Document ID: SEC-2015-0483-0001
Agency: sec
Document Type: Rule
Title: Security-Based Swap Data Repository Registration, Duties, and Core Principles
Posted Date: 2015-03-19T04:00Z

[Federal Register Volume 80, Number 53 (Thursday, March 19, 2015)]
[Rules and Regulations]
[Pages 14437-14562]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-03127]

[[Page 14437]]

Vol. 80

Thursday,

No. 53

March 19, 2015

Part II

Securities and Exchange Commission

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17 CFR Parts 232, 240, 249

 Security-Based Swap Data Repository Registration, Duties, and Core 
Principles; Final Rule

  Federal Register / Vol. 80 , No. 53 / Thursday, March 19, 2015 / 
Rules and Regulations  

[[Page 14438]]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 232, 240, and 249

[Release No. 34-74246; File No. S7-35-10]
RIN 3235-AK79

Security-Based Swap Data Repository Registration, Duties, and 
Core Principles

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: Pursuant to Section 763(i) of Title VII (``Title VII'') of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 
(``Dodd-Frank Act''), the Securities and Exchange Commission 
(``Commission'') is adopting new rules under the Securities Exchange 
Act of 1934 (``Exchange Act'') governing the security-based swap data 
repository (``SDR'') registration process, duties, and core principles. 
The Commission is also adopting a new registration form. Additionally, 
the Commission is amending several of its existing rules and 
regulations in order to accommodate SDRs. First, the Commission is 
amending Regulation S-T and Exchange Act Rule 24b-2 to clarify that all 
filings by SDRs, including any confidential portion, and their requests 
for confidential treatment must be filed electronically. Second, the 
Commission is amending Regulation S-T by, among other things, adding a 
new rule that specifically applies to the electronic filing of SDRs' 
financial reports.

DATES: Effective Date: May 18, 2015.
    Compliance Date: March 18, 2016.

FOR FURTHER INFORMATION CONTACT: Paula Jenson, Acting Chief Counsel; Jo 
Anne Swindler, Assistant Director; Richard Vorosmarti, Branch Chief; 
Angie Le, Special Counsel; or Kevin Schopp, Special Counsel, Division 
of Trading and Markets, at (202) 551-5750, Securities and Exchange 
Commission, 100 F Street NE., Washington, DC 20549. For questions 
regarding the SDR registration process, please contact Jeffrey Mooney, 
Assistant Director, Stephanie Park, Senior Special Counsel, Andrew 
Shanbrom, Special Counsel, or Elizabeth Fitzgerald, Special Counsel, 
Division of Trading and Markets, at (202) 551-5710.

SUPPLEMENTARY INFORMATION: The Commission is taking several actions. 
First, the Commission is adopting Rules 13n-1 to 13n-12 (``SDR Rules'') 
under the Exchange Act governing SDRs and a new form for registration 
as a security-based swap data repository (``Form SDR''). Second, the 
Commission is adopting technical amendments to Regulation S-T and 
Exchange Act Rule 24b-2 to clarify that all filings by SDRs, including 
any confidential portion, and their requests for confidential treatment 
must be filed electronically. Third, the Commission is amending 
Regulation S-T, including adopting new Rule 407, as a technical 
amendment related to Rule 13n-11, which is applicable to the electronic 
filing of SDRs' financial reports.

Table of Contents

I. Introduction
    A. Proposed Rules Governing the SDR Registration Process, 
Duties, and Core Principles, and Form SDR
    B. Related Commission Actions
    C. Public Comment
    D. Other Initiatives Considered in This Rulemaking
II. Broad Economic Considerations and Baseline
    A. Broad Economic Considerations
    B. Baseline
    1. Transparency in the SBS Market
    2. Current Security-Based Swap Market
    a. Security-Based Swap Market Participants
    b. Security-Based Swap Data Repositories
III. Definition, Scope of Registration, Services, and Business 
Models of SDRs
    A. Definition of SDR: Core Services
    B. SDRs Required to Register With the Commission
    C. Ancillary Services
    D. Business Models of SDRs
IV. Number of SDRs and Consolidation of SBS Data
V. Implementation of the SDR Rules
    A. Prior Commission Action
    1. Effective Date Order
    2. Implementation Policy Statement
    B. Summary of Comments
    C. Sequenced Effective Date and Compliance Date for the SDR 
Rules
VI. Discussion of Rules Governing SDRs
    A. Registration of SDRs (Rule 13n-1 and Form SDR)
    1. New Form SDR; Electronic Filing
    a. Proposed Form SDR
    b. Comments on Proposed Form SDR
    c. Final Form SDR
    2. Factors for Approval of Registration and Procedural Process 
for Review (Rule 13n-1(c))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    3. Temporary Registration (Rule 13n-1(d))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    4. Amendment on Form SDR (Proposed Rule 13n-1(e)/Final Rule 13n-
1(d))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    5. Service of Process and Non-Resident SDRs (Proposed Rules 13n-
1(f) and 13n-1(g)/Final Rules 13n-1(e) and 13n-1(f))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    6. Definition of ``Report'' (Proposed Rule 13n-1(h)/Final Rule 
13n-1(g))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    B. Withdrawal From Registration; Revocation and Cancellation 
(Rule 13n-2)
    1. Proposed Rule
    2. Comments on the Proposed Rule
    3. Final Rule
    C. Registration of Successor to Registered SDR (Rule 13n-3)
    1. Proposed Rule
    2. Comments on the Proposed Rule
    3. Final Rule
    a. Succession by Application
    b. Succession by Amendment
    c. Scope and Applicability of Rule 13n-3
    D. Enumerated Duties and Core Principles (Rule 13n-4)
    1. Definitions (Rule 13n-4(a))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    2. Enumerated Duties (Rule 13n-4(b))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    i. Inspection and Examination
    ii. Direct Electronic Access
    iii. Monitoring, Screening, and Analysis
    iv. Other Enumerated Duties
    c. Final Rule
    i. Inspection and Examination
    ii. Direct Electronic Access
    iii. Monitoring, Screening, and Analysis
    3. Implementation of Core Principles (Rule 13n-4(c))
    a. First Core Principle: Market Access to Services and Data 
(Rule 13n-4(c)(1))
    i. Proposed Rule
    ii. Comments on the Proposed Rule
    (1) Rule 13n-4(c)(1)(i): Fair, Reasonable, and Not Unreasonably 
Discriminatory Dues, Fees, Other Charges, Discounts, and Rebates
    (2) Rule 13n-4(c)(1)(ii): Offering Services Separately
    (3) Rule 13n-4(c)(1)(iii): Fair, Open, and Not Unreasonably 
Discriminatory Access
    (4) Rule 13n-4(c)(1)(iv): Prohibited or Limited Access
    iii. Final Rule
    (1) Rule 13n-4(c)(1)(i): Fair, Reasonable, and Not Unreasonably 
Discriminatory Dues, Fees, Other Charges, Discounts, and Rebates
    (2) Rule 13n-4(c)(1)(ii): Offering Services Separately
    (3) Rule 13n-4(c)(1)(iii): Fair, Open, and Not Unreasonably 
Discriminatory Access
    (4) Rule 13n-4(c)(1)(iv): Prohibited or Limited Access
    b. Second Core Principle: Governance Arrangements (Rule 13n-
4(c)(2))
    i. Proposed Rule
    ii. Comments on the Proposed Rule
    iii. Final Rule
    c. Third Core Principle: Rules and Procedures for Minimizing and 
Resolving Conflicts of Interest (Rule 13n-4(c)(3))
    i. Proposed Rule

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    ii. Comments on the Proposed Rule
    iii. Final Rule
    4. Indemnification Exemption (Rule 13n-4(d))
    E. Data Collection and Maintenance (Rule 13n-5)
    1. Transaction Data (Rule 13n-5(b)(1))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    2. Positions (Rule 13n-5(b)(2))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    3. Maintain Accurate Data (Rule 13n-5(b)(3))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    4. Data Retention (Rule 13n-5(b)(4))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    5. Controls to Prevent Invalidation (Rule 13n-5(b)(5))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    6. Dispute Resolution Procedures (Rule 13n-5(b)(6))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    7. Data Preservation After an SDR Ceases To Do Business (Rule 
13n-5(b)(7))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    8. Plan for Data Preservation (Rule 13n-5(b)(8))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    F. Automated Systems (Rule 13n-6)
    1. Proposed Rule
    2. Comments on the Proposed Rule
    3. Final Rule
    G. SDR Recordkeeping (Rule 13n-7)
    1. Records To Be Made by SDRs (Rule 13n-7(a))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    2. Records To Be Preserved by SDRs (Rule 13n-7(b))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    3. Recordkeeping After an SDR Ceases To Do Business (Rule 13n-
7(c))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    4. Applicability (Rule 13n-7(d))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    H. Reports To Be Provided to the Commission (Rule 13n-8)
    1. Proposed Rule
    2. Comments on the Proposed Rule
    3. Final Rule
    I. Privacy of SBS Transaction Information and Disclosure to 
Market Participants (Rules 13n-9 and 13n-10)
    1. Privacy Requirements (Rule 13n-9)
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    2. Disclosure Requirements (Rule 13n-10)
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    J. Chief Compliance Officer of Each SDR; Compliance Reports and 
Financial Reports (Rule 13n-11)
    1. In General (Rule 13n-11(a))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    2. Definitions (Rule 13n-11(b))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    3. Enumerated Duties of Chief Compliance Officer (Rule 13n-
11(c))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    4. Compliance Reports (Rules 13n-11(d) and 13n-11(e))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    5. Financial Reports and Filing of Reports (Exchange Act Rules 
13n-11(f) and (g)/Rules 11, 305, and 407 of Regulation S-T)
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rules
    6. Additional Rule Regarding Chief Compliance Officer (Rule 13n-
11(h))
    K. Exemption from Requirements Governing SDRs for Certain Non-
U.S. Persons (Rule 13n-12)
    1. Proposed Rule
    2. Comments on the Proposed Rule
    3. Final Rule
VII. Paperwork Reduction Act
    A. Summary of Collection of Information
    1. Registration Requirements, Form SDR, and Withdrawal From 
Registration SDR Duties, Data Collection and Maintenance, and Direct 
Electronic Access
    2. Recordkeeping
    3. Reports
    4. Disclosure
    5. Chief Compliance Officer; Compliance Reports and Financial 
Reports
    6. Other Provisions Relevant to the Collection of Information
    B. Use of Information
    1. Registration Requirements, Form SDR, and Withdrawal From 
Registration
    2. SDR Duties, Data Collection and Maintenance, and Direct 
Electronic Access
    3. Recordkeeping
    4. Reports
    5. Disclosure
    6. Chief Compliance Officer; Compliance Reports and Financial 
Reports
    7. Other Provisions Relevant to the Collection of Information
    C. Respondents
    1. Registration Requirements, Form SDR, and Withdrawal From 
Registration
    2. SDR Duties, Data Collection and Maintenance, and Direct 
Electronic Access
    3. Recordkeeping
    4. Reports
    5. Disclosure
    6. Chief Compliance Officer; Compliance Reports and Financial 
Reports
    7. Other Provisions Relevant to the Collection of Information
    D. Total Annual Reporting and Recordkeeping Burden
    1. Registration Requirements, Form SDR, and Withdrawal From 
Registration 2. SDR Duties, Data Collection and Maintenance, and 
Direct Electronic Access
    3. Recordkeeping
    4. Reports
    5. Disclosure
    6. Chief Compliance Officer; Compliance Reports and Financial 
Reports
    7. Other Provisions Relevant to the Collection of Information
    E. Collection of Information is Mandatory
    1. Registration Requirements, Form SDR, and Withdrawal From 
Registration
    2. SDR Duties, Data Collection and Maintenance, and Direct 
Electronic Access
    3. Recordkeeping
    4. Reports
    5. Disclosure
    6. Chief Compliance Officer; Compliance Reports and Financial 
Reports
    7. Other Provisions Relevant to the Collection of Information
    F. Confidentiality
    G. Retention Period of Recordkeeping Requirements
VIII. Economic Analysis
    A. Introduction
    B. General Comments on the Costs and Benefits of the SDR Rules
    C. Consideration of Benefits, Costs, and the Effect on 
Efficiency, Competition, and Capital Formation
    1. Assessment Costs
    2. Programmatic Costs and Benefits
    a. SDR Registration, Duties, and Core Principles
    b. Registration Requirements in the Cross-Border Context
    3. Consideration of Burden on Competition and Promotion of 
Efficiency, Competition, and Capital Formation
    a. Potential Effects on Efficiency
    b. Potential Effects on Competition
    c. Potential Effects on Capital Formation
    D. Costs and Benefits of Specific Rules
    1. Registration Requirements, Form SDR, and Withdrawal From 
Registration
    a. Benefits
    b. Costs
    c. Alternatives
    2. SDR Duties, Data Collection and Maintenance, and Direct 
Electronic Access
    a. Benefits
    b. Costs
    c. Alternatives
    3. Recordkeeping
    a. Benefits
    b. Costs
    4. Reports
    a. Benefits
    b. Costs
    5. Disclosure
    a. Benefits

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    b. Costs
    6. Chief Compliance Officer and Compliance Functions; Compliance 
Reports and Financial Reports
    a. Benefits
    b. Costs
    c. Alternatives
    7. Other Policies and Procedures Relating to an SDR's Business
    a. Benefits
    b. Costs
    c. Alternatives
    8. Total Costs
IX. Regulatory Flexibility Act Certification
X. Statutory Authority

I. Introduction

A. Proposed Rules Governing the SDR Registration Process, Duties, and 
Core Principles, and Form SDR

    Title VII of the Dodd-Frank Act provides for a comprehensive new 
regulatory framework for security-based swaps (``SBSs''), including the 
regulation of SDRs.\1\ SDRs are required to collect and maintain 
accurate SBS transaction data so that relevant authorities can access 
and analyze the data from secure, central locations, thereby putting 
them in a better position to monitor for potential market abuse and 
risks to financial stability. On November 19, 2010, the Commission 
proposed new Rules 13n-1 to 13n-11 under the Exchange Act governing the 
SDR registration process, duties, and core principles, and new Form 
SDR, through which applicants would seek to register as SDRs.\2\
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    \1\ Public Law 111-203, section 761(a) (adding Exchange Act 
Section 3(a)(75) (defining SDR)) and section 763(i) (adding Exchange 
Act Section 13(n) (establishing a regulatory regime for SDRs)).
    \2\ See Security-Based Swap Data Repository Registration, 
Duties, and Core Principles, Exchange Act Release No. 63347 (Nov. 
19, 2010), 75 FR 77306 (Dec. 10, 2010), corrected at 75 FR 79320 
(Dec. 20, 2010) and 76 FR 2287 (Jan. 13, 2011) (``Proposing 
Release'').
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    Subsequently, on May 1, 2013, the Commission issued a proposing 
release discussing cross-border SBS activities, including activities 
involving SDRs.\3\ In that release, the Commission proposed guidance 
regarding the application of certain SDR requirements in the cross-
border context; \4\ new Rule 13n-12 under the Exchange Act, which would 
provide certain SDRs with an exemption from Exchange Act Section 13(n) 
and the rules and regulations thereunder; \5\ and guidance to specify 
how SDRs may comply with the notification requirement in the Exchange 
Act and how the Commission proposes to determine whether a relevant 
authority is appropriate for purposes of receiving SBS data from an 
SDR.\6\ In addition, the Commission proposed an exemption from the 
indemnification requirement in the Exchange Act.\7\
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    \3\ Cross-Border Security-Based Swap Activities; Re-Proposal of 
Regulation SBSR and Certain Rules and Forms Relating to the 
Registration of Security-Based Swap Dealers and Major Security-Based 
Swap Participants, Exchange Act Release No. 69490 (May 1, 2013), 78 
FR 30968 (May 23, 2013) (``Cross-Border Proposing Release'').
    \4\ Cross-Border Proposing Release, 78 FR at 31041-44, supra 
note 3.
    \5\ Cross-Border Proposing Release, 78 FR at 31209, supra note 
3.
    \6\ Cross-Border Proposing Release, 78 FR at 31046-48, supra 
note 3.
    \7\ Cross-Border Proposing Release, 78 FR at 31209, supra note 3 
(proposing Rule 13n-4(d)).
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B. Related Commission Actions

    In conjunction with issuing the Proposing Release on November 19, 
2010, the Commission also proposed Regulation SBSR to implement the 
Dodd-Frank Act's provisions relating to reporting SBS information to 
SDRs, including standards for the data elements that must be provided 
to SDRs.\8\ Subsequently, on June 15, 2011, the Commission issued an 
exemptive order, which provided guidance and certain exemptions with 
respect to the requirements under Title VII, including requirements 
governing SDRs, which would have had to be complied with as of July 16, 
2011 (i.e., the effective date of Title VII).\9\ Later, on June 11, 
2012, the Commission issued a statement of general policy on the 
anticipated sequencing of compliance dates of final rules to be adopted 
under Title VII.\10\ On May 1, 2013, the Commission re-proposed 
Regulation SBSR in the Cross-Border Proposing Release.\11\ At the same 
time, the Commission reopened the comment period for certain rules 
proposed under Title VII, including the SDR Rules and Form SDR, and the 
Implementation Policy Statement.\12\
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    \8\ Regulation SBSR-Reporting and Dissemination of Security-
Based Swap Information, Exchange Act Release No. 63346 (Nov. 19, 
2010), 75 FR 75208 (Dec. 2, 2010) (``Regulation SBSR Proposing 
Release'').
    \9\ 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 (June 15, 2011), 76 FR 36287 
(June 22, 2011) (``Effective Date Order''). The Effective Date Order 
included temporary exemptions from Exchange Act Sections 
13(n)(5)(D)(i), 13(n)(5)(F), 13(n)(5)(G), 13(n)(5)(H), 13(n)(7)(A), 
13(n)(7)(B), and 13(n)(7)(C), each of which will expire on the 
earlier of (1) the date the Commission grants registration to the 
SDR and (2) the earliest compliance date set forth in any of the 
final rules regarding the registration of SDRs. Id. at 36306. In 
addition, the Commission granted temporary exemptions from Exchange 
Act Section 29(b) in connection with the above listed provisions of 
the Exchange Act until such date as the Commission specifies. Id. at 
36307. Section 29(b) generally provides that contracts made in 
violation of any provision of the Exchange Act, or the rules 
thereunder, shall be void ``(1) as regards the rights of any person 
who, in violation of any such provision . . . shall have made or 
engaged in the performance of any such contract, and (2) as regards 
the rights of any person who, not being a party to such contract, 
shall have acquired any right thereunder with actual knowledge of 
the facts by reason of which the making or performance of such 
contract was in violation of any such provision. . . .'' 15 U.S.C. 
78cc(b).
    \10\ See Statement of General Policy on the Sequencing of the 
Compliance Dates for Final Rules Applicable to Security-Based Swaps 
Adopted Pursuant to the Securities Exchange Act of 1934 and the 
Dodd-Frank Wall Street Reform and Consumer Protection Act, Exchange 
Act Release No. 67177 (June 11, 2012), 77 FR 35625 (June 14, 2012) 
(``Implementation Policy Statement'').
    \11\ Cross-Border Proposing Release, 78 FR at 31210-31216, supra 
note 3. The Commission subsequently adopted certain aspects of the 
Cross-Border Proposing Release, which, as discussed below, has 
implications on this release. See Application of ``Security-Based 
Swap Dealer'' and ``Major Security-Based Swap Participant'' 
Definitions to Cross-Border Security-Based Swap Activities, Exchange 
Act Release No. 72472 (June 25, 2014), 79 FR 39068 (July 9, 2014) 
republished at 79 FR 47278 (Aug. 12, 2014) (``Cross-Border Adopting 
Release'').
    \12\ Reopening of Comment Periods for Certain Rulemaking 
Releases and Policy Statement Applicable to Security-Based Swaps 
Proposed Pursuant to the Securities Exchange Act of 1934 and the 
Dodd-Frank Wall Street Reform and Consumer Protection Act, Exchange 
Act Release No. 69491 (May 1, 2013), 78 FR 30800 (May 23, 2013) 
(``Reopening Release'').
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    The Commission is concurrently adopting Regulation SBSR in a 
separate release.\13\ The Dodd-Frank Act requires the Commission to 
engage in rulemaking for the public dissemination of SBS transaction, 
volume, and pricing data,\14\ and provides the Commission with 
discretion to determine an appropriate approach to implement this 
important function. Regulation SBSR requires SDRs to undertake this 
role.\15\
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    \13\ Regulation SBSR-Reporting and Dissemination of Security-
Based Swap Information, Exchange Act Release No. 74244 (Feb. 11, 
2015) (``Regulation SBSR Adopting Release''). The Commission is also 
concurrently proposing certain new rules and amendments to 
Regulation SBSR. See Regulation SBSR-Reporting and Dissemination of 
Security-Based Swap Information, Exchange Act Release No. 74245 
(Feb. 11, 2015) (``Regulation SBSR Proposed Amendments Release'').
    \14\ Exchange Act Section 13(m)(1), 15 U.S.C. 78m(m)(1), as 
added by Dodd-Frank Act Section 763(i).
    \15\ See Regulation SBSR Adopting Release, supra note 13. In a 
separate proposal relating to implementation of Dodd-Frank Act 
Section 763(i) (adding Exchange Act Section 13(n)(5)(E)), the 
Commission proposed rules that would require SDRs to collect data 
related to monitoring the compliance and frequency of end-user 
clearing exemption claims. See End-User Exception to Mandatory 
Clearing of Security-Based Swaps, Exchange Act Release No. 63556 
(Dec. 15, 2010), 75 FR 79992 (Dec. 21, 2010) (``End-User Exception 
Proposing Release'').
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    As discussed in the Proposing Release, when considered in 
conjunction with Regulation SBSR, the rules that the Commission adopts 
in this release seek to provide improved transparency to regulators and 
the markets through comprehensive regulations for SBS transaction data 
and

[[Page 14441]]

SDRs.\16\ In combination, these rules represent a significant step 
forward in providing a regulatory framework that promotes transparency 
and efficiency in the OTC derivatives markets and creates important 
infrastructure to assist relevant authorities in performing their 
market oversight functions.
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    \16\ Proposing Release, 75 FR at 77307, supra note 2.
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C. Public Comment

    In each of the releases discussed above, the Commission requested 
comment on a number of issues related to the proposed SDR Rules. In 
addition, Commission staff and Commodity Futures Trading Commission 
(``CFTC'') staff conducted joint public roundtables, including, for 
example, a joint public roundtable on implementation issues raised by 
Title VII (``Implementation Joint Roundtable'') \17\ and a joint public 
roundtable on international issues relating to the implementation of 
Title VII (``International Joint Roundtable'').\18\
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    \17\ See Joint Public Roundtable on Issues Related to the 
Schedule for Implementing Final Rules for Swaps and Security-Based 
Swaps Under the Dodd-Frank Wall Street Reform and Consumer 
Protection Act, Exchange Act Release No. 64314 (Apr. 20, 2011), 76 
FR 23221 (Apr. 26, 2011). Transcripts for the public roundtable are 
available on the Commission's Web site at http://www.sec.gov/news/press/2011/2011-90-transcript.pdf.
    \18\ See Joint Public Roundtable on International Issues 
Relating to the Implementation of Title VII of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act, Exchange Act Release No. 
64939 (July 21, 2011); 76 FR 44507 (July 26, 2011). The transcript 
for the public roundtable is available on the Commission's Web site 
at: http://www.sec.gov/news/press/2011/2011-151-transcript.pdf.
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    The Commission received twenty comment letters in response to the 
Proposing Release and the Reopening Release \19\ as well as six letters 
submitted with respect to SDRs prior to the Proposing Release.\20\ The 
Commission also received three comment letters that address issues 
related to SDRs, among others, after the Proposing Release through the 
Commission's solicitation for comments,\21\ which will be addressed in 
this release. In addition, the Commission received one letter in 
response to the Implementation Policy Statement,\22\ two letters in 
response to the Implementation Joint Roundtable \23\ and a letter in 
response to the International Joint Roundtable,\24\ all of which are 
relevant to the Proposing Release and are addressed in this 
release.\25\ The Commission also received four comment letters in 
response to the Cross-Border Proposing Release relating directly to the 
proposed SDR Rules.\26\
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    \19\ See letters from The Bank of New York Mellon Corporation 
(``BNY Mellon''); Better Markets, Inc. dated January 24, 2011 
(``Better Markets 1''); Better Markets, Inc. dated July 22, 2013 
(``Better Markets 2''); Better Markets, Inc. dated October 18, 2013 
(``Better Markets 3''); Chris Barnard (``Barnard''); Depository 
Trust & Clearing Corporation dated January 24, 2011 (``DTCC 2''); 
Depository Trust & Clearing Corporation dated June 3, 2011 (``DTCC 
3''); Depository Trust & Clearing Corporation dated July 21, 2011 
(``DTCC 4''); Depository Trust & Clearing Corporation dated July 22, 
2013 (``DTCC 5''); Ethics Metrics (``Ethics Metrics''); European 
Securities and Markets Authority (``ESMA''); International Swaps and 
Derivatives Association dated June 28, 2013 (``ISDA''); Managed 
Funds Association dated January 24, 2011 (``MFA 1''); Managed Funds 
Association dated March 24, 2011 (``MFA 2''); Markit North America 
Inc. (``Markit''); MarkitSERV LLC (``MarkitSERV''); Ralph S. Saul 
(``Saul''); and TriOptima AB (``TriOptima''). Two of these comment 
letters did not raise issues relating to the SDR Rules. See letters 
from the Chicago Mercantile Exchange, Inc. and ICE Trade Vault, LLC 
dated November 19, 2013 (relating to Regulation SBSR) and Financial 
Services Roundtable, Futures Industry Association, Institute of 
International Bankers, International Swaps and Derivatives 
Association, Investment Company Institute, Securities Industry and 
Financial Markets Association dated May 21, 2013 (requesting 90-day 
extension of the comment period for the Cross-Border Proposing 
Release). The comments that the Commission received on the Proposing 
Release and the Reopening Release are available on the Commission's 
Web site at http://www.sec.gov/comments/s7-35-10/s73510.shtml.
    \20\ See letters from Benchmark Solutions (``Benchmark*''); 
Coalition for Derivatives End-Users (``CDEU*''); Depository Trust & 
Clearing Corporation dated November 15, 2010 (``DTCC 1*''); Morgan 
Stanley (``Morgan Stanley*''); Robin McLeish (``McLeish*''); and 
Securities Industry and Financial Markets Association (``SIFMA*''), 
available on the Commission's Web site at http://www.sec.gov/comments/df-title-vii/swap-data-repositories/swap-data-repositories.shtml. To facilitate public input on the Dodd-Frank 
Act, the Commission provided a series of email links, organized by 
topic, on its Web site at http://www.sec.gov/spotlight/regreformcomments.shtml.
    \21\ See letters from Barclays Capital Inc. (``Barclays*''); 
Financial Services Forum, Futures Industry Association, 
International Swaps and Derivatives Association, and Securities 
Industry and Financial Markets Association (``FSF*''); and Futures 
Industry Association, The Financial Services Roundtable, Institute 
of International Bankers, Insured Retirement Institute, 
International Swaps and Derivatives Association, Securities Industry 
and Financial Markets Association, and U.S. Chamber of Commerce 
(``FIA*''), available on the Commission's Web site at http://www.sec.gov/comments/df-title-vii/swap-data-repositories/swap-data-repositories.shtml.
    \22\ See letter from Securities Industry and Financial Markets 
Association (``SIFMA Implementation''), available on the 
Commission's Web site at http://www.sec.gov/comments/s7-05-12/s70512-11.pdf.
    \23\ See letters from The Financial Services Roundtable (``FSR 
Implementation''), available on the Commission's Web site at http://www.sec.gov/comments/4-625/4625-1.pdf; and Association of 
Institutional Investors (``AII Implementation''), available on the 
Commission's Web site at http://www.sec.gov/comments/4-625/4625-5.pdf.
    \24\ See letter from Bank of America Merrill Lynch, Barclays 
Capital, BNP Paribas, Citi, Cr[eacute]dit Agricole Corporate and 
Investment Bank, Credit Suisse Securities (USA), Deutsche Bank AG, 
HSBC, Morgan Stanley, Nomura Securities International, Inc., 
Soci[eacute]t[eacute] G[eacute]n[eacute]rale, and UBS Securities LLC 
(``US & Foreign Banks''), available on the Commission's Web site at 
http://www.sec.gov/comments/4-636/4636-4.pdf; Joint Public 
Roundtable on International Issues Relating to the Implementation of 
Title VII of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act, Exchange Act Release No. 64939 (July 21, 2011); 76 
FR 44507 (July 26, 2011).
    \25\ One commenter recommended that the Commission ``encourage 
the formation of a planning group composed of market participants'' 
to address the questions in the Proposing Release. Saul, supra note 
19. The Commission believes that market participants have had 
sufficient opportunities to comment on the Proposing Release and 
market participants have taken advantage of these opportunities. 
Therefore, the Commission does not believe that a planning group 
composed of market participants is necessary.
    \26\ See letters from Better Markets, Inc. dated August 21, 2013 
(``Better Markets CB''); Depository Trust & Clearing Corporation 
dated August 21, 2013 (``DTCC CB''); ICE Trade Vault, LLC (``ICE 
CB''); and Institute of International Bankers (``IIB CB''). The 
comments that the Commission received on the Cross-Border Proposing 
Release are available on the Commission's Web site at http://sec.gov/comments/s7-02-13/s70213.shtml. The Commission addressed 
comment letters in response to the Cross-Border Proposing Release 
that address Title VII generally and do not relate directly to the 
proposed SDR Rules in the Cross-Border Adopting Release. See Cross-
Border Adopting Release, 79 FR at 47281-2, supra note 11.
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    The Commission also considered relevant comments submitted with 
respect to proposed Regulation SBSR,\27\ the interim temporary final 
rule for reporting of SBS transaction data,\28\ and proposed rules for 
the registration and regulation of security-based swap execution 
facilities (``SB SEFs'').\29\
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    \27\ Regulation SBSR Proposing Release, supra note 8. See 
letters from Bank of America, Merrill Lynch et al. (``BofA SBSR''); 
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 (``Foreign Banks SBSR''); 
Depository Trust & Clearing Corporation (``DTCC SBSR''); Financial 
Industry Regulatory Authority (``FINRA SBSR''); International Swaps 
and Derivatives Association & Securities Industry and Financial 
Markets Association (``ISDA SIFMA SBSR''); Managed Funds Association 
(``MFA SBSR''); Soci[eacute]t[eacute] G[eacute]n[eacute]rale 
(``Soci[eacute]t[eacute] G[eacute]n[eacute]rale SBSR''); The Bank of 
Tokyo-Mitsubishi UFJ, Ltd., Mizuho Corporate Bank, Ltd., and 
Sumitomo Mitsui Banking Corporation (``Bank of Tokyo SBSR''); 
Tradeweb (``Tradeweb SBSR''); and Wholesale Markets Brokers' 
Association, Americas (``WMBAA SBSR''). The comments that the 
Commission received on the Regulation SBSR Proposing Release are 
available on the Commission's Web site at http://www.sec.gov/comments/s7-34-10/s73410.shtml. See also Cross-Border Proposing 
Release, 78 FR at 31210-6, supra note 3 (re-proposing Regulation 
SBSR).
    \28\ Reporting of Security-Based Swap Transaction Data, Exchange 
Act Release No. 63094 (Oct. 13, 2010), 75 FR 64643 (Oct. 20, 2010) 
(``Temporary Rule Release''). See letters from International Swaps 
and Derivatives Association (``ISDA Temp Rule'') and Deutsche Bank 
AG (``Deutsche Temp Rule''). The comments that the Commission 
received on the Temporary Rule Release are available on the 
Commission's Web site at http://www.sec.gov/comments/s7-28-10/s72810.shtml.
    \29\ Registration and Regulation of Security-Based Swap 
Execution Facilities, Exchange Act Release No. 63825 (Feb. 2, 2011), 
76 FR 10948 (Feb. 28, 2011) (``SB SEF Proposing Release''). See 
letter from Tradeweb Markets LLC (``Tradeweb SB SEF''). The comments 
that the Commission received on the SB SEF Proposing Release are 
available on the Commission's Web site at http://www.sec.gov/comments/s7-06-11/s70611.shtml.

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[[Page 14442]]

    While commenters generally supported the Commission's approach set 
forth in the Proposing Release and the Cross-Border Proposing Release 
with respect to the proposed SDR Rules,\30\ they set forth a range of 
opinions addressing issues raised by the proposed rules and provided 
information regarding industry practices. In particular, commenters 
discussed SDRs' registration, enumerated duties, market access to 
services and data, governance arrangements, conflicts of interest, data 
collection and maintenance, privacy and disclosure requirements, and 
chief compliance officers (``CCOs''). The Commission has carefully 
reviewed and considered all of the comments that it received relating 
to the proposed rules.\31\ As adopted, the SDR Rules and new Form SDR 
have been modified from the proposal, in part to respond to these 
comments.\32\ The revisions to each proposed rule are described in more 
detail throughout this release. The following are among the most 
significant changes from the Commission's proposed rules:
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    \30\ See, e.g., Barnard, supra note 19 (generally supporting the 
proposed SDR Rules and agreeing that establishing SDRs will enhance 
transparency and promote standardization in the SBS market); MFA 1, 
supra note 19 (fully supporting the objectives of the Dodd-Frank Act 
and the proposed rules to enhance transparency in the SBS market); 
Markit, supra note 19 (supporting the Commission's objectives of 
increasing transparency and efficiency in the OTC derivatives 
markets and of reducing both systemic and counterparty risk); DTCC 
2, supra note 19 (supporting the Commission's efforts to establish a 
comprehensive new framework for the regulation of SDRs and noting 
that ``[i]mposing requirements on [SDRs] would promote safety and 
soundness for all U.S. markets by bringing increased transparency 
and oversight to [the SBS market]''); IIB CB, supra note 26 
(believing that ``the Commission has appropriately sought to take 
into account the greater extent to which the SBS markets are 
globally interconnected, as well as the role that foreign regulators 
therefore must play as the primary supervisors of SBS market 
participants based abroad'').
    \31\ The Commission also considered certain comments submitted 
with respect to other proposed Commission rulemakings, related CFTC 
rulemakings, and international initiatives. See Sections I.C and I.D 
discussing other comments and initiatives considered in this 
rulemaking.
    \32\ As discussed below, comments relating to relevant 
authorities' access to SBS data will be addressed in a separate 
release.
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     Form SDR: In the Proposing Release, the Commission asked 
whether it should combine Form SDR and Form SIP such that an SDR would 
register as an SDR and a securities information processer (``SIP'') 
using only one form.\33\ After further consideration and in response to 
comments received, the Commission has determined that Form SDR should 
be modified from the proposal to allow an SDR to register as both an 
SDR and SIP on one form.\34\
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    \33\ Proposing Release, 75 FR at 77313, supra note 2.
    \34\ See Section VI.A.1.c of this release discussing the 
combination of Form SDR and Form SIP.
---------------------------------------------------------------------------

     Access by Relevant Authorities: The Commission proposed 
Rules 13n-4(b)(9) and (10) and Rule 13n-4(d) relating to relevant 
authorities' access to SBS data maintained by SDRs. The Commission has 
determined not to adopt these rules at this time and anticipates 
soliciting additional public comment regarding such relevant 
authorities' access.
     Automated Systems: The Commission proposed Rule 13n-6 to 
provide standards for SDRs with regard to their automated systems' 
capacity, resiliency, and security. After further consideration, and as 
explained more fully below, the Commission has determined to adopt an 
abbreviated version of proposed Rule 13n-6.\35\
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    \35\ See Section VI.F of this release discussing Rule 13n-6.
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     CCO: In the Proposing Release, the Commission asked 
whether it should prohibit officers, directors, or employees of an SDR 
from, directly or indirectly, taking any action to coerce, manipulate, 
mislead, or fraudulently influence the SDR's CCO in the performance of 
his responsibilities. The Commission has decided to adopt new Rule 13n-
11(h).

D. Other Initiatives Considered in This Rulemaking

    The Commission also recognizes the CFTC's companion efforts in 
promulgating rules governing swap data repositories pursuant to Dodd-
Frank Act Section 728. The CFTC adopted final rules on swap data 
repositories on August 4, 2011.\36\ The CFTC also adopted rules 
regarding swap data recordkeeping and reporting requirements, some of 
which pertain to subjects covered in this release.\37\ Commission staff 
consulted with CFTC staff with respect to the rules applicable to swap 
data repositories and SDRs, as well as with prudential regulators,\38\ 
and the Commission has taken into consideration comments received 
supporting harmonization of the CFTC's rules for swap data repositories 
with the SDR Rules.\39\ The Commission believes that the final SDR 
Rules are largely consistent with the rules adopted by the CFTC.\40\ 
While one commenter recommended adopting joint rules with the CFTC,\41\ 
the Commission has not done so. Congress did not require the two 
agencies to engage in joint rulemakings on this topic.\42\ In addition, 
the CFTC has already adopted its final rules for swap data 
repositories.\43\ The Commission does not believe that the differences 
between the rules adopted herein and the CFTC's rules regarding

[[Page 14443]]

swap data repositories will place undue burdens on persons that 
register as both SDRs and swap data repositories.\44\
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    \36\ See Swap Data Repositories: Registration Standards, Duties 
and Core Principles, 76 FR 54538 (Sept. 1, 2011) (``CFTC Part 49 
Adopting Release''). See also Swap Data Repositories--Access to SDR 
Data by Market Participants, 79 FR 16672 (Mar. 26, 2014) (CFTC 
adopting interim final rule regarding access to swap data 
repositories' data).
    \37\ See Swap Data Recordkeeping and Reporting Requirements, 77 
FR 2136 (Jan. 13, 2012) (``CFTC Part 45 Adopting Release''). See 
also Review of Swap Data Recordkeeping and Reporting Requirements, 
79 FR 16689 (Mar. 26, 2014) (CFTC requesting comment on specific 
swap data reporting and recordkeeping rules).
    \38\ See Dodd-Frank Act Section 712(a)(2) (requiring the 
Commission to consult and coordinate to the extent possible with the 
CFTC and prudential regulators for ``the purposes of assuring 
regulatory consistency and comparability, to the extent possible'').
    \39\ See DTCC 2, supra note 19 (recommending that to the extent 
that there are any differences, ``the Commission and the CFTC should 
harmonize the regimes that oversee SDRs'' and noting that 
``harmonization is a more important priority than the exact nature 
of the consistent standard, as SDRs can adjust to meet a single 
standard but not multiple, inconsistent standards''); DTCC 5, supra 
note 19 (urging the Commission to harmonize its rules with the 
CFTC's rules by working, to the extent possible, with the CFTC to 
minimize the number of regulatory inconsistencies between the two 
agencies); DTCC CB, supra note 26 (``Given the significant number of 
registered entities (execution platforms, clearinghouses, SDRs, 
dealers, and major swap participants) that will face dual oversight, 
unnecessary distinctions in the registration and regulation of these 
entities risk jeopardizing regulatory compliance, add confusion to 
Dodd-Frank Act implementation, and ultimately impose unnecessary 
costs.''); Better Markets CB, supra note 26 (recommending that the 
Commission ``promote harmony with the CFTC's cross-border guidance, 
subject to its primary duty and recognizing that its statutory 
authority and jurisdiction is distinct from that of the CFTC'' and 
that the Commission ``adopt rules that are at least as strong as the 
CFTC's guidance, consistent with its statutory authority, but should 
go further than the CFTC wherever necessary, and again consistent 
with its statutory authority, to better fulfill the goals of the 
Dodd-Frank Act''). But see Better Markets 2, supra note 19 
(recommending that ``all of the substantive rule provisions proposed 
[as of July 22, 2013] must remain as strong as possible, 
irrespective of . . . the CFTC's approach to the implementation of 
Title VII'').
    \40\ See DTCC 2, supra note 19 (observing that, with respect to 
the Commission's proposed rules and the CFTC's proposed rules for 
swap data repositories, ``[t]here appear to be relatively narrow 
differences between the Commission's and the CFTC's approaches to 
the regulation of SDRs'').
    \41\ FSR Implementation, supra note 23 (supporting a Title VII-
wide harmonization process and recommending adopting joint SEC-CFTC 
rules in areas, such as SDRs, where they are not required to do so). 
The commenter stated that the ``process of jointly adopting final 
rules would ensure consistency on the most critical points. It would 
also ensure that final rules are adopted at the same time, so that 
market participants do not have to bear the cost of complying with 
one set of rules before they know whether their actions will be 
consistent with the other rules to which they will be subject.'' Id.
    \42\ Cf., e.g., Dodd-Frank Act Section 712(d) (requiring joint 
rulemaking regarding certain definitions).
    \43\ CFTC Part 49 Adopting Release, supra note 36; CFTC Part 45 
Adopting Release, supra note 37.
    \44\ See Section VIII of this release discussing economic 
analysis.
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    Finally, Commission staff has consulted and coordinated with 
foreign regulators through bilateral and multilateral discussions, 
including in groups that have prepared reports related to SDRs.\45\ For 
example, the Committee on Payments and Market Infrastructures 
(``CPMI''), formerly known as the Committee on Payment and Settlement 
Systems (``CPSS''),\46\ and the International Organization of 
Securities Commissions (``IOSCO,'' \47\ jointly, ``CPSS-IOSCO'') have 
issued several reports applicable to SDRs. First, in May 2010, CPSS and 
the Technical Committee of IOSCO issued a consultative report that 
presented a set of factors for trade repositories in the OTC 
derivatives markets to consider in designing and operating their 
services and for relevant authorities to consider in regulating and 
overseeing trade repositories (``CPSS-IOSCO Trade Repository 
Report'').\48\ Second, in January 2012, CPSS and the Technical 
Committee of IOSCO issued a final report on OTC derivatives data 
reporting and aggregation requirements.\49\ Third, in April 2012, CPSS-
IOSCO issued a final report that sets forth risk management and related 
standards applicable to financial market infrastructures, including 
trade repositories (``PFMI Report'').\50\ Fourth, in August 2013, CPSS 
and the Board of IOSCO issued a report on authorities' access to trade 
repository data (``CPSS-IOSCO Access Report'').\51\ The Commission has 
taken these discussions and reports into consideration in developing 
the final SDR Rules and Form SDR.\52\
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    \45\ See Dodd-Frank Act Section 752 (relating to international 
harmonization); DTCC 3, supra note 19 (``The global SDR framework 
emerging from the Dodd-Frank Act and European regulatory processes 
must provide comprehensive data for all derivatives markets 
globally. If the global regulatory process is not harmonized, both 
the published and regulator-only accessible data will be fragmented, 
resulting in misleading reporting of exposures, uncertain risk 
concentration reports and a decreased ability to identify systemic 
risk.'').
    \46\ CPMI is an international standard setting body for payment, 
clearing, and securities settlement systems. It serves as a forum 
for central banks to monitor and analyze developments in domestic 
payment, clearing, and settlement systems as well as in cross-border 
and multicurrency settlement schemes. See http://www.bis.org/cpmi/.
    \47\ IOSCO is an international standard setting body for 
securities regulation. It serves as a forum to review regulatory 
issues related to international securities and futures transactions. 
See http://www.iosco.org.
    \48\ See Considerations for Trade Repositories in OTC 
Derivatives Markets, CPSS-IOSCO (May 2010), available at http://www.iosco.org/library/pubdocs/pdf/IOSCOPD321.pdf.
    \49\ See Report on OTC Derivatives Data Reporting and 
Aggregation Requirements, CPSS-IOSCO (Jan. 2012), available at 
http://www.iosco.org/library/pubdocs/pdf/IOSCOPD366.pdf.
    \50\ See Principles for Financial Market Infrastructures, CPSS-
IOSCO (Apr. 2012), available at http://www.iosco.org/library/pubdocs/pdf/IOSCOPD377.pdf. The PFMI Report incorporated feedback 
received on the CPSS-IOSCO Trade Repository Report. Commission 
representatives participated in the development and drafting of the 
PFMI Report. In particular, Commission staff co-chaired the 
Editorial Team, a working group within CPSS-IOSCO that drafted both 
the consultative and final versions of the PFMI Report. The 
Commission believes that the standards applicable to trade 
repositories set forth in the PFMI Report are generally consistent 
with the final SDR Rules.
    \51\ See Authorities' Access to Trade Repository Data, CPSS-
IOSCO (Aug. 2013), available at http://www.iosco.org/library/pubdocs/pdf/IOSCOPD417.pdf.
    \52\ If any provision of these rules, or the application thereof 
to any person or circumstance, is held to be invalid, such 
invalidity shall not affect other provisions or application of such 
provisions to other persons or circumstances that can be given 
effect without the invalid provision or application.
---------------------------------------------------------------------------

II. Broad Economic Considerations and Baseline

    This section describes the most significant economic considerations 
that the Commission has taken into account in adopting Form SDR and the 
SDR Rules, as well as the baseline for evaluating the economic effects 
of the final SDR Rules. The Commission is sensitive to the economic 
consequences and effects, including the costs and benefits, of Form SDR 
and the SDR Rules. A detailed analysis of the particular economic 
effects--including the costs and benefits and the impact on efficiency, 
competition, and capital formation--that may result from Form SDR and 
the final SDR Rules is discussed in Section VIII of this release.

A. Broad Economic Considerations

    The SBS market prior to the passage of the Dodd-Frank Act has been 
described as being opaque,\53\ in part because price and volume data 
for SBS transactions were not publicly available. In opaque markets, 
price and volume information is difficult or impossible to obtain, and 
access to price and volume information confers a competitive advantage 
on market participants with such access. In the SBS market, for 
example, SBS dealers currently gain access to proprietary transaction-
level price and volume information by observing order flow. Large SBS 
dealers and other large market participants with a large share of order 
flow have an informational advantage over smaller SBS dealers and non-
dealers who, in the absence of pre-trade transparency, observe a 
smaller subset of the market. As the Commission highlights in Section 
II.B below, the majority of SBS market activity, and therefore 
information about market activity, is concentrated in a small number of 
SBS dealers and widely dispersed among other market participants. 
Greater access by SBS dealers to non-public information about order 
flow enables better assessment of current market values by SBS dealers, 
permitting them to extract economic rents from counterparties who are 
less informed.\54\ Non-dealers are aware of this information asymmetry, 
and certain non-dealers--particularly larger entities who transact with 
many dealers--may be able to obtain access to competitive pricing or 
otherwise demand a price discount that reflects the information 
asymmetry. Typically, however, the market participants with an 
information advantage will earn economic rents from their non-public 
information. In the SBS market, it is predominantly SBS dealers who 
observe the greatest order flow and benefit from market opacity.
---------------------------------------------------------------------------

    \53\ With respect to one type of SBS, credit default swaps 
(``CDSs''), the Government Accountability Office found that 
``comprehensive and consistent data on the overall market have not 
been readily available,'' ``authoritative information about the 
actual size of the [CDS] market is generally not available,'' and 
regulators currently are unable ``to monitor activities across the 
market.'' Government Accountability Office, GAO-09-397T, Systemic 
Risk: Regulatory Oversight and Recent Initiatives to Address Risk 
Posed by Credit Default Swaps, at 2, 5, 27, (2009) available at 
http://www.gao.gov/new.items/d09397t.pdf; see also Robert E. Litan, 
The Derivatives Dealers' Club and Derivatives Market Reform: A Guide 
for Policy Makers, Citizens and Other Interested Parties, Brookings 
Institution (Apr. 7, 2010), http://www.brookings.edu/~/media/
research/files/papers/2010/4/07%20derivatives%20litan/
0407_derivatives_litan.pdf; Michael Mackenzie, Era of an Opaque 
Swaps Market Ends, Financial Times, June 25, 2010, http://www.ft.com/intl/cms/s/0/f49f635c-8081-11df-be5a-00144feabdc0.html#axzz3HLUjYNI7.
    \54\ In this situation, economic rents are the profits that SBS 
dealers earn by trading with counterparties who are less informed. 
In a market with competitive access to information, there is no 
informational premium; SBS dealers only earn a liquidity premium. 
The difference between the competitive liquidity premium and the 
actual profits that SBS dealers earn is the economic rent.
---------------------------------------------------------------------------

    The Commission expects that SDRs will play a critical role in 
enhancing transparency and competitive access to information in the SBS 
market. In order to increase the transparency of the OTC derivatives 
market, Title VII requires the Commission to undertake a number of 
rulemakings, including the SDR Rules and Regulation SBSR,\55\ to 
establish a framework for the regulatory reporting of SBS transaction 
information to SDRs, public dissemination of transaction-level 
information, and a framework for SDRs to provide access to the

[[Page 14444]]

information to the Commission. Persons that meet the definition of an 
SDR will be required, absent an exemption, to comply with all SDR 
obligations, including the SDR Rules requiring SDRs to collect and 
maintain accurate data and the requirements under Regulation SBSR to 
publicly disseminate transaction-level information. Reporting of SBS 
transaction information and public dissemination of accurate 
transaction price and volume information should promote price discovery 
and lessen the informational advantage enjoyed by SBS dealers with 
access to order flow.\56\ By requiring SDRs to collect SBS transaction, 
volume, and pricing information and publicly disseminate information, 
the SDR Rules and Regulation SBSR may promote transparency in the SBS 
market.\57\
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    \55\ See Regulation SBSR Adopting Release, supra note 13.
    \56\ Price discovery refers to the process by which buyers seek 
the lowest available prices and sellers seek the highest available 
prices. This process reveals the prices that best match buyers to 
sellers. See Larry Harris, Trading & Exchanges: Market 
Microstructure for Practitioners 94 (2003). Price discovery may be 
hindered by such things as a scarcity of buyers or sellers or an 
asymmetry of information between potential buyers and sellers. For 
example, when traders are asymmetrically informed, liquidity 
suppliers set their prices far from the market to recover from 
uninformed traders what they lose to well-informed traders. See id. 
at 312.
    \57\ Regulation SBSR requires that the economic terms of the 
transaction, with the exception of the identities of the 
counterparties, be publicly disseminated. These terms include the 
product ID, date and time of execution, price, and notional amount 
of an SBS. See Regulation SBSR Adopting Release, supra note 13 
(Rules 901(c) and 902).
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    In addition to lessening the informational advantage currently 
available to SBS dealers, increased transparency of the SBS market 
could have other widespread benefits. Public availability of SBS price 
and volume information could lower the costs of SBS trading by reducing 
implicit trading costs.\58\ To the extent that implicit costs of SBS 
trading are reduced and the availability of the data necessary to 
evaluate the performance of a market participant's SBS dealer using 
transaction cost analysis, more market participants may be inclined to 
trade in the SBS market.\59\
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    \58\ Implicit trading cost is the difference between the price 
at which a market participant can enter into an SBS and the 
theoretical fundamental value of that SBS. Post-trade transparency 
has been shown to lower implicit trading costs in US corporate bond 
markets, which, prior to the introduction of FINRA's Trade Reporting 
and Compliance Engine (TRACE), was a dealer-centric over-the-counter 
(``OTC'') market characterized by limited transparency, similar to 
the SBS market. See, e.g., Amy K. Edwards, Lawrence Harris, & 
Michael S. Piwowar, Corporate Bond Market Transparency and 
Transaction Costs, 62 Journal of Finance 1421 (2007); Hendrik 
Bessembinder, William F. Maxwell, & Kumar Venkataraman, Market 
Transparency, Liquidity, Externalities and Institutional Trading 
Costs in Corporate Bonds, 82 Journal of Financial Economics 251 
(2006).
    \59\ Transaction cost analysis refers to an evaluation of the 
price received by a market participant relative to prevailing market 
prices at the time the decision to transact was made as well as 
transaction prices received by other market participants just before 
and just after the transaction.
---------------------------------------------------------------------------

    Allowing competitive, impartial access to the most recent 
transaction price and volume information may promote the efficiency of 
SBS trading and increase opportunities for risk-sharing in other ways. 
In particular, as in other securities markets, quoted bids and offers 
should form and adjust according to the reporting of executed trades, 
attracting liquidity from hedgers and other market participants that do 
not observe customer order flow and do not benefit from opacity.
    Separately, the SDR Rules are designed to, among other things, make 
available to the Commission SBS data that will provide a broad view of 
the SBS market and help monitor for pockets of risk that might not 
otherwise be observed by financial market regulators.\60\ Unlike most 
other securities transactions, SBSs involve ongoing financial 
obligations between counterparties during the life of transactions that 
typically span several years. Counterparties to an SBS rely on each 
other's creditworthiness and bear this credit risk and market risk 
until the SBS terminates or expires. This can lead to market 
instability when a large market participant, such as an SBS dealer, 
major SBS market participant, or central counterparty (``CCP''), 
becomes financially distressed. The default of a large market 
participant could introduce the potential for sequential counterparty 
failure; the resulting uncertainty could reduce the willingness of 
market participants to extend credit, and substantially reduce 
liquidity and valuations for particular types of financial 
instruments.\61\ A broad view of the SBS market, including aggregate 
market exposures to referenced entities (instruments), positions taken 
by individual entities or groups, and data elements necessary for a 
person to determine the market value of the transaction could provide 
the Commission with a better understanding of the actual and potential 
risks in the SBS market and promote better risk monitoring efforts. The 
information provided by SDRs could also help the Commission detect 
market manipulation, fraud, and other market abuses.
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    \60\ See Exchange Act Section 13(n)(5)(D), 15 U.S.C. 
78m(n)(5)(D), and Rule 13n-4(b)(5) (requiring SDRs to provide direct 
electronic access to the Commission). See also 156 Cong. Rec. S5920 
(daily ed. July 15, 2010) (statement of Sen. Lincoln) (``These new 
`data repositories' will be required to register with the CFTC and 
the SEC and be subject to the statutory duties and core principles 
which will assist the CFTC and the SEC in their oversight and market 
regulation responsibilities.'').
    \61\ See, e.g., Markus K. Brunnermeier and Lasse Heje Pedersen, 
Market Liquidity and Funding Liquidity, 22 Review of Financial 
Studies 2201 (2009); Denis Gromb and Dimitri Vayanos, A Model of 
Financial Market Liquidity Based on Intermediary Capital, 8 Journal 
of the European Economic Association 456 (2010).
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    The extent of the benefits discussed above may be limited by the 
inaccuracy or incompleteness of SBS data maintained by SDRs.\62\ The 
Commission believes, however, that the SDR Rules relating to data 
accuracy \63\ and maintenance \64\ will help minimize the inaccuracy or 
incompleteness of SBS data maintained by SDRs. The benefits discussed 
above may have associated costs for compliance with the SDR Rules and 
Regulation SBSR. Persons that meet the definition of an SDR will be 
required to invest in infrastructure necessary to comply with rules for 
collecting, maintaining, and disseminating accurate data. Such 
infrastructure costs may ultimately be reflected in the prices that SBS 
dealers charge to customers, mitigating the reduction in indirect 
trading costs that may accrue from reducing SBS dealers' information 
advantage.
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    \62\ The CFTC's experience with collecting swap data suggests 
that the benefits of receiving information from trade repositories 
may be reduced by inaccuracies or inconsistencies in information 
maintained by trade repositories. See, e.g., Andrew Ackerman, CFTC 
Seeks Comment on Improving Swaps Data Stream; Data Problems Have 
Hobbled Efforts to See More Clearly Into Swaps Market, Wall Street 
Journal Mar. 19, 2014, http://online.wsj.com/news/articles/SB10001424052702304026304579449552899867592 (noting that ``a series 
of data problems . . . have hobbled efforts to see more clearly into 
the multitrillion-dollar swaps market''). The CFTC has published a 
request for comment on specific swap data reporting and 
recordkeeping rules to determine how these rules were being applied 
and whether or what clarifications, enhancements, or guidance may be 
appropriate. See Review of Swap Data Recordkeeping and Reporting 
Requirements, 79 FR 16689 (Mar. 26, 2014).
    \63\ See, e.g., Rule 13n-5(b)(3) (requiring an SDR to establish, 
maintain, and enforce written policies and procedures reasonably 
designed to ensure that the transaction data and positions that it 
maintains are complete and accurate).
    \64\ See, e.g., Rule 13n-5(b)(4) (requiring an SDR to maintain 
transaction data and related identifying information for not less 
than five years after the applicable SBS expires and historical 
positions for not less than five years); Rule 13n-5(b)(5) (requiring 
an SDR to establish, maintain, and enforce written policies and 
procedures reasonably designed to prevent any provision in a valid 
SBS from being invalidated or modified through the procedures or 
operations of the SDR).
---------------------------------------------------------------------------

    The SDR Rules permit the possibility of multiple SDRs within an 
asset class.\65\ If there are multiple SDRs in any given asset class, 
then differences in how each

[[Page 14445]]

SDR accepts, stores, and disseminates SBS data may cause fragmentation 
in the SBS data, thereby making it more difficult for the Commission 
and the public to compile, compare, and analyze market information. As 
discussed below, the Commission anticipates that it will propose for 
public comment detailed specifications of acceptable formats and 
taxonomies that would facilitate an accurate interpretation, 
aggregation, and analysis of SBS data by the Commission.\66\ The 
Commission believes that these specifications may help reduce any 
difficulties resulting from the fragmentation of data among multiple 
SDRs by facilitating the clear, uniform reporting of SBS data to the 
Commission.
---------------------------------------------------------------------------

    \65\ See Section IV of this release discussing number of SDRs 
and consolidation of SBS data.
    \66\ See Section VI.D.2.c.ii of this release.
---------------------------------------------------------------------------

B. Baseline

    To assess the economic impact of the SDR Rules described in this 
release, the Commission is using as a baseline the SBS market as it 
exists today, including applicable rules that have already been adopted 
and excluding rules that have been proposed, but not yet finalized. The 
Commission acknowledges limitations in the degree to which the 
Commission can quantitatively characterize the current state of the SBS 
market. As described in more detail below, because the available data 
on SBS transactions do not cover the entire market, the Commission has 
developed an understanding of market activity using a sample that 
includes only certain portions of the market.
1. Transparency in the SBS Market
    There currently is no robust, widely accessible source of 
information about individual SBS transactions. Nevertheless, market 
participants can gather certain limited information for the single-name 
CDS market from a variety of sources. For example, some vendors provide 
indicative quotes. Indicative quotes are not based on actual 
transactions and, as such, they may not reflect the true value. 
Moreover, these quotes do not represent firm commitments to buy or sell 
protection on particular reference entities. However, market 
participants can gather information from indicative quotes that may 
inform their trading. In addition, one entity as part of its single-
name CDS clearing, makes its daily settlement prices on 5 year single-
name CDSs available to the public on its Web site.\67\ A more complete 
database of current and historical settlement prices is available by 
subscription.
---------------------------------------------------------------------------

    \67\ See https://www.theice.com/cds/MarkitSingleNames.shtml. 
End-of-Day (``EOD'') prices are established for all cleared CDS 
single name and index instruments using a price discovery process 
developed for the CDS market. Clearing participants are required to 
submit prices every business day, and the clearing house conducts a 
daily auction-like process resulting in periodic trade executions 
among clearing participants. This process determines the clearing 
house EOD prices, which are used for daily mark-to-market purposes.
---------------------------------------------------------------------------

    In addition to the pricing data discussed above, there is limited, 
publicly-disseminated information about aggregate SBS market activity. 
The Depository Trust and Clearing Corporation--Trade Information 
Warehouse (``DTCC-TIW'') publishes weekly transaction and position 
reports for single-name CDSs. ICE Clear Credit also provides aggregated 
volumes of clearing activity. Additionally, large multilateral 
organizations periodically report measures of market activity. For 
example, the Bank for International Settlements (``BIS'') reports gross 
notional outstanding for single-name CDSs and equity forwards and swaps 
semiannually.
    Market participants that are SBS dealers can also draw inferences 
about SBS market activity by observing order flow. This source of 
proprietary information is most useful for SBS dealers with large 
market shares.
    Finally, DTCC-TIW voluntarily provides to the Commission data on 
individual CDS transactions. This information is made available to the 
Commission in accordance with an agreement between the DTCC-TIW and the 
OTC Derivatives Regulators' Forum (``ODRF''), of which the Commission 
is a member. While DTCC-TIW generally provides this information to 
regulators that are members of the ODRF, DTCC-TIW does not make the 
information available to the public.
2. Current Security-Based Swap Market
    The Commission's analysis of the current state of the SBS market is 
based on data obtained from DTCC-TIW, particularly data regarding the 
activity of market participants for single-name CDSs from 2008 to 2013. 
While other repositories may collect data on transactions in total 
return swaps on equity and debt, the Commission does not currently have 
access to such data for these products (or other products that are 
SBSs). Although the Commission has previously noted that the definition 
of SBS is not limited to single-name CDSs, the Commission believes that 
the single-name CDS data is sufficiently representative of the SBS 
market and therefore can directly inform the analysis of the state of 
the current SBS market.\68\ The Commission believes that DTCC-TIW's 
data for single-name CDSs is reasonably comprehensive because it 
includes data on almost all single-name CDS transactions and market 
participants trading in single-name CDSs.\69\ The Commission notes that 
the data that it receives from DTCC-TIW does not encompass CDS 
transactions that both: (i) Do not involve any U.S. counterparty,\70\ 
and (ii) are not based on a U.S. reference entity. Notwithstanding this 
limitation, the Commission believes that DTCC-TIW data provides 
sufficient information to identify the types of market participants 
active in the SBS market and the general pattern of dealing within that 
market.\71\
---------------------------------------------------------------------------

    \68\ According to data published by BIS, the global notional 
amount outstanding in equity forwards and swaps as of December 2013 
was $2.28 trillion. The notional amount outstanding was 
approximately $11.32 trillion for single-name CDSs, approximately 
$9.70 trillion for multi-name index CDSs, and approximately $0.95 
trillion for multi-name, non-index CDSs. See Bank of International 
Settlement, BIS Quarterly Review, Statistical Annex, Table 19 (June 
2014), available at http://www.bis.org/publ/qtrpdf/r_qt1406.htm. For 
purposes of this analysis, the Commission assumes that multi-name 
index CDSs are not narrow-based index CDSs, and therefore do not 
fall within the definition of SBS. See Exchange Act Section 
3(a)(68)(A), 15 U.S.C. 78c(a)(68)(A); see also Further Definition of 
``Swap,'' ``Security-Based Swap,'' and ``Security-Based Swap 
Agreement''; Mixed Swaps; Security-Based Swap Agreement 
Recordkeeping, Exchange Act Release No. 67453 (July 18, 2012), 77 FR 
48207 (Aug. 13, 2012). The Commission also assumes that instruments 
reported as equity forwards and swaps include instruments such as 
total return swaps on individual equities that fall with the 
definition of SBS, potentially resulting in underestimation of the 
proportion of the SBS market represented by single-name CDSs. 
Although the BIS data reflects the global OTC derivatives market, 
and not only the U.S. market, the Commission is not aware of any 
reason to believe that these ratios differ significantly in the U.S. 
market.
    \69\ See ISDA, CDS Marketplace, Exposures & Activity, http://www.isdacdsmarketplace.com/exposures_and_activity (``DTCC Deriv/
SERV's Trade Information Warehouse is the only comprehensive trade 
repository and post-trade processing infrastructure for OTC credit 
derivatives in the world. Its Deriv/SERV matching and confirmation 
service electronically matches and confirms more than 98% of credit 
default swaps transactions globally.'').
    \70\ The Commission notes that DTCC-TIW's entity domicile 
determinations may not reflect the Commission's definition of ``U.S. 
person'' in all cases.
    \71\ In 2013, DTCC-TIW reported on its Web site new trades in 
single-name CDSs with gross notional of $12.0 trillion. DTCC-TIW 
provided to the Commission data that included only transactions with 
a U.S. counterparty or a U.S. reference entity. During the same 
period, this data included new trades with gross notional equaling 
$9.3 trillion, or 77% of the total reported by DTCC-TIW.
---------------------------------------------------------------------------

a. Security-Based Swap Market Participants
    A key characteristic of SBS activity is that it is concentrated 
among a relatively small number of entities that

[[Page 14446]]

engage in dealing activities.\72\ Based on DTCC-TIW data that the 
Commission has received, thousands of other market participants appear 
as counterparties to SBS transactions, including, but not limited to, 
investment companies, pension funds, private (hedge) funds, sovereign 
entities, and industrial companies. The Commission observes that most 
end users of SBSs do not directly trade SBSs, but instead use dealers, 
banks, or investment advisers as agents to establish the end users' 
positions. Based on the Commission's analysis of DTCC-TIW data, there 
were 1,800 entities engaged directly in trading CDSs between November 
2006 and December 2013.\73\ Table 1 below highlights that of these 
entities, there were 17, or approximately 0.9%, that were ISDA-
recognized dealers.\74\ The vast majority of transactions (84.1%) 
measured by the number of counterparties (each transaction has two 
counterparties or transaction sides) were executed by ISDA-recognized 
dealers. Thus, a small set of dealers observe the largest share of the 
market and potentially benefit the most from opacity.
---------------------------------------------------------------------------

    \72\ See Cross-Border Adopting Release, 79 FR at 47293, supra 
note 11. All data in this section cites updated data from this 
release and the accompanying discussion.
    \73\ These 1,800 transacting agents represent over 10,000 
accounts representing principal risk holders. See Regulation SBSR 
Adopting Release, supra note 13 and Cross Border Adopting Release, 
79 FR at 47293-4, supra note 11 (discussing the number of 
transacting agents and accounts of principal risk holders).
    \74\ For the purpose of this analysis, the ISDA-recognized 
dealers are those identified by ISDA as a recognized dealer in any 
year during the relevant period. Dealers are only included in the 
ISDA-recognized dealer category during the calendar year in which 
they are so identified. The complete list of ISDA recognized dealers 
is: JP Morgan Chase NA (and Bear Stearns), Morgan Stanley, Bank of 
America NA (and Merrill Lynch), Goldman Sachs, Deutsche Bank AG, 
Barclays Capital, Citigroup, UBS, Credit Suisse AG, RBS Group, BNP 
Paribas, HSBC Bank, Lehman Brothers, Soci[eacute]t[eacute] 
G[eacute]n[eacute]rale, Credit Agricole, Wells Fargo, and Nomura. 
See ISDA, Operations Benchmarking Surveys, available at http://www2.isda.org/functional-areas/research/surveys/operations-benchmarking-surveys.

   Table 1--The Number of Transacting Agents in the CDS Market by Counterparty Type and the Fraction of Total
       Trading Activity, From November 2006 Through December 2013, Represented by Each Counterparty Type.
----------------------------------------------------------------------------------------------------------------
                                                                                                    Transaction
                       Transacting agents                             Number          Percent       share  (%)
----------------------------------------------------------------------------------------------------------------
Investment Advisers.............................................           1,347            74.8             9.7
--SEC registered................................................             529            29.4             5.9
Banks...........................................................             256            14.2             5.0
Pension Funds...................................................              29             1.6             0.1
Insurance Companies.............................................              36             2.0             0.2
ISDA-Recognized Dealers.........................................              17             0.9            84.1
Other...........................................................             115             6.4             1.0
                                                                 -----------------------------------------------
    Total.......................................................           1,800           100.0           100.0
----------------------------------------------------------------------------------------------------------------

    Principal holders of CDS risk exposure are represented by accounts 
in DTCC-TIW.\75\ As highlighted in Table 2 below, Commission staff's 
analysis of these accounts in DTCC-TIW shows that the 1,800 transacting 
agents (entities directly engaged in trading) described above 
represented 10,054 principal risk holders (entities bearing the risk of 
the CDS). In some cases, the principal risk holder may have been 
represented by an investment adviser that served as the transacting 
agent. In other cases, the principal risk holder may have participated 
directly as the transacting agent. Each account does not necessarily 
represent a separate legal person; one legal person may allocate 
transactions across multiple accounts. For example, the 17 ISDA-
recognized dealers described above allocated transactions across 69 
accounts.
---------------------------------------------------------------------------

    \75\ ``Accounts'' as defined in the DTCC-TIW context are not 
equivalent to ``accounts'' in the definition of ``U.S. person'' 
provided by Exchange Act Rule 3a71-3(a)(4)(i)(C). They also do not 
necessarily represent separate legal persons. One entity or legal 
person may have multiple accounts. For example, a bank may have one 
DTCC account for its U.S. headquarters and one DTCC account for one 
of its foreign branches.
---------------------------------------------------------------------------

    Among the accounts, there are 1,086 Dodd-Frank Act-defined special 
entities and 636 investment companies registered under the Investment 
Company Act of 1940.\76\ Private funds comprise the largest type of 
account holders that the Commission was able to classify, and although 
not verified through a recognized database, most of the funds the 
Commission was not able to classify appear to be private funds.\77\ 
While the Commission anticipates that some of these accounts may prefer 
to operate in an opaque market (if, for example, they are relying on a 
proprietary trading strategy and wish to keep their transactions 
anonymous), the data suggest that the vast majority of principal risk 
holders in CDS may benefit from the Dodd-Frank Act's transparency 
requirements. As discussed above and in Section VIII below, dealers are 
the category of market participants most likely to benefit from 
opaqueness. As shown in Table 1, of the 1,800 transacting agents in the 
2006-2013 sample, 17 (or 0.9%) are ISDA-recognized dealers. Similarly, 
as shown in Table 2, of the 10,054 accounts with CDS transactions, 69 
(or 0.7%) are accounts held by ISDA-recognized dealers. As many as 99% 
of market participants may benefit from increasing transparency.
---------------------------------------------------------------------------

    \76\ There remain over 4,600 DTCC ``accounts'' unclassified by 
type. Although unclassified, each was manually reviewed to verify 
that it was not likely to be a special entity within the meaning of 
the Dodd-Frank Act and instead was likely to be an entity such as a 
corporation, an insurance company, or a bank.
    \77\ ``Private funds'' encompass various unregistered pooled 
investment vehicles, including hedge funds, private equity funds, 
and venture capital funds.

[[Page 14447]]

      Table 2--the Number and Percentage of Account Holders--by Type--Who Participate in the CDS Market Through a Registered Investment Adviser, an
                      Unregistered Investment Adviser, or Directly as a Transacting Agent From November 2006 Through December 2013
--------------------------------------------------------------------------------------------------------------------------------------------------------
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
                   Account holders by type                        Number        Represented by a
                                                                   Represented by an
                                                                    Participant is
                                                                      transacting
                                                               ...........    registered investment
                                                                unregistered investment
                                                                      agent \78\
                                                               ...........           adviser
                                                                        adviser
--------------------------------------------------------------------------------------------------------------------------------------------------------
Private Funds................................................        2,914        1,395          48%        1,496          51%           23           1%
Dodd-Frank Act Special Entities..............................        1,086        1,050          97%           12           1%           24           2%
Registered Investment Companies..............................          636          620          97%           14           2%            2           0%
Banks (non-ISDA-recognized dealers)..........................          369           25           7%            5           1%          339          92%
Insurance Companies..........................................          224          144          64%           21           9%           59          26%
ISDA-Recognized Dealers......................................           69            0           0%            0           0%           69         100%
Foreign Sovereigns...........................................           63           45          71%            2           3%           16          25%
Non-Financial Corporations...................................           57           39          68%            3           5%           15          26%
Finance Companies............................................           10            5          50%            0           0%            5          50%
Other/Unclassified...........................................        4,626        3,131          68%        1,295          28%          200           4%
    All......................................................       10,054        6,454          64%        2,848          28%          752           7%
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Although the SBS market is global in nature, 61% of the transaction 
volume in the 2008-2013 period included at least one U.S.-domiciled 
entity (see Figure 1). Moreover, 18% of the CDS transactions reflected 
in DTCC-TIW data that include at least one U.S.-domiciled counterparty 
or a U.S. reference entity were between U.S.-domiciled entities and 
foreign-domiciled counterparties.
---------------------------------------------------------------------------

    \78\ This column reflects the number of participants who are 
also trading for their own accounts.
[GRAPHIC] [TIFF OMITTED] TR19MR15.001

    The cross-border nature of the SBS market is growing over time. 
Figure 2 below is a chart of (1) the percentage of new accounts with a 
domicile in the United States,\79\ (2) the percentage of new accounts 
with a domicile outside

[[Page 14448]]

the United States, and (3) the percentage of new accounts outside the 
United States, but managed by a U.S. entity, foreign accounts that 
include new accounts of a foreign branch of a U.S. bank, and new 
accounts of a foreign subsidiary of a U.S. entity. Over time, a greater 
share of accounts entering the DTCC-TIW data either have a foreign 
domicile or have a foreign domicile while being managed by a U.S. 
person. The increase in foreign accounts may reflect an increase in 
participation by foreign accountholders and the increase in foreign 
accounts managed by U.S. persons may reflect the flexibility with which 
market participants can restructure their market participation in 
response to regulatory intervention, competitive pressures, and other 
factors. There are, however, alternative explanations for the shifts in 
new account domicile in Figure 2. Changes in the domicile of new 
accounts through time may reflect improvements in reporting by market 
participants to DTCC-TIW. Additionally, because the data includes only 
accounts that are domiciled in the United States, transact with U.S.-
domiciled counterparties, or transact in single-name CDSs with U.S. 
reference entities, changes in the domicile of new accounts may reflect 
increased transaction activity between U.S. and non-U.S. 
counterparties.
---------------------------------------------------------------------------

    \79\ The domicile classifications in DTCC-TIW are based on the 
market participants' own reporting and have not been verified by 
Commission staff. Prior to enactment of the Dodd-Frank Act, account 
holders did not formally report their domicile to DTCC-TIW because 
there was no systematic requirement to do so. After enactment of the 
Dodd-Frank Act, the DTCC-TIW has collected the registered office 
location of the account. This information is self-reported on a 
voluntary basis. It is possible that some market participants may 
misclassify their domicile status because the databases in DTCC-TIW 
do not assign a unique legal entity identifier to each separate 
entity. It is also possible that the domicile classifications may 
not correspond precisely to the definition of U.S. person under the 
rules defined in Exchange Act Rule 3a71-3(a)(4), 17 CFR 240.3a71-
3(a)(4). Notwithstanding these limitations, the Commission believes 
that the cross-border and foreign activity demonstrates the nature 
of the single-name CDS market.
[GRAPHIC] [TIFF OMITTED] TR19MR15.002

b. Security-Based Swap Data Repositories
    No SDRs are currently registered with the Commission. The 
Commission is aware of one entity in the market (i.e., the DTCC-TIW) 
that has been accepting voluntary reporting of single-name and index 
CDS transactions. In 2013, DTCC-TIW received approximately 3.1 million 
records of CDS transactions, of which

[[Page 14449]]

approximately 800,000 were price forming.\80\
---------------------------------------------------------------------------

    \80\ Price-forming CDS transactions include all new 
transactions, assignments, modifications to increase the notional 
amounts of previously executed transactions, and terminations of 
previously executed transactions. Transactions terminated or entered 
into in connection with a compression exercise, and expiration of 
contracts at maturity are not considered price-forming and are 
therefore excluded, as are replacement trades and all bookkeeping-
related trades.
---------------------------------------------------------------------------

    The CFTC has provisionally registered four swap data 
repositories.\81\ These swap data repositories are: BSDR LLC, Chicago 
Mercantile Exchange Inc., DTCC Data Repository LLC, and ICE Trade 
Vault, LLC. The Commission believes that most of these entities will 
likely register with the Commission as SDRs and that other persons may 
seek to register with both the CFTC and the Commission as swap data 
repositories and SDRs, respectively. As stated above, the Commission 
believes that the final SDR Rules are largely consistent with the 
CFTC's rules governing swap data repositories.
---------------------------------------------------------------------------

    \81\ CFTC Rule 49.3(b) provides for provisional registration of 
a swap data repository. 17 CFR 49.3(b).
---------------------------------------------------------------------------

    Efforts to regulate the swap and SBS market are underway not only 
in the United States, but also abroad. In 2009, leaders of the G20--
whose members include the United States, 18 other countries, and the 
European Union--called for global improvements in the functioning, 
transparency, and regulatory oversight of OTC derivatives markets and 
agreed, among other things, that OTC derivatives contracts should be 
reported to trade repositories.\82\ Substantial progress has been made 
in establishing the trade repository infrastructure to support the 
reporting of all contracts.\83\ Currently, multiple trade repositories 
operate, or are undergoing approval processes to do so, in a number of 
different jurisdictions.\84\ The requirements for trade reporting 
differ across jurisdictions. The result is that trade repository data 
is fragmented across many locations, stored in a variety of formats, 
and subject to many different rules for authorities' access. The data 
in these trade repositories will need to be aggregated in various ways 
if authorities are to obtain a comprehensive and accurate view of the 
global OTC derivatives markets and to meet the original financial 
stability objectives of the G20 in calling for comprehensive use of 
trade repositories.
---------------------------------------------------------------------------

    \82\ See Leaders' Statement, The Pittsburgh Summit, September 
24-25, 2009, available at http://www.treasury.gov/resource-center/international/g7-g20/Documents/pittsburgh_summit_leaders_statement_250909.pdf.
    \83\ See OTC Derivatives Market Reforms Eighth Progress Report 
on Implementation (Nov. 2014), available at http://www.financialstabilityboard.org/wp-content/uploads/r_141107.pdf.
    \84\ Id.
---------------------------------------------------------------------------

III. Definition, Scope of Registration, Services, and Business Models 
of SDRs

    The Proposing Release generally discussed the role, regulation, and 
business models of SDRs,\85\ but it did not specifically address the 
applicability of the statutory definition of an SDR.\86\ The Commission 
received several comments that addressed broad issues regarding what 
persons fall within the statutory definition of an SDR, what services 
can or must be provided by SDRs, and what business models are 
appropriate for SDRs. In light of these comments, the Commission 
believes that it is useful to provide clarity on the definition of an 
SDR and the services that are required or permitted to be provided by 
SDRs. For purposes of this release, the Commission will refer to 
services that are specifically included in the statutory definition of 
an SDR \87\ as ``core'' services. All other services--both those 
required by the Dodd-Frank Act and the rules and regulations 
thereunder, and those not required, but which the Commission believes 
are permissible for SDRs to perform--will be referred to as 
``ancillary'' services.
---------------------------------------------------------------------------

    \85\ See Proposing Release, 75 FR at 77307-77308, supra note 2.
    \86\ In the Cross-Border Proposing Release, the Commission 
discussed several examples of circumstances in which a person would 
be performing the functions of an SDR in the cross-border context. 
78 FR at 31041-31043, supra note 3. The Commission did not receive 
any comments on this aspect of the Cross-Border Proposing Release.
    \87\ Exchange Act Section 3(a)(75), 15 U.S.C. 78c(a)(75).
---------------------------------------------------------------------------

A. Definition of SDR: Core Services

    Exchange Act Section 3(a)(75), enacted by Dodd-Frank Act Section 
761, defines a ``security-based swap data repository'' to mean ``any 
person that collects and maintains information or records with respect 
to transactions or positions in, or the terms and conditions of, 
security-based swaps entered into by third parties for the purpose of 
providing a centralized recordkeeping facility for security-based 
swaps.'' \88\
---------------------------------------------------------------------------

    \88\ Exchange Act Section 3(a)(75), 15 U.S.C. 78c(a)(75).
---------------------------------------------------------------------------

    One commenter requested that ``the Commission provide clear 
guidance as to the scope of the entities covered within the [statutory] 
definition of SDR in the Dodd-Frank Act.'' \89\ The commenter stated as 
follows: ``The statutory duties required of an SDR are extensive and 
can form a business in their own right. The requirements of an SDR 
should not be imposed upon service providers looking to provide 
targeted solutions to specific processes, as opposed to providers 
looking more broadly to fulfill the role of an SDR. All third party 
service providers have to perform a level of recordkeeping and often 
retain data previously submitted by customers to offer services 
efficiently. This should not transform them into an SDR unless there is 
a corresponding policy reason for doing so. In fact, there is a strong 
policy reason to exclude them, the goal of countering the risk of 
fragmentation in data collection and dissemination on a global basis.'' 
\90\ Another commenter described an SDR's core functions as ``basic 
receipt and storage of [SBS] data.'' \91\
---------------------------------------------------------------------------

    \89\ DTCC 2, supra note 19.
    \90\ DTCC 2, supra note 19.
    \91\ MarkitSERV, supra note 19.
---------------------------------------------------------------------------

    The Commission believes that the statutory definition in Exchange 
Act Section 3(a)(75) describes the core services or functions of an 
SDR. Whether a person falls within the statutory definition of an SDR 
is fact-specific. An example of a person that would likely meet the 
statutory definition of an SDR is a person that provides the service of 
maintaining a centralized repository of records of SBSs for 
counterparties to SBS transactions that are intended to be relied on by 
counterparties for legal purposes. Providing this service would cause 
the person to meet the statutory definition of an SDR because the 
person is ``collect[ing] and maintain[ing] information or records with 
respect to transactions or positions in, or the terms and conditions 
of, [SBSs] entered into by third parties for the purpose of providing a 
centralized recordkeeping facility for [SBSs].'' \92\ In contrast, a 
law firm, trustee, custodian, or broker-dealer that holds SBS records 
likely would not meet the statutory definition of an SDR because those 
persons would not be doing so ``for the purpose of providing a 
centralized recordkeeping facility for [SBSs].'' \93\
---------------------------------------------------------------------------

    \92\ See Exchange Act Section 3(a)(75), 15 U.S.C. 78c(a)(75).
    \93\ See Exchange Act Section 3(a)(75), 15 U.S.C. 78c(a)(75).
---------------------------------------------------------------------------

    One commenter identified countering the risk of fragmentation in 
data collection and dissemination as a policy reason to exclude certain 
persons, such as certain third party service providers, from the 
definition of an SDR.\94\ The Commission believes that while third 
party service providers may collect and maintain SBS data, they 
generally do not do so ``for the purpose of providing a centralized 
recordkeeping facility.'' As such, third party service providers

[[Page 14450]]

generally would not fall within the statutory definition of an SDR. 
Thus, they do not need to be excluded from the definition of an SDR, as 
the commenter suggested. If, however, the third party service provider 
collects and maintains the SBS data ``for the purpose of providing a 
centralized recordkeeping facility,'' \95\ it would likely fall within 
the definition of an SDR. The Commission does not believe that there 
are any policy reasons, including countering the risk of fragmentation, 
to warrant a broad-based exemption from registration for third party 
service providers that collect and maintain SBS data ``for the purpose 
of providing a centralized recordkeeping facility.''
---------------------------------------------------------------------------

    \94\ See DTCC 2, supra note 19.
    \95\ Exchange Act Section 3(a)(75), 15 U.S.C. 78c(a)(75).
---------------------------------------------------------------------------

B. SDRs Required To Register With the Commission

    To the extent that a person falls within the statutory definition 
of an SDR, and makes use of the mails or any means or instrumentality 
of interstate commerce to perform the functions of an SDR, then that 
person is required to register with the Commission,\96\ absent an 
exemption.\97\ As discussed in the Cross-Border Proposing Release,\98\ 
the Commission believes that U.S. persons \99\ that perform the 
functions of an SDR are required to register with the Commission and 
comply with Exchange Act Section 13(n) \100\ and the rules and 
regulations thereunder, as well as other requirements applicable to 
SDRs registered with the Commission.\101\ Requiring U.S. persons that 
perform the functions of an SDR to be operated in a manner consistent 
with the Title VII regulatory framework and subject to the Commission's 
oversight, among other things, helps ensure that relevant authorities 
are able to monitor the build-up and concentration of risk exposure in 
the SBS market, reduce operational risk in that market, and increase 
operational efficiency.\102\ SDRs themselves are subject to certain 
operational risks that may impede the ability of SDRs to meet these 
goals,\103\ and the Title VII regulatory framework is intended to 
address these risks.
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    \96\ See Exchange Act Section 13(n)(1), 15 U.S.C. 78m(n)(1).
    \97\ See Section VI.K of this release discussing Rule 13n-12.
    \98\ Cross-Border Proposing Release, 78 FR at 31042, supra note 
3.
    \99\ The term ``U.S. person'' is defined in Rule 13n-12(a), as 
discussed in Section VI.K.3 of this release, and cross-references to 
the definition of ``U.S. person'' in Exchange Act Rule 3a71-
3(a)(4)(i), 17 CFR 240.3a71-3(a)(4)(i). See Cross-Border Adopting 
Release, 79 FR at 47371, supra note 11. Rule 3a71-3(a)(4)(i) defines 
``U.S. person'' to mean ``any person that is: (A) A natural person 
resident in the United States; (B) A partnership, corporation, 
trust, investment vehicle, or other legal person organized, 
incorporated, or established under the laws of the United States or 
having its principal place of business in the United States; (C) An 
account (whether discretionary or non-discretionary) of a U.S. 
person; or (D) An estate of a decedent who was a resident of the 
United States at the time of death.'' Id. at 47371. As the 
Commission noted in the Cross-Border Adopting Release, the 
definition of ``U.S. person'' in Rule 3a71-3(a)(4)(i) ``reflect[s] a 
territorial approach to the application of Title VII.'' Cross-Border 
Adopting Release, 79 FR at 47306, supra note 11. The Commission 
believes that the territorial focus of the definition is appropriate 
in the context of the SDR Rules because it will enable the 
Commission to identify those SDRs that should be required to 
register with the Commission by virtue of the location of a 
significant portion of their commercial and legal relationships 
within the United States. Cf. Cross-Border Adopting Release, 79 FR 
at 47337, supra note 11.
    \100\ 15 U.S.C. 78m(n).
    \101\ In addition to the SDR Rules, the Commission is adopting 
Regulation SBSR, which imposes certain obligations on SDRs 
registered with the Commission. See Regulation SBSR Adopting 
Release, supra note 13. In a separate proposal relating to 
implementation of Dodd-Frank Act Section 763(i) (adding Exchange Act 
Section 13(n)(5)(E), 15 U.S.C. 78m(n)(5)(E)), the Commission 
proposed rules that would require SDRs registered with the 
Commission to collect data related to monitoring the compliance and 
frequency of end-user clearing exemption claims. See End-User 
Exception Proposing Release, supra note 15.
    \102\ See Proposing Release, 75 FR at 77307, supra note 2 (``The 
enhanced transparency provided by an SDR is important to help 
regulators and others monitor the build-up and concentration of risk 
exposures in the SBS market . . . . In addition, SDRs have the 
potential to reduce operational risk and enhance operational 
efficiency in the SBS market.'').
    \103\ See Proposing Release, 75 FR at 77307, supra note 2 (``The 
inability of an SDR to protect the accuracy and integrity of the 
data that it maintains or the inability of an SDR to make such data 
available to regulators, market participants, and others in a timely 
manner could have a significant negative impact on the SBS market. 
Failure to maintain privacy of such data could lead to market abuse 
and subsequent loss of liquidity.'').
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    Also, as stated in the Cross-Border Proposing Release, the 
Commission believes that a non-U.S. person \104\ that performs the 
functions of an SDR within the United States would be required to 
register with the Commission, absent an exemption.\105\ The 
Commission's interpretation of the scope of SDR registration is 
consistent with the Commission's territorial approach to the 
application of Title VII, as discussed in the Cross-Border Adopting 
Release.\106\ As noted in that release, the Commission takes the view 
that a territorial approach to the application of Title VII is grounded 
in the text of the relevant statutory provisions and is designed to 
help ensure that the Commission's application of the relevant 
provisions is consistent with the goals that the statute was intended 
to achieve.\107\ Once the focus of the statute has been identified 
using this analysis, determining whether a particular application of 
the statute is territorial turns on whether any relevant conduct that 
is the focus of the statute has a sufficient territorial nexus with the 
United States.\108\
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    \104\ Under this interpretation, the term ``non-U.S. person'' 
would have the same meaning as set forth in Rule 13n-12(a), as 
discussed in Section VI.K.3 of this release.
    \105\ Cross-Border Proposing Release, 78 FR at 31042, supra note 
3. See also Exchange Act Section 13(n)(1), 15 U.S.C. 78m(n)(1) 
(requiring persons that, directly or indirectly, make use of the 
mails or any means or instrumentality of interstate commerce to 
perform the functions of an SDR to register with the Commission). 
The Commission recognizes that some non-U.S. persons that perform 
the functions of an SDR may do so entirely outside the United 
States, and thus, are not required to register with the Commission. 
See Cross-Border Proposing Release, 78 FR at 31042 n.721, supra note 
3.
    \106\ Cross-Border Adopting Release, 79 FR at 47287, supra note 
11. Accord IIB CB, supra note 26 (believing that the Commission's 
territorial approach to registration is appropriate for market 
infrastructures, including SDRs, and stating that ``[t]his approach 
will help [ ] achieve the Commission's market oversight objectives 
while avoiding conflicts with foreign regulators, and it is 
consistent with the CFTC's approach'').
    \107\ Cross-Border Adopting Release, 79 FR at 47287, supra note 
11.
    \108\ See Cross-Border Adopting Release, 79 FR at 47287, supra 
note 11.
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    As stated in the Cross-Border Proposing Release, the Commission 
believes that ``a non-U.S. person would be performing `the functions of 
a security-based swap data repository within the United States' if, for 
example, it enters into contracts, such as user or technical 
agreements, with a U.S. person to enable the U.S. person to report 
[SBS] data to such non-U.S. person.'' \109\ As another example, ``a 
non-U.S. person would be performing `the functions of a security-based 
swap data repository within the United States' if it has operations in 
the United States, such as maintaining [SBS] data on servers physically 
located in the United States, even if its principal place of business 
is not in the United States.'' \110\
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    \109\ Cross-Border Proposing Release, 78 FR at 31042, supra note 
3.
    \110\ Cross-Border Proposing Release, 78 FR at 31042, supra note 
3. The Commission notes that if a person performing the functions of 
an SDR has operations in the United States to the extent that such 
operations constitute a principal place of business, then the person 
would fall within the definition of ``U.S. person'' in Rule 13n-12, 
which cross-references to Exchange Act Rule 3a71-3(a)(4)(i), 17 CFR 
240.3a71-3(a)(4)(i). As adopted, the term ``U.S. person'' includes a 
partnership, corporation, trust, investment vehicle, or other legal 
person having its principal place of business in the United States. 
See Cross-Border Adopting Release, 79 FR at 47371, supra note 11. As 
a result of being a ``U.S. person,'' the person with its principal 
place of business in the United States would be required to register 
as an SDR with the Commission.
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    One commenter submitted a comment relating to the Commission's 
guidance on SDR registration in the cross-border context.\111\ This 
commenter suggested

[[Page 14451]]

that ``[t]he SDR registration requirement should apply to any entity, 
regardless of physical location of servers, that receives [SBS] 
transaction data from reporting sides who are U.S. persons for the 
purpose of complying with the Commission's reporting regulations.'' 
\112\ The commenter also suggested that if an SDR ``collects and 
maintains [SBS] transaction information or records in furtherance of 
these obligations, then it should be deemed to `function' as an SDR in 
the United States and face the registration requirements.'' \113\ The 
Commission agrees generally with the commenter, but notes that 
determination of whether or not an SDR is required to register with the 
Commission is based on relevant facts and circumstances, including, for 
example, whether the SDR performs the functions of an SDR within the 
United States, such as having operations within the United States, as 
discussed above. Thus, an SDR's registration requirements should be 
analyzed separately from the reporting requirements of Title VII and 
Regulation SBSR.
---------------------------------------------------------------------------

    \111\ See DTCC CB, supra note 26.
    \112\ DTCC CB, supra note 26.
    \113\ DTCC CB, supra note 26.
---------------------------------------------------------------------------

    The commenter stated that ``an entity that (i) collects and 
maintains [non-SBS] transaction information, (ii) collects and 
maintains [SBS] transaction information from activity between non-U.S. 
persons, or (iii) collects and maintains [SBS] transaction information 
reported to the entity pursuant to regulatory requirements or 
commitments unrelated to those imposed by the Commission . . . should 
not be considered to function in the United States,'' and 
``[a]ccordingly, such an entity would not be required to register with 
the Commission as an SDR.'' \114\ The Commission believes that this 
position is overly broad. The Commission agrees that a person that 
collects and maintains only non-SBS transaction information would not 
have to register with the Commission because it would not fall within 
the statutory definition of an SDR.\115\ However, consistent with the 
Commission's territorial approach to the application of Title VII, an 
SDR that collects and maintains data relating to SBS transactions 
between non-U.S. persons may still be required to register with the 
Commission if the SDR makes use of the mails or any means or 
instrumentality of interstate commerce to perform the functions of an 
SDR--for example by maintaining SBS data on servers physically located 
in the United States. Similarly, an SDR that collects and maintains SBS 
transaction information reported to the SDR pursuant to requirements or 
commitments unrelated to those imposed by the Commission may still be 
required to register with the Commission if the SDR makes use of the 
mails or any means or instrumentality of interstate commerce to perform 
the functions of an SDR.
---------------------------------------------------------------------------

    \114\ DTCC CB, supra note 26.
    \115\ See Exchange Act Section 3(a)(75), 15 U.S.C. 78c(a)(75).
---------------------------------------------------------------------------

    Determination of whether or not an SDR is required to register with 
the Commission is fact-specific. As stated in the Cross-Border 
Proposing Release, given the constant innovation in the market and the 
fact-specific nature of the determination, it is not possible to 
provide a comprehensive discussion of every activity that would 
constitute a non-U.S. person performing ``the functions of a security-
based swap data repository within the United States.'' \116\ In order 
to provide legal certainty to market participants and to address 
commenters' concerns regarding the potential for duplicative regulatory 
requirements, the Commission is adopting Rule 13n-12, which exempts 
certain non-U.S. persons performing ``the functions of a security-based 
swap data repository within the United States'' from the registration 
and other requirements set forth in Exchange Act Section 13(n) and the 
rules and regulations thereunder. Rule 13n-12 is discussed in Section 
VI.K of this release.
---------------------------------------------------------------------------

    \116\ Cross-Border Proposing Release, 78 FR at 31042-3, supra 
note 3.
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C. Ancillary Services

    As stated above, the Commission believes that the statutory 
definition of an SDR describes the core services or functions of an 
SDR. This release will refer to all other services or functions 
provided by an SDR as ``ancillary services.'' SDRs are required to 
provide some ancillary services under the Exchange Act and the rules 
and regulations thereunder (``required ancillary services''). These 
required ancillary services include certain duties of SDRs that are set 
forth in Exchange Act Section 13(n)(5) \117\ and the duties imposed by 
the SDR Rules. SDRs also may voluntarily choose to provide other 
ancillary services (``voluntary ancillary services'').
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    \117\ 15 U.S.C. 78m(n)(5).
---------------------------------------------------------------------------

    Five commenters submitted comments relating to ``ancillary 
services.'' \118\ Three commenters recommended that SDRs be allowed 
(but not be required) to offer ancillary services to SBS 
counterparties.\119\ One of these commenters recommended that SDRs be 
allowed (but not be required) to offer ``ancillary services,'' which, 
according to that commenter, ``may include: Asset servicing, 
confirmation, verification and affirmation facilities, collateral 
management, settlement, trade compression and netting services, 
valuation, pricing and reconciliation functionalities, position limits 
management, dispute resolution, counterparty identity verification and 
others.'' \120\ The commenter noted that allowing SDRs to offer such 
services would ``promote greater efficiencies and greater accuracy of 
data.'' \121\ The commenter also recommended allowing an SDR's 
affiliates, which may not be registered with the Commission, to perform 
such ``ancillary services.'' \122\ The second commenter recommended 
that life cycle event processing and legal recordkeeping services be 
treated as ``ancillary'' services.\123\ The second commenter also 
recommended allowing SDRs to offer ``an asset servicing function,'' 
which would allow SDRs to ``assist in systemic risk monitoring by 
providing regulators with regular reports analyzing the data (such as 
position limit violations or certain identified manipulative trading 
practices).'' \124\ With respect to bundling, both commenters agreed 
that an SDR should not be allowed to require counterparties to use 
``ancillary services'' in order to gain access to the SDR.\125\ The 
third commenter believed that SDRs should be able to offer ``ancillary 
services,'' but did not support the bundling of such services with 
mandatory or regulatory services.\126\ The

[[Page 14452]]

fourth commenter believed that if SDRs provide ``ancillary services,'' 
then the SDRs should not have advantages in providing these services 
over competitors offering the same services.\127\ This commenter noted, 
for example, that SDRs will maintain granular trade data that is 
valuable in providing post-trade services, and that other post-trade 
service providers should have the same access to the granular trade 
data as the SDR and its affiliates when providing post-trade 
services.\128\ The fifth commenter suggested that certain functions 
that an SDR may perform (e.g., confirmation of trades, reconciliation, 
valuation of transactions, life-cycle management, collateral 
management) should not be considered as ``processing of [SBSs]'' for 
the purposes of SB SEF registration.\129\
---------------------------------------------------------------------------

    \118\ See Barnard, supra note 19; BNY Mellon, supra note 19; 
DTCC 2, supra note 19; MarkitSERV, supra note 19; TriOptima, supra 
note 19; see also DTCC 1*, supra note 20; DTCC 3, supra note 19. 
These commenters generally did not define ``ancillary services.'' 
But see MarkitSERV, supra note 19 (referring to ``an array of 
services that are ancillary . . . to those narrowly outlined in the 
[SDR Rules] (i.e., basic receipt and storage of [SBS] data.)'').
    \119\ See MarkitSERV, supra note 19; DTCC 2, supra note 19; 
Barnard, supra note 19; see also TriOptima, supra note 19 
(contemplating that an SDR would provide ancillary services and 
stressing the importance of equal access to SDR data when such 
services are provided).
    \120\ MarkitSERV, supra note 19.
    \121\ MarkitSERV, supra note 19.
    \122\ MarkitSERV, supra note 19.
    \123\ DTCC 2, supra note 19.
    \124\ DTCC 1*, supra note 20.
    \125\ MarkitSERV, supra note 19; DTCC 3, supra note 19; see also 
DTCC 4, supra note 19 (stating that providers offering services for 
one asset class should not be permitted to bundle or tie these 
services with services for other asset classes); TriOptima, supra 
note 19 (agreeing that ``it is important that market participants 
have the ability to access specific services separately''). See 
Section VI.D.3.a of this release discussing bundling of services.
    \126\ Barnard, supra note 19.
    \127\ TriOptima, supra note 19.
    \128\ TriOptima, supra note 19.
    \129\ BNY Mellon, supra note 19. See also Exchange Act Section 
3D(a)(1), 15 U.S.C. 78c-4(a)(1) (stating that ``[n]o person may 
operate a facility for the trading or processing of security-based 
swaps, unless the facility is registered as a security-based swap 
execution facility or as a national securities exchange under this 
section''). Subsequent to receiving this comment, the Commission 
issued a proposing release on the registration and regulation of SB 
SEFs, interpreting the Dodd-Frank Act to key the SB SEF registration 
obligation on the definition of an SB SEF in Exchange Act Section 
3(a)(77). See 15 U.S.C. 78c(a)(77), as added by Dodd-Frank Act 
Section 761(a). See SB SEF Proposing Release, 76 FR at 10959 n.62, 
supra note 29. The Commission expects to address the scope of SB SEF 
registration when it adopts final rules relating to the registration 
and regulation of SB SEFs.
---------------------------------------------------------------------------

    It appears that the commenters generally used the term ``ancillary 
services'' to mean voluntary ancillary services. The Commission, 
however, notes that at least two services identified by a commenter as 
``ancillary services'' are considered by the Commission to be required 
ancillary services for an SDR. This commenter suggested that 
``confirmation'' and ``dispute resolution'' are ancillary to ``those 
[services] narrowly outlined in the SBS SDR Regulation (i.e., basic 
receipt and storage of swaps data).'' \130\ The Commission agrees with 
the commenter's suggestion that these two services are not ``core'' SDR 
services, which would cause a person providing such core services to 
meet the definition of an SDR, and thus, require the person to register 
with the Commission as an SDR. However, SDRs are required to perform 
these two services or functions, and thus, they are required ancillary 
services; as discussed in Sections VI.E.1.c and VI.E.6.c of this 
release, the Exchange Act requires SDRs to ``confirm'' the accuracy of 
the data submitted,\131\ and the final SDR Rules include a dispute 
resolution requirement.\132\
---------------------------------------------------------------------------

    \130\ See MarkitSERV, supra note 19.
    \131\ See Exchange Act Section 13(n)(5)(B), 15 U.S.C. 
78m(n)(5)(B); Rule 13n-4(b)(3) (requiring an SDR to ``[c]onfirm, as 
prescribed in Rule 13n-5(Sec.  240.13n-5), with both counterparties 
to the [SBS] the accuracy of the data that was submitted''); Rule 
13n-5(b)(1)(iii) (requiring an SDR to establish, maintain, and 
enforce written policies and procedures reasonably designed to 
satisfy the SDR that the transaction data that has been submitted to 
the SDR is complete and accurate).
    \132\ See Section VI.E.6.c of this release discussing Rule 13n-
5(b)(6).
---------------------------------------------------------------------------

    An SDR may delegate some of these required ancillary services to 
third party service providers, who do not need to register as SDRs to 
provide such services. The SDR will remain legally responsible for the 
third party service providers' activities relating to the required 
ancillary services and their compliance with applicable rules under the 
Exchange Act. For example, as discussed above, the Exchange Act 
requires SDRs to ``confirm'' the accuracy of the data submitted.\133\ 
If an SDR delegates its confirmation obligation to a third party 
service provider, then the third party service provider that provides 
this required ancillary service would not need to register as an SDR, 
unless it otherwise falls within the definition of an SDR; however, the 
SDR that delegates its obligation to the third party service provider 
would remain responsible for compliance with the statutory 
requirement.\134\
---------------------------------------------------------------------------

    \133\ See Exchange Act Section 13(n)(5)(B), 15 U.S.C. 
78m(n)(5)(B). In a separate release, the Commission proposed rules 
under Exchange Act Section 15F(i)(1), which provides that SBS 
dealers and major SBS participants must ``conform with such 
standards as may be prescribed by the Commission, by rule or 
regulation, that relate to timely and accurate confirmation . . . of 
all security-based swaps.'' See Trade Acknowledgment and 
Verification of Security-Based Swap Transactions, Exchange Act 
Release No. 63727 (Jan. 14, 2011), 76 FR 3859 (Jan. 21, 2011) 
(``Trade Acknowledgment Release''). SDRs are not required to perform 
confirmations under Exchange Act Section 15F(i)(1) and the rules and 
regulations thereunder, but, in certain circumstances, SDRs may be 
able to rely on confirmations that are provided pursuant to Exchange 
Act Section 15F(i)(1). See Section VI.E.1.c of this release 
discussing the circumstances where a single confirmation could 
fulfill both requirements.
    \134\ An SDR that delegates required ancillary services to a 
third party service provider must have a reasonable basis for 
relying on the third party service provider. See Section VI.E.1.c of 
this release discussing reasonable reliance in the context of 
confirmations. Cf. Exchange Act Rule 17a-4(i), 71 CFR 240.17a-4(i) 
(stating that an agreement with an outside entity to maintain and 
preserve records for a member, broker, or dealer will not relieve 
the member, broker, or dealer from its responsibilities under 
Exchange Act Rules 17a-3 or 17a-4).
---------------------------------------------------------------------------

    The Commission agrees with the commenters' view that SDRs should be 
allowed to offer voluntary ancillary services.\135\ The Commission 
believes that use of such services by market participants and market 
infrastructures will likely improve the quality of the data held by the 
SDRs.\136\ The Commission believes that when the data held at an SDR is 
used by counterparties for their own business purposes, rather than 
solely for regulatory purposes, the counterparties will have additional 
opportunities to identify errors in the data and will likely have 
incentives to ensure the accuracy of the data held by the SDR.\137\ 
Such voluntary ancillary services that an SDR could provide include, 
for example, collateral management, clearing and settlement, trade 
compression and netting services, and pricing and reconciliation 
functionalities. These services could also be provided by persons that 
are not SDRs and would not, in and of themselves, require the providers 
to register as SDRs.\138\
---------------------------------------------------------------------------

    \135\ See MarkitSERV, supra note 19; DTCC 2, supra note 19; 
Barnard, supra note 19.
    \136\ See MarkitSERV, supra note 19 (recommending allowing SDRs 
to offer ``ancillary services'' because it would ``promote greater 
efficiencies and greater accuracy of data'').
    \137\ For example, counterparties might use the data maintained 
by the SDR as part of their risk management activities. See 
MarkitSERV, supra note 19 (``[O]ne of the critical components in 
ensuring the accuracy of swaps data is the degree to which such data 
is utilized by industry participants in other processes. The 
existence of a number of feedback loops and distribution channels 
through which data will flow will enable participants to identify, 
test and correct inaccuracies and errors.'').
    \138\ The performance of some of these services, such as 
clearing and settlement and netting services, may cause a person to 
be a ``clearing agency,'' as defined in Exchange Act Section 
3(a)(23), 15 U.S.C. 78c(a)(23); see also Clearing Agency Standards, 
Exchange Act Release No. 68080 (Oct. 22, 2012), 77 FR 66220, 66227-
28 (Nov. 2, 2012) (``Clearing Agency Standards Release'') ([T]he 
definition of clearing agency in Section 3(a)(23)(A) of the Exchange 
Act covers any person who acts as an intermediary in making payments 
or deliveries or both in connection with transactions in securities 
and provides facilities for the comparison of data regarding the 
terms of settlement of securities transactions, to reduce the number 
of settlements of securities transactions, or for the allocation of 
securities settlement responsibilities. . . . The determination of 
whether particular activities meet the definition of a clearing 
agency depends on the totality of the facts and circumstances 
involved.''). It is unlawful for a clearing agency to make use of 
the mails or any means or instrumentality of interstate commerce to 
perform the functions of a clearing agency with respect to any 
security (other than exempted securities) unless it is registered 
with the Commission, or exempted from registration, pursuant to 
Exchange Act Sections 17A(b) and 19(a), and the rules and 
regulations thereunder.
---------------------------------------------------------------------------

    The Commission also agrees with the commenters' view that market 
participants should not be required to use voluntary ancillary services 
offered by an SDR as a condition to use the SDR's repository 
services,\139\ and that SDRs should not be permitted to use their 
repository function to gain

[[Page 14453]]

advantages in providing voluntary ancillary services over competitors 
offering the same services.\140\ As discussed further below, the 
Commission is adopting Rule 13n-4(c)(1), which should address 
commenters' concerns.\141\
---------------------------------------------------------------------------

    \139\ See MarkitSERV, supra note 19; DTCC 2, supra note 19; 
Barnard, supra note 19.
    \140\ See TriOptima, supra note 19.
    \141\ See Section VI.D.3.a of this release discussing Rule 13n-
4(c)(1).
---------------------------------------------------------------------------

D. Business Models of SDRs

    The Commission understands that SDRs might operate under a number 
of business models and did not intend for the proposed SDR Rules to 
mandate any particular business model.\142\ In the Proposing Release, 
the Commission solicited comments on whether the SDR Rules should favor 
or discourage one business model over another.\143\ Three commenters, 
including one comment submitted prior to the Proposing Release, 
suggested that SDRs should be required to operate on an at-cost utility 
model.\144\
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    \142\ See Proposing Release, 75 FR at 77308, supra note 2.
    \143\ Proposing Release, 75 FR at 77308, supra note 2.
    \144\ See DTCC 2, supra note 19 (stating that ``there is a 
significant advantage to the market if SDRs are required to provide 
basic services on an at-cost or utility model basis, as it avoids 
the potential abuse or conflict of interest related to a relatively 
small number of service providers in the SDR industry'' and that 
``SDR fee structures should reflect an at-cost operating budget''); 
Benchmark*, supra note 20 (stating that a non-profit utility 
structure ``helps promote innovative uses'' of SBS data ``to 
maximize its value to market participants''); Saul, supra note 19 
(stating that SDRs should ``serve the entire industry as a utility'' 
and that ``[t]reating an SDR as a utility would also make it easier 
for the industry to provide the manpower and the capital to form an 
SDR''); see also DTCC 3, supra note 19 (``SDRs should serve an 
impartial, utility function.'').
---------------------------------------------------------------------------

    Consistent with commenters' views, the Commission understands that 
an SDR operating on a for-profit, non-utility model, or commercial 
basis, may be presented with more conflicts of interest, including 
economic self-interest in pricing or bundling its services, than an SDR 
operating on an at-cost utility model, or non-profit basis.\145\ The 
Commission believes, however, that if an SDR operating on an at-cost 
utility model has an affiliate that provides ancillary services for 
SBSs for profit, then that SDR may be presented with conflicts of 
interest similar to conflicts at an SDR operating on a for-profit, non-
utility model.\146\ For example, an SDR that has an affiliate that 
provides asset servicing for profit would most likely face similar 
conflicts as a for-profit SDR that provides asset servicing itself.
---------------------------------------------------------------------------

    \145\ See Section VIII of this release discussing the costs and 
benefits of different business models.
    \146\ See Section VIII of this release for further discussion.
---------------------------------------------------------------------------

    The Commission believes that the final SDR Rules, including rules 
pertaining to conflicts of interest, are sufficiently broad to address 
the range of conflicts of interest inherent in different SDR business 
models. For instance, under Rule 13n-4(c)(3), each SDR is required to 
identify conflicts of interest applicable to it and establish, 
maintain, and enforce written policies and procedures to mitigate these 
conflicts.\147\ In addition, the Commission believes that allowing SDRs 
to pursue different business models will increase competition, 
efficiency, and innovation among SDRs. For example, by not prescribing 
one particular business model, new entrants may have an incentive to 
develop business models for SDRs that efficiently provide core services 
to the industry and effectively mitigate conflicts.\148\ Therefore, 
after considering the comments, the Commission continues to believe 
that it is not necessary to mandate any particular business model for 
SDRs.
---------------------------------------------------------------------------

    \147\ See Section VI.D.3.c.iii of this release discussing Rule 
13n-4(c)(3).
    \148\ See Section VIII of this release discussing the costs and 
benefits of different business models.
---------------------------------------------------------------------------

IV. Number of SDRs and Consolidation of SBS Data

    The Commission received several comments relating to the issue of 
data fragmentation among SDRs. The Commission believes that if there 
are multiple SDRs in any given asset class, then it may be more 
difficult for regulators to monitor the SBS market because of the 
challenges in aggregating SBS data from multiple SDRs.\149\ Some 
commenters suggested limiting the number of SDRs to one per asset class 
in order to address these concerns.\150\ While such a limitation would 
resolve many of the challenges involved in aggregating SBS data, the 
Commission believes that imposing such a limitation would stymie 
competition among SDRs, and, consequently, may lead to increased costs 
to market participants.\151\ The Commission believes that the better 
avenue at this point is to refrain from regulating the number of SDRs 
in an asset class to permit market forces to determine an efficient 
outcome. Therefore, the Commission is not adopting the commenters' 
suggestions to limit the number of SDRs in each asset class.
---------------------------------------------------------------------------

