Document ID: SEC-2022-0950-0001
Agency: sec
Document Type: Notice
Title: Agency Information Collection Activities; Proposals, Submissions, and Approvals: Business Conduct Standards for Security-Based Swap Dealers and Major Security-Based Swap Participants
Posted Date: 2022-07-19T04:00Z

[Federal Register Volume 87, Number 137 (Tuesday, July 19, 2022)]
[Notices]
[Pages 43082-43083]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-15315]

[[Page 43082]]

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SECURITIES AND EXCHANGE COMMISSION

[SEC File No. 270-779; OMB Control No. 3235-0732]

Submission for OMB Review; Comment Request: Extension: Business 
Conduct Standards for Security-Based Swap Dealers and Major Security-
Based Swap Participants

Upon Written Request, Copies Available From: U.S. Securities and 
Exchange Commission, Office of FOIA Services, 100 F Street NE, 
Washington, DC 20549-2736

    Notice is hereby given that pursuant to the Paperwork Reduction Act 
of 1995 (``PRA'') (44 U.S.C. 3501 et seq.), the Securities and Exchange 
Commission (``Commission'') has submitted to the Office of Management 
and Budget (``OMB'') a request for approval of extension of the 
previously approved collection of information provided for in Business 
Conduct Standards for Security-Based Swap Dealers and Major Security-
Based Swap Participants.\1\ (17 CFR 240.3a67-10, 240.3a71-3,240.3a71-6, 
240.15Fh-1 through 15Fh-6 and 240.15Fk-1), under the Securities 
Exchange Act of 1934 (15 U.S.C. 78a et seq.).
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    \1\ Business Conduct Standards for Security-Based Swap Dealers 
and Major Security-Based Swap Participants, Exchange Act Release 
77617 (Apr. 14, 2016), 81 FR 29959 (May 13, 2016). See also Business 
Conduct Standards for Security-Based Swap Dealers and Major 
Security-Based Swap Participants; Correction, Exchange Act Release 
77617A (May 19, 2016), 81 FR 32643 (May 24, 2016). (together, `the 
Business Conduct Rules for SBSDs and MSBSPs'' or ``BCS Rules'')
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    In 2010, Congress passed the Dodd-Frank Act, establishing a 
comprehensive framework for regulating the over-the-counter swaps 
markets. As required by Title VII of the Dodd-Frank Act, new section 
15F(h) of the Exchange Act established business conduct standards for 
security-based swap (``SBS'') Dealers and Major SBS Participants 
(``collectively ``SBS Entities'') in their dealings with 
counterparties, including special entities. In 2016, in order to 
implement the Dodd-Frank Act, the Commission adopted the BCS Rules for 
SBS Dealers and Major SBS Participants,\2\ a comprehensive set of 
business conduct standards and chief compliance officer requirements 
applicable to SBS Entities, that are designed to enhance transparency, 
facilitate informed customer decision-making, and heighten standards of 
professional conduct to better protect investors.\3\
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    \2\ Id.
    \3\ Commission staff has prepared separate supporting statements 
pursuant to the Paperwork Reduction Act (``PRA'') regarding final 
Rules 3a71-3(c) and 3a71-6, which address the cross-border 
application of the business conduct standards and the availability 
of substituted compliance. The Office of Management and Budget 
(``OMB'') has assigned control number 3235-0717 to Rule 3a71-3(c) 
and 3235-0715 to Rule 3a71-6. Rule 3a67-10(d) is a definitional rule 
and does not have a PRA burden associated with it. Rules 3a71-3(a), 
15Fh-1 and 15Fh-2(b) and (c) address scope of the rules and 
definitions and so do not have PRA burdens associated with them.
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    Rules 15Fh-1 through 15Fh-6 and 15Fk-1 require SBS Entities to:
     Verify whether a counterparty is an eligible contract 
participant and whether it is a special entity;
     Disclose to the counterparty material information about 
the SBS, including material risks, characteristics, incentives and 
conflicts of interest;
     Provide the counterparty with information concerning the 
daily mark of the SBS;
     Provide the counterparty with information regarding the 
ability to require clearing of the SBS;
     Communicate with counterparties in a fair and balanced 
manner based on principles of fair dealing and good faith;
     Establish a supervisory and compliance infrastructure; and
     Designate a chief compliance officer that is required to 
fulfill the described duties and provide an annual compliance report.
    The rules also require SBS Dealers to:
     Determine that recommendations they make regarding SBS are 
suitable for their counterparties.
     Establish, maintain and enforce written policies and 
procedures reasonably designed to obtain and retain a record of the 
essential facts concerning each known counterparty that are necessary 
to conduct business with such counterparty; and
     Comply with rules designed to prevent ``pay-to-play.''
    The rules also define what it means to ``act as an advisor'' to a 
special entity, and require an SBS Dealer who acts as an advisor to a 
special entity to:
     Make a reasonable determination that any security-based 
swap or trading strategy involving a security-based swap recommended by 
the SBS Dealer is in the best interests of the special entity whose 
identity is known at a reasonably sufficient time prior to the 
execution of the transaction to permit the SBS Dealer to comply with 
this obligation; and
     Make reasonable efforts to obtain such information that 
the SBS Dealer considers necessary to make a reasonable determination 
that a security-based swap or trading strategy involving a security-
based swap is in the best interests of the known special entity.
    In addition, the rules require SBS Entities acting as 
counterparties to special entities to reasonably believe that the 
counterparty has an independent representative who meets the following 
requirements:
     Has sufficient knowledge to evaluate the transaction and 
risks;
     Is not subject to a statutory disqualification;
     Undertakes a duty to act in the best interests of the 
special entity;
     Makes appropriate and timely disclosures to the special 
entity of material information concerning the security-based swap;
     Evaluates, consistent with any guidelines provided by the 
special entity, the fair pricing and the appropriateness of the 
security-based swap;
     Is independent of the security-based swap dealer or major 
security-based swap participant that is the counterparty to a proposed 
security-based swap.
    Under the rules, the special entity's independent representative 
must also be subject to pay-to-play regulations, and if the special 
entity is an ERISA plan, the independent representative must be an 
ERISA fiduciary.
    The information that must be collected pursuant to the BCS Rules is 
intended to increase accountability and transparency in the market. The 
information will therefore help establish a framework that protects 
investors and promotes efficiency, competition and capital formation.
    Based on a review of recent data, as of 2020, the Commission 
estimates the number of respondents to be as follows: 44 SBS Dealers, 0 
Major SBS Participants, for a total of 44 ``SBS Entities''.\4\ Further, 
we estimate that approximately 41 of these 44 SBS Entities will be 
dually registered with the CFTC as Swap Entities. We also estimate that 
there are currently 15,187 security-based swap market participants of 
which 11,531 are also swap market participants. In 2020, there were 
approximately 354,814 security-based swap transactions between an SBS 
Dealer and counterparty that is not an SBS Dealer of which 225,924 were 
new and 6,841 amended trades (totaling 232,765). The Commission 
estimates there are 329 independent, third-party representatives and 23 
in-house

