[Federal Register Volume 80, Number 53 (Thursday, March 19, 2015)]
[Rules and Regulations]
[Pages 14564-14737]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-03124]



[[Page 14563]]

Vol. 80

Thursday,

No. 53

March 19, 2015

Part III





Securities and Exchange Commission





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17 CFR Part 242





Regulation SBSR--Reporting and Dissemination of Security-Based Swap 
Information; Final Rule

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

[[Page 14564]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 242

[Release No. 34-74244; File No. S7-34-10]
RIN 3235-AK80


Regulation SBSR--Reporting and Dissemination of Security-Based 
Swap Information

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: In accordance with Section 763 and Section 766 of Title VII 
(``Title VII'') of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (the ``Dodd-Frank Act''), the Securities and Exchange 
Commission (``SEC'' or ``Commission'') is adopting Regulation SBSR--
Reporting and Dissemination of Security-Based Swap Information 
(``Regulation SBSR'') under the Securities Exchange Act of 1934 
(``Exchange Act''). Regulation SBSR provides for the reporting of 
security-based swap information to registered security-based swap data 
repositories (``registered SDRs'') or the Commission, and the public 
dissemination of security-based swap transaction, volume, and pricing 
information by registered SDRs. Registered SDRs are required to 
establish and maintain certain policies and procedures regarding how 
transaction data are reported and disseminated, and participants of 
registered SDRs that are registered security-based swap dealers or 
registered major security-based swap participants are required to 
establish and maintain policies and procedures that are reasonably 
designed to ensure that they comply with applicable reporting 
obligations. Regulation SBSR contains provisions that address the 
application of the regulatory reporting and public dissemination 
requirements to cross-border security-based swap activity as well as 
provisions for permitting market participants to satisfy these 
requirements through substituted compliance. Finally, Regulation SBSR 
will require a registered SDR to register with the Commission as a 
securities information processor.

DATES: Effective Date: May 18, 2015.
    Compliance Date: For Rules 900, 907, and 909 of Regulation SBSR, 
the compliance date is the effective date. For Rules 901, 902, 903, 
904, 905, 906, and 908 of Regulation SBSR, compliance dates are being 
proposed in a separate release, 34-74245 (February 11, 2015).

FOR FURTHER INFORMATION CONTACT: Michael Gaw, Assistant Director, at 
(202) 551-5602; Natasha Cowen, Special Counsel, at (202) 551-5652; 
Yvonne Fraticelli, Special Counsel, at (202) 551-5654; George Gilbert, 
Special Counsel, at (202) 551-5677; David Michehl, Special Counsel, at 
(202) 551-5627; Geoffrey Pemble, Special Counsel, at (202) 551-5628; 
Mia Zur, Special Counsel, at (202) 551-5638; all of the Division of 
Trading and Markets, Securities and Exchange Commission, 100 F Street 
NE., Washington, DC 20549-7010.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Introduction
    A. Summary of Final Regulation SBSR
    B. Role of Registered SDRs
    C. Unique Identification Codes
    D. Public Dissemination and Block Trades
    E. Cross-Border Issues
    F. Compliance Dates
II. Information Required To Be Reported
    A. Primary Trade Information--Rule 901(c)
    1. Description of Re-Proposed Rule
    2. Discussion of Final Rule 901(c) and Response to Comments
    a. General Approach to Required Information
    b. Rule 901(c)(1)
    i. Elimination of the Reference to Equity Derivatives
    ii. Product ID
    iii. Rule 901(c)(1)(i)
    iv. Rules 901(c)(1)(ii) and (iii)
    v. Rule 901(c)(1)(iv)
    vi. Rule 901(c)(1)(v)
    c. Rule 901(c)(2)
    d. Rule 901(c)(3)
    e. Rule 901(c)(4)
    f. Rule 901(c)(5)
    g. Rule 901(c)(6)
    h. Rule 901(c)(7)
    B. Rule 901(d)--Secondary Trade Information
    1. Description of Proposed and Re-Proposed Rule
    2. Final Rule 901(d)
    3. Discussion of Final Rule 901(d) and Response to Comments
    a. Rule 901(d)(1)--Counterparty IDs
    b. Rule 901(d)(2)--Additional UICs
    i. Branch ID and Execution Agent ID
    ii. Revised Defined Terms in Rule 901(d)(2)
    iii. Response to Comments
    c. Rule 901(d)(3)--Payment Stream Information
    d. Rule 901(d)(4)--Titles and Dates of Agreements
    e. Rule 901(d)(5)--Other Data Elements
    f. Rule 901(d)(6)--Submission to Clearing
    g. Rule 901(d)(7)--Indication of Use of End-User Exception
    h. Rule 901(d)(8)--Description of Settlement Terms
    i. Rule 901(d)(9)--Platform ID
    j. Rule 901(d)(10)--Transaction ID of Any Related Transaction
    k. Information That Is Not Required by Rule 901(d)
    C. Reporting of Historical Security-Based Swaps
    1. Statutory Basis and Proposed Rule
    2. Final Rule and Discussion of Comments Received
III. Where To Report Data
    A. All Reports Must Be Submitted to a Registered SDR
    B. Duties of Registered SDR Upon Receiving Transaction Reports
    1. Rule 901(f)--Time Stamps
    2. Rule 901(g)--Transaction IDs
IV. How To Report Data--Rules 901(h) and 907
    A. Introduction
    B. Rules 907(a)(1), 907(a)(2), and 901(h)--Data Elements and 
Formats
    C. Rule 907(a)(6)--Ultimate Parent IDs and Counterparty IDs
V. Who Reports--Rule 901(a)
    A. Proposed and Re-Proposed Rule 901(a)
    B. Final Rule 901(a)
    1. Reporting Hierarchy
    2. Other Security-Based Swaps
    C. Discussion of Comments and Basis for Final Rule
    1. Application of the Reporting Hierarchy to Sides
    2. Reporting by Agents
    3. Reporting Clearing Transactions
    4. Reporting by a Platform
    5. Reporting of a Security-Based Swap Resulting From a Life 
Cycle Event
VI. Public Dissemination--Rule 902
    A. Background
    B. Registered SDR's Duty To Disseminate--Rule 902(a)
    1. Format of Disseminated Data
    2. Timing of Public Dissemination
    3. Dissemination of Life Cycle Events
    4. Correction of Minor Drafting Error
    5. Use of Agents by a Registered SDR To Carry out the Public 
Dissemination Function
    C. Definition of ``Publicly Disseminate''
    D. Exclusions From Public Dissemination--Rule 902(c)
    1. Discussion of Final Rule
    2. Other Exclusions From Public Dissemination Sought by 
Commenters
    a. Customized Security-Based Swaps
    b. Inter-Affiliate Transactions
    c. Security-Based Swaps Entered Into in Connection With a 
Clearing Member's Default
    d. Total Return Security-Based Swaps
    e. Transactions Resulting From Portfolio Compression
    f. Thinly Traded Products
    E. Dissemination of Block Transactions--Rule 902(b)
    F. The Embargo Rule--Rule 902(d)
    G. Condition Flags--Rule 907(a)(4)
VII. Block Trades and the Interim Phase of Regulation SBSR
    A. Proposed Rules Regarding Block Trades
    B. Potential Impact on Liquidity
    1. T+24 Hour Reporting for All Transactions
    2. Reporting Timeframe for Trades Executed Prior to Weekends or 
U.S. Federal Holidays
    3. Other Revisions To Accommodate the Interim Approach
    4. Dissemination of Notional Amount
    5. Analysis Period
VIII. Reporting and Public Dissemination of Security-Based Swaps 
Involving Allocation

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    A. Discussion of Comments Received and Application of Regulation 
SBSR
    B. Example: Reporting and Public Dissemination for an Uncleared 
Bunched Order Execution
    1. Reporting the Executed Bunched Order
    2. Reporting the Allocations
IX. Inter-Affiliate Security-Based Swaps
    A. Background and Summary of Final Rule
    B. Discussion of Comments
    1. Regulatory Reporting of Inter-Affiliate Security-Based Swaps
    2. Public Dissemination of Inter-Affiliate Security-Based Swaps
X. Rule 903--Use of Codes
    A. Proposed Treatment of Coded Information
    B. Comments Received and Final Rule 903
    1. Relocation of UIC Provisions Into Rule 903
    2. Comments Regarding UICs and Final Rule 903(a)
    3. Comments on Proposed Rule 903 and Final Rule 903(b)
    C. Policies and Procedures of Registered SDRs Relating to UICs
XI. Operating Hours of Registered SDRs--Rule 904
XII. Subsequent Revisions to Reported Security-Based Swap 
Information
    A. Reporting Life Cycle Events--Rule 901(e)
    1. Description of Proposal and Re-Proposal
    2. Final Rules Relating to Life Cycle Events and Response to 
Comments
    a. General Comment and Definition of ``Life Cycle Event''
    b. Final Rule 901(e)(1)
    c. Final Rule 901(e)(2)
    d. Reporting Timeframe for Life Cycle Events
    e. Re-Proposed Rule 901(e)(2)
    f. Additional Comments Regarding Life Cycle Event Reporting
    B. Error Corrections--Rule 905
    C. Policies and Procedures for Reporting Life Cycle Events and 
Corrections
XIII. Other Duties of Participants
    A. Duties of Non-Reporting Sides To Report Certain Information--
Rule 906(a)
    B. Duty To Provide Ultimate Parent and Affiliate Information to 
Registered SDRs--Rule 906(b)
    C. Policies and Procedures of Registered Security-Based Swap 
Dealers and Major Security-Based Swap Participants To Support 
Reporting--Rule 906(c)
XIV. Other Aspects of Policies and Procedures of Registered SDRs
    A. Public Availability of Policies and Procedures
    B. Updating of Policies and Procedures
    C. Provision of Certain Reports to the Commission
XV. Rule 908--Cross-Border Reach of Regulation SBSR
    A. General Considerations
    B. Definition of ``U.S. Person''
    C. Scope of Security-Based Swap Transactions Covered by 
Requirements of Regulation SBSR--Rule 908(a)
    1. Transactions Involving a Direct Counterparty That Is a U.S. 
Person
    2. Transactions Conducted Through a Foreign Branch or Office
    3. Transactions Guaranteed by a U.S. Person
    4. Transactions Accepted for Clearing by a U.S. Clearing Agency
    5. Transactions Involving a Registered Security-Based Swap 
Dealer or Registered Major Security-Based Swap Participant That Is 
Not a U.S. Person
    6. No Final Rule Regarding Transactions Conducted Within the 
United States
    D. Limitations on Counterparty Reporting Obligations--Rule 
908(b)
    E. Substituted Compliance--Rule 908(c)
    1. General Considerations
    2. Substituted Compliance Procedure--Rule 908(c)(2)(i)
    3 Security-Based Swaps Eligible for Substituted Compliance--Rule 
908(c)(1)
    4. Requests for Substituted Compliance--Rule 908(c)(2)(ii)
    5 Findings Necessary for Substituted Compliance--Rule 
908(c)(2)(iii)
    a. Data Element Comparability--Rule 908(c)(2)(iii)(A)
    b. Timeframe of Reporting and Public Dissemination--Rule 
908(c)(2)(iii)(B)
    c. Direct Electronic Access--Rule 908(c)(2)(iii)(C)
    d. Trade Repository Capabilities--Rule 908(c)(2)(iii)(D)
    e. Memoranda of Understanding--Rule 908(c)(2)(iv)
    f. Modification or Withdrawal of Substituted Compliance Order
    6. Consideration of Regulatory Reporting and Public 
Dissemination in the Commission's Analysis of Substituted Compliance
XVI. Other Cross-Border Issues
    A. Foreign Public Sector Financial Institutions
    B. Foreign Privacy Laws Versus Duty To Report Counterparty IDs
    C. Antifraud Authority
    D. International Coordination Generally
XVII. Rule 909--SIP Registration
XVIII. Constitutional Questions About Reporting and Public 
Dissemination
XIX. What Happens If There Are Multiple SDRs?
XX. Section 31 Fees
XXI. Paperwork Reduction Act
    A. Definitions--Rule 900
    B. Reporting Obligations--Rule 901
    1. Summary of Collection of Information
    2. Use of Information
    3. Respondents
    4. Total Initial and Annual Reporting and Recordkeeping Burdens
    a. Baseline Burdens
    b. Burdens of Final Rule 901
    5. Recordkeeping Requirements
    6. Collection of Information Is Mandatory
    7. Confidentiality of Responses to Collection of Information
    C. Public Dissemination of Transaction Reports--Rule 902
    1. Summary of Collection of Information
    2. Use of Information
    3. Respondents
    4. Total Initial and Annual Reporting and Recordkeeping Burdens
    5. Recordkeeping Requirements
    6. Collection of Information Is Mandatory
    7. Confidentiality of Responses to Collection of Information
    D. Coded Information--Rule 903
    1. Summary of Collection of Information
    2. Use of Information
    3. Respondents
    4. Total Initial and Annual Reporting and Recordkeeping Burdens
    5. Recordkeeping Requirements
    6. Collection of Information Is Mandatory
    7. Confidentiality of Responses to Collection of Information
    E. Operating Hours of Registered SDRs--Rule 904
    1. Summary of Collection of Information
    2. Use of Information
    3. Respondents
    4. Total Initial and Annual Reporting and Recordkeeping Burdens
    5. Recordkeeping Requirements
    6. Collection of Information Is Mandatory
    7. Confidentiality of Responses to Collection of Information
    F. Correction of Errors in Security-Based Swap Information--Rule 
905
    1. Summary of Collection of Information
    2. Use of Information
    3. Respondents
    4. Total Initial and Annual Reporting and Recordkeeping Burdens
    5. Recordkeeping Requirements
    6. Collection of Information Is Mandatory
    7. Confidentiality of Responses to Collection of Information
    G. Other Duties of Participants--Rule 906
    1. Summary of Collection of Information
    2. Use of Information
    3. Respondents
    4. Total Initial and Annual Reporting and Recordkeeping Burdens
    a. For Registered SDRs
    b. For Participants
    i. Rule 906(a)
    ii. Rule 906(b)
    iii. Rule 906(c)
    5. Recordkeeping Requirements
    6. Collection of Information Is Mandatory
    7. Confidentiality of Responses to Collection of Information
    H. Policies and Procedures of Registered SDRs--Rule 907
    1. Summary of Collection of Information
    2. Use of Information
    3. Respondents
    4. Total Initial and Annual Reporting and Recordkeeping Burdens
    5. Recordkeeping Requirements
    6. Collection of Information Is Mandatory
    7. Confidentiality of Responses to Collection of Information
    I. Cross-Border Matters--Rule 908
    1. Summary of Collection of Information
    2. Use of Information
    3. Respondents
    4. Total Initial and Annual Reporting and Recordkeeping Burdens
    5. Recordkeeping Requirements
    6. Collection of Information Is Mandatory
    7. Confidentiality of Responses to Collection of Information
    J. Registration of SDRs as Securities Information Processors--
Rule 909
XXII. Economic Analysis
    A. Broad Economic Considerations
    B. Baseline
    1. Current Security-Based Swap Market
    a. Security-Based Swap Market Participants
    i. Participant Domiciles
    ii. Current Estimates of Dealers and Major Participants

