Document ID: SEC-2011-1633-0001
Agency: sec
Document Type: Proposed Rule
Title: Registration of Security-Based Swap Dealers and Major Security-Based Swap Participants
Posted Date: 2011-10-24T04:00Z

[Federal Register Volume 76, Number 205 (Monday, October 24, 2011)]
[Proposed Rules]
[Pages 65784-65884]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-26889]

[[Page 65783]]

Vol. 76

Monday,

No. 205

October 24, 2011

Part II

Securities and Exchange Commission

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17 CFR Parts 240 and 249

Registration of Security-Based Swap Dealers and Major Security-Based 
Swap Participants; Proposed Rule

  Federal Register / Vol. 76 , No. 205 / Monday, October 24, 2011 / 
Proposed Rules  

[[Page 65784]]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240 and 249

[Release No. 34-65543; File No. S7-40-11]
RIN 3235-AL05

Registration of Security-Based Swap Dealers and Major Security-
Based Swap Participants

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: Section 764(a) of Title VII of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act (``Dodd-Frank Act'') requires the 
Securities and Exchange Commission (``Commission'') to issue rules to 
provide for the registration of security-based swap dealers (``SBS 
Dealers'') and major security-based swap participants (collectively, 
``SBS Entities''). Pursuant to this requirement, the Commission is 
proposing new Rules 15Fb1-1 through 15Fb6-1 under the Securities 
Exchange Act of 1934, as amended (the ``Exchange Act''), to provide for 
the registration of SBS Entities. The Commission is also proposing 
forms to facilitate registration (and withdrawal from registration) of 
these entities.

DATES: Comments should be received on or before December 19, 2011.

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/proposed.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number S7-40-11 on the subject line; or
     Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number S7-40-11. This file number 
should be included on the subject line if e-mail is used. To help the 
Commission process and review your comments more efficiently, please 
use only one method. The Commission will post all comments on the 
Commission's Internet Web site (http://www.sec.gov/rules/proposed.shtml). Comments will also be available for Web site 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. All comments received will be posted without 
change; the Commission does not edit personal identifying information 
from submissions. You should submit only information that you wish to 
make available publicly.

FOR FURTHER INFORMATION CONTACT: David W. Blass, Chief Counsel; Joseph 
Furey, Assistant Chief Counsel; or Bonnie Gauch, Special Counsel, 
Division of Trading and Markets, Securities and Exchange Commission, 
100 F Street, NE., Washington, DC 20549-7010.

SUPPLEMENTARY INFORMATION:

Table of Contents:

I. Introduction
    A. Background
    B. General Approach to the SBS Entity Registration Process
    1. Conditional Registration
    i. Implementation Plan and the Last Compliance Date
    ii. Major Security-Based Swap Participant Applicants Registering 
After the Last Compliance Date
    2. Ongoing Registration
    3. Solicitation of Comments on the General Approach to the SBS 
Entity Registration Process
II. Proposed Exchange Act Rules and Forms
    A. Registration Application and Amendment
1. Proposed Rule 15Fb2-1
    i. Form of Application
    ii. Senior Officer Certification
    iii. Electronic Filing
    iv. Standards for Granting or Denying Applications
    v. Request for Comment on Additional Registration Considerations
    2. Amendments to Application Forms: Proposed Rule 15Fb2-3
    B. Associated Persons
    1. Certification
    2. Alternative Process
    C. Termination of Registration
    1. Expiration: Proposed Rule 15Fb3-1
    2. Withdrawal: Proposed Rule 15Fb3-2
    3. Cancellation and Revocation: Proposed Rule 15Fb3-3
    D. Special Requirements for Nonresident SBS Entities
    1. United States Agent for Service of Process
    2. Access to Books and Records of Nonresident SBS Entity
    E. Special Situations
    1. Succession: Proposed Rule 15Fb2-5
    2. Insolvency: Proposed Rule 15Fb2-6
    F. Technical Rules
    1. Electronic Signatures
    2. Temporary Rule To Facilitate Paper Filing of Forms
    G. Forms
    1. Form SBSE
    2. Form SBSE-A
    3. Form SBSE-BD
    4. Form SBSE-C
    5. Form SBSE-W
    6. Tagged Data Formats
    H. Alternative Approaches Considered
III. Request for Comment
IV. Paperwork Reduction Act
    A. Summary of Collection of Information
    B. Proposed Use of Information
    C. Respondents
    D. Total Initial and Annual Reporting and Recordkeeping Burdens
    1. Burden Associated With Filing Application Forms
    2. Burden Associated With Amending Application Forms
    3. Burden Associated With Certification
    4. Burdens Relating to Associated Persons
    5. Burdens on Nonresident SBS Entities
    6. Burden Related to Retention of Manually Signed Signature 
Pages
    7. Burden Associated With Filing Withdrawal Form
    8. Burden Associated With Proposed Temporary Rule 15Fb2-2T
    9. Request for Comment on Burden Estimates
    E. Retention Period of Recordkeeping Requirements
    F. Collection of Information Is Mandatory
    G. Confidentiality
    H. Request for Comment
V. Economic Analysis
    A. Benefits
    B. Costs
    1. Costs Attributable to Filing the Forms
    2. Costs of Certification
    3. Costs Relating to Associated Persons
    4. Costs to Nonresident SBS Entities
    5. Cost of Retaining Manually Signed Signature Pages
    6. Costs Associated With Proposed Temporary Rule 15Fb2-2T
    C. Request for Comment
VI. Consideration of Impact on the Economy
VII. Regulatory Flexibility Act Certification
VIII. Statutory Basis and Text of Proposed Rules

I. Introduction

A. Background

    On July 21, 2010, the President signed the Dodd-Frank Act into 
law.\1\ The Dodd-Frank Act was designed to promote, among other things, 
the financial stability of the United States by improving 
accountability and transparency in the financial system.\2\ Among other 
measures, the Dodd-Frank Act provides the Commission and the Commodity 
Futures Trading Commission (``CFTC'') with authority to regulate 
certain aspects of the over-the-counter (``OTC'') derivatives market, 
where the recent financial crisis demonstrated a need for enhanced 
regulation. The Dodd-Frank Act is intended to provide the Commission

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and the CFTC with effective new regulatory tools to oversee that 
market, which has grown exponentially in recent years and is capable of 
affecting significant sectors of the U.S. economy.
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    \1\ The Dodd-Frank Wall Street Reform and Consumer Protection 
Act, Public Law 111-203, 124 Stat. 1376 (2010).
    \2\ See id., at Preamble.
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    Title VII of the Dodd-Frank Act broadly categorizes covered 
products as ``swaps,'' \3\ regulated primarily by the CFTC, ``security-
based swaps,'' \4\ regulated primarily by the Commission, or ``mixed 
swaps,'' jointly regulated by the Commission and the CFTC.\5\ Among 
other things, the Dodd-Frank Act prohibits any person from acting as a 
``security-based swap dealer'' \6\ or ``major security-based swap 
participant'' \7\ without being registered with the Commission, and 
requires that the Commission issue rules to provide for registration of 
these SBS Entities.\8\
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    \3\ Defined in Section 1a of the Commodity Exchange Act 
(``CEA'').
    \4\ Defined in Section 3(a)(68) of the Exchange Act. All 
references to the Exchange Act contained in this release refer to 
the Securities Exchange Act of 1934, as modified by the Dodd-Frank 
Act.
    \5\ In addition, Section 712(d)(1) of the Dodd-Frank Act directs 
the Commission and the CFTC, in consultation with the Board of 
Governors of the Federal Reserve System, to propose rules and 
interpretative guidance to further define, among other things, the 
terms ``security-based swap,'' ``swap dealer,'' ``security-based 
swap dealer,'' ``major swap participant,'' and ``major security-
based swap participant.'' The Commission and CFTC jointly proposed 
further rules and guidance with respect to the dealer and 
participant definitions on December 7, 2010. Further Definition of 
``Swap Dealer,'' ``Security-Based Swap Dealer,'' ``Major Swap 
Participant,'' ``Major Security-Based Swap Participant'' and 
``Eligible Contract Participant,'' Exchange Act Release No. 63452 
(Dec. 7, 2010), 75 FR 80174 (Dec. 10, 2010) (the ``Intermediary 
Definitions Release''). The Commission and CFTC jointly proposed 
further rules and guidance with respect to the definitions of 
``swap'', ``security-based swap'', and other terms on April 29, 
2011. Further Definition of ``Swap, '' ``Security-Based Swap, '' and 
``Security-Based Swap Agreement''; Mixed Swaps; Security-Based Swap 
Agreement Recordkeeping, Exchange Act Release No. 64372 (Apr. 29, 
2011), 76 FR 29818 (May 23, 2011)).
    \6\ Subject to certain exceptions, Exchange Act Section 
3(a)(71)(A) defines ``security-based swap dealer'' to mean any 
person who: (i) Holds themself out as a dealer in security-based 
swaps; (ii) makes a market in security-based swaps; (iii) regularly 
enters into security-based swaps with counterparties as an ordinary 
course of business for its own account; or (iv) engages in any 
activity causing it to be commonly known in the trade as a dealer or 
market maker in security-based swaps. See also supra note 5.
    \7\ Exchange Act Section 3(a)(67)(A) defines ``major security-
based swap participant'' to mean ``any person: (i) who is not a 
security-based swap dealer; and (ii)(I) who maintains a substantial 
position in security-based swaps for any of the major security-based 
swap categories, as such categories are determined by the 
Commission, excluding both positions held for hedging or mitigating 
commercial risk and positions maintained by any employee benefit 
plan (or any contract held by such a plan) as defined in paragraphs 
(3) and (32) of Section 3 of the Employee Retirement Income Security 
Act of 1974 (29 U.S.C. 1002) for the primary purpose of hedging or 
mitigating any risk directly associated with the operation of the 
plan; (II) whose outstanding security-based swaps create substantial 
counterparty exposure that could have serious adverse effects on the 
financial stability of the United States banking system or financial 
markets; or (III) that is a financial entity that (aa) is highly 
leveraged relative to the amount of capital such entity holds and 
that is not subject to capital requirements established by an 
appropriate Federal banking regulator; and (bb) maintains a 
substantial position in outstanding security-based swaps in any 
major security-based swap category, as such categories are 
determined by the Commission.'' See also supra note 5.
    \8\ The Commission has concluded that SBS Entities that were not 
registered with the Commission as of the July 16, 2011, effective 
date of Section 15F of the Exchange Act are permitted to lawfully 
continue their business absent Commission action with respect to the 
SBS Entity registration regime. See Temporary Exemptions and Other 
Temporary Relief, Together With Information on Compliance Dates for 
New Provisions of the Securities Exchange Act of 1934 Applicable to 
Security-Based Swaps, Exchange Act Release No. 64678 (Jun. 15, 
2011), 76 FR 36287, 36299-300 (Jun. 22, 2011) (the ``Effective Date 
Release'').
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    The Commission is proposing Rules 15Fb1-1 to 15Fb6-1 under the 
Exchange Act to establish procedures for an SBS Entity to register with 
the Commission and additional provisions related to such registration, 
including: (1) A requirement to amend an inaccurate application for 
registration; (2) procedures for succession to, or withdrawal from, 
registration; and (3) procedures for the Commission to cancel or revoke 
registration.\9\ The proposed rules would also establish a requirement 
for an SBS Entity to certify that none of its associated persons that 
effect, or are involved in effecting, security-based swaps on the SBS 
Entity's behalf is subject to statutory disqualification. The 
Commission is proposing forms to facilitate SBS Entities' registration 
and withdrawal from registration.
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    \9\ The Exchange Act gives the Commission broad authority to 
craft a registration regime for SBS Entities that helps the 
Commission accomplish its missions of protecting investors, 
maintaining fair, orderly, and efficient markets, and facilitating 
capital formation. For example, Section 15F(b)(2) of the Exchange 
Act states that an application for registration ``shall be made in 
such form and manner as prescribed by the Commission, and shall 
contain such information as the Commission considers necessary 
concerning the business in which the applicant is or will be 
engaged.'' In addition, Section 15F(d)(1) of the Exchange Act 
directs the Commission to ``adopt rules for persons that are 
registered as [SBS Entities] under [Section 15F].''
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    The proposed rules and forms would address additional registration 
requirements applicable to nonresident SBS Entities, including 
requirements to appoint a U.S. agent for service of process, and to 
provide an opinion of counsel regarding the entity's ability to (1) 
Provide the Commission with prompt access to books and records, and (2) 
be subject to onsite examinations and inspections by the Commission.
    In proposing these rules and forms, the Commission is mindful that 
there are similarities and differences among SBS Entities that hold 
substantial positions in security-based swaps and dealers and 
participants that hold substantial positions in other financial 
products. The Commission also understands that there are similarities 
and differences between the security-based swap market and the markets 
for other financial products. The Commission believes that, both over 
time and as a result of Commission proposals to implement the Dodd-
Frank Act, further information concerning the application of existing 
registration and regulatory regimes to SBS Entities and the development 
of the security-based swap market may alter certain considerations 
relating to the registration of SBS Entities. During the process of 
implementing the Dodd-Frank Act and beyond, the Commission intends to 
closely monitor developments relating to SBS Entities and the security-
based swap markets. In particular, the Commission intends to evaluate 
further information concerning the range of market participants that 
may register as SBS Entities, the activities of and services provided 
by such market participants, whether these activities and services are 
identical or similar to activities and services already regulated by 
the federal securities laws or other laws, and how applicable existing 
registration and regulatory regimes interact with one another and apply 
to SBS Entities.

B. General Approach to the SBS Entity Registration Process

    The Commission's proposed registration requirements for SBS 
Entities largely are modeled after the registration regime applicable 
to broker-dealers,\10\ while also taking into account the CFTC's 
registration requirements for intermediaries.\11\ We preliminarily 
believe that because the proposed requirements would closely align with 
current requirements for our other registrants, and would be similar to 
the registration regime for CFTC registrants, this approach would 
provide the Commission and the staff with key information about 
registrants while leveraging Commission staff experience and standing 
procedures to facilitate a

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substantive review of applications for registration and inspections of 
registrants. In addition, the broker-dealer registration regime should 
be familiar to, and understood by, many SBS Entities. In particular, 
SBS Dealers may already be registered and regulated as broker-dealers 
or may be affiliated with a broker-dealer. Moreover, if an SBS Dealer 
enters into security-based swap transactions with persons that are not 
eligible contract participants, it must register as a broker-dealer 
unless an exemption or exception applies.\12\ The proposed approach 
would seek to ensure that a market participant registered as both an 
SBS Entity and a broker-dealer is subject to a similar and 
complementary registration regime. It could therefore both ease the 
regulatory burden on such entities and help to establish a consistent 
regime for regulating SBS Dealers and dealers of other securities.
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    \10\ This includes rules promulgated under Sections 15(b) and 
17(a) of the Exchange Act.
    \11\ 17 CFR 3.1 et seq. Futures commission merchants (``FCMs'') 
and introducing brokers presently register with the CFTC by filing 
Form 7-R with the National Futures Association. The CFTC has 
proposed to register swap dealers and major swap participants 
through this same process. See 75 FR 71379, at 71382 (Nov. 23, 
2010).
    \12\ See 15 U.S.C. 78c(a)(5) and 78o(a).
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    As explained below, our proposed approach to the application 
process would build on our existing broker-dealer registration forms--
most notably, Form BD--but also is designed to avoid unnecessary 
duplication by permitting SBS Entities that are otherwise registered or 
registering as intermediaries with either the Commission or the CFTC to 
complete simplified application forms. Under this process, SBS Entities 
registered or registering with the Commission as broker-dealers or with 
the CFTC as swap dealers or major swap participants would submit a 
shorter SBS Entity registration form along with a copy of their 
existing registration form.
    An SBS Entity would be permitted to file an application for 
registration as soon as final registration rules and forms are adopted. 
Further, each SBS Entity would need to be registered (at least 
conditionally) by the compliance date set forth in the final 
registration rules. In certain circumstances, SBS Entities would be 
required to apply for conditional registration, which they could 
convert to ongoing registration by fulfilling the applicable 
requirements set forth in the proposed rules. As discussed in more 
detail below, those requirements would differ depending on whether: (1) 
The application was filed with the Commission before or after the 
compliance dates for certain new rules to be adopted pursuant to 
Section 15F of the Exchange Act; and (2) the applicant is an SBS Dealer 
or instead is a major security-based swap participant. Conditional 
registration would expire after a specified time, and a conditionally 
registered SBS Entity would be required to cease its security-based 
swap business if it had not satisfied the applicable conditions to 
convert its registration to an ongoing registration. The Commission 
could, however, extend any conditional registration for good cause.
    Although the Commission may be familiar with SBS Entities that are 
already registered with the Commission (e.g., broker-dealers or 
investment advisers), the Commission is mindful that SBS Entities will 
nonetheless constitute a new class of registrants that may present 
business models and practices with which the Commission will need to 
gain experience. Accordingly, the Commission expects that its careful 
review of each application for registration and each certification on 
Form SBSE-C (the ``Senior Officer Certification'' described further 
below) will not only facilitate the Commission's decision to grant or 
deny registration to an SBS Entity, but also help to develop this 
experience and aid in the identification of areas for further inquiry, 
including, as may be appropriate, examinations of particular firms or 
business units by the Commission's Office of Compliance Inspections and 
Examinations (``OCIE''), in order to establish an effective ongoing 
examination program for such entities.\13\
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    \13\ In addition to SBS Entities, the Dodd-Frank Act requires 
the Commission to register for the first time security-based swap 
execution facilities, security-based swap data repositories, 
municipal advisors, and certain private fund advisers. In light of 
these new categories of registrants, the Commission is presently 
reviewing the various standards and processes it uses to facilitate 
registration of the many types of entities required to register with 
it--including broker-dealers, investment advisers, nationally 
recognized statistical rating organizations, transfer agents, 
clearing agencies, exchanges, national securities associations, and 
others. In this regard, the Commission plans to issue a concept 
release designed to collect information and evaluate different 
aspects of these registration standards and processes. In 
particular, the Commission intends to consider the policy objectives 
of registration, how best to achieve those policy objectives through 
registration and other means, and the relative benefits and costs of 
the various means available. Through such a concept release, the 
Commission would hope to gain insight into how evolving market 
practices, technology, and other considerations could affect or be 
affected by the Commission's approach to the registration processes 
for various types of entities. Recognizing that the Commission has 
finite resources to allocate to registration, examination, and 
enforcement functions, the Commission intends to use the concept 
release to seek comment as to how it can most effectively and 
efficiently utilize these registration and other functions to help 
ensure that entities registered by the Commission to perform 
important financial intermediary and other functions in the 
securities markets have the capability to carry out those functions 
and to fully comply with all applicable regulatory requirements.
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    OCIE currently uses risk-based methodologies to focus Commission 
examination resources on firms and activities that could pose the 
greatest risk to investors and the integrity of the markets. Consistent 
with that general approach, OCIE and the Division of Trading and 
Markets intend jointly to perform a substantive review of applications 
and Senior Officer Certifications received for registration of SBS 
Entities to determine whether additional Commission action is 
appropriate and to evaluate potential registrants' risk for purposes of 
prioritizing examinations.
1. Conditional Registration
    Under the proposed rules, an SBS Entity seeking Commission 
registration generally would be required to apply for conditional 
registration by submitting a complete application to the Commission. 
The Commission would then grant conditional registration if it finds 
that the SBS Entity's application is complete, except that the 
Commission may institute proceedings to determine whether the 
Commission should deny conditional registration if the applicant is 
subject to a statutory disqualification or the Commission is aware of 
inaccurate statements in the application.\14\ The Commission would 
notify the entity electronically when conditional registration is 
granted, and would make information regarding registration status 
publicly available.
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    \14\ Such proceedings would include notice of the grounds for 
denial under consideration and opportunity for hearing, and that at 
the conclusion of such proceedings, the Commission would grant or 
deny such registration. See proposed Rule 15Fb2-1(d)(1).
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    For an SBS Entity to convert its conditional registration to 
ongoing registration, it would be required to submit a Senior Officer 
Certification signed by one of its knowledgeable senior officers. The 
contents of the Senior Officer Certification and the time frame within 
which it must be submitted to the Commission are described more fully 
below and specified in the rule. Generally, however, the Senior Officer 
Certification would state that, after due inquiry, the senior officer 
has reasonably determined that the SBS Entity has the operational, 
financial, and compliance capabilities to act as an SBS Dealer or a 
major security-based swap participant, as applicable, and has 
documented the process by which he or she reached such determination. 
We preliminarily believe that this certification requirement would help 
to protect both investors and markets from potential problems arising 
from SBS Entities that may lack the capabilities necessary to operate 
their businesses in compliance with their regulatory obligations.

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i. Implementation Plan and the Last Compliance Date
    After proposing all of the key rules under Title VII, the 
Commission intends to seek public comment on a detailed implementation 
plan that will permit a roll-out of the new securities-based swap 
requirements in a logical, progressive, and efficient manner, while 
minimizing unnecessary disruption and costs to the markets. Among other 
things, the implementation plan would inform the timing of the 
requirement for SBS Entities to register with the Commission, including 
whether such registration requirement would exist prior to the latest 
date, designated by the Commission, by which SBS Dealers and major 
security-based swap participants must begin complying with all of the 
initial rules promulgated under Section 15F of the Exchange Act (``Last 
Compliance Date'').\15\
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    \15\ The term ``Last Compliance Date'' is defined in proposed 
Rule 15Fb2-1(e). The Commission anticipates that the Last Compliance 
Date would be clearly stated in the relevant adopting release and 
prominently announced on the Commission's Web site.
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    The Commission believes it is possible that SBS Entities may be 
required to register before the Last Compliance Date.\16\ For these 
``transitional'' applicants, whether SBS Dealer or major security-based 
swap participant, there would be a period of time before the Last 
Compliance Date when the Senior Officer Certification would be either 
unduly burdensome for registrants (e.g., a rule has been promulgated by 
the Commission under Section 15F of the Exchange Act, but compliance 
with that rule is not yet required) or inappropriate for meeting the 
goals of the certification (e.g., the Commission has not yet adopted a 
significant rule under Section 15F of the Exchange Act, so the 
certification would not cover compliance in an important regulatory 
area).
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    \16\ The Commission notes that, regardless of the timing of the 
Last Compliance Date, a registered SBS Entity would be required to 
comply with certain self-operative provisions in Exchange Act 
Section 15F upon registration (conditional or otherwise), absent 
further Commission action. See Effective Date Release, supra note 8.
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    To address this potential transition issue, we preliminarily 
believe it is appropriate to propose a conditional registration process 
that would permit registration without a Senior Officer Certification 
prior to the Last Compliance Date. This process would be available to 
all applicants (whether SBS Dealer or major security-based swap 
participant) and would, among other things, facilitate the 
identification of existing SBS Entities in advance of the compliance 
date of certain substantive requirements. Conditional registration 
would be effective once the Commission grants such conditional 
registration and would expire on the Last Compliance Date (unless 
conditional registration was extended pursuant to paragraphs (b) or (c) 
of proposed Rule 15Fb3-1). Ongoing registration of these conditionally 
registered SBS Entities would be conditioned on, among other things, 
the registrant providing the Senior Officer Certification to the 
Commission on or before the Last Compliance Date. As described above, 
fulfillment of this requirement by an SBS Entity would provide the 
Commission with some assurance that the SBS Entity understands and has 
the ability to undertake its business in compliance with the applicable 
requirements. Once a registrant submits its Senior Officer 
Certification, the Commission would consider converting its conditional 
registration to an ongoing registration.\17\ However, whether or not a 
conditional registrant provides the Senior Officer Certification on or 
before the Last Compliance Date, the Commission would retain the 
flexibility to extend conditional registration for good cause.
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    \17\ Submission of a Senior Officer Certification also would 
toll expiration of the SBS Entity's conditional registration for 
thirty days, if necessary to facilitate the Commission's review, or 
such longer period as the Commission finds for good cause (see 
proposed Rule 15Fb3-1).
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    Once the Last Compliance Date has occurred, the conditional 
registration process for SBS Dealers would effectively collapse into 
the ongoing registration process and any SBS Dealer would need to 
submit its Senior Officer Certification with its application (i.e., 
after the Last Compliance Date, SBS Dealers could only apply for 
ongoing registration). Major securities-based swap participants could 
still conditionally register (as described below) because of challenges 
separate and apart from implementation of Section 15F of the Exchange 
Act.
ii. Major Security-Based Swap Participant Applicants Registering After 
the Last Compliance Date
    As noted in the proposed definition of major security-based swap 
participant,\18\ an entity whose security-based swap portfolio crosses 
established thresholds in a fiscal quarter would have a two-month grace 
period following the end of that quarter to submit a complete 
application for registration as a major security-based swap 
participant. The Commission preliminarily believes that, while there is 
likely to be some advance notice of an impending status change due to 
ongoing monitoring of portfolios in the ordinary course of business, an 
entity that would likely fall within the definition of a ``major 
security-based swap participant'' because of activities in a given 
fiscal quarter may not have adequate compliance systems in place within 
two months after the end of the triggering quarter to allow the entity 
to provide the Commission with a Senior Officer Certification. 
Therefore, the Commission proposes to conditionally register such new 
participants based on their filing of a complete application before the 
expiration of the two-month grace period, subject to a requirement that 
they provide a Senior Officer Certification to the Commission within 
four months of the submission of their complete application (i.e., 
within six months after the end of the triggering quarter). This 
proposal is intended to balance the additional time a new major 
security-based swap participant may require to build out its compliance 
structure with the Commission's strong interest in having new 
registrants promptly comply with applicable federal securities laws. 
Such conditional registration would be effective once the Commission 
grants conditional registration and would expire four months after 
receipt of that application unless the firm files a Senior Officer 
Certification with the Commission within that time frame.
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    \18\ See Intermediary Definitions Release, supra note 5, at 103.
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    As with conditional registrations granted prior to the Last 
Compliance Date, once a major security-based swap participant that 
applies for registration after the Last Compliance Date submits its 
Senior Officer Certification, the Commission could consider converting 
its conditional registration to an ongoing registration, as described 
below. In addition, whether or not a conditionally registered major 
security-based swap participant provides the Senior Officer 
Certification within four months after submitting its application, the 
Commission retains the flexibility to extend the conditional 
registration for good cause.
    The Commission notes that the conditional registration mechanism 
for major security-based swap participants would remain in place even 
after the Last Compliance Date (i.e., major security-based swap 
participants could always avail themselves of a conditional 
registration period).
2. Ongoing Registration
    The proposed rules would provide for the ongoing registration of 
all conditionally registered SBS Entities following their fulfillment 
of the applicable requirements, as well as SBS

[[Page 65788]]

Dealers registering with the Commission after the Last Compliance Date 
(and, therefore would not be required to conditionally register). As 
described above, an SBS Entity would need to submit both a completed 
application and a Senior Officer Certification to obtain ongoing 
registration. An SBS Entity that was conditionally registered would not 
be required to submit a new application. At the time it applies for 
ongoing registration, however, the SBS Entity would be required to 
amend its application to correct any information that has become 
inaccurate for any reason.
    The Commission would grant ongoing registration if it finds that 
the requirements of Section 15F(b) of the Exchange Act are satisfied, 
but the Commission would institute proceedings to determine whether the 
Commission should deny ongoing registration if the Commission does not 
make such a finding, if it finds that the applicant is subject to a 
statutory disqualification, or if it is aware of inaccurate statements 
in the application or certification.\19\ The Commission would notify 
the entity electronically when ongoing registration is granted, and 
would make information regarding registration status publicly 
available. Pursuant to proposed Rule 15Fb3-1(a), ongoing registration 
would be effective until any cancellation, revocation or withdrawal of 
the registration or on any other event the Commission determines should 
trigger expiration.
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    \19\ Such proceedings would include notice of the grounds for 
denial under consideration and opportunity for hearing, and that at 
the conclusion of such proceedings, the Commission would grant or 
deny such registration. See proposed Rule 15Fb2-1(d)(2).
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3. Solicitation of Comments on the General Approach to the SBS Entity 
Registration Process
    We request comment on this approach to the SBS Entity registration 
process.
    Q-1. Should the Commission model the registration regime applicable 
to SBS Entities more closely after one or more other registration 
regimes regulated by the Commission (e.g., securities exchanges or 
associations,\20\ clearing agencies,\21\ or investment advisers \22\), 
self regulatory organizations (``SROs''),\23\ or other regulators? \24\ 
If so, please describe which model should be followed and why.
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    \20\ 15 U.S.C. 78f(b)(1) and 15 U.S.C. 78o-3(b)(1)-(2).
    \21\ 15 U.S.C. 78q-1(b)(3)(A).
    \22\ 15 U.S.C. 80b-3(c).
    \23\ See, e.g., National Association of Securities Dealers Rules 
1013 and 1014; Chicago Board Options Exchange Rules 3.5(c)(ii), 
8.83(b), and 44.12(b); and NYSE Arca Rule 7.22(a).
    \24\ See, e.g., National Futures Association Registration Rules 
(which can be found at http://www.nfa.futures.org/nfamanual/NFAManualTOC.aspx?Section=8).
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    Q-2. Does the conditional process for SBS Entity registration 
outlined above provide a practicable solution to the potential timing 
issues raised by the implementation of Section 15F of the Exchange Act? 
Are there additional or alternative conditions or mechanisms that would 
be appropriate for addressing those issues?
    Q-3. Does the conditional process for major security-based swap 
participant registration outlined above provide a practicable solution 
to the potential timing issues raised by the look-back features in the 
proposed definition of ``major security-based swap participant'' 
definition? Are there additional or alternative conditions or 
mechanisms that would be appropriate for addressing those issues?
    Q-4. Should the Commission delay all registrations until the Last 
Compliance Date instead of adopting a conditional registration process? 
Why or why not?
    Q-5. Should the Commission consider granting conditional 
registration automatically based on the receipt of a completed 
application or some other or additional documents? If so, why?
    Q-6. Should the Commission notify the SBS Entity that it has 
granted conditional or ongoing registration prior to making the SBS 
Entity's registration status publicly available? If so, why and what 
should be the timing difference?
    Q-7. Should the Commission provide additional guidance regarding 
the process for institution of proceedings? For instance, should the 
Commission include timeframes within which proceedings would be 
instituted and/or a decision to grant or deny registration based on 
those proceedings should be provided (e.g., Exchange Act Section 
15(b)(1))? If so, what timeframes or other guidance would be 
appropriate and why?
    Q-8. Is it appropriate to seek to minimize duplication by 
permitting registered intermediaries to follow a registration process 
that uses simplified forms? Why or why not?
    Q-9. Should these intermediaries be required to file their existing 
registration forms with the Commission as part of this process, or 
should they be required to authorize the Commission to obtain access to 
those forms at the relevant repository (e.g., the Financial Industry 
Regulatory Authority (``FINRA'') or the National Futures Association 
(``NFA''))?
    Q-10. Should SBS Entities be afforded more time (beyond the Last 
Compliance Date) to prepare and provide their Senior Officer 
Certification? Why or why not? If so, how much additional time would be 
appropriate?
    Q-11. Should major security-based swap participants that file 
applications after the Last Compliance Date be afforded more or less 
than four months to prepare and provide their Senior Officer 
Certification? Why or why not?
    Q-12. What would be the advantages and disadvantages and costs and 
benefits of the Commission adopting an approach to SBS Entity 
registration that encompasses a more substantive inquiry concerning the 
business of an applicant? What would be the impact on market 
participants, including investors?
    Q-13. Are there additional or alternative mechanisms that the 
Commission could employ to better protect markets and market 
participants and minimize the burden on registrants while meeting the 
regulatory objectives of a registration scheme for SBS Entities?

Commenters are encouraged to identify other possible solutions that 
would allow the Commission to promptly review and consider SBS Entity 
registration applications so they would not experience undue 
interruptions in business while also providing the Commission 
reasonable assurance that they have the ability to carry out their 
business and are able to comply with applicable federal securities 
laws.

II. Proposed Exchange Act Rules and Forms

A. Registration Application and Amendment

1. Proposed Rule 15Fb2-1
    Proposed Rule 15Fb2-1 would set forth the method through which SBS 
Entities could apply for registration with the Commission. Essentially, 
the forms and process for filing applications and other documents 
electronically with the Commission would be identical for SBS Dealers 
and major security-based swap participants. This proposed rule also 
would describe the timing of such filings and the standard of review 
applied by the Commission in determining whether to grant or deny 
registration, which may differ slightly for SBS Dealers and major 
security-based swap participants, depending on the type of registration 
the firm is seeking. While it may be appropriate for certain rules 
applicable to SBS Dealers to differ from those applicable to major 
security-based swap participants, the Commission preliminarily believes 
that

[[Page 65789]]

the registration rules and forms need not differ significantly because 
the information the Commission would need to determine whether 
registration is appropriate is similar for both types of entities.
i. Form of Application
    Paragraph (a) of proposed Rule 15Fb2-1 would provide that an SBS 
Entity would apply for registration electronically on Form SBSE, Form 
SBSE-A, or Form SBSE-BD, as appropriate, in accordance with the 
instructions to the form. In general:
     SBS Entities registered or registering with the Commission 
as broker-dealers would apply for registration using Form SBSE-BD;
     SBS Entities registered or registering with the CFTC as 
swap dealers or major swap participants (and not also registered or 
registering with the Commission as broker-dealers) would apply for 
registration using Form SBSE-A; and
     SBS Entities that do not fit either of the above 
categories would apply for registration using Form SBSE.