    \149\ See FINRA SBSR, supra note 27 (recognizing ``the 
Commission's acknowledgement of `the possibility that there could 
emerge multiple registered SDRs in an asset class,' and, in the 
event this should occur that `the Commission and the markets would 
be confronted with the possibility that different registered SDRs 
could adopt different dissemination protocols, potentially creating 
fragmentation in SBS market data' '') (citations omitted); DTCC 3, 
supra note 19 (``When there are multiple SDRs in any particular 
asset class, the [Commission] should take such action as is 
necessary to eliminate any overstatements of open interest or other 
inaccuracies that may result from having broader market data 
published from separate SDRs.'').
    \150\ See ISDA Temp Rule, supra note 28 (``[T]he designation of 
a single [SDR] per class of security-based swap would provide the 
Commission and market participants with valuable efficiencies. In 
particular, there would be no redundancy of platforms, no need for 
additional levels of data aggregation for each asset class and 
reduced risk of errors and greater transparency (because a single 
[SDR] per asset class would avoid the risk of errors associated with 
transmitting, aggregating and analyzing multiple sources of 
potentially incompatible and duplicative trade data).''); see also 
Saul, supra note 19 (suggesting that the Commission should seek to 
have only one or two SDRs to service the SBS market).
    \151\ See Section VIII.C.3.b of this release discussing the SDR 
Rules' potential effects on competition (``The Commission believes 
that by allowing multiple SDRs to provide data collection, 
maintenance, and recordkeeping services, the SDR Rules should 
promote competition among SDRs. . . . Increased competition may 
lower costs for users of SDR services.''). Accord PFMI Report, supra 
note 50 (``Competition can be an important mechanism for promoting 
efficiency. Where there is effective competition and participants 
have meaningful choices among FMIs[, including SDRs], such 
competition may help to ensure that FMIs are efficient.'').
---------------------------------------------------------------------------

    In the Proposing Release, the Commission requested comment on 
whether the Commission should designate one SDR as the recipient of the 
information from all other SDRs in order to provide the Commission and 
relevant authorities with a consolidated location from which to access 
SBS data for regulatory monitoring and oversight purposes.\152\ Some 
commenters suggested that an SDR's duties should include reporting SBS 
data to a single SDR that would consolidate the data for relevant 
authorities or otherwise mandating the consolidation of SBS data.\153\ 
Specifically, one commenter recommended that the Commission ``designate 
one SDR as the recipient of the information of other SDRs to ensure the 
efficient consolidation of data.'' \154\ The commenter further stated 
that the designated SDR would need to have ``the organization and 
governance structure that is consistent with being a

[[Page 14454]]

financial market utility serving a vital function to the entire 
marketplace.'' \155\
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    \152\ Proposing Release, 75 FR at 77309, supra note 2.
    \153\ See DTCC 1*, supra note 20; Better Markets 1, supra note 
19; see also FINRA SBSR, supra note 27 (urging the Commission to 
mandate the consolidation of disseminated SBS data to the public).
    \154\ DTCC 1*, supra note 20; see also Better Markets 1, supra 
note 19 (making similar comments); see also DTCC 2, supra note 19 
(``The role of an aggregating SDR is significant in that it ensures 
regulators efficient, streamlined access to consolidated data, 
reducing the strain on limited agency resources.'').
    \155\ DTCC 1*, supra note 20.
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    The Commission does not dispute the commenter's assertion that 
fragmentation of data among SDRs would ``leave to regulators the time 
consuming, complicated and expensive task of rebuilding complex data 
aggregation and reporting mechanisms.'' \156\ However, if the 
Commission were to designate one SDR as the data consolidator, such an 
action could be deemed as the Commission's endorsement of one regulated 
person over another, discourage new market entrants, and interfere with 
competition, resulting in a perceived government-sponsored 
monopoly.\157\ In addition, such a requirement would likely impose an 
additional cost on market participants to cover the SDR's cost for 
acting as the data consolidator.
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    \156\ DTCC 3, supra note 19.
    \157\ See Section VIII of this release for further discussion.
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    In addition, any consolidation required by the Commission would be 
limited to SBS data and may not necessarily include data not required 
to be reported under Title VII and Regulation SBSR, such as swap data. 
For example, consolidated SBS data may show that a person entered into 
several SBSs based on individual equity securities. If the person also 
entered into swaps based on a broad-based security index made up of the 
individual equity securities, then the consolidated data would not 
necessarily include that information. Therefore, commenters' suggestion 
to designate one SDR as the data consolidator may not fully address 
their data fragmentation concerns unless the same SDR also consolidates 
swap data, which the CFTC regulates.
    Therefore, after considering the comments, the Commission is not 
designating, at this time, one SDR as the recipient of information from 
other SDRs in order to provide relevant authorities with consolidated 
data. The Commission may revisit this issue if there is data 
fragmentation among SDRs that is creating substantial difficulties for 
relevant authorities to get a complete and accurate view of the 
market.\158\
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    \158\ See Section VI.D.2.c.ii of this release discussing 
aggregation of data across multiple registered SDRs by the 
Commission.
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V. Implementation of the SDR Rules

A. Prior Commission Action

    The Commission solicited comment in the Proposing Release on 
whether it should adopt an incremental, phase-in approach with respect 
to Exchange Act Section 13(n) and the rules thereunder.\159\ The 
Commission further sought and received comments on similar 
implementation issues relating to Title VII in other rulemakings and 
through solicitations for comments.\160\
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    \159\ Proposing Release, 75 FR at 77314, supra note 2.
    \160\ See Sections I.C and I.D of this release discussing other 
comments and regulatory initiatives considered in this rulemaking.
---------------------------------------------------------------------------

1. Effective Date Order
    In addition, as discussed above, on June 15, 2011, the Commission 
issued the Effective Date Order, which provided guidance on the 
provisions of the Exchange Act added by Title VII with which compliance 
would have been required as of July 16, 2011 (i.e., the effective date 
of the provisions of Title VII). The Effective Date Order provided 
exemptions to SDRs from Exchange Act Sections 13(n)(5)(D)(i), 
13(n)(5)(F), 13(n)(5)(G), 13(n)(5)(H), 13(n)(7)(A), 13(n)(7)(B), and 
13(n)(7)(C), each of which will expire on the earlier of (1) the date 
the Commission grants registration to the SDR and (2) the earliest 
compliance date set forth in any of the final rules regarding the 
registration of SDRs.\161\ Absent further Commission action, these 
exemptions will expire as of the Compliance Date (as defined below), 
unless the Commission has granted an SDR's registration before the 
Compliance Date, in which case these exemptions will expire, with 
respect to that SDR, as of the date the Commission grants the SDR's 
registration.
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    \161\ Effective Date Order, 76 FR at 36306, supra note 9.
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    In addition, the Effective Date Order also provided exemptive 
relief from the rescission provisions of Exchange Act Section 29(b) in 
connection with Exchange Act Sections 13(n)(5)(D)(i), 13(n)(5)(F), 
13(n)(5)(G), 13(n)(5)(H), 13(n)(7)(A), 13(n)(7)(B), and 
13(n)(7)(C).\162\ That relief does not expire automatically, but rather 
when the Commission specifies.\163\ The Commission is now specifying 
that this exemption from Section 29(b) will expire on the Compliance 
Date, or for those SDRs that are registered prior to the Compliance 
Date, the date that the Commission grants each SDR's registration.
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    \162\ Effective Date Order, 76 FR at 36307, supra note 9.
    \163\ Effective Date Order, 76 FR at 36307, supra note 9.
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2. Implementation Policy Statement
    As discussed above, on June 11, 2012, the Commission issued a 
statement of general policy on the anticipated sequencing of compliance 
dates of final rules to be adopted under Title VII. The Implementation 
Policy Statement stated that compliance with the SDR Rules ``earlier in 
the implementation process should facilitate the development and 
utilization of SDRs in a regulated manner.'' \164\ Among other things, 
the Implementation Policy Statement requested comment on whether the 
Commission should adopt a phase-in of the SDR Rules and whether SDRs 
should be able to secure a grace period to defer compliance with some 
or all of the requirements of Exchange Act Section 13(n) and the SDR 
Rules.\165\
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    \164\ Implementation Policy Statement, 77 FR at 35631, supra 
note 10.
    \165\ Implementation Policy Statement, 77 FR at 35634, supra 
note 10.
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B. Summary of Comments

    While only two commenters on implementation referred specifically 
to the SDR Rules, the Commission believes that other comments, 
particularly those related to timing with respect to implementing rules 
on SBS reporting, are relevant to the implementation of the SDR Rules 
as well. Eight commenters suggested that a phase-in approach to the SDR 
Rules or SBS reporting generally may be appropriate.\166\ The 
commenters generally indicated that a phase-in would be necessary to 
enable existing SDRs and other market participants to make the 
necessary changes to their operations to comply with the new

[[Page 14455]]

regulatory requirements.\167\ One of the commenters who advocated a 
phase-in approach also recognized the importance of reporting SBS data 
to SDRs as an early part of the Dodd-Frank Act implementation 
process.\168\
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    \166\ See Barclays*, supra note 21; DTCC 2, supra note 19 
(``[T]he Commission [should] ensure that the registration process 
does not interrupt current operation of existing trade repositories 
who intend to register as SDRs. This can be achieved as a phase-in 
for existing SDRs where services will need to be amended to conform 
with the final rules given the compressed time period between the 
publication of the final rules and the effective date of the Dodd-
Frank Act.''); FIA*, supra note 21 (``[P]hase-in is critical for a 
smooth implementation of the changes required under the Dodd-Frank 
Act.''); FSF*, supra note 21; FSR Implementation, supra note 23; MFA 
2, supra note 19; Morgan Stanley*, supra note 20 (``[G]iven the 
market disruption that could result from the simultaneous 
application of these requirements across products and markets, and 
the potentially severe consequences to the markets and the larger 
economy, we believe that a phase in approach is both permitted and 
contemplated by Dodd-Frank, and desirable in order to maintain 
orderly, efficient, liquid and inclusive markets.''); SIFMA 
Implementation, supra note 22 (``Once SDRs are registered and [SBS 
dealers] and [major SBS participants] have connected to them, data 
reporting can begin. [SBS dealers] and [major SBS participants] will 
not be able to provide, and [SDRs] will not be able to accept, all 
data on Dodd-Frank Act-compliant timelines on the first day of 
operation. Instead, there should be a phased process to develop the 
procedures and connections needed to ultimately report all Dodd-
Frank Act-required data in the appropriate time frame.''); see also 
DTCC 3, supra note 19; DTCC 5, supra note 19 (``[T]he final rules 
should include implementation and compliance dates that are 
unambiguous. . . . Appropriate time must be afforded to ensure that 
implementation can take place smoothly for all market 
participants.'').
    \167\ See, e.g., Barclays*, supra note 21 (``Changes envisioned 
by Title VII require very significant investment into operational, 
IT and other infrastructure--infrastructure that will take time and 
resources to build, test and optimize. The ability to fund and 
execute the necessary infrastructure build, as well as put in place 
the risk management and operational processes needed to conduct 
business under the new regulatory regime, will vary significantly by 
asset class and type of market participant.''); DTCC 2, supra note 
19 (stating that ``the final rules [should] be subject to a phase-in 
period to allow an adequate period for existing service providers . 
. . to make necessary changes to their service offerings,'' 
requesting that the Commission alternatively ``provide specific 
transitional arrangements for existing infrastructures,'' and noting 
that the continuation of counterparty reporting and the ability of 
SDRs to receive and maintain current trade information on an ongoing 
basis is ``imperative for effective oversight of systemic risk and 
the continuance of the operational services to market 
participants''); FSF*, supra note 21 (``New market infrastructure 
and technologies, including central clearing services, data 
reporting services and trading platforms, will be required to give 
effect to the new Swap regulatory regime. Unless sufficient time is 
allotted for these components of market infrastructure and 
technologies to adequately develop, all market participants (and 
particularly end users) will face interruptions in their ability to 
enter into Swaps to hedge their business risks or manage investments 
to meet client objectives.'').
    \168\ See MFA 2, supra note 19 (``[W]e believe the first two 
priorities should be: (i) Expanding the use of central clearing for 
liquid (`clearable') contracts; and (ii) having trade repositories 
receive data on both cleared and bilateral swaps. These changes 
would provide substantial benefits to the markets by enhancing price 
transparency and competition for the most liquid swap transactions. 
. . . Comprehensive reporting to SDRs and regulators . . . will 
allow regulators to monitor systemic risk and individual risk 
concentrations much more effectively, and intervene specifically as 
necessary.''); see also FSF*, supra note 21 (The Commission ``should 
prioritize implementation of data reporting, including registration 
of [SDRs], to regulators ahead of real-time reporting and other 
requirements, including public reporting. The [Commission] will 
learn much about the full range of Swap markets from the data 
collected by SDRs. This knowledge will be essential in developing 
rules that meet Dodd-Frank's requirements while still allowing for 
active and liquid Swap markets.'').
---------------------------------------------------------------------------

    Six commenters supported a phase-in approach based on asset 
class.\169\ Some commenters supported a phase-in based on other 
criteria.\170\ Some commenters indicated that a phase-in period, which 
could be based on asset class or other SBS or market participant 
attributes, is important in order to avoid market disruption.\171\ 
While one commenter indicated that connectivity concerns should not 
delay implementation because it is easy for an SDR and other market 
infrastructures to establish connectivity,\172\ another commenter 
cautioned that market connectivity will take time to establish and 
test.\173\ None of the commenters provided specific timeframes for a 
phase-in approach.\174\
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    \169\ See Barclays*, supra note 21 (``[W]e recommend that the 
[Commission] phase in the clearing, execution and reporting 
requirements gradually over time, staggered by asset class.''); DTCC 
3, supra note 19 (``[P]hasing should focus first on the products 
with the greatest automation and then on products with less 
automation. The more widespread the automated processing, the higher 
quality the data reported to SDRs. As automated processing is most 
widely prevalent in credit derivatives . . . it should be the first 
asset class implemented. Interest rate derivatives, being the next 
most widely automated asset class, would be next, followed by FX 
derivatives, then commodity and equity derivatives last.''); FSF*, 
supra note 21 (``The [Commission] should phase in requirements based 
on the state of readiness of each particular asset class (including, 
where applicable, by specific products within an asset class) and 
market participant type.''); FSR Implementation, supra note 23 
(``[I]mplementing regulations on a product-by-product basis would 
reduce the risk of significant market dislocation during a 
transition period. For example, certain credit default swaps that 
are already reported to a trade information warehouse, are highly 
standardized, and are being regularly submitted for central clearing 
. . . may be a natural choice with which to confirm that systems are 
operating appropriately before expanding regulatory requirements to 
other [asset] classes.''); AII Implementation, supra note 23 
(``[C]learing and other requirements should come first for highly 
liquid, standardized instruments, such as credit default swaps'' and 
``[l]ess liquid products, such as certain physical commodity 
instruments, should come afterward.''); SIFMA Implementation, supra 
note 22 (``Reporting should also be phased in by asset class, based 
on whether reporting infrastructure and data exist.'').
    \170\ See Morgan Stanley*, supra note 20 (``In addition to phase 
in based on asset class and reporting times, reporting could also be 
phased in based on how a product trades [e.g., whether the SBS is 
cleared].''); FSR Implementation, supra note 23 (stating that ``it 
may be prudent to have different portions of a single rulemaking 
proposal take effect at different times and with due consideration 
of steps that are preconditions to other steps''; suggesting, as an 
example, that a requirement to designate a CCO should be implemented 
quickly, but that the CCO be given time to design, implement, and 
test the compliance system before any requirement to certify as to 
the compliance system becomes effective; and supporting a phase-in 
approach ``that recognizes the varying levels of sophistication, 
resources and scale of operations within a particular category of 
market participant''). But see Barclays*, supra note 21 (``Phasing 
by type of market participant would not be useful for reporting 
obligations, in [the commenter's] view, as the reported information 
needs to reflect the entirety of the market to be useful for the 
market participants and regulators.'').
    \171\ See, e.g., DTCC 2, supra note 19 (``[A]ppropriate 
transitional arrangements [should] be made to avoid market 
disruption by the implementation of the Proposed Rule. . . . 
Restrictions to [the commenter's SDR] operation could introduce 
significant operational risks to market participants.''); Barclays*, 
supra note 21 (Phase-in by asset class would help ``ensure that both 
the industry and SDRs have sufficient time to build and test the 
needed infrastructure in order to prevent any potential market 
disruptions that could result from the implementation of new 
rules.''); see also FSR Implementation, supra note 23 (recommending 
that the Commission consider resource constraints in evaluating 
transition deadlines and stating that ``if there are a dozen rules 
that would each take about a month to implement in isolation under 
normal circumstances, it is unrealistic to expect all twelve rules 
to be implemented one month from passage of final rules'').
    \172\ DTCC 3, supra note 19 (``Connectivity between 
clearinghouses and [SB SEFs], as well as SDRs, is easy to establish 
(and, in many instances, already exists) and should not be the 
reason for delaying the implementation of real-time reporting 
rules.'').
    \173\ FSR Implementation, supra note 23 (``Although we recognize 
that central clearing, exchange trading and transparent reporting 
are core aspects of the new regulatory system, they require a web of 
interconnections that will take time to establish and test, and 
their use should not become obligatory until such establishment and 
testing is complete.'').
    \174\ But see Bank of Tokyo SBSR, supra note 27 (requesting 
``that the [Commission] . . . defer compliance requirements under 
Title VII until December 31, 2012'' to ``facilitate coordination 
among national authorities in the United States, Japan and other 
relevant jurisdictions in order to avoid overlapping and 
inconsistent regulatory regimes''). Because the timeframe suggested 
by this commenter has passed, this aspect of the comment is now 
moot.
---------------------------------------------------------------------------

    In addition to the comments received above, participants in the 
Implementation Joint Roundtable provided input regarding the 
appropriateness of a phase-in period for Title VII rulemakings. Many of 
the participants in the Implementation Joint Roundtable advocated for a 
phase-in period for the SDR Rules or SBS reporting generally; however, 
the participants' specific approaches varied. While some participants 
at the Implementation Joint Roundtable advocated a phase-in by asset 
class,\175\ other participants suggested that a phase-in should be 
based on other product attributes, such as the liquidity of the 
product,\176\ or based on the development of other market 
infrastructures.\177\ Another participant suggested that SDRs' 
obligations to provide reports of SBS transactions to regulators--which 
the Commission believes are relevant to the direct

[[Page 14456]]

electronic access requirement in Rule 13n-4(b)(5) \178\--should be 
implemented in a prioritized manner, with daily batch snapshots 
provided until more real-time solutions are developed.\179\ None of the 
Implementation Joint Roundtable participants provided specific 
timeframes for a phase-in approach.
---------------------------------------------------------------------------

    \175\ See, e.g., statement of Ronald Levi, GFI Group, Inc., at 
Implementation Joint Roundtable (``[D]epending on which asset 
classes go first or which asset classes are amongst the first phase 
will determine how long it takes us.''); statement of Larry 
Thompson, The Depository Trust & Clearing Corporation, at 
Implementation Joint Roundtable (``And right now, at least for a 
couple of classes, they're in a much better position to be able to 
see transparent into the marketplace, especially the credit default 
swap [marketplace] . . . .''); statement of Jamie Cawley, Javelin 
Capital Markets, LLC, at Implementation Joint Roundtable 
(``Certainly from where we sit . . . interest rate swaps, vanilla 
swaps clearly qualify for a day one [implementation and] index 
[swaps] right behind that or on the same day. And the constituents 
of the indices certainly as well. And then it trails off from there 
over time. . . .'').
    \176\ See, e.g., statement of Chris Edmonds, ICE Trust, at 
Implementation Joint Roundtable (``[I]nstead of looking at it 
necessarily by asset class, the commissions may want to look at it 
by the instruments that have the greatest amount of liquidity.'').
    \177\ See, e.g., statement of Sunil Cutinho, CME Group, at 
Implementation Joint Roundtable (``[W]e don't believe that . . . 
data should be in an SDR before clearing has to be done.'').
    \178\ See Section VI.D.2.c.ii of this release discussing direct 
electronic access.
    \179\ Statement of Raf Pritchard, TriOptima--triResolve, at 
Implementation Joint Roundtable (``[W]e would observe obviously that 
building real-time solutions is a lot more critical and sensitive 
than building daily batch solutions. And so in terms of getting that 
first cut, it might make sense to prioritize a daily batch snapshot 
of the market. . . . [T]hen you could sequence the real-time--the 
more real-time sensitive parts of the reporting requirements 
subsequent to that.'').
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C. Sequenced Effective Date and Compliance Date for the SDR Rules

    After considering the issues raised by the commenters and 
Implementation Joint Roundtable participants, the Commission has 
determined to adopt, in lieu of a phase-in approach, a sequenced 
effective date and compliance date for the SDR Rules \180\ that 
recognizes the practical constraints arising from the time necessary 
for persons to analyze and understand the final rules adopted by the 
Commission, to develop and test new systems required as a result of the 
Dodd-Frank Act's regulation of SDRs and the SDR Rules, to prepare and 
file a completed Form SDR, to be in a position to demonstrate their 
ability to meet the criteria for registration set forth in Rule 13n-
1(c)(3),\181\ and to register with the Commission. The Commission 
agrees with commenters who have suggested that the Commission require 
the reporting of SBS transaction information to registered SDRs early 
in the implementation process because the Commission will then be able 
to utilize the information reported to registered SDRs to inform other 
aspects of its Title VII rulemaking.\182\ Adopting and implementing a 
regulatory framework for SDRs will facilitate access by the Commission 
and market participants to SBS information collected by SDRs.\183\
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    \180\ Title VII provides the Commission with the flexibility to 
establish effective dates beyond the minimum 60 days specified 
therein for Title VII provisions that require a rulemaking. See 
Dodd-Frank Act Section 774 (specifying that the effective date for a 
provision requiring a rulemaking is ``not less than 60 days after 
publication of the final rule or regulation implementing such 
provision''). Furthermore, as with other rulemakings under the 
Exchange Act, the Commission may set compliance dates (which may be 
later than the effective dates) for rulemakings under the Title VII 
amendments to the Exchange Act. Together, this provides the 
Commission with the ability to sequence the implementation of the 
various Title VII requirements in a way that effectuates the policy 
goals of Title VII while minimizing unnecessary disruption or costs. 
See Effective Date Order, 76 FR at 36289, supra note 9.
    \181\ See Section VI.A.2.c of this release discussing Rule 13n-
1(c), which requires that the Commission make a finding that a 
``security-based swap data repository is so organized, and has the 
capacity, to be able to assure the prompt, accurate, and reliable 
performance of its functions as a security-based swap data 
repository, 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 
section 13(n) of the [Exchange] Act . . . and the rules and 
regulations thereunder.''
    \182\ See, e.g., FSF*, supra note 21 (noting that the Commission 
``will be in a better position to adopt rules that achieve Dodd-
Frank's goals while maintaining active and viable [SBS] markets'' if 
SDRs are required to register and data reporting is enabled).
    \183\ See, e.g., FSF*, supra note 21 (``The [Commission] should 
prioritize implementation of data reporting, including registration 
of Swap data repositories (`SDRs'), to regulators ahead of real-time 
reporting and other requirements, including public reporting. The 
[Commission] will learn much about the full range of Swap markets 
from the data collected by SDRs. This knowledge will be essential in 
developing rules that meet Dodd-Frank's requirements while still 
allowing for active and liquid Swap markets.'').
---------------------------------------------------------------------------

    All of the SDR Rules will become effective 60 days following 
publication of the rules in the Federal Register (``Effective Date''). 
However, the exemptions to provisions in Exchange Act Section 13(n) 
that the Commission provided in the Effective Date Order will continue 
to be in effect following the adoption of the SDR Rules. Consistent 
with the Effective Date Order, the exemptive relief remains in place 
and will expire: (1) Upon the compliance date for the SDR Rules, or (2) 
for those SDRs that are registered prior to such compliance date, the 
date that the Commission grants each SDR's registration.\184\
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    \184\ See Effective Date Order, 76 FR at 36306, supra note 9.
---------------------------------------------------------------------------

    SDRs must be in compliance with the SDR Rules by 365 days after 
publication of the rules in the Federal Register (``Compliance 
Date'').\185\ Absent an exemption, SDRs must be registered with the 
Commission and in compliance with the federal securities laws and the 
rules and regulations thereunder (including the applicable Dodd-Frank 
Act provisions and all of the SDR Rules) by the Compliance Date, and 
all exemptions that the Commission provided in the Effective Date Order 
will expire on the Compliance Date.\186\ After the Compliance Date, 
pursuant to Exchange Act Section 13(n)(1), it will be unlawful, absent 
exemptive relief,\187\ (1) for a person, unless registered with the 
Commission as an SDR, directly or indirectly, to make use of the mails 
or any means or instrumentality of interstate commerce to perform the 
functions of an SDR or (2) for an SDR to fail to comply with all 
applicable statutory provisions and the SDR Rules.
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    \185\ In a separate release, the Commission is proposing a 
compliance schedule for portions of Regulation SBSR in which the 
timeframes for compliance with the reporting and public 
dissemination requirements would key off of the registration of 
SDRs. See Regulation SBSR Proposed Amendments Release, supra note 
13.
    \186\ Any SDR that is registered with the Commission before the 
Compliance Date will be required, absent an exemption, to comply 
with Exchange Act Section 13(n); the SDR Rules; and Regulation SBSR, 
as applicable to registered SDRs, as of the date the Commission 
grants registration to the SDR. See Effective Date Order, 76 FR at 
36306, supra note 9 (granting exemptions to certain provisions in 
Exchange Act Section 13(n) and indicated that the exemptions will 
expire on the earlier of (1) the date the Commission grants 
registration to an SDR and (2) the earliest compliance date set 
forth in any of the final rules regarding the registration of SDRs).
    \187\ See Section VI.K of this release discussing Rule 13n-12, 
which provides an exemption for certain non-U.S. persons from the 
SDR requirements.
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    The Commission believes that setting the Compliance Date for the 
SDR Rules at 365 days after publication of the rules in the Federal 
Register adequately addresses commenters' concerns \188\ by providing 
SDRs with sufficient time to become compliant with the Dodd-Frank Act 
and the SDR Rules and for the Commission to act on SDRs' applications 
for registration, while also allowing SDRs to continue performing the 
functions of an SDR without interruption.
---------------------------------------------------------------------------

    \188\ See, e.g., DTCC 2, supra note 19.
---------------------------------------------------------------------------

    The Commission notes that if an SDR files its Form SDR close to the 
Compliance Date, it is possible that the Commission will not have 
sufficient time to consider the Form SDR and the SDR may not be 
registered with the Commission by the Compliance Date. In this case, 
the SDR must cease any operations that cause it to meet the statutory 
definition of an SDR as of the Compliance Date and not begin or resume 
such operations until (and unless) the Commission grants the SDR's 
registration or provides the SDR with an exemption. As discussed below, 
Rule 13n-1(c), as adopted, provides that the Commission will grant 
registration to an SDR or institute proceedings to determine whether 
registration should be granted or denied within 90 days of the date of 
the publication of notice of the filing of an application for 
registration. Accordingly, SDRs should consider that the Commission may 
take several months following the publication of notice of the filing 
of an application for registration \189\ to review

[[Page 14457]]

an SDR's application for registration and assess whether the SDR meets 
the criteria for registration set forth in Rule 13n-1(c)(3).\190\
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    \189\ The Commission's review of the application for 
registration could extend beyond 90 days. Rule 13n-1(c) provides 
that the Commission will grant registration or institute proceedings 
to determine whether registration should be granted or denied within 
90 days of the publication of notice of the filing of an application 
for registration ``or within such longer period as to which the 
applicant consents.''
    \190\ As provided in Rule 13n-1(c)(3), in order to grant the 
registration of an SDR, the Commission must make a finding that 
``such security-based swap data repository is so organized, and has 
the capacity, to be able to assure the prompt, accurate, and 
reliable performance of its functions as a security-based swap data 
repository, 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 
section 13(n) of the [Exchange] Act . . . and the rules and 
regulations thereunder.'' In addition to the application for 
registration on Form SDR, Rule 13n-1(b) provides that, ``[a]s part 
of the application process, each [SDR] shall provide additional 
information to any representative of the Commission upon request.'' 
In determining whether an applicant meets the criteria set forth in 
Rule 13n-1(c), the Commission will consider the application and any 
additional information obtained from the SDR, which may include 
information obtained in connection with an inspection or examination 
of the SDR. If the Commission is unable to determine that the 
applicant meets the criteria for registration set forth in Rule 13n-
1(c)(3), then the Commission may not grant registration to the 
applicant. See also Section VI.A.1 of this release discussing Form 
SDR and information required for registration as an SDR.
---------------------------------------------------------------------------

    After weighing the practical considerations with respect to SDRs' 
preparations for compliance with the Dodd-Frank Act and the SDR Rules, 
as well as the benefits to investors and regulators of adopting the SDR 
Rules in order to facilitate the establishment and utilization of 
registered SDRs, the Commission has determined not to adopt a phase-in 
approach, as suggested by some commenters and Implementation Joint 
Roundtable participants.\191\ Specifically, the Commission does not 
believe that it is necessary or appropriate to tailor a phase-in period 
for the SDR Rules based on specific asset classes, type of market 
participant, or other SBS attributes. While a phase-in approach based 
on asset class, type of market participant, or other attributes may 
have been appropriate had the Commission adopted rules prior to the 
July 16, 2011 effective date of the Dodd-Frank Act,\192\ the Commission 
believes that the passage of time has afforded ample time for the 
development of SDR infrastructure. This belief is based, in part, on 
the existence of four swap data repositories already provisionally 
registered with the CFTC.\193\ These swap data repositories, most of 
which will likely register as SDRs with the Commission, have had 
approximately three years to implement the final swap data repository 
rules adopted by the CFTC on August 4, 2011 (Part 49 swap data 
repository rules)\194\ and December 20, 2011 (Part 45 swap data 
recordkeeping and reporting rules).\195\ The Commission believes that 
the CFTC's Part 49 rules \196\ and Part 45 rules \197\ applicable to 
swap data repositories are substantially similar to the final SDR 
Rules. Because of the substantial similarity between the Commissions' 
rules, to the extent that the SDRs are in compliance with the CFTC's 
rules, they are likely already in substantial compliance with the 
Commission's SDR Rules.
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    \191\ See Section V.B of this release discussing commenters' and 
Implementation Joint Roundtable participants' views with respect to 
phase-in approaches.
    \192\ See Section V.A.1 of this release discussing the Effective 
Date Order.
    \193\ CFTC Rule 49.3(b) provides for provisional registration of 
a swap data repository. 17 CFR 49.3(b).
    \194\ See CFTC Part 49 Adopting Release, supra note 36.
    \195\ See CFTC Part 45 Adopting Release, supra note 37.
    \196\ See CFTC Part 49 Adopting Release, supra note 36.
    \197\ See CFTC Part 45 Adopting Release, supra note 37.
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VI. Discussion of Rules Governing SDRs

    Exchange Act Section 13(n), enacted in Dodd-Frank Act Section 
763(i), makes it ``unlawful for any person, unless registered with the 
Commission, directly or indirectly, to make use of the mails or any 
means or instrumentality of interstate commerce to perform the 
functions of a security-based swap data repository.'' \198\ To be 
registered and maintain such registration, each SDR is required (absent 
an exemption) to comply with the requirements and core principles 
described in Exchange Act Section 13(n), as well as with any 
requirements that the Commission adopts by rule or regulation.\199\ The 
Exchange Act also requires each SDR to designate an individual to serve 
as a CCO and specifies the CCO's duties.\200\ In addition, the Exchange 
Act grants the Commission authority to inspect and examine any 
registered SDR and to prescribe data standards for SDRs.\201\
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    \198\ 15 U.S.C. 78m(n)(1); see also Section III.A of this 
release discussing definition of ``security-based swap data 
repository.'' Any person that is required to be registered as an SDR 
under Exchange Act Section 13(n) must register with the Commission 
(absent an exemption), regardless of whether that person is also 
registered under the Commodity Exchange Act (``CEA'') as a swap data 
repository. Exchange Act Section 13(n)(8), 15 U.S.C. 78m(n)(8); see 
also CEA Section 21, 7 U.S.C. 24a (regarding swap data 
repositories). Under the Exchange Act, a clearing agency may 
register as an SDR. Exchange Act Section 13(m)(1)(H), 15 U.S.C. 
78m(m)(1)(H). In addition, any person that is required to register 
as an SDR pursuant to this section must register with the Commission 
(absent an exemption) regardless of whether that person is also 
registered as an SB SEF. See SB SEF Proposing Release, supra note 
29.
    \199\ See Exchange Act Section 13(n)(3), 15 U.S.C. 78m(n)(3).
    \200\ See Exchange Act Section 13(n)(6), 15 U.S.C. 78m(n)(6).
    \201\ See Exchange Act Sections 13(n)(2) and 13(n)(4), 15 U.S.C. 
78m(n)(2) and 78m(n)(4). In a separate release, the Commission 
proposed rules prescribing the data elements that an SDR would be 
required to accept for each SBS in association with requirements 
under Dodd-Frank Act Section 763(i), adding Exchange Act Section 
13(n)(4)(A) relating to standard setting and data identification. 
See Regulation SBSR Proposing Release, 75 FR at 75284-5, supra note 
8 (proposed Rule 901); see also Cross-Border Proposing Release, 78 
FR at 31212-3, supra note 3 (re-proposing Rule 901). The Commission 
is concurrently adopting Regulation SBSR, including rules 
prescribing the data elements that an SDR is required to accept. See 
Regulation SBSR Adopting Release, supra note 13 (Rule 901).
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A. Registration of SDRs (Rule 13n-1 and Form SDR)

    Proposed Rule 13n-1 and proposed Form SDR would establish the 
procedures by which a person may apply to the Commission for 
registration as an SDR. After considering the comments, the Commission 
is adopting Rule 13n-1 and Form SDR substantially as proposed, with 
certain modifications.\202\
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    \202\ The Commission did not receive any comments on the 
definitions in proposed Rule 13n-1(a) and is adopting each of them 
as proposed, other than revising the definition of ``tag'' to have 
the same meaning as set forth in Rule 11 of Regulation S-T and 
deleting the definition of ``EDGAR Filer Manual,'' which is no 
longer referenced in the revised definition of ``tag.'' See Rule 
13n-1(a)(2). The Commission is also revising the heading of 
paragraph (a) of the rule by changing ``Definition'' to 
``Definitions'' to reflect that there is more than one definition in 
the paragraph.
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1. New Form SDR; Electronic Filing
a. Proposed Form SDR
    As proposed, Form SDR would require an applicant seeking to 
register as an SDR and a registered SDR filing an amendment (including 
an annual amendment) to indicate the purpose for which it is filing the 
form and then to provide several categories of information. As part of 
the application process, each SDR would be required to provide 
additional information to the Commission upon request. Applicants would 
be required to file Form SDR electronically in a tagged data format. As 
proposed, Form SDR would require all SDRs to provide the same 
information, with two related limited exceptions applicable to non-
resident SDRs. First, if the applicant is a non-resident SDR, then Form 
SDR would require the applicant to attach as an exhibit to the form an 
opinion of counsel stating that the SDR can, as a matter of law, 
provide the Commission with prompt access to the SDR's books and 
records and that the SDR can, as a matter of law, submit to onsite 
inspection and examination by the Commission. Second, Form SDR would

[[Page 14458]]

require an applicant that is a non-resident SDR to certify to this 
(i.e., the SDR can, as a matter of law, provide the Commission with 
prompt access to the SDR's books and records and the SDR can, as a 
matter of law, submit to onsite inspection and examination by the 
Commission).\203\
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    \203\ See Items 12 and 46 of proposed Form SDR; see also 
Sections VI.A.1 and VI.A.5 of this release discussing legal opinion 
of counsel and certification by non-resident SDRs on Form SDR.
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b. Comments on Proposed Form SDR
    Two commenters submitted comments relating to this proposal.\204\ 
One commenter urged the Commission to ensure that the registration 
process does not interfere with the ongoing operation of existing 
SDRs.\205\ This commenter also addressed the items to be provided on 
Form SDR and stressed the importance of gathering information regarding 
an applicant's information technology systems, including its ability to 
provide direct electronic access to the Commission.\206\ In addition, 
the commenter supported combining new Form SDR with Form SIP and 
further suggested that the Commission and the CFTC publish a joint form 
for registration with the Commission as an SDR and SIP and with the 
CFTC as a swap data repository.\207\ The commenter also suggested that 
the Commission require applicants to submit their rulebooks as part of 
the registration process on Form SDR.\208\
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    \204\ See DTCC 2, supra note 19; ESMA, supra note 19; see also 
DTCC 3, supra note 19. Five commenters submitted comments to the 
Commission regarding registration of non-resident SDRs. See ESMA, 
supra note 19; DTCC 2, supra note 19; Foreign Banks SBSR, supra note 
27; BofA SBSR, supra note 27; US & Foreign Banks, supra note 24. 
With the exception of the certification and legal opinion 
requirements discussed later in this section, the Commission 
discussed cross-border issues applicable to SDRs that were raised by 
Title VII in the Cross-Border Proposing Release, and is adopting an 
exemption from the SDR requirements for certain non-U.S. persons, as 
discussed in Section VI.K of this release.
    \205\ DTCC 2, supra note 19.
    \206\ DTCC 2, supra note 19 (``[I]t is essential that proposed 
Form SDR request information related to the SDR's operating 
schedule, real-time processing, existence of multiple redundant 
infrastructures for continuity, strong information security 
controls, and robust reporting operations (including direct 
electronic access by the Commission). Because an SDR provides 
important utility services to regulators and market participants, 
such resiliency and redundancy should be evaluated in light of the 
significant policies and procedures for establishing such 
redundancy, including several backup locations in different 
geographic regions.'').
    \207\ DTCC 2, supra note 19; DTCC 3, supra note 19 
(``Harmonization in the registration process for SDRs is necessary. 
Requiring one SDR to complete three sets of registration forms--an 
SDR application to the CFTC, an SDR application to the SEC and Form 
SIP to the SEC--demonstrates a specific instance where the 
regulatory agencies should come together, determine the information 
necessary for registration and jointly publish a common registration 
application.'').
    \208\ DTCC 3, supra note 19 (``The [Commission] should require 
rulebooks for SDRs prior to operation and as part of the 
registration process. SDRs will need to complete legal agreements 
with clearing-houses and among the users of an SDR. These agreements 
generally constitute the agreement of the user to abide by published 
rules and/or procedures of the SDR and generally have a notice of 
change to permit amendments without having to re-execute with all 
users. These agreements should be in place before SDRs operate under 
the new regulatory regime.'').
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    One commenter expressed concern that non-resident SDRs would be 
subject to a stricter regulatory regime than that applicable to 
resident SDRs due to the proposed opinion of counsel requirement, which 
is applicable only to non-resident SDRs.\209\
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    \209\ ESMA, supra note 19 (``[N]on-resident SDRs are actually 
subject to a stricter regime than the resident ones, as they need to 
provide a legal opinion certifying that they can provide the SEC 
with prompt access to their books and records and that they can be 
subject to onsite inspections and examinations by the SEC.'').
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c. Final Form SDR
    After considering the comments, the Commission is adopting Form SDR 
substantially as proposed with certain modifications. Form SDR includes 
a set of instructions for its completion and submission. These 
instructions are included in this release, together with Form SDR. The 
instructions require an SDR to indicate the purpose for which it is 
filing the form (i.e., application for registration, interim or annual 
amendment to an application or to an effective registration,\210\ or 
withdrawal from registration \211\) and to provide information in seven 
categories: (1) General information, (2) business organization, (3) 
financial information, (4) operational capability, (5) access to 
services and data, (6) other policies and procedures, and (7) legal 
opinion. As part of the application process, each SDR will be required 
to provide additional information to any representative of the 
Commission upon request.\212\
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    \210\ See Section VI.A.4 of this release discussing amendments 
on Form SDR.
    \211\ See Section VI.B of this release discussing withdrawal 
from registration as an SDR.
    \212\ See Rule 13n-1(b). The Commission is revising the last 
sentence of proposed Rule 13n-1(b) to use the statutorily defined 
term ``security-based swap data repository'' rather than ``SDR'' to 
be consistent with the rest of the SDR Rules. The Commission is also 
revising the last sentence of proposed Rule 13n-1(b) to require SDRs 
to provide additional information upon request to ``any 
representative of the Commission,'' rather than ``the Commission.'' 
This revision is intended to clarify that such requests will be made 
by Commission staff.
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    As noted in the Proposing Release, the Commission believes that 
permitting an SDR to provide information in narrative form in Form SDR 
will allow the SDR greater flexibility and opportunity for meaningful 
disclosure of relevant information.\213\ The Commission believes that 
it is necessary to obtain the information requested in Form SDR to 
enable the Commission to determine whether to grant or deny an 
application for registration. Specifically, the information will assist 
the Commission in understanding the basis for registration as well as 
an SDR's overall business structure, financial condition, track record 
in providing access to its services and data, technological 
reliability, and policies and procedures to comply with its statutory 
and regulatory obligations. The information will also be useful to the 
Commission in tailoring any requests for additional information that it 
may ask an SDR to provide. Furthermore, the required information will 
assist Commission representatives in the preparation of their 
inspection and examination of an SDR.\214\
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    \213\ Proposing Release, 75 FR at 77310, supra note 2.
    \214\ The Commission is revising Form SDR from proposed Form SDR 
to include disclosure relating to the Paperwork Reduction Act. See 
Section VII of this release regarding the Paperwork Reduction Act.
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    Form SIP.\215\ In the Proposing Release, the Commission noted that 
proposed Regulation SBSR would require each registered SDR to register 
with the Commission as a SIP on Form SIP, and requested comment on 
whether the Commission should combine Form SDR and Form SIP, such that 
an SDR would register as an SDR and SIP using only one form.\216\ One 
commenter supported combining Form SDR with Form SIP.\217\ Taking into 
consideration this commenter's view and in an effort to minimize the 
burden of filing multiple registration forms, the Commission has 
decided to amend proposed Form SDR to accommodate SIP registration; 
thus, an SDR will register and amend such registration as an SDR and as 
a SIP using one combined form.\218\ An

[[Page 14459]]

amendment or withdrawal on Form SDR will also constitute an amendment 
or withdrawal of SIP registration pursuant to Exchange Act Section 11A 
and the rules and regulations thereunder.\219\ The Commission has made 
certain changes to proposed Form SDR to incorporate the additional 
information requested on Form SIP of applicants for registration as a 
SIP.\220\ However, there are some disclosures required in Form SIP that 
have not been incorporated into Form SDR because they do not appear to 
be relevant to SDRs.\221\ The Commission notes that by requiring a 
registered SDR to register as a SIP, the requirements of SIP 
registration provided in Exchange Act Section 11A, including 
publication of notice of the filing of an application for registration, 
will apply to applications filed on Form SDR \222\ and, accordingly, 
the Commission will publish notice of the filing of applications for 
registration on Form SDR in the Federal Register.\223\ In addition, the 
Commission expects that it will make the filed applications available 
on its Web site, except for information where confidential treatment is 
requested by the applicant \224\ and granted by the Commission.\225\
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    \215\ Today, the Commission is adopting Regulation SBSR, which 
includes a requirement for each registered SDR to register as a SIP, 
as defined in Exchange Act Section 3(a)(22), 15 U.S.C. 78c(a)(22). 
See Regulation SBSR Adopting Release, supra note 13 (Rule 909).
    \216\ Proposing Release, 75 FR at 77313, supra note 2. See also 
Regulation SBSR Proposing Release, 75 FR at 75287, supra note 8 
(proposed Rule 909); Cross-Border Proposing Release, 78 FR at 31215-
6, supra note 3 (re-proposing Rule 909).
    \217\ DTCC 2, supra note 19; see also DTCC 3, supra note 19.
    \218\ Form SDR will be used only by SIPs that also register as 
SDRs; Form SIP will continue to be used by applicants for 
registration as SIPs not seeking to become dually-registered as an 
SDR and SIP, and for interim amendments or annual amendments by 
registered SIPs that are not dually-registered as an SDR and SIP. In 
discussing Form SDR as adopted in this release, references to SDRs 
may, where applicable, refer to SDRs and SIPs, collectively.
    \219\ See General Instruction 2 to Form SDR.
    \220\ See Item 32(a)(1) (adding ``(or disseminate for display or 
other use)'' and ``(e.g., number of inquiries from remote 
terminals)''), Item 32(a)(2) (adding ``(or disseminate for display 
or other use)''), new Item 33(c) (With respect to each of an 
applicant's ``services that involves the supply of information to a 
quotation board, ticker device, electronic information terminal, or 
other such device, [the applicant must] state the total number of 
devices to which information is, or will be supplied (`serviced') 
and any minimum and or maximum number of devices required or 
permitted by agreement or otherwise to be serviced by the applicant. 
In addition, [an applicant must] define the data elements for each 
service.''); and Item 36 of Form SDR (adding ``processing, preparing 
for distribution, and publication''); see also new General 
Instructions 2 and 3 and conforming revisions to General 
Instructions 7 and 9 to Form SDR and Items 16, 19, 20, 23, 25-35, 
and 39 of Form SDR.
    \221\ See, e.g., Item 31 of Form SIP, 17 CFR 249.1001 (requiring 
applicant to state whether certain specifications or qualifications 
are imposed at the direction of a national securities exchange or a 
registered securities association).
    \222\ 15 U.S.C. 78k-1(b).
    \223\ As discussed below, the Commission is revising Rule 13n-
1(c) from the proposal to reflect this publication requirement with 
respect to the registration process for Form SDR. See Section 
VI.A.2.c of this release discussing revision to Rule 13n-1(c) to 
provide that: (1) Within 90 days of the date of the publication of 
notice of the filing of an application for registration (or within 
such longer period as to which the SDR consents), the Commission 
shall either grant the registration by order or institute 
proceedings to determine whether registration should be granted or 
denied and (2) proceedings instituted pursuant to Rule 13n-1(c) 
shall be concluded not later than 180 days after the date of the 
publication of notice of the filing of the application for 
registration, absent an extension.
    \224\ As discussed below, the Commission is adopting technical 
amendments to Exchange Act Rule 24b-2 to clarify that the 
confidential portion of electronic filings by SDRs must be filed 
electronically and to require SDRs to request confidential treatment 
electronically. The Commission is also adopting technical amendments 
to Rule 101 of Regulation S-T to provide that, except as otherwise 
provided, all filings by SDRs, including any information with 
respect to which confidential treatment is requested, must be filed 
electronically.
    \225\ The instructions to Form SDR have been modified from the 
proposal to clarify that information supplied on the form may be 
made available on the Commission's Web site. See General Instruction 
7 to Form SDR (stating that ``[e]xcept in cases where confidential 
treatment is requested by the applicant and granted by the 
Commission pursuant to the Freedom of Information Act and the rules 
of the Commission thereunder, information supplied on this form may 
be made available on the Commission's Web site, will be included 
routinely in the public files of the Commission, and will be 
available for inspection by any interested person''). The Commission 
expects that non-confidential information supplied on an SDR's 
completed application for registration will be made available on the 
Commission's Web site; other filings on Form SDR may be made 
available on the Commission's Web site.
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    The Commission has determined not to adopt a joint form for 
registration with the Commission as an SDR and SIP and with the CFTC as 
a swap data repository, as suggested by one commenter.\226\ First, the 
CFTC has already adopted the final registration rules and form for swap 
data repositories to use.\227\ Adopting a joint form for registration 
would require the CFTC to amend its adopted Form SDR while the industry 
is still in the implementation phase and swap data repositories are 
already provisionally registered with the CFTC.\228\ Second, the CFTC's 
registration form for swap data repositories is substantially similar 
to the Commission's Form SDR. Thus, the Commission does not anticipate 
that filing with each Commission separately will entail a significant 
cost for dual registrants even though the Commission and the CFTC have 
tailored their respective forms in order to meet the specific needs of 
each agency and their respective statutory mandates. For example, the 
Commission is revising proposed Form SDR to require an SDR to provide 
certain information to address Exchange Act requirements applicable to 
SIPs. The CFTC's Form SDR does not require information to address some 
of these requirements.
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    \226\ See DTCC 3, supra note 19.
    \227\ See CFTC Part 49 Adopting Release, supra note 36.
    \228\ As noted above, CFTC Rule 49.3(b) provides for provisional 
registration of a swap data repository. 17 CFR 49.3(b).
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    General Information.\229\ Form SDR requires an applicant to provide 
contact information, information concerning any predecessor SDR (if 
applicable), a list of asset classes of SBSs for which the applicant is 
collecting and maintaining data or for which it proposes to collect and 
maintain data,\230\ a description of the functions that it performs or 
proposes to perform, and general information regarding its business 
organization.\231\ This information will assist the Commission and its 
staff in evaluating applications for registration and overseeing 
registered SDRs for purposes of determining whether the SDRs are able 
to comply with the federal securities laws and the rules and 
regulations thereunder.
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    \229\ In the General Information section of Form SDR, the 
Commission is adding a new item (Item 12) to implement the 
requirement in Rule 13n-2(b) for a registered SDR seeking to 
withdraw from registration to identify a custodian of its books and 
records, and the address(es) where the books and records will be 
located. See Section VI.B of this release discussing Rule 13n-2(b).
    \230\ As proposed, Item 6 of Form SDR implicitly pertained to 
the data that an applicant is collecting and maintaining or proposes 
to collect and maintain. The Commission is revising Item 6 of Form 
SDR from the proposal to make this explicit by adding references to 
``data.''
    \231\ See Items 1-10 of Form SDR. The Commission is revising 
Form SDR from the proposal to remove the heading ``Business 
Organization'' in the ``General Information'' section because the 
heading is superfluous and may lead to confusion with another 
section entitled ``Exhibits--Business Organization.'' General 
information regarding business organization is requested in the 
``General Information'' section, whereas detailed information 
regarding business organization is requested in the ``Exhibits--
Business Organization'' section. As proposed, Item 10 of Form SDR 
requested information regarding the filing date of ``partnership 
articles'' and ``place where partnership agreement was filed.'' For 
consistency, the Commission is revising Item 10 of Form SDR from the 
proposal to request the filing date of the ``partnership agreement'' 
rather than ``partnership articles.''
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    An applicant is required to acknowledge and consent that any notice 
or service of process, pleadings, or other documents in connection with 
any action or proceeding against the applicant may be effectuated by 
certified mail to an officer or person specified by the SDR at a given 
U.S. address.\232\ The Commission believes that such consent is 
important to minimize any logistical obstacles (e.g., locating 
defendants or respondents abroad) that the Commission may encounter 
when attempting to provide notice to an applicant or to effect service, 
including service overseas.
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    \232\ See Item 11 of Form SDR.
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    Form SDR must be signed by a person who is duly authorized to act 
on behalf of the applicant.\233\ The signer is

[[Page 14460]]

required to certify that all information contained in the application, 
including the required items and exhibits, is true, current, and 
complete.\234\ The Commission believes that this certification 
requirement will serve as an effective means to assure that the 
information filed on Form SDR with the Commission is reliable.\235\ The 
Commission notes that this certification is consistent with the 
certification provisions in the registration forms for SIPs, broker-
dealers, and investment advisers (i.e., Forms SIP, BD, and ADV).\236\
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    \233\ See Item 13 of Form SDR.
    \234\ See Item 13 of Form SDR. The Commission is revising the 
signature block from the proposal to be consistent with an SDR's 
filing requirements for interim amendments on Form SDR. See note 
infra 356 (discussing amendment of signature block). The Commission 
is also revising the signature block to state that ``[i]ntentional 
misstatements or omissions of fact constitute federal criminal 
violations (see 18 U.S.C. 1001 and 15 U.S.C. 78ff(a)).'' This 
statement was included in Instruction 5 of proposed Form SDR, and is 
included in Instruction 7 of Form SDR, as adopted. This statement 
has been added to the signature block to remind the signer of the 
consequences of intentional misstatements or omissions of fact. See 
18 U.S.C. 1001 (applying to ``whoever, in any matter within the 
jurisdiction of the executive, legislative, or judicial branch of 
the Government of the United States, knowingly and willfully -- (1) 
falsifies, conceals, or covers up by any trick, scheme, or device a 
material fact; (2) makes any materially false, fictitious, or 
fraudulent statement or representation; or (3) makes or uses any 
false writing or document knowing the same to contain any materially 
false, fictitious, or fraudulent statement or entry''); 15 U.S.C. 
78ff(a) (applying to, among other persons, ``any person who 
willfully and knowingly makes, or causes to be made, any statement 
in any application, report, or document required to be filed under 
[the Exchange Act] or any rule or regulation thereunder or any 
undertaking contained in a registration statement as provided in 
subsection (d) of section 78o of [Title 15 of the U.S. Code], or by 
any self-regulatory organization in connection with an application 
for membership or participation therein or to become associated with 
a member thereof, which statement was false or misleading with 
respect to any material fact'').
    \235\ Accord Registration of Municipal Advisors, Exchange Act 
Release No. 70462 (Sept. 20, 2013), 78 FR 67468, 67568 (Nov. 12, 
2013) (stating that the certification requirement in Form MA-W 
pertaining to the accuracy and completeness of information 
previously submitted in Form MA should serve as an effective means 
to assure that the information supplied is correct).
    \236\ See Form SIP, 17 CFR 249.1001, available at http://www.sec.gov/about/forms/formsip.pdf; Form BD, 17 CFR 249.501, 
available at http://www.sec.gov/about/forms/formbd.pdf; Form ADV, 17 
CFR 279.1, available at http://www.sec.gov/about/forms/formadv.pdf.
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    If an applicant is a non-resident SDR, then the signer of Form SDR 
is also required to certify that the applicant can, as a matter of law, 
and will provide the Commission with prompt access to the applicant's 
books and records and that the applicant can, as a matter of law, and 
will submit to onsite inspection and examination by the 
Commission.\237\ For purposes of the certification, Form SDR defines 
``non-resident security-based swap data repository'' as (i) in the case 
of an individual, one who resides in or has his principal place of 
business in any place not in the United States; (ii) 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 (iii) in the case of 
a partnership or other unincorporated organization or association, one 
having its principal place of business in any place not in the United 
States.\238\ Certain foreign jurisdictions may have laws that 
complicate the ability of regulated persons such as SDRs located in 
their jurisdictions from sharing certain information, including 
personal information of individuals that the regulated persons come to 
possess from third persons (e.g., personal data relating to the 
identity of market participants or their customers), with the 
Commission.\239\ In order for the Commission to fulfill its oversight 
responsibilities with respect to registered SDRs, it is important that 
Commission representatives have prompt access to the SDRs' books and 
records and have the ability to conduct onsite inspections and 
examinations.\240\ As noted above, one commenter was concerned that 
non-resident SDRs are subject to a stricter regime than resident 
SDRs.\241\ To the extent that the commenter's concerns pertain to the 
certification requirement, the Commission notes that it continues to 
believe that if a non-resident SDR is registered with the Commission, 
the SDR's certification is important to confirm that it has taken the 
necessary steps to be in the position to provide the Commission with 
prompt access to the SDR's books and records and to be subject to 
onsite inspection and examination by the Commission. Failure to make 
this certification may be a basis for the Commission to institute 
proceedings to consider denying an application for registration. If a 
registered non-resident SDR becomes unable to provide this 
certification, then this may be a basis for the Commission to institute 
proceedings to consider revoking the SDR's registration.
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    \237\ See Item 13 of Form SDR. Under Exchange Act Section 
13(n)(2), an SDR is subject to inspection and examination by any 
representative of the Commission. See 15 U.S.C. 78m(n)(2); see also 
Section VI.D.2 of this release discussing Rule 13n-4(b)(1). The 
Commission is revising ``can, as a matter of law'' (referring to the 
certification regarding access to the SDR's books and records) and 
``can'' (referring to the certification regarding inspection and 
examination) in the signature block of proposed Form SDR to ``can, 
as a matter of law, and will'' to track the language of Rule 13n-
1(f), as discussed in Section VI.A.5 of this release.
    \238\ See Item 13 of Form SDR; see also Rule 13n-1(a)(1) 
(defining ``non-resident security-based swap data repository''). 
This definition is substantially similar to the definition of ``non-
resident broker or dealer'' in Exchange Act Rule 17a-7(d)(3). See 17 
CFR 240.17a-7(d)(3). Although there may be instances in which a non-
resident SDR can fall within the definition of a ``U.S. person,'' 
the Commission believes that, as a practical matter, all non-
resident SDRs would likely be non-U.S. persons given the similar 
distinguishing factors in the definitions of ``non-resident 
security-based swap data repository'' and ``non-U.S. person.'' See 
supra note 99 (discussing definition of ``U.S. person'') and Section 
VI.A.5 of this release discussing non-resident SDRs.
    \239\ See, e.g., Dagong Global Credit Rating Agency, Exchange 
Act Release No. 62968 (Sept. 22, 2010) (denying application as an 
NRSRO due to applicant's inability to comply with U.S. securities 
laws, in part because records requests would have to be approved by 
a Chinese regulator); Dominick & Dominick, Inc., Exchange Act 
Release No. 29243 (May 29, 1991) (settled administrative proceeding 
involving a broker-dealer's failure to furnish promptly to the 
Commission copies of certain records required to be kept pursuant to 
Exchange Act Section 17(a)(1) and Rule 17a-3 thereunder where the 
broker-dealer initially asserted that Swiss law prevented it from 
producing the required records).
    \240\ See Section VI.D.2 of this release discussing inspection 
and examination by Commission representatives.
    \241\ ESMA, supra note 19.
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    Business Organization. Form SDR requires each applicant to provide 
as exhibits detailed information regarding its business organization, 
including information about (1) any person that owns 10 percent or more 
of the applicant's stock or that, either directly or indirectly, 
through agreement or otherwise, in any other manner, may control or 
direct the applicant's management or policies;\242\ (2) the business 
experience, qualifications, and disciplinary history of its designated 
CCO, officers, directors, governors, and persons performing functions 
similar to any of the foregoing, and the members of all standing 
committees;\243\ (3) its

[[Page 14461]]

governance arrangements;\244\ (4) the applicant's constitution, 
articles of incorporation or association with all amendments to them, 
existing by-laws, rules, procedures, and instruments corresponding to 
them;\245\ (5) the applicant's organizational structure;\246\ (6) its 
affiliates;\247\ (7) any material pending legal proceedings to which 
the applicant or its affiliate(s) is a party or to which any of its 
property is the subject;\248\ (8) the applicant's material contracts 
with any SB SEF, clearing agency, central counterparty, and third party 
service provider; \249\ and (9) the applicant's policies and procedures 
to minimize conflicts of interest in its decision-making process and to 
resolve any such conflicts of interest.\250\ Obtaining this information 
will assist the Commission in, among other things, understanding an 
SDR's overall business structure, governance arrangements, and 
operations, all of which will assist the Commission in its inspection 
and examination of the SDR and the Commission's decision on whether to 
grant the SDR's registration.
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    \242\ See Item 14 of Form SDR.
    \243\ See Items 15 and 16 of Form SDR. More specifically, Form 
SDR requires an applicant to disclose the following information 
regarding its designated CCO, officers, directors, governors, and 
persons performing functions similar to any of the foregoing, and 
the members of all standing committees: (a) name; (b) title; (c) 
date of commencement and, if appropriate, termination of present 
term of position; (d) length of time such person has held the same 
position; (e) brief account of the business experience of such 
person over the last five years; (f) any other business affiliations 
in the securities industry or derivatives industry; and (g) details 
of: (1) any order of the Commission with respect to such person 
pursuant to Sections 15(b)(4), 15(b)(6), 19(h)(2), or 19(h)(3) of 
the Exchange Act, (2) any conviction or injunction of a type 
described in Sections l5(b)(4)(B) or (C) of the Exchange Act within 
the past ten years, (3) any action of an SRO with respect to such 
person imposing a final disciplinary sanction pursuant to Exchange 
Act Sections 6(b)(6), l5A(b)(7), or 17A(b)(3)(G), (4) any final 
action by an SRO with respect to such person constituting a denial, 
bar, prohibition, or limitation of membership, participation, or 
association with a member, or of access to services offered by such 
organization or a member thereof, and (5) any final action by 
another federal regulatory agency, including the CFTC, any state 
regulatory agency, or any foreign financial regulatory authority 
resulting in: (i) a finding that such person has made a false 
statement or omission, or has been dishonest, unfair, or unethical; 
(ii) a finding that such person has been involved in a violation of 
any securities-related regulations or statutes; (iii) a finding that 
such person has been a cause of a business having its authorization 
to do business denied, suspended, revoked, or restricted; (iv) an 
order entered, in the past ten years, against such person in 
connection with a securities-related activity; or (v) any 
disciplinary sanction, including a denial, suspension, or revocation 
of such person's registration or license or otherwise, by order, a 
prevention from associating with a securities-related or a 
restriction of such person's activities. The Commission is 
correcting a typographical error in proposed Items 14(g)(4) and 
15(g)(4). As proposed, the items stated ``. . . such organization of 
a member thereof.'' As adopted, Items 15(g)(4) and 16(g)(4) state 
``. . . such organization or a member thereof.''
    \244\ See Item 17 of Form SDR. The Commission has made minor 
revisions to Form SDR from the proposal with regard to the 
disclosure of governance arrangements for the sake of clarity. 
Compare Item 16 of Form SDR, as proposed (requiring disclosure of 
the responsibilities ``of each of the board and such committee'' and 
the composition ``of each board and such committee''), with Item 17 
of Form SDR, as adopted (requiring disclosure of the 
responsibilities and composition ``of the board and each such 
committee'').
    \245\ See Item 18 of Form SDR.
    \246\ See Item 19 of Form SDR.
    \247\ See Item 20 of Form SDR. For purposes of Form SDR, an 
``affiliate'' of an SDR is defined as a person that, directly or 
indirectly, controls, is controlled by, or is under common control 
with the SDR. See also Rule 13n-4(a)(1); Rule 13n-9(a)(1). This 
definition of ``affiliate'' is designed to allow the Commission to 
collect comprehensive identifying information relating to an SDR. 
This definition is substantially similar to the definition of 
``affiliate'' in Exchange Act Rule 12b-2. See 17 CFR 240.12b-2. See 
also infra note 621 (defining ``control'' (including the terms 
``controlled by'' and ``under common control with'')). The 
Commission notes that it received a comment letter after the 
Proposing Release through the Commission's general solicitation for 
comments that addressed the definition of ``affiliate'' for all of 
Title VII. See letter from ABA Securities Association, American 
Council of Life Insurers, Financial Services Roundtable, Futures 
Industry Association, Institute of International Bankers, 
International Swaps and Derivatives Association and the Securities 
Industry and Financial Markets Association, available on the 
Commission's Web site at http://www.sec.gov/comments/df-title-vii/swap-data-repositories/swap-data-repositories.shtml (suggesting 
defining ``affiliate'' for the purposes of Title VII rulemaking 
generally as ``any group of entities that is under common control 
and that reports information or prepares its financial statements on 
a consolidated basis''). The commenter focused on the effect of the 
definition in the context of inter-affiliate transactions, such as 
whether inter-affiliate transactions should be counted when 
determining if a person is required to register as an SBS dealer. 
Among other things, the commenter addressed the reporting of inter-
affiliate transactions to SDRs. Because Form SDR and the SDR Rules 
do not pertain to what transactions must be reported to an SDR, the 
Commission believes that the letter is not relevant to Form SDR or 
the SDR Rules. Additionally, the Commission believes that it is 
important that an applicant for registration as an SDR provide 
information regarding all of its affiliates, regardless of whether 
the SDR's and affiliates' financial statements are prepared on a 
consolidated basis. Among other reasons, the Commission needs to 
know the identity of an SDR's affiliates before it can determine 
whether the SDR has any material conflicts of interest based on the 
services provided by those affiliates or is providing favorable 
treatment to affiliates in accessing the SDR's services or whether 
the SDR is complying with other rules and core principles, such as 
the core principle related to access to services and data.
    \248\ See Item 21 of Form SDR.
    \249\ See Item 22 of Form SDR.
    \250\ See Item 23 of Form SDR.
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    The Commission is revising Form SDR from the proposal requiring 
disclosure of business affiliations in the ``derivatives industry'' 
rather than the ``OTC derivatives industry'' for an applicant's 
designated CCO, officers, directors, governors, and persons performing 
functions similar to any of the foregoing, and the members of all 
standing committees \251\ The Commission is making this revision to 
clarify that the disclosure covers derivatives traded on exchanges and 
SB SEFs as well as those traded over-the-counter.
---------------------------------------------------------------------------

    \251\ Compare Items 14(f) and 15(f) of proposed Form SDR with 
Items 15(f) and 16(f) of Form SDR, as adopted.
---------------------------------------------------------------------------

    Financial Information. Each applicant is required to disclose as 
exhibits to Form SDR certain financial and related information, 
including (1) its statement of financial position, results of 
operations, statement of sources and application of revenues, and all 
notes or schedules thereto, as of the most recent fiscal year of the 
applicant, or, alternatively, a financial report, as discussed further 
in Section VI.J.5 of this release; \252\ (2) a statement of financial 
position and results of operations for each affiliate of the applicant 
as of the end of the most recent fiscal year of each such affiliate, 
or, alternatively, identification of the most recently filed annual 
report on Form 10-K of the applicant's affiliate, if available; \253\ 
(3) a list of all dues, fees, and other charges imposed, or to be 
imposed, for the applicant's services, as well as all discounts and 
rebates offered, or to be offered; \254\ (4) a description of the basis 
and methods used in determining the level and structure of the 
applicant's services as well as its dues, fees, other charges, 
discounts, or rebates; \255\ and (5) a description of any 
differentiations in such dues, fees, other charges, discounts, and 
rebates.\256\ This information will assist the Commission in, among 
other things, its decision of whether to grant the SDR's registration 
and in its evaluation of the financial resources available to the SDR 
to support its operations.
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    \252\ See Item 24 of Form SDR. As proposed, this item referred 
to a ``balance sheet'' and a ``statement of income and expenses'' 
rather than a ``statement of financial position'' and ``results of 
operations.'' The Commission is making this change from the proposal 
for consistency with Rule 13n-11(f)(4). See Section VI.J.5 of this 
release discussing Rule 13n-11(f). This revision is not intended to 
substantively change the requirements of this item.
    \253\ See Item 25 of Form SDR. As proposed, this item referred 
to a ``balance sheet'' and a ``statement of income and expenses'' 
rather than a ``statement of financial position'' and ``results of 
operations.'' The Commission is making this change from the proposal 
for consistency with Rule 13n-11(f)(4). See Section VI.J.5 of this 
release discussing Rule 13n-11(f). This revision is not intended to 
substantively change the requirements of this item.
    \254\ See Item 26.a of Form SDR.
    \255\ See Item 26.b of Form SDR.
    \256\ See Item 26.c of Form SDR.
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    Operational Capability. Form SDR requires each applicant to provide 
as exhibits information on its operational capability, including (1) 
its SDR and SIP functions and services;\257\ (2) the computer hardware 
that it uses to perform its SDR or SIP functions;\258\ (3) personnel 
qualifications for each category of professional, non-professional, and 
supervisory employees employed by the applicant or the division, 
subdivision, or other segregable entity within the applicant;\259\ (4) 
the applicant's measures or procedures to provide for the security of 
any system employed to perform its SDR or SIP functions, including any 
physical and operational safeguards designed to prevent unauthorized 
access to the system;\260\ (5) any circumstances within the past year 
in which such security measures or safeguards failed to prevent any 
such unauthorized access to the system and

[[Page 14462]]

any measures taken to prevent a reoccurrence;\261\ (6) any measures 
used by the applicant to satisfy itself that the information received 
or disseminated by the system is accurate;\262\ (7) the applicant's 
backup systems or subsystems that are designed to prevent interruptions 
in the performance of any SDR or SIP functions;\263\ (8) limitations on 
the applicant's capacity to receive (or collect), process, store, or 
display (or disseminate for display or other use) its data and factors 
that account for such limitations;\264\ and (9) the priorities of 
assignment of capacity between functions of an SDR or SIP and any other 
uses and methods used or able to be used to divert capacity between 
such functions and other uses.\265\ As stated in the Cross-Border 
Proposing Release, SDRs themselves are subject to certain operational 
risks that may impede their ability to fulfill their roles.\266\ 
Obtaining information regarding an SDR's operational capability will 
assist the Commission in determining, among other things, whether an 
SDR's automated systems provide adequate levels of capacity, integrity, 
resiliency, availability, and security.
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    \257\ See Item 27 of Form SDR.
    \258\ See Item 28 of Form SDR.
    \259\ See Item 29 of Form SDR.
    \260\ See Item 30 of Form SDR.
    \261\ See Item 30 of Form SDR.
    \262\ See Item 30 of Form SDR.
    \263\ See Item 31 of Form SDR.
    \264\ See Item 32.a of Form SDR.
    \265\ See Item 32.b of Form SDR.
    \266\ Cross-Border Proposing Release, 78 FR at 31042 n.719, 
supra note 3 (citing the Proposing Release, 75 FR at 77307 (``The 
inability of an SDR to protect the accuracy and integrity of the 
data that it maintains or the inability of an SDR to make such data 
available to regulators, market participants, and others in a timely 
manner could have a significant negative impact on the [security-
based swap] market. Failure to maintain privacy of such data could 
lead to market abuse and subsequent loss of liquidity.'')).
---------------------------------------------------------------------------

    As highlighted by one commenter, it is imperative that Form SDR 
includes ``information related to the SDR's operating schedule, real-
time processing, existence of multiple redundant infrastructures for 
continuity, strong information security controls, and robust reporting 
operations.'' \267\ The Commission believes that the operational 
capability information requested on Form SDR sufficiently addresses the 
commenter's concern. In addition, Commission representatives may 
conduct inspections or examinations to assess a registered SDR's 
ongoing operational capability and compliance with the federal 
securities laws and the rules and regulations thereunder.\268\
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    \267\ DTCC 2, supra note 19.
    \268\ See Section VI.A.2 of this release discussing Rule 13n-
1(c) (reviews by Commission staff of the SDR's operational capacity 
and ability are important to determine whether the Commission should 
grant an SDR's application for registration or revoke the 
registration of a registered SDR pursuant to Rule 13n-2(e)).
---------------------------------------------------------------------------

    Access to Services and Data. Form SDR requires an applicant to 
provide as exhibits information regarding access to its services and 
data, including (1) the number of persons who presently subscribe, or 
who have notified the applicant of their intention to subscribe, to its 
services; \269\ (2) instances in which the applicant has prohibited or 
limited any person with respect to access to services offered or data 
maintained by the applicant; \270\ (3) for each service that involves 
the supply of information to a quotation board, ticker device, 
electronic information terminal, or other such device, the total number 
of devices to which information is, or will be supplied and any minimum 
and or maximum number of devices required or permitted by agreement or 
otherwise to be serviced by the applicant; \271\ (4) the storage media 
of any service furnished in machine-readable form and the data elements 
of such service; \272\ (5) copies of all contracts governing the terms 
by which persons may subscribe to the SDR services, SIP services, and 
any ancillary services provided by the applicant; \273\ (6) any 
specifications, qualifications, or other criteria that limit, are 
interpreted to limit, or have the effect of limiting access to or use 
of any SDR or SIP services offered or data maintained by the applicant; 
\274\ (7) any specifications, qualifications, or other criteria 
required of persons who supply SBS information to the applicant for 
collection, maintenance, processing, preparing for distribution, and 
publication by the applicant or of persons who seek to connect to or 
link with the applicant; \275\ (8) any specifications, qualifications, 
or other criteria required of any person who requests access to data 
maintained by the applicant; \276\ and (9) the applicant's policies and 
procedures to review any prohibition or limitation of any person with 
respect to access to services offered or data maintained by the 
applicant and to grant such person access to such services or data if 
such person has been discriminated against unfairly.\277\
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    \269\ See Item 33.a of Form SDR.
    \270\ See Item 33.b of Form SDR; see also infra note 278 
(discussing denials of access to services offered by SDRs).
    \271\ See Item 33.c of Form SDR. The Commission is including 
this item from Form SIP to Form SDR for purposes of combining the 
two forms. See Section VI.A.1 of this release discussing Form SIP.
    \272\ See Item 33.d of Form SDR.
    \273\ See Item 34 of Form SDR.
    \274\ See Item 35 of Form SDR.
    \275\ See Item 36 of Form SDR.
    \276\ See Item 37 of Form SDR. The Commission is correcting a 
typographical error in proposed Item 36 of Form SDR. As proposed, 
the item stated ``any person, including, but not limited to . . . 
third party service providers who request access. . . .'' As 
adopted, Item 37 states ``any person, including, but not limited to 
. . . third party service providers, who requests access. . . .''
    \277\ See Item 38 of Form SDR.
---------------------------------------------------------------------------

    The information regarding access to services and data will assist 
the Commission in determining, among other things, whether an SDR can 
comply with Rule 13n-4(c)(1), which relates to the core principle for 
market access to services and data, as discussed further in Section 
VI.D.3.a of this release. With respect to Item 33 of Form SDR 
(requiring an SDR to provide information regarding access to services 
and data, including any denials of such access), the Commission further 
believes that, due to an SDR's role as a central recordkeeping facility 
for SBSs, upon which the Commission and the public will rely for 
market-wide SBS data, the Commission should be informed of persons who 
have been granted access to an SDR's services and data, as well as 
instances in which an SDR prohibits or limits access to its 
services.\278\ As part of the process to amend Form SDR from the 
proposal to accommodate SIP registration, discussed above, the 
Commission is adding Item 33(c) to Form SDR so that the Commission can 
obtain specific information regarding an SDR's supply of information 
for public dissemination purposes.
---------------------------------------------------------------------------

    \278\ See Regulation SBSR Adopting Release, supra note 13 
(discussing Rule 909, which requires a registered SDR to also 
register as a SIP); Proposing Release, 75 FR at 77311 n.33, supra 
note 2 (noting that if the Commission adopts proposed Rule 909 of 
Regulation SBSR, then Exchange Act Section 11A(b)(5) would govern 
denials of access to all SDRs' services); see also 15 U.S.C. 78k-
1(b)(5) (A registered SIP must promptly file notice with the 
Commission if it, directly or indirectly, prohibits or limits any 
person in respect of access to its services, which may be subject to 
review by the Commission. If the Commission finds that (a) such 
limitation or prohibition is not consistent with Exchange Act 
Section 11A and the rules and regulations thereunder and that such 
person has been discriminated against unfairly or (b) the 
prohibition or limitation imposes any burden on competition not 
necessary or appropriate, it may set aside the prohibition or 
limitation and require the SIP to permit such person access to its 
services.). The Commission has made certain changes to Form SDR from 
the proposal to accommodate SIP registration. See supra note 220.
---------------------------------------------------------------------------

    Other Policies and Procedures. Form SDR requires each applicant to 
attach as exhibits: (1) The applicant's policies and procedures to 
protect the privacy of any and all SBS transaction information that the 
applicant receives from a market participant or any registered entity; 
\279\ (2) a description of the applicant's safeguards, policies, and 
procedures to prevent the misappropriation or misuse of (a) any 
confidential information received by the applicant, including, but not 
limited to,

[[Page 14463]]

trade data, position data, and any nonpublic personal information about 
a market participant or any of its customers; (b) material, nonpublic 
information; and/or (c) intellectual property by the applicant or any 
person associated with the applicant for their personal benefit or for 
the benefit of others; \280\ (3) the applicant's policies and 
procedures regarding its use of the SBS transaction information that it 
receives from a market participant, any registered entity, or any other 
person for non-commercial and/or commercial purposes; \281\ (4) the 
applicant's procedures and a description of its facilities for 
resolving disputes over the accuracy of the transaction data and 
positions that are recorded in the SDR; \282\ (5) the applicant's 
policies and procedures relating to its calculation of positions; \283\ 
(6) the applicant's policies and procedures to prevent any provision in 
a valid SBS from being invalidated or modified through the procedures 
or operations of the applicant; \284\ and (7) a plan to ensure that the 
transaction data and position data that are recorded in the SDR 
continue to be maintained after the applicant withdraws from 
registration, which shall include procedures for transferring 
transaction data and position data to the Commission or its designee 
(including another registered SDR).\285\ This information will assist 
the Commission in determining, among other things, whether an SDR can 
comply with the requirements to establish, maintain, and enforce these 
seven policies and procedures, as discussed further in Sections VI.D, 
VI.E, VI.G, and VI.I of this release. In addition, Form SDR requires an 
applicant to attach as exhibits all of the policies and procedures set 
forth in Regulation SBSR.\286\
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    \279\ See Item 39 of Form SDR.
    \280\ See Item 40 of Form SDR.
    \281\ See Item 41 of Form SDR.
    \282\ See Item 42 of Form SDR.
    \283\ See Item 43 of Form SDR.
    \284\ See Item 44 of Form SDR.
    \285\ See Item 45 of Form SDR.
    \286\ See Item 46 of Form SDR; Regulation SBSR Adopting Release, 
supra note 13 (Rule 907 requiring SDRs to establish and maintain 
certain written policies and procedures).
---------------------------------------------------------------------------

    One commenter suggested that the Commission require an applicant to 
submit its ``rulebook.'' \287\ The Commission does not believe that 
such a requirement is necessary, but is revising Form SDR from the 
proposal to provide that if an applicant has a rulebook, then it may 
attach its rulebook as an exhibit to the form,\288\ as a supplement to 
the policies and procedures required by Form SDR. The Commission 
believes that if an applicant has a rulebook, much of the information 
that would be contained in the rulebook likely would be filed as part 
of an SDR's policies and procedures.\289\ To the extent that an 
applicant's rulebook is broader, an applicant may submit its rulebook 
to the Commission if, for example, the applicant believes that it would 
be useful for the Commission to better understand the context of the 
applicant's policies and procedures or how the policies and procedures 
relate to one another.
---------------------------------------------------------------------------

    \287\ DTCC 3, supra note 19.
    \288\ See Item 47 of Form SDR.
    \289\ The Commission notes that an SDR that is also registered 
with the CFTC as a swap data repository is required under CFTC Rule 
49.8 to either submit its rules and amendments thereto for approval 
by the CFTC or self-certify that the rulebook complies with the 
CFTC's swap data repository rules and the CEA. See 17 CFR 49.8. The 
Dodd-Frank Act did not establish SDRs as self-regulatory 
organizations (``SROs'') (which, under the Exchange Act, are 
required to file their rules with the Commission) or create an 
express obligation for SDRs to file their rules with the Commission. 
As noted above, SDRs must provide certain policies and procedures on 
Form SDR. The Commission believes that this disclosure is sufficient 
to enable the Commission to determine whether an SDR's policies and 
procedures are in compliance with the Exchange Act, including 
Section 13(n), and the rules and regulations thereunder. The 
Commission recognizes, however, that reviewing a rulebook that is 
voluntarily submitted to the Commission may assist the Commission in 
understanding other items in an applicant's Form SDR.
---------------------------------------------------------------------------

    Legal Opinion. Form SDR requires each non-resident SDR to attach as 
an exhibit an opinion of counsel that the SDR can, as a matter of law, 
provide the Commission with prompt access to the SDR's books and 
records and that the SDR can, as a matter of law, submit to onsite 
inspection and examination by the Commission.\290\
---------------------------------------------------------------------------

    \290\ See Item 48 of Form SDR.
---------------------------------------------------------------------------

    As discussed above, one commenter suggested that the legal opinion 
requirement would subject non-resident SDRs to a stricter regulatory 
regime than resident SDRs.\291\ The Commission, however, continues to 
believe that non-resident SDRs that are registered, or seek to 
register, with the Commission should be required to provide the opinion 
of counsel. Each jurisdiction may have a different legal framework 
(e.g., privacy laws) that may limit or restrict the Commission's 
ability to access information from an SDR. Rather than create unequal 
regulatory obligations, the legal opinion requirement equalizes the 
regulatory landscape for SDRs by addressing whether a non-resident SDR 
is able to comply with the requirements for it to provide the 
Commission with prompt access to the SDR's books and records,\292\ and 
to submit to onsite inspection and examination by the Commission,\293\ 
similar to SDRs that reside in the United States. Failure to provide an 
opinion of counsel may be a basis for the Commission to institute 
proceedings to consider denying an application for registration.
---------------------------------------------------------------------------

    \291\ ESMA, supra note 19.
    \292\ See Rule 13n-7(b)(3) (requiring every SDR to, upon request 
of any representative of the Commission, promptly furnish requested 
documents to the representative).
    \293\ See Exchange Act Section 13(n)(2), 15 U.S.C. 78m(n)(2) 
(subjecting registered SDRs to inspection and examination by any 
representative of the Commission)).
---------------------------------------------------------------------------

    Electronic Filing. The Commission is revising Rule 13n-1(b) from 
the proposal to conform the rule with General Instruction 1 to Form 
SDR. As revised, Rule 13n-1(b) provides that in addition to an 
application for registration as an SDR, all amendments thereto must be 
filed electronically in a tagged \294\ data format on Form SDR with the 
Commission in accordance with the instructions contained in the 
form.\295\ This modification to also require all amendments on Form SDR 
be filed electronically in a tagged data format is intended to conform 
with General Instruction 1 to Form SDR, which requires the form and 
exhibits thereto to be filed electronically in a tagged data format by 
an applicant for registration as an SDR and by an SDR amending its 
application for registration.
---------------------------------------------------------------------------

    \294\ The term ``tag'' (including the term ``tagged'') is being 
revised from the proposal to have the same meaning as set forth in 
Rule 11 of Regulation S-T (defining ``tag'' as ``an identifier that 
highlights specific information to EDGAR that is in the format 
required by the EDGAR Filer Manual''). See Rules 13n-1(a)(2), 13n-
2(a), and 13n-11(b)(9); see also 17 CFR 232.11. The Commission is 
revising this term from the proposal to be consistent with all the 
other terms in the SDR Rules that cross-reference to the definitions 
set forth in Regulation S-T, where applicable. For example, the term 
``EDGAR Filer Manual'' has the same meaning as set forth in Rule 11 
of Regulation S-T (defining ``EDGAR Filer Manual'' as ``the current 
version of the manual prepared by the Commission setting out the 
technical format requirements for an electronic submission''). See 
Rule 13n-11(b)(3); see also 17 CFR 232.11.
    \295\ See Rule 13n-1(b).
---------------------------------------------------------------------------

    The Commission anticipates developing an electronic filing system 
through which an SDR will be able to file and update Form SDR on or 
about the effective date of Rule 13n-1.\296\ If

[[Page 14464]]

the Commission's electronic filing system is unavailable at the time an 
applicant seeks to file its application for registration on Form SDR, 
the applicant may file the form, including any amendments thereto, in 
paper format with the Commission's Division of Trading and Markets at 
the Commission's principal office in Washington, DC. However, doing so 
does not relieve the SDR from compliance with the requirement in Rule 
13n-1(b) to file Form SDR ``electronically in a tagged data format.'' 
Therefore, when the Commission's electronic filing system is available, 
the applicant should file electronically any initial and amended Form 
SDRs that had been filed previously in paper format.\297\ The 
Commission expects that the information filed will be made available on 
the Commission's Web site, except in cases where confidential treatment 
is requested by an SDR and granted by the Commission.\298\ The 
Commission acknowledges that SDRs will likely incur additional costs 
and burdens, particularly in initial compliance, with the data tagging 
requirement, when compared with filing Form SDR in paper format. 
However, the Commission believes that such costs will be minimal and 
that this requirement will facilitate review and analysis of 
registration materials by Commission staff and, to the extent such 
materials are made public, the public. The Commission believes that the 
costs of completing Form SDR in tagged data format are justified by the 
benefits derived from the ability of investors, analysts, and 
Commission staff to be able to more effectively capture, review, and 
analyze the SDR registration materials if they are in tagged data 
format.\299\
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    \296\ This electronic filing system for Form SDR will be through 
EDGAR, and thus, the electronic filing requirements of Regulation S-
T will apply. See generally 17 CFR 232 (governing the electronic 
submission of documents filed with the Commission). The Commission 
is amending General Instruction 1 to Form SDR to clarify the 
applicability of Regulation S-T to Form SDR. To conform with how 
filings are presently made through EDGAR, the Commission has made 
several minor edits to Form SDR from the proposal. See, e.g., 
Instruction 10 of Form SDR (providing guidance on filing Form SDR as 
an amendment, other than an annual amendment); Item 3 of Form SDR 
(requesting mailing address, which includes state/country and 
mailing zip/postal code); Item 9 of Form SDR (requesting information 
regarding an entity's incorporation or organization); Item 13 of 
Form SDR (requesting date of signature in different format).
    \297\ See Proposing Release, 75 FR at 77309 n.25, supra note 2 
(noting that SDRs might be required to file Form SDR in paper until 
such time as an electronic filing system is operational and capable 
of receiving the form and the Commission may require each SDR to 
promptly re-file electronically Form SDR and any amendments to the 
form).
    \298\ As discussed below, the Commission is adopting technical 
amendments to Exchange Act Rule 24b-2 to clarify that the 
confidential portion of electronic filings by SDRs must be filed 
electronically and to require SDRs to request confidential treatment 
electronically. The Commission is also adopting technical amendments 
to Rule 101 of Regulation S-T to provide that, except as otherwise 
provided, all filings by SDRs, including any information with 
respect to which confidential treatment is requested, must be filed 
electronically.
    \299\ As part of the Commission's longstanding efforts to 
increase transparency and the usefulness of information, the 
Commission has been implementing data tagging of information 
contained in electronic filings to improve the accuracy of financial 
information and facilitate its analysis. See Regulation S-T, 17 CFR 
232; see also Securities Act Release No. 8891 (Feb. 6, 2008), 73 FR 
10592 (Feb. 27, 2008); Securities Act Release No. 9002 (Jan. 30, 
2009), 74 FR 6776 (Feb. 10, 2009); Securities Act Release No. 9006 
(Feb. 11, 2009), 74 FR 7748 (Feb. 19, 2009); Exchange Act Release 
No. 61050 (Nov. 23, 2009), 74 FR 63832 (Dec. 4, 2009); Investment 
Company Release No. 29132 (Feb. 23, 2010), 75 FR 10060 (Mar. 4, 
2010); What is Interactive Data and Who's Using It?, http://www.sec.gov/spotlight/xbrl/what-is-idata.shtml (last updated March 
15, 2010) (link to the Commission's Office of Interactive 
Disclosure's discussion of the benefits of interactive data). 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 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. Requiring 
the information to be tagged in a machine-readable format using a 
data standard that is freely available, consistent, and compatible 
with the tagged data formats already in use for Commission filings 
will enable the Commission to review and analyze more effectively 
Form SDR submissions.
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    Technical Amendments to Electronic Filing Requirements. The 
Commission is adopting technical amendments to Exchange Act Rule 24b-2 
\300\ and Rule 101 of Regulation S-T \301\ to clarify that SDRs' 
electronic filings pursuant to Exchange Act Section 13(n) and the rules 
and regulations thereunder \302\ must include any information with 
respect to which confidential treatment is requested (``confidential 
portion''). Generally speaking, Exchange Act Rule 24b-2 and Rule 101 of 
Regulation S-T require confidential treatment requests and the 
confidential portion to be submitted in paper format only. The 
Commission's technical amendments provide an exception from Rule 24b-
2's and Rule 101's paper-only filing requirements for all SDR filings. 
Under this exception, the confidential portion of all SDR filings must 
be filed in electronic format.
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    \300\ 17 CFR 240.24b-2.
    \301\ 17 CFR 232.101.
    \302\ See, e.g., Rule 13n-2(b) (relating to withdrawal on Form 
SDR) and Rule 13n-11(d)(2) (relating to compliance reports); see 
also Rule 13n-11(f)(5) (relating to financial reports); General 
Instruction 1 to Form SDR (requiring Form SDR and exhibits to be 
filed electronically in a tagged data format, including amendments 
filed under Rule 13n-1(d)).
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    The Commission is revising Rule 24b-2 in two ways. First, the 
Commission is revising Rule 24b-2(b) to provide an exception for 
persons providing materials pursuant to Rule 24b-2(h) from the general 
requirement to omit the confidential portion from ``the material 
filed.'' \303\ Second, the Commission is adding Rule 24b-2(h) to 
provide that an SDR must not omit the confidential portion from the 
material filed in electronic format pursuant to Exchange Act Section 
13(n) and the rules and regulations thereunder, and must request 
confidential treatment electronically in lieu of the procedures 
described in Rule 24b-2(b).
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    \303\ Rule 24b-2(a) refers to ``any registration statement, 
report, application, statement, correspondence, notice or other 
document'' as ``the material filed.''
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    The Commission is also revising Rule 101 to add paragraph 
(a)(1)(xvii) to the list of mandated electronic submissions. 
Specifically, paragraph (a)(1)(xvii) adds to this list documents filed 
with the Commission pursuant to Exchange Act Section 13(n) and the 
rules and regulations thereunder, including Form SDR and reports filed 
pursuant to Exchange Act Rules 13n-11(d) and (f).\304\ The Commission 
is also revising Rule 101(c) to provide that except as otherwise 
specified in Rule 101(d), confidential treatment requests and the 
information with respect to which confidential treatment is requested 
must not be submitted in electronic format. The Commission is further 
adding Rule 101(d) to provide as an exception to Rule 101(c)'s paper-
only filing requirement all documents, including any information with 
respect to which confidential treatment is requested, filed pursuant to 
Exchange Act Section 13(n) and the rules and regulations thereunder.
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    \304\ See Sections VI.J.4 and VI.J.5 of this release discussing 
compliance reports and financial reports filed pursuant to Rules 
13n-11(d) and (f).
---------------------------------------------------------------------------

    Electronic filing of all materials filed by SDRs, including the 
confidential portion, will reduce the burden on SDRs by not requiring a 
separate paper submission and facilitate the Commission's review and 
analysis of the filings.\305\
---------------------------------------------------------------------------

    \305\ See Rules 13-1(b); 13n-2(b); 13n-11(d)(2); see also Rule 
13n-11(f)(5); General Instruction 1 to Form SDR.
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2. Factors for Approval of Registration and Procedural Process for 
Review (Rule 13n-1(c))
a. Proposed Rule
    Proposed Rule 13n-1(c) would establish the timeframe for Commission 
action on applications for registration as an SDR, as well as the 
Commission's procedures for reviewing applications for registration. In 
particular, proposed Rule 13n-1(c) provided that, within 90 days of the 
date of the filing of an application for registration on Form SDR (or 
within such longer period as to which the SDR consents), the

[[Page 14465]]

Commission will either grant the registration by order or institute 
proceedings to determine whether registration should be denied. The 
proposed rule set forth the time period for such proceedings. The 
proposed rule also set forth the standard applicable to an application 
for registration as an SDR.
b. Comments on the Proposed Rule
    Although the Commission did not receive any comments directly 
relating to this proposed rule, two commenters expressed their views on 
the SDR registration process generally.\306\
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    \306\ See DTCC 2, supra note 19; ICE CB, supra note 26.
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    The first commenter recommended sufficient time for an appropriate 
level of due diligence with respect to applications for 
registration.\307\ While the commenter expressly referenced the 
proposed temporary registration rule, the Commission believes that the 
commenter's concern regarding the operational capability of SDRs is 
applicable to any applicant for registration as an SDR.\308\ 
Additionally, the same commenter supported combining new Form SDR with 
Form SIP,\309\ which would necessitate a revision to Rule 13n-1(c), as 
described below.\310\
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    \307\ DTCC 2, supra note 19 (``DTCC is concerned that the SEC's 
proposed implementation schedule for reporting to SDRs is heavily 
compressed and, when coupled with the temporary registration regime, 
may lead to compromised solutions, including operational and 
security compromises. . . . [P]otential SDRs are unlikely to be able 
to offer fully robust or efficient solutions for early registration, 
given that the final rules will be available relatively shortly 
before the effective date. DTCC recommends that appropriate due 
diligence is conducted with respect to the temporary registration 
process and that those diligence findings are either used to support 
transition of existing infrastructure or used for new entrants who 
can demonstrate that their infrastructure supports key operational 
capabilities, including 24/6 operation, real-time processing, 
multiple redundancy, and robust information security controls.''); 
see also DTCC 3, supra note 19 (``SDRs must be able to demonstrate 
an infrastructure which supports critical operational capabilities. 
. . . Assessment of these core capabilities is a critical component 
of any registration process, including a temporary registration.'').
    \308\ See Section VI.A.3.c of this release discussing the 
Commission's decision not to adopt the proposed temporary 
registration rule.
    \309\ DTCC 2, supra note 19 (requesting that the Commission 
combine Form SDR and Form SIP such that an SDR would register as an 
SDR and a SIP using only one form or permit either Form SDR or Form 
SIP to be the application for registration as both an SDR and an 
SIP); DTCC 3, supra note 19.
    \310\ See Section VI.A.1 of this release discussing combining 
Form SDR and Form SIP.
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    The second commenter requested the Commission's expedited review of 
SDR registration.\311\
---------------------------------------------------------------------------

    \311\ ICE CB, supra note 26 (suggesting that the Commission take 
into consideration the SDR's provisional registration with the 
CFTC).
---------------------------------------------------------------------------

c. Final Rule
    After considering the comments, the Commission is adopting Rule 
13n-1(c) as proposed, with minor modifications. First, the Commission 
is making minor revisions from the proposal relating to the event that 
begins the 90-day period for Commission review and action on the 
application for registration as an SDR. The final rule provides that 
within 90 days of the date of the publication of notice of the filing 
of an application for registration (or within such longer period as to 
which the applicant consents), the Commission will either grant the 
registration by order or institute proceedings to determine whether 
registration should be granted or denied.\312\ The 90-day period will 
not begin to run until an SDR files a complete Form SDR with the 
Commission,\313\ and the Commission publishes notice of the filing of 
Form SDR to afford interested persons an opportunity to submit written 
comments concerning such application.\314\ As discussed above, in light 
of the Commission's adoption of the requirement for a registered SDR to 
also register as a SIP in Regulation SBSR,\315\ the Commission has 
decided to consolidate Form SIP and Form SDR in order to make the 
registration process for SDRs more efficient; this approach has been 
endorsed by one commenter.\316\ The Commission's revision of Rule 13n-
1(c) relating to the publication of notice makes it procedurally 
consistent with the registration process applicable to SIPs under 
Exchange Act Section 11A(b) \317\ and stems from the Commission's 
requirement that a registered SDR register as a SIP \318\ and the 
Commission's revision of Form SDR to accommodate SIP registration. 
Exchange Act Section 11A(b)(3) provides that the Commission will, upon 
the filing of an application for registration as a SIP, publish notice 
of the filing and afford interested persons an opportunity to submit 
written data, views, and arguments concerning such application; within 
90 days of the date of the publication of such notice (or within such 
longer period as to which the applicant consents), the Commission will 
by order grant such registration or institute proceedings to determine 
whether registration should be denied.\319\ The Commission has 
determined to adopt Rule 13n-1(c) with revised text from the proposal 
that conforms the event preceding the period for Commission action, 
with respect to applications for registration as an SDR, to the event 
set forth in Section 11A(b)(3), with respect to applications for 
registration as a SIP.\320\
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    \312\ Rule 13n-1(c).
    \313\ See Proposing Release, 75 FR at 77313, supra note 2. If a 
Form SDR is incomplete, then it may be deemed as not acceptable for 
filing. General Instruction 7 to Form SDR, as adopted, provides that 
``[a] form that is not prepared and executed in compliance with 
applicable requirements may be deemed as not acceptable for 
filing.'' Further, the application must include information 
sufficient to allow the Commission to assess the applicant's ability 
to comply with the federal securities laws and the rules and 
regulations thereunder. Form SDR consists of instructions, a list of 
questions, a signature page, and a list of exhibits that the 
Commission requires in order to be able to determine whether an 
applicant is able to comply with the federal securities laws and the 
rules and regulations thereunder. An application on Form SDR may not 
be considered complete unless the applicant has filed, at a minimum, 
responses to all the questions listed, the signature page, and 
exhibits as required in Form SDR, and any other materials the 
Commission may require, upon request, in order to assess whether an 
applicant is able to comply with the federal securities laws and the 
rules and regulations thereunder. If the application is not 
complete, then the application will not be deemed to have been filed 
for the Commission's review.
    \314\ If, however, an SDR files an amendment to its application 
for registration after the Commission has already published notice 
of the filing of Form SDR and the Commission finds that the 
amendment renders the prior filing materially incomplete, then the 
90-day period will reset from the time that the Commission deems the 
amended application to be complete for the Commission's review.
    \315\ See Regulation SBSR Adopting Release, supra note 13 (Rule 
909).
    \316\ See DTCC 2, supra note 19; DTCC 3, supra note 19.
    \317\ See 15 U.S.C. 78k-1(b).
    \318\ See Regulation SBSR Adopting Release, supra note 13 (Rule 
909).
    \319\ See 15 U.S.C. 78k-1(b)(3).
    \320\ A publication of notice of the filing of an application 
for registration is required in the SIP context.
---------------------------------------------------------------------------

    Second, the Commission is revising Rule 13n-1(c) from the proposal 
to clarify that the purpose of proceedings instituted pursuant to the 
rule is to determine whether an applicant's registration as an SDR 
should be granted or denied, rather than only denied (as 
proposed).\321\ The Commission is further revising Rule 13n-1(c) from 
the proposal to provide that proceedings instituted pursuant to the 
rule will include notice of the issues under consideration (rather than 
grounds for denial under consideration, as proposed) and opportunity 
for hearing on the record and will be concluded within 180 days after 
the date of the publication of notice of the filing of the application 
for registration.\322\ These

[[Page 14466]]

revisions from the proposal are intended to make the rule internally 
consistent.\323\
---------------------------------------------------------------------------

    \321\ See Rule 13n-1(c)(2).
    \322\ See Rule 13n-1(c)(2). For the reasons provided above, in 
conjunction with the revision from the proposal to the event that 
precedes the 90-day period, and for consistency within the rule, the 
Commission is also revising from the proposal the event that 
precedes the 180-day period for conclusion of Commission action on 
the application for registration as an SDR. In making this revision, 
the Commission is changing ``not later than 180 days'' to ``within 
180 days'' for consistency within the rule.
    \323\ Proposed Rule 13n-1(c)(2) stated that the Commission may 
institute proceedings to determine whether registration should be 
``denied,'' and that such proceedings include notice of the 
``grounds for denial,'' but that at the conclusion of such 
proceedings, the Commission shall ``grant or deny'' registration. As 
adopted, the rule clarifies that the Commission may institute 
proceedings to determine whether registration should be ``granted or 
denied'' and that proceedings instituted pursuant to this rule must 
include notice of the ``issues under consideration.''
---------------------------------------------------------------------------

    The Commission is adopting Rule 13n-1(c) as proposed in all other 
respects. Rule 13n-1(c) provides that at the conclusion of proceedings 
instituted pursuant to the rule, the Commission, by order, will grant 
or deny such registration.\324\ The Commission may extend the time for 
conclusion of such proceedings for up to 90 days if it finds good cause 
for such extension and publishes its reasons for so finding or for such 
longer period as to which the SDR consents.\325\
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    \324\ Rule 13n-1(c)(2).
    \325\ Rule 13n-1(c)(2).
---------------------------------------------------------------------------

    As noted in the Proposing Release, the Commission believes that the 
timeframes for reviewing applications for registration as an SDR are 
appropriate to allow Commission staff sufficient time to ask questions 
and, as needed, to request amendments or changes by SDRs to address 
legal or regulatory concerns before the Commission takes final action 
on an application for registration.\326\ In addition, the registration 
process provides a mechanism for an SDR to demonstrate that it can 
comply with the federal securities laws and the rules and regulations 
thereunder.\327\ One commenter requested that the Commission provide 
for expedited review of the commenter's application for registration as 
an SDR, in part because of its provisional registration with the CFTC 
as a swap data repository.\328\ It is unclear what the commenter means 
by ``expedited review,'' but the Commission believes that the 
procedures for reviewing applications for registration as an SDR that 
the Commission is adopting in this release provide reasonable 
timeframes for the Commission's review of the applications and the 
Compliance Date for the SDR Rules will address the concerns of existing 
SDRs operating during the registration period.\329\ Moreover, these 
procedures are consistent with the procedures for reviewing 
applications of other registrants by the Commission (e.g., SIPs, 
broker-dealers, nationally recognized statistical ratings 
organizations, national securities exchanges, registered securities 
associations, and registered clearing agencies) although the timeframes 
for review vary.\330\ Additionally, the Commission notes that its 
review of an SDR's application for registration is independent of the 
CFTC's review of a swap data repository's application for 
registration.\331\
---------------------------------------------------------------------------

    \326\ Proposing Release, 75 FR at 77313, supra note 2. In 
addition to the applicant's registration on Form SDR, ``[a]s part of 
the application process, each SDR shall provide additional 
information to any representative of the Commission upon request.'' 
See Rule 13n-1(b).
    \327\ See Proposing Release, 75 FR at 77313, supra note 2 
(discussing Rule 13n-1(c) and noting that ``the registration 
provides a mechanism for an SDR to demonstrate that it can comply 
with the federal securities laws and the rules and regulations 
thereunder'').
    \328\ See ICE CB, supra note 26.
    \329\ See Section V.C of this release discussing the 
Commission's efforts designed to minimize interference with ongoing 
operations of existing SDRs during the implementation of the SDR 
Rules.
    \330\ See Exchange Act Sections 11A(b)(3), 15(b), 15E(a)(2), and 
19(a), 15 U.S.C. 78k-1(b)(3), 78o(b), 78o-7(a)(2), and 78s(a).
    \331\ But see ICE CB, supra note 26 (suggesting that the 
Commission take into consideration the SDR's provisional 
registration with the CFTC).
---------------------------------------------------------------------------

    The Commission will grant the registration of an SDR if the 
Commission finds that the 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 Section 13(n) and the rules and regulations 
thereunder.\332\ The Commission will deny the registration of an SDR if 
the Commission does not make such a finding.\333\
---------------------------------------------------------------------------

    \332\ Rule 13n-1(c)(3).
    \333\ Id.
---------------------------------------------------------------------------

    One commenter indicated that applicants for registration as an SDR 
should be able to ``demonstrate that their infrastructure supports key 
operational capabilities, including 24/6 operation, real-time 
processing, multiple redundancy, and robust information security 
controls.'' \334\ Similarly, the same commenter stated that ``SDRs must 
be able to demonstrate an infrastructure which supports critical 
operational capabilities'' and ``[a]ssessment of these core 
capabilities is a critical component of any registration process.'' 
\335\ The Commission generally agrees with this commenter and believes 
that an SDR's infrastructure and operational capabilities are important 
factors in determining whether to grant an SDR's application for 
registration.\336\
---------------------------------------------------------------------------

    \334\ DTCC 2, supra note 19.
    \335\ DTCC 3, supra note 19.
    \336\ See Rule 13n-6 (requiring SDRs to establish, maintain, and 
enforce written policies and procedures reasonably designed to 
ensure that its systems provide adequate levels of capacity, 
integrity, resiliency, availability, and security); Rule 13n-1(c)(3) 
(discussing the standards for the Commission to grant registration 
of an SDR, including having the capacity to be able to assure the 
prompt, accurate, and reliable performance of its functions as an 
SDR, and comply with any applicable provision of the federal 
securities laws and the rules and regulations thereunder).
---------------------------------------------------------------------------

    In the Proposing Release, the Commission asked whether, in order to 
form a more complete and informed basis on which to determine whether 
to grant, deny, or revoke an SDR's registration, it should adopt a 
requirement that an SDR 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.\337\ The Commission did not receive any comments directly 
on this issue, but upon further consideration, the Commission has 
determined not to require an SDR to file with the Commission a review 
of the SDR's operational capacity and ability to meet its regulatory 
obligations because it is not clear that the benefits of such a 
requirement would justify the costs. However, in determining whether an 
applicant meets the criteria set forth in Rule 13n-1(c), the Commission 
will consider the application and any additional information obtained 
from the SDR, which may include information obtained in connection with 
an inspection or examination of the SDR. Additionally, in connection 
therewith, the Commission may consider, among other things, whether an 
applicant can demonstrate its operational capabilities and conduct its 
operations in compliance with its statutory and regulatory obligations. 
If an applicant (rather than its affiliate) is already registered with 
the Commission as, for example, a clearing agency, then Commission 
representatives may also take into account any recent examinations in 
its determination pursuant to Rule 13n-1(c)(3).
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    \337\ Proposing Release, 75 FR at 77313, supra note 2.
---------------------------------------------------------------------------

    The Commission will consider a registered SDR's operational 
capacity and ability to meet its statutory and regulatory obligations 
to determine

[[Page 14467]]

whether the SDR should continue to operate as such or whether the 
Commission should take steps to revoke the SDR's registration. As 
provided in Exchange Act Section 13(n)(2), ``[e]ach registered 
security-based swap data repository shall be subject to inspection and 
examination by any representative of the Commission.'' \338\ The 
results of such inspection and examination will be used to inform the 
Commission whether the SDR is complying with the federal securities 
laws and the rules and regulations thereunder. As discussed further 
below, under Rule 13n-2(e), if the Commission finds, on the record 
after notice and opportunity for hearing, that any registered SDR has, 
among other things, failed to comply with any provision of the federal 
securities laws and the rules and regulations thereunder, the 
Commission, by order, may revoke the SDR's registration.\339\
---------------------------------------------------------------------------

    \338\ Exchange Act Section 13(n)(2), 15 U.S.C. 78m(n)(2). See 
also Section VI.D.2 of this release discussing Rule 13n-4(b)(1), 
which implements Exchange Act Section 13(n)(2).
    \339\ See Section VI.B of this release discussing Rule 13n-2(e).
---------------------------------------------------------------------------

    In considering initial applications for registration on Form SDR 
filed contemporaneously with the Commission, the Commission intends to 
process such applications for multiple SDRs accepting SBS transaction 
data from the same asset classes within the same period of time so as 
to address competition concerns that could arise if such SDRs were 
granted registration at different times.\340\ Further, in light of the 
Commission's adoption of the requirement in Regulation SBSR for a 
registered SDR to register as a SIP,\341\ the Commission is adopting 
Form SDR, which incorporates the requirements of Form SIP, as discussed 
in Section VI.A.1.c above. The Commission's review of an applicant's 
registration as an SDR on Form SDR will encompass review with respect 
to both SDR and SIP registration. The Commission contemplates that it 
will grant registrations to an applicant both as an SDR and as a SIP 
simultaneously.
---------------------------------------------------------------------------

    \340\ Certain unexpected events that raise compliance concerns 
with respect to one applicant but not another, such as deficiencies 
identified in connection with the Commission's consideration of 
whether an applicant meets the criteria set forth in Rule 13n-1(c), 
may interfere with the Commission's ability to process initial 
applications for registration within the same period of time.
    \341\ See Regulation SBSR Adopting Release, supra note 13 (Rule 
909).
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3. Temporary Registration (Rule 13n-1(d))
a. Proposed Rule
    As proposed, Rule 13n-1(d) provided a method for SDRs to register 
temporarily with the Commission. The proposed rule provided that, upon 
the request of an SDR, the Commission may grant temporary registration 
of the SDR that would expire on the earlier of: (1) The date that the 
Commission grants or denies (permanent) registration of the SDR, or (2) 
the date that the Commission rescinds the temporary registration of the 
SDR.\342\
---------------------------------------------------------------------------

    \342\ Proposed Rule 13n-1(d).
---------------------------------------------------------------------------

b. Comments on the Proposed Rule
    Two commenters submitted comments relating to this proposed 
rule.\343\ One commenter recommended that the Commission establish 
clear standards and requirements for temporary registration.\344\ 
Similarly, another commenter recommended that ``the Commission 
establish clearly articulated standards and requirements for temporary 
registration so that existing trade repositories may quickly begin to 
provide similar transparency to the [SBS] markets that is currently 
provided to the rest of the swaps market, thus facilitating the 
Commission's oversight of these markets.'' \345\ That same commenter 
also expressed concern about the temporary registration provision, 
particularly the cumulative effect of the short time frame afforded for 
registration and the possibility that a temporary registration regime 
``may lead to compromised solutions [at SDRs], including operational 
and security compromises.'' \346\ Additionally, the commenter urged the 
Commission to ensure that the registration process does not interfere 
with the ongoing operation of existing SDRs.\347\
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    \343\ See DTCC 2, supra note 19; ICE CB, supra note 26; see also 
DTCC 5, supra note 19.
    \344\ ICE CB, supra note 26.
    \345\ DTCC 5, supra note 19 (``Further clarity on the standards 
and process that will be utilized to grant temporary registration 
will also provide applicants to register as [SDRs] with a better 
understanding of the Commission's expectations with respect to their 
obligations and requirements prior to being granted full 
registration.'').
    \346\ DTCC 2, supra note 19 (``DTCC is concerned that the SEC's 
proposed implementation schedule for reporting to SDRs is heavily 
compressed and, when coupled with the temporary registration regime, 
may lead to compromised solutions, including operational and 
security compromises . . . . [P]otential SDRs are unlikely to be 
able to offer fully robust or efficient solutions for early 
registration, given that the final rules will be available 
relatively shortly before the effective date. DTCC recommends that 
appropriate due diligence is conducted with respect to the temporary 
registration process and that those diligence findings are either 
used to support transition of existing infrastructure or used for 
new entrants who can demonstrate that their infrastructure supports 
key operational capabilities, including 24/6 operation, real-time 
processing, multiple redundancy, and robust information security 
controls.''); see also DTCC 3, supra note 19 (``SDRs must be able to 
demonstrate an infrastructure which supports critical operational 
capabilities . . . . Assessment of these core capabilities is a 
critical component of any registration process, including a 
temporary registration.'').
    \347\ DTCC 2, supra note 19; see also DTCC 5, supra note 19 
(stating the same and ``[w]hether done through a phasing-in of final 
[SDR] rules or the Commission's prompt issuance of temporary 
registration conditioned on implementation of enhancements to comply 
more fully with specified provisions, the Commission should ensure 
the continuation of counterparty reporting and the ability of the 
entities currently performing the functions of an [SDR] to receive 
and maintain current trade information on an ongoing basis'').
---------------------------------------------------------------------------

c. Final Rule
    After considering the comments, the Commission has determined not 
to adopt proposed Rule 13n-1(d). As stated in the Proposing Release, 
the temporary registration provision would have enabled an SDR to 
comply with the Dodd-Frank Act upon its effective date (i.e., the later 
of 360 days after the date of its enactment or 60 days after 
publication of the final rule implementing Exchange Act Section 13(n)) 
\348\ regardless of any unexpected contingencies that may arise in 
connection with the filing of Form SDR. The proposed temporary 
registration would also have allowed the Commission to implement the 
registration requirements of the Dodd-Frank Act for SDRs while still 
giving the Commission sufficient time to review fully the application 
of an SDR after it becomes operational, but before granting a 
registration that is not limited in duration.
---------------------------------------------------------------------------

    \348\ Proposing Release, 75 FR at 77314, supra note 2; see also 
Dodd-Frank Act Section 774.
---------------------------------------------------------------------------

    These concerns were motivated primarily by the short timeframe 
between when the SDR Rules were first proposed and when registration 
would have been required (i.e., as of July 16, 2011). However, the 
exemptive relief provided by the Commission, which was effective on 
June 15, 2011,\349\ addressed this primary purpose for temporary 
registration. Further, the Compliance Date for the SDR Rules \350\ 
should provide sufficient time for SDRs to analyze and understand the 
final SDR Rules, to develop and test new systems required to comply 
with the Dodd-Frank Act's provisions governing SDRs and the SDR Rules, 
to prepare and file Form SDR, to demonstrate their ability to meet the 
criteria for registration set forth in Rule 13n-1(c)(3), and to obtain 
registration with the Commission. Therefore, the Commission believes 
that it has addressed commenters' concerns relating to interference 
with the ongoing

[[Page 14468]]

operation of existing SDRs.\351\ For these reasons, the Commission no 
longer believes that a temporary registration regime for SDRs is 
necessary or appropriate.
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    \349\ See Effective Date Order, 76 FR at 36306, supra note 9.
    \350\ See Section V.C of this release discussing the Compliance 
Date.
    \351\ See, e.g., DTCC 2, supra note 19; DTCC 5, supra note 19.
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4. Amendment on Form SDR (Proposed Rule 13n-1(e)/Final Rule 13n-1(d))
a. Proposed Rule
    As proposed, Rule 13n-1(e) would require an SDR to file promptly an 
amendment on Form SDR (``interim amendment'') if any information 
reported in Items 1 through 16, 25, and 46 \352\ of Form SDR or in any 
amendment thereto is or becomes inaccurate for any reason. The 
Proposing Release indicated that an SDR would generally be required to 
file such an amendment within 30 days from the time such information 
becomes inaccurate.\353\ In addition, an SDR would be required to file 
an annual amendment on Form SDR within 60 days after the end of its 
fiscal year.
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    \352\ The Commission notes that the Proposing Release, proposed 
Rule 13n-1(e), and General Instruction 6 to proposed Form SDR 
inadvertently referred to Item 44 instead of Item 46. See Proposing 
Release, 75 FR at 77314, 77315, and 77374, supra note 2. However, 
the discussion in the Proposing Release made clear that the 
Commission expected a non-resident SDR to promptly amend its Form 
SDR after any changes in the legal and regulatory framework that 
would impact the SDR's ability to provide the Commission with prompt 
access to the SDR's books and records, and such amendment should 
include a revised opinion of counsel. See Proposing Release, 75 FR 
at 77314, supra note 2. This discussion was clearly referring to the 
requirements in proposed Item 46 (requiring opinion of counsel by 
non-resident SDRs), and not proposed Item 44 (requiring plan to 
ensure data is maintained after the applicant withdraws from 
registration).
    \353\ Proposing Release, 75 FR at 77314, supra note 2.
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b. Comments on the Proposed Rule
    The Commission did not receive any comments relating to this 
proposed rule.
c. Final Rule
    The Commission is adopting Rule 13n-1(e) as proposed, redesignated 
as Rule 13n-1(d). Under Rule 13n-1(d), if any information reported in 
Items 1 through 17, 26, and 48 of Form SDR (designated as Items 1 
through 16, 25, and 46 in proposed Rule 13n-1(e)) or in any amendment 
thereto is or becomes inaccurate for any reason, whether before or 
after the registration has been granted, an SDR shall promptly file an 
amendment on Form SDR updating the information. An SDR should file an 
interim amendment as soon as practicable, and generally no later than 
30 days from the time such information becomes inaccurate in order for 
the filing to be viewed as ``promptly'' filed. For example, an SDR 
should file an amendment promptly after any change in the identity of 
its CCO or if the biographical information provided about its CCO 
changes (e.g., if the CCO becomes the subject of certain specified SRO 
actions).\354\
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    \354\ See Section VI.J of this release discussing the CCO 
requirements in Rule 13n-11.
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    In addition to interim amendments, an SDR is required to file a 
comprehensive annual amendment on Form SDR, including all items subject 
to interim amendments, within 60 days after the end of its fiscal 
year.\355\ This annual amendment must be fully restated and complete, 
including all pages, answers to all items, together with exhibits.\356\ 
This annual amendment must also indicate which items have been amended 
since the last annual amendment, or if the SDR has not yet filed an 
annual amendment, since the SDR's application for registration. Rule 
13n-1(d) is consistent with the Commission's requirements for other 
registrants (e.g., national securities exchanges, broker-dealers, 
transfer agents, SIPs) to file updated and annual amendments to 
registration forms with the Commission.\357\ The Commission believes 
that such amendments are important to obtain updated information on 
each SDR, which will assist the Commission in determining whether each 
SDR continues to be in compliance with the federal securities laws and 
the rules and regulations thereunder. Obtaining updated information 
will also assist Commission representatives in their inspection and 
examination of an SDR. The Commission may make filed amendments 
available on its Web site, except for information where confidential 
treatment is requested by the SDR \358\ and granted by the Commission.
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    \355\ See Rule 13n-1(d).
    \356\ The General Instructions to Form SDR have been amended 
from the proposal to clarify what items and exhibits need to be 
included when filing an amendment. Additionally, the Commission is 
revising Form SDR from the proposal to include separate designations 
on the form for an annual amendment and an amendment other than an 
annual amendment, rather than a single designation that covers any 
amendment. The signature block to Form SDR has also been amended 
from the proposal to clarify that an SDR that files an amendment 
(other than an annual amendment) need only represent that all 
unamended information contained in Items 1 through 17, 26, and 48 
remains true, current, and complete as filed, rather than all 
unamended items and exhibits to Form SDR.
    \357\ See Exchange Act Rule 6a-2, 17 CFR 240.6a-2 (requiring 
national securities exchanges to amend some information on Form 1 
within 10 days, and other information annually); Exchange Act Rule 
15b3-1, 17 CFR 240.15b3-1 (requiring broker-dealers to promptly 
amend applications for registration); Exchange Act Rules 17Ac2-1 and 
17Ac2-2, 17 CFR 240.17Ac2-1 and 240.17Ac2-2 (requiring transfer 
agents to amend information on Form TA-1 within 60 days, and to file 
an annual report); Rule 609 of Regulation NMS, 17 CFR 242.609, and 
Form SIP, 17 CFR 249.1001 (requiring SIPs to amend certain items on 
Form SIP promptly and also requiring an annual amendment).
    \358\ As discussed above, the Commission is adopting technical 
amendments to Exchange Act Rule 24b-2 to clarify that the 
confidential portion of electronic filings by SDRs must be filed 
electronically and to require SDRs to request confidential treatment 
electronically. The Commission is also adopting technical amendments 
to Rule 101 of Regulation S-T to provide that, except as otherwise 
provided, all filings by SDRs, including any information with 
respect to which confidential treatment is requested, must be filed 
electronically.
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5. Service of Process and Non-Resident SDRs (Proposed Rules 13n-1(f) 
and 13n-1(g)/Final Rules 13n-1(e) and 13n-1(f))
a. Proposed Rule
    As proposed, Rule 13n-1(f) would require each SDR to designate and 
authorize on Form SDR an agent in the United States, other than a 
Commission member, official, or employee, to accept any notice or 
service of process, pleadings, or other documents in any action or 
proceedings brought against the SDR to enforce the federal securities 
laws and the rules and regulations thereunder. Proposed Rule 13n-1(g) 
would require any non-resident SDR applying for registration to certify 
on Form SDR and provide an opinion of counsel that the SDR can, as a 
matter of law, provide the Commission with prompt access to the SDR's 
books and records and that the SDR can, as a matter of law, submit to 
onsite inspection and examination by the Commission.
b. Comments on the Proposed Rule
    The Commission did not receive any comments relating to proposed 
Rule 13n-1(f). One commenter submitted a comment relating to proposed 
Rule 13n-1(g).\359\ The commenter expressed concern that proposed Rule 
13n-1(g) would subject non-resident SDRs to a stricter regime than that 
applicable to resident SDRs.\360\
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    \359\ See ESMA, supra note 19.
    \360\ ESMA, supra note 19 (``According to our reading, non-
resident SDRs are actually subject to a stricter regime than the 
resident ones, as they need to provide a legal opinion certifying 
that they can provide the SEC with prompt access to their books and 
records and that they can be subject to onsite inspections and 
examinations by the SEC.'').
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c. Final Rule
    The Commission is adopting Rule 13n-1(f) as proposed, redesignated 
as Rule 13n-1(e). Rule 13n-1(e) requires each SDR to designate and 
authorize on Form SDR an agent in the United States,

[[Page 14469]]

other than a Commission member, official, or employee, to accept any 
notice or service of process, pleadings, or other documents in any 
action or proceedings brought against the SDR to enforce the federal 
securities laws and the rules and regulations thereunder. If an SDR 
appoints a different agent to accept such notice or service of process, 
then the SDR will be required to file promptly an amendment on Form SDR 
updating this information.\361\ The requirement applies equally to both 
SDRs within the United States and non-resident SDRs that are required 
to register with the Commission. Rule 13n-1(e) is intended to conserve 
the Commission's resources and to minimize any logistical obstacles 
(e.g., locating defendants or respondents within the United States or 
abroad) that the Commission may encounter when attempting to effect 
service. For instance, by requiring an SDR to designate an agent for 
service of process in the United States, and by prohibiting an SDR from 
designating a Commission member, official, or employee as its agent for 
service of process, the rule will reduce a significant resource burden 
on the Commission, including resources to locate agents of registrants 
overseas and keep track of their whereabouts.
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    \361\ See Rule 13n-1(d) (requiring an SDR to promptly file an 
amendment on Form SDR updating information in Item 11 of Form SDR).
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    After considering the comment to proposed Rule 13n-1(g), the 
Commission is adopting Rule 13n-1(g) as proposed, redesignated as Rule 
13n-1(f), with one modification. Rule 13n-1(f) requires any non-
resident SDR applying for registration pursuant to this rule to certify 
on Form SDR that the SDR can, as a matter of law, and will provide the 
Commission with prompt access to the SDR's books and records and can, 
as a matter of law, and will submit to onsite inspection and 
examination by the Commission. Rule 13n-1(f) also requires any non-
resident SDR applying for registration to provide an opinion of counsel 
that the SDR can, as a matter of law, provide the Commission with 
prompt access to the SDR's books and records and can, as a matter of 
law, submit to onsite inspection and examination by the Commission. The 
final rule differs from the proposed rule in that, as proposed, a non-
resident SDR would be required to certify that it ``can, as a matter of 
law'' provide prompt access to the SDR's books and records and submit 
to onsite inspection and examination. As adopted, the rule requires the 
non-resident SDR to certify that it ``can, as a matter of law, and 
will'' do those things. This change from the proposal is intended to 
make clear to a non-resident SDR that it is making an affirmative 
commitment to comply with its obligation to provide the Commission with 
prompt access to the SDR's books and records and submit to onsite 
inspection and examination.\362\
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    \362\ See Proposing Release, 75 FR at 77312, supra note 2 
(asking whether ``the representations that would be required to be 
made by the person who signs Form SDR [are] appropriate and 
sufficiently clear,'' and whether ``the Commission [should] require 
any additional or alternative representations''). See also Exchange 
Act Section 13(n)(2) and Rule 13n-4(b)(1) (both requiring registered 
SDRs to be subject to inspection and examination by any 
representative of the Commission) and Rule 13n-7(b) (requiring SDRs 
to keep and preserve books and records and promptly furnish them to 
any representative of the Commission upon request).
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    While the Commission acknowledges that the rule will impose an 
additional requirement on non-resident SDRs, for the reasons stated in 
Section VI.A.1.c above relating to Form SDR's certification and legal 
opinion requirements, the Commission continues to believe that before 
granting registration to a non-resident SDR, it is appropriate to 
obtain a certification and opinion of counsel that such person is in a 
position to provide legally the Commission with prompt access to the 
SDR's books and records and to be subject to onsite inspection and 
examination by the Commission.\363\
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    \363\ See also Section VI.D.2 of this release discussing 
inspection and examination by Commission representatives.
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6. Definition of ``Report'' (Proposed Rule 13n-1(h)/Final Rule 13n-
1(g))
a. Proposed Rule
    Proposed Rule 13n-1(h) provided that ``[a]n application for 
registration or any amendment thereto that is filed pursuant to this 
[rule] shall be considered a `report' filed with the Commission for 
purposes of [Exchange Act Sections 18(a) and 32(a)] and the rules and 
regulations thereunder and other applicable provisions of the United 
States Code and the rules and regulations thereunder.''
b. Comments on the Proposed Rule
    The Commission did not receive any comments relating to this 
proposed rule.
c. Final Rule
    The Commission is adopting Rule 13n-1(h) as proposed, redesignated 
as Rule 13n-1(g). Rule 13n-1(g) provides that ``[a]n application for 
registration or any amendment thereto that is filed pursuant to this 
[rule] shall be considered a `report' filed with the Commission for 
purposes of [Exchange Act Sections 18(a) and 32(a)] and the rules and 
regulations thereunder and other applicable provisions of the United 
States Code and the rules and regulations thereunder.'' Exchange Act 
Sections 18(a) and 32(a) set forth the potential liability for a person 
who makes, or causes to be made, any false or misleading statement in 
any ``report'' filed with the Commission (e.g., Form SDR).\364\ The 
Commission believes that subjecting a person to this potential 
liability will enhance the reliability and credibility of any 
``report'' that is filed with the Commission pursuant to Rule 13n-1 
because the person will have incentive to take steps to verify the 
accuracy of the report in order to avoid liability.
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    \364\ Exchange Act Section 18(a) provides, in part, that ``[a]ny 
person who shall make or cause to be made any statement in any . . . 
report . . . which statement was at the time and in the light of the 
circumstances under which it was made false or misleading with 
respect to any material fact, shall be liable to any person (not 
knowing that such statement was false or misleading) who, in 
reliance upon such statement, shall have purchased or sold a 
security at a price which was affected by such statement, for 
damages caused by such reliance, unless the person sued shall prove 
that he acted in good faith and had no knowledge that such statement 
was false or misleading.'' 15 U.S.C. 78r(a). Exchange Act Section 
32(a) provides, in part, that ``[a]ny person who willfully and 
knowingly makes, or causes to be made, any statement in any . . . 
report . . . which statement was false or misleading with respect to 
any material fact, shall upon conviction be fined not more than 
$5,000,000, or imprisoned not more than 20 years, or both, except 
that when such person is a person other than a natural person, a 
fine not exceeding $25,000,000 may be imposed.'' 15 U.S.C. 78ff(a).
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B. Withdrawal From Registration; Revocation and Cancellation (Rule 13n-
2)

1. Proposed Rule
    Proposed Rule 13n-2 set forth a process for a person to withdraw 
its registration as an SDR and for the Commission to revoke, suspend, 
or cancel an SDR's registration. With respect to proposed Rule 13n-
2(b), a registered SDR would be required to withdraw from registration 
by filing a notice of withdrawal with the Commission. The proposed rule 
would require the SDR to designate on its notice of withdrawal a person 
associated with the SDR to serve as the custodian of the SDR's books 
and records.\365\ Prior to filing a notice of withdrawal, an SDR would 
be required to file an amended Form SDR to update any inaccurate 
information.\366\ If there is no inaccurate information to update, then 
an SDR would include a confirmation to that effect in its notice of 
withdrawal.
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    \365\ Proposed Rule 13n-2(b).
    \366\ Proposed Rule 13n-2(b).