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    iii. Security-Based Swap Data Repositories
    b. Security-Based Swap Transaction Activity
    c. Counterparty Reporting
    d. Sources of Security-Based Swap Information
    2. Global Regulatory Efforts
    a. Dealer and Major Swap Participant Definitions for Cross-
Border Security-Based Swaps
    b. International Regulatory Developments
    3. Cross-Market Participation
    C. Programmatic Costs and Benefits of Regulation SBSR
    1. Regulatory Reporting
    a. Programmatic Benefits
    b. Programmatic Costs
    i. Reporting Security-Based Swap Transactions to a Registered 
SDR--Rule 901
    ii. Registered SDRs--Receipt and Processing of Security-Based 
Swap Transactions--Rule 901
    2. Public Dissemination
    a. Programmatic Benefits
    b. Programmatic Costs
    c. Alternative Approaches to Public Dissemination
    3. Interim Phase for Reporting and Public Dissemination
    a. Programmatic Benefits
    b. Programmatic Costs
    4. Use of UICs
    a. Programmatic Benefits
    b. Programmatic Costs
    5. Cross-Border Aspects of Regulation SBSR
    a. Programmatic Benefits
    b. Programmatic Costs
    c. Assessment Costs
    6. Other Programmatic Effects of Regulation SBSR
    a. Operating Hours of Registered SDRs--Rule 904
    b. Error Reporting--Rule 905
    c. Other Participants' Duties--Rule 906
    d. Registered SDR Policies and Procedures--Rule 907
    e. SIP Registration by Registered SDRs--Rule 909
    7. Definitions--Rule 900
    D. Effects on Efficiency, Competition, and Capital Formation
    1. Introduction
    2. Regulatory Reporting
    3. Public Dissemination
    4. Implementation of Regulatory Reporting and Public 
Dissemination
    a. Role of Registered SDRs
    b. Interim Phase of Reporting Requirements and Block Rules
    c. Use of UICs and Rule 903
    d. Rules Assigning the Duty To Report
    e. Embargo Rule
    5. Impact of Cross-Border Aspects of Regulation SBSR
    a. General Considerations
    b. Regulatory Reporting and Public Dissemination
    c. Substituted Compliance
    E. Aggregate Quantifiable Total Costs
XXIII. Regulatory Flexibility Act Certification
XXIV. Statutory Basis and Text of Final Rules

I. Introduction

    The Commission is adopting Regulation SBSR, which implements the 
requirements for regulatory reporting and public dissemination of 
security-based swap transactions set forth in Title VII of the Dodd-
Frank Act.\1\ The Dodd-Frank Act was enacted, among other reasons, to 
promote the financial stability of the United States by improving 
accountability and transparency in the financial system.\2\ The 2008 
financial crisis highlighted significant issues in the over-the-counter 
(``OTC'') derivatives markets, which experienced dramatic growth in the 
years leading up to the financial crisis and are capable of affecting 
significant sectors of the U.S. economy. Title VII of the Dodd-Frank 
Act provides for a comprehensive new regulatory framework for swaps and 
security-based swaps, by, among other things: (1) Providing for the 
registration and comprehensive regulation of swap dealers, security-
based swap dealers, major swap participants, and major security-based 
swap participants; (2) imposing clearing and trade execution 
requirements on swaps and security-based swaps, subject to certain 
exceptions; (3) creating recordkeeping, regulatory reporting, and 
public dissemination requirements for swaps and security-based swaps; 
and (4) enhancing the rulemaking and enforcement authorities of the 
Commission and the Commodity Futures Trading Commission (``CFTC'').
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    \1\ Public Law 111-203, 124 Stat. 1376 (2010).
    \2\ See Public Law 111-203, Preamble.
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    The Commission initially proposed Regulation SBSR in November 
2010.\3\ In May 2013, the Commission re-proposed the entirety of 
Regulation SBSR as part of the Cross-Border Proposing Release \4\ and 
re-opened the comment period for all of its other outstanding Title VII 
rulemakings.\5\
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    \3\ See Securities Exchange Act Release No. 63346 (November 19, 
2010), 75 FR 75207 (December 2, 2010) (``Regulation SBSR Proposing 
Release'').
    \4\ See Securities Exchange Act Release No. 69490 (May 1, 2013), 
78 FR 30967 (May 23, 2013) (``Cross-Border Proposing Release'').
    \5\ See Securities Exchange Act Release No. 69491 (May 1, 2013), 
78 FR 30799 (May 23, 2013).
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    The Commission received 86 comments that were specifically directed 
to the comment file (File No. S7-34-10) for the Regulation SBSR 
Proposing Release, of which 38 were comments submitted in response to 
the re-opening of the comment period.\6\ Of the comments directed to 
the comment file (File No. S7-02-13) for the Cross-Border Proposing 
Release, six referenced Regulation SBSR specifically, while many others 
addressed cross-border issues generally, without specifically referring 
to Regulation SBSR. The Commission also has considered other comments 
germane to regulatory reporting and/or public dissemination of 
security-based swaps that were submitted in other contexts. The 
comments discussed in this release are listed in the Appendix to the 
release.
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    \6\ However, one comment that was specifically directed to the 
comment file for the Regulation SBSR Proposing Release exclusively 
addressed issues related to clearing ``debt swaps.'' See Hamlet 
Letter. Because the subject matter of this comment letter is beyond 
the scope of Regulation SBSR, the Commission is not addressing this 
comment.
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    The Commission is now adopting Regulation SBSR largely as re-
proposed, with certain revisions suggested by commenters or designed to 
clarify the rules. In addition, in separate releases, as discussed 
below, the Commission also is adopting rules relating to SDR 
registration, duties, and core principles (the ``SDR Adopting 
Release'') \7\ and is proposing certain rules, amendments, and guidance 
relating to Regulation SBSR (``Regulation SBSR Proposed Amendments 
Release'').\8\ The principal aspects of Regulation SBSR--which, as 
adopted, consists of ten rules, Rules 900 to 909 under the Exchange Act 
\9\--are briefly described immediately below. A detailed discussion of 
each rule within Regulation SBSR, as well as how these rules interact 
with the rules in the SDR Adopting Release, follows in the body of this 
release.\10\
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    \7\ See Securities Exchange Act Release No. 74246 (February 11, 
2015).
    \8\ See Securities Exchange Act Release No. 74245 (February 11, 
2015).
    \9\ 15 U.S.C. 78a et seq. All references in this release to the 
Exchange Act refer to the Securities Exchange Act of 1934.
    \10\ If any of the provisions 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.
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A. Summary of Final Regulation SBSR

    Rule 900, as adopted, sets forth the definitions used throughout 
Regulation SBSR. The defined terms are discussed in connection with the 
rules in which they appear.
    Rule 901(a), as adopted, assigns the reporting obligation for all 
security-based swaps except for the following: (1) Clearing 
transactions; \11\ (2) security-based swap transactions executed on a 
platform \12\ that will be submitted to clearing; (3) transactions 
where there is no U.S. person, registered security-

[[Page 14567]]

based swap dealer, or registered major security-based swap participant 
on either side; and (4) transactions where there is no registered 
security-based swap dealer or registered major security-based swap 
participant on either side and there is a U.S. person on only one side. 
For purposes of this release, the Commission uses the term ``covered 
transactions'' to refer to all security-based swaps other than those 
listed in the four categories above; all covered transactions shall be 
reported in the manner set forth in Regulation SBSR, as adopted. For 
covered transactions, Rule 901(a) assigns the duty to report to one 
side of the transaction (the ``reporting side''). The ``reporting 
hierarchy'' established in Rule 901(a) is based, where possible, on the 
registration status (e.g., registration as a security-based swap dealer 
or major security-based swap participant) of the direct and indirect 
counterparties to the transaction. In the Regulation SBSR Proposed 
Amendments Release, the Commission is proposing amendments to Rule 
901(a) that would impose reporting obligations for security-based swaps 
in categories one and two above (i.e., clearing transactions and 
security-based swap transactions executed on a platform and that will 
be submitted to clearing).
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    \11\ A ``clearing transaction'' is defined as ``a security-based 
swap that has a registered clearing agency as a direct 
counterparty.'' See Rule 900(g).
    \12\ A ``platform'' is defined as a ``national securities 
exchange or security-based swap execution facility that is 
registered or exempt from registration.'' See Rule 900(v); infra 
note 199 and accompanying text (discussing the definition of 
``platform'').
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    Rule 901(b), as adopted, provides that if there is no registered 
security-based swap data repository (``SDR'') that will accept the 
report, the reporting side must report the transaction to the 
Commission.\13\
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    \13\ A ``registered security-based swap data repository'' is 
defined as ``a person that is registered with the Commission as a 
security-based swap data repository pursuant to Section 13(n) of the 
Exchange Act (15 U.S.C. 78m(n)) and any rules or regulations 
thereunder.'' See Rule 900(ff).
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    Rule 901(c) sets forth the primary trade information and Rule 
901(d) sets forth the secondary trade information that must be 
reported. For most transactions, the Rule 901(c) information will be 
publicly disseminated. Information reported pursuant to Rule 901(d) is 
for regulatory purposes only and will not be publicly disseminated.
    Rule 901(e) requires the reporting of life cycle events to the 
entity to which the original transaction was reported.
    Rule 901(i) requires reporting, to the extent the information is 
available, of security-based swaps entered into before the date of 
enactment of the Dodd-Frank Act (``pre-enactment security-based 
swaps'') and security-based swaps entered into after the date of 
enactment but before Rule 901 becomes fully operative (``transitional 
security-based swaps'').

B. Role of Registered SDRs

    Rule 902(a) requires a registered SDR to publicly disseminate a 
transaction report immediately upon receipt of information about a 
security-based swap, except in certain limited circumstances. Pursuant 
to Rule 902(a), the published transaction report must consist of all 
the information reported pursuant to Rule 901(c), plus any condition 
flag contemplated by the registered SDR's policies and procedures that 
are required by Rule 907. Rule 901(f) requires a registered SDR to 
timestamp any information submitted to it pursuant to Rule 901(c), (d), 
(e), or (i), and Rule 901(g) requires a registered SDR to assign a 
transaction ID to each security-based swap.
    Rule 907(a) requires a registered SDR to establish and maintain 
written policies and procedures that detail how it will receive and 
publicly disseminate security-based swap transaction information. For 
example, Rule 907(a)(1) requires policies and procedures that enumerate 
the specific data elements of a security-based swap that must be 
reported to the registered SDR, including the data elements specified 
in Rules 901(c) and 901(d). Rule 907(a)(2) requires policies and 
procedures that specify one or more acceptable data formats, 
connectivity requirements, and other protocols for submitting 
information. Rules 907(a)(3) and 907(a)(4) require policies and 
procedures for assigning condition flags to the appropriate transaction 
reports. In addition, Rule 907(c) requires a registered SDR to make its 
policies and procedures available on its Web site.
    Rule 907(e) requires a registered SDR to provide to the Commission, 
upon request, information or reports related to the timeliness, 
accuracy, and completeness of data reported to it pursuant to 
Regulation SBSR and the registered SDR's policies and procedures 
established thereunder.
    Finally, Rule 909 requires a registered SDR also to register with 
the Commission as a securities information processor (``SIP'').

C. Unique Identification Codes

    Rule 903 requires a registered SDR to use ``unique identification 
codes'' (``UICs'') to specifically identify a variety of persons and 
things. The following UICs are specifically required by Regulation 
SBSR: Counterparty ID, product ID, transaction ID, broker ID, branch 
ID, trading desk ID, trader ID, platform ID, and ultimate parent ID.
    Rule 906(b) requires each participant of a registered SDR to 
provide the registered SDR with information sufficient to identify the 
participant's ultimate parent(s) and any affiliate(s) of the 
participant that are also participants of the registered SDR.
    Rule 903(a) provides that, if an internationally recognized 
standards-setting system (``IRSS'') meeting certain criteria is 
recognized by the Commission and has assigned a UIC to a person, unit 
of a person, or product (or has endorsed a methodology for assigning 
transaction IDs), that UIC must be used by all registered SDRs and 
their participants in carrying out duties under Regulation SBSR. If the 
Commission has not recognized an IRSS--or if the Commission-recognized 
IRSS has not assigned a UIC to a particular person or thing--the 
registered SDR is required to assign a UIC using its own methodology. 
Additionally, Rule 903(a) provides that, if the Commission has 
recognized such a system that assigns UICs to persons, each participant 
of a registered SDR shall obtain a UIC from or through that system for 
identifying itself, and each participant that acts as a guarantor of a 
direct counterparty's performance of any obligation under a security-
based swap that is subject to Rule 908(a) shall, if the direct 
counterparty has not already done so, obtain a UIC for identifying the 
direct counterparty from or through that system, if that system permits 
third-party registration without a requirement to obtain prior 
permission of the direct counterparty. As discussed further in Section 
X(B)(2), infra, the Commission recognizes the Global LEI System 
(``GLEIS''), administered by the Regulatory Oversight Committee 
(``ROC''), as meeting the criteria specified in Rule 903. The 
Commission may, on its own initiative or upon request, evaluate other 
IRSSs and decide whether to recognize such other systems.

D. Public Dissemination and Block Trades

    Section 13(m)(1)(B) of the Exchange Act \14\ authorizes the 
Commission ``to make security-based swap transaction and pricing data 
available to the public in such form and at such times as the 
Commission determines appropriate to enhance price discovery.'' Section 
13(m)(1)(C) of the Exchange Act \15\ identifies four categories of 
security-based swaps and authorizes the Commission ``to provide by rule 
for the public availability of security-based swap transaction, volume, 
and pricing data.'' Section 13(m)(1)(C) further provides that, with 
respect to each of

[[Page 14568]]

these four categories of security-based swaps, ``the Commission shall 
require real-time public reporting for such transactions.'' Section 
13(m)(1)(D) of the Exchange Act \16\ provides that the Commission may 
require registered entities (such as registered SDRs) to publicly 
disseminate the security-based swap transaction and pricing data 
required to be reported under Section 13(m) of the Exchange Act. 
Finally, Section 13(n)(5)(D)(ii) of the Exchange Act \17\ requires SDRs 
to provide security-based swap information ``in such form and at such 
frequency as the Commission may require to comply with public reporting 
requirements.''
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    \14\ 15 U.S.C. 78m(m)(1)(B).
    \15\ 15 U.S.C. 78m(m)(1)(C).
    \16\ 15 U.S.C. 78m(m)(1)(D).
    \17\ 15 U.S.C. 78m(n)(5)(D)(ii).
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    Under Rule 902, as adopted, a registered SDR must, immediately upon 
receiving a transaction report of a security-based swap, publicly 
disseminate the primary trade information of that transaction, along 
with any condition flags.
    In addition, Section 13(m)(1)(E) of the Exchange Act \18\ requires 
the Commission rule for real-time public dissemination of cleared 
security-based swaps to: (1) ``specify the criteria for determining 
what constitutes a large notional security-based swap transaction 
(block trade) for particular markets and contracts''; and (2) ``specify 
the appropriate time delay for reporting large notional security-based 
swap transactions (block trades) to the public.'' Section 13m(1)(E)(iv) 
of the Exchange Act \19\ requires the Commission rule for real-time 
public dissemination of security-based swaps that are not cleared at a 
registered clearing agency but reported to a registered SDR to contain 
provisions that ``take into account whether the public disclosure [of 
transaction and pricing data for security-based swaps] will materially 
reduce market liquidity.''
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 13m(m)(1)(E).
    \19\ 15 U.S.C. 13m(m)(1)(E)(iv).
---------------------------------------------------------------------------

    As discussed in detail below, in response to the comments received 
and in light of the fact that the Commission has not yet proposed block 
thresholds, the Commission is adopting final rules that require all 
security-based swaps--regardless of their notional amount--to be 
reported to a registered SDR at any point up to 24 hours after the time 
of execution.\20\ The registered SDR will be required, as with all 
other dissemination-eligible transactions, to publicly disseminate a 
report of the transaction immediately and automatically upon receipt of 
the information from the reporting side.
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    \20\ As discussed in more detail in Section VII(B), infra, if 
reporting would take place on a non-business day (i.e., a Saturday, 
Sunday or U.S. federal holiday), reporting would instead be required 
by the same time on the next business day.
---------------------------------------------------------------------------

    Although the Commission is adopting final rules relating to 
regulatory reporting and public dissemination of security-based swaps, 
it intends for the rules relating to public dissemination to apply only 
on an interim basis. This interim approach is designed to address the 
concerns of commenters who believed that a public dissemination regime 
with inappropriately small block trade thresholds could harm market 
liquidity, and who argued that market participants would need an 
extended phase-in period to achieve real-time reporting. In connection 
with its future rulemaking about block thresholds, the Commission 
anticipates seeking public comment on issues related to block trades. 
Given the establishment of this interim phase, the Commission is not 
adopting any other proposed rules relating to block trades.