Specifics regarding each of these forms and their differences and uses 
are discussed in more detail below. These forms would be used to 
register with the Commission regardless of whether an SBS Entity was 
applying for conditional or ongoing registration.
    The Commission solicits comment on the use of forms to register 
with the Commission.
    Q-14. Would an alternative mechanism be more appropriate for 
registering SBS Entities? If so, which one and why?
    Q-15. Should the registration forms differ based on whether the 
entity is registering as an SBS Dealer or major security-based swap 
participant? If so, how?
ii. Senior Officer Certification
    Paragraph (b) of proposed Rule 15Fb2-1 would require that each SBS 
Entity provide the Commission with a certification on Form SBSE-C to 
facilitate the Commission's review of each firm's application for 
ongoing registration. A knowledgeable senior officer of the SBS Entity 
would be required to sign the certification,\25\ which is designed to 
provide the Commission with the applicant's assurance that the 
applicant has the capabilities necessary to operate as an SBS Entity 
and, therefore, that the applicant should qualify for registration 
under Exchange Act Section 15F(b). Accordingly, the certification would 
assist the Commission in determining whether to grant the SBS Entity 
ongoing registration. Such an informed determination, based in part on 
the certification, will help the Commission maintain orderly and 
efficient markets and protect investors by helping to ensure that the 
Commission only grants registration to SBS Entities that can attest 
that they possess the operational, financial, and compliance 
capabilities to conduct business as an SBS Entity. Specifically, under 
the proposal, each SBS Entity must have a senior officer certify that, 
after due inquiry, he or she has reasonably determined that the SBS 
Entity has the operational,\26\ financial,\27\ and compliance \28\ 
capabilities to act as an SBS Entity. In addition, the proposal would 
require that the senior officer certify that he or she has documented 
the process by which he or she reached that determination. While the 
Commission has required regulated entities to provide a certification 
in other contexts,\29\ a requirement that an applicant or regulated 
entity certify as to its ability to engage in the business it would be 
registered to do is relatively new.\30\
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    \25\ In accordance with Proposed Rule 15Fb1-1(b), the SBS Entity 
will need to maintain a manually signed copy of this certification 
as part of its books and records until at least three years after 
the certification was filed with the Commission.
    \26\ The concept of ``operational capability'' can be an 
important regulatory consideration because an SBS Entity with 
insufficient infrastructure, technology, and human resources 
presents operational risks that may adversely impact its 
counterparties and the broader market--e.g., if transactions are 
inaccurately documented, not documented at all, or if insufficient 
margin is collected. See Trade Acknowledgment and Verification of 
Security-Based Swap Transactions, Exchange Act Release No. 63727 
(Jan. 14, 2011), 76 FR 3859, at 3860 (Jan. 21, 2011) (proposing 
release) (discussing the recognition by various parties of the 
importance of operational infrastructure in the over-the-counter 
derivatives market) (the ``Trade Acknowledgement Proposing 
Release''). The Commission expects that a key foundation for the 
Senior Officer Certification would be the capability of an SBS 
Entity to comply with the obligations that would be imposed by the 
Trade Acknowledgment Proposing Release, if adopted, other legal 
obligations applicable to the operations of an SBS Entity, and the 
capability of the SBS Entity to conduct its business as represented 
in the SBS Entity's application for ongoing registration.
    \27\ The concept of ``financial capability'' can be an important 
regulatory consideration because of, among other things, the role 
adequate financing plays in protecting an SBS Entity's 
counterparties and the broader market by ensuring that the SBS 
Entity has sufficient working capital and liquidity for its 
security-based swap business consistent with regulatory requirements 
and as needed to respond to market conditions. The Commission will 
separately propose capital rules for SBS Entities, as required by 
the Dodd Frank Act. 15 U.S.C. 78o-10(e). The Commission expects that 
the capability of an SBS Entity to comply with these obligations, if 
adopted, would form a key foundation for the Senior Officer 
Certification.
    \28\ The concept of ``compliance capability'' can be an 
important regulatory consideration because of, among other things, 
the wholesale creation of a new regulatory regime for security-based 
swaps under the Dodd-Frank Act. For example, in proposing business 
conduct rules for SBS Entities, the Commission proposed to require 
that each SBS Entity ``[establish, maintain, and enforce] written 
policies and procedures addressing the supervision of the types of 
security-based swap business in which the [SBS Entity] is engaged 
that are reasonably designed to achieve compliance with applicable 
securities laws and the rules and regulations thereunder.'' Business 
Conduct Standards for Security-Based Swap Dealers and Major 
Security-Based Swap Participants, Exchange Act Release No. 64766 
(Jun. 29, 2011), 76 FR 42396, (Jul. 18, 2011), as corrected by 
Exchange Act Release No. 64766, 76 FR 46668 (Aug. 3, 2011) 
(proposing release). The Commission expects that development and 
implementation of such a compliance regime, if adopted, would serve 
as a key foundation for the Senior Officer Certification.
    \29\ See, e.g., 17 CFR 240.15c3-5, 17 CFR 240.13a-14, and 17 CFR 
270.30a-2.
    \30\ See, e.g., Registration of Municipal Advisors, Exchange Act 
Release No. 63576 (Dec. 20, 2010), 76 FR 824, (Jan. 6, 2011) 
(proposing release) (the ``Registration of Municipal Advisors 
Proposing Release'').
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    The Commission preliminarily believes that receipt of a Senior 
Officer Certification would provide assurances to the Commission that 
each SBS Entity has the requisite capabilities to operate in the 
capacity for which it seeks registration. The Senior Officer 
Certification is designed to require a deliberate and thoughtful self-
assessment by each SBS Entity of its capabilities and thus should 
provide assurances to potential investors, customers of, and 
counterparties to an SBS Entity that the SBS Entity has the requisite 
capabilities to act in that capacity. Further, this Senior Officer 
Certification requirement could help prevent disorderly and unstable 
markets that could result from the failure of a registered SBS Entity 
that lacks the requisite capabilities to operate its business in a 
registered capacity. The Senior Officer Certification also may enhance 
market participants' ability to assess the counterparty credit risk 
associated with a particular SBS Entity counterparty. In this way, the 
Senior Officer Certification should help to protect investors and other 
market participants from SBS Entities that are not competent to engage 
in that business, lack the financial resources to do so, or are unable 
or unwilling to comply with applicable law. The Commission thus 
preliminarily believes that the Senior Officer Certification could help 
the efficient functioning of the market and enhance the confidence of 
investors and other market participants.
    The Senior Officer Certification requirement, in other words, is 
meant to address many of the same considerations that arise during the 
in-depth review by the Commission and its staff, or, in some cases, 
SROs, prior to

[[Page 65790]]

granting registration to certain applicants.\31\ For example, under 
Sections 6(b) and 19(a) of the Exchange Act, an exchange may not be 
registered unless the Commission finds that the exchange ``is so 
organized and has the capacity to be able to carry out the purposes of 
the Exchange Act and to comply, and [* * *] to enforce compliance by 
its members and persons associated with its members, with the 
provisions of [the Exchange Act], the rules and regulations thereunder, 
and the rules of the exchange.'' \32\ Similarly, under Section 17A of 
the Exchange Act, a clearing agency may not be registered unless the 
Commission finds that the agency ``has the capacity to be able to 
facilitate the prompt and accurate clearance and settlement of 
securities transactions and derivative agreements, contracts and 
transactions for which it is responsible, to safeguard securities and 
funds in its custody or control or for which it is responsible, to 
comply with the provisions of [the Exchange Act] and the rules and 
regulations thereunder, [and] to enforce [* * *] compliance by its 
participants with the rules of the clearing agency, and to carry out 
the purposes of this section.'' \33\ To this end, the Commission has 
published a series of standards ``that the [staff] will use in 
reviewing the organizations, capacities and rules of clearing agencies 
that currently are registered temporarily with the Commission and of 
clearing agencies that may apply for registration * * *.'' \34\ Broker-
dealers that register with the Commission under Section 15(b) also must 
become a member of an SRO, and SRO rules generally incorporate 
membership application procedures that include, among other things, 
assessments by the SRO of the broker-dealer's operational, financial, 
and compliance capabilities.\35\
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    \31\ See, e.g., 15 U.S.C. 78f(b)(1) (regarding registration of 
national securities exchanges), and 15 U.S.C. 78q-1(b)(3)(A) 
(regarding registration of clearing agencies). See also 15 U.S.C. 
78o-3(b)(1) and (2) (regarding registration of national securities 
associations). In addition, the Commission recently proposed rules 
governing the registration of security-based swap data repositories 
(``SDRs''), security-based swap execution facilities (``SB SEFs''), 
security-based swap clearing agencies (``SBS CAs''), and municipal 
advisors that relate to potential registrants' operational, 
financial, and compliance capabilities. For example, the proposed 
registration rules for security-based swap data repositories are 
intended to, among other things, assure the Commission that ``an SDR 
is so organized, and has the capacity, to be able to assure the 
prompt, accurate, and reliable performance of its functions as an 
SDR, comply with any applicable provision of the Federal securities 
laws and the rules and regulations thereunder, and carry out its 
functions in a manner consistent with the purposes of Exchange 
Act.'' These proposed rules may also require an SDR to file with the 
Commission, as a condition of registration or continued 
registration, a review relating to the SDR's operational capacity 
and ability to meet its regulatory obligations. Such review could be 
in the form of a report conducted by the SDR, an independent third 
party, or both. Security-Based Swap Data Repository Registration, 
Duties, and Core Principles, Exchange Act Release No. 63347 (Nov. 
19, 2010), 75 FR 77306 (Dec. 10, 2010) (proposing release). 
Similarly, the proposed registration rules for security-based swap 
execution facilities are designed to assure the Commission that a 
registrant ``has adequate financial, operational, and managerial 
resources to discharge each responsibility of the SB SEF, as 
determined by the Commission.'' Registration and Regulation of 
Security-Based Swap Execution Facilities, Exchange Act Release No. 
63825 (Feb. 2, 2011), 76 FR 10948 (Feb. 28, 2011) (proposing 
release). Among other things, these rules state in part that ``the 
financial resources of a SB SEF shall be considered to be adequate 
if the value of the financial resources exceeds the total amount 
that would enable the SB SEF to cover its operating costs for a one 
year period.'' The Commission also proposed registration rules for 
security-based swap clearing agencies that require, among other 
things, registrants to establish, maintain, and enforce written 
policies and procedures reasonably designed to ensure that their 
systems provide adequate levels of capacity, resiliency, and 
security. Such policies and procedures shall, at a minimum: (i) 
Establish reasonable current and future capacity estimates; (ii) 
conduct periodic capacity stress tests of critical systems to 
determine such systems' ability to process transactions in an 
accurate, timely, and efficient manner; (iii) develop and implement 
reasonable procedures to review and keep current its system 
development and testing methodology; (iv) review the vulnerability 
of its systems and data center computer operations to internal and 
external threats, physical hazards, and natural disasters; and (v) 
establish adequate contingency and disaster recovery plans. These 
rules further require that clearing agencies that provide central 
counterparty (``CCP'') services need to have a qualified person 
conduct a review of models that are used to set margin levels, along 
with related parameters and assumptions, in order to assure that the 
models perform in a manner that facilitates prompt and accurate 
clearance and settlement of transactions. In determining whether a 
person is qualified to conduct the model validation, clearing 
agencies providing CCP services could consider several factors, 
including the person's experience in validating margin models, 
expertise in risk management generally, and understanding of the 
clearing agency's operations and procedures. Clearing Agency 
Standards for Operation and Governance, Exchange Act Release No. 
64017 (Mar. 3, 2011), 76 FR 14472 (Mar. 16, 2011) (proposing 
release) (the ``Clearing Agency Standards Proposing Release''). 
Finally, the proposed registration rules for municipal advisors 
would require municipal advisors to certify that they have: ``1) 
sufficient qualifications, training, experience, and competence to 
effectively carry out their designated functions; 2) met, or within 
any applicable timeframe will meet, such standards of training 
experience, and competence, and such other qualifications, including 
testing, for a municipal advisor, required by the Commission, the 
MSRB or any other relevant self-regulatory organization; and 3) the 
necessary understanding of, and ability to comply with, all 
applicable regulatory obligations.'' Registration of Municipal 
Advisors Proposing Release, supra note 30.
    \32\ 15 U.S.C. 78f(b)(1).
    \33\ 15 U.S.C. 78q-1(b)(3)(A).
    \34\ The Commission has established a series of standards ``that 
the [staff] will use in reviewing the organizations, capacities and 
rules of clearing agencies that currently are registered temporarily 
with the Commission and of clearing agencies that may apply for 
registration * * *.'' Regulation of Clearing Agencies, Exchange Act 
Release No. 16900 (Jun. 17. 1980), 45 FR 41920 (June 23, 1980) 
(emphasis added). See also the Clearing Agency Standards Proposing 
Release, supra note 30.
    \35\ See, e.g., NASD Rules 1013 and 1014 (membership application 
review requires a new broker-dealer to, among other things, file a 
detailed business plan, explain its sources of funding, describe the 
educational background and experience of its personnel, and undergo 
a membership interview). Existing FINRA members that wish to enter 
into a materially new business, such as dealing in security-based 
swaps, must also file an application to do so, and those 
applications are similarly reviewed to determine whether the broker-
dealer has the requisite capabilities to conduct the new business. 
NASD Rule 1017. Exchange Act Rule 15b2-2 requires that a new broker-
dealer be examined within six months to evaluate whether the broker-
dealer is operating in conformity with applicable financial 
responsibility rules and again within twelve months to evaluate 
whether it is also operating in conformity with all other applicable 
provisions of the Exchange Act and rules thereunder. 17 CFR 
240.15b2-2(b) & (c).
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    At this time, although we provide guidance above regarding the 
factors a senior officer would use to serve as a foundation for the 
Senior Officer Certification,\36\ we are not proposing a specific 
definition of the term ``operational, financial and compliance 
capabilities.'' Instead, we request comment regarding whether and how 
that phrase should be further defined or interpreted. The Commission 
recognizes that whether an SBS Entity has the operational, financial 
and compliance capabilities to act as an SBS Entity likely will depend 
on its particular facts and circumstances, including, among other 
things: the scope and nature of its security-based swap business; its 
other related financial and business activities; the extent to which it 
is subject to other registration and regulatory requirements or other 
supervisory oversight with respect to its activities; its relationships 
with, and reliance on, affiliates, service providers, and other 
parties; and the extent and nature of its historical involvement in 
security-based swap transactions. Moreover, it may be appropriate to 
consider the capabilities required for this certification by reference 
to regulatory standards. For example, attesting to capabilities might 
include a self-assessment of whether the SBS Entity is capable of 
communicating in a manner that is based on principles of fair dealing 
and good faith; \37\ whether the SBS Entity has established all 
contractual or other arrangements and business relationships necessary 
to conduct its security-based swap business; \38\ whether the SBS 
Entity has or has adequate plans to obtain facilities

[[Page 65791]]

that are sufficient for its operations; \39\ and whether the SBS Entity 
is capable of maintaining a level of capital that is adequate to 
support the SBS Entity's intended business operations on a continuing 
basis.\40\
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    \36\ See supra notes 26-28.
    \37\ See Section 15F(h)(3)(C) (providing that business conduct 
requirements adopted by the Commission shall establish a duty to 
communicate in a manner ``based on principles of fair dealing and 
good faith'').
    \38\ See NASD Rule 1014(a)(4).
    \39\ See NASD Rule 1014(a)(5).
    \40\ See NASD Rule 1014(a)(7).
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    The proposed rules would require that a senior officer of an SBS 
Entity certify that he or she has reasonably determined that, after 
``due inquiry,'' the security-based swap dealer or major security-based 
swap participant has the operational, financial, and compliance 
capabilities to act as an SBS Entity.\41\ We believe it is important to 
make explicit that the senior officer is obligated under the rule to 
conduct some inquiry to form his or her reasonable determination. 
However, the Commission does not propose to prescribe any single method 
a senior officer must use to gain an appropriate level of comfort and 
information before signing the Senior Officer Certification. In other 
words, different SBS Entities may utilize different processes to 
provide a basis for a senior officer's reasonable determination that 
the SBS Entity has the requisite capabilities.\42\
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    \41\ This certification must be accurate as of the date the 
certification is filed with the Commission. An SBS Entity would not 
be required to have a senior officer update the certification after 
the SBS Entity has been approved for ongoing registration.
    \42\ For example, in satisfying other certification requirements 
some SBS Entities may use a sub-certification process whereby the 
senior officer will not certify a firm-wide statement unless and 
until other persons responsible for certain activities in turn 
certify to the senior officer that the standard has been met, while 
other SBS Entities may use an internal or external audit-type 
process whereby a senior officer may choose to employ a third party 
to review an area subject to a firm-wide certification before 
submitting the certification.
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    As described in Part I above, the proposed registration process 
would include conditional and ongoing registration. Pursuant to 
subparagraph (b)(1)(i) and (ii), respectively, of proposed Rule 15Fb2-
1, SBS Entities that register conditionally during the transitional 
period would need to submit the Senior Officer Certification on or 
before the Last Compliance Date and major security-based swap 
participants that file an application after the Last Compliance Date 
would need to submit the certification within four months after filing 
an application. The Commission preliminarily believes that these 
timeframes would provide senior officers of conditionally registered 
SBS Entities sufficient time to determine that they are able to provide 
the relevant certification. Pursuant to subparagraph (b)(2), an SBS 
Dealer that files an application after the Last Compliance Date would 
need to submit the Senior Officer Certification with its application.
    The Commission requests comment on all aspects of the proposed 
requirement for SBS Entities to provide the Commission with a Senior 
Officer Certification on Form SBSE-C as specified in proposed Rule 
15Fb2-1(b), and on the registration process generally. With respect to 
this certification, the Commission is interested in commenters 
responses to the following questions, and also to questions Q-54. 
through Q-61. relating to Additional Registration Considerations.
    Q-16. Would the Senior Officer Certification requirement provide 
sufficient assurance that each SBS Entity has the necessary 
capabilities to act as a registered SBS Entity? Why or why not? Would 
it provide sufficient assurance that SBS Entities have established 
controls to ensure compliance with all applicable securities law 
requirements? Why or why not?
    Q-17. Would the Senior Officer Certification provide sufficient 
assurance to customers of and counterparties to SBS Entities, 
investors, eligible contract participants and other market participants 
that new SBS Entities have the requisite capabilities to act as SBS 
Entities? Why or why not?
    Q-18. Should the Commission only require SBS Dealers, and not major 
security-based swap participants, to provide a Senior Officer 
Certification? Why or why not? What would be the comparative 
advantages, disadvantages, costs and/or benefits of such an approach?
    Q-19. Alternatively, should the form of Senior Officer 
Certification an SBS Entity must file be driven by whether the entity 
is an SBS Dealer or major security-based swap participant? For 
instance, should an SBS Dealer be required to certify to its 
capabilities and a major security-based swap participant be required to 
certify to its policies and procedures? If so, what form of Senior 
Officer Certification should SBS Dealers be required to file and which 
form of Senior Officer Certification should major security-based swap 
participants be required to file? What would be the comparative 
advantages, disadvantages, costs and/or benefits of requiring dealers 
and participants to certify using different certification language?
    Q-20. What alternative forms of Senior Officer Certification should 
be considered, if any? For example, should the proposed Senior Officer 
Certification use the language that the Commission proposed with 
respect to the certification to be made by municipal advisors? \43\ Why 
or why not? What would be the comparative advantages, disadvantages, 
costs and/or benefits of using the same certification language the 
Commission has proposed for use by municipal advisors as opposed to the 
language proposed?
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    \43\ See supra note 31, regarding the certification the 
Commission proposed for use by municipal advisors in the 
Registration of Municipal Advisors Proposing Release.
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    Q-21. The concept of developing and implementing written policies 
and procedures has often been used by the Commission to further its 
regulatory objectives. Should the Senior Officer Certification instead 
require that a senior officer certify that ``to the best of his or her 
knowledge, after due inquiry, the security-based swap dealer or major 
security-based swap participant has developed and implemented written 
policies and procedures reasonably designed to prevent violation of 
federal securities laws, the rules thereunder, and applicable self-
regulatory organization rules?'' \44\ Why or why not? What would be the 
impact of the Senior Officer Certification if it did not specifically 
address operational capability? What would be the comparative 
advantages, disadvantages, costs and/or benefits of using this language 
as opposed to the language proposed?
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    \44\ See, e.g., Section 15(g) of the Exchange Act (requiring 
that broker-dealers establish, maintain and enforce written policies 
and procedures reasonably designed to prevent the misuse of 
material, non-public information). 15 U.S.C. 78o(g). See also Rule 
206(4)-7 of the Investment Advisers Act of 1940 (the ``Advisers 
Act'') (requiring that investment advisers must adopt and implement 
written policies and procedures reasonably designed to prevent 
violations of the Advisers Act and the rules thereunder). 17 CFR 
275.206(4)-7.
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    Q-22. Should the Commission more specifically define the term 
``operational, financial, and compliance capabilities''? If so, how 
should this term be defined to, among other things, provide greater 
certainty to market participants about the basis for providing the 
Senior Officer Certification?
    Q-23. Should the Commission specifically define the term 
``capability?'' Should the Commission, for example, define the term 
``capability,'' as it relates to the financial, operational, and 
compliance functions of an SBS Entity, as ``having the necessary 
ability or qualities''? Why or why not? Should the Commission define 
the term capability in some other way? If so, how and why?
    Q-24. Alternatively, should the Commission simply adopt the 
Webster's New World Dictionary definition which

[[Page 65792]]

defines the term ``capability'' to mean ``the quality of being capable; 
practical ability,'' and defines the term ``capable'' to mean, among 
other things, ``having ability; able; skilled; competent --capable of; 
having the ability or qualities necessary for; able or ready to?'' \45\ 
Why or why not? Should the Commission instead adopt some other 
dictionary definition? If so, what other dictionary definition should 
be used and why? Alternatively, should the Commission define the term 
capability in some other way? If so, how and why?
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    \45\ Websters New World Dictionary 110 (2nd concise ed. 1975).
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    Q-25. Should the Commission determine that a firm may rely on the 
establishment, maintenance and enforcement of written policies and 
procedures by an SBS Entity that are reasonably designed to prevent 
violation of federal securities laws, the rules thereunder, and 
applicable self-regulatory organization rules as a basis for a senior 
officer to certify that an SBS Entity has the appropriate ``compliance 
capability?'' Why or why not?
    Q-26. Should the Commission determine that a firm may rely on the 
establishment, maintenance and enforcement of written policies and 
procedures by an SBS Entity that are reasonably designed to assure that 
the SBS Entity complies with applicable capital and margin requirements 
as a basis for a senior officer to certify that an SBS Entity has the 
appropriate ``financial capability?'' Why or why not?
    Q-27. If the Commission does not specifically define what would 
constitute operational, financial, and compliance capabilities, will 
there still be a sufficient basis for SBS Entities and/or their senior 
officers to provide the Commission with a Senior Officer Certification? 
Why or why not? Would any potential uncertainty arising from the 
decision not to define at this time the terms ``operational, financial, 
and compliance capabilities'' and ``capabilities'' cause difficulties 
for SBS Entities seeking to register on an ongoing basis? If so, please 
describe.
    Q-28. Should SBS Entities be required to provide a Senior Officer 
Certification as to any capabilities in addition to the three 
specified? If so, what other capabilities and why? Alternatively, 
should any of the capabilities be eliminated from the Senior Officer 
Certification? If so, which one(s) and why? For example, should the 
certification relating to an SBS Entity's capabilities be confined to 
operational capability given the regulatory imperative to comply with 
applicable regulations (including capital rules)? What would be the 
comparative advantages, disadvantages, costs and/or benefits of adding 
or eliminating such capabilities?
    Q-29. In addition to, or in lieu of the Senior Officer 
Certification requirement, should the Commission utilize an approach to 
demonstration of capabilities similar to the one we use to register 
national securities exchanges under Exchange Act Section 6(b)(1) \46\ 
(which requires that an exchange have the ``capacity to be able to 
carry out the purposes of [the Exchange Act * * *], the rules and 
regulations thereunder'')? Would such a standard provide additional 
clarity as to the capabilities to be required of registrants? What 
would be the advantages and disadvantages and the costs and benefits of 
such an alternative process?
---------------------------------------------------------------------------

    \46\ See supra note 32.
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    Q-30. Should the Commission instead utilize an approach to 
demonstration of capabilities similar to the one we use to register 
clearing agencies under Exchange Act Section 17A(b)(3)(A) \47\ (which 
requires that an exchange have the ``capacity to be able to facilitate 
the prompt and accurate clearance and settlement of securities 
transactions and derivative agreements, contracts and transactions for 
which it is responsible, to safeguard securities and funds in its 
custody or control or for which it is responsible, to comply with the 
provisions of [the Exchange Act] and the rules and regulations 
thereunder, [and] to enforce [* * *] compliance by its participants 
with the rules of the clearing agency, and to carry out the purposes of 
this section'')? Would such a standard provide additional clarity as to 
the capabilities to be required of registrants? What would be the 
advantages and disadvantages and the costs and benefits of such an 
alternative process?
---------------------------------------------------------------------------

    \47\ See supra note 33.
---------------------------------------------------------------------------

    Q-31. Should the form of Senior Officer Certification an SBS Entity 
must file be driven by whether the entity is, or is not, already 
registered with the Commission as a broker-dealer or with the CFTC as a 
swap dealer or major swap participant? Why or why not? If so, what 
forms of certification would be appropriate for use by SBS Entities 
that are already registered with one of the Commission or the CFTC? 
What would be the comparative advantages, disadvantages, costs and/or 
benefits of this approach?
    Q-32. Should SBS Entities already registered with the Commission as 
a broker-dealer or with the CFTC as a swap dealer or major swap 
participant be excepted from the requirement to file a Senior Officer 
Certification? Why or why not? What would be the comparative 
advantages, disadvantages, costs and/or benefits of this approach?
    Q-33. If an SBS Entity were also registered with the Commission as 
a broker-dealer and an SRO were to conduct a ``material change in 
business review'' of the SBS Entity's security-based swap business, 
should the SBS Entity be permitted to rely on the SRO's review and 
approval of that new business as a basis for its Senior Officer 
Certification? Would the form of Senior Officer Certification affect 
the SBS Entity's ability to rely on such a review and approval? If so, 
how and why? Given that SBS Entities that are also registered as 
broker-dealers would be required by existing SRO rules to undergo a 
material change in business review, are there any advantages and 
disadvantages or costs and benefits associated with reliance on an SRO 
``material change in business review'' and approval as a basis for its 
Senior Officer Certification?
    Q-34. Similarly, if an SBS Entity were also involved in swap 
activity, could that entity use any CFTC, NFA or prudential regulatory 
agency's review of its swap business to inform its Senior Officer 
Certification to the Commission? Would the form of Senior Officer 
Certification affect the SBS Entity's ability to rely on such a review 
and approval? If so, how and why? Are there any advantages and 
disadvantages or costs and benefits associated with reliance on a CFTC, 
NFA or prudential regulatory agency's review of its swap business as a 
basis for its Senior Officer Certification?
    Q-35. Would the Senior Officer Certification requirement 
effectively require an SBS Entity to employ a third party's services to 
examine or confirm conclusions required for the certification? Why or 
why not? If third party services were effectively required, what would 
be the advantages and disadvantages and costs and benefits of such 
third party services?
    Q-36. Should we include the due inquiry requirement in the rule? 
Should we instead specify particular steps a senior officer must take 
to determine whether the SBS Entity has the requisite capabilities?
    Q-37. Should the senior officer of an SBS Entity be required to 
disclose on Form SBSE-C or elsewhere, the nature of the ``due inquiry'' 
he or she performed before signing Form SBSE-C and his or her resulting 
findings and conclusions? Why or why not?
    Q-38. Should the Commission define its expectations with respect to 
the ``due inquiry'' a senior officer should perform

[[Page 65793]]

before signing Form SBSE-C? If so, what should be included as part of a 
senior officer's ``due inquiry?'' Should ``due inquiry'' differ 
depending on whether the SBS Entity is an SBS Dealer or a major 
security-based swap participant? Please explain.
    Q-39. Is the timeframe within which the proposed Senior Officer 
Certification would need to be filed appropriate? If not, should the 
timeframe be shorter or longer and why?
    Q-40. Should the Commission eliminate the requirement that a senior 
officer certify that he or she has documented the process by which he 
or she reached his or her determination regarding the SBS Entity's 
capacity? Why or why not? Should the Commission instead simply require 
that a senior officer document this process and require that the SBS 
Entity maintain those documents as part of its books and records? Would 
a senior officer believe that he or she may be second-guessed if, among 
other circumstances, the senior officer certifies as to an SBS Entity's 
capabilities but does not retain documentation demonstrating how he or 
she reached this determination?
iii. Electronic Filing
    Paragraph (c) of proposed Rule 15Fb2-1 would address the manner in 
which the application, certification, and any additional registration 
documents would be filed with the Commission. Proposed paragraph (c)(1) 
would require applications, certifications, and any additional 
documents to be filed electronically. The Commission anticipates that 
the EDGAR system will be expanded to facilitate registration of SBS 
Entities because it likely would provide the most cost-effective 
solution.\48\
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    \48\ To the extent the Commission utilizes the EDGAR system to 
facilitate registration of SBS Entities, applicants would need to 
utilize the EDGAR Filer Manual (as defined in 17 CFR 232.11) to 
facilitate their filing of applications electronically. The EDGAR 
Filer Manual contains all the technical specifications for filers to 
submit filings using the EDGAR system. Generally, entities filing 
documents in electronic format through the EDGAR system must comply 
with the applicable provisions of the EDGAR Filer Manual in order to 
assure the timely acceptance and processing of those filings.
---------------------------------------------------------------------------

    Proposed paragraph (c)(2) of proposed Rule 15Fb2-1 would specify 
the effective date of filing of applications and certifications 
submitted pursuant to the paragraphs (a) and (b). Subparagraph 
(c)(2)(i) would provide that an SBS Entity's application submitted 
pursuant to paragraph (a) would be considered filed only when a 
complete Form SBSE, Form SBSE-A, or Form SBSE-BD, as appropriate, and 
all required additional documents are filed with the Commission or its 
designee. Subparagraph (c)(2)(ii) would provide that an SBS Entity's 
certification submitted pursuant to paragraph (b) would be considered 
filed when a complete Form SBSE-C is filed electronically with the 
Commission or its designee.
    If a technological means to facilitate receipt and retention of 
applications is not functional by the time final rules are adopted, 
proposed temporary Rule 15Fb2-2T, described more fully below, would 
require SBS Entities to file applications and additional documents in 
paper form.
    The Commission requests comment on the proposed method for 
receiving applications.
    Q-41. Should the Commission not require electronic submission of 
applications? If not, why?
    Q-41. Instead of expanding the EDGAR system to receive SBS Entity 
applications for registration, should the Commission utilize some other 
system? Please explain. What would be the comparative advantages and 
disadvantages and costs and benefits of utilizing a system other than 
EDGAR?
    Q-43. What would be the advantages and disadvantages and costs and 
benefits to prospective applicants of expansion of the EDGAR system to 
receive SBS Entity applications for registration, especially with 
respect to the varying levels of familiarity that they may have with 
this system?
    Q-44. Should the Commission designate another entity to facilitate 
the electronic receipt of applications? Why or why not? If so, what 
types of entities should we consider?
    Q-45. What other issues, if any, should the Commission consider in 
connection with electronic filing?
iv. Standards for Granting or Denying Applications
    Paragraph (d) of proposed Rule 15Fb2-1 would provide that the 
Commission may grant or deny an application for registration, and would 
set forth the standards the Commission would use to make that 
determination. The grant or denial of a conditional registration would 
depend principally on the completeness of an application, whether the 
applicant is subject to a statutory disqualification, and whether the 
Commission is aware of inaccurate statements in the application. The 
grant or denial of an ongoing registration would also require that the 
Commission find that the requirements of Exchange Act Section 15F(b) 
are satisfied. As noted in Part I above, conditionally registered SBS 
Entities would need to obtain ongoing registration to continue doing a 
security-based swap business once their conditional registration 
expires.\49\
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    \49\ Proposed Rule 15Fb3-1(b)(1) would provide that conditional 
registrations granted pursuant to paragraph (d)(1) of Proposed Rule 
15Fb2-1 would expire on the Last Compliance Date for SBS Entities 
that filed a complete application before the Last Compliance Date, 
unless the SBS Entity files with the Commission a certification on 
Form SBSE-C or the Commission extends conditional registration for 
good cause. Proposed Rule 15Fb3-1(b)(2) would provide that 
conditional registrations granted pursuant to paragraph (d)(1) of 
Proposed Rule 15Fb2-1 would expire four months after a major 
security-based swap participant files a complete application, if it 
filed such application after the Last Compliance Date, unless the 
major security-based swap participant files with the Commission a 
certification on Form SBSE-C. In both cases, if the Senior Officer 
Certification is filed within the given timeframe, conditional 
registration is extended by 30 days to allow the Commission time to 
determine whether to grant or deny ongoing registration.
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    When considering an application for conditional registration, 
proposed paragraph 15Fb2-1(d)(1) provides that the Commission would 
grant such registration if it finds that the firm's application is 
complete, except that the Commission may institute proceedings to 
determine whether to deny conditional registration if it finds that the 
applicant is subject to a statutory disqualification or the Commission 
is aware of inaccurate statements in the application. Such proceedings 
would include notice of the grounds for denial under consideration and 
opportunity for hearing. At the conclusion of such proceedings, the 
Commission would grant or deny such registration.
    Paragraph (d)(2) would allow the Commission to grant ongoing 
registration to an SBS Entity. It is contemplated that ongoing 
registration would be sought by firms that have been conditionally 
registered with the Commission, as well as by new firms entering the 
marketplace that have not been conditionally registered (e.g., an SBS 
Dealer seeking registration after the Last Compliance Date). Paragraph 
(d)(2) would specify that the Commission would grant ongoing 
registration based on a firm's application and certification. Proposed 
paragraph (d)(2) would provide that if the Commission granted 
conditional registration to an SBS Entity, the Commission could grant 
or deny ongoing registration based on the original application 
submitted by the SBS Entity, as amended,\50\ and the certification 
submitted to the Commission by the SBS Entity pursuant to paragraph 
(b). When considering any