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[[Page 14470]]

    Proposed Rule 13n-2(c) set forth the effective date of a notice of 
withdrawal from registration. Proposed Rule 13n-2(d) provided that a 
notice of withdrawal from registration that is filed pursuant to this 
section shall be considered a ``report'' filed with the Commission for 
purposes of Exchange Act Sections 18(a) and 32(a) and the rules and 
regulations thereunder and other applicable provisions of the United 
States Code and the rules and regulations thereunder.\367\ Proposed 
Rule 13n-2(e) set forth the basis for the Commission, by order, to 
revoke the registration of an SDR. Finally, proposed Rule 13n-2(f) 
provided that the Commission, by order, may cancel the registration of 
an SDR if it finds that the SDR is no longer in existence or has ceased 
to do business in the capacity specified in its application for 
registration.
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    \367\ 15 U.S.C. 78r(a), 78ff(a).
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2. Comments on the Proposed Rule
    The Commission did not receive any comments relating to this 
proposed rule.
3. Final Rule
    The Commission is adopting Rule 13n-2 as proposed with a few 
modifications.\368\ The Commission is revising the proposed rule to 
eliminate the requirement for a registered SDR to file a separate 
notice of withdrawal with the Commission in order to streamline the 
withdrawal process and make it more efficient for SDRs and Commission 
staff. Instead, Rule 13n-2(b) permits a registered SDR to withdraw from 
registration by filing Form SDR electronically in a tagged data format; 
\369\ when making such a filing, the SDR must indicate on Form SDR that 
it is filed for the purpose of withdrawing from registration.\370\ The 
Commission is also revising the proposed rule to give an SDR more 
flexibility in designating the custodian of the SDR's books and records 
by requiring the SDR to designate a person to serve as the custodian of 
the SDR's books and records; \371\ the person does not necessarily need 
to be associated with an SDR, as proposed, and thus, the SDR has the 
option to designate an unaffiliated entity, such as another registered 
SDR, as the custodian. The purpose of this requirement is to ensure 
that an SDR's books and records are maintained and available to the 
Commission and other regulators after the SDR withdraws from 
registration, and to assist the Commission in enforcing Rules 13n-
5(b)(7) \372\ and 13n-7(c).\373\
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    \368\ The Commission did not receive any comments on the 
definitions of ``control'' and ``person associated with a security-
based swap data repository'' in proposed Rule 13n-2(a), but is 
omitting these definitions in Rule 13n-2 because the Commission's 
revision of the rule, as discussed in this section, no longer uses 
these terms.
    \369\ The Commission is revising proposed Rule 13n-2(a) to add 
the definition of ``tag'' (including the term tagged) to have the 
same meaning as set forth in Rule 11 of Regulation S-T (17 CFR 
232.11). This definition is added in order to conform the 
requirements for filing Form SDR to withdraw registration with the 
requirements for filing Form SDR to register or amend registration 
pursuant to Rule 13n-1.
    \370\ Exchange Act Section 11A(b)(4) states that ``[a] 
registered securities information processor may, upon such terms and 
conditions as the Commission deems necessary or appropriate in the 
public interest or for the protection of investors, withdraw from 
registration by filing a written notice of withdrawal with the 
Commission.'' 15 U.S.C. 78k-1(b)(4). A SIP that is dually-registered 
as an SDR may withdraw from registration by filing Form SDR, which 
the Commission would deem as a written notice of withdrawal under 
Exchange Act Section 11A(b)(4). In addition, the Commission has 
modified the heading of this rule. As proposed, the heading of this 
rule was ``Withdrawal from registration.'' As adopted, the heading 
is ``Withdrawal from registration; revocation and cancellation.'' 
This change in the heading provides a more accurate description of 
the subject of the rule.
    \371\ Rule 13n-2(b). The Commission is amending Form SDR from 
the proposal to add new Item 12 to implement the requirement in Rule 
13n-2(b) for an SDR to designate a custodian of its books and 
records if it withdraws from registration. See new Item 12 to Form 
SDR and Section VI.A.1 of this release discussing Form SDR. The 
Commission has also made some conforming changes to proposed Form 
SDR and the General Instructions to make clear that the form may be 
used for withdrawal of registration. For example, General 
Instruction 1 now indicates that Form SDR and exhibits thereto are 
to be filed electronically in a tagged data format in connection 
with withdrawing an SDR's registration. See General Instruction 1 to 
Form SDR.
    \372\ See Section VI.E.7 of this release discussing requirement 
that an SDR that ceases to do business preserve, maintain, and make 
accessible transaction data and historical positions.
    \373\ See Section VI.G.3 of this release discussing requirement 
that an SDR that ceases to do business preserve, maintain, and make 
accessible certain records relating to its business.
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    When filing a Form SDR as a withdrawal from registration, the SDR 
should update any inaccurate information contained in its most recently 
filed Form SDR.\374\ This requirement is substantively the same as the 
proposal, which would require an SDR, prior to filing a notice of 
withdrawal, to file an amended Form SDR to update any inaccurate 
information.\375\ If there is no inaccurate information to update, then 
an SDR should include a confirmation to that effect when filing Form 
SDR. The Commission may make filed withdrawals available on its Web 
site, except for information where confidential treatment is requested 
by the SDR \376\ and granted by the Commission.
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    \374\ See Rule 13n-2(b). The General Instructions to Form SDR 
have been amended from the proposal to clarify what items and 
exhibits need to be included when filing a withdrawal. See General 
Instruction 11 to Form SDR.
    \375\ Proposed Rule 13n-2(b).
    \376\ As discussed in Section VI.A.1.c of this release, the 
Commission is adopting technical amendments to Exchange Act Rule 
24b-2 to clarify that the confidential portion of electronic filings 
by SDRs must be filed electronically and to require SDRs to request 
confidential treatment electronically. The Commission is also 
adopting technical amendments to Rule 101 of Regulation S-T to 
provide that, except as otherwise provided, all filings by SDRs, 
including any information with respect to which confidential 
treatment is requested, must be filed electronically.
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    Rule 13n-2(c) provides that a withdrawal from registration filed by 
an SDR on Form SDR shall become effective for all matters (except as 
provided in Rule 13n-2(c)) on the 60th day after the filing thereof 
with the Commission, within such longer period of time as to which such 
SDR 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. A withdrawal from registration filed on Form SDR that is 
not prepared and executed in compliance with applicable requirements 
may be deemed as not acceptable for filing.\377\ Rule 13n-2(d) provides 
that a withdrawal from registration filed on Form SDR that is filed 
pursuant to this rule shall be considered a ``report'' filed with the 
Commission for purposes of Exchange Act Sections 18(a) and 32(a) and 
the rules and regulations thereunder and other applicable provisions of 
the United States Code and the rules and regulations thereunder.\378\
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    \377\ See General Instruction 7 to Form SDR.
    \378\ See Section VI.A.6 of this release discussing definition 
of ``report.''
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    Under Rule 13n-2(e), if the Commission finds, on the record after 
notice and opportunity for hearing, that any registered SDR has 
obtained its registration by making any false and misleading statements 
with respect to any material fact or has violated or failed to comply 
with any provision of the federal securities laws and the rules and 
regulations thereunder, the Commission, by order, may revoke the 
registration. The rule further provides that pending final 
determination of whether any registration be revoked, the Commission, 
by order, may suspend such registration, if such suspension appears to 
the Commission, after notice and opportunity for hearing on the record, 
to be necessary or appropriate in the public interest or for the 
protection of investors.\379\ Finally, Rule 13n-2(f) provides that if 
the Commission finds

[[Page 14471]]

that a registered SDR is no longer in existence or has ceased to do 
business in the capacity specified in its application for registration, 
the Commission, by order, may cancel the registration.\380\
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    \379\ Rule 13n-2(e).
    \380\ Where an SDR anticipates that it will cease to exist or 
cease to do business as an SDR, the SDR may withdraw from 
registration by filing a withdrawal on Form SDR pursuant to Rule 
13n-2(b). Regardless of whether the SDR withdraws from registration 
pursuant to Rule 13n-2(b), the Commission revokes the SDR's 
registration pursuant to Rule 13n-2(e), or the Commission cancels 
the SDR's registration pursuant to Rule 13n-2(f), the SDR is 
obligated to comply with Rules 13n-5(b)(7) and 13n-7(c), which are 
discussed in Sections VI.E.7 and VI.G.3 of this release, 
respectively.
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    The Commission believes that it is important to set forth a process 
for a person to withdraw its registration as an SDR and for the 
Commission to be able to revoke, suspend, or cancel an SDR's 
registration, similar to the approach that it takes with some of its 
other registrants.\381\
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    \381\ Rule 13n-2 is similar to Exchange Act Rule 15b6-1, 17 CFR 
240.15b6-1, which relates to withdrawal from registration as a 
broker-dealer, and includes a provision similar to a provision in 
Exchange Act Section 15(b)(5), 15 U.S.C. 78o(b)(5) (stating that 
``[i]f the Commission finds that any registered broker or dealer is 
no longer in existence or has ceased to do business as a broker or 
dealer, the Commission, by order, shall cancel the registration of 
such broker or dealer'').
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C. Registration of Successor to Registered SDR (Rule 13n-3)

1. Proposed Rule
    Proposed Rule 13n-3 would govern the registration of a successor to 
a registered SDR. Successor registration would be accomplished either 
by filing a new application on Form SDR or, in certain circumstances, 
by filing an amendment on Form SDR.
2. Comments on the Proposed Rule
    The Commission did not receive any comments relating to this 
proposed rule.
3. Final Rule
    The Commission is adopting Rule 13n-3 as proposed, with minor 
revisions to track the language of Rules 13n-1 and 13n-2 as adopted. 
Rule 13n-3 governs the registration of a successor to a registered SDR. 
Because this rule is substantially similar to Exchange Act Rule 15b1-
3,\382\ which governs the registration of a successor to a registered 
broker-dealer, the same concepts that the Commission explained when it 
adopted amendments to Rule 15b1-3 are applicable here.\383\
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    \382\ See 17 CFR 240.15b1-3.
    \383\ See 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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a. Succession by Application
    Rule 13n-3(a) provides that in the event that an SDR succeeds to 
and continues the business of an SDR registered pursuant to Exchange 
Act Section 13(n), the registration of the predecessor shall be deemed 
to remain effective as the registration of the successor if, within 30 
days after such succession, the successor files an application for 
registration on Form SDR, and the predecessor files a withdrawal from 
registration on Form SDR with the Commission.\384\ A successor will not 
be permitted to ``lock in'' the 30-day window period by filing an 
application for registration that is incomplete in material respects.
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    \384\ As adopted, Rule 13n-2 differs from the proposal by 
requiring a ``filing a withdrawal from registration on Form SDR'' 
rather than ``filing a notice of withdrawal.'' The Commission is 
revising Rule 13n-3(a) from the proposal to track the language of 
Rule 13n-2.
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    Rule 13n-3(a) further provides that the registration of the 
predecessor SDR shall cease to be effective 90 days after the date of 
the publication of notice of the filing of an application for 
registration on Form SDR by the successor SDR.\385\ In other words, the 
90-day period will not begin to run until a complete Form SDR has been 
filed by the successor with the Commission and the Commission publishes 
notice of the filing of Form SDR to afford interested persons an 
opportunity to submit written comments concerning such application. 
This 90-day period is consistent with the time period set forth in 
final Rule 13n-1, pursuant to which the Commission would have 90 days 
to grant registration or institute proceedings to determine if 
registration should be granted or denied.
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    \385\ As adopted, Rule 13n-1(c) differs from the proposal by 
starting the 90-day period from the publication of notice of the 
filing of Form SDR rather than from the filing of Form SDR. The 
Commission is revising Rule 13n-3(a) from the proposal to track more 
closely the language of Rule 13n-1(c). As discussed in Section 
VI.A.2.c of this release, the Commission is revising Rule 13n-1(c) 
from the proposal to make it procedurally consistent with the 
registration process applicable to SIPs and the rule stems from the 
Commission's requirement that a registered SDR register as a SIP and 
the Commission's revision of Form SDR to accommodate SIP 
registration.
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    The following are examples of the types of successions that would 
be required to be completed by filing an application: (1) An 
acquisition, through which an unregistered person purchases or assumes 
substantially all of the assets and liabilities of an SDR and then 
operates the business of the SDR, (2) a consolidation of two or more 
registered SDRs, resulting in their conducting business through a new 
unregistered SDR, which assumes substantially all of the assets and 
liabilities of the predecessor SDRs, and (3) dual successions, through 
which one registered SDR subdivides its business into two or more new 
unregistered SDRs.
b. Succession by Amendment
    Rule 13n-3(b) provides that notwithstanding Rule 13n-3(a), if an 
SDR succeeds to and continues the business of a registered predecessor 
SDR, and the succession is based solely on (1) a change in the 
predecessor's date or state of incorporation, (2) form of organization, 
or (3) composition of a partnership, the successor may, within 30 days 
after the succession, amend the registration of the predecessor SDR on 
Form SDR to reflect these changes. Such amendment shall be deemed an 
application for registration filed by the predecessor and adopted by 
the successor. In all three types of successions, the predecessor must 
cease operating as an SDR. The Commission believes that it is 
appropriate to allow a successor to file an amendment to the 
predecessor's Form SDR in these three types of successions.
c. Scope and Applicability of Rule 13n-3
    The purpose of Rule 13n-3 is to enable a successor SDR to operate 
without an interruption of business by relying for a limited period of 
time on the registration of the predecessor SDR until the successor's 
own registration becomes effective. The rule is intended to facilitate 
the legitimate transfer of business between two or more SDRs and to be 
used only if there is a direct and substantial business nexus between 
the predecessor and the successor SDR. The rule cannot be used when a 
registered SDR sells its registration, eliminates substantial 
liabilities, spins off personnel, or facilitates the transfer of the 
registration of a ``shell'' organization that does not conduct any 
business. No person will be permitted to rely on Rule 13n-3 unless it 
is acquiring or assuming substantially all of the assets and 
liabilities of the predecessor's SDR business.
    Rule 13n-3 does not apply to reorganizations that involve only 
registered SDRs. In those situations, the registered SDRs need not use 
the rule because they can continue to rely on their existing 
registrations. The rule also does not apply to situations in which the 
predecessor intends to continue to engage in SDR activities. Otherwise, 
confusion may result as to the identities and registration statuses of 
the parties. If a person acquires some or all of the shares of a 
registered SDR, or if one

[[Page 14472]]

registered SDR purchases part or all of the business assets or assumes 
personnel of another registered SDR, then reliance on this rule would 
not be necessary.\386\
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    \386\ In the case of the purchase of the business assets or 
assumption of the personnel of one registered SDR by another SDR, 
the purchasing SDR would file an amendment on Form SDR to reflect 
any changes in its operations, while the other SDR would either file 
a Form SDR to withdraw its registration or file an interim amendment 
on the form, depending on whether the SDR remains in the SDR 
business.
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D. Enumerated Duties and Core Principles (Rule 13n-4)

    Dodd-Frank Act Section 763(i) requires an SDR to comply with the 
requirements and core principles described in Exchange Act Section 
13(n) as well as any requirement that the Commission prescribes by rule 
or regulation in order to be registered and maintain registration as an 
SDR with the Commission.\387\ After considering comments, the 
Commission is adopting Rule 13n-4 as proposed, with modifications.
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    \387\ See Exchange Act Section 13(n)(3), 15 U.S.C. 78m(n)(3), as 
added by Dodd-Frank Act Section 763(i). The Dodd-Frank Act 
authorizes the Commission to establish additional requirements for 
SDRs by rule or regulation. Exchange Act Sections 13(n)(4)(B), 
13(n)(7)(D), and 13(n)(9), 15 U.S.C. 78m(n)(4)(B), 78m(n)(7)(D), and 
78m(n)(9), as added by Dodd-Frank Act Section 763(i).
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    The Commission is not adopting proposed Rules 13n-4(b)(9) and (10), 
which address relevant authorities' access to SBS data maintained by 
SDRs. As discussed below, the Commission anticipates soliciting 
additional public comment regarding relevant authorities' access to SBS 
data maintained by SDRs.
1. Definitions (Rule 13n-4(a))
a. Proposed Rule
    Proposed Rule 13n-4(a) defined the following terms: ``affiliate,'' 
``board,'' ``control,'' ``director,'' ``direct electronic access,'' 
``end-user,'' ``market participant,'' ``nonaffiliated third party,'' 
and ``person associated with a security-based swap data repository.''
b. Comments on the Proposed Rule
    The Commission received one comment on the proposed definitions in 
the context of the SDR Rules.\388\ Specifically, one commenter believed 
that the Commission's requirement in the definition of ``direct 
electronic access'' that data is ``updated at the same time as the 
[SDR's] data is updated'' may pose ``operational difficulties that do 
not outweigh the marginal benefits to the Commission.'' \389\ The 
commenter also believed that ``[t]he Commission's proposed definition 
provides for no latency between the moment when an [SDR's] records are 
updated and when the systems used by the Commission (or its designee 
with direct electronic access) are updated.'' \390\ For these reasons, 
the commenter suggested that the Commission ``allow time for an [SDR] 
to validate, process, and store the data received prior to populating 
the data to the environment that will be utilized to provide such 
direct electronic access to the Commission.'' \391\
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    \388\ See DTCC 5, supra note 19. See also supra note 247 
(discussing a general comment regarding the term ``affiliate'').
    \389\ DTCC 5, supra note 19.
    \390\ DTCC 5, supra note 19.
    \391\ DTCC 5, supra note 19.
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c. Final Rule
    After considering the comment, the Commission is adopting Rule 13n-
4(a) as proposed, with modifications related to the definition of 
``end-user.'' \392\ Specifically, the Commission is adopting Rule 13n-
4(a) without the definition of ``end-user.'' As discussed above, the 
Commission proposed rules that would require SDRs to collect data 
related to monitoring the compliance and frequency of end-user clearing 
exemption claims.\393\ In anticipation that the Commission will 
consider final rules relating to end-users in a separate rulemaking, 
the Commission has decided not to adopt the proposed definition of 
``end-user'' in this release. The Commission believes that it is better 
to address the issue of end-users more fully in that release than in 
this release.
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    \392\ The Commission is also correcting a typographical error in 
the proposed rule. Proposed Rule 13n-4(a)(3)(ii) referred to the 
right to vote 25 percent ``of'' more of a class of securities. See 
Proposing Release, 75 FR at 77367, supra note 2. As adopted, Rule 
13n-4(a)(3)(ii) refers to the right to vote 25 percent ``or'' more 
of a class of securities. In addition, certain definitions are being 
renumbered due to the removal of the definition of ``end-user.''
    \393\ See End-User Exception Proposing Release, supra note 15.
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    The Commission is adopting the definition of ``direct electronic 
access'' as proposed to mean ``access, which shall be in a form and 
manner acceptable to the Commission, to data stored by [an SDR] in an 
electronic format and updated at the same time as the [SDR]'s data is 
updated so as to provide the Commission or any of its designees with 
the ability to query or analyze the data in the same manner that the 
[SDR] can query or analyze the data.'' This includes access to all 
transaction data and positions, as defined in Rule 13n-5(a),\394\ and 
related identifying information, such as transaction IDs and time 
stamps.\395\ With respect to one commenter's view that requiring SBS 
data to be updated at the same time as the data is updated at an SDR 
may pose ``operational difficulties that do not outweigh the marginal 
benefits to the Commission,'' \396\ the Commission believes that its 
definition of ``direct electronic access'' is necessary for the 
Commission's adequate oversight of the SBS market. The commenter 
asserted that the Commission's definition of ``direct electronic 
access'' ``provides for no latency between the moment when an [SDR's] 
records are updated and when the systems used by the Commission (or its 
designee with direct electronic access) are updated.'' \397\ The 
Commission understands that latency is inherent when updating systems, 
and that there may be some time lag between when the SDR receives and 
updates the data and when the updated data is available for the 
Commission to access. The Commission also understands that an SDR needs 
to check the data for errors and omissions and process the data before 
providing the data to the Commission or its designees. Otherwise, the 
Commission or its designees will not be able to query or analyze the 
data. Thus, by referencing to the Commission's or its designees' 
ability to query or analyze the data in the definition of ``direct 
electronic access,'' the Commission anticipates that there may be a lag 
time for SDRs to check and process the data before providing the data 
to the Commission or its designees. The Commission notes, however, that 
once an SDR checks and processes the data, the SDR is required to 
provide the Commission or its designees with the ability to access the 
checked and processed data at the same time as the checked and 
processed data is updated in the SDR's records.
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    \394\ See Section VI.E.1 of this release discussing the 
definition of ``transaction data'' and Section VI.E.2 of this 
release discussing the definition of ``position.''
    \395\ See Regulation SBSR Adopting Release, supra note 13 (Rules 
901(f) and (g)).
    \396\ See DTCC 5, supra note 19.
    \397\ See DTCC 5, supra note 19 (suggesting that the Commission 
``allow time for an [SDR] to validate, process, and store the data 
received prior to populating the data to the environment that will 
be utilized to provide such direct electronic access to the 
Commission'').
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2. Enumerated Duties (Rule 13n-4(b))
a. Proposed Rule
    Proposed Rule 13n-4(b) would incorporate an SDR's duties that are 
enumerated in Exchange Act Sections 13(n)(2), 13(n)(5), and 
13(n)(6),\398\ which require each SDR to: (1) Subject itself to

[[Page 14473]]

inspection and examination by the Commission; (2) accept SBS data as 
prescribed by Regulation SBSR; \399\ (3) confirm with both 
counterparties to the SBS the accuracy of the data that was submitted; 
(4) maintain the data as prescribed by the Commission; (5) provide 
direct electronic access to the Commission or any of its designees; (6) 
provide certain information as the Commission may require to comply 
with Exchange Act Section 13(m); \400\ (7) at such time and in such 
manner as may be directed by the Commission, establish automated 
systems for monitoring, screening, and analyzing SBS data; (8) maintain 
the privacy of any and all SBS transaction information that the SDR 
receives from an SBS dealer, counterparty, or any registered entity; 
(9) on a confidential basis pursuant to Exchange Act Section 24 and the 
rules and regulations thereunder, upon request, and after notifying the 
Commission of the request, make available all data obtained by the SDR 
to certain relevant authorities; (10) before sharing information with a 
relevant authority, obtain a written confidentiality agreement and 
obtain an agreement from the relevant authority to indemnify the SDR 
and the Commission; and (11) designate a CCO who must comply with 
specified duties.
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    \398\ Exchange Act Section 13(n), 15 U.S.C. 78m(n).
    \399\ See supra note 201 (discussing Regulation SBSR, which 
prescribes the data elements that an SDR will be required to accept 
for each SBS in association with requirements under Dodd-Frank Act 
Section 763(i)).
    \400\ Exchange Act Section 13(m) pertains to the public 
availability of SBS data. See 15 U.S.C. 78m(m). In a separate 
release relating to implementation of Dodd-Frank Act Section 763(i) 
(adding Exchange Act Section 13(m)), the Commission proposed rules 
that impose various duties on SDRs in connection with the reporting 
and public dissemination of SBS information. See Regulation SBSR 
Proposing Release, supra note 8; see also Cross-Border Proposing 
Release, 78 FR at 31210-6, supra note 3 (re-proposing Regulation 
SBSR). The Commission is adopting those rules as part of Regulation 
SBSR. See Regulation SBSR Adopting Release, supra note 13.
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b. Comments on the Proposed Rule
    Six commenters submitted comments relating to various aspects of 
proposed Rule 13n-4(b).\401\ These comment letters are described in 
more detail below, other than those that relate solely to relevant 
authorities' access to SBS data maintained by SDRs, which the 
Commission anticipates will be addressed separately. Generally 
speaking, one commenter believed that ``all of the substantive rule 
provisions proposed [as of July 22, 2013] must remain as strong as 
possible, irrespective of the Commission's approach to its very limited 
jurisdiction over cross-border transactions or the CFTC's approach to 
the implementation of Title VII.'' \402\
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    \401\ See Barnard, supra note 19; Better Markets 1, supra note 
19; DTCC 2, supra note 19; ESMA, supra note 19; MFA 1, supra note 
19; US & Foreign Banks, supra note 24; see also DTCC 1*, supra note 
20; DTCC 3, supra note 19; DTCC 5, supra note 19. In addition to 
these commenters, one commenter to the Temporary Rule Release 
suggested that the Commission affirmatively state that it intends to 
keep information furnished pursuant to the rules in that release 
confidential under the Freedom of Information Act (``FOIA'') or to 
seek a legislative solution. Deutsche Temp Rule, supra note 28. 
Although this comment does not explicitly reference to the SDR 
Rules, the Commission addresses this point in Section VI.D.2 of this 
release to the extent that the SDR Rules require SDRs to submit 
information to the Commission.
    \402\ Better Markets 2, supra note 19 (urging the Commission to 
not dilute or weaken the [p]roposed [r]ules to accommodate concerns 
about international regulation of the SBS markets).
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i. Inspection and Examination
    One commenter expressed concern regarding the potential cost to 
non-resident SDRs of complying with multiple regulatory regimes, 
including inspections and examinations by multiple regulators.\403\
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    \403\ ESMA, supra note 19.
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ii. Direct Electronic Access
    As discussed in Section IV above, two commenters suggested that the 
Commission designate one SDR to receive SBS data from other SDRs, 
through direct electronic access, in order to provide the Commission 
and other regulators a consolidated location from which to access SBS 
data.\404\ Both commenters believed that such designation would ensure 
efficient consolidation of data.\405\
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    \404\ DTCC 1*, supra note 20; Better Markets 1, supra note 19. 
Comments regarding direct electronic access in the context of 
substituted compliance are addressed in a separate release. See 
Regulation SBSR Adopting Release, supra note 13.
    \405\ DTCC 1*, supra note 20; Better Markets 1, supra note 19; 
see also DTCC 2, supra note 19 (``The role of an aggregating SDR is 
significant in that it ensures regulators efficient, streamlined 
access to consolidated data, reducing the strain on limited agency 
resources.''); DTCC 3, supra note 19 (``When there are multiple SDRs 
in any particular asset class, the [Commission] should take such 
action as is necessary to eliminate any overstatements of open 
interest or other inaccuracies that may result from having broader 
market data published from separate SDRs.'').
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iii. Monitoring, Screening, and Analysis
    In the Proposing Release, the Commission proposed taking a measured 
approach and not requiring SDRs to establish automated systems for 
monitoring, screening, and analyzing SBS data at that time.\406\ One 
commenter disagreed with this proposal.\407\ Another commenter 
supported ``the broad concept that an SDR should monitor, screen and 
analyze SBS data as input for the [Commission] to facilitate its 
oversight and monitoring responsibilities,'' but believed that the 
proposed rule is too broad and ``not clear enough on the level of 
detail required and on the level of responsibility imposed on SDRs.'' 
\408\ A third commenter suggested that monitoring, screening, and 
analysis should be performed centrally by an SDR for efficiency and 
that the data maintained by the SDR should then be made available to 
relevant authorities.\409\
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    \406\ Proposing Release, 75 FR at 77318, supra note 2.
    \407\ Better Markets 1, supra note 19 (``The fact that this 
market is in its `infancy' is a unique opportunity for the 
Commission to guide its development in a way that protects the 
public interest, promotes competition, and prevents what has been 
the routine development of conflicts and predatory conduct.'').
    \408\ Barnard, supra note 19 (recommending that the Commission 
``provide additional details on the anticipated requirements in 
order to better manage the expectations of SDRs and wider market 
participants concerning their duties in this area'').
    \409\ DTCC 2, supra note 19.
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iv. Other Enumerated Duties
    Comments on the other enumerated duties either are discussed later 
in this release or addressed in the Regulation SBSR Adopting Release or 
the Regulation SBSR Proposed Amendments Release.\410\ The Commission 
anticipates addressing comments regarding relevant authorities' access 
to SBS data maintained by SDRs in a separate release when it solicits 
additional public comment regarding the issue.
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    \410\ See Regulation SBSR Adopting Release, supra note 13; 
Regulation SBSR Proposed Amendments Release, supra note 13.
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c. Final Rule
    After considering the comments, the Commission is adopting Rule 
13n-4(b) as proposed, with modifications. Specifically, each SDR is 
required to:
    (1) subject itself to inspection and examination by any 
representative of the Commission; \411\
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    \411\ The Commission is revising its proposed rule by adding 
``any representative of'' before ``the Commission'' to track more 
closely Exchange Act Section 13(n)(2), 15 U.S.C. 78m(n)(2) (``Each 
registered security-based swap data repository shall be subject to 
inspection and examination by any representative of the 
Commission.'').
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    (2) accept data as prescribed in Regulation SBSR \412\ for each 
SBS;
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    \412\ The Commission addresses this enumerated duty in further 
detail in Regulation SBSR. See Regulation SBSR Adopting Release, 
supra note 13.
---------------------------------------------------------------------------

    (3) confirm, as prescribed in Rule 13n-5, with both counterparties 
to the SBS the accuracy of the data that was submitted, as discussed 
further in Section VI.E.1 of this release;
    (4) maintain, as prescribed in Rule 13n-5, the data described in 
Regulation SBSR in such form, in such manner, and

[[Page 14474]]

for such period as provided therein and in the Exchange Act and the 
rules and regulations thereunder, as discussed further in Section VI.E 
of this release;
    (5) provide direct electronic access to the Commission (or any 
designee of the Commission, including another registered entity);
    (6) provide the information described in Regulation SBSR in such 
form and at such frequency as prescribed in Regulation SBSR to comply 
with requirements set forth in Exchange Act Section 13(m) and the rules 
and regulations thereunder; \413\
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    \413\ The Commission addresses this enumerated duty in further 
detail in Regulation SBSR. See Regulation SBSR Adopting Release, 
supra note 13.
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    (7) at such time and in such manner as may be directed by the 
Commission, establish automated systems for monitoring, screening, and 
analyzing SBS data;
    (8) maintain the privacy of any and all SBS transaction information 
that the SDR receives from an SBS dealer, counterparty, or any 
registered entity, as prescribed in Rule 13n-9 and as discussed further 
in Section VI.I.1 of this release; and
    (9) [Reserved]
    (10) [Reserved]
    (11) designate an individual to serve as a CCO, as discussed 
further in Section VI.J of this release.\414\
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    \414\ The Commission is revising proposed Rule 13n-4(b)(11) by 
not including the phrase ``who shall comply with the duties set 
forth in Exchange Act Rule 13n-11.'' This revision is being made to 
clarify that an SDR is only required to designate a CCO.
---------------------------------------------------------------------------

    With respect to one commenter's general recommendation that all of 
the Commission's substantive rules ``remain as strong as possible, 
irrespective of the Commission's approach to its very limited 
jurisdiction over cross-border transactions or the CFTC's approach to 
the implementation of Title VII,'' \415\ the Commission believes that 
the final SDR Rules are robust and reflect an appropriate approach to 
furthering the goals of the Dodd-Frank Act and minimizing an SDR's cost 
of compliance.\416\
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    \415\ Better Markets 2, supra note 19 (urging the Commission to 
not dilute or weaken the [p]roposed [r]ules to accommodate concerns 
about international regulation of the SBS markets).
    \416\ See Section VIII of this release discussing economic 
analysis.
---------------------------------------------------------------------------

    Because the Commission anticipates soliciting additional public 
comment regarding relevant authorities' access to SBS data maintained 
by SDRs in a separate release, the Commission is not adopting proposed 
Rules 13n-4(b)(9) and (10) at this time and is marking those sections 
as ``Reserved.'' \417\ However, SDRs will have to comply with all 
statutory requirements, including Exchange Act Sections 13(n)(5)(G) and 
(H),\418\ when the current exemptive relief from the statutory 
requirements expires.\419\
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    \417\ In the Cross-Border Proposing Release, the Commission 
proposed interpretive guidance to specify how SDRs may comply with 
the notification requirement set forth in Exchange Act Section 
13(n)(5)(G) and proposed Rule 13n-4(b)(9). Cross-Border Proposing 
Release, 78 FR at 31046-31047, supra note 3. The Commission also 
specified how the Commission proposed to determine whether a 
relevant authority is appropriate for purposes of receiving SBS data 
from an SDR. Id. at 31047-31048. The Commission is not taking any 
action on these proposals at this time and anticipates addressing 
these issues in a separate release.
    \418\ See 15 U.S.C. 78m(n)(5)(G) and 78m(n)(5)(H).
    \419\ See Section V of this release discussing implementation of 
the SDR Rules.
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i. Inspection and Examination
    Each registered SDR is statutorily required to be subject to 
inspection and examination by any representative of the 
Commission.\420\ With respect to one commenter's concern regarding the 
potential cost to non-resident SDRs of complying with multiple 
regulatory regimes, including inspections and examinations by multiple 
regulators,\421\ the Commission appreciates this concern and has 
discussed this concern in the Cross-Border Proposing Release.\422\ To 
address the commenter's broader concern of duplicative regulatory 
regimes, the Commission is adopting Rule 13n-12 to provide an exemption 
from specific SDR requirements in certain circumstances, as discussed 
in Section VI.K of this release.\423\
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    \420\ See Exchange Act Section 13(n)(2), 15 U.S.C. 78m(n)(2).
    \421\ See ESMA, supra note 19.
    \422\ See Cross-Border Proposing Release, 78 FR at 31043, supra 
note 3 (discussing duplicative regulatory regimes for non-U.S. 
persons performing the functions of an SDR, which may include non-
resident SDRs).
    \423\ See also Regulation SBSR Adopting Release, supra note 13 
(discussing substituted compliance); Exchange Act Rule 0-13, 17 CFR 
240.0-13 (relating to procedures for filing applications for 
substituted compliance).
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ii. Direct Electronic Access
    Each SDR should coordinate with the Commission to provide direct 
electronic access to the Commission or any of its designees. The form 
and manner that will be acceptable to the Commission for an SDR to 
provide direct electronic access may vary on a case-by-case basis and 
may change over time, depending on a number of factors. These factors 
could include the development of new types of SBSs or variations of 
existing SBSs that require additional data to accurately describe them. 
Additionally, the extent to which the Commission encounters difficulty 
in normalizing and aggregating SBS data across multiple registered SDRs 
would be a factor in considering the nature of the direct access 
provided by an SDR to the Commission.
    As contemplated in the Proposing Release, the Commission 
anticipates that an SDR may be able to satisfy its duty to provide 
direct electronic access to the Commission by providing, for example, 
(1) a direct streaming of the data maintained by the SDR to the 
Commission or any of its designees, (2) a user interface that provides 
the Commission or any of its designees with direct access to the data 
maintained by the SDR and that provides the Commission or any of its 
designees with the ability to query or analyze the data in the same 
manner that is available to the SDR, or (3) another mechanism that 
provides a mirror copy of the data maintained by the SDR, which is in 
an electronic form that is downloadable by the Commission or any of its 
designees and is in a format that provides the Commission or any of its 
designees with the ability to query or analyze the data in the same 
manner that is available to the SDR.\424\ The alternative ways to 
provide direct electronic access to the Commission are not intended to 
be mutually exclusive.
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    \424\ Proposing Release, 75 FR at 77318, supra note 2.
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    Additionally, the rule provides that the data must be in a form and 
manner acceptable to the Commission.\425\ Since one of the primary 
purposes of an SDR is to facilitate regulatory oversight of the SBS 
market, a significant portion of the benefits of an SDR will not be 
realized if data stored at an SDR is provided to the Commission in a 
form or manner that cannot be easily utilized by the Commission. 
Furthermore, the form and manner with which an SDR provides the data to 
the Commission should not only permit the Commission to accurately 
analyze the data maintained by a single SDR, but also allow the 
Commission to aggregate and analyze data received from multiple SDRs.
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    \425\ See Rule 13n-4(a)(5) (defining ``direct electronic 
access'' to mean ``access, which shall be in a form and manner 
acceptable to the Commission, to data stored by a security-based 
swap data repository in an electronic format and updated at the same 
time as the security-based swap data repository's data is updated so 
as to provide the Commission or any of its designees with the 
ability to query or analyze the data in the same manner that the 
security-based swap data repository can query or analyze the 
data''); see also Section VI.E.4 of this release discussing the 
requirement to maintain transaction data and positions in a place 
and format that is readily accessible to the Commission.
---------------------------------------------------------------------------

    The Commission continues to consider whether it should require the 
data to be provided to the Commission

[[Page 14475]]

in a particular format.\426\ The Commission anticipates that it will 
propose for public comment detailed specifications of acceptable 
formats and taxonomies that would facilitate an accurate 
interpretation, aggregation, and analysis of SBS data by the 
Commission. The Commission intends to maximize the use of any 
applicable current industry standards for the description of SBS data, 
build upon such standards to accommodate any additional data fields as 
may be required, and develop such formats and taxonomies in a timeframe 
consistent with the implementation of SBS data reporting by SDRs. The 
Commission recognizes that as the SBS market develops, new or different 
data fields may be needed to accurately represent new types of SBSs, in 
which case the Commission may provide updated specifications of formats 
and taxonomies to reflect these new developments. Until such time as 
the Commission adopts specific formats and taxonomies, SDRs may provide 
direct electronic access to the Commission to data in the form in which 
the SDRs maintain such data.
---------------------------------------------------------------------------

    \426\ Cf. Proposing Release, 75 FR at 77319 and 77331, supra 
note 2 (asking questions about how direct electronic access could be 
provided, and asking whether the Commission should require 
information be kept in a particular format, such as FpML or another 
standard).
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    As stated in Section IV of this release with respect to commenters' 
suggestions regarding consolidation of SBS data,\427\ the Commission 
does not believe that it is necessary to designate, at this time, an 
SDR or any registered entity to receive, through direct electronic 
access, SBS data maintained by other SDRs in order to aggregate the 
data. At this time, the Commission believes that it--rather than any 
particular registered entity--is in the best position to aggregate data 
across multiple registered SDRs. The Commission anticipates that its 
proposal on the formats and taxonomies for SBS data provided to the 
Commission pursuant to Rule 13n-4(b)(5) will facilitate its ability to 
carry out this function. The Commission may revisit this issue as the 
SBS market evolves.
---------------------------------------------------------------------------

    \427\ See DTCC 1*, supra note 20 (recommending that the 
Commission designate one SDR to receive, through direct electronic 
access, information from other SDRs to ensure efficient 
consolidation of data); Better Markets 1, supra note 19 
(recommending that ``the Commission designate one SDR as the 
recipient of information of other SDRs, through direct electronic 
access to the SBS data at the other SDRs, in order to provide the 
Commission and relevant authorities with a consolidated location for 
SBS data'').
---------------------------------------------------------------------------

    A commenter to the Temporary Rule Release suggested that the 
Commission affirmatively state that it intends to keep information 
furnished pursuant to the rules in that release confidential under FOIA 
or to seek a legislative solution.\428\ The Commission anticipates that 
it will keep reported data that it obtains from an SDR (via direct 
electronic access or any other means) confidential, subject to the 
provisions of applicable law.\429\
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    \428\ See Deutsche Temp Rule, supra note 28. It is unclear what 
the commenter contemplates by its suggestion that the Commission 
seek a ``legislative solution,'' but the Commission notes that it 
does not intend to affirmatively seek any legislative action to 
protect further such information. The commenter is not precluded 
from doing so on its own initiative.
    \429\ Pursuant to Commission rules, confidential treatment can 
be sought for information submitted to the Commission. See 17 CFR 
200.83 (regarding confidential treatment procedures under FOIA).
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    After considering the comments, the Commission is adopting Rule 
13n-4(b)(5) as proposed.
iii. Monitoring, Screening, and Analysis
    Although the Commission is adopting Rule 13n-4(b)(7) as proposed, 
it is not, at this time, directing SDRs to establish any automated 
systems for monitoring, screening, and analyzing SBS data. One 
commenter urged the Commission to adopt a rule to require an SDR to 
establish automated systems for monitoring, screening, and analyzing 
SBS data,\430\ but the Commission continues to believe that it is 
better to take a measured approach in addressing this statutory 
requirement to minimize imposing costs on SDRs until the Commission is 
in a better position to determine what information it needs in addition 
to the information that it can obtain from SDRs through other rules 
applicable to SDRs, such as Rule 13n-4(b)(5).\431\ For the same 
reasons, the Commission is not, as another commenter suggested,\432\ 
providing additional details on what may be expected of SDRs in this 
area. The Commission, however, expects to consider further steps to 
implement this requirement as the SBS market develops and the 
Commission gains experience in regulating this market.\433\ Because the 
Commission is not requiring an SDR to monitor, screen, and analyze SBS 
data maintained by the SDR at this time, the Commission is also not 
taking one commenter's suggestion to designate, at this time, an SDR to 
centrally monitor, screen, and analyze SBS data maintained by all 
SDRs.\434\ The Commission believes that it is premature to do so 
without better understanding what additional information would be 
useful to the Commission. After considering the comments, the 
Commission is adopting Rule 13n-4(b)(7) as proposed.
---------------------------------------------------------------------------

    \430\ See Better Markets 1, supra note 19.
    \431\ See Proposing Release, 75 FR at 77318, supra note 2 
(discussing reasons to take a measured approach with respect to 
requiring an SDR to establish automated systems for monitoring, 
screening, and analyzing SBS data). In a separate release, the 
Commission is adopting a rule requiring an SDR to provide the 
Commission, upon request, information or reports related to the 
timeliness, accuracy, and completeness of data reported to the SDR. 
See Regulation SBSR Adopting Release, supra note 13 (Rule 907(e)). 
In addition, the Commission proposed a rule that would require a 
counterparty to an SBS that invokes the end-user clearing exemption 
to deliver or cause to deliver certain information to a registered 
SDR, and, if adopted, then an SDR would be required to maintain this 
information in accordance with Rule 13n-5(b)(4). See End-User 
Exception Proposing Release, supra note 15.
    \432\ See Barnard, supra note 19 (stating that the proposed rule 
regarding monitoring, screening, and analysis is too broad and ``not 
clear enough on the level of detail required and on the level of 
responsibility imposed on SDRs'').
    \433\ The Commission may revisit these issues as the Commission 
becomes more familiar with the SBS market and consider requiring 
SDRs to monitor, screen, and analyze SBS data if, for example, it is 
difficult for the Commission to aggregate and analyze the data 
because SBS data is too fragmented among multiple SDRs or the data 
is maintained by multiple SDRs in different formats.
    \434\ See DTCC 2, supra note 19.
---------------------------------------------------------------------------

3. Implementation of Core Principles (Rule 13n-4(c))
    Each SDR is required, under Exchange Act Section 13(n)(7), to 
comply with core principles relating to (1) market access to services 
and data, (2) governance arrangements, and (3) conflicts of 
interest.\435\ Specifically, unless necessary or appropriate to achieve 
the purposes of the Exchange Act, an SDR \436\ is prohibited from 
adopting any rules \437\ or taking any action that results in any 
unreasonable restraint of trade or imposing any material 
anticompetitive burden on the trading, clearing, or reporting of 
transactions.\438\ In addition, each SDR must establish governance 
arrangements that are transparent to fulfill public interest 
requirements and to support the objectives of the Federal Government, 
owners, and participants.\439\ Moreover, each SDR must establish and 
enforce rules to minimize conflicts of interest in the decision-making 
process of the SDR

[[Page 14476]]

and to establish a process for resolving any such conflicts of 
interest.\440\ Rule 13n-4(c) incorporates and implements these three 
core principles.
---------------------------------------------------------------------------

    \435\ See Exchange Act Section 13(n)(7), 15 U.S.C. 78m(n)(7).
    \436\ Although Exchange Act Section 13(n)(7)(A) refers to ``swap 
data repository,'' the Commission believes that the Congress 
intended it to refer to ``security-based swap data repository.'' See 
generally Am. Petroleum Institute v. SEC, 714 F.3d 1329, 1336-37 
(D.C. Cir. 2013) (explaining that ``[t]he Dodd-Frank Act is an 
enormous and complex statute, and it contains'' a number of 
``scrivener's errors'').
    \437\ See Section VI.A.1.c of this release discussing the 
likelihood that most of the information that would be contained in a 
``rulebook'' would be filed as part of an SDR's policies and 
procedures that are attached to Form SDR.
    \438\ See Exchange Act Section 13(n)(7)(A), 15 U.S.C. 
78m(n)(7)(A).
    \439\ See Exchange Act Section 13(n)(7)(B), 15 U.S.C. 
78m(n)(7)(B).
    \440\ See Exchange Act Section 13(n)(7)(C), 15 U.S.C. 
78m(n)(7)(C).
---------------------------------------------------------------------------

a. First Core Principle: Market Access to Services and Data (Rule 13n-
4(c)(1))
i. Proposed Rule
    Proposed Rule 13n-4(c)(1) would incorporate and implement the first 
core principle \441\ by requiring SDRs, unless necessary or appropriate 
to achieve the purposes of the Exchange Act and the rules and 
regulations thereunder, to not (i) adopt any policies and procedures or 
take any action that results in an unreasonable restraint of trade; or 
(ii) impose any material anticompetitive burden on the trading, 
clearing, or reporting of transactions.\442\ Proposed Rule 13n-4(c)(1) 
would include four specific requirements. First, each SDR would be 
required to ensure that any dues, fees, or other charges it imposes, 
and any discounts or rebates it offers, are fair and reasonable and not 
unreasonably discriminatory; such dues, fees, other charges, discounts, 
or rebates would be required to apply consistently across all 
similarly-situated users of the SDR's services.\443\ Second, each SDR 
would be required to permit market participants to access specific 
services offered by the SDR separately.\444\ Third, each SDR would be 
required to establish, monitor on an ongoing basis, and enforce clearly 
stated objective criteria that would permit fair, open, and not 
unreasonably discriminatory access to services offered and data 
maintained by the SDR as well as fair, open, and not unreasonably 
discriminatory participation by market participants, market 
infrastructures, venues from which data can be submitted to the SDR, 
and third party service providers that seek to connect to or link with 
the SDR.\445\ Finally, each SDR would be required to establish, 
maintain, and enforce written policies and procedures reasonably 
designed to review any prohibition or limitation of any person with 
respect to access to services offered, directly or indirectly, or data 
maintained by the SDR and to grant such person access to such services 
or data if such person has been discriminated against unfairly.\446\
---------------------------------------------------------------------------

    \441\ See Exchange Act Section 13(n)(7)(A), 15 U.S.C. 
78m(n)(7)(A).
    \442\ Proposed Rule 13n-4(c)(1).
    \443\ Proposed Rule 13n-4(c)(1)(i).
    \444\ Proposed Rule 13n-4(c)(1)(ii).
    \445\ Proposed Rule 13n-4(c)(1)(iii).
    \446\ Proposed Rule 13n-4(c)(1)(iv).
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ii. Comments on the Proposed Rule
    As discussed below, eight commenters submitted comments relating to 
this proposed rule,\447\ which were mixed.\448\ Generally speaking, one 
commenter supported ``the Commission's stated goals of protecting 
market participants and maintaining a fair, orderly, and efficient 
[SBS] market through the promotion of competition'' and urged ``the 
Commission to adopt rules that preserve a competitive marketplace and 
forbid [ ] anti-competitive practices by all [SBS] market 
participants.''\449\ The commenter stated that ``[i]n a global SB swap 
market, the anti-competitive practices of even a single market 
participant have potential ramifications for the entire marketplace.'' 
\450\
---------------------------------------------------------------------------

    \447\ See Barnard, supra note 19; Better Markets 1, supra note 
19; DTCC 2, supra note 19; MarkitServ, supra note 19; Tradeweb SBSR, 
supra note 27; Benchmark*, supra note 20; CDEU*, supra note 20; 
McLeish*, supra note 20; see also Better Markets 2, supra note 19; 
DTCC 5, supra note 19; DTCC CB, supra note 26.
    \448\ Three comments submitted prior to the Proposing Release 
agreed with the Commission on the importance of market transparency. 
See McLeish*, supra note 20; CDEU*, supra note 20 (supporting 
``efforts by Congress to improve transparency, accountability and 
stability''); Benchmark*, supra note 20 (``fully support[ing] 
regulatory efforts to increase transparency in the OTC markets''); 
see also SIFMA*, supra note 20 (indicating that increased price 
transparency will improve the application of models used in the 
computation of capital requirements for purposes of complying with 
Exchange Act Rule 15c3-1). For example, one commenter stressed the 
importance of requiring market transparency for all market 
participants without any exceptions. McLeish*, supra note 20 
(believing that ``there should be transparency for everyone'' and 
there should be ``no exceptions''). Another commenter believed that 
market transparency will improve liquidity in the SBS market. 
Benchmark*, supra note 20. To the extent that these commenters are 
broadly supporting transparency, the Commission believes that Rule 
13n-4(c)(1) reflects this broad support.
    \449\ DTCC 5, supra note 19 (stating that ``the Commission 
correctly emphasizes that market participants offering potentially 
competing services should not be subject to anti-competitive 
practices, including product tying, overly restrictive terms of use, 
and anti-competitive price discrimination''). With respect to this 
comment, the Commission notes that the rules adopted in this release 
apply to only SDRs. To the extent that the Commission adopts rules 
prohibiting other market participants from engaging in anti-
competitive practices, those rules will be addressed in separate 
releases.
    \450\ DTCC CB, supra note 26.
---------------------------------------------------------------------------

    In suggesting that the Commission rely on CPSS-IOSCO's 
recommendations such as the PFMI Report, the commenter cited, as an 
example, to the Commission's concurrence, in the Proposing Release, 
with the CPSS-IOSCO Trade Repository Report's recommendation that 
``[m]arket infrastructures and service providers that may or may not 
offer potentially competing services should not be subject to 
anticompetitive practices such as product tying, contracts with non-
compete and/or exclusivity clauses, overly restrictive terms of use and 
anti-competitive price discrimination.'' \451\
---------------------------------------------------------------------------

    \451\ DTCC CB, supra note 26; see also Proposing Release, 75 FR 
at 77321, supra note 2; CPSS-IOSCO Trade Repository Report, supra 
note 48.
---------------------------------------------------------------------------

(1) Rule 13n-4(c)(1)(i): Fair, Reasonable, and Not Unreasonably 
Discriminatory Dues, Fees, Other Charges, Discounts, and Rebates
    One commenter supported the requirements in proposed Rule 13n-
4(c)(1)(i) because ``they should encourage market participants to use 
SDRs' services.'' \452\ The commenter believed that an SDR should 
charge different fee structures only if it relates to the SDR's 
``differing costs of providing access or service to particular 
categories'' and that ``[a]nything else would be discrimination.'' 
\453\ The commenter suggested that ``any preferential pricing such as 
volume discounts or reductions should be generally viewed as 
discriminatory'' and believed that ``[s]uch volume discounts or 
reductions tend to discriminate in favour of the large players.'' \454\
---------------------------------------------------------------------------

    \452\ Barnard, supra note 19.
    \453\ Barnard, supra note 19.
    \454\ Barnard, supra note 19.
---------------------------------------------------------------------------

    Two commenters believed that SDRs should be permitted to continue 
using the current ``dealer pays'' or ``sell-side pays'' model,\455\ or 
at least to continue using that model if it is acceptable by the SDRs' 
market participants.\456\ One of the commenters expressed particular 
concern about the effect that the Commission's proposed rule requiring 
nondiscriminatory pricing would have on the current ``dealer pays'' or 
``sell-side pays'' model.\457\ The commenter suggested that 
alternatively, the Commission's proposed rule could be amended to 
permit: (a) Different fee structures for different classes of 
participants (e.g., sell-side and buy-side) to reflect the different 
cost of their usage of the SDR, or (b) payment of fees by only the 
reporting party.\458\ The commenter believed that this approach would 
be consistent with the Commission's proposed ``not unreasonably 
discriminatory'' requirement because ``SDRs would be prohibited from 
discriminating within each class, while participants in different 
classes may be charged different fees.'' \459\ The commenter

[[Page 14477]]

further believed that ``any other literal interpretation of `non-
discriminatory access' would have the unintended consequence of 
significantly increasing the costs for buy-side participants and, by 
doing so, generally discouraging their use of [SDRs].'' \460\
---------------------------------------------------------------------------

    \455\ DTCC 2, supra note 19 (noting the success of a model that 
charges dealers for services on an at-cost basis and that operates 
at no cost to the buy-side and end-users); MarkitSERV, supra note 
19.
    \456\ MarkitSERV, supra note 19.
    \457\ MarkitSERV, supra note 19.
    \458\ MarkitSERV, supra note 19.
    \459\ MarkitSERV, supra note 19.
    \460\ MarkitSERV, supra note 19.
---------------------------------------------------------------------------

    The same two commenters further believed that an SDR's fees for 
certain services should reflect the SDR's costs of providing related 
services.\461\ One of these commenters believed, for example, that ``if 
a reporting party uses a third party service provider for trade 
submission, which fulfils the SDR's requirement to confirm the trade 
with both parties, this report would potentially be charged at a lower 
cost than a direct report to the SDR, requiring the SDR itself to 
confirm with the other party.'' \462\ The commenter further noted that 
since small ``non-reporting counterparties will legitimately want to 
interact with SDRs, if only to verify what has been reported, SDRs 
should have the flexibility to facilitate such access by not charging, 
or charging only nominal amounts, for such interaction.'' \463\ In 
addition, the commenter suggested that the Commission clarify its rules 
to ``prevent predatory or coercive pricing by providers engaged in any 
two or more trading, clearing or repository services'' and to prohibit 
cross-subsidies between services.\464\ The other commenter suggested 
that SDRs should be permitted to charge different (i.e., higher) fees 
in order to recoup costs associated with ``processing any highly non-
standard, albeit eligible [(i.e., within the asset class for which the 
SDR accepts data)], SBS transactions.'' \465\
---------------------------------------------------------------------------

    \461\ DTCC 2, supra note 19; MarkitSERV, supra note 19; see also 
DTCC CB, supra note 26 (not supporting anti-competitive price 
discrimination).
    \462\ DTCC 2, supra note 19.
    \463\ DTCC 2, supra note 19.
    \464\ DTCC 4, supra note 19 (``While market participants should 
be able to enjoy the economies of shared platforms . . . the 
allocations of platform operating costs between services cannot be 
arbitrary.'').
    \465\ MarkitSERV, supra note 19.
---------------------------------------------------------------------------

    Another commenter believed that the Commission's proposed rule, 
which refers to a standard of ``fair and reasonable'' and ``not 
unreasonably discriminatory'' and which requires consistent application 
across all similarly-situated users, is vague and suggested that the 
Commission ``establish fees, rates, or even formulas for determining 
rates.'' \466\ The commenter suggested that in order to prevent SDRs 
from taking ``unfair advantage of the mandated use of their services,'' 
particularly ``in SBS markets where there is no effective competition, 
SDRs [should] be required to justify the reasonableness of price levels 
charged to both suppliers of data and recipients of data.'' \467\
---------------------------------------------------------------------------

    \466\ Better Markets 1, supra note 19.
    \467\ Better Markets 1, supra note 19.
---------------------------------------------------------------------------

    One commenter to proposed Regulation SBSR suggested that SDRs 
should not be permitted to charge fees to third parties acting on 
behalf of counterparties for accepting SBS transaction information 
because such fees would increase the cost of using an SB SEF or other 
third party.\468\ The commenter believed that SDRs would likely charge 
the same third parties for subsequent use of SBS data maintained by the 
SDRs.\469\ In submitting comments to the Commission's rulemaking 
regarding SB SEFs, the same commenter suggested that the Commission 
require SDRs to (i) make available any data they collect and may 
properly use for commercial purposes to all market participants, 
including SB SEFs and clearing agencies, on reasonable terms and 
pricing and on a non-discriminatory basis, and (ii) share, on 
commercially reasonable terms, revenue that SDRs generate from 
redistributing such data with parties providing the data to the SDRs 
(e.g., SB SEFs).\470\ The commenter believed that without these 
requirements, the Commission would be effectively taking away from 
market participants, including SB SEFs and clearing agencies, a 
potentially significant and valuable component of their potential 
market data revenue streams.\471\
---------------------------------------------------------------------------

    \468\ Tradeweb SBSR, supra note 27.
    \469\ Tradeweb SBSR, supra note 27.
    \470\ Tradeweb SB SEF, supra note 29.
    \471\ Tradeweb SB SEF, supra note 29.
---------------------------------------------------------------------------

(2) Rule 13n-4(c)(1)(ii): Offering Services Separately
    Three commenters supported the Commission's proposed rule requiring 
SDRs to permit market participants to access services offered by SDRs 
separately.\472\ Specifically, one commenter agreed that SDRs' fees 
should be transparent.\473\ As a corollary to this, one of the 
commenters suggested that third party service providers should be 
barred from bundling their services with an SDR's services.\474\ 
Additionally, the same commenter believed that ``[a]ny provider 
offering trading[,] clearing or repository services for one asset class 
should not be permitted [to] bundl[e] or t[ie] when providing services 
for other asset classes.'' \475\ The commenter suggested, however, that 
SDRs should be permitted to offer two or more service options, 
including one that fulfills the minimum regulatory reporting 
requirements and a suite of other services to complement the mandatory 
reporting function.\476\
---------------------------------------------------------------------------

    \472\ DTCC 2, supra note 19; MarkitSERV, supra note 19 
(``[M]arket participants' decisions to use or not use a given [SDR] 
or its affiliates' [a]ncillary [s]ervices should rest entirely with 
the market participant[s]. These decisions should not be tied to any 
other service provided by a regulated entity or its affiliate . . . 
or [an SDR] and any related [third party service provider].''); 
TriOptima, supra note 19 (``[I]t is important that market 
participants have the ability to access specific services offered by 
the [SDR] separately.''); see also DTCC 3, supra note 19 (noting 
that the Commission's proposed rule requiring ``each SDR to permit 
market participants to access specific services offered by the SDR 
separately'' is consistent with the CPSS-IOSCO Trade Repository 
Report); DTCC CB, supra note 26 (not supporting anti-competitive 
practices such as product tying).
    \473\ MarkitSERV, supra note 19.
    \474\ DTCC 2, supra note 19 (``Allowing bundling of obligations 
undertaken by third party service providers with an SDR will detract 
from the SDR's utility function and jeopardize the value of SDRs to 
regulators and the market.''); see also DTCC 4, supra note 19 
(``[N]o provider of trading or clearing services should be permitted 
to simply declare itself the SDR for trades it facilitates. . . . 
[A]side from being anti-competitive, this type of vertical bundling 
would also (a) reverse the principal-agent relationship . . . and 
(b) add a layer of unnecessary risk to the control processes that 
market participants may determine are needed.'').
    \475\ DTCC 4, supra note 19.
    \476\ DTCC 2, supra note 19.
---------------------------------------------------------------------------

    One commenter believed that SDRs should be able to offer ancillary 
services, whether bundled or not.\477\ The commenter, however, did not 
support the bundling of ancillary services with mandatory or regulatory 
services.\478\
---------------------------------------------------------------------------

    \477\ Barnard, supra note 19.
    \478\ Barnard, supra note 19.
---------------------------------------------------------------------------

    Another commenter stated that the proposed rule went ``a long way 
to address a third party's (such as a service provider's) non-
discriminatory access rights to granular [SDR] Information,'' and that 
such access is important so as to ``not stifle innovation and the 
competition in the provision of post-trade processing services'' and to 
``uphold a fair, secure and efficient post-trade market.'' \479\ In the 
context of discussing proposed Rule 13n-4(c)(1)(ii), the commenter 
suggested that, to further these goals, the Commission should clarify 
that all ``users'' of an SDR's services, including unaffiliated third 
party service providers, and not only market participants that submit 
trade data, should be permitted to access each of the SDR's services 
separately.\480\
---------------------------------------------------------------------------

    \479\ TriOptima, supra note 19.
    \480\ TriOptima, supra note 19 (``[W]e would encourage the SEC 
to clarify that [proposed Rule 13n-4(c)(1)(ii)] should apply to all 
users of an [SDR], including third party service providers with 
Written Client Disclosure Consents seeking to access the [SDR] 
Information, and not just market participants who submit trade data. 
I.e., users of an [SDR] should have the right to access services 
provided by an [SDR] separately.'').

---------------------------------------------------------------------------

[[Page 14478]]

(3) Rule 13n-4(c)(1)(iii): Fair, Open, and Not Unreasonably 
Discriminatory Access
    Four commenters generally supported the Commission's proposed rule 
regarding fair, open, and not unreasonably discriminatory access to 
services offered and data maintained by SDRs, but a few of these 
commenters also recommended additional requirements.\481\ One of these 
commenters noted that ``all counterparties to trades reported to an SDR 
should, as a matter of principle, have access to all data relating to 
trades to which they are [counterparties]'' and that ``[t]his access 
should be made available to smaller, lower volume market participants, 
as necessary, through the reduction or waiver of certain fees.'' \482\ 
The same commenter also noted that ``clearinghouses and [SB SEFs] 
should have the ability to report trades to SDRs . . . to satisfy their 
customers' reporting preferences.'' \483\ In addition, the commenter 
supported ``open access to data by other service providers (based on 
the consent of the parties for that provider to receive the data) 
[because it] is critical to preserve the trading parties' control over 
their own data.'' \484\
---------------------------------------------------------------------------

    \481\ DTCC 2, supra note 19 (SDRs ``should demonstrate strict 
impartiality in making data available to, or receiving data from, 
other providers, including affiliates of SDRs.''); MarkitSERV, supra 
note 19; Better Markets 1, supra note 19; TriOptima, supra note 19; 
see also Better Markets 2, supra note 19; DTCC CB, supra note 26 
(not supporting anti-competitive practices such as contracts with 
non-compete and/or exclusivity clauses and overly restrictive terms 
of use).
    \482\ DTCC 2, supra note 19; see also DTCC 3, supra note 19 
(recommending that SDRs ``be able to accept trades in any manner 
consistent with the regulations, from any market participant'' and 
``have appropriate communications links, to the extent feasible, 
with all parties to its transactions''); DTCC SBSR, supra note 27 
(stating that SDRs ``will need to support an appropriate set of 
connectivity methods; the Commission should not, however, require 
SDRs to support all connectivity methods, as the costs to do so 
would be prohibitive''); see also TriOptima, supra note 19 (``[I]t 
is clear that an [SDR] should provide [s]wap [p]articipants with 
access to their own trade data.'').
    \483\ DTCC 3, supra note 19.
    \484\ DTCC 3, supra note 19; see also DTCC 2, supra note 19 
(believing that open access to data by other service providers ``is 
an important principle for allowing development of automation and 
efficient operational processing in the market, while preserving the 
parties' control over confidential information'').
---------------------------------------------------------------------------

    Another commenter who supported the rule indicated that SDRs should 
be able to condition access by specifying the methods and channels that 
must be used in order to connect to the SDR and setting certain minimum 
standards.\485\ This commenter also recommended that SDRs should be 
permitted to provide connectivity to third party service providers, 
without requiring any specific services from them as a condition to 
their gaining access to the SBS data.\486\
---------------------------------------------------------------------------

    \485\ MarkitSERV, supra note 19.
    \486\ MarkitSERV, supra note 19.
---------------------------------------------------------------------------

    One commenter urged the Commission to ``clarify in the final rule 
that [SDRs] shall provide third party service providers, who have been 
authorized to access information by the counterparties to the relevant 
trades under Written Client Disclosure Consents, with access to [SDR] 
Information.'' \487\ The commenter further stressed the importance of 
providing ``full and unrestricted'' access to SBS data to third party 
service providers, particularly those acting on behalf of SBS 
counterparties.\488\ The commenter objected to the lack of an 
``obligation on the [SDR] to provide full and unrestricted access to 
[granular trade data] to a third party service provider'' and suggested 
that ``this obligation should apply where the counterparties to the 
relevant trades have provided [written consents and authorizations] to 
the [SDR] to disclose granular trading data to the third party service 
provider.'' \489\ The commenter noted that, when such third party 
service provider is acting pursuant to a written consent by an SBS 
counterparty, it is exercising that counterparty's right to access its 
own trade information.\490\ The commenter ``stress[ed] the importance 
that data access rights and requirements imposed on a third party 
(service provider) seeking to access [SDR] Information [ ] are applied 
equally to the [SDR] itself when providing ancillary services and to 
affiliated service providers within the same group as the [SDR].'' 
\491\ In this regard, the commenter believed that ``the [SDR] should 
not have discretion to offer advantages in respect of its own ancillary 
services or services offered by affiliated service providers vis-
[agrave]-vis other third party service providers.'' \492\
---------------------------------------------------------------------------

    \487\ TriOptima, supra note 19.
    \488\ TriOptima, supra note 19 (emphasizing ``the importance of 
enhanced non-discriminatory access rights to [SDR] Information for 
third party service providers in order to maintain competition and 
innovation within the post-trade area, especially where such third 
party service providers have been authorized to access [SDR] 
Information under Written Client Disclosure Consents'' and stating 
that ``[a]n explicit obligation for an [SDR] to provide such full 
and unrestricted access to [SDR] Information to a third party 
(service provider) is important in order to uphold a fair, secure 
and efficient post-trade market; an [SDR] should not restrict access 
to [SDR] Information on other grounds than integrity risks to the 
[SDR] Information'').
    \489\ TriOptima, supra note 19.
    \490\ TriOptima, supra note 19 (``We note that the third party 
service provider, for whom a Written Client Disclosure Consents is 
given, is actually exercising the Swap Participant's right to access 
their own trade information which is held by the [SDR]. An [SDR] 
should be required to treat a third party service provider with a 
disclosure consent as acting as an `agent' for the owner of the 
trade information and provide the third party service provider with 
the same type of access which the owner of such data is entitled to, 
subject to any restrictions set out in the disclosure consent.'').
    \491\ TriOptima, supra note 19.
    \492\ TriOptima, supra note 19.
---------------------------------------------------------------------------

    One commenter recommended that the Commission require that each SDR 
establish and maintain effective interoperability and interconnectivity 
with other SDRs, market infrastructures, and venues from which data can 
be submitted to the SDR.\493\ Additionally, the commenter suggested 
that market participants should have ``equal and fair access to data on 
SBS transactions,'' \494\ and that the Commission's rules ``establish 
stronger and more detailed standards against discriminatory access, and 
they should also establish regulatory oversight of access denials.'' 
\495\ The commenter further suggested that the Commission's proposed 
rules set forth the ``clearly stated objective criteria'' and permit 
denial of access only on risk-based grounds, i.e., risks related to the 
security or functioning of the market.\496\
---------------------------------------------------------------------------

    \493\ Better Markets 1, supra note 19; see also DTCC 4, supra 
note 19 (suggesting that the Commission clarify its rules to prevent 
unfair or coercive linking or blocking of links between trading, 
clearing, or repository services).
    \494\ Better Markets 2, supra note 19.
    \495\ Better Markets 1, supra note 19.
    \496\ Better Markets 1, supra note 19.
---------------------------------------------------------------------------

(4) Rule 13n-4(c)(1)(iv): Prohibited or Limited Access
    One commenter recommended that the Commission require an SDR ``to 
promptly file a notice with the Commission if the SDR . . . prohibits 
or limits any person's access to services offered or data maintained by 
the SDR.'' \497\
---------------------------------------------------------------------------

    \497\ Better Markets 1, supra note 19.
---------------------------------------------------------------------------

iii. Final Rule
    After considering the comments, the Commission is adopting Rule 
13n-4(c)(1) as proposed, with one minor modification.\498\ Rule 13n-
4(c)(1), which tracks the statutory language,\499\ provides that 
``[u]nless necessary or appropriate to achieve the purposes of the 
[Exchange] Act and the rules and regulations thereunder, the security-
based swap data repository shall not

[[Page 14479]]

adopt any policies or procedures \500\ or take any action that results 
in an unreasonable restraint of trade or impose any material 
anticompetitive burden on the trading, clearing, or reporting of 
transactions.'' In implementing the first core principle, this rule is 
intended to protect investors and to maintain a fair, orderly, and 
efficient SBS market.\501\ The Commission believes that this rule will 
protect investors by, for example, fostering service transparency and 
promoting competition in the SBS market.\502\ Generally speaking, the 
Commission also believes that ``[m]arket infrastructures and service 
providers that may or may not offer potentially competing services 
should not be subject to anti-competitive practices such as product 
tying, contracts with non-compete and/or exclusivity clauses, overly 
restrictive terms of use and anti-competitive price discrimination.'' 
\503\ As discussed in the Proposing Release and more fully below, when 
administering this rule, the Commission generally expects to apply the 
principles and procedures that it has developed in other areas in which 
it monitors analogous services, such as clearing agencies.\504\ To 
comply with the first core principle, an SDR is required to comply with 
four specific requirements.
---------------------------------------------------------------------------

    \498\ See infra note 500 of the release discussing a 
modification to proposed Rule 13n-4(c)(1).
    \499\ See Exchange Act Section 13(n)(7)(A), 15 U.S.C. 
78m(n)(7)(A).
    \500\ The Commission is making a typographical modification to 
proposed Rule 13n-4(c)(1), which refers to ``any policies and 
procedures.'' As adopted, the rule refers to ``any policies or 
procedures.''
    \501\ See DTCC 5, supra note 19 (supporting ``the Commission's 
stated goals of protecting market participants and maintaining a 
fair, orderly, and efficient [SBS] market through the promotion of 
competition'').
    \502\ See DTCC 5, supra note 19 (urging ``the Commission to 
adopt rules that preserve a competitive marketplace and forbid [ ] 
anti-competitive practices by all [SBS] market participants''); see 
also DTCC CB, supra note 26 (stating that ``[i]n a global [SBS] 
market, the anti-competitive practices of even a single market 
participant have potential ramifications for the entire 
marketplace'').
    \503\ Proposing Release, 75 FR at 77321, supra note 2; accord 
DTCC CB, supra note 26 (citing to the CPSS-IOSCO Trade Repository 
Report's recommendation that market infrastructures and service 
providers should not be subject to anticompetitive practices).
    \504\ Proposing Release, 75 FR at 77320, supra note 2.
---------------------------------------------------------------------------

(1) Rule 13n-4(c)(1)(i): Fair, Reasonable, and Not Unreasonably 
Discriminatory Dues, Fees, Other Charges, Discounts, and Rebates
    Rule 13n-4(c)(1)(i) requires each SDR to ensure that any dues, 
fees, or other charges that it imposes, and any discounts or rebates 
that it offers, are fair and reasonable and not unreasonably 
discriminatory.\505\ The rule also requires such dues, fees, other 
charges, discounts, or rebates to be applied consistently across all 
similarly-situated users of the SDR's services, including, but not 
limited to, market participants, market infrastructures (including 
central counterparties), venues from which data can be submitted to the 
SDR (including exchanges, SB SEFs, electronic trading venues, and 
matching and confirmation platforms), and third party service 
providers.
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    \505\ The Exchange Act applies a similar standard for other 
registrants. See, e.g., Exchange Act Section 6(b)(4), 15 U.S.C. 
78f(b)(4) (``The rules of the exchange [shall] provide for the 
equitable allocation of reasonable dues, fees, and other charges 
among its members and issuers and other persons using its 
facilities.''); Exchange Act Section 17A(b)(3)(D), 15 U.S.C. 78q-
1(b)(3)(D) (``The rules of the clearing agency [shall] provide for 
the equitable allocation of reasonable dues, fees and other charges 
among its participants.''); see also Exchange Act Sections 
11A(c)(1)(C) and (D), 15 U.S.C. 78k-1(c)(1)(C) and (D) (providing 
that the Commission may prescribe rules to assure that all SIPs may, 
``for purposes of distribution and publication, obtain on fair and 
reasonable terms such information'' and to assure that ``all other 
persons may obtain on terms which are not unreasonably 
discriminatory'' the transaction information published or 
distributed by SIPs).
---------------------------------------------------------------------------

    As discussed in the Proposing Release, the terms ``fair'' and 
``reasonable'' often need standards to guide their application in 
practice.\506\ One factor that the Commission has taken into 
consideration to evaluate the fairness and reasonableness of fees, 
particularly those of a monopolistic provider of a service, is the cost 
incurred to provide the service.\507\ Consistent with commenters' 
views,\508\ the Commission believes that if an SDR's fees for certain 
services reflect the SDR's costs of providing those services, then the 
fees would generally be considered fair and reasonable.
---------------------------------------------------------------------------

    \506\ Proposing Release, 75 FR at 77320, supra note 2.
    \507\ See Regulation of Market Information Fees and Revenues, 
Exchange Act Release No. 42208 (Dec. 9, 1999), 64 FR 70613, 70619 
(Dec. 17, 1999).
    \508\ See DTCC 2, supra note 19; MarkitSERV, supra note 19 (both 
believing that an SDR's fees for services should be allowable if 
such fees reflect the SDR's costs of providing such services).
---------------------------------------------------------------------------

    Based on the Commission's experience with other registrants, the 
Commission will take a flexible approach to evaluate the fairness and 
reasonableness of an SDR's fees and charges on a case-by-case basis. 
The Commission recognizes that there may be instances in which an SDR 
could charge different users different prices for the same or similar 
services. Such differences, however, cannot be unreasonably 
discriminatory.
    The Commission continues to believe that an SDR should make 
reasonable accommodations, including consideration of any cost burdens, 
on a non-reporting counterparty to an SBS in connection with the SDR 
following up on the accuracy of the SBS transaction data.\509\ Thus, 
the Commission agrees with one commenter's view that an SDR may 
facilitate a non-reporting counterparty's ability to verify the 
accuracy of a reported SBS transaction by not charging the counterparty 
or charging the counterparty only a nominal amount.\510\
---------------------------------------------------------------------------

    \509\ See Proposing Release, 75 FR at 77320, supra note 2.
    \510\ See DTCC 2, supra note 19.
---------------------------------------------------------------------------

    With respect to commenters' views on the current ``dealer pays'' or 
``sell-side pays'' model,\511\ the Commission does not believe that 
such a model is unreasonably discriminatory per se. As such, the 
Commission believes that amending proposed Rule 13n-4(c)(1)(i) to 
explicitly permit different fee structures, as suggested by one 
commenter,\512\ is not necessary. Furthermore, Rule 13n-4(c)(1)(i) is 
not intended to prohibit an SDR from utilizing any one particular 
model, including a ``dealer pays'' or ``sell-side pays'' model, a model 
with different fee structures for different classes of participants, or 
a model where only the reporting party is required to pay an SDR's 
fees, as long as there is a fair and reasonable basis for the fee 
structure and it is not unreasonably discriminatory. If, however, an 
SDR imposes dues, fees, or other charges to create intentionally a 
barrier to access the SDR without a legitimate basis, then those dues, 
fees, or charges may be considered unfair or unreasonable.
---------------------------------------------------------------------------

    \511\ See DTCC 2, supra note 19; MarkitSERV, supra note 19.
    \512\ See MarkitSERV, supra note 19.
---------------------------------------------------------------------------

    The Commission disagrees with three comments received. The first 
commenter suggested that the Commission establish fees or rates, or 
dictate formulas by which fees or rates are determined.\513\ The 
Commission believes that in light of the various SDR business models 
and fee structures that may emerge, it is better to provide SDRs with 
the flexibility to establish their own fees or rates, provided that 
they are fair, reasonable, and not unreasonably discriminatory. The 
Commission is providing SDRs with such flexibility to promote 
competition among SDRs, thereby keeping the cost of SDRs' services to a 
minimum.
---------------------------------------------------------------------------

    \513\ Better Markets 1, supra note 19.
---------------------------------------------------------------------------

    The second commenter believed that an SDR should charge different 
fee structures only if it relates to the SDR's ``differing costs of 
providing access or service to particular categories'' and that

[[Page 14480]]

``any preferential pricing such as volume discounts or reductions 
should be generally viewed as discriminatory.''\514\ Although an SDR's 
costs in providing its services or access to SBS data maintained by the 
SDR may be a factor in evaluating the SDR's fee structure, the 
Commission believes that it is not necessarily the only factor. There 
may be instances in which an SDR's fees or discounts (including volume 
discounts) are fair, reasonable, and not unreasonably discriminatory, 
even if the fees or discounts are not related to the SDR's costs in 
providing such services or access. In all instances, the SDR is 
responsible for demonstrating that its fees or discounts meet this 
regulatory standard.\515\ As stated above, the Commission expects to 
evaluate the fairness and reasonableness of an SDR's fees and charges 
on a case-by-case basis.
---------------------------------------------------------------------------

    \514\ Barnard, supra note 19.
    \515\ See Item 26 of Form SDR.
---------------------------------------------------------------------------

    The third commenter suggested that the Commission require SDRs to 
make available any data they collect and may properly use for 
commercial purposes to all market participants on reasonable terms and 
pricing and on a non-discriminatory basis.\516\ Although the Commission 
agrees that fees imposed by SDRs should be ``on reasonable terms and 
pricing and on a non-discriminatory basis,'' the Commission notes that 
an SDR is not required to make SBS data available to all market 
participants, aside from SBS data that is publicly disseminated 
pursuant to Regulation SBSR.\517\ As discussed below, there may be 
limited instances in which an SDR denies access to a market 
participant.\518\
---------------------------------------------------------------------------

    \516\ Tradeweb SB SEF, supra note 29.
    \517\ See Regulation SBSR Adopting Release, supra note 13 (Rule 
902 requiring SDRs to publicly disseminate certain SBS information).
    \518\ See Section VI.D.3.a.iii(3) of this release discussing an 
SDR's obligation to provide fair, open, and not unreasonably 
discriminatory access to others.
---------------------------------------------------------------------------

    With respect to cross-subsidies, the Commission believes that it is 
not necessary, as one commenter suggested,\519\ to prohibit cross-
subsidies between services provided by an SDR, but the Commission 
recognizes that there may be instances in which such cross-subsidies 
would violate Rule 13n-4(c)(1)(i). For example, cross-subsidies between 
an SDR's services that result in fees that are arbitrary or have no 
relationship to the costs of providing the service on a discrete basis 
may not be consistent with Rule 13n-4(c)(1)(i). This is because an 
arbitrary fee structure could mean that fees are not being incurred 
consistently by similarly-situated users of the SDR's services and 
because the Commission believes that, in certain instances, fee 
structures without some relationship to the costs of the SDR may not be 
fair and reasonable due to the differential impact such charges would 
have on market participants that may choose to use some, but not all, 
of the SDR's or its affiliate's services.\520\ Another commenter 
suggested that the Commission prohibit SDRs from charging fees to third 
parties acting on behalf of counterparties for accepting SBS 
transaction information.\521\ The commenter also suggested that the 
Commission require SDRs to share their revenue from redistributing data 
with parties providing the data to the SDRs.\522\ Consistent with the 
Commission's approach with its other registrants, including exchanges 
and clearing agencies, the Commission does not believe that it is 
appropriate to dictate who an SDR can and cannot charge or with whom an 
SDR must share its revenue.
---------------------------------------------------------------------------

    \519\ See DTCC 4, supra note 19.
    \520\ Accord Exchange Act Section 17A(b)(3)(D), 15 U.S.C. 78q-
1(b)(3)(D) (requiring the rules of a clearing agency to provide for 
the equitable allocation of reasonable dues, fees, and other charges 
among its participants).
    \521\ Tradeweb SBSR, supra note 27.
    \522\ Tradeweb SB SEF, supra note 29.
---------------------------------------------------------------------------

    One commenter suggested that the Commission extend the 
applicability of its rule to providers engaged in two or more of 
trading, clearing, or repository services to prevent predatory or 
coercive pricing by the providers.\523\ As with its other rules 
governing SDRs, the Commission's rule implementing the first core 
principle generally applies only to SDR services. To the extent that 
the Commission decides that predatory or coercive pricing with respect 
to non-SDR services needs to be addressed, the Commission will take 
appropriate action.
---------------------------------------------------------------------------

    \523\ DTCC 4, supra note 19.
---------------------------------------------------------------------------

(2) Rule 13n-4(c)(1)(ii): Offering Services Separately
    Rule 13n-4(c)(1)(ii) requires each SDR to permit market 
participants to access specific services offered by the SDR separately. 
As one commenter suggested,\524\ an SDR may bundle its services, 
including any ancillary services, regardless of the asset class at 
issue, but this rule requires the SDR to also provide market 
participants with the option of using its services separately.\525\ The 
Commission believes that it is appropriate to adopt this rule as 
proposed to promote competition.\526\
---------------------------------------------------------------------------

    \524\ See DTCC 2, supra note 19 (suggesting that SDRs should be 
permitted to offer two or more service options, including one that 
fulfills the minimum regulatory reporting requirements and other 
services to complement the mandatory reporting function). But see 
DTCC 4, supra note 19 (suggesting that bundling should not be 
permitted across asset classes).
    \525\ See Barnard, supra note 19 (believing that SDRs should be 
able to offer ancillary services, whether bundled or not, but not 
supporting the bundling of ancillary services with mandatory or 
regulatory services).
    \526\ See Exchange Act Section 13(n)(7)(A), 15 U.S.C. 
78m(n)(7)(A) (regarding the first SDR core principle). See also 
Section VIII discussing economic analysis.
---------------------------------------------------------------------------

    If an SDR or its affiliate \527\ provides an ancillary service, 
such as a matching and confirmation service, then the SDR is prohibited 
by Rule 13n-4(c)(1)(ii) from requiring a market participant to use and 
pay for that service as a condition of using the SDR's data collection 
and maintenance services.\528\ In such an instance, the SDR is also 
prohibited from requiring a market participant that uses the SDR's or 
affiliate's ancillary service to use the SDR's data collection and 
maintenance services. The Commission also believes that if an SDR 
enters into an oral or written agreement or arrangement with an 
affiliate or third party service provider that reflects a business plan 
in which the affiliate or third party service provider will require its 
customers to use the core services of that SDR, then the SDR would not 
be in compliance with Rule 13n-4(c)(1)(ii).\529\ In evaluating the 
fairness and reasonableness of fees that an SDR charges for bundled and 
unbundled services, the Commission will take into consideration, among 
other things, the SDR's cost of making those services available on a 
bundled or unbundled basis, as the case may be, and a market 
participant's proportional use of the SDR's services.
---------------------------------------------------------------------------

    \527\ See supra note 247 (defining ``affiliate'').
    \528\ See Proposing Release, 75 FR at 77320-77321, supra note 2.
    \529\ The Commission notes that under Exchange Act Section 
20(b), 15 U.S.C. 78t(b), ``[i]t shall be unlawful for any person, 
directly or indirectly, to do any act or thing which it would be 
unlawful for such person to do under the provisions of [the Exchange 
Act] or any rule or regulation thereunder through or by means of any 
other person.''
---------------------------------------------------------------------------

    With regard to one commenter's suggestion that all ``users'' of an 
SDR's services, including unaffiliated third party service providers, 
should be permitted to access the SDR's non-SDR services 
separately,\530\ the Commission agrees, as set forth in Rule 13n-
4(c)(1)(ii), that market participants that use an SDR's services should 
have access to specific services offered by the SDR, including any 
ancillary services, separately. The Commission believes that SDRs 
should consider giving third

[[Page 14481]]

party service providers acting as agents for such market participants 
the same rights as the market participants to access these services 
separately. However, Rule 13n-4(c)(1)(ii) does not require an SDR to 
afford the agent access to the SDR's unbundled services outside of its 
agency capacity.
---------------------------------------------------------------------------

    \530\ See TriOptima, supra note 19.
---------------------------------------------------------------------------

(3) Rule 13n-4(c)(1)(iii): Fair, Open, and Not Unreasonably 
Discriminatory Access
    Rule 13n-4(c)(1)(iii) requires each SDR to establish, monitor on an 
ongoing basis, and enforce clearly stated objective criteria that would 
permit fair, open, and not unreasonably discriminatory access to 
services offered and data maintained by the SDR as well as fair, open, 
and not unreasonably discriminatory participation by market 
participants, market infrastructures, venues from which data can be 
submitted to the SDR, and third party service providers that seek to 
connect to or link with the SDR. As with Rule 13n-4(c)(1)(i), the 
Commission will evaluate whether such access or participation is 
``fair, open, and not unreasonably discriminatory'' on a case-by-case 
basis. Although this rule does not explicitly require, as one commenter 
suggested,\531\ SDRs to establish and maintain effective 
interoperability and interconnectivity with other SDRs,\532\ market 
infrastructures, and venues from which data can be submitted, the rule 
is intended to encourage such interoperability and interconnectivity by 
requiring SDRs to establish criteria that would permit fair, open, and 
not unreasonably discriminatory participation by others, including 
those that seek to connect to or link with the SDR.
---------------------------------------------------------------------------

    \531\ See Better Markets 1, supra note 19.
    \532\ The Commission is not explicitly requiring SDRs to 
maintain effective interoperability and interconnectivity with other 
SDRs at this time, partly because such a requirement could hinder 
the developing infrastructure for SBS transactions.
---------------------------------------------------------------------------

    The Commission agrees with most of the comments on this rule. One 
commenter suggested that market participants should have ``equal and 
fair access to data on SBS transactions.'' \533\ The Commission agrees 
with the comment to the extent that the commenter equated ``equal and 
fair access'' with the ``fair, reasonable and not unreasonably 
discriminatory'' standard in the rule. However, the Commission notes 
that all market participants are not required to be treated the same 
way in all instances. For example, if a market participant fails to pay 
the SDR's reasonable fees, then it may be ``fair, reasonable and not 
unreasonably discriminatory'' for an SDR to deny access to the market 
participant.
---------------------------------------------------------------------------

    \533\ See Better Markets 2, supra note 19.
---------------------------------------------------------------------------

    The Commission agrees that an SDR should be able to condition 
access to SBS data that it maintains by specifying the methods and 
channels that must be used to connect to the SDR and by setting certain 
minimum standards,\534\ provided that such conditions are fair, open, 
and not unreasonably discriminatory. The Commission also agrees with 
one commenter's view that an SDR should, to the extent feasible, 
provide each counterparty to an SBS transaction that is reported to an 
SDR with reasonable access to the data relating to that 
transaction.\535\ If an SDR provides such access to smaller, lower 
volume market participants at reduced or waived fees, as one commenter 
suggested,\536\ then the discount must be fair and reasonable and not 
unreasonably discriminatory.\537\ The Commission further agrees with 
commenters' views that an SDR should provide connectivity to others, 
including third party service providers, clearinghouses, and SB 
SEFs,\538\ and, as one commenter suggested,\539\ if the SDR delegates 
the function of providing connectivity to another entity, that entity 
cannot require anyone to use the entity's services as a condition to 
obtaining connectivity to the SDR. The Commission also agrees with 
another commenter that an SDR generally should impose similar data 
access rights and requirements on itself (and its affiliates) as those 
imposed on a third party acting as an agent on behalf of an SBS 
counterparty.\540\
---------------------------------------------------------------------------

    \534\ See MarkitSERV, supra note 19. Related to this comment, 
another commenter suggested that market infrastructures such as 
clearing agencies and SB SEFs should generally have the ability to 
report SBS transactions to SDRs to satisfy their customers' 
reporting preferences. See DTCC 3, supra note 19. As stated above, 
the Commission intends to adopt rules relating to clearing agencies 
and SB SEFs in separate releases.
    \535\ See DTCC 2, supra note 19; see also DTCC 3, supra note 19 
(noting that SDRs should be able to accept trades in any manner 
consistent with the regulations, from any market participant and 
have appropriate communication links, to the extent feasible, with 
all counterparties to SBS transactions reported to the SDR); DTCC 
SBSR, supra note 27 (stating that SDRs ``will need to support an 
appropriate set of connectivity methods'').
    \536\ See DTCC 2, supra note 19 (noting that in providing access 
to SBS data, SDRs should reduce or waive certain fees, as necessary, 
to smaller, lower volume market participants).
    \537\ See Rule 13n-4(c)(1)(i).
    \538\ See, e.g., DTCC 3, supra note 19 (supporting open access 
to SBS data maintained by an SDR by other service providers); Better 
Markets 1, supra note 19.
    \539\ See MarkitSERV, supra note 19.
    \540\ See TriOptima, supra note 19 (stating that non-
discriminatory access is important so as to ``not stifle innovation 
and the competition in the provision of post-trade processing 
services'').
---------------------------------------------------------------------------

    As stated in the Proposing Release, the Commission is concerned, 
among other things, that an SDR, controlled or influenced by a market 
participant, may limit the level of access to the services offered or 
data maintained by the SDR as a means to impede competition from other 
market participants or third party service providers.\541\ The 
Commission believes that Rule 13n-4(c)(1)(iii) addresses this concern.
---------------------------------------------------------------------------

    \541\ Proposing Release, 75 FR at 77321, supra note 2.
---------------------------------------------------------------------------

    One commenter recommended that the Commission permit SDRs to deny 
access only on risk-based grounds.\542\ Although the Commission concurs 
that an SDR should always consider the risks that an actual or 
prospective market participant may pose to the SDR, the Commission does 
not believe that it is appropriate to explicitly limit an SDR's ability 
to deny access because there may be reasonable grounds for denial that 
may not be risk-related--e.g., a counterparty to an SBS fails to pay 
the SDR's reasonable fees or a third party service provider breaches 
its contractual obligation to maintain the privacy of data received by 
the SDR. The same commenter suggested that the Commission should set 
forth ``clearly stated objective criteria'' with respect to fair access 
and denial of access in the final rule,\543\ but the Commission does 
not believe that it is necessary to do so. Under Rule 13n-4(c)(1)(iii), 
SDRs must establish appropriate criteria to govern access to their 
services and data as well as participation by those seeking to connect 
to or link with the SDR.
---------------------------------------------------------------------------

    \542\ Better Markets 1, supra note 19.
    \543\ Better Markets 1, supra note 19.
---------------------------------------------------------------------------

    The Commission does not believe that Rule 13n-1(c)(1)(iii) should 
require an SDR to provide ``full and unrestricted'' access to third 
party service providers acting pursuant to written authorizations from 
an SBS counterparty, as suggested by one commenter.\544\ While the 
Commission agrees with the commenter that such a third party service 
provider is exercising the SBS counterparty's right to access data with 
respect to that counterparty's trades, the Commission believes that 
requiring an SDR to provide ``full and unrestricted'' access (beyond 
that provided to the SBS counterparty acting directly) would appear to 
be inconsistent with the Exchange Act. Even if the service provider has 
received written authorization from one SBS counterparty, the SDR 
nonetheless would be required to protect the privacy and 
confidentiality of the other

[[Page 14482]]

counterparty; \545\ thus, the SDR need only provide the third party 
service provider with access to such data that the SBS counterparty 
that has authorized disclosure would be entitled to access. As noted by 
the commenter, such a third party service provider is acting as the SBS 
counterparty's agent and should be entitled to the same level of access 
as provided to the SBS counterparty.\546\ The Commission agrees with 
the commenter regarding the importance of upholding ``a fair, secure 
and efficient post-trade market'' \547\ and believes that the rule as 
adopted achieves this goal.
---------------------------------------------------------------------------

    \544\ See TriOptima, supra note 19.
    \545\ See Exchange Act Section 13(n)(5)(F), 15 U.S.C. 
78m(n)(5)(F), and Rule 13n-9 (requiring SDRs to maintain the privacy 
of SBS transaction information).
    \546\ See TriOptima, supra note 19.
    \547\ See TriOptima, supra note 19.
---------------------------------------------------------------------------

(4) Rule 13n-4(c)(1)(iv): Prohibited or Limited Access
    Rule 13n-4(c)(1)(iv) requires each SDR to establish, maintain, and 
enforce written policies and procedures reasonably designed to review 
any prohibition or limitation of any person with respect to access to 
services offered, directly or indirectly, or data maintained by the SDR 
and to grant such person access to such services or data if such person 
has been discriminated against unfairly.
    As stated in the Proposing Release, the Commission believes that, 
for any such policies and procedures to be reasonable, at a minimum, 
those at an SDR involved in the decision-making process of prohibiting 
or limiting a person's access to the SDR's services or data cannot be 
involved in the review of whether the prohibition or limitation was 
appropriate.\548\ Otherwise, the purpose of the review process would be 
undermined. Additionally, an SDR may wish to consider whether its 
internal review process should be done by the SDR's board \549\ or an 
executive committee.
---------------------------------------------------------------------------

    \548\ Proposing Release, 75 FR at 77321, supra note 2.
    \549\ The term ``board'' is defined as ``the board of directors 
of the security-based swap data repository or a body performing a 
function similar to the board of directors of the security-based 
swap data repository.'' See Rule 13n-4(a)(2); see also Rule 13n-
11(b)(1).
---------------------------------------------------------------------------

    As discussed above, one commenter suggested that the Commission 
require an SDR to promptly file a notice with the Commission if the SDR 
prohibits or limits any person's access to services offered or data 
maintained by the SDR.\550\ Rule 909 of Regulation SBSR, which the 
Commission is concurrently adopting in a separate release, requires 
each registered SDR to register as a SIP, and, as such, Exchange Act 
Section 11A(b)(5) governs denials of access to services by an SDR.\551\ 
This section provides that ``[i]f any registered securities information 
processor prohibits or limits any person in respect of access to 
services offered, directly or indirectly, by such securities 
information processor, the registered securities information processor 
shall promptly file notice thereof with the Commission.'' \552\ 
Accordingly, an SDR must promptly notify the Commission if it prohibits 
or limits access to any of its services to any person. In addition, the 
SDR is required to notify the Commission of any prohibition or 
limitation with respect to services offered or data maintained by the 
SDR in its annual amendment to its Form SDR, which will also enable the 
Commission to evaluate whether the prohibition or limitation is 
appropriate.\553\ Also, pursuant to Rule 13n-7, records of the decision 
to prohibit or limit access are required to be maintained by the SDR, 
and the SDR must promptly furnish such records to any representative of 
the Commission upon request.\554\
---------------------------------------------------------------------------

    \550\ See Better Markets 1, supra note 19.
    \551\ See Regulation SBSR Adopting Release, supra note 13.
    \552\ 15 U.S.C. 78k-1(b)(5).
    \553\ See Item 33 of Form SDR.
    \554\ See Section VI.G of this release discussing Rule 13n-7.
---------------------------------------------------------------------------

b. Second Core Principle: Governance Arrangements (Rule 13n-4(c)(2))
i. Proposed Rule
    Proposed Rule 13n-4(c)(2) would incorporate and implement the 
second core principle \555\ by requiring SDRs to establish governance 
arrangements that are transparent (i) to fulfill public interest 
requirements under the Exchange Act and the rules and regulations 
thereunder; (ii) to carry out functions consistent with the Exchange 
Act, the rules and regulations thereunder, and the purposes of the 
Exchange Act; and (iii) to support the objectives of the Federal 
Government, owners, and participants.\556\ The proposed rule would 
impose four specific requirements. First, an SDR would be required to 
establish governance arrangements that are well defined and include a 
clear organizational structure with effective internal controls.\557\ 
Second, an SDR's governance arrangements would be required to provide 
for fair representation of market participants.\558\ Third, an SDR 
would be required to provide representatives of market participants, 
including end-users, with the opportunity to participate in the process 
for nominating directors and with the right to petition for alternative 
candidates.\559\ Finally, an SDR would be required to establish, 
maintain, and enforce written policies and procedures reasonably 
designed to ensure that the SDR's senior management and each member of 
the board or committee that has the authority to act on behalf of the 
board possess requisite skills and expertise to fulfill their 
responsibilities in the management and governance of the SDR, to have a 
clear understanding of their responsibilities, and to exercise sound 
judgment about the SDR's affairs.\560\
---------------------------------------------------------------------------

    \555\ See Exchange Act Section 13(n)(7)(B), 15 U.S.C. 
78m(n)(7)(B).
    \556\ Proposed Rule 13n-4(c)(2).
    \557\ Proposed Rule 13n-4(c)(2)(i).
    \558\ Proposed Rule 13n-4(c)(2)(ii).
    \559\ Proposed Rule 13n-4(c)(2)(iii).
    \560\ Proposed Rule 13-4(c)(2)(iv).
---------------------------------------------------------------------------

    In the Proposing Release, the Commission solicited comments on 
whether to impose any additional requirements, including ownership or 
voting limitations on SDRs and persons associated with SDRs.\561\
---------------------------------------------------------------------------

    \561\ Proposing Release, 75 FR at 77323-77324, supra note 2.
---------------------------------------------------------------------------

ii. Comments on the Proposed Rule
    Four commenters submitted comments relating to this proposed 
rule.\562\ Comments on the proposal were mixed. As a general matter, 
one commenter stated that the role of the Commission is to ``insure 
that the governing structure [of SDRs] is fair to all market 
participants.'' \563\
---------------------------------------------------------------------------

    \562\ See Barnard, supra note 19; Better Markets 1, supra note 
19; DTCC 2, supra note 19; Saul, supra note 19; see also Better 
Markets 2, supra note 19; DTCC 3, supra note 19.
    \563\ Saul, supra note 19.
---------------------------------------------------------------------------

    In suggesting that ``ownership and voting limitations be eliminated 
in their entirety,'' \564\ another commenter noted that such 
limitations would be an imprecise tool to achieve the Commission's 
policy goals regarding conflicts of interest.\565\ The commenter stated 
that instead, ``[t]hese policy goals can best be met by structural 
governance requirements'' such as governance by market 
participants.\566\ The commenter believed that ``[i]n the specific case 
of an SDR, governance by market participants is appropriate, given that 
most potential conflicts of interest are dealt with directly in the 
Proposed Rule and will be overseen directly by the regulator.'' \567\ 
The commenter further believed that because the ``SDR is not

[[Page 14483]]

defining the reporting party, timeliness or content for public 
dissemination, and similarly the SDR is not defining the reporting 
party, content or process for regulatory access . . . the SDR does not 
have significant influence over the inclusion or omission of 
information in the reporting process, nor does it control the output of 
the process.'' \568\ The commenter suggested that the Commission focus 
on ensuring open access and, to support such access, ``the SDR needs 
governance that has independence from its affiliates and is 
representative of users who are the beneficiaries of choice in service 
providers.'' \569\ Along this line, the commenter believed that SDRs 
should assure that ``dealings with affiliates . . . be subject to 
oversight by members of the SDR's board of directors who are not 
engaged in the governance or oversight of either the affiliates or 
their competitors.'' \570\ The commenter also suggested that SDRs be 
``user-governed,'' including ``a board of directors that is broadly 
representative of market participants and that incorporates voting 
safeguards designed to prevent non-regulatory uses of data of a 
particular class of market participants that are objectionable to that 
class.'' \571\ The commenter believed that ``[i]ndependent perspectives 
can provide value to a board of directors, but those who do not 
directly participate in markets may not have sufficient, timely, and 
comprehensive expertise on those issues critical to the extraordinarily 
complex financial operations of SDRs.'' \572\
---------------------------------------------------------------------------

    \564\ DTCC 3, supra note 19.
    \565\ DTCC 2, supra note 19.
    \566\ DTCC 2, supra note 19
    \567\ DTCC 2, supra note 19.
    \568\ DTCC 2, supra note 19 (An SDR's conflicts of interest are 
``significantly different from other market infrastructures, where 
these infrastructures may have the ability to influence 
participation in a service (e.g. execution, clearing membership, 
portfolio compression), or completeness of product offering (where 
it is proposed that all trades in an asset class are accepted).'').
    \569\ DTCC 2, supra note 19; see also DTCC 3, supra note 19 
(``[S]tructural governance requirements offer the best solution to 
reduce risk, increase transparency and promote market integrity 
within the financial system while avoiding the potential negative 
impact on capital, liquidity and mitigating systemic risk that could 
result from any ownership or voting limitations.'').
    \570\ DTCC 2, supra note 19.
    \571\ DTCC 2, supra note 19.
    \572\ DTCC 2, supra note 19.
---------------------------------------------------------------------------

    A third commenter recommended that ``meaningful corporate 
governance requirements apply to [SDRs].'' \573\ In this regard, the 
commenter recommended that the Commission's rules relating to 
governance arrangements ``be much more detailed and clear'' and 
``require SDRs to establish boards and nominating committees that are 
composed of a majority of independent directors.'' \574\ The commenter 
believed that ``[i]ndependent boards are one of the most effective 
tools for ensuring that an SDR will abide by the letter and spirit of 
the enumerated duties and core principles set forth in the Dodd-Frank 
Act.'' \575\ The commenter also believed that as ``important safeguards 
against the dominant influence of some market participants over 
others,'' the Commission's rules should impose both individual and 
aggregate limitations on ownership and voting (e.g., limit the 
aggregate ownership interest in an SDR by SDR participants and their 
related persons to 20%, prohibit SDR participants and their related 
persons from directly or indirectly exercising more than 20% of the 
voting power of any class of ownership interest in the SDR).\576\
---------------------------------------------------------------------------

    \573\ Better Markets 2, supra note 19.
    \574\ Better Markets 1, supra note 19; see also Better Markets 
2, supra note 19 (reiterating the importance of independent boards 
for SDR governance).
    \575\ Better Markets 1, supra note 19.
    \576\ Better Markets 1, supra note 19; see also Better Markets 
2, supra note 19 (reiterating the importance of ownership and voting 
restrictions for SDRs governance).
---------------------------------------------------------------------------

    Another commenter suggested that, with respect to ``board 
membership requirements and ownership and voting limits, there should 
be a level playing field between at least SDRs and other swap 
entities.'' \577\ The commenter recommended that the Commission propose 
something similar to the CFTC's ``Independent Perspective'' \578\ by 
``requiring a registered SDR to have independent public directors on 
(i) its board of directors and (ii) any committee that has the 
authority to (A) act on behalf of the board of directors or (B) amend 
or constrain the action of the board of directors.'' \579\
---------------------------------------------------------------------------

    \577\ Barnard, supra note 19.
    \578\ The CFTC requires each swap data repository to establish, 
maintain, and enforce written policies or procedures to ensure that 
the nomination process for its board of directors, as well as the 
process for assigning members of the board of directors or other 
person to such committees, adequately incorporates an ``Independent 
Perspective,'' which is defined as ``a viewpoint that is impartial 
regarding competitive, commercial, or industry concerns and 
contemplates the effect of a decision on all constituencies 
involved.'' See CFTC Rules 49.2(a)(14) and 49.20(c)(1)(i)(B), 17 CFR 
49.2(a)(14) and 49.20(c)(1)(i)(B); see also CFTC Part 45 Adopting 
Release, 76 FR at 54563, supra note 37 (discussing a swap data 
repository's consideration of an Independent Perspective).
    \579\ Barnard, supra note 19.
---------------------------------------------------------------------------

iii. Final Rule
    After considering the comments, the Commission is adopting Rule 
13n-4(c)(2) as proposed, with one minor modification.\580\ Under this 
rule, each SDR is required to establish governance arrangements that 
are transparent to fulfill public interest requirements under the 
Exchange Act and the rules and regulations thereunder; to carry out 
functions consistent with the Exchange Act, the rules and regulations 
thereunder, and the purpose of the Exchange Act; and to support the 
objectives of the Federal Government, owners, and participants.\581\ To 
comply with the second core principle, each SDR is required to comply 
with four specific requirements: (i) Establish governance arrangements 
that are well defined and include a clear organizational structure with 
effective internal controls; \582\ (ii) establish governance 
arrangements that provide for fair representation of market 
participants; \583\ (iii) provide representatives of market 
participants, including end-users, with the opportunity to participate 
in the process for nominating directors and with the right to petition 
for alternative candidates; \584\ and (iv) establish, maintain, and 
enforce written policies and procedures reasonably designed to ensure 
that the SDR's senior management and each member of the board or 
committee that has the authority to act on behalf of the board possess 
requisite skills and expertise to fulfill their responsibilities in the 
management and governance of the SDR, have a clear understanding of 
their responsibilities, and exercise sound judgment about the SDR's 
affairs.\585\
---------------------------------------------------------------------------

    \580\ See infra accompanying text to note 586 of this release 
discussing a modification to proposed Rule 13n-4(c)(2).
    \581\ Rule 13n-4(c)(2).
    \582\ Rule 13n-4(c)(2)(i).
    \583\ Rule 13n-4(c)(2)(ii). Accord Exchange Act Section 
17A(b)(3)(C), 15 U.S.C. 78q-1(b)(3)(C) (requiring the rules of a 
clearing agency assure a fair representation of its shareholders (or 
members) and participants in the selection of its directors and 
administration of its affairs). The term ``market participant'' is 
defined as ``(1) any person participating in the security-based swap 
market, including, but not limited to, security-based swap dealers, 
major security-based swap participants, and any other counterparties 
to a security-based swap transaction.'' See Rule 13n-4(a)(6); see 
also Rule 13n-9(a)(3); Rule 13n-10(a).
    \584\ Rule 13n-4(c)(2)(iii).
    \585\ Rule 13n-4(c)(2)(iv).
---------------------------------------------------------------------------

    As proposed, Rule 13n-4(c)(2)(iv) would have required an SDR's 
policies and procedures be reasonably designed to ensure that its 
senior management and each member of the board or committee that has 
the authority to act on behalf of the board to ``possess requisite 
skills and expertise . . . to have a clear understanding of their 
responsibilities'' and ``possess requisite skills and expertise . . . 
to exercise sound judgment about the [SDR's] affairs.'' The Commission 
is revising the proposed rule by removing the word ``to'' from the 
clauses above, to provide

[[Page 14484]]

that an SDR's policies and procedures be reasonably designed to ensure 
that its senior management and each member of the board or committee 
that has the authority to act on behalf of the board is required to 
actually have a clear understanding of their responsibilities and 
exercise sound judgment about the SDR's affairs, rather than simply 
possess the skills and expertise to do so.\586\ Without the revision 
from the proposal, the rule could have been misinterpreted to mean that 
an SDR's management and each member of the board or committee that has 
the authority to act on behalf of the board need only possess the 
skills and expertise to have a clear understanding of their 
responsibilities. With respect to sound judgment, an SDR may want to 
include, in its policies and procedures, a requirement that its 
management and each member of the board or committee that has the 
authority to act on behalf of the board consider fairly all relevant 
information and views without undue influence from others, and provide 
advice and recommendations that are reasonable under the relevant facts 
and circumstances.
---------------------------------------------------------------------------

    \586\ Rule 13n-4(c)(2)(iv).
---------------------------------------------------------------------------

    Given an SDR's unique and integral role in the SBS market, the 
Commission believes that it is particularly important that an SDR 
establish a governance arrangement that is well defined and include a 
clear organizational structure with effective internal controls. 
Because the board has a role in overseeing the SDR's compliance with 
the SDR's statutory and regulatory obligations,\587\ the Commission 
also believes that it is important that those who are managing and 
overseeing an SDR's activities are qualified to do so. An SDR's failure 
to comply with their obligations could affect, for example, the SDR's 
operational efficiency, which could, in turn, impact the SBS market as 
a whole.\588\
---------------------------------------------------------------------------

    \587\ See Rule 13n-11(e) (requiring an SDR's CCO to submit an 
annual compliance report to the board for its review prior to the 
filing of the report to with the Commission).
    \588\ Accord Proposing Release, 75 FR at 77307, supra note 2 
(``The inability of an SDR to protect the accuracy and integrity of 
the data that it maintains or the inability of an SDR to make such 
data available to regulators, market participants, and others in a 
timely manner could have a significant negative impact on the SBS 
market. Failure to maintain privacy of such data could lead to 
market abuse and subsequent loss of liquidity.'').
---------------------------------------------------------------------------

    The Commission believes that Rule 13n-4(c)(2)'s requirement that 
SDRs establish governance arrangements that provide for fair 
representation of market participants is consistent with one 
commenter's view that governance of SDRs by market participants is 
appropriate.\589\ With respect to one commenter's recommendation that 
an SDR's governance should be independent from its affiliates by, for 
example, ensuring that dealings with its affiliates are subject to 
oversight by members of the SDR's board who are not engaged in the 
governance or oversight of either the affiliates or their 
competitors,\590\ the Commission believes that this is one effective 
way to comply with the rule and to minimize the SDR's potential 
conflicts of interest, as discussed further in Section VI.D.3.c of this 
release.
---------------------------------------------------------------------------

    \589\ See DTCC 2, supra note 19. In discussing governance 
arrangements, the commenter seemed to imply that the Commission is 
responsible for directly overseeing an SDR's conflicts of interest. 
To clarify, it is the SDR itself that is statutorily required to 
establish and enforce policies and procedures to minimize its 
conflicts of interest in its decision-making process. See Exchange 
Act Section 13(n)(7)(C), 15 U.S.C. 78m(n)(7)(C).
    \590\ See DTCC 2, supra note 19.
---------------------------------------------------------------------------

    In establishing a governance arrangement that provides for fair 
representation of market participants, one way for an SDR to comply 
with Rule 13n-4(c)(2) is to provide market participants with the 
opportunity to participate in the process for nominating directors and 
with the right to petition for alternative candidates. These two 
requirements are interrelated. The Commission believes that if market 
participants have no say in an SDR's governance process, then the 
market participants may not be fairly represented.\591\ The Commission 
notes, however, that having fair representation of market participants 
does not necessarily equate to requiring a fixed number or percentage 
of enumerated categories of market participants. Instead, the 
requirement is intended to promote a fair representation of the views 
and perspectives of market participants.
---------------------------------------------------------------------------

    \591\ One commenter suggested that the Commission propose 
something similar to the CFTC's ``Independent Perspective.'' 
Barnard, supra note 19. The Commission believes that although Rule 
13n-4(c)(2) is different from CFTC Rule 49.20 in this area, both 
rules may achieve the same objective of broad representation on 
SDRs' boards. Rule 13n-4(c)(2)(ii) requires SDRs to ``[e]stablish 
governance arrangements that provide for fair representation of 
market participants,'' and Rule 13n-4(c)(2)(iii) requires SDRs to 
``[p]rovide representatives of market participants, including end-
users, with the opportunity to participate in the process for 
nominating directors and with the right to petition for alternative 
candidates.'' Instead of focusing on fair representation of market 
participants, CFTC Rule 49.20(c) requires a swap data repository to 
establish, maintain, and enforce written policies and procedures to 
ensure that its board and other committees adequately consider an 
``Independent Perspective'' in their decision-making process. See 17 
CFR 49.20(c). Cf. DTCC 2, supra note 19 (stating that 
``[i]ndependent perspectives can provide value to a board of 
directors, but those who do not directly participate in markets may 
not have sufficient, timely, and comprehensive expertise on those 
issues critical to the extraordinarily complex financial operations 
of SDRs'').
---------------------------------------------------------------------------

    The Commission considered whether an SDR's potential and existing 
conflicts of interest would warrant prescriptive rules relating to 
governance (e.g., ownership or voting limitations, independent 
directors, nominating committees composed of a majority of independent 
directors), as two commenters suggested,\592\ but believes that the 
rules that are intended to minimize such conflicts and to help ensure 
that SDRs meet core principles are sufficient at this time.\593\ If the 
Commission were to impose additional governance requirements and 
limitations, SDRs would likely incur costs in addition to the costs 
already imposed by the SDR Rules.\594\ The Commission, however, does 
not believe that the additional costs are warranted at this time. Also, 
consistent with one comment,\595\ the Commission continues to believe 
that it is appropriate and cost-effective to provide SDRs with 
flexibility in determining their ownership and governance structure. 
The Commission may, however, revisit the issue of whether to impose 
additional governance requirements and limitations as the SBS market 
evolves.
---------------------------------------------------------------------------

    \592\ See Barnard, supra note 19; Better Markets 1, supra note 
19; see also Better Markets 2, supra note 19.
    \593\ See, e.g., Rule 13n-4(c)(1) (implementing core principle 
relating to market access to SDRs' services and data), as discussed 
in Section VI.D.3.a of this release; Rule 13n-4(c)(3) (implementing 
core principle relating to conflicts of interest), as discussed in 
Section VI.D.3.c of this release; and Rule 13n-5 (requiring an SDR 
to accept all SBSs in a given asset class if it accepts any SBS in 
that asset class), as discussed in Section VI.E of this release; see 
also Item 32 of Form SDR (requiring disclosure of instances in which 
an SDR has prohibited or limited a person with respect to access to 
the SDR's services or data). As stated in Section VI.D.3.a.iii(4) of 
this release, the Commission is adopting Rule 909 of Regulation 
SBSR, which requires each SDR to register as a SIP; as such, 
Exchange Act Section 11A(b)(5) governs denials of access to all 
services of an SDR. See Regulation SBSR Adopting Release, supra note 
13; Exchange Act Section 11A(b)(5), 15 U.S.C. 78k-1(b)(5).
    \594\ See Section VIII.D of this release (discussing SDRs' costs 
of complying with the SDR Rules).
    \595\ See DTCC 2, supra note 19 (recommending structural 
governance requirements instead of ownership and voting 
limitations); see also DTCC 3, supra note 19 (supporting the 
mitigation of conflicts of interest through the imposition of 
structural governance requirements instead of ownership and voting 
limitations).