E. Cross-Border Issues

    Regulation SBSR, as initially proposed, included Rule 908, which 
addressed when Regulation SBSR would apply to cross-border security-
based swaps and counterparties of security-based swaps. The Commission 
re-proposed Rule 908 with substantial revisions as part of the Cross-
Border Proposing Release. The Commission is now adopting Rule 908 
substantially as re-proposed with some modifications, as discussed in 
Section XV, infra.\21\
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    \21\ The Commission anticipates seeking further public comment 
on the application of Regulation SBSR to: (1) Security-based swaps 
where there is no U.S. person, registered security-based swap 
dealer, or registered major security-based swap participant on 
either side; and (2) transactions where there is no registered 
security-based swap dealer or registered major security-based swap 
participant on either side and there is a U.S. person on only one 
side.
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    Under Rule 908, as adopted, any security-based swap involving a 
U.S. person, whether as a direct counterparty or as a guarantor, must 
be reported to a registered SDR, regardless of where the transaction is 
executed.\22\ Furthermore, any security-based swap involving a 
registered security-based swap dealer or registered major security-
based swap participant, whether as a direct counterparty or as a 
guarantor, also must be reported to a registered SDR, regardless of 
where the transaction is executed. In addition, any security-based swap 
that is accepted for clearing by a registered clearing agency having 
its principal place of business in the United States must be reported 
to a registered SDR, regardless of the registration status or U.S. 
person status of the counterparties and regardless of where the 
transaction is executed.
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    \22\ See also Section II(B)(3) and note 139, infra (describing 
the type of guarantees that could cause a transaction to be subject 
to Regulation SBSR).
---------------------------------------------------------------------------

    In the Cross-Border Proposing Release, the Commission proposed a 
new paragraph (c) to Rule 908, which contemplated a regime for allowing 
``substituted compliance'' for regulatory reporting and public 
dissemination with respect to individual foreign jurisdictions. Under 
this approach, compliance with the foreign jurisdiction's rules could 
be substituted for compliance with the Commission's Title VII rules, in 
this case Regulation SBSR. Final Rule 908(c) allows interested parties 
to request a substituted compliance determination with respect to a 
foreign jurisdiction's regulatory reporting and public dissemination 
requirements, and sets forth the standards that the Commission would 
use in determining whether the foreign requirements were comparable.

F. Compliance Dates

    For Rules 900, 907, and 909 of Regulation SBSR, the compliance date 
is the effective date of this release. For Rules 901, 902, 903, 904, 
905, 906, and 908 of Regulation SBSR, a new compliance schedule is 
being proposed in the Regulation SBSR Proposed Amendments Release. 
Accordingly, compliance with Rules 901, 902, 903, 904, 905, 906, and 
908 is not required until the Commission establishes compliance dates 
for those rules.
    Rules 910 and 911, as proposed and re-proposed, would have 
established compliance dates and imposed certain restrictions, 
respectively, during Regulation SBSR's phase-in period. For reasons 
discussed in the Regulation SBSR Proposed Amendments Release, the 
Commission has determined not to adopt Rule 910 or 911.\23\
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    \23\ Thus, Regulation SBSR, as adopted, consists of Rules 900 
through 909 under the Exchange Act. Conforming changes have been 
made throughout Regulation SBSR to replace references to 
``Sec. Sec.  242.900 through 242.911'' to ``Sec. Sec.  242.900 
through 242.909.'' In addition, the defined terms ``registration 
date'' and ``phase-in period'' which appeared in re-proposed Rules 
910 and 911, respectively, are not being defined in final Rule 900.
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II. Information Required To Be Reported

A. Primary Trade Information--Rule 901(c)

1. Description of Re-Proposed Rule
    Rule 901(c), as re-proposed, would have required the reporting of 
the following primary trade information in real time, which information 
would

[[Page 14569]]

then be publicly disseminated: (1) The asset class of the security-
based swap and, if the security-based swap is an equity derivative, 
whether it is a total return swap or is otherwise designed to offer 
risks and returns proportional to a position in the equity security or 
securities on which the security-based swap is based; (2) information 
that identifies the security-based swap instrument and the specific 
asset(s) or issuer(s) of any security on which the security-based swap 
is based; (3) the notional amount(s), and the currenc(ies) in which the 
notional amount(s) is (are) expressed; (4) the date and time, to the 
second, of execution, expressed using Coordinated Universal Time (UTC); 
(5) the effective date; (6) the scheduled termination date; (7) the 
price; (8) the terms of any fixed or floating rate payments, and the 
frequency of any payments; (9) whether or not the security-based swap 
will be cleared by a clearing agency; (10) if both counterparties to a 
security-based swap are registered security-based swap dealers, an 
indication to that effect; (11) if applicable, an indication that the 
transaction does not accurately reflect the market; and (12) if the 
security-based swap is customized to the extent that the information in 
items (1) through (11) above does not provide all of the material 
information necessary to identify such customized security-based swap 
or does not contain the data elements necessary to calculate the price, 
an indication to that effect.
2. Discussion of Final Rule 901(c) and Response to Comments
a. General Approach to Required Information
    Rules 901(c) and 901(d), as adopted, require the reporting of 
general categories of information, without enumerating specific data 
elements that must be reported, except in limited cases. The Commission 
has made minor revisions to the introductory language of Rule 
901(c).\24\
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    \24\ The first sentence of re-proposed Rule 901(c), which would 
have required real-time public dissemination of certain data 
elements, would have stated, in relevant part, ``For any security-
based swap that must be publicly disseminated pursuant to Sec. Sec.  
242.902 and 242.908 and for which it is the reporting side, the 
reporting side shall report the following information . . .'' The 
information required to be reported pursuant to Rule 901(c) must be 
reported for all covered transactions, even though Rule 902(c) 
provides that certain security-based swap transactions are not 
subject to public dissemination. Accordingly, the Commission is not 
including in final Rule 901(c) the phrase ``For any security-based 
swap that must be publicly disseminated pursuant to Sec. Sec.  
242.902 and 242.908 and for which it is the reporting side . . .'' 
In addition, as discussed in Section VII(B)(1), infra, Rule 901(c), 
as adopted, provides that the reporting side shall report the 
information specified in Rule 901(c) within the timeframe specified 
by Rule 901(j).
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    In addition, Rule 907(a)(1), as adopted, requires each registered 
SDR to establish, maintain, and make publicly available policies and 
procedures that, among other things, specify the data elements that 
must be reported.\25\ Commenters expressed mixed views regarding this 
approach. One commenter expressed the view that ``any required data 
should be clearly established by the Commission in its rules and not 
decided in part by [SDRs].'' \26\ This commenter further asked the 
Commission to clarify that any additional fields provided by registered 
SDRs for reporting would be optional.\27\ Two commenters, however, 
supported the Commission's approach of providing registered SDRs with 
the authority to define relevant fields on the basis of general 
guidelines as set by the SEC.\28\ One of these commenters noted that it 
would be difficult for the Commission to specify the security-based 
swap data fields because security-based swaps are complex products that 
may require a large number of data fields to be electronically 
confirmed.\29\ In addition, the commenter stated that electronic 
methods for processing existing and new security-based swaps continue 
to be developed; accordingly, the commenter stated that establishing a 
detailed list of reportable fields for each category of security-based 
swap would be impracticable because such a system ``will be outdated 
with every new product launch or change in market practice,'' and would 
result in a ``regulatory scheme that is continuously lagging behind the 
market.'' \30\ The commenter cautioned, however, that the Commission 
must assure that there is consistency among the data fields collected 
and reported by registered SDRs in the same asset class so that it 
would be possible to consolidate the data.\31\
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    \25\ See infra Section V.
    \26\ ISDA IV at 8.
    \27\ See id. at 9.
    \28\ See MarkitSERV I at 10; Barnard I at 2 (also supporting the 
proposed categories of information that would be required to be 
reported for public dissemination).
    \29\ See MarkitSERV I at 9-10. The commenter stated, for 
example, that the confirmation for a new ``standard'' credit default 
swap (``CDS'') would contain 35 to 50 data fields, depending on the 
structure of the CDS, and the confirmation for other CDS products 
and life cycle events combined would require a total of 160 data 
fields. See id. at note 37.
    \30\ MarkitSERV I at 10.
    \31\ See MarkitSERV I at 10.
---------------------------------------------------------------------------

    The Commission shares the commenter's concerns about the potential 
difficulties of consolidating data if there are multiple registered 
SDRs in the same asset class and each establishes different data 
elements for information that must be reported. Enumerating specific 
data elements required to be reported could help to promote consistency 
among the data fields if there are multiple registered SDRs in the same 
asset class. In addition, as discussed more fully below, such an 
approach would be more consistent with the approach taken by the CFTC's 
swap reporting rules. The Commission also acknowledges the comment that 
the Commission's rules, rather than the policies and procedures of a 
registered SDR, should specify the information required to be reported. 
However, the Commission believes on balance that establishing broad 
categories of required information will more easily accommodate new 
types of security-based swaps and new conventions for capturing and 
reporting transaction data. The Commission agrees with the commenter 
who expressed the view that a rule that attempted to enumerate the 
required data elements for each category of security-based swap could 
become outdated with each new product, resulting in a regulatory 
framework that constantly lagged the market and would need to be 
updated.\32\ The Commission believes that a standards-based approach 
will more easily accommodate new security-based swap reporting 
protocols or languages, as well as new market conventions, including 
new conventions for describing the data elements that must be reported.
---------------------------------------------------------------------------

    \32\ See id.
---------------------------------------------------------------------------

    One group of commenters noted that the CFTC provided greater 
specificity regarding the information to be reported.\33\ Several 
commenters generally urged the Commission and the CFTC to establish 
consistent reporting obligations to reduce the cost of implementing 
both agencies' reporting rules.\34\
---------------------------------------------------------------------------

    \33\ See ISDA/SIFMA I at 6.
    \34\ See Better Markets I at 2; Cleary II at 3, 21 note 61 
(noting that a consistent approach between the two agencies would 
address the reporting of mixed swaps); ISDA/SIFMA I at 6; J.P. 
Morgan Letter at 14; ISDA IV at 1-2 (generally urging that the 
Commission align, wherever possible and practical, with the CFTC 
reporting rules). The last commenter also noted that reporting of 
mixed swaps will be difficult if Regulation SBSR requires a 
different reporting counterparty from the CFTC's swap data reporting 
rules or if transaction identifiers are not conformed to the CFTC 
approach, see ISDA IV at 4, 11, and urged the Commission to 
coordinate with the CFTC on a uniform approach to the time of 
execution for mixed swaps, see id. at 14. A mixed swap is a swap 
that is subject to both the jurisdiction of the CFTC and SEC, and, 
absent a joint order of the CFTC and SEC with respect to the mixed 
swap, as described in Rule 3a67-4(c) under the Exchange Act, is 
subject to the applicable reporting and dissemination rules adopted 
by the CFTC and SEC.

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[[Page 14570]]

    The Commission agrees that it would be beneficial to harmonize, to 
the extent practicable, the information required to be reported under 
Regulation SBSR and under the CFTC's swap reporting rules. However, the 
Commission believes that it is possible to achieve a significant degree 
of consistency without including in final Rule 901 a detailed list of 
required data elements for each security-based swap. Rather than 
enumerating a comprehensive list of required data elements in the rule 
itself, Rule 901 identifies broad categories of information in the 
rule, and a registered SDR's policies and procedures are required to 
identify specific data elements that must be reported. The Commission 
believes that the flexibility afforded by Rule 901 will facilitate 
harmonization of reporting protocols and elements between the CFTC and 
SEC reporting regimes. In identifying the specific data elements that 
must be reported, a registered SDR could, in some instances, require 
reporting of the same data elements that are required to be reported 
pursuant to the CFTC's swap reporting rules, provided that those data 
elements include the information required under Rules 901(c) and 
901(d). In some cases, however, the differences between the asset 
classes under the Commission's jurisdiction and those under the CFTC's 
jurisdiction will require a registered SDR's policies and procedures to 
specify the reporting of data elements different from those required 
under the CFTC's rules.
    The Commission recognizes that enumerating the specific data 
elements required to be reported would be more consistent with the 
approach taken by the CFTC's swap reporting rules. Nevertheless, the 
Commission believes that the flexibility afforded by the category-based 
approach in adopted Rule 901(c) could facilitate harmonization. 
Accordingly, Rule 901(c), as adopted, continues to require the 
reporting of broad categories of security-based swap information to 
registered SDRs, without enumerating each data element required to be 
reported (with a few exceptions, described below).
b. Rule 901(c)(1)
    Rule 901(c)(1), as re-proposed, would have required reporting of 
the asset class of a security-based swap and, if the security-based 
swap is an equity derivative, whether it is a total return swap or is 
otherwise designed to offer risks and returns proportional to a 
position in the equity security or securities on which the security-
based swap is based. As described in detail below, the Commission is 
making several revisions to Rule 901(c)(1) in response to comments. 
Among other things, these revisions clarify the final rules and 
eliminate certain unnecessary elements and redundancies. Final Rule 
901(c)(1), however, does not expand on the types of data elements that 
must be reported.
i. Elimination of the Reference to Equity Derivatives
    The Commission is eliminating the reference to equity derivatives 
in final Rule 901(c)(1). Under Regulation SBSR, as proposed and re-
proposed, it would have been necessary to identify total return swaps 
and other security-based swaps designed to offer risks and returns 
proportional to a position in an equity security or securities, because 
those security-based swaps would not have been eligible for a block 
trade exception.\35\ However, because the Commission is not adopting 
block thresholds or other rules relating to the block trade exception 
at this time, it is not necessary to identify security-based swaps that 
are not eligible for a block trade exception during the first, interim 
phase of Regulation SBSR.\36\ Accordingly, the Commission is not 
including in final Rule 901(c)(1) any requirement to identify a 
security-based swap as a total return swap or a security-based swap 
otherwise designed to offer risks and returns proportional to a 
position in the equity security or securities on which the security-
based swap is based.
---------------------------------------------------------------------------