[[Page 65794]]

application for ongoing registration, Rule 15Fb2-1(d)(2) would provide 
that the Commission would grant registration if it finds that the 
requirements of Exchange Act Section 15F(b) are satisfied, except that 
the Commission may institute proceedings to determine whether ongoing 
registration should be denied if it does not make such finding or if it 
finds that the applicant is subject to a statutory disqualification or 
the Commission is aware of inaccurate statements in the application or 
certification. Such proceedings would include notice of the grounds for 
denial under consideration and opportunity for hearing, and that at the 
conclusion of such proceedings, the Commission would grant or deny such 
registration.
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    \50\ The SBS Entity may have amended its application to address 
changes that may have occurred in the intervening period between the 
date the application was originally filed and the date the 
Commission evaluates whether ongoing registration should be granted.
---------------------------------------------------------------------------

    As discussed above, the Commission would notify the entity 
electronically when conditional or ongoing registration is granted, and 
would make information regarding registration status publicly 
available.
    The Commission requests comment on these proposed standards of 
review for granting or denying registration in proposed Rule 15Fb2-
1(d).
    Q-46. Should the Commission consider using different standards of 
review to grant conditional registration to SBS Entities who apply 
before the Last Compliance Date than it uses for major security-based 
swap participants that apply for conditional registration after the 
Last Compliance Date?
    Q-47. Would the standard requiring denial of an application if the 
applicant is subject to statutory disqualification cause undue hardship 
for any possible applicants? If so, how many applicants are likely to 
be affected? Should this standard be refined or eliminated? If 
applicants subject to statutory disqualification should be allowed to 
register, should they be subject to any additional requirements? Please 
explain.
    Q-48. Should the Commission consider broader or more limited 
standards for granting or denying conditional registration? If so, 
please describe the standard that should be used and the reasons why it 
would be more appropriate than the standard proposed.
    Q-49. Should the Commission consider using a different standard of 
review to grant ongoing registration?
    Q-50. Should the Commission consider broader or more limited 
standards for granting or denying ongoing registration? If so, please 
describe the standard that should be used for granting or denying 
ongoing registration and the reasons why it would be more appropriate 
than the standard proposed.
    Q-51. Should the Commission staff base its decision only on a 
review of a firm's application (including any additional documents) and 
certification or should an on-site examination or some other type of 
review be considered? If so, what would be the appropriate scope and 
timing of such a review?
    Q-52. Is there a need to lengthen or shorten the proposed 
timeframes provided for the effectiveness of conditional registration 
in paragraph (d)(1)? If so, how long should they be?
    Q-53. Should the Commission provide additional guidance regarding 
the process for institution of proceedings? For instance, should the 
Commission include timeframes within which proceedings would be 
instituted and/or a decision to grant or deny registration based on 
those proceedings should be provided (e.g., Exchange Act Section 
15(b)(1))? If so, what timeframes or other guidance and why?
v. Request for Comment on Additional Registration Considerations
    The Commission requests comment on what, if any, alternative 
approaches should be considered to meet the Commission's regulatory 
objectives in the registration process for SBS Entities and how any 
such alternative approaches would compare to the current proposal.\51\ 
Any such comparison should describe the relative advantages and 
disadvantages of each alternative, as well as their relative costs and 
benefits.
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    \51\ As described in footnote 12 above, the Commission is 
presently reviewing the various standards and processes it uses to 
facilitate registration, and we would expect that any alternative 
processes suggested by commenters here would inform that review.
---------------------------------------------------------------------------

    Q-54. Should the Commission not adopt a Senior Officer 
Certification requirement, and instead seek to satisfy itself during 
the registration process, based on documents the SBS Entity may be able 
to provide to the Commission, that the SBS Entity has the operational, 
financial, and/or compliance capabilities to act as an SBS Dealer or 
major security-based swap participant, as applicable? What would be the 
advantages and disadvantages and the costs and benefits of such an 
alternative process?
    Q-55. If the Commission determines to satisfy itself during the 
registration process, based on documents the SBS Entity may be able to 
provide to the Commission, that the SBS Entity has the operational, 
financial, and/or compliance capabilities to act as an SBS Dealer or 
major security-based swap participant, as applicable, should the 
Commission identify which documents or categories of documents should 
be submitted in order to facilitate its review and/or decision? If so, 
what types of documents (e.g., business plan, written procedures, or 
annual audit statements) should the Commission identify to facilitate 
this review and what would be the costs of obtaining or providing such 
documents?
    Q-56. Should the Commission not adopt a Senior Officer 
Certification requirement, and instead require that an SBS Entity 
obtain and submit to the Commission an independent third-party review 
of its operational, financial, and compliance capabilities or its 
written policies and procedures before granting ongoing registration? 
What practical considerations--e.g., identifying an appropriate 
independent third party, measuring the time, cost, and reliability of 
any such review, addressing the types of information to be shared with 
a third party and the factors to be considered in its review--would 
inform whether such a review would be appropriate? What would be the 
advantages and disadvantages and costs and benefits of requiring a 
third-party review instead of the Senior Officer Certification?
    Q-57. Should the Commission adopt a Senior Officer Certification 
requirement, and also require that an SBS Entity employ a third party 
to independently review its capabilities to provide a basis for that 
Senior Officer Certification? What would be the advantages and 
disadvantages and costs and benefits of having an SBS Entity's 
capabilities independently reviewed? If such a review were required, 
who could perform such a review, what would such review entail, and 
should the review be submitted to the Commission along with the 
certification? What would be the comparative advantages, disadvantages, 
costs and/or benefits of requiring dealers and participants to have 
their capabilities independently reviewed?
    Q-58. If the Commission required that SBS Entities obtain and 
submit an independent third-party review, what types of entities could 
perform such a review (e.g., accountants, law firms, consulting firms) 
and what independence standards should apply for purposes of conducting 
the review? Could a review or examination by another governmental 
agency (e.g., the Federal Reserve Board, the CFTC, the Office of the 
Comptroller of the Currency) or an SRO constitute an independent third 
party review for these purposes? If not, why? Are there any practical 
or legal impediments to obtaining or providing to the Commission a 
review from a third party

[[Page 65795]]

or a governmental agency or an SRO? If so, could these be addressed by 
contract or otherwise?
    Q-59. Are there any other forms of oversight that could or should 
reinforce or replace the proposed Senior Officer Certification? What 
would be the comparative advantages, disadvantages, costs and/or 
benefits of such an approach?
    Q-60. Are there other approaches to registration the Commission 
should consider that, in a cost-effective manner, would both fulfill 
the statutory mandate to protect investors, maintain fair, orderly, and 
efficient markets, facilitate capital formation, and ensure that the 
security-based swap market smoothly transitions from a generally 
unregulated marketplace to one that is regulated and subject to 
appropriate oversight? If so, please explain which ones and why.
    Q-61. If the Commission were to consider an approach to 
registration that required something other than a Senior Officer 
Certification, would SBS Entities need more time to gather, obtain, or 
submit any documents, third party review, or other items than we have 
proposed for submission of the Senior Officer Certification (i.e., on 
or before the Last Compliance Date or, for participants that apply 
after the Last Compliance Date, within four months after it files its 
completed application)? If so why or why not?
    In the Intermediary Definitions Release,\52\ the Commission 
acknowledged that the statutory definitions include a provision stating 
that a person may be designated as a dealer for one or more types, 
classes or categories of security-based swaps, or activities. Further, 
that release indicated that one commenter stated that the Commissions 
should allow a person to register as a swap dealer or SBS Dealer for 
only a limited set of types, classes or categories of swaps or 
security-based swaps.
---------------------------------------------------------------------------

    \52\ Intermediary Definitions Release, supra note 5, at 80182.
---------------------------------------------------------------------------

    Q-62. Should the registration process be expanded in any way to 
allow firms to choose whether they register in a ``full'' or 
``limited'' capacity? If so, how?
    Q-63. What additional information should be elicited by the 
proposed forms to provide the Commission with sufficient information to 
determine whether limited (as opposed to full) registration is 
appropriate? Should there be separate forms for firms to apply for 
limited, as opposed to full, registration? Should there instead be a 
separate schedule to the forms as proposed? Should the timing differ 
and, if so, how and why?
    Q-64. Should an applicant for limited registration be required to 
provide the Commission with a different senior officer or other 
certification? If so, how should the certification differ?
    Q-65. Should the Commission apply a different standard of review 
when considering whether to grant or deny limited registration to an 
applicant? If so, which one and why?
    Q-66. If the Commission were to grant an SBS Entity's application 
for limited registration and the SBS Entity later determined that it 
would prefer to be fully registered, how should this transition be 
effected?

Please provide as much detail as possible in commenting on which of the 
above referenced courses of action should be pursued. Please also 
provide information regarding possible costs or benefits of each of 
these alternatives.

2. Amendments to Application Forms: Proposed Rule 15Fb2-3
    Proposed Rule 15Fb2-3 would require an SBS Entity to promptly \53\ 
amend its Form SBSE, Form SBSE-A, Form SBSE-BD, as applicable, to 
correct any information it determines is, or has become, inaccurate for 
any reason.\54\ The Commission preliminarily believes this proposed 
Rule is necessary in order for it to have access to accurate 
information as part of its ongoing oversight of SBS Entities.
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    \53\ For purposes of Rule 15b3-1, the Commission has interpreted 
the term ``promptly'' to mean within 30 days. (In the Matter of 
First Guarantor Securities, Inc., Exchange Act Release No. 32725, 51 
S.E.C. 612 (Aug. 6, 1993), which states, ``Absent extraordinary 
circumstances, an amendment to Form BD filed beyond thirty days from 
the change in information cannot be considered `promptly' filed in 
accordance with Rule 15b3-1.'') We preliminarily believe this 
standard is also appropriate with respect to the use of this term in 
proposed Rule 15Fb2-3.
    \54\ This proposed rule is based on Exchange Act Rule 15b3-1, 
which is applicable to registered brokers and dealers and has worked 
well to assure that broker-dealers promptly amend their 
applications.
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    The Commission requests comment on all aspects of proposed Rule 
15Fb2-3.
    Q-67. Should the Commission only require SBS Entities to promptly 
update their Forms SBSE, SBSE-A, and SBSE-BD when they become 
``materially'' inaccurate?
    Q-68. Should SBS Entities instead be required to periodically 
update these forms and, if so, what would be an appropriate timeframe 
for updating (e.g., monthly, quarterly, annually)? What may be the 
comparative costs and benefits of periodic updating vs. ``prompt'' 
updating?
    Q-69. If the Commission requires SBS Entities to promptly update 
their Forms SBSE, SBSE-A, and SBSE-BD when they become materially 
inaccurate, should it also require that all information on the forms be 
updated periodically?
    Q-70. Would it be appropriate for the Commission to require that 
certain information be updated more frequently than other information? 
If so, please describe what information should be subject to more 
frequent updates and why, and the frequency with which each such item 
should be updated.

B. Associated Persons

1. Certification
    Paragraph (b)(6) of Exchange Act Section 15F generally prohibits 
SBS Entities from permitting any of their associated persons \55\ who 
are subject to a ``statutory disqualification'' (as defined in Exchange 
Act Section 3(a)(39)) to effect or be involved in effecting \56\ 
security-based swaps on behalf of the SBS Entity if the SBS Entity 
knew, or in the exercise of reasonable care should have known, of the 
statutory disqualification. To provide SBS Entities with a mechanism to 
assess their compliance with this provision, paragraph (a) of proposed 
Rule 15Fb6-1 would require that an SBS Entity certify, on Schedule G of 
Form SBSE, Form SBSE-A, or Form SBSE-BD, as appropriate, that no person 
associated with it who effects or is involved in effecting security-
based swaps on its behalf is subject to statutory disqualification, as 
defined in Section 3(a)(39) of the Exchange Act.\57\ If an associated 
person later becomes

[[Page 65796]]

statutorily disqualified, the SBS Entity would need to ensure that the 
associated person does not continue to effect or be involved in 
effecting security-based swaps on the SBS Entity's behalf and/or 
promptly amend its Schedule G in accordance with proposed Rule 15Fb2-3.
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    \55\ 15 U.S.C. 78c(a)(70) generally defines the term ``person 
associated with'' an SBS Entity to include: (i) Any partner, 
officer, director, or branch manager of an SBS Entity (or any person 
occupying a similar status or performing similar functions); (ii) 
any person directly or indirectly controlling, controlled by, or 
under common control with an SBS Entity; or (iii) any employee of an 
SBS Entity. However, it generally excludes persons whose functions 
are solely clerical or ministerial.
    \56\ The Commission believes that associated persons ``involved 
in effecting'' security-based swaps would include, but not be 
limited to, persons involved in drafting and negotiating master 
agreements and confirmations, persons recommending security-based 
swap transactions to counterparties, persons on a trading desk 
actively involved in effecting security-based swap transactions, 
persons pricing security-based swap positions and managing 
collateral for the SBS Entity, and persons assuring that the SBS 
Entity's security-based swap business operates in compliance with 
applicable regulations. In short, the term would encompass persons 
engaged in functions necessary to facilitate the SBS Entity's 
security-based swap business.
    \57\ Proposed Rule 15Fb1-1(b), described below, would require 
each SBS Entity to maintain a manually signed copy of this 
certification as part of its books and records until at least three 
years after the certification has been replaced or is no longer 
effective.
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    To support this certification requirement, paragraph (b) of 
proposed Rule 15Fb6-1 would require SBS Entities to obtain a 
questionnaire or application for employment executed by each of its 
associated persons that effect or are involved in effecting security-
based swaps on its behalf; such questionnaire or application would 
serve as a basis for a background check of the associated person to 
determine whether the associated person is statutorily disqualified. 
The questionnaires or applications would be required to contain, at a 
minimum, the following information: (1) The associated person's name, 
address, social security number, Central Registration Depository 
(``CRD'') number (if any), Investment Adviser Registration Depository 
(``IARD'') number (if any), and the starting date of the associated 
person's employment or other association with the SBS Entity; (2) the 
associated person's date of birth; (3) a complete, consecutive 
statement of all the associated person's business connections for at 
least the preceding ten years, including whether the employment was 
part-time or full-time; (4) a record of any denial of membership or 
registration, and of any disciplinary action taken, or sanction 
imposed, upon the associated person by any federal or state agency, by 
any national securities exchange or national securities association, or 
by a foreign financial regulatory authority including any finding that 
the associated person was a cause of any disciplinary action or had 
violated any law; (5) a record of any denial, suspension, expulsion or 
revocation of membership or registration of any broker, dealer, SBS 
Dealer, or major security-based swap participant with which the 
associated person was associated in any capacity when such action was 
taken; (6) a record of any permanent or temporary injunction entered 
against the associated person or any broker, dealer, SBS Dealer, or 
major security-based swap participant with which the associated person 
was associated in any capacity at the time such injunction was entered; 
(7) a record of any arrest or indictment for any felony, or any 
misdemeanor pertaining to securities (including security-based swaps), 
futures or commodities (including swaps), banking, insurance or real 
estate (including, but not limited to, acting or being associated with 
a broker-dealer, investment company, investment adviser, futures 
sponsor, bank, or savings and loan association), fraud, false 
statements or omissions, wrongful taking of property or bribery, 
forgery, counterfeiting or extortion, and the disposition of the 
foregoing; and (8) a record of any other name or names by which the 
associated person has been known or which the associated person has 
used.
    The Commission believes that it is standard in the financial 
services industry for firms to request this information on employment 
questionnaires. This information is similar to the information 
identified in Exchange Act Rule 17a-3(a)(12)(i) and required to be 
collected by broker-dealers with respect to their associated persons. 
Additionally, Form U-4 contains all the information needed pursuant to 
Exchange Act Rule 17a-3(a)(12)(i) and would fulfill the requirement to 
obtain a questionnaire or application specified in Rule 15Fb6-1(b). 
Rule 17a-3(a)(12)(i) and Form U-4 provide broker-dealers with 
information through which they can perform background checks on 
associated persons necessary to assure that those associated persons 
are not subject to statutory disqualification. Moreover, the NFA 
collects similar data on associated persons of its members through the 
Form 8-R. Consequently, we preliminarily believe it would be 
appropriate for SBS Entities to collect this information on associated 
persons to allow them to conduct background checks so that they can 
comply with the prohibition in Section 15F(b)(6) of the Exchange Act 
from allowing statutorily disqualified individuals to effect or be 
involved in effecting SBS transactions on their behalf.
    In addition, paragraph (b) of proposed Rule 15Fb6-1 would require 
that the SBS Entity's chief compliance officer (``CCO'') (appointed in 
accordance with Exchange Act Section 15F(k)), or his or her designee, 
review and sign each questionnaire or application.\58\ This provision 
is designed to help ensure that due regard is being paid to this 
requirement to collect information on employees and to help ensure that 
none of the SBS Entity's employees who effect or are involved in 
effecting security-based swaps on the SBS Entity's behalf is subject to 
statutory disqualification. Moreover, to the extent the SBS Entity's 
CCO, or his or her designee, must sign the certification, this 
requirement helps ensure that the CCO is aware of this statutory 
prohibition and is familiar with the SBS Entity's procedures to comply 
with it.
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    \58\ Applicants may already have this information on their 
employees, but may not have a CCO, as required pursuant to new 
Section 15F(k) of the Act, until the effective date of rules the 
Commission may promulgate under Section 15F(k). Security-based swap 
dealers and major security-based swap participants could be 
conditionally registered even if a CCO has not signed each 
associated person's questionnaire or application.
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    Finally, paragraph (c) of proposed paragraph 15Fb6-1 would require 
that each SBS Entity maintain the questionnaires and applications for 
employment obtained pursuant to paragraph (b) as part of its books and 
records for at least three years after the associated person has 
terminated his or her association with the SBS Entity. It is likely 
that SBS Entities would retain these records for business purposes; 
however, this requirement will assure that the questionnaires and 
applications are available to the Commission during inspections and 
examinations.
    The Commission requests comment on proposed Rule 15Fb6-1.
    Q-71. Would the information regarding associated persons in 
paragraph (b) of the proposed rule be sufficient for a CCO to make the 
required certification? Why or why not?
    Q-72. Should the information requirements in paragraph (b) be 
modified in any way?
    Q-73. Should applicants be required to obtain any additional 
information not specified in proposed paragraph (b)?
    Q-74. Should the Commission require that SBS Entities perform 
background checks on their employees (e.g., to confirm that their 
associated persons do not have a criminal history) in addition to 
obtaining questionnaires or applications? Why or why not?
    Q-75. If not, what other process could the Commission use to help 
ensure that an applicant is not violating Exchange Act Section 
15F(b)(6)?
    Q-76. Should the Commission require applicants to require credit 
checks on associated persons? Why or why not?
    Q-77. What, if any, practical or legal limitations or barriers 
exist that would hinder an applicant from obtaining background or 
credit checks?
    Q-78. Should the Commission require applicants to obtain and 
process fingerprints of their associated persons that will be effecting 
or involved in effecting security-based swaps on the applicant's 
behalf? Why or why not?
    Q-79. What, if any, practical or legal limitations or barriers 
exist that would hinder an applicant from obtaining or running 
fingerprints of associated persons?

[[Page 65797]]

    Q-80. Should the Commission instead treat the provisions of Section 
15F(b)(6) as essentially self-executing and permit SBS Entities to 
determine how best to screen associated persons to ensure they are not 
subject to a statutory disqualification (provided that they exercise 
reasonable care in so doing) and require that an SBS Entity create and 
maintain reasonable policies and procedures for determining whether an 
associated person is subject to a statutory disqualification? Why or 
why not?
    Q-81. What would be the benefits and risks of this approach?
    Q-82. Would this approach be more or less burdensome for SBS 
Entities to administer?
    Q-83. Would SBS Entities nevertheless implement an approach similar 
to that required under the proposed rule?
    Q-84. How might an SBS Entity comply with Section 15F(b)(6) in ways 
that differ from what is set forth in the proposed rule?
    Q-85. Would this alternative policies and procedures approach 
provide SBS Entities sufficient legal certainty about whether they have 
properly complied with Section 15F(b)(6)?
    Q-86. Should the Commission require that associated persons of SBS 
Entities that effect or are involved in effecting security-based swaps 
on behalf of the SBS Entity register directly with it? What would be 
the costs or benefits involved with registration of such SBS Entity 
associated persons? What, if any, practical or legal limitations or 
barriers exist to this approach?
    Q-87. Are there other approaches to implementing Section 15F(b)(6) 
that the Commission should consider? Please explain.
    Q-88. Should the Commission take a different view regarding which 
associated persons should be considered to be ``involved in effecting'' 
security-based swaps on behalf of the SBS Entity (see footnote 34)? If 
so, should additional categories of associated persons be included or 
should certain identified categories of associated persons be excluded? 
For what reason(s)?
2. Alternative Process
    Section 15F(b)(6) expressly authorizes the Commission to establish 
exceptions to this prohibition by rule, regulation, or order.\59\ This 
authority is similar to authority provided to the Commission with 
respect to the ``traditional'' securities industry, i.e., the industry 
regulated under the Exchange Act prior to the Dodd-Frank Act 
amendments. This existing Exchange Act authority permits SROs, subject 
to Commission review, to allow, among other things, a person subject to 
a statutory disqualification to associate with a broker-dealer.\60\
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    \59\ 15 U.S.C. 78o-10(b)(6).
    \60\ When such a person seeks admission to or continuance in 
membership or association, the Commission and the SRO have the 
opportunity to give special review to such person and to restrict or 
prevent entry into, or continuance in, the business where 
appropriate in the public interest and for the protection of 
investors. See Senate Comm. on Banking, Housing, and Urban Affairs, 
The Securities Act Amendments of 1989, S. Rep. No. 101-105, at 39 
(1989); Provision for Notices by Self-Regulatory Organizations of 
Stays of Such Actions; Appeals; and Admissions to Membership or 
Association of Disqualified Persons, 42 FR 36409 (Jul. 14, 1977) 
(adopting rule 19h-1 under the Exchange Act, 17 CFR 240.19h-1, and 
providing rules for process of filing notices, content of notices, 
and Commission determination).
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    Similarly, Commission Rule 193 (Applications by Barred Individuals 
for Consent to Associate) provides a process by which persons that are 
not regulated by a SRO (e.g., employees of an investment adviser, an 
investment company, or a transfer agent) can seek to reenter the 
traditional securities industry despite previously being barred by the 
Commission.\61\
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    \61\ 17 CFR 201.193.
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    The Commission requests comment on whether it should develop an 
alternative process to allow associated persons of SBS Entities who are 
subject to a statutory disqualification to effect or be involved in 
effecting security-based swaps on their behalf.
    Q-89. How many SBS Entities and associated persons thereof are 
likely to be affected if the Commission does not provide an exemptive 
process?
    Q-90. Is it possible that an associated person that is an entity 
(i.e., not a natural person) that effects or is involved in effecting 
security-based swaps on behalf of an SBS Entity would be subject to a 
statutory disqualification? If so, should the Commission consider 
excepting any such persons from the prohibition in Section 15F(b)(6)? 
Under what circumstances and why?
    Q-91. Should the Commission except such persons globally (e.g., by 
a blanket rule) or on an individual basis (e.g., via a Rule 193-type 
process)? What would be the possible costs or benefits of each?
    Q-92. Are there certain statutorily disqualified persons who should 
not be permitted to remain associated with an SBS Dealer or major 
security-based swap participant based upon the nature of the 
disqualification?
    Q-93. Should there be any differentiation in relief based upon the 
nature of the person, e.g. a natural person or an entity? If so, what 
type of differentiation and why?

C. Termination of Registration

1. Expiration: Proposed Rule 15Fb3-1
    Exchange Act Section 15F(b)(3) provides that ``each registration 
under this section shall expire at such time as the Commission may 
prescribe by rule or regulation.'' Although there is no Exchange Act 
parallel, this provision is similar to Commodity Exchange Act Section 
6f(a)(1), which provides that ``each registration shall expire on 
December 31 of the year for which issued or at such other time, not 
less than one year from the date of issuance, as the Commission may by 
rule, regulation, or order prescribe. * * *'' CFTC Rule 3.10(b) 
provides, among other things, that persons registered with the CFTC 
pursuant to CFTC Rule 3.10 ``will continue to be so registered until 
the effective date of any revocation or withdrawal of such 
registration.'' Paragraph (a) of proposed Rule 15Fb3-1 would establish 
the same continuous registration as is set forth in CFTC Rule 3.10(b), 
and would provide that registered SBS Entities would ``continue to be 
so registered until the effective date of any cancellation, revocation 
or withdrawal of such registration or any other event the Commission 
determines should trigger expiration.''
    Q-94. Does CFTC Rule 3.10(b) provide an appropriate model to 
implement Exchange Act Section 15F(b)(3)? Why or why not?
    Q-95. Should the Commission instead allow initial SBS Entity 
registrations to expire and require SBS Entities to re-register to 
become an ongoing registrant (while providing a grace period for this 
re-registration to occur)? If so, what would be an appropriate amount 
of time before expiration (e.g., one year, two years, five years, or 
some other time period)?
    Q-96. Alternatively, should the Commission allow SBS Entity 
registrations to expire periodically and require SBS Entities to re-
register periodically (i.e., requiring registrants to ``re-up'' 
indefinitely on a regular basis)? If so, what would be an appropriate 
amount of time before expiration (e.g., annually, every two years, 
every five years, or some other time period)? What would be the 
advantages, disadvantages, costs and benefits of such an approach?
    Q-97. Via what mechanism should any such re-registration be 
facilitated? For instance, should an SBS Entity be required to re-apply 
by filing a new application? Alternatively, should an SBS Entity be 
required to re-certify by filing a new Senior Officer Certification?

[[Page 65798]]

Would some other mechanism be more appropriate? How should any such 
mechanism take into account the initial application and registration of 
an SBS Entity? How should any such mechanism take into account the SBS 
Entity's compliance with applicable rules during the period prior to 
the re-registration? Would any type of non-compliance during such 
period justify denial of re-registration, or should the nature of the 
non-compliance and any remedial actions be taken into account?
    Q-98. If re-registration is facilitated by re-certification, would 
the proposed form of Senior Officer Certification on Form SBSE-C be the 
appropriate or would some other form or language be more appropriate? 
For instance, should any re-certification for SBS Entities be drafted 
to more closely follow the certification requirement proposed for 
municipal advisors (wherein each municipal advisor certifies annually 
that it has met its regulatory obligations over the prior period)?
    Q-99. If periodic re-registration were required, should re-
registration be based on an SBS Entity's original registration date or 
should it be triggered by a calendar date (e.g., on December 31)?
    Q-100. Should the same standard of review that applies to ongoing 
registration apply in the context of re-registration (see proposed rule 
15Fb2-1(d)(2))? If not, what alternative standard of review would be 
more appropriate and why?
    Q-101. Would any such expiration and re-registration requirement 
provide the Commission with a greater ability to enforce compliance 
with applicable regulations? Why or why not?
    As discussed in Part I above, under paragraph (b)(1) of proposed 
Rule 15Fb3-1, conditional registrations granted by the Commission to an 
SBS Entity that applies for registration during the transitional period 
in accordance with Rule 15Fb2-1(b) would expire on the Last Compliance 
Date, unless the SBS Entity files a Senior Officer Certification with 
the Commission or its designee on or before the Last Compliance Date; 
in which case its conditional registration would be extended for an 
additional thirty days (which should allow the Commission staff 
sufficient time to review the SBS Entity's application and 
certification and determine whether to grant or deny ongoing 
registration). Paragraph (b)(2) of proposed Rule 15Fb3-1 would provide 
that conditional registrations granted by the Commission to major 
security-based swap participants that file applications for 
registration after the Last Compliance Date would expire four months 
after the major security-based swap participant files its completed 
application with the Commission unless the major security-based swap 
participant files a Senior Officer Certification with the Commission or 
its designee within that four month period; in which case its 
conditional registration would be extended for an additional thirty 
days. Pursuant to paragraph (c) of proposed Rule 15Fb3-1, the 
Commission could extend conditional registration for good cause.
    Q-102. Would these timeframes be sufficient to allow conditional 
registrants to complete--and the Commission to grant or deny--ongoing 
registration? Why or why not?
    Q-103. What circumstances should the Commission consider in 
determining whether good cause exists to extend an SBS Entity's 
conditional registration? Why? Should these circumstances include 
situations in which the Commission may need additional time to review 
an SBS Entity's application and certification? Why or why not?
    Q-104. Should the Commission require that an SBS Entity follow a 
particular process to request an extension of the SBS Entity's 
conditional registration? For instance, should an SBS Entity be 
required to submit a letter requesting an extension and setting forth 
the reasons why an extension is necessary? If so, what process would be 
appropriate and why?
2. Withdrawal: Proposed Rule 15Fb3-2
    Proposed Rule 15Fb3-2 would provide a process by which an SBS 
Entity could withdraw from registration with the Commission.\62\ The 
proposed rule would require an SBS Entity to file a notice of 
withdrawal from registration electronically on Form SBSE-W (described 
in more detail below) in accordance with the instructions to the Form. 
It also would require that an SBS Entity amend its Form SBSE, Form 
SBSE-A, or Form SBSE-BD, as appropriate, in accordance with proposed 
Rule 15Fb2-3 to update any inaccurate information prior to filing its 
notice of withdrawal from registration.
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    \62\ This provision is similar to Exchange Act Rule 15b6-1, 
which has historically worked well to facilitate broker-dealer 
withdrawals.
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    Paragraph (b) of proposed Rule 15Fb3-2 would provide that a notice 
of withdrawal from registration filed by an SBS Entity would generally 
become effective on the 60th day after the SBS Entity files Form SBSE-
W. However, based on its experience with registered broker-dealers, the 
Commission recognizes that there may be circumstances in which it would 
be advisable to provide flexibility in scheduling the termination of 
business operations to registered entities seeking to withdraw from 
registration. Further, the Commission may determine that it would be 
appropriate for a registered entity that is under investigation by the 
Commission to maintain its registered status in order to allow the 
Commission to conclude a pending investigation without prematurely 
instituting a proceeding to impose conditions on the registered 
entity's withdrawal. In such instances, it may better serve the 
interests of all parties to have the registered entity consent to an 
extension of the effective date of the registered entity's withdrawal 
from registration beyond the general 60-day period provided for in the 
proposed rule. It also may be appropriate to permit the Commission to 
extend the effective date for a period if it determines, by order, that 
it is necessary or appropriate in the public interest or for the 
protection of investors.
    Thus, paragraph (b) of proposed Rule 15Fb3-2 would identify 
specific situations in which notices of withdrawal from registration 
will not become effective on the 60th day. These would include 
situations where (1) The Commission determines that a shorter period is 
appropriate, (2) the SBS Entity consents to a longer period, (3) the 
Commission, by order, determines that a longer period is necessary or 
appropriate in the public interest or for the protection of investors, 
and (4) the Form SBSE-W is filed subsequent to the date of the issuance 
of a Commission order instituting proceedings to censure, place 
limitations on the activities, functions or operations of, or suspend 
or revoke the registration of the SBS Entity. Finally, paragraph (b) of 
proposed Rule 15Fb3-2 would provide that if the Commission institutes 
proceedings prior to the effective date of Form SBSE-W (1) To censure, 
place limitations on the activities, functions or operations of, or 
suspend or revoke the registration of the SBS Entity, or (2) to impose 
terms or conditions upon the SBS Entity's withdrawal, the notice of 
withdrawal shall not become effective except at such time and upon such 
terms and conditions as the Commission deems necessary or appropriate 
in the public interest or for the protection of investors.
    The Commission requests comment on all aspects of proposed Rule 
15Fb3-2.
    Q-105. Would the proposed withdrawal process be workable for SBS 
Entities? Are the proposed timeframes reasonable for these entities? 
Why or why not?

[[Page 65799]]

    Q-106. Under what other circumstances, if any, should the 
Commission shorten or lengthen the timeframe for withdrawal?
3. Cancellation and Revocation: Proposed Rule 15Fb3-3
    Proposed Rule 15Fb3-3 would provide the Commission with the ability 
to either cancel or revoke a registered SBS Entity's registration. More 
specifically, paragraph (a) of proposed Rule 15Fb3-3 would allow the 
Commission to cancel an SBS Entity's registration if the Commission 
finds that it is no longer in existence or has ceased to do business as 
an SBS Entity.\63\ The cancellation process outlined in paragraph (a) 
is intended to be ministerial in nature, and not a means to revoke 
without due process the registration of an SBS Entity that may have 
violated federal securities laws. This provision is designed to help 
the Commission allocate its examination and other resources to entities 
that are actively engaged in business regulated by the Commission.
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    \63\ This provision is similar to Exchange Act Section 15(b)(5).
---------------------------------------------------------------------------

    Paragraph (b) of proposed Rule 15Fb3-3 cross-references the 
Exchange Act to clarify that the Commission shall censure, place 
limitations on the activities, functions, or operations of, or revoke 
(on a permanent or temporary basis) the registration of any SBS Dealer 
or major security-based swap participant that has registered with the 
Commission if it makes a finding as specified in Section 15F(l)(2) of 
the Exchange Act.\64\
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    \64\ 15 U.S.C. 78o-10(l).
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    Q-107. Is the proposed provision for cancellation of registration 
appropriate in the context of SBS Entities? Why or why not?
    Q-108. Would there be occasion for SBS Entities to have an extended 
pause in their businesses such that they might appear to have ceased to 
do business? If so, should the Commission provide that such entities 
could notify the Commission of their intent to stay in business, 
notwithstanding their lack of current activities? Should such entities 
later inform the Commission when they become active?
    Q-109. Should there be a time limit on how long such an SBS Entity 
could retain its registration with the Commission while it is in a 
``dormant'' state?
    Q-110. Does the proposed provision for revocation in paragraph (b) 
provide sufficient procedural safeguards for registered SBS Entities? 
If not, what procedures could be added to provide additional 
safeguards?