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[[Page 14485]]

c. Third Core Principle: Rules and Procedures for Minimizing and 
Resolving Conflicts of Interest (Rule 13n-4(c)(3))
i. Proposed Rule
    Proposed Rule 13n-4(c)(3) would incorporate the third core 
principle \596\ by requiring each SDR to establish and enforce written 
policies and procedures reasonably designed to minimize conflicts of 
interest in the decision making process of the SDR, and establish a 
process for resolving any such conflicts of interest.\597\ The proposed 
rule provided general examples of conflicts of interest that should be 
considered by an SDR and would require each SDR to comply with the core 
principle by (i) establishing, maintaining, and enforcing written 
policies and procedures reasonably designed to identify and mitigate 
potential and existing conflicts of interest in the SDR's decision-
making process on an ongoing basis; \598\ (ii) recusing any person 
involved in a conflict of interest from the decision-making process for 
resolving such conflicts of interest; \599\ and (iii) establishing, 
maintaining, and enforcing reasonable written policies and procedures 
regarding the SDR's non-commercial and/or commercial use of the SBS 
transaction information that it receives from a market participant, any 
registered entity, or any other person.\600\
---------------------------------------------------------------------------

    \596\ See Exchange Act Section 13(n)(7)(C), 15 U.S.C. 
78m(n)(7)(C)).
    \597\ Proposed Rule 13n-4(c)(3).
    \598\ Proposed Rule 13n-4(c)(3)(i).
    \599\ Proposed Rule 13n-4(c)(3)(ii).
    \600\ Proposed Rule 13n-4(c)(3)(iii).
---------------------------------------------------------------------------

ii. Comments on the Proposed Rule
    Seven commenters submitted comments relating to this proposed 
rule.\601\ One commenter agreed that the Proposing Release ``correctly 
highlights a number of the harmful practices that can thrive in an 
environment that does not adequately address conflicts of interest. . . 
.'' \602\ These practices are discussed further in Section VI.D.3.c.iii 
below. Another commenter acknowledged that ``[t]he mandatory reporting 
regime [under the Dodd-Frank Act] creates an opportunity for [an] SDR 
to improperly commercialize the information it receives'' and agreed 
with the Commission that ``market access by service providers to an SDR 
could be a potential source for conflicts of interest.'' \603\ This 
commenter expressed the view, however, that because ``[t]he reporting 
rules for SDRs are highly prescriptive, and the primary consumers of 
this data are regulators, [there is] limited room for conflicts 
involving regulatory or public data access.'' \604\ The commenter noted 
that ``[i]t is important that regulators ensure that the public utility 
function of SDRs . . . is separated from potential commercial uses of 
the data.'' \605\
---------------------------------------------------------------------------

    \601\ See Better Markets 1, supra note 19; DTCC 2, supra note 
19; Markit, supra note 19; MarkitSERV, supra note 19; MFA 1, supra 
note 19; WMBAA SBSR, supra note 27; Tradeweb SB SEF, supra note 29; 
see also DTCC SBSR, supra note 27.
    \602\ Better Markets 1, supra note 19.
    \603\ DTCC 2, supra note 19 (discussing an SDR's conflicts of 
interest identified by the Commission in the Proposing Release).
    \604\ DTCC 2, supra note 19.
    \605\ DTCC 2, supra note 19.
---------------------------------------------------------------------------

    As noted in the Proposing Release, a few entities that presently 
provide or had anticipated providing trade repository services 
identified the following conflicts of interest that could arise at an 
SDR.\606\ First, owners of an SDR could have commercial incentives to 
exert undue influence to control the level of access to the services 
offered and data maintained by the SDR and to implement policies and 
procedures that would further their self-interests to the detriment of 
others.\607\ Specifically, owners of an SDR could exert their influence 
and control to prohibit or limit access to the services offered and 
data maintained by the SDR in order to impede competition.\608\ Second, 
an SDR could favor certain market participants over others with respect 
to the SDR's services and pricing for such services.\609\ Third, an SDR 
could require that services be purchased on a ``bundled'' basis.\610\ 
Finally, an SDR or a person associated with the SDR could misuse or 
misappropriate data reported to the SDR for financial gain.\611\ As one 
trade repository noted, ``SDR data is extremely valuable and could be 
sold either stand alone or enhanced with other market data and 
analysis. The use of this data in this manner would present competitive 
problems'' as well as conflicts of interest issues.\612\
---------------------------------------------------------------------------

    \606\ Proposing Release, 75 FR at 77324-77325, supra note 2.
    \607\ See, e.g., Reval, Responses to the CFTC's Questions on the 
SDR Requirements, available at http://www.cftc.gov/ucm/groups/public/@swaps/documents/dfsubmission/dfsubmission9_100110-reval.pdf 
(stating that an SDR with any ownership or revenue sharing 
arrangements directly or indirectly with a dealer would be an 
obvious conflict of interest) (``Reval CFTC Response Letter'').
    \608\ See, e.g., Warehouse Trust Company, Draft Response to CFTC 
re: CFTC Request for Information regarding SDR Governance, available 
at http://www.cftc.gov/ucm/groups/public/@swaps/documents/dfsubmission/dfsubmission9_100510-wt.pdf (stating that ``ownership 
of an SDR could lead to access restrictions on non-owners'') 
(``Warehouse Trust CFTC Response Letter'').
    \609\ See Reval CFTC Response Letter, supra note 607 (stating 
that preferential treatment in services provided by an SDR could 
also occur).
    \610\ See Warehouse Trust CFTC Response Letter, supra note 608 
(``The issue of vertical bundling could arise where [SB SEFs and 
clearing agencies] have preferred access or servicing arrangements 
with SDRs primarily due to ownership overlaps.'').
    \611\ See Reval CFTC Response Letter, supra note 607 (``[T]here 
would always be an underlying conflict to ensure that the position 
information or client activity does not get into the hands of 
investors or business partners of the SDR who could benefit from 
that information.'').
    \612\ Warehouse Trust CFTC Response Letter, supra note 608; see 
also Reval CFTC Response Letter, supra note 607 (``[I]f only one SDR 
is created for an asset class and that SDR is held by a market 
participant that could gain by having an edge on when the 
information is received, even if by a split second, it could have a 
trading edge.'').
---------------------------------------------------------------------------

    Several commenters expressed their views on the ownership of SBS 
data maintained by SDRs. Specifically, three commenters believed that 
ownership of SBS data should remain with counterparties to the SBS 
unless specifically agreed by them.\613\ One commenter to proposed 
Regulation SBSR stated that ownership of SBS data should be retained by 
the reporting party (e.g., SB SEFs, counterparties to an SBS),\614\ 
whereas a commenter to the Proposing Release believed that data 
ownership does not transfer to an SB SEF or any other regulated 
entity.\615\ Three commenters, including two commenters to proposed 
Regulation SBSR, believed that SDRs and/or their affiliates should be 
prohibited from using SBS data for commercial purposes.\616\ One of 
those commenters

[[Page 14486]]

supported an SDR's use of aggregated data for commercial use, such as 
marketing.\617\
---------------------------------------------------------------------------

    \613\ MarkitSERV, supra note 19 (``[I]n the interest of ensuring 
minimal intrusion on commercial activity and optimal incentives for 
parties to support and encourage robust and accurate reporting, and 
the development of valuable commercial products . . . data provided 
to [SDRs] should only be used as permitted by the relevant market 
participants in agreements between them and the [SDR].''); Markit, 
supra note 19 (stating that ``commercialization of data should only 
be done with the specific consent of the data owners''); DTCC 2, 
supra note 19 (``The principle of user control over the data for 
non-regulatory purposes must . . . be scrupulously maintained.''); 
see also DTCC 3, supra note 19 (``It is critical to preserve the 
trading parties' control over their own data.'').
    \614\ WMBAA SBSR, supra note 27.
    \615\ Markit, supra note 19.
    \616\ MFA 1, supra note 19 (suggesting that the Commission adopt 
a rule similar to the CFTC's proposed rule that would prohibit SDRs 
from using data for commercial purposes without express written 
consent); DTCC SBSR, supra note 27 (``It is good public policy that 
the aggregating entity not itself use the data for commercial 
purposes, particularly where data is required to be reported to an 
aggregator serving a regulatory purpose, and make such data 
available to value added providers on a non-discriminatory basis, 
consistent with restrictions placed on the data by the data 
contributors themselves.''); WMBAA SBSR, supra note 27 (``Consistent 
with reporting practices in other markets, the reporting of SBS 
transaction information to a registered SDR should not bestow the 
SDR with the authority to use the SBS transaction data for any 
purpose other than those explicitly enumerated in the Commission's 
regulations.'').
    \617\ MFA 1, supra note 19; see also Tradeweb SB SEF, supra note 
29 (supporting SDRs' commercial use of data with limitations).
---------------------------------------------------------------------------

    One commenter to the SB SEF Proposing Release recommended that the 
Commission clarify in its final rules or adopting release that its 
rules are not intended to impose or imply any limit on the ability of 
market participants, including counterparties to SBS transactions, SB 
SEFs, and clearing agencies, to use and/or commercialize data that they 
create or receive in connection with the execution or reporting of SBS 
data.\618\ Similarly, one commenter to proposed Regulation SBSR 
suggested that the Commission require SDRs to adopt policies and 
procedures explicitly acknowledging that counterparties to SBS 
transactions and SB SEFs retain the ability to market and commercialize 
their own proprietary data.\619\
---------------------------------------------------------------------------

    \618\ Tradeweb SB SEF, supra note 29 (believing that its 
recommendation will help ensure a robust and competitive market, as 
envisioned by the Dodd-Frank Act, and help limit the possibility of 
overreaching by SDRs due to their unique position in the data-
reporting regime).
    \619\ WMBAA SBSR, supra note 27.
---------------------------------------------------------------------------

iii. Final Rule
    After considering the comments, the Commission is adopting Rule 
13n-4(c)(3) as proposed. Under this rule, each SDR is required to 
establish and enforce written policies and procedures reasonably 
designed to minimize conflicts of interest in the decision-making 
process of the SDR and to establish a process for resolving any such 
conflicts of interest.\620\
---------------------------------------------------------------------------

    \620\ Rule 13n-4(c)(3).
---------------------------------------------------------------------------

    Rule 13n-4(c)(3) provides general examples of conflicts of interest 
that should be considered by an SDR, including, but not limited to: (1) 
Conflicts between the commercial interests of an SDR and its statutory 
and regulatory responsibilities, (2) conflicts in connection with the 
commercial interests of certain market participants or linked market 
infrastructures, third party service providers, and others, (3) 
conflicts between, among, or with persons associated with the SDR,\621\ 
market participants, affiliates of the SDR, and nonaffiliated third 
parties,\622\ and (4) misuse of confidential information, material, 
nonpublic information, and/or intellectual property. These general 
examples are the same as those included in proposed Rule 13n-4(c)(3) 
with one modification. The proposed rule provided, as an example, 
``conflicts between the commercial interests of [an SDR] and its 
statutory responsibilities.'' Upon further consideration, the 
Commission is revising this example, to include potential conflicts 
between an SDR's commercial interests and its regulatory 
responsibilities. This revision is intended to clarify that an SDR's 
commercial interests can conflict with not only its statutory 
responsibilities, but also its regulatory responsibilities, which may 
be more prescriptive than its statutory responsibilities.
---------------------------------------------------------------------------

    \621\ Rule 13n-4(a)(8) defines ``person associated with a 
security-based swap data repository'' as (i) any partner, officer, 
or director of such SDR (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 
such SDR, or (iii) any employee of such SDR. See also Rule 13n-
9(a)(7). This definition draws from the definition of ``person 
associated with a broker or dealer'' in the Exchange Act, and 
includes persons associated with an SDR whose functions are solely 
clerical or ministerial. See Exchange Act Section 3(a)(18), 15 
U.S.C. 78c(a)(18). Rule 13n-4(a)(3) defines ``control'' (including 
the terms ``controlled by'' and ``under common control with'') as 
``the possession, direct or indirect, of the power to direct or 
cause the direction of the management and policies of a person, 
whether through the ownership of voting securities, by contract, or 
otherwise.'' Pursuant to Rule 13n-4(a)(3), ``[a] person is presumed 
to control another person if the person: (i) Is a director, general 
partner, or officer exercising executive responsibility (or having 
similar status or functions); (ii) directly or indirectly has the 
right to vote 25 percent or more of a class of voting securities or 
has the power to sell or direct the sale of 25 percent or more of a 
class of voting securities; or (iii) in the case of a partnership, 
has the right to receive, upon dissolution, or has contributed, 25 
percent or more of the capital.'' The Commission is correcting a 
typographical error in the proposed definition. Proposed Rule 13n-
4(a)(3)(ii) referred to the right to vote 25 percent ``of'' more of 
a class of securities. See Proposing Release, 75 FR at 77367, supra 
note 2. As adopted, Rule 13n-4(a)(3)(ii) refers to the right to vote 
25 percent ``or'' more of a class of securities. See also Rules 13n-
9(a)(2) and 13n-11(b)(2). The definition of ``control'' incorporates 
the definition of ``control'' in Exchange Act Rule 12b-2 and Form 
BD, the registration form for broker-dealers. See 17 CFR 240.12b-2 
and Form BD, 17 CFR 249.501.
    \622\ The term ``nonaffiliated third party'' of an SDR is 
defined as any person except (1) the SDR, (2) an SDR's affiliate, or 
(3) a person employed by an SDR and any entity that is not the SDR's 
affiliate (and ``nonaffiliated third party'' includes such entity 
that jointly employs the person). See Rule 13n-4(a)(7); see also 
Rule 13n-9(a)(4). This definition draws from the definition of 
``nonaffiliated third party'' in Sec.  248.3 of Regulation S-P. See 
17 CFR 248.3.
---------------------------------------------------------------------------

    To comply with the third core principle, an SDR is required to 
comply with three specific requirements. First, Rule 13n-4(c)(3)(i) 
requires each SDR to establish, maintain, and enforce written policies 
and procedures reasonably designed to identify and mitigate potential 
and existing conflicts of interest in the SDR's decision-making process 
on an ongoing basis. The Commission continues to believe that requiring 
an SDR to conduct ongoing identification and mitigation of conflicts of 
interest is important because such conflicts can arise gradually over 
time or unexpectedly. Furthermore, a situation that is acceptable one 
day may present a conflict of interest the next. The Commission 
believes that in order to identify and address potential conflicts that 
may arise over time, an SDR's procedures generally should provide a 
means for regular review of conflicts as they impact the SDR's 
decision-making processes. Rather than imposing prescriptive 
requirements on SDRs regarding how to address conflicts, the Commission 
believes that SDRs should be provided the flexibility to determine how 
best to address and manage their conflicts.
    Second, Rule 13n-4(c)(3)(ii) requires an SDR to recuse any person 
involved in a conflict of interest from the decision-making process for 
resolving that conflict of interest. As stated in the Proposing 
Release, the Commission believes that such recusal is necessary to 
eliminate an apparent conflict of interest in an SDR's decision-making 
process.\623\ Additionally, recusal will likely increase confidence in 
the SDR's decision-making process and avoid an appearance of 
impropriety.
---------------------------------------------------------------------------

    \623\ Proposing Release, 75 FR at 77325, supra note 2.
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    Finally, Rule 13n-4(c)(3)(iii) requires an SDR to establish, 
maintain, and enforce reasonable written policies and procedures 
regarding the SDR's non-commercial and/or commercial use of the SBS 
transaction information that it receives from a market participant, any 
registered entity, or any other person. The Commission recognizes that 
an SDR may have commercial incentives to operate as an SDR and agrees 
with one commenter's view that the Dodd-Frank Act's mandatory reporting 
regime creates an opportunity for an SDR to commercialize improperly 
the information that it receives.\624\ To the extent that an SDR uses 
data that it receives from others for commercial purposes, the 
Commission believes that such uses should be clearly defined and 
disclosed to market participants.\625\ If, for example, a market 
participant is considering waiving confidentiality of the data that it 
provides to an SDR, then, at the very least, such disclosure should 
provide the market participant with the information necessary to make a 
meaningful choice. One commenter suggested that an SDR should, as a way 
to minimize potential conflicts of interest, consider separating its 
utility function from its commercial use of the

[[Page 14487]]

SBS transaction information that it receives.\626\ The Commission 
agrees that this could be a way to address potential conflicts of 
interest, but the Commission does not believe that it necessarily 
mitigates or eliminates conflicts in all circumstances. Thus, while 
SDRs may wish to consider this approach, the Commission is not 
requiring them to do so at this time.
---------------------------------------------------------------------------

    \624\ See DTCC 2, supra note 19.
    \625\ See Section VI.I.2 of this release discussing an SDR's 
disclosure requirements.
    \626\ DTCC 2, supra note 19.
---------------------------------------------------------------------------

    As discussed in the Proposing Release, the Commission believes that 
a small number of dealers could control an SDR, which may require SDR 
owners to balance competing interests.\627\ Owners of an SDR could 
derive greater revenues from their non-trade repository activities in 
the SBS market than they would from sharing in the profits of the SDR 
in which they hold a financial interest; consequently, the owners of an 
SDR may be conflicted in making decisions that would increase the SDR's 
profitability, but decrease the profitability of their non-trade 
repository activities. In addition, there may be a tension between an 
SDR's statutory or regulatory obligations (e.g., maintaining the 
privacy of data reported to the SDR) and its own commercial interests 
or those of its owners (e.g., using data reported to the SDR for 
commercial purposes).\628\
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    \627\ Proposing Release, 75 FR at 77324, supra note 2.
    \628\ See Proposing Release, 75 FR at 77324, supra note 2 
(citing to CPSS-IOSCO Trade Repository Report (noting the conflicts 
of interest ``between the unique public role of the [SDR] and its 
own commercial interests particularly if the [SDR] offers services 
other than record keeping or between commercial interests relating 
to different participants and linked market infrastructures and 
service providers'')).
---------------------------------------------------------------------------

    An SDR's conflicts of interest that are not properly managed could 
limit the benefits of the SDR to the markets and regulators of SDRs as 
well as undermine the mandatory reporting requirement in Exchange Act 
Section 13(m)(1)(G), thereby impacting efficiency in the SBS 
market.\629\ If, for instance, a market participant loses confidence in 
a particular SDR because the SDR fails to minimize its conflicts of 
interest, then the market participant may report its SBS transactions 
to an alternative SDR, which could lead to data fragmentation. By 
requiring an SDR to take specific actions to minimize its conflicts of 
interest, the Commission believes that Rule 13n-4(c)(3), as adopted, 
addresses these concerns as well as the concerns expressed in comments 
received on the rule proposal.
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    \629\ See 15 U.S.C. 78m(m)(1)(G). Exchange Act Section 
13(m)(1)(G) imposes a mandatory reporting requirement, which 
provides that ``[e]ach security-based swap (whether cleared or 
uncleared) shall be reported to a registered security-based swap 
data repository.'' See also Exchange Act Section 13A(a)(1), 15 
U.S.C. 78m-1(a)(1) (``Each security-based swap that is not accepted 
for clearing by any clearing agency or derivatives clearing 
organization shall be reported to--(A) a security-based swap data 
repository . . ., or (B) in the case in which there is no security-
based swap data repository that would accept the security-based 
swap, to the Commission . . . .'').
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    Several commenters expressed their views on whether an SDR should 
be permitted to use data for commercial purposes.\630\ For a number of 
reasons, the Commission continues to believe that it is not appropriate 
to adopt, at this time, a rule prohibiting an SDR and its affiliates 
from using for commercial purposes SBS data that the SDR maintains 
without obtaining express written consent from both counterparties to 
the SBS transaction or the reporting party. First, the Commission 
believes that such a prohibition may limit transparency by hindering an 
SDR's ability to provide anonymized and aggregated reports to the 
public if the Commission does not specifically mandate an SDR to 
provide these reports to the public. Under the final rule, an SDR may 
provide these reports to the public, provided that it complies with the 
privacy requirements of Rule 13n-9, as discussed in Section VI.I.1 
below.\631\ Second, a rule that prohibits an SDR from using SBS data 
for commercial purposes seems to presume that the market participants 
or reporting party owns the data. As evidenced by the comment letters 
received,\632\ the issue of who owns the data is not clear cut, 
particularly when value is added to it. Third, a general prohibition on 
an SDR's commercial use of SBS data could hinder competition and the 
establishment of new SDRs. As stated in Section III.D of this release, 
the Commission does not support any particular business model; 
restricting an SDR's commercial use of SBS data entirely, however, may 
be viewed as the Commission favoring one model over other models. 
Finally, the Commission believes that it is adopting adequate 
mechanisms to prevent or detect an SDR's misuse of SBS data.\633\ If, 
however, such mechanisms prove to be inadequate, then the Commission 
may revisit this issue.
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    \630\ See Markit, supra note 19 (stating that 
``commercialization of data should only be done with the specific 
consent of the data owners''); MarkitSERV, supra note 19 (stating 
that ``data provided to [SDRs] should only be used as permitted by 
the relevant market participants in agreements between them and the 
[SDR]''); MFA 1, supra note 19 (suggesting that the Commission adopt 
a rule similar to the CFTC's proposed rule that would prohibit SDRs 
from using data for commercial purposes without express written 
consent); see also DTCC SBSR, supra note 27 (suggesting that an SDR 
should not use data for commercial purposes); WMBAA SBSR, supra note 
27 (indicating that an SDR should not have the authority to use SBS 
transaction data ``for any purpose other than those explicitly 
enumerated in the Commission's regulations''). See also CFTC Rule 
49.17(g), 17 CFR 49.17(g) (``Swap data accepted and maintained by 
the swap data repository generally may not be used for commercial or 
business purposes by the swap data repository or any of its 
affiliated entities''; however, ``[t]he swap dealer, counterparty or 
any other registered entity that submits the swap data maintained by 
the registered swap data repository may permit the commercial or 
business use of the data by express written consent.'').
    \631\ Cf. SBSR Adopting Release, supra note 13 (prohibiting 
public dissemination of ``non-mandatory reports,'' as defined in 
Regulation SBSR).
    \632\ See DTCC 2, supra note 19; Markit, supra note 19; 
MarkitSERV, supra note 19; MFA 1, supra note 19; DTCC SBSR, supra 
note 27; WMBAA SBSR, supra note 27.
    \633\ See, e.g., Rules 13n-4(c)(1)(i) (fair and reasonable fee 
requirements) and 13n-9 (privacy requirements).
---------------------------------------------------------------------------

    At this time, the Commission believes that the core principles and 
statutory requirements applicable to SDRs under the Dodd-Frank Act can 
be appropriately addressed under the final SDR Rules, without the need 
for the Commission to take a position on ownership of SBS data. In 
response to one commenter's request for clarification,\634\ the 
Commission notes that Rule 13n-4(c)(3) is not intended to impose or 
imply any limit on the ability of market participants, including 
counterparties to SBS transactions, SB SEFs, and clearing agencies, to 
use or commercialize data that they create or receive in connection 
with the execution or reporting of SBS data. The Commission, however, 
does not believe that it is necessary, as another commenter 
suggested,\635\ to require SDRs to adopt policies and procedures 
explicitly acknowledging that market participants retain the ability to 
market and commercialize their own proprietary data.
---------------------------------------------------------------------------

    \634\ See Tradeweb SB SEF, supra note 29.
    \635\ See WMBAA SBSR, supra note 27.
---------------------------------------------------------------------------

4. Indemnification Exemption (Rule 13n-4(d))
    In the Cross-Border Proposing Release, the Commission proposed Rule 
13n-4(d), pursuant to its authority under Exchange Act Section 36,\636\ 
to provide a tailored exemption from the indemnification requirement 
set forth in Exchange Act Section 13(n)(5)(H)(ii) \637\ and previously 
proposed Rule 13n-4(b)(10) thereunder.\638\ The Commission received a 
number of comments relating to the indemnification requirement and

[[Page 14488]]

the proposed exemption.\639\ While the Commission continues to believe 
that an exemption from the indemnification requirement should be 
considered, the Commission also believes that the final resolution of 
this issue can benefit from further consideration and public comment. 
Accordingly, the Commission is not adopting proposed Rule 13n-4(d) at 
this time. The Commission anticipates soliciting additional public 
comment regarding the indemnification requirement and a proposed 
exemption. As discussed above, SDRs will have to comply with all 
statutory requirements, including the indemnification requirement set 
forth in Exchange Act Section 13(n)(5)(H)(ii),\640\ when the current 
exemptive relief from the statutory requirements expires.\641\
---------------------------------------------------------------------------

    \636\ 15 U.S.C. 78mm.
    \637\ 15 U.S.C. 78m(n)(5)(H)(ii).
    \638\ Cross-Border Proposing Release, 78 FR at 31209, supra note 
3.
    \639\ See DTCC 2, supra note 19; ESMA, supra note 19; US & 
Foreign Banks, supra note 24; see also DTCC 1*, supra note 20; DTCC 
CB, supra note 26.
    \640\ 15 U.S.C. 78m(n)(5)(H)(ii).
    \641\ See Section V of this release discussing the 
implementation of the SDR Rules.
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E. Data Collection and Maintenance (Rule 13n-5)

    The Commission proposed Exchange Act Rule 13n-5 to specify the data 
collection and maintenance requirements applicable to SDRs.\642\ After 
considering the comments received on this proposal, the Commission is 
adopting Rule 13n-5 as proposed, with certain modifications.\643\
---------------------------------------------------------------------------

    \642\ Rule 13n-5 is being promulgated under Exchange Act 
Sections 13(n)(4)(B), 13(n)(7)(D), and 13(n)(9). See 15 U.S.C. 
78m(n)(4)(B), 78m(n)(7)(D), and 78m(n)(9). Rule 13n-5(b) does not 
apply to SDR records other than transaction data and positions, as 
defined below. Records made or kept by an SDR, other than 
transaction data and positions, are governed by Rule 13n-7, as 
discussed in Section VI.G of this release.
    \643\ Each definition in Rule 13n-5(a) is discussed alongside 
the substantive rule in which the definition is used. See Section 
VI.E.1 below discussing ``asset class'' and ``transaction data''; 
and Section VI.E.2 below discussing ``position.''
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1. Transaction Data (Rule 13n-5(b)(1))
a. Proposed Rule
    Proposed Rule 13n-5(b)(1)(i) would require every SDR to establish, 
maintain, and enforce written policies and procedures reasonably 
designed for the reporting of transaction data to the SDR, and would 
require the SDR to accept all transaction data that is reported to the 
SDR in accordance with such policies and procedures. Proposed Rule 13n-
5(a)(1) defined ``transaction data'' to mean all the information 
reported to an SDR pursuant to the Exchange Act and the rules and 
regulations thereunder.\644\
---------------------------------------------------------------------------

    \644\ In a separate rulemaking implementing Dodd-Frank Act 
Sections 763(i) and 766(a) (adding Exchange Act Sections 13(m) and 
13A(a)(1) respectively), the Commission is adopting rules requiring 
SBS transactions to be reported to a registered SDR. See Regulation 
SBSR Adopting Release, supra note 13 (Rules 901 and 902). In another 
separate proposal relating to implementation of Dodd-Frank Act 
Section 763(i) (adding Exchange Act Section 13(n)(5)(E)), the 
Commission proposed rules that would require SDRs to receive SBS 
transaction data that satisfies the notice requirement for parties 
that elect the end-user exception to mandatory clearing of SBSs in 
order to aid the Commission in its responsibility to prevent abuse 
of the end-user exception as provided for in Exchange Act Section 
3C(g). See End-User Exception Proposing Release, supra note 15 
(``Using the centralized facilities of SDRs should also make it 
easier for the Commission to analyze how the end-user clearing 
exception is being used, monitor for potentially abusive practices, 
and take timely action to address abusive practices if they were to 
develop.'').
---------------------------------------------------------------------------

    Proposed Rule 13n-5(b)(1)(ii) would require an SDR, if it accepts 
any SBS in a given asset class, to accept all SBSs in that asset class 
that are reported to it in accordance with its policies and procedures 
required by paragraph (b)(1) of the proposed rule. Proposed Rule 13n-
5(a)(3) defined ``asset class'' as ``those security-based swaps in a 
particular broad category, including, but not limited to, credit 
derivatives, equity derivatives, and loan-based derivatives.''
    Proposed Rule 13n-5(b)(1)(iii) would require every SDR to 
establish, maintain, and enforce written policies and procedures 
reasonably designed to satisfy itself by reasonable means that the 
transaction data that has been submitted to the SDR is accurate. This 
proposed rule would also require every SDR to clearly identify the 
source for each trade side and the pairing method (if any) for each 
transaction in order to identify the level of quality of that 
transaction data.\645\
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    \645\ Proposed Rule 13n-5(b)(1)(iii).
---------------------------------------------------------------------------

    Proposed Rule 13n-5(b)(1)(iv) would require every SDR to promptly 
record the transaction data it receives.\646\
---------------------------------------------------------------------------

    \646\ In a separate release, the Commission is adopting rules 
prescribing the data elements that an SDR is required to accept for 
each SBS, in association with requirements under Dodd-Frank Act 
Section 763(i) (adding Exchange Act Section 13(n)(4)(A), relating to 
standard setting and data identification). See Regulation SBSR 
Adopting Release, supra note 13 (Rule 901).
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b. Comments on the Proposed Rule
    Three commenters submitted comments relating to this proposed 
rule.\647\ One commenter stated that an SDR should have ``certain 
minimum data standards'' with regard to the transaction data that it 
accepts, but that ``such standards should be able to accommodate a wide 
variety of SBS transactions submitted per asset class.'' \648\ The 
commenter also stated that ``the regulations should be understood to 
permit [SDRs] to specify the methods and channels that participants 
need to use to connect to them, which will most commonly be provided in 
the form of the Application Programming Interfaces (APIs) and through 
setting of certain minimum standards.'' \649\
---------------------------------------------------------------------------

    \647\ See DTCC 2, supra note 19; MarkitSERV, supra note 19; MFA 
1, supra note 19; see also DTCC 3, supra note 19; DTCC 4, supra note 
19; DTCC 5, supra note 19.
    \648\ MarkitSERV, supra note 19.
    \649\ MarkitSERV, supra note 19.
---------------------------------------------------------------------------

    Another commenter recommended revising the definition of ``asset 
class'' from the proposal to eliminate ``the distinction between loan-
based and credit asset classes,'' and noted that ``products like CDS on 
loans, while loan-based, are currently reported alongside other CDS 
products.'' \650\ The commenter believed that ``[i]n general, equity 
and credit derivatives will be easy to classify, although it is 
possible that certain transactions could be mixed and more difficult to 
classify.'' \651\ The commenter stated that it considers it more likely 
to have classification difficulties between ``a swap and an SBS, rather 
than between SBS asset classes.'' \652\ The commenter suggested that, 
in order to mitigate the problem of classification between asset 
classes, the Commission could combine ``the loan-based asset class with 
credit derivatives, and [allow] an SBS to be reported to either the 
equity or credit SDR if there is any uncertainty of a product's asset 
class.'' \653\
---------------------------------------------------------------------------

    \650\ DTCC 2, supra note 19.
    \651\ DTCC 2, supra note 19.
    \652\ DTCC 2, supra note 19 (giving as an example a trade 
constructed based on the correlation between commodities and 
equities).
    \653\ DTCC 2, supra note 19.
---------------------------------------------------------------------------

    Two commenters agreed that SDRs should be required to support all 
trades in an asset class.\654\ One commenter stated that ``[w]ithout 
specific requirements related to the range of products that can be 
reported to them, [SDRs] may be tempted to limit their operating costs 
by only accepting the more standardized categories of swaps [that] also 
tend to trade in high volumes. This would result in incomplete market 
coverage and an increased fragmentation of the reported data.'' \655\ 
Thus, the commenter recommended that the Commission require SDRs ``to 
accept all trades in a given asset class as a means of ensuring broad 
coverage while guarding against fragmentation that could result from 
inadequate [SDR]

[[Page 14489]]

functionality.'' \656\ The other commenter stated that the 
``requirement for an SDR to support all trades in an asset class is . . 
. important to reduce the complexity for reporting parties,'' and that 
the ``requirement discourages an SDR from only servicing high volume 
products within an asset class to maximize profit, and leaving more 
complex (and less frequently traded) transactions to be reported by 
reporting parties directly to the Commission.'' \657\
---------------------------------------------------------------------------

    \654\ MarkitSERV, supra note 19; DTCC 2, supra note 19; see also 
DTCC 3, supra note 19; DTCC 4, supra note 19.
    \655\ MarkitSERV, supra note 19 (citation omitted).
    \656\ MarkitSERV, supra note 19 (noting that ``some level of 
data fragmentation will be unavoidable'') (citation omitted).
    \657\ DTCC 2, supra note 19; see also DTCC 3, supra note 19 
(recommending that any SDR ``be able to receive and manage all swaps 
in any asset class for which it is registered in accordance with the 
requirements of the Commission'' because such requirement is 
``critical . . . for assuring that the more complex and non-standard 
transactions, typically the higher risk creating transactions . . ., 
are appropriately registered in SDRs so accurate risk and market 
activity profiles can be maintained''); DTCC 4, supra note 19 
(stating that ``no provider of trading or clearing services should 
be permitted to simply declare itself the SDR for trades it 
facilitates'' and that it ``strenuously objects'' to allowing SDRs 
accept only those SBSs that are cleared).
---------------------------------------------------------------------------

    Three commenters addressed the SDR's role with respect to verifying 
the accuracy of the transaction data submitted.\658\ One commenter 
fully supported the requirement that SDRs confirm with both 
counterparties the accuracy of the data submitted.\659\ Another 
commenter stated that ``the Commission should encourage the use and 
reporting of trade data that has been confirmed or verified by both 
counterparties via an affirmation or a matching process,'' \660\ and 
that this should be ``connected with'' the Commission's proposed 
requirement that SBS dealers and major SBS participants provide trade 
acknowledgments and verify those trade acknowledgments.\661\ This 
commenter suggested, however, that SDRs should be able to accept 
single-sided trades for real-time reporting purposes, and that any 
subsequently discovered discrepancies could be corrected after 
confirmation.\662\ The third commenter recommended that ``SDRs should 
not have additional duties with respect to verifying the accuracy of 
[a] submission, as there is limited data available to the SDR. The SDR 
may carry out certain routine functions to identify trades which may 
indicate erroneous data (e.g. based on size), but in general, the 
primary responsibility for accuracy of reported information should 
remain with the reporting party.'' \663\ This commenter also 
recommended that the Commission determine that an SDR has satisfied its 
obligation where ``(i) the [SBS] has been reported by a [SEF], clearing 
agency, designated contract market, or other regulated counterparty who 
has an independent obligation to maintain the accuracy of the 
transaction data; (ii) a confirmation has been submitted to the [SDR] 
to demonstrate that both counterparties have agreed to the accuracy of 
the swap information that was submitted to the [SDR]; or (iii) the 
[SBS] is deemed verified and the [SDR] has developed and implemented 
policies and procedures reasonably designed to provide the non-
reporting side of the [SDR] with an opportunity to confirm the 
information submitted by the reporting side.'' \664\ This same 
commenter stated that SDRs should ``process transactions in real-
time.'' \665\
---------------------------------------------------------------------------

    \658\ See DTCC 2, supra note 19; MarkitSERV, supra note 19; MFA 
1, supra note 19.
    \659\ MFA 1, supra note 19.
    \660\ MarkitSERV, supra note 19 (stating such an approach would 
motivate parties to ensure the accuracy of reported data because of 
the associated economic and legal consequences).
    \661\ See Trade Acknowledgment Release, supra note 133.
    \662\ MarkitSERV, supra note 19.
    \663\ DTCC 2, supra note 19.
    \664\ DTCC 5, supra note 19.
    \665\ DTCC 2, supra note 19.
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c. Final Rule
    After considering the comments, the Commission is adopting Rule 
13n-5(b)(1) and the definition of ``transaction data'' under Rule 13n-
5(a)(3) as proposed, with modifications.\666\ The Commission is 
adopting the definition of ``asset class'' under Rule 13n-5(a)(1) as 
proposed, with one modification.\667\
---------------------------------------------------------------------------

    \666\ The Commission is making one technical amendment to 
proposed Rule 13n-5(b)(1)(ii). As proposed, the rule referenced the 
``policies and procedures required by paragraph (b)(1) of this 
section.'' As adopted, the rule references the ``policies and 
procedures required by paragraph (b)(1)(i) of this section.'' 
Additionally, the Commission is renumbering the definition of 
``transaction data'' as Rule 13n-5(a)(3) in order to alphabetize the 
definitions in Rule 13n-5(a). The definition of ``transaction data'' 
is also being revised from the proposal, as discussed below.
    \667\ The definition of ``asset class'' is also being renumbered 
as Rule 13n-5(a)(1) in order to alphabetize the definitions in Rule 
13n-5(a).
---------------------------------------------------------------------------

    Rule 13n-5(b)(1)(i) and the definition of ``transaction data'': 
Rule 13n-5(b)(1)(i) requires every SDR to establish, maintain, and 
enforce written policies and procedures reasonably designed for the 
reporting of complete and accurate transaction data to the SDR, and 
requires the SDR to accept all transaction data that is reported to the 
SDR in accordance with such policies and procedures. ``Transaction 
data'' is defined to mean all the information reported to an SDR 
pursuant to the Exchange Act and the rules and regulations thereunder, 
except for information provided pursuant to Rule 906(b) of Regulation 
SBSR.\668\
---------------------------------------------------------------------------

    \668\ Rule 13n-5(a)(3). As proposed, the definition of 
``transaction data'' did not include the exception for information 
provided pursuant to Rule 906(b) of Regulation SBSR. See Regulation 
SBSR Adopting Release, supra note 13 (Rule 906(b) requiring a 
participant to provide information related to its ultimate parent(s) 
and affiliates). Because the information provided pursuant to Rule 
906(b) is not tied to a particular SBS, the Commission believes that 
it does not make sense to tie the retention of the information to 
the expiration of an SBS. See Rule 13n-5(b)(4) (requiring an SDR to 
maintain transaction data ``for not less than five years after the 
applicable [SBS] expires''). By adding the exception to the 
definition of ``transaction data,'' the information that an SDR 
receives pursuant to Rule 906(b) will instead be required to be kept 
and preserved for not less than five years, pursuant to Rule 13n-
7(b).
---------------------------------------------------------------------------

    As explained in the Proposing Release, a fundamental goal of Title 
VII is to have all SBSs reported to SDRs.\669\ Therefore, ``transaction 
data'' includes all information, including life cycle events, required 
to be reported to an SDR under Rule 901 of Regulation SBSR.\670\ Rule 
13n-5(b)(1)(i) is intended to prevent SDRs from rejecting SBSs for 
arbitrary or anti-competitive reasons, minimize the number of SBSs that 
are not accepted by an SDR, and to the extent that an SDR's policies 
and procedures make clear which SBSs the SDR will accept, make it 
easier for market participants and market infrastructures to determine 
whether there is an SDR that will accept a particular SBS.\671\
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    \669\ Proposing Release, 75 FR at 77327, supra note 2. See 
Exchange Act Section 13(m)(1)(G), 15 U.S.C. 78m(m)(1)(G), as added 
by Dodd-Frank Act Section 763(i) (requiring ``[e]ach security-based 
swap (whether cleared or uncleared)'' to be reported to a registered 
SDR).
    \670\ A definition of ``life cycle event'' is included in 
Regulation SBSR. See Regulation SBSR Adopting Release, supra note 13 
(Rule 900).
    \671\ In a separate release relating to implementation of Dodd-
Frank Act Section 763(i), the Commission is adopting additional 
rules requiring an SDR to have policies and procedures relating to 
the reporting of SBS data to the SDR. See Regulation SBSR Adopting 
Release, supra note 13 (Rule 907); see also id. (Rule 901(h) 
requiring information to be reported to an SDR ``in a format 
required by the registered [SDR]'').
---------------------------------------------------------------------------

    The Commission is revising the rule from the proposal to clarify 
that an SDR's policies and procedures should be reasonably designed for 
the reporting of ``complete and accurate'' transaction data to the 
SDR.\672\ For example, an SDR's policies and procedures may not be 
reasonable if they do not require reporting of all the data elements

[[Page 14490]]

required under Regulation SBSR and that the data reported be accurate.
---------------------------------------------------------------------------

    \672\ See Proposing Release, 75 FR at 77307 and 77327, supra 
note 2 (``SDRs are required to collect and maintain accurate SBS 
transaction data so that relevant authorities can access and analyze 
the data from secure, central locations to better monitor for 
systemic risk and potential market abuse'' and ``an SDR is useful 
only insofar as the data it retains is accurate''); see also MFA 1, 
supra note 19 (discussing the importance of SDRs maintaining 
accurate data).
---------------------------------------------------------------------------

    The Commission agrees with one commenter's view that an SDR's 
policies and procedures should allow for the reporting of ``a wide 
variety of SBS transactions.'' \673\ The Commission also agrees that 
SDRs should be allowed to ``specify the methods and channels that 
participants need to use to connect to [SDRs],'' \674\ so long as such 
methods and channels are reasonable. Therefore, an SDR may reject SBS 
data that is reported in a manner that is inconsistent with its 
reasonable policies and procedures.
---------------------------------------------------------------------------

    \673\ See MarkitSERV, supra note 19.
    \674\ See MarkitSERV, supra note 19.
---------------------------------------------------------------------------

    In addition, to the extent that an SDR's policies and procedures 
allow SBSs to be reported to it in more than one format,\675\ the SDR 
may need to reformat or translate the data to conform to any format and 
taxonomy that the Commission may adopt pursuant to Rule 13n-4(b)(5) in 
order to satisfy the requirement of providing direct electronic access 
to the Commission.\676\ For example, the SDR may need to reformat or 
translate terms of the transaction (e.g., scheduled termination dates, 
prices, or fixed or floating rate payments). The Commission notes that 
an SDR is not required to make persons who report SBSs to the SDR use 
any of the formats and taxonomies specified by the Commission. Rather, 
the SDR is only required to use such formats and taxonomies when 
providing the Commission with direct electronic access.
---------------------------------------------------------------------------

    \675\ See Regulation SBSR Adopting Release, supra note 13 (Rule 
907(a)(2) requiring a registered SDR to establish and maintain 
written policies and procedures that specify one or more acceptable 
data formats (each of which must be an open-source structured data 
format that is widely used by participants), connectivity 
requirements, and other protocols for submitting information).
    \676\ See Section VI.D.2.c.ii of this release discussing Rule 
13n-4(b)(5) (requiring SDRs to provide direct electronic access to 
the Commission or any designee); Section VI.E.4 of this release 
discussing Rule 13n-5(b)(4) (requiring every SDR to maintain 
transaction data in a format readily accessible and usable to the 
Commission); and Section VI.H of this release discussing Rule 13n-8 
(requiring every SDR to promptly report information to the 
Commission in a form and manner acceptable to the Commission).
---------------------------------------------------------------------------

    Rule 13n-5(b)(1)(ii) and the definition of ``asset class'': Rule 
13n-5(b)(1)(ii) requires an SDR, if it accepts any SBS in a particular 
asset class, to accept all SBSs in that asset class that are reported 
to it in accordance with its policies and procedures required by Rule 
13n-5(b)(1)(i). As explained in the Proposing Release, this requirement 
is designed to maximize the number of SBSs that are accepted by an 
SDR.\677\ The comments that the Commission received on this rule 
endorsed it.\678\ The Commission believes that if certain SBSs are not 
accepted by any SDR and are reported to the Commission instead,\679\ 
the purpose of the Dodd-Frank Act to have centralized data on SBSs for 
regulators and others to access could be undermined.\680\ In addition, 
the Commission agrees with one commenter that this requirement will 
``reduce the complexity for reporting parties.'' \681\ The Commission 
also agrees with commenters' views that without this requirement, SDRs 
may be tempted to limit their services to standardized, high-volume 
SBSs.\682\ Given these incentives, the requirement that an SDR accept 
all SBSs in a given asset class if it accepts any SBS in that asset 
class is meant to facilitate the aggregation of, and relevant 
authorities' and market participants' access to, SBS transaction data. 
This requirement prevents a provider of trading or clearing services to 
act as an SDR for only those SBSs that it trades or clears.\683\ This 
requirement also prevents an SDR from accepting only SBSs that have 
been cleared.\684\
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    \677\ Proposing Release, 75 FR at 77327, supra note 2.
    \678\ See DTCC 2, supra note 19; MarkitSERV, supra note 19; DTCC 
3, supra note 19; DTCC 4, supra note 19.
    \679\ See Exchange Act Section 13A(a)(1), 15 U.S.C. 78m-1(a)(1) 
(requiring an uncleared SBS to be reported to the Commission if 
there is no SDR that would accept the SBS)); see also Regulation 
SBSR Adopting Release, supra note 13 (Rule 901(b) requiring SBSs to 
be reported to the Commission if there is no SDR that would accept 
the SBSs).
    \680\ See also MarkitSERV, supra note 19 (stating that the 
requirement to accept all trades in an asset class is ``a means of 
ensuring broad coverage while guarding against fragmentation'').
    \681\ See DTCC 2, supra note 19.
    \682\ See DTCC 2, supra note 19 (stating that the requirement 
for an SDR to support all trades in an asset class ``discourages an 
SDR from only servicing high volume products within an asset class 
to maximize profit, and leaving more complex (and less frequently 
traded) transactions to be reported by reporting parties directly to 
the Commission''); MarkitSERV, supra note 19 (``Without specific 
requirements related to the range of products that can be reported 
to them, [SDRs] may be tempted to limit their operating costs by 
only accepting the more standardized categories of swaps [that] also 
tend to trade in high volumes. This would result in incomplete 
market coverage and an increased fragmentation of the reported 
data.'') (citation omitted).
    \683\ See DTCC 4, supra note 19 (stating that ``no provider of 
trading or clearing services should be permitted to simply declare 
itself the SDR for trades it facilitates'').
    \684\ See DTCC 4, supra note 19 (stating that it ``strenuously 
objects'' to allowing SDRs to accept only those SBSs that are 
cleared).
---------------------------------------------------------------------------

    As explained in the Proposing Release, an SDR is required to accept 
only those SBSs that are reported in accordance with the SDR's policies 
and procedures required by Rule 13n-5(b)(1)(i).\685\ For example, an 
SDR's policies and procedures could prescribe the necessary security 
and connectivity protocols that market participants and market 
infrastructures must have in place prior to transmitting transaction 
data to the SDR. The SDR is not required to accept transaction data 
from market participants and market infrastructures that do not comply 
with these protocols; otherwise the transmission of the transaction 
data could compromise the SDR's automated systems.\686\
---------------------------------------------------------------------------

    \685\ Proposing Release, 75 FR at 77327, supra note 2. An SDR is 
required to disclose to market participants its criteria for 
providing others with access to services offered and data maintained 
by the SDR pursuant to Rule 13n-10(b)(1), as discussed in Section 
VI.I.2 of this release. Therefore, market participants will be made 
aware of an SDR's policies and procedures for reporting data.
    \686\ To the extent that an SDR already has systems in place to 
accept and maintain SBSs in a particular asset class, the Commission 
believes that Rule 13n-5(b)(1)(ii) will not add a material 
incremental financial or regulatory burden to SDRs. See Proposing 
Release, 75 FR at 77327, supra note 2.
---------------------------------------------------------------------------

    In response to the comment recommending amending the definition of 
``asset class'' to remove the ``the distinction between loan-based and 
credit asset classes,'' \687\ the Commission agrees that removing such 
distinction will make it easier for reporting parties when classifying 
a transaction. Therefore, the Commission is modifying from the proposal 
the definition of ``asset class'' in Rule 13n-5(a)(1) to mean ``those 
security-based swaps in a particular broad category, including, but not 
limited to, credit derivatives and equity derivatives.'' \688\
---------------------------------------------------------------------------

    \687\ See DTCC 2, supra note 19.
    \688\ In a separate release relating to implementation of Dodd-
Frank Act Section 763(i), the Commission is adopting the same 
definition of ``asset class.'' See Regulation SBSR Adopting Release, 
supra note 13 (Rule 900). In addition, the Commission proposed rules 
relating to trade acknowledgments and verifications of SBSs, which 
proposed a definition of ``asset class'' that is the same as the 
definition of ``asset class'' in the Proposing Release, 75 FR at 
77369, supra note 2, and therefore differs from the definition of 
``asset class'' being adopted in this release. See Trade 
Acknowledgment Release, supra note 133. The Commission expects to 
consider conforming the proposed definition of ``asset class'' in 
the Trade Acknowledgment Release with the definition being adopted 
today at a later time.
---------------------------------------------------------------------------

    Where an SBS arguably could belong to more than one asset class, 
for example, if it has characteristics of both credit and equity 
derivatives, then an SDR serving either asset class should be able to 
accept that SBS without then being required to accept all SBSs in the 
other asset class--i.e., an SDR for the credit derivative asset class 
could accept such an SBS without then having to accept all equity SBSs, 
and an SDR for the equity derivative asset class could

[[Page 14491]]

accept the SBS without then having to accept all credit SBSs.
    One commenter expressed concern about transactions that could be 
considered both swaps and SBSs, such as one constructed based on the 
correlation between commodities and equities.\689\ The Commission notes 
that it has adopted, jointly with the CFTC, regulations applicable to 
mixed swaps.\690\ The Commission believes that if an SDR accepts a 
mixed swap, then it should not be required to accept all SBSs in all 
asset classes to which the mixed swap belongs. For example, if a swap 
data repository that accepts commodity swaps accepts a mixed swap that 
is based on the value of both equity and commodity prices, then that 
swap data repository should not be required to accept all equity SBSs.
---------------------------------------------------------------------------

    \689\ See DTCC 2, supra note 19.
    \690\ See Further Definition of ``Swap,'' ``Security-Based 
Swap,'' and ``Security-Based Swap Agreement''; Mixed Swaps; 
Security-Based Swap Agreement Recordkeeping, Exchange Act Release 
No. 67453 (July 18, 2012), 77 FR 48207 (Aug. 13, 2012).
---------------------------------------------------------------------------

    Rule 13n-5(b)(1)(iii): Rule 13n-5(b)(1)(iii) requires every SDR to 
establish, maintain, and enforce written policies and procedures 
reasonably designed to satisfy itself that the transaction data that 
has been submitted to the SDR is complete and accurate.\691\ Rule 13n-
5(b)(1)(iii) also requires every SDR to clearly identify the source for 
each trade side and the pairing method (if any) for each transaction in 
order to identify the level of quality of that transaction data.\692\ 
These requirements, which are intended to improve data accuracy, are 
based on the requirement in Exchange Act Section 13(n)(5)(B) that an 
SDR ``confirm with both counterparties to the security-based swap the 
accuracy of the data that was submitted.'' \693\ As explained in the 
Proposing Release, the requirement is based on the premise that an SDR 
is useful only insofar as the data it retains is accurate.\694\ 
Unreliable SBS data does not enhance transparency. Requiring the SDR to 
take steps regarding the accuracy of the transaction data submitted to 
it, should help ensure that the data submitted to the SDR is accurate 
and agreed to by both counterparties. One commenter suggested that 
``SDRs should not have additional duties with respect to verifying the 
accuracy of submission.'' \695\ But because of the statutory 
requirement and the likelihood that the commenter's approach would lead 
to less accurate information being provided to the Commission and the 
marketplace, the Commission is adopting Rule 13n-5(b)(1)(iii) largely 
as proposed.
---------------------------------------------------------------------------

    \691\ As proposed, Rule 13n-5(b)(1)(iii) would require the SDR's 
policies and procedures to be ``reasonably designed to satisfy [the 
SDR] by reasonable means that the transaction data that has been 
submitted to the SDR is accurate.'' In adopting Rule 13n-
5(b)(1)(iii), the Commission is removing the phrase ``by reasonable 
means'' to make the rule text clearer. This revision is not intended 
to substantively change the meaning of the rule.
    \692\ With regard to this requirement, proposed Rule 13n-
5(b)(1)(iii) used the phrase ``including clearly identifying.'' In 
adopting Rule 13n-5(b)(1)(iii), the Commission is changing 
``including clearly identifying'' to ``clearly identifies'' to make 
the rule text clearer. This revision is not intended to 
substantively change the meaning of the rule.
    \693\ 15 U.S.C. 78m(n)(5)(B); see also Rule 13n-4(b)(3) 
(implementing same requirement).
    \694\ Proposing Release, 75 FR at 77327, supra note 2. Accord 
CPSS-IOSCO Trade Repository Report, supra note 48 (the primary 
public policy benefit of an SDR is facilitated by the integrity of 
the information maintained by an SDR).
    \695\ See DTCC 2, supra note 19; see also DTCC 5, supra note 19 
(recommending that SDRs be determined to have satisfied their 
obligation to confirm the accuracy of data under certain 
circumstances).
---------------------------------------------------------------------------

    As proposed, the rule would require an SDR's policies and 
procedures to address the accuracy of the transaction data. For 
purposes of clarification, the rule as adopted requires that an SDR's 
policies and procedures address both the completeness and accuracy of 
the transaction data. For example, an SDR's policies and procedures may 
not be reasonable if they allow data elements required under Regulation 
SBSR to be blank.
    The Commission understands that with respect to certain asset 
classes, third party service providers currently provide an electronic 
affirmation or matching process prior to the SBS data reaching an 
SDR.\696\ As explained in the Proposing Release, the Commission 
believes that an SDR can fulfill its responsibilities under Exchange 
Act Section 13(n)(5)(B), Rule 13n-4(b)(3),\697\ and this Rule 13n-
5(b)(1)(iii) by developing reasonable policies and procedures that rely 
on confirmations completed by another entity, such as an SB SEF, 
clearing agency, or third party vendor, as long as such reliance is 
reasonable.\698\ In order for such policies and procedures establishing 
reliance on a third party to be reasonable, the SDR would need to 
oversee and supervise the performance of the third party confirmation 
provider. This could include having policies and procedures in place to 
monitor the third party confirmation provider's compliance with the 
terms of any agreements and to assess the third party confirmation 
provider's continued fitness and ability to perform the confirmations. 
It could also include having the SDR or an independent auditor inspect 
or test the performance of the third party confirmation provider, with 
the SDR retaining records of such inspections or tests.\699\
---------------------------------------------------------------------------

    \696\ See, e.g., MarkitSERV, supra note 19 (noting that 
commenter provides confirmation and matching services for post-trade 
SBS transactions).
    \697\ Rule 13n-4(b)(3) requires SDRs to ``[c]onfirm, as 
prescribed in Rule 13n-5 (Sec.  240.13n-5), with both counterparties 
to the security-based swap the accuracy of the data that was 
submitted.''
    \698\ Proposing Release, 75 FR at 77327-8, supra note 2. See, 
e.g., MarkitSERV, supra note 19 (The ``Commission should encourage 
the use and reporting of trade data that has been confirmed or 
verified by both counterparties via an affirmation or a matching 
process.'').
    \699\ Such records would have to be maintained pursuant to Rule 
13n-7(b). See Section VI.G.2 of this release discussing SDR 
recordkeeping.
---------------------------------------------------------------------------

    For example, if an SBS is traded on an SB SEF, that SB SEF could 
confirm the accuracy of the transaction data with both counterparties, 
and the SB SEF could then report the transaction data to an SDR.\700\ 
The SDR would not need to further substantiate the accuracy of the 
transaction data, as long as the SDR has a reasonable belief that the 
SB SEF performed an accurate confirmation. However, the SDR would not 
comply with Exchange Act Section 13(n)(5)(B), Rule 13n-4(b)(3), and 
this Rule 13n-5(b)(1)(iii) if the confirmation proves to be inaccurate 
and the SDR's reliance on the SB SEF for providing accurate 
confirmations was unreasonable (e.g., the SDR ignored a pattern of 
inaccuracies or red flags). In certain circumstances, such as where an 
SBS is transacted by two commercial end-users and is not electronically 
traded or cleared, and is reported to an SDR by one of those end-users, 
there may not be any other entity upon which the SDR can reasonably 
rely to perform the confirmation. In such a case, the SDR would have to 
contact each of the counterparties to substantiate the accuracy of the 
transaction data.\701\
---------------------------------------------------------------------------

    \700\ See Proposing Release, 75 FR at 77328, supra note 2.
    \701\ The Commission believes that an SDR should consider making 
reasonable accommodations, including consideration of any cost 
burdens, for a non-reporting counterparty of an SBS transaction in 
connection with any follow-up by the SDR regarding the accuracy of 
the counterparty's SBS transaction. These accommodations could, for 
example, include providing means for non-reporting counterparties to 
substantiate the accuracy of the transaction data without having to 
incur significant systems or technology costs.
---------------------------------------------------------------------------

    Similarly, it would not be reasonable for an SDR to rely on a trade 
acknowledgment provided by one counterparty to an SBS, without 
verifying that the other counterparty has agreed to the trade. However, 
if a party to an SBS timely delivers a trade acknowledgment to both the 
counterparty and the SDR (or a third party confirmation provider), and 
the counterparty promptly sends the

[[Page 14492]]

verification back to both the original party and the SDR (or a third 
party confirmation provider), then the SDR could use the trade 
acknowledgment and verification to fulfill its obligations under this 
rule.\702\
---------------------------------------------------------------------------

    \702\ Although the Commission proposed rules requiring SBS 
dealers and major SBS participants to provide trade acknowledgment 
and verification of SBS transactions, it has not adopted any such 
rules. See Trade Acknowledgment Release, supra note 133. The 
Commission may address in a later release whether the procedure 
described above would comply with any such rules. See MarkitSERV, 
supra note 19 (stating that ``the environment envisaged by the SBS 
SDR Regulation would greatly benefit from being connected with the 
confirmation requirement (such as the verified trade acknowledgement 
record)'').
---------------------------------------------------------------------------

    With regard to the requirement that an SDR ``clearly identif[y] the 
source for each trade side and the pairing method (if any) for each 
transaction,'' \703\ the Commission notes that transaction data may 
vary in terms of reliability and such source and pairing method may 
affect the reliability of the transaction data. As explained in the 
Proposing Release, some transaction data may be affirmed by 
counterparties to an SBS, but not confirmed.\704\ Some transaction data 
may be confirmed informally by the back-offices of the counterparties, 
but the confirmation may not be considered authoritative. Other 
transaction data may go through an electronic confirmation process, 
which is considered authoritative by the counterparties. The Commission 
is adopting this requirement to enable relevant authorities to better 
determine the reliability of any particular transaction data maintained 
by an SDR. In order for an SDR's policies and procedures for satisfying 
itself that the transaction data that has been submitted to the SDR is 
complete and accurate to be reasonable, the SDR could consider 
documenting the processes used by third parties to substantiate the 
accuracy of the transaction data.
---------------------------------------------------------------------------

    \703\ Rule 13n-5(b)(1)(iii).
    \704\ Proposing Release, 75 FR at 77328, supra note 2.
---------------------------------------------------------------------------

    Rule 13n-5(b)(1)(iv): Rule 13n-5(b)(1)(iv) requires every SDR to 
promptly record the transaction data it receives. As explained in the 
Proposing Release, it is important that SDRs keep up-to-date records so 
that regulators and counterparties to SBSs will have access to accurate 
and current information.\705\ One commenter recommended that SDRs 
process transactions in ``real-time.'' \706\ The commenter did not 
define ``real-time.'' If, by ``real-time,'' the commenter means that 
SDRs should begin to record the transaction data as soon as it arrives, 
then the Commission believes that the rule's requirement to ``promptly 
record the transaction data it receives'' is consistent with the 
commenter's recommendation.
---------------------------------------------------------------------------

    \705\ Proposing Release, 75 FR at 77328, supra note 2.
    \706\ See DTCC 2, supra note 19 (stating that SDRs should 
``process transactions in real-time'').
---------------------------------------------------------------------------

2. Positions (Rule 13n-5(b)(2))
a. Proposed Rule
    Proposed Rule 13n-5(b)(2) would require every SDR to establish, 
maintain, and enforce written policies and procedures reasonably 
designed to calculate positions for all persons with open SBSs for 
which the SDR maintains records. Proposed Rule 13n-5(a)(2) defined 
``position'' as the gross and net notional amounts of open SBS 
transactions aggregated by one or more attributes, including, but not 
limited to, the (i) underlying instrument, index, or reference entity; 
(ii) counterparty; (iii) asset class; (iv) long risk of the underlying 
instrument, index, or reference entity; and (v) short risk of the 
underlying instrument, index, or reference entity. The Commission 
requested comment regarding whether it should require SDRs to calculate 
market values of each position at least daily and provide them to the 
Commission.\707\
---------------------------------------------------------------------------

    \707\ See Proposing Release, 75 FR at 77329, supra note 2.
---------------------------------------------------------------------------

b. Comments on the Proposed Rule
    Three commenters submitted comments relating to this proposed 
rule.\708\ One commenter expressed the view that ``position data is 
most valuable when aggregated among all SDRs,'' and therefore suggested 
that ``one SDR should be given the responsibility to aggregate and 
maintain the consolidated position data for regulatory purposes.'' 
\709\
---------------------------------------------------------------------------

    \708\ See DTCC 2, supra note 19; Markit, supra note 19; Ethics 
Metrics, supra note 19.
    \709\ DTCC 2, supra note 19.
---------------------------------------------------------------------------

    None of the commenters believed that SDRs should be required to 
perform valuation calculations at this time. One commenter indicated, 
however, that providing valuations should be a long-term goal.\710\ In 
this commenter's view, existing SDRs do not have the capability to 
provide valuations and they are not currently best situated to develop 
this capability; the short-term goal should be for SDRs to collect, and 
potentially report, valuations provided by the counterparties to an SBS 
and/or any relevant third party entities.\711\ Another commenter 
expressed the view that ``firms'' should provide market values because 
they invest considerable resources in valuing trades and it would be 
difficult for an SDR to replicate these activities for all trades.\712\ 
The commenter stated that an ``SDR could contract with a market 
valuation service to provide some values and this would provide some 
independent valuation, but this will not readily extend to illiquid or 
structured products.'' \713\ The commenter also stated that while mark-
to-market values would be of some use to regulators, without collateral 
information ``the values would not be useful in assessing counterparty 
risk exposures.'' \714\ A third commenter stated that valuation models 
for counterparty credit risks and systemic risk should include 
independent, third party data.\715\
---------------------------------------------------------------------------

    \710\ Markit, supra note 19 (``[W]e believe that the Commission 
should work to create a system where SBS SDRs play an important and 
even primary role not only in ensuring the accuracy of 
counterparties' swap valuations, but also in performing independent 
valuations for the counterparties.'').
    \711\ Markit, supra note 19 (recognizing that an SDR performing 
``independent valuations may not be practical given the highly 
customized and bespoke nature of many swaps'').
    \712\ DTCC 2, supra note 19.
    \713\ DTCC 2, supra note 19.
    \714\ DTCC 2, supra note 19.
    \715\ Ethics Metrics, supra note 19; see also MarkitSERV, supra 
note 19 (describing valuations as a possible ancillary service of 
SDRs).
---------------------------------------------------------------------------

c. Final Rule
    After considering the comments, the Commission is adopting Rule 
13n-5(b)(2) and the definition of ``position'' under Rule 13n-5(a)(2) 
as proposed. Rule 13n-5(b)(2) requires every SDR to establish, 
maintain, and enforce written policies and procedures reasonably 
designed to calculate positions for all persons with open SBSs for 
which the SDR maintains records.\716\ Rule 13n-5(a)(2) defines 
``position'' as the gross and net notional amounts of open SBS 
transactions aggregated by one or more attributes, including, but not 
limited to, the (i) underlying instrument, index, or reference entity; 
(ii) counterparty; (iii) asset class; (iv) long risk of the underlying 
instrument, index, or reference entity; and (v) short risk of the 
underlying instrument, index, or reference entity.\717\
---------------------------------------------------------------------------

    \716\ Position data is required to be provided by an SDR to 
certain entities pursuant to Exchange Act Section 13(n)(5)(G), 15 
U.S.C. 78m(n)(5)(G).
    \717\ As stated in the Proposing Release, for purposes of this 
definition, positions aggregated by long risk would be only for the 
aggregate notional amount of SBSs in which a market participant has 
long risk of the underlying instrument, index, or reference entity. 
Proposing Release, 75 FR at 77326 n.102, supra note 2. Similarly, 
positions aggregated by short risk would be only for the aggregate 
notional amount of SBSs in which a market participant has short risk 
of the underlying instrument, index, or reference entity. For SBSs 
other than credit default swaps, a counterparty has long risk where 
the counterparty profits from an increase in the price of the 
underlying instrument or index, and a counterparty has short risk 
where the counterparty profits from a decrease in the price of the 
underlying instrument or index. For credit default swaps, a 
counterparty has long risk where the counterparty profits from a 
decrease in the price of the credit risk of the underlying index or 
reference entity, and a counterparty has short risk where the 
counterparty profits from an increase in the price of the credit 
risk of the underlying index or reference entity. As the market 
develops, the Commission may consider whether to require SDRs 
calculate positions in another manner and provide those positions to 
the Commission on a confidential basis.

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[[Page 14493]]

    As explained in the Proposing Release, position information is 
important to regulators for risk, enforcement, and examination 
purposes.\718\ In addition, having a readily available source of 
position information can be useful to counterparties in evaluating 
their own risk. As explained in the Proposing Release, in order to meet 
its obligation to calculate positions, an SDR could require reporting 
parties to report the necessary events to calculate positions, or it 
could have a system that will monitor for and collect such 
information.\719\ In order for the positions to be calculated 
accurately, an SDR will need to promptly incorporate recently reported 
transaction data and collected unreported data. It is important that 
the SDR keep up-to-date records so that relevant authorities and 
parties to the SBS will have access to accurate and current 
information. In calculating positions, an SDR is only required to 
reflect SBS transactions reported to that SDR.
---------------------------------------------------------------------------

    \718\ Proposing Release, 75 FR at 77329, supra note 2.
    \719\ Proposing Release, 75 FR at 77329, supra note 2.
---------------------------------------------------------------------------

    As explained in the Proposing Release, the definition of 
``position'' is designed to be sufficiently specific so that SDRs are 
aware of the types of position calculations that regulators may require 
an SDR to provide, while at the same time, provide enough flexibility 
to encompass the types of position calculations that regulators and the 
industry will find important as new types of SBSs are developed.\720\
---------------------------------------------------------------------------

    \720\ Proposing Release, 75 FR at 77326, supra note 2. The 
Commission notes that Dodd-Frank Act Section 763(h) adds Exchange 
Act Section 10B, which provides, among other things, for the 
establishment of position limits for any person that holds SBSs. See 
15 U.S.C. 78j-2. Specifically, Exchange Act Section 10B(a) provides 
that ``[a]s a means reasonably designed to prevent fraud and 
manipulation, the Commission shall, by rule or regulation, as 
necessary or appropriate in the public interest or for the 
protection of investors, establish limits (including related hedge 
exemption provisions) on the size of positions in any security-based 
swap that may be held by any person.'' Id. In addition, Exchange Act 
Section 10B(d) provides that the Commission may establish position 
reporting requirements for any person that effects transactions in 
SBSs, whether cleared or uncleared. Id.
---------------------------------------------------------------------------

    While one commenter suggested that ``one SDR should be given the 
responsibility to aggregate and maintain the consolidated position data 
for regulatory purposes,'' \721\ the Commission is not mandating the 
aggregation of position data at one SDR. At this time, the Commission 
believes that it--rather than any particular registered entity--is in 
the best position to aggregate data across multiple registered SDRs. As 
described above, the Commission anticipates that it will propose for 
public comment detailed specifications of acceptable formats and 
taxonomies that will facilitate an accurate interpretation, 
aggregation, and analysis of SBS data by the Commission.\722\ The 
Commission may revisit this issue as the SBS market evolves.\723\
---------------------------------------------------------------------------

    \721\ DTCC 2, supra note 19.
    \722\ See Section VI.D.2.c.ii of this release discussing 
anticipated Commission proposal pursuant to Rule 13n-4(b)(5).
    \723\ See Section IV of this release for further discussion of 
consolidating data in one SDR.
---------------------------------------------------------------------------

    With regard to valuations, the Commission agrees with commenters 
\724\ that SDRs are not necessarily in the best position to calculate 
market valuations at this time. While, as one commenter pointed out, an 
SDR could contract with a market valuation service to provide some 
values,\725\ it is not apparent how useful the valuation would be 
without collateral information,\726\ and a valuation service could not 
readily provide valuations for illiquid or structured products.\727\ 
Therefore, the Commission is not requiring SDRs to calculate market 
values of positions daily and to provide them to the Commission. The 
Commission notes that under Regulation SBSR, the counterparties are 
required to report to an SDR the ``data elements included in the 
agreement between the counterparties that are necessary for a person to 
determine the market value of the transaction.'' \728\ Accordingly, if 
necessary, the Commission could calculate some market valuations either 
in-house or by hiring a third party market valuation service provider. 
As the market develops and SDRs develop and increase their 
capabilities, the Commission may revisit this issue.
---------------------------------------------------------------------------

    \724\ See DTCC 2, supra note 19; Markit, supra note 19.
    \725\ See DTCC 2, supra note 19.
    \726\ See DTCC 2, supra note 19 (stating that valuations without 
collateral information would not be useful in assessing counterparty 
risk exposures).
    \727\ See DTCC 2, supra note 19 (stating that independent market 
valuations services could not readily value illiquid or structured 
products).
    \728\ See Regulation SBSR Adopting Release, supra note 13 (Rule 
901).
---------------------------------------------------------------------------

3. Maintain Accurate Data (Rule 13n-5(b)(3))
a. Proposed Rule
    Proposed Rule 13n-5(b)(3) would require every SDR to establish, 
maintain, and enforce written policies and procedures reasonably 
designed to ensure that the transaction data and positions that it 
maintains are accurate.
b. Comments on the Proposed Rule
    Both commenters that submitted comments relating to this proposed 
rule agreed that SDRs serve an important role in collecting and 
maintaining accurate SBS data.\729\ One commenter stated that 
``[e]nsuring the accuracy and quality of [data reported to SDRs] will 
be critical for the Commission's achievement of the regulatory goals of 
transparency, efficiency and systemic risk mitigation [and that] SDRs 
will play a pivotal role in ensuring the accuracy of [SBS] data both 
for public consumption and regulatory reporting purposes.'' \730\ The 
commenter further noted that ``[t]he existence of a number of feedback 
loops and distribution channels through which data will flow will 
enable participants to identify, test and correct inaccuracies and 
errors.'' \731\ This commenter also indicated that the ability to 
ensure data accuracy would be influenced by the degree to which such 
data is utilized by industry participants in other processes. 
Therefore, that commenter stressed that ``SDRs and their affiliates 
should be permitted to offer a range of ancillary services in addition 
to their core services of data acceptance and data storage.'' \732\
---------------------------------------------------------------------------

    \729\ See DTCC 2, supra note 19; MarkitSERV, supra note 19; see 
also DTCC 1*, supra note 20.
    \730\ MarkitSERV, supra note 19.
    \731\ MarkitSERV, supra note 19.
    \732\ MarkitSERV, supra note 19.
---------------------------------------------------------------------------

    Another commenter stated that ``the multiple bilateral 
reconciliations performed between the parties to a trade throughout the 
life of a trade (and often on an ad hoc basis or only following a 
dispute), could be replaced by one single reconciliation framework with 
a shared central record, increasing both [sic] operating efficiency as 
well as reducing operational risks. The Commission's suggestion for 
portfolio reconciliation seems well aligned with this, and this would 
give the direct benefit of improved bilateral portfolio reconciliation 
processes between the parties.'' \733\ The commenter also stated that 
``[a]fter each recorded transaction is

[[Page 14494]]

consummated, the SDR can maintain the validity of the data for that 
transaction by offering an asset servicing function.'' \734\
---------------------------------------------------------------------------

    \733\ DTCC 2, supra note 19. In the Proposing Release, the 
Commission stated that the policies and procedures required by Rule 
13n-5(b)(3) ``could include portfolio reconciliation.'' Proposing 
Release, 75 FR at 77330, supra note 2.
    \734\ DTCC 1*, supra note 20.
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c. Final Rule
    After considering the comments, the Commission is adopting Rule 
13n-5(b)(3) as proposed, with one modification. Rule 13n-5(b)(3) 
requires every SDR to establish, maintain, and enforce written policies 
and procedures reasonably designed to ensure that the transaction data 
and positions that it maintains are complete and accurate. As explained 
in the Proposing Release, maintaining accurate records is an integral 
function of an SDR.\735\ As further explained in the Proposing Release, 
maintaining accurate records requires diligence on the part of an SDR 
because, among other things, SBSs can be amended, assigned, or 
terminated and positions change upon the occurrence of new events (such 
as corporate actions).\736\
---------------------------------------------------------------------------

    \735\ Proposing Release, 75 FR at 77307 and 77329-30, supra note 
2.
    \736\ Proposing Release, 75 FR at 77330, supra note 2.
---------------------------------------------------------------------------

    As proposed, the rule would require an SDR's policies and 
procedures to address the accuracy of the transaction data and 
positions. For purposes of clarification, the rule as adopted requires 
that an SDR's policies and procedures address both the completeness and 
accuracy of the transaction data and positions. For example, an SDR's 
policies and procedures may not be reasonable if they allow data 
elements required under Regulation SBSR to be blank.
    The Commission agrees with one commenter that the degree to which 
industry participants use the data will influence the accuracy of the 
data, and that the ability of participants to identify, test, and 
correct inaccuracies and errors should be encouraged.\737\ The 
Commission also agrees with another commenter that offering an asset 
servicing function may assist an SDR in maintaining the validity of 
transaction data and positions.\738\ Therefore, the Commission supports 
the provision by SDRs of voluntary ancillary services, such as asset 
servicing, that improve the quality of the SBS data in the SDRs.\739\ 
With regard to the comment acknowledging the value to portfolio 
reconciliation,\740\ while portfolio reconciliation is a voluntary 
ancillary service, the Commission believes, consistent with its 
position in the Proposing Release,\741\ that it is a method that an SDR 
can use to ensure reasonably the accuracy of the transaction data and 
positions that the SDR maintains.
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    \737\ See MarkitSERV, supra note 19.
    \738\ See DTCC 1*, supra note 20.
    \739\ See Section III.C of this release discussing ancillary 
services.
    \740\ See DTCC 2, supra note 19.
    \741\ Proposing Release, 75 FR at 77330, supra note 2 (stating 
that the policies and procedures required by proposed Rule 13n-
5(b)(3) ``could include portfolio reconciliation'').
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4. Data Retention (Rule 13n-5(b)(4))
a. Proposed Rule
    Proposed Rule 13n-5(b)(4) would require every SDR to maintain 
transaction data for not less than five years after the applicable SBS 
expires and historical positions for not less than five years. 
Alternatively, the Commission considered, but did not propose a rule, 
requiring every SDR to maintain transaction data for not less than five 
years after the applicable SBS expires or ten years after the 
applicable SBS is executed, whichever is greater, and historical 
positions for not less than five years.\742\ Under either alternative, 
SDRs would be required to maintain the transaction data and historical 
positions (i) in a place and format that is readily accessible to the 
Commission and other persons with authority to access or view such 
information; and (ii) in an electronic format that is non-rewriteable 
and non-erasable.\743\
---------------------------------------------------------------------------

    \742\ See Proposing Release, 75 FR at 77330, supra note 2.
    \743\ Proposed Rule 13n-5(b)(4).
---------------------------------------------------------------------------

b. Comments on the Proposed Rule
    Four commenters submitted comments relating to this proposed 
rule.\744\ The commenters generally agreed with the Commission's 
proposal that SDRs should maintain SBS data for the life of the SBS 
contract and a reasonable time period thereafter.\745\ Commenters 
expressed various views on whether the Commission should require SBS 
data to be maintained in a particular format.\746\ One commenter stated 
that ``[t]he Proposed Rule should require the retention of electronic 
records of transactions, including life cycle events. These should be 
maintained for the life of the contract in order to provide an audit 
trail to positions and for a reasonable retention period thereafter. An 
SDR's records should be in an electronically readable format (where 
available) that allows for application and analysis.'' \747\ The 
commenter also stated that ``certain aggregate data should be 
maintained beyond the maturity of contracts to provide public 
availability of time series data.'' \748\
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    \744\ See DTCC 2, supra note 19; Better Markets 1, supra note 
19; ISDA Temp Rule, supra note 28; Barnard, supra note 19; see also 
Better Markets 2, supra note 19.
    \745\ See, e.g., DTCC 2, supra note 19.
    \746\ See DTCC 2, supra note 19; Better Markets 1, supra note 
19; ISDA Temp Rule, supra note 28.
    \747\ DTCC 2, supra note 19.
    \748\ DTCC 2, supra note 19.
---------------------------------------------------------------------------

    One commenter to the Temporary Rule Release believed that the 
Commission should consider requiring SBS transaction data to be 
recorded and reported pursuant to a single electronic data standard 
because ``[t]his will enable transactions to be reported in an 
efficient and timely manner in a form readily accessible to all 
concerned parties.'' \749\ The commenter recommended using Financial 
products Markup Language (FpML) \750\ as that standard.\751\ Another 
commenter recommended that ``the Commission require that all SDRs 
maintain [stored SBS data] in the same format.'' \752\ This commenter 
further recommended that ``the Commission specifically require the SDR 
to organize and index accurately the transaction data and positions so 
that the Commission and other users of such information are easily able 
to obtain the specific information that they require.'' \753\ Another 
commenter stated that a ``registered SDR should have flexibility to 
specify acceptable data formats, connectivity requirements and other 
protocols for submitting information. Market practice, including 
structure of confirmation messages and detail of economic fields, 
evolve over time, and the SDR should have the capability to adopt and 
set new formats.'' \754\
---------------------------------------------------------------------------

    \749\ ISDA Temp Rule, supra note 28.
    \750\ FpML is based on XML (eXtensible Markup Language), the 
standard meta-language for describing data shared between 
applications.
    \751\ ISDA Temp Rule, supra note 28.
    \752\ Better Markets 1, supra note 19; see also Better Markets 
2, supra note 19 (recommending reported data be subject to uniform 
formatting requirements).
    \753\ Better Markets 1, supra note 19.
    \754\ DTCC SBSR, supra note 27.
---------------------------------------------------------------------------

    Another commenter recommended that data be ``standardized and use a 
common terminology.'' \755\ The commenter also recommended that records 
at SDRs be kept indefinitely because the commenter believed that there 
is ``no technological or practical reason for limiting the retention 
period.'' \756\ The commenter further recommended that ``[a]ny original 
documents should be scanned.'' \757\
---------------------------------------------------------------------------

    \755\ Barnard, supra note 19.
    \756\ Barnard, supra note 19.
    \757\ Barnard, supra note 19.
---------------------------------------------------------------------------

c. Final Rule
    After considering the comments, the Commission is adopting Rule 
13n-

[[Page 14495]]

5(b)(4) as proposed, with two modifications. Rule 13n-5(b)(4) requires 
every SDR to maintain transaction data and related identifying 
information for not less than five years after the applicable SBS 
expires and historical positions for not less than five years. Rule 
13n-5(b)(4) also requires SDRs to maintain the transaction data and 
historical positions (i) in a place and format that is readily 
accessible and usable to the Commission and other persons with 
authority to access or view such information; and (ii) in an electronic 
format that is non-rewriteable and non-erasable.
    Time Period: As explained in the Proposing Release, a five-year 
retention period is the current requirement for the records of clearing 
agencies and other registered entities, and is the statutory 
requirement for SB SEFs.\758\ Because an SBS transaction creates 
obligations that continue for a specified period of time, the 
Commission believes that the transaction data should be maintained for 
the duration of the SBS, with the five years running after the SBS 
expires. This requirement applies to all transaction data, including 
life cycle events that are reported to an SDR pursuant to Regulation 
SBSR.\759\ The Commission believes that transaction data and position 
data that are older than their respective retention periods will not be 
materially useful to the Commission or other relevant authorities.
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    \758\ Proposing Release, 75 FR at 77330, supra note 2. See also 
Exchange Act Rule 17a-1, 17 CFR 240.17a-1 (requiring recordkeeping 
for national securities exchanges, national securities associations, 
clearing agencies, and the Municipal Securities Rulemaking Board); 
Exchange Act Section 3D(d)(9), 15 U.S.C. 78c-4(d)(9) (requiring 
recordkeeping for SB SEFs).
    \759\ See Regulation SBSR Adopting Release, supra note 13 (Rules 
901, 905, and 906(a)); see also DTCC 2, supra note 19 (recommending 
requiring the retention of life cycle events).
---------------------------------------------------------------------------

    There may be transaction-specific identifying information assigned 
or used by an SDR, such as a transaction ID \760\ or a time stamp,\761\ 
that are not included in the definition of ``transaction data.'' This 
identifying information should also be maintained for the same time 
period as the transaction data because it is necessary to understanding 
the transaction data. Therefore, the Commission is revising the 
proposed rule to require SDRs to maintain ``related identifying 
information'' for not less than five years after the applicable SBS 
expires. Positions are not tied to any particular SBS transaction; 
therefore, the Commission requires positions, as calculated pursuant to 
Rule 13n-5(b)(2), to be maintained for five years, similar to the 
record retention requirement for clearing agencies.\762\
---------------------------------------------------------------------------

    \760\ See Regulation SBSR Adopting Release, supra note 13 (Rule 
901(g) requiring a registered SDR to assign a transaction ID to each 
SBS, or establish or endorse a methodology for transaction IDs to be 
assigned by third parties).
    \761\ See Regulation SBSR Adopting Release, supra note 13 (Rule 
901(f) requiring a registered SDR to time stamp, to the second, its 
receipt of any information submitted to it pursuant to Rules 901(c), 
(d), (e), or (i)).
    \762\ See Exchange Act Rule 17a-1, 17 CFR 240.17a-1 (requiring 
clearing agencies to retain records for five years). See also 
Exchange Act Section 13(n)(4)(C), 15 U.S.C. 78m(n)(4)(C) (requiring 
``standards prescribed by the Commission under this subsection [to] 
be comparable to the data standards imposed by the Commission on 
clearing agencies in connection with their clearing of security-
based swaps''). Clearing Agency Standards Release, 77 FR at 66243 
n.270, supra note 138 (``Clearing agencies may destroy or otherwise 
dispose of records at the end of five years consistent with Exchange 
Act Rule 17a-6.'').
---------------------------------------------------------------------------

    The Commission is not adopting the alternative time period that was 
set forth in the Proposing Release. No comments supported the 
alternative time period. The Commission is not adopting one commenter's 
recommendation that data at SDRs be kept indefinitely \763\ because the 
Commission believes that requiring transaction data to be maintained 
for not less than five years after the applicable SBS expires is more 
reasonable,\764\ and this approach is consistent with the record 
retention period for other Commission registrants and the statutory 
requirement for SB SEFs.
---------------------------------------------------------------------------

    \763\ See Barnard, supra note 19.
    \764\ See DTCC 2, supra note 19 (``[E]lectronic records of 
transactions . . . should be maintained for the life of the contract 
. . . and for a reasonable retention period thereafter.'').
---------------------------------------------------------------------------

    One commenter stated that ``certain aggregate data should be 
maintained beyond the maturity of contracts to provide public 
availability of time series data.'' \765\ Because the Commission is not 
requiring an SDR to provide the public with historic data (aggregated 
or otherwise) that it previously publicly disseminated, the Commission 
does not believe that it is appropriate to require SDRs to maintain 
aggregate data for public availability. However, SDRs may find it 
useful to maintain such data if they intend to provide the public with 
data sets beyond the public dissemination requirements of Regulation 
SBSR.\766\ To the extent that the Commission requires the creation of 
aggregate data, such as through reports requested pursuant to Rule 13n-
8, the data will be for regulatory purposes. Any aggregation of data 
that is created by an SDR, either at the Commission's direction or 
voluntarily, must be retained for five years pursuant to Rule 13n-
7(b).\767\
---------------------------------------------------------------------------

    \765\ DTCC 2, supra note 19.
    \766\ See Regulation SBSR Adopting Release, supra note 13 (Rule 
902).
    \767\ See Section VI.G.2 of this release.
---------------------------------------------------------------------------

    Format: As explained in the Proposing Release, the Commission 
believes that transaction data, including life cycle events, and 
positions should be maintained in a place and format that is readily 
accessible to the Commission and other persons with authority to access 
or view such information.\768\ This requirement is important to ensure 
that SDRs maintain the information in an organized and accessible 
manner so that users, including relevant authorities and 
counterparties, can easily obtain the data that would assist them in 
carrying out their appropriate functions. The Commission also believes 
that this requirement helps ensure that the information is maintained 
in a common and easily accessible language, such as a language commonly 
used in financial markets. The Commission agrees with one commenter's 
recommendation that an SDR's records should ``be in an electronically 
readable format (where available) that allows for application and 
analysis,'' \769\ and therefore the Commission is modifying proposed 
Rule 13n-5(b)(4) to provide that the information must be in a format 
that is usable to (1) the Commission and (2) other persons with 
authority to access or view such information.\770\ The Commission 
believes that if the information is not in a usable format, then the 
Commission and others would not have the ability to analyze the 
information as needed.
---------------------------------------------------------------------------

    \768\ Proposing Release, 75 FR at 77330, supra note 2.
    \769\ See DTCC 2, supra note 19 (recommending that an SDR's 
records ``be in an electronically readable format (where available) 
that allows for application and analysis'').
    \770\ Rule 13n-5(b)(4). The Commission notes that this change is 
consistent with other Commission rules. For example, Rule 605(a)(2) 
of Regulation NMS, 17 CFR 242.605(a)(2), requires reports be ``in a 
uniform, readily accessible, and usable electronic form.''
---------------------------------------------------------------------------

    Despite comments to the contrary,\771\ the Commission is not 
establishing a specific, prescribed format in which an SDR must 
maintain transaction data and positions. The Commission expects that 
the ``readily accessible and usable'' requirement will be sufficient to 
cause

[[Page 14496]]

the format and content of transaction data and historical positions 
maintained by any individual SDR to be sufficiently robust and complete 
for relevant persons to fully, accurately, and consistently process the 
data. The Commission believes that SDRs, working with market 
participants, will be in a better position to upgrade formats and data 
elements as needed. Having the Commission establish a specific format 
could impede the timely collection of data on new types of transactions 
from the SDRs.\772\
---------------------------------------------------------------------------

    \771\ See Better Markets 1, supra note 19 (recommending that the 
Commission require all SDRs to maintain stored SBS data in the same 
format); ISDA Temp Rule, supra note 28 (recommending that the 
Commission require SBS transaction data to be reported and recorded 
pursuant to a single electronic data standard, and using FpML as 
that standard); Barnard, supra note 19 (recommending that data be 
``standardized and use a common terminology'' and that original 
documents be scanned); see also Better Markets 2, supra note 19 
(recommending that reported data be subject to uniform formatting 
requirements).
    \772\ See DTCC SBSR, supra note 27 (stating that SDRs ``should 
have flexibility to specify acceptable data formats, connectivity 
requirements and other protocols for submitting information,'' and 
that SDRs ``should have the capability to adopt and set new 
formats'' as market practices evolve over time).
---------------------------------------------------------------------------

    However, in order to oversee the SBS market, it will be necessary 
for the Commission to aggregate and analyze data across different 
SDRs.\773\ As discussed above, the Commission anticipates that it will 
propose for public comment detailed specifications of acceptable 
formats and taxonomies for providing SBS data to the Commission in 
order to facilitate an accurate interpretation, aggregation, and 
analysis by the Commission of SBS data submitted to it by different 
SDRs.\774\
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    \773\ See Section VI.D.2.c.ii of this release discussing 
aggregation of data across multiple registered SDRs by the 
Commission.
    \774\ See Section VI.D.2.c.ii of this release discussing Rule 
13n-4(b)(5) (direct electronic access).
---------------------------------------------------------------------------

    The requirement for transaction data and historical positions to be 
maintained in an electronic format that is non-rewriteable and non-
erasable \775\ is consistent with the record retention format 
applicable to electronic broker-dealer records.\776\ As explained in 
the Proposing Release, this requirement would prevent the maintained 
information from being modified or removed without detection.\777\
---------------------------------------------------------------------------

    \775\ Rule 13n-5(b)(4).
    \776\ See Exchange Act Rule 17a-4(f)(2)(ii)(A), 17 CFR 240.17a-
4(f)(2)(ii)(A). In Electronic Storage of Broker-Dealer Records, 
Exchange Act Release No. 47806 (May 7, 2003), 68 FR 25281 (May 12, 
2003), the Commission stated, among other things, that a broker-
dealer would not violate Exchange Act Rule 17a-4(f)(2)(ii)(A) ``if 
it used an electronic storage system that prevents the overwriting, 
erasing or otherwise altering of a record during its required 
retention period through the use of integrated hardware and software 
control codes.'' The Commission incorporates this interpretation 
into Rule 13n-5(b)(4).
    \777\ Proposing Release, 75 FR at 77330, supra note 2.
---------------------------------------------------------------------------

    The Commission is not specifically requiring that SDRs organize and 
index the transaction data and positions that they collect and 
maintain.\778\ The Commission believes that the requirement in Rule 
13n-5(b)(4) that each SDR must maintain transaction data and related 
identifying information for not less than five years after the 
applicable SBS expires and historical positions for not less than five 
years, in a place and format that is ``readily accessible and usable to 
the Commission and other persons with authority to access or view such 
information'' incorporates the requirement that the data must be 
organized in a way that allows the data to be readily obtained or 
accessed by the Commission and other appropriate persons--data is not 
readily accessible and usable if it is not organized in a way that 
allows the data to be obtained quickly and easily. Further, whether 
users of information maintained by an SDR, other than the Commission, 
are able to easily obtain such information is also addressed by Rule 
13n-4(c)(1)(iii), which requires, among other things, an SDR to 
establish, monitor on an ongoing basis, and enforce clearly stated 
objective criteria that would permit fair, open, and not unreasonably 
discriminatory access to data maintained by the SDR.\779\
---------------------------------------------------------------------------

    \778\ See Proposing Release, 75 FR at 77331, supra note 2 
(asking whether the Commission should adopt a requirement that SDRs 
organize and index transaction data and positions ``so that the 
Commission and other users of such information are easily able to 
obtain the specific information that they require''); Better Markets 
1, supra note 19.
    \779\ See Section VI.D.3.a of this release discussing Rule 13n-
4(c)(1)(iii).
---------------------------------------------------------------------------

    With respect to the Commission's ability to obtain the specific 
information it requires, the Commission believes that several other 
statutory and regulatory requirements under the Exchange Act also 
address this issue. For example, the Commission will have direct 
electronic access to the transaction data and positions pursuant to 
Exchange Act Section 13(n)(5)(D) \780\ and Rule 13n-4(b)(5).\781\ The 
Commission expects to be able to query and analyze the data as 
necessary without imposing an indexing requirement at this time.\782\ 
In addition, Rule 13n-8, discussed below, requires each SDR to promptly 
report to the Commission, in a form and manner acceptable to the 
Commission, such information as the Commission determines to be 
necessary or appropriate for the Commission to perform the duties of 
the Commission under the Exchange Act and the rules and regulations 
thereunder.\783\
---------------------------------------------------------------------------

    \780\ 15 U.S.C. 78m(n)(5)(D).
    \781\ See Sections VI.D.1 and VI.D.2 of this release discussing 
Rules 13n-4(a)(5) and 13n-4(b)(5). Rule 13n-4(b)(5) requires each 
SDR to provide direct electronic access to the Commission or its 
designees; ``direct electronic access'' is defined in Rule 13n-
4(a)(5) to mean access, which shall be in a form and manner 
acceptable to the Commission, to data stored by an SDR in an 
electronic format and updated at the same time as the SDR's data is 
updated so as to provide the Commission with the ability to query or 
analyze the data in the same manner that the SDR can query or 
analyze the data.
    \782\ Although the Commission is not imposing an indexing 
requirement, SDRs are required under Regulation SBSR to utilize a 
transaction ID for each SBS. The transaction ID is designed to allow 
the Commission and other relevant persons to link related activity, 
such as life cycle events, to the original transaction. See 
Regulation SBSR Adopting Release, supra note 13 (Rule 901).
    \783\ See Section VI.H of this release discussing Rule 13n-8.
---------------------------------------------------------------------------

5. Controls to Prevent Invalidation (Rule 13n-5(b)(5))
a. Proposed Rule
    Proposed Rule 13n-5(b)(5) would require every SDR to establish, 
maintain, and enforce written policies and procedures reasonably 
designed to prevent any provision in a valid SBS from being invalidated 
or modified through the procedures or operations of the SDR.
b. Comments on the Proposed Rule
    Two commenters submitted comments relating to this proposed 
rule.\784\ Both commenters seemed to agree with this proposal.\785\ One 
commenter stated that an SDR ``should be able to offer life cycle event 
processing and asset servicing activities'' that may lead to ``an 
update or modification to the records in the SDR,'' with the consent of 
both parties.\786\
---------------------------------------------------------------------------

    \784\ See DTCC 2, supra note 19; MarkitSERV, supra note 19.
    \785\ DTCC 2, supra note 19 (supporting ``the approach that 
records are not invalidated by the actions of the SDR''); 
MarkitSERV, supra note 19.
    \786\ DTCC 2, supra note 19.
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c. Final Rule
    After considering the comments, the Commission is adopting Rule 
13n-5(b)(5) as proposed. Rule 13n-5(b)(5) requires every SDR to 
establish, maintain, and enforce written policies and procedures 
reasonably designed to prevent any provision in a valid SBS from being 
invalidated or modified through the procedures or operations of the 
SDR. The terms of SBSs can be the result of negotiation between the 
counterparties, and the Commission believes that these terms should not 
be modified or invalidated without the full consent of the 
counterparties.\787\
---------------------------------------------------------------------------

    \787\ See Proposing Release, 75 FR at 77331, supra note 2.
---------------------------------------------------------------------------

    The Commission agrees with one commenter's view that an SDR should 
be able to offer life cycle event processing and asset servicing 
activities that may lead to an updating of the records in the SDR, with 
the consent of

[[Page 14497]]

both parties.\788\ In such a case, it is not the SDR that is modifying 
the SBS, but the parties to the SBS who are doing so (or the parties 
are submitting information regarding the SBS that relates to the terms 
of the original contract); the SDR is simply updating its records to 
reflect the changes to the SBS made by the parties to the SBS, or to 
reflect life cycle events that have occurred and the parties to the SBS 
agree should be reflected in the updated records of the SDR. However, 
whenever an SDR updates its records, it must retain the data as it 
existed prior to the update pursuant to Rule 13n-5(b)(4), which is 
discussed above.\789\
---------------------------------------------------------------------------

    \788\ See DTCC 2, supra note 19.
    \789\ See Section VI.E.4 of this release discussing Rule 13n-
5(b)(4).
---------------------------------------------------------------------------

    If the reporting party reports inconsistent data, such as where the 
reporting party reports that the SBS is a standard SBS, but also 
reports a non-standard provision, the SDR can correct the inconsistency 
if it gives appropriate notice to both parties.\790\ In formulating its 
policies and procedures required by Rule 13n-5(b)(5), an SDR may want 
to consider providing the parties with notice of the inconsistency as 
soon as practicable.
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    \790\ The Commission believes that an SDR's policies and 
procedures would not necessarily be reasonable if they authorize the 
SDR to ``deem'' a user to have effectively consented to the SDR's 
changes if the user merely utilizes the SDR system after such 
change. At a minimum, the SDR should inform both parties of the 
change. The Commission notes that Rule 905 of Regulation SBSR 
establishes procedures for correcting errors in data reported to an 
SDR. See Regulation SBSR Adopting Release, supra note 13 (Rule 905). 
Additionally, as discussed in Section VI.E.6 of this release, Rule 
13n-5(b)(6) requires SDRs to establish procedures and provide 
facilities reasonably designed to effectively resolve disputes over 
the accuracy of the transaction data and positions that are recorded 
in the SDR.
---------------------------------------------------------------------------

6. Dispute Resolution Procedures (Rule 13n-5(b)(6))
a. Proposed Rule
    Proposed Rule 13n-5(b)(6) would require every SDR to establish 
procedures and provide facilities reasonably designed to effectively 
resolve disputes over the accuracy of the transaction data and 
positions that are recorded in the SDR.\791\
---------------------------------------------------------------------------

    \791\ In a separate release, the Commission is adopting rules 
regarding the correction of errors in SBS information maintained by 
an SDR in association with requirements under Dodd-Frank Act Section 
763(i). See Regulation SBSR Adopting Release, supra note 13 (Rules 
905 and 907(a)(3)).
---------------------------------------------------------------------------

b. Comments on the Proposed Rule
    Two commenters submitted comments relating to this proposed 
rule.\792\ One commenter supported this proposed rule, stating that it 
is a key step in the effort to have accurate data at the SDR.\793\ The 
commenter stated that a reporting party and a non-reporting party may 
disagree on the terms of a reported SBS transaction and the reporting 
party may refuse to correct the erroneously reported transaction 
information.\794\ The commenter urged the Commission to require the SDR 
to review promptly the disputed data with the parties.\795\ The other 
commenter stated that it believed that ``an SDR should be in a position 
to identify disputes or unconfirmed data as part of its process to 
confirm the data with both parties. However, only the parties to a 
transaction can resolve any dispute as to the terms of the trade.'' 
\796\ Where a trade comes through a third party service provider that 
``act[s] directly as an affirmation, confirmation or verification 
platform and already utilizes dispute resolution workflows,'' the 
commenter did ``not support a Proposed Rule that would require that the 
SDR [build] processes to replicate these services.'' \797\ The 
commenter stated that ``an SDR can make the quality of the data or 
disputed trades visible to a firm's prudential regulator and this would 
act as an incentive to timely resolution.'' \798\
---------------------------------------------------------------------------

    \792\ See DTCC 2, supra note 19; MFA 1, supra note 19; see also 
MFA SBSR, supra note 27.
    \793\ MFA 1, supra note 19; see also MFA SBSR, supra note 27.
    \794\ MFA SBSR, supra note 27.
    \795\ MFA SBSR, supra note 27.
    \796\ DTCC 2, supra note 19.
    \797\ DTCC 2, supra note 19.
    \798\ DTCC 2, supra note 19.
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c. Final Rule
    After considering the comments, the Commission is adopting Rule 
13n-5(b)(6) as proposed. Rule 13n-5(b)(6) requires every SDR to 
establish procedures and provide facilities reasonably designed to 
effectively resolve disputes over the accuracy of the transaction data 
and positions that are recorded in the SDR. As the Commission explained 
in the Proposing Release, the data maintained by an SDR will be used by 
relevant authorities and counterparties.\799\ Parties, therefore, 
should have the ability to dispute the accuracy of the data maintained 
by an SDR regarding their SBSs. SDRs providing the means to resolve 
disputes should enhance data quality and integrity.
---------------------------------------------------------------------------

    \799\ Proposing Release, 75 FR at 77331, supra note 2. In some 
cases, the data maintained by the SDR may be considered by the 
counterparties to be the legal or authoritative record of the SBS. 
However, this is due to the consent of the counterparties. Simply 
reporting an SBS to an SDR does not affect the legal terms of the 
SBS. See Section III.A of this release discussing the service of 
maintaining legally binding records.
---------------------------------------------------------------------------

    The Commission agrees with one commenter that only the parties to a 
dispute can resolve it,\800\ but the Commission believes that SDRs can 
provide processes to facilitate resolution, which would improve the 
quality and accuracy of SBS data. The Commission does not believe that 
this requirement mandates that an SDR replicate the services of third 
party service providers, such as providing matching platforms.\801\ 
Having both parties verify the SBS data through a third party service 
provider prior to submitting it to an SDR will ensure a great deal of 
accuracy in the data maintained by the SDR. However, there may be 
instances where disputes still occur, such as where a party disagrees 
with a position reflected in an SDR's records, where one party realizes 
it mistakenly verified a transaction and the other party refuses to 
submit or verify a correction, or where a transaction has been amended, 
but one party refuses to report or verify the amendment. In such 
instances, the Commission believes that the SDR should provide a party 
with the ability to raise the dispute, and have some sort of process to 
resolve the dispute. As with the other SDR Rules, an SDR could rely on 
a third party service provider to perform the SDR's obligation to 
provide a dispute resolution process. If it does so, in order for such 
a process to be ``reasonably designed,'' the SDR would have to oversee 
and supervise the performance of the third party service provider. The 
Commission agrees with one commenter \802\ that to the extent that Rule 
13n-5(b)(6) makes disputes visible to regulators, the rule should 
incentivize parties to resolve them. In any event, the Commission 
believes that the rule will further increase the quality and accuracy 
of SBS data.
---------------------------------------------------------------------------

    \800\ See DTCC 2, supra note 19.
    \801\ See DTCC 2, supra note 19
    \802\ See DTCC 2, supra note 19.
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7. Data Preservation After an SDR Ceases To Do Business (Rule 13n-
5(b)(7))
a. Proposed Rule
    Proposed Rule 13n-5(b)(7) would require an SDR, if it ceases to do 
business, or ceases to be registered as an SDR, to continue to 
preserve, maintain, and make accessible the transaction data and 
historical positions required to be collected, maintained, and 
preserved by Rule 13n-5 in the manner required by the Exchange Act and 
the rules and regulations thereunder for the

[[Page 14498]]

remainder of the period required by this rule.\803\
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    \803\ As noted in the Proposing Release, this proposed 
requirement was based on Exchange Act Rule 17a-4(g), 17 CFR 240.17a-
4(g), which applies to books and records of broker-dealers. 
Proposing Release, 75 FR at 77332 n.128, supra note 2.
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b. Comments on the Proposed Rule
    The Commission received no comments relating to this proposed rule.
c. Final Rule
    The Commission is adopting Rule 13n-5(b)(7) as proposed. Rule 13n-
5(b)(7) requires an SDR, if it ceases to do business, or ceases to be 
registered pursuant to Exchange Act Section 13(n) and the rules and 
regulations thereunder, to continue to preserve, maintain, and make 
accessible the transaction data and historical positions required to be 
collected, maintained, and preserved by Rule 13n-5 in the manner 
required by the Exchange Act and the rules and regulations thereunder 
(including in a place and format that is readily accessible and usable 
to the Commission and other persons with authority to access or view 
such information, in an electronic format that is non-rewriteable and 
non-erasable, and in a manner that protects confidentiality and 
accuracy) for the remainder of the period required by Rule 13n-5 (i.e., 
not less than five years after the applicable SBS expires for 
transaction data and not less than five years for historical 
positions). As the Commission explained in the Proposing Release, given 
the importance of the records maintained by an SDR to the functioning 
of the SBS market, an SDR ceasing to do business could cause serious 
disruptions in the market should the information it maintains becomes 
unavailable.\804\
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    \804\ Proposing Release, 75 FR at 77332, supra note 2.
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8. Plan for Data Preservation (Rule 13n-5(b)(8))
a. Proposed Rule
    Proposed Rule 13n-5(b)(8) would require an SDR to make and keep 
current a plan to ensure that the transaction data and positions that 
are recorded in the SDR continue to be maintained in accordance with 
proposed Rule 13n-5(b)(7).
b. Comments on the Proposed Rule
    The Commission received no comments relating to this proposed rule.
c. Final Rule
    The Commission is adopting Rule 13n-5(b)(8) as proposed. Rule 13n-
5(b)(8) requires an SDR to make and keep current a plan to ensure that 
the transaction data and positions that are recorded in the SDR 
continue to be maintained in accordance with Rule 13n-5(b)(7), which 
shall include procedures for transferring the transaction data and 
positions to the Commission or its designee (including another 
registered SDR).\805\ As the Commission explained in the Proposing 
Release, given the importance of the records maintained by an SDR to 
the functioning of the SBS market, if an SDR ceases to do business, the 
absence of a plan to transfer information could cause serious 
disruptions.\806\ The Commission expects that an SDR's plan would 
establish procedures and mechanisms so that another entity would be in 
the position to maintain this information after the SDR ceases to do 
business or ceases to be registered pursuant to Exchange Act Section 
13(n) \807\ and the rules and regulations thereunder.
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    \805\ In addition, Item 45 of Form SDR requires each SDR to 
attach as an exhibit to its Form SDR ``a plan to ensure that the 
transaction data and position data that are recorded in the 
applicant continue to be maintained after the applicant withdraws 
from registration as [an SDR], which shall include procedures for 
transferring the transaction data and position data to the 
Commission or its designee (including another registered [SDR]).'' 
This item implements Rule 13n-5(b)(8).
    \806\ Proposing Release, 75 FR at 77332, supra note 2.
    \807\ 15 U.S.C. 78m(n).
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F. Automated Systems (Rule 13n-6)

1. Proposed Rule
    The Commission proposed Exchange Act Rule 13n-6 to provide 
standards for SDRs with regard to their automated systems' capacity, 
resiliency, and security. The proposed rule was designed to be 
comparable to the standards applicable to SROs, including exchanges and 
clearing agencies,\808\ and market information dissemination systems, 
pursuant to the Commission's Automation Review Policy (``ARP'') program 
\809\ and rules applicable to significant-volume alternative trading 
systems (``ATSs'').\810\
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    \808\ See Automated Systems of Self-Regulatory Organizations, 
Exchange Act Release No. 27445 (Nov. 16, 1989), 54 FR 48703 (Nov. 
24, 1989) (``ARP I Release''); Automated Systems of Self-Regulatory 
Organizations, Exchange Act Release No. 29185 (May 9, 1991), 56 FR 
22490 (May 15, 1991) (``ARP II Release'') (collectively, ``ARP 
Policy Statements'').
    \809\ See ARP II Release, 56 FR at 22491 n.4, supra note 808 
(stating that the Commission's automated review policies are 
intended to ``encompass SRO systems that disseminate transaction and 
quotation information''); see also ARP I Release, 54 FR at 48704, 
supra note 808 (discussing that ``the SROs have developed and 
continue to enhance automated systems for the dissemination of 
transaction and quotation information'').
    \810\ See Regulation of Exchanges and Alternative Trading 
Systems, Exchange Act Release No. 40760 (Dec. 8, 1998), 63 FR 70844 
(Dec. 22, 1998) (adopting Rule 301(b)(6) of Regulation ATS, 17 CFR 
242.301(b)(6)). Rule 301(b)(6) has since been superseded in part by 
Regulation SCI, 17 CFR 242.1000-1007.
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2. Comments on the Proposed Rule
    Three commenters submitted comments relating to proposed Rule 13n-
6.\811\ One commenter ``support[ed] the Commission's intent'' behind 
the rule, but suggested several specific changes.\812\ The commenter 
also stated that it ``has always placed a high priority on maintaining 
business resiliency,'' including having ``in place multiple fully 
staffed data and operations centers in diverse regions of the country, 
each capable of handling [the commenter's] entire business.'' \813\ The 
commenter stated that it ``performs both data center and operational 
failover tests every year'' and ``[d]atacenter recovery tests are 
performed at least six times a year in various configurations, and 
there are more than two dozen operational failover tests each year, 
ranging from a single department failover, to an operational recovery 
involving more than 400 staff.'' \814\ The commenter believed that 
``[t]hese capabilities are fundamental to any registration as an SDR.'' 
\815\ The commenter further stated that ``[g]iven the importance of 
SDRs to the regulatory and systemic risk oversight of the financial 
markets and the important role they will play in providing market 
transparency, a lack of robust resiliency and redundancy in operations 
should disqualify an entity from registering as an SDR.'' \816\
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    \811\ See DTCC 2, supra note 19; Deutsche Temp Rule, supra note 
28; ISDA, supra note 19; see also DTCC 3, supra note 19; DTCC 5, 
supra note 19.
    \812\ See DTCC 2, supra note 19 (stating that business 
continuity provisions should include multiple redundant systems, 
supporting ``the Commission in requiring robust operational 
capabilities of an SDR,'' and stating that SDRs should ``maintain 
multiple levels of operational redundancy''); DTCC 3, supra note 19 
(recommending that SDRs ``maintain multiple levels of operational 
redundancy and data security''); DTCC 5, supra note 19 (recommending 
(1) granting an SDR flexibility to make contingency and disaster 
recovery plans part of a parent's or affiliate's disaster recovery 
operations, (2) revising proposed Rule 13n-6(b)(2) to require an 
external audit only once every five years when the SDR's objective 
review is performed by an internal department rather than every 
year, and (3) revising proposed Rule 13n-6(b)(3) to be less 
prescriptive in its time frames and grant more flexibility to an SDR 
for reporting outages).
    \813\ DTCC 2, supra note 19.
    \814\ DTCC 2, supra note 19.
    \815\ DTCC 2, supra note 19.
    \816\ DTCC 2, supra note 19; see also DTCC 3, supra note 19 
(recommending that ``a failure to demonstrate robust resiliency, 
security and redundancy in operations should preclude an entity from 
registering as an SDR'').

