Document ID: SEC-2022-1109-0001
Agency: sec
Document Type: Notice
Title: Order Determining that the Financial Industry Regulatory Authority Conditionally May Access Certain Security-Based Swap Data Obtained by Security-Based Swap Data Repositories
Posted Date: 2022-08-17T04:00Z

[Federal Register Volume 87, Number 158 (Wednesday, August 17, 2022)]
[Notices]
[Pages 50655-50657]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-17641]

[[Page 50655]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95470]

Order Determining That the Financial Industry Regulatory 
Authority Conditionally May Access Certain Security-Based Swap Data 
Obtained by Security-Based Swap Data Repositories

AGENCY: Securities and Exchange Commission.

ACTION: Data access determination order.

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SUMMARY: Pursuant to section 13(n)(5)(G)(v) of the Securities Exchange 
Act of 1934 (``Exchange Act''), and rule 13n-4(b)(9)(x) thereunder, the 
Securities and Exchange Commission (``Commission'') is issuing an order 
determining that it would be appropriate to require security-based swap 
data repositories to make security-based swap data available to 
Financial Industry Regulatory Authority (``FINRA'').

DATES: This data access determination order is effective September 16, 
2022.

FOR FURTHER INFORMATION CONTACT: Carol McGee, Associate Director, 
Office of Derivatives Policy and Trading Practices, at (202) 551-5870, 
Division of Trading and Markets, Securities and Exchange Commission, 
100 F Street NE, Washington, DC 20549.

SUPPLEMENTARY INFORMATION:

I. Background

A. Exchange Act Data Access Framework

    Two entities currently are registered with the Commission as 
security-based swap data repositories (``SDRs'').\1\ Among other 
responsibilities, SDRs are required to make security-based swap data 
available to certain recipients upon request.\2\ Recipients may include 
certain specified entities,\3\ as well as ``[a]ny other person that the 
Commission determines to be appropriate, conditionally or 
unconditionally, by order'' (including foreign authorities).\4\ Access 
further is conditioned on there being in effect an arrangement between 
the Commission and the entity seeking access to address the 
confidentiality of the security-based swap data made available,\5\ and 
on the Commission being notified of the request.\6\
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    \1\ See Exchange Act Release No. 91798, (May 7, 2021), 86 FR 
26115, 26116 n.14 (May 12, 2021) (approving registration application 
of DTCC Data Repository (U.S.), LLC; Exchange Act Release No. 92189 
(Jun. 16, 2021), 86 FR 32703 (Jun. 22, 2021) (approving registration 
application of ICE Trade Vault, LLC).
    \2\ Exchange Act section 13(n)(5)(G); 17 CFR 240.13n-4(b)(9). 
Those provisions in part require that the SBSDR provide notice of 
the data request to the Commission, and specifies that access be 
``on a confidential basis pursuant to [Exchange Act] section 24.'' 
Exchange Act section 24, 15 U.S.C. 78x, generally addresses 
disclosures of information by the Commission and its personnel. In 
relevant part section 24 provides that the Commission may, ``in its 
discretion and upon a showing that such information is needed,'' 
provide all records and other information ``to such persons, both 
domestic and foreign, as the Commission by rule deems appropriate if 
the person receiving such records or information provides such 
assurances of confidentiality as the Commission deems appropriate.'' 
See Exchange Act section 24(c); see also 17 CFR 240.24c-1(b) 
(providing that the Commission may, upon ``such assurances of 
confidentiality as the Commission deems appropriate,'' provide non-
public information to persons such as domestic and foreign 
governments or their political subdivisions, authorities, agencies 
or instrumentalities, self-regulatory organizations and foreign 
financial authorities).
    \3\ The following entities may access security-based swap data 
without the need for an additional Commission order: (i) the Board 
of Governors of the Federal Reserve System (``Board'') and any 
Federal Reserve Bank; (ii) the Office of the Comptroller of the 
Currency; (iii) the Federal Deposit Insurance Corporation; (iv) the 
Farm Credit Administration; (v) the Federal Housing Finance Agency; 
(vi) the Financial Stability Oversight Council (``FSOC''); (vii) the 
Commodity Futures Trading Commission (``CFTC''); (viii) the 
Department of Justice (``DOJ''); and (ix) the Office of Financial 
Research (``OFR''). See 17 CFR 240. 13n-4(b)(9); see also Exchange 
Act section 13(n)(5)(G)(v) (in part identifying ``each appropriate 
prudential regulator'' as well as FSOC, CFTC and DOJ). For those 
entities, data access still is predicated on other conditions, 
including the required confidentiality arrangement.
    \4\ 17 CFR 240.13n-4(b)(9)(x); see also Exchange Act section 
13(n)(5)(G)(v).
    \5\ 17 CFR 240.13n-4(b)(10) (also stating that the arrangement 
shall be deemed to satisfy the Exchange Act section 13(n)(5)(H) 
requirement that the SBSDR receive a written agreement from the 
entity stating that the entity shall abide with the section 24 
confidentiality requirements relating to the security-based swap 
information provided).
    \6\ Exchange Act section 13(n)(5)(G); 17 CFR 240. 13-4(b)(9). 17 
CFR 240.13nc-4(d) further provides that the SBSDR shall satisfy the 
notification requirement by informing the Commission of its receipt 
of the first request for security-based swap data from a particular 
entity, and to maintain records of all information related to the 
initial and subsequent requests for data access from that entity.
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    Pursuant to this data access framework, FINRA has requested that 
the Commission issue an order determining that it would be appropriate 
to require SDRs to make security-based swap data available to FINRA.\7\ 
For the reasons discussed below, the Commission is issuing the order. 
In connection with this order, the Commission and FINRA also are 
entering into an arrangement addressing the parameters of FINRA's 
access to security-based swap data held by SDRs, and the protections 
afforded to the data.\8\
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    \7\ Letter from Stephanie Dumont, FINRA, to Vanessa Countryman, 
Secretary, Commission, dated August 11, 2022 (``FINRA request'').
    \8\ See Confidentiality Arrangement Between the U.S. Securities 
and Exchange Commission and the Financial Industry Regulatory 
Authority Concerning Access to Security-Based Swap Data Obtained by 
Registered Security-Based Swap Data Repositories, dated August 11, 
2022 (available at [URL]) (``Confidentiality Arrangement'').
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B. Criteria for Making Access Determinations

