 

execution facility’s compliance staff or 

any person involved in adjudicating any 

other stage of the same proceeding. The 

rules of a security-based swap execution 

facility shall provide for the appeal 

proceeding to be conducted before all of 

the members of the appellate panel or a 

panel thereof; 

(iii) Except for good cause shown, the 

appeal or review shall be conducted 

solely on the record before the 

disciplinary panel, the written 

exceptions filed by the parties, and the 

oral or written arguments of the parties; 

and 

(iv) Promptly following the appeal or 

review proceeding, the appellate panel 

shall issue a written decision and shall 

provide a copy to the respondent. The 

decision issued by the appellate panel 

shall adhere to all the requirements of 

paragraph (g)(10) of this section to the 

extent that a different conclusion is 

reached from that issued by the 

disciplinary panel. 

(13) Disciplinary sanctions—(i) In 

general. All disciplinary sanctions 

imposed by a security-based swap 

execution facility or its disciplinary 

panels shall be commensurate with the 

violations committed and shall be 

clearly sufficient to deter recidivism or 

similar violations by other members. All 

disciplinary sanctions, including 

sanctions imposed pursuant to an 

accepted settlement offer, shall take into 


jspears on DSK121TN23PROD with PROPOSALS2
28990 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

account the respondent’s disciplinary 

history. In the event of demonstrated 

customer harm, any disciplinary 

sanction shall also include full customer 

restitution, except where the amount of 

restitution or to whom it should be 

provided cannot be reasonably 

determined. 

(ii) Summary fines for violations of 

rules regarding timely submission of 

records. A security-based swap 

execution facility may adopt a summary 

fine schedule for violations of rules 

relating to the failure to timely submit 

accurate records required for clearing or 

verifying each day’s transactions. A 

security-based swap execution facility 

may permit its compliance staff, or a 

designated panel of security-based swap 

execution facility officials, to summarily 

impose minor sanctions against persons 

within the security-based swap 

execution facility’s jurisdiction for 

violating such rules. A security-based 

swap execution facility’s summary fine 

schedule may allow for warning letters 

to be issued for first-time violations or 

violators. If adopted, a summary fine 

schedule shall provide for progressively 

larger fines for recurring violations. 

(h) Activities of security-based swap 

execution facility’s employees, 

governing board members, committee 

members, and consultants—(1) 

Definitions. The following definitions 

shall apply only in this paragraph (h) of 

this section: 

(i) Covered interest, with respect to a 

security-based swap execution facility, 

means: 

(A) A security-based swap that trades 

on the security-based swap execution 

facility; 

(B) A security of an issuer that has 

issued a security that underlies a 

security-based swap that is listed on 

that facility; or 

(C) A derivative based on a security 

that falls within paragraph (h)(1)(i)(B) of 

this section. 

(ii) Pooled investment vehicle means 

an investment company registered 

under the Investment Company Act of 

1940 in which no covered interest 

constitutes more than ten percent of the 

investment company’s assets. 

(2) Required rules. A security-based 

swap execution facility must maintain 

in effect rules which have been 

submitted to the Commission pursuant 

to § 242.806 or 242.807 that, at a 

minimum, prohibit an employee of the 

security-based swap execution facility 

from: 

(i) Trading, directly or indirectly, any 

covered interest; and 

(ii) Disclosing to any other person any 

material, non-public information which 

such employee obtains as a result of 

their employment at the security-based 

swap execution facility, where such 

employee has or should have a 

reasonable expectation that the 

information disclosed may assist 

another person in trading any covered 

interest; provided, however, that such 

rules shall not prohibit disclosures 

made in the course of an employee’s 

duties, or disclosures made to another 

security-based swap execution facility, 

court of competent jurisdiction, or 

representative of any agency or 

department of the Federal or State 

government acting in their official 

capacity. 

(3) Possible exemptions. A securitybased swap execution facility may adopt 

rules, which must be submitted to the 

Commission pursuant to § 242.806 or 

§ 242.807, which set forth circumstances 

under which exemptions from the 

trading prohibition contained in 

paragraph (h)(2)(i) of this section may be 

granted; such exemptions are to be 

administered by the security-based 

swap execution facility on a case-bycase basis. Specifically, such 

circumstances may include: 

(i) Participation by an employee in a 

pooled investment vehicle where the 

employee has no direct or indirect 

control with respect to transactions 

executed for or on behalf of such 

vehicle; 

(ii) Trading by an employee in a 

derivative based on a pooled investment 

vehicle that falls within paragraph 

(h)(3)(i) of this section; 

(iii) Trading by an employee in a 

derivative based on an index in which 

no covered interest constitutes more 

than ten percent of the index; and 

(iv) Trading by an employee under 

circumstances enumerated by the 

security-based swap execution facility 

in rules which the security-based swap 

execution facility determines are not 

contrary to applicable law, the public 

interest, or just and equitable principles 

of trade. 

(4) Prohibited conduct. (i) No 

employee, governing board member, 

committee member, or consultant of a 

security-based swap execution facility 

shall: 

(A) Trade for such person’s own 

account, or for or on behalf of any other 

account, in any covered interest on the 

basis of any material, non-public 

information obtained through special 

access related to the performance of 

such person’s official duties as an 

employee, governing board member, 

committee member, or consultant; or 

(B) Disclose for any purpose 

inconsistent with the performance of 

such person’s official duties as an 

employee, governing board member, 

committee member, or consultant any 

material, non-public information 

obtained through special access related 

to the performance of such duties. 

(ii) No person shall trade for such 

person’s own account, or for or on 

behalf of any other account, in any 

covered interest on the basis of any 

material, non-public information that 

such person knows was obtained in 

violation of this paragraph (h)(4) from 

an employee, governing board member, 

committee member, or consultant. 

(i) Service on security-based swap 

execution facility governing boards or 

committees by persons with disciplinary 

histories. (1) A security-based swap 

execution facility shall maintain in 

effect rules which have been submitted 

to the Commission pursuant to 

§ 242.806 or § 242.807 that render a 

person ineligible to serve on its 

disciplinary committees, arbitration 

panels, oversight panels, or governing 

board who: 

(i) Was found within the prior three 

years by a final decision of a securitybased swap execution facility, a selfregulatory organization, an 

administrative law judge, a court of 

competent jurisdiction, or the 

Commission to have committed a 

disciplinary offense; 

(ii) Entered into a settlement 

agreement with a security-based swap 

execution facility, a court of competent 

jurisdiction, or the Commission within 

the prior three years in which any of the 

findings or, in the absence of such 

findings, any of the acts charged 

included a disciplinary offense; 

(iii) Currently is suspended from 

trading on any security-based swap 

execution facility, is suspended or 

expelled from membership with a selfregulatory organization, is serving any 

sentence of probation, or owes any 

portion of a fine imposed pursuant to: 

(A) A finding by a final decision of a 

security-based swap execution facility, a 

self-regulatory organization, an 

administrative law judge, a court of 

competent jurisdiction, or the 

Commission that such person 

committed a disciplinary offense; or 

(B) A settlement agreement with a 

security-based swap execution facility, a 

court of competent jurisdiction, or the 

Commission in which any of the 

findings or, in the absence of such 

findings, any of the acts charged 

included a disciplinary offense; 

(iv) Currently is subject to an 

agreement with the Commission, a 

security-based swap execution facility, 

or a self-regulatory organization not to 

apply for registration with the 

Commission or membership in any selfregulatory organization; 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28991 

(v) Currently is subject to or has had 

imposed on him or her within the prior 

three years a Commission registration 

revocation or suspension in any 

capacity for any reason, or has been 

convicted within the prior three years of 

any felony; or 

(vi) Currently is subject to a denial, 

suspension, or disqualification from 

serving on a disciplinary committee, 

arbitration panel, or governing board of 

any security-based swap execution 

facility or self-regulatory organization. 

(2) No person may serve on a 

disciplinary committee, arbitration 

panel, oversight panel or governing 

board of a security-based swap 

execution facility if such person is 

subject to any of the conditions listed in 

paragraphs (i)(1)(i) through (vi) of this 

section. 

(3) A security-based swap execution 

facility shall submit to the Commission 

a schedule listing all those rule 

violations which constitute disciplinary 

offenses and, to the extent necessary to 

reflect revisions, shall submit an 

amended schedule within 30 days of the 

end of each calendar year. A securitybased swap execution facility shall 

maintain and keep current the schedule 

required by this section, and post the 

schedule on the security-based swap 

execution facility’s website so that it is 

in a public place designed to provide 

notice to members and otherwise ensure 

its availability to the general public. 

(4) A security-based swap execution 

facility shall submit to the Commission 

within 30 days of the end of each 

calendar year a certified list of any 

persons who have been removed from 

its disciplinary committees, arbitration 

panels, oversight panels, or governing 

board pursuant to the requirements of 

this section during the prior year. 

(5) Whenever a security-based swap 

execution facility finds by final decision 

that a person has committed a 

disciplinary offense and such finding 

makes such person ineligible to serve on 

that security-based swap execution 

facility’s disciplinary committees, 

arbitration panels, oversight panels, or 

governing board, the security-based 

swap execution facility shall inform the 

Commission of that finding and the 

length of the ineligibility in a form and 

manner specified by the Commission. 

(6) For purposes of this paragraph: 

(i) Arbitration panel means any 

person or panel empowered by a 

security-based swap execution facility 

to arbitrate disputes involving the 

security-based swap execution facility’s 

members or their customers. 

(ii) Disciplinary offense means: 

(A) Any violation of the rules of a 

security-based swap execution facility, 

except a violation resulting in fines 

aggregating to less than $5000 within a 

calendar year involving: 

(1) Decorum or attire; 

(2) Financial requirements; or 

(3) Reporting or recordkeeping; 

(B) Any rule violation which involves 

fraud, deceit, or conversion or results in 

a suspension or expulsion; 

(C) Any violation of the Act or the 

Commission’s rules thereunder; or 

(D) Any failure to exercise 

supervisory responsibility when such 

failure is itself a violation of either the 

rules of the security-based swap 

execution facility, the Act, or the 

Commission’s rules thereunder. 

(E) A disciplinary offense must arise 

out of a proceeding or action which is 

brought by a security-based swap 

execution facility, the Commission, any 

Federal or State agency, or other 

governmental body. 

(iii) Final decision means: 

(A) A decision of a security-based 

swap execution facility which cannot be 

further appealed within the securitybased swap execution facility, is not 

subject to the stay of the Commission or 

a court of competent jurisdiction, and 

has not been reversed by the 

Commission or any court of competent 

jurisdiction; or 

(B) Any decision by an administrative 

law judge, a court of competent 

jurisdiction, or the Commission which 

has not been stayed or reversed. 

(j) Notification of final disciplinary 

action involving financial harm to a 

customer. (1) Upon any final 

disciplinary action in which a securitybased swap execution facility finds that 

a member has committed a rule 

violation that involved a transaction for 

a customer, whether executed or not, 

and that resulted in financial harm to 

the customer: 

(i) The security-based swap execution 

facility shall promptly provide written 

notice of the disciplinary action to the 

member; and 

(ii) The security-based swap 

execution facility shall have established 

a rule pursuant to § 242.806 or 242.807 

that requires a member that receives 

such a notice to promptly provide 

written notice of the disciplinary action 

to the customer, as disclosed on the 

member’s books and records. 

(2) A written notice required by 

paragraph (j)(1) of this section must 

include the principal facts of the 

disciplinary action and a statement that 

the security-based swap execution 

facility has found that the member has 

committed a rule violation that involved 

a transaction for the customer, whether 

executed or not, and that resulted in 

financial harm to the customer. 