    \35\ Rule 907(b)(2)(i), as proposed and re-proposed, would have 
prohibited a registered SDR from designating as a block trade any 
security-based swap that is an equity total return swap or is 
otherwise designed to offer risks and returns proportional to a 
position in the equity security or securities on which the security-
based swap is based. As noted in the Regulation SBSR Proposing 
Release, there is no delay in the reporting of block transactions 
for equity securities in the United States. Re-proposed Rule 
907(b)(2)(i) was designed to discourage market participants from 
evading post-trade transparency in the equity securities markets by 
using synthetic substitutes in the security-based swap market. See 
Regulation SBSR Proposing Release, 75 FR 75232.
    \36\ See infra Section VII.
---------------------------------------------------------------------------

ii. Product ID
    Final Rule 901(c)(1) requires the reporting of the product ID \37\ 
of a security-based swap, if one is available. If the security-based 
swap has no product ID, or if the product ID does not include the 
information enumerated in Rule 901(c)(1)(i)-(v), then the information 
specified in subparagraphs (i)-(v) of Rule 901(c)(1) (discussed below) 
must be reported. Rule 901(c)(1) is designed to simplify the reporting 
process for security-based swaps that have a product ID by utilizing 
the product ID in lieu of each of the categories of data enumerated in 
Rule 901(c)(1)(i)-(v).
---------------------------------------------------------------------------

    \37\ See Rule 900(bb) (defining ``product ID'' as ``the UIC 
assigned to a product'').
---------------------------------------------------------------------------

    The Commission believes that the product ID will provide a 
standardized, abbreviated, and accurate means for identifying security-
based swaps that share certain material economic terms. In addition, 
the reporting and public dissemination of the product ID could enhance 
transparency because a transaction report that used a single identifier 
for the product traded could be easier to read than a transaction 
report that identified the product traded through information provided 
in numerous individual data fields. For example, market observers would 
be able to discern quickly that transaction reports including the same 
product ID related to trades of the same product. Product IDs also 
could facilitate risk management and assist relevant authorities in 
analyzing systemic risk and conducting market surveillance. 
Furthermore, the Commission believes that the development of security-
based swaps with standardized terms could facilitate the development of 
product IDs that would readily identify the terms of these 
transactions.
    Re-proposed Rule 901(c)(2) would have required reporting of 
information that identifies the security-based swap instrument and the 
specific asset(s) or issuer(s) of any security on which the security-
based swap is based. Proposed Rule 900 defined ``security-based swap 
instrument'' to mean ``each security-based swap in the same asset 
class, with the same underlying reference asset, reference issuer, or 
reference index.'' \38\ In the context of final Rule 901(c), the 
requirement to report the product ID, if one is available, replaces, 
among other things, the requirement in re-proposed Rule 901(c)(2) to 
report information that identifies the security-based swap instrument 
and the specific asset(s) or issuer(s) of any security on which the 
security-based swap is based. For a security-based swap that has no 
product ID, Rule 901(c)(1)(i), as adopted, requires reporting of 
information that identifies the security-based swap, including the 
asset class of the security-based swap and the specific underlying 
reference asset(s), reference issuer(s), or reference index. Because 
the

[[Page 14571]]

information that was included in the definition of security-based swap 
instrument--i.e., the asset class and the underlying reference asset, 
issuer, or index--will be reported pursuant to adopted Rule 
901(c)(1)(i) or included in the product ID, it is no longer necessary 
to separately define ``security-based swap instrument.'' Thus, final 
Rule 900 no longer contains a definition of security-based swap 
instrument.
---------------------------------------------------------------------------

    \38\ This definition was re-proposed in the Cross-Border 
Proposing Release without change as Rule 900(dd).
---------------------------------------------------------------------------

    Although Rule 900, as proposed, defined the term ``product ID,'' it 
did not separately propose to define the term ``product.'' \39\ 
Moreover, the original definition of the term ``unique identification 
code'' included the term ``product,'' again without defining it.\40\ 
The Commission is now adopting a specific definition of the term 
``product.'' Final Rule 900(aa) defines ``product'' as ``a group of 
security-based swap contracts each having the same material economic 
terms except those relating to price and size.'' Accordingly, the 
definition of ``product ID'' in adopted Rule 900(bb) is revised to mean 
``the UIC assigned to a product.''
---------------------------------------------------------------------------

    \39\ Rule 900, as proposed, defined ``product ID'' to mean ``the 
UIC assigned to a security-based swap instrument.'' As discussed 
above, Rule 900, as proposed, defined ``security-based swap 
instrument'' to mean ``each security-based swap in the same asset 
class, with the same underlying reference asset, reference issuer, 
or reference index.'' Both of these definitions were re-proposed in 
the Cross-Border Proposing Release without change as Rules 900(x) 
and 900(dd), respectively.
    \40\ Rule 900, as proposed, defined UIC as ``the unique 
identification code assigned to a person, unit of a person, or 
product . . .'' (emphasis added). This definition was re-proposed in 
the Cross-Border Proposing Release without change as Rule 900(nn).
---------------------------------------------------------------------------

    The key aspect of the term ``product'' is the classifying together 
of a group of security-based swap contracts that have the same material 
economic terms, other than those relating to price and size. The 
assignment of product IDs to groups of security-based swaps with the 
same material economic terms, other than those relating to price and 
size, is designed to facilitate more efficient and accurate transaction 
reporting by allowing reporting of a single product ID in place of the 
separate data categories contemplated by Rule 901(c)(1)(i)-(v). Product 
IDs also will make disseminated transaction reports easier to read, and 
will assist the Commission and other relevant authorities in monitoring 
for systemic risk and conducting market surveillance.
    Although the price and size of a security-based swap are material 
terms of the transaction--and thus must be reported, along with many 
other material terms, to a registered SDR pursuant to Rules 901(c) and 
901(d)--they do not help distinguish one product from another. The same 
product can be traded with different prices and with different notional 
amounts. Thus, by way of example and not of limitation, if otherwise 
materially similar security-based swaps have different currencies of 
denomination, underlying assets, or settlement terms, they are 
different products for purposes of Regulation SBSR and should have 
different product IDs. An indicium of whether two or more security-
based swaps between the same direct counterparties are the same product 
is whether they could be compressed or netted together to establish a 
new position (e.g., by a clearing agency or portfolio compression 
service).\41\ If they cannot be compressed or netted, this suggests 
that there are material differences between the terms of the security-
based swaps that do not permit the risks to be fully offset.
---------------------------------------------------------------------------

    \41\ See TriOptima Letter at 2, 5-6 (explaining the portfolio 
compression process for uncleared swaps).
---------------------------------------------------------------------------

    The fact that the Commission is requiring products to be 
distinguished for purposes of regulatory reporting and public 
dissemination even if a single material economic term differentiates 
one from another would not prevent the Commission and market 
participants from analyzing closely related products on a more 
aggregate basis. For example, products that were otherwise identical 
but for different currencies of denomination could still be grouped 
together to understand the gross amount of exposure created by these 
related products (factoring in exchange rates). However, a product ID 
system that was not granular enough to separate products based on 
individual material differences would make it difficult or impossible 
to analyze positions based solely on those individual differences. For 
example, if a product ID system permitted otherwise similar security-
based swaps with different currencies of denomination to be considered 
as the same product, it would not be possible to observe risk 
aggregations according to their particular currencies.\42\
---------------------------------------------------------------------------

    \42\ See ISDA/SIFMA at 10 (recommending that the definition of 
``security-based swap instrument'' provide for more granular 
distinctions between different types of transactions within a single 
asset class).
---------------------------------------------------------------------------

    Similarly, the Commission believes that otherwise materially 
identical security-based swaps with different dates of expiration are 
different products and therefore must have different product IDs. 
Delineating products by, among other things, date of expiration will 
assist the Commission and other relevant authorities in developing a 
more precise analysis of risk exposure over time. This feature of the 
``product'' definition is different from the approach taken in the 
originally proposed definition of ``security-based swap instrument,'' 
which specifically rejected distinctions based on tenor.\43\
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    \43\ The Commission is not expressing a view as to whether 
products with different tenors might or might not be considered 
together to constitute a class of securities required to be 
registered under Section 12 of the Exchange Act. See Section 12(a) 
of the Exchange Act, 15 U.S.C. 78l(a); Section 12(g)(1) of the 
Exchange Act, 15 U.S.C. 78l(g); Rule 12g-1 under the Exchange Act, 
17 CFR 240.12g-1.
---------------------------------------------------------------------------

    In connection with these requirements, the Commission notes the 
part of the ``product'' definition referring to a product as ``a group 
of security-based swap contracts'' (plural). If a group of security-
based swap contracts is sufficiently standardized such that they all 
share the same material economic terms (other than price and size), a 
registered SDR should treat them as the same product and assign them 
the same product ID. A product could be evidenced, for example, by the 
fact that a clearing agency makes the group of security-based swap 
contracts eligible for clearing and will net multiple transactions in 
that group of contracts into a single open position. In contrast, a 
security-based swap that has a combination of material economic terms 
unlike any other security-based swap would not be part of a product 
group, and the Commission believes that it would be impractical to 
require registered SDRs to assign a product ID to each of these unique 
security-based swaps. For such a security-based swap, the transaction 
ID would be sufficient to identify the security-based swap in the 
registered SDR's records and would serve the same purpose as a product 
ID.
    The product ID is one type of UIC. As discussed more fully in 
Section X, infra, Rule 903(a), as adopted, requires a registered SDR to 
use a UIC, including a product ID, assigned by an IRSS, if an IRSS has 
been recognized by the Commission and issues that type of UIC. If an 
IRSS that can issue product IDs has not been recognized by the 
Commission, Rule 903(a) requires a registered SDR to assign a product 
ID to that product using its own methodology. Similarly, final Rule 
907(a)(5) requires a registered SDR to establish and maintain written 
policies and procedures for assigning UICs in a manner consistent with 
Rule 903, which establishes standards for the use of UICs.\44\
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    \44\ See infra Section X(C) (discussing a registered SDR's 
policies and procedures relating to UICs).
---------------------------------------------------------------------------

    One commenter noted that, although there likely will be global 
standards for identification codes for certain data

[[Page 14572]]

fields, such as the LEI, some global identifiers will not exist.\45\ 
The commenter believed that requiring registered SDRs to create 
identifiers would ``result in bespoke implementation among'' registered 
SDRs that would be of limited value absent an industry standard.\46\ 
The commenter recommended that the Commission consider postponing a 
requirement to establish identifiers ``until an international taxonomy 
exists that can be applied consistently.'' \47\
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    \45\ See DTCC V at 14.
    \46\ Id.
    \47\ Id. The use of identifiers is discussed more fully in 
connection with Rule 903. See infra Section X.
---------------------------------------------------------------------------

    The Commission agrees that a system of internationally recognized 
product IDs would be preferable to a process under which registered 
SDRs assign their own product IDs to the same product. Nonetheless, the 
Commission believes that the use of product IDs, even product IDs 
created by registered SDRs rather than by an IRSS, could simplify 
security-based swap transaction reporting and facilitate regulatory 
oversight of the security-based swap market. In addition, the 
Commission believes that the requirement for registered SDRs to assign 
product IDs could provide additional incentive for security-based swap 
market participants to develop industry-wide product IDs.\48\
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    \48\ In this regard, the Commission notes that one commenter 
stated that a ``newly formed ISDA cross-product data working group, 
with representatives from sell side and buy side institutions, will 
look at proposed solutions and the practical implications of unique 
identifiers for the derivatives industry.'' The commenters stated, 
further, that ``ISDA is committed to provide product identifiers for 
OTC derivatives products that reflect the FpML standard. . . . In 
the first instance, this work will focus on product identifiers for 
cleared products. ISDA/FpML is currently working on a pilot project 
with certain derivative clearing houses to provide a normalized 
electronic data representation through a FpML document for each OTC 
product listed and/or cleared. This work will include the assignment 
of unique product identifiers.'' ISDA/SIFMA I at 8-9. In addition, 
the Commission notes that ISDA has issued a white paper that 
discusses ways of creating unique identifiers for individual 
products. See ISDA, ``Product Representation for Standardized 
Derivatives'' (April 14, 2011), available at http://www2.isda.org/functional-areas/technology-infrastructure/data-and-reporting/identifiers/upi-and-taxonomies/ (last visited September 22, 2014), 
at 4 (stating that one goal of the white paper is to ``[s]implif[y] 
. . . the trade processing and reporting architecture across the 
marketplace for the standardized products, as market participants 
will be able to abstract the trade economics through reference data 
instead of having to specify them as part of each transaction'').
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    One commenter stated that ``[i]ndustry utilities should be 
considered for assigning unique IDs for transactions, products, and 
legal entities/market participants.'' \49\ As discussed in Section 
X(B)(2), infra, the Commission is recognizing the Global LEI System 
(``GLEIS''), an industry utility administered by the Regulatory 
Oversight Committee (``ROC''), as meeting the criteria specified in 
Rule 903, as adopted. The GLEIS and this comment are discussed in 
Section X(B)(2), infra.
---------------------------------------------------------------------------