    The Commission has stated that it expects to consider a variety of 
factors in making access determinations, and that it may impose 
conditions in connection with those determinations. Relevant factors 
include whether the data provided ``would be subject to robust 
confidentiality safeguards, such as safeguards set forth in the 
relevant jurisdiction's statutes, rules or regulations with regard to 
disclosure of confidential information by an authority or its 
personnel, and/or safeguards set forth in the authority's internal 
policies and procedures.'' \9\
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    \9\ Exchange Act Release No. 78716 (Aug. 29, 2016), 81 FR 60585 
(Sep. 2, 2016) (adopting relevant amendments to 17 CFR 240.13n-4) 
(``Adopting Release''). The Commission also noted that it expected 
to consider whether there is a memorandum of understanding or other 
arrangement between the Commission and the relevant authority 
designed to protect the confidentiality of the security-based swap 
data provided to the authority (further noting that such a 
memorandum of understanding or other arrangement also would satisfy 
the statutory requirement that a security-based swap data repository 
obtain a confidentiality agreement from the authority). See id. at 
60589 & n.60.
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    The Commission also may consider ``the relevant authority's 
interest in access to security-based swap data based on the relevant 
authority's regulatory mandate or legal responsibility or authority.'' 
\10\ In addition, the Commission may take into account ``any other 
factors that are appropriate to the determination, including whether 
such a determination would be in the public interest, and whether the 
relevant authority agrees to provide the Commission and other U.S. 
authorities with reciprocal assistance in matters within their 
jurisdiction.'' \11\
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    \10\ Accordingly, determination orders ``typically would 
incorporate conditions that specify the scope of a relevant 
authority's access to data, and that limit this access in a manner 
that reflects the relevant authority's regulatory mandate or legal 
responsibility or authority,'' including conditions that address 
factors such as the domiciles of the counterparties to the security-
based swap or of the underlying reference entities. Limiting access 
to information in this manner ``should be expected to help minimize 
the risk of unauthorized disclosure, misappropriation or misuse of 
security-based swap data, as each relevant authority will only have 
access to information within its regulatory mandate, or legal 
responsibility or authority.'' Id. at 60589. The Commission 
separately stated that the confidentiality arrangement between the 
Commission and the authority also may ``incorporate conditions that 
specify the scope of the relevant authority's access to data, and 
that limit this access in a manner that reflects the relevant 
authority's regulatory mandate or legal responsibility or 
authority.'' Id. at 60592.
    \11\ Id. at 60589.