(3) Solely for purposes of this 

paragraph (j): 

(i) Customer means a person that 

utilizes an agent in connection with 

trading on a security-based swap 

execution facility. 

(ii) Final disciplinary action means 

any decision by or settlement with a 

security-based swap execution facility 

in a disciplinary matter which cannot be 

further appealed at the security-based 

swap execution facility, is not subject to 

the stay of the Commission or a court of 

competent jurisdiction, and has not 

been reversed by the Commission or any 

court of competent jurisdiction. 

(k) Designation of agent for non-U.S. 

member. (1) A security-based swap 

execution facility that admits a non-U.S. 

person as a member shall be deemed to 

be the agent of the non-U.S. member 

with respect to any security-based 

swaps executed by the non-U.S. 

member. Service or delivery of any 

communication issued by or on behalf 

of the Commission to the security-based 

swap execution facility shall constitute 

valid and effective service upon the 

non-U.S. member. The security-based 

swap execution facility which has been 

served with, or to which there has been 

delivered, a communication issued by 

or on behalf of the Commission to a 

non-U.S. member shall transmit the 

communication promptly and in a 

manner which is reasonable under the 

circumstances, or in a manner specified 

by the Commission in the 

communication, to the non-U.S. 

member. 

(2) It shall be unlawful for a securitybased swap execution facility to permit 

a non-U.S. member to execute securitybased swaps on the facility unless the 

security-based swap execution facility 

prior thereto informs the non-U.S. 

member in writing of the requirements 

of this section. 

(3) The requirements of paragraphs 

(k)(1) and (2) of this section shall not 

apply if the non-U.S. member has duly 

executed and maintains in effect a 

written agency agreement in compliance 

with this paragraph with a person 

domiciled in the United States and has 

provided a copy of the agreement to the 

security-based swap execution facility 

prior to effecting any transaction on the 

security-based swap execution facility. 

This agreement must authorize the 

person domiciled in the United States to 

serve as the agent of the non-U.S. 

member for purposes of accepting 

delivery and service of all 

communications issued by or on behalf 

of the Commission to the non-U.S. 

member and must provide an address in 

the United States where the agent will 

accept delivery and service of 


jspears on DSK121TN23PROD with PROPOSALS2
28992 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

communications from the Commission. 

This agreement must be filed with the 

Commission by the security-based swap 

execution facility prior to permitting the 

non-U.S. member to effect any 

transactions in security-based swaps. 

Such agreements shall be filed in a 

manner specified by the Commission. 

(4) A non-U.S. member shall notify 

the Commission immediately if the 

written agency agreement is terminated, 

revoked, or is otherwise no longer in 

effect. If the security-based swap 

execution facility knows or should 

know that the agreement has expired, 

been terminated, or is no longer in 

effect, the security-based swap 

execution facility shall notify the 

Commission immediately. 

§ 242.820 Core Principle 3—Securitybased swaps not readily susceptible to 

manipulation. 

The security-based swap execution 

facility shall permit trading only in 

security-based swaps that are not 

readily susceptible to manipulation. 

§ 242.821 Core Principle 4—Monitoring of 

trading and trade processing. 

(a) General. The security-based swap 

execution facility shall: 

(1) Establish and enforce rules or 

terms and conditions defining, or 

specifications detailing: 

(i) Trading procedures to be used in 

entering and executing orders traded on 

or through the facilities of the securitybased swap execution facility; and 

(ii) Procedures for trade processing of 

security-based swaps on or through the 

facilities of the security-based swap 

execution facility; and 

(2) Monitor trading in security-based 

swaps to prevent manipulation, price 

distortion, and disruptions of the 

delivery or cash settlement process 

through surveillance, compliance, and 

disciplinary practices and procedures, 

including methods for conducting realtime monitoring of trading and 

comprehensive and accurate trade 

reconstructions. 

(b) Market oversight obligations. A 

security-based swap execution facility 

shall: 

(1) Collect and evaluate data on its 

members’ market activity on an ongoing 

basis in order to detect and prevent 

manipulation, price distortions, and, 

where possible, disruptions of the 

physical-delivery or cash-settlement 

process; 

(2) Monitor and evaluate general 

market data in order to detect and 

prevent manipulative activity that 

would result in the failure of the market 

price to reflect the normal forces of 

supply and demand; 

(3) Demonstrate an effective program 

for conducting real-time monitoring of 

trading for the purpose of detecting and 

resolving abnormalities. A securitybased swap execution facility shall 

employ automated alerts to detect 

abnormal price movements and unusual 

trading volumes in real time and 

instances or threats of manipulation, 

price distortion, and disruptions on at 

least a T+1 basis. The T+1 detection and 

analysis should incorporate any 

additional data that becomes available 

on a T+1 basis, including the trade 

reconstruction data; 

(4) Demonstrate the ability to 

comprehensively and accurately 

reconstruct daily trading activity for the 

purpose of detecting instances or threats 

of manipulation, price distortion, and 

disruptions; and 

(5) Have rules in place that allow it to 

intervene to prevent or reduce market 

disruptions. Once a threatened or actual 

disruption is detected, the securitybased swap execution facility shall take 

steps to prevent the market disruption 

or reduce its severity. 

(c) Monitoring of physical-delivery 

security-based swaps. For physicaldelivery security-based swaps, the 

security-based swap execution facility 

shall demonstrate that it: 

(1) Monitors a security-based swap’s 

terms and conditions as they relate to 

the underlying asset market; and 

(2) Monitors the availability of the 

supply of the asset specified by the 

delivery requirements of the securitybased swap. 

(d) Additional requirements for cashsettled security-based swaps. (1) For 

cash-settled security-based swaps, the 

security-based swap execution facility 

shall demonstrate that it monitors the 

pricing of the reference price used to 

determine cash flows or settlement. 

(2) For cash-settled security-based 

swaps listed on the security-based swap 

execution facility where the reference 

price is formulated and computed by 

the security-based swap execution 

facility, the security-based swap 

execution facility shall demonstrate that 

it monitors the continued 

appropriateness of its methodology for 

deriving that price and shall promptly 

amend any methodologies that result, or 

are likely to result, in manipulation, 

price distortions, or market disruptions, 

or impose new methodologies to resolve 

the threat of disruptions or distortions. 

(3) For cash-settled security-based 

swaps listed on the security-based swap 

execution facility where the reference 

price relies on a third-party index or 

instrument, including an index or 

instrument traded on another venue, the 

security-based swap execution facility 

shall demonstrate that it monitors for 

pricing abnormalities in the index or 

instrument used to calculate the 

reference price and shall conduct due 

diligence to ensure that the reference 

price is not susceptible to manipulation. 

(e) Ability to obtain information. (1) A 

security-based swap execution facility 

shall demonstrate that it has access to 

sufficient information to assess whether 

trading in security-based swaps listed 

on its market, in the index or instrument 

used as a reference price, or in the 

underlying asset for its listed securitybased swaps is being used to affect 

prices on its market. The security-based 

swap execution facility shall 

demonstrate that it can obtain position 

and trading information directly from 

members that conduct substantial 

trading on its facility or through an 

information-sharing agreement with 

other venues or a third-party regulatory 

service provider. If the position and 

trading information is not available 

directly from its members but is 

available through information-sharing 

agreements with other trading venues or 

a third-party regulatory service 

provider, the security-based swap 

execution facility should cooperate in 

such information-sharing agreements. 

(2) A security-based swap execution 

facility shall have rules that require its 

members to keep records of their 

trading, including records of their 

activity in the underlying asset, and 

related derivatives markets, and make 

such records available, upon request, to 

the security-based swap execution 

facility or, if applicable, to its regulatory 

service provider and the Commission. 

The security-based swap execution 

facility may limit the application of this 

requirement to only those members that 

conduct substantial trading on its 

facility. 

(f) Risk controls for trading. A 

security-based swap execution facility 

shall establish and maintain risk control 

mechanisms to prevent and reduce the 

potential risk of market disruptions, 

including, but not limited to, market 

restrictions that pause or halt trading 

under market conditions prescribed by 

the security-based swap execution 

facility. Such risk control mechanisms 

shall be designed to avoid market 

disruptions without unduly interfering 

with that market’s price discovery 

function. The security-based swap 

execution facility may choose from 

among controls that include: Pre-trade 

limits on order size, price collars or 

bands around the current price, message 

throttles, daily price limits, and intraday 

position limits related to financial risk 

to the clearing member, or design other 

types of controls, as well as clear errorVerDate Sep<11>2014 17:30 May 10, 2022 Jkt 256001 PO 00000 Frm 00122 Fmt 4701 Sfmt 4702 E:\FR\FM\11MYP2.SGM 11MYP2

jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28993 

trade and order-cancellation policies. 

Within the specific array of controls that 

are selected, the security-based swap 

execution facility shall set the 

parameters for those controls, so that the 

specific parameters are reasonably likely 

to serve the purpose of preventing 

market disruptions and price 

distortions. 

(g) Trade reconstruction. A securitybased swap execution facility shall have 

the ability to comprehensively and 

accurately reconstruct all trading on its 

facility. All audit-trail data and 

reconstructions shall be made available 

to the Commission in a form, manner, 

and time that is acceptable to the 

Commission. 

(h) Regulatory service provider. A 

security-based swap execution facility 

shall comply with the rules in this 

section through a dedicated regulatory 

department or by contracting with a 

regulatory service provider pursuant to 

§ 242.819(e). 

§ 242.822 Core Principle 5—Ability to 

obtain information. 

(a) General. The security-based swap 

execution facility shall: 

(1) Establish and enforce rules that 

will allow the facility to obtain any 

necessary information to perform any of 

the functions described in section 3D of 

the Act; 

(2) Provide the information to the 

Commission on request; and 

(3) Have the capacity to carry out such 

international information-sharing 

agreements as the Commission may 

require. 

(b) Establish and enforce rules. A 

security-based swap execution facility 

shall establish and enforce rules that 

will allow the security-based swap 

execution facility to have the ability and 

authority to obtain sufficient 

information to allow it to fully perform 

its operational, risk management, 

governance, and regulatory functions 

and any requirements under this 

section, including the capacity to carry 

out international information-sharing 

agreements as the Commission may 

require. 

(c) Collection of information. A 

security-based swap execution facility 

shall have rules that allow it to collect 

information on a routine basis, allow for 

the collection of non-routine data from 

its members, and allow for its 

examination of books and records kept 

by members on its facility. 

(d) Provide information to the 

Commission. A security-based swap 

execution facility shall provide 

information in its possession to the 

Commission upon request, in a form 

and manner specified by the 

Commission. 

(e) Information-sharing agreements. A 

security-based swap execution facility 

shall share information with other 

regulatory organizations, data 

repositories, and third-party data 

reporting services as required by the 

Commission or as otherwise necessary 

and appropriate to fulfill its regulatory 

and reporting responsibilities. 

Appropriate information-sharing 

agreements can be established with such 

entities, or the Commission can act in 

conjunction with the security-based 

swap execution facility to carry out such 

information sharing. 

§ 242.823 Core Principle 6—Financial 

integrity of transactions. 

(a) General. The security-based swap 

execution facility shall establish and 

enforce rules and procedures for 

ensuring the financial integrity of 

security-based swaps entered on or 

through the facilities of the securitybased swap execution facility, including 

the clearance and settlement of securitybased swaps pursuant to section 

3C(a)(1) of the Act. 