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[[Page 14499]]

    The second commenter suggested that the Commission ``take all 
possible steps to ensure that identifying information is protected by 
SDRs and the [Commission].'' \817\ The third commenter believed that 
SDRs, among other entities, should ``have proper safeguards and 
barriers in place in order to ensure the security of data, prevent 
cyber-crime and safeguard against inappropriate access,'' and that such 
entities should ``make the appropriate level of investment to design, 
implement and continually review their information barriers . . . in 
order to protect markets and market participants.'' \818\ The commenter 
also believed that ``[i]t is equally important that regulators ensure 
that the viability and rigor of these information barriers . . . are 
reviewed and audited as they are at all other market participants.'' 
\819\
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    \817\ Deutsche Temp Rule, supra note 28 (stating that the 
Commission should use its authority under Dodd-Frank Act Section 763 
to ``impose strict requirements on the handling, disclosure and use 
by the SDRs of identifying information and on the operational and 
technological measures that must be employed by SDRs to protect such 
information from disclosure (including by way of unauthorized 
access)'').
    \818\ ISDA, supra note 19 (``[T]here is a real need for [SDRs] 
to have robust policies, procedures and systems in place to address 
the information barrier and privacy issue.'').
    \819\ ISDA, supra note 19.
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3. Final Rule
    After considering the comments received on this proposal, the 
Commission is not adopting the more specific requirements of proposed 
Rule 13n-6(b)(1),\820\ but is instead adopting the core policies and 
procedures requirement. Thus, final Rule 13n-6 is consistent with, but 
is more general and flexible than, proposed Rule 13n-6. Final Rule 13n-
6 provides in full that ``[e]very security-based swap data repository, 
with respect to those systems that support or are integrally related to 
the performance of its activities, shall establish, maintain, and 
enforce written policies and procedures reasonably designed to ensure 
that its systems provide adequate levels of capacity, integrity, 
resiliency, availability, and security.'' \821\ The Commission is not 
adopting proposed Rules 13n-6(b)(2), (3), and (4).\822\
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    \820\ Rule 13n-6 is being promulgated under Exchange Act 
Sections 13(n)(4)(B), 13(n)(7)(D), and 13(n)(9). See 15 U.S.C. 
78m(n)(4)(B), 78m(n)(7)(D), and 78m(n)(9).
    \821\ Rule 13n-6 is similar to the first sentence in proposed 
Rule 13n-6(b)(1). As adopted, the words ``integrity'' and 
``availability'' have been added. The addition is consistent with, 
and captures concepts in, the rule as proposed, which implicitly 
addressed both integrity and availability. See Proposing Release, 75 
FR at 77370, supra note 2 (proposing requirement that an SDR has 
policies and procedures that, 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 edits also make Rule 
13n-6 more consistent with Rule 1001(a)(1) of Regulation SCI, 17 CFR 
242.1000(a)(1) (requiring each SCI entity to ``establish, maintain, 
and enforce written policies and procedures reasonably designed to 
ensure that its SCI systems and, for purposes of security standards, 
indirect SCI systems, have levels of capacity, integrity, 
resiliency, availability, and security, adequate to maintain the SCI 
entity's operational capability and promote the maintenance of fair 
and orderly markets'').
    \822\ In addition, the Commission is not adopting proposed Rules 
13n-6(a), (c), and (d) because they are not applicable without 
proposed Rules 13n-6(b)(2), (3), and (4).
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    The Commission is not adopting Rule 13n-6 as proposed because, 
after proposing Rule 13n-6, the Commission considered the need for an 
updated regulatory framework for certain systems of the U.S. securities 
trading markets and adopted Regulation Systems Compliance and Integrity 
(``Regulation SCI'').\823\ Regulation SCI supersedes the Commission's 
ARP Policy Statements and Rule 301(b)(6) of Regulation ATS (with 
respect to significant-volume ATSs that trade NMS stocks \824\ and non-
NMS stocks), on which proposed Rule 13n-6 was largely based. The 
Regulation SCI Adopting Release includes a discussion of comment 
letters addressing the application of Regulation SCI to SDRs.\825\
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    \823\ See Regulation Systems Compliance and Integrity, Exchange 
Act Release No. 73639 (Nov. 19, 2014), 79 FR 72252 (Dec. 5, 2014) 
(``Regulation SCI Adopting Release'').
    \824\ See 17 CFR 242.600 (defining ``NMS stock'').
    \825\ Regulation SCI Adopting Release, 79 FR at 72363-4, supra 
note 823.
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    In light of this development, the Commission believes that Rule 
13n-6, as adopted, better sets an appropriate core framework for the 
policies and procedures of SDRs with respect to automated systems. 
While this framework responds to comments about the application of 
Regulation SCI to SDRs and is broadly consistent with Regulation SCI, 
Rule 13n-6 does not apply Regulation SCI and its specific obligations 
to SDRs.\826\ In adopting Regulation SCI, the Commission explained that 
it will ``monitor and evaluate the implementation of Regulation SCI, 
the risks posed by the systems of other market participants, and the 
continued evolution of the securities markets, such that it may 
consider, in the future, extending the types of requirements in 
Regulation SCI to additional categories of market participants.'' \827\ 
Consistent with this approach and in recognition of the importance of 
SDRs as the primary repositories of SBS trade information, the 
Commission may consider the application of any features of Regulation 
SCI to SDRs in the future. In addition, to the extent that an SDR may 
share systems with an SCI entity (e.g., an affiliated clearing agency), 
such systems may meet the definition of ``indirect SCI systems'' of the 
SCI entity, as defined in Regulation SCI, and certain provisions of 
Regulation SCI may apply.\828\
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    \826\ In preparing their policies and procedures, SDRs may 
consider whether to incorporate aspects of Regulation SCI that may 
be appropriate for their particular implementation of Rule 13n-6, 
including where an SDR is related by virtue of its corporate 
structure to an entity subject to Regulation SCI.
    \827\ Regulation SCI Adopting Release, 79 FR at 72259, supra 
note 823.
    \828\ See Regulation SCI, 17 CFR 242.1000-1007. Rule 1000 of 
Regulation SCI defines ``indirect SCI systems'' as ``any systems of, 
or operated by or on behalf of, an SCI entity that, if breached, 
would be reasonably likely to pose a security threat to SCI 
systems.''
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    Rule 13n-6 applies to ``systems that support or are integrally 
related to the performance of [each SDR's] activities.'' \829\ This 
includes automated systems that support or are integrally related to 
performing both core and ancillary services, including functions that 
may be required by Regulation SBSR, such as public dissemination of SBS 
information.\830\ To the extent that an SDR uses a third party service 
provider to perform the SDR's functions, the SDR's policies and 
procedures required by Rule 13n-6 continue to apply; an SDR cannot 
absolve itself of its responsibilities under this rule through the use 
of a third party service provider.
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    \829\ Rule 13n-6.
    \830\ See Regulation SBSR Adopting Release, supra note 13; see 
also ARP II Release, 56 FR at 22491 n.4, supra note 808 (stating 
that ARP standards encompass ``systems that disseminate transaction 
and quotation information'').
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    The Commission believes that Rule 13n-6 addresses commenters' 
concerns about operational capabilities and protecting 
information.\831\ With respect to comments suggesting specific 
substantive requirements,\832\ the Commission believes that a more 
measured approach is to adopt a rule that requires SDRs to adopt 
policies and procedures reasonably designed to ensure that they have 
adequate levels of

[[Page 14500]]

capacity, integrity, resiliency, availability, and security. Consistent 
with the comments,\833\ an SDR may want to consider, in developing its 
policies and procedures required by Rule 13n-6, whether to include the 
establishment and maintenance of multiple redundant systems and data 
and operations centers in diverse regions of the country,\834\ periodic 
data center and operational failover tests,\835\ robust operational 
capabilities,\836\ and multiple levels of operational redundancy and 
data security.\837\ The Commission also believes that an SDR's policies 
and procedures required by Rule 13n-6 can be ``a part of or consistent 
with a parent or affiliate entity's disaster recovery operations.'' 
\838\ The Commission further believes that Rule 13n-6 is consistent 
with one commenter's recommendation that SDRs should ``have proper 
safeguards and barriers in place in order to ensure the security of 
data, prevent cyber-crime and safeguard against inappropriate access.'' 
\839\ Additionally, the Commission believes that to comply with Rule 
13n-6, SDRs will likely need to ``make the appropriate level of 
investment to design, implement and continually review their 
information barriers . . . in order to protect markets and market 
participants.'' \840\
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    \831\ See DTCC 2, supra note 19; Deutsche Temp Rule, supra note 
28; ISDA, supra note 19.
    \832\ See DTCC 2, supra note 19; DTCC 3, supra note 19; Deutsche 
Temp Rule, supra note 28.
    \833\ See DTCC 2, supra note 19; DTCC 3, supra note 19; Deutsche 
Temp Rule, supra note 28.
    \834\ See DTCC 2, supra note 19.
    \835\ See DTCC 2, supra note 19.
    \836\ See DTCC 2, supra note 19; Deutsche Temp Rule, supra note 
28 (commenting on the need for ``strict requirements . . . on the 
operational and technological measures . . . employed by SDRs to 
protect [reported data] from disclosure (including by way of 
unauthorized access)'').
    \837\ See DTCC 2, supra note 19; DTCC 3, supra note 19.
    \838\ DTCC 5, supra note 19.
    \839\ ISDA, supra note 19.
    \840\ ISDA, supra note 19.
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G. SDR Recordkeeping (Rule 13n-7)

    The Commission proposed Rule 13n-7 to specify the books and records 
requirements applicable to SDRs. After receiving no comments on this 
proposal, the Commission is adopting Rule 13n-7 as proposed, with some 
technical modifications.
1. Records To Be Made by SDRs (Rule 13n-7(a))
a. Proposed Rule
    Proposed Rule 13n-7(a) would require every SDR to make and keep 
current certain books and records relating to its business.
b. Comments on the Proposed Rule
    The Commission received no comments relating to this proposed rule.
c. Final Rule
    The Commission is adopting Rule 13n-7(a)(1) as proposed. Rule 13n-
7(a)(1) requires every SDR to make and keep current ``a record for each 
office listing, by name or title, each person at that office who, 
without delay, can explain the types of records the security-based swap 
data repository maintains at that office and the information contained 
in those records.'' The Commission continues to believe that SDR 
recordkeeping practices may vary in ways ranging from format and 
presentation to the name of a record.\841\ Therefore, as explained in 
the Proposing Release, the Commission believes that each SDR must be 
able to promptly explain how it makes, keeps, and titles its 
records.\842\ To comply with this rule, an SDR may identify more than 
one person and list which records each person is able to explain. 
Because it may be burdensome for an SDR to keep this record current if 
it lists each person by name, an SDR may satisfy this requirement by 
recording the persons capable of explaining the SDR's records by either 
name or title.
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    \841\ See Proposing Release, 75 FR at 77337, supra note 2.
    \842\ Proposing Release, 75 FR at 77337, supra note 2.
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    The Commission is also adopting Rule 13n-7(a)(2) as proposed. Rule 
13n-7(a)(2) requires every SDR to make and keep current ``a record 
listing each officer, manager, or person performing similar functions 
of the security-based swap data repository responsible for establishing 
policies and procedures that are reasonably designed to ensure 
compliance with the [Exchange] Act and the rules and regulations 
thereunder.'' This rule is intended to assist securities regulators by 
identifying individuals responsible for designing an SDR's compliance 
policies and procedures.
    The purpose of both Rules 13n-7(a)(1) and 13n-7(a)(2) is to assist 
the Commission in its inspection and examination function.\843\ These 
two requirements are based on Exchange Act Rules 17a-3(a)(21) and (22), 
respectively, which are applicable to broker-dealers.\844\ It is 
important for the Commission's examiners to have the ability to find 
quickly what records are maintained in a particular office and who is 
responsible for establishing particular policies and procedures of an 
SDR.
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    \843\ See Exchange Act Section 13(n)(2), 15 U.S.C. 78m(n)(2) 
(stating that ``[e]ach registered security-based swap data 
repository shall be subject to inspection and examination by any 
representative of the Commission''); see also Rule 13n-4(b)(1) 
(implementing same requirement).
    \844\ 17 CFR 240.17a-3(a)(21) and (22).
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2. Records To Be Preserved by SDRs (Rule 13n-7(b))
a. Proposed Rule
    Proposed Rule 13n-7(b) would require every SDR to keep and preserve 
copies of its documents, keep such documents for a period of not less 
than five years, the first two in a place that is immediately available 
to Commission staff, and promptly furnish such documents to Commission 
staff upon request.
b. Comments on the Proposed Rule
    The Commission received no comments relating to this proposed rule.
c. Final Rule
    The Commission is adopting Rule 13n-7(b) as proposed, with one 
technical modification. Rule 13n-7(b)(1) requires every SDR to ``keep 
and preserve at least one copy of all documents, including all 
documents and policies and procedures required by the [Exchange] Act 
and the rules and regulations thereunder, correspondence, memoranda, 
papers, books, notices, accounts, and other such records as shall be 
made or received by it in the course of its business as such.'' Rule 
13n-7(b)(2) requires every SDR to ``keep all such documents for a 
period of not less than five years, the first two years in a place that 
is immediately available to representatives of the Commission for 
inspection and examination.'' \845\ Rule 13n-7(b)(3) requires every SDR 
to, ``upon request of any representative of the Commission, promptly 
furnish \846\ to the possession of such representative copies of any 
documents required to be

[[Page 14501]]

kept and preserved by it pursuant to paragraphs (a) and (b) of this 
[rule].''
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    \845\ The Commission is making a technical modification to Rule 
13n-7(b)(2) from the proposal. As proposed, the rule referred to 
``the staff of the Commission.'' As adopted, the rule instead refers 
to ``representatives of the Commission'' for consistency with other 
rules being adopted in this release. See Rule 13n-4(b)(1) and Rule 
13n-7(b)(3) (both referring to ``any representative of the 
Commission'').
    \846\ For purposes of Rule 13n-7(b)(3), the Commission 
interprets the term ``promptly'' to mean making reasonable efforts 
to produce records that are requested by Commission representatives 
during an examination without delay. The Commission believes that in 
many cases, an SDR could, and therefore will be required to, furnish 
records immediately or within a few hours of a request. The 
Commission expects that only in unusual circumstances would an SDR 
be permitted to delay furnishing records for more than 24 hours. 
Accord Registration of Municipal Advisors, Exchange Act Release No. 
70462 (Sept. 20, 2013), 78 FR 67468, 67578-67579 n.1347 (Nov. 12, 
2013) (interpreting the term ``prompt'' in the context of Exchange 
Act Rule 15Ba1-8(d)).
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    Rule 13n-7(b) is based on Exchange Act Rule 17a-1, which is the 
recordkeeping rule for national securities exchanges, national 
securities associations, registered clearing agencies, and the 
Municipal Securities Rulemaking Board.\847\ As explained in the 
Proposing Release, Rule 13n-7(b) is intended to set forth the 
recordkeeping obligation of SDRs and thereby facilitate implementation 
of the broad inspection authority given to the Commission in Exchange 
Act Section 13(n)(2).\848\ This rule includes all electronic documents 
and correspondence, such as data dictionaries, emails and instant 
messages, which should be furnished in their original electronic 
format.
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    \847\ 17 CFR 240.17a-1.
    \848\ 15 U.S.C. 78m(n)(2); see also Rule 13n-4(b)(1) 
(implementing same requirement); Proposing Release, 75 FR at 77338, 
supra note 2.
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3. Recordkeeping After an SDR Ceases To Do Business (Rule 13n-7(c))
a. Proposed Rule
    Proposed Rule 13n-7(c) would require an SDR that ceases doing 
business, or ceases to be registered as an SDR, to continue to 
preserve, maintain, and make accessible the records/data required to be 
collected, maintained, and preserved by Rule 13n-7 in the manner 
required by this rule and for the remainder of the period required by 
this rule.\849\
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    \849\ This requirement is based on Exchange Act Rule 17a-4(g), 
17 CFR 240.17a-4(g), which applies to books and records of broker-
dealers.
---------------------------------------------------------------------------

b. Comments on the Proposed Rule
    The Commission received no comments relating to this proposed rule.
c. Final Rule
    The Commission is adopting Rule 13n-7(c) as proposed, with a 
technical modification. Rule 13n-7(c) requires an SDR that ceases doing 
business, or ceases to be registered pursuant to Exchange Act Section 
13(n) and the rules and regulations thereunder, to continue to 
preserve, maintain, and make accessible the records and data \850\ 
required to be collected, maintained, and preserved by Rule 13n-7 in 
the manner required by this rule and for the remainder of the period 
required by this rule. This requirement is intended to allow Commission 
representatives to perform effective inspections and examinations of an 
SDR pursuant to Exchange Act Section 13(n)(2).\851\ In addition, the 
Commission notes that, as discussed in Section VI.B of this release 
regarding Rule 13n-2, an SDR that ceases to exist or do business as an 
SDR is required to file a withdrawal from registration on Form SDR 
pursuant to Rule 13n-2(b) and designate on Item 12 of Form SDR a 
custodian of books and records.
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    \850\ The Commission is making a technical amendment to Rule 
13n-7(c) from the proposal. As proposed, the rule referred to 
``records/data.'' The rule being adopted refers to ``records and 
data'' for clarity.
    \851\ 15 U.S.C. 78m(n)(2); see also Rule 13n-4(b)(1) 
(implementing same requirement).
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    An SDR may wish to consider establishing contingency plans so that 
another entity will be in the position to maintain the SDR's records 
and data after the SDR ceases to do business. The Commission notes that 
the requirement in Rule 13n-5(b)(8) for an SDR to make and keep current 
a plan to ensure that the SDR's transaction data and positions are 
maintained after it ceases doing business or ceases to be registered 
\852\ does not expressly extend to a plan for maintaining all of the 
records and data required to be maintained pursuant to Rule 13n-7, but 
that plan could also include such records and data.
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    \852\ See Section VI.E.8 of this release discussing Rule 13n-
5(b)(8).
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4. Applicability (Rule 13n-7(d))
a. Proposed Rule
    Proposed Rule 13n-7(d) provided that Rule 13n-7 ``does not apply to 
data collected and maintained pursuant to Rule 13n-5.''
b. Comments on the Proposed Rule
    The Commission received no comments relating to this proposed rule.
c. Final Rule
    The Commission is adopting Rule 13n-7(d) as proposed, with a 
technical modification. Rule 13n-7(d) states that Rule 13n-7 ``does not 
apply to transaction data and positions collected and maintained 
pursuant to Rule 13n-5 (Sec.  240.13n-5).'' \853\ As explained in the 
Proposing Release, the purpose of this rule is to clarify that the 
requirements in Rule 13n-7 are designed to capture those records of an 
SDR other than the transaction data, positions, and market data that 
would be required to be maintained in accordance with Rule 13n-5, as 
discussed in Section VI.E of this release.\854\ The requirements of 
Rule 13n-7 do apply to records that an SDR creates using the data 
required to be maintained in accordance with Rule 13n-5, such as 
aggregate reports.
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    \853\ The Commission is making a technical modification to Rule 
13n-7(d) from the proposal, changing ``data'' to ``transaction data 
and positions.'' This is to clarify that the data that Rule 13n-7 
does not apply to is limited to transaction data and positions, both 
of which are required to be maintained in accordance with Rule 13n-
5(b)(4). Rule 13n-7 applies to other information that may be created 
pursuant to Rule 13n-5, but which is not required to be maintained 
pursuant to Rule 13n-5(b)(4). For example, in order to assure itself 
of compliance with Rule 13n-5(b)(1)(iv), an SDR could run tests to 
determine how long it takes for it to record transaction data that 
it receives. Data from such test would be required to be retained 
pursuant to Rule 13n-7, not Rule 13n-5(b)(4). The Commission clearly 
contemplated this distinction in the Proposing Release when it 
stated that Rule 13n-7(d) was proposed to clarify that Rule 13n-7 
was designed to capture those records other than the data required 
to be maintained in accordance with proposed Rule 13n-5. See 
Proposing Release, 75 FR at 77338, supra note 2.
    \854\ Proposing Release, 75 FR at 77338, supra note 2.
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H. Reports To Be Provided to the Commission (Rule 13n-8)

    The Commission proposed Rule 13n-8 to specify certain reports that 
an SDR would be required to provide to the Commission. After 
considering the two comments received on this proposal, the Commission 
is adopting Rule 13n-8 as proposed.
1. Proposed Rule
    Proposed Rule 13n-8 would require every SDR to ``promptly report to 
the Commission, in a form and manner acceptable to the Commission, such 
information as the Commission determines to be necessary or appropriate 
for the Commission to perform the duties of the Commission under the 
[Exchange] Act and the rules and regulations thereunder.'' This 
proposed rule was designed to provide the Commission with the necessary 
information for it to fulfill its regulatory duties.
2. Comments on the Proposed Rule
    Two commenters submitted comments relating to this proposed 
rule.\855\ One commenter stated that it ``currently makes information 
available directly to regulators, having created a web portal for 
access to scheduled reports, and providing extracts from [the trade 
repository's] database based on parameters set by regulators . . . . 
Through this system, [the commenter] expects to be able to offer 
acceptable access to the Commission.'' \856\ The other commenter 
recommended that reports ``be standardized and use a common 
terminology.'' \857\
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    \855\ See DTCC 2, supra note 19; Barnard, supra note 19. In 
addition, one commenter to the Temporary Rule Release suggested that 
the Commission affirmatively state that it intends to keep 
information furnished to the Commission pursuant to the rules in 
that release, which could be information similar to that reported to 
the Commission under Rule 13n-8, confidential under FOIA or to seek 
a legislative solution. See Deutsche Temp Rule, supra note 28.
    \856\ DTCC 2, supra note 19.
    \857\ Barnard, supra note 19.

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[[Page 14502]]

3. Final Rule
    After considering the comments, the Commission is adopting Rule 
13n-8 as proposed. Rule 13n-8 requires every SDR to ``promptly report 
to the Commission, in a form and manner acceptable to the Commission, 
such information as the Commission determines to be necessary or 
appropriate for the Commission to perform the duties of the Commission 
under the [Exchange] Act and the rules and regulations thereunder.'' 
This requirement provides flexibility to the Commission to obtain 
information on a case-by-case basis and in connection with fulfilling 
its examination function.\858\
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    \858\ One commenter describes its approach to addressing the 
proposed rule's requirements. See DTCC 2, supra note 19. With 
respect to the commenter to the Temporary Rule Release suggesting 
that the Commission affirmatively state that it intends to keep 
information furnished pursuant to the rules in that release 
confidential under FOIA or to seek a legislative solution, the 
Commission anticipates that it will keep reported data that SDRs 
submit to the Commission (via Rule 13n-8 or any other means) 
confidential, subject to the provisions of applicable law. See 
Deutsche Temp Rule, supra note 28. Pursuant to Commission rules, 
confidential treatment can be sought for information submitted to 
the Commission. See 17 CFR 200.83 (regarding confidential treatment 
procedures under FOIA). The Commission does not intend to 
affirmatively seek any legislative action to protect further such 
information. The commenter is not precluded from doing so on its own 
initiative.
---------------------------------------------------------------------------

    Under Rule 13n-8, the Commission may request specific reports 
related to the final SDR Rules.\859\ For example, in the Proposing 
Release, the Commission stated that it may request a report on the 
number of complaints an SDR has received pertaining to data 
integrity.\860\ In addition, the Commission may request other reports 
in the future based upon, for example, developments in the SBS markets 
or a newly identified need for particular SBS information. The 
Commission expects that an SDR will be able to promptly report any 
information in its possession to the Commission pursuant to Rule 13n-8. 
If the report involves provision of SBS data, then the Commission could 
require an SDR to adhere to any formats and taxonomies required 
pursuant to Rule 13n-4(b)(5).\861\ This approach is consistent with one 
commenter's recommendation that reports ``be standardized and use 
common terminology.'' \862\
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    \859\ In a separate release, the Commission is adopting a rule 
requiring an SDR to provide the Commission, upon request, 
information or reports related to the timeliness, accuracy, and 
completeness of data reported to the SDR. See Regulation SBSR 
Adopting Release, supra note 13 (Rule 907(e)).
    \860\ Proposing Release, 75 FR at 77339, supra note 2.
    \861\ See Section VI.D.2.c.ii of this release discussing 
anticipated Commission proposal pursuant to Rule 13n-4(b)(5). With 
regard to other types of reports, the Commission will seek to work 
with SDRs to develop the form and the manner for the SDRs to provide 
the Commission with the information it needs, while seeking to 
minimize the SDRs' burdens.
    \862\ See Barnard, supra note 19.
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I. Privacy of SBS Transaction Information and Disclosure to Market 
Participants (Rules 13n-9 and 13n-10)

1. Privacy Requirements (Rule 13n-9)
    Proposed Rule 13n-9 set forth requirements to implement an SDR's 
statutory duty to ``maintain the privacy of any and all security-based 
swap transaction information that the [SDR] receives from a security-
based swap dealer, counterparty, or any other registered entity.'' 
\863\ After considering the comments received on the proposal, the 
Commission is adopting the rule as proposed.
---------------------------------------------------------------------------

    \863\ See Exchange Act Section 13(n)(5)(F), 15 U.S.C. 
78m(n)(5)(F).
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a. Proposed Rule
    Proposed Rule 13n-9 would require each SDR to establish, maintain, 
and enforce written policies and procedures reasonably designed to 
protect the privacy of any and all SBS transaction information that the 
SDR receives from an SBS dealer, counterparty, or any registered 
entity. Such policies and procedures would be required to include, but 
not be limited to, policies and procedures to protect the privacy of 
any and all SBS transaction information that the SDR shares with 
affiliates and nonaffiliated third parties.\864\ The proposed rule 
would also require each SDR to establish and maintain safeguards, 
policies, and procedures reasonably designed to prevent the 
misappropriation or misuse of (i) any confidential information received 
by the SDR; (ii) material, nonpublic information; and/or (iii) 
intellectual property, by the SDR or any person associated with the SDR 
for their personal benefit or the benefit of others.\865\ Such 
safeguards, policies, and procedures would be required to address, 
without limitation, (1) limiting access to such confidential 
information, material, nonpublic information, and intellectual 
property, (2) standards pertaining to the trading by persons associated 
with the SDR for their personal benefit or the benefit of others, and 
(3) adequate oversight to ensure compliance of this provision.\866\
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    \864\ Proposed Rule 13n-9(b)(1).
    \865\ Proposed Rule 13n-9(b)(2).
    \866\ Id.
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b. Comments on the Proposed Rule
    Five commenters submitted comments relating to this proposed 
rule.\867\ Two of the commenters supported the proposal.\868\ One 
commenter ``fully support[ed] the Commission's efforts to protect the 
privacy of any and all SBS transaction information received by an SDR'' 
and believed that ``no communication of data (other than to, or as 
required by, applicable regulators) that could have the result of 
disclosing the actual positions or specific business or trading 
activity of a counterparty should be permitted without the consent of 
that counterparty.'' \869\ The commenter suggested that the definition 
of ``personally identifiable information'' in proposed Rule 13n-9(a)(6) 
be limited to information that is not otherwise disclosed or made 
available to the public.\870\ In making its suggestion, the commenter 
stated that ``[b]ecause much of the information utilized to on-board 
participants or to identify counterparties to an [SBS] will be publicly 
available through Web sites issuing legal entity identifiers or similar 
identifiers, this information should not be considered confidential 
simply because it is required by an [SDR].'' \871\
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    \867\ See DTCC 2, supra note 19; MFA 1, supra note 19; 
TriOptima, supra note 19; Deutsche Temp Rule, supra note 28; ISDA, 
supra note 19; see also DTCC 5, supra note 19.
    \868\ See DTCC 2, supra note 19; MFA 1, supra note 19. The 
Commission received no comments on proposed Rule 13n-9(a), which set 
forth the definitions applicable to the rule, and is adopting each 
of them as proposed. See supra note 247 (discussing a general 
comment regarding the term ``affiliate'').
    \869\ DTCC 2, supra note 19; see also DTCC 5, supra note 19.
    \870\ DTCC 5, supra note 19.
    \871\ DTCC 5, supra note 19.
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    Another commenter also ``agree[d] with the Commission's concerns 
about privacy of SBS data'' and ``strongly support[ed] imposing privacy 
requirements on [SDRs].'' \872\ Specifically, the commenter supported 
the Commission's proposed requirements related to policies and 
procedures reasonably designed to protect the privacy of SBS 
transaction information and noted that ``such privacy protections will 
ensure that market participants utilize the services of registered 
[SDRs] with confidence.'' \873\ The commenter made a number of 
suggestions. First, the commenter suggested that the Commission add 
safeguards related to ``confidentiality of trading positions'' to

[[Page 14503]]

the Commission's proposed rule because disclosure of position 
information could reveal market participants' customized and 
proprietary investment strategies in which they invest heavily and 
``which form the foundation of their businesses.'' \874\ Second, the 
commenter suggested that the Commission expand its proposed rules to 
include a standard of care that would require SDRs to adopt policies 
and procedures to ensure that any confidential information received 
will be used solely for the purpose of fulfilling regulatory 
obligations.\875\ Third, the commenter suggested that the Commission 
require SDRs to adopt policies and procedures to limit access to 
confidential information to directors, officers, employees, agents, and 
representatives who need to know such information in order to fulfill 
regulatory obligations.\876\ The commenter noted that ``[t]hose 
policies and procedures should also have a mechanism in place for all 
[SDR representatives] to be informed of, and required to follow, the 
[SDR's] policies and procedures related to privacy of information 
received.'' \877\ The commenter believed that such persons should be 
liable for any breach of an SDR's policies and procedures related to 
privacy of information.\878\
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    \872\ MFA 1, supra note 19.
    \873\ MFA 1, supra note 19 (``Specifically, we recommend adding 
to the information covered under [proposed Rule] 13n-9(b): (i) 
information related to transactions of a market participant, 
including the size and volume of such transactions; (ii) the 
identity of each market participant; and (iii) the details of any 
master agreement (to the extent provided) governing the relevant 
SBS.'').
    \874\ MFA 1, supra note 19.
    \875\ MFA 1, supra note 19.
    \876\ MFA 1, supra note 19.
    \877\ MFA 1, supra note 19.
    \878\ MFA 1, supra note 19.
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    Another commenter suggested that ``where trading counterparties 
have given [written authorizations] in favor of a third party service 
provider to access their [SBS transaction information], there is no 
need to have the third party service provider observe the [SDR's] 
privacy policies and procedures.'' \879\ The commenter stated that ``if 
the counterparties to a trade authorize the third party service 
provider to use their information, an [SDR] should not be able to 
restrict or limit such use through privacy policies and procedures when 
the owners of the information have provided appropriate consents and 
authorizations.'' \880\
---------------------------------------------------------------------------

    \879\ TriOptima, supra note 19 (stating that ``establishment of 
clear rights and obligations governing access to [SDR] Information'' 
is an important element in establishing ``fair, secure and efficient 
market functioning for market participants,'' and believing that it 
would ``be appropriate and helpful to the market if the SEC can 
clarify in the final rule that [SDRs] shall provide third party 
service providers, who have been authorized to access information by 
the counterparties to the relevant trades under Written Client 
Disclosure Consents, with access to [SDR] Information'').
    \880\ TriOptima, supra note 19 (asking the Commission to ``treat 
a third party service provider with a disclosure consent as acting 
as an `agent' for the owner of the trade information and provide the 
third party service provider with the same type of access which the 
owner of such data is entitled to, subject to any restrictions set 
out in the disclosure consent'').
---------------------------------------------------------------------------

    Consistent with the commenters supporting proposed Rule 13n-9, a 
commenter to the Temporary Rule Release stated that ``market 
participants have legitimate interests in the protection of their 
confidential and identifying financial information.'' \881\ In this 
regard, the commenter suggested that the Commission ``take all possible 
steps to ensure that identifying information is protected by SDRs and 
the [Commission]'' and that the Commission use its statutory authority 
under Dodd-Frank Act Section 763 to ``impose strict requirements on the 
handling, disclosure and use by the SDRs of identifying information and 
on the operational and technological measures that must be employed by 
SDRs to protect such information from disclosure (including by way of 
unauthorized access).'' \882\
---------------------------------------------------------------------------

    \881\ Deutsche Temp Rule, supra note 28.
    \882\ Deutsche Temp Rule, supra note 28.
---------------------------------------------------------------------------

    Another commenter believed that ``non-bank entities,'' including 
SDRs, should ``make the appropriate level of investment to design, 
implement and continually review their . . . data privacy policies and 
procedures in order to protect markets and market participants.'' \883\ 
The commenter also believed that ``[i]t is equally important that 
regulators ensure that the viability and rigor of these . . . privacy 
policies are reviewed and audited as they are at all other market 
participants.'' \884\
---------------------------------------------------------------------------

    \883\ ISDA, supra note 19 (``[T]here is a real need for [SDRs] 
to have robust policies, procedures and systems in place to address 
the information barrier and privacy issue.'').
    \884\ ISDA, supra note 19.
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c. Final Rule
    After considering the comments, the Commission is adopting Rule 
13n-9 as proposed, with two minor modifications.\885\ Specifically, 
Rule 13n-9(b)(1) requires each SDR to establish, maintain, and enforce 
written policies and procedures reasonably designed to protect the 
privacy of any and all SBS transaction information that the SDR 
receives from an SBS dealer, counterparty, or any registered entity. 
The rule further provides that such policies and procedures shall 
include, but are not limited to, policies and procedures to protect the 
privacy of any and all SBS transaction information that the SDR shares 
with affiliates \886\ and nonaffiliated third parties.\887\ As 
mentioned above, the Exchange Act \888\ requires, and commenters 
supported, the Commission's imposition of privacy requirements on 
SDRs.\889\
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    \885\ See infra note 886 (discussing revised definition of 
``control'') and note 890 (discussing revised definition of 
``nonpublic personal information'').
    \886\ See supra notes 247 and 621 (defining ``affiliate'' and 
``control''). The Commission is correcting a typographical error in 
the proposed definition of ``control.'' Proposed Rule 13n-
9(a)(2)(ii) referred to the right to vote 25 percent ``of'' more of 
a class of securities. See Proposing Release, 75 FR at 77371, supra 
note 2. As adopted, Rule 13n-9(a)(2)(ii) refers to the right to vote 
25 percent ``or'' more of a class of securities. See also Rule 13n-
4(a)(3).
    \887\ Rule 13n-9(b)(1); see also supra note 622 (defining 
``nonaffiliated third party'').
    \888\ See Exchange Act Section 13(n)(5), 15 U.S.C. 78m(n)(5).
    \889\ See DTCC 2, supra note 19; MFA 1, supra note 19 (noting 
that an SDR's protection of the privacy of SBS transaction 
information ``will ensure that market participants utilize the 
services of [a] registered [SDR] with confidence'').
---------------------------------------------------------------------------

    Additionally, Rule 13n-9(b)(2) requires each SDR to establish and 
maintain safeguards, policies, and procedures reasonably designed to 
prevent the misappropriation or misuse, directly or indirectly, of: (1) 
Any confidential information received by the SDR, including, but not 
limited to, trade data, position data, and any nonpublic personal 
information \890\ about a market participant \891\ or any of its 
customers; (2) material, nonpublic information; and/or (3) intellectual 
property, such as trading strategies or portfolio positions, by the SDR 
or any person associated

[[Page 14504]]

with the SDR \892\ for their personal benefit or the benefit of others. 
Such safeguards, policies, and procedures shall address, without 
limitation, (1) limiting access to such confidential information, 
material, nonpublic information, and intellectual property, (2) 
standards pertaining to the trading by persons associated with the SDR 
for their personal benefit or the benefit of others, and (3) adequate 
oversight to ensure compliance with Rule 13n-9(b)(2).\893\ As stated in 
the Proposing Release, Rule 13n-9(b)(2) incorporates current 
requirements regarding the treatment of proprietary information of 
clearing members, which are contained in exemptive orders issued to SBS 
clearing agencies,\894\ and draws from Exchange Act Section 15(g), 
which requires broker-dealers to establish, maintain, and enforce 
written policies and procedures reasonably designed to prevent the 
misuse of material, nonpublic information by such broker or dealer or 
any person associated with such broker or dealer.\895\
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    \890\ In response to one commenter's suggestion, the Commission 
is revising the definition of ``nonpublic personal information'' 
from the proposal to mean (1) personally identifiable information 
that is not publicly available information and (2) any list, 
description, or other grouping of market participants (and publicly 
available information pertaining to them) that is derived using 
personally identifiable information that is not publicly available 
information. See Rule 13n-9(a)(5); DTCC 5, supra note 19 (suggesting 
limiting the applicability of Rule 13n-9 to ``personally 
identifiable information'' that is not otherwise disclosed or made 
available to the public ``[b]ecause much of the information utilized 
to on-board participants or to identify counterparties to an [SBS] 
will be publicly available through Web sites issuing legal entity 
identifiers or similar identifiers, this information should not be 
considered confidential simply because it is required by an 
[SDR]''). This revision, which limits personally identifiable 
information to not publicly available information, is consistent 
with the definition of ``nonpublic personal information'' in 
Regulation SP, 17 CFR 248.3(t). The term ``personally identifiable 
information'' is defined as any information (i) a market participant 
provides to an SDR to obtain service from the SDR, (ii) about a 
market participant resulting from any transaction involving a 
service between the SDR and the market participant, or (iii) the SDR 
obtains about a market participant in connection with providing a 
service to that market participant. See Rule 13n-9(a)(6).
    \891\ See supra note 583 (defining ``market participant'').
    \892\ See supra note 621 (defining ``person associated with a 
security-based swap data repository'').
    \893\ Id.
    \894\ See, e.g., Order Extending and Modifying Temporary 
Exemptions Under the Securities Exchange Act of 1934 in Connection 
with Request of ICE Trust U.S. LLC Related to Central Clearing of 
Credit Default Swaps and Request for Comment, Exchange Act Release 
No. 63387 (Nov. 29, 2010), 75 FR 75502 (Dec. 3, 2010) (``ICE Trust 
shall establish and maintain adequate safeguards and procedures to 
protect clearing members' confidential trading information. Such 
safeguards and procedures shall include: (A) limiting access to the 
confidential trading information of clearing members to those 
employees of ICE Trust who are operating the system or responsible 
for its compliance with this exemption or any other applicable 
rules; and (B) establishing and maintaining standards controlling 
employees of ICE Trust trading for their own accounts. ICE Trust 
must establish and maintain adequate oversight procedures to ensure 
that the safeguards and procedures established pursuant to this 
condition are followed . . . .''); Exchange Act Release No. 61973 
(Apr. 23, 2010), 75 FR 22656 (Apr. 29, 2010), and Exchange Act 
Release No. 63389 (Nov. 29, 2010), 75 FR 75520 (Dec. 3, 2010) 
(temporary exemptions in connection with CDS clearing by ICE Clear 
Europe, Limited). See also Proposing Release, 75 FR at 77339 n.171, 
supra note 2.
    \895\ See 15 U.S.C. 78o(g); see also Exchange Act Section 
15F(j)(5), 15 U.S.C. 78o-10(j)(5) (requiring SBS dealers and major 
SBS participants to ``establish structural and institutional 
safeguards to ensure that the activities of any person within the 
firm relating to research or analysis of the price or market for any 
security-based swap or acting in a role of providing clearing 
activities or making determinations as to accepting clearing 
customers are separated by appropriate informational partitions 
within the firm from the review, pressure, or oversight of persons 
whose involvement in pricing, trading, or clearing activities might 
potentially bias their judgment or supervision and contravene the 
[enumerated] core principles of open access and the business conduct 
standards'').
---------------------------------------------------------------------------

    The Commission anticipates that as a central recordkeeper of SBS 
transactions, each SDR will receive proprietary and highly sensitive 
information, which could disclose, for instance, a market participant's 
trade information, trading strategy, or nonpublic personal 
information.\896\ Rule 13n-9 is designed to ensure that an SDR has 
reasonable safeguards, policies, and procedures in place to protect 
such information from being misappropriated or misused by the SDR or 
any person associated with the SDR. The Commission agrees with one 
commenter's view that ``market participants have legitimate interests 
in the protection of their confidential and identifying financial 
information,'' and Rule 13n-9 sets forth requirements sufficient to 
protect such information from disclosure, as the commenter 
suggested.\897\
---------------------------------------------------------------------------

    \896\ See Proposing Release, 75 FR at 77339, supra note 2.
    \897\ See Deutsche Temp Rule, supra note 28.
---------------------------------------------------------------------------

    The Commission also believes that as part of an SDR's 
responsibility to have adequate oversight to ensure compliance with 
Rule 13n-9, an SDR's governance arrangements and organizational 
structure should have adequate internal controls to protect against 
misappropriation or misuse of a market participant's trade information, 
trading strategy, or nonpublic personal information.\898\ For instance, 
an SDR could limit access to the proprietary and sensitive information 
by creating informational, technological, and physical barriers. 
Consistent with one commenter's suggestion,\899\ an SDR could also 
limit access to the data that it maintains to only those officers, 
directors, employees, and agents who need to know the data to perform 
their job responsibilities, including responsibilities to fulfill the 
SDR's regulatory obligations. An SDR may want to consider limiting such 
access to data only to the extent that such access is justified based 
on the particular job responsibilities of the officers, directors, 
employees, or agents. In preventing the misappropriation or misuse of 
confidential information, material, nonpublic information, and 
intellectual property pursuant to Rule 13n-9(b)(2), an SDR could have 
controls to prevent unauthorized or unintentional access to its data. 
An SDR may want to consider holding its officers, directors, employees, 
and agents contractually liable for a breach of its privacy policies 
and procedures, as suggested by one commenter.\900\ In order for an SDR 
to enforce effectively its written policies and procedures to protect 
the privacy of SBS transaction information, it is reasonable to expect 
that the SDR must, as one commenter noted,\901\ properly convey these 
policies and procedures to all those subject to its privacy 
requirements.
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    \898\ See Proposing Release, 75 FR at 77339, supra note 2.
    \899\ See MFA 1, supra note 19.
    \900\ See MFA 1, supra note 19.
    \901\ See MFA 1, supra note 19.
---------------------------------------------------------------------------

    Additionally, in establishing standards pertaining to the trading 
by persons associated with an SDR in accordance with Rule 13n-9(b)(2), 
the SDR should consider restricting the trading activities of 
individuals who have access to proprietary or sensitive information 
maintained by the SDR or implementing firm-wide restrictions on trading 
certain SBSs, as well as underlying or related investment 
instruments.\902\ Such restrictions could include, for example, a pre-
trade clearance requirement. An SDR should also have systems in place 
to prevent and detect insider trading by the SDR or persons associated 
with the SDR. Such systems could include a mechanism to monitor such 
persons' access to the SDR's data, their trading activities, and their 
emails.\903\
---------------------------------------------------------------------------

    \902\ See Proposing Release, 75 FR at 77339-77340, supra note 2.
    \903\ Cf., e.g., Janney Montgomery Scott LLC, Exchange Act 
Release No. 64855, 2011 SEC LEXIS 3166 (July 11, 2011) (finding, in 
a settled action, Exchange Act Section 15(g) violation where broker-
dealer failed to monitor its proprietary trading and employee 
trading); Merrill Lynch, Pierce, Fenner & Smith, Inc., Exchange Act 
Release No. 59555, 2009 SEC LEXIS 660 (Mar. 11, 2009) (finding, in a 
settled action, Exchange Act Section 15(f) [subsequently renumbered 
as Section 15(g)] violation where broker-dealer failed to limit or 
monitor traders' access to the equity squawk box that broadcasts 
material, nonpublic information).
---------------------------------------------------------------------------

    The Commission believes that to the extent that an SDR or any 
person associated with the SDR shares information with the SDR's 
affiliate or a nonaffiliated third party, the SDR's policies and 
procedures pursuant to Rule 13n-9(b)(1) should be reasonably designed 
to protect the privacy of the information shared.\904\ One option that 
an SDR could choose to comply with this requirement would be to require 
the affiliate or nonaffiliated party to consent to being subject to the 
SDR's privacy policies and procedures as a condition of receiving any 
sensitive information from the SDR.\905\
---------------------------------------------------------------------------

    \904\ See Proposing Release, 75 FR at 77340, supra note 2.
    \905\ The Commission notes that CFTC Rule 49.17(e) permits a 
third party service provider to access swap data maintained by a 
swap data repository on the condition that both the swap data 
repository and the provider have strict confidentiality procedures 
that protect data and information from proper disclosure and that 
they execute a ``confidentiality agreement.'' See 17 CFR 49.17(e).

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[[Page 14505]]

    Consistent with one commenter's view, the Commission agrees that an 
SDR will likely need to make an appropriate level of investment to 
design, implement, and periodically review its privacy policies and 
procedures ``in order to protect markets and market participants,'' 
\906\ but that an SDR should have some flexibility to develop 
reasonable policies and procedures to protect the privacy of the SBS 
transaction information that the SDR receives. One approach, as one 
commenter suggested,\907\ may be for an SDR's policies and procedures 
to require consent of counterparties prior to communication of the SBS 
transaction information to an SDR's affiliate or a nonaffiliated third 
party.\908\ An SDR may, however, develop other reasonable policies and 
procedures to protect the privacy of the SBS transaction information.
---------------------------------------------------------------------------

    \906\ See ISDA, supra note 19.
    \907\ See DTCC 2, supra note 19 (``[N]o communication of data 
(other than to, or as required by, applicable regulators) that could 
have the result of disclosing the actual positions or specific 
business or trading activity of a counterparty should be permitted 
without the consent of that counterparty.'').
    \908\ The Commission notes that CFTC Rule 49.17(g) requires a 
swap data repository to obtain express written consent from the swap 
dealer, counterparty, or any other registered entity that submits 
the swap data maintained by the swap data repository before using 
that swap data for commercial or business purposes. See 17 CFR 
49.17(g).
---------------------------------------------------------------------------

    With respect to one commenter's suggestion that the Commission add 
safeguards related to ``confidentiality of trading positions,'' \909\ 
the Commission believes that its final rule broadly covers such 
safeguards. Although not explicitly stated in Rule 13n-9, the 
Commission also believes that its definitions of ``nonpublic personal 
information'' \910\ and ``personally identifiable information'' \911\ 
overlap significantly with the information that the commenter 
recommended the rule to explicitly cover.\912\ Certain information, 
however, will be subject to public dissemination under Regulation 
SBSR.\913\ The commenter further suggested that SDRs should be 
permitted to use confidential information solely to fulfill their 
regulatory obligations,\914\ but the Commission does not believe that 
it is necessary or appropriate to impose such a narrow restriction on 
SDRs. It could, for example, be in the public interest for SDRs to use 
transaction-specific confidential SBS data to generate aggregated 
reports for the public even though such reports are not mandated. 
However, any such reports must be sufficiently anonymized so that the 
trading positions or identities of market participants, or group of 
market participants, cannot be derived from the reports.
---------------------------------------------------------------------------

    \909\ See MFA 1, supra note 19.
    \910\ See Rule 13n-9(a)(5).
    \911\ See Rule 13n-9(a)(6).
    \912\ See MFA 1, supra note 19 (recommending adding to proposed 
Rule 13n-9(b): (i) information related to transactions of a market 
participant (including a market participant's trading positions), 
(ii) the identity of each market participant, and (iii) details of 
any master agreement governing the relevant SBS that are provided to 
an SDR).
    \913\ See Regulation SBSR Adopting Release, supra note 13 (Rule 
902).
    \914\ See MFA 1, supra note 19.
---------------------------------------------------------------------------

    One commenter suggested that a third party service provider should 
not be required to observe an SDR's privacy policies and procedures if 
such third party service provider has received written authorization 
from an SBS counterparty to access its SBS transaction 
information.\915\ The Commission believes that an SDR's obligation to 
provide fair, open, and not unreasonably discriminatory participation 
to third party service providers \916\ would prohibit an SDR from 
unreasonably imposing its privacy policies and procedures on third 
party service providers. The Commission also believes that, generally, 
a third party service provider, acting as an agent for a counterparty, 
should be given the same rights to access SBS transaction information 
as the counterparty for which it is acting as an agent. To the extent 
that the counterparties to a transaction reach a confidentiality 
agreement between themselves limiting the information that can be 
provided to their agents, it is up to the parties to ensure that the 
authorizations they provide to the SDR are appropriately limited.\917\
---------------------------------------------------------------------------

    \915\ See TriOptima, supra note 19 (stating that ``if the 
counterparties to a trade authorize the third party service provider 
to use their information, an [SDR] should not be able to restrict or 
limit such use through privacy policies and procedures when the 
owners of the information have provided appropriate consents and 
authorizations'').
    \916\ See Section VI.D.3.a of this release discussing fair, 
open, and not unreasonably discriminatory access.
    \917\ To the extent that a transaction is executed anonymously 
on an SB SEF or exchange, when the counterparties do not know each 
other's identity or other reported information (e.g., the trader 
ID), the SDR's policies and procedures under Rule 13n-9(b) must not 
allow either counterparty to access this information relating to the 
other counterparty.
---------------------------------------------------------------------------

    With respect to one commenter's view that regulators should 
``ensure that the viability and rigor of [an SDR's] privacy policies 
are reviewed and audited as they are at all other market 
participants,'' \918\ the Commission contemplates that its review of an 
SDR's privacy policies and procedures will be sufficient.\919\ As a 
general matter, the Commission will review an SDR's privacy policies 
and procedures for compliance with the law in a manner similar to 
reviews of other registrants' privacy policies and procedures. For 
example, an SDR is required to file, as exhibits to Form SDR, its 
policies and procedures to protect the privacy of any and all SBS 
transaction information that the SDR receives from a market participant 
or any registered entity.\920\ These policies and procedures are 
subject to the Commission's review. As discussed in Section VI.A.2 of 
this release, the Commission will review an SDR's application for 
registration on Form SDR in determining whether the SDR is able to 
comply with the federal securities laws and the rules and regulations 
thereunder. The Commission will also review an SDR's comprehensive 
annual amendment on Form SDR in determining whether the SDR continues 
to be in compliance with the federal securities laws and the rules and 
regulations thereunder. Additionally, an SDR (including its privacy 
policies and procedures) are subject to inspection and examination by 
any representative of the Commission.\921\ In addition, an SDR's CCO is 
required to review the compliance of its policies and procedures at 
least on an annual basis and include a description of such compliance 
as well as the SDR's enforcement of its policies and procedures in the 
SDR's annual compliance report that is filed with the Commission.\922\
---------------------------------------------------------------------------

    \918\ ISDA, supra note 19.
    \919\ To the extent that the Commission addresses other market 
participants' privacy policies and procedures, it will do so in 
separate releases pertaining specifically to those market 
participants.
    \920\ See Item 39 of Form SDR.
    \921\ Exchange Act Section 13(n)(2), 15 U.S.C. 78m(n)(2) 
(stating that ``[e]ach registered security-based swap data 
repository shall be subject to inspection and examination by any 
representative of the Commission'').
    \922\ See Rules 13n-11(c)(2) and 13n-11(d)(1).
---------------------------------------------------------------------------

2. Disclosure Requirements (Rule 13n-10)
a. Proposed Rule
    Proposed Rule 13n-10 would require each SDR to provide a disclosure 
document to each market participant prior to accepting any SBS data 
from the market participant or upon the market participant's request. 
The disclosure document would include specific information designed to 
enable a market participant to identify and evaluate the risks and 
costs associated with using the SDR's services.

[[Page 14506]]

b. Comments on the Proposed Rule
    Two commenters submitted comments relating to this proposed 
rule.\923\ One commenter agreed with proposed Rule 13n-10(b)(8), which 
would require disclosure of an SDR's updated schedule of any dues; 
unbundled prices, rates, or other fees for all of its services, 
including any ancillary services; any discounts or rebates offered; and 
the criteria to benefit from such discounts or rebates.\924\ In 
supporting the Commission's proposed rule, another commenter 
``recognize[d] the importance of providing market participants with 
disclosure documents outlining the SDR's policies regarding member 
participant criteria and the safeguarding and privacy of data submitted 
to the SDR.'' \925\
---------------------------------------------------------------------------

    \923\ See Barnard, supra note 19; DTCC 2, supra note 19. The 
Commission received no comments on proposed Rule 13n-10(a), which 
set forth the definition applicable to the rule, and is adopting it 
as proposed.
    \924\ See Barnard, supra note 19.
    \925\ DTCC 2, supra note 19.
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c. Final Rule
    After considering the comments, the Commission is adopting Rule 
13n-10 as proposed. The Commission is adopting the rule to enhance 
transparency in the SBS market, bolster market efficiency, promote 
standardization, and foster competition.\926\ Specifically, the rule 
provides that before accepting any SBS data from a market participant 
\927\ or upon a market participant's request, each SDR must furnish to 
the market participant a disclosure document that contains the 
following written information, which must reasonably enable the market 
participant to identify and evaluate accurately the risks and costs 
associated with using the SDR's services: (1) The SDR's criteria for 
providing others with access to services offered and data maintained by 
the SDR, (2) the SDR's criteria for those seeking to connect to or link 
with the SDR, (3) a description of the SDR's policies and procedures 
regarding its safeguarding of data and operational reliability, as 
described in Rule 13n-6, (4) a description of the SDR's policies and 
procedures reasonably designed to protect the privacy of any and all 
SBS transaction information that the SDR receives from an SBS dealer, 
counterparty, or any registered entity, as described in Rule 13n-
9(b)(1), (5) a description of the SDR's policies and procedures 
regarding its non-commercial and/or commercial use of the SBS 
transaction information that it receives from a market participant, any 
registered entity, or any other person, (6) a description of the SDR's 
dispute resolution procedures involving market participants, as 
described in Rule 13n-5(b)(6), (7) a description of all the SDR's 
services, including any ancillary services, (8) the SDR's updated 
schedule of any dues; unbundled prices, rates, or other fees for all of 
its services, including any ancillary services; any discounts or 
rebates offered; and the criteria to benefit from such discounts or 
rebates, and (9) a description of the SDR's governance 
arrangements.\928\
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    \926\ Rule 13n-10 is being promulgated under Exchange Act 
Sections 13(n)(3), 13(n)(7)(D)(i), and 13(n)(9). See 15 U.S.C. 
78m(n)(3), 78m(n)(7)(D)(i), and 78m(n)(9).
    \927\ See supra note 583 (defining ``market participant'').
    \928\ Rule 13n-10(b).
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    As stated in the Proposing Release, these disclosure requirements 
are intended to promote competition and foster transparency regarding 
SDRs' services by enabling market participants to identify the range of 
services that each SDR offers and to evaluate the risks and costs 
associated with using such services.\929\ The Commission also believes 
that transparency regarding SDRs' services is particularly important in 
light of the complexity of OTC derivatives products and their markets, 
and that greater service transparency could improve market 
participants' confidence in an SDR and result in greater use of the 
SDR, which would ultimately increase market efficiency.
---------------------------------------------------------------------------

    \929\ Proposing Release, 75 FR at 77340, supra note 2. See also 
Barnard, supra note 19 (believing that the disclosure requirement in 
Rule 13n-10(b)(8) would formalize ``the market practice and ensure 
that informed decisions were being made'').
---------------------------------------------------------------------------

J. Chief Compliance Officer of Each SDR; Compliance Reports and 
Financial Reports (Rule 13n-11)

    Proposed Rule 13n-11 set forth the requirements for an SDR's CCO, 
annual compliance reports, and financial reports. The Commission is 
adopting the rule substantially as proposed with changes in response to 
comments.
1. In General (Rule 13n-11(a))
a. Proposed Rule
    To implement the statutory requirement for each SDR to designate an 
individual to serve as a CCO,\930\ the Commission proposed Rule 13n-
11(a), which would require each SDR to identify on Form SDR a person 
who has been designated by the board to serve as a CCO of the SDR. In 
addition, to promote the independence and effectiveness of the CCO, the 
proposed rule would require that the compensation and removal of the 
CCO be approved by a majority of the SDR's board.\931\
---------------------------------------------------------------------------

    \930\ See Exchange Act Section 13(n)(6)(A), 15 U.S.C. 
78m(n)(6)(A).
    \931\ Proposed Rule 13n-11(a).
---------------------------------------------------------------------------

b. Comments on the Proposed Rule
    Two commenters submitted comments relating to this proposed 
rule.\932\ Specifically, one commenter agreed that ``[w]ith respect to 
compensation and termination of the CCO, the Proposed Rules 
appropriately assign authority over those matters to the board, rather 
than management,'' but believed that ``[t]he rules should go one step 
further and confer that authority upon the independent board members.'' 
\933\ Additionally, the commenter suggested that ``the [SDR Rules] 
should preclude the General Counsel or a member of that office from 
serving as CCO, since those attorneys owe a duty of loyalty to the SDR 
itself that may not be compatible with the watchdog function of the 
CCO.'' \934\ The commenter also suggested ``[c]ompetency standards to 
ensure that CCOs have the background and skills necessary to fulfill 
their responsibilities.'' \935\ The commenter further suggested 
requiring a group of affiliated or controlled entities to appoint the 
CCO.\936\
---------------------------------------------------------------------------

    \932\ See Better Markets 1, supra note 19; Barnard, supra note 
19; see also Better Markets 3, supra note 19.
    \933\ Better Markets 1, supra note 19 (emphasis in the 
original); see also Better Markets 3 supra note 19 (suggesting 
``[t]he vesting of authority in the independent board members to 
oversee the hiring, compensation, and termination of the CCO'').
    \934\ Better Markets 1, supra note 19.
    \935\ Better Markets 3, supra note 19.
    \936\ Better Markets 3, supra note 19.
---------------------------------------------------------------------------

    Another commenter fully supported the intent of proposed Rule 13n-
11, but also suggested that the Commission ``restrict the CCO from 
serving as the General Counsel or other attorney within the legal 
department of the SDR.'' \937\ The commenter stated that the CCO's 
remuneration must be designed so as to avoid potential conflicts of 
interest with his compliance role.\938\ The commenter further suggested 
that the Commission amend the rule so that ``the authority and sole 
responsibility to appoint or remove the CCO, or to materially change 
its duties and responsibilities[ ] only vests with the independent 
public directors or `Independent Perspective' . . . and not the full 
board.'' \939\
---------------------------------------------------------------------------

    \937\ Barnard, supra note 19 (``[T]he CCO should have a single 
compliance role and no other competing role or responsibility that 
could create conflicts of interest or threaten [his] independence . 
. . .'').
    \938\ Barnard, supra note 19.
    \939\ Barnard, supra note 19 (believing that the suggested 
amendment would help ensure the CCO's independence and possibly 
mitigate the Commission's need to promulgate additional measures to 
adequately protect CCOs from undue influence or coercion).

---------------------------------------------------------------------------

[[Page 14507]]

c. Final Rule
    After considering the comments, the Commission is adopting Rule 
13n-11(a) as proposed, with one modification. Rule 13n-11(a) requires 
that (1) each SDR identify on Form SDR a person who has been designated 
by the board to serve as a CCO of the SDR and (2) the compensation and 
removal of the CCO be approved by a majority of the SDR's board.\940\ 
The Commission is revising the rule from the proposal to require the 
appointment of the CCO to be approved by the majority of the SDR's 
board.\941\
---------------------------------------------------------------------------

    \940\ See Barnard, supra note 19 (supporting the CCO's 
compensation to be specifically designed to avoid potential 
conflicts of interest with the CCO's compliance role).
    \941\ The Commission is also revising the heading of Rule 13n-11 
from the proposal to describe the scope of the rule more accurately. 
The proposed heading was ``Designation of chief compliance officer 
of security-based swap data repository.'' As revised, the heading is 
broader: ``Chief compliance officer of security-based swap data 
repository; compliance reports and financial reports.''
---------------------------------------------------------------------------

    In the Proposing Release, the Commission asked whether there are 
other measures that would further enhance a CCO's independence and 
effectiveness that should be prescribed in a rule.\942\ Two commenters 
suggested that the Commission require the CCO's appointment, removal, 
or compensation be approved by independent board members or 
``independent public directors.'' \943\ The Commission has determined 
not to adopt such a requirement at this time because, as discussed in 
Section VI.D.3.b.iii of this release, the Commission is not requiring 
SDRs to have independent directors.\944\ Based in part on these 
comments, however, the Commission believes that requiring the 
appointment of the CCO to be approved by a majority of the SDR's board 
would be another measure to enhance the CCO's independence and 
effectiveness. The Commission notes that the requirement that the 
appointment of the CCO must be approved by a majority of the SDR's 
board is consistent with the requirement that the designation of CCOs 
at investment companies must be approved by the board of 
directors.\945\ One commenter suggested requiring a group of affiliated 
or controlled entities to appoint the CCO.\946\ The Commission believes 
that this suggestion contravenes an SDR's statutory requirement to 
designate the CCO.\947\
---------------------------------------------------------------------------

    \942\ Proposing Release, 75 FR at 77341, supra note 2.
    \943\ See Better Markets 1, supra note 19 (discussing 
independent board members); Barnard, supra note 19 (discussing 
independent public directors); see also Better Markets 3, supra note 
19.
    \944\ To the extent that an SDR has independent board members or 
independent public directors, the SDR may want to consider requiring 
the appointment, removal, or compensation of the CCO be approved by 
the majority of independent board members or independent public 
directors in addition to the majority of the board.
    \945\ See Rule 38a-1(a)(4)(i) under the Investment Company Act 
of 1940 (``Investment Company Act''), 17 CFR 270.38a-1(a)(4)(i). The 
Commission also notes that CFTC Rule 49.22(c) requires the 
appointment, compensation, and removal of a CCO to be approved by 
either a swap data repository's board or senior officer. See 17 CFR 
49.22(c).
    \946\ Better Markets 3, supra note 19.
    \947\ See Exchange Act Section 13(n)(6)(A), 15 U.S.C. 
78m(n)(6)(A).
---------------------------------------------------------------------------

    The Commission is concerned that an SDR's commercial interests 
might discourage its CCO from making forthright disclosure to the board 
or senior officer about any compliance failures.\948\ The Commission 
believes that to mitigate this potential conflict of interest, an SDR's 
CCO should be independent from its management so as not to be 
conflicted in reporting or addressing any compliance failures. 
Accordingly, as discussed in Section VI.J.3 below, each CCO of an SDR 
is required to report directly to the board or its senior officer,\949\ 
but only the board is able to approve the CCO's appointment, remove the 
CCO from his or her responsibilities, and approve the CCO's 
compensation.
---------------------------------------------------------------------------

    \948\ See Proposing Release, 75 FR at 77341, supra note 2.
    \949\ See Exchange Act Section 13(n)(6)(B)(i), 15 U.S.C. 
78m(n)(6)(B)(i).
---------------------------------------------------------------------------

    Rule 13n-11(a) is intended to promote a CCO's independence and 
effectiveness. The Commission is not extending the applicability of 
this rule to an SDR's senior officer because the Commission believes 
that this may unnecessarily create conflicts of interest for the CCO, 
particularly if the CCO is subsequently responsible for reviewing the 
senior officer's compliance with the Exchange Act and the rules and 
regulations thereunder.
    In promoting a CCO's independence and effectiveness, the Commission 
does not believe that it is necessary to adopt, as two commenters 
suggested,\950\ a rule prohibiting a CCO from being a member of the 
SDR's legal department or from serving as the SDR's general counsel. To 
the extent that this poses a potential or existing conflict of 
interest, the Commission believes that an SDR's written policies and 
procedures can be designed to adequately identify and mitigate any 
associated costs.\951\
---------------------------------------------------------------------------

    \950\ See Barnard, supra note 19 (suggesting that the Commission 
``restrict the CCO from serving as the General Counsel or other 
attorney within the legal department of the SDR''); Better Markets 
1, supra note 19 (suggesting that ``the [SDR Rules] should preclude 
the General Counsel or a member of that office from serving as CCO, 
since those attorneys owe a duty of loyalty to the SDR itself that 
may not be compatible with the watchdog function of the CCO'').
    \951\ As discussed in Section VI.D.3.c of this release, Rule 
13n-4(c)(3)(i) requires each SDR to establish, maintain, and enforce 
written policies and procedures reasonably designed to identify and 
mitigate potential and existing conflicts of interest in the SDR's 
decision-making process on an ongoing basis.
---------------------------------------------------------------------------

    With respect to one commenter's suggestion that there should be 
``[c]ompetency standards to ensure that CCOs have the background and 
skills necessary to fulfill their responsibilities,'' \952\ the 
Commission notes that while it is not requiring such standards, Form 
SDR requires an SDR to provide a brief account of the CCO's prior 
business experience and business affiliations in the securities 
industry or derivatives industry.\953\ In addition, as discussed above, 
the Commission is adopting Rule 13n-4(c)(2)(iv) to require an SDR to 
establish, maintain, and enforce written policies and procedures 
reasonably designed to ensure that the SDR's senior management and each 
member of the board or committee that has the authority to act on 
behalf of the board possess requisite skills and expertise to fulfill 
their responsibilities in the management and governance of the SDR, 
have a clear understanding of their responsibilities, and exercise 
sound judgment about the SDR's affairs.\954\ To the extent that a CCO 
is considered to be in senior management of an SDR, Rule 13n-
4(c)(2)(iv) applies to the CCO, but even if the CCO is not in senior 
management, the Commission does not believe that it is necessary to 
prescribe competency standards for CCOs by rule, in part because it is 
most likely that an SDR already has business incentives to retain a 
competent CCO in light of the SDR's exposure to liability if its CCO 
fails to comply with his or her statutory and regulatory 
responsibilities. Additionally, the Commission believes that an SDR 
will be in a better position to determine what its own requirements and 
specific needs are with respect to a CCO's background and skills, both 
of which may change as the SBS market evolves.
---------------------------------------------------------------------------

    \952\ See Better Markets 3, supra note 19.
    \953\ See Item 15 of Form SDR.
    \954\ See Section VI.D.3.b of the release discussing Rule 13n-
4(c)(2)(iv).
---------------------------------------------------------------------------

2. Definitions (Rule 13n-11(b))
a. Proposed Rule
    Proposed Rule 13n-11(b) defined the following terms: ``affiliate,'' 
``board,'' ``director,'' ``EDGAR Filer Manual,'' ``material change,'' 
``material compliance matter,'' and ``tag.''

[[Page 14508]]

b. Comments on the Proposed Rule
    The Commission received no comments relating to the proposed 
definitions.
c. Final Rule
    The Commission is adopting Rule 13n 11(b) substantially as 
proposed, with several modifications. Specifically, the Commission is 
adopting the definitions of ``board,'' ``director,'' ``EDGAR Filer 
Manual,'' ``material change,'' and ``material compliance matter'' as 
proposed. However, the Commission is not adopting the definition of 
``affiliate'' because the term is not used in the final rule. To 
conform with adopted Rule 13n-11(f), as discussed below, the Commission 
is adding the definitions of ``Interactive Data Financial Report'' and 
``official filing,'' both of which have the same meaning as set forth 
in Rule 11 of Regulation S-T, which sets forth the standards for 
electronic filing with the Commission.\955\ For consistency, the 
Commission is revising the definition of ``tag'' (including the term 
``tagged'') from the proposal to have the same meaning as set forth in 
Rule 11 of Regulation S-T.\956\
---------------------------------------------------------------------------

    \955\ See Rules 13n-11(b)(4) and (b)(7). The terms ``Interactive 
Data Financial Report'' and ``official filing'' are used in new Rule 
407 of Regulation S-T, as discussed in Section VI.J.5.c of this 
release.
    \956\ See Rule 13n-11(b)(9).
---------------------------------------------------------------------------

    Moreover, the Commission is adopting the definition of ``senior 
officer'' to mean ``the chief executive officer or other equivalent 
officer.'' \957\ Proposed Rule 13n-11 referenced the ``chief executive 
officer'' in lieu of the statutory references to the ``senior 
officer.'' \958\ As adopted, Rule 13n-11 tracks the statutory 
references to ``senior officer'' and defines ``senior officer'' to 
include an SDR's CEO.
---------------------------------------------------------------------------

    \957\ See Rule 13n-11(b)(8). The term ``senior officer'' is used 
in Rules 13n-1(c)(1) and (c)(3), as discussed in Section VI.J.3 of 
this release. This definition is consistent with the definition 
proposed in the CCO rules for SBS dealers, major SBS participants, 
and clearing agencies. See Business Conduct Standards for Security-
Based Swap Dealers and Major Security-Based Swap Participants, 
Exchange Act Release No. 64766 (June 29, 2011), 76 FR 42396 (July 
18, 2011) (proposing Rule 15Fk-1(e)); Clearing Agency Standards for 
Operations and Governance, Exchange Act Release No. 64017 (Mar. 3, 
2011), 76 FR 14472 (Mar. 16, 2011) (proposing Rule 3Cj-1).
    \958\ See Exchange Act Section 13(n)(6)(B), 15 U.S.C. 
78m(n)(6)(B).
---------------------------------------------------------------------------

3. Enumerated Duties of Chief Compliance Officer (Rule 13n-11(c))
a. Proposed Rule
    Proposed Rule 13n-11(c) incorporated the CCO's duties that are set 
forth in Exchange Act Section 13(n)(6).\959\ Proposed Rule 13n-11(c) 
would require a CCO to (1) report directly to the board or to the SDR's 
CEO, (2) review the SDR's compliance with respect to its statutory and 
regulatory requirements and core principles, (3) in consultation with 
the board or the SDR's CEO, resolve any conflicts of interest that may 
arise, (4) be responsible for administering each policy and procedure 
that is required to be established pursuant to Exchange Act Section 13 
and the rules and regulations thereunder, (5) ensure compliance with 
the Exchange Act and the rules and regulations thereunder relating to 
SBSs, (6) establish procedures for the remediation of noncompliance 
issues identified by the CCO through certain specified means, and (7) 
establish and follow appropriate procedures for the handling, 
management response, remediation, retesting, and closing of 
noncompliance issues.
---------------------------------------------------------------------------

    \959\ See 15 U.S.C. 78m(n)(6).
---------------------------------------------------------------------------

b. Comments on the Proposed Rule
    Two commenters submitted comments relating to this proposed rule, 
expressing differing views.\960\ As discussed below, one commenter 
suggested a more prescriptive approach \961\ while the other suggested 
a less prescriptive approach, but with certain clarifications.\962\
---------------------------------------------------------------------------

    \960\ See Better Markets 1, supra note 19; DTCC 2, supra note 
19; see also Better Markets 2, supra note 19; Better Markets 3, 
supra note 19.
    \961\ See Better Markets 1, supra note 19.
    \962\ See DTCC 2, supra note 19.
---------------------------------------------------------------------------

    Specifically, one commenter suggested that the Commission 
``establish a meaningful role for'' an SDR's CCO.\963\ The commenter 
believed that ``the rules should preclude the [g]eneral [c]ounsel or a 
member of that office from serving as CCO, since those attorneys owe a 
duty of loyalty to the SDR itself that may not be compatible with the 
watchdog function of the CCO.'' \964\ The commenter also believed that 
``the CCO should have a direct reporting line to the independent board 
members and should be required to meet with those independent members 
at least quarterly'' in order for ``independent members of the board to 
become effective partners with the CCO in promoting a culture of 
compliance within the SDR.'' \965\
---------------------------------------------------------------------------

    \963\ Better Markets 2, supra note 19; see also Better Markets 
3, supra note 19 (``Ensuring that market participants have CCOs with 
real authority and autonomy to police a firm from within is one of 
the most efficient and effective tools available to regulators.'').
    \964\ Better Markets 1, supra note 19.
    \965\ Better Markets 1, supra note 19; see also Better Markets 
3, supra note 19 (suggesting requirements that the CCO have direct 
access to the board and the CCO ``meet quarterly with the Audit 
Committee (if there is one or non-management members of the [b]oard 
if there is not), in addition to annual meetings with the board and 
senior management'').
---------------------------------------------------------------------------

    The other commenter believed that as a general matter, ``SDRs 
should have some flexibility to implement the required compliance 
procedures in ways consistent with their structure and business.'' 
\966\ The commenter ``agree[d] with the Commission that a robust 
internal compliance function[, including a CCO,] plays an important 
role in facilitating an SDR's monitoring of, and compliance with, the 
requirements of the Exchange Act (and rules thereunder) applicable to 
SDRs.'' \967\ The commenter also ``fully support[ed] Commission efforts 
to require the highest standards of regulatory compliance at SDRs, and 
believe[d that] requiring each SDR to have a CCO is an effective way to 
ensure compliance.'' \968\
---------------------------------------------------------------------------

    \966\ DTCC 2, supra note 19.
    \967\ DTCC 2, supra note 19.
    \968\ DTCC 2, supra note 19.
---------------------------------------------------------------------------

    The commenter, however, believed that ``some of the enumerated 
responsibilities of [a CCO] require clarification in order to avoid an 
overly broad reading of those duties.'' \969\ Specifically, the 
commenter suggested that the CCO's responsibilities should not, for 
instance, ``be read to encompass responsibilities beyond those 
traditionally understood to be part of a compliance function (i.e., 
those issues that can as a matter of competence, and typically would 
be, handled by a compliance department).'' \970\ The commenter further 
believed that ``the CCO should be responsible for establishing relevant 
compliance procedures, and monitoring compliance with those procedures 
and other applicable legal requirements'' and that ``the CCO should 
also participate in other aspects of the SDR's activities that 
implicate compliance or regulatory issues.'' \971\ The commenter 
believed, however, that ``the CCO cannot be, and should not be, 
required to be responsible for the overall operation of the SDR's 
business.'' \972\ The commenter stated that the Commission ``should 
recognize that oversight of certain aspects of SDR activities are 
principally (and, as a practical matter, need to be) within the purview 
of risk management and operations personnel. Although there may be a 
regulatory component to whether an SDR is meeting its operational 
readiness, service level or data security responsibilities for example, 
oversight of those aspects of the SDR business should remain with

[[Page 14509]]

the relevant business areas, subject of course to oversight by senior 
management and ultimately the board of directors. While a CCO may have 
an important role to play in overall oversight and remediation of any 
problems, the Commission's rules should not be interpreted to impose on 
CCOs responsibility outside of their traditional core competencies.'' 
\973\
---------------------------------------------------------------------------

    \969\ DTCC 2, supra note 19.
    \970\ DTCC 2, supra note 19.
    \971\ DTCC 2, supra note 19.
    \972\ DTCC 2, supra note 19.
    \973\ DTCC 2, supra note 19.
---------------------------------------------------------------------------

    In suggesting that the Commission ``clarify what types of conflict 
of interest should be within the CCO's purview,'' the commenter noted 
that ``[s]ome issues, such as permissibility of dealings with related 
parties or entities, are properly within the CCO's functions. Other 
issues, such as restrictions on ownership and access, may be 
fundamental for the board of directors and senior management to 
address.'' \974\ Additionally, the commenter stated that to the extent 
that the Commission's rule requires consultation with the board or 
senior management, ``some materiality threshold would be appropriate, 
as not every potential conflict of interest that might be addressed by 
a CCO (or his or her subordinates) would need such consultation.'' 
\975\
---------------------------------------------------------------------------

    \974\ DTCC 2, supra note 19.
    \975\ DTCC 2, supra note 19.
---------------------------------------------------------------------------

    The commenter further suggested that the Commission ``clarify that 
the CCO's specific responsibilities related to conflicts are limited to 
compliance with the provisions of Exchange Act Section 13(n) and the 
final rules thereunder as they relate to the SBS operations of an 
SDR.'' \976\ The commenter believed that ``[t]he Commission should not 
mandate compliance responsibilities with respect to other regulatory 
requirements to which an SDR may be subject; those responsibilities 
should be specified by the regulator imposing the other requirements.'' 
\977\
---------------------------------------------------------------------------

    \976\ DTCC 2, supra note 19.
    \977\ DTCC 2, supra note 19.
---------------------------------------------------------------------------

c. Final Rule
    After considering the comments, the Commission is adopting Rule 
13n-11(c) as proposed, with modifications. The final rule incorporates 
the duties of an SDR's CCO that are set forth in Exchange Act Section 
13(n)(6) \978\ and imposes additional requirements. Specifically, each 
CCO is required to comply with the following requirements: (1) Report 
directly to the board \979\ or to the SDR's senior officer,\980\ (2) 
review the compliance of the SDR with respect to the requirements and 
core principles described in Exchange Act Section 13(n) and the rules 
and regulations thereunder, (3) in consultation with the board or the 
SDR's senior officer,\981\ take reasonable steps to resolve any 
material conflicts of interest that may arise, (4) be responsible for 
administering each policy and procedure that is required to be 
established pursuant to Exchange Act Section 13 and the rules and 
regulations thereunder, (5) take reasonable steps to ensure compliance 
with the Exchange Act and the rules and regulations thereunder relating 
to SBSs, including each rule prescribed by the Commission under 
Exchange Act Section 13, (6) establish procedures for the remediation 
of noncompliance issues identified by the CCO through any (a) 
compliance office review, (b) look-back, (c) internal or external audit 
finding, (d) self-reported error, or (e) validated complaint, and (7) 
establish and follow appropriate procedures for the handling, 
management response, remediation, retesting, and closing of 
noncompliance issues. Consistent with one commenter's suggestion, the 
Commission believes that Rule 13n-11(c) establishes a meaningful role 
for CCOs.\982\ However, because the Commission is not requiring SDRs to 
have independent directors, Rule 13n-11(c) does not, as the commenter 
suggested,\983\ require a CCO to report directly to independent 
directors or meet with independent directors at least quarterly. To 
provide CCOs with greater flexibility in fulfilling their duties, the 
Commission is also not requiring, as the commenter suggested, CCOs to 
``meet quarterly with the Audit Committee (if there is one or non-
management members of the [b]oard if there is not), in addition to 
annual meetings with the board and senior management.'' \984\ The 
Commission expects CCOs to meet with the board, the senior officer, and 
others, whenever necessary to fulfill their duties.
---------------------------------------------------------------------------

    \978\ See 15 U.S.C. 78m(n)(6).
    \979\ See supra note 549 (defining ``board'').
    \980\ The Commission is amending proposed Rule 13n-11(c)(1) by 
replacing ``chief executive officer'' with ``senior officer'' to 
track the language of Exchange Act Section 13(n)(6)(B)(i)), 15 
U.S.C. 78m(n)(6)(B)(i).
    \981\ The Commission is amending proposed Rule 13n-11(c)(3) by 
replacing ``chief executive officer'' with ``senior officer'' to 
track the language of Exchange Act Section 13(n)(6)(B)(i)), 15 
U.S.C. 78m(n)(6)(B)(i).
    \982\ See Better Markets 2, supra note 19; see also Better 
Markets 3, supra note 19 (``Ensuring that market participants have 
CCOs with real authority and autonomy to police a firm from within 
is one of the most efficient and effective tools available to 
regulators.'').
    \983\ See Better Markets 1, supra note 19.
    \984\ See Better Markets 3, supra note 19.
---------------------------------------------------------------------------

    The Commission agrees with one commenter that, in general, SDRs 
should have flexibility to implement the required compliance procedures 
in ways consistent with their structure and business.\985\ In response 
to a commenter's request for clarification,\986\ the Commission notes 
that generally, an SDR's CCO is not responsible for the SDR's overall 
or day-to-day business operation, for example, with respect to risk 
management and operations; nor is the CCO responsible for the decisions 
and actions of every director, officer, and employee of the SDR. 
Instead, the CCO's statutory and regulatory responsibilities generally 
entail, among other things, administering the SDR's policies and 
procedures required under Exchange Act Section 13 and the rules and 
regulations thereunder, keeping the SDR's board or senior officer 
apprised of significant compliance issues, advising the board or senior 
officer of needed changes in the SDR's policies and procedures, 
generally overseeing compliance with the Exchange Act and the rules and 
regulations thereunder, as well as remediating noncompliance at the 
SDR. If, in the course of administering policies and procedures 
required under Exchange Act Section 13 and the rules and regulations 
thereunder, the CCO believes that operations or risk management 
personnel are not in compliance with such policies and procedures or 
the Exchange Act and the rules and regulations thereunder relating to 
SBSs (e.g., with Rule 13n-9, which prohibits the misappropriation or 
misuse of material nonpublic information by employees), then the CCO is 
responsible for establishing and following procedures for the handling, 
management response, remediation, retesting, and closing of 
noncompliance issues.
---------------------------------------------------------------------------

    \985\ See DTCC 2, supra note 19.
    \986\ See DTCC 2, supra note 19.
---------------------------------------------------------------------------

    In the Proposing Release, the Commission stated that ``a CCO should 
review, on an ongoing basis, the SDR's service levels, costs, pricing, 
and operational reliability, with the view to preventing 
anticompetitive practices and discrimination, and encouraging 
innovation and the use of the SDR.'' \987\ With respect to one 
commenter's remarks regarding the scope of the CCO's 
responsibilities,\988\ the Commission continues to believe that the 
CCO's administration of an SDR's policies and procedures should 
include, among other things, a review of the SDR's service levels, 
costs, pricing, and operational reliability and a

[[Page 14510]]

determination that such service levels, costs, pricing, and operational 
reliability are reasonable.\989\ The Commission recognizes, however, 
that oversight of certain aspects of an SDR's activities may overlap 
with or be within the purview of the SDR's risk management and 
operations personnel or other business personnel.\990\ In that 
situation, the CCO may need to consult with business personnel to 
assess whether they have an appropriate justification for the 
reasonableness of such service levels, costs, pricing, and operational 
reliability.
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    \987\ Proposing Release, 75 FR at 77342, supra note 2.
    \988\ See DTCC 2, supra note 19 (stating that ``the CCO cannot 
be, and should not be, required to be responsible for the overall 
operation of the SDR's business.'').
    \989\ See Section VI.D.3.a of this release discussing an SDR's 
obligation to ensure that its fees are fair and reasonable and not 
unreasonably discriminatory.
    \990\ See DTCC 2, supra note 19 (stating that the Commission 
``should recognize that oversight of certain aspects of SDR 
activities are principally (and, as a practical matter, need to be) 
within the purview of risk management and operations personnel'' and 
that ``[a]lthough there may be a regulatory component to whether an 
SDR is meeting its operational readiness, service level or data 
security responsibilities for example, oversight of those aspects of 
the SDR business should remain with the relevant business areas, 
subject of course to oversight by senior management and ultimately 
the board of directors'').
---------------------------------------------------------------------------

    As the Commission also noted in the Proposing Release, an SDR is 
not required to hire an additional person to serve as its CCO.\991\ 
Instead, an SDR can designate an individual already employed with the 
SDR as its CCO. Given the critical role that a CCO is intended to play 
in ensuring an SDR's compliance with the Exchange Act and the rules and 
regulations thereunder,\992\ the Commission believes that an SDR's CCO 
should be competent and knowledgeable regarding the federal securities 
laws, should be empowered with full responsibility and authority to 
develop and enforce appropriate policies and procedures for the SDR, as 
necessary, and should be responsible for monitoring compliance with the 
SDR's policies and procedures adopted pursuant to rules under the 
Exchange Act. However, the Commission will not substantively review a 
CCO's competency, and is not requiring any particular level of 
competency or business experience for a CCO.
---------------------------------------------------------------------------

    \991\ Proposing Release, 75 FR at 77341, supra note 2.
    \992\ See Rules 13n-11(c)(4) and (5).
---------------------------------------------------------------------------

    To address a concern raised by one commenter,\993\ the Commission 
is revising Rule 13n-11(c)(3) from the proposal to clarify that the CCO 
must, in consultation with the board or the senior officer of the SDR, 
take reasonable steps to resolve any material conflicts of interest (as 
opposed to all conflicts of interest) that may arise.\994\ Recognizing 
that a CCO may not be in a position to resolve certain material 
conflicts of interest, as suggested by the commenter,\995\ the 
Commission is revising the rule from the proposal to specify that CCOs 
must take reasonable steps to resolve such conflicts, which is intended 
to clarify that CCOs are not required to actually resolve such 
conflicts. These conflicts of interest may include, for example, 
general conflicts of interest identified in the Commission's Rule 13n-
4(c)(3), as discussed in Section VI.D.3.c of this release.
---------------------------------------------------------------------------

    \993\ See DTCC 2, supra note 19 (noting that some conflicts of 
interest are within a CCO's purview while other issues (e.g., 
restrictions on ownership and access) may be fundamental for an 
SDR's board or senior management to address and that a CCO would not 
need to consult with the board every potential conflict of interest 
that might be addressed by a CCO).
    \994\ See Rule 13n-11(c)(3).
    \995\ See DTCC 2, supra note 19.
---------------------------------------------------------------------------

    Recognizing that a CCO cannot guarantee an SDR's statutory 
compliance, the Commission is also revising Rule 13n-11(c)(5) from the 
proposal to clarify that CCOs are not required to ensure compliance 
with the relevant Exchange Act provisions and the rules and regulations 
thereunder relating to SBSs, but rather to take reasonable steps to 
ensure such compliance. With respect to the comment that the CCO's 
specific responsibilities related to conflicts should be limited to 
compliance with the provisions of Exchange Act Section 13(n) and the 
final rules thereunder as they relate to the SBS operations of an 
SDR,\996\ the Commission notes that the CCO's responsibilities go 
beyond the provisions of Exchange Act Section 13(n), as required by the 
Dodd-Frank Act.\997\ For example, the CCO should take reasonable steps 
to ensure compliance with Exchange Act Section 10(b)'s antifraud 
requirements.\998\ However, the CCO is required to take only reasonable 
steps to ensure compliance with relevant Exchange Act provisions and 
the rules and regulations thereunder ``relating to'' SBSs.
---------------------------------------------------------------------------

    \996\ See DTCC 2, supra note 19.
    \997\ See Exchange Act Section 13(n)(6)(B)(v), 15 U.S.C. 
78m(n)(6)(B)(v), as added by Dodd-Frank Act Section 763(i) 
(requiring an SDR's CCO to ``ensure compliance with [the Exchange 
Act] (including regulations) relating to agreements, contracts, or 
transactions, including each rule prescribed by the Commission under 
[Section 13(n)]'').
    \998\ 15 U.S.C. 78j(b).
---------------------------------------------------------------------------

4. Compliance Reports (Rules 13n-11(d) and 13n-11(e))
a. Proposed Rule
    An SDR's CCO is required, under Exchange Act Section 
13(n)(6)(C)(i), to annually prepare and sign a report that contains a 
description of the SDR's compliance with respect to the Exchange Act 
and the rules and regulations thereunder and each policy and procedure 
of the SDR (including the SDR's code of ethics and conflicts of 
interest policies).\999\ The Commission proposed Rule 13n-11(d)(1) to 
incorporate this requirement and to set forth minimum requirements for 
what must be included in each annual compliance report.
---------------------------------------------------------------------------

    \999\ See 15 U.S.C. 78m(n)(6)(C)(i).
---------------------------------------------------------------------------

    Under proposed Rule 13n-11(d)(2), an SDR would be required to file 
with the Commission a financial report, as discussed further in Section 
VI.J.5 of this release, along with a compliance report, which must 
include a certification that, under penalty of law, the compliance 
report is accurate and complete.\1000\ The compliance report would also 
be required to be filed in a tagged data format in accordance with 
instructions contained in the EDGAR Filer Manual, as described in Rule 
301 of Regulation S-T.\1001\
---------------------------------------------------------------------------

    \1000\ See proposed Rule 13n-11(d)(2).
    \1001\ See id.; see also 17 CFR 232.301.
---------------------------------------------------------------------------

    In addition, proposed Rule 13n-11(e) would require a CCO to submit 
the annual compliance report to an SDR's board for its review prior to 
the submission of the report to the Commission under proposed Rule 13n-
11(d)(2).
b. Comments on the Proposed Rule
    Two commenters submitted comments relating to this proposed 
rule.\1002\ One commenter believed that an annual compliance report 
``should be limited to compliance with the requirements of the Exchange 
Act and the policies and procedures of the SDR that relate to its 
activities as such with respect to SBSs (as opposed to policies and 
procedures that may address other regulatory requirements).'' \1003\ 
Additionally, the commenter did ``not believe [that] it is appropriate 
to require the report to include a discussion of recommendations for 
material changes to the policies and procedures of the SDR as a result 
of the annual review (as well as the rationale for such recommendations 
and whether the policies or procedures will be modified as a result of 
such recommendations).'' \1004\ The commenter believed that ``the 
inclusion of a description of any material changes to the SDR's 
policies and procedures, and any material compliance matters identified 
both since the date of the

[[Page 14511]]

preceding compliance report, provide comprehensive information,'' and 
that ``requiring the CCO to detail every recommendation (whether or not 
accepted) may chill open communication between the CCO and other SDR 
management.'' \1005\ The commenter ``firmly believe[d that] the annual 
report should be kept confidential by the Commission'' and explained 
that ``[g]iven the level of disclosure expected to be required . . . 
the report will likely contain confidential and proprietary business 
information.'' \1006\
---------------------------------------------------------------------------

    \1002\ See DTCC 2, supra note 19; Better Markets 1, supra note 
19; see also Better Markets 3, supra note 19.
    \1003\ DTCC 2, supra note 19.
    \1004\ DTCC 2, supra note 19.
    \1005\ DTCC 2, supra note 19.
    \1006\ DTCC 2, supra note 19.
---------------------------------------------------------------------------

    The other commenter recommended that ``the review and reporting 
should be more frequent, at least semiannually or quarterly,'' and that 
``the rules should expressly prohibit the board of an SDR from 
requiring the CCO to make any changes to the compliance reports.'' 
\1007\ The commenter suggested that ``[a]ny edits or supplements to the 
report sought by the board may be submitted to the Commission along 
with--but not as part of--the CCO's report.'' \1008\
---------------------------------------------------------------------------

    \1007\ Better Markets 1, supra note 19; see also Better Markets 
3, supra note 19 (suggesting that the Commission require ``the board 
to review and comment on, but not edit, the CCO's annual report to 
the Commission'').
    \1008\ Better Markets 1, supra note 19.
---------------------------------------------------------------------------

c. Final Rule
    After considering the comments, the Commission is adopting Rules 
13n-11(d) and 13n-11(e) as proposed, each with two modifications.\1009\ 
Specifically, Rule 13n-11(d)(1) requires that an SDR's CCO annually 
prepare and sign a report that contains a description of the SDR's 
compliance with respect to the Exchange Act and the rules and 
regulations thereunder and each of the SDR's policies and procedures 
(including the SDR's code of ethics and conflicts of interest 
policies). One commenter suggested that the Commission limit the 
applicability of this rule to an SDR's activities relating to SBSs, but 
did not provide a rationale for such a limit.\1010\ The Commission does 
not believe that there is a rationale for such a limit and has 
concluded that it is appropriate to adopt this rule, which essentially 
reiterates the statutory language.\1011\ In addition, compliance issues 
at an SDR that are not related to SBSs may impact the SDR as a whole, 
of which the Commission should be kept apprised.
---------------------------------------------------------------------------

    \1009\ To conform with Rule 13n-11's heading, as adopted, the 
Commission is revising the heading of paragraph (d) of the rule to 
specify that the paragraph pertains to ``[c]ompliance reports'' 
rather than ``[a]nnual reports.'' See supra note 941.
    \1010\ See DTCC 2, supra note 19.
    \1011\ See Exchange Act Section 13(n)(6)(C)(i), 15 U.S.C. 
78m(n)(6)(C)(i).
---------------------------------------------------------------------------

    Additionally, Rule 13n-11(d)(1) requires each annual compliance 
report to contain, at a minimum, a description of: (1) The SDR's 
enforcement of its policies and procedures, (2) any material changes 
\1012\ to the policies and procedures since the date of the preceding 
compliance report, (3) any recommendation for material changes to the 
policies and procedures as a result of the annual review, the rationale 
for such recommendation, and whether such policies and procedures were 
or will be modified by the SDR to incorporate such recommendation, and 
(4) any material compliance matters \1013\ identified since the date of 
the preceding compliance report. These minimum disclosure requirements 
are substantially similar to the Commission's requirements for annual 
reports filed by CCOs of investment companies.\1014\ Further, these 
disclosure requirements will provide important information to 
Commission staff regarding any material compliance issues at an SDR and 
material changes or recommendations for material changes to the SDR's 
policies and procedures. Among other things, such information will be 
useful to assist Commission staff in monitoring compliance by SDRs with 
the relevant provisions of the Exchange Act and the rules and 
regulations thereunder. Thus, the Commission believes that the minimum 
disclosure requirements are appropriate and disagrees with one 
commenter's remark that it is not appropriate to require a compliance 
report to include a description of any recommendation for material 
changes to an SDR's policies and procedures as a result of an annual 
review, the rationale for such recommendation, and whether such 
policies and procedures were or will be modified by the SDR to 
incorporate such recommendation.\1015\
---------------------------------------------------------------------------

    \1012\ The term ``material change'' is defined as a change that 
a CCO would reasonably need to know in order to oversee compliance 
of the SDR. See Rule 13n-11(b)(5).
    \1013\ The term ``material compliance matter'' is defined as any 
compliance matter that the board would reasonably need to know to 
oversee the compliance of the SDR and that involves, without 
limitation: (1) A violation of the federal securities laws by the 
SDR, its officers, directors, employees, or agents; (2) a violation 
of the policies and procedures of the SDR, by the SDR, its officers, 
directors, employees, or agents; or (3) a weakness in the design or 
implementation of the SDR's policies and procedures. See Rule 13n-
11(b)(6).
    \1014\ See Investment Company Act Rule 38a-1(a)(4)(iii), 17 CFR 
270.38a-1(a)(4)(iii).
    \1015\ See DTCC 2, supra note 19.
---------------------------------------------------------------------------

    To address a concern raised by the same commenter,\1016\ the 
Commission notes that it is not ``requiring the CCO to detail every 
recommendation.'' \1017\ The rule is limited to ``recommendations for 
material changes.'' \1018\ The Commission believes that limiting the 
description required in an annual compliance report to recommendations 
for material changes to the SDR's policies and procedures appropriately 
addresses the commenter's concern. The Commission notes, however, that 
individual compliance matters may not be material when viewed in 
isolation, but may collectively suggest a material compliance matter. 
In addition, the Commission recognizes that this rule may ``chill open 
communication between the CCO and other SDR management,'' as one 
commenter suggested,\1019\ but the Commission believes that the 
usefulness of the information in an SDR's annual compliance reports to 
the Commission, as discussed above, would justify any potential 
chilling of communications.
---------------------------------------------------------------------------

    \1016\ See DTCC 2, supra note 19 (stating that ``requiring the 
CCO to detail every recommendation (whether or not accepted) may 
chill open communication between the CCO and other SDR 
management'').
    \1017\ But see DTCC 2, supra note 19 (believing that it is not 
appropriate to require compliance reports to include a discussion of 
recommendations for material changes to an SDR's policies and 
procedures).
    \1018\ Rule 13n-11(d)(1)(iii).
    \1019\ See DTCC 2, supra note 19.
---------------------------------------------------------------------------

    Consistent with the relevant statutory provision,\1020\ the rule 
requires annual compliance reports. The Commission does not believe 
that it is necessary to require more frequent reports, as one commenter 
suggested, in order to assess an SDR's financial stability.\1021\ CCOs, 
however, should consider the need for interim reviews of compliance at 
SDRs in response to significant compliance events, changes in business 
arrangements, and regulatory developments. For example, if there is an 
organizational restructuring of an SDR, then its CCO should consider 
evaluating whether its policies and procedures are adequate to guard 
against potential conflicts of interest. Additionally, if a new rule 
regarding SDRs is adopted by the Commission, then a CCO would need to 
take reasonable steps to ensure compliance with the rule, including 
reviewing the SDR's policies and procedures.
---------------------------------------------------------------------------

    \1020\ See Exchange Act Section 13(n)(6)(C)(i), 15 U.S.C. 
78m(n)(6)(C)(i).
    \1021\ See Better Markets 1, supra note 19.
---------------------------------------------------------------------------

    Under Rule 13n-11(d)(2), an SDR is required to file with the 
Commission a financial report along with the annual

[[Page 14512]]

compliance report, and the compliance report must include a 
certification by the CCO that, to the best of his or her knowledge and 
reasonable belief,\1022\ and under penalty of law, the compliance 
report is accurate and complete. The compliance report is also required 
to be filed in a tagged \1023\ data format in accordance with 
instructions contained in the EDGAR Filer Manual,\1024\ as described in 
Rule 301 of Regulation S-T.\1025\
---------------------------------------------------------------------------

    \1022\ The Commission is revising Rule 13n-11(d)(2) from the 
proposal to clarify that the certification must be made by the CCO 
and permit the certification to be based on the best of the CCO's 
knowledge and reasonable belief. Accord General Rule of Practice 
153(b)(1)(ii), 17 CFR 201.153(b)(1)(ii) (requiring an attorney who 
signs a filing with the Commission to certify that ``to the best of 
his or her knowledge, information, and belief, formed after 
reasonable inquiry, the filing is well grounded in fact and is 
warranted by existing law or a good faith argument for the 
extension, modification, or reversal of existing law'').
    \1023\ See supra note 294 (defining ``tag'' (including the term 
``tagged'')).
    \1024\ See supra note 294 (defining ``EDGAR Filer Manual'').
    \1025\ Rule 13n-11(d)(2); see also 17 CFR 232.301. The 
information in each compliance report will be tagged using an 
appropriate machine-readable, tagged data format to enable the 
efficient analysis and review of the information contained in the 
report.
---------------------------------------------------------------------------

    Rule 13n-11(e) requires a CCO to submit the annual compliance 
report to the board for its review prior to the filing of the report 
with the Commission under Rule 13n-11(d)(2).\1026\ Although the rule 
requires the compliance report to be submitted to the board once a 
year, a CCO should promptly bring serious compliance issues to the 
board's attention rather than wait until an annual compliance report is 
prepared. One commenter suggested that the Commission permit an SDR's 
board to submit edits or supplements to a CCO's annual compliance 
report, but not as part of the report.\1027\ Rule 13n-11 does not 
prohibit a CCO from editing an annual compliance report to reflect the 
board's comments because the Commission believes that the CCO and the 
board should be working toward the same compliance goals and that 
prohibiting the CCO from taking the board's edits could create an 
adversarial atmosphere between them. As discussed above, however, an 
SDR could, pursuant to the conflicts of interest requirements set forth 
in Rule 13n-4(c)(3), consider prohibiting a board from requiring the 
CCO to make any changes to the report.\1028\
---------------------------------------------------------------------------

    \1026\ The Commission is revising Rule 13n-11(e) from the 
proposal to refer to the ``submission'' of the annual compliance 
report ``to'' the Commission as the ``filing'' of the report 
``with'' the Commission. The Commission believes that using the term 
``filing'' is more precise than the term ``submission'' in this 
context.
    \1027\ Better Markets 1, supra note 19.
    \1028\ Accord Better Markets 3, supra note 19 (suggesting that 
the Commission require ``the board to review and comment on, but not 
edit, the CCO's annual report to the Commission'').
---------------------------------------------------------------------------

    One commenter suggested that the Commission keep the annual 
compliance report confidential.\1029\ The Commission is not providing, 
by rule, that the annual compliance reports are automatically granted 
confidential treatment, but an SDR may seek confidential treatment 
pursuant to Exchange Act Rule 24b-2. This approach is consistent with 
how the Commission generally treats the filings that it receives from 
its regulated entities, including exchanges and clearing agencies. The 
Commission may make filed annual compliance reports available on its 
Web site, except for information where confidential treatment is 
requested by the SDR and granted by the Commission.\1030\
---------------------------------------------------------------------------