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[[Page 50656]]

C. Additional Aspects to the Determinations

    The Commission has explained that it may take various approaches in 
deciding whether to impose additional conditions in connection with 
determination orders, such as issuing orders of limited duration.\12\ 
The Commission also has stated that it may revoke a determination at 
any time (such as if an authority fails to maintain the confidentiality 
of the security-based swap data it has been provided), and that, even 
absent a revocation, an authority's access to data would cease upon the 
termination of the arrangements used to satisfy the confidentiality 
condition.\13\
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    \12\ Id.
    \13\ Id.
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    The Commission has expressed the expectation that SDRs would 
provide relevant authorities with access to security-based swap data in 
accordance with the determination orders, and that the Commission 
generally does not expect to be involved in reviewing, signing-off on 
or otherwise approving relevant authorities' requests for security-
based swap data from repositories that are made in accordance with a 
determination order.\14\ The Commission also has stated that it has not 
prescribed any specific processes to govern a repository's treatment of 
requests for access.\15\
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    \14\ Id.
    \15\ Id.
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II. FINRA'S Data Access Request

    FINRA is a self-regulatory organization that is registered with the 
Commission as a national securities association pursuant to Exchange 
Act section 15A. As such, the Exchange Act in part requires that FINRA 
be organized and have the capacity to enforce the compliance of member 
firms (and of persons associated with members) with requirements under 
the Exchange Act and with FINRA's own rules.\16\
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    \16\ See Exchange Act section 15A(b)(2); see also section 
19(g)(1)(B) (in part requiring securities associations' compliance 
with Exchange Act requirements and association rules).
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A. Use of the Data

    FINRA states that access to security-based swap data will enhance 
its ability to conduct effective reviews, examinations and 
investigations into potential violations of rules by FINRA members with 
respect to their security-based swap activities. Access would allow 
FINRA to incorporate security-based swap data into cross-market and 
cross-product surveillance, which would enhance FINRA's ability to 
detect practices such as manipulation and insider trading.\17\ FINRA 
also anticipates using the security-based swap data in additional ways, 
including monitoring of member firms' compliance with financial 
responsibility requirements.\18\
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    \17\ FINRA request at 4-5.
    \18\ Id. at 6.
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B. Confidentiality Considerations