    \49\ ISDA/SIFMA I at 8.
---------------------------------------------------------------------------

iii. Rule 901(c)(1)(i)
    Rule 901(c)(1) requires that, if a security-based swap has no 
product ID, or if the product ID does not include the information 
identified in Rule 901(c)(1)(i)-(v), the information specified in Rule 
901(c)(1)(i)-(v) must be reported. Final Rule 901(c)(1)(i)-(v) 
incorporates, with some modifications, information that would have been 
required under paragraphs (c)(1), (2), (5), (6), (8), and (12) of re-
proposed Rule 901, and re-proposed Rule 901(d)(1)(iii).
    Rule 901(c)(1)(i), as adopted, generally requires the reporting of 
information that would have been required to be reported under re-
proposed Rules 901(c)(1) and 901(c)(2). Re-proposed Rule 901(c)(1) 
would have required, in part, reporting of the asset class of a 
security-based swap.\50\ Re-proposed Rule 901(c)(2) would have required 
the reporting of information identifying the security-based swap 
instrument and the specific asset(s) or issuer(s) on which the 
security-based swap is based. Re-proposed Rule 900(dd) would have 
defined ``security-based swap instrument'' as ``each security-based 
swap in the same asset class, with the same underlying reference asset, 
reference issuer, or reference index.'' Rule 901(c)(1)(i), as adopted, 
requires the reporting of information that identifies the security-
based swap, including the asset class of the security-based swap and 
the specific underlying reference asset(s), reference issuer(s), or 
reference index. Although the defined term ``security-based swap 
instrument'' is being deleted from Regulation SBSR for the reasons 
discussed in Section VII(B)(3), infra, final Rule 901(c)(1)(i) retains 
the requirement to report the underlying reference asset(s), reference 
issuer(s), or reference index for the security-based swap, as well as 
the asset class of the security-based swap.
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    \50\ ``Asset class'' is defined as ``those security-based swaps 
in a particular broad category, including, but not limited to, 
credit derivatives and equity derivatives.'' See Rule 900(b), as 
adopted. As proposed and re-proposed, the definition of ``asset 
class'' also would have included loan-based derivatives. However, 
because loan-based derivatives can be viewed as a form of credit 
derivative, the Commission has removed the reference to loan-based 
derivatives as a separate asset class and adopted the definition 
noted above. This revision aligns the definition of ``asset class'' 
used in Regulation SBSR with the definition used in the SDR Adopting 
Release.
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    The Commission received no comments regarding the information 
required to be reported in Rule 901(c)(1)(i). As stated in the 
Regulation SBSR Proposing Release, the Commission believes that the 
reporting and public dissemination of information relating to the asset 
class of the security-based swap would provide market participants with 
basic information about the type of security-based swap (e.g., credit 
derivative or equity derivative) being traded.\51\ Similarly, the 
Commission believes that information identifying the specific reference 
asset(s), reference issuer(s), or reference index of any security on 
which the security-based swap is based is fundamental to understanding 
the transaction being reported, and that a transaction report that 
lacked such information would not be meaningful.\52\ Accordingly, Rule 
901(c)(1)(i), as adopted, includes the requirement to report this 
information.
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    \51\ See 75 FR 75213.
    \52\ See id. at 75214.
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iv. Rules 901(c)(1)(ii) and (iii)
    Re-proposed Rules 901(c)(5) and 901(c)(6) would have required the 
reporting of, respectively, the effective date of the security-based 
swap and the scheduled termination date of the security-based swap. 
These requirements are incorporated into adopted Rules 901(c)(1)(ii) 
and (iii), which require the reporting of, respectively, the effective 
date of the security-based swap and the scheduled termination date of 
the security-based swap. The Commission received no comments regarding 
the reporting of this information. As stated in the Regulation SBSR 
Proposing Release, the Commission believes that information specifying 
the effective date and the scheduled termination date of the security-
based swap is fundamental to understanding the transaction being 
reported, and that a transaction report that lacked such information 
would not be meaningful.\53\ Accordingly, final Rules 901(c)(1)(ii) and 
(iii) include the requirement to report the effective date and the 
scheduled termination date, respectively, of the security-based swap.
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    \53\ See id.
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v. Rule 901(c)(1)(iv)
    Re-proposed Rule 901(c)(8) would have required the reporting of any 
fixed or floating rate payments of a security-based swap, and the 
frequency of any payments. Re-proposed Rule

[[Page 14573]]

901(d)(1)(iii) would have required the reporting of the amount(s) and 
currenc(ies) of any up-front payment(s) and a description of the terms 
and contingencies of the payment streams of each direct counterparty to 
the other. In the Regulation SBSR Proposing Release, the Commission 
noted that the terms of any fixed or floating rate payments and the 
frequency of any payments are among the terms that would be fundamental 
to understanding a security-based swap transaction.\54\ One commenter 
echoed the importance of information concerning the payment streams of 
security-based swaps.\55\
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    \54\ See id.
    \55\ See Benchmark Letter at 1 (stating that ``[t]he reference 
data set [for a security-based swap] must include standard 
attributes necessary to derive cash flows and any contingent claims 
that can alter or terminate payments of these contracts. . . . 
Without these critical pieces of information, users of the trade 
price dissemination service will be unable to accurately assess 
reported values'').
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    Another commenter stated that proposed Rule 901(d)(1)(iii) was 
unclear about the proposed form of the description of the terms and 
contingencies of the payment streams, and that the requirements of 
proposed Rule 901(d)(1)(iii) appeared to be duplicative of proposed 
Rule 901(d)(1)(v), which would have required reporting of the data 
elements necessary for a person to determine the market value of the 
transaction.\56\ The commenter also suggested that the Commission 
consider the utility of requiring reporting of the terms of fixed or 
floating rate payments, as required by re-proposed Rule 901(c)(8).\57\
---------------------------------------------------------------------------

    \56\ See DTCC II at 10. See also DTCC V at 12 (requesting 
additional clarity with respect to the requirement to report the 
contingencies of the payments streams of each direct counterparty to 
the other).
    \57\ See DTCC V at 11.
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    The Commission continues to believe that, for a security-based swap 
that provides for periodic exchange of cash flows, information 
concerning those payment streams is fundamental to understanding the 
terms of the transaction. The Commission acknowledges, however, that 
re-proposed Rules 901(c)(8), 901(d)(1)(iii), and 901(d)(v) contained 
overlapping requirements concerning the payment streams of a security-
based swap. Accordingly, the Commission is revising Rules 901(c) and 
901(d) to streamline and clarify the information required to be 
reported with respect to the payment streams of a security-based swap.
    Specifically, final Rule 901(c)(1)(iv) requires the reporting of 
any standardized fixed or floating rate payments, and the frequency of 
any such payments. As discussed more fully in Section II(C)(3)(d), 
infra, final Rule 901(d)(3) requires the reporting of information 
concerning the terms of any fixed or floating rate payments, or 
otherwise customized or non-standardized payment streams, including the 
frequency and contingencies of any such payments, to the extent that 
this information has not been reported pursuant to Rule 901(c)(1). 
Thus, Rule 901(c)(1)(iv) requires the reporting of information 
concerning standardized payment streams, while Rule 901(d)(3) requires 
the reporting of information concerning customized payment streams. In 
addition, as discussed more fully below, final Rule 901(d)(5) requires 
reporting of any additional data elements included in the agreement 
between the counterparties that are necessary for a person to determine 
the market value of the transaction, to the extent that such 
information has not already been reported pursuant to Rule 901(c) or 
other provisions of Rule 901(d). The Commission believes that these 
changes to Rules 901(c) and 901(d) will avoid potential redundancies in 
the reporting requirements and will clarify the information required to 
be reported with respect to the payment streams of a security-based 
swap.
    Like other primary trade information reported pursuant to Rule 
901(c), information about standardized payment streams reported 
pursuant to Rule 901(c)(1)(iv) will be publicly disseminated. The 
Commission envisions that, rather than disseminating such information 
as discrete elements, this information could be inherent in the product 
ID of a security-based swap that has a product ID. Information 
concerning non-standard payment streams that is reported pursuant to 
Rule 901(d)(3), like other secondary trade information, will be 
available for regulatory purposes but will not be publicly 
disseminated. Re-proposed Rule 901(c)(8) would have required reporting 
of the terms of any fixed or floating rate payments, standardized or 
non-standardized, and the frequency of such payments, and re-proposed 
Rule 902(a) would have required the public dissemination of that 
information. In addition, as noted above, one commenter discussed the 
importance of the availability of information concerning payment 
streams.\58\ Nonetheless, the Commission believes that public 
dissemination of the non-standard payment terms of a customized 
security-based swap would be impractical, because a bespoke transaction 
by definition could have such unique terms that it would be difficult 
to reflect the full material terms using any standard dissemination 
protocol. In addition, it is not clear that the benefits of publicly 
disseminating information concerning these non-standard payment streams 
would justify the costs of disseminating the information. However, the 
Commission will have access to regulatory reports of such transactions, 
which should facilitate regulatory oversight and assist relevant 
authorities in monitoring the exposures of security-based swap market 
participants. Accordingly, Rule 901(d)(3), as adopted, requires the 
reporting of information concerning the terms of any non-standard fixed 
or floating rate payments, or otherwise customized or non-standardized 
payment streams, including the frequency and contingencies of any such 
payments.
---------------------------------------------------------------------------

    \58\ See supra note 55.
---------------------------------------------------------------------------

    One commenter expressed the view that, without further 
clarification, market participants could adopt different 
interpretations of the requirement in re-proposed Rule 901(c)(8) to 
report the terms of fixed or floating rate payments, resulting in 
inconsistent reporting to registered SDRs; the commenter recommended, 
therefore, limiting the reportable fields to tenor and frequency, where 
applicable.\59\
---------------------------------------------------------------------------

    \59\ See DTCC V at 11.
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    The Commission shares the commenter's concerns that, without 
guidance, market participants could adopt different interpretations of 
the requirement to report the terms of fixed or floating rate payments. 
The Commission notes, however, that final Rules 907(a)(1) and 907(a)(2) 
require a registered SDR to establish and maintain written policies and 
procedures that enumerate the specific data elements that must be 
reported and that specify the protocols for submitting information, 
respectively. The Commission believes that, read together, Rules 
907(a)(1) and 907(a)(2) provide registered SDRs with flexibility to 
determine the appropriate conventions for reporting these data 
elements, including the terms of a security-based swap's fixed or 
floating rate payments. Thus, although Rule 901(c) itself does not 
specify the precise manner for reporting a security-based swap's fixed 
or floating rate payments, the policies and procedures of registered 
SDRs must do so. The Commission notes, further, that final Rule 906(c), 
among other things, requires SDR participants that are registered 
security-based swap dealers and registered major security-based swap 
participants to establish,

[[Page 14574]]

maintain, and enforce written policies and procedures that are 
reasonably designed to ensure that they comply with any obligations to 
report information to a registered SDR in a manner consistent with 
Regulation SBSR.
vi. Rule 901(c)(1)(v)
    Re-proposed Rule 901(c)(12) would have required a reporting side to 
indicate, if applicable, that the information reported under 
subparagraphs (1)-(11) of re-proposed Rule 901(c) for a customized 
security-based swap does not provide all of the material information 
necessary to identify the customized security-based swap or does not 
contain the data elements necessary to calculate its price. The 
Commission is adopting the substance of re-proposed Rule 901(c)(12) and 
locating it in final Rule 901(c)(1)(v). Rule 901(c)(1)(v), as adopted, 
provides that, if a security-based swap is customized to the extent 
that the information provided in paragraphs (c)(1)(i) through (iv) of 
Rule 901 does not provide all of the material information necessary to 
identify such customized security-based swap or does not contain the 
data elements necessary to calculate the price, the reporting side must 
include a flag to that effect. As discussed more fully in Section 
VI(G), infra, the registered SDRs should develop a condition flag to 
identify bespoke transactions because absent such a flag, users of 
public reports of bespoke transactions might receive a distorted 
impression of the market.
    One commenter argued that ``publicly disseminated data for trades 
with a non-standard feature flag activated will be of limited 
usefulness and could be misleading.'' \60\ The commenter expressed the 
view that dissemination of information regarding highly structured 
transactions should not occur until an analysis regarding the impact 
and potential for misleading the investing public has been 
conducted.\61\ A second commenter, however, endorsed the approach being 
adopted by the Commission.\62\ The Commission acknowledges the concerns 
that the dissemination of transaction reports for highly customized 
trades could be misleading or of limited usefulness. However, as 
discussed more fully in Section VI(D)(2)(a), infra, the Commission 
believes that public dissemination of the key terms of a customized 
security-based swap, even without all of the details of the 
transaction, could provide useful information to market observers, 
including information concerning the pricing of similar products and 
information relating to the relative number and aggregate notional 
amounts of transactions in bespoke products versus standardized 
products. In addition, the Commission believes that the condition flag 
signaling that the transaction is a customized trade, and therefore 
that the reported information does not provide all of the details of 
the transaction, will minimize the potential for confusion and help to 
assure that the publicly disseminated reports of these transactions are 
not misleading. For these reasons, the Commission is declining, at this 
time, to undertake the study recommended by the commenter.
---------------------------------------------------------------------------

    \60\ DTCC II at 9.
    \61\ See id.
    \62\ See Cleary II at 16 (recommending ``public reporting of a 
few key terms of a customized swap . . . [with] some indication that 
the transaction is customized'').
---------------------------------------------------------------------------

    A third commenter indicated that Rule 901 should go further and 
require reporting of additional information necessary to calculate the 
price of a security-based swap that is so customized that the price 
cannot be calculated from the reported information.\63\ The Commission 
generally agrees that transaction reports of customized security-based 
swaps should be as informative and useful as possible. However, it is 
not clear that the benefits of publicly disseminating all of the 
detailed and potentially complex information that would be necessary to 
calculate the price of a highly customized security-based swap would 
justify the costs of disseminating that information. Accordingly, Rule 
901(c)(1)(v), as adopted, does not require reporting of this 
information, and it will not be publicly disseminated.\64\
---------------------------------------------------------------------------

    \63\ See Better Markets I at 7.
    \64\ The Commission notes that Rule 901(d)(5) requires the 
reporting of any additional data elements included in the agreement 
between the counterparties that is necessary to determine the market 
value of a transaction. Although this information will not be 
publicly disseminated, it will be available to the Commission and 
other relevant authorities. Such relevant authorities are enumerated 
in Section 13(n)(5)(G) of the Exchange Act, 15 U.S.C. 78m(n)(5)(G), 
which requires an SDR, upon request, to make available all data 
obtained by the SDR, including individual counterparty trade and 
position data, to each appropriate prudential regulator, the 
Financial Stability Oversight Council, the CFTC, the Department of 
Justice, and any other person that the Commission determines to be 
appropriate, including foreign financial supervisors, foreign 
central banks, and foreign ministries.
---------------------------------------------------------------------------

    This commenter also expressed concern that a ``composite'' 
security-based swap composed of two swaps grafted together could be 
used to avoid reporting requirements; the commenter recommended that, 
if at least one of the transactions could be disaggregated and reported 
in a format so that its price could be calculated, Regulation SBSR 
should require that the security-based swap be disaggregated and the 
component parts be reported separately.\65\ In considering the 
commenter's concern the Commission notes the following:
---------------------------------------------------------------------------

    \65\ See Better Markets I at 7 (``This enhancement to the 
Proposed Rules is particularly important with respect to SBS 
comprised of two swaps grafted together. Such composite SBS can be 
used to avoid reporting requirements. Even worse they can be used to 
obfuscate the real financial implications of a transaction. 
Accordingly, if an SBS can be disaggregated into two or more 
transactions, and at least one of those disaggregated transactions 
can be reported in a format so that price can be calculated, then 
the rules should require that the SBS be disaggregated and reported 
in that form''); Better Markets II at 3 (stating that complex 
transactions must be broken down into meaningful components); Better 
Markets III at 4-5 (stating that the Commission should require 
reporting of data on disaggregated customized security-based swaps).
---------------------------------------------------------------------------

    To begin, the Commission understands that market participants may 
execute so-called ``package trades'' that are composed of multiple 
components, or ``legs,'' some of which may be security-based swaps. 
Though such package trades are executed at a single price, each leg is 
separately booked and processed. In these cases, Regulation SBSR does 
in fact require a reporting side to separately report (and for the SDR 
to separately disseminate) each security-based swap component of the 
package trade.\66\
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    \66\ In addition, as discussed more fully in Section VI(G), 
infra, in developing its policies and procedures, a registered SDR 
should consider requiring participants to identify the individual 
component security-based swaps of such a trade as part of a package 
transaction, and should consider disseminating reports of the 
individual security-based swap components of the package trade with 
a condition flag that identifies them as part of a package trade. 
Absent such a flag, observers of public reports of package 
transactions might obtain a distorted view of the market.
---------------------------------------------------------------------------