    \1029\ DTCC 2, supra note 19.
    \1030\ As discussed in Section VI.A.1.c of this release, the 
Commission is adopting technical amendments to Exchange Act Rule 
24b-2 to clarify that the confidential portion of electronic filings 
by SDRs must be filed electronically and to require SDRs to request 
confidential treatment electronically. The Commission is also 
adopting technical amendments to Rule 101 of Regulation S-T to 
provide that, except as otherwise provided, all filings by SDRs, 
including any information with respect to which confidential 
treatment is requested, must be filed electronically.
---------------------------------------------------------------------------

5. Financial Reports and Filing of Reports (Exchange Act Rules 13n-
11(f) and (g)/Rules 11, 305, and 407 of Regulation S-T)
a. Proposed Rule
    Proposed Rule 13n-11(f) set forth a number of requirements relating 
to an SDR's financial report. First, the proposed rule would require 
each financial report to be a complete set of the SDR's financial 
statements that are prepared in conformity with U.S. generally accepted 
accounting principles (``GAAP'') for the SDR's most recent two fiscal 
years.\1031\ Second, the proposed rule would provide that each 
financial report shall be audited in accordance with the standards of 
the Public Company Accounting Oversight Board (``PCAOB'') by a 
registered public accounting firm that is qualified and independent in 
accordance with Rule 2-01 of Regulation S-X.\1032\ Third, each 
financial report would be required to include a report of the 
registered public accounting firm that complies with paragraphs (a) 
through (d) of Rule 2-02 of Regulation S-X.\1033\ Fourth, if an SDR's 
financial statements contain consolidated information of a subsidiary 
of the SDR, then the SDR's financial statements must provide condensed 
financial information as prescribed by the Commission.\1034\ Fifth, an 
SDR's financial reports would be required to be provided in XBRL 
consistent with Rules 405(a)(1), (a)(3), (b), (c), (d), and (e) of 
Regulation S-T.\1035\
---------------------------------------------------------------------------

    \1031\ Proposed Rule 13n-11(f)(1).
    \1032\ Proposed Rule 13n-11(f)(2).
    \1033\ Proposed Rule 13n-11(f)(3).
    \1034\ Proposed Rule 13n-11(f)(4).
    \1035\ Proposed Rule 13n-11(f)(5); see also 17 CFR 232.405 
(imposing content, format, submission, and Web site posting 
requirements for an interactive data file, as defined in Rule 11 of 
Regulation S-T).
---------------------------------------------------------------------------

    Proposed Rule 13n-11(g) would further require that annual 
compliance reports and financial reports be filed within 60 days after 
the end of the fiscal year covered by such reports.
b. Comments on the Proposed Rule
    The Commission received one comment relating to this proposed 
rule.\1036\ Specifically, one commenter suggested harmonizing Rule 13n-
11(f) with the CFTC's rule by eliminating proposed Rule 13n-11(f)(2)'s 
requirement that each financial report be audited in accordance with 
the PCAOB's standards by a registered public accounting firm that is 
qualified and independent unless the SDR is under a separate obligation 
to provide financial statements.\1037\ The commenter believed that 
``[t]his requirement imposes an additional burden for an [SDR] and is 
not justified in relation to the risks that an [SDR] would pose to its 
members.'' \1038\ The commenter further suggested that the Commission 
``consider adopting the CFTC's approach in its final [swap data 
repository] rules, which require [a swap data repository's] financial 
statements be prepared in conformity with . . . GAAP.'' \1039\
---------------------------------------------------------------------------

    \1036\ See DTCC 5, supra note 19.
    \1037\ DTCC 5, supra note 19.
    \1038\ DTCC 5, supra note 19 (noting that ``[u]nlike clearing 
agencies or other entities supervised by the Commission, an [SDR] 
does not have financial exposure to its users or participants that 
would justify the imposition of this requirement'').
    \1039\ DTCC 5, supra note 19.
---------------------------------------------------------------------------

c. Final Rules
    The Commission is adopting proposed Rules 13n-11(f) and (g) with 
modifications.\1040\ Specifically, Rule 13n-11(f)(1) requires each 
financial report to be a complete set of the SDR's financial statements 
that are prepared in conformity with U.S. GAAP for the SDR's most 
recent two fiscal years.\1041\

[[Page 14513]]

Rule 13n-11(f)(2) provides that each financial report must be audited 
in accordance with the PCAOB's standards by a registered public 
accounting firm \1042\ that is qualified and independent in accordance 
with Rule 2-01 of Regulation S-X.\1043\ Pursuant to Rule 13n-11(f)(3), 
each financial report is required to include a report of the registered 
public accounting firm that complies with paragraphs (a) through (d) of 
Rule 2-02 of Regulation S-X.\1044\
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    \1040\ To conform with the headings of Rule 13n-11 and paragraph 
(d) of the rule, as adopted, the Commission is revising the heading 
of paragraph (f) of the rule to refer to ``financial reports'' in a 
plural form.
    \1041\ This is generally consistent with CFTC Rule 49.25(f). See 
17 CFR 49.25(f); DTCC 5, supra note 19 (suggesting that the 
Commission adopt the CFTC's rule requiring a swap data repository's 
financial statements to be prepared in conformity with GAAP).
    \1042\ The term ``registered public accounting firm'' is defined 
in Exchange Act Section 3(a)(59) to have the same meaning as in 
Section 2 of the Sarbanes-Oxley Act of 2002. See 15 U.S.C. 
78c(a)(59). Section 2 of the Sarbanes-Oxley Act defines ``registered 
public accounting firm'' as a public accounting firm registered with 
the PCAOB in accordance with the Sarbanes-Oxley Act.
    \1043\ Rule 13n-11(f)(2).
    \1044\ Rule 13n-11(f)(3).
---------------------------------------------------------------------------

    Rule 13n-11(f)(4) further provides that if an SDR's financial 
statements contain consolidated information of a subsidiary of the SDR, 
then the SDR's financial statements must provide condensed financial 
information, in a financial statement footnote, as to the financial 
position, changes in financial position and results of operations of 
the SDR, as of the same dates and for the same periods for which 
audited consolidated financial statements are required. Such financial 
information need not be presented in greater detail than is required 
for condensed statements by Rules 10-01(a)(2), (3), and (4) of 
Regulation S-X.\1045\ Detailed footnote disclosure that would normally 
be included with complete financial statements may be omitted with the 
exception of disclosures regarding material contingencies, long-term 
obligations, and guarantees.\1046\ Descriptions of significant 
provisions of the SDR's long-term obligations, mandatory dividend or 
redemption requirements of redeemable stocks, and guarantees of the SDR 
shall be provided along with a five-year schedule of maturities of 
debt.\1047\ If the material contingencies, long-term obligations, 
redeemable stock requirements, and guarantees of the SDR have been 
separately disclosed in the consolidated statements, then they need not 
be repeated in this schedule.\1048\ Rule 13n-11(f)(4) is substantially 
similar to Rule 12-04 of Regulation S-X, which pertains to condensed 
financial information of registrants.\1049\
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    \1045\ Rule 13n-11(f)(4).
    \1046\ Id.
    \1047\ Id.
    \1048\ Id.
    \1049\ See 17 CFR 210.12-04.
---------------------------------------------------------------------------

    The Commission is revising proposed Rule 13n-11(f)(5) to require an 
SDR's financial reports to be provided as an official filing \1050\ in 
accordance with the EDGAR Filer Manual and include, as part of the 
official filing, an Interactive Data Financial Report \1051\ filed in 
accordance with new Rule 407 of Regulation S-T. Finally, Rule 13n-11(g) 
provides that annual compliance reports and financial reports filed 
pursuant to Rules 13n-11(d) and (f) are required to be filed within 60 
days after the end of the fiscal year covered by such reports.
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    \1050\ ``Official filing'' has the same meaning as set forth in 
Rule 11 of Regulation S-T. Rule 13n-11(b)(7). Specifically, Rule 11 
of Regulation S-T defines ``official filing'' as ``any filing that 
is received and accepted by the Commission, regardless of filing 
medium and exclusive of header information, tags and any other 
technical information required in an electronic filing; except that 
electronic identification of investment company type and inclusion 
of identifiers for series and class (or contract, in the case of 
separate accounts of insurance companies) as required by [R]ule 313 
of Regulation S-T (Sec.  232.313) are deemed part of the official 
filing.''
    \1051\ ``Interactive Data Financial Report'' has the same 
meaning as set forth in Rule 11 of Regulation S-T. Rule 13n-
11(b)(4). Specifically, the Commission is adding the definition of 
``Interactive Data Financial Report'' in Rule 11 of Regulation S-T 
to mean ``the machine-readable computer code that presents 
information in eXtensible Business Reporting Language (XBRL) 
electronic format pursuant to Sec.  232.407.'' This definition is 
substantially the same as the definition of ``Interactive Data 
File'' in Rule 11 of Regulation S-T. However, Interactive Data 
Financial Reports are not considered Interactive Data Files for 
purposes of Rule 405 or for other rules and regulations that 
reference to Rule 405.
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Rule 407 of Regulation S-T
    In conjunction with Rule 13n-11(f)(5), the Commission is adopting 
new Rule 407 of Regulation S-T, which stems from provisions in proposed 
Rule 13n-11(f). Rule 407 sets forth the requirements equivalent to 
those in Rules 405(a)(1) (except as to the requirement for Web site 
posting), (a)(2) (with modifications), (a)(3), (b), (c), (d)(1), and 
(e)(1) of Regulation S-T. With the exception of Rule 405(a)(2), these 
provisions were cross-referenced in proposed Rule 13n-11(f)(5). Thus, 
substantively, the requirements in new Rule 407 are the same as those 
proposed under proposed Rule 13n-11(f)(5), except as detailed below. 
The text of Rule 407 is also substantially the same as those provisions 
of Rule 405 that pertain to the content, format, and filing 
requirements of XBRL-formatted financial statements. Rule 407, however, 
applies to Interactive Data Financial Reports, whereas Rule 405 applies 
to Interactive Data Files. The Commission is adopting new Rule 407 to 
specify the content, format, and filing requirements for Interactive 
Data Financial Reports.
    Although substantially similar, there are several differences 
between the provisions of Rule 405 that proposed Rule 13n-11(f) cross-
referenced and the provisions of Rule 405 that are included in new Rule 
407. As a general matter, these differences relate to modifications 
from the proposal that address the unique aspects of SDRs and the 
applicability of certain filing requirements to them.
    Upon further consideration, the Commission is not adopting, in Rule 
407, several provisions that the Commission had initially proposed 
applying to SDRs' financial reports. Rule 405(a)(1), which was cross-
referenced in proposed Rule 13n-11(f)(5), requires compliance with the 
Web site posting requirements found elsewhere in Rule 405. As adopted, 
Rule 407 does not have Web site posting requirements because the 
Commission believes that it is not necessary to impose such 
requirements on SDRs in this context. No commenters have suggested 
otherwise. Additionally, this is consistent with the SDR Rules not 
imposing any Web site posting requirements on any other filings by 
SDRs. Rule 407 also does not require an SDR to file its financial 
reports consistent with Rules 405(d)(2), (3), and (4), all of which 
require detailed tagging of footnotes in financial statements. 
Additionally, Rule 407 does not require an SDR to file its financial 
reports consistent with Rule 405(e)(2), which requires detailed tagging 
of financial statement schedules. The Commission believes that block-
text tags of complete footnotes and schedules in an SDR's financial 
reports \1052\ will provide sufficient data structure for the 
Commission to assess and analyze effectively the SDR's financial and 
operational condition. Thus, the Commission believes that it is not 
necessary to impose additional costs on SDRs to provide detailed tagged 
footnotes and schedules in SDRs' financial reports. For these reasons, 
the Commission is not requiring SDRs to detail tag footnotes and 
schedules in their financial reports.
---------------------------------------------------------------------------

    \1052\ See Rules 407(d) and (e) of Regulation S-T (requiring 
complete footnotes and schedules in financial statements to be 
block-text tagged).
---------------------------------------------------------------------------

    In addition, the provisions of Rule 405 that proposed Rule 13n-
11(f) cross-referenced and the provisions of Rule 405 that are included 
in new Rule 407 differ in another way. New Rule 407(a)(2) specifies 
that Rule 407 applies only to SDRs filing financial reports.\1053\

[[Page 14514]]

Specifically, new Rule 407(a)(2) states that an Interactive Data 
Financial Report must be filed only by an electronic filer that is 
required to file an Interactive Data Financial Report pursuant to Rule 
13n-11(f)(5) as an exhibit to a filing of an SDR's financial report. 
Consistent with other documents required to be filed in a tagged data, 
or interactive, format,\1054\ an SDR's financial report is required to 
be filed with the Commission in two formats. The first part of the 
official filing is the Related Official Financial Report Filing,\1055\ 
which is in ASCII or HTML format. The second part of the official 
filing, the Interactive Data Financial Report, is an exhibit to the 
filing, which is required to be in XBRL format.\1056\
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    \1053\ Rule 405(a)(2), on the other hand, applies to other 
electronic filers either required or permitted to submit an 
Interactive Data File.
    \1054\ See Rule 405 of Regulation S-T, 17 CFR 232.405.
    \1055\ The Commission is adding the definition of ``Related 
Official Financial Report Filing'' in Rule 11 of Regulation S-T to 
mean ``the ASCII or HTML format part of the official filing with 
which an Interactive Data Financial Report appears as an exhibit.''
    \1056\ The Commission's proposed Rule 13n-11(f) stated that an 
SDR's financial report must be provided in XBRL consistent with 
certain provisions in Rule 405. As adopted, Rule 407 is intended to 
clarify that it is only the exhibit to the filing of an SDR's 
financial report that must be in XBRL.
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    In addition to adopting new Rule 407 of Regulation S-T, the 
Commission is making a conforming amendment to Rule 305 of Regulation 
S-T to include Interactive Data Financial Reports among the list of 
filings to which Rule 305(a) does not apply.\1057\ Rule 305(a) limits 
the number of characters and positions of tabular or columnar 
information of electronic filings with the Commission. By amending Rule 
305, the Commission is treating Interactive Data Financial Reports in 
the same manner as it treats other XBRL filings in this context.
---------------------------------------------------------------------------

    \1057\ The Commission notes that Rule 305(a) of Regulation S-T 
does not apply to HTML documents. If a Related Official Financial 
Report Filing is filed in HTML format, then Rule 305(a) will not 
apply to that filing.
---------------------------------------------------------------------------

    As mentioned above, Rule 13n-11(g) provides that annual compliance 
reports and financial reports are required to be filed within 60 days 
after the end of the fiscal year covered by such reports. The 
Commission anticipates developing an electronic filing system through 
which an SDR will be able to file annual compliance reports and 
financial reports shortly after the effective date of Rule 13n-11. The 
Commission anticipates that this electronic filing system will be 
through EDGAR and that it will be the same portal for SDRs to file Form 
SDR. If an SDR needs to file an annual compliance report and financial 
report prior to such time as the electronic filing system is available, 
then the SDR may file the reports in paper format with the Commission's 
Division of Trading and Markets at the Commission's principal office in 
Washington, DC. However, doing so does not relieve the SDR from 
compliance with the requirement in Rule 13n-11(d)(2) to file the annual 
compliance report ``in a tagged data format in accordance with the 
instructions contained in the EDGAR Filer Manual,'' or the requirement 
in Rule 13n-11(f)(5) to provide the financial report ``as part of an 
official filing in accordance with the EDGAR Filer Manual.'' Therefore, 
when the Commission's electronic filing system is available, the SDR 
should file electronically any such reports that previously had been 
filed in paper format.
    The Commission is not providing, by rule, that the financial 
reports are automatically granted confidential treatment, but an SDR 
may seek confidential treatment of certain information pursuant to 
Exchange Act Rule 24b-2. As stated above, this approach is consistent 
with how the Commission generally treats the filings that it receives 
from its regulated entities, including exchanges. The Commission may 
make filed financial reports available on its Web site except for 
information where confidential treatment is requested by the SDR and 
granted by the Commission.\1058\
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    \1058\ As discussed in Section VI.A.1.c of this release, the 
Commission is adopting technical amendments to Exchange Act Rule 
24b-2 to clarify that the confidential portion of electronic filings 
by SDRs must be filed electronically and to require SDRs to request 
confidential treatment electronically. The Commission is also 
adopting technical amendments to Rule 101 of Regulation S-T to 
provide that, except as otherwise provided, all filings by SDRs, 
including any information with respect to which confidential 
treatment is requested, must be filed electronically.
---------------------------------------------------------------------------

    The Commission notes that with respect to its other filers, the 
Commission has required, at a minimum, the financial information 
discussed above \1059\ and, in some instances, significantly more 
information.\1060\ Additionally, as discussed in the Proposing Release, 
the Commission believes that it is necessary to obtain an audited 
annual financial report from each registered SDR to understand the 
SDR's financial and operational condition. It is particularly important 
for the Commission to have this understanding because SDRs are intended 
to play a pivotal role in improving the transparency and efficiency of 
the SBS market and because SBSs (whether cleared or uncleared) are 
required to be reported to a registered SDR.\1061\ In its role as 
central recordkeeper, an SDR serves an important role as a source of 
data for regulators to monitor exposures, risks, and compliance with 
the Exchange Act and for market participants to access position 
information. Among other things, the Commission will need to know 
whether an SDR has adequate financial resources to comply with its 
statutory obligations or is having financial difficulties. If an SDR 
ultimately ceases doing business, then it could create a significant 
disruption in the OTC derivatives market.
---------------------------------------------------------------------------

    \1059\ See, e.g., Exchange Act Rule 17a-5(d), 17 CFR 240.17a-
5(d) (requiring broker-dealers to file annually audited financial 
statements); Article 3 of Regulation S-X, 17 CFR 210.3-01 et seq. 
(requiring certain financial statements to be audited by independent 
accountants).
    \1060\ See, e.g., Exchange Act Rule 17a-5(a), 17 CFR 240.17a-
5(a) (requiring broker-dealers to file monthly and quarterly 
Financial and Operational Combined Uniform Single (FOCUS) reports); 
Article 10-01(d) of Regulation S-X, 17 CFR 210.10-01(d) (requiring 
public companies to have their quarterly reports reviewed by 
independent public accountants).
    \1061\ Proposing Release, 75 FR at 77343, supra note 2; see also 
Exchange Act Section 13(m)(1)(G), 15 U.S.C. 78m(m)(1)(G).
---------------------------------------------------------------------------

    With respect to one commenter's suggested deletion of the auditing 
requirement in Rule 13n-11(f)(2), the Commission disagrees with the 
commenter's view that the requirement imposes an additional burden for 
an SDR that is not justified in relation to the risks that an SDR would 
pose to its members.\1062\ The Commission believes that the audit 
requirement will serve as an effective means to assure the reliability 
of the information in an SDR's financial report that is filed with the 
Commission. The Commission also believes that the filing of audited 
financial statements (as opposed to unaudited financial statements) is 
important because it would bolster market participants' confidence in 
the SDR and provide greater credibility to the accuracy of the 
information that the SDR files with the Commission.\1063\ The 
Commission recognizes that because of the audit requirement in Rule 
13n-11(f)(2), the rule may, in some instances, be more costly than the 
CFTC's requirement of quarterly unaudited financial statements.\1064\ 
The Commission believes, however, that the additional burden, where it 
exists, is

[[Page 14515]]

justified by the aforementioned benefits of requiring audited financial 
statements.
---------------------------------------------------------------------------

    \1062\ See DTCC 5, supra note 19.
    \1063\ See Revision of the Commission's Auditor Independence 
Requirements, Securities Act Release No. 7919 (Nov. 21, 2000), 65 FR 
76008 (Dec. 5, 2000) (discussing importance of auditor independence 
and audited financial statements).
    \1064\ See CFTC Rule 49.25, 17 CFR 49.25; DTCC 5, supra note 19 
(suggesting that the Commission ``consider adopting the CFTC's 
approach in its final [swap data repository] rules,'' regarding 
financial statements).
---------------------------------------------------------------------------

6. Additional Rule Regarding Chief Compliance Officer (Rule 13n-11(h))
    In the Proposing Release, the Commission asked whether it should 
prohibit any officers, directors, or employees of an SDR from, directly 
or indirectly, taking any action to coerce, manipulate, mislead, or 
fraudulently influence the SDR's CCO in the performance of his 
responsibilities.\1065\ In response, one commenter recommended that the 
Commission adopt such a prohibition.\1066\ After considering the 
commenter's recommendation, the Commission has decided to adopt Rule 
13n-11(h), which states that ``[n]o officer, director, or employee of a 
security-based swap data repository may directly or indirectly take any 
action to coerce, manipulate, mislead, or fraudulently influence the 
security-based swap data repository's chief compliance officer in the 
performance of his or her duties under [Rule 13n-11].'' This rule is 
intended to advance the goals of the statute's requirements by 
preventing others at the SDR from seeking to improperly affect the 
SDR's CCO in the performance of his or her responsibilities. This rule 
is also intended to promote the independence of an SDR's CCO while 
maintaining the CCO's effectiveness by mitigating the potential 
conflicts of interest between the CCO and the SDR's officers, 
directors, and employees.
---------------------------------------------------------------------------

    \1065\ Proposing Release, 75 FR at 77341, supra note 2.
    \1066\ Better Markets 1, supra note 19; see also Better Markets 
3, supra note 19 (suggesting ``[e]xplicit prohibitions against 
attempts by officers, directors, or employees to coerce, mislead, or 
otherwise interfere with the CCO'').
---------------------------------------------------------------------------

K. Exemption From Requirements Governing SDRs for Certain Non-U.S. 
Persons (Rule 13n-12)

1. Proposed Rule
    In the Cross-Border Proposing Release, the Commission proposed, 
pursuant to its authority under Exchange Act Section 36,\1067\ an 
exemption from Exchange Act Section 13(n) \1068\ and the rules and 
regulations thereunder (collectively, the ``SDR Requirements'') for 
non-U.S. persons that perform the functions of an SDR within the United 
States, subject to a condition.\1069\ Specifically, the Commission 
proposed Rule 13n-12 (``SDR Exemption''), which provides: ``A non-U.S. 
person \1070\ that performs the functions of a security-based swap data 
repository within the United States shall be exempt from the 
registration and other requirements set forth in Section 13(n) of the 
[Exchange] Act . . . and the rules and regulations thereunder, provided 
that each regulator with supervisory authority over such non-U.S. 
person has entered into a supervisory and enforcement memorandum of 
understanding or other arrangement with the Commission that addresses 
the confidentiality of data collected and maintained by such non-U.S. 
person, access by the Commission to such data, and any other matters 
determined by the Commission.'' \1071\
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    \1067\ Exchange Act Section 36 authorizes the Commission to 
conditionally or unconditionally exempt any person, security, or 
transaction, or any class or classes of persons, securities, or 
transactions, from certain provisions of the Exchange Act or certain 
rules or regulations thereunder, by rule, regulation, or order, to 
the extent that such exemption is necessary or appropriate in the 
public interest, and is consistent with the protection of investors. 
15 U.S.C. 78mm.
    \1068\ 15 U.S.C. 78m(n).
    \1069\ Cross-Border Proposing Release, 78 FR at 31209, supra 
note 3.
    \1070\ Proposed Rule 13n-12(a)(1) defines ``non-U.S. person'' to 
mean any person that is not a U.S. person. Proposed Rule 13n-
12(a)(2) defines ``U.S. person'' by cross-reference to the 
definition of ``U.S. person'' in proposed Rule 3a71-3(a)(7). See 
Cross-Border Proposing Release, 78 FR at 31209, supra note 3.
    \1071\ Proposed Rule 13n-12(b).
---------------------------------------------------------------------------

2. Comments on the Proposed Rule
    The Commission received several comment letters concerning the 
registration and regulation of SDRs in the cross-border context, most 
of which were submitted prior to the Commission's proposal of Rule 13n-
12. As a general matter, commenters suggested that the Commission 
should apply principles of international comity.\1072\
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    \1072\ See DTCC 2, supra note 19 (urging the Commission, in its 
regulation of SDRs, to aim for regulatory comity as it has already 
been agreed to by ODRF and other international bodies such as CPSS 
and IOSCO); Foreign Banks SBSR, supra note 27 (recommending that the 
Commission work with foreign authorities to permit SDRs in all major 
jurisdictions to register with the appropriate regulators in each 
jurisdiction); see also Soci[eacute]t[eacute] G[eacute]n[eacute]rale 
SBSR, supra note 27 (suggesting that the Commission consider 
international comity and public policy goals of derivatives 
regulation to limit its regulation of swap business and requesting 
that the Commission coordinate with its foreign counterparts, 
especially those based in Europe, to work toward an MOU on the 
jurisdictional reach of the derivatives rules of the U.S./European 
Market Infrastructure Regulation); ISDA SIFMA SBSR, supra note 27 
(``The Commission should consult with foreign regulators before 
establishing the extra-territorial scope of the rules promulgated 
under Title VII.''). See also DTCC CB, supra note 26 (``Given the 
global nature of OTC swaps and SB swaps markets, the United States 
should continue to promote an approach to the regulation of the 
swaps markets that adheres to international comity and mitigates the 
risk of regulatory arbitrage in market decisions. Regulations among 
jurisdictions must be coordinated in a manner that promotes 
competition, transparency, and protects the safety and soundness of 
these global markets. At the same time, the Commission should remain 
vigilant that the international framework is efficient and does not 
unfairly disadvantage or concentrate systemic risk in the United 
States.'').
---------------------------------------------------------------------------

    One commenter expressed concern that ``the current asymmetry in the 
[proposed SDR Rules], when compared to existing international 
standards, will lead to fragmentation along regional lines and prohibit 
global services and global data provision, which will weaken the 
introduction of trade repositories as a financial markets reform 
measure.'' \1073\ The commenter stated that ``because of the onerous 
standards imposed on SDRs compared to the regulatory framework of other 
competitive jurisdictions, the U.S. will be less attractive than other 
locations for the purpose of storing full global data where SDRs are 
actively looking to service the global regulatory community.'' \1074\
---------------------------------------------------------------------------

    \1073\ DTCC 2, supra note 19.
    \1074\ DTCC 2, supra note 19.
---------------------------------------------------------------------------

    In addition, two commenters expressed concern about the potential 
impact of duplicative registration requirements imposed on SDRs.\1075\ 
Specifically, one of these commenters remarked that the Commission's 
proposed rules governing SDRs ``would seem to force a non-resident SDR 
to be subject to multiple regimes and to the jurisdiction of several 
authorities'' and that the Proposing Release made no ``reference to 
equivalency of regulatory regimes or cooperation with the authorities 
of the country of establishment of the non-resident SDRs.'' \1076\ To 
address this concern, the commenter suggested that the Commission adopt 
a regime under which foreign SDRs would be deemed to comply with the 
SDR Requirements if the laws and regulations of the relevant foreign 
jurisdiction were equivalent to those of the Commission and an MOU has 
been entered into between the Commission and the relevant foreign 
authority.\1077\ The commenter noted that the recommended ``regime 
would have the following advantages: i) Facilitating cooperation among 
authorities from different jurisdictions; ii) ensuring the mutual 
recognition of [SDRs]; and iii) establishing convergent regulatory and 
supervisory regimes which is necessary in a global market such as the 
OTC derivatives one.'' \1078\
---------------------------------------------------------------------------

    \1075\ See US & Foreign Banks, supra note 24; ESMA, supra note 
19.
    \1076\ ESMA, supra note 19.
    \1077\ ESMA, supra note 19.
    \1078\ ESMA, supra note 19 (noting that a similar regulatory 
regime is delineated in the ``European Commission's proposal for a 
Regulation on OTC derivatives, central counterparties and trade 
repositories'').

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[[Page 14516]]

    Recognizing that some SDRs would function solely outside of the 
United States and, therefore, would be regulated by an authority in 
another jurisdiction, commenters suggested possible approaches to the 
SDR registration regime. One commenter, for example, suggested that ``a 
non-U.S. SDR should not be subject to U.S. registration so long as it 
collects and maintains information from outside the U.S., even if such 
information is collected from non-U.S. swap dealer or [major security-
based swap participant] registrants.'' \1079\ Two commenters supported 
``cross-registration'' of SDRs, whereby SDRs in all major jurisdictions 
may register with the appropriate regulators in each 
jurisdiction.\1080\
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    \1079\ See US & Foreign Banks, supra note 24.
    \1080\ Foreign Banks SBSR, supra note 27 (``Cross-registration 
of SDRs is not only necessary given the global nature of the swaps 
market, it also reduces duplicative data reporting. Cross-
registration would also facilitate the creation of uniform reporting 
rules and procedures that would enable easy comparison of 
transaction data from different jurisdictions. Cross-border 
information sharing and cross-registration, coupled with the new 
standard identification codes that will be required for reporting to 
SDRs, would provide regulators and market participants with a 
comprehensive picture, thus enabling more robust surveillance and 
supervision of the global swaps market.''); BofA SBSR, supra note 27 
(noting that the Commission can ensure that it retains access to 
data reported to foreign SDRs by establishing a regime for cross-
registration of SDRs in multiple jurisdictions).
---------------------------------------------------------------------------

3. Final Rule
    As stated above,\1081\ the Commission believes that a non-U.S. 
person that performs the functions of an SDR within the United States 
is required to register with the Commission, absent an exemption.\1082\ 
After considering comments, including those urging the Commission to 
take into consideration the principles of international comity and 
mitigate the risk of regulatory arbitrage in market decisions,\1083\ 
the Commission is adopting Rule 13n-12 as proposed, with two 
modifications,\1084\ to provide an exemption from the SDR Requirements 
for certain non-U.S. persons. This rule is intended to provide legal 
certainty to market participants and to address commenters' concerns 
regarding the potential for duplicative regulatory requirements.\1085\ 
Specifically, Rule 13n-12 states as follows: ``A non-U.S. person \1086\ 
that performs the functions of a security-based swap data repository 
within the United States shall be exempt from the registration and 
other requirements set forth in section 13(n) of the [Exchange] Act . . 
. and the rules and regulations thereunder, provided that each 
regulator with supervisory authority over such non-U.S. person has 
entered into a memorandum of understanding \1087\ or other arrangement 
with the Commission that addresses the confidentiality of data 
collected and maintained by such non-U.S. person, access by the 
Commission to such data, and any other matters determined by the 
Commission.''
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    \1081\ See Section III.B of this release discussing persons 
performing the functions of an SDR within the United States that 
must register with the Commission.
    \1082\ See Cross-Border Proposing Release, 78 FR at 31042, supra 
note 3. See also Exchange Act Section 13(n)(1), 15 U.S.C. 78m(n)(1) 
(requiring persons that, directly or indirectly, make use of the 
mails or any means or instrumentality of interstate commerce to 
perform the functions of an SDR, to register with the Commission). 
The Commission recognizes that some non-U.S. persons that perform 
the functions of an SDR may do so entirely outside the United 
States, and thus, are not required to register with the Commission.
    \1083\ See DTCC 2, supra note 19; DTCC CB, supra note 26; 
Foreign Banks SBSR, supra note 27; Soci[eacute]t[eacute] 
G[eacute]n[eacute]rale SBSR, supra note 27; and ISDA SIFMA SBSR, 
supra note 27.
    \1084\ See infra note 1086 (discussing technical revision) and 
infra note 1087 (discussing MOU requirement).
    \1085\ See US & Foreign Banks, supra note 24; ESMA, supra note 
19.
    \1086\ Exchange Act Rule 13n-12(a)(1), as adopted, defines 
``non-U.S. person'' to mean any person that is not a U.S. person. 
Exchange Act Rule 13n-12(a)(2) defines ``U.S. person'' by cross-
reference to the definition of ``U.S. person'' in Exchange Act Rule 
3a71-3(a)(4)(i), 17 CFR 240.3a71-3(a)(4)(i). See Cross-Border 
Adopting Release, 79 FR at 47371, supra note 11 (adopting Exchange 
Act Rule 3a71-3(a)(4)(i)). As proposed, Rule 13n-12(a)(2) cross-
referenced to ``Sec.  240.3a71-3(a)(7).'' For consistency in how 
cross-references are formatted in the SDR Rules, the Commission is 
revising from the proposal the format of the cross-reference to 
``Rule 3a71-3(a)(4)(i) (Sec.  240.3a71-3(a)(4)(i)).''
    \1087\ Upon further consideration, the Commission is revising 
the proposed rule to require an MOU rather than a more specific 
``supervisory and enforcement'' MOU. Requiring an MOU provides the 
Commission with the flexibility to negotiate a broad range of terms, 
conditions, and circumstances under which information can be shared 
with other relevant authorities.
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    The Commission continues to believe that the SDR Exemption is 
necessary or appropriate in the public interest, and consistent with 
the protection of investors.\1088\ Because the reporting requirements 
of Title VII and Regulation SBSR can be satisfied only if an SBS 
transaction is reported to an SDR that is registered with the 
Commission,\1089\ the Commission continues to believe that the primary 
reason for a person subject to the reporting requirements of Title VII 
and Regulation SBSR to report an SBS transaction to an SDR that is not 
registered with the Commission would likely be to satisfy reporting 
obligations that it or its counterparty has under foreign law.\1090\ 
Such person would still be required to fulfill its reporting 
obligations under Title VII and Regulation SBSR by reporting its SBS 
transaction to an SDR that is registered with the Commission, absent 
other relief from the Commission,\1091\ even if the transaction were 
also reported to a non-U.S. person that is not registered with the 
Commission because it is relying on the SDR Exemption. The Commission 
believes that this approach to the SDR Requirements appropriately 
balances the Commission's interest in having access to data about SBS 
transactions involving U.S. persons, while addressing commenters' 
concerns regarding the potential for duplicative regulatory 
requirements \1092\ as well as furthering the goals of the Dodd-Frank 
Act.
---------------------------------------------------------------------------

    \1088\ See Cross-Border Proposing Release, 78 FR at 31043, supra 
note 3.
    \1089\ The Commission believes that the SDR Exemption addresses 
one commenter's view that ``a non-U.S. SDR should not be subject to 
U.S. registration so long as it collects and maintains information 
from outside the U.S.'' See US & Foreign Banks, supra note 24; see 
also Section III.B of this release (discussing when SDRs that are 
non-U.S. persons must register with the Commission). The Commission 
notes, however, that a non-U.S. person that performs the functions 
of an SDR outside the United States may choose to register with the 
Commission as an SDR to enable that person to accept data from 
persons that are reporting an SBS pursuant to the reporting 
requirements of Title VII and Regulation SBSR. See Exchange Act 
Sections 13(m)(1)(G) and 13A(a)(1), 15 U.S.C. 78m(m)(1)(G) and 78m-
1(a)(1), as added by Dodd-Frank Act Sections 763(i) and 766(a); 
Regulation SBSR Adopting Release, supra note 13 (Rule 901 requiring 
all SBSs to be reported to a registered SDR or, if no SDR will 
accept the SBSs, the Commission). This approach is consistent with 
commenters' views supporting cross-registration of SDRs. See Foreign 
Banks SBSR, supra note 27 (suggesting cross-registration of SDRs); 
BofA SBSR, supra note 27 (suggesting cross-registration of SDRs). 
The Commission may consider also granting, pursuant to its authority 
under Exchange Act Section 36, 15 U.S.C. 78mm, exemptions to such 
non-U.S. person that registers with the Commission from certain of 
the SDR Requirements on a case-by-case basis. In determining whether 
to grant such an exemption, the Commission may consider, among other 
things, whether there are overlapping requirements in the Exchange 
Act and applicable foreign law.
    \1090\ See Cross-Border Proposing Release, 78 FR at 31043, supra 
note 3.
    \1091\ See Cross-Border Proposing Release, 78 FR at 31043, supra 
note 3 (discussing Regulation SBSR and substituted compliance); see 
also Regulation SBSR Adopting Release, supra note 13 (adopting Rule 
908(c) allowing for the possibility of substituted compliance).
    \1092\ See US & Foreign Banks, supra note 24; ESMA, supra note 
19.
---------------------------------------------------------------------------

    The SDR Exemption includes a condition that each regulator with 
supervisory authority over the non-U.S. person that performs the 
functions of an SDR within the United States enters into an MOU or 
other arrangement with the Commission, as specified in Exchange Act 
Rule 13n-12(b). The Commission anticipates that in determining whether 
to enter into such an MOU or other

[[Page 14517]]

arrangement with a relevant authority, the Commission will consider 
whether the relevant authority can keep confidential requested data 
that is collected and maintained by the non-U.S. person that performs 
the functions of an SDR within the United States \1093\ and whether the 
Commission will have access to data collected and maintained by such 
non-U.S. person.\1094\ The Commission anticipates that it will consider 
other matters, including, for example, whether the relevant authority 
agrees to provide the Commission with reciprocal assistance in 
securities matters within the Commission's jurisdiction and whether an 
MOU or other arrangement would be in the public interest.\1095\ The 
Commission believes that, in lieu of requiring every non-U.S. person 
that performs the functions of an SDR within the United States to 
register with the Commission, the condition in the SDR Exemption is 
appropriate to address the Commission's interest in having access to 
SBS data involving U.S. persons and U.S. market participants that is 
maintained by non-U.S. persons that perform the functions of an SDR 
within the United States and protecting the confidentiality of such SBS 
data involving U.S. persons and U.S. market participants.\1096\
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    \1093\ The Commission contemplates that the relevant authority 
will keep requested data that is collected and maintained by such 
non-U.S. person confidential in a manner that is consistent with 
Exchange Act Section 24 and Rule 24c-1 thereunder. See 15 U.S.C. 78x 
and 17 CFR 240.24c-1.
    \1094\ The Commission contemplates that the Commission's access 
to data collected and maintained by such non-U.S. person will be in 
a manner that is consistent with Exchange Act Section 13(n)(5)(D) 
and Rule 13n-4(b)(5) thereunder. See Exchange Act Section 
13(n)(5)(D), 15 U.S.C. 78m(n)(5)(D).
    \1095\ The Commission has entered numerous cooperative 
agreements with foreign authorities. See Cooperative Arrangements 
with Foreign Regulators, available at http://www.sec.gov/about/offices/oia/oia_cooparrangements.shtml. Based on the Commission's 
experience with negotiating MOUs and other agreements with foreign 
authorities, the Commission believes that the MOU or agreement 
described in Rule 13n-12(b) could, in many cases, be negotiated in a 
timely manner so that the exemption provided under Rule 13n-12(b) 
should be available before the registration of an SDR seeking to 
claim the exemption would otherwise be required.
    \1096\ Accord Soci[eacute]t[eacute] G[eacute]n[eacute]rale SBSR, 
supra note 27 (requesting that the Commission coordinate with its 
foreign counterparts, especially those based in Europe, to work 
toward an MOU on the jurisdictional reach of the derivatives rules 
of the U.S./European Market Infrastructure Regulation).
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    With respect to one commenter's concern about ``the current 
asymmetry in the [proposed SDR Rules] when compared to existing 
international standards'' and ``onerous standards imposed on SDRs 
compared to regulatory framework of other competitive jurisdictions,'' 
the Commission believes that the SDR Exemption is intended to encourage 
international cooperation, and thereby mitigate to some extent the 
concern of data fragmentation and regulatory arbitrage.\1097\ The 
commenter, which was submitted prior to the Commission's proposal of 
Rule 13n-12, did not provide specific examples of international 
standards or regulatory frameworks for comparison with the SDR Rules, 
but, as discussed in Section I.D above, the Commission has taken into 
consideration recommendations by international bodies; Commission staff 
also has consulted and coordinated with foreign regulators through 
bilateral and multilaterial discussions.\1098\
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    \1097\ See DTCC 2, supra note 19.
    \1098\ Senior representatives of authorities with responsibility 
for regulation of OTC derivatives have met on a number of occasions 
to discuss international coordination of OTC derivatives 
regulations. See, e.g., Report of the OTC Derivatives Regulators 
Group (ODRG) on Cross-Border Implementation Issues (Mar. 31, 2014), 
available at http://www.cftc.gov/ucm/groups/public/@internationalaffairs/documents/file/odrgreport033114.pdf.
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VII. Paperwork Reduction Act

    Certain provisions of the SDR Rules\1099\ and Form SDR impose new 
``collection of information'' requirements within the meaning of the 
Paperwork Reduction Act of 1995 (``PRA'').\1100\ In accordance with 44 
U.S.C. 3507 and 5 CFR 1320.11, the Commission submitted the provisions 
to the Office of Management and Budget (``OMB'') for review when it 
issued the Proposing Release. The title of the new collection of 
information is ``Form SDR and Security-Based Swap Data Repository 
Registration, Duties, and Core Principles.'' 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 OMB control number. 
OMB assigned control number 3235-0719 to the new collection of 
information.
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    \1099\ As noted above, ``SDR Rules'' means, collectively, Rules 
13n-1 to 13n-12.
    \1100\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

    In the Proposing Release, the Commission solicited comment on the 
collection of information requirements and the accuracy of the 
Commission's statements.\1101\ The Commission received three comments 
noting the importance of confidentiality.\1102\ The Commission received 
one comment generally discussing the burden of Rule 13n-11(f)(2), which 
is discussed below.\1103\
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    \1101\ See Proposing Release, 75 FR at 77354, supra note 2.
    \1102\ One commenter emphasized that regulators should provide 
confidential treatment to the annual compliance reports that SDRs 
provide to the Commission. DTCC 2, supra note 19. Consistent with 
its treatment of filings that it receives from other registrants, 
the Commission is not providing, by rule, that annual compliance 
reports are automatically granted confidential treatment, but SDRs 
may request confidential treatment. See Section VI.J.4.c of this 
release. One commenter to the Temporary Rule Release emphasized the 
importance of the Commission protecting information furnished to it 
under the rules in that release. Deutsche Temp Rule, supra note 28. 
A second commenter reiterated that regulators should provide 
confidential treatment to SBS data provided by SDRs. ESMA, supra 
note 19. The Commission anticipates that it will keep reported data 
that SDRs submit to the Commission confidential, subject to the 
provisions of applicable law. Pursuant to Commission rules, 
confidential treatment can be sought for information submitted to 
the Commission. See 17 CFR 200.83 (regarding confidential treatment 
procedures under FOIA).
    \1103\ See Section VIII.D.6.c of this release discussing 
economic alternatives to Rule 13n-11(f)(2).
---------------------------------------------------------------------------

    The Commission also received one comment recommending that ``the 
Commission should generally seek to avoid any divergence from the 
CFTC's and international regulators' frameworks that is likely to give 
rise to undue costs or burdens.''\1104\ The commenter believed that 
``divergence is generally warranted only if the rule adopted by the 
Commission is more flexible than those adopted by others (and therefore 
would not preclude the voluntary adoption of consistent practices by 
market participants).''\1105\
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    \1104\ IIB CB, supra note 26.
    \1105\ IIB CB, supra note 26.
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    None of the commenters specifically addressed the burden estimates 
in the Proposing Release related to the collection of information. The 
Commission has, however, revised the burden associated with completing 
Form SDR to reflect some additional material incorporated from Form SIP 
to accommodate SDRs' registration as SIPs and to reflect a revision to 
the disclosure of business affiliations.\1106\ The Commission has also 
made a change to correct a calculation error.\1107\ Other than these 
changes, the Commission's estimates remain unchanged from the Proposing 
Release.
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    \1106\ See Section VII.D.1 of this release discussing the 
burdens associated with SDRs' registration requirements.
    \1107\ The calculation of the burden on non-resident SDRs under 
Rule 13n-1(f) has been revised to correct a calculation error, which 
slightly reduces the burden hours incurred by non-resident SDRs. See 
infra note 1136 and the accompanying text.
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A. Summary of Collection of Information

1. Registration Requirements, Form SDR, and Withdrawal From 
Registration
    Rule 13n-1(b) requires an SDR to apply for registration with the

[[Page 14518]]

Commission by filing Form SDR electronically in tagged data format in 
accordance with the instructions contained on the form. Under Rule 13n-
1(e), each SDR is required to both designate and authorize on Form SDR 
an agent in the United States, other than a Commission member, 
official, or employee, to accept notice or service of process, 
pleadings, or other documents in any action or proceedings brought 
against the SDR to enforce the federal securities laws and the rules 
and regulations thereunder. Rule 13n-1(f) requires a non-resident SDR 
to (i) certify on Form SDR that the SDR can, as a matter of law, and 
will provide the Commission with prompt access to the SDR's books and 
records and can, as a matter of law, and will submit to onsite 
inspection and examination by the Commission and (ii) provide an 
opinion of counsel that the SDR can, as a matter of law, provide the 
Commission with prompt access to the SDR's books and records and can, 
as a matter of law, submit to onsite inspection and examination by the 
Commission. Under Rule 13n-3(a), in the event that an SDR succeeds to 
and continues the business of a registered SDR, the successor SDR may 
file an application for registration on Form SDR (and the predecessor 
SDR is required to file a withdrawal from registration with the 
Commission) within 30 days after the succession in order for the 
registration of the predecessor to be deemed to remain effective as the 
registration of the successor. Also, under Rule 13n-11(a), an SDR is 
required to identify on Form SDR a person who has been designated by 
the board to serve as a CCO of the SDR.
    Rule 13n-1(d) requires SDRs to file an amendment on Form SDR 
annually as well as when any information provided in items 1 through 
17, 26, and 48 on Form SDR is or becomes inaccurate for any reason. 
Under Rule 13n-3(b), if an SDR succeeds to and continues the business 
of a registered SDR 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 SDR is permitted, within 
30 days after the succession, to amend the registration of the 
predecessor SDR on Form SDR to reflect these changes.
    Rule 13n-2(b) permits a registered SDR to withdraw from 
registration by filing a withdrawal from registration on Form SDR 
electronically in a tagged data format. The SDR must designate on Form 
SDR a person to serve as custodian of its books and records. When 
filing a withdrawal from registration on Form SDR, the SDR must update 
any inaccurate information.
2. SDR Duties, Data Collection and Maintenance, and Direct Electronic 
Access
    Rule 13n-4(b) sets out a number of duties for SDRs. Under Rules 
13n-4(b)(2) and (4), SDRs are required to accept data as prescribed in 
Regulation SBSR \1108\ and maintain that data, as required in Rule 13n-
5, for each SBS reported to the SDRs. SDRs are required, pursuant to 
Rule 13n-4(b)(5), to provide direct electronic access to the Commission 
or its designees.\1109\ SDRs are required, pursuant to Rule 13n-
4(b)(6), to provide information in such form and at such frequency as 
required by Regulation SBSR. The Commission anticipates that it will 
propose for public comment detailed specifications of acceptable 
formats and taxonomies for the purposes of direct electronic access. 
Until such time as the Commission adopts any format or taxonomy, SDRs 
may provide direct electronic access to the Commission to data in the 
form in which SDRs maintain such data.
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    \1108\ See Regulation SBSR Adopting Release, supra note 13.
    \1109\ See also Rule 13n-4(a)(5) (defining ``direct electronic 
access'').
---------------------------------------------------------------------------

    SDRs have an obligation under Rule 13n-4(b)(3) to confirm, as 
prescribed in Rule 13n-5, with both counterparties the accuracy of the 
information submitted to the SDRs. Under Rule 13n-4(b)(7), at such time 
and in such manner as may be directed by the Commission, an SDR is 
required to establish automated systems for monitoring, screening, and 
analyzing SBS data.\1110\
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    \1110\ The Commission is not requiring SDRs to monitor, screen, 
and analyze SBS data maintained by the SDR at this time. See Section 
VI.D.2.c.iii of this release.
---------------------------------------------------------------------------

    Rule 13n-5 establishes rules regarding SDR data collection and 
maintenance. Rule 13n-5(b)(1) requires every SDR to (1) establish, 
maintain, and enforce written policies and procedures reasonably 
designed for the reporting of complete and accurate transaction data to 
the SDR;\1111\ (2) accept all transaction data reported to it in 
accordance with those policies and procedures; (3) accept all data 
provided to it regarding all SBSs in an asset class if the SDR accepts 
data on any SBS in that particular asset class; and (4) establish, 
maintain, and enforce written policies and procedures reasonably 
designed to satisfy itself that the transaction data that has been 
submitted to the SDR is complete and accurate, and clearly identifies 
the source for each trade side, and the pairing method (if any) for 
each transaction in order to identify the level of quality of the 
transaction data. An SDR is also required under Rule 13n-5(b)(1)(iv) to 
promptly record transaction data it receives.
---------------------------------------------------------------------------

    \1111\ ``Transaction data'' is defined in Rule 13n-5(a)(3).
---------------------------------------------------------------------------

    In addition, Rule 13n-5(b) requires every SDR to establish, 
maintain, and enforce written policies and procedures reasonably 
designed: (1) to calculate positions \1112\ for all persons with open 
SBSs for which the SDR maintains records; (2) to ensure that the 
transaction data and positions that it maintains are complete and 
accurate; and (3) to prevent any provision in a valid SBS from being 
invalidated or modified through the procedures or operations of the 
SDR.
---------------------------------------------------------------------------

    \1112\ ``Position'' is defined in Rule 13n-5(a)(2).
---------------------------------------------------------------------------

    Rule 13n-5(b)(4) requires that every SDR maintain the transaction 
data and related identifying information for not less than five years 
after the applicable SBS expires and historical positions for not less 
than five years. This data is required to be maintained in a place and 
format that is readily accessible and usable to the Commission and 
other persons with authority to access or view the information. SDRs 
must also maintain this data in an electronic format that is non-
rewritable and non-erasable. Under Rule 13n-5(b)(7), the SDR's 
obligation to preserve, maintain, and make accessible the transaction 
data and historical positions extends to the periods required under 
Rule 13n-5 even if the SDR ceases to do business or to be registered 
pursuant to Exchange Act Section 13(n). Rule 13n-5(b)(8) requires every 
SDR to make and keep current a plan to ensure that the transaction data 
and positions that are recorded in the SDR continue to be maintained in 
accordance with Rule 13n-5(b)(7), including procedures for transferring 
the transaction data and positions to the Commission or its designee 
(including another registered SDR).
    Rule 13n-6 establishes rules regarding SDR automated systems. Rule 
13n-6 requires that every SDR, with respect to those systems that 
support or are integrally related to the performance of its activities, 
establish, maintain, and enforce written policies and procedures 
reasonably designed to ensure that its systems provide adequate levels 
of capacity, integrity, resiliency, availability, and security.
3. Recordkeeping
    Rule 13n-7 requires every SDR to make and keep records, in addition 
to those required under Rules 13n-4(b)(4) and 13n-5. Specifically, 
every SDR is

[[Page 14519]]

required, under Rule 13n-7(a)(1), to make and keep current a record for 
each office listing, by name or title, each person at that office who, 
without delay, can explain the types of records the SDR maintains at 
that office and the information contained in those records. Every SDR 
is also required, under Rule 13n-7(a)(2), to make and keep current a 
record listing each officer, manager, or person performing similar 
functions of the SDR responsible for establishing policies and 
procedures that are reasonably designed to ensure compliance with the 
Exchange Act and the rules and regulations thereunder. Rule 13n-7(b) 
requires every SDR to keep and preserve at least one copy of all 
documents made or received by it in the course of its business as such. 
These records are required to be kept for a period of not less than 
five years, the first two years in a place that is immediately 
available to representatives of the Commission for inspection and 
examination. Upon the request of any representative of the Commission, 
pursuant to Rule 13n-7(b)(3), an SDR is required to furnish promptly to 
such representative copies of any documents required to be kept and 
preserved by the SDR pursuant to Rules 13n-7(a) and (b). Under Rule 
13n-7(c), the SDR's recordkeeping obligation is extended to the periods 
required under Rule 13n-7 even if the SDR ceases to do business or to 
be registered pursuant to Exchange Act Section 13(n).
    SDRs are also required to make available the books and records 
required by Rules 13n-1 through 13n-11 upon request by Commission 
representatives for inspection and examination.\1113\
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    \1113\ See, e.g., Rules 13n-4(b)(1) and 13n-7(b)(3).
---------------------------------------------------------------------------

4. Reports
    Under Rule 13n-8, SDRs are required to promptly report to the 
Commission, in a form and manner acceptable to the Commission, such 
information as the Commission determines necessary or appropriate for 
the Commission to perform its duties.
5. Disclosure
    Rule 13n-10 describes disclosures that SDRs are required to provide 
to a market participant before accepting any SBS data from that market 
participant or upon a market participant's request. The information 
required in the disclosure document includes: (1) the SDR's criteria 
for providing others with access to services offered and data 
maintained by the SDR, (2) the SDR's criteria for those seeking to 
connect to or link with the SDR, (3) a description of the SDR's 
policies and procedures regarding its safeguarding of data and 
operational reliability, as described in Rule 13n-6, (4) a description 
of the SDR's policies and procedures reasonably designed to protect the 
privacy of any and all SBS transaction information that the SDR 
receives from an SBS dealer, counterparty, or any registered entity, as 
described in Rule 13n-9(b)(1), (5) a description of the SDR's policies 
and procedures regarding its non-commercial and/or commercial use of 
the SBS transaction information that it receives from a market 
participant, any registered entity, or any other person, (6) a 
description of the SDR's dispute resolution procedures involving market 
participants, as described in Rule 13n-5(b)(6), (7) a description of 
all the SDR's services, including any ancillary services, (8) the SDR's 
updated schedule of any dues; unbundled prices, rates, or other fees 
for all of its services, including any ancillary services; any 
discounts or rebates offered; and the criteria to benefit from such 
discounts or rebates, and (9) a description of the SDR's governance 
arrangements.
6. Chief Compliance Officer; Compliance Reports and Financial Reports
    Rule 13n-4(b)(11) requires an SDR and Rule 13n-11(a) requires the 
board of an SDR to designate a CCO to perform the duties identified in 
Rule 13n-11. Under Rules 13n-11(c)(6) and (7), the CCO is responsible 
for, among other things, establishing procedures for the remediation of 
noncompliance issues identified by the CCO and establishing and 
following appropriate procedures for the handling, management response, 
remediation, retesting, and closing of noncompliance issues.
    The CCO is also required under Rules 13n-11(d), (e), and (g) to 
prepare and submit annual compliance reports to the SDR's board for 
review before they are filed with the Commission. The annual compliance 
reports must contain, at a minimum, a description of the SDR's 
enforcement of its policies and procedures, any material changes to the 
policies and procedures since the date of the preceding compliance 
report, any recommendation for material changes to the policies and 
procedures, and any material compliance matters identified since the 
date of the preceding compliance report. The compliance reports must be 
filed in a tagged data format in accordance with the instructions 
contained in the EDGAR Filer Manual.\1114\
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    \1114\ See 17 CFR 232.301.
---------------------------------------------------------------------------

    Rules 13n-11(f) and (g) require that financial reports be prepared 
and filed annually with the Commission. These financial reports must, 
among other things, be prepared in conformity with GAAP for the most 
recent two fiscal years of the SDR, audited by a registered public 
accounting firm that is qualified and independent in accordance with 
Rule 2-01 of Regulation S-X, and audited in accordance with standards 
of the Public Company Accounting Oversight Board. The financial reports 
must be provided as an official filing in accordance with the EDGAR 
Filer Manual and include, as part of the official filing, an 
Interactive Data Financial Report filed in accordance with Rule 407 of 
Regulation S-T.\1115\
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    \1115\ See Section VI.J.5.c of this release discussing Rule 407 
of Regulation S-T.
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7. Other Provisions Relevant to the Collection of Information
    Rule 13n-4(c)(1) sets forth the requirements for SDRs related to 
market access to services and data. Among other things, an SDR must: 
(1) establish, monitor on an ongoing basis, and enforce clearly stated 
objective criteria that would permit fair, open, and not unreasonably 
discriminatory access to services offered and data maintained by the 
SDR, as well as fair, open, and not unreasonably discriminatory 
participation by market participants, market infrastructures, venues 
from which data can be submitted to the SDR, and third party service 
providers that seek to connect to or link with the SDR; and (2) 
establish, maintain, and enforce written policies and procedures 
reasonably designed to review any prohibition or limitation of any 
person with respect to services offered or data maintained by the SDR 
and to grant that person access to those services or data if the person 
has been discriminated against unfairly.
    Rule 13n-4(c)(2)(iv) requires each SDR to establish, maintain, and 
enforce written policies and procedures reasonably designed to ensure 
that the SDR's senior management and each member of the board or 
committee that has the authority to act on behalf of the board 
possesses requisite skills and expertise to fulfill their 
responsibilities in the management and governance of the SDR, have a 
clear understanding of their responsibilities, and exercise sound 
judgment about the SDR's affairs.
    Rule 13n-4(c)(3) sets forth the conflicts of interest controls 
required of SDRs. In particular, SDRs must establish and enforce 
written policies and procedures reasonably designed to minimize 
conflicts of interest, including establishing, maintaining, and 
enforcing written policies and procedures

[[Page 14520]]

reasonably designed to identify and mitigate potential and existing 
conflicts of interest in the SDR's decision-making process on an 
ongoing basis and written policies and procedures regarding the SDR's 
non-commercial and commercial use of the SBS transaction information 
that it receives.
    Rule 13n-5(b)(6) requires SDRs to establish procedures and provide 
facilities reasonably designed to effectively resolve disputes over the 
accuracy of the transaction data and positions that are recorded in the 
SDR.
    Rules 13n-4(b)(8) and 13n-9 relate to the privacy requirements for 
SDRs. Rule 13n-4(b)(8) requires SDRs to maintain the privacy of any and 
all SBS transaction information that the SDR receives from a SBS 
dealer, counterparty, or any registered entity as prescribed in Rule 
13n-9. Rule 13n-9(b)(1) requires each SDR to establish, maintain, and 
enforce written policies and procedures reasonably designed to protect 
the privacy of any and all SBS transaction information that the SDR 
receives from any SBS dealer, counterparty, or any registered entity. 
Rule 13n-9(b)(2) requires each SDR to establish and maintain 
safeguards, policies, and procedures reasonably designed to prevent the 
misappropriation or misuse of any confidential information received by 
the SDR, material, nonpublic information, and/or intellectual property. 
At a minimum, these policies and procedures must address limiting 
access to such information and intellectual property, standards 
pertaining to the trading by persons associated with the SDR for their 
personal benefit or the benefit of others, and adequate oversight.

B. Use of Information

1. Registration Requirements, Form SDR, and Withdrawal From 
Registration
    As discussed above, Rules 13n-1 and 13n-3 generally require SDRs to 
register on Form SDR and make amendments on Form SDR when specified 
information on the form becomes inaccurate, as well as annually. The 
information collected in Form SDR is used to enhance the ability of the 
Commission to monitor SDRs and oversee their compliance with the 
federal securities laws and the rules and regulations thereunder, as 
well as understand their operations and organizational structure. The 
information will also be used to make determinations of whether to 
grant or institute proceedings to determine whether registration should 
be granted or denied.
    As discussed above, Rule 13n-2 generally permits a registered SDR 
to withdraw from registration by filing Form SDR electronically in a 
tagged data format, designating a custodian of its books and records, 
and updating any inaccurate information contained in its most recently 
filed Form SDR. The information collected from an SDR withdrawing from 
registration is used by the Commission to monitor and oversee SDRs by 
ensuring that the Commission has an accurate record of registered SDRs 
and access to an SDR's books and records after the SDR withdraws from 
registration.
    Also, under Rule 13n-11(a), an SDR is required to identify on Form 
SDR a person who has been designated by the board to serve as a CCO of 
the SDR. This information will help the Commission identify SDRs' CCOs.
2. SDR Duties, Data Collection and Maintenance, and Direct Electronic 
Access
    As discussed above, Rules 13n-4(b), 13n-5, and 13n-6 specify the 
duties of SDRs, require SDRs to collect and maintain specific data and 
provide that data to certain entities.\1116\ The information that is 
collected under these provisions will help ensure an orderly and 
transparent SBS market as well as provide the Commission and other 
relevant authorities with tools to help oversee this market.
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    \1116\ See Sections VI.D.2.c, VI.E, and VI.F.3 of this release 
discussing Rules 13n-4(b), 13n-5, and 13n-6, respectively.
---------------------------------------------------------------------------

3. Recordkeeping
    As discussed above, Rule 13n-7 requires an SDR to make and keep 
books and records relating to its business (except for the transaction 
data and positions collected and maintained pursuant to Rule 13n-5) for 
a prescribed period.\1117\ The information collected under these 
provisions is necessary for Commission representatives to inspect and 
examine an SDR and to facilitate the Commission's efforts to evaluate 
the SDR's compliance with the federal securities laws and the rules and 
regulations thereunder.
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    \1117\ See Section VI.G of this release discussing Rule 13n-7.
---------------------------------------------------------------------------

4. Reports
    As discussed above, Rule 13n-8 requires SDRs to provide certain 
reports to the Commission.\1118\ The Commission will use the 
information collected under this provision to assist in its oversight 
of SDRs, which will help ensure an orderly and transparent SBS market.
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    \1118\ See Section VI.H.3 of this release discussing Rule 13n-8.
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5. Disclosure
    As discussed above, Rule 13n-10 requires SDRs to provide certain 
specific disclosures to a market participant before accepting any data 
from that market participant or upon a market participant's 
request.\1119\ These disclosures will help market participants 
understand the potential risks and costs associated with using an SDR's 
services, as well as the protections and services available to them.
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    \1119\ See Section VI.I.2.c of this release discussing Rule 13n-
10.
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6. Chief Compliance Officer; Compliance Reports and Financial Reports
    As discussed above, Rule 13n-11 requires an SDR's CCO to establish 
certain procedures relating to the remediation of noncompliance issues 
as well as prepare and sign an annual compliance report, which is filed 
with the Commission.\1120\ Rule 13n-11 also requires that a financial 
report be prepared and filed with the Commission as an official filing 
in accordance with the EDGAR Filer Manual and include, as part of the 
official filing, an Interactive Data Financial Report filed in 
accordance with Rule 407 of Regulation S-T. The information collected 
under this rule will help ensure compliance by SDRs with the federal 
securities laws and the rules and regulations thereunder as well as 
assist the Commission in overseeing SDRs.
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    \1120\ See Section VI.J of this release discussing Rule 13n-11.
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7. Other Provisions Relevant to the Collection of Information
    As discussed above, Rule 13n-4(c)(1) requires SDRs to comply with 
certain requirements relating to market access to services and data, 
including establishment of certain policies and procedures and clearly 
stated objective criteria. Rule 13n-4(c)(2)(iv) requires SDRs to 
establish, maintain, and enforce policies and procedures regarding the 
skills and expertise, understanding of responsibilities, and sound 
judgment of the SDRs' senior management and members of the board or 
committee that has the authority to act on behalf of the board. Rule 
13n-4(c)(3) requires SDRs to establish and enforce written conflicts of 
interest policies and procedures; to establish, maintain, and enforce 
written policies and procedures reasonably designed to identify and 
mitigate conflicts of interest on an ongoing basis; and to establish, 
maintain, and enforce

[[Page 14521]]

written policies and procedures regarding their noncommercial and 
commercial use of transaction information. Rule 13n-5(b)(6) requires 
SDRs to establish procedures and provide facilities reasonably designed 
to effectively resolve disputes regarding the accuracy of the 
transaction data and positions that are recorded in the SDRs. Rules 
13n-4(b)(8) and 13n-9 require SDRs to establish, maintain, and enforce 
policies, procedures, and safeguards regarding privacy and 
misappropriation or misuse of certain information.\1121\ The 
information collected pursuant to these provisions will help ensure a 
transparent and orderly SBS market, protect market participants' 
privacy, and facilitate Commission oversight of SDRs.
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    \1121\ See Section VI.I.1.c of this release discussing Rule 13n-
9.
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C. Respondents

1. Registration Requirements, Form SDR, and Withdrawal From 
Registration
    As discussed above, the registration requirements of Rules 13n-1, 
13n-2, 13n-3, 13n-11(a), and Form SDR apply to every U.S. person 
performing the functions of an SDR and every non-U.S. person performing 
the functions of an SDR within the United States, absent an 
exemption.\1122\ Commission staff is aware of seven persons that have, 
to date, filed applications for registration with the CFTC as swap data 
repositories, three of which have withdrawn their applications and four 
of which are provisionally registered with the CFTC. It is reasonable 
to estimate that a similar number of persons provisionally registered 
with the CFTC may seek to register with the Commission as SDRs. 
Therefore, the Commission continues to estimate, for PRA purposes, that 
ten persons may register with the Commission as SDRs. The Commission 
also continues to estimate, for PRA purposes, that three of the ten 
respondents may be non-resident SDRs subject to the additional 
requirements of Rule 13n-1(f). The Commission received no comments on 
its estimate of the number of non-resident SDRs and continues to 
believe that this estimate is reasonable. Although non-resident SDRs 
may be able to take advantage of the SDR Exemption, the Commission 
conservatively estimates for PRA purposes that none of the three would 
rely on the exemption.
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    \1122\ See Section VI.K of this release discussing Rule 13n-12 
(``SDR Exemption'').
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2. SDR Duties, Data Collection and Maintenance, and Direct Electronic 
Access
    The duties, data collection and maintenance, and direct electronic 
access requirements of Rules 13n-4(b), 13n-5, and 13n-6 as a general 
matter, apply to all SDRs, absent an exemption. Thus, for these 
provisions, the Commission estimates that there will be 10 respondents.
3. Recordkeeping
    The recordkeeping requirements of Rule 13n-7 apply to all SDRs, 
absent an exemption. Thus, for this rule, the Commission estimates that 
there will be 10 respondents.
4. Reports
    The report requirement of Rule 13n-8 applies to all SDRs, absent an 
exemption. Thus, for this rule, the Commission estimates that there 
will be 10 respondents.
5. Disclosure
    The disclosure requirements of Rule 13n-10 apply to all SDRs, 
absent an exemption. Thus, for this rule, the Commission estimates that 
there will be 10 respondents.
6. Chief Compliance Officer; Compliance Reports and Financial Reports
    The provisions regarding CCOs set forth in Rule 13n-11 apply to all 
SDRs, absent an exemption. Thus, for this rule, the Commission 
estimates that there will be 10 respondents.
7. Other Provisions Relevant to the Collection of Information
    The remaining requirements of the SDR Rules \1123\ relevant to the 
collection of information, specifically Rules 13n-4(c), 13n-5(b)(6), 
and 13n-4(b)(8) and 13n-9, apply to all SDRs, absent an exemption. 
Thus, for these provisions, the Commission estimates that there will be 
10 respondents.
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    \1123\ As noted above, ``SDR Rules'' means Rules 13n-1 to 13n-
12.
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    As stated above, no commenters addressed any of these 
estimates.\1124\
---------------------------------------------------------------------------

    \1124\ See Section VII of this release discussing comments 
related to the collection of information.
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D. Total Annual Reporting and Recordkeeping Burden

    The Commission received no comments on any of the estimates 
provided in the Proposing Release. The Commission has, however, revised 
the burden associated with completing Form SDR to reflect some 
additional material incorporated from Form SIP to accommodate SDRs' 
registration as SIPs and to reflect a revision to the disclosure of 
business affiliations. The Commission has also made a change to correct 
a calculation error.\1125\ Other than these changes, the Commission's 
estimates remain unchanged from the Proposing Release.
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    \1125\ In one minor respect, the calculation of the burden on 
non-resident SDRs under Rule 13n-1(f) has been revised to correct a 
calculation error, which slightly reduces the burden hours incurred 
by non-resident SDRs. See infra note 1136 and the accompanying text.
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1. Registration Requirements, Form SDR, and Withdrawal From 
Registration
    Rule 13n-1(b) and Rule 13n-3(a) (which relates to successor SDRs as 
described above) require SDRs to apply for registration using Form SDR 
and file the form electronically in tagged data format with the 
Commission in accordance with the instructions to the form.\1126\ 
Further, Rule 13n-1(e) requires SDRs to designate an agent for service 
of process on Form SDR, and Rule 13n-11(a) requires SDRs to identify 
their CCOs on Form SDR. For purposes of the PRA, the Commission 
initially estimated that it would take an SDR approximately 400 hours 
to complete the initial Form SDR with the information required, 
including all exhibits to Form SDR.\1127\ The Commission based this 
estimate on the number of hours necessary to complete Form SIP because 
Form SDR was based on Form SIP and incorporated many of the provisions 
of Form SIP.\1128\ The Commission continues to estimate, based on Form 
SIP, that it will initially take an SDR 400 hours to complete the 
proposed portions of Form SDR with the information required, including 
all exhibits thereto,\1129\ and now estimates that it will take an SDR 
an additional 81 hours to complete Form SDR to reflect the additional 
burden hours discussed below.
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    \1126\ See Sections VI.A and VI.C.3 of this release discussing 
Rule 13n-1(b) and Rule 13n-3(a), respectively.
    \1127\ See Proposing Release, 75 FR at 77348, supra note 2.
    \1128\ See Proposing Release, 75 FR at 77348, supra note 2.
    \1129\ The Commission calculated in 2011 that Form SIP would 
take 400 hours to complete. See Submission for OMB Review; Comment 
Request, 76 FR 30984 (May 27, 2011) (outlining the Commission's most 
recent calculations regarding the PRA burdens for Form SIP) (``SIP 
PRA Filing''). While the requirements of Form SIP and Form SDR are 
not identical, the Commission believes that there is sufficient 
similarity for PRA purposes that the burden will be roughly 
equivalent.
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    As noted above, the Commission has revised Form SDR to incorporate 
certain provisions from Form SIP to allow SDRs to register as both SDRs 
and SIPs using

[[Page 14522]]

Form SDR.\1130\ The Commission believes that the burden of filing Form 
SDR should be adjusted to reflect these revisions. Because of the 
overlap between Form SDR and Form SIP, the Commission initially 
estimated that SDRs would need only one-quarter of the time to complete 
Form SIP, or 100 hours, when registering with the Commission as SIPs 
separately on Form SIP.\1131\ The Commission believes that this 
estimate of the burden of an SDR to register as a SIP using Form SDR 
should be reduced to 80 hours because (1) SDRs will not have to process 
and file two separate forms; (2) SDRs will not have to provide 
duplicate information in two forms; and (3) SDRs will not have to 
prepare and file duplicate exhibits to two forms. The Commission 
believes that 80 hours represents a reasonable estimate of the 
additional burden hours that SDRs will incur in responding to the 
provisions incorporated from Form SIP into Form SDR.
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    \1130\ See Section VI.A.1.c of this release discussing Form SDR. 
See also supra note 220 discussing changes to proposed Form SDR to 
incorporate the additional information requested on Form SIP of 
applicants for registration as a SIP.
    \1131\ See Regulation SBSR Proposing Release, 75 FR at 75260, 
supra note 8 (``Any entity that is required to complete proposed 
Form SDR also would have to complete Form SIP. Because of the 
substantial overlap in the forms, much of the burden for completing 
Form SIP would be subsumed in completing proposed Form SDR. 
Therefore, the Commission preliminarily estimates that, having 
completed a proposed Form SDR, an entity would need only one-quarter 
of the time to then complete Form SIP, or 100 hours (specifically, 
37.5 hours of legal compliance work and 62.5 hours of clerical 
compliance work).'').
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    Moreover, as discussed above, the Commission is revising Form SDR 
from the proposal by requiring disclosure of business affiliations in 
the ``derivatives industry'' rather than the ``OTC derivatives 
industry'' for an applicant's designated CCO, officers, directors, 
governors, and persons performing functions similar to any of the 
foregoing, and the members of all standing committees.\1132\ The 
Commission believes that SDRs will incur an additional burden in 
replying to this disclosure, which may require disclosure of more 
business affiliations than would have been disclosed under Form SDR, as 
proposed. The Commission believes that 1 hour represents a reasonable 
estimate of the additional burden hours that each SDR will incur in 
responding to the revised disclosure requirement.
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    \1132\ See Section VI.A.1.c of this release discussing Form SDR.
---------------------------------------------------------------------------

    As noted above, the Commission estimates that 10 respondents will 
be subject to this burden.\1133\ Accordingly, the Commission estimates 
that the one-time initial registration burden for all SDRs is 
approximately 4810 burden hours.\1134\ The Commission believes that 
SDRs will, as a general matter, prepare Form SDR internally, except as 
otherwise discussed below. In the Proposing Release, the Commission 
solicited comments as to whether SDRs would outsource this requirement, 
but the Commission did not receive any comments in this regard.\1135\
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    \1133\ See Section VII.C.1 of this release discussing 
respondents to the registration requirements and Form SDR.
    \1134\ The Commission derived its estimate from the following: 
(400 hours for the burden of Form SDR, as proposed) + (80 hours for 
the burden of responding to additional provisions incorporated from 
Form SIP) + (1 hour for the burden of responding to the revised 
disclosure of business affiliations) x 10 SDRs = 4810.
    \1135\ See Proposing Release, 75 FR at 77348, supra note 2.
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    Under Rule 13n-1(f), a non-resident SDR must (i) certify that the 
SDR can, as a matter of law, and will provide the Commission with 
prompt access to the SDR's books and records and can, as a matter of 
law, and will submit to onsite inspection and examination by the 
Commission and (ii) provide an opinion of counsel that the SDR can, as 
a matter of law, provide the Commission with access to the books and 
records of such SDR and can, as a matter of law, submit to onsite 
inspection and examination by the Commission. This creates an 
additional burden for non-resident SDRs. The Commission estimates, 
based on similar requirements of Form 20-F, that this additional burden 
will add 1 hour and $900 in outside legal costs per respondent.\1136\ 
As stated above, the Commission believes that there will be three 
respondents to this collection, for a total additional burden of 3 
hours and $2,700 for non-resident SDRs to comply with Rule 13n-
1(f).\1137\
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    \1136\ 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, 24022 (Apr. 30, 2004) (outlining 
the Commission's calculations regarding the PRA burdens resulting 
from having to provide a legal opinion and additional disclosure 
required by Instruction 3 to Item 7.B to Form 20-F). The Commission 
calculates that the certification and opinion of counsel would 
result in an additional burden to non-resident SDRs of 3.25 hours, 
of which approximately 1 hour would be incurred by the non-resident 
SDRs themselves and 2.25 hours would be incurred by outside legal 
counsel, which would cost approximately $900 ($900 = 2.25 hours 
(portion of estimated burden incurred by outside legal counsel) x 
$400 (hourly rate for an outside attorney)). The Commission 
continues to estimate the hourly rate for an outside attorney at 
$400 per hour, based on industry sources. See Registration of 
Municipal Advisors, Exchange Act Release No. 70462 (Sep. 20, 2013), 
78 FR 67468, 67593 n.1538 (Nov. 12, 2013) (estimating the cost of an 
outside attorney to be $400 per hour). In the Proposing Release, the 
Commission mistakenly estimated the burden to be 3 hours incurred by 
each non-resident SDR (in addition to $900 incurred by each SDR in 
connection with hiring outside legal counsel). Proposing Release, 75 
FR at 77348, supra note 2.
    \1137\ See Section VII.C.1 of this release discussing 
respondents to the registration requirements and Form SDR. The base 
burden of 4,000 hours includes resident and non-resident SDRs. The 3 
hour and $2700 figures are the additional costs as a result of Rule 
13n-1(f) for non-resident SDRs not already accounted for in the 
4,000 hour figure.
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    SDRs are also required to amend Form SDR pursuant to Rule 13n-1(d) 
annually as well as when information in certain items is or becomes 
inaccurate. Amendments are also permitted in certain situations 
involving successor SDRs pursuant to Rule 13n-3(b).\1138\ The 
Commission believes that these amendments represent the ongoing annual 
burdens of Form SDR and Rules 13n-1(d) and 13n-3(b).\1139\ The 
Commission estimates that the ongoing annualized burden for complying 
with these registration amendment requirements will be approximately 12 
burden hours for each SDR per amendment\1140\ and approximately 120 
burden hours for all SDRs per amendment. Rule 13n-1(d) requires one 
annual amendment on Form SDR as well as interim amendments on Form SDR 
when certain reported information therein is or becomes inaccurate or, 
under Rule 13n-3(b), in certain circumstances involving successor

[[Page 14523]]

SDRs, as discussed above.\1141\ When Form ADV was amended in 2010, the 
Commission estimated that there were 2 amendments per year for that 
form.\1142\ The Commission believes that 2 amendments will be a 
reasonable estimate for the number of amendments per year to correct 
inaccurate information or in situations involving successor SDRs 
because amendments on Form ADV, like amendments on Form SDR, are 
required annually as well as when certain information on Form ADV 
becomes inaccurate.\1143\ Thus, the Commission estimates that 
respondents will be required to file on average a total of 3 amendments 
per year, 2 amendments plus the required annual amendment. Therefore, 
the Commission estimates that each respondent will have an average 
annual burden of 36 hours for a total estimated average annual burden 
of 360 hours.\1144\ The Commission believes that SDRs will conduct this 
work internally.
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    \1138\ See Section VI.C.3 of this release discussing Rule 13n-
3(b).
    \1139\ When estimating the burden associated with Form SIP, the 
Commission did not separately estimate the burden associated with 
amendments on Form SIP because the Commission believed that the 
annual burden of Form SIP encompassed the burden of amending Form 
SIP. SIP PRA Filing, 76 FR 30984, supra note 1129 (``This annual 
reporting and recordkeeping burden does not include the burden hours 
or cost of amending a Form SIP because the Commission has already 
overstated the compliance burdens by assuming that the Commission 
will receive one initial registration pursuant to Rule 609 on Form 
SIP a year.'') Although the Commission is basing its estimate of the 
burden of Form SDR on its estimate of the burden of Form SIP, the 
Commission is separately estimating the burden of amendments on Form 
SDR.
    \1140\ When amendments to Form ADV were proposed in 2008, the 
Commission estimated the hour burden for amendments to be roughly 3% 
of the initial burden. Amendments to Form ADV, Investment Advisers 
Act Release No. 2711 (Mar. 3, 2008), 73 FR 13958, 13979 (Mar. 14, 
2008). In that proposal, the initial burden was calculated to be 
22.25 hours per respondent and 0.75 hours per respondent for 
amendments. The Commission believes that a similar ratio will apply 
to filers of Form SDR because filers of Form ADV, like filers of 
Form SDR, are required to file amendments annually as well as when 
certain information on Form ADV becomes inaccurate. See Form ADV: 
General Instructions, available at http://www.sec.gov/about/forms/formadv-instructions.pdf. Thus, the Commission estimates that the 
annual burden of filing one amendment on Form SDR will be 3% of the 
400 hour initial burden, or 12 hours.
    \1141\ See Sections VI.A.4.c and VI.C.3 of this release 
discussing Rule 13n-1(d) and Rule 13n-3(b), respectively.
    \1142\ Amendments to Form ADV, Investment Advisers Act Release 
No. 3060 (July 28, 2010), 75 FR 49234, 49257 (Aug. 12, 2010). 
Although this information is based upon investment adviser 
statistics, the Commission believes that, for PRA purposes, the 
differences between investment advisers and SDRs are minimal.
    \1143\ See Form ADV: General Instructions, available at http://www.sec.gov/about/forms/formadv-instructions.pdf.
    \1144\ The 36 hour figure is the result of the estimated burden 
hour per SDR per amendment (12) times the estimated number of 
amendments per year (3). The 360 hour figure is the result of the 
estimated burden per SDR (36) times the number of SDRs (10).
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    SDRs may withdraw from registration by filing a withdrawal from 
registration on Form SDR electronically in a tagged data format. An SDR 
withdrawing from registration must designate on Form SDR a person to 
serve as the custodian of the SDR's books and records. An SDR must also 
update any inaccurate information. The Commission believes that an 
SDR's withdrawal from registration on Form SDR will be substantially 
similar to its most recently filed Form SDR. The Form SDR being filed 
in this circumstance will therefore already be substantially complete 
and as a result, the burden will not be as great as the burden of 
filing an application for registration on Form SDR. Rather, the 
Commission believes that the burden of filing a withdrawal from 
registration on Form SDR will be akin to filing an amendment on Form 
SDR. Thus, the Commission estimates that the one-time burden of filing 
a Form SDR to withdraw from registration will be approximately 12 
burden hours for each SDR and approximately 120 burden hours for all 
SDRs.
2. SDR Duties, Data Collection and Maintenance, and Direct Electronic 
Access
    As discussed above, Rules 13n-4(b)(2) and (4), and 13n-5 require 
SDRs to accept and maintain data, including transaction data, received 
from third parties and to calculate and maintain positions.\1145\ Rule 
13n-4(b)(5) requires SDRs to provide direct electronic access to the 
Commission or its designees. Rules 13n-4(b)(3) and 13n-5(b)(1)(iii) 
require SDRs to confirm the accuracy of the data submitted and to 
establish, maintain, and enforce written policies and procedures 
reasonably designed to satisfy themselves that the transaction data 
that has been submitted to the SDRs is complete and accurate. In 
addition, Rule 13n-5(b)(4) requires SDRs to maintain the transaction 
data and related identifying information for not less than five years 
after the applicable SBS expires and historical positions for not less 
than five years.\1146\ This obligation would continue even if an SDR 
ceases to be registered or ceases doing business.\1147\ SDRs are 
required to make and keep current a plan to ensure compliance with this 
requirement.\1148\
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    \1145\ See Sections VI.D.2.c, VI.E, and VI.F.3 of this release 
discussing Rules 13n-4(b)(2) and (4), 13n-5, and 13n-6, 
respectively.
    \1146\ This data is required to be maintained in a place and 
format that is readily accessible and usable to the Commission and 
other persons with authority to access or view the information and 
is also required to be maintained in an electronic format that is 
non-rewritable and non-erasable.
    \1147\ Rule 13n-5(b)(7).
    \1148\ Rule 13n-5(b)(8).
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    The Commission estimates that the average one-time start-up burden 
per SDR of establishing systems compliant with all of the requirements 
described in this section, including the SBS data maintenance 
requirements of Rules 13n-5(b)(4), (7), and (8), will be 42,000 hours 
and $10 million in information technology costs. Based on the expected 
number of respondents, the Commission estimates a total start-up cost 
of 420,000 hours and $100 million in information technology costs. The 
Commission further estimates that the average ongoing annual costs of 
these systems to be 25,200 hours and $6 million per respondent or a 
total of 252,000 hours and $60 million for a total ongoing annual 
burden.
    Each SDR is also required to establish, maintain, and enforce 
written policies and procedures, reasonably designed: (1) Under Rule 
13n-5(b)(1), for the reporting of complete and accurate transaction 
data to the SDR and to satisfy itself that such information is complete 
and accurate; (2) under Rule 13n-5(b)(2), to calculate positions for 
all persons with open SBSs for which the SDR maintains records; (3) 
under Rule 13n-5(b)(3), to ensure transaction data and positions that 
the SDR maintains are complete and accurate; (4) under Rule 13n-
5(b)(5), to prevent any provision in a valid SBS from being invalidated 
or modified through the procedures or operations of the SDR; and (5) 
under Rule 13n-6, with respect to those systems that support or are 
integrally related to the performance of the SDR's activities, to 
ensure that those systems provide adequate levels of capacity, 
integrity, resiliency, availability, and security. While these policies 
and procedures will vary in exact cost, the Commission estimates that 
they will require an average of 210 hours per respondent per policy and 
procedure to prepare and implement. The Commission further estimates 
that these policies and procedures will require a total of $100,000 for 
outside legal costs per SDR.\1149\ In sum, the Commission estimates the 
initial burden for all respondents to be 10,500 hours and $1,000,000 
for outside legal costs.\1150\ The Commission based these estimates 
upon those estimates the Commission used with regards to establishing 
policies and procedures regarding Regulation NMS.\1151\ Once these 
policies and procedures are established, the Commission estimates that 
it will take, on average, 60 hours annually to maintain each of these 
policies and procedures per respondent, with a total estimated average 
annual burden of 3,000 hours for all respondents.\1152\ The Commission

[[Page 14524]]

believes that SDRs will conduct this maintenance work internally.
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    \1149\ This figure is the result of an estimated $400 an hour 
cost for outside legal services (as discussed in supra note 1136) 
times 50 hours of outside legal consulting per policy and procedure, 
times 5 policies and procedures.
    \1150\ The 10,500 hour figure is the result of the number of 
hours per policy and procedure (210) times the number of policies 
and procedures required by these provisions (5), times the number of 
respondents (10). The $1,000,000 figure is the result of the outside 
dollar cost per respondent ($100,000) times the number of 
respondents (10).
    \1151\ Regulation NMS, Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37577 (June 29, 2005) (``Regulation NMS Adopting 
Release''). The Commission based these estimates on those for non-
SRO trading centers rather than for SRO trading centers because the 
Commission believes that, for PRA purposes, non-SRO trading centers' 
burdens are more like those that SDRs will face under the SDR Rules. 
Like non-SRO trading centers, SDRs are not SROs and handle data 
regarding trades.
    \1152\ The 3,000 hour figure is the result of the estimated 
average hourly burden to maintain each policy and procedure (60), 
times the total number of policies and procedures required under 
this requirement (5), times the total number of SDRs (10).
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    As discussed above, the Commission is not adopting the more 
specific requirements of proposed Rule 13n-6(b)(1), but is instead 
adopting the core policies and procedures requirement.\1153\ The 
Commission continues to believe, however, that the 210 hour per 
respondent estimate for adopting policies and procedures is applicable 
because Rule 13n-6 continues to require SDRs to adopt policies and 
procedures. The Commission believes that the 210 hour estimate is a 
reasonable estimate because the estimate is used in other contexts to 
estimate the burdens of creating policies and procedures and the 
Commission expects that the policies and procedures required by Rule 
13n-6 would result in a comparable burden to SDRs.\1154\ Also as 
discussed above, the Commission is not adopting proposed Rules 13n-
6(b)(3) and (4).\1155\ Thus, the Commission is no longer including the 
estimated burden of those proposed rules in the overall burdens 
discussed in this release.
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    \1153\ See Section VI.F.3 of this release discussing Rule 13n-6.
    \1154\ See supra note 1151 discussing Regulation NMS.
    \1155\ See Section VI.F.3 of this release discussing Rule 13n-6.
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3. Recordkeeping
    Every SDR is required, under Rule 13n-7(a)(1), to make and keep 
current a record for each office listing, by name or title, each person 
who, without delay, can explain the types of records the SDR maintains 
at that office. Also, under Rule 13n-7(a)(2), every SDR is required to 
make and keep current a record listing officers, managers, or persons 
performing similar functions with responsibility for establishing the 
policies and procedures of the SDR that are reasonably designed to 
ensure compliance with the Exchange Act and the rules and regulations 
thereunder. The Commission estimates that these records will create an 
initial burden, at a maximum, of 1 hour per respondent, for a total 
initial burden of 10 hours. The Commission estimates that the ongoing 
annual burden will be 0.17 hours (10 minutes) per respondent to keep 
these records current and to store these documents based on the 
Commission's estimates for similar requirements for broker-
dealers.\1156\ This results in a total ongoing annual burden of 1.7 
hours. The Commission believes that SDRs will conduct this work 
internally.
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    \1156\ See Books and Records Requirements for Brokers and 
Dealers Under the Securities Exchange Act of 1934, Exchange Act 
Release No. 44992 (Oct. 26, 2001), 66 FR 55818, 55836 (Nov. 2, 2001) 
(regarding the collection of information pursuant to Rules 17a-
3(a)(21) and (22)).
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    Rule 13n-7(b) requires each SDR to keep and preserve at least one 
copy of all documents made or received by it in the course of its 
business as such, other than the transaction data and positions 
collected and maintained pursuant to Rule 13n-5. These records are 
required to be kept for a period of not less than five years, the first 
two years in a place that is immediately available to representatives 
of the Commission for inspection and examination.\1157\ Upon the 
request of any representative of the Commission, an SDR is required to 
furnish promptly documents required to be kept and preserved by it 
pursuant to Rules 13n-7(a) or (b) to such a representative. As 
discussed above, Rule 13n-7(b) is intended to set forth the 
recordkeeping obligations of SDRs and thereby facilitate implementation 
of the inspection and examination of SDRs by representatives of the 
Commission.\1158\ Based on the Commission's experience with 
recordkeeping costs and consistent with prior burden estimates for 
similar provisions,\1159\ the Commission estimates that this 
requirement will create an initial burden of 345 hours and $1800 in 
information technology costs per respondent, for a total initial burden 
of 3450 hours and $18,000 for all respondents. The Commission further 
estimates that the ongoing annual burden will be 279 hours per 
respondent and a total ongoing annual burden of 2790 hours for all 
respondents.
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    \1157\ This obligation will continue even if an SDR withdraws 
from registration or ceases doing business. See Rule 13n-7(c).
    \1158\ See Section VI.G.2.c of this release discussing Rule 13n-
7(b).
    \1159\ See Amendments to Rules for Nationally Recognized 
Statistical Rating Organizations, Exchange Act Release No. 59342 
(Feb. 2, 2009), 74 FR 6456, 6472 (Feb. 9, 2009).
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4. Reports
    Under Rule 13n-8, SDRs are required to report promptly to the 
Commission, in a form and manner acceptable to the Commission, such 
information as the Commission determines necessary or appropriate for 
the Commission to perform the duties of the Commission. For PRA 
purposes only, the Commission estimates that it will request these 
reports a maximum of once per year, per respondent. For PRA purposes 
only, the Commission estimates that these reports will be limited to 
information that will have been already compiled under the SDR Rules 
and thus require only 1 hour per response to compile and transmit. 
Thus, the Commission estimates, for PRA purposes only, that the total 
annual burden for these reports to be 10 hours for all respondents. The 
Commission believes that SDRs will conduct this work internally.
    As discussed above, the Commission is not adopting proposed Rule 
13n-6(b)(2).\1160\ Thus, the Commission is no longer including the 
estimated burden of that proposed rule in the overall burdens discussed 
in this release.
---------------------------------------------------------------------------

    \1160\ See Section VI.F.3 of this release discussing Rule 13n-6.
---------------------------------------------------------------------------

5. Disclosure
    As discussed above, pursuant to Rule 13n-10, SDRs are required to 
provide certain disclosures to certain market participants.\1161\ The 
Commission estimates that the average one-time start-up burden per SDR 
of preparing this disclosure document is 97.5 hours and $4,400 of 
external legal costs and $5,000 of external compliance consulting 
costs, resulting in a total initial burden of 975 hours and $94,000 for 
all respondents. This estimate reflects the Commission's experience 
with and burden estimates for similar disclosure document requirements 
applied to investment advisers with 1000 or fewer employees and as a 
result of its discussions with market participants.\1162\ Because the 
Commission expects that SDRs will be able to provide this disclosure 
document electronically, the Commission expects that this requirement 
will result in an average annual burden, after the initial creation of 
the disclosure document, of 1 hour per respondent, with a total annual 
burden of 10 hours for all respondents. The Commission believes that 
SDRs will conduct this ongoing annual work internally.
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    \1161\ See Section VI.I.2.c of this release discussing Rule 13n-
10.
    \1162\ See Amendments to Form ADV, Investment Advisers Act 
Release No. 3060 (July 28, 2010), 75 FR 49234, 49255-49256 (Aug. 12, 
2010) (finding that average initial annual burden associated with 
Form ADV for each medium-sized investment adviser, meaning an 
adviser with between 11 and 1,000 employees, to be 97.5 hours).
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6. Chief Compliance Officer; Compliance Reports and Financial Reports
    Under Rules 13n-11(c)(6) and (7), an SDR's CCO is responsible for, 
among other things, establishing procedures for the remediation of 
noncompliance issues identified by the CCO, and establishing and 
following appropriate procedures for the handling, management response, 
remediation, retesting, and closing of noncompliance issues. Based on 
the Commission's estimates regarding Regulation

[[Page 14525]]

NMS,\1163\ it estimates that on average these two provisions will 
require 420 hours to implement and 120 hours to administer per year per 
respondent, for a total burden of 4200 hours initially and, on average, 
1200 hours annually for all respondents.\1164\ Also based on the 
estimates regarding Regulation NMS, the Commission estimates that SDRs 
will incur a total of $40,000 in initial outside legal costs to 
establish the required procedures as a result of this burden per 
respondent, for a total outside cost burden of $400,000 for all 
respondents.\1165\
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    \1163\ See Regulation NMS Adopting Release, supra note 1151.
    \1164\ The 420 hour figure is the result of the estimated 
average burden hours to create one policy and procedure (210) times 
the 2 policies and procedures required by these provisions. The 120 
hour figure is the result of the estimated average burden hours to 
administer one policy and procedure (60) times the 2 policies and 
procedures required by these provisions. The 4200 hour figure is the 
result of the estimated average burden hours per respondent to 
create these policies and procedures (420) times the number of SDRs 
(10). The 1200 hour figure is the result of the estimated average 
burden hours per respondent to maintain these policies and 
procedures (120) times the number of SDRs (10).
    \1165\ $400,000 figure is the result of an estimated $400 an 
hour cost for outside legal services (as discussed in supra note 
1136) times 50 hours per policy and procedure, times 2 policies and 
procedures, times the number of SDRs (10).
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    A CCO is also required under Rules 13n-11(d), (e), and (g) to 
prepare and submit annual compliance reports to the SDR's board for 
review before the annual compliance reports are filed with the 
Commission. Based upon the Commission's estimates for similar annual 
reviews by CCOs of investment companies,\1166\ the Commission estimates 
that these reports will require on average 5 hours per respondent per 
year. Thus, the Commission estimates a total annual burden of 50 hours 
for all respondents. The Commission believes that these costs will be 
internal costs.
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    \1166\ See Compliance Programs of Investment Companies and 
Investment Advisers, Investment Company Act Release No. 25925 (Feb. 
5, 2003), 68 FR 7038, 7047 (Feb. 11, 2003).
---------------------------------------------------------------------------

    Rules 13n-11(f) and (g) require that financial reports be prepared 
and filed with the Commission as an official filing in accordance with 
the EDGAR Filer Manual and include, as part of the official filing, an 
Interactive Data Financial Report filed in accordance with Rule 407 of 
Regulation S-T. The Commission estimates, based on its experience with 
entities of similar size to the respondents to this collection, that 
preparing and filing the financial reports will generally require on 
average 500 hours per respondent and cost $500,000 for independent 
public accounting services. Thus, the Commission estimates a total 
annual burden of 5000 hours and $5,000,000 for all respondents.
    One commenter suggested that ``[i]n an attempt to harmonize final 
[SDR] rules with the CFTC's final [swap data repository] rules, the 
Commission should consider removing Proposed Rule 240.13n-11(f)(2)'s 
requirement that each financial report filed with a compliance report 
is audited in accordance with the standards of the Public Company 
Accounting Oversight Board by a registered public accounting firm that 
is qualified and independent unless the [SDR] is under a separate 
obligation to provide financial statements.'' \1167\ The commenter 
believed that ``[t]his requirement imposes an additional burden for an 
[SDR] and is not justified in relation to the risks that an [SDR] would 
pose to its members'' and that ``[u]nlike clearing agencies or other 
entities supervised by the Commission, an [SDR] does not have financial 
exposure to its users or participants that would justify the imposition 
of this requirement.'' \1168\ The commenter suggested that the 
Commission consider ``adopting [instead] the CFTC's approach in its 
final [swap data repository] rules, which require [a swap data 
repository's] financial statements be prepared in conformity with 
generally accepted accounting principles. . . .'' \1169\
---------------------------------------------------------------------------

    \1167\ DTCC 5, supra note 19.
    \1168\ DTCC 5, supra note 19.
    \1169\ DTCC 5, supra note 19.
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    As discussed further below, although the Commission understands 
that SDRs will incur costs in hiring and retaining qualified public 
accounting firms, the Commission believes that obtaining audited 
financial reports from SDRs is important given the significant role the 
Commission believes that SDRs will play in the SBS market.\1170\ Given 
this significant role, the Commission believes that it is important to 
obtain audited financial reports from SDRs in order to determine 
whether or not they have sufficient financial resources to continue 
operations. While the Commission recognizes that Rule 13n-11(f)(2) may, 
in some cases, be more costly than the CFTC's requirement of quarterly 
unaudited financial statements, the Commission believes that the 
additional burden, where it exists, is justified by the benefits of 
requiring audited financial statements.
---------------------------------------------------------------------------

    \1170\ See Section VIII.D.6.c of this release discussing 
economic alternatives to Rule 13n-11(f)(2).
---------------------------------------------------------------------------

    The compliance reports and financial reports filed with the 
Commission are required to be filed in a tagged data format. The 
compliance reports must be filed in a tagged data format in accordance 
with the instructions contained in the EDGAR Filer Manual,\1171\ and 
the financial reports must be provided as an official filing in 
accordance with the EDGAR Filer Manual and include, as part of the 
official filing, an Interactive Data Financial Report filed in 
accordance with Rule 407 of Regulation S-T.\1172\ These requirements 
will create an additional burden on respondents beyond the preparation 
of these reports. The Commission estimates, based on its experience 
with other tagged data initiatives, that these requirements will add a 
burden of an average of 54 hours and $22,772 in outside software and 
other costs per respondent per year, creating an estimated total annual 
burden of 540 hours and $227,720 for all respondents to tag the data 
for both the compliance reports and financial reports that are required 
under Rule 13n-11.
---------------------------------------------------------------------------

    \1171\ See 17 CFR 232.301.
    \1172\ See Section VI.J.5.c of this release discussing Rule 407 
of Regulation S-T.
---------------------------------------------------------------------------

7. Other Provisions Relevant to the Collection of Information
    Rule 13n-4(c)(1)(iii) requires an SDR to establish, monitor on an 
ongoing basis, and enforce clearly stated objective criteria that would 
permit fair, open, and not unreasonably discriminatory access to 
services offered and data maintained by the SDR as well as fair, open, 
and not unreasonably discriminatory participation by market 
participants and others that seek to connect to or link with the SDRs. 
For PRA purposes only, the Commission believes that this should be a 
lesser burden than for written policies and procedures because such 
criteria may not need to be as detailed or intricate as written 
policies and procedures. Thus, the Commission estimates that this 
provision will require 157.5 hours to implement, with an associated 
outside legal cost of $15,000 per respondent.\1173\ This results in an 
estimate of an initial burden for this requirement for all respondents 
of 1575 hours and

[[Page 14526]]

$150,000. The Commission estimates that the average annual burden will 
be 45 hours per respondent, for a total estimated average annual burden 
of 450 hours for all respondents.\1174\ The Commission believes that 
SDRs will conduct this work internally.
---------------------------------------------------------------------------

    \1173\ These numbers are based on 75% of the 210 hour and 
$20,000 (50 hours of outside legal costs at $400 an hour) estimates 
to create one set of written policies and procedures under 
Regulation NMS for non-SRO trading centers. See Regulation NMS 
Adopting Release, supra note 1151. This is based on an estimate that 
this requirement will create 75% of the burden of creating written 
policies and procedures under Regulation NMS. The Commission 
believes that the 75% assumption is appropriate because the 
Commission believes that Rule 13n-4(c)(1)(iii) imposes a lesser 
burden than the written policies and procedures required by other 
SDR Rules because it requires only written criteria and not full 
policies and procedures.
    \1174\ These numbers are 75% of the 60 hour estimates of the 
ongoing burden regarding one set of written policies and procedures 
under Regulation NMS for non-SRO trading centers. See Regulation NMS 
Adopting Release, supra note 1151. This is based on an estimate that 
this requirement will create 75% of the ongoing burden of written 
policies and procedures under Regulation NMS. The Commission 
believes that the 75% assumption is appropriate because the 
Commission believes that Rule 13n-4(c)(1)(iii) imposes a lesser 
burden than the written policies and procedures required by other 
SDR Rules because it requires only written criteria and not full 
policies and procedures.
---------------------------------------------------------------------------

    Rule 13n-4(c)(1)(iv) requires an SDR to establish, maintain, and 
enforce written policies and procedures reasonably designed to review 
any prohibition or limitation of any person with respect to access to 
services offered, directly or indirectly, or data maintained by the SDR 
and to grant such person access to such services or data if such person 
has been discriminated against unfairly. Based on the Commission's 
estimates regarding Regulation NMS,\1175\ it estimates that, on 
average, this provision will require 210 hours to implement and 60 
hours to administer per year per respondent, for a total burden of 2100 
hours initially and 600 hours on average, annually. The Commission also 
estimates, based on this earlier estimate, that SDRs will incur a total 
of $20,000 in initial outside legal costs to establish the required 
policies and procedures as a result of this provision per respondent 
for a total outside cost burden of $200,000 for all respondents.\1176\
---------------------------------------------------------------------------

    \1175\ See Regulation NMS Adopting Release, supra note 1151. 
These estimates are based on 100% of the 210 hour estimate to create 
one set of written policies and procedures and 100% of the 60 hour 
estimate of the ongoing burden regarding one set of written policies 
and procedures under Regulation NMS for non-SRO trading centers. The 
Commission believes that the 100% assumption is appropriate because 
Rule 13n-4(c)(1)(iv) requires written policies and procedures.
    \1176\ This figure is the result of an estimated $400 an hour 
cost for outside legal services (as discussed in supra note 1136) 
times 50 hours per policy and procedure, times 1 policy and 
procedure, times the number of SDRs (10). The Commission believes 
that SDRs will use outside counsel to initially create these 
policies and procedures because SDRs just beginning operations may 
not have sufficient in-house legal staff.
---------------------------------------------------------------------------

    Rule 13n-4(c)(2)(iv) requires an SDR to establish, maintain, and 
enforce written policies and procedures reasonably designed to ensure 
that the SDR's senior management and each member of the board or 
committee that has the authority to act on behalf of the board possess 
requisite skills and expertise to fulfill their responsibilities in the 
management and governance of the SDR, to have a clear understanding of 
their responsibilities, and to exercise sound judgment about the SDR's 
affairs. Based on the Commission's estimates regarding similar 
requirements in Regulation NMS,\1177\ it estimates that, on average, 
this provision will require 210 hours to implement and 60 hours to 
administer per year per respondent, for a total burden of 2100 hours 
initially and 600 hours on average, annually. The Commission also 
estimates, based on this earlier estimate, that SDRs will initially 
incur a total of $20,000 in outside legal costs to establish the 
required policies and procedures as a result of this provision per 
respondent for a total outside cost burden of $200,000 for all 
respondents.\1178\ The Commission believes that SDRs will conduct the 
ongoing administration of this provision internally.
---------------------------------------------------------------------------

    \1177\ See Regulation NMS Adopting Release, supra note 1151.
    \1178\ This figure is the result of an estimated $400 an hour 
cost for outside legal services (as noted in supra note 1136) times 
50 hours per policy and procedure, times 1 policy and procedure, 
times the number of SDRs (10).
---------------------------------------------------------------------------

    Rule 13n-4(c)(3) addresses the conflict of interest requirements 
governing SDRs. In particular, each SDR is required to establish and 
enforce written policies and procedures reasonably designed to minimize 
conflicts of interest. This includes establishing, maintaining, and 
enforcing written policies and procedures reasonably designed to 
identify and mitigate potential and existing conflicts of interest in 
the SDR's decision-making process on an ongoing basis. It also includes 
establishing, maintaining, and enforcing written policies and 
procedures regarding the SDR's non-commercial and commercial use of the 
SBS transaction information that it receives. Based on the Commission's 
estimates regarding Regulation NMS,\1179\ it estimates that on average 
these two requirements will require 420 hours to implement and 120 
hours to administer per year per respondent, for a total burden of 4200 
hours initially and 1200 hours on average annually.\1180\ Also based on 
the Regulation NMS estimates regarding policies and procedures, the 
Commission estimates that SDRs will incur a total of $40,000 in initial 
outside legal costs to establish the required policies and procedures 
as a result of this provision per respondent for a total outside cost 
burden of $400,000 for all respondents.\1181\
---------------------------------------------------------------------------

    \1179\ See Regulation NMS Adopting Release, supra note 1151.
    \1180\ The 420 hour figure is the result of the estimated 
average burden hours to create one policy and procedure (210) times 
the 2 policies and procedures required by these provisions. The 120 
hour figure is the result of the estimated average burden hours to 
administer one policy and procedure (60) times the 2 policies and 
procedures required by these provisions. The 4200 hour figure is the 
result of the estimated average burden hours per respondent to 
create these policies and procedures (420) times the number of SDRs 
(10). The 1200 hour figure is the result of the estimated average 
burden hours per respondent to maintain these policies and 
procedures (120) times the number of SDRs (10).
    \1181\ This $400,000 figure is the result of an estimated $400 
an hour cost for outside legal services (as discussed in supra note 
1136) times 50 hours, times 2 policies and procedures, times the 
number of SDRs (10).
---------------------------------------------------------------------------

    Rule 13n-5(b)(6) requires that every SDR establish procedures and 
provide facilities reasonably designed to effectively resolve disputes 
over the accuracy of the transaction data and positions that are 
recorded in the SDR. For PRA purposes only, the Commission believes 
that this is a greater burden than that for written policies and 
procedures alone because SDRs will also be required to provide 
facilities. Thus, the Commission estimates that Rule 13n-5(b)(6) will 
require 315 hours for each respondent to implement.\1182\ There will 
likely be a need for a respondent to consult with outside legal 
counsel, which the Commission estimates will cost $30,000 per 
respondent.\1183\ Thus, the Commission estimates a total initial burden 
for all respondents of 3150 hours and $300,000 in outside costs. The 
Commission estimates the ongoing average annual burden of this 
requirement to be 90 hours per respondent for a total of 900 hours for 
the estimated total annual burden for all respondents.\1184\ The

[[Page 14527]]

Commission believes that SDRs will conduct this ongoing work 
internally.
---------------------------------------------------------------------------

    \1182\ This number is 150% of the 210 hour estimate to create 
one set of written policies and procedures under Regulation NMS for 
non-SRO trading centers. See Regulation NMS Adopting Release, supra 
note 1151. This is based on an estimate that Rule 13n-5(b)(6) will 
create 150% of the burden of creating written policies and 
procedures under Regulation NMS because, in addition to establishing 
procedures, SDRs will also be required to provide facilities 
reasonably designed to effectively resolve disputes over the 
accuracy of the transaction data and positions that are recorded in 
the SDR.
    \1183\ This number is 150% of the estimate of outside legal 
costs (50 hours) to create one set of written policies and 
procedures under Regulation NMS for non-SRO trading centers, at an 
estimate of $400 per hour. See Regulation NMS Adopting Release, 
supra note 1151. This is based on an estimate that Rule 13n-5(b)(6) 
will create 150% of the burden of creating written policies and 
procedures under Regulation NMS because, in addition to establishing 
procedures, SDRs will also be required to provide facilities 
reasonably designed to effectively resolve disputes over the 
accuracy of the transaction data and positions that are recorded in 
the SDR.
    \1184\ These numbers are based on 150% of the 60 hour estimate 
of the ongoing burden regarding one set of written policies and 
procedures under Regulation NMS for non-SRO trading centers. See 
Regulation NMS Adopting Release, supra note 1151. This is based on 
an estimate that Rule 13n-5(b)(6) will create 150% of the ongoing 
burden of written policies and procedures under Regulation NMS 
because, in addition to establishing procedures, SDRs will also be 
required to provide facilities reasonably designed to effectively 
resolve disputes over the accuracy of the transaction data and 
positions that are recorded in the SDR.
---------------------------------------------------------------------------

    Rules 13n-4(b)(8) and 13n-9 address privacy requirements for SDRs. 
Rule 13n-4(b)(8) requires SDRs to maintain the privacy of any and all 
SBS transaction information that the SDR receives from a SBS dealer, 
counterparty, or any registered entity as prescribed in Rule 13n-9. 
Rule 13n-9(b)(1) requires each SDR to establish, maintain, and enforce 
written policies and procedures reasonably designed to protect the 
privacy of any and all SBS transaction information that the SDR 
receives from any SBS dealer, counterparty, or any registered entity. 
Based on the Commission's estimates regarding Regulation NMS,\1185\ it 
estimates that, on average, these provisions will require 420 hours to 
implement and 120 hours to administer per year per respondent, for a 
total burden of 4200 hours initially and 1200 hours on average, 
annually.\1186\ Also based on the Regulation NMS estimates,\1187\ the 
Commission estimates that SDRs will incur a total of $40,000 in initial 
outside legal costs to establish the required policies and procedures 
as a result of these provisions per respondent for a total outside cost 
burden of $400,000 for all respondents.\1188\
---------------------------------------------------------------------------

    \1185\ See Regulation NMS Adopting Release, supra note 1151.
    \1186\ The 420 hour figure is the result of the estimated 
average burden hours to create one policy and procedure (210) times 
the 2 policies and procedures required by these provisions. The 120 
hour figure is the result of the estimated average burden hours to 
administer one policy and procedure (60) times the 2 policies and 
procedures required by these provisions. The 4200 hour figure is the 
result of the estimated average burden hours per respondent to 
create these policies and procedures (420) times the number of SDRs 
(10). The 1200 hour figure is the result of the estimated average 
burden hours per respondent to maintain these policies and 
procedures (120) times the number of SDRs (10).
    \1187\ See Regulation NMS Adopting Release, supra note 1151.
    \1188\ This $400,000 figure is the result of an estimated $400 
an hour cost for outside legal services (as discussed in supra note 
1136) times 50 hours per policy and procedure, times 2 policies and 
procedures, times the number of SDRs (10).
---------------------------------------------------------------------------

    Rule 13n-9(b)(2) requires each SDR to establish and maintain 
safeguards, policies, and procedures reasonably designed to prevent the 
misappropriation or misuse, directly or indirectly, of (1) any 
confidential information received by the SDR, (2) material, nonpublic 
information, and/or (3) intellectual property. At a minimum, these 
safeguards, policies and procedures must address limiting access to 
that information and intellectual property, standards pertaining to the 
trading by persons associated with the SDR for their personal benefit 
or the benefit of others, and adequate oversight. Based on the 
Commission's estimates regarding Regulation NMS,\1189\ it estimates 
that on average this provision will require 210 hours to implement and 
60 hours to administer per year per respondent, for a total burden of 
2100 hours initially and 600 hours on average, annually. Also based on 
the Regulation NMS estimates,\1190\ the Commission estimates that SDRs 
will incur a total of $20,000 in initial outside legal costs to 
establish the required policies and procedures as a result of this 
provision per respondent for a total outside cost burden of $200,000 
for all respondents.\1191\
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    \1189\ See Regulation NMS Adopting Release, supra note 1151.
    \1190\ See Regulation NMS Adopting Release, supra note 1151.
    \1191\ This figure is the result of an estimated $400 an hour 
cost for outside legal services (as discussed in supra note 1136) 
times 50 hours per policy and procedure, times 1 policy and 
procedure, times the number of SDRs (10).
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E. Collection of Information Is Mandatory

1. Registration Requirements, Form SDR, and Withdrawal From 
Registration
    The collection of information relating to registration 
requirements, Form SDR, and withdrawal from registration is mandatory 
for all SDRs when registering with the Commission, amending their 
applications for registration, or withdrawing from registration.
2. SDR Duties, Data Collection and Maintenance, and Direct Electronic 
Access
    The collection of information relating to SDR duties, data 
collection and maintenance, and direct electronic access is mandatory 
for all SDRs, absent an exemption.\1192\
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    \1192\ See Section VI.K of this release discussing the SDR 
Exemption.
---------------------------------------------------------------------------

3. Recordkeeping
    The collection of information relating to recordkeeping is 
mandatory for all SDRs, absent an exemption.
4. Reports
    The collection of information relating to reports is mandatory for 
all SDRs, absent an exemption.
5. Disclosure
    The collection of information relating to disclosure is mandatory 
for all SDRs, absent an exemption.
6. Chief Compliance Officer; Compliance Reports and Financial Reports
    The collection of information relating to CCOs is mandatory for all 
SDRs, absent an exemption.
7. Other Provisions Relevant to the Collection of Information
    The collection of information relating to other relevant provisions 
is mandatory for all SDRs, absent an exemption.