[[Page 43083]]

independent representatives.\5\ We estimate that there are 
approximately 11,219 unique SBS Dealer and non-SBS-Dealer pairs. We 
have used these estimates in calculating the hour and cost burdens for 
the rule provisions that we anticipate have a ``collection of 
information'' burden within the meaning of the PRA.
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    \4\ Unless otherwise noted, estimates were derived from the 
DTCC-TIW data set (November 2006 through December 2020).
    \5\ See, Exchange Act Rule 15Fh-5.
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    The Commission estimates that the aggregate burden of the ongoing 
reporting and disclosures required by the BCS Rules, as described 
above, is approximately 486,535 hours and $1,812,800 calculated as 
follows:

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                                                                                       Ongoing annual   Ongoing annual   Industry-wide    Industry-wide
                                                                                           burden           burden       annual burden    annual burden
                Section                        Type of burden          Respondents   -------------------------------------------------------------------
                                                                                           Hours             Cost            Hours             Cost
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15Fh-3(b), (c), (d):
    Disclosures--SBS Entities..........  Reporting.................               44            4,120               $0          181,280               $0
15Fh-3(b), (c), (d):
    Disclosures--SBS Transactions        Reporting.................          232,765                1                0          232,765                0
     Between SBS Dealer and Non-SBSD
     Counterparty.
15Fh-3(e), (f):
    Know Your Counterparty and           Reporting.................               44              128                0            5,610                0
     Recommendations (SBS Dealers).
15Fh-3(g):
    Fair and Balanced Communications...  Reporting.................               44                2            3,600               88          158,400
15Fh-3(h):
    Supervision........................  Reporting.................               44              540            4,800           23,760          211,200
15Fh-5:
    SBS Entities Acting as               Reporting.................               44              352                0           15,488                0
     Counterparties to Special Entities.
15Fh-5:
    SBS Entities Acting as               Third-Party Disclosure....               44              352                0           15,488                0
     Counterparties to Special Entities.
15Fh-6:
    Political Contributions............  Reporting.................               44                1           25,600               44        1,126,400
15Fk-1:
    Chief Compliance Officer...........  Reporting.................               44              273            7,200           12,012          316,800
                                                                    ------------------------------------------------------------------------------------
        Total..........................  ..........................  ...............  ...............  ...............          486,535        1,812,800
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    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information under the PRA unless it 
displays a currently valid OMB control number.
    The public may view background documentation for this information 
collection at the following website: www.reginfo.gov. Find this 
particular information collection by selecting ``Currently under 30-day 
Review--Open for Public Comments'' or by using the search function. 
Written comments and recommendations for the proposed information 
collection should be sent by August 18, 2022 to (i) www.reginfo.gov/public/do/PRAMain and (ii) David Bottom, Director/Chief Information 
Officer, Securities and Exchange Commission, c/o John Pezzullo, 100 F 
Street NE, Washington, DC 20549, or by sending an email to: 
[email protected].

    Dated: July 13, 2022.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-15315 Filed 7-18-22; 8:45 am]
BILLING CODE 8011-01-P