    However, if a market participant combines the economic elements of 
multiple instruments into one security-based swap contract, Regulation 
SBSR requires a single report of the transaction. The Commission 
understands the commenter's concerns regarding potential attempts to 
evade the post-trade transparency requirements. Such efforts could 
undermine Regulation SBSR's goals of promoting transparency and 
efficiency in the security-based swap markets and impede the 
Commission's ability to oversee those markets. The Commission does not 
believe, however, that either a registered SDR or a reporting side 
should be required to disaggregate a customized security-based swap if 
it consists of a single contract incorporating elements of what 
otherwise might have been two or more

[[Page 14575]]

security-based swaps. In the absence of evidence of a significant 
amount of such ``composite'' security-based swap transactions and 
structuring other than through package trades, the Commission does not 
at this time believe that devising protocols for disseminating them in 
a disaggregated fashion would be practical. Importantly, however, and 
as discussed more fully in Section VI(D)(2)(a), infra, the primary 
trade information of any complex or bespoke security-based swap, 
including ``composite'' security-based swaps as described by the 
commenter, will be publicly disseminated, as required by Rule 902(a), 
including the specific underlying reference asset(s), reference 
issuer(s), or reference index for the transaction, as required by Rule 
901(c)(1).\67\ The Commission believes that the public dissemination of 
the primary trade information, even without all of the material 
economic terms of the transaction that could affect its pricing, could 
provide market observers with useful information, including information 
concerning the pricing of similar products and the relative number and 
aggregate notional amounts of transactions in complex and other bespoke 
transactions versus transactions in standardized products. The 
Commission further notes that since all of the material economic terms 
of a ``composite'' security-based swap must be reported to a registered 
SDR, including the data elements required by Rule 901(d),\68\ the 
Commission itself will have complete access to these details.\69\
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    \67\ One commenter stated its view that ``proprietary baskets'' 
should qualify as non-disseminated information, and requested that 
Regulation SBSR specifically recognize this as an example of non-
disseminated information. See ISDA IV at 17 (stating that reportable 
security-based swaps may include customized narrow-based baskets 
that a counterparty deems proprietary to its business and for which 
public disclosure would compromise its anonymity and negatively 
impact its trading activity). Rule 902(a), as adopted, requires a 
registered SDR to publicly disseminate, for each transaction, the 
primary trade information required to be reported by Rule 901(c), as 
adopted, which includes the specific underlying reference asset(s), 
reference issuer(s), or reference index. The Commission continues to 
believe that the primary trading terms of a security-based swap 
should be disseminated to help facilitate price discovery. See infra 
Section VI(A).
    \68\ See infra Section II(B)(3)(e) (discussing requirement in 
Rule 901(d)(5) that, to the extent not provided pursuant to other 
provisions of Rules 901(c) and 901(d), all data elements included in 
the agreement between the counterparties that are necessary for a 
person to determine the market value of the transaction must be 
reported).
    \69\ See infra Section V(B)(1) (noting that the Commission 
anticipates proposing for public comment detailed specifications of 
acceptable formats and taxonomies that would facilitate an accurate 
interpretation, aggregation, and analysis by the Commission of 
security-based swap data submitted to it by an SDR); supra Section 
II(A)(2)(b)(v) (explaining that the Commission will have access to 
regulatory reports of bespoke security-based swap transactions, 
which should facilitate regulatory oversight and assist relevant 
authorities in monitoring the exposures of security-based swap 
market participants).
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    The commenter also expressed the view that Regulation SBSR should 
clearly define the meaning of a security-based swap that is so 
customized that its price is not ascertainable.\70\ The Commission does 
not believe that it is necessary to further define the term 
``customized security-based swap'' for purposes of Rule 901(c)(1)(v). 
The condition flag required under adopted Rule 901(c)(1)(v) will notify 
market participants that the security-based swap being reported does 
not have a product ID and is customized to the extent that the 
information provided in Rules 901(c)(1)(i)-(iv) does not provide all of 
the material information necessary to identify the security-based swap 
or does not contain the data elements necessary to calculate the price. 
Thus, market participants will know that a customized security-based 
swap transaction was executed, and that the information reported 
pursuant to Rules 901(c)(1)(i)-(iv) provides basic but limited 
information about the transaction. The Commission believes, further, 
that Rule 901(c)(1)(v) provides clear guidance with respect to when a 
transaction is customized to the extent that the reporting side must 
attach a condition flag that identifies the transaction as a bespoke 
transaction, i.e., when the information reported pursuant to Rules 
901(c)(1)(i)-(iv) does not provide all of the material information 
necessary to identify the security-based swap or does not contain the 
data elements necessary to calculate the price. Accordingly, the 
Commission does not believe that it is necessary, at this time, to 
further define what constitutes a customized security-based swap for 
purposes of Regulation SBSR.
---------------------------------------------------------------------------

    \70\ See Better Markets I at 7 (``The Proposed Rules also 
represent a critically important opportunity to shed light on the 
nature of `customized' swaps. Since the inception of the debate over 
disclosure and clearing in connection with financial regulation, the 
concept of the `customized' or `bespoke' transactions has figured 
prominently, yet these terms remain poorly understood in real world 
terms. The Proposed Rules should clearly define the meaning of SBS 
that are so customized that price is not ascertainable'').
---------------------------------------------------------------------------

c. Rule 901(c)(2)
    Re-proposed Rule 901(c)(4) would have required reporting of the 
date and time, to the second, of the execution of a security-based 
swap, expressed using Coordinated Universal Time (``UTC'').\71\ In the 
Regulation SBSR Proposing Release, the Commission stated that 
information concerning the time of execution would allow security-based 
swap transactions to be ordered properly, and would provide the 
Commission with a detailed record of when a security-based swap was 
executed.\72\ The Commission further noted that, without the time of 
execution, market participants and relevant authorities would not know 
whether the transaction reports that they are seeing reflect the 
current state of the market.\73\ In both the proposal and the re-
proposal, the Commission defined ``time of execution'' to mean ``the 
point at which the counterparties to a security-based swap become 
irrevocably bound under applicable law.'' \74\
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    \71\ UTC is defined by the International Telecommunication Union 
(ITU-R) and is maintained by the International Bureau of Weights and 
Measures (BIPM). See http://www.itu.int/net/newsroom/wrc/2012/reports/atomic_time.aspx (last visited September 22, 2014).
    \72\ See 75 FR 75213.
    \73\ See id.
    \74\ See re-proposed Rule 900(ff).
---------------------------------------------------------------------------

    One commenter expressed the view that time of execution should be 
reported at least to the second, and by finer increments where 
practicable.\75\ A second commenter raised timestamp issues in 
connection with proposed Rule 901(f), which would have required a 
registered SDR to timestamp transaction information submitted to it 
under Rule 901. The commenter stated that especially for markets for 
which there are multiple security-based swap execution facilities and 
markets where automated, algorithmic trading occurs, ``the sequencing 
of trade data for transparency and price discovery, as well as 
surveillance and enforcement purposes, will require much smaller 
increments of time-stamping.'' \76\ The commenter urged the Commission 
to revise proposed Rule 901(f) to require a registered SDR to time 
stamp information that it receives in increments shorter than one 
second, stating that time stamps shorter than one second are 
technologically feasible, affordable, and in use.\77\
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    \75\ See Barnard I at 2.
    \76\ Better Markets I at 9.
    \77\ See id.
---------------------------------------------------------------------------

    The Commission understands that trading in the security-based swap 
market does not yet occur as fast or as frequently as in the equities 
market, which makes recording the time of security-based swap 
executions in subsecond increments less necessary for surveillance 
purposes. While some market participants may have the capacity to 
record trades in subsecond intervals, others may not. Given the

[[Page 14576]]

potential costs of requiring all market participants to utilize 
subsecond timestamps, the Commission believes that it is not necessary 
or appropriate at this time to require reporting of the time of 
execution in subsecond increments.\78\ Accordingly, the Commission is 
adopting Rule 901(c)(4) as proposed and re-proposed, but renumbering it 
as final Rule 901(c)(2). The Commission will continue to monitor 
developments in the security-based swap market and could in the future 
reconsider whether reporting time of execution in subseconds would be 
appropriate.
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    \78\ However, a registered SDR could, in its policies and 
procedures, allow its participants to report using subsecond 
timestamps.
---------------------------------------------------------------------------

    One commenter discussed the time of execution for a voice trade in 
the context of proposed Rule 910(a), which addressed the reporting of 
pre-enactment security-based swaps.\79\ The commenter noted that in the 
Regulation SBSR Proposing Release, the Commission stated that 
``proposed Rule 910(a) would not require reporting parties to report 
any data elements (such as the time of execution) that were not readily 
available. Therefore, proposed Rule 910(a) would not require reporting 
parties to search for or reconstruct any missing data elements.'' \80\ 
The commenter disagreed with this assertion in the context of voice 
trades, stating that the time of entry of the voice trade into the 
system is typically provided, but not the actual execution time of the 
trade. The commenter stated that ``[p]roviding the actual execution 
time in the case of voice trades would then prove extremely challenging 
and invasive for the marketplace.'' \81\ Similarly, one commenter 
requested that the ``Commission clarify that participants are not 
required to provide trade execution time information for pre-enactment 
security-based swap transactions and that going-forward, such 
information need only be provided when industry-wide time stamping 
practices are implemented.'' \82\
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    \79\ As discussed in Section I(F), supra, the Commission is not 
adopting Rule 910.
    \80\ See 75 FR 75278-79.
    \81\ ISDA/SIFMA I at 11.
    \82\ ISDA I at 5.
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    With respect to these concerns, the Commission notes, first, that 
it is not adopting Rule 910, but is proposing a new compliance schedule 
for Rules 901, 902, 903, 904, 905, 906, and 908 of Regulation SBSR in 
the Regulation SBSR Proposed Amendments Release. The Commission 
emphasizes, however, that proposed Rule 910(a) would not have required 
market participants to report information for a pre-enactment security-
based swap that was not readily available, or to reconstruct that 
information. Thus, Rule 910(a), as proposed, would not have required 
market participants to provide the time of execution for an orally 
negotiated pre-enactment security-based swap, unless such information 
was readily available. Likewise, final Rule 901(i) does not require 
reporting of the date and time of execution for an orally negotiated 
pre-enactment or transitional security-based swap, unless such 
information is readily available.\83\ However, for all other security-
based swaps, including voice trades, final Rule 901(c)(2) requires 
reporting of the date and time of execution, to the second, of the 
security-based swap. The Commission noted in the Regulation SBSR 
Proposing Release that trades agreed to over the phone would need to be 
systematized by being entered in an electronic system that assigns a 
time stamp to report the date and time of execution of a security-based 
swap.\84\ The Commission continues to believe that it is consistent 
with Congress' intent for orally negotiated security-based swap 
transactions to be systematized as quickly as possible.\85\ The 
Commission notes, further, that market participants also must report 
the time of execution for voice-executed trades in other securities 
markets (e.g., equities and corporate bonds).\86\ Knowing the date and 
time of execution of a security-based swap is important for 
reconstructing trading activity and for market surveillance purposes. 
Accordingly, the Commission continues to believe that the regulatory 
interest in having information regarding the date and time of execution 
for all security-based swaps, including orally negotiated security-
based swaps, justifies the burden on market participants of recording 
and reporting this information.
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    \83\ For pre-enactment and transitional security-based swaps, 
final Rule 901(i) requires reporting of the information required 
under Rules 901(c) and 901(d), including the date and time of 
execution, only to the extent that such information is available.
    \84\ See 75 FR 75213.
    \85\ See id.
    \86\ See, e.g., FINRA Rule 6230(c)(8) (requiring transactions 
reported to TRACE to include the time of execution); FINRA Rule 
6622(c)(5) (requiring last-sale reports for transactions in OTC 
Equity Securities and Restricted Securities to include the time of 
execution expressed in hours, minutes, and seconds).
---------------------------------------------------------------------------

    In addition, the Commission is adopting, as proposed and re-
proposed, the requirement for all times of execution reported to and 
recorded by registered SDRs to be in UTC. In the Regulation SBSR 
Proposing Release, the Commission explained its reasons for proposing 
to require that the date and time of execution be expressed in UTC.\87\ 
The Commission noted that security-based swaps are traded globally, and 
expected that many security-based swaps subject to the Commission's 
reporting and dissemination rules would be executed between 
counterparties in different time zones. In the absence of a uniform 
time standard, it might not be clear whether the date and time of 
execution were being expressed from the standpoint of the time zone of 
the first counterparty, the second counterparty, or the registered SDR. 
Mandating a common standard for expressing date and time would 
alleviate any potential confusion as to when the security-based swap 
was executed. The Commission believed that UTC was an appropriate and 
well known standard suitable for purposes of reporting the time of 
execution of security-based swaps. The Commission received no comments 
regarding the use of UTC for reporting the time of execution. For the 
reasons set out in the Regulation SBSR Proposing Release, the 
Commission continues to believe that UTC is appropriate for security-
based swap transaction reporting. Accordingly, the Commission is 
adopting this requirement as proposed and re-proposed.
---------------------------------------------------------------------------

    \87\ See 75 FR 75213.
---------------------------------------------------------------------------

    Finally, the Commission is adopting the definition of ``time of 
execution'' as proposed and re-proposed, and renumbering it as final 
Rule 900(ii). One commenter stated that the time at which a transaction 
becomes legally binding may not be the same for all products.\88\ The 
commenter further noted that, in some cases primary terms are not 
formed until the security-based swap is confirmed, and that the full 
terms of a total return swap might not be formed until the end of the 
day ``and therefore the [total return swap] is not executed and 
confirmed until the end of the day.'' \89\ A second commenter stated 
that ``the obligation to report should not be triggered until price, 
size, and other transaction terms required to be reported are 
available.'' \90\ The Commission understands the concerns of these 
commenters and believes that the definition of ``time of execution'' 
provides sufficient flexibility to address these commenters' concerns. 
For example, if the key terms of a security-based swap, such as price 
or size, are so indefinite that they cannot be reported to a registered 
SDR until some time after

[[Page 14577]]

the counterparties agree to preliminary terms, the counterparties may 
not have executed the security-based swap under applicable law. 
Alternatively, even if the counterparties determine that their 
preliminary agreement constitutes an execution, the reporting timeframe 
adopted herein, which will allow a security-based swap to be reported 
at any point up to 24 hours after the time of execution, should address 
the concerns raised by the commenters.
---------------------------------------------------------------------------

    \88\ See ISDA/SIFMA I at 7.
    \89\ Id.
    \90\ Cleary II at 6. See also ISDA/SIFMA I at 15 (``for some 
transaction types . . . the price or size of the transaction cannot 
be determined at the time the swap is negotiated''); ISDA IV at 10.
---------------------------------------------------------------------------

    A third commenter urged the Commission to revise the definition to 
equate time of execution with ``the time of execution of the 
confirmation.'' \91\ The Commission declines to do so. While 
confirmation is an important aspect of post-trade processing, 
performance of the actions necessary to confirm a transaction is within 
the discretion of the counterparties and their agents. Defining the 
``time of execution'' to mean the time that a confirmation is issued 
could create incentives for counterparties to delay confirmation and 
thus the reporting of the transaction. The Commission notes that 
Section 13(m)(1)(A) of the Exchange Act \92\ defines ``real-time public 
reporting'' as reporting certain security-based swap data ``as soon as 
technologically practicable after the time at which the security-based 
swap transaction has been executed.'' The Commission believes this 
provision is most appropriately implemented by linking obligations to 
the time at which the counterparties become bound to the terms of the 
transaction--i.e., the time of execution--rather than some indefinite 
point in the future, such as the time when the confirmation is issued.
---------------------------------------------------------------------------