F. Confidentiality

    As discussed above, the Commission expects that it will make any 
information filed on, or in an exhibit or attachment to, an application 
for registration on Form SDR available on its Web site, except in cases 
where confidential treatment is requested by the applicant and granted 
by the Commission.\1193\
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    \1193\ See Section VI.A.1.c of this release discussing Form SDR.
---------------------------------------------------------------------------

    As discussed above, the Commission may make any information filed 
on, or in an exhibit or attachment to, an amendment on Form SDR 
available on its Web site, except in cases where confidential treatment 
is requested by the applicant and granted by the Commission.\1194\
---------------------------------------------------------------------------

    \1194\ See Section VI.A.4.c of this release discussing 
amendments on Form SDR.
---------------------------------------------------------------------------

    As discussed above, the Commission may make any information filed 
on, or in an exhibit or attachment to, withdrawals on Form SDR 
available on its Web site, except in cases where confidential treatment 
is requested by the applicant and granted by the Commission.\1195\
---------------------------------------------------------------------------

    \1195\ See Section VI.B.3 of this release discussing withdrawal 
from registration.
---------------------------------------------------------------------------

    Pursuant to Rules 13n-11(d), (f), and (g), SDRs must file an annual 
compliance report and financial report with the Commission. One 
commenter believed that the Commission should keep the annual 
compliance report confidential.\1196\ As discussed above, the 
Commission is not providing, by rule, that the annual compliance 
reports and financial reports are automatically granted confidential 
treatment, but an SDR may seek confidential treatment

[[Page 14528]]

pursuant to Exchange Act Rule 24b-2.\1197\ The Commission may make 
filed annual compliance reports and financial reports available on its 
Web site, except in cases where confidential treatment is requested by 
the SDR and granted by the Commission.
---------------------------------------------------------------------------

    \1196\ DTCC 2, supra note 19 (``DTCC firmly believes [that] the 
annual [compliance] report should be kept confidential by the 
Commission'' and explained that ``[g]iven the level of disclosure 
expected to be required . . . the report will likely contain 
confidential and proprietary business information.'').
    \1197\ See Section VI.J.4.c of this release discussing 
compliance reports.
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G. Retention Period of Recordkeeping Requirements

    Rule 13n-5(b)(4) requires that SDRs maintain the transaction data 
and related identifying information for not less than five years after 
the applicable SBS expires and historical positions for not less than 
five years. This data is required to be maintained in a place and 
format that is readily accessible and usable to the Commission and 
other persons with authority to access or view the information and is 
also required to be maintained in an electronic format that is non-
rewritable and non-erasable.
    Pursuant to Rule 13n-7(b), an SDR is required to preserve at least 
one copy of all documents as shall be made or received by it in the 
course of its business as such, including all records required under 
the Exchange Act and the rules and regulations thereunder, other than 
the transaction data and positions collected and maintained pursuant to 
Rule 13n-5. These records are required to be kept for a period of not 
less than five years, the first two years in a place that is 
immediately available to representatives of the Commission for 
inspection and examination.

VIII. Economic Analysis

A. Introduction

    The Commission has considered the economic implications of the SDR 
Rules and Form SDR as well as comments regarding the costs and benefits 
of the SDR Rules and Form SDR.\1198\ The Commission is sensitive to the 
economic consequences and effects of the SDR Rules and Form SDR, 
including their costs and benefits. In adopting the SDR Rules and Form 
SDR, the Commission has analyzed their costs and benefits, as set forth 
below, and has been mindful of the economic consequences of its policy 
choices. The SDR Rules and Form SDR fulfill the mandate of the Dodd-
Frank Act that the Commission adopt rules governing the registration, 
duties, and core principles of SDRs.
---------------------------------------------------------------------------

    \1198\ See Further Definition of ``Swap,'' ``Security-Based 
Swap,'' and ``Security-Based Swap Agreement''; Mixed Swaps; 
Security-Based Swap Agreement Recordkeeping, Securities Act Release 
No. 9338 (July 18, 2012), 77 FR 48208, 48332 (Aug. 13, 2012) (noting 
that ``[t]he programmatic costs and benefits associated with 
substantive rules applicable to [SBSs] under Title VII are being 
addressed in more detail in connection with the applicable 
rulemakings implementing Title VII'').
---------------------------------------------------------------------------

    As discussed above, the SBS market developed as an opaque OTC 
market without centralized trading venues or dissemination of pre- or 
post-trade pricing and volume information.\1199\ SBS dealers, as 
intermediaries in SBS transactions, observe order flow and have access 
to pricing and volume information that is generally not available to 
other market participants. With such access, SBS dealers generally have 
an informational and competitive advantage over non-dealer 
counterparties, granting SBS dealers some degree of market power, which 
may enable them to extract economic rents in transactions with those 
counterparties. This informational advantage may result in increased 
transaction costs for less-informed counterparties relative to a market 
where all participants have competitive access to information.
---------------------------------------------------------------------------

    \1199\ See Section II.A of this release discussing limited 
information currently available to market participants.
---------------------------------------------------------------------------

    In addition to the advantages that an opaque SBS market may give to 
SBS dealers, the opacity of the SBS market as described above may also 
affect current participation levels in the SBS market.\1200\ Certain 
market participants, including speculative traders who rely on 
proprietary trading strategies, may wish to keep their trades anonymous 
and may prefer to operate in an opaque SBS market. Hedgers and other 
market participants that do not benefit from opacity, however, may be 
dissuaded from participating in the SBS market by higher transaction 
costs and their disadvantageous informational position.
---------------------------------------------------------------------------

    \1200\ See Section II.B of this release.
---------------------------------------------------------------------------

    Opacity in the SBS market also limits the ability of market 
participants to form broad views of financial market conditions. In 
capital markets, pricing and volume information provide signals about 
liquidity and the quality of investments, including investments in 
reference entities underlying derivatives. In the SBS market, where 
pricing and volume information is not readily available, market 
participants may have difficulty assessing investment opportunities as 
well as the state of the broader market, or must form assessments with 
a narrower set of information than SBS dealers. In an opaque SBS 
market, difficulty in assessing investment opportunities and the state 
of the SBS market may inhibit participation in the SBS market.
    While opacity may generally confer a competitive advantage to SBS 
dealers who observe the largest share of order flow and limit 
participation in the SBS market, some features of the market and market 
participants may offset these effects. For example, large market 
participants that often transact with many SBS dealers are aware of the 
potential information asymmetries in the market. Furthermore, by virtue 
of their high trading volume, these participants may also observe a 
large share of the market, reducing the information advantage afforded 
to SBS dealers. SBS dealers may wish to compete for SBS business with 
the largest counterparties, and these participants may be able to 
obtain access to competitive pricing.\1201\ Nevertheless, the 
Commission generally expects that market participants with proprietary 
access to information--in the case of SBS markets, SBS dealers who 
observe order flow--can benefit from opacity and earn economic rents 
from their less-informed counterparties.\1202\
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    \1201\ As described in the Cross-Border Proposing Release, the 
non-dealer market participants transact with four counterparties on 
average. Cross Border Proposing Release, 78 FR at 31126 n.1329, 
supra note 3. However, the largest market participants transact with 
as many as 50 counterparties, suggesting that dealers compete for 
business with these participants.
    \1202\ See, e.g., Richard C. Green, Burton Hollifield, and 
Norman Schurhoff, Financial Intermediation and the Costs of Trading 
in an Opaque Market, 20 Review of Financial Studies 275 (2007) 
(estimating that, prior to the introduction of transparency measures 
in the municipal bond market, dealers exercised substantial market 
power, but that market power decreases with the size of the trade).
---------------------------------------------------------------------------

    It is in this context that the Commission analyzes the economic 
effects of the SDR Rules and Form SDR. The Commission envisions that 
registered SDRs will become an essential part of the infrastructure of 
the SBS market. Persons that meet the definition of an SDR will be 
required by the SDR Rules to maintain policies and procedures relating 
to data accuracy and maintenance, and will be further required by 
Regulation SBSR to publicly disseminate transaction-level data, thereby 
promoting post-trade transparency in the SBS market. Transparency 
stemming from the SDR Rules and Regulation SBSR should reduce the 
informational advantage of SBS dealers and promote competition among 
SBS dealers and other market participants.\1203\ This could reduce 
implicit transaction costs and attract liquidity from those market 
participants that do not benefit from opacity, providing more 
opportunities for market participants with hedging needs to manage 
their risks and providing more opportunities for market participants to

[[Page 14529]]

access liquidity. Similarly, public dissemination of SBS pricing and 
volume information by SDRs pursuant to Regulation SBSR may allow market 
participants to incorporate information from the SBS market into their 
assessments of SBS and non-SBS investment opportunities, thereby 
promoting price efficiency and efficient capital allocation.
---------------------------------------------------------------------------

    \1203\ See Section II.A of this release.
---------------------------------------------------------------------------

    At the same time, increased quality and quantity of pricing and 
volume information and other information available to the Commission 
about the SBS market may enhance the Commission's ability to respond to 
market developments. As discussed above, DTCC-TIW voluntarily provides 
to the Commission data on individual CDS transactions in accordance 
with an agreement between the DTCC-TIW and the ODRF. In conjunction 
with Regulation SBSR, the SDR Rules should assist the Commission in 
fulfilling its regulatory mandates and legal responsibilities such as 
detecting market manipulation, fraud, and other market abuses by 
providing it with greater access to SBS information than that provided 
under the voluntary reporting regime. In particular, without an SDR, 
data on SBS transactions could be dispersed and might not be readily 
available to the Commission and others. SDRs may be especially critical 
during times of market turmoil, both by giving the Commission 
information to monitor risk exposures taken by individual entities or 
to particular referenced entities, and by promoting stability through 
enhanced transparency. Additionally, more available data about the SBS 
market should give the Commission better insight into how regulations 
are affecting, or may affect, the SBS market, which may allow the 
Commission to better craft regulations to achieve desired goals, and 
therefore, increase regulatory effectiveness.
    In adopting the SDR Rules and Form SDR, the Commission has 
attempted to balance different goals. For example, data fragmentation 
resulting from multiple SDRs may make it more difficult for the 
Commission and to the extent that SBS data is made public, the public, 
to aggregate SBS data from multiple SDRs. The Commission could have 
resolved issues related to data fragmentation by designating one SDR as 
the recipient of the information from all other SDRs in order to 
provide the Commission with a consolidated location from which to 
access SBS data for regulatory monitoring and oversight purposes. 
Designating one SDR as the data consolidator, however, could discourage 
new market entrants, and interfere with competition. Designating one 
SDR as data consolidator may also impose an additional cost on market 
participants to cover the SDR's cost for acting as the data 
consolidator. Similarly, the SDR Exemption,\1204\ which allows certain 
non-U.S. persons to perform the functions of an SDR within the United 
States without registering with the Commission, may reduce potentially 
duplicative registration and operating costs by allowing these persons 
to continue to receive data reported pursuant to the reporting 
requirements of a foreign jurisdiction. The SDR Exemption, however, 
also increases the risk of data fragmentation to the extent that 
reporting requirements differ across jurisdictions and relevant 
authorities have difficulty accessing data across jurisdictions. The 
Commission has attempted to balance the considerations of competition, 
data fragmentation, and avoidance of potentially duplicative 
registration and operating costs in adopting the SDR Rules.
---------------------------------------------------------------------------

    \1204\ See Section VI.K of this release discussing Rule 13n-12.
---------------------------------------------------------------------------

    In assessing the economic impact of the SDR Rules and Form SDR, the 
Commission refers to the broader costs and benefits associated with the 
application of the rules and interpretations as ``programmatic'' costs 
and benefits. These include the costs and benefits of applying the 
substantive Title VII requirements to the reporting of transactions by 
market participants, as well as to the functions performed by market 
infrastructures, including SDRs, in the global SBS market. The 
Commission's analysis also takes into consideration ``assessment 
costs,'' which arise from current and future market participants 
expending effort to determine whether they are subject to the SDR 
Rules. Current and future market participants could incur expenses in 
making this determination even if they ultimately are not subject to 
the SDR Rules. Finally, the Commission's analysis considers 
``compliance costs,'' which are the costs that SDRs will incur in 
registering and complying with the SDR Rules.

B. General Comments on the Costs and Benefits of the SDR Rules

    The Commission received two comments regarding the general costs 
and benefits of the SDR Rules.\1205\
---------------------------------------------------------------------------

    \1205\ See US & Foreign Banks, supra note 24; IIB CB, supra note 
26.
---------------------------------------------------------------------------

    One commenter offered general observations about the application of 
the SDR Rules to non-resident SDRs, maintaining that the costs of an 
extraterritorial application of U.S. law would be significant and not 
estimable beforehand, and that the Commission should consider comity 
and conflict with non-U.S. regulatory requirements when weighing the 
costs and benefits of the SDR Rules.\1206\ The Commission agrees that 
determining the costs and benefits of the application of the SDR Rules 
to non-resident SDRs is difficult; nevertheless, the Commission has 
analyzed the economic effects of the SDR Rules below.
---------------------------------------------------------------------------

    \1206\ See US & Foreign Banks, supra note 24.
---------------------------------------------------------------------------

    A second commenter recommended that ``the Commission should 
generally seek to avoid any divergence from the CFTC's and 
international regulators' frameworks that is likely to give rise to 
undue costs or burdens.'' \1207\ The commenter believed that 
``divergence is generally warranted only if the rule adopted by the 
Commission is more flexible than those adopted by others (and therefore 
would not preclude the voluntary adoption of consistent practices by 
market participants).'' \1208\ The Commission acknowledges that there 
are concerns regarding divergent regulatory frameworks. The economic 
effects that could result from divergent regulatory frameworks, as well 
as other comments regarding the costs and benefits of specific rules, 
are discussed below. The Commission notes, however, that the SDR Rules 
are largely consistent with the CFTC's rules. Furthermore, the 
Commission has consulted and coordinated with foreign regulators 
through bilateral and multilateral discussions and has taken these 
discussions into consideration in developing the SDR Rules and Form 
SDR.
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    \1207\ IIB CB, supra note 26.
    \1208\ IIB CB, supra note 26.
---------------------------------------------------------------------------

C. Consideration of Benefits, Costs, and the Effect on Efficiency, 
Competition, and Capital Formation

    The potential economic effects stemming from the SDR Rules can be 
grouped into several categories. In this section, the Commission first 
discusses assessment costs relating to the SDR Rules. The Commission 
then discusses the SDR Rules' programmatic costs and benefits, 
highlighting broader and more comprehensive economic effects that 
result when the SDR Rules are considered as a part of other rules 
resulting from Title VII of the Dodd Frank Act. Next, the Commission 
discusses the effects of the SDR Rules on efficiency, competition, and 
capital formation. In the next section, the Commission discusses the 
compliance costs relating to certain of the SDR Rules.

[[Page 14530]]

1. Assessment Costs
    The Commission believes that persons will incur assessment costs in 
determining whether they fall within the statutory definition of an 
SDR. The Commission believes that the statutory definition in Exchange 
Act Section 3(a)(75) describes the core services or functions of an 
SDR. Whether a person falls within the statutory definition of an SDR 
is fact-specific. The Commission believes that at least 10 persons 
\1209\ will make the assessment of whether they fall within the 
statutory definition of an SDR, which may result in a cost of $15,200 
per person, for a total cost of $152,000 for all persons.\1210\
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    \1209\ At a minimum, the Commission estimates that the same 
persons who will register with the Commission as SDRs will make an 
assessment as to whether they fall within the statutory definition 
of an SDR. Therefore, the Commission estimates that at least 10 
persons will make this assessment. See Section VII.C.1 of this 
release discussing the number of respondents to the registration 
requirements and Form SDR.
    \1210\ This estimate is based on an estimated 40 hours of in-
house legal or compliance staff's time to assess whether a person 
falls within the statutory definition of an SDR. The Commission 
estimates that a person will assign these responsibilities to an 
Attorney. Data from SIFMA's Management & Professional Earnings in 
the Securities Industry 2013, modified by Commission staff to 
account for an 1800-hour work-year and multiplied by 5.35 to account 
for bonuses, firm size, employee benefits, and overhead, suggest 
that the cost of an Attorney is $380 per hour. Thus, the total one-
time estimated dollar cost is $15,200 per person and $152,000 for 
all persons, calculated as follows: (Compliance Attorney at $380 per 
hour for 40 hours) x 10 persons = $152,000.
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    The Commission believes that certain non-U.S. persons may incur 
assessment costs in determining whether they can rely on the SDR 
Exemption. Under the Commission's approach, certain non-U.S. persons 
that perform the functions of an SDR may incur certain assessment costs 
in determining whether they fall within the statutory definition of an 
SDR, and, if so, whether they perform the functions of an SDR within 
the United States. If so, they may incur certain assessment costs in 
determining whether they can rely on the SDR Exemption.\1211\
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    \1211\ The Commission recognizes that some non-U.S. persons that 
perform the functions of an SDR may do so entirely outside the 
United States, and thus, may determine that they do not need to 
incur any assessment costs related to the Commission's approach.
---------------------------------------------------------------------------

    With respect to determining the availability of the SDR Exemption 
for a non-U.S. person performing the function of an SDR within the 
United States, the Commission believes that costs would arise from 
confirming whether the Commission and each regulator with supervisory 
authority over such non-U.S. person have entered into an MOU or other 
arrangement. The Commission believes that because this information 
generally should be readily available,\1212\ the cost involved in 
making such assessment should not exceed one hour of in-house legal or 
compliance staff's time or $380 per person,\1213\ for an aggregate one-
time cost of $7,600.\1214\
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    \1212\ The Commission provides a list of MOUs and other 
arrangements on its public Web site, which are available at this 
link: http://www.sec.gov/about/offices/oia/oia_cooparrangements.shtml.
    \1213\ This estimate is based on an estimated one hour of in-
house legal or compliance staff's time to confirm whether the 
Commission and each regulator with supervisory authority over such 
non-U.S. person have entered into an MOU or other arrangement. The 
Commission estimates that an SDR will assign these responsibilities 
to an Attorney. Thus, the total one-time estimated dollar cost is 
$380 per person, calculated as follows: (Attorney at $380 per hour 
for 1 hour) = $380.
    \1214\ This total is based on the assumption that as many as 20 
non-U.S. persons that perform the functions of an SDR would use in-
house legal or compliance staff, specifically, an Attorney, to 
determine whether an applicable MOU or other arrangement is in 
place. Thus, the total one-time estimated dollar cost for all 20 
non-U.S. persons is $7,600, calculated as follows: (Attorney at $380 
per hour for 1 hour) x 20 non-U.S. persons = $7,600.
---------------------------------------------------------------------------

    Assessment costs may also result from determining whether existing 
policies and procedures will satisfy the requirements of the SDR Rules. 
An SDR may have existing policies and procedures that it may use to 
comply with the SDR Rules. In order to use such policies and procedures 
to comply with the SDR Rules, the SDR will first have to assess whether 
the policies and procedures will result in compliance with the SDR 
Rules.
2. Programmatic Costs and Benefits
a. SDR Registration, Duties, and Core Principles
    Rules 13n-1 through 13n-3 and Form SDR establish the mechanism by 
which SDRs must register as such pursuant to Exchange Act Section 
13(n), absent an exemption. Rules 13n-4 through 13n-10 set forth the 
duties and core principles of SDRs. Rule 13n-11 sets forth the 
requirements for an SDR's CCO, annual compliance reports, and financial 
reports. Finally, Rule 13n-12 provides an exemption from registration 
and other requirements in certain circumstances.
    The Commission believes that it and market participants will enjoy 
a number of programmatic benefits from the SDR Rules. For example, 
because the final SDR Rules require SDRs to register with and provide 
data to the Commission and require SDRs to take steps to facilitate 
accurate data collection and retention with respect to SBSs, the SDR 
Rules will increase the availability of SBS data relative to that in 
the existing voluntary disclosure system.\1215\ The data provided by 
SDRs will provide a window into SBS transactions and allow the 
Commission to oversee the SBS market beyond that which is currently 
available. Further, the SDR Rules requiring SDRs to provide information 
to market participants about the nature and costs of SDRs' services are 
intended to provide transparency about the costs of reporting, thereby 
enabling market participants to make informed choices among competing 
SDRs. Finally, by requiring SDRs to register with the Commission, 
provide the Commission with access to their books and records, and 
submit to inspections and examinations by representatives of the 
Commission, the SDR Rules will allow the Commission to evaluate SDRs' 
compliance with the Exchange Act and the rules and regulations 
thereunder.
---------------------------------------------------------------------------

    \1215\ See Section II.B of this release discussing data that is 
currently available to regulators and market participants.
---------------------------------------------------------------------------

    Persons that meet the definition of an SDR will also be required to 
comply with the public dissemination requirements of Regulation SBSR. 
Public dissemination is a core component of post-trade transparency in 
the SBS market. As discussed below, enhanced transparency should 
produce market-wide benefits in terms of a reduction in SBS dealers' 
market power. Enhanced transparency could also lead to reduced trading 
costs if competitive access to information and reduced SBS dealers' 
market power reduce the premium that SBS dealers are able to charge for 
intermediating SBS transactions.\1216\ Indeed, post-trade transparency 
has been shown to reduce implicit trading costs (i.e., the difference 
between the price at which a market participant can trade a security 
and the fundamental value of that security) in other securities 
markets. For example, post-trade transparency that followed the 
introduction of TRACE and trade reporting in the corporate bond market 
has been shown to lower implicit costs of trading corporate 
bonds.\1217\ While there are differences between SBSs and corporate 
bonds, there are similarities to how the markets are structured--both 
markets evolved as dealer-centric OTC markets with limited pre- or 
post-trade transparency. Thus, the Commission expects that some of the 
benefits that result from transparency in the corporate bond market may 
extend to SBS markets as well.
---------------------------------------------------------------------------

    \1216\ See Section VIII.C.3 of this release discussing the 
potential effects on competition, efficiency, and capital formation.
    \1217\ See supra note 58.

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[[Page 14531]]

    Nevertheless, the extent to which trading cost reductions are 
realized could be mitigated by additional factors. Trade reporting, 
public dissemination, and providing direct electronic access are costly 
in terms of establishing and maintaining infrastructure necessary to 
report and store large volumes of trade-level transaction data. SDRs 
may be able to pass the costs of complying with the SDR Rules and 
public dissemination requirements onto reporting parties--e.g., SBS 
dealers--who, in turn, may be able to pass costs on to their customers. 
Therefore, the infrastructure costs associated with transparency may 
partially offset the trade cost benefits that could accrue through the 
reduction in asymmetric information and SBS dealers' market power.
    Enhanced transparency could produce additional market-wide benefits 
by promoting stability in the SBS market, particularly during periods 
of market turmoil,\1218\ and it should indirectly contribute to 
improved stability in related financial markets, including equity and 
bond markets.\1219\ In conjunction with Regulation SBSR, the SDR Rules 
should assist the Commission in fulfilling its regulatory mandates and 
legal responsibilities such as detecting market manipulation, fraud, 
and other market abuses by providing it with greater access to SBS 
information.\1220\ In particular, without an SDR, data on SBS 
transactions would be dispersed and would not be readily available to 
the Commission and others. SDRs may be especially critical during times 
of market turmoil, both by giving the Commission information to monitor 
risk exposures taken by individual entities or to particular referenced 
entities, and by promoting stability through enhanced transparency. 
Additionally, more available data about the SBS market should give the 
Commission a better idea of how regulations are affecting, or may 
affect, the SBS market, which may allow the Commission to better craft 
regulation to achieve desired goals, and therefore, increase regulatory 
effectiveness.
---------------------------------------------------------------------------

    \1218\ See Proposing Release, 75 FR at 77307, supra note 2 
(``SDRs may be especially critical during times of market turmoil, 
both by giving relevant authorities information to help limit 
systemic risk and by promoting stability through enhanced 
transparency. By enhancing stability in the SBS market, SDRs may 
also indirectly enhance stability across markets, including equities 
and bond markets.'').
    \1219\ See Darrell Duffie, Ada Li, and Theo Lubke, Policy 
Perspectives of OTC Derivatives Market Infrastructure, Federal 
Reserve Bank of New York Staff Report No. 424 (Jan. 2010, as revised 
Mar. 2010) (``Transparency can have a calming influence on trading 
patterns at the onset of a potential financial crisis, and thus act 
as a source of market stability to a wider range of markets, 
including those for equities and bonds.'').
    \1220\ See Proposing Release, 75 FR at 77307, supra note 2 
(``The enhanced transparency provided by an SDR is important to help 
regulators and others monitor the build-up and concentration of risk 
exposures in the SBS market.''); see also DTCC 1*, supra note 20 
(``A registered SDR should be able to provide (i) enforcement agents 
with necessary information on trading activity; (ii) regulatory 
agencies with counterparty-specific information about systemic risk 
based on trading activity; (iii) aggregate trade information for 
publication on market-wide activity; and (iv) a framework for real-
time reporting from swap execution facilities and derivatives 
clearinghouses.'').
---------------------------------------------------------------------------

    The Commission believes that U.S. persons performing the functions 
of an SDR will play a key role in collecting and maintaining 
information regarding SBS transactions, and making available such 
information to the Commission and the public, all of which may affect 
the transparency of the SBS market within the United States.\1221\ 
Requiring such U.S. persons to comply with the SDR Requirements will 
help ensure that they maintain data and make it available in a manner 
that advances the benefits that the requirements are intended to 
produce.
---------------------------------------------------------------------------

    \1221\ See Proposing Release, 75 FR at 77356, supra note 2; 
Cross-Border Proposing Release, 78 FR at 31184, supra note 3.
---------------------------------------------------------------------------

    The information provided by SDRs to the Commission pursuant to the 
SDR Rules may assist it in advancing the goals of the Dodd-Frank Act. 
The Dodd-Frank Act was designed, among other things, to promote the 
financial stability of the United States by improving accountability 
and transparency in the financial system and the SDR Rules, which 
implement the statute, are a necessary and important component of 
implementing this goal.\1222\ As discussed above, an SBS transaction 
involves ongoing financial obligations between counterparties during 
the life of the transaction, which can typically span several years, 
and counterparties bear credit and market risk until the transaction is 
terminated or expires. Because large market participants may have 
ongoing obligations with many different counterparties, financial 
markets may be particularly vulnerable to instability resulting from 
the financial distress of a large market participant being transmitted 
to counterparties and others through connections in the SBS market. In 
extreme cases, the default of a large market participant could lead to 
financial distress among the counterparties to SBSs, which could 
introduce the potential for sequential counterparty failure and create 
uncertainty in the SBS market, thereby reducing the willingness of 
market participants to extend credit. A reduction in credit may result 
in liquidity and valuation difficulties that could spill over into the 
broader financial market.
---------------------------------------------------------------------------

    \1222\ See Dodd-Frank Act, Public Law 111-203 at Preamble.
---------------------------------------------------------------------------

    Thus, disruptions in the SBS market could potentially affect other 
parts of the financial system. Increasing the availability and 
reliability of information about the SBS market will improve the 
Commission's ability to oversee and regulate this market. A more 
complete understanding of activity in the SBS market, including 
information on risk and connections between counterparties, should help 
the Commission assess the risk in these markets and evaluate 
appropriate regulatory responses to market developments. Appropriate 
and timely regulatory responses to market developments could enhance 
investor protection and confidence, which may encourage greater 
investor participation in the SBS market.\1223\
---------------------------------------------------------------------------

    \1223\ See Section II.A of this release discussing broad 
economic considerations.
---------------------------------------------------------------------------

b. Registration Requirements in the Cross-Border Context
    The Commission believes that there are a number of programmatic 
benefits to requiring non-U.S. persons that perform the functions of an 
SDR within the United States to register with the Commission and to 
comply with the SDR Requirements. These requirements are intended to 
help ensure that all persons that perform the functions of an SDR 
within the United States function in a manner that will increase the 
transparency and further other goals of the Dodd-Frank Act.\1224\ The 
SDR Requirements, including requirements that SDRs register with the 
Commission, retain complete records of SBS transactions, maintain the 
integrity and confidentiality of those records, and disseminate 
appropriate information to the public are intended to help ensure that 
the data held by SDRs is reliable and that the SDRs provide information 
that contributes to the transparency of the SBS market while protecting 
the confidentiality of information provided by market 
participants.\1225\
---------------------------------------------------------------------------

    \1224\ See Proposing Release, 75 FR at 77354, supra note 2 
(noting that ``the proposed SDR rules will lead to a more robust, 
transparent environment for the market for SBSs''); Cross-Border 
Proposing Release, 78 FR at 31183, supra note 3 (discussing 
programmatic benefits to requiring non-U.S. persons that perform the 
functions of an SDR within the United States to register with the 
Commission and to comply with the SDR Requirements). See also Dodd-
Frank Act, Public Law 111-203 at Preamble.
    \1225\ See Proposing Release, 75 FR at 77307, supra note 2 
(noting that SDRs ``are intended to play a key role in enhancing 
transparency in the SBS market'' and thus ``it is important that 
SDRs are well-run and effectively regulated'').

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[[Page 14532]]

    Non-U.S. persons performing the functions of an SDR within the 
United States also may affect the transparency of the SBS market within 
the United States, even if transactions involving U.S. persons or U.S. 
market participants are being reported to such non-U.S. persons in 
order to satisfy the reporting requirements of a foreign jurisdiction 
(and not those of Title VII). The Commission believes that, to the 
extent that non-U.S. persons are performing the functions of an SDR 
within the United States, they will likely receive data relating to 
transactions involving U.S. persons and other U.S. market participants. 
Ensuring that such data is maintained and made available in a manner 
consistent with the SDR Requirements would likely contribute to the 
transparency of the U.S. market and reduce potential confusion that may 
arise from discrepancies in transaction data due to, among other 
things, differences in the operational standards governing persons that 
perform the functions of an SDR in other jurisdictions (or the absence 
of such standards for any such persons that are not subject to any 
regulatory regime). Moreover, given the sensitivity of reported SBS 
data and the potential for market abuse and subsequent loss of 
liquidity in the event that a person performing the function of an SDR 
within the United States fails to maintain the privacy of such 
data,\1226\ the Commission believes that requiring non-U.S. persons 
that perform the functions of an SDR within the United States to 
register with the Commission will help ensure that data relating to 
transactions involving U.S. persons or U.S. market participants is 
handled in a manner consistent with the confidentiality protections 
applicable to such data, thereby reducing the risk of the loss or 
disclosure of proprietary or other sensitive data and of market abuse 
arising from the misuse of such data.
---------------------------------------------------------------------------

    \1226\ See Proposing Release, 75 FR at 77307, supra note 2 
(``The inability of an SDR to protect the accuracy and integrity of 
the data that it maintains or the inability of an SDR to make such 
data available to regulators, market participants, and others in a 
timely manner could have a significant negative impact on the SBS 
market.'').
---------------------------------------------------------------------------

    As noted above, the Commission is adopting Exchange Act Rule 13n-12 
to provide an exemption from the SDR Requirements for non-U.S. persons 
that perform the functions of an SDR within the United States, provided 
that each regulator with supervisory authority over any such non-U.S. 
person has entered into an MOU or other arrangement with the Commission 
that addresses the confidentiality of data collected and maintained by 
such non-U.S. person, access by the Commission to such data, and any 
other matters determined by the Commission.
    The Commission believes that this SDR Exemption will not 
significantly reduce the programmatic benefits associated with the SDR 
Requirements. Although the approach could potentially reduce the number 
of persons performing the functions of an SDR that are registered with 
the Commission,\1227\ the Commission believes that there will be little 
impact on reporting of transactions involving U.S. persons because data 
relating to transactions involving U.S. persons and U.S. market 
participants would still be required to be reported, pursuant to 
Regulation SBSR, to an SDR registered with the Commission and subject 
to all SDR Requirements, absent other exemptive relief from the 
Commission.\1228\ Moreover, the SDR Exemption may have the benefit of 
reducing the incentive for non-U.S. persons performing the functions of 
an SDR within the United States to restructure their operations to 
avoid registration with the Commission.
---------------------------------------------------------------------------

    \1227\ As of November 2014, there were several non-U.S. persons 
performing the functions of an SDR or intending to do so in the 
future. See OTC Derivatives Market Reforms Eighth Progress Report on 
Implementation, Financial Stability Board (Nov. 2014), available at 
http://www.financialstabilityboard.org/wp-content/uploads/r_141107.pdf. The Commission, however, does not possess data 
regarding how many, if any, of these persons perform the functions 
of an SDR within the United States.
    \1228\ See Regulation SBSR Adopting Release, supra note 13 (Rule 
908(c) setting forth ``substituted compliance'' regime).
---------------------------------------------------------------------------

    Moreover, the SDR Exemption is conditioned on an MOU or other 
arrangement with each regulator with supervisory authority over the 
non-U.S. person that seeks to rely on the SDR Exemption. This MOU or 
arrangement will address the Commission's interest in having access to 
SBS data involving U.S. persons and other U.S. market participants that 
is maintained by non-U.S. persons that perform the functions of an SDR 
within the United States and in protecting the confidentiality of such 
data. Further, Rule 13n-12 should not impair the integrity and 
accessibility of SBS data. The Commission, therefore, believes that 
exempting certain non-U.S. persons performing the functions of an SDR 
within the United States, subject to the condition described above, 
will likely not significantly affect the programmatic benefits that the 
SDR Requirements are intended to achieve.\1229\
---------------------------------------------------------------------------

    \1229\ The Commission also anticipates that non-U.S. persons 
that avail themselves of the SDR Exemption will be subject to the 
regulatory requirements of one or more foreign jurisdictions. The 
SDR Exemption will help ensure that such persons do not incur costs 
of compliance with duplicative regulatory regimes while also 
ensuring, through the condition that each regulator with supervisory 
authority enter into an MOU or other arrangement with the 
Commission, that they are subject to regulatory requirements that 
will prevent them from undermining the transparency and other 
purposes of the SDR Requirements by, for example, failing to protect 
the confidentiality of data relating to U.S. persons and other U.S. 
market participants.
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    Registering with the Commission and complying with the SDR 
Requirements will impose certain costs on an SDR.\1230\ The Commission 
believes that the SDR Exemption is likely to reduce the costs for 
certain non-U.S. persons performing the functions of an SDR within the 
United States without reducing the expected benefits of the SDR 
Requirements.\1231\ As discussed in Section VI.K.3 of this release, the 
Commission believes that such persons will likely be performing the 
functions of an SDR in order to permit persons to satisfy reporting 
requirements under foreign law. The exemption, if available, will allow 
these non-U.S. persons to continue to perform this function within the 
United States without incurring the costs of compliance with the SDR 
Rules; such non-U.S. persons may pass along their cost savings to U.S. 
market participants that report to the non-U.S. persons pursuant to the 
market participants' reporting obligations under foreign law. 
Additionally, the exemption may reduce the incentive for non-U.S. 
persons performing the functions of an SDR within the United States to 
restructure their operations to avoid registration with the Commission.
---------------------------------------------------------------------------

    \1230\ See Cross-Border Proposing Release, 78 FR at 31184-31185, 
supra note 3 (discussing programmatic costs of SDRs registering with 
the Commission and complying with the SDR Requirements).
    \1231\ As noted above, the data currently available to the 
Commission does not indicate how many non-U.S. persons performing 
the functions of an SDR perform such functions within the United 
States. See supra note 1227. However, even if persons with reporting 
obligations under Regulation SBSR report their transactions to a 
non-U.S. person that performs the functions of an SDR within the 
United States, but is exempt from registration, they will still be 
required to report transactions under Regulation SBSR to an SDR 
registered with the Commission, absent other exemptive relief from 
the Commission. See Regulation SBSR Adopting Release, supra note 13 
(Rule 908(c) setting forth ``substituted compliance'' regime).
---------------------------------------------------------------------------

    The Commission recognizes that conditioning the SDR Exemption may 
delay the availability of the SDR Exemption to certain non-U.S. 
persons. In some cases, the Commission may be unable to enter into an 
MOU or other arrangement with each regulator with supervisory authority 
over a non-U.S. person performing the functions of an SDR within the 
United States. The

[[Page 14533]]

resulting delay or unavailability of the SDR Exemption may lead some of 
these non-U.S. persons to exit the U.S. market by, for example, 
restructuring their business so that they perform the functions of an 
SDR entirely outside the United States, potentially resulting in 
business disruptions in the SBS market. Despite the potential business 
disruptions in the SBS market that could result from the delay or 
unavailability of the SDR Exemption, the Commission believes that 
conditioning the SDR Exemption on an MOU or other arrangement with each 
regulator with supervisory authority over the non-U.S. person that 
seeks to rely on the exemption is important because it will help ensure 
the Commission's access to SBS data involving U.S. persons and other 
U.S. market participants that may be maintained by such non-U.S. 
person.
    Finally, in developing its approach to the application of the SDR 
Requirements to non-U.S. persons that perform the functions of an SDR 
within the United States, the Commission considered, as an alternative 
to Rule 13n-12, requiring such non-U.S. persons to comply with the SDR 
Requirements, including registering with the Commission, as well as 
other requirements applicable to SDRs registered with the 
Commission.\1232\ In such a scenario, a non-U.S. person performing the 
functions of an SDR within the United States would be required to 
register as an SDR and incur the costs associated with the SDR 
Requirements, as well as other requirements applicable to SDRs 
registered with the Commission.\1233\ The Commission believes that the 
benefit of requiring all non-U.S. persons that perform the functions of 
an SDR within the United States to register with the Commission, even 
where similar objectives could be achieved through an exemption 
conditioned on an MOU or other arrangement with each regulatory 
authority with supervisory authority over such non-U.S. persons, would 
be marginal, particularly in light of the costs that such non-U.S. 
persons would incur in complying with the SDR Requirements, as well as 
other requirements applicable to SDRs registered with the 
Commission.\1234\
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    \1232\ See Cross-Border Proposing Release, 78 FR at 31185-31186, 
supra note 3 (discussing alternatives to proposed SDR Exemption).
    \1233\ See Cross-Border Proposing Release, 78 FR at 31185-31186, 
supra note 3.
    \1234\ See Cross-Border Proposing Release, 78 FR at 31185-31186, 
supra note 3.
---------------------------------------------------------------------------

3. Consideration of Burden on Competition and Promotion of Efficiency, 
Competition, and Capital Formation
    In developing its approach to the registration, duties, and 
implementation of the core principles of SDRs, the Commission has 
focused on meeting the goals of Title VII, including promoting 
financial stability and transparency in the United States financial 
system.\1235\ The Commission has also considered the effects of its 
policy choices on competition, efficiency, and capital formation as 
mandated under Exchange Act Section 3(f).\1236\ That section requires 
the Commission, whenever it engages in rulemaking pursuant to the 
Exchange Act and is required to consider or determine whether an action 
is necessary or appropriate in the public interest, to consider, in 
addition to the protection of investors, whether the action will 
promote efficiency, competition, and capital formation. In addition, 
Exchange Act Section 23(a)(2) requires the Commission, when making 
rules under the Exchange Act, to consider the impact such rules would 
have on competition.\1237\ Section 23(a)(2) also prohibits the 
Commission from adopting any rule that would impose a burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Exchange Act.\1238\
---------------------------------------------------------------------------

    \1235\ Dodd-Frank Act, Public Law 111-203 at Title VII.
    \1236\ 15 U.S.C. 78c(f).
    \1237\ Exchange Act Section 23(a)(2), 15 U.S.C. 78w(a)(2).
    \1238\ Exchange Act Section 23(a)(2), 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

    In Section II of this release, the Commission described the 
baseline used to evaluate the economic impact of the SDR Rules, 
including the impact on efficiency, competition, and capital formation. 
In particular, the Commission noted that the current SBS market is 
characterized by information asymmetries that confer a competitive 
advantage on SBS dealers relative to their non-dealer counterparties 
who may be less informed. The Commission also noted that the opacity of 
the SBS market may lead to certain inefficiencies in the market 
relative to a transparent market, including higher transaction costs 
and wider spreads. Finally, the Commission noted that some of the 
effects described below, such as the effects on capital formation, are 
measured relative to a world without public dissemination requirements. 
That is, in evaluating the effect of the SDR Rules on capital 
formation, the Commission discusses how the final SDR Rules may enhance 
or diminish capital formation relative to the current opaque SBS market 
environment.
a. Potential Effects on Efficiency
    Two important economic characteristics of SDRs are the high fixed 
costs and increasing economies of scale. Compliance with the SDR Rules 
necessitates large investments in information technology 
infrastructure, including storage infrastructure and technology for 
electronic reporting and access to data, which results in high fixed 
costs for SDRs. The Commission believes, however, that once the 
infrastructure for operating as an SDR and compliance with the SDR 
Rules is in place, the SDR's costs of accepting transactions are 
minimal. Consequently, an SDR exhibits increasing economies of scale in 
that the average total cost to the SDR per transaction reported, which 
includes fixed costs, diminishes with the increase in volume of trades 
reported as high fixed costs are spread over a larger number of trades.
    As a result, viewed in terms of minimizing the average SDR-related 
cost per transaction, it may be efficient to limit the total number of 
SDRs to one per asset class. In such a case, the SDR chosen for each 
asset class would receive reports of all transactions in that asset 
class, reducing inefficient duplication of fixed costs and potentially 
giving that SDR a large number of transactions over which the SDR could 
spread its high fixed costs. Furthermore, limiting the number of SDRs 
to one per asset class would reduce the potential difficulties that may 
arise when consolidating and aggregating data from multiple SDRs.\1239\ 
While such a limitation would resolve many of the challenges involved 
in aggregating SBS data, the Commission is not limiting the number of 
SDRs.\1240\ There are competitive benefits to having multiple SDRs, as 
discussed below. Furthermore, the existence of multiple SDRs may reduce 
operational risks, such as the risk that a catastrophic event or the 
failure of an SDR leaves no registered SDR to which transactions can be 
reported, impeding the functioning of the SBS market.
---------------------------------------------------------------------------

    \1239\ As discussed above, some commenters suggested limiting 
the number of SDRs to one per asset class. However, their 
suggestions concerning average total cost and data fragmentation 
extend to one SDR that serves the entire SBS market. See Section IV 
of this release discussing number of SDRs.
    \1240\ See Section IV of this release discussing number of SDRs.
---------------------------------------------------------------------------

    Nevertheless, the Commission believes that multiple SDRs may result 
in certain inefficiencies relative to a market with a single SDR per 
asset class,

[[Page 14534]]

as explained above.\1241\ In particular, the potential reporting of 
transaction data to multiple SDRs may create a need to aggregate that 
data by the Commission and other interested parties. If aggregation of 
data is made difficult because identifiers or data field definitions 
used by different SDRs are not compatible, then the cost and time 
required by the Commission or any other interested party to aggregate 
the data would increase, and the Commission's oversight of the SBS 
market would be less efficient. The complications associated with 
aggregation could be particularly costly when aggregation is required 
across the same asset class and related transactions reside in 
different SDRs.
---------------------------------------------------------------------------

    \1241\ See Sections II.A and IV of this release.
---------------------------------------------------------------------------

    On the other hand, by allowing the creation of multiple SDRs, 
Exchange Act Section 13(n) \1242\ and the SDR Rules may result in 
positive effects for market participants. Competition among SDRs may 
lead to better services and may reduce the costs of those services for 
market participants. As discussed above, there are currently four swap 
data repositories for equity or credit swaps that are provisionally 
registered with the CFTC and that may choose to register with the 
Commission as SDRs. While some swap data repositories may ultimately 
choose not to register and operate as an SDR, either because of 
regulatory requirements that govern SDRs or for other reasons, the 
Commission is not limiting the number of SDRs per asset class.
---------------------------------------------------------------------------

    \1242\ 15 U.S.C. 78m(n).
---------------------------------------------------------------------------

    Furthermore, the Commission believes that the SDR Exemption may 
have positive effects on operational efficiency for SDRs, in terms of 
cost savings relative to a scenario where the SDR Exemption does not 
exist. The Commission believes that the exemption will allow certain 
non-U.S. persons to continue to receive data reported pursuant to the 
reporting requirements of a foreign jurisdiction without registering 
with the Commission as an SDR, subject to a condition that helps ensure 
that the privacy of the data and the Commission's access to the data is 
maintained. The SDR Exemption may also reduce the incentives for SDRs 
to restructure their operations to avoid triggering registration 
requirements, thereby reducing potentially negative effects on 
efficiency.\1243\ In particular, some persons may restructure solely 
for the purposes of avoiding registration; in such restructurings, 
persons expend resources that could potentially be put to more 
productive uses.
---------------------------------------------------------------------------

    \1243\ See Section VI.K of this release discussing the SDR 
Exemption.
---------------------------------------------------------------------------

    Viewed in the context of the broader transparency goals of Title 
VII, the SDR Rules may provide additional informational (or price) 
efficiency benefits in terms of asset valuation.\1244\ That is, by 
improving the flow of information about SBSs and the reference entities 
underlying SBSs, the SDR Rules may result in a market where prices of 
SBSs and their underlying reference entities more accurately reflect 
their fundamental value. The SDR Rules, together with the reporting and 
public dissemination requirements of Regulation SBSR, should also 
promote the process by which market participants seek the best 
available price. Increased availability of information may lead to a 
reduction in the spread between the price at which market participants 
can enter into an SBS and the fundamental value of that SBS (referred 
to as implicit trading costs in this release).\1245\ Real-time 
transaction pricing and volume information provide signals to market 
participants about the value of their investments. Market participants 
may use these signals to update their assessment of the value of an 
investment opportunity. In contrast to an opaque market, information 
revealed through trades that are reported and publicly disseminated 
allows market participants to make more-informed assessments of asset 
valuations, promoting informational efficiency. This should be true for 
the underlying assets or reference entities as well. That is, 
information from SBS transactions provides signals not only about SBS 
valuation, but also about the value of reference assets underlying 
SBSs.
---------------------------------------------------------------------------

    \1244\ Informational or price efficiency refers to the degree to 
which asset prices reflect available information about the value of 
the asset. See, e.g., Eugene Fama, Efficient Capital Market II, 
46(5) Journal of Finance 1575 (1991).
    \1245\ See Section II.A of this release.
---------------------------------------------------------------------------

b. Potential Effects on Competition
    The Commission believes that by allowing multiple SDRs to provide 
data collection, maintenance, and recordkeeping services, the SDR Rules 
should promote competition among SDRs. The Commission notes that, in an 
analogous setting, there are currently four swap data repositories 
provisionally registered with the CFTC, suggesting that multiple SDRs 
competing in the SBS market is a likely outcome.\1246\ Increased 
competition may lower costs for users of SDR services.
---------------------------------------------------------------------------

    \1246\ See Section II.B of this release.
---------------------------------------------------------------------------

    The Commission believes that because the SDR Rules do not preclude 
an SDR from registering with the Commission and other foreign relevant 
authorities, non-resident SDRs generally can take steps to comply with 
both their home country requirements and the SDR Rules, and therefore 
can register with the Commission. The Commission recognizes that a non-
resident SDR will incur additional burdens in making the certification 
or providing the opinion of counsel required by Exchange Act Rule 13n-
1(f), and that these burdens may place non-resident SDRs at a 
competitive disadvantage relative to resident SDRs.\1247\ The 
Commission believes that by subjecting non-resident SDRs to the same 
requirements as resident SDRs in all other respects--e.g., requiring 
all SDRs to provide prompt access to books and records and submit to 
onsite inspection and examination--the SDR Rules do not give a 
significant competitive advantage to either resident or non-resident 
SDRs. As a result, the Commission believes that the SDR Rules should 
promote competition among SDRs both domestically and internationally.
---------------------------------------------------------------------------

    \1247\ See Section VIII.D.1.b of the release discussing cost of 
certification and opinion of counsel.
---------------------------------------------------------------------------

    The Commission recognizes that there may be competitive effects due 
to the jurisdictional divide between the CFTC and the Commission with 
respect to swaps and SBSs. Swap data repositories that are registered 
only with the CFTC may compete against SDRs that are registered only 
with the Commission, and vice versa, for acceptance of mixed swaps. As 
noted by commenters, divergent regulatory frameworks could lead to 
``undue costs or burdens'' for SDRs and SBS market participants.\1248\ 
To the extent that the SDR Rules contain provisions that are more 
burdensome than the CFTC's rules, the SDR Rules could hinder (1) an SDR 
registered with only the Commission from competing against a swap data 
repository registered with only the CFTC for acceptance of mixed swaps, 
and (2) an SDR registered with both the Commission and the CFTC from 
competing against a swap data repository registered with only the CFTC 
for acceptance of CFTC-regulated swaps. On the other hand, if the SDR 
Rules are less burdensome than the CFTC's rules, then an SDR registered 
with only the Commission may enjoy a competitive advantage relative to 
(1) a swap data repository registered with only the CFTC for acceptance 
of mixed swaps, and (2) an SDR registered with both the Commission and 
the CFTC for acceptance of SBSs.
---------------------------------------------------------------------------

    \1248\ See IIB CB, supra note 26.

---------------------------------------------------------------------------

[[Page 14535]]

    As stated above, the Commission believes that the SDR Rules and the 
CFTC's final rules governing swap data repositories' registration, 
duties, and core principles are largely consistent.\1249\ Indeed, the 
Commission believes that, on the whole, the SDR Rules are substantially 
similar to those adopted by the CFTC for swaps, and that any 
differences are not significant enough to reduce the ability of SEC-
registered SDRs to compete against CFTC-registered swap data 
repositories for acceptance of mixed swaps.\1250\ Thus, the Commission 
does not believe that the SDR Rules, as a result of the jurisdictional 
divide between the Commission and the CFTC, will negatively affect 
competition in the market for acceptance of mixed swaps.
---------------------------------------------------------------------------

    \1249\ See Section I.D of this release.
    \1250\ See DTCC 2, supra note 19 (stating that ``[t]he 
Commission's proposed required practices are generally consistent 
with those of'' the commenter's trade repository).
---------------------------------------------------------------------------

    Finally, in addition to affecting competition among SDRs, the SDR 
Rules have implications for competition among market participants. As 
discussed above, by observing order flow, SBS dealers may have access 
to information not available to the broader market, and therefore may 
enjoy a competitive advantage over their non-dealer 
counterparties.\1251\ Because price and volume information (revealed to 
SBS dealers through their observation of order flow) contains signals 
about the value of investment opportunities, SBS dealers are able to 
use private information about order flow to derive more-informed 
assessments of current market values, allowing them to extract economic 
rents from less-informed counterparties.\1252\ Impartial access to 
pricing and volume information should allow market participants to 
derive more-informed assessments of asset valuations, reducing SBS 
dealers' market power over other market participants. Additionally, 
price transparency should also promote competition among SBS dealers. 
The Commission expects that, as in other securities markets, quoted 
bids and offers should form and adjust according to reported, executed 
trades.
---------------------------------------------------------------------------

    \1251\ See Section II.A of this release.
    \1252\ See Martin D.D. Evans and Richard K. Lyons, Exchange Rate 
Fundamentals and Order Flow, NBER Working Paper No. 13151 (June 
2007), available at: http://128.97.165.17/media/files/evans_lyons.pdf (finding evidence, based on data regarding end-user 
currency trades, that transaction flows forecast future 
macroeconomic variables such as output growth, money growth, and 
inflation).
---------------------------------------------------------------------------

c. Potential Effects on Capital Formation
    The Commission believes that compliance with the SDR Rules will 
promote data collection, maintenance, and recordkeeping. In conjunction 
with Regulation SBSR, including its public dissemination requirements, 
the SDR Rules will likely have a positive effect on transparency in 
credit markets by increasing information about the SBS market. In 
particular, the definition of an SDR, which identifies persons that may 
be required to register with the Commission and thereby required to 
comply with the public dissemination requirements of Regulation SBSR, 
and the data accuracy and maintenance requirements in the SDR Rules, 
should have a positive effect by making comprehensive, accurate 
information available to all market participants. The increased 
availability of information should enable persons that rely on the SBS 
market to meet their hedging objectives to make better decisions about 
capital formation in general, which may positively affect capital 
formation in the broader capital market. In particular, improved 
transparency in the SBS market should improve the quality and quantity 
of price information available in the SBS market, so that SBS prices 
more accurately reflect fundamental value and risk. Improved insight 
into the relationship between price and risk could attract hedgers and 
other market participants that do not benefit from opacity, improving 
liquidity and increasing opportunities for market participants to 
diversify and share risks through trading SBS.\1253\
---------------------------------------------------------------------------

    \1253\ See Section II.A of this release discussing transparency 
in the SBS market.
---------------------------------------------------------------------------

    Similarly, the Commission expects increased transparency in the SBS 
market to benefit the broader economy. Similar to the derivatives 
markets providing signals about the valuation of underlying reference 
entities, transparent SBS prices provide signals about the quality of a 
reference entity's business investment opportunities. Because market 
prices incorporate information about the value of underlying investment 
opportunities, market participants can use their observations of price 
and volume to derive assessments of the profitability of a reference 
entity's business and investment opportunities. Furthermore, business 
owners and managers can use information gleaned from the SBS market--
both positive and negative--to make more-informed investment decisions 
in physical assets and capital goods, as opposed to investment in 
financial assets, thereby promoting efficient resource allocation and 
capital formation in the real economy. Finally, transparent SBS prices 
may also make it easier for firms to obtain new financing for business 
opportunities, by providing information and reducing uncertainty about 
the value and profitability of a firm's investments.\1254\
---------------------------------------------------------------------------

    \1254\ See Philip Bond, Alex Edmans, and Itay Goldstein, The 
Real Effects of Financial Markets, 4 Annual Review of Financial 
Economics 339 (2012) (reviewing the theoretical literature on the 
feedback between financial market prices and the real economy).
---------------------------------------------------------------------------

    The SDR Rules are intended to help the Commission perform its 
oversight functions in a more effective manner. For example, a more 
complete picture of the SBS market, including information on risk 
exposures and asset valuations, should allow the Commission to better 
assess risk in the SBS market and evaluate the effectiveness of the 
Commission's regulation of the SBS market. Appropriate and timely 
regulatory responses to market developments could enhance investor 
protection, and could encourage greater participation in the SBS 
market, thereby improving risk-sharing opportunities and efficient 
capital allocation. In addition, the SBS data provided by SDRs to the 
Commission should help it advance the goals of the Dodd-Frank Act, 
thereby promoting stability in the overall capital markets. Increased 
overall stability in the capital markets could promote investor 
participation, thereby increasing liquidity and capital formation.
    Finally, to the extent that the SDR Rules promote competition among 
SDRs, as discussed above, the SDR Rules may lower costs for users of 
SDR services.\1255\ Decreased costs may promote capital formation by 
increasing the amount of capital available for investment by users of 
SDR services.
---------------------------------------------------------------------------

    \1255\ See Section VIII.C.3.a of this release discussing the 
effect of competition between SDRs on the prices of SDR services.
---------------------------------------------------------------------------

D. Costs and Benefits of Specific Rules

1. Registration Requirements, Form SDR, and Withdrawal From 
Registration
    Rule 13n-1 and Form SDR describe the information that a person must 
file to register as an SDR and also provide for interim amendments and 
required annual amendments that must be filed within 60 days after the 
end of each fiscal year of the SDR and that these filings must be in a 
tagged data format. Each non-resident SDR is required to (i) certify on 
Form SDR that the SDR can, as a matter of law, and will provide the 
Commission with prompt access to the SDR's books and records and can, 
as a matter of law, and will submit to onsite inspection and 
examination by the Commission and (ii) provide an opinion of counsel 
that the SDR can, as a matter

[[Page 14536]]

of law, provide the Commission with access to the books and records of 
such SDR and can, as a matter of law, submit to onsite inspection and 
examination by the Commission. Rule 13n-2 sets forth the process by 
which a registered SDR would withdraw its registration or have its 
registration revoked or cancelled.\1256\ Rule 13n-3 sets forth the 
registration process for a successor to a registered SDR.\1257\ These 
rules and Form SDR are adopted pursuant to the Commission's rulemaking 
authority under Exchange Act Section 13(n).\1258\
---------------------------------------------------------------------------

    \1256\ See Sections VI.B of this release discussing Rule 13n-2.
    \1257\ See Sections VI.C of this release discussing Rule 13n-3.
    \1258\ See 15 U.S.C. 78m(n).
---------------------------------------------------------------------------

a. Benefits
    The rules and Form SDR described in this section provide for the 
registration of SDRs, withdrawal from registration, revocation and 
cancellation of the registration, and successor registration of SDRs. 
Congress enacted the new registration requirements as part of the Dodd-
Frank Act in order to increase the transparency in the SBS market. The 
registration process will further the Dodd-Frank Act's goals by 
assisting the Commission in overseeing and regulating the SBS market. 
The requirement that a non-resident SDR (i) certify that the SDR can, 
as a matter of law, and will provide the Commission with prompt access 
to the SDR's books and records and can, as a matter of law, and will 
submit to onsite inspection and examination by the Commission and (ii) 
provide an opinion of counsel that it can, as a matter of law, provide 
the Commission with access to the SDR's books and records and can, as a 
matter of law, submit to inspection and examination will allow the 
Commission to evaluate an SDR's ability to meet the requirements for 
registration and to conduct ongoing oversight.
    The information required to be provided in Form SDR is necessary to 
enable the Commission to assess whether an applicant has the capacity 
to perform the duties of an SDR and to comply with the duties, core 
principles, and other requirements imposed on SDRs pursuant to Exchange 
Act Section 13(n) and the rules and regulations thereunder.
    The requirement that SDRs file Form SDR in a tagged data format 
will facilitate review and analysis of registration materials by 
Commission staff and, to the extent such materials are made public, the 
public This requirement is consistent with the Commission's 
longstanding efforts to increase transparency and the usefulness of 
information by requiring the data tagging of information contained in 
electronic filings in order to improve the accuracy of submitted 
information, including financial information, and facilitate its 
analysis.\1259\
---------------------------------------------------------------------------

    \1259\ 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); 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 National 
Recognized Statistical Rating Organizations, Exchange Act Release 
No. 61050 (Nov. 23, 2009), 74 FR 63832 (Dec. 4, 2009); Money Market 
Fund Reform, Investment Company Release No. 29132 (Feb. 23, 2010), 
75 FR 10060 (Mar. 4, 2010).
---------------------------------------------------------------------------

    The Commission solicited comments on the benefits associated with 
the registration-related rules and Form SDR.\1260\ The Commission did 
not receive any comments specifically addressing these benefits.
---------------------------------------------------------------------------

    \1260\ See Proposing Release, 75 FR at 77355, supra note 2.
---------------------------------------------------------------------------

b. Costs
    The Commission anticipates that the primary costs to SDRs from the 
registration-related rules and Form SDR result from the requirement to 
complete Form SDR and any amendments thereto.
    As discussed above, the Commission estimates that the average 
initial paperwork cost of SDR registration will be 481 hours per SDR 
and the average ongoing paperwork cost of interim and annual updated 
Form SDR will be 36 hours for each registered SDR.\1261\ Assuming a 
maximum of ten SDRs, the aggregate one-time estimated dollar cost will 
be $793,840 \1262\ and the aggregate ongoing estimated dollar cost per 
year will be $55,440 \1263\ to comply with the rule.
---------------------------------------------------------------------------

    \1261\ See Section VII.D.1 of this release discussing the cost 
of SDR registration.
    \1262\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Attorney and a Compliance Clerk. 
Data from SIFMA's Management & Professional Earnings in the 
Securities Industry 2013, modified by Commission staff to account 
for an 1800-hour work-year and multiplied by 5.35 to account for 
bonuses, firm size, employee benefits, and overhead, suggest that 
the cost of a Compliance Clerk is $64 per hour. Thus, the total one-
time estimated dollar cost of complying with the initial 
registration-related requirements is $79,384 per SDR and $793,840 
for all SDRs, calculated as follows: (Compliance Attorney at $334 
per hour for 180 hours) + (Compliance Clerk at $64 per hour for 301 
hours) x (10 registrants) = $793,840.
    \1263\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Attorney and a Compliance Clerk. 
Thus, the total estimated dollar cost of complying with the ongoing 
registration-related requirements is $5,544 per year per SDR and 
$55,440 per year for all SDRs, calculated as follows: (Compliance 
Attorney at $334 per hour for 12 hours) + (Compliance Clerk at $64 
per hour for 24 hours) x (10 registrants) = $55,440.
---------------------------------------------------------------------------

    As discussed above, the Commission estimates that the average 
initial paperwork cost of filing a Form SDR to withdraw from 
registration will be 12 hours per SDR.\1264\ Assuming that, at most, 
one SDR per year would withdraw, the aggregate one-time estimated 
dollar cost will be $4,008 \1265\ to comply with the rule.
---------------------------------------------------------------------------

    \1264\ See Section VII.D.1 of this release discussing the cost 
of filing Form SDR to withdraw from registration.
    \1265\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Attorney. Thus, the total estimated 
dollar cost of complying with the requirements related to withdrawal 
from registration is $4,008 per year per SDR and $4,008 per year for 
all SDRs, calculated as follows: (Compliance Attorney at $334 per 
hour for 12 hours) x (1 SDR withdrawing) = $4,008.
---------------------------------------------------------------------------

    As discussed above, the Commission estimates that the average 
initial paperwork cost for each non-resident SDR to (i) certify on Form 
SDR that the SDR can, as a matter of law, and will provide the 
Commission with prompt access to the SDR's books and records and can, 
as a matter of law, and will submit to onsite inspection and 
examination by the Commission and (ii) provide an opinion of counsel 
that the SDR can, as a matter of law, provide the Commission with 
prompt access to the SDR's books and records can, as a matter of law, 
and submit to onsite inspection and examination will be 1 hour and $900 
per SDR.\1266\ Assuming a maximum of three non-resident SDRs,\1267\ the 
aggregate one-time estimated dollar cost will be $3,840.\1268\
---------------------------------------------------------------------------

    \1266\ See Section VII.D.1 of this release discussing the cost 
of non-resident SDRs' certification on Form SDR and opinion of 
counsel.
    \1267\ See Section VII.C.1 of this release discussing the number 
of non-resident SDRs.
    \1268\ The Commission estimates that an SDR will assign these 
responsibilities to an Attorney. Data from SIFMA's Management & 
Professional Earnings in the Securities Industry 2013, modified by 
Commission staff to account for an 1800-hour work-year and 
multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead, suggest that the cost of an Attorney is $380 
per hour. Thus, the total estimated dollar cost of complying with 
the requirements of Rule 13n-1(f) is $1,280 per year per SDR and 
$3,840 per year for all SDRs, calculated as follows: ($900 for 
outside legal services + (Attorney at $380 per hour for 1 hour)) x 
(3 non-resident registrants) = $3,840.
---------------------------------------------------------------------------

    The Commission believes that the costs of filing Form SDR in a 
tagged data format beyond the costs of collecting the required 
information, will be minimal. The Commission does not believe that 
these costs will be significant, as large-scale changes will likely not 
be necessary for most modern data management systems to output 
structured data files, particularly for widely used file formats such 
as XML. XML is a widely used file format, and

[[Page 14537]]

based on the Commission's understanding of current practices, it is 
likely that most reporting persons and third party service providers 
have systems in place to accommodate the use of XML.
    The Commission solicited comment on the estimated costs associated 
with the registration-related rules and Form SDR.\1269\ The Commission 
specifically requested comment on the estimated number of respondents 
that would be filing Form SDR and the initial costs associated with 
completing the registration form and the ongoing annual costs of 
completing the required amendments.\1270\
---------------------------------------------------------------------------

    \1269\ See Proposing Release, 75 FR at 77355, supra note 2.
    \1270\ See Proposing Release, 75 FR at 77355, supra note 2.
---------------------------------------------------------------------------

    One commenter expressed concern about non-resident SDRs being 
subject to a stricter regime than resident SDRs because of the non-
resident SDRs' obligation to provide a certification and opinion of 
counsel under Rule 13n-1(f).\1271\ The Commission acknowledges that 
non-resident SDRs may incur costs in providing the certification and 
opinion of counsel. The Commission believes, however, that these costs 
may be avoided to the extent that non-resident SDRs are able to take 
advantage of the SDR Exemption.
---------------------------------------------------------------------------

    \1271\ ESMA, supra note 19.
---------------------------------------------------------------------------

    The Commission did not receive any other comments on the estimated 
costs associated with the registration-related rules and Form 
SDR.\1272\
---------------------------------------------------------------------------

    \1272\ Although one commenter expressed concern that non-
resident SDRs would be subject to a stricter regulatory regime 
because of the certification and opinion of counsel requirements, 
the commenter did not comment specifically on the Commission's 
estimates of the costs of providing such an opinion. See ESMA, supra 
note 19.
---------------------------------------------------------------------------

c. Alternatives
    Following one commenter's suggestion, the Commission considered 
requiring an SDR applicant to submit its rulebook \1273\ with its 
initial Form SDR. As discussed above, the Commission has not adopted 
this approach because an SDR is already required to provide policies 
and procedures on Form SDR, and the Commission believes that most of 
the information that would be contained in a rulebook would be filed as 
part of an SDR's policies and procedures.\1274\ If an SDR's rulebook is 
broader than its policies and procedures, however, an SDR may submit 
its rulebook to the Commission to assist the Commission in better 
understanding the context of the SDR's policies and procedures or how 
the policies and procedures relate to one another.
---------------------------------------------------------------------------

    \1273\ See DTCC 3, supra note 19.
    \1274\ See Section VI.A.1.c of this release discussing 
rulebooks.
---------------------------------------------------------------------------

    In accordance with one commenter's suggestion,\1275\ the Commission 
amended Form SDR to accommodate SIP registration, as discussed 
above.\1276\ The Commission considered requiring persons to register as 
an SDR and SIP on two separate forms, but determined not to do so 
because the costs to SDRs to make multiple filings of separate Form SDR 
and Form SIP would not provide any measureable benefits to the 
Commission.
---------------------------------------------------------------------------

    \1275\ See DTCC 2, supra note 19; see also DTCC 3, supra note 19 
(suggesting adopting a joint registration form with the CFTC that 
would include SIP registration).
    \1276\ See Section VI.A.1.c of this release discussing Form SDR.
---------------------------------------------------------------------------

    The Commission considered, in accordance with one commenter's 
suggestion,\1277\ adopting a joint form with the CFTC for SDR and swap 
data repository registration. As discussed above, the Commission 
believes that it is necessary to maintain separate registration so that 
each agency's form remains tailored to the particular needs of that 
agency.\1278\ For example, the Commission is revising Form SDR to 
accommodate SIP registration, while the CFTC's form accommodates only 
swap data repository registration. Moreover, adopting a joint form may 
impose costs and cause uncertainty for dual registrants because the 
CFTC would be required to amend its form, which it has already adopted, 
at a time when the industry is still in the implementation phase and 
some swap data repositories are already provisionally registered with 
the CFTC. Finally, because the CFTC's registration form for swap data 
repositories is substantially similar to the Commission's Form SDR, the 
Commission does not anticipate that filing with each commission 
separately will entail a significant cost for a dual registrant. The 
Commission is sensitive to the potential costs imposed by duplicative 
forms, but believes that these costs are justified by the need of 
having a form specifically tailored to the SDR registration scheme.
---------------------------------------------------------------------------

    \1277\ See DTCC 3, supra note 19.
    \1278\ See Section VI.A.1.c of this release discussing Form SDR.
---------------------------------------------------------------------------

    The Commission considered the request of one commenter, which is 
provisionally registered with the CFTC as a swap data repository, for 
expedited review of the commenter's application for registration as an 
SDR.\1279\ Although it is not clear what the commenter means by 
``expedited review,'' the Commission believes that it is necessary to 
conduct a review of an SDR's application for registration independent 
of the CFTC's review of a swap data repository's application for 
registration. Moreover, the Commission believes that the procedures for 
reviewing applications for registration as an SDR that the Commission 
is adopting in this release provide reasonable timeframes for the 
Commission's review of the applications. These procedures are 
consistent with how the Commission reviews the applications of other 
registrants, such as SIPs and registered clearing agencies. The 
Commission believes that each SDR applicant, including an applicant who 
is provisionally registered with the CFTC, needs to demonstrate that it 
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 Section 13(n) and 
the rules and regulations thereunder.
---------------------------------------------------------------------------

    \1279\ See ICE CB, supra note 26.
---------------------------------------------------------------------------

    Finally, the Commission considered providing a method for temporary 
registration, as proposed.\1280\ As discussed above, the Commission 
believes that the exemptive relief provided by the Commission in the 
Effective Date Order, which was effective on June 15, 2011, addressed 
the primary purpose for temporary registration.\1281\ The Commission 
also believes that the Compliance Date for the SDR Rules\1282\ should 
provide sufficient time for SDRs to analyze and understand the final 
SDR Rules, to develop and test new systems required to comply with the 
Dodd-Frank Act's provisions governing SDRs and the SDR Rules, to 
prepare and file Form SDR, to demonstrate their ability to meet the 
criteria for registration set forth in Rule 13n-1(c)(3), and to obtain 
registration with the Commission.\1283\ For these reasons, the 
Commission no longer believes that a temporary registration regime for 
SDRs is necessary or appropriate.
---------------------------------------------------------------------------

    \1280\ See Proposing Release, 75 FR at 77314, supra note 2.
    \1281\ See Effective Date Order, 76 FR at 36306, supra note 9.
    \1282\ See Section V.C of this release discussing the Compliance 
Date.
    \1283\ See Section VI.A.3 of this release discussing temporary 
registration.

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[[Page 14538]]

2. SDR Duties, Data Collection and Maintenance, and Direct Electronic 
Access
    Rules 13n-4(b)(2)-(7), 13n-5, and 13n-6 include various 
requirements relating to SDRs' information technology systems. Rules 
13n-4(b)(2)-(7), 13n-5, and 13n-6 set forth the duties of an SDR, 
including an SDR's collection, maintenance, and analysis of transaction 
data and other records.\1284\
---------------------------------------------------------------------------

    \1284\ See Sections VI.D.2.c, VI.E, and VI.F.3 of this release 
discussing Rules 13n-4(b)(2) and (4), 13n-5, and 13n-6, 
respectively.
---------------------------------------------------------------------------

    Under Rules 13n-4(b)(2) and (4), an SDR is required to accept data 
as prescribed in Regulation SBSR and maintain transaction data and 
related identifying information as required by Rule 13n-5(b)(4). Rule 
13n-4(b)(5) states that each SDR must provide direct electronic access 
to the Commission or any of its designees.\1285\
---------------------------------------------------------------------------

    \1285\ See also Exchange Act Section 13(n)(5)(D)(i), 15 U.S.C. 
78m(n)(5)(D)(i) (requiring an SDR to provide direct electronic 
access to the Commission or any of its designees).
---------------------------------------------------------------------------

    Rule 13n-5 establishes requirements for data collection and 
maintenance.\1286\ Rule 13n-5(b) requires, among other things, an SDR 
to promptly record transaction data and to establish, maintain, and 
enforce written policies and procedures reasonably designed (1) for 
reporting complete and accurate transaction data to the SDR; (2) to 
satisfy itself that the transaction data submitted to it is complete 
and accurate; (3) to calculate positions for all persons with open SBSs 
for which the SDR maintains records; (4) to ensure that the transaction 
data and positions that it maintains are complete and accurate; and (5) 
to prevent any provision in a valid SBS from being invalidated or 
modified through the procedures or operations of the SDR. Rule 13n-
5(b)(4) establishes requirements related to the formats in which and 
time periods for which an SDR must maintain transaction data, related 
identifying information, and positions. Rule 13n-5(b)(7) requires an 
SDR that ceases doing business, or ceases to be registered pursuant to 
Exchange Act Section 13(n), to preserve, maintain, and make accessible 
the transaction data and historical positions for the remainder of the 
time period required by Rule 13n-5. Rule 13n-5(b)(8) requires an SDR to 
make and keep current a plan to ensure that the transaction data and 
positions that are recorded in the SDR continue to be maintained in 
accordance with Rule 13n-5(b)(7).
---------------------------------------------------------------------------

    \1286\ See Section VI.E of this release discussing Rule 13n-5.
---------------------------------------------------------------------------

    Rule 13n-6 requires SDRs, with respect to those systems that 
support or are integrally related to the performance of their 
activities, establish, maintain, and enforce written policies and 
procedures reasonably designed to ensure that their systems provide 
adequate levels of capacity, integrity, resiliency, availability, and 
security.\1287\
---------------------------------------------------------------------------

    \1287\ See Section VI.F.3 of this release discussing Rule 13n-6.
---------------------------------------------------------------------------

a. Benefits
    The rules discussed in this section will enhance the Commission's 
ability to oversee the SBS market beyond that in the current voluntary 
reporting system. The Commission's ability to oversee the SBS market 
and benefits of SDRs to the market depend on the accuracy and 
reliability of the data maintained by SDRs. Exchange Act Section 
13(n)(4)(B) specifically instructs the Commission to ``prescribe data 
collection and maintenance standards for'' SDRs.\1288\ The rules 
related to an SDR's information technology and related policies and 
procedures are designed to facilitate accurate data collection and 
retention with respect to SBSs in order to promote transparency with 
respect to the SBS market.
---------------------------------------------------------------------------

    \1288\ 15 U.S.C. 78m(n)(4)(B).
---------------------------------------------------------------------------

    The ability of the Commission to oversee the SBS market and detect 
fraudulent activity depends on the Commission having access to accurate 
current and historical market data. In particular, the direct 
electronic access requirement described in Rule 13n-4(b)(5) will permit 
the Commission to carry out these responsibilities in a more effective 
and more efficient manner. The requirement that each SDR make and keep 
current a plan to ensure that SBS data recorded in such SDR continues 
to be maintained is essential to ensure that the Commission will 
continue to have access to and the ability to analyze SBS data in the 
event that the SDR ceases to do business.
    The requirements in the rules discussed in this section are likely 
to create benefits that will follow from providing the Commission with 
access to SBS market information. Pursuant to the rules discussed in 
this section, in conjunction with Regulation SBSR,\1289\ SDRs will 
receive and maintain systemically important SBS transaction data from 
multiple market participants. This data will increase transparency 
about activity in the SBS market. In addition, this data will enhance 
the ability of the Commission to respond to market developments.
---------------------------------------------------------------------------

    \1289\ See Regulation SBSR Adopting Release, supra note 13.
---------------------------------------------------------------------------

    Benefits also may accrue from the Commission's ability to use SBS 
data in order to oversee the SBS market for illegal conduct. For 
example, data collected by SDRs will enhance the Commission's ability 
to detect and deter fraudulent and manipulative activity and other 
trading abuses in connection with the SBS market, conduct inspections 
and examinations to evaluate the financial responsibility and soundness 
of market participants, and verify compliance with the statutory 
requirements and duties of SDRs. This data may also help the Commission 
identify fraudulent or other predatory market activity. Increasing 
market participants' confidence that the likelihood of illegal or 
fraudulent activity is low and that the likelihood that they will 
suffer economic loss from such illegal or fraudulent activity is low 
will reduce the prices at which they are willing to use SBS to hedge 
market risks to which they are exposed, which should, in turn, 
encourage participation in the SBS market.
    The richness of data collected by SDRs also may facilitate market 
analysis. For example, the Commission may review market activity 
through the study of SBS transactions, which may help assess the 
effectiveness of the Commission's regulation of the SBS market. Such 
reviews can inform the Commission on the need for modifications to 
these and other rules as the market evolves.
    The Commission recognizes that these benefits may be reduced to the 
extent that SBS market data is fragmented across multiple SDRs. 
Fragmentation of SBS market data may impose costs on any user of this 
data associated with consolidating, reconciling, and aggregating that 
data. As discussed above, the Commission believes that the form and 
manner with which an SDR provides the data to the Commission should not 
only permit the Commission to accurately analyze the data maintained by 
a single SDR, but also allow the Commission to aggregate and analyze 
data received from multiple SDRs.\1290\
---------------------------------------------------------------------------

    \1290\ See Section VI.D.2.c.ii of this release discussing direct 
electronic access.
---------------------------------------------------------------------------

    SDRs also may create economic benefits for market participants by 
providing non-core services, such as facilitating the reporting of life 
cycle events, asset servicing, or payment calculations. These 
activities may be less costly to perform when SBS market data is 
centrally located and accessible.
    The Commission solicited comment on the benefits related to Rules 
13n-4(b)(2)-(7), 13n-5, and 13n-6.\1291\ The

[[Page 14539]]

Commission specifically requested comment on whether any additional 
benefits would accrue if the Commission imposed further, more specific 
technology-related requirements.\1292\ The Commission received no 
comments on the estimated benefits of the rules discussed in this 
section.
---------------------------------------------------------------------------

    \1291\ See Proposing Release, 75 FR at 77357, supra note 2.
    \1292\ See Proposing Release, 75 FR at 77357, supra note 2.
---------------------------------------------------------------------------

b. Costs
    The Commission anticipates that the primary costs to SDRs, 
particularly those that are not already registered with the CFTC or 
operating as trade repositories, are from the rules described in this 
section that relate to the cost of developing and maintaining systems 
to collect and store SBS transaction data. SDRs also need to develop, 
maintain, and enforce compliance with related policies and procedures 
and provide applicable training. Changes in the cost of developing and 
maintaining such systems are likely to be passed on to market 
participants; similarly, compliance costs incurred by SDRs are likely 
to be passed on to market participants.
    As discussed above, the Commission estimates that the cost 
associated with creating SDR information technology systems will be 
42,000 hours and $10,000,000 for each SDR and the average ongoing 
paperwork cost will be 25,200 hours and $6,000,000 per year for each 
SDR.\1293\ Assuming a maximum of ten SDRs, the aggregate one-time 
estimated dollar cost will be $210,810,000\1294\ and the aggregate 
ongoing estimated dollar cost per year will be $126,486,000\1295\ to 
comply with the rules. Based on Commission staff's conversations with 
industry representatives, the Commission estimates that the cost 
imposed on SDRs to provide direct electronic access to the Commission 
should be minimal as SDRs likely have or will establish comparable 
electronic access mechanisms to enable market participants to provide 
data to SDRs and review transactions to which such participants are 
parties.\1296\
---------------------------------------------------------------------------

    \1293\ See Section VII.D.2 of this release discussing the costs 
of creating SDR information technology systems.
    \1294\ The Commission estimates that an SDR will assign these 
responsibilities to an Attorney, a Compliance Manager, a Programmer 
Analyst, and a Senior Business Analyst. Data from SIFMA's Management 
& Professional Earnings in the Securities Industry 2013, modified by 
Commission staff to account for an 1800-hour work-year and 
multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead, suggest that the cost of a Compliance 
Manager is $283 per hour, a Programmer Analyst is $220 per hour, and 
a Senior Business Analyst is $251 per hour. Thus, the total initial 
estimated dollar cost will be $21,081,000 per SDR and $210,810,000 
for all SDRs, calculated as follows: ($10,000,000 for information 
technology systems + (Attorney at $380 per hour for 7,000 hours) + 
(Compliance Manager at $283 per hour for 8,000 hours) + (Programmer 
Analyst at $220 per hour for 20,000 hours) + (Senior Business 
Analyst at $251 per hour for 7,000 hours)) x 10 registrants = 
$210,810,000.
    \1295\ The Commission estimates that an SDR will assign these 
responsibilities to an Attorney, a Compliance Manager, a Programmer 
Analyst, and a Senior Business Analyst. Thus, the total ongoing 
estimated dollar cost will be $12,648,600 per SDR and $126,486,000 
for all SDRs, calculated as follows: ($6,000,000 for information 
technology systems + (Attorney at $380 per hour for 4,200 hours) + 
(Compliance Manager at $283 per hour for 4,800 hours) + (Programmer 
Analyst at $220 per hour for 12,000 hours) + (Senior Business 
Analyst at $251 per hour for 4,200 hours)) x 10 registrants = 
$126,486,000.
    \1296\ See SDR Proposing Release, 75 FR at 77357, supra note 2. 
Indeed, the Commission notes that one commenter, which currently 
operates a trade repository, stated that ``[t]he Commission's 
proposed required practices are generally consistent with those of'' 
the commenter's trade repository. DTCC 2, supra note 19.
---------------------------------------------------------------------------

    As discussed above, the Commission estimates that the average 
initial paperwork cost associated with developing policies and 
procedures necessary to comply with Rules 13n-5(b)(1), (2), (3), and 
(5) and 13n-6 will be 1,050 hours and $100,000 for each SDR and the 
average ongoing paperwork cost will be 300 hours per year for each 
SDR.\1297\ Assuming a maximum of ten SDRs, the aggregate one-time 
estimated dollar cost will be $4,185,300\1298\ and the aggregate 
ongoing estimated dollar cost per year will be $965,400\1299\ to comply 
with the rules.
---------------------------------------------------------------------------

    \1297\ See Section VII.D.2 of this release discussing the costs 
of developing policies and procedures necessary to comply with Rules 
13n-5(b)(1), (2), (3), and (5) and 13n-6.
    \1298\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Manager, an Attorney, a Senior 
Systems Analyst, and an Operations Specialist. Data from SIFMA's 
Management & Professional Earnings in the Securities Industry 2013, 
modified by Commission staff to account for an 1800-hour work-year 
and multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead, suggest that the cost of a Senior Systems 
Analyst is $260 per hour and the cost of an Operation Specialist is 
$125 per hour. Thus, the total initial estimated dollar cost will be 
$418,530 per SDR and $4,185,300 for all SDRs, calculated as follows: 
($100,000 for outside legal services + (Compliance Manager at $283 
per hour for 385 hours) + (Attorney at $380 per hour for 435 hours) 
+ (Senior Systems Analyst at $260 per hour for 115 hours) + 
(Operations Specialist at $125 per hour for 115 hours)) x 10 
registrants = $4,185,300.
    \1299\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Manager and an Attorney. Thus, the 
total ongoing estimated dollar cost will be $96,540 per SDR and 
$965,400 for all SDRs, calculated as follows: ((Compliance Manager 
at $283 per hour for 180 hours) + (Attorney at $380 per hour for 120 
hours)) x 10 registrants = $965,400.
---------------------------------------------------------------------------

    The Commission believes that existing SDRs may have already 
developed and implemented information technology systems and related 
policies and procedures.\1300\ Such persons are currently not subject 
to regulation by the Commission, and therefore, may need to enhance 
their information technology systems and related policies and 
procedures to comply with the SDR Rules. Thus, such persons may 
experience costs in enhancing their information technology systems and 
related policies and procedures to comply with the SDR Rules. Moreover, 
because the costs discussed above represent the costs of creating 
information technology systems and related policies and procedures 
without any existing information technology systems or policies and 
procedures in place, existing SDRs that already have information 
technology systems and related policies and procedures may experience 
initial costs lower than those estimated above. The Commission believes 
that after such persons bring their technology systems and related 
policies and procedures into compliance with the SDR Rules, however, 
the ongoing annual costs for such persons will likely be consistent 
with the estimates provided above.\1301\
---------------------------------------------------------------------------

    \1300\ Cf. DTCC 2, supra note 19 (stating that ``[t]he 
Commission's proposed required practices are generally consistent 
with those of'' the commenter's trade repository).
    \1301\ See Section VII.D.2 of this release discussing the costs 
of Rules 13n-4(b)(2)-(7), 13n-5, and 13n-6.
---------------------------------------------------------------------------

    Multiple SDRs may register with the Commission, potentially within 
the same asset class, with each SDR collecting data from a subset of 
market participants. While multiple SDRs per asset class will allow for 
market competition to decide how data is collected, it may hinder 
market-wide data aggregation due to coordination costs, particularly if 
market participants adopt incompatible reporting standards and 
practices. The SDR Rules do not specify a particular reporting format 
or structure, which may create the possibility that persons reporting 
to SDRs or other market participants accessing SBS data, will have to 
accommodate different data standards and develop different systems to 
accommodate each. This may result in increased costs for reporting 
persons and users of SBS data.
    Furthermore, the costs associated with aggregating data across 
multiple SDRs by the Commission and other users of such data will 
increase to the extent that SDRs choose to use different identifying 
information for transactions, counterparties, and products. Data 
aggregation costs also could accrue to the extent that there is 
variation in the quality of data maintained across SDRs.

[[Page 14540]]

Each SDR has discretion over how to implement its policies and 
procedures in the recording of reportable data, and variations in 
quality may result. Since aggregated data used for surveillance and 
risk monitoring requires that the underlying components are provided 
with the same level of accuracy, variations in the quality of data 
could be costly if subsequent interpretations of analysis based on the 
data suffer from issues of integrity. To the extent that market 
competition among SDRs impacts profit margins and the level of 
resources devoted to collecting and maintaining transaction data, there 
is an increased likelihood of variations in the quality of reported 
data, which could make the aggregation of data across multiple SDRs 
more difficult.
    In the Proposing Release the Commission solicited comment on the 
costs related to Rules 13n-4(b)(2)-(7), 13n-5, and 13n-6.\1302\ The 
Commission specifically requested comment on the initial and ongoing 
costs associated with establishing and maintaining the technology 
systems and related policies and procedures; additional costs to 
creating an SDR that the Commission should consider; alternatives that 
the Commission should consider; whether the estimates accurately 
reflect the cost of storing data in a convenient and usable electronic 
format for the required retention period; and a description and, to the 
extent practicable, quantification of the costs associated with any 
comments that are submitted.\1303\ The Commission received no comments 
on the estimated costs of the rules discussed in this section.
---------------------------------------------------------------------------

    \1302\ See Proposing Release, 75 FR at 77358, supra note 2.
    \1303\ See Proposing Release, 75 FR at 77358, supra note 2.
---------------------------------------------------------------------------

c. Alternatives
    Commenters suggested that an SDR's duties should include reporting 
SBS data to a single SDR that would consolidate the data.\1304\ 
Specifically, one commenter recommended that the Commission ``designate 
one SDR as the recipient of the information of the other SDRs to ensure 
the efficient consolidation of data.''\1305\ The commenter further 
stated that the designated SDR would need to have ``the organization 
and governance structure that is consistent with being a financial 
market utility serving a vital function to the entire 
marketplace.''\1306\ The Commission recognizes, as asserted by the 
commenter, that fragmentation of data among SDRs would ``leave to 
regulators the time consuming, complicated and expensive task of 
rebuilding complex data aggregation and reporting mechanisms.''\1307\ 
If the Commission were to designate one SDR as the data consolidator, 
however, such an action could be deemed as the Commission's endorsement 
of one regulated person over another, discourage new market entrants, 
and interfere with competition, resulting in a perceived government-
sponsored monopoly. In addition, such a requirement would likely impose 
an additional cost on market participants to cover the SDR's cost for 
acting as the data consolidator. The Commission does not believe that, 
at this time, the benefits of such a requirement, in terms of saving 
other SDRs the costs of having to make data available to the Commission 
and saving the costs of consolidating the data itself, would be 
substantial enough to justify this potential negative effect on 
competition among SDRs. The Commission, however, may revisit this issue 
if, for example, there is data fragmentation among SDRs that is 
creating substantial difficulties for relevant authorities to get a 
complete and accurate view of the market.
---------------------------------------------------------------------------

    \1304\ See DTCC 1*, supra note 20; Better Markets 1, supra note 
19; see also FINRA SBSR, supra note 27 (urging the Commission to 
mandate the consolidation of disseminated SBS data to the public).
    \1305\ DTCC 1*, supra note 20; see also Better Markets 1, supra 
note 19 (making similar comments); DTCC 2, supra note 19 (``The role 
of an aggregating SDR is significant in that it ensures regulators 
efficient, streamlined access to consolidated data, reducing the 
strain on limited agency resources.'').
    \1306\ DTCC 1*, supra note 20.
    \1307\ DTCC 3, supra note 19.
---------------------------------------------------------------------------

    The Commission considered directing, under Rule 13n-4(b)(7), all 
SDRs to establish automated systems for monitoring, screening, and 
analyzing SBS data, a position urged by one commenter.\1308\ The 
Commission believes that mandating automated systems for monitoring, 
screening, and analyzing SBS data at this time would impose an 
additional cost on SDRs. The Commission believes that it should avoid 
imposing the cost of automated systems on SDRs until the Commission can 
better determine what information it needs through such automated 
systems in addition to the information that it can obtain from SDRs 
through other rules applicable to SDRs, such as Rule 13n-4(b)(5).
---------------------------------------------------------------------------

    \1308\ See Better Markets 1, supra note 19. Similarly, another 
commenter suggested that the Commission ``provide additional details 
on the anticipated requirements in order to better manage the 
expectations of SDRs and wider market participants concerning their 
duties in this area.'' Barnard, supra note 19.
---------------------------------------------------------------------------

    The Commission considered requiring every SDR to maintain 
transaction data and related identifying information for not less than 
five years after the applicable SBS expires or ten years after the 
applicable SBS is executed, whichever is greater, as an alternative to 
the time period in Rule 13n-5(b)(4) (for not less than five years after 
the applicable SBS expires). The Commission understands, however, that 
the alternative time period does not fit current industry practices and 
therefore would be costly to implement. The five-year period is 
consistent with the record retention period for other Commission 
registrants and the statutory requirement for SB SEFs.
    The Commission also considered, as an alternative to Rule 13n-
5(b)(4)(i), prescribing a particular data format in which an SDR must 
maintain transaction data and positions, as suggested by three 
commenters.\1309\ The Commission believes that SDRs should have the 
flexibility to choose their own data format, based on what works best 
in practice.\1310\ The Commission is also concerned that a format that 
it mandates would eventually become outdated, necessitating either a 
rule change to keep pace with technological innovation or a requirement 
that SDRs use outdated technology. Market participants may incur the 
increased costs of converting their transaction data to a format that 
is no longer an industry standard. Although the Commission recognizes 
that a commonly-mandated format for all SBS data has the potential to 
facilitate aggregation of data across different SDRs, the Commission 
believes that not imposing a particular format saves SDRs the costs 
associated with using and implementing one data format chosen by the 
Commission. The Commission believes that SDRs, working with market 
participants, will be in the best position to choose and upgrade 
formats as needed.\1311\ For these reasons, the Commission does not 
believe that mandating a particular format in which an SDR must 
maintain transaction data, related identifying information, and 
positions is, at this time, an appropriate alternative to the flexible 
approach of Rule 13n-5(b)(4)(i) and the lower compliance costs.
---------------------------------------------------------------------------

    \1309\ See Better Markets 1, supra note 19; ISDA Temp Rule, 
supra note 28; Barnard, supra note 19.
    \1310\ See Section VI.E.4.c of this release discussing Rule 13n-
5(b)(4).
    \1311\ As discussed above, when an SDR is deciding the format in 
which it will maintain transaction data and positions, it may want 
to consider whether it will need to reformat or translate the data 
to reflect any formats and taxonomies that the Commission may adopt 
pursuant to Exchange Act Section 13(n)(5)(D) and Rule 13n-4(b)(5). 
See Section VI.E.4.c of this release.
---------------------------------------------------------------------------

    Finally, the Commission considered, as suggested by one commenter,

[[Page 14541]]

requiring SDRs to keep records of data indefinitely.\1312\ This 
commenter asserted that there was ``no technological or practical 
reason for limiting the retention period,'' \1313\ but the Commission 
believes that given the volume of data and transactions SDRs may 
handle, prohibiting SDRs from ever eliminating records may result in 
SDRs retaining a large volume of records for which there may be little 
or no use. Having to maintain records secure and accessible for an 
indefinite period of time may impose significant costs to SDRs, 
particularly as storage and access technology evolves. Because the 
Commission believes that requiring transaction data to be maintained 
for not less than five years after the applicable SBS expires is more 
reasonable, and because that approach is consistent with the record 
retention period for other Commission registrants and the statutory 
requirement for SB SEFs, the Commission does not believe that risks and 
costs that could come with imposing an unlimited time period for 
retention are justified. Accordingly, the Commission is not adopting 
the alternative suggested by the commenter.
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    \1312\ See Barnard, supra note 19.
    \1313\ Barnard, supra note 19.
---------------------------------------------------------------------------

3. Recordkeeping
    Rule 13n-7 requires an SDR to make and keep certain records 
relating to its business and retain a copy of records made or received 
by the SDR in the course of its business for a period of not less than 
five years, the first two years in a place that is immediately 
available to representatives of the Commission for inspection and 
examination. The rule also requires an SDR that ceases doing business 
or ceases to be registered as an SDR to preserve, maintain, and make 
accessible the records required to be collected, maintained, and 
preserved pursuant to the rule for the remainder of the time period 
required by Rule 13n-7.\1314\
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    \1314\ See Section VI.G of this release discussing Rule 13n-7.
---------------------------------------------------------------------------

a. Benefits
    Rule 13n-7 is designed to further the Dodd-Frank Act's goals by 
enhancing the Commission's ability to oversee SDRs, which are critical 
components of the new regulatory scheme governing SBSs. The rule will 
assist the Commission in determining whether an SDR is complying with 
the federal securities laws and the rules and regulations thereunder. 
In addition, the recordkeeping requirements contained in the rule will 
permit the Commission to evaluate the financial responsibility and 
soundness of SDRs.
    To the extent that the rule standardizes the business recordkeeping 
practices of SDRs, the Commission will be better able to perform 
efficient, targeted inspections and examinations with an increased 
likelihood of identifying improper conduct. To the extent that 
standardized recordkeeping requirements will allow the Commission to 
perform more efficient, targeted inspections and examinations, SDRs may 
incur less costs in responding to targeted inspections and examinations 
(as opposed to inspections and examinations that are broader in scope). 
In addition, both the Commission and SDRs should benefit from 
standardized recordkeeping requirements to the extent that uniform 
records will enable the Commission and SDRs to know what records the 
SDRs are required to maintain.
    The Commission solicited comment on the benefits related to Rule 
13n-7.\1315\ The Commission did not receive any comments on the 
benefits related to Rule 13n-7.
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    \1315\ See Proposing Release, 75 FR at 77358, supra note 2.
---------------------------------------------------------------------------

b. Costs
    As discussed above, the Commission estimates that the average 
initial paperwork cost associated with making, keeping and preserving 
certain records and developing and maintaining information technology 
systems to ensure compliance with the recordkeeping requirements will 
be 346 hours and $1,800 for each SDR and the average ongoing paperwork 
cost associated with compliance with the recordkeeping requirements 
will be 279.17 hours per year for each SDR.\1316\ Assuming a maximum of 
ten SDRs, the aggregate one-time estimated dollar cost will be $986,600 
\1317\ and the aggregate ongoing estimated dollar cost per year will be 
$790,051.10 \1318\ to comply with Rule 13n-7.
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    \1316\ See Section VII.D.3 of this release discussing the cost 
associated with Rule 13n-7.
    \1317\ The Commission estimates that an SDR will assign these 
responsibilities primarily to a Compliance Manager as well as a 
Senior Systems Analyst. Thus, the total initial estimated dollar 
cost will be $98,660 per SDR and $986,600 for all SDRs, calculated 
as follows: ($1,800 in information technology costs + (Compliance 
Manager at $283 per hour for 300 hours) + (Senior Systems Analyst at 
$260 per hour for 46 hours)) x 10 registrants = $986,600.
    \1318\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Manager. Thus, the total ongoing 
estimated dollar cost will be $79,005.11 per SDR and $790,051.10 for 
all SDRs, calculated as follows: (Compliance Manager at $283 per 
hour for 279.17 hours) x 10 registrants = $790,051.10.
---------------------------------------------------------------------------

    The Commission believes that existing SDRs may already maintain 
business records as part of their day-to-day operations.\1319\ Such 
persons are currently not subject to regulation by the Commission, and 
therefore, may need to enhance their maintenance of business records to 
comply with Rule 13n-7. Thus, such persons may experience costs in 
enhancing their recordkeeping to comply with Rule 13n-7. Moreover, 
because the costs discussed above represent the costs of establishing a 
recordkeeping system without any existing recordkeeping system in 
place, existing SDRs that already have a recordkeeping system may 
experience initial costs lower than those estimated above. The 
Commission believes that after such persons bring their recordkeeping 
into compliance with Rule 13n-7, however, the ongoing annual costs for 
such persons will likely be consistent with the estimates provided 
above.
---------------------------------------------------------------------------

    \1319\ Cf. DTCC 2, supra note 19 (stating that ``[t]he 
Commission's proposed required practices are generally consistent 
with those of'' the commenter's trade repository).
---------------------------------------------------------------------------

    The Commission solicited comment on the costs related to Rule 13n-
7.\1320\ The Commission specifically requested comment on the initial 
and ongoing costs associated with establishing and maintaining the 
recordkeeping systems and related policies and procedures, including 
whether currently-operating SDRs would incur different recordkeeping 
costs.\1321\ The Commission did not receive any comments on the costs 
related to Rule 13n-7.
---------------------------------------------------------------------------

    \1320\ See Proposing Release, 75 FR at 77359, supra note 2.
    \1321\ See Proposing Release, 75 FR at 77359, supra note 2.
---------------------------------------------------------------------------

4. Reports
    Rule 13n-8 requires SDRs to report promptly to the Commission, in a 
form and manner acceptable to the Commission, such information as the 
Commission determines necessary or appropriate for the Commission to 
perform its duties.\1322\
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    \1322\ See Section VI.H.3 of this release discussing Rule 13n-8.
---------------------------------------------------------------------------

a. Benefits
    Title VII establishes a regulatory framework for the OTC 
derivatives market that depends on the Commission's access to 
information regarding the current and historical operation of the SBS 
market to verify compliance with the statute and to provide for 
effective monitoring for market abuse. In addition, specific provisions 
of Title VII require routine,

[[Page 14542]]

targeted monitoring of certain types of events. Access to such 
information will enable the Commission to oversee the SBS market, which 
is critical to the continued integrity of the markets, and detect and 
deter fraudulent and manipulative activity and other trading abuses in 
connection with the derivatives markets.
    The Commission solicited comment on the benefits related to the 
requirements contained in Rule 13n-8.\1323\ The Commission did not 
receive any comments on the benefits related to the requirements 
contained in Rule 13n-8.
---------------------------------------------------------------------------

    \1323\ See Proposing Release, 75 FR at 77359, supra note 2.
---------------------------------------------------------------------------

b. Costs
    The Commission anticipates that the initial costs to SDRs from Rule 
13n-8 relate to the cost of developing and maintaining systems to 
respond to requests for information and provide the necessary reports 
and establishing related policies and procedures. In addition, SDRs 
will need to employ staff to maintain systems to provide the requested 
reports as well as to respond to ad hoc requests that cannot be 
satisfied using such systems.\1324\ The information technology costs 
associated with this rule are included in the overall information 
technology costs discussed above.\1325\
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    \1324\ The Commission understands that some existing trade 
repositories may have dedicated personnel who are responsible for 
responding to and providing ad hoc report requests from relevant 
authorities, including the Commission. To the extent that Rule 13n-8 
may result in more automated reporting, the need for such dedicated 
personnel resources may be reduced.
    \1325\ See Section VIII.D.2.b of this release.
---------------------------------------------------------------------------

    Furthermore, as discussed above, the Commission estimates that SDRs 
will incur costs in compiling the information requested under Rule 13n-
8, which the Commission estimates will be limited to information 
already compiled under the SDR Rules, and thus, require only 1 hour per 
response to compile and transmit per year for each SDR.\1326\ Assuming 
a maximum of ten SDRs, the aggregate ongoing estimated dollar cost per 
year will be $2,510 to comply with the rule.\1327\
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    \1326\ See Section VII.D.4 of this release discussing the cost 
associated with Rule 13n-8.
    \1327\ The Commission estimates that an SDR will assign these 
responsibilities to a Senior Business Analyst. Thus, the total 
ongoing estimated dollar cost will be $251 per SDR and $2,510 for 
all SDRs, calculated as follows: (Senior Business Analyst at $251 
per hour for 1 hour) x 10 registrants = $2,510.
---------------------------------------------------------------------------

    The Commission solicited comment on the costs related to Rule 13n-
8.\1328\ The Commission specifically requested comment on the initial 
and ongoing costs associated with establishing and providing the 
reports required under the rule.\1329\ The Commission did not receive 
any comments on the estimated costs related to this rule.
---------------------------------------------------------------------------

    \1328\ See Proposing Release, 75 FR at 77360, supra note 2.
    \1329\ See Proposing Release, 75 FR at 77360, supra note 2.
---------------------------------------------------------------------------

5. Disclosure
    Under Rule 13n-10, before accepting any SBS data from a market 
participant or upon the market participant's request, each SDR is 
required to furnish to the market participant a disclosure document 
containing certain information that reasonably will enable the market 
participant to identify and evaluate the risks and costs associated 
with using the services of the SDR.\1330\ An SDR's disclosure document 
must include the SDR's criteria for providing others with access to 
services offered and data maintained by the SDR; the SDR's criteria for 
those seeking to connect to or link with the SDR; a description of the 
SDR's policies and procedures regarding safeguarding of data and 
operational reliability; a description of the SDR's policies and 
procedures reasonably designed to protect the privacy of SBS 
transaction information; a description of the SDR's policies and 
procedures regarding its non-commercial and/or commercial use of SBS 
transaction information; a description of the SDR's dispute resolution 
procedures; a description of all of the SDR's services, including 
ancillary services; the SDR's updated schedule of dues, unbundled 
prices, rates, or other fees for all of its services, and any discounts 
or rebates; and a description of the SDR's governance arrangements.
---------------------------------------------------------------------------

    \1330\ See Section VI.I.2 of this release discussing Rule 13n-
10.
---------------------------------------------------------------------------

a. Benefits
    Rule 13n-10 is intended to provide certain information regarding an 
SDR to market participants prior to their entering into an agreement to 
provide SBS data to the SDR. To the extent that multiple SDRs accept 
data for the same asset class, the disclosure document should enable 
market participants to make an informed choice among SDRs. The 
disclosure document is necessary to inform market participants of the 
nature of the services provided by the SDR and the conditions and 
obligations that are imposed on market participants in order for them 
to report data to the SDR.
    Rule 13n-10 is designed to further the Dodd-Frank Act's goals by 
providing market participants with applicable information regarding the 
operation of SDRs. The Commission solicited comment,\1331\ but did not 
receive any comments on the benefits related to this rule.
---------------------------------------------------------------------------

    \1331\ See Proposing Release, 75 FR at 77360, supra note 2.
---------------------------------------------------------------------------

b. Costs
    The Commission anticipates that the primary costs to SDRs to 
complying with Rule 13n-10 relate to the development and dissemination 
of the disclosure document. As discussed above, the Commission 
estimates that the average initial paperwork cost associated with 
developing the disclosure document and related policies and procedures 
will be 97.5 hours and $9,400 for each SDR and the average ongoing 
paperwork cost will be 1 hour per year for each SDR.\1332\ Assuming a 
maximum of ten registered SDRs, the aggregate one-time estimated dollar 
cost will be $263,162.5 \1333\ and the aggregate ongoing estimated 
dollar cost per year will be $1,735 \1334\ to comply with the rule.
---------------------------------------------------------------------------

    \1332\ See Section VII.D.5 of this release discussing the cost 
associated with Rule 13n-10.
    \1333\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Manager and a Compliance Clerk. 
Thus, the total initial estimated dollar cost will be $26,316.25 per 
SDR and $263,162.5 for all SDRs, calculated as follows: ($4,400 for 
external legal costs + $5,000 for external compliance consulting 
costs + (Compliance Manager at $283 per hour for 48.75 hours) + 
(Compliance Clerk at $64 per hour for 48.75 hours)) x 10 registrants 
= $263,162.5.
    \1334\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Manager and a Compliance Clerk. 
Thus, the total ongoing estimated dollar cost will be $173.5 per SDR 
and $1,735 for all SDRs, calculated as follows: ((Compliance Manager 
at $283 per hour for 0.5 hours) + (Compliance Clerk at $64 per hour 
for 0.5 hours)) x 10 registrants = $1,735.
---------------------------------------------------------------------------

    The Commission solicited comment on the costs related to Rule 13n-
10.\1335\ The Commission specifically requested comment on the initial 
and ongoing costs associated with drafting, reviewing, and providing 
the required disclosure document.\1336\ The Commission did not receive 
any comments on the costs related to this rule.
---------------------------------------------------------------------------

    \1335\ See Proposing Release, 75 FR at 77360, supra note 2.
    \1336\ See Proposing Release, 75 FR at 77360, supra note 2.
---------------------------------------------------------------------------

6. Chief Compliance Officer and Compliance Functions; Compliance 
Reports and Financial Reports
    Rules 13n-4(b)(11) and 13n-11 and the amendments to Regulation S-T 
require each registered SDR to identify on Form SDR a person who has 
been designated by the board to serve as CCO whose duties include 
preparing an annual compliance report, which will

[[Page 14543]]

be filed with the Commission along with a financial report.\1337\ The 
CCO's appointment must be approved by the majority of the SDR's board 
and the CCO must report directly to the senior officer of the SDR or 
the board. As discussed above, the CCO is responsible for, among other 
things, establishing procedures for the remediation of noncompliance 
issues identified by the CCO and establishing and following appropriate 
procedures for the handling, management response, remediation, 
retesting, and closing of noncompliance issues.\1338\ No officer, 
director, or employee may directly or indirectly take any action to 
coerce, manipulate, mislead, or fraudulently influence the CCO in the 
performance of his or her duties under Rule 13n-11.\1339\ The CCO is 
required to prepare and sign an annual compliance report and submit the 
report to the board for its review prior to the report being filed with 
the Commission. Finally, the annual compliance report must be filed 
along with the financial report, which must be prepared pursuant to 
Rule 13n-11(f) and filed with the Commission. The compliance report 
must be filed in a tagged data format in accordance with the 
instructions contained in the EDGAR Filer Manual,\1340\ and the 
financial report must be provided as an official filing in accordance 
with the EDGAR Filer Manual and include, as part of the official 
filing, an Interactive Data Financial Report filed in accordance with 
Rule 407 of Regulation S-T.\1341\
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    \1337\ See Section VI.J of this release discussing Rule 13n-11.
    \1338\ See Section VI.J.3.c of this release discussing the 
duties of CCOs.
    \1339\ See Section VI.J.6 of this release discussing the 
prohibition of undue influence on CCOs.
    \1340\ See 17 CFR 232.301.
    \1341\ See Section VI.J.5.c of this release discussing Rule 407 
of Regulation S-T.
---------------------------------------------------------------------------

a. Benefits
    Rules 13n-4(b)(11) and 13n-11 are designed to help ensure that SDRs 
comply with the federal securities laws, including Exchange Act Section 
13(n), and the rules and regulations thereunder. Although existing SDRs 
may already have CCOs in place, the rules will make this standard 
practice for all registered SDRs, as mandated by the Exchange 
Act.\1342\
---------------------------------------------------------------------------

    \1342\ See Exchange Act Section 13(n)(6), 15 U.S.C. 78m(n)(6).
---------------------------------------------------------------------------

    As a result of Rules 13n-4(b)(11) and 13n-11, the Commission 
believes that data and other records maintained by each SDR are more 
likely to be accurate and reliable. The Commission believes that strong 
internal compliance programs lower the likelihood of non-compliance 
with securities rules and regulations.\1343\ The designation of a CCO, 
who will, among other things, take reasonable steps to ensure 
compliance with the rules and regulations thereunder relating to SBSs, 
including each rule prescribed by the Commission, will help ensure that 
each SDR complies with the Exchange Act and the rules and regulations 
thereunder. The prohibition against an SDR's officer, director, or 
employee from directly or indirectly taking any action to coerce, 
manipulate, mislead, or fraudulently influence its CCO increases the 
probability that the CCO's actions are based on accurate information 
and the compliance reports reflect the independent judgment of the CCO; 
however, these prohibitions may also cause some SDRs or SDR officers, 
directors and employees to implement additional controls in their 
interactions with the CCO, potentially limiting the scope or timeliness 
of the information made available to the CCO. To the extent that 
compliance with the Exchange Act and the rules and regulations 
thereunder results in more accurate data being maintained, publicly 
disseminated, and reported to the Commission, the ability of the 
Commission to rely on the SBS data will improve. Finally, strong 
compliance programs may help reduce non-compliance with the SDR Rules 
by SDRs; non-compliance with, for example, the privacy requirements 
(Rules 13n-4(b)(8) and 13n-9), have the potential of negatively 
impacting confidence in the overall SBS market.
---------------------------------------------------------------------------

    \1343\ See DTCC 2, supra note 19 (agreeing with the Commission 
that ``a robust internal compliance function plays an important role 
in facilitating an SDR's monitoring of, and compliance with, the 
requirements of the Exchange Act (and rules thereunder) applicable 
to SDRs'').
---------------------------------------------------------------------------

    Rule 13n-11(f) requires SDRs to file annual audited financial 
reports to the Commission. This rule will enhance the Commission's 
oversight of SDRs by facilitating the Commission's evaluation of an 
SDR's financial and managerial resources. The financial reports will 
also assist the Commission in assessing potential conflicts of 
interests of a financial nature arising from the operation of an SDR.
    Benefits will also accrue from requiring SDRs to file financial 
reports in an interactive data format. This requirement will enable the 
Commission and, to the extent that the data is made public, the public 
to analyze the reported information more quickly, more accurately, and 
at a lower cost. In particular, the tagged data will make it easier to 
aggregate information collected from SDRs and compare across SDRs and 
over time, which the Commission believes is important to perform its 
regulatory mandate and legal responsibilities.
    The Commission solicited comment on the benefits related to Rules 
13n-4(b)(11) and 13n-11.\1344\ The Commission specifically requested 
comment on the benefits that would accrue from designating a CCO who 
would be responsible for preparing and signing an annual compliance 
report and reporting annually to the board and on the benefits 
associated with the financial reports.\1345\ The Commission did not 
receive any comments on the benefits of these rules.
---------------------------------------------------------------------------

    \1344\ See Proposing Release, 75 FR at 77361, supra note 2.
    \1345\ See Proposing Release, 75 FR at 77361, supra note 2.
---------------------------------------------------------------------------

b. Costs
    The establishment of a designated CCO and compliance with the 
accompanying responsibilities of a CCO will impose certain costs on 
SDRs. As discussed above, the Commission estimates that the average 
initial paperwork cost associated with establishing procedures for the 
remediation of noncompliance issues identified by the CCO and 
establishing and following appropriate procedures for the handling, 
management response, remediation, retesting, and closing of 
noncompliance issues will be 420 hours and $40,000 for each SDR and the 
average ongoing paperwork cost will be 120 hours for each SDR.\1346\ In 
addition, each SDR is required to retain a CCO in order to comply with 
the SDR Rules, at an annual cost of $873,000.\1347\ Assuming a maximum 
of ten SDRs, the aggregate initial estimated dollar cost per year will 
be $1,802,000 \1348\ and the aggregate ongoing estimated dollar cost 
per year will be $9,130,800 \1349\ to comply with the rules.
---------------------------------------------------------------------------

    \1346\ See Section VII.D.6 of this release discussing the costs 
of Rule 13n-11.
    \1347\ Data from SIFMA's Management & Professional Earnings in 
the Securities Industry 2013, modified by Commission staff to 
account for an 1800-hour work-year and multiplied by 5.35 to account 
for bonuses, firm size, employee benefits, and overhead, suggest 
that the cost of a CCO is $485 per hour. Thus, the total ongoing 
estimated dollar cost will be $873,000 per SDR and $8,730,000 for 
all SDRs, calculated as follows: (CCO at $485 per hour for 1800 
hours) x 10 registrants = $8,730,000.
    \1348\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Attorney. Thus, the total initial 
estimated dollar cost will be $180,280 per SDR and $1,802,800 for 
all SDRs, calculated as follows: ($40,000 for outside legal services 
+ (Compliance Attorney at $334 per hour for 420 hours)) x 10 
registrants = $1,802,800.
    \1349\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Attorney. Thus, the total ongoing 
estimated dollar cost will be $913,080 per SDR and $9,130,800 for 
all SDRs, calculated as follows: ($873,000 for a CCO + (Compliance 
Attorney at $334 per hour for 120 hours)) x 10 registrants = 
$9,130,800.