(b) Required clearing. Transactions 

executed on or through the securitybased swap execution facility that are 

required to be cleared under section 

3C(a)(1) of the Act or are voluntarily 

cleared by the counterparties shall be 

cleared through a registered clearing 

agency or a clearing agency that has 

obtained an exemption from clearing 

agency registration to provide central 

counterparty services for security based 

swaps. 

(c) General financial integrity. A 

security-based swap execution facility 

shall provide for the financial integrity 

of its transactions: 

(1) By establishing minimum financial 

standards for its members, which shall, 

at a minimum, require that each 

member qualify as an eligible contract 

participant; 

(2) For transactions cleared by a 

registered clearing agency: 

(i) By ensuring that the security-based 

swap execution facility has the capacity 

to route transactions to the registered 

clearing agency in a manner acceptable 

to the clearing agency for purposes of 

clearing; and 

(ii) By coordinating with each 

registered clearing agency to which it 

submits transactions for clearing, in the 

development of rules and procedures to 

facilitate prompt and efficient 

transaction processing. 

(d) Monitoring for financial 

soundness. A security-based swap 

execution facility shall monitor its 

members to ensure that they continue to 

qualify as eligible contract participants. 

§ 242.824 Core Principle 7—Emergency 

authority. 

(a) The security-based swap execution 

facility shall adopt rules to provide for 

the exercise of emergency authority, in 

consultation or cooperation with the 

Commission, as is necessary and 

appropriate, including the authority to 

liquidate or transfer open positions in 

any security-based swap or to suspend 

or curtail trading in a security-based 

swap. 

(b) To comply with this core 

principle, a security-based swap 

execution facility shall adopt rules that 

are reasonably designed to: 

(1) Allow the security-based swap 

execution facility to intervene as 

necessary to maintain markets with fair 

and orderly trading and to prevent or 

address manipulation or disruptive 

trading practices, whether the need for 

intervention arises exclusively from the 

security-based swap execution facility’s 

market or as part of a coordinated, crossmarket intervention; 

(2) Have the flexibility and 

independence to address market 

emergencies in an effective and timely 

manner consistent with the nature of the 

emergency, as long as all such actions 

taken by the security-based swap 

execution facility are made in good faith 

to protect the integrity of the markets; 

(3) Take market actions as may be 

directed by the Commission, including, 

in situations where a security-based 

swap is traded on more than one 

platform, emergency action to liquidate 

or transfer open interest as directed, or 

agreed to, by the Commission or the 

Commission’s staff. 

(4) Include procedures and guidelines 

for decision-making and 

implementation of emergency 

intervention that avoid conflicts of 

interest; 

(5) Include alternate lines of 

communication and approval 

procedures to address emergencies 

associated with real-time events; 

(6) Allow the security-based swap 

execution facility, to address perceived 

market threats, to impose or modify 

position limits, impose or modify price 

limits, impose or modify intraday 

market restrictions, impose special 

margin requirements, order the 

liquidation or transfer of open positions 

in any contract, order the fixing of a 

settlement price, extend or shorten the 

expiration date or the trading hours, 

suspend or curtail trading in any 

contract, transfer customer contracts 

and the margin, or alter any contract’s 

settlement terms or conditions, or, if 


jspears on DSK121TN23PROD with PROPOSALS2
28994 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

applicable, provide for the carrying out 

of such actions through its agreements 

with its third-party provider of clearing 

or regulatory services. 

(c) A security-based swap execution 

facility shall promptly notify the 

Commission of its exercise of emergency 

action, explaining its decision-making 

process, the reasons for using its 

emergency authority, and how conflicts 

of interest were minimized, including 

the extent to which the security-based 

swap execution facility considered the 

effect of its emergency action on the 

underlying markets and on markets that 

are linked or referenced to the contracts 

traded on its facility, including similar 

markets on other trading venues. 

Information on all regulatory actions 

carried out pursuant to a security-based 

swap execution facility’s emergency 

authority shall be included in a timely 

submission of a certified rule pursuant 

to § 242.807. 

§ 242.825 Core Principle 8—Timely 

publication of trading information. 

(a)(1) The security-based swap 

execution facility shall make public 

timely information on price, trading 

volume, and other trading data on 

security-based swaps to the extent 

prescribed by the Commission. 

(2) The security-based swap execution 

facility shall be required to have the 

capacity to electronically capture and 

transmit and disseminate trade 

information with respect to transactions 

executed on or through the facility. 

(b) A security-based swap execution 

facility shall report security-based swap 

transaction data as required by 

Regulation SBSR. 

(c) A security-based swap execution 

facility shall make available a ‘‘Daily 

Market Data Report’’ containing the 

information required in paragraphs 

(c)(1) and (2) of this section in a manner 

and timeframe required by this section. 

(1) Contents. The Daily Market Data 

Report of a security-based swap 

execution facility for a business day 

shall contain the following information 

for each tenor of each security-based 

swap traded on that security-based swap 

execution facility during that business 

day: 

(i) The trade count (including block 

trades but excluding error trades, 

correcting trades, and offsetting trades); 

(ii) The total notional amount traded 

(including block trades but excluding 

error trades, correcting trades, and 

offsetting trades); 

(iii) The number of block trades; 

(iv) The total notional amount of 

block trades; 

(v) The opening and closing price; 

(vi) The price that is used for 

settlement purposes, if different from 

the closing price; and 

(vii) The lowest price of a sale or 

offer, whichever is lower, and the 

highest price of a sale or bid, whichever 

is higher, that the security-based swap 

execution facility reasonably determines 

accurately reflects market conditions. 

Bids and offers vacated or withdrawn 

shall not be used in making this 

determination. A bid is vacated if 

followed by a higher bid or price and an 

offer is vacated if followed by a lower 

offer or price. 

(2) Additional information. A 

security-based swap execution facility 

must record the following information 

with respect to security-based swaps on 

that reporting market: 

(i) The method used by the securitybased swap execution facility in 

determining nominal prices and 

settlement prices; and 

(ii) If discretion is used by the 

security-based swap execution facility 

in determining the opening and/or 

closing ranges or the settlement prices, 

an explanation that certain discretion 

may be employed by the security-based 

swap execution facility and a 

description of the manner in which that 

discretion may be employed. 

Discretionary authority must be noted 

explicitly in each case in which it is 

applied (for example, by use of an 

asterisk or footnote). 

(3) Form of publication. A securitybased swap execution facility shall 

publicly post the Daily Market Data 

Report on its website: 

(i) In a downloadable and machinereadable format using the most recent 

versions of the associated XML schema 

and PDF renderer as published on the 

Commission’s website; 

(ii) Without fees or other charges; 

(iii) Without any encumbrances on 

access or usage restrictions; and 

(iv) Without requiring a user to agree 

to any terms before being allowed to 

view or download the Daily Market Data 

Report, such as by waiving any 

requirements of this paragraph (c)(3). 

Any such waiver agreed to by a user 

shall be null and void. 

(4) Timing of publication. A securitybased swap execution facility shall 

publish the Daily Market Data Report on 

its website no later than the securitybased swap execution facility’s 

commencement of trading on the next 

business day after the day to which the 

information pertains. 

(5) Duration. A security-based swap 

execution facility shall keep each Daily 

Market Data Report available on its 

website in the same location as all other 

Daily Market Data Reports for no less 

than one year after the date of first 

publication. 

§ 242.826 Core Principle 9— 

Recordkeeping and reporting. 

(a) In general. (1) A security-based 

swap execution facility shall: 

(i) Maintain records of all activities 

relating to the business of the facility, 

including a complete audit trail, in a 

form and manner acceptable to the 

Commission for a period of five years; 

and 

(ii) Report to the Commission, in a 

form and manner acceptable to the 

Commission, such information as the 

Commission determines to be necessary 

or appropriate for the Commission to 

perform the duties of the Commission 

under the Act. 

(2) The Commission shall adopt data 

collection and reporting requirements 

for security-based swap execution 

facilities that are comparable to 

corresponding requirements for clearing 

agencies and security-based swap data 

repositories. 

(b) Required records. A security-based 

swap execution facility shall keep full, 

complete, and systematic records, 

together with all pertinent data and 

memoranda, of all activities relating to 

its business with respect to securitybased swaps. Such records shall 

include, without limitation, the audit 

trail information required under 

§ 242.819(f) and all other records that a 

security-based swap execution facility is 

required to create or obtain under 

Regulation SE. 

(c) Duration of retention. (1) A 

security-based swap execution facility 

shall keep records of any security-based 

swap from the date of execution until 

the termination, maturity, expiration, 

transfer, assignment, or novation date of 

the transaction, and for a period of not 

less than five years, the first two years 

in an easily accessible place, after such 

date. 

(2) A security-based swap execution 

facility shall keep each record other 

than the records described in paragraph 

(c)(1) of this section for a period of not 

less than five years, the first two years 

in an easily accessible place, from the 

date on which the record was created. 

(d) Record retention—(1) A securitybased swap execution facility shall 

retain all records in a form and manner 

that ensures the authenticity and 

reliability of such records in accordance 

with the Act and the Commission’s 

rules thereunder. 

(2) A security-based swap execution 

facility shall, upon request of any 

representative of the Commission, 

promptly furnish to the representative 

legible, true, complete, and current 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28995 

copies of any records required to be kept 

and preserved pursuant to this section. 

(3) (i) An electronic record shall be 

retained in a form and manner that 

allows for prompt production at the 

request of any representative of the 

Commission. 

(ii) A security-based swap execution 

facility maintaining electronic records 

shall establish appropriate systems and 

controls that ensure the authenticity and 

reliability of electronic records, 

including, without limitation: 

(A) Systems that maintain the 

security, signature, and data as 

necessary to ensure the authenticity of 

the information contained in electronic 

records and to monitor compliance with 

the Act and the Commission’s rules 

thereunder; 

(B) Systems that ensure that the 

security-based swap execution facility is 

able to produce electronic records in 

accordance with this section, and 

ensure the availability of such electronic 

records in the event of an emergency or 

other disruption of the security-based 

swap execution facility’s electronic 

record retention systems; and 

(C) The creation and maintenance of 

an up-to-date inventory that identifies 

and describes each system that 

maintains information necessary for 

accessing or producing electronic 

records. 

(e) Record examination. All records 

required to be kept by a security-based 

swap execution facility pursuant to this 

section are subject to examination by 

any representative of the Commission 

pursuant to section 17(b) of the Act (15 

U.S.C. 78q). 

(f) Records of non-U.S. members. A 

security-based swap execution facility 

shall keep a record in permanent form, 

which shall show the true name, 

address, and principal occupation or 

business of any non-U.S. member that 

executes transactions on the facility. 

Upon request, the security-based swap 

execution facility shall provide to the 

Commission information regarding the 

name of any person guaranteeing such 

transactions or exercising any control 

over the trading of such non-U.S. 

member. 

§ 242.827 Core Principle 10—Antitrust 

considerations. 

Unless necessary or appropriate to 

achieve the purposes of the Act, the 

security-based swap execution facility 

shall not: 

(a) Adopt any rules or take any 

actions that result in any unreasonable 

restraint of trade; or 

(b) Impose any material 

anticompetitive burden on trading or 

clearing. 

§ 242.828 Core Principle 11—Conflicts of 

interest. 

(a) The security-based swap execution 

facility shall: 

(1) Establish and enforce rules to 

minimize conflicts of interest in its 

decision-making process; and 

(2) Establish a process for resolving 

the conflicts of interest. 

(b) A security-based swap execution 

facility shall comply with the 

requirements of § 242.834. 

§ 242.829 Core Principle 12—Financial 

resources. 