    FINRA's request describes policies and procedures governing data 
privacy and data security that promote the appropriate safeguarding of 
data. Those include policies and procedures related to data 
classification guidelines, end-user practices and procedures for 
safeguarding data, reporting loss, and ensuring that only authorize 
users gain access. Those also include data security policies 
establishing technical security controls for systems and 
applications.\19\
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    \19\ Id.
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    For purposes of those privacy policies and procedures, FINRA states 
that it will treat the security-based swap data as ``Restricted 
Confidential Information,'' and that FINRA will implement special 
handling guidelines that will address access to the data and its use, 
handling and storage.\20\ The confidentiality arrangement that the 
Commission is entering into with FINRA incorporates related 
safeguards.\21\
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    \20\ Id.
    \21\ As noted above, see note 8, supra, and accompanying text, 
the Commission is entering into a confidentiality arrangement with 
FINRA, addressing the parameters of FINRA's access to security-based 
swap data maintained by SDRs, as well as the confidentiality 
protections that FINRA will afford to the security-based swap data. 
These include provisions stating that FINRA will afford security-
based swap data the highest level of protection under its policy 
framework for confidentiality procedures, and that, to the maximum 
extent practicable, FINRA will afford the security-based swap data 
confidentiality protections that are not less rigorous than 
applicable confidentiality protections afforded to Consolidated 
Audit Trail data. Confidentiality Arrangement para. 19. The 
Confidentiality Arrangement further provides that FINRA may disclose 
security-based swap information as required by FINRA rules related 
to disciplinary complaints or disciplinary decisions, and actions 
related to statutory disqualifications, suspensions, cancellations, 
expulsions or bars, subject to prior written consent by the 
Commission. Confidentiality Arrangement para. 20. In addition, FINRA 
conducts surveillance and exercises regulatory services on behalf of 
other self-regulatory organizations pursuant to Regulatory Services 
Agreements (``RSAs''). The Confidentiality Arrangement provides that 
FINRA may share confidential information pursuant to an RSA only if 
the client itself has entered into a separate confidentiality 
arrangement with the Commission, in connection with access to the 
information, that specifically provides that FINRA may share the 
information with the client. Confidentiality Arrangement para. 21.
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III. Determination and Associated Terms and Conditions

    The Commission concludes that it is appropriate to require SDRs to 
make security-based swap data available to FINRA, subject to there 
being in effect a confidentiality arrangement between FINRA and the 
Commission. In reaching this conclusion, the Commission recognizes that 
FINRA plays an important role in promoting member firms' (and their 
associated persons') compliance with the federal securities laws, and 
the Commission concludes that access to security-based swap data will 
facilitate effective cross-market surveillance involving security-based 
swap activity.\22\ FINRA's confidentiality framework and the 
confidentiality arrangement between the Commission and FINRA further 
will help ensure that FINRA will afford the security-based swap data 
appropriate protections--once FINRA has implemented special handling 
guidelines for the data.
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    \22\ In reaching this conclusion, the Commission has considered 
the possibility of using more focused scopes of access, such as by 
limiting FINRA's access to data involving security-based swaps in 
which a member firm or associated person is a counterparty, 
guarantor or underlier to a security-based swaps. The Commission 
concludes, however, that this type of more limited access to 
security-based swap data would not sufficiently facilitate cross-
market surveillance of improper activities such as insider trading 
and front-running, particularly given the possibility that 
wrongdoers may seek to avoid surveillance by using third-parties to 
engage in transactions in the security-based swap market.
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    Taking these factors as a whole, the Commission concludes that such 
a determination is in the public interest. By virtue of this order, the 
Exchange Act places an affirmative obligation upon SBSDRs to provide 
FINRA with access to security-based swap data consistent with the scope 
of the order, subject to the applicable terms and conditions, including 
a confidentiality arrangement between the Commission and FINRA being in 
effect, and FINRA implementing special handling guidelines, following 
consultation with Commission staff, to address access to the data and 
its use, handling and storage.\23\
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    \23\ The Commission anticipates providing notice to SDRs in the 
event the relevant confidentiality arrangement no longer is in 
effect. Consistent with 17 CFR 240.13n-4(b)(10), this would 
terminate the SDRs' obligation to provide data access pursuant to 
the arrangement.
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IV. Conclusion

    For the reasons discussed above, the Commission determines that it 
would be appropriate to require security-based swap data repositories 
to make security-based swap data available to FINRA.
    It is hereby ordered, pursuant to Exchange Act section 
13(n)(5)(G)(v) and

[[Page 50657]]

Exchange Act rule 13n-4(b)(9)(x), that FINRA may access security-based 
swap data obtained by security-based swap data repositories. Such 
access is conditioned on there being in effect an arrangement between 
the Commission and FINRA to address the confidentiality of the 
security-based swap information made available to FINRA. Such access 
further is conditioned on FINRA developing and implementing special 
handling guidelines as described above, following consultation with 
Commission staff, to promote the confidentiality afforded to the 
security-based swap data, prior to FINRA accessing the data.

    By the Commission.

    Dated: August 11, 2022.
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-17641 Filed 8-16-22; 8:45 am]
BILLING CODE 8011-01-P