D. Special Requirements for Nonresident SBS Entities

    Proposed Rule 15Fb2-4 would require, among other things, that 
nonresident SBS Entities that are required to register with the 
Commission \65\ (1) Appoint an agent for service of process in the 
United States (other than the Commission or a Commission member, 
official or employee) upon whom may be served any process, pleadings, 
or other papers in any action brought against the nonresident SBS 
Entity, (2) furnish the Commission with the identity and address of its 
agent for services of process, (3) certify that the firm can, as a 
matter of law, provide the Commission with prompt access to its books 
and records and can, as a matter of law, submit to onsite inspection 
and examination by the Commission, and (4) provide the Commission with 
an opinion of counsel concurring that the firm can, as a matter of law, 
provide the Commission with prompt access to its books and records and 
can, as a matter of law, submit to onsite inspection and examination by 
the Commission.
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    \65\ The Commission has received questions as to how the 
registration requirements for SBS Entities would apply to non-U.S. 
persons. The Commission is continuing to consider the application of 
Title VII of the Dodd-Frank Act to non-U.S. persons and intends to 
address these issues in a separate release, and notes that the 
proposals described herein with respect to nonresident SBS Entities 
will be informed by the considerations and comments raised in 
connection with that release. See, e.g., Letter from Barclays Bank 
PLC, BNP Paribas S.A., Deutsche Bank AG, Royal Bank of Canada, The 
Royal Bank of Scotland Group PLC, Soci[eacute]t[eacute] 
G[eacute]n[eacute]rale, and UBS AG to David A. Stawick, Secretary, 
CFTC, Elizabeth M. Murphy, Secretary, SEC, and Jennifer J. Johnson, 
Secretary, Board of Governors of the Federal Reserve System (Jan. 
11, 2011); Letter from Sarah A. Miller, Chief Executive Officer, 
Institute of International Bankers, to Elizabeth M. Murphy, 
Secretary, SEC, and David A. Stawick, Secretary, CFTC (Jan. 10, 
2011); Letter from Barclays Bank PLC, BNP Paribas S.A., Credit 
Suisse AG, Deutsche Bank AG, HSBC, Nomura Securities International, 
Inc., Rabobank Nederland, Royal Bank of Canada, The Royal Bank of 
Scotland Group PLC, Soci[eacute]t[eacute] G[eacute]n[eacute]rale, 
The Toronto-Dominion Bank, and UBS AG to David A. Stawick, 
Secretary, CFTC, Elizabeth M. Murphy, Secretary, SEC, and Jennifer 
J. Johnson, Secretary, Board of Governors of the Federal Reserve 
System (Feb. 17, 2011); and Letter from Laura J. Schisgall, Managing 
Director and Senior Counsel, Soci[eacute]t[eacute] 
G[eacute]n[eacute]rale, to Elizabeth M. Murphy, Secretary, SEC, and 
David A. Stawick, Secretary, CFTC (Feb. 18, 2011). The Commission is 
also considering the approach outlined in the letter from Katsunori 
Mikuniya, Commissioner & Chief Executive, Financial Services Agency, 
Government of Japan, to Gary Gensler, Chairman, U.S. Commodity 
Futures Trading Commission (Apr. 1, 2011).
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    Paragraph (a) of proposed Rule 15Fb2-4 would define the term 
``nonresident security-based swap dealer'' and ``nonresident major 
security-based swap participant,'' for purposes of Rule 15Fb2-4. Under 
this definition, an SBS Entity that is incorporated any place that is 
not in the United States would be considered to be a nonresident. In 
addition, an SBS Entity that has its principal place of business in any 
place not in the United States would be considered to be a nonresident.
    Q-111. Should the terms ``nonresident security-based swap dealer'' 
and ``nonresident major security-based swap participant'' be defined 
differently and, if so, how should the definitions be amended and why?
1. United States Agent for Service of Process
    Paragraphs (b)(1) and (2) of proposed Rule 15Fb2-4 would require 
that each nonresident SBS Entity registered or registering with the 
Commission obtain a written irrevocable consent and power of attorney 
appointing an agent for service of process in the United States (other 
than the Commission or a Commission member, official or employee) upon 
whom may be served any process, pleadings, or other papers in any 
action brought against the nonresident SBS Entity and furnish the 
Commission with the identity and address of its agent for services of 
process on Schedule F \66\ to Form SBSE, Form SBSE-A, or Form SBSE-BD, 
as applicable.\67\ These requirements are important to facilitate the 
Commission and others (for example, the U.S. Department of Justice and 
any other agency with the power to enforce the Exchange Act) to serve 
process on a nonresident SBS Entity to enforce the Exchange Act. 
Paragraph (b)(4) of the proposed rule also would require that 
registered nonresident SBS Entities must promptly appoint a successor 
agent if it discharges its identified agent for service of process or 
if its agent for service of process is unwilling or unable to accept 
service on its behalf.\68\ Further, proposed paragraph (b)(3) would 
require that registered SBS Entities promptly inform the Commission, 
through an amendment of the Schedule F of Form SBSE, Form SBSE-A, or 
Form SBSE-BD, as appropriate, of any change to either its agent for 
service of process or the name or address of its existing agent for 
service of process. Finally, paragraph (b)(5) of proposed Rule 15Fb2-4 
would require that the registered nonresident

[[Page 65800]]

SBS Entity maintain, as part of its books and records, the agreement 
identified in paragraph (b)(1) for at least three years after the 
agreement is terminated.
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    \66\ The Schedule F is discussed more fully below as part of the 
discussion of the Forms.
    \67\ Paragraphs (b)(1) and (b)(2) of proposed Rule 15Fb2-4, 
respectively.
    \68\ Paragraph (b)(3) of proposed Rule 15Fb2-4.
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    The Commission requests comment on all aspects of the requirement 
for nonresident SBS Entities to appoint an agent in the United States 
to receive service of process, pleadings or papers in any action 
brought against the nonresident SBS Entity.
    Q-112. Should only certain types of entities (such as law firms) be 
allowed to act as U.S. agent for service of process?
    Q-113. Should these requirements be expanded to require nonresident 
SBS Entities to appoint a U.S. agent for purposes of all potential 
legal proceedings, including those from non-governmental entities, or 
is this already adequately addressed by contract?
    Q-114. Should the Commission require nonresident SBS Entities to 
provide the Commission with additional information not required of U.S. 
SBS Entities, such as verification of any non-U.S. registrations?
    Q-115. Is the three year time frame for which an SBS Entity would 
be required to maintain, as part of its books and records, the 
agreement appointing its agent for service of process appropriate? 
Would a longer or shorter time period be more appropriate?
2. Access to Books and Records of Nonresident SBS Entity
    Proposed Rule 15Fb2-4(c)(1), regarding access to books and records, 
would require that each nonresident SBS Entity registering with the 
Commission \69\ provide an opinion of counsel and certify on Schedule F 
of Form SBSE, Form SBSE-A, or Form SBSE-BD, as appropriate, that it 
can, as a matter of law, provide the Commission with prompt access to 
its books and records and can, as a matter of law, submit to onsite 
inspection and examination by the Commission.\70\ The Commission 
preliminarily believes that the nonresident SBS Entity certification 
and supporting opinion of counsel is important to confirm that each 
nonresident SBS Entity located overseas has taken the necessary steps 
to be in the position to provide the Commission with prompt access to 
its books and records and to be subject to inspection and examination 
by the Commission. To effectively fulfill its regulatory oversight 
responsibilities with respect to nonresident SBS Entities registered 
with it, the Commission must have access to those entities' records and 
the ability to examine them; however, certain foreign jurisdictions may 
have laws that complicate the ability of financial institutions such as 
nonresident SBS Entities located in their jurisdictions from sharing 
and/or transferring certain information including personal financial 
data of individuals that the financial institutions come to possess 
from third persons (e.g., personal data relating to the identity of 
market participants or their customers). The required certification and 
opinion of counsel regarding the nonresident SBS Entity's ability to 
provide prompt access to books and records and to be subject to 
inspection and examination will allow the Commission to better evaluate 
a nonresident SBS Entity's ability to meet the requirements of 
registration and ongoing supervision. Failure to make this 
certification or provide an opinion of counsel may be a basis for the 
Commission to deny an application for registration.
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    \69\ See supra note 65.
    \70\ In accordance with Proposed Rule 15Fb1-1(b), the SBS Entity 
will need to maintain a manually signed copy of this certification 
as part of its books and records until at least three years after 
the certification has been replaced or is no longer effective.
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    Paragraph (c)(2) of proposed Rule 15Fb2-4 would require that 
registered nonresident SBS Entities re-certify, on Schedule F to Form 
SBSE, Form SBSE-A, or Form SBSE-BD, as applicable, within 90 days after 
any changes in the legal or regulatory framework that would impact the 
nonresident SBS Entity's ability to provide, or the manner in which it 
provides, the Commission prompt access to its books and records or 
impacts the Commission's ability to inspect and examine the nonresident 
SBS Entity. The re-certification would be required to include a revised 
opinion of counsel describing how, as a matter of law, the entity will 
continue to meet its obligations to provide the Commission with prompt 
access to its books and records and to be subject to Commission 
inspection and examination under the new regulatory regime. If a 
registered nonresident SBS Entity becomes unable to comply with this 
certification because of such changes, or otherwise, then this may be a 
basis for the Commission to revoke the nonresident SBS Entity's 
registration.
    The Commission requests comment on all aspects of the certification 
and opinion of counsel requirements contained in paragraph (c) of 
proposed Rule 15Fb2-4.
    Q-116. Will this certification requirement provide the Commission 
with adequate assurance that nonresident SBS Entities will be able to 
provide the Commission with access to records?
    Q-117. Should the Commission specify that the opinion of counsel 
contain any additional information? For instance, should the 
requirement clarify that the opinion of counsel reference the 
applicable local law or, in the case of an amendment, the manner in 
which the local law was amended?
    Q-118. As described above, certain foreign jurisdictions may have 
laws that complicate the ability of financial institutions such as 
nonresident SBS Entities located in their jurisdictions from sharing 
and/or transferring certain information. What impact may the 
requirement that a nonresident SBS Entity obtain and submit the 
described opinion of counsel have on a nonresident SBS Entity's ability 
to register in the United States in such circumstances or otherwise? 
Are there circumstances where it would be impossible or impractical for 
the nonresident SBS Entity to obtain the opinion of counsel? Would a 
nonresident SBS Entity need to cease doing business in the United 
States or with U.S. persons solely because of this requirement? Why or 
why not?
    Q-119. If the described opinion of counsel were not required, what 
alternatives would the Commission have to assure that it is able to 
access a registered nonresident SBS Entity's books and records and 
examine the registered nonresident SBS Entity in order to effectively 
fulfill its oversight responsibilities? What are the relative 
advantages or disadvantages of any such alternatives?
    Q-120. Should the requirement that an SBS Entity obtain an amended 
opinion of counsel and re-certify its ability to provide the Commission 
with access to records be limited in any way?
    Q-121. The Commission has received three comment letters containing 
alternative suggestions as to how the Commission should accommodate a 
foreign bank with a U.S. affiliate that organizes its business so that 
it could engage in security-based swap transactions with U.S. investors 
while being subject to a more limited regulatory regime under the 
Exchange Act in recognition that it is subject to regulation in its 
home country.\71\ The

[[Page 65801]]

Commission requests comment regarding whether the requirement that an 
applicant provide an opinion of counsel should be amended to recognize 
or facilitate such arrangements. If so, why and in what way should the 
requirement be modified? If not, why? Would an amended requirement 
provide the Commission with adequate assurance that nonresident SBS 
Entities will be able to provide the Commission with sufficient access 
to records?
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    \71\ See letter to Mr. David A. Stawick, Secretary, CFTC, Ms. 
Elizabeth M. Murphy, Secretary, Commission, and Ms. Jennifer J. 
Johnson, Secretary, Board of Governors of the Federal Reserve System 
from Davis Polk & Wardwell LLP, on behalf of Barclays Bank PLC, BNP 
Paribas S.A., Deutsche Bank AG, Royal Bank of Canada, The Royal Bank 
of Scotland Group plc, Soci[eacute]t[eacute] G[eacute]n[eacute]rale 
and UBS AG, dated January 11, 2011 (http://www.sec.gov/comments/s7-39-10/s73910-9.pdf); letter to Elizabeth M. Murphy, Secretary, 
Commission, and David A. Stawick, Secretary, CFTC, dated January 10, 
2011 (http://www.sec.gov/comments/s7-39-10/s73910-8.pdf); and letter 
to Ananda Radhakrishnan, Director, Division of Clearing and 
Intermediary Oversight, CFTC, John M. Ramsay, Deputy Director, 
Division of Trading and Markets, Commission, and Mark E. Van Der 
Weide, Senior Associate Director, Division of Supervision and 
Regulation, Board of Governors of the Federal Reserve System, dated 
November 23, 2010 (http://www.sec.gov/comments/s7-34-10/s73410-3.pdf).
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E. Special Situations

1. Succession: Proposed Rule 15Fb2-5
    Proposed Rule 15Fb2-5 would provide a process through which an SBS 
Entity could succeed to the business of another SBS Entity.\72\ 
Consistent with the use of the term in connection with broker-dealer 
registration, we propose to consider a ``succession'' to mean that a 
successor firm acquires or assumes substantially all of the assets and 
liabilities of the predecessor firm.\73\
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    \72\ This proposed rule is based on Exchange Act Rule 15b1-3, 
which is applicable to registered brokers and dealers and has worked 
well to facilitate succession of registrants.
    \73\ Registration of Successors to Broker-Dealers and Investment 
Advisers, Exchange Act Release No. 31661 (Dec. 28, 1992) (58 FR 7 
(Jan. 4, 1993)).
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    Proposed Rule 15Fb2-5 would provide that, if an SBS Entity succeeds 
to and continues the business of another SBS Entity, the registration 
of the predecessor SBS Entity will remain effective as the registration 
of the successor if the successor files an application for registration 
in accordance with Rule 15Fb2-1 within 30 days after such succession, 
and the predecessor files a notice of withdrawal from registration on 
Form SBSE-W.
    Paragraph (b) of Proposed Rule 15Fb2-5 would allow a successor firm 
that succeeds to the business of another for minor reasons, where the 
ownership or control of the SBS Entity does not change (e.g., solely 
because it is changing its date or state of incorporation, form of 
organization, or the composition of a partnership), to simply amend the 
registration of the predecessor SBS Entity on Form SBSE, Form SBSE-A, 
or Form SBSE-BD, as appropriate, within 30 days after the change.
    Q-122. Are these proposed successor rules appropriate for SBS 
Entities?
    Q-123. Should the concept of succession be the same as used in the 
context of broker-dealer registration? Commenters should explain why 
any differences would be appropriate.
    Q-124. Are the timeframes provided, which seem to work well in the 
broker-dealer context, appropriate with respect to SBS Entity 
succession?
2. Insolvency: Proposed Rule 15Fb2-6
    Proposed Rule 15Fb2-6 would provide a process through which an 
executor, administrator, guardian, conservator, assignee for the 
benefit of creditors, receiver, trustee in insolvency or bankruptcy or 
other fiduciary appointed or qualified by order, judgment or decree of 
a court of competent jurisdiction could continue the business of an SBS 
Entity.\74\ This is important to allow a fiduciary time to close-out 
positions and/or wind down an SBS Entity's business. Under the proposed 
rule, the fiduciary would be required to file with the Commission, 
within 30 days after entering upon the performance of his or her 
duties, an amended Form SBSE, Form SBSE-A, or Form SBSE-BD, as 
appropriate, indicating the fiduciary's position with respect to 
management of the SBS Entity, along with a copy of the order, judgment, 
decree, or other document appointing the fiduciary.
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    \74\ The proposed rule is based on Exchange Act Rule 15b1-4, 
which applies to broker-dealer registrations. We believe this rule 
has worked well to allow fiduciaries to wind-up broker-dealer 
businesses without the need to separately register as a broker-
dealer.
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    Q-125. Is proposed Rule 15Fb2-6 appropriate for SBS Entities? If 
another process would be more appropriate, please describe it.
    Q-126. Should fiduciaries be able to continue the business of an 
SBS Entity to facilitate an orderly liquidation? If not, why?
    Q-127. Is the proposed 30-day timeframe, which is consistent with 
the Rule 15b1-4 requirement for broker-dealer fiduciaries, sufficient 
for an SBS Entity fiduciary to make the required filing with the 
Commission?
    Q-128. Do the close-out provisions in the agreements between the 
parties provide sufficient ability for counterparties to close-out open 
positions in the event of an SBS Entity default so that a fiduciary 
would not be needed? Please explain.

F. Technical Rules

1. Electronic Signatures
    Proposed Rule 15Fb1-1 would specify the format required for 
signatures to, or within, electronic submissions (including signatories 
within the forms and certifications required by Sec. Sec.  240.15Fb2-1, 
240.15Fb2-4 and 240.15Fb6-1, discussed below). In addition, paragraph 
(b) of proposed Rule 15Fb1-1 would require that each signatory to such 
an electronic filing manually sign a signature page or other document 
authenticating, acknowledging or otherwise adopting his or her 
signature that appears in typed form within the electronic filing 
either before or at the time the electronic filing is made. Paragraph 
(b) would also require that the SBS Entity create the manually signed 
document when the electronic form is submitted, and furnish a copy of 
such document to the Commission upon request. Paragraph (c) of proposed 
Rule 15Fb1-1 would prohibit a person required to provide a signature on 
an electronic submission from having another person sign the form or 
certification on his or her behalf pursuant to a power of attorney or 
other form of confirming authority. Finally, paragraph (d) would 
require that the SBS Entity retain the manually signed document 
associated with Schedules F and G of Forms SBSE, SBSE-A, or SBSE-BD, as 
appropriate, until at least three years after the form or certification 
has been replaced or is no longer effective, and the manually signed 
document associated with Form SBSE-C until at least three years after 
the Form was submitted to the Commission.
    This proposed rule is based on Section 302 of Regulation S-T,\75\ 
and is designed to require standard formatting of electronic signatures 
and provide the Commission with the ability to obtain additional 
documents to verify those signatures. In addition, paragraph (c) of 
proposed Rule 15Fb1-1 is based on paragraph (d) of Exchange Act Rule 
15d-14. The Commission believes that this paragraph is necessary to 
assure that persons signing certifications can be held responsible for 
their statements.
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    \75\ 17 CFR 232.302.
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    The Commission requests comment on all aspects of Rule 15b1-1.
    Q-129. Is it adequate to require an SBS Entity to maintain a signed 
copy of each certification as part of its books and records so that it 
is available for examiners to review?
    Q-130. Should the Commission require SBS Entities to file the 
original certifications with the Commission?
    Q-131. Are the timeframes for retention of manually signed 
documents appropriate? Why or why not? If not, what timeframe or 
timeframes may be more appropriate and why?

[[Page 65802]]

2. Temporary Rule To Facilitate Paper Filing of Forms
    If a technological means to facilitate receipt and retention of 
applications required to be filed in accordance with Rule 15Fb2-1 is 
not functional by the time final rules are adopted, proposed temporary 
Rule 15Fb2-2T would require an SBS Entity to file its application on 
Form SBSE, Form SBSE-A, or Form SBSE-BD, as applicable, and all 
additional documents in paper form by sending it to the Securities and 
Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090, 
notwithstanding paragraph (c)(1) of Rule 15Fb2-1. In addition, if 
proposed temporary Rule 15Fb2-2T is adopted, paragraph (b) would 
require that each applicant must resubmit its Form SBSE, Form SBSE-A, 
and Form SBSE-BD, as applicable and all additional documents to the 
Commission electronically within three months of the date such 
technological means to facilitate receipt and retention of applications 
becomes functional. Depending on the timing, SBS Entities may also need 
to file their Forms SBSE-C in paper format and later resubmit those 
Forms electronically.
    Proposed temporary Rule 15Fb2-2T would provide a process for the 
Commission to receive applications in paper format if a technological 
means to facilitate receipt and retention of applications cannot be 
completed before final SBS Entity registration rules are adopted. 
Further, Proposed temporary Rule 15Fb2-2T would facilitate the 
transition of data to an electronic format once such a system becomes 
functional. The benefits of an electronic system outweigh additional 
costs relating to the need for SBS Entities to file their applications 
in both paper and electronic form. In addition, requiring that each SBS 
Entity file its application electronically would assure that each firm 
can confirm that the data entered into the electronic system is 
accurate and complete.
    The Commission requests comment on proposed temporary rule 15Fb2-
2T.
    Q-132. Is this paper process practicable?
    Q-133. Should the Commission instead allow applicants to submit 
their applications in PDF form via e-mail?
    Q-134. Instead of the process contemplated by paragraph (b) of 
proposed Rule 15Fb2-2T, should the Commission reduce the paper filings 
to electronic form instead of the applicants?

G. Forms

1. Form SBSE
    Proposed Form SBSE is generally based on Form BD--the consolidated 
Form used by broker-dealers to register with the Commission, states and 
SROs. Form BD has been used to gather and organize certain information 
concerning applicants' business operations to facilitate Commission, 
state and SRO initial registration decisions, as well as ongoing 
examination and monitoring of registrations. Because SBS Entities will 
be subject to many requirements similar to those that affect broker-
dealers (e.g., minimum capital, leverage, and business conduct rules 
and statutory disqualification prohibitions), the Commission believes 
using Form BD as a template for the registration of SBS Entities is 
logical and efficient. Key differences from Form BD are outlined below:
     The phrase ``broker or dealer'' was changed to ``security-
based swap dealer or major security-based swap participant'' because 
Form SBSE will be used by firms to register as SBS Entities and not as 
broker-dealers;
     References to SROs and jurisdictions were removed except 
where they arose in the context of a contractual relationship or 
disciplinary proceeding because SBS Entities will generally not be 
required to register with SROs or states;
     References to branch offices were removed because the SBS 
business is generally conducted on a more centralized basis and is not 
effected through branch offices;
     The General Instructions eliminate the instructions for 
filing the form in paper format because we intend to require that the 
forms be filed electronically; \76\
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    \76\ If a technological means to facilitate the receipt and 
retention of applications is not finalized by the time final rules 
are adopted and the Commission must adopt proposed Rule 15Fb2-2T, 
instructions regarding paper filing would be re-inserted.
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     The Explanation of Terms section is substantially the 
same; \77\ however the term ``jurisdiction'' was replaced with the term 
``state'' to eliminate potential confusion regarding questions in Item 
11 that relate to actions brought in either domestic or foreign 
jurisdictions and the term ``foreign financial regulatory authority'' 
was removed because it is now defined in Exchange Act Section 3(a)(52);
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    \77\ The Explanation of Terms section includes definitions of 
the terms applicant, control, state, person, self-regulatory 
organization, successor, charged, control affiliate, enjoined, 
felony, found, investment or investment-related, involved, minor 
rule violation, misdemeanor, order, and proceeding.
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     Item 1-J of Form SBSE would elicit the name and contact 
information for the Chief Compliance Officer designated by the 
applicant in accordance with Exchange Act Section 15F(k) (broker-
dealers are not now required to provide this information on Form BD);
     Item 2b of Form SBSE would elicit information, if a firm 
is registering as a major security-based swap participant, regarding 
whether the firm is registering because it maintains a substantial 
position, has substantial counterparty exposure, or is highly leveraged 
relative to its capital position, which will assist the staff in 
evaluating its application;
     Item 3 of Form SBSE would elicit whether the SBS Entity 
intends to use mathematical models to calculate any applicable capital 
or margin or to price customer or proprietary positions (whether or not 
for regulatory purposes), which will assist the staff in considering 
what types of examinations may be required;
     Item 4 of Form SBSE would elicit whether the applicant is 
subject to regulation by a prudential regulator \78\ because the extent 
of the Commission's regulatory responsibilities for entities subject to 
regulation by a prudential regulator differ;
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    \78\ The term ``prudential regulator'' is now defined at 15 
U.S.C. 78c(a)(74).
---------------------------------------------------------------------------

     In addition to eliciting information regarding 
recordkeeping arrangements, Item 8 would also query whether the 
applicant has any arrangement under which any other person, firm or 
organization executes, trades, custodies, clears or settles on behalf 
of the applicant (including any SRO or swap execution facility in which 
the applicant is a member). This information is designed to provide the 
Commission with an understanding of the SBS Entity's business 
relationships.
     References to the Securities Investor Protection 
Corporation in the ``Execution'' section have been eliminated because 
SBS Entities are not required to become members of SIPC \79\ and 
references to surety bonding and service of process in each state has 
also been eliminated because Form SBSE does not facilitate registration 
with states (as the Form BD does);
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    \79\ Only SBS Entities that are also registered as a broker-
dealer would be SIPC members. SBS Entities that are also registered 
as a broker-dealer will be required to file Form SBSE-BD and not 
Form SBSE.
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     Form SBSE would require disclosure of whether the 
applicant is registering as an SBS dealer or major security-based swap 
participant, the applicant's legal status, whether the applicant is 
succeeding to the business

[[Page 65803]]

of another SBS Entity, and the applicant's control relationships; \80\ 
and
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    \80\ These questions are similar to questions that appear on 
pages 2 and 3 of the Form BD.
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     Form SBSE would elicit a description of the applicant's 
business in a text box rather than through the use of a list of 
possible types of business.
    Proposed Form SBSE, like Form BD, would elicit information 
regarding criminal disclosures, regulatory action disclosures, civil 
judicial disclosures, and financial disclosures. As with Form BD, 
``yes'' answers to these questions would require that the applicant 
file additional information on disclosure reporting pages (or ``DRPs'') 
as a supplement to the Form. As with Form BD, Form SBSE would also 
elicit information on whether the applicant is registered with the 
Commission as an investment adviser, registered with the CFTC as an 
FCM, or whether it is engaged in any other investment-related, non-
securities business.
    Schedules A and B, which elicit information regarding direct and 
indirect owners and executive officers, would be largely unchanged 
(with the exception of the header, the elimination of a request for 
social security numbers in the tables): however, the table in Schedule 
A has been expanded to elicit information regarding prior investment-
related experience of individual owners who are not otherwise 
registered through CRD or IARD to provide the Commission an 
understanding of each owner's background and qualifications in light of 
the fact that they will not be individually registered as is the case 
with owners of broker-dealers. Schedule C would be eliminated because 
electronic filing of the forms would make it unnecessary. Schedule D 
would be amended slightly to address differences between the security-
based swap business and the broker-dealer business (e.g., there are no 
``introducing and clearing arrangements''). In addition, Section IV in 
Item D has been expanded to elicit additional information regarding the 
nature of the execution, trading, custody, clearing or settlement 
arrangement, as well as information regarding any prior investment-
related experience of individual control persons who are not otherwise 
registered through CRD or IARD. This information is designed to provide 
the Commission with an understanding of the SBS Entity's business 
relationships and each control person's respective background and 
qualifications in light of the fact that they will not be individually 
registered as is the case with owners of broker-dealers. The staff 
understands that SBS Entities may conduct security-based swap business 
from multiple locations; however, those that would register with the 
Commission using Form SBSE likely would not refer to those locations as 
``branches.'' Consequently, Schedule E of Form SBSE \81\ would solicit 
information regarding locations rather than branches.
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    \81\ Schedule E of Form BD has been replaced by Form BR, which 
is designed to enable broker-dealers to register their branch office 
locations electronically with SROs and states. See, Self-Regulatory 
Organizations; New York Stock Exchange, Inc.; Order Approving 
Proposed Rule Change Relating to the Proposed Uniform Branch Office 
Registration Form (``Form BR''), Exchange Act Release No. 52543 
(Sep. 30, 2005), 70 FR 58771 (Oct. 7, 2005); and Self-Regulatory 
Organizations; National Association of Securities Dealers, Inc.; 
Order Approving Proposed Rule Change and Amendment No. 1 Thereto and 
Notice of Filing and Order Granting Accelerated Approval to 
Amendment No. 2 to the Proposed Rule Change Relating to the Proposed 
Uniform Branch Office Registration Form (``Form BR'') and Amendments 
to the Uniform Application for Securities Industry Registration or 
Transfer (``Form U4'') and the Uniform Termination Notice for 
Securities Industry Registration (``Form U5''), Exchange Act Release 
No. 52544 (Sep. 30, 2005), 70 FR 58764 (Oct. 7, 2005).
---------------------------------------------------------------------------

    The proposed form would also include two additional schedules to be 
used by SBS Entities--Schedules F and G. Schedule F must be submitted 
by nonresident SBS Entities pursuant to proposed Rule 15Fb2-4 to 
provide the Commission with information regarding its appointed U.S. 
agent for service of process and to certify that it is able to provide 
the Commission with prompt access to its books and records.\82\
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    \82\ Nonresident broker-dealers must presently file one of four 
similar forms (Form 7-M, Form 8-M, Form 9-M or Form 10-M, depending 
on the broker-dealer's form or organization) to appoint an agent for 
service of process.
---------------------------------------------------------------------------

    Schedule G would be required to be submitted by all SBS Entities 
pursuant to proposed Rule 15Fb6-1(a). Schedule G would provide each SBS 
Entity with a method to certify that none of its associated persons 
that are effecting or involved in effecting security-based swaps on its 
behalf is subject to statutory disqualification. This Schedule is 
designed to provide the Commission with assurance that the SBS Entity 
is compliant with Section 15F(b)(6) of the Exchange Act. The Form would 
require that the firm's Chief Compliance Officer sign Schedule G.
    The Commission intends to use the information disclosed by 
applicants in Form SBSE (including the Schedules and DRPs) to determine 
whether the applicant meets the standards for registration, and to 
fulfill its oversight responsibilities.
    The Commission requests comment on all aspects of Form SBSE.
    Q-135. Should the registration form for SBS Entities be based on 
Form BD, CFTC Form 7-R, or some other form? Please describe the reasons 
for choosing a particular form over another.
    Q-136. How many firms may apply for registration as SBS Entities?
    Q-137. Should any of the instructions or questions on Form SBSE be 
amended to recognize particular characteristics of the business of SBS 
Entities?
    Q-138. Are any of the proposed questions on Form SBSE inapplicable 
to the SBS business?
    Q-139. Should any questions be added to Form SBSE to elicit 
information that is unique to the SBS business or to the SBS Entities 
that engage in that business?
    Q-140. Is proposed new Schedule F the best method to collect 
information regarding a nonresident SBS Entity's agent for service of 
process? If not, what other method could the Commission utilize?
    Q-141. Is the requirement that an SBS Entity certify on new 
Schedule F that it can, as a matter of law, provide the Commission with 
access to its books and records and allow the Commission to conduct 
onsite inspections the best method to assure the Commission is able to 
have such access? If not, what other method could the Commission 
utilize?
    Q-142. Is it appropriate to require a nonresident SBS Entities to 
also submit an opinion of counsel opining on this issue?
    Q-143. Is proposed new Schedule G the best method to assure that an 
SBS Entity is complying with Section 15F(b)(6) of the Exchange Act? If 
not, what other method could the Commission utilize?
    Q-144. Would the Form SBSE disclosure requirements present any 
unique issues for financial institutions not previously subject to 
similar disclosure requirements? If so, please describe.
    Q-145. Should Form SBSE include additional Schedules in which the 
applicant could provide more detailed information regarding its 
business (e.g., a business plan, descriptions of the types of products 
the applicant will offer, the types of counterparties it will have, 
information regarding the applicant's operational, supervisory and 
compliance infrastructure, its major vendors, its clearing 
arrangements), similar to what the Commission typically requires of 
other types of applicants (e.g., clearing agencies and national 
securities exchanges)? If so, what specific types of information should 
be required?