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[[Page 14544]]

    As discussed above, the Commission estimates that the average 
ongoing paperwork cost associated with preparing and submitting annual 
compliance reports to the SDR's board pursuant to Rules 13n-11(d) and 
(e) will be 5 hours.\1350\ Assuming a maximum of ten SDRs, the 
aggregate ongoing estimated dollar cost per year will be $16,700 to 
comply with the rules.\1351\
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    \1350\ See Section VII.D.6 of this release discussing the costs 
of Rule 13n-11.
    \1351\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Attorney. Thus, the total ongoing 
estimated dollar cost will be $1,670 per SDR and $16,700 for all 
SDRs, calculated as follows: (Compliance Attorney at $334 per hour 
for 5 hours) x 10 registrants = $16,700.
---------------------------------------------------------------------------

    As discussed above, the Commission estimates that the average 
ongoing paperwork cost associated with preparing and filing financial 
reports pursuant to Rule 13n-11(f) and (g) and the amendments to 
Regulation S-T will be 500 hours and $500,000 for each registered 
SDR.\1352\ Assuming a maximum of ten SDRs, the aggregate ongoing 
estimated dollar cost per year will be $5,990,000 to comply with the 
rules.\1353\
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    \1352\ See Section VII.D.6 of this release discussing the costs 
of Rule 13n-11.
    \1353\ The Commission estimates that an SDR will assign these 
responsibilities to a Senior Accountant. Data from SIFMA's 
Management & Professional Earnings in the Securities Industry 2013, 
modified by Commission staff to account for an 1800-hour work-year 
and multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead, suggest that the cost of a Senior Accountant 
is $198 per hour. Thus, the total ongoing estimated dollar cost will 
be $599,000 per SDR and $5,990,000 for all SDRs, calculated as 
follows: ($500,000 for independent public accounting services + 
(Senior Accountant at $198 per hour for 500 hours)) x 10 registrants 
= $5,990,000.
---------------------------------------------------------------------------

    As discussed above, the Commission estimates that the average 
ongoing paperwork cost associated with filing annual compliance and 
financial reports with the Commission in a tagged data format pursuant 
to Rules 13n-11(d), (f), and (g), and in accordance with the amendments 
to Regulation S-T, will be 54 hours and $22,772 for each registered 
SDR.\1354\ Assuming a maximum of ten SDRs, the aggregate ongoing 
estimated dollar cost per year will be $368,120 to comply with the 
rules.\1355\
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    \1354\ See Section VII.D.6 of this release discussing the costs 
of Rule 13n-11.
    \1355\ The Commission estimates that an SDR will assign these 
responsibilities to a Senior Systems Analyst. Thus, the total 
ongoing estimated dollar cost will be $36,812 per SDR and $368,120 
for all SDRs, calculated as follows: ($22,772 for information 
technology services + (Senior Systems Analyst at $260 per hour for 
54 hours)) x 10 registrants = $368,120.
---------------------------------------------------------------------------

    The Commission believes that existing SDRs may already maintain 
compliance programs that are overseen by a CCO or an individual who 
effectively serves as a CCO.\1356\ In addition, CCOs may prepare 
compliance reports presented to senior management and/or the SDRs' 
boards as part of their current business practice. SDRs are currently 
not subject to regulation by the Commission, and therefore, may need to 
enhance their compliance programs and compliance reports to comply with 
Rules 13n-4(b)(11) and 13n-11. Thus, SDRs may experience costs in 
enhancing their compliance programs and compliance reports to comply 
with Rules 13n-4(b)(11) and 13n-11. Moreover, because the costs 
discussed above represent the costs of complying with Rules 13n-
4(b)(11) and 13n-11 without any existing compliance programs in place 
that are overseen by a CCO or an individual who effectively serves as a 
CCO, existing SDRs that already maintain such compliance programs may 
experience initial costs lower than those estimated above. However, 
even if an SDR has an existing compliance program overseen by a CCO, it 
is possible that officers, directors, and employees concerned about the 
prohibition in Rule 13n-11(h) (prohibiting officers, directors, and 
employees of an SDR from directly or indirectly taking any action to 
coerce, manipulate, mislead, or fraudulently influence the CCO) may 
want expanded liability insurance coverage. In response, an SDR may 
seek to acquire additional insurance coverage. The Commission 
acknowledges that it is possible, therefore, that Rule 13n-11(h) may 
result in liability insurance rates that are above what they would have 
been in the absence of the rule. The Commission is unable to estimate 
these costs given that it lacks specific information regarding current 
insurance costs for SDRs, the amount of the demand that there will be 
for increased coverage, and thereby the potential increases associated 
with the rule. The Commission believes that after SDRs bring their 
compliance programs and compliance reports into compliance with Rules 
13n-4(b)(11) and 13n-11, however, the ongoing annual costs for SDRs 
will likely be consistent with the estimates provided above.
---------------------------------------------------------------------------

    \1356\ Cf. DTCC 2, supra note 19 (stating that it ``has an 
established compliance infrastructure for its businesses . . . which 
includes processes for establishing and implementing required 
compliance policies and procedures and overseeing adherence to those 
procedures and a mechanism for reporting, tracking, remediating and 
closing compliance issues whether self-identified or identified 
through internal or external examinations'' and that ``[t]he 
Commission's proposed required practices are generally consistent 
with those of'' the commenter's trade repository).
---------------------------------------------------------------------------

    The Commission solicited comment on these estimates related to 
Rules 13n-4(b)(11) and 13n-11.\1357\ The Commission specifically 
requested comment on the initial and ongoing costs associated with 
designating a CCO and the costs associated with any personnel who may 
be necessary to support the CCO and create the annual compliance and 
financial reports.\1358\ One commenter stated that it is difficult to 
assess the incremental costs to SDRs of implementing Rule 13n-11 
regarding designation of a CCO and that even with an established 
compliance infrastructure, the commenter believed that ``it is likely 
that the new requirements of Rule 13n-11 will entail additional costs, 
potentially including additional personnel and systems'' and the 
``compliance responsibilities in an SDR will evolve (and likely 
increase) as the scope of transactions reported to that SDR increase, 
which may also result in additional incremental costs.'' \1359\ The 
Commission agrees with the commenter's views; nevertheless the 
Commission has attempted to quantify the costs of compliance with the 
rule, as discussed above.
---------------------------------------------------------------------------

    \1357\ See Proposing Release, 75 FR at 77362, supra note 2.
    \1358\ See Proposing Release, 75 FR at 77362, supra note 2.
    \1359\ DTCC 2, supra note 19.
---------------------------------------------------------------------------

c. Alternatives
    The Commission considered requiring that the compensation, 
appointment, and termination of a CCO be approved by a majority of 
independent board members of an SDR, a position urged by two 
commenters.\1360\ As discussed above, the Commission believes that the 
rules that are intended to minimize an SDR's potential and existing 
conflicts of interest and to help ensure that SDRs meet core principles 
are sufficient at this time. Consequently, the Commission does not 
believe that requiring SDRs to have independent directors, and imposing 
the associated costs on SDRs, is warranted at this time. For these same 
reasons, the Commission does not believe that approval of a CCO's 
compensation, appointment, and termination by a majority of independent 
directors will provide

[[Page 14545]]

substantially greater benefits than having a majority of the board 
approve compensation, appointment, and termination.
---------------------------------------------------------------------------

    \1360\ See Better Markets 1, supra note 19 (recommending that 
the CCO's compensation and termination be approved by independent 
board members of an SDR). Similarly, one commenter suggested that 
only public independent directors or directors with an ``Independent 
Perspective,'' and not the full board, have ``the authority and sole 
responsibility to appoint or remove the CCO, or to materially change 
its duties and responsibilities.'' Barnard, supra note 19.
---------------------------------------------------------------------------

    Similarly, the Commission considered requiring CCOs to report 
directly to independent directors, as suggested by one commenter.\1361\ 
For the reasons stated above, the Commission does not believe that 
requiring independent directors, and therefore requiring CCOs to report 
to independent directors, is warranted at this time.\1362\
---------------------------------------------------------------------------

    \1361\ See Better Markets 1, supra note 19.
    \1362\ See Section VI.D.3.b.iii of this release discussing 
prescriptive governance requirements and limitations.
---------------------------------------------------------------------------

    The Commission considered whether it should prohibit a CCO from 
being the general counsel of an SDR or a member of the SDR's legal 
department, as suggested by two commenters.\1363\ The Commission is not 
adopting this prohibition because, as discussed above, the Commission 
believes that any potential conflicts of interest can be adequately 
addressed by the SDR's conflicts of interest policies and procedures, 
which are required to be established under Rule 13n-4(c)(3).\1364\ The 
Commission believes that SDRs should have flexibility in appointing 
their CCOs and that these conflicts of interest provisions are 
sufficient to mitigate any risks from not adopting the prohibition 
suggested by the commenter. Further, the Commission believes that 
imposing such a prohibition could impose additional costs on SDRs by 
requiring that they employ two different persons as general counsel and 
CCO, each position with its own compensation.
---------------------------------------------------------------------------

    \1363\ See Better Markets 1, supra note 19; Barnard, supra note 
19.
    \1364\ See Section VI.J.1.c of this release discussing Rule 13n-
11(a).
---------------------------------------------------------------------------

    The Commission considered reducing the amount of information 
required on the annual compliance report. For example, the Commission 
could have not required any discussion of recommendations for material 
changes to policies and procedures, as suggested by one 
commenter.\1365\ The Commission believes, however, that the benefits of 
obtaining all of the information required by Rule 13n-11(d) justify any 
burdens associated with providing such information on the annual 
compliance report. The information will assist Commission staff in 
assessing an SDR's compliance with the federal securities laws and the 
rules and regulations thereunder, and information about recommendations 
for material changes to an SDR's policies and procedures may alert the 
staff to material compliance issues at an SDR. Moreover, only 
recommendations for material changes will have to be described, which 
will impose a lesser burden than requiring disclosure of every 
recommendation.
---------------------------------------------------------------------------

    \1365\ See DTCC 2, supra note 19.
---------------------------------------------------------------------------

    The Commission considered, as suggested by one commenter,\1366\ 
harmonizing with the CFTC's approach \1367\ and not adopting Rule 13n-
11(f)(2)'s requirement that each financial report be audited in 
accordance with the PCAOB's standards by a registered public accounting 
firm that is qualified and independent. Although the Commission 
understands that SDRs will incur costs in hiring and retaining 
qualified public accounting firms, the Commission believes that 
obtaining audited financial reports from SDRs is important given the 
significant role the Commission believes that SDRs will play in the SBS 
market. The Commission believes that SDRs will provide transparency to, 
and increase the efficiency of, the SBS market. The Commission believes 
that SDRs will also be an important source of market data for 
regulators. Given the critical nature of their role in the marketplace, 
the Commission believes that it is important to obtain audited 
financial reports from SDRs in order to determine whether or not they 
have sufficient financial resources to continue operations. While the 
Commission recognizes that Rule 13n-11(f)(2) may, in some cases, be 
more costly than the CFTC's requirement of quarterly unaudited 
financial statements, the Commission believes that the additional 
burden, where it exists, is justified by the benefits of requiring 
audited financial reports.
---------------------------------------------------------------------------

    \1366\ See DTCC 5, supra note 19.
    \1367\ See CFTC Rule 49.25, 17 CFR 49.25.
---------------------------------------------------------------------------

    Finally, the Commission considered one commenter's suggestion that 
there should be ``[c]ompetency standards to ensure that CCOs have the 
background and skills necessary to fulfill their responsibilities.'' 
\1368\ The Commission believes that, as discussed above, such standards 
do not need to be adopted by rule, but rather that SDRs should have 
flexibility in determining what standards their CCOs should meet.\1369\ 
The Commission believes that SDRs are in the best position to judge the 
competency of their CCOs and select them accordingly.
---------------------------------------------------------------------------

    \1368\ See Better Markets 3, supra note 19.
    \1369\ See Section VI.J.1.c of this release discussing Rule 13n-
11(a).
---------------------------------------------------------------------------

7. Other Policies and Procedures Relating to an SDR's Business
    The SDR Rules require SDRs to develop and maintain various policies 
and procedures.\1370\ Rules 13n-4(b)(8) and 13n-9 require each SDR to 
comply with certain requirements pertaining to the privacy of SBS 
transaction information.\1371\ Rule 13n-4(c) requires each SDR to 
comply with certain core principles pertaining to market access to 
services and data, governance arrangements, and conflicts of interest, 
including developing policies and procedures related to these core 
principles.\1372\ Rule 13n-5(b)(6) requires SDRs to establish 
procedures and provide facilities to effectively resolve 
disputes.\1373\
---------------------------------------------------------------------------

    \1370\ See Section VIII.D.2 of this release discussing the cost 
and benefits associated with the policies and procedures that SDRs 
must develop and maintain with respect to their information systems.
    \1371\ See Section VI.I.1 of this release discussing Rule 13n-9.
    \1372\ See Section VI.D.3 of this release discussing Rule 13n-
4(c).
    \1373\ See Section VI.E.6 of this release discussing Rule 13n-
5(b)(6).
---------------------------------------------------------------------------

a. Benefits
    The privacy requirements set forth in Rules 13n-4(b)(8) and 13n-9 
are intended to safeguard transaction information provided to SDRs by 
market participants. These privacy requirements make it less likely 
that the transaction information that market participants are required 
to report will expose their trading strategies or unhedged positions, 
which could subject them to predatory trading.
    Rule 13n-4(c)(1), which relates to market access to services and 
data, requires that SDRs impose fair, reasonable, and consistently 
applied fees and maintain objective access and participation criteria. 
This rule is designed to help ensure that SDRs do not engage in 
anticompetitive behavior and assuming that the SDR Rules promote 
competition among SDRs, that the cost of an SDR's core and ancillary 
services that are passed on to market participants are competitive. 
Furthermore, the Commission believes that by requiring each SDR to 
permit market participants to access specific services offered by the 
SDR separately, Rule 13n-4(c)(1)(ii) may promote efficiency to the 
extent that it saves market participants from having to purchase 
ancillary services that they do not want and will not use as a 
condition to using an SDR's data collection and maintenance services. 
Rule 13n-4(c)(1)(ii) may also promote efficiency and lower costs to the 
extent that it promotes competition among SDRs and

[[Page 14546]]

among SDRs and third party service providers offering ancillary 
services.
    The governance requirements in Rule 13n-4(c)(2) are designed to 
reduce conflicts of interest in the management of SDRs. In addition, by 
requiring fair representation of market participants on the board with 
the opportunity to participate in the process for nominating directors 
and the right to petition for alternative candidates, the rule will 
help reduce the likelihood that an incumbent market participant will 
exert undue influence on the board.
    While the above requirements are designed to prevent and constrain 
potential conflicts of interest, Rule 13n-4(c)(3) directly addresses 
conflicts of interest through targeted policies and procedures and an 
obligation to establish a process for resolving conflicts of interest. 
This rule will help mitigate the possibility that SDRs' business 
practices and internal structures might disadvantage a particular group 
of market participants.
    The requirement in Rule 13n-5(b)(6) is designed to help ensure that 
SDRs maintain accurate records relating to SBSs.\1374\ In addition to 
helping to ensure the accuracy of data maintained by SDRs, the 
requirement will provide a facility through which market participants 
could correct inaccuracies in SBS data regarding transactions to which 
they are a party.
---------------------------------------------------------------------------

    \1374\ See Exchange Act Section 13(n)(5)(B), 15 U.S.C. 
78m(n)(5)(B) (requiring an SDR to confirm, as prescribed in Rule 
13n-5, with both counterparties to the SBS the accuracy of the data 
that was submitted); Exchange Act Section 13(n)(5)(C), 15 U.S.C. 
78m(n)(5)(C) (requiring SDRs to maintain SBS data).
---------------------------------------------------------------------------

    Collectively, the rules described in this section will help ensure 
that SDRs operate consistently with the objectives set forth in the 
Exchange Act by providing fair, open, and not unreasonably 
discriminatory access to market participants without taking advantage 
of the SDRs' access to transaction data that market participants are 
required to report to the SDRs.
    The Commission solicited comment on the benefits related to Rules 
13n-4(c), 13n-5(b)(6), 13n-4(b)(8), and 13n-9.\1375\ Other than one 
commenter noting that Rule 13n-5(b)(6) is a key step in the effort to 
have accurate data at SDRs,\1376\ the Commission did not receive any 
comments on the estimated benefits of these rules.
---------------------------------------------------------------------------

    \1375\ See Proposing Release, 75 FR at 77363, supra note 2.
    \1376\ MFA 1, supra note 19; see also MFA SBSR, supra note 27.
---------------------------------------------------------------------------

b. Costs
    The Commission anticipates that the costs to SDRs from Rules 13n-
4(c), 13n-5(b)(6), 13n-4(b)(8), and 13n-9 will derive primarily from 
the costs of establishing, maintaining, and enforcing the required 
policies and procedures.
    The governance requirements in Rule 13n-4(c)(2) could impose costs 
resulting from educating senior management and each director about SBS 
trading and reporting and the new regulatory structure that will govern 
SBSs, which could slow management or board processes at least 
initially. Existing SDRs may experience lower costs, however, to the 
extent that they have already educated senior management and each 
director about SBS trading and reporting and the new regulatory 
structure that will govern SBSs.
    The requirement in Rule 13n-5(b)(6) will also impose costs on SDRs 
because SDRs are required to establish procedures and provide 
facilities through which market participants can challenge the accuracy 
of the transaction data and positions recorded in the SDRs.
    Rule 13n-4(c)(1)(ii) may also impose costs on SDRs by requiring 
SDRs to offer services separately. If SDRs would otherwise bundle their 
ancillary services with their data collection and maintenance services, 
or vice versa, then the requirement that they offer services separately 
may impose costs on SDRs. These costs include the cost of building the 
infrastructure to offer services separately, the potential losses of 
economies of scope in providing bundled services, and lost revenue from 
fees for services that market participants would otherwise be required 
to purchase. Similarly, the rule may impose costs on third party 
service providers that would be prevented from bundling their services 
with the services of an SDR.
    As discussed above, the Commission estimates that the average 
initial paperwork cost associated with Rule 13n-4(c)(1) will be 367.5 
hours and $35,000 and the average ongoing cost will be 105 hours per 
year for each SDR.\1377\ Assuming a maximum of ten SDRs, the aggregate 
one-time estimated dollar cost will be $1,465,550 \1378\ and the 
aggregate ongoing estimated dollar cost per year will be $320,890 
\1379\ to comply with the rule.
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    \1377\ See Section VII.D.7 of this release discussing costs of 
Rules 13n-4(c)(1)(iii) and (iv).
    \1378\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Manager, an Attorney, a Senior 
Systems Analyst, and an Operations Specialist. Thus, the total 
initial estimated dollar cost will be $146,555 per SDR and 
$1,465,550 for all SDRs, calculated as follows: ($35,000 for outside 
legal services + (Compliance Manager at $283 per hour for 135 hours) 
+ (Attorney at $380 per hour for 152.5 hours) + (Senior Systems 
Analyst at $260 per hour for 40 hours) + (Operations Specialist at 
$125 per hour for 40 hours)) x 10 registrants = $1,465,550.
    \1379\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Manager, an Attorney, a Senior 
Systems Analyst, and an Operations Specialist. Thus, the total 
ongoing estimated dollar cost will be $32,089 per SDR and $320,890 
for all SDRs, calculated as follows: ((Compliance Manager at $283 
per hour for 38 hours) + (Attorney at $380 per hour for 45 hours) + 
(Senior Systems Analyst at $260 per hour for 11 hours) + (Operations 
Specialist at $125 per hour for 11 hours)) x 10 registrants = 
$320,890.
---------------------------------------------------------------------------

    As discussed above, the Commission estimates that the average 
initial paperwork cost associated with Rule 13n-4(c)(2) will be 210 
hours and $20,000 for each SDR and the average ongoing paperwork cost 
will be 60 hours per year for each SDR.\1380\ Assuming a maximum of ten 
SDRs, the aggregate one-time estimated dollar cost will be $901,400 
\1381\ and the aggregate ongoing estimated dollar cost per year will be 
$200,400 \1382\ to comply with the rule.
---------------------------------------------------------------------------

    \1380\ See Section VII.D.7 of this release discussing costs of 
Rule 13n-4(c)(2)(iv).
    \1381\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Attorney. Thus, the total initial 
estimated dollar cost will be $90,140 per SDR and $901,400 for all 
SDRs, calculated as follows: ($20,000 for outside legal services + 
(Compliance Attorney at $334 per hour for 210 hours)) x 10 
registrants = $901,400.
    \1382\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Attorney. Thus, the total ongoing 
estimated dollar cost will be $20,040 per SDR and $200,400 for all 
SDRs, calculated as follows: (Compliance Attorney at $334 per hour 
for 60 hours) x 10 registrants = $200,400.
---------------------------------------------------------------------------

    As discussed above, the Commission estimates that the average 
initial paperwork cost associated with Rule 13n-4(c)(3) will be 420 
hours and $40,000 for each SDR and the average ongoing paperwork cost 
will be 120 hours per year for each SDR.\1383\ Assuming a maximum of 
ten SDRs, the aggregate one-time estimated dollar cost will be 
$1,802,800 \1384\ and the aggregate ongoing estimated dollar cost per 
year will be $400,800 \1385\ to comply with the rule.
---------------------------------------------------------------------------

    \1383\ See Section VII.D.7 of this release discussing costs of 
Rule 13n-4(c)(3).
    \1384\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Attorney. Thus, the total initial 
estimated dollar cost will be $180,280 per SDR and $1,802,800 for 
all SDRs, calculated as follows: ($40,000 for outside legal services 
+ (Compliance Attorney at $334 per hour for 420 hours)) x 10 
registrants = $1,802,800.
    \1385\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Attorney. Thus, the total ongoing 
estimated dollar cost will be $40,080 per SDR and $400,800 for all 
SDRs, calculated as follows: (Compliance Attorney at $334 per hour 
for 120 hours) x 10 registrants = $400,800.
---------------------------------------------------------------------------

    As discussed above, the Commission estimates that the average 
initial paperwork cost associated with Rule 13n-5(b)(6) will be 315 
hours and $30,000 for each SDR and the average

[[Page 14547]]

ongoing paperwork cost will be 90 hours per year for each SDR.\1386\ 
Assuming a maximum of ten SDRs, the aggregate one-time estimated dollar 
cost will be $1,352,100 \1387\ and the aggregate ongoing estimated 
dollar cost per year will be $300,600 \1388\ to comply with the rule.
---------------------------------------------------------------------------

    \1386\ See Section VII.D.7 of this release discussing costs of 
Rule 13n-5(b)(6).
    \1387\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Attorney. Thus, the total initial 
estimated dollar cost will be $135,210 per SDR and $1,352,100 for 
all SDRs, calculated as follows: ($30,000 for outside legal services 
+ (Compliance Attorney at $334 per hour for 315 hours)) x 10 
registrants = $1,352,100.
    \1388\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Attorney. Thus, the total initial 
estimated dollar cost will be $30,060 per SDR and $300,600 for all 
SDRs, calculated as follows: (Compliance Attorney at $334 per hour 
for 90 hours) x 10 registrants = $300,600.
---------------------------------------------------------------------------

    As discussed above, the Commission estimates that the average 
initial paperwork cost associated with Rules 13n-4(b)(8) and 13n-9 will 
be 630 hours and $60,000 for each SDR and the average ongoing paperwork 
cost will be 180 hours per year for each SDR.\1389\ Assuming a maximum 
of ten SDRs, the aggregate one-time estimated dollar cost will be 
$2,704,200 \1390\ and the aggregate ongoing estimated dollar cost per 
year will be $601,200 \1391\ to comply with the rules.
---------------------------------------------------------------------------

    \1389\ See Section VII.D.7 of this release discussing costs of 
Rules 13n-4(b)(8), 13n-9(b)(1), and 13n-9(b)(2).
    \1390\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Attorney. Thus, the total initial 
estimated dollar cost will be $270,420 per SDR and $2,704,200 for 
all SDRs, calculated as follows: ($60,000 for outside legal services 
+ (Compliance Attorney at $334 per hour for 630 hours)) x 10 
registrants = $2,704,200.
    \1391\ The Commission estimates that an SDR will assign these 
responsibilities to a Compliance Attorney. Thus, the total ongoing 
estimated dollar cost will be $60,120 per SDR and $601,200 for all 
SDRs, calculated as follows: (Compliance Attorney at $334 per hour 
for 180 hours) x 10 registrants = $601,200.
---------------------------------------------------------------------------

    The Commission solicited comment on the costs related to Rules 13n-
4(c), 13n-5(b)(6), 13n-4(b)(8), and 13n-9.\1392\ The Commission 
specifically requested comment on the initial and ongoing costs 
associated with establishing and maintaining the policies and 
procedures required by the rules, particularly as the costs apply to 
persons currently operating as SDRs.\1393\ One commenter believed that 
an interpretation of Rule 13n-4(c)(1)(i) that prohibits the use of the 
``dealer pays'' or ``sell-side pays'' model ``would have the unintended 
consequence of significantly increasing the costs for buy-side 
participants . . . .'' \1394\ Because, as discussed above, Rule 13n-
4(c)(1)(i) is not intended to prohibit an SDR from utilizing any one 
particular model, including a ``dealer pays'' or ``sell-side pays'' 
model, the Commission does not believe that the rule will necessarily 
increase costs for buy-side participants, as stated by the 
commenter.\1395\ The Commission further believes that if there is 
significant demand by buy-side participants with reporting 
responsibility for a ``dealer pays'' model, then an SDR is likely to 
provide such a service.
---------------------------------------------------------------------------

    \1392\ See Proposing Release 75 FR at 77364, supra note 2.
    \1393\ See Proposing Release 75 FR at 77364, supra note 2.
    \1394\ MarkitSERV, supra note 19.
    \1395\ See Section VI.D.3.a.iii(1) of this release discussing 
Rule 13n-4(c)(1)(i).
---------------------------------------------------------------------------

    A commenter to proposed Regulation SBSR suggested that SDRs should 
not be permitted to charge fees to third parties acting on behalf of 
counterparties for accepting SBS transaction information, as such fees 
would increase the cost of using an SB SEF or other third party.\1396\ 
Although the Commission agrees that an SB SEF or other third party 
could pass along fees charged by SDRs, the Commission does not believe 
that it is appropriate to determine who an SDR can charge for its 
services. Rather, the Commission believes that SDRs should have 
flexibility in determining how and whom to charge for their services, 
and that any costs associated with such flexibility are justified by 
the benefits of allowing SDRs to develop sustainable business models in 
an open, competitive environment.
---------------------------------------------------------------------------

    \1396\ Tradeweb SBSR, supra note 27.
---------------------------------------------------------------------------

    The Commission believes that existing SDRs may already have in 
place policies and procedures similar to the policies and procedures 
required by Rules 13n-4(c), 13n-5(b)(6), 13n-4(b)(8), and 13n-9. Such 
persons are currently not subject to regulation by the Commission, and 
therefore, may need to enhance their policies and procedures to comply 
with Rules 13n-4(c), 13n-5(b)(6), 13n-4(b)(8), and 13n-9. Thus, such 
persons may experience costs in enhancing their policies and procedures 
to comply with Rules 13n-4(c), 13n-5(b)(6), 13n-4(b)(8), and 13n-9. 
Moreover, because the costs discussed above represent the costs of 
creating policies and procedures without any existing policies and 
procedures in place, existing SDRs that already have policies and 
procedures may experience initial costs lower than those estimated 
above. The Commission believes that after such persons bring their 
policies and procedures into compliance with Rules 13n-4(c), 13n-
5(b)(6), 13n-4(b)(8), and 13n-9, however, the ongoing annual costs for 
such persons will likely be consistent with the estimates provided 
above.
c. Alternatives
    As suggested by a commenter, the Commission considered (1) adding 
safeguards specifically related to confidentiality of trading positions 
and (2) requiring SDRs to adopt policies and procedures to limit access 
to confidential information to directors, officers, employees, agents, 
and representatives who need to know such information in order to 
fulfill their regulatory obligations.\1397\ As discussed above, the 
Commission believes that Rules 13n-4(b)(8) and 13n-9, as adopted, are 
broad enough to cover information about trading positions, so no 
specific requirement regarding confidentiality of trading positions is 
necessary.\1398\ The Commission also believes that the rules are broad 
enough to allow SDRs, if they choose, to adopt policies and procedures 
to limit access to confidential information to directors, officers, 
employees, agents, and representatives who need to know such 
information in order to fulfill their regulatory obligations. The 
Commission believes that the adoption of the specific policies that 
were suggested by the commenter would prevent an SDR's management from 
finding the most cost effective method of meeting the privacy 
requirements in these rules.
---------------------------------------------------------------------------

    \1397\ See MFA 1, supra note 19.
    \1398\ See Sections VI.D.2.c and VI.I.1.c of this release 
discussing Rules 13n-4(b)(8) and 13n-9, respectively.
---------------------------------------------------------------------------

    The Commission considered, as an alternative to Rules 13n-4(c)(2) 
and (3), adopting, as suggested by two commenters, prescriptive rules 
relating to governance (e.g., ownership or voting limitations, 
independent directors, nominating committees composed of a majority of 
independent directors).\1399\ As discussed above, the Commission 
believes that rules that are intended to minimize an SDR's potential 
and existing conflicts of interest and to help ensure that an SDR meets 
its core principles are sufficient and that prescriptive governance 
requirements are not warranted at this time.\1400\ If the Commission 
were to impose additional governance requirements and limitations, SDRs 
would likely incur costs in addition to the costs already imposed by 
the SDR Rules, which do not seem to be warranted at this time. For 
these reasons, the Commission is

[[Page 14548]]

not adopting the alternative to Rules 13n-4(c)(2) and (3) of more 
prescriptive governance arrangements.
---------------------------------------------------------------------------

    \1399\ See Barnard, supra note 19; Better Markets 1, supra note 
19; see also Better Markets 2, supra note 19.
    \1400\ See Sections VI.D.3.b.iii and VI.D.3.c.iii of this 
release discussing Rules 13n-4(c)(2) and 13n-4(c)(3), respectively.
---------------------------------------------------------------------------

    The Commission considered whether the resolution of disputes should 
be left primarily to the SBS counterparties and third party service 
providers, which one commenter suggested.\1401\ The Commission believes 
that the benefits of a dispute resolution procedure in Rule 13n-5(b)(6) 
justify the possible issues cited by the commenter, such as duplication 
of services already provided by third party service providers. As 
discussed above, there may be instances where a third party service 
provider cannot resolve a dispute, and, in those situations, the cost 
of dispute resolution through the SDR will be necessary to maintain the 
accuracy and quality of the SBS data.\1402\ The value of the SBS data 
depends on its accuracy and quality.
---------------------------------------------------------------------------

    \1401\ See DTCC 2, supra note 19.
    \1402\ See Section VI.E.6.c of this release discussing Rule 13n-
5(b)(6).
---------------------------------------------------------------------------

    The Commission also considered prohibiting the commercial use of 
SBS data by SDRs unless the parties to the SBS provide written consent. 
Three commenters, including two commenters to proposed Regulation SBSR, 
also suggested that SDRs be prohibited from using SBS data for 
commercial purposes.\1403\ As discussed above, the Commission believes 
that limiting the commercial use of SBS data would potentially limit 
the business models that SDRs may develop, thereby reducing 
competition.\1404\ Decreased competition may result in higher costs for 
SDR services. Limiting the commercial use of SBS data would reduce 
SDRs' potential revenue streams, reducing the profitability and 
stability of SDRs. Further, as discussed above, such a limitation may 
decrease transparency by preventing an SDR from releasing to the public 
anonymized, aggregated reports of SBS data.\1405\ Finally, the 
Commission believes that the SDR Rules, including Rules 13n-4(c)(3) and 
13n-9, are sufficient to reduce conflicts of interest and protect the 
privacy of SBS data. For these reasons, the Commission is not adopting 
the alternative of limiting the commercial use of SBS data.
---------------------------------------------------------------------------

    \1403\ See MFA 1, supra note 19; DTCC SBSR, supra note 27; WMBAA 
SBSR, supra note 27.
    \1404\ See Section VI.D.3.c.iii of this release discussing Rule 
13n-4(c)(3).
    \1405\ See Section VI.D.3.c.iii of this release discussing Rule 
13n-4(c)(3).
---------------------------------------------------------------------------

8. Total Costs
    Based on the analyses described above, the Commission estimates 
that Rules 13n-1 through 13n-11 and Form SDR will impose on registered 
SDRs an aggregate total initial one-time estimated dollar cost of 
$227,075,600.50.\1406\ The Commission further estimates that Rules 13n-
1 through 13n-11 and Form SDR will impose on registered SDRs a total 
ongoing annualized aggregate dollar cost of $145,630,646.10.\1407\ 
Finally, the Commission estimates that certain non-U.S. persons may 
incur an aggregate total initial one-time estimated dollar cost of 
approximately $7,600 \1408\ in determining the availability of the SDR 
Exemption (i.e., Rule 13n-12).
---------------------------------------------------------------------------

    \1406\ The Commission derived its estimate from the following: 
($801,688 ($793,840 + $3,840 + $4,008) for Registration Requirements 
and Form SDR) + ($214,995,300 ($210,810,000 + $4,185,300) for SDR 
Duties, Data Collection and Maintenance, and Direct Electronic 
Access) + ($986,600 for Recordkeeping) + ($263,162.50 for 
Disclosure) + ($1,802,800 for Chief Compliance Officer and 
Compliance Functions) + ($8,226,050 ($1,465,550 + $901,400 + 
$1,802,800 + $1,352,100 + 2,704,200) for Other Policies and 
Procedures Relating to an SDR's Business) = $227,075,600.50.
    \1407\ The Commission derived its estimate from the following: 
($55,440 for Registration Requirements and Form SDR) + ($127,451,400 
($126,486,000 + $965,400) for SDR Duties, Data Collection and 
Maintenance, and Direct Electronic Access) + ($790,051.10 for 
Recordkeeping) + ($2,510 for Reports) + ($1,735 for Disclosure) + 
($15,505,620 ($9,130,800 + $16,700 + $5,990,000 + $368,120) for 
Chief Compliance Officer and Compliance Functions) + ($1,823,890 
($320,890 + $200,400 + $400,800 + $300,600 + $601,200) for Other 
Policies and Procedures Relating to an SDR's Business) = 
$145,630,646.10.
    \1408\ The Commission derived its estimate from the following: 
($380 for one hour of an Attorney's time per person) x (20 non-U.S. 
persons that perform the functions of an SDR using in-house legal 
counsel to determine whether an applicable MOU or arrangement is in 
place).
---------------------------------------------------------------------------

    Existing SDRs may experience costs lower than these estimates. Such 
persons may have in place existing technology systems, policies and 
procedures, personnel, and compliance regimes that they can use to 
comply with the SDR Rules. Because the estimates discussed above 
represent the costs of compliance starting from scratch, an existing 
SDR will most likely experience costs lower than these estimates.
    Similarly, if such a person is registered with the CFTC as a swap 
data repository, the person's costs of complying with the SDR Rules 
will most likely be lower than the estimates provided above because the 
person may be able to use its existing policies, procedures, and 
operations to comply with the SDR Rules. As stated above, the 
Commission believes that on the whole, the SDR Rules are largely 
consistent with the rules adopted by the CFTC for swap data 
repositories.\1409\ Consequently, a person registered with the CFTC as 
a swap data repository may be able to use its existing policies, 
procedures, and operations to comply with the SDR Rules and may not 
need to create policies, procedures, and operations from scratch.
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    \1409\ See Section I.D of this release.
---------------------------------------------------------------------------

IX. Regulatory Flexibility Act Certification

    The Regulatory Flexibility Act (``RFA'') \1410\ requires Federal 
agencies, in promulgating rules, to consider the impact of those rules 
on small entities. Section 603(a) \1411\ of the Administrative 
Procedure Act,\1412\ 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.'' \1413\ Section 605(b) of the RFA 
states that this requirement does not apply to any final rule that an 
agency certifies will not ``have a significant economic impact on a 
substantial number of small entities.'' \1414\
---------------------------------------------------------------------------

    \1410\ 5 U.S.C. 601 et seq.
    \1411\ 5 U.S.C. 603(a).
    \1412\ 5 U.S.C. 551 et seq.
    \1413\ 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 rulemaking, are 
set forth in Rule 0-10, 17 CFR 240.0-10. See Final Definitions of 
``Small Business'' and ``Small Organization'' for Purposes of the 
Regulatory Flexibility Act, Exchange Act Release No. 18451 (Jan. 28, 
1982), 47 FR 5215 (Feb. 4, 1982).
    \1414\ See 5 U.S.C. 605(b).
---------------------------------------------------------------------------

    For purposes of Commission rulemaking in connection with the RFA, a 
small entity includes: (1) An issuer or a person, other than an 
investment company, that, on the last day of its most recent fiscal 
year, had total assets of $5 million or less and (2) a broker-dealer 
with total capital (net worth plus subordinated liabilities) of less 
than $500,000 on the date in the prior fiscal year as of which its 
audited financial statements were prepared pursuant to Exchange Act 
Rule 17a-5(d), or, if not required to file such statements, a broker-
dealer with total capital (net worth plus subordinated liabilities) of 
less than $500,000 on the last business day of the preceding fiscal 
year (or in the time that it has been in business, if shorter); and is 
not affiliated with any person (other than a natural person) that is 
not a small entity.\1415\
---------------------------------------------------------------------------

    \1415\ 17 CFR 240.0-10.
---------------------------------------------------------------------------

    In the Proposing Release, the Commission stated that it did not 
believe that any persons that would register as SDRs would be 
considered small entities.\1416\ The Commission stated that it believed 
that most, if not

[[Page 14549]]

all, SDRs would be part of large business entities with assets in 
excess of $5 million and total capital in excess of $500,000. As a 
result, the Commission certified that the proposed rules would not have 
a significant impact on a substantial number of small entities and 
requested comments on this certification.
---------------------------------------------------------------------------

    \1416\ Proposing Release, 75 FR at 77365, supra note 2.
---------------------------------------------------------------------------

    The Commission did not receive any comments that specifically 
addressed whether Rules 13n-1 through 13n-12 and Form SDR would have a 
significant economic impact on small entities. Therefore, the 
Commission continues to believe that Rules 13n-1 through 13n-12 and 
Form SDR will not have a significant economic impact on a substantial 
number of small entities.\1417\ Accordingly, the Commission hereby 
certifies that, pursuant to 5 U.S.C. 605(b), Rules 13n-1 through 13n-
12, Form SDR will not have a significant economic impact on a 
substantial number of small entities.
---------------------------------------------------------------------------

    \1417\ See Proposing Release, 75 FR at 77365, supra note 2.
---------------------------------------------------------------------------

X. Statutory Authority

    Pursuant to the Exchange Act, and particularly Sections 13(n) and 
23(a) thereof, 15 U.S.C. 78m(n) and 78w(a), the Commission is adopting 
new Rules 13n-1 to 13n-12, which govern SDRs and a new form for 
registration as an SDR. Additionally, the Commission is adopting new 
Rule 407 and amendments to Regulation S-T under authority set forth in 
Exchange Act Section 23(a).\1418\ The Commission is also adopting 
amendments to Exchange Act Rule 24b-2 under authority set forth in 
Exchange Act Section 23(a).\1419\ All the new rules and amendments are 
adopted under Chapter II of Title 17 of the Code of Federal Regulations 
in the manner set forth below.
---------------------------------------------------------------------------

    \1418\ 15 U.S.C. 78w(a).
    \1419\ 15 U.S.C. 78w(a).
---------------------------------------------------------------------------

List of Subjects

17 CFR Part 232

    Reporting and recordkeeping requirements.

17 CFR Parts 240 and 249

    Confidential business information, Reporting and recordkeeping 
requirements, Securities.

    In accordance with the foregoing, Title 17, Chapter II of the Code 
of Federal Regulations is amended as follows:

PART 232--REGULATION S-T--GENERAL RULES AND REGULATIONS FOR 
ELECTRONIC FILINGS

0
1. The authority citation for part 232 continues to read, in part, as 
follows:

    Authority:  15 U.S.C. 77f, 77g, 77h, 77j, 77s(a), 77z-3, 
77sss(a), 78c(b), 78l, 78m, 78n, 78o(d), 78w(a), 78ll, 80a-6(c), 
80a-8, 80a-29, 80a-30, 80a-37, and 7201 et seq.; and 18 U.S.C. 1350.
* * * * *

0
2. Section 232.11 is amended by adding the definitions of ``Interactive 
Data Financial Report'' and ``Related Official Financial Report 
Filing'' in alphabetical order to read as follows:

Sec.  232.11  Definition of terms used in part 232.

* * * * *
    Interactive Data Financial Report. The term Interactive Data 
Financial Report means the machine-readable computer code that presents 
information in eXtensible Business Reporting Language (XBRL) electronic 
format pursuant to Sec.  232.407.
* * * * *
    Related Official Financial Report Filing. The term Related Official 
Financial Report Filing means the ASCII or HTML format part of the 
official filing with which an Interactive Data Financial Report appears 
as an exhibit.
* * * * *

0
3. Section 232.101 is amended by:
0
a. Removing, in paragraph (a)(1)(xv), the word ``and'' after the 
semicolon;
0
b. In paragraph (a)(1)(xvi), removing the period and adding in its 
place a semicolon, and adding the word ``and'' after the semicolon;
0
c. Adding paragraph (a)(1)(xvii);
0
d. Revising paragraph (c) introductory text; and
0
e. Adding paragraph (d).
    The additions and revision read as follows:

Sec.  232.101  Mandated electronic submissions and exceptions.

    (a) * * *
    (1) * * *
    (xvii) Documents filed with the Commission pursuant to section 
13(n) of the Exchange Act (15 U.S.C. 78m(n)) and the rules and 
regulations thereunder, including Form SDR (17 CFR 249.1500) and 
reports filed pursuant to Rules 13n-11(d) and (f) (17 CFR 240.13n-11(d) 
and (f)) under the Exchange Act.
* * * * *
    (c) Documents to be submitted in paper only. Except as otherwise 
specified in paragraph (d) of this section, the following shall not be 
submitted in electronic format:
* * * * *
    (d) All documents, including any information with respect to which 
confidential treatment is requested, filed pursuant to section 13(n) of 
the Exchange Act (15 U.S.C. 78m(n)) and the rules and regulations 
thereunder shall be filed in electronic format.

0
4. Section 232.305 is amended by revising paragraph (b) to read as 
follows:

Sec.  232.305  Number of characters per line; tabular and columnar 
information.

* * * * *
    (b) Paragraph (a) of this section does not apply to HTML documents, 
Interactive Data Files (Sec.  232.11), Interactive Data Financial 
Reports (Sec.  232.11) or XBRL-Related Documents (Sec.  232.11).

0
5. Section 232.407 is added to read as follows:

Sec.  232.407  Interactive data financial report filings.

    Section 407 of Regulation S-T (Sec.  232.407) applies to electronic 
filers that file Interactive Data Financial Reports (Sec.  232.11) as 
required by Rule 13n-11(f)(5) (Sec.  240.13n-11(f)(5) of this chapter). 
Section 407 imposes content, format, and filing requirements for 
Interactive Data Financial Reports, but does not change the substantive 
content requirements for the financial and other disclosures in the 
Related Official Financial Report Filing (Sec.  232.11). Rule 13n-
11(f)(5) specifies the circumstances under which an Interactive Data 
Financial Report must be filed as an exhibit.
    (a) Content, format, and filing requirements--General. Interactive 
Data Financial Reports must:
    (1) Comply with the content, format, and filing requirements of 
this section;
    (2) Be filed only by an electronic filer that is required to file 
an Interactive Data Financial Report pursuant to Rule 13n-11(f)(5) 
(Sec.  240.13n-11(f)(5) of this chapter) as an exhibit to a filing; and
    (3) Be filed in accordance with the EDGAR Filer Manual and Rules 
13n-11(f)(5) and (g) (Sec.  240.13n-11(f)(5) and (g) of this chapter).
    (b) Content--categories of information presented. An Interactive 
Data Financial Report must consist of only a complete set of 
information for all periods required to be presented in the 
corresponding data in the Related Official Financial Report Filing, no 
more and no less, for the following categories, as applicable:
    (1) The complete set of the electronic filer's financial statements 
(which

[[Page 14550]]

includes the face of the financial statements and all footnotes); and
    (2) All schedules set forth in Article 12 of Regulation S-X 
(Sec. Sec.  210.12-01 through 210.12-29 of this chapter) related to the 
electronic filer's financial statements.

    Note to paragraph (b):  It is not permissible for the 
Interactive Data Financial Report to present only partial face 
financial statements, such as by excluding comparative financial 
information for prior periods.

    (c) Format--Generally. An Interactive Data Financial Report must 
comply with the following requirements, except as modified by paragraph 
(d) or (e) of this section, as applicable, with respect to the 
corresponding data in the Related Official Financial Report Filing 
consisting of footnotes to financial statements or financial statement 
schedules as set forth in Article 12 of Regulation S-X (Sec. Sec.  
210.12-01 through 210.12-29 of this chapter):
    (1) Data elements and labels--(i) Element accuracy. Each data 
element (i.e., all text, line item names, monetary values, percentages, 
numbers, dates and other labels) contained in the Interactive Data 
Financial Report reflects the same information in the corresponding 
data in the Related Official Financial Report Filing;
    (ii) Element specificity. No data element contained in the 
corresponding data in the Related Official Financial Report Filing is 
changed, deleted or summarized in the Interactive Data Financial 
Report;
    (iii) Standard and special labels and elements. Each data element 
contained in the Interactive Data Financial Report is matched with an 
appropriate tag from the most recent version of the standard list of 
tags specified by the EDGAR Filer Manual. A tag is appropriate only 
when its standard definition, standard label, and other attributes as 
and to the extent identified in the list of tags match the information 
to be tagged, except that:
    (A) Labels. An electronic filer must create and use a new special 
label to modify a tag's existing standard label when that tag is an 
appropriate tag in all other respects (i.e., in order to use a tag from 
the standard list of tags only its label needs to be changed); and
    (B) Elements. An electronic filer must create and use a new special 
element if and only if an appropriate tag does not exist in the 
standard list of tags for reasons other than or in addition to an 
inappropriate standard label; and
    (2) Additional mark-up related content. The Interactive Data 
Financial Report contains any additional mark-up related content (e.g., 
the eXtensible Business Reporting Language tags themselves, 
identification of the core XML documents used and other technology-
related content) not found in the corresponding data in the Related 
Official Financial Report Filing that is necessary to comply with the 
EDGAR Filer Manual requirements.
    (d) Format--Footnotes--Generally. The part of the Interactive Data 
Financial Report for which the corresponding data in the Related 
Official Financial Report Filing consists of footnotes to financial 
statements must comply with the requirements of paragraphs (c)(1) and 
(2) of this section, as modified by this paragraph (d). Each complete 
footnote must be block-text tagged.
    (e) Format--Schedules--Generally. The part of the Interactive Data 
Financial Report for which the corresponding data in the Related 
Official Financial Report Filing consists of financial statement 
schedules as set forth in Article 12 of Regulation S-X (Sec. Sec.  
210.12-01 through 210.12-29 of this chapter) must comply with the 
requirements of paragraphs (c)(1) and (2) of this section, as modified 
by this paragraph (e). Each complete schedule must be block-text 
tagged.

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

0
6. The general authority citation for Part 240 is revised to read as 
follows:

    Authority:  15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4, 
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78ll, 78mm, 80a-20, 
80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, 7201 et seq., and 
8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. 1350; and 
Pub. L. 111-203, 939A, 124 Stat. 1376 (2010), unless otherwise 
noted.
* * * * *

0
7. Sections 240.13n-1 through 240-13n-12 are added to read as follows:

Sec.
240.13n-1 Registration of security-based swap data repository.
240.13n-2 Withdrawal from registration; revocation and cancellation.
240.13n-3 Registration of successor to registered security-based 
swap data repository.
240.13n-4 Duties and core principles of security-based swap data 
repository.
240.13n-5 Data collection and maintenance.
240.13n-6 Automated systems.
240.13n-7 Recordkeeping of security-based swap data repository.
240.13n-8 Reports to be provided to the Commission.
240.13n-9 Privacy requirements of security-based swap data 
repository.
240.13n-10 Disclosure requirements of security-based swap data 
repository.
240.13n-11 Chief compliance officer of security-based swap data 
repository; compliance reports and financial reports.
240.13n-12 Exemption from requirements governing security-based swap 
data repositories for certain non-U.S. persons.

Sec.  240.13n-1  Registration of security-based swap data repository.

    (a) Definitions. For purposes of this section --
    (1) Non-resident security-based swap data repository means:
    (i) In the case of an individual, one who resides in or has his 
principal place of business in any place not in the United States;
    (ii) 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
    (iii) In the case of a partnership or other unincorporated 
organization or association, one having its principal place of business 
in any place not in the United States.
    (2) Tag (including the term tagged) has the same meaning as set 
forth in Rule 11 of Regulation S-T (17 CFR 232.11).
    (b) An application for the registration of a security-based swap 
data repository and all amendments thereto shall be filed 
electronically in a tagged data format on Form SDR (17 CFR 249.1500) 
with the Commission in accordance with the instructions contained 
therein. As part of the application process, each security-based swap 
data repository shall provide additional information to any 
representative of the Commission upon request.
    (c) Within 90 days of the date of the publication of notice of the 
filing of such application (or within such longer period as to which 
the applicant consents), the Commission shall -
    (1) By order grant registration; or
    (2) Institute proceedings to determine whether registration should 
be granted or denied. Such proceedings shall include notice of the 
issues under consideration and opportunity for hearing on the record 
and shall be concluded within 180 days of the date of the publication 
of notice of the filing of the application for registration under 
paragraph (b) of this section. At the conclusion of such proceedings, 
the Commission, by order, shall grant or deny such registration. The 
Commission may extend the time for conclusion of such proceedings for 
up to 90 days if it finds good cause for such extension and publishes 
its reasons for so finding or for such longer period as to which the 
applicant consents.

[[Page 14551]]

    (3) The Commission shall grant the registration of a security-based 
swap data repository if the Commission finds that such security-based 
swap data repository is so organized, and has the capacity, to be able 
to assure the prompt, accurate, and reliable performance of its 
functions as a security-based swap data repository, 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 section 13(n) of the Act (15 U.S.C. 
78m(n)) and the rules and regulations thereunder. The Commission shall 
deny the registration of a security-based swap data repository if it 
does not make any such finding.
    (d) If any information reported in items 1 through 17, 26, and 48 
of Form SDR (17 CFR 249.1500) or in any amendment thereto is or becomes 
inaccurate for any reason, whether before or after the registration has 
been granted, the security-based swap data repository shall promptly 
file an amendment on Form SDR updating such information. In addition, 
the security-based swap data repository shall annually file an 
amendment on Form SDR within 60 days after the end of each fiscal year 
of such security-based swap data repository.
    (e) Each security-based swap data repository shall designate and 
authorize on Form SDR an agent in the United States, other than a 
Commission member, official, or employee, who shall accept any notice 
or service of process, pleadings, or other documents in any action or 
proceedings brought against the security-based swap data repository to 
enforce the federal securities laws and the rules and regulations 
thereunder.
    (f) Any non-resident security-based swap data repository applying 
for registration pursuant to this section shall:
    (1) Certify on Form SDR that the security-based swap data 
repository can, as a matter of law, and will provide the Commission 
with prompt access to the books and records of such security-based swap 
data repository and can, as a matter of law, and will submit to onsite 
inspection and examination by the Commission, and
    (2) Provide an opinion of counsel that the security-based swap data 
repository can, as a matter of law, provide the Commission with prompt 
access to the books and records of such security-based swap data 
repository and can, as a matter of law, submit to onsite inspection and 
examination by the Commission.
    (g) An application for registration or any amendment thereto that 
is filed pursuant to this section shall be considered a ``report'' 
filed with the Commission for purposes of sections 18(a) and 32(a) of 
the Act (15 U.S.C. 78r(a) and 78ff(a)) and the rules and regulations 
thereunder and other applicable provisions of the United States Code 
and the rules and regulations thereunder.

Sec.  240.13n-2  Withdrawal from registration; revocation and 
cancellation.

    (a) Definition. For purposes of this section, tag (including the 
term tagged) has the same meaning as set forth in Rule 11 of Regulation 
S-T (17 CFR 232.11).
    (b) A registered security-based swap data repository may withdraw 
from registration by filing a withdrawal from registration on Form SDR 
(17 CFR 249.1500) electronically in a tagged data format. The security-
based swap data repository shall designate on Form SDR a person to 
serve as the custodian of the security-based swap data repository's 
books and records. When filing a withdrawal from registration on Form 
SDR, a security-based swap data repository shall update any inaccurate 
information.
    (c) A withdrawal from registration filed by a security-based swap 
data repository shall become effective for all matters (except as 
provided in this paragraph (c)) on the 60th day after the filing 
thereof with the Commission, within such longer period of time as to 
which such security-based swap data repository 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.
    (d) A withdrawal from registration that is filed pursuant to this 
section shall be considered a ``report'' filed with the Commission for 
purposes of sections 18(a) and 32(a) of the Act (15 U.S.C. 78r(a) and 
78ff(a)) and the rules and regulations thereunder and other applicable 
provisions of the United States Code and the rules and regulations 
thereunder.
    (e) If the Commission finds, on the record after notice and 
opportunity for hearing, that any registered security-based swap data 
repository has obtained its registration by making any false and 
misleading statements with respect to any material fact or has violated 
or failed to comply with any provision of the federal securities laws 
and the rules and regulations thereunder, the Commission, by order, may 
revoke the registration. Pending final determination of whether any 
registration shall be revoked, the Commission, by order, may suspend 
such registration, if such suspension appears to the Commission, after 
notice and opportunity for hearing on the record, to be necessary or 
appropriate in the public interest or for the protection of investors.
    (f) If the Commission finds that a registered security-based swap 
data repository is no longer in existence or has ceased to do business 
in the capacity specified in its application for registration, the 
Commission, by order, may cancel the registration.

Sec.  240.13n-3  Registration of successor to registered security-based 
swap data repository.

    (a) In the event that a security-based swap data repository 
succeeds to and continues the business of a security-based swap data 
repository registered pursuant to section 13(n) of the Act (15 U.S.C. 
78m(n)), the registration of the predecessor shall be deemed to remain 
effective as the registration of the successor if, within 30 days after 
such succession, the successor files an application for registration on 
Form SDR (17 CFR 249.1500), and the predecessor files a withdrawal from 
registration on Form SDR; provided, however, that the registration of 
the predecessor security-based swap data repository shall cease to be 
effective 90 days after the publication of notice of the filing of the 
application for registration on Form SDR filed by the successor 
security-based swap data repository.
    (b) Notwithstanding paragraph (a) of this section, if a security-
based swap data repository succeeds to and continues the business of a 
registered predecessor security-based swap data repository, 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 data 
repository on Form SDR (17 CFR 249.1500) to reflect these changes. This 
amendment shall be deemed an application for registration filed by the 
predecessor and adopted by the successor.

Sec.  240.13n-4  Duties and core principles of security-based swap data 
repository.

    (a) Definitions. For purposes of this section--
    (1) Affiliate of a security-based swap data repository means a 
person that, directly or indirectly, controls, is

[[Page 14552]]

controlled by, or is under common control with the security-based swap 
data repository.
    (2) Board means the board of directors of the security-based swap 
data repository or a body performing a function similar to the board of 
directors of the security-based swap data repository.
    (3) Control (including the terms controlled by and under common 
control with) means the possession, direct or indirect, of the power to 
direct or cause the direction of the management and policies of a 
person, whether through the ownership of voting securities, by 
contract, or otherwise. A person is presumed to control another person 
if the person:
    (i) Is a director, general partner, or officer exercising executive 
responsibility (or having similar status or functions);
    (ii) Directly or indirectly has the right to vote 25 percent or 
more of a class of voting securities or has the power to sell or direct 
the sale of 25 percent or more of a class of voting securities; or
    (iii) In the case of a partnership, has the right to receive, upon 
dissolution, or has contributed, 25 percent or more of the capital.
    (4) Director means any member of the board.
    (5) Direct electronic access means access, which shall be in a form 
and manner acceptable to the Commission, to data stored by a security-
based swap data repository in an electronic format and updated at the 
same time as the security-based swap data repository's data is updated 
so as to provide the Commission or any of its designees with the 
ability to query or analyze the data in the same manner that the 
security-based swap data repository can query or analyze the data.
    (6) Market participant means any person participating in the 
security-based swap market, including, but not limited to, security-
based swap dealers, major security-based swap participants, and any 
other counterparties to a security-based swap transaction.
    (7) Nonaffiliated third party of a security-based swap data 
repository means any person except:
    (i) The security-based swap data repository;
    (ii) Any affiliate of the security-based swap data repository; or
    (iii) A person employed by a security-based swap data repository 
and any entity that is not the security-based swap data repository's 
affiliate (and ``nonaffiliated third party'' includes such entity that 
jointly employs the person).
    (8) Person associated with a security-based swap data repository 
means:
    (i) Any partner, officer, or director of such security-based swap 
data repository (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 such security-based swap data repository; 
or
    (iii) Any employee of such security-based swap data repository.
    (b) Duties. To be registered, and maintain registration, as a 
security-based swap data repository, a security-based swap data 
repository shall:
    (1) Subject itself to inspection and examination by any 
representative of the Commission;
    (2) Accept data as prescribed in Regulation SBSR (17 CFR 242.900 
through 242.909) for each security-based swap;
    (3) Confirm, as prescribed in Rule 13n-5 (Sec.  240.13n-5), with 
both counterparties to the security-based swap the accuracy of the data 
that was submitted;
    (4) Maintain, as prescribed in Rule 13n-5, the data described in 
Regulation SBSR in such form, in such manner, and for such period as 
provided therein and in the Act and the rules and regulations 
thereunder;
    (5) Provide direct electronic access to the Commission (or any 
designee of the Commission, including another registered entity);
    (6) Provide the information described in Regulation SBSR in such 
form and at such frequency as prescribed in Regulation SBSR to comply 
with the public reporting requirements set forth in section 13(m) of 
the Act (15 U.S.C. 78m(m)) and the rules and regulations thereunder;
    (7) At such time and in such manner as may be directed by the 
Commission, establish automated systems for monitoring, screening, and 
analyzing security-based swap data;
    (8) Maintain the privacy of any and all security-based swap 
transaction information that the security-based swap data repository 
receives from a security-based swap dealer, counterparty, or any 
registered entity as prescribed in Rule 13n-9 (Sec.  240.13n-9); and
    (9) [Reserved]
    (10) [Reserved]
    (11) Designate an individual to serve as a chief compliance 
officer.
    (c) Compliance with core principles. A security-based swap data 
repository shall comply with the core principles as described in this 
paragraph.
    (1) Market access to services and data. Unless necessary or 
appropriate to achieve the purposes of the Act and the rules and 
regulations thereunder, the security-based swap data repository shall 
not adopt any policies or procedures or take any action that results in 
an unreasonable restraint of trade or impose any material 
anticompetitive burden on the trading, clearing, or reporting of 
transactions. To comply with this core principle, each security-based 
swap data repository shall:
    (i) Ensure that any dues, fees, or other charges imposed by, and 
any discounts or rebates offered by, a security-based swap data 
repository are fair and reasonable and not unreasonably discriminatory. 
Such dues, fees, other charges, discounts, or rebates shall be applied 
consistently across all similarly-situated users of such security-based 
swap data repository's services, including, but not limited to, market 
participants, market infrastructures (including central 
counterparties), venues from which data can be submitted to the 
security-based swap data repository (including exchanges, security-
based swap execution facilities, electronic trading venues, and 
matching and confirmation platforms), and third party service 
providers;
    (ii) Permit market participants to access specific services offered 
by the security-based swap data repository separately;
    (iii) Establish, monitor on an ongoing basis, and enforce clearly 
stated objective criteria that would permit fair, open, and not 
unreasonably discriminatory access to services offered and data 
maintained by the security-based swap data repository as well as fair, 
open, and not unreasonably discriminatory participation by market 
participants, market infrastructures, venues from which data can be 
submitted to the security-based swap data repository, and third party 
service providers that seek to connect to or link with the security-
based swap data repository; and
    (iv) Establish, maintain, and enforce written policies and 
procedures reasonably designed to review any prohibition or limitation 
of any person with respect to access to services offered, directly or 
indirectly, or data maintained by the security-based swap data 
repository and to grant such person access to such services or data if 
such person has been discriminated against unfairly.
    (2) Governance arrangements. Each security-based swap data 
repository shall establish governance arrangements that are transparent 
to fulfill public interest requirements under the Act and the rules and 
regulations thereunder; to

[[Page 14553]]

carry out functions consistent with the Act, the rules and regulations 
thereunder, and the purposes of the Act; and to support the objectives 
of the Federal Government, owners, and participants. To comply with 
this core principle, each security-based swap data repository shall:
    (i) Establish governance arrangements that are well defined and 
include a clear organizational structure with effective internal 
controls;
    (ii) Establish governance arrangements that provide for fair 
representation of market participants;
    (iii) Provide representatives of market participants, including 
end-users, with the opportunity to participate in the process for 
nominating directors and with the right to petition for alternative 
candidates; and
    (iv) Establish, maintain, and enforce written policies and 
procedures reasonably designed to ensure that the security-based swap 
data repository's senior management and each member of the board or 
committee that has the authority to act on behalf of the board possess 
requisite skills and expertise to fulfill their responsibilities in the 
management and governance of the security-based swap data repository, 
have a clear understanding of their responsibilities, and exercise 
sound judgment about the security-based swap data repository's affairs.
    (3) Conflicts of interest. Each security-based swap data repository 
shall establish and enforce written policies and procedures reasonably 
designed to minimize conflicts of interest in the decision-making 
process of the security-based swap data repository and establish a 
process for resolving any such conflicts of interest. Such conflicts of 
interest include, but are not limited to: conflicts between the 
commercial interests of a security-based swap data repository and its 
statutory and regulatory responsibilities; conflicts in connection with 
the commercial interests of certain market participants or linked 
market infrastructures, third party service providers, and others; 
conflicts between, among, or with persons associated with the security-
based swap data repository, market participants, affiliates of the 
security-based swap data repository, and nonaffiliated third parties; 
and misuse of confidential information, material, nonpublic 
information, and/or intellectual property. To comply with this core 
principle, each security-based swap data repository shall:
    (i) Establish, maintain, and enforce written policies and 
procedures reasonably designed to identify and mitigate potential and 
existing conflicts of interest in the security-based swap data 
repository's decision-making process on an ongoing basis;
    (ii) With respect to the decision-making process for resolving any 
conflicts of interest, require the recusal of any person involved in 
such conflict from such decision-making; and
    (iii) Establish, maintain, and enforce reasonable written policies 
and procedures regarding the security-based swap data repository's non-
commercial and/or commercial use of the security-based swap transaction 
information that it receives from a market participant, any registered 
entity, or any other person.

    Note to Sec.  240.13n-4:  This rule is not intended to limit, or 
restrict, the applicability of other provisions of the federal 
securities laws, including, but not limited to, section 13(m) of the 
Act (15 U.S.C. 78m(m)) and the rules and regulations thereunder.

Sec.  240.13n-5  Data collection and maintenance.

    (a) Definitions. For purposes of this section--
    (1) Asset class means those security-based swaps in a particular 
broad category, including, but not limited to, credit derivatives and 
equity derivatives.
    (2) Position means the gross and net notional amounts of open 
security-based swap transactions aggregated by one or more attributes, 
including, but not limited to, the:
    (i) Underlying instrument, index, or reference entity;
    (ii) Counterparty;
    (iii) Asset class;
    (iv) Long risk of the underlying instrument, index, or reference 
entity; and
    (v) Short risk of the underlying instrument, index, or reference 
entity.
    (3) Transaction data means all information reported to a security-
based swap data repository pursuant to the Act and the rules and 
regulations thereunder, except for information provided pursuant to 
Rule 906(b) of Regulation SBSR (17 CFR 242.906(b)).
    (b) Requirements. Every security-based swap data repository 
registered with the Commission shall comply with the following data 
collection and data maintenance standards:
    (1) Transaction data. (i) Every security-based swap data repository 
shall establish, maintain, and enforce written policies and procedures 
reasonably designed for the reporting of complete and accurate 
transaction data to the security-based swap data repository and shall 
accept all transaction data that is reported in accordance with such 
policies and procedures.
    (ii) If a security-based swap data repository accepts any security-
based swap in a particular asset class, the security-based swap data 
repository shall accept all security-based swaps in that asset class 
that are reported to it in accordance with its policies and procedures 
required by paragraph (b)(1)(i) of this section.
    (iii) Every security-based swap data repository shall establish, 
maintain, and enforce written policies and procedures reasonably 
designed to satisfy itself that the transaction data that has been 
submitted to the security-based swap data repository is complete and 
accurate, and clearly identifies the source for each trade side and the 
pairing method (if any) for each transaction in order to identify the 
level of quality of the transaction data.
    (iv) Every security-based swap data repository shall promptly 
record the transaction data it receives.
    (2) Positions. Every security-based swap data repository shall 
establish, maintain, and enforce written policies and procedures 
reasonably designed to calculate positions for all persons with open 
security-based swaps for which the security-based swap data repository 
maintains records.
    (3) Every security-based swap data repository shall establish, 
maintain, and enforce written policies and procedures reasonably 
designed to ensure that the transaction data and positions that it 
maintains are complete and accurate.
    (4) Every security-based swap data repository shall maintain 
transaction data and related identifying information for not less than 
five years after the applicable security-based swap expires and 
historical positions for not less than five years:
    (i) In a place and format that is readily accessible and usable to 
the Commission and other persons with authority to access or view such 
information; and
    (ii) In an electronic format that is non-rewriteable and non-
erasable.
    (5) Every security-based swap data repository shall establish, 
maintain, and enforce written policies and procedures reasonably 
designed to prevent any provision in a valid security-based swap from 
being invalidated or modified through the procedures or operations of 
the security-based swap data repository.
    (6) Every security-based swap data repository shall establish 
procedures and provide facilities reasonably designed to effectively 
resolve disputes over the accuracy of the transaction data and 
positions that are recorded in the security-based swap data repository.

[[Page 14554]]

    (7) If a security-based swap data repository ceases doing business, 
or ceases to be registered pursuant to section 13(n) of the Act (15 
U.S.C. 78m(n)) and the rules and regulations thereunder, it must 
continue to preserve, maintain, and make accessible the transaction 
data and historical positions required to be collected, maintained, and 
preserved by this section in the manner required by the Act and the 
rules and regulations thereunder and for the remainder of the period 
required by this section.
    (8) Every security-based swap data repository shall make and keep 
current a plan to ensure that the transaction data and positions that 
are recorded in the security-based swap data repository continue to be 
maintained in accordance with Rule 13n-5(b)(7) (Sec.  240.13n-5(b)(7)), 
which shall include procedures for transferring the transaction data 
and positions to the Commission or its designee (including another 
registered security-based swap data repository).

Sec.  240.13n-6  Automated systems.

    Every security-based swap data repository, with respect to those 
systems that support or are integrally related to the performance of 
its activities, shall establish, maintain, and enforce written policies 
and procedures reasonably designed to ensure that its systems provide 
adequate levels of capacity, integrity, resiliency, availability, and 
security.

Sec.  240.13n-7  Recordkeeping of security-based swap data repository.

    (a) Every security-based swap data repository shall make and keep 
current the following books and records relating to its business:
    (1) A record for each office listing, by name or title, each person 
at that office who, without delay, can explain the types of records the 
security-based swap data repository maintains at that office and the 
information contained in those records; and
    (2) A record listing each officer, manager, or person performing 
similar functions of the security-based swap data repository 
responsible for establishing policies and procedures that are 
reasonably designed to ensure compliance with the Act and the rules and 
regulations thereunder.
    (b) Recordkeeping rule for security-based swap data repositories. 
(1) Every security-based swap data repository shall keep and preserve 
at least one copy of all documents, including all documents and 
policies and procedures required by the Act and the rules and 
regulations thereunder, correspondence, memoranda, papers, books, 
notices, accounts, and other such records as shall be made or received 
by it in the course of its business as such.
    (2) Every security-based swap data repository shall keep all such 
documents for a period of not less than five years, the first two years 
in a place that is immediately available to representatives of the 
Commission for inspection and examination.
    (3) Every security-based swap data repository shall, upon request 
of any representative of the Commission, promptly furnish to the 
possession of such representative copies of any documents required to 
be kept and preserved by it pursuant to paragraphs (a) and (b) of this 
section.
    (c) If a security-based swap data repository ceases doing business, 
or ceases to be registered pursuant to section 13(n) of the Act (15 
U.S.C. 78m(n)) and the rules and regulations thereunder, it must 
continue to preserve, maintain, and make accessible the records and 
data required to be collected, maintained and preserved by this section 
in the manner required by this section and for the remainder of the 
period required by this section.
    (d) This section does not apply to transaction data and positions 
collected and maintained pursuant to Rule 13n-5 (Sec.  240.13n-5).

Sec.  240.13n-8  Reports to be provided to the Commission.

    Every security-based swap data repository shall promptly report to 
the Commission, in a form and manner acceptable to the Commission, such 
information as the Commission determines to be necessary or appropriate 
for the Commission to perform the duties of the Commission under the 
Act and the rules and regulations thereunder.

Sec.  240.13n-9  Privacy requirements of security-based swap data 
repository.

    (a) Definitions. For purposes of this section--
    (1) Affiliate of a security-based swap data repository means a 
person that, directly or indirectly, controls, is controlled by, or is 
under common control with the security-based swap data repository.
    (2) Control (including the terms controlled by and under common 
control with) means the possession, direct or indirect, of the power to 
direct or cause the direction of the management and policies of a 
person, whether through the ownership of voting securities, by 
contract, or otherwise. A person is presumed to control another person 
if the person:
    (i) Is a director, general partner, or officer exercising executive 
responsibility (or having similar status or functions);
    (ii) Directly or indirectly has the right to vote 25 percent or 
more of a class of voting securities or has the power to sell or direct 
the sale of 25 percent or more of a class of voting securities; or
    (iii) In the case of a partnership, has the right to receive, upon 
dissolution, or has contributed, 25 percent or more of the capital.
    (3) Market participant means any person participating in the 
security-based swap market, including, but not limited to, security-
based swap dealers, major security-based swap participants, and any 
other counterparties to a security-based swap transaction.
    (4) Nonaffiliated third party of a security-based swap data 
repository means any person except:
    (i) The security-based swap data repository;
    (ii) The security-based swap data repository's affiliate; or
    (iii) A person employed by a security-based swap data repository 
and any entity that is not the security-based swap data repository's 
affiliate (and nonaffiliated third party includes such entity that 
jointly employs the person).
    (5) Nonpublic personal information means:
    (i) Personally identifiable information that is not publicly 
available information; and
    (ii) Any list, description, or other grouping of market 
participants (and publicly available information pertaining to them) 
that is derived using personally identifiable information that is not 
publicly available information.
    (6) Personally identifiable information means any information:
    (i) A market participant provides to a security-based swap data 
repository to obtain service from the security-based swap data 
repository;
    (ii) About a market participant resulting from any transaction 
involving a service between the security-based swap data repository and 
the market participant; or
    (iii) The security-based swap data repository obtains about a 
market participant in connection with providing a service to that 
market participant.
    (7) Person associated with a security-based swap data repository 
means:
    (i) Any partner, officer, or director of such security-based swap 
data repository (or any person occupying a similar status or performing 
similar functions);
    (ii) Any person directly or indirectly controlling, controlled by, 
or under

[[Page 14555]]

common control with such security-based swap data repository; or
    (iii) Any employee of such security-based swap data repository.
    (b) Each security-based swap data repository shall:
    (1) Establish, maintain, and enforce written policies and 
procedures reasonably designed to protect the privacy of any and all 
security-based swap transaction information that the security-based 
swap data repository receives from a security-based swap dealer, 
counterparty, or any registered entity. Such policies and procedures 
shall include, but are not limited to, policies and procedures to 
protect the privacy of any and all security-based swap transaction 
information that the security-based swap data repository shares with 
affiliates and nonaffiliated third parties; and
    (2) Establish and maintain safeguards, policies, and procedures 
reasonably designed to prevent the misappropriation or misuse, directly 
or indirectly, of:
    (i) Any confidential information received by the security-based 
swap data repository, including, but not limited to, trade data, 
position data, and any nonpublic personal information about a market 
participant or any of its customers;
    (ii) Material, nonpublic information; and/or
    (iii) Intellectual property, such as trading strategies or 
portfolio positions, by the security-based swap data repository or any 
person associated with the security-based swap data repository for 
their personal benefit or the benefit of others. Such safeguards, 
policies, and procedures shall address, without limitation:
    (A) Limiting access to such confidential information, material, 
nonpublic information, and intellectual property;
    (B) Standards pertaining to the trading by persons associated with 
the security-based swap data repository for their personal benefit or 
the benefit of others; and
    (C) Adequate oversight to ensure compliance with this subparagraph.

Sec.  240.13n-10  Disclosure requirements of security-based swap data 
repository.

    (a) Definition. For purposes of this section, market participant 
means any person participating in the over-the-counter derivatives 
market, including, but not limited to, security-based swap dealers, 
major security-based swap participants, and any other counterparties to 
a security-based swap transaction.
    (b) Before accepting any security-based swap data from a market 
participant or upon a market participant's request, a security-based 
swap data repository shall furnish to the market participant a 
disclosure document that contains the following written information, 
which must reasonably enable the market participant to identify and 
evaluate accurately the risks and costs associated with using the 
services of the security-based swap data repository:
    (1) The security-based swap data repository's criteria for 
providing others with access to services offered and data maintained by 
the security-based swap data repository;
    (2) The security-based swap data repository's criteria for those 
seeking to connect to or link with the security-based swap data 
repository;
    (3) A description of the security-based swap data repository's 
policies and procedures regarding its safeguarding of data and 
operational reliability, as described in Rule 13n-6 (Sec.  240.13n-6);
    (4) A description of the security-based swap data repository's 
policies and procedures reasonably designed to protect the privacy of 
any and all security-based swap transaction information that the 
security-based swap data repository receives from a security-based swap 
dealer, counterparty, or any registered entity, as described in Rule 
13n-9(b)(1) (Sec.  240.13n-9(b)(1));
    (5) A description of the security-based swap data repository's 
policies and procedures regarding its non-commercial and/or commercial 
use of the security-based swap transaction information that it receives 
from a market participant, any registered entity, or any other person;
    (6) A description of the security-based swap data repository's 
dispute resolution procedures involving market participants, as 
described in Rule 13n-5(b)(6) (Sec.  240.13n-5(b)(6));
    (7) A description of all the security-based swap data repository's 
services, including any ancillary services;
    (8) The security-based swap data repository's updated schedule of 
any dues; unbundled prices, rates, or other fees for all of its 
services, including any ancillary services; any discounts or rebates 
offered; and the criteria to benefit from such discounts or rebates; 
and
    (9) A description of the security-based swap data repository's 
governance arrangements.

Sec.  240.13n-11  Chief compliance officer of security-based swap data 
repository; compliance reports and financial reports.

    (a) In general. Each security-based swap data repository shall 
identify on Form SDR (17 CFR 249.1500) a person who has been designated 
by the board to serve as a chief compliance officer of the security-
based swap data repository. The compensation, appointment, and removal 
of the chief compliance officer shall require the approval of a 
majority of the security-based swap data repository's board.
    (b) Definitions. For purposes of this section--
    (1) Board means the board of directors of the security-based swap 
data repository or a body performing a function similar to the board of 
directors of the security-based swap data repository.
    (2) Director means any member of the board.
    (3) EDGAR Filer Manual has the same meaning as set forth in Rule 11 
of Regulation S-T (17 CFR 232.11).
    (4) Interactive Data Financial Report has the same meaning as set 
forth in Rule 11 of Regulation S-T (17 CFR 232.11).
    (5) Material change means a change that a chief compliance officer 
would reasonably need to know in order to oversee compliance of the 
security-based swap data repository.
    (6) Material compliance matter means any compliance matter that the 
board would reasonably need to know to oversee the compliance of the 
security-based swap data repository and that involves, without 
limitation:
    (i) A violation of the federal securities laws by the security-
based swap data repository, its officers, directors, employees, or 
agents;
    (ii) A violation of the policies and procedures of the security-
based swap data repository by the security-based swap data repository, 
its officers, directors, employees, or agents; or
    (iii) A weakness in the design or implementation of the policies 
and procedures of the security-based swap data repository.
    (7) Official filing has the same meaning as set forth in Rule 11 of 
Regulation S-T (17 CFR 232.11).
    (8) Senior officer means the chief executive officer or other 
equivalent officer.
    (9) Tag (including the term tagged) has the same meaning as set 
forth in Rule 11 of Regulation S-T (17 CFR 232.11).
    (c) Duties. Each chief compliance officer of a security-based swap 
data repository shall:
    (1) Report directly to the board or to the senior officer of the 
security-based swap data repository;
    (2) Review the compliance of the security-based swap data 
repository with respect to the requirements and

[[Page 14556]]

core principles described in section 13(n) of the Act (15 U.S.C. 
78m(n)) and the rules and regulations thereunder;
    (3) In consultation with the board or the senior officer of the 
security-based swap data repository, take reasonable steps to resolve 
any material conflicts of interest that may arise;
    (4) Be responsible for administering each policy and procedure that 
is required to be established pursuant to section 13 of the Act (15 
U.S.C. 78m) and the rules and regulations thereunder;
    (5) Take reasonable steps to ensure compliance with the Act and the 
rules and regulations thereunder relating to security-based swaps, 
including each rule prescribed by the Commission under section 13 of 
the Act (15 U.S.C. 78m);
    (6) Establish procedures for the remediation of noncompliance 
issues identified by the chief compliance officer through any--
    (i) Compliance office review;
    (ii) Look-back;
    (iii) Internal or external audit finding;
    (iv) Self-reported error; or
    (v) Validated complaint; and
    (7) Establish and follow appropriate procedures for the handling, 
management response, remediation, retesting, and closing of 
noncompliance issues.
    (d) Compliance reports--(1) In general. The chief compliance 
officer shall annually prepare and sign a report that contains a 
description of the compliance of the security-based swap data 
repository with respect to the Act and the rules and regulations 
thereunder and each policy and procedure of the security-based swap 
data repository (including the code of ethics and conflicts of interest 
policies of the security-based swap data repository). Each compliance 
report shall also contain, at a minimum, a description of:
    (i) The security-based swap data repository's enforcement of its 
policies and procedures;
    (ii) Any material changes to the policies and procedures since the 
date of the preceding compliance report;
    (iii) Any recommendation for material changes to the policies and 
procedures as a result of the annual review, the rationale for such 
recommendation, and whether such policies and procedures were or will 
be modified by the security-based swap data repository to incorporate 
such recommendation; and
    (iv) Any material compliance matters identified since the date of 
the preceding compliance report.
    (2) Requirements. A financial report of the security-based swap 
data repository shall be filed with the Commission as described in 
paragraph (g) of this section and shall accompany a compliance report 
as described in paragraph (d)(1) of this section. The compliance report 
shall include a certification by the chief compliance officer that, to 
the best of his or her knowledge and reasonable belief, and under 
penalty of law, the compliance report is accurate and complete. The 
compliance report shall also be filed in a tagged data format in 
accordance with the instructions contained in the EDGAR Filer Manual, 
as described in Rule 301 of Regulation S-T (17 CFR 232.301).
    (e) The chief compliance officer shall submit the annual compliance 
report to the board for its review prior to the filing of the report 
with the Commission.
    (f) Financial reports. Each financial report filed with a 
compliance report shall:
    (1) Be a complete set of financial statements of the security-based 
swap data repository that are prepared in accordance with U.S. 
generally accepted accounting principles for the most recent two fiscal 
years of the security-based swap data repository;
    (2) Be audited in accordance with the standards of the Public 
Company Accounting Oversight Board by a registered public accounting 
firm that is qualified and independent in accordance with Rule 2-01 of 
Regulation S-X (17 CFR 210.2-01);
    (3) Include a report of the registered public accounting firm that 
complies with paragraphs (a) through (d) of Rule 2-02 of Regulation S-X 
(17 CFR 210.2-02);
    (4) If the security-based swap data repository's financial 
statements contain consolidated information of a subsidiary of the 
security-based swap data repository, provide condensed financial 
information, in a financial statement footnote, as to the financial 
position, changes in financial position and results of operations of 
the security-based swap data repository, as of the same dates and for 
the same periods for which audited consolidated financial statements 
are required. Such financial information need not be presented in 
greater detail than is required for condensed statements by Rules 10-
01(a)(2), (3), and (4) of Regulation S-X (17 CFR 210.10-01). Detailed 
footnote disclosure that would normally be included with complete 
financial statements may be omitted with the exception of disclosures 
regarding material contingencies, long-term obligations, and 
guarantees. Descriptions of significant provisions of the security-
based swap data repository's long-term obligations, mandatory dividend 
or redemption requirements of redeemable stocks, and guarantees of the 
security-based swap data repository shall be provided along with a 
five-year schedule of maturities of debt. If the material 
contingencies, long-term obligations, redeemable stock requirements, 
and guarantees of the security-based swap data repository have been 
separately disclosed in the consolidated statements, then they need not 
be repeated in this schedule; and
    (5) Be provided as an official filing in accordance with the EDGAR 
Filer Manual and include, as part of the official filing, an 
Interactive Data Financial Report filed in accordance with Rule 407 of 
Regulation S-T (17 CFR 232.407).
    (g) Reports filed pursuant to paragraphs (d) and (f) of this 
section shall be filed within 60 days after the end of the fiscal year 
covered by such reports.
    (h) No officer, director, or employee of a security-based swap data 
repository may directly or indirectly take any action to coerce, 
manipulate, mislead, or fraudulently influence the security-based swap 
data repository's chief compliance officer in the performance of his or 
her duties under this section.

Sec.  240.13n-12   Exemption from requirements governing security-based 
swap data repositories for certain non-U.S. persons.

    (a) Definitions. For purposes of this section--
    (1) Non-U.S. person means a person that is not a U.S. person.
    (2) U.S. person shall have the same meaning as set forth in Rule 
3a71-3(a)(4)(i) (Sec.  240.3a71-3(a)(4)(i)).
    (b) A non-U.S. person that performs the functions of a security-
based swap data repository within the United States shall be exempt 
from the registration and other requirements set forth in section 13(n) 
of the Act (15 U.S.C. 78m(n)), and the rules and regulations 
thereunder, provided that each regulator with supervisory authority 
over such non-U.S. person has entered into a memorandum of 
understanding or other arrangement with the Commission that addresses 
the confidentiality of data collected and maintained by such non-U.S. 
person, access by the Commission to such data, and any other matters 
determined by the Commission.

0
8. Section 240.24b-2 is amended by:
0
a. In the first sentence of paragraph (b), removing ``paragraph (g)'' 
and adding in its place ``paragraphs (g) and (h)''; and
0
b. Adding paragraph (h).

[[Page 14557]]

    The addition reads as follows:

Sec.  240.24b-2  Nondisclosure of information filed with the Commission 
and with any exchange.

* * * * *
    (h) A security-based swap data repository shall not omit the 
confidential portion from the material filed in electronic format 
pursuant to section 13(n) of the Act (15 U.S.C. 78m(n)) and the rules 
and regulations thereunder. In lieu of the procedures described in 
paragraph (b) of this section, a security-based swap data repository 
shall request confidential treatment electronically for any material 
filed in electronic format pursuant to section 13(n) of the Act (15 
U.S.C. 78m(n)) and the rules and regulations thereunder.

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

0
9. 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.; 12 U.S.C. 
5461 et seq.; and 18 U.S.C. 1350, unless otherwise noted.
* * * * *

0
10. Subpart P consisting of Sec.  249.1500 is added to read as follows:

Subpart P--Forms for Registration of Security-Based Swap Data 
Repositories

Sec.  249.1500  Form SDR, for application for registration as a 
security-based swap data repository, amendments thereto, or withdrawal 
from registration.[

Note: The text of Form SDR does not, and the amendments will not, 
appear in the Code of Federal Regulations.]

    The form shall be used for registration as a security-based swap 
data repository, and for the amendments to and withdrawal from such 
registration pursuant to section 13(n) of the Exchange Act (15 U.S.C. 
78m(n)).
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM SDR
APPLICATION OR AMENDMENT TO APPLICATION FOR REGISTRATION OR WITHDRAWAL 
FROM REGISTRATION AS SECURITY-BASED SWAP DATA REPOSITORY UNDER THE 
SECURITIES EXCHANGE ACT OF 1934
GENERAL INSTRUCTIONS FOR PREPARING AND FILING FORM SDR
    1. Form SDR and exhibits thereto are to be filed electronically in 
a tagged data format through EDGAR with the Securities and Exchange 
Commission by an applicant for registration as a security-based swap 
data repository, by a registered security-based swap data repository 
amending its application for registration, or by a registered security-
based swap data repository withdrawing its registration, pursuant to 
Section 13(n) of the Securities Exchange Act of 1934 (``Exchange Act'') 
and Rules 13n-1 and 13n-2 thereunder. The electronic filing 
requirements of Regulation S-T will apply to all such filings.
    2. With respect to an applicant for registration as a security-
based swap data repository, Form SDR also constitutes an application 
for registration as a securities information processor. An amendment or 
withdrawal on Form SDR also constitutes an amendment or withdrawal of 
securities information processor registration pursuant to Section 11A 
of the Exchange Act and the rules and regulations thereunder. 
Applicants for registration as a securities information processor not 
seeking to become dually-registered as a security-based swap data 
repository and a securities information processor, or registered 
securities information processors that are not dually-registered as a 
security-based swap data repository and a securities information 
processor, should continue to file on Form SIP.
    3. Upon the filing of an application for registration, the 
Commission will publish notice of the filing and afford interested 
persons an opportunity to submit written data, views, and arguments. No 
application for registration shall be effective unless the Commission, 
by order, grants such registration.
    4. Individuals' names shall be given in full (last name, first 
name, middle name).
    5. Form SDR shall be signed by a person who is duly authorized to 
act on behalf of the security-based swap data repository.
    6. If Form SDR is being filed as an application for registration, 
all applicable items must be answered in full. If any item is not 
applicable, indicate by ``none'' or ``N/A'' as appropriate.
    7. Disclosure of the information specified on this form is 
mandatory prior to processing of an application for registration as a 
security-based swap data repository and a securities information 
processor. The information will be used for the principal purpose of 
determining whether the Commission should grant or deny registration to 
an applicant. Except in cases where confidential treatment is requested 
by the applicant and granted by the Commission pursuant to the Freedom 
of Information Act and the rules of the Commission thereunder, 
information supplied on this form may be made available on the 
Commission's Web site, will be included routinely in the public files 
of the Commission, and will be available for inspection by any 
interested person. A form that is not prepared and executed in 
compliance with applicable requirements may be deemed as not acceptable 
for filing. Acceptance of this form, however, shall not constitute any 
finding that it has been filed as required or that the information 
submitted is true, current, or complete. Intentional misstatements or 
omissions of fact constitute federal criminal violations (see 18 U.S.C. 
1001 and 15 U.S.C. 78ff(a)).
    8. Rule 13n-1(d) under the Exchange Act requires a security-based 
swap data repository to amend promptly Form SDR if any information 
contained in items 1 through 17, 26, and 48 of this application, or any 
amendment thereto, is or becomes inaccurate for any reason. Rule 13n-
1(d) under the Exchange Act also requires a security-based swap data 
repository to file annually an amendment on Form SDR within 60 days 
after the end of each fiscal year of such security-based swap data 
repository. Rule 13n-2 under the Exchange Act requires a security-based 
swap data repository that seeks to withdraw from registration to file 
such withdrawal on Form SDR.
    9. For the purposes of this form, the term ``applicant'' includes 
any applicant for registration as a security-based swap data repository 
or any registered security-based swap data repository that is amending 
Form SDR or withdrawing its registration as a security-based swap data 
repository. In addition, the term ``applicant'' includes any applicant 
for registration as a securities information processor.
    10. Applicants filing Form SDR as an amendment (other than an 
annual amendment) need to update any information contained in items 1 
through 17, 26, and 48 that has become inaccurate since the security-
based swap data repository's last filing of Form SDR. An applicant 
submitting an amendment (other than an annual amendment) represents 
that all unamended information contained in items 1 through 17, 26, and 
48 remains true, current, and complete as filed.
    11. Applicants filing a withdrawal need to update any items or 
exhibits that are being amended since the security-based swap data 
repository's last filing of Form SDR. An applicant submitting a 
withdrawal represents that

[[Page 14558]]

all unamended items and exhibits remain true, current, and complete as 
filed.
    12. Applicants filing an annual amendment must file a complete 
form, including all pages, answers to all items, together with all 
exhibits. Applicants filing an annual amendment must indicate which 
items have been amended since the last annual amendment, or, if the 
security-based swap data repository has not yet filed an annual 
amendment, since the security-based swap data repository's application 
for registration.
    DEFINITIONS: Unless the context requires otherwise, all terms used 
in this form have the same meaning as in the Exchange Act, as amended, 
and in the rules and regulations of the Commission thereunder.
    This collection of information will be reviewed by the Office of 
Management and Budget in accordance with the clearance requirements of 
44 U.S.C. 3507. 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 Commission estimates 
that the average burden to respond to Form SDR will be between 12 and 
482 hours depending upon the purpose for which the form is being filed. 
Any member of the public may direct to the Commission any comments 
concerning the accuracy of this burden estimate and any suggestions for 
reducing this burden. It is mandatory that a security-based swap data 
repository file all notifications, updates, and reports required by 
Rules 13n-1 and 13n-2 using Form SDR.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM SDR

APPLICATION OR AMENDMENT TO APPLICATION FOR REGISTRATION OR WITHDRAWAL 
FROM REGISTRATION AS SECURITY-BASED SWAP DATA REPOSITORY UNDER THE 
SECURITIES EXCHANGE ACT OF 1934

-----------------------------------------------------------------------
(Exact Name of Applicant as Specified in Charter)

-----------------------------------------------------------------------
(Address of Principal Executive Offices)

    If this is an APPLICATION for registration, complete this form in 
full and check here [ballot]
    If this is an AMENDMENT to an application, or to an effective 
registration (other than an annual amendment), list all items that are 
amended and check here [ballot]
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-----------------------------------------------------------------------
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    If this is an ANNUAL AMENDMENT to an application, or to an 
effective registration, complete this form in full, list all items that 
are amended since the last annual amendment, and check here [ballot]
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-----------------------------------------------------------------------
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    If this is a WITHDRAWAL from registration, list all items that are 
amended and check here [ballot]
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-----------------------------------------------------------------------
-----------------------------------------------------------------------

    Or check here to confirm that there is no inaccurate information to 
update [ballot]

GENERAL INFORMATION

1. Name under which business is conducted, if different than name 
specified herein:------------------------------------------------------
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2. If name of business is amended, state previous business name:-------
-----------------------------------------------------------------------

3. Mailing address:----------------------------------------------------
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    (Number and Street)
-----------------------------------------------------------------------

    (City) (State/Country) (Mailing Zip/Postal Code)

    4. List of principal office(s) and address(es) where security-based 
swap data repository and securities information processor activities 
are conducted:

Office

-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------

Address

-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------

    5. If the applicant is a successor (within the definition of Rule 
12b-2 under the Exchange Act) to a previously registered security-based 
swap data repository, please complete the following:

 a. Date of succession:------------------------------------------------
    b. Full name and address of predecessor security-based swap data 
repository:
-----------------------------------------------------------------------

(Name)

-----------------------------------------------------------------------

(Number and Street)

-----------------------------------------------------------------------
    (City) (State/Country) (Mailing Zip/Postal Code)

-----------------------------------------------------------------------
c. Predecessor's CIK---------------------------------------------------

    6. List all asset classes of security-based swaps for which the 
applicant is collecting and maintaining data or for which it proposes 
to collect and maintain data.
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-----------------------------------------------------------------------

7. Furnish a description of the function(s) that the applicant performs 
or proposes to perform.------------------------------------------------
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-----------------------------------------------------------------------
-----------------------------------------------------------------------

    8. Applicant is a:

[ballot] Corporation
[ballot] Partnership
[ballot] Other Form of Organization
 (Specify)-------------------------------------------------------------

    9. If the applicant is a corporation or other form of organization 
(besides a partnership):
    a. Date of incorporation or organization
-----------------------------------------------------------------------

    b. Place of incorporation or state/country of organization
-----------------------------------------------------------------------

    10. If the applicant is a partnership:

 a. Date of filing of partnership agreement----------------------------
 b. Place where partnership agreement was filed------------------------

    11. Applicant understands and consents that any notice or service 
of process, pleadings, or other documents in connection with any action 
or proceeding against the applicant may be effectuated by certified 
mail to the officer specified or person named below at the U.S. address 
given. Such officer or person cannot be a Commission member, official, 
or employee.

-----------------------------------------------------------------------
(Name of Person or, if Applicant is a Corporation, Title of Officer)

-----------------------------------------------------------------------
(Name of Applicant or Applicable Entity)

-----------------------------------------------------------------------
(Number and Street)

-----------------------------------------------------------------------
    (City) (State) (Zip Code)

-----------------------------------------------------------------------
    (Area Code) (Telephone Number)

    12. If this is a withdrawal from registration, furnish:
    a. Name(s) and address(es) of the person(s) who has or will have 
custody or possession of the books and records

[[Page 14559]]

that the applicant maintained in connection with its performance of 
security-based swap data repository and securities information 
processor functions.

-----------------------------------------------------------------------
(Name of Person)

-----------------------------------------------------------------------
(Number and Street)

-----------------------------------------------------------------------
    (City) (State/Country) (Mailing Zip/Postal Code)

-----------------------------------------------------------------------
    (Area Code) (Telephone Number)

    b. If different from above, provide address(es) where such books 
and records will be located.

-----------------------------------------------------------------------
(Number and Street)

-----------------------------------------------------------------------
    (City) (State/Country) (Mailing Zip/Postal Code)

    13. SIGNATURE: Applicant has duly caused this application, 
amendment, or withdrawal to be signed on its behalf by the undersigned, 
hereunto duly authorized, on this date:______. Applicant and the 
undersigned hereby represent that all information contained herein is 
true, current, and complete. Intentional misstatements or omissions of 
fact constitute federal criminal violations (see 18 U.S.C. 1001 and 15 
U.S.C. 78ff(a)). It is understood that all required items and exhibits 
are considered integral parts of this form and that the submission of 
any amendment or withdrawal represents that all unamended items and 
exhibits remain true, current, and complete as previously filed and 
that the submission of any amendment (other than an annual amendment) 
represents that all unamended information contained in items 1 through 
17, 26, and 48 remains true, current, and complete as filed. If the 
applicant is a non-resident security-based swap data repository, the 
applicant and the undersigned further represent that the applicant can, 
as a matter of law, and will provide the Commission with prompt access 
to the applicant's books and records and that the applicant can, as a 
matter of law, and will submit to an onsite inspection and examination 
by the Commission. For purposes of this certification, ``non-resident 
security-based swap data repository'' means (i) in the case of an 
individual, one who resides in or has his principal place of business 
in any place not in the United States; (ii) 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 (iii) in the case of 
a partnership or other unincorporated organization or association, one 
having its principal place of business in any place not in the United 
States.

-----------------------------------------------------------------------
(Name of Applicant)

-----------------------------------------------------------------------
(Signature of General Partner, Managing Agent, or Principal Officer)

-----------------------------------------------------------------------
(Title)

EXHIBITS--BUSINESS ORGANIZATION

    14. List as Exhibit A any person as defined in Section 3(a)(9) of 
the Exchange Act that owns 10 percent or more of the applicant's stock 
or that, either directly or indirectly, through agreement or otherwise, 
in any other manner, may control or direct the management or policies 
of the applicant. State in Exhibit A the full name and address of each 
such person and attach a copy of the agreement or, if there is none 
written, describe the agreement or basis upon which such person 
exercises or may exercise such control or direction.
    15. Attach as Exhibit B the following information about the chief 
compliance officer who has been appointed by the board of directors of 
the applicant or a person or group performing a function similar to 
such board of directors:
    a. Name
    b. Title
    c. Date of commencement and, if appropriate, termination of present 
term of position
    d. Length of time the chief compliance officer has held the same 
position
    e. Brief account of the business experience of the chief compliance 
officer over the last five years
    f. Any other business affiliations in the securities industry or 
derivatives industry
    g. Details of:
    (1) any order of the Commission with respect to such person 
pursuant to Sections 15(b)(4), 15(b)(6), 19(h)(2), or 19(h)(3) of the 
Exchange Act;
    (2) any conviction or injunction of a type described in Sections 
15(b)(4)(B) or (C) of the Exchange Act within the past ten years;
    (3) any action of a self-regulatory organization with respect to 
such person imposing a final disciplinary sanction pursuant to Sections 
6(b)(6), l5A(b)(7), or 17A(b)(3)(G) of the Exchange Act;
    (4) any final action by a self-regulatory organization with respect 
to such person constituting a denial, bar, prohibition, or limitation 
of membership, participation, or association with a member, or of 
access to services offered by such organization or a member thereof; 
and
    (5) any final action by another federal regulatory agency, 
including the Commodity Futures Trading Commission, any state 
regulatory agency, or any foreign financial regulatory authority 
resulting in:
    i. a finding that such person has made a false statement or 
omission, or has been dishonest, unfair, or unethical;
    ii. a finding that such person has been involved in a violation of 
any securities-related regulations or statutes;
    iii. a finding that such person has been a cause of a business 
having its authorization to do business denied, suspended, revoked, or 
restricted;
    iv. an order entered, in the past ten years, against such person in 
connection with a securities-related activity; or
    v. any disciplinary sanction, including a denial, suspension, or 
revocation of such person's registration or license or otherwise, by 
order, a prevention from associating with a securities-related business 
or a restriction of such person's activities.
    16. Attach as Exhibit C a list of the officers, directors, 
governors, and persons performing similar functions, and the members of 
all standing committees grouped by committee of the applicant or of the 
entity identified in item 19 that performs the security-based swap data 
repository and securities information processor activities of the 
applicant, indicating for each:
    a. Name
    b. Title
    c. Dates of commencement and, if appropriate, termination of 
present term of office or position
    d. Length of time each present officer, director, governor, persons 
performing similar functions, or member of a standing committee has 
held the same office or position
    e. Brief account of the business experience of each officer, 
director, governor, persons performing similar functions, or member of 
a standing committee over the last five years
    f. Any other business affiliations in the securities industry or 
derivatives industry
    g. Details of:
    (1) any order of the Commission with respect to such person 
pursuant to Sections 15(b)(4), 15(b)(6), 19(h)(2), or 19(h)(3) of the 
Exchange Act;
    (2) any conviction or injunction of a type described in Sections 
15(b)(4)(B) or (C) of the Exchange Act within the past ten years;
    (3) any action of a self-regulatory organization with respect to 
such person imposing a final disciplinary sanction

[[Page 14560]]

pursuant to Sections 6(b)(6), l5A(b)(7), or 17A(b)(3)(G) of the 
Exchange Act;
    (4) any final action by a self-regulatory organization with respect 
to such person constituting a denial, bar, prohibition, or limitation 
of membership, participation, or association with a member, or of 
access to services offered by such organization or a member thereof; 
and
    (5) any final action by another federal regulatory agency, 
including the Commodity Futures Trading Commission, any state 
regulatory agency, or any foreign financial regulatory authority 
resulting in:
    i. a finding that such person has made a false statement or 
omission, or has been dishonest, unfair, or unethical;
    ii. a finding that such person has been involved in a violation of 
any securities-related regulations or statutes;
    iii. a finding that such person has been a cause of a business 
having its authorization to do business denied, suspended, revoked, or 
restricted;
    iv. an order entered, in the past ten years, against such person in 
connection with a securities-related activity; or
    v. any disciplinary sanction, including a denial, suspension, or 
revocation of such person's registration or license or otherwise, by 
order, a prevention from associating with a securities-related business 
or a restriction of such person's activities.
    17. Attach as Exhibit D a copy of documents relating to the 
governance arrangements of the applicant, including, but not limited 
to, the nomination and selection process of the members on the 
applicant's board of directors, a person or group performing a function 
similar to a board of directors (collectively, ``board''), or any 
committee that has the authority to act on behalf of the board; the 
responsibilities of the board and each such committee; the composition 
of the board and each such committee; and the applicant's policies and 
procedures reasonably designed to ensure that the applicant's senior 
management and each member of the board or such committee possess 
requisite skills and expertise to fulfill their responsibilities in the 
management and governance of the applicant, to have a clear 
understanding of their responsibilities, and to exercise sound judgment 
about the applicant's affairs.
    18. Attach as Exhibit E a copy of the constitution, articles of 
incorporation or association with all amendments thereto, existing by-
laws, rules, procedures, and instruments corresponding thereto, of the 
applicant.
    19. Attach as Exhibit F a narrative and/or graphic description of 
the organizational structure of the applicant. Note: If the security-
based swap data repository or securities information processor 
activities of the applicant are conducted primarily by a division, 
subdivision, or other segregable entity within the applicant's 
corporation or organization, describe the relationship of such entity 
within the overall organizational structure and attach as Exhibit F the 
description that applies to the segregable entity.
    20. Attach as Exhibit G a list of all affiliates of the applicant 
and indicate the general nature of the affiliation. For purposes of 
this application, an ``affiliate'' of an applicant means a person that, 
directly or indirectly, controls, is controlled by, or is under common 
control with the applicant.
    21. Attach as Exhibit H a brief description of any material pending 
legal proceeding(s), other than ordinary and routine litigation 
incidental to the business, to which the applicant or any of its 
affiliates is a party or to which any of its property is the subject. 
Include the name of the court or agency in which the proceeding(s) are 
pending, the date(s) instituted, the principal parties to the 
proceeding, a description of the factual basis alleged to underlie the 
proceeding(s), and the relief sought. Include similar information as to 
any such proceeding(s) known to be contemplated by any governmental 
agencies.
    22. Attach as Exhibit I copies of all material contracts with any 
security-based swap execution facility, clearing agency, central 
counterparty, or third party service provider. To the extent that form 
contracts are used by the applicant, submit a sample of each type of 
form contract used. In addition, include a list of security-based swap 
execution facilities, clearing agencies, central counterparties, and 
third party service providers with whom the applicant has entered into 
material contracts.
    23. Attach as Exhibit J procedures implemented by the applicant to 
minimize conflicts of interest in the decision-making process of the 
applicant and to resolve any such conflicts of interest.

EXHIBITS--FINANCIAL INFORMATION

    24. Attach as Exhibit K a statement of financial position, results 
of operations, statement of sources and application of revenues and all 
notes or schedules thereto, as of the most recent fiscal year of the 
applicant. If statements certified by an independent public accountant 
are available, such statements shall be submitted as Exhibit K. 
Alternatively, a financial report, as described in Rule 13n-11(f) under 
the Exchange Act, may be filed as Exhibit K.
    25. Attach as Exhibit L a statement of financial position and 
results of operations for each affiliate of the applicant as of the end 
of the most recent fiscal year of each such affiliate. Alternatively, 
identify, if available, the most recently filed annual report on Form 
10-K under the Exchange Act for any such affiliate as Exhibit L.
    26. Attach as Exhibit M the following:
    a. A complete list of all dues, fees, and other charges imposed, or 
to be imposed, as well as all discounts or rebates offered, or to be 
offered, by or on behalf of the applicant for its services, including 
the security-based swap data repository's services, securities 
information processor's services, and any ancillary services, and 
identify the service(s) provided for each such due, fee, other charge, 
discount, or rebate;
    b. A description of the basis and methods used in determining at 
least annually the level and structure of the services as well as the 
dues, fees, other charges, discounts, or rebates listed in paragraph a 
of this item; and
    c. If the applicant differentiates, or proposes to differentiate, 
among its customers, or classes of customers in the amount of any dues, 
fees, or other charges imposed or any discount or rebate offered for 
the same or similar services, then state and indicate the amount of 
each differential. In addition, identify and describe any differences 
in the cost of providing such services, and any other factors, that 
account for such differences.

EXHIBITS--OPERATIONAL CAPABILITY

    27. Attach as Exhibit N a narrative description, or the functional 
specifications, of each service or function listed in item 7 and 
performed as a security-based swap data repository or securities 
information processor. Include a description of all procedures utilized 
for the collection and maintenance of information or records with 
respect to transactions or positions in, or the terms and conditions 
of, security-based swaps entered into by market participants.
    28. Attach as Exhibit O a list of all computer hardware utilized by 
the applicant to perform the security-based swap data repository or 
securities information processor functions listed in item 7, 
indicating:
    a. Name of manufacturer and manufacturer's equipment identification 
number;
    b. Whether such hardware is purchased or leased (If leased, state

[[Page 14561]]

from whom leased, duration of lease, and any provisions for purchase or 
renewal); and
    c. Where such equipment (exclusive of terminals and other access 
devices) is physically located.
    29. Attach as Exhibit P a description of the personnel 
qualifications for each category of professional, non-professional, and 
supervisory employees employed by the applicant or the division, 
subdivision, or other segregable entity within the applicant as 
described in item 19.
    30. Attach as Exhibit Q a description of the measures or procedures 
implemented by the applicant to provide for the security of any system 
employed to perform the functions of the security-based swap data 
repository or securities information processor. Include a general 
description of any physical and operational safeguards designed to 
prevent unauthorized access (whether by input or retrieval) to the 
system. Describe any circumstances within the past year in which the 
described security measures or safeguards failed to prevent any such 
unauthorized access to the system and any measures taken to prevent a 
reoccurrence. Describe any measures used by the applicant to satisfy 
itself that the information received or disseminated by the system is 
accurate.
    31. Where security-based swap data repository or securities 
information processor functions are performed by automated facilities 
or systems, attach as Exhibit R a description of all backup systems or 
subsystems that are designed to prevent interruptions in the 
performance of any such function as a result of technical malfunctions 
or otherwise in the system itself, in any permitted input or output 
system connection, or as a result of any independent source.
    32. Attach as Exhibit S the following:
    a. For each of the security-based swap data repository or 
securities information processor functions described in item 7:
    (1) quantify in appropriate units of measure the limits on the 
applicant's capacity to receive (or collect), process, store, or 
display (or disseminate for display or other use) the data elements 
included within each function (e.g., number of inquiries from remote 
terminals); and
    (2) identify the factors (mechanical, electronic, or other) that 
account for the current limitations reported in answer to (1) on the 
applicant's capacity to receive (or collect), process, store, or 
display (or disseminate for display or other use) the data elements 
included within each function.
    b. If the applicant is able to employ, or presently employs, its 
system(s) for any use other than for performing the functions of a 
security-based swap data repository or securities information 
processor, state the priorities of assignment of capacity between such 
functions and such other uses, and state the methods used or able to be 
used to divert capacity between such functions and other uses.

EXHIBITS--ACCESS TO SERVICES AND DATA

    33. Attach as Exhibit T the following:
    a. State the number of persons who subscribe, or who have notified 
the applicant of their intention to subscribe, to the applicant's 
services.
    b. For each instance during the past year in which any person has 
been prohibited or limited with respect to access to services offered 
or data maintained by the applicant, indicate the name of each such 
person and the reason for the prohibition or limitation.
    c. For each of such services that involves the supply of 
information to a quotation board, ticker device, electronic information 
terminal, or other such device, state the total number of devices to 
which information is, or will be supplied (``serviced'') and any 
minimum and or maximum number of devices required or permitted by 
agreement or otherwise to be serviced by the applicant. In addition, 
define the data elements for each service.
    d. For each service that is furnished in machine-readable form, 
state the storage media of any service furnished and define the data 
elements of such service.
    34. Attach as Exhibit U copies of all contracts governing the terms 
by which persons may subscribe to the security-based swap data 
repository services, securities information processor services, and any 
ancillary services provided by the applicant. To the extent that form 
contracts are used by the applicant, submit a sample of each type of 
form contract used.
    35. Attach as Exhibit V a description of any specifications, 
qualifications, or other criteria that limit, are interpreted to limit, 
or have the effect of limiting access to or use of any security-based 
swap data repository or securities information processor services 
offered or data maintained by the applicant and state the reasons for 
imposing such specifications, qualifications, or other criteria.
    36. Attach as Exhibit W any specifications, qualifications, or 
other criteria required of persons who supply security-based swap 
information to the applicant for collection, maintenance, processing, 
preparing for distribution, and publication by the applicant or of 
persons who seek to connect to or link with the applicant.
    37. Attach as Exhibit X any specifications, qualifications, or 
other criteria required of any person, including, but not limited to, 
regulators, market participants, market infrastructures, venues from 
which data could be submitted to the applicant, and third party service 
providers, who requests access to data maintained by the applicant.
    38. Attach as Exhibit Y policies and procedures implemented by the 
applicant to review any prohibition or limitation of any person with 
respect to access to services offered or data maintained by the 
applicant and to grant such person access to such services or data if 
such person has been discriminated against unfairly.

EXHIBITS--OTHER POLICIES AND PROCEDURES

    39. Attach as Exhibit Z policies and procedures implemented by the 
applicant to protect the privacy of any and all security-based swap 
transaction information that the applicant receives from a market 
participant or any registered entity.
    40. Attach as Exhibit AA a description of safeguards, policies, and 
procedures implemented by the applicant to prevent the misappropriation 
or misuse of (a) any confidential information received by the 
applicant, including, but not limited to, trade data, position data, 
and any nonpublic personal information about a market participant or 
any of its customers; (b) material, nonpublic information; and/or (c) 
intellectual property by applicant or any person associated with the 
applicant for their personal benefit or the benefit of others.
    41. Attach as Exhibit BB policies and procedures implemented by the 
applicant regarding its use of the security-based swap transaction 
information that it receives from a market participant, any registered 
entity, or any person for non-commercial and/or commercial purposes.
    42. Attach as Exhibit CC procedures and a description of facilities 
of the applicant for effectively resolving disputes over the accuracy 
of the transaction data and positions that are recorded in the 
security-based swap data repository.
    43. Attach as Exhibit DD policies and procedures relating to the 
applicant's calculation of positions.
    44. Attach as Exhibit EE policies and procedures implemented by the 
applicant to prevent any provision in a

[[Page 14562]]

valid security-based swap from being invalidated or modified through 
the procedures or operations of the applicant.
    45. Attach as Exhibit FF a plan to ensure that the transaction data 
and position data that are recorded in the applicant continue to be 
maintained after the applicant withdraws from registration as a 
security-based swap data repository, which shall include procedures for 
transferring the transaction data and position data to the Commission 
or its designee (including another registered security-based swap data 
repository).
    46. Attach as Exhibit GG all of the policies and procedures 
required under Regulation SBSR.
    47. If the applicant has a rulebook, then the applicant may attach 
the rulebook as Exhibit HH.

EXHIBIT--LEGAL OPINION

    48. If the applicant is a non-resident security-based swap data 
repository, then attach as Exhibit II an opinion of counsel that the 
security-based swap data repository can, as a matter of law, provide 
the Commission with prompt access to the books and records of such 
security-based swap data repository and that the security-based swap 
data repository can, as a matter of law, submit to onsite inspection 
and examination by the Commission.

    By the Commission.
    Dated: February 11, 2015.
Brent J. Fields,
Secretary.
[FR Doc. 2015-03127 Filed 3-18-15; 8:45 am]
 BILLING CODE 8011-01-P