    \91\ MFA I at 5.
    \92\ 15 U.S.C. 78m(m)(1)(A).
---------------------------------------------------------------------------

d. Rule 901(c)(3)
    Re-proposed Rule 901(c)(7) would have required the reporting of the 
price of a security-based swap. Re-proposed Rule 901(d)(1)(iii) would 
have required the reporting of the ``amount(s) and curren(cies) of any 
up-front payment(s) and a description of the terms and contingencies of 
the payment streams of each direct counterparty to the other.'' Final 
Rule 901(c)(3) combines these elements and requires the reporting of 
``[t]he price, including the currency in which the price is expressed 
and the amount(s) and currenc(ies) of any up-front payments.'' \93\ The 
Commission believes that including in final Rule 901(c)(3) the explicit 
requirement to report the currency in which the price is expressed will 
help to clarify the information required to be reported.\94\ Re-
proposed Rule 901(c)(3) is being re-numbered as final Rule 
901(c)(4).\95\
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    \93\ Cf. Section II(B)(3)(c), infra (describing Rule 901(d), 
which enumerates data elements that will not be subject to public 
dissemination).
    \94\ The addition of the reference to currency also is 
consistent with re-proposed Rule 901(c)(3), which would have 
required reporting of the notional amount(s) of the security-based 
swap and the currenc(ies) in which the notional amount(s) is 
expressed.
    \95\ See infra Section II(B)(2)(b)(vi)(e).
---------------------------------------------------------------------------

    Rule 901(c)(3), as adopted, requires the reporting of the amount(s) 
and currenc(ies) of any up-front payments, a requirement that was 
included in re-proposed Rule 901(d)(1)(iii). The Commission believes 
that information concerning the amount(s) and currenc(ies) of any up-
front payment(s) will help regulators and market observers understand 
the reported price of a security-based swap, and that the public 
dissemination of this information will further the transparency goals 
of Title VII. The Commission also believes that Rule 901(c) will be 
simpler if all considerations relating to the price are consolidated 
into a single provision. Accordingly, Rule 901(c)(3), as adopted, 
requires the reporting and public dissemination of the amount(s) and 
currenc(ies) of any up-front payment(s) along with other pricing 
information for the security-based swap.
    As discussed in the Regulation SBSR Proposing Release, the price of 
a security-based swap could be expressed in terms of the commercial 
conventions used in that asset class.\96\ The Commission recognized 
that the price of a security-based swap generally might not be a simple 
number, as with stocks, but would likely be expressed in terms of the 
quoting conventions of the security-based swap. For example, a credit 
default swap could be quoted in terms of the economic spread--which is 
variously referred to as the ``traded spread,'' ``quote spread,'' or 
``composite spread''--expressed as a number of basis points per annum. 
Alternately, a credit default swap might be quoted in terms of prices 
representing a discount or premium over par.\97\ In contrast, an equity 
or loan total return swap might be quoted in terms of a LIBOR-based 
floating rate payment, expressed as a floating rate plus a fixed number 
of basis points.\98\ As discussed further in Section IV, infra, final 
Rule 907(a)(1) requires a registered SDR to establish, maintain, and 
make publicly available policies and procedures that specify the data 
elements of a security-based swap that must be reported, including 
elements that constitute the price. The Commission believes that, 
because of the many different conventions that exist to express the 
price in various security-based swap markets and new conventions that 
might arise in the future, registered SDRs should have flexibility to 
select appropriate conventions for denoting the price of different 
security-based swap products.
---------------------------------------------------------------------------

    \96\ See 75 FR 75214. Final Rule 900(z) defines ``price'' to 
mean ``the price of a security-based swap transaction, expressed in 
terms of the commercial conventions used in the asset class.''
    \97\ See id.
    \98\ See id.
---------------------------------------------------------------------------

    One commenter expressed concern that disseminating prices of 
margined and unmargined transactions together could mislead the market 
about the intrinsic prices of the underlying contracts.\99\ Noting that 
the CFTC proposed a field for ``additional price notation'' that would 
be used to provide information, including margin, that would help 
market participants evaluate the price of a swap, the commenter 
recommended that the Commission and the CFTC harmonize their approaches 
to assure that the market has an accurate picture of prices.\100\ The 
Commission agrees that publicly disseminated transaction reports should 
be as informative as possible. However, the Commission believes, at 
this time, that it could be impractical to devise additional data 
fields for describing the potentially complex margin requirements 
governing a security-based swap. Furthermore, it could be difficult if 
not impossible to attribute a portion of the price to a particular 
margin arrangement when the overall price represents the aggregation of 
a number of different factors into a single variable. The Commission 
notes that the bespoke flag required by Rule 901(c)(1)(v) is designed 
to inform market observers when a security-based swap is customized to 
the extent that the other data elements required by Rule 901(c)(1) do 
not provide all of the material information necessary to identify the 
security-based swap or provide sufficient information to calculate the 
price.
---------------------------------------------------------------------------

    \99\ See CCMR I at 4.
    \100\ See id.
---------------------------------------------------------------------------

    Another commenter expressed concern that disseminating the terms of 
the floating rate payment for an equity swap, which is often comprised 
of a benchmark rate plus or minus a spread and thus contains 
information about the direction of a customer transaction (positive 
spreads indicate a customer long swap and negative spreads indicate a 
customer short swap) may harm customers by offering other market 
participants the opportunity to anticipate their execution 
strategy.\101\

[[Page 14578]]

The commenter believes that the spread value should thus be masked for 
equity security-based swaps when disclosing the price or terms of the 
floating rate payment.\102\ As noted above, the Commission believes 
that publicly disseminated transaction reports should be as informative 
as possible. The floating rate payment of an equity security-based 
swap, including the spread, is an important part of the price of an 
equity security-based swap, and as such the Commission continues to 
believe that it should be disseminated. Not disseminating this 
information would undermine one of the key aspects of public 
dissemination, namely price discovery. The Commission further 
understands that in other markets--such as the cash equity market and 
the bond market--similar information is publically disclosed or can be 
inferred from public market data, which informs on the direction of the 
customer transaction.\103\
---------------------------------------------------------------------------

    \101\ See ISDA IV at 17.
    \102\ See id.
    \103\ In the bond markets, the side of the customer is reported 
on TRACE. See http://www.finra.org/Industry/Compliance/MarketTransparency/TRACE/Announcements/P039007. In the cash equity 
markets, the side of the initiator of a transaction is, for many 
exchanges, provided as a data element on direct data feeds. It can 
also be inferred according to whether the trade was executed at the 
bid or offer.
---------------------------------------------------------------------------

e. Rule 901(c)(4)
    Re-proposed Rule 901(c)(3) would have required reporting of the 
notional amount(s) and the currenc(ies) in which the notional amount(s) 
is expressed. The Commission is adopting this rule as re-proposed, but 
re-numbering it as Rule 901(c)(4).
    The Commission received two comments regarding the reporting and 
public dissemination of the notional amount of a security-based swap. 
One commenter believed that, ``in the case of some asset classes, there 
is not a universal definition of the notional amount of the trade. This 
is particularly the case where the notional amount is not confirmable 
information.'' \104\ To address this issue, the commenter recommended 
that the Commission provide guidelines, such as those developed by the 
Federal Reserve Bank of New York, for reporting the notional amount of 
a security-based swap.\105\
---------------------------------------------------------------------------

    \104\ ISDA/SIFMA I at 12.
    \105\ See id. The commenter refers to the guidelines included 
under ``Line Item Instructions for Derivatives and Off-Balance-Sheet 
Item Schedule HC-L'' in the Board of Governors of the Federal 
Reserve System's ``Instructions for Preparation of Consolidated 
Financial Statements for Bank Holding Companies Reporting Form FR Y-
9C.'' See ISDA/SIFMA I at 12, note 13.
---------------------------------------------------------------------------

    As discussed below, final Rules 907(a)(1) and 907(a)(2) require a 
registered SDR to establish and maintain written policies and 
procedures that enumerate the specific data elements that must be 
reported and that specify the protocols for submitting information, 
respectively. The Commission believes that, read together, Rules 
907(a)(1) and 907(a)(2) provide registered SDRs with flexibility to 
determine the appropriate conventions for reporting all required data 
elements, including the notional amount. Thus, although Rule 901(c) 
itself does not specify the precise manner for reporting a security-
based swap's notional amount, the policies and procedures of registered 
SDRs must do so. The Commission believes that a registered SDR could 
choose to incorporate the guidance noted by the commenter, or other 
appropriate guidance, into its policies and procedures for reporting 
notional amounts.
    Another commenter suggested that the Commission, to mitigate 
adverse impacts on market liquidity, should--like the CFTC--adopt 
masking thresholds, rather than requiring public dissemination of the 
precise notional amount of a security-based swap transaction.\106\ The 
commenter noted that FINRA's Trade Reporting and Compliance Engine 
(``TRACE'') system \107\ uses masking conventions, and suggested 
applying that approach to the swap and security-based swap markets by 
``computing how much market risk is represented by the TRACE masking 
thresholds and using those numbers to map the masking thresholds into 
other asset classes.'' \108\
---------------------------------------------------------------------------

    \106\ See J.P. Morgan Letter at 12. See also ISDA IV at 16 
(recommending the use of a notional cap in each asset class).
    \107\ TRACE is a FINRA facility to which FINRA member firms must 
report over-the-counter transactions in eligible fixed income 
securities. See generally http://www.finra.org/Industry/Compliance/MarketTransparency/TRACE/ (last visited September 22, 2014).
    \108\ Id. at 13.
---------------------------------------------------------------------------

    The Commission appreciates the commenter's concerns regarding the 
uncertainty of the potential effects of public dissemination of 
security-based swap transaction reports on liquidity in the security-
based swap market. As discussed further in Section VII, infra, the 
rules adopted in this release will allow the reporting, on an interim 
basis, of a security-based swap transaction at any time up to 24 hours 
after the time of execution (or, if 24 hours after the time of 
execution would fall on a day that is not a business day, by the same 
time on the next day that is a business day). This timeframe is 
designed in part to minimize potential adverse impacts of public 
dissemination on liquidity during the interim phase of Regulation 
SBSR's implementation, as market participants grow accustomed to 
operating in a more transparent environment. Accordingly, the 
Commission does not believe that it is necessary at this time to adopt 
a masking convention for purposes of reporting and publicly 
disseminating the notional amount of security-based swap 
transactions.\109\
---------------------------------------------------------------------------

    \109\ The Commission anticipates soliciting comment on issues 
relating to block trades, including the possibility of utilizing 
masking thresholds, at a later date. See infra Section VII.
---------------------------------------------------------------------------

f. Rule 901(c)(5)
    Rule 901(c)(10), as proposed and re-proposed, would have required 
the reporting side to indicate whether both counterparties to a 
security-based swap are security-based swap dealers. In the Regulation 
SBSR Proposing Release, the Commission stated its preliminary belief 
that such an indication would enhance transparency and provide more 
accurate information about the pricing of security-based swap 
transactions.\110\ The Commission noted, further, that prices of 
security-based swap transactions involving a dealer and non-dealer are 
typically ``all-in'' prices that include a mark-up or mark-down, while 
interdealer transactions typically do not. Thus, the Commission 
believed that requiring an indication of whether a security-based swap 
was an interdealer transaction or a transaction between a dealer and a 
non-dealer counterparty would enhance transparency by allowing market 
participants to more accurately assess the reported price of a 
security-based swap.\111\
---------------------------------------------------------------------------

    \110\ See 75 FR 75214.
    \111\ See id.
---------------------------------------------------------------------------

    Commenters expressed mixed views regarding this proposed 
requirement. One commenter supported a requirement to include the 
counterparty type in security-based swap transaction reports.\112\ 
Another commenter, however, recommended that the Commission eliminate 
the interdealer indication because ``[e]xcluding this field from the 
information required to be reported to [a registered SDR] in real time 
will bring the scope of required

[[Page 14579]]

data in line with existing dissemination functionality.'' \113\ A third 
commenter expressed concern that disseminating information that both 
counterparties are security-based swap dealers would reduce the 
anonymity of participants, ultimately resulting in ``worse pricing and 
reduced liquidity for end-users.'' \114\
---------------------------------------------------------------------------

    \112\ See Benchmark Letter at 2. The commenter also suggested 
that it would be useful to include an entry for ``end user,'' 
similar to the ``Producer/Merchant/Producer/User'' designation used 
in agricultural futures reports. See id. The Commission does not 
believe, at this time, that it is necessary to require a specific 
end-user indication. Under final Rule 901(c)(5), a transaction 
involving two registered security-based swap dealers must have an 
indication to that effect. An observer of a transaction report 
without that indicator will be able to infer that the transaction 
involved at least one side that does not have a registered security-
based swap dealer.
    \113\ DTCC V at 11.
    \114\ ISDA IV at 16.
---------------------------------------------------------------------------

    The Commission believes that publicly disseminating an indication 
of whether both sides of a security-based swap are registered security-
based swap dealers would enhance transparency in the security-based 
swap market by helping market participants to assess the reported price 
of a security-based swap. Although the Commission understands the 
concerns about potential burdens that could result from changes to 
existing dissemination practices, the required indicator should not 
impose significant burdens. Furthermore, the Commission believes that 
any potential burden created by requiring the indicator will be 
justified by the transparency benefits of publicly disseminating this 
information. The Commission notes that flagging transactions between 
two registered security-based swap dealers does indeed provide 
information to the public that the transaction involved two dealers, 
thus restricting the set of possible counterparties. However, since a 
majority of security-based swap transactions presently have a dealer as 
one of the counterparties, an interdealer flag is unlikely to enable 
market observers to identify counterparties to particular transactions. 
Also, although there is a limited group of entities that likely would 
be required to register as security-based swap dealers that are 
currently active in the security-based swap market, this number is more 
than two.\115\ The Commission also notes that in the bond market 
interdealer transactions are flagged as part of TRACE's public 
dissemination of corporate bond trades. Therefore, the Commission does 
not believe that flagging transactions between two registered security-
based swap dealers would ultimately result in ``worse pricing and 
reduced liquidity for end-users.'' \116\
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    \115\ Historical data reviewed by the Commission suggest that, 
among an estimated 300 reporting sides, approximately 50 are likely 
to be required to register with the Commission as security-based 
swap dealers. See infra Section XXI(B)(3).
    \116\ See ISDA IV at 16.
---------------------------------------------------------------------------

    The Commission, therefore, is adopting this requirement as final 
Rule 901(c)(5), with one revision. The Commission has added the word 
``registered'' before the term ``security-based swap dealer.'' 
Therefore, the final rule requires an indication only when there is a 
registered security-based swap dealer on both sides of the transaction. 
As discussed further below, the Commission seeks to avoid imposing 
costs on market participants for assessing whether or not they are 
security-based swap dealers solely for purposes of Regulation 
SBSR.\117\ Therefore, counterparties would have to be identified for 
purposes of Rule 901(c)(5), as adopted, only if they are registered 
security-based swap dealers.
---------------------------------------------------------------------------