(a)In general. (1) The security-based 

swap execution facility shall have 

adequate financial, operational, and 

managerial resources to discharge each 

responsibility of the security-based 

swap execution facility, as determined 

by the Commission. 

(2) The financial resources of a 

security-based swap execution facility 

shall be considered to be adequate if the 

value of the financial resources: 

(i) Enables the organization to meet its 

financial obligations to its members 

notwithstanding a default by a member 

creating the largest financial exposure 

for that organization in extreme but 

plausible market conditions; and 

(ii) Exceeds the total amount that 

would enable the security-based swap 

execution facility to cover the operating 

costs of the security-based swap 

execution facility for a one-year period, 

as calculated on a rolling basis. 

(b) General requirements. A securitybased swap execution facility shall 

maintain financial resources on an 

ongoing basis that are adequate to 

enable it to comply with the core 

principles set forth in section 3D of the 

Act and any applicable Commission 

rules. Financial resources shall be 

considered adequate if their value 

exceeds the total amount that would 

enable the security-based swap 

execution facility to cover its projected 

operating costs necessary for the 

security-based swap execution facility 

to comply with section 3D of the Act 

and applicable Commission rules for a 

one-year period, as calculated on a 

rolling basis pursuant to paragraph (e) of 

this section. 

(c) Types of financial resources. 

Financial resources available to satisfy 

the requirements of this section may 

include: 

(1) The security-based swap execution 

facility’s own capital, meaning its assets 

minus its liabilities calculated in 

accordance with generally accepted 

accounting principles in the United 

States; and 

(2) Any other financial resource 

deemed acceptable by the Commission. 

(d) Liquidity of financial resources. 

The financial resources allocated by a 

security-based swap execution facility 

to meet the ongoing requirements of 

paragraph (b) of this section shall 

include unencumbered, liquid financial 

assets (i.e., cash and/or highly liquid 

securities) equal to at least the greater of 

three months of projected operating 

costs, as calculated on a rolling basis, or 

the projected costs needed to wind 

down the security-based swap execution 

facility’s operations, in each case as 

determined under paragraph (e) of this 

section. If a security-based swap 

execution facility lacks sufficient 

unencumbered, liquid financial assets to 

satisfy its obligations under this section, 

the security-based swap execution 

facility may satisfy this requirement by 

obtaining a committed line of credit or 

similar facility in an amount at least 

equal to such deficiency. 

(e) Computation of costs to meet 

financial resources requirement. (1) A 

security-based swap execution facility 

shall, each fiscal quarter, make a 

reasonable calculation of its projected 

operating costs and wind-down costs in 

order to determine its applicable 

obligations under this section. The 

security-based swap execution facility 

shall have reasonable discretion in 

determining the methodologies used to 

compute such amounts. 

(i) Calculation of projected operating 

costs. A security-based swap execution 

facility’s calculation of its projected 

operating costs shall be deemed 

reasonable if it includes all expenses 

necessary for the security-based swap 

execution facility to comply with the 

core principles set forth in section 3D of 

the Act and any applicable Commission 

rules, and if the calculation is based on 

the security-based swap execution 

facility’s current level of business and 

business model, taking into account any 

projected modification to its business 

model (e.g., the addition or subtraction 

of business lines or operations or other 

changes), and any projected increase or 

decrease in its level of business over the 

next 12 months. A security-based swap 

execution facility may exclude the 

following expenses (‘‘excludable 

expenses’’) from its projected operating 

cost calculations: 

(A) Costs attributable solely to sales, 

marketing, business development, 

product development, or recruitment 

and any related travel, entertainment, 

event, or conference costs; 

(B) Compensation and related taxes 

and benefits for personnel who are not 

necessary to ensure that the securitybased swap execution facility is able to 

comply with the core principles set 


jspears on DSK121TN23PROD with PROPOSALS2
28996 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

forth in section 3D of the Act and any 

applicable Commission rules; 

(C) Costs for acquiring and defending 

patents and trademarks for securitybased swap execution facility products 

and related intellectual property; 

(D) Magazine, newspaper, and online 

periodical subscription fees; 

(E) Tax preparation and audit fees; 

(F) The variable commissions that a 

voice-based security-based swap 

execution facility may pay to its trading 

specialists, calculated as a percentage of 

transaction revenue generated by the 

voice-based security-based swap 

execution facility; and 

(G) Any non-cash costs, including 

depreciation and amortization. 

(ii) Prorated expenses. A securitybased swap execution facility’s 

calculation of its projected operating 

costs shall be deemed reasonable if an 

expense is prorated and the securitybased swap execution facility: 

(A) Maintains sufficient 

documentation that reasonably shows 

the extent to which an expense is 

partially attributable to an excludable 

expense; 

(B) Identifies any prorated expense in 

the financial reports that it submits to 

the Commission pursuant to paragraph 

(g) of this section; and 

(C) Sufficiently explains why it 

prorated any expense. Common 

allocation methodologies that may be 

used include actual use, headcount, or 

square footage. A security-based swap 

execution facility may provide 

documentation, such as copies of 

service agreements, other legal 

documents, firm policies, audit 

statements, or allocation methodologies 

to support its determination to prorate 

an expense. 

(iii) Expenses allocated among 

affiliates. A security-based swap 

execution facility’s calculation of its 

projected operating costs shall be 

deemed reasonable if it prorates any 

shared expense that the security-based 

swap execution facility pays for, but 

only to the extent that such shared 

expense is attributable to an affiliate and 

for which the security-based swap 

execution facility is reimbursed. To 

prorate a shared expense, the securitybased swap execution facility shall: 

(A) Maintain sufficient 

documentation that reasonably shows 

the extent to which the shared expense 

is attributable to and paid for by the 

security-based swap execution facility 

and/or affiliated entity. The securitybased swap execution facility may 

provide documentation, such as copies 

of service agreements, other legal 

documents, firm policies, audit 

statements, or allocation methodologies, 

that reasonably shows how expenses are 

attributable to, and paid for by, the 

security-based swap execution facility 

and/or its affiliated entities to support 

its determination to prorate an expense; 

(B) Identify any shared expense in the 

financial reports that it submits to the 

Commission pursuant to paragraph (h) 

of this section; and 

(C) Sufficiently explain why it 

prorated the shared expense. 

(2) Notwithstanding any provision of 

paragraph (e)(1) of this section, the 

Commission may review the 

methodologies and require changes as 

appropriate. 

(f) Valuation of financial resources. 

No less than each fiscal quarter, a 

security-based swap execution facility 

shall compute the current market value 

of each financial resource used to meet 

its obligations under this section. 

Reductions in value to reflect market 

and credit risk (‘‘haircuts’’) shall be 

applied as appropriate. 

(g) Reporting to the Commission. (1) 

Each fiscal quarter, or at any time upon 

Commission request, a security-based 

swap execution facility shall provide a 

report to the Commission that includes: 

(i) The amount of financial resources 

necessary to meet the requirements of 

this section, computed in accordance 

with the requirements of paragraph (e) 

of this section, and the market value of 

each available financial resource, 

computed in accordance with the 

requirements of paragraph (f) of this 

section; and 

(ii) Financial statements, including 

the balance sheet, income statement, 

and statement of cash flows of the 

security-based swap execution facility. 

(A) The financial statements shall be 

prepared in accordance with generally 

accepted accounting principles in the 

United States, prepared in English, and 

denominated in U.S. dollars. 

(B) The financial statements of a 

security-based swap execution facility 

that is not domiciled in the United 

States, and is not otherwise required to 

prepare financial statements in 

accordance with generally accepted 

accounting principles in the United 

States, may satisfy the requirement in 

paragraph (g)(1)(ii)(A) of this section if 

such financial statements are prepared 

in accordance with either International 

Financial Reporting Standards issued by 

the International Accounting Standards 

Board, or a comparable international 

standard as the Commission may 

otherwise accept in its discretion. 

(2) The calculations required by this 

paragraph (g) shall be made as of the last 

business day of the security-based swap 

execution facility’s applicable fiscal 

quarter. 

(3) With each report required under 

paragraph (g) of this section, the 

security-based swap execution facility 

shall also provide the Commission with 

sufficient documentation explaining the 

methodology used to compute its 

financial requirements under this 

section. Such documentation shall: 

(i) Allow the Commission to reliably 

determine, without additional requests 

for information, that the security-based 

swap execution facility has made 

reasonable calculations pursuant to 

paragraph (e) of this section; and 

(ii) Include, at a minimum: 

(A) A total list of all expenses, 

without any exclusion; 

(B) All expenses and the 

corresponding amounts, if any, that the 

security-based swap execution facility 

excluded or prorated when determining 

its operating costs, calculated on a 

rolling basis, required under this 

section, and the basis for any 

determination to exclude or prorate any 

such expenses; 

(C) Documentation demonstrating the 

existence of any committed line of 

credit or similar facility relied upon for 

the purpose of meeting the requirements 

of this section (e.g., copies of 

agreements establishing or amending a 

credit facility or similar facility); and 

(D) All costs that a security-based 

swap execution facility would incur to 

wind down its operations, the projected 

amount of time for any such wind-down 

period, and the basis of its 

determination for the estimation of its 

costs and timing. 

(4) The reports and supporting 

documentation required by this section 

shall be filed not later than 40 calendar 

days after the end of the security-based 

swap execution facility’s first three 

fiscal quarters, and not later than 90 

calendar days after the end of the 

security-based swap execution facility’s 

fourth fiscal quarter, or at such later 

time as the Commission may permit, in 

its discretion, upon request by the 

security-based swap execution facility. 

(5) A security-based swap execution 

facility shall provide notice to the 

Commission no later than 48 hours after 

it knows or reasonably should know 

that it no longer meets its obligations 

under paragraph (b) and (d) of this 

section. 

(6) A security-based swap execution 

facility shall provide the report and 

documentation required by this section 

to the Commission electronically using 

the EDGAR system as an Interactive 

Data File in accordance with § 232.405. 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28997 

§ 242.830 Core Principle 13—System 

safeguards. 

(a) In general. The security-based 

swap execution facility shall: 

(1) Establish and maintain a program 

of risk analysis and oversight to identify 

and minimize sources of operational 

risk, through the development of 

appropriate controls and procedures, 

and automated systems, that: 

(i) Are reliable and secure; and 

(ii) Have adequate scalable capacity; 

(2) Establish and maintain emergency 

procedures, backup facilities, and a plan 

for disaster recovery that allow for: 

(i) The timely recovery and 

resumption of operations; and 

(ii) The fulfillment of the 

responsibilities and obligations of the 

security-based swap execution facility; 

and 

(3) Periodically conduct tests to verify 

that the backup resources of the 

security-based swap execution facility 

are sufficient to ensure continued: 

(i) Order processing and trade 

matching; 

(ii) Price reporting; 

(iii) Market surveillance; and 

(iv) Maintenance of a comprehensive 

and accurate audit trail. 

(b) Requirements. (1) A security-based 

swap execution facility’s program of risk 

analysis and oversight with respect to 

its operations and automated systems 

shall address each of the following 

categories of risk analysis and oversight: 

(i) Enterprise risk management and 

governance. This category includes, but 

is not limited to: Assessment, 

mitigation, and monitoring of security 

and technology risk; security and 

technology capital planning and 

investment; governing board and 

management oversight of technology 

and security; information technology 

audit and controls assessments; 

remediation of deficiencies; and any 

other elements of enterprise risk 

management and governance included 

in generally accepted best practices. 