[[Page 65804]]

    Q-146. If there are changes in this type of information over time, 
how frequently should the registrant be required to update the relevant 
schedules?
2. Form SBSE-A
    CEA Section 4s(c) and Exchange Act Section 15F(c) require that 
persons that engage in both swap business and security-based swap 
business must separately register with each agency. However, the staff 
is proposing that applicants that are not registered with the 
Commission as broker-dealers, but that are registered or registering 
with the CFTC as either a swap dealer or major swap participant, file 
their application for registration on an alternative to Form SBSE, or 
Form SBSE-A. Form SBSE-A is a shorter form and is intended to make it 
easier for dual applicants to file with both agencies. As part of its 
application, a firm filing with the Commission on Form SBSE-A would 
need to provide the Commission with a copy of the form it files with 
the CFTC to register as a swap dealer or major swap participant. Form 
SBSE-A is designed to provide the Commission with data, not included on 
the form the applicant must file with the CFTC, that the Commission 
believes it will need to adequately review an application for 
registration.\83\ While some information elicited via Form SBSE-A also 
may be elicited by the CFTC's form, it will be helpful for the 
Commission to receive this information directly to allow the Commission 
to match the Form SBSE-A with the CFTC Form and to coordinate the 
information elicited through Form SBSE-A with other information the 
Commission may have on the applicant. The Commission believes that 
requiring that these applicants use Form SBSE-A would reduce the costs 
and burdens associated with filing distinctly different forms to 
register with both the Commission and CFTC.
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    \83\ The CFTC has proposed that swap dealers and major swap 
participants file their applications on Form 7-R and accompanying 
Form 8-R. Also, see supra note 10. Consequently, the Commission's 
assessment of what information applicants should be required to 
provide on Form SBSE-A was based on Form 7-R. If the CFTC's 
application form for swap dealers or major swap participants 
deviates substantially from Form 7-R, the Commission will need to 
re-assess the information it would need to collect through Form 
SBSE-A. Form 8-R is the Form used for registration of individuals.
---------------------------------------------------------------------------

    Proposed Form SBSE-A is loosely based on Form SBSE, which, as 
described above is based on Form BD (the Form used by broker-dealers to 
register with the Commission). As discussed more fully above, the 
Commission has used Form BD to gather information necessary for it and 
the SROs to determine whether to grant broker-dealer registration to an 
applicant. Key differences from Form SBSE are outlined below:
     The General Instructions have been modified to identify 
the Form and Schedules to be used to register as an SBS Entity and to 
eliminate the instructions for filing in paper format because we intend 
to require that the forms be filed electronically; \84\ and
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    \84\ See paragraph (c) of proposed Rule 15Fb2-1.
---------------------------------------------------------------------------

     To reduce potential confusion regarding the use of two 
forms,\85\ the initial instruction in the Explanation of Terms section 
states that terms used in Form SBSE-A that are defined in CFTC Form 7-R 
shall have the same meaning as set forth in that form, and terms not 
otherwise defined in CFTC Form 7-R have the same meaning as in Form 
SBSE.
---------------------------------------------------------------------------

    \85\ One to register with the CFTC as a swap dealer or major 
swap participant and one to register with the Commission as an SBS 
Entity.
---------------------------------------------------------------------------

    Item 1.C. on Form SBSE-A would elicit the firm's NFA number. Items 
2 through 13 of proposed Form SBSE-A would require that the applicant 
identify the capacity in which it is seeking to register with the 
Commission, the capacity in which it is registered with or seeking to 
register with the CFTC, certain control and business relationships, 
succession and other basic information regarding the firm's business. 
These questions are similar to information elicited via Form SBSE, 
which elicit information not otherwise elicited through Form 7-R but 
which the Commission believes is useful to facilitate its oversight of 
regulated entities.
    Item 2b of Form SBSE-A would elicit information, if a firm is 
requesting registration as a major security-based swap participant, 
regarding whether the firm is registering because it maintains a 
substantial position, has substantial counterparty exposure, or is 
highly leveraged relative to its capital position, which will assist 
the staff in evaluating its application. Item 3 of Form SBSE-A would 
elicit whether the SBS Entity intended to use mathematical models to 
calculate capital or margin or to price customer or proprietary 
positions because this would highlight for staff the need for a more 
extensive review. Item 5 of Form SBSE would elicit whether the 
applicant is subject to regulation by a prudential regulator because 
the extent of the Commission's regulatory responsibilities for entities 
subject to regulation by a prudential regulator differ.\86\
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    \86\ See, e.g., 15 U.S.C. 78o-10(e).
---------------------------------------------------------------------------

    Items fourteen and fifteen on Form SBSE-A would elicit information 
regarding ``principals.'' The definition of ``principal'' in CFTC Form 
7-R is similar to the definition of control affiliate in Form BD. Form 
BD requires that an applicant file substantial information on its 
control affiliates. We understand that the CFTC presently requires that 
individual principals of entities registered with the CFTC file 
separate registrations with the CFTC. Consequently, the CFTC would have 
information on those individuals regarding any situations that would 
cause those individuals to be statutorily disqualified without 
requiring that the applicant include that information in its 
application. In recognition of this method and to decrease duplication, 
item thirteen would require that an applicant identify how many 
individual principals it has. Further, the applicant would need to list 
those principals on proposed new Schedule A to Form SBSE-A and provide 
information regarding those individual principals similar to the 
information provided on Schedule A of Form SBSE. Item fifteen asks 
whether any principals of the applicant that are entities effect or are 
involved in effecting security-based swaps on behalf of the applicant. 
If the question is answered in the affirmative, the applicant would 
need to provide additional information on Schedule B with respect to 
those entities. This information is designed help the Commission better 
understand the relationship between the applicant and its principals in 
order to assure compliance with Section 15F(b)(6) of the Exchange Act 
and to police for manipulation and fraud.
    As discussed above, Schedule A of Form SBSE-A would require that an 
applicant list all principals that are individuals and provide some 
basic information regarding each (e.g., the person's title, NFA number, 
and prior investment-related experience). Much of this information is 
provided to the Commission via Form BD for broker-dealers, and the CFTC 
would already have this information on control persons but, without new 
Schedule A to Form SBSE-A, the Commission would not otherwise have this 
information. This information is designed to help the Commission better 
understand the relationship between the applicant and its principals 
and a basic background of those principals in order to assure 
compliance with Section 15F(b)(6) of the Exchange Act and to police for 
manipulation and fraud.
    Schedule B would elicit information regarding other business in 
which the applicant is engaged, business

[[Page 65805]]

arrangements, successions, and principals that are not identified in 
Schedule A, and is based loosely on Schedule D to Form BD. Schedule C 
would elicit information regarding principals that are identified in 
Schedule B that would cause those persons to be statutorily 
disqualified, and is based on Item 11 in Form BD.\87\ The applicant 
would need to file a DRP for every ``yes'' answer in Schedule C. The 
Schedules F and G to Form SBSE-A are the same Schedules as described 
above in the section regarding Form SBSE.
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    \87\ Any differences between Schedule B to Form SBSE-A and 
Schedule D to Form SBSE and between Schedule C of Form SBSE-A and 
Item 11 in Form SBSE recognize the fact that Form SBSE-A has been 
tailored to collect information not otherwise elicited via Form 7-R 
which the Commission has found to be helpful to facilitate its 
oversight of the entities it regulates.
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    The Commission intends to use the information disclosed in Form 
SBSE-A to determine whether applicants meet the standards for 
registration and to fulfill its oversight responsibilities.
    Q-147. Is Form SBSE-A properly tailored to decrease costs for dual 
registration while still providing the Commission with information 
necessary on which to base its decision to grant or deny registration?
    Q-148. What are the comparative costs or benefits with respect to 
filing Form SBSE versus filing Form SBSE-A for entities filing as both 
swap entities with the CFTC and SBS Entities with the Commission?
    Q-149. How many firms expect to apply for registration as SBS 
Entities and what is the likelihood that those entities will also 
register with the CFTC as swap dealers or major swap participants?
    Q-150. Will the benefit of being able to file the same form with 
the Commission as filed with the CFTC be outweighed by the requirement 
to file those forms, as well as additional schedules and documents, 
with more than one agency or entity or through more than one electronic 
system?
    Q-151. Should FCMs registered with the CFTC that are not registered 
or registering with the CFTC as either a swap dealer or a major swap 
participant be allowed to register with the Commission using Form SBSE-
A?
    Q-152. Are any such FCMs likely to register with the Commission as 
an SBS Entity?
    Q-153. Would it be more cost effective for the Commission to obtain 
the data applicants file with the CFTC electronically from the CFTC or 
its designee rather than having the applicant file a copy of that form 
with the Commission?
    Q-154. Should any of the instructions or questions on Form SBSE-A 
be amended to recognize particular characteristics of the business of 
SBS Entities?
    Q-155. Are any of the proposed questions inapplicable to the SBS 
business?
    Q-156. Should any questions be added to elicit information that is 
unique to the SBS business or to the SBS Entities that engage in that 
business?
3. Form SBSE-BD
    Similar to the Form SBSE-A, the staff is proposing that applicants 
that are also registered or registering with the Commission as broker-
dealers file their application for registration on an alternative to 
Form SBSE, or Form SBSE-BD.\88\ In addition, any entity that is 
registered or registering with the Commission as a broker-dealer and 
that is also registered or registering with the CFTC as a swap dealer 
or major swap participant would be required to use the Form SBSE-BD. 
Form SBSE-BD is based on Form BD, but is designed to provide the 
Commission with data not included on the Form BD (to which the 
Commission has access). The Commission believes that requiring that 
these applicants use Form SBSE-BD would reduce the costs and burdens on 
applicants that are already registered or registering with the 
Commission as broker-dealers.
---------------------------------------------------------------------------

    \88\ Over-the-counter derivatives dealers, a limited form of 
broker-dealer established by the Commission in 1998, could also file 
on Form SBSE-BD.
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    The proposed Form SBSE-BD would consist of a single page that would 
elicit information not included on Form BD, such as the capacity in 
which the applicant is registering, whether the entity also is 
registering with the CFTC and, if so, in what capacity the firm is 
registering with the CFTC, if a firm is requesting registration as a 
major security-based swap participant--whether the firm is registering 
because it maintains a substantial position, has substantial 
counterparty exposure, or is highly leveraged relative to its capital 
position, whether the SBS Entity intends to use mathematical models to 
calculate capital or margin or to price customer or proprietary 
positions, whether the firm is subject to oversight by a prudential 
regulator and information regarding the applicant's chief compliance 
officer. Form SBSE-BD would also require that applicants submit 
Schedules F and G, described more fully above.
    The Commission intends to use the information disclosed in Form 
SBSE-BD to determine whether applicants meet the standards for 
registration, and to fulfill its oversight responsibilities.
    Q-157. What will the comparative costs or benefits be with respect 
to filing Form SBSE versus filing Form SBSE-BD for registered broker-
dealers filing as SBS Entities with the Commission?
    Q-158. How many firms expect to apply for registration as SBS 
Entities and whether those entities are already registered with the 
Commission as broker-dealers?
    Q-159. Should any of the instructions or questions be amended to 
recognize particular characteristics of the business of SBS Entities?
    Q-160. Are any of the proposed questions inapplicable to the SBS 
business?
    Q-161. Should any questions be added to elicit information that is 
unique to the SBS business or to the SBS Entities that engage in that 
business?
4. Form SBSE-C
    Proposed Form SBSE-C is designed to provide SBS Entities with a 
standard format and process through which to file the Senior Officer 
Certification required pursuant to proposed Rule 15Fb2-1(b). Form SBSE-
C would need to be filed by all SBS Entities. As described above, SBS 
Entities that submitted their applications during the transitional 
period would need to file this certification either before the Last 
Compliance Date or their conditional registration would expire. Major 
securities-based swap participants that submitted their applications 
after the Last Compliance Date would need to file this certification 
within four months after filing a completed application or their 
conditional registration would expire. SBS Dealers that file 
applications after the Last Compliance Date would need to file both an 
application and a certification simultaneously to be considered for 
ongoing registration.
    Form SBSE-C includes instructions both requiring electronic 
submission and explaining how the form should be filed electronically.
    Form SBSE-C would elicit the applicant's name, date, and SEC 
number, along with the signature, name and title of the senior officer 
signing the certification. The Commission intends to use the 
certification provided by Form SBSE-C in determining whether applicants 
meet the standards for ongoing registration.
    The Commission requests comment on the Form SBSE-C.
    Q-162. Should Form SBSE-C require that SBS Entities provide any 
additional

[[Page 65806]]

information? If so, how should the form be amended?
    Q-163. Should the instructions to Form SBSE-C be amended?
5. Form SBSE-W
    Proposed Form SBSE-W is loosely based on Form BDW (the Form used by 
broker-dealers to withdraw from registration with the Commission). The 
Commission has found Form BDW to be an effective vehicle for gathering 
information necessary for it and the SROs to determine whether it is 
appropriate to allow a registered broker-dealer to withdraw from 
registration. Because SBS Entities will be subject to many requirements 
similar to those that affect broker-dealers (e.g., minimum capital, 
leverage, and business conduct rules and statutory disqualification 
prohibitions), the Commission believes using Form BDW as a template for 
the request for withdrawal from registration of SBS Entities is logical 
and efficient. Key differences from Form BDW are outlined below:
     The distinction regarding full and partial withdrawal was 
eliminated from the Form SBSE-W as it is not relevant to the SBS 
business; and
     Item 4 was added to elicit information regarding the 
entity's reason for withdrawal from registration because we believe 
this information would be useful when considering a registered SBS 
Entity's request to withdraw from registration.
    The purpose of proposed Form SBSE-W is to allow the Commission to 
determine whether it is in the public interest to permit a registered 
SBS Entity to withdraw from registration.
    The Commission requests comment on the Form SBSE-W.
    Q-164. Given that the Commission has proposed to use different 
forms for registration of certain types of applicants, should different 
types of forms also be provided for withdrawals from registration? If 
so, how should the form or forms be amended?
    Q-165. Should the instructions to Form SBSE-W be amended? If so, 
how?
6. Tagged Data Formats
    As part of the Commission's longstanding efforts to (1) Improve the 
accuracy of financial and other filed information, (2) increase the 
transparency and usefulness of information, and (3) facilitate analysis 
of information provided to the Commission via reports, we have begun 
requiring that entities data-tag information contained in electronic 
filings.\89\ Data becomes machine readable when it is labeled, or 
``tagged,'' using a computer markup language that can be processed by 
software programs for analysis. Such computer markup languages (such as 
eXtensible Markup Language (XML) and eXtensible Business Reporting 
Language (XBRL)) use standard sets of definitions, or ``taxonomies,'' 
that translate text-based information in Commission filings into 
structured data that can be retrieved, searched, and analyzed through 
automated means.
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    \89\ See Regulation S-T, 17 CFR 232. See also Electronic Filing 
and Revision of Form D, Securities Act Release No. 8891 (Feb. 6, 
2008) (73 FR 10592 (Feb. 27, 2008)); Interactive Data To Improve 
Financial Reporting, Securities Act Release No. 9002 (Jan. 30, 2009) 
(74 FR 6776 (Feb 10, 2009)); and Interactive Data for Mutual Fund 
Risk/Return Summary, Securities Act Release No. 9006 (Feb. 11, 2009) 
(74 FR 7748 (Feb 19, 2009)); Amendments to Rules for Nationally 
Recognized Statistical Rating Organizations, Exchange Act Release 
No. 61050 (Nov. 23, 2009) (74 FR 63832 (Dec. 4, 2009)); and Money 
Market Fund Reform, Investment Company Release No. 29132 (Feb. 23, 
2010 (75 FR 10060 (Mar. 4, 2010)).
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    In addition to using the data provided via proposed Forms SBSE, 
SBSE-A, and SBSE-BD to determine whether to grant or deny registration, 
the Commission will make this data public. The fact that counterparties 
of SBS Entities would have access to additional, standardized 
information could improve competition amongst SBS Entities and would 
enable counterparties and the marketplace to expend less time and money 
to independently obtain and compile information on SBS Entities to use 
in making such choices. Thus, the Commission intends to tag the 
information in a machine readable format using a data standard that is 
freely available, and that is consistent and compatible with the tagged 
data formats already in use for SEC filings, to enable users of that 
data to retrieve, search, and analyze the data through automated means.
    Q-166. What tagged data language (e.g., XML, XBRL) would be most 
appropriate to be used for the required data to be provided via 
proposed Forms SBSE, SBSE-A, SBSE-BD, SBSE-C, and SBSE-W?

H. Alternative Approaches Considered

    The Commission considered alternative approaches to registration of 
SBS Entities. One possibility would be to adopt joint registration 
forms with the CFTC, so that SBS Entities could register with both 
agencies using the same forms. While there could be benefits to this 
approach, we believe that the Commission's streamlined approach will 
achieve many of the same benefits.
    Another possibility would be for the CFTC to require swap dealers 
and major swap participants to register using the Commission's forms, 
or for the Commission to require SBS Entities to register using the 
CFTC's forms. While this approach might streamline the registration 
process for regulated entities, particularly those that intend to 
engage in both swaps and SBS business, it would be more difficult for 
the agencies to implement given the Commissions' finite resources. 
Further, differences between the Commodity Exchange Act and the 
Exchange Act and the means to facilitate registration may justify 
differences in the forms.

III. Request for Comment

    In addition to the questions described above, we are requesting 
comments on all aspects of proposed rules 15Fb1-1 through 15Fb6-1 and 
Forms SBSE, SBSE-A, SBSE-BD, SBSE-C and SBSE-W, including with respect 
to the following questions:
    Q-167. Should the Commissions continue to consider whether to 
develop a joint registration form?
    In addition, Title VII of the Dodd-Frank Act requires that the SEC 
consult and coordinate to the extent possible with the CFTC for the 
purposes of assuring regulatory consistency and comparability, to the 
extent possible, and states that in adopting rules, the CFTC and SEC 
shall treat functionally or economically similar products or entities 
in a similar manner.
    The CFTC is adopting rules related to registration of swap dealers 
and major swap participants as required under Section 731 of the Dodd-
Frank Act. Understanding that the Commission and the CFTC regulate 
different products and markets, and as such, appropriately may be 
proposing alternative regulatory requirements, we request comments on 
the impact of any differences between the Commission's approach to the 
registration process for SBS Entities and CFTC's approach to the 
registration of swap dealers and major swap participants. Specifically:
    Q-168. Do the regulatory approaches under the Commission's proposed 
rulemaking pursuant to Section 764 of the Dodd-Frank Act and the CFTC's 
proposed rulemaking pursuant to Section 731 of the Dodd-Frank Act 
result in duplicative or inconsistent efforts on the part of market 
participants subject to both regulatory regimes or result in gaps 
between those regimes?
    Q-169. If so, in what ways do commenters believe that such 
duplication, inconsistencies, or gaps should be minimized?
    Q-170. Do commenters believe the approaches proposed by the 
Commission and the CFTC to register

[[Page 65807]]

SBS Entities and swap dealers and major swap participants are 
comparable? If not, why?
    Q-171. Do commenters believe there are approaches that would make 
the registration of SBS Entities and swap dealers and major swap 
participants more comparable? If so, what?
    Q-172. Do commenters believe that it would be appropriate for the 
Commission to adopt an approach proposed by the CFTC that differs from 
our proposal? Is so, which one and why?
    We request commenters to provide data, to the extent possible, 
supporting any such suggested approaches.
    The Commission is cognizant that the proposed rules discussed 
herein, as well as other proposals that the Commission may consider in 
the coming months to implement the Dodd-Frank Act, if adopted, could 
significantly affect--and be significantly affected by--the nature and 
scope of the security-based swaps market in a number of ways. For 
example, the Commission recognizes that if the measures proposed in 
this release are adopted and are too onerous for new entrants, they 
could hinder the further development of a market for security-based 
swaps by unduly discouraging competition and the formation of new SBS 
Dealers and major security-based swap participants. On the other hand, 
if the Commission adopts rules that are too permissive, the Commission 
may grant registration to firms that may have insufficient capacity, 
policies, procedures, or risk management systems. The Commission is 
also mindful that the further development of the security-based swaps 
market may alter the calculus for future regulation of SBS Dealers and 
major security-based swap participants. As commenters review this 
release, they are urged to consider generally the role that regulation 
may play in fostering or limiting the development of the market for 
security-based swaps (or, vice versa, the role that market developments 
may play in changing the nature and implications of regulation) and 
specifically to focus on this issue with respect to the proposals to 
register SBS Dealers and major security-based swap participants.

IV. Paperwork Reduction Act

    Certain provisions of proposed Rules 15Fb1-1 through 15Fb6-1 and 
Forms SBSE, SBSE-A, SBSE-BD, SBSE-C and SBSE-W contain ``collection of 
information requirements'' within the meaning of the Paperwork 
Reduction Act of 1995 (``PRA''). The Commission has submitted the 
information to the Office of Management and Budget (``OMB'') for review 
in accordance with 44 U.S.C. 3507 and 5 CFR 1320.11. An agency may not 
conduct or sponsor, and a person is not required to respond to, a 
collection of information unless it displays a currently valid control 
number. The title of this collection is ``Registration Rules for 
Security-Based Swap Entities.'' We are applying for a new OMB Control 
Number for this collection in accordance with 44 U.S.C. 3507(j) and 5 
CFR 1320.13.

A. Summary of Collection of Information

    As required by Exchange Act Section 15F, the Commission is 
proposing Rules 15Fb1-1 through 15Fb6-1 and Forms SBSE, SBSE-A, SBSE-
BD, SBSE-C and SBSE-W to facilitate registration of, certification by, 
and withdrawal of SBS Entities.
    Pursuant to paragraph (a) of proposed Rule 15Fb2-1, each SBS Entity 
would be required to file an application to register with the 
Commission. The Commission has sought to reduce burdens and costs 
associated with the application process by providing alternate 
registration forms for SBS Entities that are registered or registering 
either with the CFTC as swap dealers or major swap participants or with 
the Commission as broker-dealers. The alternative forms (Form SBSE-A, 
and Form SBSE-BD) are both shorter and should require that an SBS 
Entity expend less effort to research, complete, and file. It is 
anticipated that each SBS Entity would only need to research, complete, 
and file one of the proposed Forms.
    Proposed Rule 15Fb2-3 would require that SBS Entities promptly 
amend their applications if they find that the information contained 
therein has become inaccurate. While SBS Entities may need to update 
their Forms periodically, each firm will only need to amend that aspect 
of the Form that has become inaccurate.
    Paragraph (b) of proposed Rule 15Fb2-1 would require that each SBS 
Entity have a knowledgeable senior officer, after due inquiry, make an 
attestation on Form SBSE-C. As discussed more fully above, the 
Commission is proposing to require that a senior officer certify that, 
after due inquiry, he or she has reasonably determined that the SBS 
Entity has the operational, financial, and compliance capabilities to 
act as an SBS Dealer or major security-based swap participant, as 
applicable, and has documented the process by which he or she reached 
such determination. This certification process is designed to allow SBS 
Entities to register with the Commission quickly so that they are not 
required to suspend their security-based swap business, while providing 
the Commission with a basis to take final action on SBS Entity 
registration.
    Proposed Rule 15Fb6-1 would require that SBS Entities obtain a 
questionnaire or application for employment executed by each of its 
associated persons who is involved in effecting security-based swaps on 
behalf of the SBS Entity that contains certain, specified 
information.\90\ The proposed rule further would provide that the 
questionnaire or application shall serve as a basis for a background 
check of the associated person and be signed by the SBS Dealer's or 
major security-based swap participant's Chief Compliance Officer (or 
his or her designee). Proposed Rule 15Fb6-1 would require that each SBS 
Entity retain these employment questionnaires or applications until at 
least three years after the associated person has terminated his or her 
association with the SBS Entity. Finally, the CCO would need to certify 
(on Schedule G to Form SBSE, Form SBSE-A, or Form SBSE-BD, as 
applicable) that no associated person that effects or is involved in 
effecting security-based swaps on behalf of the SBS Entity is subject 
to a statutory disqualification. SBS Entities would only need to 
fulfill these obligations for associated persons that effect or are 
involved in effecting security-based swaps on behalf of the SBS Entity.
---------------------------------------------------------------------------

    \90\ See supra notes 55 and 56.
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    Proposed Rule 15Fb2-4 would require that each nonresident SBS 
Entity must have in place at all times an agreement with a United 
States person appointing that person as the firm's U.S. agent for 
service of process. In addition, Proposed Rule 15Fb2-4 would require 
that each nonresident SBS Entity obtain an opinion of counsel stating 
that it can, as a matter of law, provide the Commission with access to 
records and the ability to conduct onsite examinations. These entities 
also must file an additional schedule (Schedule F) with their Form 
SBSE, Form SBSE-A, or Form SBSE-BD, as appropriate, to identify the 
firm's U.S. agent for service of process and to certify that the firm 
can, as a matter of law, provide the Commission with access to its 
books and records. In addition, each nonresident SBS Entity would be 
required to maintain its written agreement appointing a U.S. agent for 
service of process until at least three years after the agreement is 
terminated.
    Pursuant to proposed Rule 15Fb1-1, each signatory to an electronic 
filing would be required to, when the

[[Page 65808]]

electronic filing is made, manually sign a signature page or other 
document adopting his or her signature that appears in typed form 
within the electronic filing. The SBS Entity would need to retain the 
manually-signed page until at least three years after the form or 
certification has been replaced or is no longer effective.
    Proposed Rule 15Fb3-2 would require that an SBS Entity seeking to 
withdraw from Commission registration must file Form SBSE-W. Given that 
the cost and effort to register as an SBS Entity likely will be 
significant, the Commission believes that entities will not enter and 
exit this business regularly. Further, the Commission believes it is 
unlikely that any SBS Entity will seek to withdraw from registration 
within the first year.
    Proposed temporary Rule 15Fb2-2T would only be adopted if a 
technological means to facilitate receipt and retention of applications 
is not functional by the time final rules are adopted. Pursuant to 
proposed temporary Rule 15Fb2-2T, each SBS Entity would need to file 
its application and certification in paper form. Proposed temporary 
Rule 15Fb2-2T also would require that each SBS Entity resubmit its 
application and certification in electronic form once a technological 
means to receive such documents becomes functional.

B. Proposed Use of Information

    Information collected pursuant to proposed Rules 15Fb1-1 through 
15Fb6-1 and through Forms SBSE, SBSE-A, SBSE-BD, and SBSE-C would allow 
the Commission to determine whether applicants meet the standards for 
registration, and to fulfill its oversight responsibilities. Further, 
Rule 15Fb3-2 and Form SBSE-W would allow the Commission to determine 
whether it is appropriate to allow an SBS Entity to withdraw from 
registration and to facilitate that withdrawal.
    In addition, information collected pursuant to proposed Forms SBSE, 
SBSE-A, SBSE-BD, and SBSE-C would be made publicly available.

C. Respondents

    Proposed Rule 15Fb1-1 through 15Fb6-1 would set forth rules to 
facilitate registration with the Commission of entities that fit the 
definition of SBS Dealer or major security-based swap participant.\91\ 
Forms SBSE, SBSE-A, and SBSE-BD, as applicable, are applications 
through which SBS Entities would register with the Commission.
---------------------------------------------------------------------------

    \91\ See supra notes 5-7.
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    The Commission preliminarily believes, based on data obtained from 
DTCC and conversations with market participants, that approximately 
fifty entities may fit within the definition of SBS Dealer and up to 
five entities may fit within the definition of major security-based 
swap participant.\92\ Further, the staff estimates, based on its 
experience and understanding of the unregulated swaps and security-
based swaps markets, that the majority of firms that may register as 
SBS Entities (thirty-five) also will be engaged in the swaps business 
and will register with the CFTC as swap dealers or major swap 
participants.\93\ In addition, persons holding securities positions may 
find it beneficial to hedge those positions with security-based swaps, 
so it may be beneficial for a broker-dealer to become an SBS Entity so 
that it can provide this option to its customers. Thus, Commission 
staff estimates that approximately sixteen broker-dealers will seek to 
register as SBS Entities.\94\ Finally, given the costs of being a 
registered entity it may be less likely for an entity that is not 
otherwise registered with the CFTC or the Commission to register as an 
SBS Entity. Consequently, the Commission staff estimates that only four 
firms not otherwise registered with the CFTC or the Commission will 
seek to become an SBS Entity.
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    \92\ In the Intermediary Definitions Release, the Commission and 
the CFTC proposed rules to define a number of terms used in Title 
VII, including, among others, ``security-based swap dealer'' and 
``major security-based swap participant.'' See supra note 5. As part 
of that proposal, the Commission preliminarily estimated that 
approximately 50 entities may be required to register as security-
based swap dealers under the proposed rules. See Intermediary 
Definitions Release, n. 188 (75 FR 80174, at 80209 (Dec. 10, 2010)). 
We further estimated that no more than ten entities would have 
security-based swap positions large enough that they would have to 
monitor whether they meet the thresholds defining a major security-
based swap participant. See Intermediary Definitions Release, (75 FR 
80174, at 80207-8 (Dec. 10, 2010)). For purposes of these proposed 
rules, we conservatively estimate that, of the ten entities that 
would need to monitor their positions to determine whether they 
cross any of the definitional thresholds, five may actually meet the 
definition of ``major security-based swap participant.'' Depending 
on capital and other requirements for SBS Dealers and how businesses 
choose to respond to such requirements, the actual number of SBS 
Dealers may be significantly fewer. See also Trade Acknowledgment 
and Verification of Security-Based Swap Transactions, Exchange Act 
Release No. 63727 (Jan. 14, 2011), 76 FR 3859, at 3868 (Jan. 21, 
2011); and Business Conduct Standards for Security-Based Swap 
Dealers and Major Security-Based Swap Participants, Exchange Act 
Release No. 64766 (Jun. 29, 2011), 76 FR 42396, (Jul. 18, 2011), as 
corrected by Exchange Act Release No. 64766, 76 FR 46668 (Aug. 3, 
2011).
    \93\ See Business Conduct Standards for Security-Based Swap 
Dealers and Major Security-Based Swap Participants, Exchange Act 
Release No. 64766 (Jun. 29, 2011), 76 FR 42396, (Jul. 18, 2011), as 
corrected by Exchange Act Release No. 64766, 76 FR 46668 (Aug. 3, 
2011).
    \94\ Id.
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    The Commission seeks comment on the reasonableness and accuracy of 
its estimates as to the number of participants in the security-based 
swap market that will be required to register with the Commission 
pursuant to proposed Rules 15Fb1-1 through 15Fb6-1 and Forms SBSE, 
SBSE-A, and SBSE-BD, as applicable.

D. Total Initial and Annual Reporting and Recordkeeping Burdens

1. Burden Associated With Filing Application Forms
    Proposed Rule 15Fb2-1 would require that each SBS Entity register 
with the Commission by filing an application. The Commission has 
attempted to reduce the burden associated with the application process 
by providing multiple forms for SBS Entities to use to register (Form 
SBSE, Form SBSE-A, or Form SBSE-BD). It is anticipated that each SBS 
Entity will only need to research, complete, and file one form.
    While it is likely that the time necessary to complete these forms 
would vary depending on the nature and complexity of the entity's 
business, the Commission staff estimates (based on its experience 
relative to Form BD) that the average time necessary for an SBS Entity 
to research the questions, and complete and file a Form SBSE (including 
the Schedules \95\ and DRPs) would be approximately one work week or 
forty hours.\96\ As discussed above, the Commission estimates that 
approximately four firms would need to register using Form SBSE. 
Consequently, the total burden associated with filing Forms SBSE would 
be approximately 160 hours.\97\
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    \95\ Except Schedules F and G, which are dealt with separately 
below.
    \96\ The staff has previously estimated that the average time 
necessary for a broker-dealer to complete and file Form BD, the Form 
upon which Form SBSE was based, would be approximately three hours 
(and that estimate has been subject to notice and comment. Broker-
Dealer Registration and Reporting, Exchange Act Release No. 41594 
(July 2, 1999), 64 FR 37586.) However, some SBS Entities may not 
previously have been subject to regulation and thus may need more 
time to research the answers to complete Form SBSE and its schedules 
and DRPs.
    \97\ (40 hours x 4 SBS Entities) = 160 hours total.
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    The Commission staff believes that, as Form SBSE-A is shorter than 
the Form SBSE, it should take an SBS Entity approximately 80% of the 
time that it would take to research, complete, and file a Form SBSE 
(including the Schedules \98\ and DRPs), or thirty two

[[Page 65809]]

hours. As discussed above, the Commission estimates that approximately 
thirty-five firms would also be registered with the CFTC and therefore 
would need to register using Form SBSE-A. Consequently, the total 
burden associated with filing Forms SBSE would be approximately 1,120 
hours.
---------------------------------------------------------------------------

    \98\ See supra note 95.
---------------------------------------------------------------------------

    The Commission staff believes that, as Form SBSE-BD is shorter than 
either Form SBSE or Form SBSE-A and broker-dealers who would be filing 
Form SBSE-BD are familiar with Commission terminology and forms, 
researching, completing, and filing a Form SBSE-BD should take an SBS 
Entity approximately 25% of the time that it would take to research, 
complete, and file a Form SBSE (including the Schedules \99\), or ten 
hours. As discussed above, the Commission estimates that approximately 
sixteen SBS Entities would need to register using Form SBSE-BD. 
Consequently, the total burden associated with filing Forms SBSE-BD 
would be approximately 160 hours.\100\
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    \99\ Id.
    \100\ (10 hours x 16 SBS Entities) = 160 hours total.
---------------------------------------------------------------------------

2. Burden Associated With Amending Application Forms
    Proposed Rule 15Fb2-3 would require that SBS Entities amend their 
applications if they find that the information contained therein has 
become inaccurate. While SBS Entities may need to update their Forms 
periodically, each firm will only need to amend that aspect of the Form 
that has become inaccurate. Further, it likely will not cost a 
significant amount to make such changes because each firm will have 
already completed Form SBSE, Form SBSE-A, or Form SBSE-BD, as 
applicable, and will only need to amend that aspect of the Form that 
has become inaccurate. Based on the number of amendments the Commission 
receives annually on Form BD,\101\ the Commission estimates that each 
SBS Entity will file approximately three amendments annually. While it 
is likely that the time necessary to file an amendment to Form SBSE, 
Form SBSE-A, or Form SBSE-BD, as applicable, may vary depending on the 
nature and complexity of the information to be amended, the staff 
estimates, based on experience relative to Form BD, that it likely 
would take an SBS Entity, on average, approximately one hour to amend 
its application each time it files an amendment. Consequently, the 
total burden associated with amending Forms SBSE, SBSE-A, and SBSE-BD, 
as applicable, would be approximately 165 hours.\102\
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    \101\ On March 1, 2010 there were 5,163 broker-dealers 
registered with the Commission (based on Form BD data). The 
Commission received 20,666, 17,839, 16,702, 16,365, and 17,247 
amended Forms BD during the fiscal years ending 9/30/2005, 9/30/
2006, 9/30/2007, 9/30/2008 and 9/30/2009, respectively. ((20,666 + 
17,839 + 16,702 + 16,365 + 17,247)/5 years)/5,163 broker-dealers = 
3.44 amendments per broker-dealer per year.
    \102\ 1 hour x three per year x 55 SBS Entities = 165 hours.
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3. Burden Associated With Certification
    Paragraph (b) of proposed Rule 15Fb2-1 would require that each SBS 
Entity have a knowledgeable senior officer certify that, after due 
inquiry, he or she has reasonably determined that the SBS Entity has 
the operational, financial, and compliance capabilities to act as an 
SBS Dealer or major security-based swap participant, as applicable, and 
has documented the process by which he or she has reached such 
determination. Each SBS Entity would need to provide this certification 
on Form SBSE-C only once. The Commission believes that the majority of 
the cost associated with this certification would arise from the review 
the senior officer conducts, or has others conduct, prior to certifying 
that the SBS Entity has the requisite operational, financial, and 
compliance capabilities. The senior officer would also need to certify 
that he or she has documented this process.
    The Commission understands (based on the staff's experience with 
broker-dealers and other regulated entities) that, in satisfying other 
certification requirements, SBS Entities may use different processes, 
depending on the facts and circumstances of their business. Some SBS 
Entities may develop more or less robust process than others and, as a 
result, may incur higher or lower than average costs. Some SBS Entities 
may use a sub-certification process whereby the senior officer will not 
certify a firm-wide statement unless and until other persons 
responsible for certain activities in turn certify to the senior 
officer that the standard has been met, while other firms may use an 
internal or external audit-type process whereby a senior officer may 
choose to employ a third party to review an area subject to a firm-wide 
certification before submitting the certification. There may be other 
processes an SBS Entity could use to provide a basis for a senior 
officer's reasonable determination that the SBS Entity has the 
requisite capabilities that we have not specifically identified here. 
Many factors outside of the Commission's control \103\ may determine 
whether an SBS Entity might choose to utilize an internal process, as 
opposed to an external process, to serve as a basis for the Senior 
Officer Certification. For purposes of this PRA, we will estimate that 
approximately half, or twenty-eight of the SBS Entities, may use an 
internal process and the other half, or twenty-seven of the SBS 
Entities, will use an external process.
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    \103\ For instance, such factors could include: costs; how 
comfortable the senior officer may be with his or her subordinates 
within the SBS Entity's control structure; and how knowledgeable a 
senior officer may be regarding the SBS Entity's capabilities.
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    The Commission believes that, regardless of whether an SBS Entity 
may choose to utilize an internal process, as opposed to an external 
process, to serve as a basis for the Senior Officer Certification, the 
burden associated with having a senior officer sign a certification 
likely would be approximately five hours.\104\ The Commission has 
previously estimated that it would take a senior officer approximately 
twenty hours to review, document, and update compliance 
procedures,\105\ which the staff believes would be analogous to 
reviewing documents provided either by subordinates or a third party to 
gain comfort necessary to sign the Senior Officer Certification.
---------------------------------------------------------------------------

    \104\ See, e.g., Risk Management Controls for Brokers or Dealers 
With Market Access, Exchange Act Release No. 63241 (Nov. 3, 2010), 
75 FR 69792, at 69816 (Nov. 15, 2010).
    \105\ Id.
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    Commission staff estimates, based on its experience relative to the 
securities and over-the-counter derivatives industries, that if a 
senior officer opted to conduct an internal review of the SBS Entity's 
operational, financial, and compliance capabilities, it would take 
approximately one hundred and seventy five additional hours for other 
SBS Entity employees to assess the SBS Entity's operational, financial, 
and compliance capabilities and provide the senior officer with sub-
certifications or other documents he or she may request to obtain the 
necessary comfort before signing the Senior Officer Certification. 
Consequently, the Commission estimates that the one-time burden for the 
twenty-eight SBS Entities that utilize an internal review process would 
be approximately 5,600 hours for other SBS Entity employees to assess 
the SBS Entity's operational, financial, and compliance capabilities 
and provide the senior officer with documents, and for the senior 
officer to review those

[[Page 65810]]

documents and sign the Senior Officer Certification.\106\
---------------------------------------------------------------------------

    \106\ (5 hours + 20 hours + 175 hours) x 28 SBS Entities = 5,600 
hours.
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    The Commission has previously estimated that the burden associated 
with obtaining an internal control report from a third party would 
cost, on average, approximately $250,000.\107\ The staff believes that 
an internal control report would be roughly analogous to a third party 
review of each SBS Entity capability included in the Senior Officer 
Certification; however, the staff believes the cost of a third party 
review of an SBS Entity's capabilities likely would be less than the 
cost of three separate internal control reviews because the third party 
review of capabilities would not require an accountant's opinion and 
because some economies of scale likely could be achieved when a third 
party reviews three capabilities for a single SBS Entity. Consequently, 
the staff estimates that the cost for an SBS Entity to obtain a third 
party review to provide its senior officer with the necessary comfort 
to sign the Senior Officer Certification would be approximately 
$600,000. Thus, the Commission estimates that the one-time burden for 
the twenty-seven SBS Entities that utilize an external review process 
would be approximately 675 hours \108\ for the senior officer to review 
documents provided by the third party to gain the necessary comfort and 
to sign the Senior Officer Certification, and $16,200,000 to have a 
third party review the SBS Entity's operational, financial, and 
compliance capabilities and provide the SBS Entity with evidence 
sufficient to make the senior officer sufficiently comfortable to sign 
the Senior Officer Certification.
---------------------------------------------------------------------------

    \107\ See, e.g., Custody of Funds or Securities of Clients by 
Investment Advisers, Advisers Act Release No. 2968 (Dec. 30, 2009), 
75 FR 1456, at 1473 (Jan. 11, 2010). Depending on the facts and 
circumstances relating to an SBS Entity's business, third party 
service providers may use different methods to assess each of an SBS 
Entity's capabilities and report their findings to the SBS Entity, 
which may affect the cost of the review and the amount a third party 
charges an SBS Entity for this review.
    \108\ (5 hours + 20 hours) x 27 SBS Entities = 675 hours.
---------------------------------------------------------------------------

    Thus, the total burden for all SBS Entities associated with the 
Senior Officer Certification would be approximately 6,275 hours and 
$16,200,000.
4. Burdens Relating to Associated Persons
    Proposed Rule 15Fb6-1 would require an SBS Entity to obtain a 
questionnaire or application for employment executed by each of its 
associated persons who is involved in effecting security-based swaps on 
behalf of the SBS Entity that contains certain, specified information. 
The proposed rule further would provide that the questionnaire or 
application must be reviewed and signed by the SBS Dealer's or major 
security-based swap participant's Chief Compliance Officer. Finally, 
the CCO would need to certify (on Schedule G of its Form SBSE, Form 
SBSE-A, or Form SBSE-BD, as applicable) that no associated person that 
effects or is involved in effecting security-based swaps on behalf of 
the SBS Entity is subject to a statutory disqualification. SBS Entities 
would only need to fulfill these obligations for associated persons 
that effect or are involved in effecting security-based swaps on behalf 
of the SBS Entity.\109\ The Commission estimates (based on the staff's 
experience relative to the securities and OTC derivatives industries) 
that SBS Entities each have, on average, twenty-five associated persons 
that effect or are involved in effecting security-based swaps on behalf 
of the SBS Entity. The Commission believes that the information SBS 
Entities would need to obtain through these questionnaires is standard 
in the financial services industry, and is already collected by firms 
registered with the CFTC and the SEC. In addition, SBS Entities that 
are registered with the Commission or the CFTC must already perform 
background checks on their employees because of the prohibitions from 
employment of statutorily disqualified persons in the CEA and the 
Exchange Act.
---------------------------------------------------------------------------

    \109\ See supra notes 55 and 56.
---------------------------------------------------------------------------

    The Commission staff estimates, based on its experience relative to 
the securities industry, that the average time necessary for an SBS 
Entity to review its employment questionnaire or application to verify 
that it contains all of the required information and to update the 
questionnaire would be approximately three hours. As SBS Entities that 
are already registered with the Commission or the CFTC already collect 
this information, the Commission estimates that the cost to all SBS 
Entities to review employment questionnaires or applications, verify 
that they contain all of the required information and update the 
questionnaires or applications, as necessary, would be approximately 12 
hours.\110\
---------------------------------------------------------------------------

    \110\ 3 hours x 4 SBS Entities that are not registered with the 
Commission or CFTC = 12 hours.
---------------------------------------------------------------------------

    As discussed above, the Commission staff believes that most 
financial services firms already collect all or most of the information 
proposed Rule 15Fb6-1 would require that they collect. Consequently, 
the Commission estimates that the burden to require an SBS Entity's 
existing associated persons that effect or are involved in effecting 
security-based swaps on behalf of the SBS Entity to provide those few 
categories of information that they did not originally provide on their 
employment questionnaires or applications would be approximately one 
hour each.\111\ As SBS Entities that are already registered with the 
Commission and the CFTC already collect this information from 
employees, the Commission estimates that the burden to all SBS Entities 
to obtain additional information from relevant associated persons, 
would be approximately 100 hours.\112\
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    \111\ Commission staff believes that, as most firms already 
collect all or most of the information already, it likely would not 
take employees more than an hour each, on average, to provide any 
additional information. The staff believes the pay scales for 
broker-dealers and SBS Entities would likely be similar. As the 
categories of employees that could be required to provide additional 
information is diverse (see supra notes 55 and 56) the weighted-
average cost of 46 of the positions included in Securities Industry 
and Financial Markets Association's (``SIFMA'') publication titled 
Management & Professional Earnings in the Securities Industry 2009, 
as modified by Commission staff 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 cost of an Attorney is 
approximately $260/hour. 1 hour x 25 associated persons x $260 = 
$6,500.
    \112\ One hour x 4 SBS Entities that are not registered with the 
Commission or CFTC x 25 associated persons effecting or involved in 
effecting security-based swaps on behalf of the SBS Entity = 100 
hours.
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    The Commission staff estimates, based on the staff's experience 
relative to the securities industry, that it would take a CCO 
approximately one hour to review and sign a relevant employee's 
employment record. Consequently, the Commission estimates that the 
total burden to all SBS Entities to have their CCOs review and sign 
each associated person's employment record would be approximately 1,375 
hours.\113\
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    \113\ One hour x 25 associated persons x 55 SBS Entities = 1,375 
hours.
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    On an ongoing basis, if employee turnover at an SBS Entity averages 
12%,\114\ each SBS Entity would need to perform background checks and 
have their CCO review and approve in writing three new associated 
persons' employment records per year. As stated

[[Page 65811]]

above, the Commission estimates that the burden to have an SBS Entity's 
CCO review and sign each associated person's employment record would be 
approximately one hour. Thus, the ongoing annual burden to each SBS 
Entity would be approximately three hours \115\ and the total cost to 
all SBS Entities to comply with Rule 15Fb6-1 on an ongoing basis would 
be approximately 165 hours annually.\116\
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    \114\ The staff notes that the Bureau of Labor Statistics Labor 
Turnover Survey indicates that turnover is presently in the range of 
3.2%, however the staff believes that the present economic situation 
has likely driven turnover to a historically low level and that this 
broad statistic likely does not adequately represent actual turnover 
in the financial services sector. Consequently, the staff believes, 
based on its experience, that a higher number may be more 
appropriate.
    \115\ One hour x three associated persons = three hours.
    \116\ Three hours x 55 SBS Entities = 165 hours.
---------------------------------------------------------------------------

    The Commission believes that as the CCO would already have reviewed 
and signed each employee's employment record, signing the required 
certification will not take a significant amount of time. Thus, 
Commission staff estimates, based on its experience relative to the 
securities industry, that it would take a CCO approximately one hour to 
certify on Schedule G that no associated person that effects or is 
involved in effecting security-based swaps on behalf of the SBS Entity 
is subject to a statutory disqualification. Consequently, the 
Commission staff estimates that the total burden to all SBS Entities to 
complete this certification on Schedule G would be approximately 55 
hours.\117\
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    \117\ One hour x 55 SBS Entities = 55 hours.
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5. Burdens on Nonresident SBS Entities
    The Commission estimates, based on conversations with industry 
participants, that approximately 40 percent or 22 SBS Entities will be 
nonresident SBS Entities. Proposed Rule 15Fb2-4 would require that each 
nonresident SBS Entity file an additional schedule (Schedule F) with 
their Form SBSE, Form SBSE-A, or Form SBSE-BD, as appropriate, to 
identify its U.S. agent for service of process and to certify that the 
firm can, as a matter of law, provide the Commission with access to its 
books and records and can, as a matter of law, submit to onsite 
inspection and examination by the Commission.
    Commission staff conservatively estimates, based on its experience 
relative to the securities industry and Form BD, that the average time 
necessary for a nonresident SBS Entity to complete and file Schedule F 
would be approximately one hour. Thus, the Commission estimates that 
the total burden for all nonresident SBS Entities approximately to 
complete and file Schedule F would be approximately 22 hours.\118\
---------------------------------------------------------------------------

    \118\ 1 hour x 22 nonresident SBS Entities = 22 hours.
---------------------------------------------------------------------------

    In addition, nonresident SBS Entities would incur outside legal 
costs associated with obtaining an opinion of counsel. In previous 
releases, the Commission estimated that firms with a similar 
requirement would incur, on average, approximately $900 in outside 
legal costs to obtain an opinion of counsel.\119\ This estimate 
originally related to the cost a foreign bank issuer would incur to 
obtain a legal opinion to provide to the Commission when seeking an 
exemption from the requirement to make certain additional 
disclosures.\120\ Although the legal opinion for foreign bank issuers 
also would address privacy laws in the issuer's home jurisdiction that 
may preclude certain disclosures, upon further reflection, we believe 
that the legal opinion required for nonresident SBS Entities pursuant 
to the proposed rule would likely require additional research and 
analysis to prepare. Based on staff experience, the Commission 
estimates that each nonresident SBS Entity would incur, on average, 
approximately $25,000 in outside legal costs to obtain the necessary 
opinion of counsel, and that the total cost for all nonresident SBS 
Entities to obtain this opinion of counsel would be approximately 
$550,000.\121\
---------------------------------------------------------------------------

    \119\ Registration and Regulation of Security-Based Swap 
Execution Facilities, Exchange Act Release No. 63825 (Feb. 2, 2011), 
76 FR 10948 (Feb. 28, 2011); Security-Based Swap Data Repository 
Registration, Duties, and Core Principles, Exchange Act Release No. 
63347 (Nov. 19, 2010), 75 FR 77306 (Dec. 10, 2010); Foreign Bank 
Exemption from the Insider Lending Prohibition of Exchange Act 
Section 13(k), Exchange Act Release No. 49616 (Apr. 26, 2004), 69 FR 
24016 (Apr. 30, 2004). The $900 figure is based on an estimate of 
$400 an hour for legal services.
    \120\ Foreign Bank Exemption from the Insider Lending 
Prohibition of Exchange Act Section 13(k), Exchange Act Release No. 
49616 (Apr. 26, 2004); 69 FR 24016 (Apr. 30, 2004).
    \121\ $25,000 x 22 SBS Entities = $550,000.
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6. Burden Related to Retention of Manually Signed Signature Pages
    Pursuant to proposed Rule 15Fb1-1, each signatory to an electronic 
filing must, when the electronic filing is made, manually sign a 
signature page or other document adopting his or her signature that 
appears in typed form within the electronic filing. This manually 
signed page must be retained by the SBS Entity until at least three 
years after the form or certification has been replaced or is no longer 
effective. It is likely that each SBS Entity would need to maintain at 
least three pages with manually signed signatures (the execution page 
of Form SBSE, SBSE-A, or SBSE-BD, as applicable, Schedule G, and the 
Form SBSE-C certification). In addition, nonresident SBS Entities also 
would need to retain a manually signed copy of Schedule F. As so few 
pages would need to be retained, the staff believes the burden 
associated with retaining them would not be significant. Thus, the 
Commission estimates that it would take each SBS Entity approximately 
10 minutes annually to assure that these pages are retained, or a total 
of approximately 9 hours annually for all SBS Entities.\122\
---------------------------------------------------------------------------

    \122\ (10 minutes x 55 SBS Entities)/60 minutes = 9.17 hours.
---------------------------------------------------------------------------

7. Burden Associated With Filing Withdrawal Form
    Given that the cost and effort to register as an SBS Entity will be 
significant, the Commission believes that entities will not enter and 
exit this business regularly. As the Form SBSE-W is only one page and 
consists of information readily available to SBS Entities, the staff 
estimates (based on experience relative to Form BD-W) that it likely 
would take an SBS Entity, on average, approximately one hour to 
complete and file a Form SBSE-W. While the Commission believes it is 
unlikely that any SBS Entity will withdraw from registration often or 
within the first year, solely for purposes of this PRA the Commission 
estimates that one SBS Entity may file Form SBSE-W to withdraw from 
registration annually and the total burden associated with completing 
and filing Form SBSE-W would be approximately one hour each year.
8. Burden Associated With Proposed Temporary Rule 15Fb2-2T
    Proposed temporary Rule 15Fb2-2T would only be adopted if a 
technological means to facilitate receipt and retention of applications 
is not functional by the time final rules are adopted. Pursuant to 
proposed temporary Rule 15Fb2-2T, each SBS Entity would need to file 
its application and certification in paper form, and then resubmit its 
application and certification in electronic form once a technological 
means to receive such documents becomes functional.
    The burden associated with completing and filing the forms once are 
discussed above. Thus, the additional burden associated with proposed 
temporary Rule 15Fb2-2T relate to electronic resubmission of the form.
    The staff estimates that the costs associated with resubmitting 
each of the forms would be minimal, but would be contingent on the 
length of the form. Further, the additional time to file the 
certification (which consists of a single page) would not vary relative 
to the form required to be filed, and would not add significantly to 
the times required to file the registration forms. The

[[Page 65812]]

Commission staff preliminarily estimates, based on the staff's 
experience relative to the securities industry and Form BD, that the 
average time necessary for an SBS Entity to resubmit a Form SBSE would 
be approximately four hours. As Forms SBSE-A and SBSE-BD are shorter 
than Form SBSE, the Commission staff preliminarily estimates that 
resubmitting Form SBSE-A would take approximately two hours, and that 
resubmitting Form SBSE-BD would take approximately one hour. Thus, the 
Commission estimates that the total burden to all SBS Entities to 
resubmit their Forms SBSE, SBSE-A, or SBSE-BD, as applicable, would be 
approximately 102 hours.\123\
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    \123\ (2 hours x 35 SBS Entities already registered with the 
CFTC) + (1 hour x 16 SBS Entities already registered with the 
Commission) + (4 hours x 4 SBS Entities not otherwise registered 
with either the Commission or the CFTC) = 102 hours.
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9. Request for Comment on Burden Estimates
    The Commission seeks comment on the recordkeeping and reporting 
collection of information burdens associated with proposed Rule 15Fb1-1 
through 15Fb6-1 and Forms SBSE, SBSE-A, and SBSE-BD, as applicable.
    Q-173. What burdens, if any, would respondents incur with respect 
to system design, programming, expanding systems capacity, and 
establishing compliance programs to comply with proposed Rules 15Fb1-1 
through 15Fb6-1 and Forms SBSE, SBSE-A, SBSE-BD, SBSE-C and SBSE-W, as 
applicable?
    Q-174. Is it likely that SBS Entities will complete Forms SBSE, 
SBSE-A, SBSE-BD, SBSE-C and SBSE-W, as applicable, themselves or is it 
more likely that they would obtain assistance in completing these forms 
from some outside entity (e.g., outside counsel)? If an SBS Entity 
obtains assistance in completing the forms from an outside entity, what 
type of entity may be utilized and what may the relative costs to 
employ such an entity for this purpose be?
    Q-175. Would there be different or additional burdens associated 
with the collection of information under Rules 15Fb1-1 through 15Fb6-1 
and Forms SBSE, SBSE-A, SBSE-BD, SBSE-C and SBSE-W, as applicable, that 
a respondent does not currently undertake in the ordinary course of 
business that the Commission has failed to identify? If so, please both 
describe and quantify any additional burden(s).
    Q-176. Are the burden and cost estimates regarding the review 
necessary to support the Senior Officer Certification appropriate? Are 
there other processes a senior officer may utilize to gain the 
necessary comfort to sign the Senior Officer Certification? If so, what 
other processes might be used and what are the advantages, burdens and/
or costs of those other processes? Also, is the Commission's estimate 
accurate regarding how many SBS Entities may utilize an external, as 
opposed to an internal, review process?
    Q-177. Would nonresident SBS Entities incur greater or lesser costs 
for the opinion of counsel? Would the cost more likely be closer to 
$900, as previously estimated? Are the costs likely to exceed $25,000?

E. Retention Period of Recordkeeping Requirements

    Proposed Rules 15Fb1-1 through 15Fb6-1 and Forms SBSE, SBSE-A, 
SBSE-BD, SBSE-C and SBSE-W would require that each respondent retain 
certain records and information for three years.

F. Collection of Information Is Mandatory

    Any collections of information required pursuant to proposed Rules 
15Fb1-1 through 15Fb6-1 and Forms SBSE, SBSE-A, SBSE-BD, SBSE-C would 
be mandatory to permit the Commission to determine whether applicants 
meet the standards for registration, and to fulfill its oversight 
responsibilities.
    The collections of information required pursuant to proposed Rule 
15Fb3-2 and Form SBSE-W would be mandatory to allow the Commission to 
determine whether it is in the public interest to allow an SBS Entity 
to withdraw from registration.
    The collections of information required pursuant to proposed Rule 
15Fb2-2T would be mandatory to provide a process for the Commission to 
facilitate registration of SBS Entities if an electronic system to 
facilitate registration is not functional by the time final 
registration rules are adopted.

G. Confidentiality

    The Commission intends to make the information collected pursuant 
to proposed Rule 15Fb1-1 through 15Fb6-1 and Forms SBSE, SBSE-A, SBSE-
BD, SBSE-C and SBSE-W public.

H. Request for Comment

    Pursuant to 44 U.S.C. 3505(c)(2)(B), the Commission solicits 
comment to:
    1. Evaluate whether the proposed collection of information is 
necessary for the proper performance of our functions, including 
whether the information shall have practical utility;
    2. Evaluate the accuracy of our 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. Evaluate whether there are ways to minimize the burden of 
collection of information on those who are to respond, including 
through the use of automated collection techniques or other forms of 
information technology.
    Persons submitting comments on the collection of information 
requirements should direct them to the Office of Management and Budget, 
Attention: Desk Officer for the Securities and Exchange Commission, 
Office of Information and Regulatory Affairs, Washington, DC 20503, and 
should also send a copy of their comments to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090, with reference to File No. S7-40-11. 
Requests for materials submitted to OMB by the Commission with regard 
to this collection of information should be in writing, with reference 
to File No. S7-40-11, and be submitted to the Securities and Exchange 
Commission, Records Management, Office of Filings and Information 
Services, 100 F Street, NE., Washington, DC 20549-1090. As OMB is 
required to make a decision concerning the collections 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.

V. Economic Analysis

    In response to the recent financial crisis, Congress passed the 
Dodd-Frank Act in July of 2010. Among other things, the Dodd-Frank Act 
is designed to strengthen oversight, improve consumer protections, and 
reduce systemic risks throughout the financial system. Title VII of the 
Dodd-Frank Act specifically addresses the OTC derivatives markets, 
including the market for security-based swaps, and requires the 
Commission to undertake a number of rulemakings to establish a 
regulatory framework for SBS Entities.
    In promulgating the provisions of Section 764 of the Dodd-Frank 
Act, Congress established a mandatory registration regime for SBS 
Entities but left the form and manner of such registration within the 
discretion of the Commission. In determining the form and manner of 
such registration, the Commission may require ``such information, as 
the Commission

[[Page 65813]]

considers necessary concerning the business in which the applicant is 
or will be engaged.'' \124\ The Dodd-Frank Act also requires that SBS 
Entities ``continue to submit to the Commission reports that contain 
such information pertaining to the business of the person as the 
Commission may require.'' \125\ Section 764 also provides that 
registrations ``shall expire at such time as the Commission may 
prescribe by rule,'' \126\ and prohibits SBS Entities from allowing 
persons associated with it that are ``subject to a statutory 
disqualification to effect or be involved in effecting security-based 
swaps on behalf of the [SBS Entity if the entity] knew, or in the 
exercise of reasonable care should have known, of the statutory 
disqualification.'' \127\ Finally, the Dodd-Frank Act provides the 
Commission with additional broad authority to effect registration and 
regulation of SBS Entities.\128\
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    \124\ 15 U.S.C. 78o-10(b)(2)(A).
    \125\ 15 U.S.C. 78o-10(b)(2)(B).
    \126\ 15 U.S.C. 78o-10(b)(3).
    \127\ 15 U.S.C. 78o-10(b)(6).
    \128\ 15 U.S.C. 78o-10(b)(4) and (d).
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    Today, the Commission is proposing new rules and forms that provide 
a process for registration of SBS Entities. This process would require 
that SBS Entities apply for registration by submitting a Form SBSE, 
Form SBSE-A, or Form SBSE-BD, as applicable. Further, this process 
would allow SBS Entities to register conditionally or on an ongoing 
basis, as necessary. In addition, each SBS Entity seeking ongoing 
registration would need to submit to the Commission a certification on 
Form SBSE-C, signed by a knowledgeable senior officer.
    In drafting these rules the Commission sought to design a 
registration process that is similar to other registration processes 
administered by the Commission. To the extent market participants are 
familiar with these existing registration processes, we believe that 
using similar processes to register SBS Entities would create 
efficiencies for market participants. Many of the proposed rules were 
drafted based on rules applicable to broker-dealers. Similarly, the 
draft forms were based on Forms BD and BDW. However, the Commission 
also has sought to assure that the staff has information sufficient to 
make a determination as to whether registration should be granted or 
denied. Thus, the Form SBSE differs from Form BD in that it requests 
information specific to the SBS business and does not request 
information specific to the broker-dealer business. The Commission also 
sought to assure that the proposed rules, the forms, and the process 
generally are as clear as possible so as to minimize confusion. The 
Commission has sought to minimize, to the extent possible, duplication 
and costs that the rules may impose on firms. Finally, burdens and 
costs that have been estimated for PRA purposes are included in the 
broader costs and benefits discussion that follows because we believe, 
as the registration process would largely be forms-based, it is 
appropriate to include them. The Commission is sensitive to the costs 
and benefits imposed by its rules.

A. Benefits

    The proposed rules and forms described in this section would be 
issued pursuant to a specific grant of rulemaking authority in the 
Dodd-Frank Act. As indicated above, the forms were based on Forms BD 
and BDW, which broker-dealers are familiar with and which are similar 
to the Form 7-R that futures and commodities firms use to register with 
the CFTC. Significantly, the Commission is proposing the use of 
multiple registration forms to limit the amount of duplication and 
costs imposed on firms already registered with the Commission as a 
broker-dealer or with the CFTC as a swap dealer or major swap 
participant. The Commission considered using only one form to 
facilitate registration, but we believe using multiple forms would 
provide a benefit to firms because it would reduce the costs to 
register.
    In addition the proposed use of multiple forms is designed to allow 
firms already registered with the SEC as broker-dealers or registered 
or registering with the CFTC as swap dealers or swap participants to 
submit or utilize forms they have already completed to facilitate 
registration with the Commission. This use of existing forms would 
allow the Commission to obtain the information it needs to determine 
whether to grant registration without requiring the applicant to 
duplicate substantially the same information that they have already 
provided to regulators for another purpose.
    The proposed rules and forms would require that SBS Entities 
provide certain standardized data (including disciplinary information) 
to the Commission. The Commission would then make this information 
public. This would provide SBS counterparties and the marketplace with 
additional, comparable information on all SBS Entities (for instance, 
by highlighting previously unrecognized comparative strengths and 
weaknesses) which would allow them to make more informed choices with 
respect to counterparties and collateral. The Commission also believes 
that this may promote competition by leveling the playing field for 
market participants who may have disparate access to information 
regarding each SBS Entity. In addition, making such standardized 
information on SBS Entities public would enable counterparties and the 
marketplace to expend less time and money to independently obtain and 
compile information on SBS Entities to use in making such choices.
    Requiring the reporting of standardized information through these 
forms also will allow the Commission to identify the risk 
characteristics of each SBS Entity, which should help the Commission 
focus examinations and other oversight resources more efficiently and 
effectively.
    Once SBS Entities are registered, they will be subject to 
standardized requirements that set a baseline level of, among other 
things, internal controls, capital and margin levels for all SBS 
Entities. The registration and regulation of SBS Entities also may 
promote capital formation by providing market participants with 
certain, uniform information regarding registered SBS Entities (as 
described above) and assuring market participants that registered SBS 
Entities meet established standards. By facilitating oversight of SBS 
Entities, registration and regulation of these entities also could 
increase counterparty trust, and may encourage more counterparties and 
eligible contract participants to enter the SBS marketplace. It also 
may be beneficial if SBS entities that are not capable of meeting, or 
are unwilling to meet, their regulatory obligations exit the market.

B. Costs

    Although the Commission believes that registration and regulation 
of SBS Entities would result in significant benefits to customers of 
and counterparties to SBS Entities, investors, eligible contract 
participants and the market for SBS, the Commission recognizes that the 
proposed registration rules and forms would also entail costs.
    The Commission preliminarily estimates that SBS Entities would 
incur costs associated with: (i) Researching, completing, and filing 
the forms, (ii) reviewing, completing and submitting the required 
certification, and documenting the review process, (iii) obtaining or 
compiling the required questionnaires or employment applications, 
having the CCO review the questionnaires and certify that no relevant 
associated person is subject to

[[Page 65814]]

statutory disqualification, (iv) the requirements that nonresident SBS 
Entities obtain an agreement for U.S. service of process and an opinion 
of counsel stating that they can provide the Commission with access to 
records, (v) the requirement to retain manually signed signature pages, 
and (vi) the requirements associated with filing forms in paper format 
and resubmitting those forms electronically if the Commission does not 
have a technological means to receive applications electronically by 
the time final registration rules are adopted.
    The Commission preliminarily believes that the proposed amendments 
may impose a burden on competition for smaller SBS Entities to the 
extent that they impose relatively fixed costs, which could represent a 
higher percentage of net income for smaller SBS Entities. Registration 
costs may also impact those SBS Entities that are not already 
registered under another area of their business model to a greater 
degree than they would impact SBS Entities that have previously 
registered under another regulatory regime. The SBS Entity registration 
requirement may cause some market participants that are not capable of 
meeting their operational, financial and/or regulatory obligations to 
exit the market. However, the Commission believes that any reduction in 
competition resulting from an exit from the market by SBS Entities that 
are not capable of meeting, or that are unwilling to meet, their 
regulatory obligations is a necessary and appropriate burden on 
competition.
1. Costs Attributable to Filing the Forms
    Proposed Rule 15Fb2-1 would require that each SBS Entity register 
with the Commission by filing Form SBSE, Form SBSE-A, or Form SBSE-BD, 
as applicable. Firms must file these forms electronically, which also 
should reduce the associated costs because SBS Entities will not incur 
costs associated with copying or postage. The Commission preliminarily 
believes that it would cost each SBS Entity approximately $11,800 to 
complete and file the Form SBSE (including the Schedules \129\ and 
DRPs).\130\ As stated previously, the Commission has attempted to 
reduce costs associated with the application process by providing 
multiple forms for SBS Entities to use to register. The alternative 
forms (Form SBSE-A, and Form SBSE-BD) are both shorter and should 
require that an SBS Entity expend less effort to research, complete, 
and file. Consequently, the Commission preliminarily believes that it 
would cost each firm approximately $9,440 to complete Form SBSE-A \131\ 
(including the Schedules \132\ and DRPs) and approximately $2,950 to 
complete Form SBSE-BD (including the Schedules).\133\ It is anticipated 
that each SBS Entity will only need to research, complete, and file one 
Form, and that it will update that Form, as necessary, as described 
below.
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    \129\ See supra note 95.
    \130\ The staff has previously estimated that the average time 
necessary for a broker-dealer to complete and file Form BD, the Form 
upon which Form SBSE was based, would be approximately three hours 
(and that estimate was been subject to notice and comment. Broker-
Dealer Registration and Reporting, Exchange Act Release No. 41594 
(July 2, 1999), 64 FR 37586.) However, SBS Entities have not 
previously been subject to regulation and may need significantly 
more time to research the answers to complete Form SBSE and its 
schedules and DRPs. Thus, while it is likely that the time necessary 
to complete Form SBSE would vary depending on the nature and 
complexity of the entity's business, Commission staff estimates that 
the average time necessary for an SBS Entity to research the 
questions, and complete and file a Form SBSE would be approximately 
one work week or forty hours. The staff believes that an SBS Entity 
would have a Compliance Manager complete and file the form's 
application on Form SBSE, and that the pay scales for broker-dealers 
and SBS Entities would likely be similar. According to the SIFMA 
publication titled Management & Professional Earnings in the 
Securities Industry 2009, as modified by Commission staff 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 cost 
of a Compliance Manager is approximately $295/hour. 40 hours x $295 
= $11,800.
    \131\ The Commission staff believes that, as Form SBSE-A is 
shorter than the Form SBSE, it should take an SBS Entity less time 
to research the questions, and complete and file a Form SBSE-A. 
Thus, while it is likely that the time necessary to complete Form 
SBSE-A would vary depending on the nature and complexity of the 
entity's business, the staff estimates that researching, completing, 
and filing Form SBSE-A would take approximately 80% of the time that 
it would take to research, complete, and file a Form SBSE, or thirty 
two hours. The staff believes that an SBS Entity would have a 
Compliance Manager complete and file the form's application on Form 
SBSE-A, and that the pay scales for broker-dealers and SBS Entities 
would likely be similar. See supra note 130. 32 hours x $295 = 
$9,440.
    \132\ See supra note 95.
    \133\ See supra note 95. The Commission staff believes that, as 
Form SBSE-BD is shorter than either Form SBSE or Form SBSE-A, it 
should take an SBS Entity less time to research the questions, and 
complete and file a Form SBSE-BD. In addition, broker-dealers who 
would be filing Form SBSE-BD are familiar with Commission 
terminology and Forms. Thus, while it is likely that the time 
necessary to complete Form SBSE-BD would vary depending on the 
nature and complexity of the entity's business, the staff estimates 
that researching, completing, and filing Form SBSE-BD would take 
approximately 25% of the time that it would take to research, 
complete, and file a Form SBSE, or ten hours. The staff believes 
that an SBS Entity would have a Compliance Manager complete and file 
the form's application on Form SBSE-BD. See supra note 130. 10 hours 
x $295 = $2,950.
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    The Commission preliminarily believes, based on its understanding 
of the security-based swap market and conversations with industry 
participants, that approximately fifty firms will fit the definition of 
SBS dealer and approximately five firms will fit the definition of 
major security-based swap participant. Further, based on its 
understanding of the securities-based swap market, the Commission 
believes that the majority of firms that may register as SBS Entities 
also will be engaged in the swaps business and will register with the 
CFTC as swap dealers or major swap participants. In addition, persons 
holding securities positions may find it beneficial to hedge those 
positions with security-based swaps, so it may be beneficial for a 
broker-dealer to become an SBS Entity so that it can provide this 
option to its customers. However, given the costs of being a registered 
entity, it may be less likely for an entity that is not otherwise 
registered to register as an SBS Entity. Consequently, the Commission 
believes that thirty-five SBS Entities will register with the 
Commission using Form SBSE-A, twelve SBS Entities will register with 
the Commission using Form SBSE-BD, and eight SBS Entities will register 
with the Commission using Form SBSE. Thus, the total estimated cost to 
all entities to research, complete, and file Forms to register as SBS 
Entities would be approximately $424,800.\134\
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    \134\ $424,800 = (35 x $9,440) + (16 x $2,950) + (4 x $11,800).
---------------------------------------------------------------------------