(ii) Information security. This 

category includes, but is not limited to, 

controls relating to: Access to systems 

and data (including least privilege, 

separation of duties, account 

monitoring, and control); user and 

device identification and 

authentication; security awareness 

training; audit log maintenance, 

monitoring, and analysis; media 

protection; personnel security and 

screening; automated system and 

communications protection (including 

network port control, boundary 

defenses, and encryption); system and 

information integrity (including 

malware defenses and software integrity 

monitoring); vulnerability management; 

penetration testing; security incident 

response and management; and any 

other elements of information security 

included in generally accepted best 

practices. 

(iii) Business continuity-disaster 

recovery planning and resources. This 

category includes, but is not limited to: 

Regular, periodic testing and review of 

business continuity-disaster recovery 

capabilities; the controls and 

capabilities described in paragraphs 

(b)(3) and (10) of this section; and any 

other elements of business continuitydisaster recovery planning and 

resources included in generally 

accepted best practices. 

(iv) Capacity and performance 

planning. This category includes, but is 

not limited to: Controls for monitoring 

the security-based swap execution 

facility’s systems to ensure adequate 

scalable capacity (including testing, 

monitoring, and analysis of current and 

projected future capacity and 

performance, and of possible capacity 

degradation due to planned automated 

system changes); and any other 

elements of capacity and performance 

planning included in generally accepted 

best practices. 

(v) Systems operations. This category 

includes, but is not limited to: System 

maintenance; configuration 

management (including baseline 

configuration, configuration change and 

patch management, least functionality, 

and inventory of authorized and 

unauthorized devices and software); 

event and problem response and 

management; and any other elements of 

system operations included in generally 

accepted best practices. 

(vi) Systems development and quality 

assurance. This category includes, but is 

not limited to: Requirements 

development; pre-production and 

regression testing; change management 

procedures and approvals; outsourcing 

and vendor management; training in 

secure coding practices; and any other 

elements of systems development and 

quality assurance included in generally 

accepted best practices. 

(vii) Physical security and 

environmental controls. This category 

includes, but is not limited to: Physical 

access and monitoring; power, 

telecommunication, and environmental 

controls; fire protection; and any other 

elements of physical security and 

environmental controls included in 

generally accepted best practices. 

(2) In addressing the categories of risk 

analysis and oversight required under 

paragraph (b)(1) of this section, a 

security-based swap execution facility 

shall follow generally accepted 

standards and best practices with 

respect to the development, operation, 

reliability, security, and capacity of 

automated systems. 

(3) A security-based swap execution 

facility shall maintain a business 

continuity-disaster recovery plan and 

business continuity-disaster recovery 

resources, emergency procedures, and 

back-up facilities sufficient to enable 

timely recovery and resumption of its 

operations and resumption of its 

ongoing fulfillment of its 

responsibilities and obligations as a 

security-based swap execution facility 

following any disruption of its 

operations. Such responsibilities and 

obligations include, without limitation: 

Order processing and trade matching; 

transmission of matched orders to a 

registered clearing agency for clearing, 

where appropriate; price reporting; 

market surveillance; and maintenance of 

a comprehensive audit trail. A securitybased swap execution facility’s business 

continuity-disaster recovery plan and 

resources generally should enable 

resumption of trading and clearing of 

security-based swaps executed on or 

pursuant to the rules of the securitybased swap execution facility during the 

next business day following the 

disruption. A security-based swap 

execution facility shall update its 

business continuity-disaster recovery 

plan and emergency procedures at a 

frequency determined by an appropriate 

risk analysis, but at a minimum no less 

frequently than annually. 

(4) A security-based swap execution 

facility satisfies the requirement to be 

able to resume its operations and 

resume its ongoing fulfillment of its 

responsibilities and obligations during 

the next business day following any 

disruption of its operations by 

maintaining either: 

(i) Infrastructure and personnel 

resources of its own that are sufficient 

to ensure timely recovery and 

resumption of its operations and 

resumption of its ongoing fulfillment of 

its responsibilities and obligations as a 

security-based swap execution facility 

following any disruption of its 

operations; or 

(ii) Contractual arrangements with 

other security-based swap execution 

facilities or disaster recovery service 

providers, as appropriate, that are 

sufficient to ensure continued trading 

and clearing of security-based swaps 

executed on the security-based swap 

execution facility, and ongoing 

fulfillment of all of the security-based 

swap execution facility’s 

responsibilities and obligations with 

respect to such security-based swaps, in 

the event that a disruption renders the 

security-based swap execution facility 


jspears on DSK121TN23PROD with PROPOSALS2
28998 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

temporarily or permanently unable to 

satisfy this requirement on its own 

behalf. 

(5) A security-based swap execution 

facility shall notify Commission staff 

promptly of all: 

(i) Electronic trading halts and 

material system malfunctions; 

(ii) Cyber-security incidents or 

targeted threats that actually or 

potentially jeopardize automated system 

operation, reliability, security, or 

capacity; and 

(iii) Activations of the security-based 

swap execution facility’s business 

continuity-disaster recovery plan. 

(6) A security-based swap execution 

facility shall provide Commission staff 

timely advance notice of all material: 

(i) Planned changes to automated 

systems that may impact the reliability, 

security, or adequate scalable capacity 

of such systems; and 

(ii) Planned changes to the securitybased swap execution facility’s program 

of risk analysis and oversight. 

(7) As part of a security-based swap 

execution facility’s obligation to 

produce books and records in 

accordance with Core Principle 9 and 

§ 242.826, the security-based swap 

execution facility shall provide to the 

Commission the following systemsafeguards-related books and records, 

promptly upon the request of any 

Commission representative: 

(i) Current copies of its business 

continuity-disaster recovery plans and 

other emergency procedures; 

(ii) All assessments of its operational 

risks or system safeguards-related 

controls; 

(iii) All reports concerning system 

safeguards testing and assessment 

required by this chapter, whether 

performed by independent contractors 

or by employees of the security-based 

swap execution facility; and 

(iv) All other books and records 

requested by Commission staff in 

connection with Commission oversight 

of system safeguards pursuant to the Act 

or Commission rules, or in connection 

with Commission maintenance of a 

current profile of the security-based 

swap execution facility’s automated 

systems. 

(v) Nothing in paragraph (b)(7) of this 

section shall be interpreted as reducing 

or limiting in any way a security-based 

swap execution facility’s obligation to 

comply with Core Principle 9 and 

§ 242.826. 

(8) A security-based swap execution 

facility shall conduct regular, periodic, 

objective testing and review of its 

automated systems to ensure that they 

are reliable, secure, and have adequate 

scalable capacity. A security-based swap 

execution facility shall also conduct 

regular, periodic testing and review of 

its business continuity-disaster recovery 

capabilities. Such testing and review 

shall include, without limitation, all of 

the types of testing set forth in this 

paragraph (b)(8). 

(i) Definitions. As used in this 

paragraph (b)(8): 

Controls means the safeguards or 

countermeasures employed by the 

security-based swap execution facility 

to protect the reliability, security, or 

capacity of its automated systems or the 

confidentiality, integrity, and 

availability of its data and information, 

and to enable the security-based swap 

execution facility to fulfill its statutory 

and regulatory responsibilities. 

Controls testing means assessment of 

the security-based swap execution 

facility’s controls to determine whether 

such controls are implemented 

correctly, are operating as intended, and 

are enabling the security-based swap 

execution facility to meet the 

requirements of this section. 

Enterprise technology risk assessment 

means a written assessment that 

includes, but is not limited to, an 

analysis of threats and vulnerabilities in 

the context of mitigating controls. An 

enterprise technology risk assessment 

identifies, estimates, and prioritizes 

risks to security-based swap execution 

facility operations or assets, or to market 

participants, individuals, or other 

entities, resulting from impairment of 

the confidentiality, integrity, and 

availability of data and information or 

the reliability, security, or capacity of 

automated systems. 

External penetration testing means 

attempts to penetrate the security-based 

swap execution facility’s automated 

systems from outside the systems’ 

boundaries to identify and exploit 

vulnerabilities. Methods of conducting 

external penetration testing include, but 

are not limited to, methods for 

circumventing the security features of 

an automated system. 

Internal penetration testing means 

attempts to penetrate the security-based 

swap execution facility’s automated 

systems from inside the systems’ 

boundaries, to identify and exploit 

vulnerabilities. Methods of conducting 

internal penetration testing include, but 

are not limited to, methods for 

circumventing the security features of 

an automated system. 

Security incident means a 

cybersecurity or physical security event 

that actually jeopardizes or has a 

significant likelihood of jeopardizing 

automated system operation, reliability, 

security, or capacity, or the availability, 

confidentiality or integrity of data. 

Security incident response plan 

means a written plan documenting the 

security-based swap execution facility’s 

policies, controls, procedures, and 

resources for identifying, responding to, 

mitigating, and recovering from security 

incidents, and the roles and 

responsibilities of its management, staff, 

and independent contractors in 

responding to security incidents. A 

security incident response plan may be 

a separate document or a business 

continuity-disaster recovery plan 

section or appendix dedicated to 

security incident response. 

Security incident response plan 

testing means testing of a security-based 

swap execution facility’s security 

incident response plan to determine the 

plan’s effectiveness, identify its 

potential weaknesses or deficiencies, 

enable regular plan updating and 

improvement, and maintain 

organizational preparedness and 

resiliency with respect to security 

incidents. Methods of conducting 

security incident response plan testing 

may include, but are not limited to, 

checklist completion, walk-through or 

table-top exercises, simulations, and 

comprehensive exercises. 

Vulnerability testing means testing of 

a security-based swap execution 

facility’s automated systems to 

determine what information may be 

discoverable through a reconnaissance 

analysis of those systems and what 

vulnerabilities may be present on those 

systems. 

(ii) Vulnerability testing. A securitybased swap execution facility shall 

conduct vulnerability testing of a scope 

sufficient to satisfy the requirements set 

forth in paragraph (b)(10) of this section. 

(A) A security-based swap execution 

facility shall conduct such vulnerability 

testing at a frequency determined by an 

appropriate risk analysis. 

(B) Such vulnerability testing shall 

include automated vulnerability 

scanning, which shall follow generally 

accepted best practices. 

(C) A security-based swap execution 

facility shall conduct vulnerability 

testing by engaging independent 

contractors or by using employees of the 

security-based swap execution facility 

who are not responsible for 

development or operation of the systems 

or capabilities being tested. 

(iii) External penetration testing. A 

security-based swap execution facility 

shall conduct external penetration 

testing of a scope sufficient to satisfy the 

requirements set forth in paragraph 

(b)(10) of this section. 

(A) A security-based swap execution 

facility shall conduct such external 

penetration testing at a frequency 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 28999 

determined by an appropriate risk 

analysis. 

(B) A security-based swap execution 

facility shall conduct external 

penetration testing by engaging 

independent contractors or by using 

employees of the security-based swap 

execution facility who are not 

responsible for development or 

operation of the systems or capabilities 

being tested. 

(iv) Internal penetration testing. A 

security-based swap execution facility 

shall conduct internal penetration 

testing of a scope sufficient to satisfy the 

requirements set forth in paragraph 

(b)(10) of this section. 

(A) A security-based swap execution 

facility shall conduct such internal 

penetration testing at a frequency 

determined by an appropriate risk 

analysis. 

(B) A security-based swap execution 

facility shall conduct internal 

penetration testing by engaging 

independent contractors, or by using 

employees of the security-based swap 

execution facility who are not 

responsible for development or 

operation of the systems or capabilities 

being tested. 

(v) Controls testing. A security-based 

swap execution facility shall conduct 

controls testing of a scope sufficient to 

satisfy the requirements set forth in 

paragraph (b)(10) of this section. 