    Proposed Rule 15Fb2-3 would require that SBS Entities amend their 
applications if they find that the information contained therein has 
become inaccurate. While SBS Entities may need to update their Forms 
periodically, it likely would not cost a significant amount to make 
such changes because each firm will have already completed Form SBSE, 
Form SBSE-A, or Form SBSE-BD, as applicable, and would only need to 
amend that aspect of the Form that has become inaccurate. Based on the 
number of amendments the Commission receives annually on Form BD,\135\ 
the Commission estimates that each SBS Entity would file approximately 
three amendments annually. Consequently, the Commission estimates that 
the cost for each SBS Entity to complete and file amendments to its 
forms is

[[Page 65815]]

approximately $885.\136\ Thus, the Commission estimates that it would 
cost all SBS Entities approximately $48,675 annually to complete and 
file these amendments.\137\
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    \135\ On March 1, 2010 there were 5,163 broker-dealers 
registered with the Commission (based on Form BD data). The 
Commission received 20,666, 17,839, 16,702, 16,365, and 17,247 
amended Forms BD during the fiscal years ending 9/30/2005, 9/30/
2006, 9/30/2007, 9/30/2008 and 9/30/2009, respectively. ((20,666 + 
17,839 + 16,702 + 16,365 + 17,247)/5 years)/5,163 broker-dealers = 
3.44 amendments per broker-dealer per year.
    \136\ While it is likely that the time necessary to file an 
amendment to Form SBSE, Form SBSE-A, or Form SBSE-BD, as applicable 
may vary depending on the nature and complexity of the information 
to be amended, the staff estimates, based on experience, that it 
likely would take an SBS Entity, on average, approximately one hour 
to amend its application each time it files an amendment. The staff 
believes that an SBS Entity would have a Compliance Manager complete 
and file amendments to the SBS Entity's forms, and that the pay 
scales for broker-dealers and SBS Entities would likely be similar. 
According to the SIFMA publication titled Management & Professional 
Earnings in the Securities Industry 2009, as modified by Commission 
staff 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 cost of a Compliance Manager is approximately $295/hour. 
1 hours x $295 x three per year = $885.
    \137\ $885 x 55 SBS Entities = $48,675.
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    Proposed Rule 15Fb3-1 would require an SBS Entity seeking to 
withdraw from Commission registration to file Form SBSE-W. Given that 
the cost and effort to register as an SBS Entity will be significant, 
the Commission believes that entities will not enter and exit this 
business regularly. Further, the Commission believes it is unlikely 
that any SBS Entity will withdraw from registration within the first 
year. However, there will be a cost associated with withdrawing from 
registration as an SBS Entity must file a Form SBSE-W to do so. As the 
Form SBSE-W is only one page and consists of information readily 
available to SBS Entities, the Commission estimates that the cost for 
an SBS Entity to complete and file a Form SBSE-W would be approximately 
$295.\138\
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    \138\ The staff estimates, based on experience, that it likely 
would take an SBS Entity, on average, approximately one hour to 
complete and file a Form SBSE-W. The staff believes that an SBS 
Entity would have a Compliance Manager complete and file Form SBSE-
W, and that the pay scales for broker-dealers and SBS Entities would 
likely be similar. According to the SIFMA publication titled 
Management & Professional Earnings in the Securities Industry 2009, 
as modified by Commission staff 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 cost of a Compliance 
Manager is approximately $295/hour. 1 hour x $295 = $295.
---------------------------------------------------------------------------

    The Dodd-Frank Act clearly requires registration of SBS Entities. 
All other entities that register with the Commission do so by filing 
some type of application, which may be a standardized form (e.g., Form 
TA-1, Form ADV and Form BD). The Commission generally requires that 
registered entities amend these forms to correct inaccurate information 
either as necessary or periodically. Further, all other entities that 
with to withdraw from Commission registration must file some type of 
notice with the Commission, which may be a standardized form (see, 
e.g., Form TA-W, Form ADVW, and Form BDW). Thus, it is likely that 
Congress contemplated or intended that the Commission establish this 
type of registration regime. The Commission believes the use of 
conditional registration and the certification process using Form SBSE-
C is a reasonable and relatively low cost method to assure that firms 
have operational, financial and compliance capabilities to act as SBS 
Entities and implement adequate procedures to comply with federal 
securities laws and provide the Commission with a basis to take final 
action on SBS Entity registration.
2. Costs of Certification
    Paragraph (b) of proposed Rule 15Fb2-1 would require that each SBS 
Entity have a knowledgeable senior officer certify that, after due 
inquiry, he or she has reasonably determined that the SBS Entity has 
the operational, financial, and compliance capabilities to act as an 
SBS Dealer or major security-based swap participant, as applicable, and 
has documented the process by which he or she has reached such 
determination. Each SBS Entity would need to provide this certification 
on Form SBSE-C only once. The Commission believes that the majority of 
the cost associated with this certification would arise from the review 
the senior officer conducts, or has others conduct, prior to certifying 
that the SBS Entity has the requisite operational, financial, and 
compliance capabilities.\139\ The senior officer would also need to 
certify that he or she has documented this process.
---------------------------------------------------------------------------

    \139\ See supra note 42.
---------------------------------------------------------------------------

    The Commission understands (based on the staff's experience with 
broker-dealers and other regulated entities) that, in satisfying other 
certification requirements, SBS Entities may use different processes, 
depending on the facts and circumstances of their business. Some SBS 
Entities may develop more or less robust process than others and, as a 
result, may incur higher or lower than average costs. Some SBS Entities 
may use a sub-certification process whereby the senior officer will not 
certify a firm-wide statement unless and until other persons 
responsible for certain activities in turn certify to the senior 
officer that the standard has been met, while other firms may use an 
internal or external audit-type process whereby a senior officer may 
choose to employ a third party to review an area subject to a firm-wide 
certification before submitting the certification. There may be other 
processes an SBS Entity could use to provide a basis for a senior 
officer's reasonable determination that the SBS Entity has the 
requisite capabilities that we have not specifically identified here. 
Many factors outside of the Commission's control \140\ may determine 
whether an SBS Entity might choose to utilize an internal process, as 
opposed to an external process, to serve as a basis for the Senior 
Officer Certification. For purposes of this economic analysis, we will 
estimate that approximately half, or twenty-eight of the SBS Entities, 
may use an internal process and the other half, or twenty-seven of the 
SBS Entities, will use an external process.
---------------------------------------------------------------------------

    \140\ See supra note 103.
---------------------------------------------------------------------------

    The Commission believes that, regardless of whether an SBS Entity 
may choose to utilize an internal process, as opposed to an external 
process, to serve as a basis for the Senior Officer Certification, it 
will cost approximately $10,450 on average for a senior officer to 
review documents provided either by subordinates or by a third party to 
gain the comfort necessary to sign and to sign the Senior Officer 
Certification.\141\ The Commission estimates that, if an SBS Entity 
opted to conduct an internal review of the SBS Entity's operational, 
financial and compliance capabilities, it will cost each SBS Entity 
approximately an additional $73,150 \142\ for other SBS

[[Page 65816]]

Entity employees to assess the SBS Entity's operational, financial, and 
compliance capabilities and provide the senior officer with whatever 
sub-certifications or other documents he or she may request to obtain 
the necessary comfort before signing the Senior Officer Certification. 
Alternatively, if an SBS Entity opted to conduct an external review of 
the SBS Entity's operational, financial and compliance capabilities, 
the Commission estimates that it will cost each SBS Entity 
approximately an additional $600,000.\143\ Thus, the Commission 
estimates that this certification requirement will cost all SBS 
Entities a total of approximately $18,822,950.\144\
---------------------------------------------------------------------------

    \141\ The Commission has previously estimated that the burden 
associated with having a senior officer sign a certification likely 
would be approximately five hours. See supra note 104. The 
Commission has also estimated that it would take a senior officer 
approximately twenty hours to review, document, and update 
compliance procedures, (Id.) which the staff believes would be 
analogous to reviewing documents provided either by subordinates or 
a third party to gain comfort necessary to sign the Senior Officer 
Certification, and to document this review. The staff believes the 
pay scales for broker-dealers and SBS Entities would likely be 
similar, and that the pay of a Chief Compliance Officer likely would 
be similar to the amount paid to other senior officers. According to 
the SIFMA's publication titled Management & Professional Earnings in 
the Securities Industry 2009, as modified by Commission staff 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 cost of a Chief Compliance Officer is approximately $418/
hour. 25 hours x $418 = $10,450.
    \142\ Commission staff estimates, based on its experience 
relative to the securities and OTC derivatives industries, that if a 
senior officer opted to conduct an internal review of the SBS 
Entity's operational, financial, and compliance capabilities, it 
would take approximately one hundred and seventy five additional 
hours for other SBS Entity employees to assess the SBS Entity's 
operational, financial, and compliance capabilities and provide the 
senior officer with whatever sub-certifications or other documents 
he or she may request to obtain the necessary comfort before signing 
the Senior Officer Certification. The staff believes the pay scales 
for broker-dealers and SBS Entities would likely be similar, and 
that the pay of a Chief Compliance Officer likely would be similar 
to the amount paid to other senior officers. According to the 
SIFMA's publication titled Management & Professional Earnings in the 
Securities Industry 2009, as modified by Commission staff 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 cost 
of a Chief Compliance Officer is approximately $418/hour. For 
purposes of this estimate, we will assume that those a senior 
officer may consult with are paid at approximately the same level. 
175 hours x $418 = $73,150.
    \143\ The Commission has previously estimated that the burden 
associated with obtaining an internal control report from a third 
party would cost approximately $250,000. See supra note 107. The 
staff believes that an internal control report would be roughly 
analogous to a third party review of each SBS Entity capability 
included in the Senior Officer Certification; however, the staff 
believes the cost of a third party review of an SBS Entity's 
capabilities likely would be less than the cost of three separate 
internal control reviews because the third party review of 
capabilities would not require an accountant's opinion and because 
some economies of scale likely could be achieved when a third party 
reviews three capabilities for a single SBS Entity. Depending on the 
facts and circumstances of an SBS Entity's business, third party 
service providers may use different methods to assess each of an SBS 
Entity's capabilities and report their findings to the SBS Entity, 
which may affect the cost of the review and the amount a third party 
charges an SBS Entity for this review. Consequently, the staff 
estimates that the cost for an SBS Entity to obtain a third party 
review to provide its senior officer with the necessary comfort to 
sign the Senior Officer Certification would be approximately 
$600,000 to have a third party review the SBS Entity's operational, 
financial, and compliance capabilities and provide the SBS Entity 
with evidence sufficient to make the senior officer sufficiently 
comfortable to sign the Senior Officer Certification.
    \144\ ($10,450 x 55 SBS Entities) + ($73,150 x 28 SBS Entities) 
+ ($600,000 x 27 SBS Entities) = $574,750 + $2,048,200 + $16,200,000 
= $18,822,950.
---------------------------------------------------------------------------

    In addition to these costs, there may be additional costs and 
benefits relating to certification that are more difficult to quantify. 
For instance, the requirement to certify as to capabilities may impose 
costs on SBS Entities relating to the legal uncertainty and potential 
liability that arises from the possibility that a regulator may find 
that the certification was inaccurate or false. However, a potential 
benefit would be to focus senior officers' attention to assuring that 
an SBS Entity conducts its business in accordance with the 
certification language. In addition, the more robust the process and 
meaningful the review of an SBS Entity's capabilities, the more likely 
that review will fulfill the Commission's goals in proposing the Senior 
Officer Certification requirement, and the more likely the process will 
help the SBS Entity to strengthen its capabilities, processes and 
controls which could serve to decrease operational, financial, and 
compliance risks.
    In addition, the Senior Officer Certification is designed to help 
assure the Commission, potential investors in, customers of, and 
counterparties to an SBS Entity that the SBS Entity has the requisite 
capabilities to act in that capacity. By providing this assurance after 
a senior officer has performed due inquiry, the Senior Officer 
Certification requirement also could prevent entities who may be more 
likely to fail because they do not have the requisite capabilities from 
registering with the Commission, which could help prevent disorderly 
and unstable markets. Further, the Senior Officer Certification may 
enhance market participants' ability to assess the counterparty credit 
risk associated with a particular SBS Entity counterparty. In this way, 
the Senior Officer Certification should help to protect market 
participants from SBS Entities that are not competent to engage in that 
business, lack the financial resources to do so, or are unable or 
unwilling to comply with applicable law.
3. Costs Relating to Associated Persons
    The Dodd-Frank Act makes it unlawful for SBS Entities to permit any 
associated person subject to a statutory disqualification to effect or 
be involved in effecting security-based swaps on its behalf if it knew 
or, in the exercise of reasonable care should have known, of the 
statutory disqualification. Proposed Rule 15Fb6-1 would require that 
SBS Entities obtain a questionnaire or application for employment 
executed by each of its associated persons who is involved in effecting 
security based swaps on behalf of the SBS Entity that contains certain, 
specified information. The proposed rule further would provide that the 
questionnaire or application must be reviewed and signed by the SBS 
Dealer's or major security-based swap participant's Chief Compliance 
Officer. Finally, the CCO would need to certify that no associated 
person that effects or is involved in effecting security-based swaps on 
behalf of the SBS Entity is subject to a statutory disqualification. 
SBS Entities would only need to fulfill these obligations for 
associated persons that effect or are involved in effecting security 
based swaps on behalf of the SBS Entity.\145\ The Commission estimates, 
based on the staff's experience in dealing with entities that likely 
will need to register as SBS Entities, that SBS Entities each have, on 
average, 25 associated persons that effect or are involved in effecting 
security-based swaps on behalf of the SBS Entity. The Commission 
believes that the information SBS Entities would need to obtain through 
these questionnaires is fairly standard in the financial services 
industry, and is already collected by firms registered with the CFTC 
and the SEC. In addition, SBS Entities that are registered with the 
Commission or the CFTC must already perform background checks on their 
employees because of the prohibitions from employment of statutorily 
disqualified persons in the CEA and the Exchange Act.
---------------------------------------------------------------------------

    \145\ See supra notes 55 and 56.
---------------------------------------------------------------------------

    The Commission estimates that the cost for each SBS Entity to 
review its employment questionnaire or application to verify that it 
contains all of the required information and to update the 
questionnaire, as necessary, to obtain any information not presently 
included on that questionnaire would be approximately $950.\146\ As SBS 
Entities that are already registered with the Commission and the CFTC 
already collect this information, the Commission estimates that the 
cost to all SBS Entities to review employment questionnaire or 
application forms, verify that they contain all of the required 
information and update the questionnaire or application forms, as 
necessary, would be approximately $3,800.\147\
---------------------------------------------------------------------------

    \146\ Commission staff estimates, based on its experience, that 
the average time necessary for an SBS Entity to review its 
employment questionnaire or application to verify that it contains 
all of the required information and to update the questionnaire 
would be approximately three hours. The staff believes that an SBS 
Entity would have an Attorney perform this review and update, and 
that the pay scales for broker-dealers and SBS Entities would likely 
be similar. According to the SIFMA's publication titled Management & 
Professional Earnings in the Securities Industry 2009, as modified 
by Commission staff 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 cost of an Attorney is 
approximately $316/hour. 3 hours x $316 = $948.
    \147\ $950 x 4 SBS Entities that are not registered with the 
Commission or CFTC = $3,800.
---------------------------------------------------------------------------

    The Commission estimates that the cost to require an SBS Entity's 
existing associated persons that effect or are

[[Page 65817]]

involved in effecting security-based swaps on behalf of the SBS Entity 
to provide those few categories of information that they did not 
originally provide on their employment questionnaires or applications 
would be approximately $6,500.\148\ As SBS Entities that are already 
registered with the Commission and the CFTC already collect this 
information from employees, the Commission estimates that the cost to 
all SBS Entities to obtain additional information from relevant 
associated persons, would be approximately $52,000.\149\
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    \148\ Commission staff believes that, as most firms already 
collect all or most of the information already, it likely would not 
take employees more than an hour each, on average, to provide any 
additional information. The staff believes the pay scales for 
broker-dealers and SBS Entities would likely be similar. As the 
categories of employees that could be required to provide additional 
information is diverse (see supra notes 55 and 56) the weighted-
average cost of 46 of the positions included in SIFMA's publication 
titled Management & Professional Earnings in the Securities Industry 
2009, as modified by Commission staff 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 cost of an Attorney is 
approximately $260/hour. 1 hour x 25 associated persons x $260 = 
$6,500.
    \149\ $6,500 x 4 SBS Entities that are not registered with the 
Commission or CFTC = $26,000.
---------------------------------------------------------------------------

    The Commission estimates that the cost to have an SBS Entity's CCO 
review and sign each associated person's employment record would be 
approximately $418.\150\ The Commission estimates that the cost to all 
SBS Entities to have their CCOs review and sign each associated 
person's employment record would be approximately $574,750.\151\
---------------------------------------------------------------------------

    \150\ Commission staff estimates, based on staff experience, 
that it would take a CCO approximately one hour to review and 
approve a relevant employee's employment record. The staff believes 
the pay scales for broker-dealers and SBS Entities would likely be 
similar. According to the SIFMA's publication titled Management & 
Professional Earnings in the Securities Industry 2009, as modified 
by Commission staff 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 cost of a Chief Compliance Officer 
is approximately $418/hour. 1 hour x $418 = $418.
    \151\ $418 x 25 associated persons x 55 SBS Entities = $574,750.
---------------------------------------------------------------------------

    On an ongoing basis, if employee turnover at an SBS Entity averages 
12%, each SBS Entity would need to perform background checks and have 
its CCO review and sign three new associated persons' employment 
records per year. As stated above, the Commission estimates that the 
cost to have an SBS Entity's CCO review and sign each associated 
person's employment record would be approximately $418. Thus, the cost 
of each new associated person would be approximately $418, the ongoing 
annual cost to each SBS Entity would be approximately $1,254 \152\ and 
the total cost to all SBS Entities to comply with Rule 15Fb6-1 on an 
ongoing basis would be approximately $68,970.\153\
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    \152\ $418 x 3 associated persons = $1,254.
    \153\ $1,254 x 55 SBS Entities = $68,970.
---------------------------------------------------------------------------

    The Commission believes that as the CCO would already have reviewed 
and signed each employee's employment record, signing the certification 
on Schedule G will not take a significant amount of time. Thus, the 
Commission estimates that the cost for each SBS Entity to have its CCO 
certify on Schedule G that no associated person that effects or is 
involved in effecting security-based swaps on behalf of the SBS Entity 
is subject to a statutory disqualification would be approximately 
$418.\154\ Consequently, the total cost for all SBS Entities to have 
their CCO sign this certification on Schedule G would be approximately 
$22,990.\155\
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    \154\ Commission staff conservatively estimates that it would 
take a CCO approximately one hour to certify that no associated 
person that effects or is involved in effecting security-based swaps 
on behalf of the SBS Entity is subject to a statutory 
disqualification. The staff believes the pay scales for broker-
dealers and SBS Entities would likely be similar. According to the 
SIFMA's publication titled Management & Professional Earnings in the 
Securities Industry 2009, as modified by Commission staff 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 cost 
of a Chief Compliance Officer is approximately $418/hour. 1 hour x 
$418 = $418.
    \155\ $418 x 55 SBS Entities = $22,990.
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    The Commission believes that, in order to comply with the 
prohibition in the Dodd-Frank Act from having statutorily disqualified 
associated persons that effect or are involved in effecting security-
based swaps, SBS Entities would need to at least obtain the information 
required by proposed Rule 15Fb6-1 and perform a background check. 
Having the CCO approve the employment applications and provide the 
Commission with a certification would provide the Commission with a 
degree of comfort that the SBS Entity is complying with the prohibition 
in the Act and aid it in its oversight of SBS Entities.
4. Costs to Nonresident SBS Entities
    The Commission estimates, based on conversations with industry 
participants, that approximately 40 percent or twenty-two SBS Entities 
will be nonresident SBS Entities. Proposed Rule 15Fb2-4 would require 
that each nonresident SBS Entity must obtain an agreement with a United 
States person appointing that person as the firm's U.S. agent for 
service of process. In addition, Proposed Rule 15Fb2-4 would require 
that each nonresident SBS Entity obtain an opinion of counsel stating 
that it can provide the Commission with access to records. These 
entities also must file an additional schedule (Schedule F) with their 
Form SBSE, Form SBSE-A, or Form SBSE-BD, as appropriate, to identify 
the firm's U.S. agent for service of process and to certify that the 
firm can, as a matter of law, provide the Commission with access to its 
books and records.
    The Commission estimates, based on internet research,\156\ that it 
would cost each nonresident SBS Entity approximately $125 annually to 
appoint and maintain a relationship with a U.S. agent for service of 
process. Consequently, the total cost for all nonresident SBS Entities 
to appoint and maintain relationships with U.S. agents for service of 
process is approximately $2,750 per year.\157\
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    \156\ See, e.g., http://www.incnow.com/registered_agent.shtml, 
and http://www.ailcorp.com/registeredagent.htm. The staff sought Web 
sites that provided pricing information and a comprehensive 
description of their registered agent services.
    \157\ $125 per nonresident SBS Entity x 22 nonresident SBS 
Entities = $2,750.
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    In addition, nonresident SBS Entities would incur outside legal 
costs associated with obtaining an opinion of counsel. In previous 
releases, the Commission estimated that firms with a similar 
requirement would incur, on average, approximately $900 in outside 
legal costs to obtain an opinion of counsel.\158\ This estimate 
originally related to the cost a foreign bank issuer would incur to 
obtain a legal opinion to provide to the Commission when seeking an 
exemption from the requirement to make certain additional 
disclosures.\159\ Although the legal opinion for foreign bank issuers 
also would address privacy laws in the issuer's home jurisdiction that 
may preclude certain disclosures, upon further reflection, we believe 
that the legal opinion required for nonresident SBS Entities pursuant 
to the proposed rule would likely require additional research and 
analysis to prepare. Based on staff experience, the Commission 
estimates that each nonresident SBS Entity would incur, on average,

[[Page 65818]]

approximately $25,000 in outside legal costs to obtain the necessary 
opinion of counsel, and that the total cost for all nonresident SBS 
Entities to obtain this opinion of counsel would be approximately 
$550,000.\160\
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    \158\ Security-Based Swap Data Repository Registration, Duties, 
and Core Principles, Exchange Act Release No. 63347 (Nov. 19, 2010); 
75 FR 77306 (Dec. 10, 2010); Foreign Bank Exemption from the Insider 
Lending Prohibition of Exchange Act Section 13(k), Exchange Act 
Release No. 49616 (Apr. 26, 2004); 69 FR 24016 (Apr. 30, 2004). The 
$900 figure is based on an estimate of $400 an hour for legal 
services.
    \159\ Foreign Bank Exemption from the Insider Lending 
Prohibition of Exchange Act Section 13(k), Exchange Act Release No. 
49616 (Apr. 26, 2004); 69 FR 24016 (Apr. 30, 2004).
    \160\ $25,000 x 22 SBS Entities = $550,000.
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    The Commission estimates that it would cost each nonresident SBS 
Entity approximately $295 to complete Schedule F.\161\ Thus, the 
Commission estimates that the total cost for all nonresident SBS 
Entities approximately $6,490.\162\
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    \161\ Commission staff conservatively estimates, based on staff 
experience, that the average time necessary for an SBS Entity to 
complete and file Schedule F would be approximately one hour. The 
staff believes that an SBS Entity would have a Compliance Manager 
complete and file Schedule F with its Form SBSE, Form SBSE-A, or 
form SBSE-BD, as appropriate, and that the pay scales for broker-
dealers and SBS Entities would likely be similar. According to the 
SIFMA publication titled Management & Professional Earnings in the 
Securities Industry 2009, as modified by Commission staff 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 cost 
of a Compliance Manager is approximately $295/hour. 1 hour x $295 = 
$295.
    \162\ $295 per nonresident SBS Entity x 22 nonresident SBS 
Entities = $6,490.
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    While the Dodd-Frank Act does not distinguish between resident and 
nonresident SBS Entities, it clearly contemplates Commission oversight 
of registered SBS Entities. The Commission's experience with other 
nonresident registrants has led the staff to believe that these 
requirements are necessary and appropriate to allow the Commission to 
adequately oversee nonresident SBS Entities.
5. Costs of Retaining Manually Signed Signature Pages
    Pursuant to proposed Rule 15Fb1-1, each signatory to an electronic 
filing would be required to, when the electronic filing is made, 
manually sign a signature page or other document adopting his or her 
signature that appears in typed form within the electronic filing. Each 
SBS Entity must retain these manually signed pages until at least three 
years after the form or certification has been replaced or is no longer 
effective. It is likely that each SBS Entity would need to maintain at 
least three pages with manually signed signatures (the execution page 
of Form SBSE, SBSE-A, or SBSE-BD, as applicable, Schedule G, and the 
Form SBSE-C certification). In addition, nonresident SBS Entities also 
will need to retain a manually signed copy of Schedule F. As so few 
pages would need to be maintained pursuant to proposed Rule 15Fb1-1, 
Commission staff does not believe the costs associated with retaining 
them would be significant. Thus, the Commission estimates that it would 
cost each SBS Entity approximately $49.17 annually assure that it is 
complying with the requirement to retain these manually signed 
signature pages,\163\ or a total of approximately $2,704 annually for 
all SBS Entities.\164\
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    \163\ Commission staff conservatively estimates, based on staff 
experience, that the average time necessary for an SBS Entity to 
assure that it is complying with the requirement to retain these 
pages would be approximately ten minutes. The staff believes that an 
SBS Entity would have a Compliance Manager to assure that it is 
complying with the requirement to retain these pages, and that the 
pay scales for broker-dealers and SBS Entities would likely be 
similar. According to the SIFMA publication titled Management & 
Professional Earnings in the Securities Industry 2009, as modified 
by Commission staff 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 cost of a Compliance Manager is 
approximately $295/hour. 10 minutes x $295 = $49.17.
    \164\ $49.17 per SBS Entity x 55 SBS Entities = $2,704.17.
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6. Costs Associated With Proposed Temporary Rule 15Fb2-2T
    Proposed temporary Rule 15Fb2-2T would only be adopted if a 
technological means to facilitate receipt and retention of applications 
is not functional by the time final rules are adopted. Pursuant to 
proposed temporary Rule 15Fb2-2T, each SBS Entity would need to file 
its application and certification in paper form. Proposed temporary 
Rule 15Fb2-2T also would require that each SBS Entity resubmit its 
application and certification in electronic form once a technological 
means to receive such documents becomes functional.
    The costs associated with completing the forms are discussed above. 
Thus, the additional costs associated with proposed temporary Rule 
15Fb2-2T would include the postage cost to send a paper form and the 
personnel costs associated with later resubmitting the form 
electronically.
    The postage costs likely would be driven by the number of pages 
each SBS Entity would need to send, which could vary significantly 
depending on the number of DRPs each firm must include with its Form. 
The staff conservatively estimates that each SBS Entity may incur, on 
average, approximately $5 to send its form to the Commission. As the 
certification consists of a one page Form SBSE-C, the staff estimates 
that it likely would cost an SBS Entity approximately $.50 to send its 
certification to the Commission. The Commission hopes that it will have 
a technological means to receive these forms functional relatively 
quickly; however each SBS Entity may also need to file an amendment 
before that occurs. As any amendment would likely include few pages 
because the SBS Entity only would need to provide updates to those 
items which become inaccurate, the staff estimates that it would cost 
each SBS Entity approximately $.50 to send an amendment to the 
Commission. Consequently, the total postage cost to each SBS Entity 
associated with proposed temporary Rule 15Fb2-2T would be approximately 
$6, and the total postage costs associated with proposed temporary Rule 
15Fb2-2T would be approximately $330.
    The staff estimates that the costs associated with filing each of 
the forms would be minimal, but would be contingent on the length of 
the form. The Commission preliminarily believes that it would cost each 
SBS Entity approximately $1,180 to resubmit the Form SBSE.\165\ As 
Forms SBSE-A and SBSE-BD are shorter than Form SBSE, the Commission 
preliminarily believes that it would cost each SBS Entity approximately 
$590 to resubmit the Form SBSE-A,\166\ and $295 to resubmit the Form 
SBSE-BD.\167\ Thus, the Commission estimates that the total cost to all 
SBS Entities to resubmit their Form SBSE, SBSE-A, or SBSE-BD, as 
applicable, would be approximately $33,630.\168\
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    \165\ Commission staff estimates, based on staff experience, 
that the average time necessary for an SBS Entity to file a Form 
SBSE would be approximately four hours. The staff believes that an 
SBS Entity would have a Compliance Manager file the firm's 
application on Form SBSE, and that the pay scales for broker-dealers 
and SBS Entities would likely be similar. According to the SIFMA 
publication titled Management & Professional Earnings in the 
Securities Industry 2009, as modified by Commission staff to account 
for a 1,800-hour work-year and multiplied by 5.35 to account for 
bonuses, firm size, employee benefits and overhead, the hourly cost 
of a Compliance Manager is approximately $295/hour. 4 hours x $295 = 
$1,180.
    \166\ Commission staff estimates that filing Form SBSE-A would 
take approximately two hours. The staff believes that an SBS Entity 
would have a Compliance Manager file the form's application on Form 
SBSE-A, and that the pay scales for broker-dealers and SBS Entities 
would likely be similar. 2 hours x $295 = $590.
    \167\ Commission staff estimates that filing Form SBSE-BD would 
take approximately one hour. The staff believes that an SBS Entity 
would have a Compliance Manager complete and file the form's 
application on Form SBSE-BD. 1 hour x $295 = $295.
    \168\ ($590 x 35) + ($295 x 16) + ($1,180 x 4) = $30,090.
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C. Request for Comment

    The Commission requests data to quantify and estimates of the costs 
and the value of the benefits of the proposed rules described above. 
The Commission specifically requests the following data or estimates 
with respect to the number

[[Page 65819]]

of persons that act as SBS Dealers and major security-based swap 
participants. The Commission specifically requests comment on the 
following:
    Q-178. Are the estimates of the number of registrants that would be 
required to submit each form and the estimates of the costs associated 
with completing the forms and amendments are reasonable? If not, why 
not?
    Q-179. Should the Commission require different and/or additional 
information to be provided on the proposed forms?
    Q-180. Would additional benefits accrue if the Commission required 
different or additional information and, if so, what would these 
requirements entail?
    Q-181. What other processes might an SBS Entity use to provide a 
basis for a senior officer's reasonable determination that the SBS 
Entity has the requisite capabilities that we may not have considered, 
and what would be the advantages, disadvantages, costs and benefits of 
those other processes?
    Q-182. Are there additional costs or benefits related to 
registration information that the Commission should consider?
    The Commission solicits comments on the costs and benefits related 
to the limited recordkeeping requirements of these proposed 
registration rules. The Commission specifically requests comment on the 
following:
    Q-183. Should the Commission require different and/or additional 
information to be maintained by SBS Entities?
    Q-184. Would additional benefits accrue if the Commission imposed 
different or additional recordkeeping requirements and, if so, what 
would these requirements entail?
    Q-185. Are there additional costs or benefits related to 
recordkeeping that the Commission should consider?
    We request comment on all aspects of the costs and benefits of the 
proposed rules and forms, particularly any effect our proposed rules 
may have on efficiency, competition, and capital formation. 
Commentators should provide analysis and empirical data to support 
their views on the costs and benefits associated with the proposed 
rule.
    Q-186. What would be the competitive or anticompetitive effects of 
the proposed rules and forms on any market participants if the 
proposals are adopted as proposed?
    Q-187. Would proposed Rules 15Fb1-1 through 15Fb6-1 and the 
proposed forms place a burden on competition?
    Q-188. What may be the effect of the proposal on efficiency, 
competition, and capital formation?

VI. Consideration of Impact on the Economy

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (``SBREFA'') \169\ the Commission must advise the Office of 
Management and Budget as to whether the proposed regulation constitutes 
a ``major'' rule. Under SBREFA, a rule is considered ``major'' where, 
if adopted, it results or is likely to result in:
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    \169\ Public Law 104-121, Tit. II, 110 Stat. 857 (1996).
---------------------------------------------------------------------------

     An annual effect on the economy of $100 million or more 
(either in the form of an increase or a decrease);
     A major increase in costs or prices for consumers or 
individual industries; or
     Significant adverse effect on competition, investment or 
innovation.

If a rule is ``major,'' its effectiveness will generally be delayed for 
60 days pending Congressional review.
    Q-189. What may be the potential impact of these proposed 
registration rules and forms for SBS Entities? Please include empirical 
data on (a) The potential annual effect of the proposed registration 
rules and forms on the economy; (b) any increase in costs or prices for 
consumers or individual industries associated with the proposed 
registration rules and forms; and (c) any potential effect the proposed 
registration rules and forms may have on competition, investment or 
innovation.