(A) A security-based swap execution 

facility shall conduct controls testing, 

which includes testing of each control 

included in its program of risk analysis 

and oversight, at a frequency 

determined by an appropriate risk 

analysis. Such testing may be conducted 

on a rolling basis. 

(B) A security-based swap execution 

facility shall conduct controls testing by 

engaging independent contractors or by 

using employees of the security-based 

swap execution facility who are not 

responsible for development or 

operation of the systems or capabilities 

being tested. 

(vi) Security incident response plan 

testing. A security-based swap 

execution facility shall conduct security 

incident response plan testing sufficient 

to satisfy the requirements set forth in 

paragraph (b)(10) of this section. 

(A) A security-based swap execution 

facility shall conduct such security 

incident response plan testing at a 

frequency determined by an appropriate 

risk analysis. 

(B) A security-based swap execution 

facility’s security incident response plan 

shall include, without limitation, the 

security-based swap execution facility’s 

definition and classification of security 

incidents, its policies and procedures 

for reporting security incidents and for 

internal and external communication 

and information sharing regarding 

security incidents, and the hand-off and 

escalation points in its security incident 

response process. 

(C) A security-based swap execution 

facility may coordinate its security 

incident response plan testing with 

other testing required by this section or 

with testing of its other business 

continuity-disaster recovery and crisis 

management plans. 

(D) A security-based swap execution 

facility may conduct security incident 

response plan testing by engaging 

independent contractors or by using 

employees of the security-based swap 

execution facility. 

(vii) Enterprise technology risk 

assessment. A security-based swap 

execution facility shall conduct 

enterprise technology risk assessment of 

a scope sufficient to satisfy the 

requirements set forth in paragraph 

(b)(10) of this section. 

(A) A security-based swap execution 

facility shall conduct enterprise 

technology risk assessment at a 

frequency determined by an appropriate 

risk analysis. A security-based swap 

execution facility that has conducted an 

enterprise technology risk assessment 

that complies with this section may 

conduct subsequent assessments by 

updating the previous assessment. 

(B) A security-based swap execution 

facility may conduct enterprise 

technology risk assessments by using 

independent contractors or employees 

of the security-based swap execution 

facility who are not responsible for 

development or operation of the systems 

or capabilities being assessed. 

(9) To the extent practicable, a 

security-based swap execution facility 

shall: 

(i) Coordinate its business continuitydisaster recovery plan with those of its 

members that it depends upon to 

provide liquidity, in a manner adequate 

to enable effective resumption of 

activity in its markets following a 

disruption causing activation of the 

security-based swap execution facility’s 

business continuity-disaster recovery 

plan; 

(ii) Initiate and coordinate periodic, 

synchronized testing of its business 

continuity-disaster recovery plan with 

those of members that it depends upon 

to provide liquidity; and 

(iii) Ensure that its business 

continuity-disaster recovery plan takes 

into account the business continuitydisaster recovery plans of its 

telecommunications, power, water, and 

other essential service providers. 

(10) The scope for all system 

safeguards testing and assessment 

required by this section shall be broad 

enough to include the testing of 

automated systems and controls that the 

security-based swap execution facility’s 

required program of risk analysis and 

oversight and its current cybersecurity 

threat analysis indicate is necessary to 

identify risks and vulnerabilities that 

could enable an intruder or 

unauthorized user or insider to: 

(i) Interfere with the security-based 

swap execution facility’s operations or 

with fulfillment of its statutory and 

regulatory responsibilities; 

(ii) Impair or degrade the reliability, 

security, or adequate scalable capacity 

of the security-based swap execution 

facility’s automated systems; 

(iii) Add to, delete, modify, exfiltrate, 

or compromise the integrity of any data 

related to the security-based swap 

execution facility’s regulated activities; 

or 

(iv) Undertake any other unauthorized 

action affecting the security-based swap 

execution facility’s regulated activities 

or the hardware or software used in 

connection with those activities. 

(11) Both the senior management and 

the governing board of a security-based 

swap execution facility shall receive 

and review reports setting forth the 

results of the testing and assessment 

required by this section. A securitybased swap execution facility shall 

establish and follow appropriate 

procedures for the remediation of issues 

identified through such review, as 

provided in paragraph (b)(12) of this 

section, and for evaluation of the 

effectiveness of testing and assessment 

protocols. 

(12) A security-based swap execution 

facility shall identify and document the 

vulnerabilities and deficiencies in its 

systems revealed by the testing and 

assessment required by this section. The 

security-based swap execution facility 

shall conduct and document an 

appropriate analysis of the risks 

presented by such vulnerabilities and 

deficiencies, to determine and 

document whether to remediate or 

accept the associated risk. When the 

security-based swap execution facility 

determines to remediate a vulnerability 

or deficiency, it must remediate in a 

timely manner given the nature and 

magnitude of the associated risk. 

§ 242.831 Core Principle 14—Designation 

of chief compliance officer. 

(a)(1) In general. Each security-based 

swap execution facility shall designate 

an individual to serve as a chief 

compliance officer. 


jspears on DSK121TN23PROD with PROPOSALS2
29000 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

(2) Duties. The chief compliance 

officer shall: 

(i) Report directly to the board or to 

the senior officer of the facility; 

(ii) Review compliance with the core 

principles in this subsection; 

(iii) In consultation with the board of 

the facility, a body performing a 

function similar to that of a board, or the 

senior officer of the facility, resolve any 

conflicts of interest that may arise; 

(iv) Be responsible for establishing 

and administering the policies and 

procedures required to be established 

pursuant to this section; 

(v) Ensure compliance with the Act 

and the rules and regulations issued 

under the Act, including rules 

prescribed by the Commission pursuant 

to section 3D of the Act; and 

(vi) Establish procedures for the 

remediation of noncompliance issues 

found during compliance office reviews, 

look backs, internal or external audit 

findings, self-reported errors, or through 

validated complaints; and 

(vii) Establish and follow appropriate 

procedures for the handling, 

management response, remediation, 

retesting, and closing of noncompliance 

issues. 

(3) Annual reports—(i) In general. In 

accordance with rules prescribed by the 

Commission, the chief compliance 

officer shall annually prepare and sign 

a report that contains a description of: 

(A) The compliance of the securitybased swap execution facility with the 

Act; and 

(B) The policies and procedures, 

including the code of ethics and conflict 

of interest policies, of the security-based 

swap execution facility. 

(ii) [Reserved] 

(4) Requirements. The chief 

compliance officer shall: 

(i) Submit each report described in 

paragraph (a)(3) of this section with the 

appropriate financial report of the 

security-based swap execution facility 

that is required to be submitted to the 

Commission pursuant to this section; 

and 

(ii) Include in the report a 

certification that, under penalty of law, 

the report is accurate and complete. 

(b) Authority of chief compliance 

officer. (1) The position of chief 

compliance officer shall carry with it 

the authority and resources to develop, 

in consultation with the governing 

board or senior officer, the policies and 

procedures of the security-based swap 

execution facility and enforce such 

policies and procedures to fulfill the 

duties set forth for chief compliance 

officers in the Act and the Commission’s 

rules thereunder. 

(2) The chief compliance officer shall 

have supervisory authority over all staff 

acting at the direction of the chief 

compliance officer. 

(c) Qualifications of chief compliance 

officer. (1) The individual designated to 

serve as chief compliance officer shall 

have the background and skills 

appropriate for fulfilling the 

responsibilities of the position. 

(2) No individual that would be 

disqualified from serving on a securitybased swap execution facility’s 

governing board or committees pursuant 

to the criteria set forth in § 242.819(i) 

may serve as a chief compliance officer. 

(3) In determining whether the 

background and skills of a potential 

chief compliance officer are appropriate 

for fulfilling the responsibilities of the 

role of the chief compliance officer, a 

security-based swap execution facility 

has the discretion to base its 

determination on the totality of the 

qualifications of the potential chief 

compliance officer, including, but not 

limited to, compliance experience, 

related career experience, training, 

potential conflicts of interest, and any 

other relevant factors to the position. 

(d) Appointment and removal of chief 

compliance officer. (1) Only the 

governing board or the senior officer 

may appoint or remove the chief 

compliance officer. 

(2) The security-based swap execution 

facility shall notify the Commission 

within two business days of the 

appointment or removal, whether 

interim or permanent, of a chief 

compliance officer. 

(e) Compensation of the chief 

compliance officer. The governing board 

or the senior officer shall approve the 

compensation of the chief compliance 

officer. 

(f) Annual meeting with the chief 

compliance officer. The chief 

compliance officer shall meet with the 

governing board or senior officer of the 

security-based swap execution facility at 

least annually. 

(g) Information requested of the chief 

compliance officer. The chief 

compliance officer shall provide any 

information regarding the regulatory 

program of the security-based swap 

execution facility as requested by the 

governing board or the senior officer. 

(h) Duties of chief compliance officer. 

The duties of the chief compliance 

officer shall include, but are not limited 

to, the following: 

(1) Overseeing and reviewing 

compliance of the security-based swap 

execution facility with section 3D of the 

Act and the Commission rules 

thereunder; 

(2) Taking reasonable steps, in 

consultation with the governing board 

or the senior officer of the securitybased swap execution facility, to resolve 

any material conflicts of interest that 

may arise, including, but not limited to: 

(i) Conflicts between business 

considerations and compliance 

requirements; 

(ii) Conflicts between business 

considerations and the requirement that 

the security-based swap execution 

facility provide fair, open, and impartial 

access as set forth in § 242.819(c); and 

(iii) Conflicts between a securitybased swap execution facility’s 

management and members of the 

governing board; 

(3) Establishing and administering 

written policies and procedures 

reasonably designed to prevent 

violations of the Act and the rules of the 

Commission; 

(4) Taking reasonable steps to ensure 

compliance with the Act and the rules 

of the Commission; 

(5) Establishing procedures 

reasonably designed to handle, respond, 

remediate, retest, and resolve 

noncompliance issues identified by the 

chief compliance officer through any 

means, including any compliance office 

review, look-back, internal or external 

audit finding, self-reported error, or 

validated complaint; 

(6) Establishing and administering a 

compliance manual designed to 

promote compliance with the applicable 

laws, rules, and regulations and a 

written code of ethics for the securitybased swap execution facility designed 

to prevent ethical violations and to 

promote honesty and ethical conduct by 

personnel of the security-based swap 

execution facility; 

(7) Supervising the regulatory 

program of the security-based swap 

execution facility with respect to trade 

practice surveillance; market 

surveillance; real-time market 

monitoring; compliance with audit trail 

requirements; enforcement and 

disciplinary proceedings; audits, 

examinations, and other regulatory 

responsibilities (including taking 

reasonable steps to ensure compliance 

with, if applicable, financial integrity, 

financial reporting, sales practice, 

recordkeeping, and other requirements); 

and 

(8) Supervising the effectiveness and 

sufficiency of any regulatory services 

provided to the security-based swap 

execution facility by a regulatory service 

provider in accordance with 

§ 242.819(e). 