VII. Regulatory Flexibility Act Certification

    The Regulatory Flexibility Act (``RFA'') \170\ requires Federal 
agencies, in promulgating rules, to consider the impact of those rules 
on small entities. Section 603(a) \171\ of the Administrative Procedure 
Act,\172\ 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.'' \173\ 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.\174\
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    \170\ 5 U.S.C. 601 et seq.
    \171\ 5 U.S.C. 603(a).
    \172\ 5 U.S.C. 551 et seq.
    \173\ Although 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, 17 CFR 240.0-10. See 
Statement of Management on Internal Control, Exchange Act Release 
No. 18451 (January 28, 1982), 47 FR 5215 (February 4, 1982).
    \174\ See 5 U.S.C. 605(b).
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    For purposes of Commission rulemaking in connection with the RFA, a 
small entity includes: (i) 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; \175\ or (ii) 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 
Exchange Act,\176\ 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 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.\177\ Under the 
standards adopted by the Small Business Administration, small entities 
in the finance and insurance industry include the following: (i) for 
entities in credit intermediation and related activities,\178\ entities 
with $175 million or less in assets or, (ii) for non-depository credit 
intermediation and certain other activities,\179\ $7 million or less in 
annual receipts; (iii) for entities in financial investments and 
related activities,\180\ entities with $7 million or less in annual 
receipts; (iv) for insurance carriers and entities in related

[[Page 65820]]

activities,\181\ entities with $7 million or less in annual receipts; 
and (v) for funds, trusts, and other financial vehicles,\182\ entities 
with $7 million or less in annual receipts.\183\
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    \175\ See 17 CFR 240.0-10(a).
    \176\ See 17 CFR 240.17a-5(d).
    \177\ See 17 CFR 240.0-10(c).
    \178\ Including commercial banks, savings institutions, credit 
unions, firms involved in other depository credit intermediation, 
credit card issuing, sales financing, consumer lending, real estate 
credit, and international trade financing. Subsector 522.
    \179\ Including firms involved in secondary market financing, 
all other non-depository credit intermediation, mortgage and 
nonmortgage loan brokers, financial transactions processing, 
reserve, and clearinghouse activities, and other activities related 
to credit intermediation. Subsector 522.
    \180\ Including firms involved in investment banking and 
securities dealing, securities brokerage, commodity contracts 
dealing, commodity contracts brokerage, securities and commodity 
exchanges, miscellaneous intermediation, portfolio management, 
providing investment advice, trust, fiduciary and custody 
activities, and miscellaneous financial investment activities. 
Subsector 523.
    \181\ Including direct life insurance carriers, direct health 
and medical insurance carriers, direct property and casualty 
insurance carriers, direct title insurance carriers, other direct 
insurance (except life, health and medical) carriers, reinsurance 
carriers, insurance agencies and brokerages, claims adjusting, third 
party administration of insurance and pension funds, and all other 
insurance related activities. Subsector 524.
    \182\ Including pension funds, health and welfare funds, other 
insurance funds, open-end investment funds, trusts, estates, and 
agency accounts, real estate investment trusts and other financial 
vehicles. Subsector 525.
    \183\ See 13 CFR 121.201 (Jan. 1, 2010).
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    Based on the Commission's existing information about the security-
based swap market, the Commission preliminarily believes that the 
market, while broad in scope, is largely dominated by entities such as 
those that would be covered by the ``security-based swap dealer'' and 
``major security-based swap market participant'' definitions. Subject 
to certain exceptions, Exchange Act Section 3(a)(71)(A) defines 
``security-based swap dealer'' to mean any person who: (i) Holds itself 
out as a dealer in security-based swaps; (ii) makes a market in 
security-based swaps; (iii) regularly enters into security-based swaps 
with counterparties as an ordinary course of business for its own 
account; or (iv) engages in any activity causing it to be commonly 
known in the trade as a dealer or market maker in security-based 
swaps.\184\ Exchange Act Section 3(a)(67)(A) defines ``major security-
based swap participant'' to be as any person: (i) Who is not an SBS 
Dealer; and (ii)(I) who maintains a substantial position in security-
based swaps for any of the major security-based swap categories, as 
such categories are determined by the Commission, excluding both 
positions held for hedging or mitigating commercial risk and positions 
maintained by any employee benefit plan (or any contract held by such a 
plan) as defined in paragraphs (3) and (32) of Section 3 of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002) for 
the primary purpose of hedging or mitigating any risk directly 
associated with the operation of the plan; (II) whose outstanding 
security-based swaps create substantial counterparty exposure that 
could have serious adverse effects on the financial stability of the 
United States banking system or financial markets; or (III) that is a 
financial entity that (aa) is highly leveraged relative to the amount 
of capital such entity holds and that is not subject to capital 
requirements established by an appropriate Federal banking regulator; 
and (bb) maintains a substantial position in outstanding security-based 
swaps in any major security-based swap category, as such categories are 
determined by the Commission.\185\
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    \184\ See supra note 6.
    \185\ See supra note 7.
---------------------------------------------------------------------------

    Based on feedback from industry participants about the security-
based swap markets, the Commission preliminarily believes that entities 
that will qualify as SBS Dealers and major security-based swap market 
participants, whether registered broker-dealers or not, exceed the 
thresholds defining ``small entities'' set out above. Thus, the 
Commission believes it is unlikely that the proposed SBS Entity 
registration rules and forms would have a significant economic impact 
any small entity.
    For the foregoing reasons, the Commission certifies that the 
proposed SBS Entity registration rules and forms would not have a 
significant economic impact on any small entity for purposes of the 
RFA.
    The Commission encourages written comments regarding this 
certification. The Commission requests that commenters describe the 
nature of any impact on small entities and provide empirical data to 
illustrate the extent of the impact.

VIII. Statutory Basis and Text of Proposed Rules

    The Commission is proposing Rule 15Fb1-1 through 15Fb6-1 pursuant 
to Sections 15F(a) through (d), 17(a), 23(a) and 30 of the Securities 
Exchange Act of 1934, as amended.

List of Subjects in 17 CFR Parts 240 and 249

    Registration, Reporting and recordkeeping requirements, Securities, 
Security-based swaps, Security-based swap dealers, Security-based swap 
participants, Forms.

    In accordance with the foregoing, the Securities and Exchange 
Commission is proposing to amend Title 17, Chapter II of the Code of 
Federal Regulations as follows:

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

    1. The general authority citation for Part 240 is revised to read 
as follows:

    Authority: 12 U.S.C. 5221(e)(3); 15 U.S.C. 77c, 77d, 77g, 77j, 
77s, 77z-2, 77z-3, 77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 
78f, 78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 
78o-4, 78o-10, 78p, 78q, 78s, 78u-5, 78w, 78x, 78dd, 78ll, 78mm, 
80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, and 7201 et 
seq.; 18 U.S.C. 1350; and Pub. L. 111-203, Sec.  939A, 124 Stat. 
1376 (2010), unless otherwise noted.
* * * * *
    2. Add an undesignated center heading and Sec. Sec.  240.15Fb1-1 
through 240.15Fb6-1 to read as follows:

Registration of Security-Based Swap Dealers and Major Security-Based 
Swap Participants

Sec.
240.15Fb1-1 Signatures.
240.15Fb2-1 Registration of security-based swap dealers and major 
security-based swap participants.
240.15Fb2-2T Temporary filing requirement.
240.15Fb2-3 Amendments to application for registration.
240.15Fb2-4 Nonresident security-based swap dealers and major 
security-based swap participants.
240.15Fb2-5 Registration of successor to registered security-based 
swap dealer or major security-based swap participant.
240.15Fb2-6 Registration of fiduciaries.
240.15Fb3-1 Duration of registration.
240.15Fb3-2 Withdrawal from registration.
240.15Fb3-3 Cancellation and revocation of registration.
240.15Fb6-1 Reports regarding associated persons.
* * * * *

Sec.  240.15Fb1-1  Signatures.

    (a) Required signatures to, or within, any electronic submission 
(including, without limitation, signatories within the forms and 
certifications required by Sec. Sec.  240.15Fb2-1, 240.15Fb2-4 and 
240.15Fb6-1) must be in typed form rather than manual format. 
Signatures in an HTML, XML or XBRL document that are not required may, 
but are not required to, be presented in a graphic or image file within 
the electronic filing. When used in connection with an electronic 
filing, the term ``signature'' means an electronic entry in the form of 
a magnetic impulse or other form of computer data compilation of any 
letters or series of letters of characters comprising a name, executed, 
adopted or authorized as a signature.
    (b) Each signatory to an electronic filing (including, without 
limitation, each signatory to the forms and certifications required by 
Sec. Sec.  240.15Fb2-1, 240.15Fb2-4 and 240.15Fb6-1) shall manually 
sign a signature page or other document authenticating, acknowledging 
or otherwise adopting his or her signature that appears in typed form 
within the electronic filing. Such document shall be executed before or 
at the time the electronic filing is

[[Page 65821]]

made. Upon request, the security-based swap dealer or major security-
based swap participant shall furnish to the Commission or its staff a 
copy of any or all documents retained pursuant to this paragraph (b).
    (c) A person required to provide a signature on an electronic 
submission (including, without limitation, each signatory to the forms 
and certifications required by Sec. Sec.  240.15Fb2-1, 240.15Fb2-4 and 
240.15Fb6-1) may not have the form or certification signed on his or 
her behalf pursuant to a power of attorney or other form of confirming 
authority.
    (d) Each manually signed signature page or other document 
authenticating, acknowledging or otherwise adopting his or her 
signature that appears in typed form within the electronic filing--
    (1) On Schedules F and G to Form SBSE (Sec.  249.1600 of this 
chapter), SBSE-A (Sec.  249.1600a. of this chapter), or SBSE-BD (Sec.  
249.1600b of this chapter), as appropriate, shall be retained by the 
filer until at least three years after the form or certification has 
been replaced or is no longer effective;
    (2) On Form SBSE-C (Sec.  249.1600c of this chapter) shall be 
retained by the filer until at least three years after the Form was 
filed with the Commission.

Sec.  240.15Fb2-1  Registration of security-based swap dealers and 
major security-based swap participants.

    (a) Application. An application for registration of a security-
based swap dealer or a major security-based swap participant that is 
filed pursuant to Section 15F(b) of the Securities Exchange Act of 1934 
(15 U.S.C. 78o-10(b)) shall be filed on Form SBSE (Sec.  249.1600 of 
this chapter) or Form SBSE-A (Sec.  249.1600a of this chapter) or Form 
SBSE-BD (Sec.  249.1600b of this chapter), as appropriate, in 
accordance with this section and the instructions to the forms.
    (b) Certification.
    (1) Form of certification. A knowledgeable senior officer shall 
certify on Form SBSE-C (Sec.  249.1600c of this chapter) that, after 
due inquiry, he or she has reasonably determined that the security-
based swap dealer or major security-based swap participant has the 
operational, financial, and compliance capabilities to act as a 
security-based swap dealer or major security-based swap participant, as 
applicable, and has documented the process by which he or she reached 
such determination.
    (2) Timing of filing of certification.
    (i) Conditional registration.
    (A) Prior to the last compliance date. Each security-based swap 
dealer or major security-based swap participant that files a completed 
application in accordance with paragraph (a) of this section before the 
last compliance date (as defined in paragraph (e) of this section) must 
file the certification described in paragraph (b)(1) of this section on 
or before such last compliance date.
    (B) Major security-based swap participants. Each major security-
based swap participant that files a completed application in accordance 
with paragraph (a) of this section after the last compliance date must 
file the certification described in paragraph (b)(1) of this section 
within four months after it files its completed application.
    (ii) Ongoing registration. Each security-based swap dealer that 
files a completed application in accordance with paragraph (a) of this 
section after the last compliance date must file the certification 
described in paragraph (b)(1) of this section at the time it files its 
application.
    (c) Filing.
    (1) Electronic filing. Every application for registration and 
certification of a security-based swap dealer or major security-based 
swap participant and any additional registration documents shall be 
filed electronically with the Commission or its designee.
    (2) Effective date of filing.
    (i) Application. An application of a security-based swap dealer or 
a major security-based swap participant submitted pursuant to paragraph 
(a) of this section shall be considered filed when a complete Form SBSE 
(Sec.  249.1600 of this chapter), Form SBSE-A (Sec.  249.1600a of this 
chapter), or Form SBSE-BD (Sec.  249.1600b of this chapter), as 
appropriate, and all required additional documents are submitted 
electronically with the Commission or its designee;
    (ii) Certification. A certification of a security-based swap dealer 
or a major security-based swap participant submitted pursuant to 
paragraph (b) of this section shall be considered filed when a complete 
Form SBSE-C (Sec.  249.1600c of this chapter) is submitted 
electronically with the Commission or its designee.
    (d) Commission decision.
    (1) Conditional registration. The Commission may deny or grant 
registration to a security-based swap dealer or major security-based 
swap participant on a conditional basis. The Commission will grant 
conditional registration if it finds that the security-based swap 
dealer's or major security-based swap participant's application is 
complete; Except that, the Commission may institute proceedings to 
determine whether conditional registration should be denied if the 
applicant is subject to a statutory disqualification (as defined in 15 
U.S.C. 78c(a)(39)) or if the Commission is aware of inaccurate 
statements in the application. Such proceedings shall include notice of 
the grounds for denial under consideration and opportunity for hearing. 
At the conclusion of such proceedings, the Commission shall grant or 
deny such registration.
    (2) Ongoing registration. The Commission may grant or deny ongoing 
registration based on a security-based swap dealer's or major security-
based swap participant's application (filed pursuant to paragraph (a) 
of this section) and certification (filed pursuant to paragraph (b) of 
this section). A conditionally registered security-based swap dealer or 
major security-based swap participant need not submit a new application 
to apply for ongoing registration, but must amend its application, as 
required pursuant to Sec.  240.15Fb2-3. The Commission will grant 
ongoing registration if it finds that the requirements of Section 
15F(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78o-10(b)) are 
satisfied; Except that, the Commission may institute proceedings to 
determine whether ongoing registration should be denied if it does not 
make such finding or if the applicant is subject to a statutory 
disqualification (as defined in 15 U.S.C. 78c(a)(39)) or the Commission 
is aware of inaccurate statements in the application or certification. 
Such proceedings shall include notice of the grounds for denial under 
consideration and opportunity for hearing. At the conclusion of such 
proceedings, the Commission shall grant or deny such registration.
    (e) Definition. For purposes of this section, the term last 
compliance date shall mean the latest date, designated by the 
Commission, by which security-based swap dealers and major security-
based swap participant must comply with any of the initial rules 
promulgated under Section 15F of the Securities Exchange Act of 1934 
(15 U.S.C. 78o-10).

Sec.  240.15Fb2-2T  Temporary filing requirement.

    (a) Paper filing. If a technological means to facilitate receipt 
and retention of applications required to be filed in accordance with 
Sec.  240.15Fb2-1 is not functional on or before [date to be 
determined], each applicant for registration as a security-based swap 
dealer or major security-based swap participant must, notwithstanding 
Sec.  240.15Fb2-1(c)(1), file its application on Form SBSE (Sec.  
249.1600 of this chapter), Form SBSE-A (Sec.  249.1600a of

[[Page 65822]]

this chapter), or Form SBSE-BD (Sec.  249.1600b of this chapter), as 
applicable, any additional documents, and Form SBSE-C (Sec.  249.1600c 
of this chapter) in paper form by sending it to the Securities and 
Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.
    (b) Transitional resubmission requirement. Each applicant must 
resubmit its Form SBSE (Sec.  249.1600 of this chapter), Form SBSE-A 
(Sec.  249.1600a of this chapter), and Form SBSE-BD (Sec.  249.1600b of 
this chapter), as applicable, any additional documents, and Form SBSE-C 
(Sec.  249.1600c of this chapter) to the Commission electronically 
within three months of the date such technological means to facilitate 
receipt and retention of applications becomes functional.

Sec.  240.15Fb2-3  Amendments to application for registration.

    If a security-based swap dealer or a major security-based swap 
participant finds that the information contained in its application for 
registration (as described in Sec.  240.15Fb2-1(a)), or in any 
amendment thereto, is or has become inaccurate for any reason, the 
security-based swap dealer or a major security-based swap participant 
shall promptly file an amendment electronically with the Commission/its 
designee on Form SBSE (Sec.  249.1600 of this chapter), Form SBSE-A 
(Sec.  249.1600a of this chapter), or Form SBSE-BD (Sec.  249.1600b of 
this chapter), as appropriate, to correct such information.

Sec.  240.15Fb2-4  Nonresident security-based swap dealers and major 
security-based swap participants.

    (a) Definition. For purposes of this section, the terms nonresident 
security-based swap dealer and nonresident major security-based swap 
participant shall mean:
    (1) In the case of an individual, one who resides, or has his or 
her principal place of business, in any place not in the United States;
    (2) In the case of a corporation, one incorporated in or having its 
principal place of business in any place not in the United States; or
    (3) In the case of a partnership or other unincorporated 
organization or association, one having its principal place of business 
outside the United States.
    (b) Power of attorney.
    (1) Each nonresident security-based swap dealer and nonresident 
major security-based swap participant registered or applying for 
registration pursuant to Section 15F(b) of the Securities Exchange Act 
of 1934 (15 U.S.C. 78o-10(b)) shall obtain a written irrevocable 
consent and power of attorney appointing an agent in the United States, 
other than the Commission or a Commission member, official or employee, 
upon whom may be served any process, pleadings, or other papers in any 
action brought against the nonresident security-based swap dealer or 
nonresident major security-based swap participant to enforce the 
Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.). This consent 
and power of attorney must be signed by the nonresident security-based 
swap dealer or nonresident major security-based swap participant and 
the named agent(s) for service of process.
    (2) Each nonresident security-based swap dealer and nonresident 
major security-based swap participant registered or applying for 
registration pursuant to section 15F(b) of the Securities Exchange Act 
of 1934 (15 U.S.C. 78o-10(b)) shall, at the time of filing its 
application on Form SBSE (Sec.  249.1600 of this chapter), Form SBSE-A 
(Sec.  249.1600a of this chapter), or Form SBSE-BD (Sec.  249.1600b of 
this chapter), as appropriate, furnish to the Commission the name and 
address of its United States agent for service of process on Schedule F 
to the appropriate form.
    (3) Any change of a nonresident security-based swap dealer's and 
nonresident major security-based swap participant's agent for service 
of process and any change of name or address of a nonresident security-
based swap dealer's and nonresident major security-based swap 
participant's existing agent for service of process shall be 
communicated promptly to the Commission through amendment of the 
Schedule F of Form SBSE (Sec.  249.1600 of this chapter), Form SBSE-A 
(Sec.  249.1600a of this chapter), or Form SBSE-BD (Sec.  249.1600b of 
this chapter), as appropriate.
    (4) Each nonresident security-based swap dealer and nonresident 
major security-based swap participant must promptly appoint a successor 
agent for service of process if the nonresident security-based swap 
dealer and nonresident major security-based swap participant discharges 
its identified agent for service of process or if its agent for service 
of process is unwilling or unable to accept service on behalf of the 
nonresident security-based swap dealer or nonresident major security-
based swap participant.
    (5) Each nonresident security-based swap dealer and nonresident 
major security-based swap participant must maintain, as part of its 
books and records, the agreement identified in paragraph (b)(1) of this 
section for at least three years after the agreement is terminated.
    (c) Access to books and records.
    (1) Certification and opinion of counsel. Any nonresident security-
based swap dealer and nonresident major security-based swap participant 
applying for registration pursuant to Section 15F(b) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78o-10(b) shall certify on Schedule F 
of Form SBSE (Sec.  249.1600 of this chapter), Form SBSE-A (Sec.  
249.1600a of this chapter), or Form SBSE-BD (Sec.  249.1600b of this 
chapter), as appropriate, and provide an opinion of counsel that the 
nonresident security-based swap dealer and nonresident major security-
based swap participant can, as a matter of law, provide the Commission 
with prompt access to the books and records of such nonresident 
security-based swap dealer and nonresident major security-based swap 
participant, and can, as a matter of law, submit to onsite inspection 
and examination by the Commission.
    (2) Amendments. The nonresident security-based swap dealer and 
nonresident major security-based swap participant shall re-certify, on 
Schedule F to Form SBSE (Sec.  249.1600 of this chapter), Form SBSE-A 
(Sec.  249.1600a of this chapter), or Form SBSE-BD (Sec.  249.1600b of 
this chapter), as applicable, within 90 days after any changes in the 
legal or regulatory framework that would impact the nonresident 
security-based swap dealer's or nonresident major security-based swap 
participant's ability to, or the manner in which it provides the 
Commission with prompt access to its books and records, or impacts the 
Commission's ability to inspect and examine the nonresident security-
based swap dealer or nonresident major security-based swap participant. 
The re-certification shall be accompanied by a revised opinion of 
counsel describing how, as a matter of law, the nonresident security-
based swap dealer or nonresident major security-based swap participant 
will continue to meet its obligations to provide the Commission with 
prompt access to its books and records and to be subject to Commission 
inspection and examination under the new regulatory regime.

Sec.  240.15Fb2-5  Registration of successor to registered security-
based swap dealer or a major security-based swap participant.

    (a) In the event that a security-based swap dealer or major 
security-based swap participant succeeds to and continues the business 
of a security-

[[Page 65823]]

based swap dealer or major security-based swap participant registered 
pursuant to Section 15F(b) of the Securities Exchange Act of 1934 (15 
U.S.C. 78o-10(b)), the registration of the predecessor shall be deemed 
to remain effective as the registration of the successor if the 
successor, within 30 days after such succession, files an application 
for registration in accordance with Sec.  240.15Fb2-1, and the 
predecessor files a notice of withdrawal from registration on Form 
SBSE-W (Sec.  249.1601 of this chapter).
    (b) Notwithstanding paragraph (a) of this section, if a security-
based swap dealer or major security-based swap participant succeeds to 
and continues the business of a registered predecessor security-based 
swap dealer or major security-based swap participant, and the 
succession is based solely on a change in the predecessor's date or 
state of incorporation, form of organization, or composition of a 
partnership, the successor may, within 30 days after the succession, 
amend the registration of the predecessor security-based swap dealer or 
major security-based swap participant on Form SBSE (Sec.  249.1600 of 
this chapter), Form SBSE-A (Sec.  249.1600a of this chapter), or Form 
SBSE-BD (Sec.  249.1600b of this chapter), as appropriate, to reflect 
these changes. This amendment shall be deemed an application for 
registration filed by the predecessor and adopted by the successor.

Sec.  240.15Fb2-6  Registration of fiduciaries.

    The registration of a security-based swap dealer or a major 
security-based swap participant shall be deemed to be the registration 
of any executor, administrator, guardian, conservator, assignee for the 
benefit of creditors, receiver, trustee in insolvency or bankruptcy, or 
other fiduciary, appointed or qualified by order, judgment, or decree 
of a court of competent jurisdiction to continue the business of such 
registered security-based swap dealer or a major security-based swap 
participant; Provided, that such fiduciary files with the Commission, 
within 30 days after entering upon the performance of his or her 
duties, an amended Form SBSE (Sec.  249.1600 of this chapter), Form 
SBSE-A (Sec.  249.1600a of this chapter), or Form SBSE-BD (Sec.  
249.1600b of this chapter), as appropriate, indicating the fiduciary's 
position with respect to management of the firm and, as an additional 
document, a copy of the order, judgment, decree, or other document 
appointing the fiduciary.

Sec.  240.15Fb3-1  Duration of registration.

    (a) General. A person registered as a security-based swap dealer or 
major security-based swap participant in accordance with Sec.  
240.15Fb2-1 will continue to be so registered until the effective date 
of any cancellation, revocation or withdrawal of such registration or 
any other event the Commission determines should trigger expiration.
    (b) Conditional registration. Notwithstanding paragraph (a) of this 
section, conditional registration granted by the Commission in 
accordance with Sec.  240.15Fb2-1(d)(1) shall expire:
    (1) During the transitional period--on the last compliance date (as 
that term is defined in Sec.  240.15Fb2-1(e)) for security-based swap 
dealers and major security-based swap participants that filed a 
completed application before the last compliance date, unless the 
security-based swap dealer or major security-based swap participant 
files with the Commission a certification in accordance with Sec.  
240.15Fb2-1(b)(1)(i), in which case conditional registration shall 
extend an additional thirty days;
    (2) Major security-based swap participants--four months after the 
major security-based swap participant files its completed application, 
unless the major security-based swap participant files with the 
Commission a certification in accordance with Sec.  240.15Fb2-
1(b)(1)(ii); in which case the conditional registration shall extend an 
additional thirty days.
    (c) Extensions. The Commission may extend conditional registration 
for good cause.

Sec.  240.15Fb3-2  Withdrawal from registration.

    (a) Notice of withdrawal from registration as a security-based swap 
dealer or major security-based swap participant pursuant to Section 
15F(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78o-10(b)) 
shall be filed on Form SBSE-W (Sec.  249.1601 of this chapter) in 
accordance with the instructions contained therein. Every notice of 
withdrawal from registration as a security-based swap dealer or major 
security-based swap participant shall be filed electronically with the 
Commission or its designee in accordance with applicable filing 
requirements. Prior to filing a notice of withdrawal from registration 
on Form SBSE-W, a security-based swap dealer or major security-based 
swap participant shall amend its Form SBSE (Sec.  249.1600 of this 
chapter), Form SBSE-A (Sec.  249.1600a of this chapter) or Form SBSE-BD 
(Sec.  249.1600b of this chapter), as appropriate, in accordance with 
Sec.  240.15Fb2-3(a) to update any inaccurate information.
    (b) A notice of withdrawal from registration filed by a security-
based swap dealer or major security-based swap participant pursuant to 
Section 15F(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78o-
10(b)) shall become effective for all matters (except as provided in 
this paragraph (b)) on the 60th day after the filing thereof with the 
Commission or its designee, within such longer period of time as to 
which such security-based swap dealer or major security-based swap 
participant consents or which the Commission by order may determine as 
necessary or appropriate in the public interest or for the protection 
of investors, or within such shorter period of time as the Commission 
may determine. If a notice of withdrawal from registration is filed 
with the Commission at any time subsequent to the date of the issuance 
of a Commission order instituting proceedings to censure, place 
limitations on the activities, functions or operations of, or suspend 
or revoke the registration of, such security-based swap dealer or major 
security-based swap participant, or if prior to the effective date of 
the notice of withdrawal pursuant to this paragraph (b), the Commission 
institutes such a proceeding or a proceeding to impose terms or 
conditions upon such withdrawal, the notice of withdrawal shall not 
become effective pursuant to this paragraph (b) except at such time and 
upon such terms and conditions as the Commission deems necessary or 
appropriate in the public interest or for the protection of investors.

Sec.  240.15Fb3-3  Cancellation and revocation of registration.

    (a) Cancellation. If the Commission finds that any person 
registered pursuant to Sec.  240.15Fb2-1 is no longer in existence or 
has ceased to do business as a security-based swap dealer or major 
security-based swap participant, the Commission shall by order cancel 
the registration of such person.
    (b) Revocation. The Commission, by order, shall censure, place 
limitations on the activities, functions, or operations of, or revoke 
the registration of any security-based swap dealer or major security-
based swap participant that has registered with the Commission if it 
makes a finding as specified in Section 15F(l)(2) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78o-10(l)(2)).

[[Page 65824]]

Sec.  240.15Fb6-1  Reports regarding associated persons.

    (a) Certification. No registered security-based swap dealer or 
major security-based swap participant shall act as a security-based 
swap dealer or major security-based swap participant unless it has 
certified electronically on Schedule G of Form SBSE (Sec.  249.1600 of 
this chapter), Form SBSE-A (Sec.  249.1600a of this chapter), or Form 
SBSE-BD (Sec.  249.1600b of this chapter), as appropriate, that no 
person associated with such security-based swap dealer or major 
security-based swap participant who is effecting or involved in 
effecting security-based swaps on behalf of the security-based swap 
dealer or major security-based swap participant is subject to statutory 
disqualification, as defined in Section 3(a)(39) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(39)).
    (b) To support the certification required by paragraph (a) of this 
section, each registered security-based swap dealer and registered 
major security-based swap participant shall obtain a questionnaire or 
application for employment executed by each of its associated persons 
who effects or is involved in effecting security based swaps on behalf 
of the security-based swap dealer or major security-based swap 
participant which questionnaire or application shall serve as a basis 
for a background check of the associated person and be reviewed and 
signed by the security-based swap dealer's or major security-based swap 
participant's Chief Compliance Officer (designated as required by 
Section 15F(k) of the Securities Exchange Act of 1934 (15 U.S.C. 78o-
10(k)) or his or her designee and shall contain at least the following 
information with respect to the associated person:
    (1) The associated person's name, address, social security number, 
and the starting date of the associated person's employment or other 
association with the security-based swap dealer and major security-
based swap participant;
    (2) The associated person's date of birth;
    (3) A complete, consecutive statement of all the associated 
person's business connections for at least the preceding ten years, 
including whether the employment was part-time or full-time;
    (4) A record of any denial of membership or registration, and of 
any disciplinary action taken, or sanction imposed, upon the associated 
person by any federal or state agency, by any national securities 
exchange or national securities association, or by any foreign 
financial regulatory authority including any finding that the 
associated person either aided or abetted or was a cause of any 
disciplinary action or had violated any law;
    (5) A record of any denial, suspension, expulsion or revocation of 
membership or registration of any broker, dealer, security-based swap 
dealer, or major security-based swap participant with which the 
associated person was associated in any capacity when such action was 
taken;
    (6) A record of any permanent or temporary injunction entered 
against the associated person or any broker, dealer, security-based 
swap dealer, or major security-based swap participant with which the 
associated person was associated in any capacity at the time such 
injunction was entered;
    (7) A record of any arrest or indictment for any felony, or any 
misdemeanor pertaining to securities (including security-based swaps), 
futures or commodities (including swaps), banking, insurance or real 
estate (including, but not limited to, acting or being associated with 
a broker-dealer, investment company, investment adviser, futures 
sponsor, bank, or savings and loan association), fraud, false 
statements or omissions, wrongful taking of property or bribery, 
forgery, counterfeiting or extortion, and the disposition of the 
foregoing; and
    (8) A record of any other name or names by which the associated 
person has been known or which the associated person has used.
    (c) Each registered security-based swap dealer and registered major 
security-based swap participant shall maintain all questionnaires and 
applications for employment obtained pursuant to paragraph (b) of this 
section as part of its books and records for at least three years after 
the associated person has terminated his or her association with the 
registered security-based swap dealer or registered major security-
based swap participant.

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

    3. The authority citation for Part 249 continues to read, in part, 
as follows:

    Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; and 18 U.S.C. 
1350, unless otherwise noted.
* * * * *
    4. Add subpart Q to read as follows:

Subpart Q--Registration of Security-Based Swap Dealers and Major 
Security-Based Swap Participants

Sec.
249.1600 Form SBSE, for application for registration as a security-
based swap dealer or major security-based swap participant or to 
amend such an application for registration.
249.1600a Form SBSE-A, for application for registration as a 
security-based swap dealer or major security-based swap participant 
or to amend such an application for registration by firms registered 
or registering with the Commodity Futures Trading Commission as a 
swap dealer or major swap participant that are not also registered 
or registering with the Commission as a broker or dealer.
249.1600b Form SBSE-BD, for application for registration as a 
security-based swap dealer or major security-based swap participant 
or to amend such an application for registration by firms registered 
or registering with the Commission as a broker or dealer.
249.1600c Form SBSE-C, for certification by security-based swap 
dealers and major security-based swap participants.
249.1601 Form SBSE-W, for withdrawal from registration as a 
security-based swap dealer or major security-based swap participant 
or to amend such an application for registration.

Sec.  249.1600  Form SBSE, for application for registration as a 
security-based swap dealer or major security-based swap participant or 
to amend such an application for registration.

    This form shall be used for application for registration as a 
security-based swap dealer or major security-based swap participant by 
firms that are not registered with the Commission as a broker or dealer 
and that are not registered or registering with the Commodity Futures 
Trading Commission as a swap dealer or major swap participant, pursuant 
to Section 15F(b) of the Securities Exchange Act of 1934 (15 U.S.C. 
78o-10(b)) and to amend such an application for registration.

Sec.  249.1600a  Form SBSE-A, for application for registration as a 
security-based swap dealer or major security-based swap participant or 
to amend such an application for registration by firms registered or 
registering with the Commodity Futures Trading Commission as a swap 
dealer or major swap participant that are not also registered or 
registering with the Commission as a broker or dealer.

    This form shall be used instead of Form SBSE (Sec.  249.1600) to 
apply for registration as a security-based swap dealer or major 
security-based swap participant by firms that are not registered or 
registering with the Commission as a broker or dealer but that are 
registered or registering with the Commodity Futures Trading Commission 
as a swap dealer or major swap participant, pursuant to Section 15F(b) 
of the Securities Exchange Act of 1934 (15 U.S.C. 78o-10(b)) and to 
amend such an application for

[[Page 65825]]

registration. An entity that is registered or registering with the 
Commission as a broker or dealer and is also registered or registering 
with the Commodity Futures Trading Commission as a swap dealer or major 
swap participant shall apply for registration as a security-based swap 
dealer or major security-based swap participant on Form SBSE-BD (Sec.  
249.1600b) and not on this Form SBSE-A.

Sec.  249.1600b  Form SBSE-BD, for application for registration as a 
security-based swap dealer or major security-based swap participant or 
to amend such an application for registration by firms registered or 
registering with the Commission as a broker or dealer.

    This form shall be used instead of either Form SBSE (Sec.  
249.1600) or SBSE-A (Sec.  249.1600a) to apply for registration as a 
security-based swap dealer or major security-based swap participant 
solely by firms registered or registering with the Commission as a 
broker or dealer, pursuant to Section 15F(b) of the Securities Exchange 
Act of 1934 (15 U.S.C. 78o-10(b)) and to amend such an application for 
registration. An entity that is registered or registering with the 
Commission as a broker or dealer and is also registered or registering 
with the Commodity Futures Trading Commission as a swap dealer or major 
swap participant, the entity shall apply for registration as a 
security-based swap dealer or major security-based swap participant on 
this Form SBSE-BD and not on Form SBSE-A.

Sec.  249.1600c  Form SBSE-C, for certification by security-based swap 
dealers and major security-based swap participants.

    This form shall be used to file the certification required pursuant 
to Sec.  240.15Fb2-1(b) of this chapter.

Sec.  249.1601  Form SBSE-W, for withdrawal from registration as a 
security-based swap dealer or major security-based swap participant or 
to amend such an application for registration.

    This form shall be used to withdraw from registration as a 
security-based swap dealer or major security-based swap participant, 
pursuant to Section 15F(b) of the Securities Exchange Act of 1934 (15 
U.S.C. 78o-10(b)).

By the Commission.

    Dated: October 12, 2011.
Elizabeth M. Murphy,
Secretary.

    Note: The following Forms will not appear in the Code of Federal 
Regulations.

BILLING CODE 8011-01-P

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[FR Doc. 2011-26889 Filed 10-21-11; 8:45 am]
BILLING CODE 8011-01-C