(i) Preparation of annual compliance 

report. The chief compliance officer 

shall, not less than annually, prepare 

and sign an annual compliance report 

that covers the prior fiscal year. The 

report shall, at a minimum, contain: 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 29001 

(1) A description and self-assessment 

of the effectiveness of the written 

policies and procedures of the securitybased swap execution facility, including 

the code of ethics and conflict of 

interest policies, to reasonably ensure 

compliance with the Act and applicable 

Commission rules; 

(2) Any material changes made to 

compliance policies and procedures 

during the coverage period for the report 

and any areas of improvement or 

recommended changes to the 

compliance program; 

(3) A description of the financial, 

managerial, and operational resources 

set aside for compliance with the Act 

and applicable Commission rules; 

(4) Any material non-compliance 

matters identified and an explanation of 

the corresponding action taken to 

resolve such non-compliance matters; 

and 

(5) A certification by the chief 

compliance officer that, to the best of 

their knowledge and reasonable belief, 

and under penalty of law, the annual 

compliance report is accurate and 

complete in all material respects. 

(j) Submission of annual compliance 

report and related matters—(1) 

Furnishing the annual compliance 

report prior to submission to the 

Commission. Prior to submission to the 

Commission, the chief compliance 

officer shall provide the annual 

compliance report for review to the 

governing board or, in the absence of a 

governing board, to the senior officer. 

Members of the governing board and the 

senior officer shall not require the chief 

compliance officer to make any changes 

to the report. 

(2) Submission of annual compliance 

report to the Commission. The annual 

compliance report shall be submitted 

electronically to the Commission using 

the EDGAR system as an Interactive 

Data File in accordance with § 232.405 

not later than 90 calendar days after the 

end of the security-based swap 

execution facility’s fiscal year. The 

security-based swap execution facility 

shall concurrently file the annual 

compliance report with the fourthquarter financial report pursuant to 

§ 242.829(g). 

(3) Amendments to annual 

compliance report. (i) Promptly upon 

discovery of any material error or 

omission made in a previously filed 

annual compliance report, the chief 

compliance officer shall file an 

amendment with the Commission to 

correct the material error or omission. 

The chief compliance officer shall 

submit the amended annual compliance 

report to the governing board, or in the 

absence of a governing board, to the 

senior officer, pursuant to paragraph 

(j)(1) of this section. 

(ii) An amendment shall contain the 

certification required under paragraph 

(i)(5) of this section. 

(4) Request for extension. A securitybased swap execution facility may 

request an extension of time to file its 

annual compliance report from the 

Commission. Reasonable and valid 

requests for extensions of the filing 

deadline may be granted at the 

discretion of the Commission. 

(k) Recordkeeping. A security-based 

swap execution facility shall maintain 

all records demonstrating compliance 

with the duties of the chief compliance 

officer and the preparation and 

submission of annual compliance 

reports consistent with Core Principle 9 

and § 242.826. 

§ 242.832 Application of the trade 

execution requirement to cross-border 

security-based swap transactions. 

(a) The trade execution requirement 

set forth in section 3C(h) of the Act shall 

not apply in connection with a securitybased swap unless at least one 

counterparty to the security-based swap 

is a ‘‘covered person’’ as defined below 

in paragraph (b) of this rule. 

(b) A ‘‘covered person’’ means, with 

respect to a particular security-based 

swap, any person that is: 

(1) A U.S. person; 

(2) A non-U.S. person whose 

performance under a security-based 

swap is guaranteed by a U.S. person; or 

(3) A non-U.S. person who, in 

connection with its security-based swap 

dealing activity, uses U.S. personnel 

located in a U.S. branch or office, or 

personnel of an agent of such non-U.S. 

person located in a U.S. branch or 

office, to arrange, negotiate, or execute 

a transaction. 

§ 242.833 Cross-border exemptions. 

(a) Exemptions for foreign trading 

venues for security-based swaps. An 

application for an order for exemptive 

relief under section 36(a)(1) of the Act 

(15 U.S.C. 78mm(a)(1)) relating to the 

registration status under the Act of a 

foreign trading venue for security-based 

swaps that has one or more members 

who are covered persons, as defined in 

§ 242.832, with respect to security-based 

swaps transacted on that venue may 

state that the application also is 

submitted pursuant to this paragraph 

(a). In such case, the Commission will 

consider the submission as an 

application to exempt the foreign 

trading venue, with respect to its 

providing a market place for securitybased swaps, from: 

(1) The definition of ‘‘exchange’’ in 

section 3(a)(1) of the Act (15 U.S.C. 

78c(a)(1)); 

(2) The definition of ‘‘security-based 

swap execution facility’’ in section 

3(a)(77) of the Act (15 U.S.C. 78c(a)(77)); 

(3) The definition of ‘‘broker’’ in 

section 3(a)(4) of the Act (15 U.S.C. 

78c(a)(4)); and 

(4) Section 3D(a)(1) of the Act (15 

U.S.C. 78c–4(a)(1)). 

(b) Exemptions relating to the trade 

execution requirement. (1) An 

application for an order for exemptive 

relief under section 36(a)(1) of the Act 

(15 U.S.C. 78mm(a)(1)) relating to the 

application of the trade execution 

requirement in section 3C(h) of the Act 

(15 U.S.C. 78c–3(h)) to security-based 

swaps executed on a foreign trading 

venue, may state that the application 

also is submitted pursuant to this 

paragraph (b). 

(2) When considering an application 

under section 36 of the Act (15 U.S.C. 

78mm) and this paragraph (b), the 

Commission may consider: 

(i) The extent to which the securitybased swaps traded in the foreign 

jurisdiction covered by the request are 

subject to a trade execution requirement 

comparable to that in section 3C(h) of 

the Act (15 U.S.C. 78c–3(h)) and the 

Commission’s rules thereunder; 

(ii) The extent to which trading 

venues in the foreign jurisdiction 

covered by the request are subject to 

regulation and supervision comparable 

to that under the Act, including section 

3D of the Act (15 U.S.C. 78c–4), and the 

Commission’s rules thereunder; 

(iii) Whether the foreign trading 

venue or venues where covered persons, 

as defined in § 242.832, intend to trade 

security-based swaps have received an 

exemption order contemplated by 

paragraph (a) of this section; and 

(iv) Any other factor that the 

Commission believes is relevant for 

assessing whether the exemption is in 

the public interest and consistent with 

the protection of investors. 

§ 242.834 Mitigation of conflicts of interest 

of security-based swap execution facilities 

and certain exchanges. 

(a) For purposes of this section: 

Family relationship of a person means 

the person’s spouse, former spouse, 

parent, step-parent, child, step-child, 

sibling, step-brother, step-sister, 

grandparent, grandchild, uncle, aunt, 

nephew, niece, or in-law. 

Major disciplinary committee means a 

committee of persons who are 

authorized by a security-based swap 

execution facility to conduct 

disciplinary hearings, to settle 

disciplinary charges, to impose 


jspears on DSK121TN23PROD with PROPOSALS2
29002 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

disciplinary sanctions, or to hear 

appeals thereof in cases involving any 

violation of the rules of the securitybased swap execution facility except 

those which: 

(i) Are related to decorum or attire, 

financial requirements, or reporting or 

recordkeeping; and 

(ii) Do not involve fraud, deceit, or 

conversion. 

Member’s affiliated firm is a firm in 

which the member is a principal or an 

employee. 

Named party in interest means a 

person or entity that is identified by 

name as a subject of any matter being 

considered by a governing board, 

disciplinary committee, or oversight 

panel. 

Significant action includes any of the 

following types of actions or rule 

changes by a security-based swap 

execution facility or SBS exchange that 

can be implemented without the 

Commission’s prior approval: 

(i) Any actions or rule changes which 

address an emergency; and 

(ii) Any changes in margin levels that 

are designed to respond to extraordinary 

market conditions such as an actual or 

attempted corner, squeeze, congestion, 

or undue concentration of positions, or 

that otherwise are likely to have a 

substantial effect on prices in any 

contract traded or cleared at such 

security-based swap execution facility 

or SBS exchange; but does not include 

any rule not submitted for prior 

Commission approval because such rule 

is unrelated to the terms and conditions 

of any security-based swap traded at 

such security-based swap execution 

facility or SBS exchange. 

(b) Each security-based swap 

execution facility and SBS exchange 

shall not permit any of its members, 

either alone or together with any officer, 

principal, or employee of the member, 

to: 

(1) Own, directly or indirectly, 20 

percent or more of any class of voting 

securities or of other voting interest in 

the security-based swap execution 

facility or SBS exchange; or 

(2) Directly or indirectly vote, cause 

the voting of, or give any consent or 

proxy with respect to the voting of, any 

interest that exceeds 20 percent of the 

voting power of any class of securities 

or of other ownership interest in the 

security-based swap execution facility 

or SBS exchange. 

(c) The rules of each security-based 

swap execution facility and SBS 

exchange must be reasonably designed, 

and have an effective mechanism, to: 

(1) Deny effect to the portion of any 

voting interest held by a member in 

excess of the limitations in paragraph 

(b) of this section; 

(2) Compel a member who possesses 

a voting interest in excess of the 

limitations in paragraph (a) of this 

section to divest enough of that voting 

interest to come within those 

limitations; and 

(3) Obtain information relating to its 

ownership and voting interests owned 

or controlled, directly or indirectly, by 

its members. 

(d) Each security-based swap 

execution facility and SBS exchange 

shall ensure that its disciplinary 

processes preclude any member, or 

group or class of its members, from 

dominating or exercising 

disproportionate influence on the 

disciplinary process. Each major 

disciplinary committee or hearing panel 

thereof shall include sufficient different 

groups or classes of its members so as 

to ensure fairness and to prevent special 

treatment or preference for any person 

or member in the conduct of the 

responsibilities of the committee or 

panel. 

(e) Each security-based swap 

execution facility and SBS exchange 

shall ensure that: 

(1) 20 percent or more of the persons 

who are eligible to vote routinely on 

matters being considered by the 

governing board (excluding those 

members who are eligible to vote only 

in the case of a tie vote by the governing 

board) are: 

(i) Knowledgeable of security-based 

swap trading or financial regulation, or 

otherwise capable of contributing to 

governing board deliberations; 

(ii) Not members of the security-based 

swap execution facility or SBS 

exchange; 

(iii) Not salaried employees of the 

security-based swap execution facility 

or SBS exchange; 

(iv) Not primarily performing services 

for the security-based swap execution 

facility or SBS exchange in a capacity 

other than as a member of the governing 

board; and 

(v) Not officers, principals, or 

employees of a firm which holds a 

membership at the security-based swap 

execution facility or SBS exchange, 

either in its own name or through an 

employee on behalf of the firm; and 

(2) The membership of the governing 

board includes a diversity of groups or 

classes of its members. The securitybased swap execution facility or SBS 

exchange must be able to demonstrate 

that the board membership fairly 

represents the diversity of interests at 

such security-based swap execution 

facility or SBS exchange and is 

otherwise consistent with the 

composition requirements of this 

section. 

(f) Providing information about the 

board to the Commission. Each securitybased swap execution facility and SBS 

exchange shall submit to the 

Commission, within 30 days after each 

governing board election, a list of the 

governing board’s members, the groups 

or classes of its members that they 

represent, and how the composition of 

the governing board otherwise meets the 

requirements of this section. 

(g) Voting by interested members of 

governing boards and various 

committees of security-based swap 

execution facilities and SBS 

exchanges—(1) Rules required. Each 

security-based swap execution facility 

and SBS exchange shall maintain in 

effect rules to address the avoidance of 

conflicts of interest in the execution of 

its regulatory functions. Such rules must 

provide for the following: 

(i) Relationship with named party in 

interest—(A) Nature of relationship. A 

member of a governing board, 

disciplinary committee, or oversight 

panel of a security-based swap 

execution facility or SBS exchange must 

abstain from such body’s deliberations 

and voting on any matter involving a 

named party in interest where such 

member: 

(1) Is a named party in interest; 

(2) Is an employer, employee, or 

fellow employee of a named party in 

interest; 

(3) Has any other significant, ongoing 

business relationship with a named 

party in interest, not including 

relationships limited to executing 

security-based swaps opposite of each 

other or to clearing security-based 

swaps through the same clearing 

member; or 

(4) Has a family relationship with a 

named party in interest. 

(B) Disclosure of relationship. Prior to 

the consideration of any matter 

involving a named party in interest, 

each member of a governing board, 

disciplinary committee, or oversight 

panel of a security-based swap 

execution facility or SBS exchange must 

disclose to the appropriate staff of the 

security-based swap execution facility 

or SBS exchange whether they have one 

of the relationships listed in paragraph 

(g)(1)(i)(A) of this section with a named 

party in interest. 

(C) Procedure for determination. Each 

security-based swap execution facility 

and SBS exchange must establish 

procedures for determining whether any 

member of its governing board, 

disciplinary committees, or oversight 

committees is subject to a conflicts 

restriction in any matter involving a 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 29003 

named party in interest. Taking into 

consideration the exigency of the 

committee action, such determinations 

should be based upon: 

(1) Information provided by the 

member pursuant to paragraph 

(g)(1)(i)(B) of this section; and 

(2) Any other source of information 

that is held by and reasonably available 

to the security-based swap execution 

facility or SBS exchange. 

(ii) Financial interest in a significant 

action—(A) Nature of interest. A 

member of the governing board, 

disciplinary committee, or oversight 

panel of a security-based swap 

execution facility or SBS exchange must 

abstain from such body’s deliberations 

and voting on any significant action if 

the member knowingly has a direct and 

substantial financial interest in the 

result of the vote based upon either 

exchange or non-exchange positions 

that could reasonably be expected to be 

affected by the action. 

(B) Disclosure of interest. Prior to the 

consideration of any significant action, 

each member of a governing board, 

disciplinary committee, or oversight 

panel of a security-based swap 

execution facility or SBS exchange must 

disclose to the appropriate staff of the 

security-based swap execution facility 

or SBS exchange the position 

information referred to in paragraph 

(g)(1)(ii)(C) of this section that is known 

to them. This requirement does not 

apply to members who choose to abstain 

from deliberations and voting on the 

subject significant action. 

(C) Procedure for determination. Each 

security-based swap execution facility 

and SBS exchange must establish 

procedures for determining whether any 

member of its governing board, 

disciplinary committees, or oversight 

committees is subject to a conflicts 

restriction under this section in any 

significant action. Such determination 

must include a review of any positions, 

whether maintained at that securitybased swap execution facility, SBS 

exchange, or elsewhere, held in the 

member’s personal accounts or the 

proprietary accounts of the member’s 

affiliated firm that the security-based 

swap execution facility or SBS exchange 

reasonably expects could be affected by 

the significant action. 

(D) Bases for determination. Taking 

into consideration the exigency of the 

significant action, such determinations 

should be based upon: 

(1) Information provided by the 

member with respect to positions 

pursuant to paragraph (f)(2)(ii)(B) of this 

section; and 

(2) Any other source of information 

that is held by and reasonably available 

to the security-based swap execution 

facility or SBS exchange. 

(iii) Participation in deliberations. (A) 

Under the rules required by this section, 

a governing board, disciplinary 

committee, or oversight panel of a 

security-based swap execution facility 

or SBS exchange may permit a member 

to participate in deliberations prior to a 

vote on a significant action for which 

they otherwise would be required to 

abstain, pursuant to paragraph (g)(1)(ii) 

of this section, if such participation 

would be consistent with the public 

interest and the member recuses from 

voting on such action. 

(B) In making a determination as to 

whether to permit a member to 

participate in deliberations on a 

significant action for which they 

otherwise would be required to abstain, 

the deliberating body shall consider the 

following factors: 

(1) Whether the member’s 

participation in deliberations is 

necessary for the deliberating body to 

achieve a quorum in the matter; and 

(2) Whether the member has unique 

or special expertise, knowledge, or 

experience in the matter under 

consideration. 

(C) Prior to any determination 

pursuant to paragraph (g)(1)(iii)(A) of 

this section, the deliberating body must 

fully consider the position information 

which is the basis for the member’s 

direct and substantial financial interest 

in the result of a vote on a significant 

action pursuant to paragraph (g)(1)(ii) of 

this section. 

(iv) Documentation of determination. 

The governing boards, disciplinary 

committees, and oversight panels of 

each security-based swap execution 

facility and SBS exchange must reflect 

in their minutes or otherwise document 

that the conflicts determination 

procedures required by this section have 

been followed. Such records also must 

include: 

(A) The names of all members who 

attended the meeting in person or who 

otherwise were present by electronic 

means; 

(B) The name of any members who 

voluntarily recused themselves or were 

required to abstain from deliberations 

and/or voting on a matter and the reason 

for the recusal or abstention, if stated; 

and 

(C) Information on the position 

information that was reviewed for each 

member. 

(h) Rules required. (1) A securitybased swap execution facility shall 

maintain in effect rules to comply with 

this section that have been submitted to 

the Commission pursuant to § 242.806 

or § 242.807. 

(2) An SBS exchange shall maintain 

in effect rules to comply with this 

section that have been submitted to the 

Commission pursuant to § 240.19b–4 of 

this chapter. 

§ 242.835 Notice to Commission by 

security-based swap execution facility of 

final disciplinary action or denial or 

limitation of access. 

(a) If a security-based swap execution 

facility issues a final disciplinary action 

against a member, or takes final action 

with respect to a denial or conditioning 

membership, or takes final action with 

respect to a denial or limitation of 

access of a person to any services 

offered by the security-based swap 

execution facility, the security-based 

swap execution facility shall file a 

notice of such action with the 

Commission within 30 days and serve a 

copy on the affected person. 

(b) For purposes of paragraph (a) of 

this section: 

(1) A disciplinary action shall not be 

considered ‘‘final’’ unless: 

(i) The affected person has sought an 

adjudication or hearing with respect to 

the matter, or otherwise exhausted their 

administrative remedies at the securitybased swap execution facility; and 

(ii) The disciplinary action is not a 

summary action permitted under 

§ 242.819(g)(13)(ii). 

(2) A disposition of a matter with 

respect to a denial or conditioning of 

membership, or a denial or limitation of 

access shall not be considered ‘‘final’’ 

unless such person has sought an 

adjudication or hearing, or otherwise 

exhausted their administrative remedies 

at the security-based swap execution 

facility with respect to such matter. 

(c) A notice required by paragraph (a) 

of this section shall provide the 

following information: 

(1) The name of the member and its 

last known address, as reflected in the 

security-based swap execution facility’s 

records; 

(2) The name of the person, 

committee, or other organizational unit 

of the security-based swap execution 

facility that initiated the disciplinary 

action or access restriction; 

(3) In the case of a final disciplinary 

action: 

(i) A description of the acts or 

practices, or omissions to act, upon 

which the sanction is based, including, 

as appropriate, the specific rules that 

the security-based swap execution 

facility has found to have been violated; 

(ii) A statement describing the 

respondent’s answer to the charges; and 

(iii) A statement of the sanction 

imposed and the reasons therefor; 

(4) In the case of a final action with 

respect to a denial or conditioning of 


jspears on DSK121TN23PROD with PROPOSALS2
29004 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

membership, or a denial or limitation of 

access: 

(i) The financial or operating 

difficulty of the member or prospective 

member (as the case may be) upon 

which the security-based swap 

execution facility determined that the 

member or prospective member could 

not be permitted to do, or continue to 

do, business with safety to investors, 

creditors, other members, or the 

security-based swap execution facility; 

(ii) The pertinent failure to meet 

qualification requirements or other 

prerequisites for membership or access 

and the basis upon which the securitybased swap execution facility 

determined that the person concerned 

could not be permitted to have 

membership or access with safety to 

investors, creditors, other members, or 

the security-based swap execution 

facility; or 

(iii) The default of any delivery of 

funds or securities to a clearing agency 

by the member; 

(5) The effective date of the final 

disciplinary action, or final action with 

respect to a denial or conditioning of 

membership, or a denial or limitation of 

access; and 

(6) Any other information that the 

security-based swap execution facility 

may deem relevant. 

PART 249—FORMS, SECURITIES 

EXCHANGE ACT OF 1934 

■ 18. The general authority citation for 

part 249 continues to read in part as 

follows: 

Authority: 15 U.S.C. 78a et seq. and 7201 

et seq.; 12 U.S.C. 5461 et seq.; 18 U.S.C. 1350; 

Sec. 953(b), Pub. L. 111–203, 124 Stat. 1904; 

Sec. 102(a)(3), Pub. L. 112–106, 126 Stat. 309 

(2012); Sec. 107, Pub. L. 112–106, 126 Stat. 

313 (2012), Sec. 72001, Pub. L. 114–94, 129 

Stat. 1312 (2015), and secs. 2 and 3, Pub. L. 

116–222, 134 Stat. 1063 (2020), unless 

otherwise noted. 

* * * * * 

■ 19. Add § 249.2001 to read as follows: 

§ 249.2001 Form SBSEF, for application 

for registration as a security-based swap 

execution facility or to amend such 

application or registration. 

This form shall be used for 

application for registration as a securitybased swap execution facility, pursuant 

to section 3D of the Securities Exchange 

Act of 1934 (15 U.S.C. 78c–4) and 

§ 242.803 of this chapter, or to amend 

such application or registration. 

By the Commission. 

Dated: April 6, 2022. 

Vanessa A. Countryman, 

Secretary. 

Appendix A 

Note: Form SBSEF will not appear in the 

Code of Federal Regulations. 

BILLING CODE 8011–01–P 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 29005 


jspears on DSK121TN23PROD with PROPOSALS2EP11MY22.003</GPH>
29006 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 


jspears on DSK121TN23PROD with PROPOSALS2EP11MY22.004</GPH>
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 29007 


jspears on DSK121TN23PROD with PROPOSALS2EP11MY22.005</GPH>
29008 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 


jspears on DSK121TN23PROD with PROPOSALS2EP11MY22.006</GPH>
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 29009 


jspears on DSK121TN23PROD with PROPOSALS2EP11MY22.007</GPH>
29010 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 


jspears on DSK121TN23PROD with PROPOSALS2EP11MY22.008</GPH>
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 29011 


jspears on DSK121TN23PROD with PROPOSALS2EP11MY22.009</GPH>
29012 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 


jspears on DSK121TN23PROD with PROPOSALS2EP11MY22.010</GPH>
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 29013 


jspears on DSK121TN23PROD with PROPOSALS2EP11MY22.011</GPH>
29014 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

Appendix B 

■ 19. Add § 249.2002 to read as follows: 

§ 249.2002 Submission cover sheet, for 

rule and product submissions. 

This submission cover sheet shall be 

used by registered security-based swap 

execution facilities for making 

submissions pursuant to Rules 804 

through 807, 809, and 816 (§ 242.804 

through 242.807, 242.809, and 242.816). 

Note: The submission cover sheet will 

not appear in the Code of Federal 

Regulations. 


jspears on DSK121TN23PROD with PROPOSALS2EP11MY22.012</GPH>
Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 29015 


jspears on DSK121TN23PROD with PROPOSALS2EP11MY22.013</GPH>
29016 Federal Register / Vol. 87, No. 91 / Wednesday, May 11, 2022 / Proposed Rules 

[FR Doc. 2022–07850 Filed 5–10–22; 8:45 am] 

BILLING CODE 8011–01–C 


jspears on DSK121TN23PROD with PROPOSALS2EP11MY22.014</GPH>