    \117\ See infra notes 284 to 285 and accompanying text.
---------------------------------------------------------------------------

g. Rule 901(c)(6)
    Re-proposed Rule 901(c)(9) would have required the reporting side 
to indicate whether or not a security-based swap would be cleared by a 
clearing agency. This requirement is being adopted substantially as 
proposed but numbered as Rule 901(c)(6), with an additional 
clarification, described below. In the Regulation SBSR Proposing 
Release, the Commission noted that the use of a clearing agency to 
clear a security-based swap could affect the price of the security-
based swap because counterparty credit risk might be diminished 
significantly if the security-based swap were centrally cleared.\118\ 
Thus, the Commission preliminarily believed that information concerning 
whether a security-based swap would be cleared would provide market 
participants with information that would be useful in assessing the 
reported price of the security-based swap, thereby enhancing price 
discovery.\119\ One commenter agreed, stating that it ``will likely 
also be necessary to identify whether a price is associated with a 
bilateral trade or a cleared trade . . . as these distinctions may well 
have price impacts.'' \120\
---------------------------------------------------------------------------

    \118\ See 75 FR 75214.
    \119\ See id.
    \120\ Cleary II at 20, note 56.
---------------------------------------------------------------------------

    The Commission continues to believe that information concerning 
whether a security-based swap will be cleared is useful in assessing 
the price of the security-based swap and will facilitate understanding 
of how risk exposures may change after the security-based swap is 
executed. Accordingly, final Rule 901(c)(6) requires the reporting side 
to indicate ``whether the direct counterparties intend that the 
security-based swap will be submitted to clearing.'' Reporting of 
whether the direct counterparties intend that the security-based swap 
will be submitted to clearing, rather than whether the security-based 
swap will be cleared, as originally proposed, more accurately reflects 
the process of entering into and clearing a security-based swap 
transaction. It may not be known, when the transaction is reported, 
whether a registered clearing agency will in fact accept the security-
based swap for clearing. The Commission received no comments on this 
issue. The Commission believes, however, that the modified language 
enhances the administration of the rule.
    The Commission notes that, in some cases, the identity of the 
registered clearing agency that clears a security-based swap could be 
included in the product ID of a security-based swap. If the identity of 
the registered clearing agency is included in the product ID, no 
information would have to be separately reported pursuant to Rule 
901(c)(6).
h. Rule 901(c)(7)
    Re-proposed Rule 901(c)(11) would have required a reporting side to 
indicate, if applicable, that a security-based swap transaction does 
not accurately reflect the market. In the Regulation SBSR Proposing 
Release, the Commission noted that, in some instances, a security-based 
swap transaction might not reflect the current state of the 
market.\121\ This could occur, for example, in the case of a late 
transaction report, which by definition would not represent the current 
state of the market, or in the case of an inter-affiliate transfer or 
assignment, where the new counterparty might not have an opportunity to 
negotiate the terms, including the price, of taking on the 
position.\122\ The Commission believed that there might not be an arm's 
length negotiation of the terms of the security-based swap transaction, 
and disseminating a transaction report without noting that fact would 
be inimical to price discovery. Accordingly, Rule 901(c)(11), as 
proposed and as re-proposed, would have required a reporting side to 
note such circumstances in its transaction report to the registered 
SDR.
---------------------------------------------------------------------------

    \121\ See 75 FR 75214.
    \122\ See id. at 75214-15.
---------------------------------------------------------------------------

    Rule 907(a)(4), as proposed and as re-proposed, would have required 
a registered SDR to establish and maintain written policies and 
procedures that describe, among other things, how a reporting side 
would report security-based swap transactions that, in the estimation 
of the registered SDR, do not accurately reflect the market. The 
Commission noted its expectation that these policies and procedures 
would require, among other things, different

[[Page 14580]]

indicators being applied in different situations.\123\
---------------------------------------------------------------------------

    \123\ See id. at 75215.
---------------------------------------------------------------------------

    One commenter suggested that Rule 901 should require the 
counterparties to a security-based swap to disclose specific reasons 
why a security-based swap does not accurately reflect the market 
because it would not be possible to understand the reported prices 
without that information.\124\ The commenter also stated that the 
Commission, rather than registered SDRs, should specify the indicators 
used for such transaction reports.\125\
---------------------------------------------------------------------------

    \124\ See Better Markets I at 6.
    \125\ See id. at 7 (``Such disclosure should not be left to the 
discretion of the SDRs, but should instead be required by the 
rules'').
---------------------------------------------------------------------------

    The Commission agrees in general that an effective regime for 
public dissemination should provide market observers with appropriate 
information to assist them in understanding the disseminated 
transaction information. The Commission also agrees with the commenter 
that it could be useful to market observers to provide more specific 
information about particular characteristics of or circumstances 
surrounding a transaction that could affect its price discovery value. 
Therefore, after careful consideration, the Commission is adopting the 
substance of re-proposed Rule 901(c)(11), but is modifying the rule 
text to reflect final Rule 907(a)(4), and is renumbering the 
requirement as Rule 901(c)(7). Rule 901(c)(7), as adopted, requires 
reporting of any applicable flag(s) pertaining to the transaction that 
are specified in the policies and procedures of the registered SDR to 
which the transaction will be reported. Rule 907(a)(4)(i) requires a 
registered SDR to establish and maintain written policies and 
procedures for ``identifying characteristic(s) of a security-based 
swap, or circumstances associated with the execution of a security-
based swap, that could, in the fair and reasonable estimation of a 
registered security-based swap data repository, cause a person without 
knowledge of these characteristic(s) or circumstance(s) to receive a 
distorted view of the market.'' A registered SDR also must establish 
flags to denote these characteristic(s) or circumstance(s).\126\ As 
discussed in Section VI(G), infra, the Commission generally believes 
that a registered SDR should consider providing condition flags 
identifying the following: Inter-affiliate security-based swaps; 
transactions resulting from netting or compression exercises; 
transactions resulting from a ``forced trading session'' conducted by a 
clearing agency; transactions reported late; transactions resulting 
from the default of a clearing member; and package trades. The 
Commission believes that these condition flags, and others that 
registered SDRs may adopt in the future, should provide additional 
information that will help to prevent market observers from receiving a 
distorted view of the market. The Commission believes, further, that 
these condition flags address the commenter's recommendation that 
security-based swap transaction reports identify the specific reasons 
why a transaction does not accurately reflect the market.
---------------------------------------------------------------------------

    \126\ See Rule 907(a)(4)(ii).
---------------------------------------------------------------------------

    The Commission disagrees, however, with the commenter's suggestion 
that a Commission rule rather than the policies and procedures of a 
registered SDR should identify the specific characteristics or 
circumstances that must be reported to prevent a transaction report 
from presenting a distorted view of the market. The Commission 
continues to believe that requiring registered SDRs to develop, 
maintain, and require the use of condition flags, and to modify them as 
needed, will facilitate the development of a flexible reporting regime 
that is better able to respond quickly to changing conditions in the 
security-based swap market. This flexibility will help to assure that 
reported transaction information remains meaningful as the security-
based swap market evolves over time.

B. Rule 901(d)--Secondary Trade Information

1. Description of Proposed and Re-Proposed Rule
    Rule 901(d)(1), as proposed and as re-proposed, would have required 
the reporting of certain secondary trade information concerning a 
security-based swap. Information reported pursuant to Rule 901(d)(1) 
would be available to regulatory authorities only and would not be 
publicly disseminated. Rule 901(d)(1), as re-proposed, would have 
required the reporting of the following secondary trade information to 
a registered SDR: (1) The participant ID of each counterparty; (2) as 
applicable, the broker ID, desk ID, and trader ID of the direct 
counterparty on the reporting side; (3) the amount(s) and currenc(ies) 
of any up-front payment(s) and a description of the terms and 
contingencies of the payment streams of each direct counterparty to the 
other; (4) the title of any master agreement, or any other agreement 
governing the transaction (including the title of any document 
governing the satisfaction of margin obligations), incorporated by 
reference and the date of any such agreement; (5) the data elements 
necessary for a person to determine the market value of the 
transaction; (6) if applicable, and to the extent not provided pursuant 
to Rule 901(c), the name of the clearing agency to which the security-
based swap will be submitted for clearing; (7) if the security-based 
swap is not cleared, whether the exception in Section 3C(g) of the 
Exchange Act \127\ was invoked; (8) if the security-based swap is not 
cleared, a description of the settlement terms, including whether the 
security-based swap is cash-settled or physically settled, and the 
method for determining the settlement value; and (9) the venue where 
the security-based swap was executed.\128\
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    \127\ 15 U.S.C. 78c-3(g).
    \128\ Rule 901(d)(1), as re-proposed, was substantially similar 
to Rule 901(d)(1), as proposed, but made several technical changes. 
Rule 901(d)(1), as re-proposed, revised the rule to add references 
to the reporting side, the direct counterparty on the reporting 
side, and secondary trade information.
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    As discussed in the Regulation SBSR Proposing Release, the 
Commission believed that the information required to be reported by 
proposed Rule 901(d) would facilitate regulatory oversight and 
monitoring of the security-based swap market by providing comprehensive 
information regarding security-based swap transactions and trading 
activity.\129\ The Commission believed, further, that this information 
would assist the Commission in detecting and investigating fraud and 
trading abuses in the security-based swap market.\130\
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    \129\ See 75 FR 75217. Furthermore, to the extent that the 
Commission receives information that is reported under Rule 901(d), 
the Commission anticipates that it will keep such information 
confidential, to the extent permitted by law. See id. at note 59.
    \130\ See id.
---------------------------------------------------------------------------

    Re-proposed Rule 901(d)(2) specified timeframes for reporting the 
secondary trade information required to be reported under Rule 
901(d)(1). Rule 901(d)(2), as re-proposed, would have required the 
reporting of secondary trade information promptly, but in no event 
later than: (1) 15 minutes after the time of execution of a security-
based swap that is executed and confirmed electronically; (2) 30 
minutes after the time of execution for a security-based swap that is 
confirmed electronically but not executed electronically; or (3) 24 
hours after the time of execution for a security-based swap that is not 
executed or confirmed electronically.
2. Final Rule 901(d)
    As discussed more fully below, the Commission is adopting Rules 
901(d)(1)

[[Page 14581]]

substantially as re-proposed, although it is making several clarifying 
and technical changes to address issues raised by commenters.
    The Commission is not adopting the 15-minute, 30-minute, and 24-
hour timeframes in re-proposed Rule 901(d)(2). Instead, final Rule 
901(d) requires a reporting side to report the information required 
under Rule 901(d) within the timeframes specified by Rule 901(j).\131\ 
Because re-proposed Rule 901(d)(2) is not being adopted, re-proposed 
Rule 901(d)(1) is renumbered as final Rule 901(d), and re-proposed 
Rules 901(d)(1)(i)-(ix), which would identify the categories of 
secondary trade information required to be reported, are renumbered as 
final Rules 901(d)(1)-(9).
---------------------------------------------------------------------------

    \131\ Rule 901(j), which specifies the timeframe for reporting 
of the information enumerated in Rules 901(c) and 901(d), is 
discussed in Section VII(B)(1) infra.
---------------------------------------------------------------------------

    Rule 901(d), as adopted, requires the reporting side to report the 
following secondary trade information: (1) The counterparty ID or 
execution agent ID of each counterparty, as applicable; (2) as 
applicable, the branch ID, broker ID, execution agent ID, trader ID, 
and trading desk ID of the direct counterparty on the reporting side; 
(3) to the extent not provided pursuant to Rule 901(c)(1), the terms of 
any fixed or floating rate payments, including the terms and 
contingencies of any such payments; (4) for a security-based swap that 
is not a clearing transaction, the title and date of any master 
agreement, collateral agreement, margin agreement, or any other 
agreement incorporated by reference into the security-based swap 
contract; (5) to the extent not provided pursuant to Rule 901(c) or 
other provisions of Rule 901(d), any additional elements included in 
the agreement between the counterparties that are necessary for a 
person to determine the market value of the transaction; (6) if 
applicable, and to the extent not provided pursuant to Rule 901(c), the 
name of the registered clearing agency to which the security-based swap 
will be submitted for clearing; (7) if the direct counterparties do not 
intend to submit the security-based swap to clearing, whether they have 
invoked the exception in Section 3C(g) of the Exchange Act; (8) to the 
extent not provided pursuant to other provisions of Rule 901(d), if the 
direct counterparties do not submit the security-based swap to 
clearing, a description of the settlement terms, including whether the 
security-based swap is cash-settled or physically settled, and the 
method for determining the settlement value; (9) the platform ID, if 
applicable; and (10) if the security-based swap arises from the 
allocation, termination, novation, or assignment of one or more 
existing security-based swaps, the transaction ID of the allocated, 
terminated, assigned, or novated security-based swap(s), except in the 
case of a clearing transaction that results from the netting or 
compression of other clearing transactions.
3. Discussion of Final Rule 901(d) and Response to Comments
a. Rule 901(d)(1)--Counterparty IDs
    In the Regulation SBSR Proposing Release, the Commission expressed 
the view that a registered SDR ``must have a systematic means to 
identify and track'' all persons involved in the security-based swap 
transactions reported to that registered SDR.\132\ The Commission 
intended to accomplish this, in part, through proposed Rule 
901(d)(1)(i), which would have required the reporting party to report 
the participant ID of each counterparty to a registered SDR.\133\ As 
proposed in Rule 900, ``participant ID'' would have been defined as 
``the UIC assigned to a participant'' \134\ and ``participant'' would 
have encompassed: (1) A U.S. person that is a counterparty to a 
security-based swap that is required to be reported to a registered 
SDR; or (2) a non-U.S. person that is a counterparty to a security-
based swap that is (i) required to be reported to a registered SDR; and 
(ii) executed in the United States or through any means of interstate 
commerce, or cleared through a clearing agency that has its principal 
place of business in the United States.
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    \132\ 75 FR 75217.
    \133\ See infra Section X (discussing use of LEIs).
    \134\ The definition of ``participant ID'' was re-proposed, 
without change, in re-proposed Rule 900(s). The UIC is the unique 
identification code assigned to a person, unit of a person, product, 
or transaction. See Rule 900(qq). As discussed more fully in Section 
IV, infra, final Rule 907(a)(5) requires a registered SDR to 
establish and maintain policies and procedures for assigning UICs in 
a manner consistent with adopted Rule 903.
---------------------------------------------------------------------------

    Re-proposed Rule 901(d)(1)(i) would have required the reporting 
side to report the participant ID of each counterparty to a security-
based swap. Re-proposed Rule 900(s) would have defined ``participant'' 
as ``a person that is a counterparty to a security-based swap that 
meets the criteria of Sec.  242.908(b).'' Under re-proposed Rule 
900(s), the following types of person would have met the criteria of 
Rule 908(b): (1) U.S. persons; (2) security-based swap dealers and 
major security-based swap participants; and (3) counterparties to a 
transaction ``conducted within the United States.'' \135\
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    \135\ See Cross-Border Proposing Release, 78 FR 31065 
(discussing re-proposed Rule 908(b)).
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    The Commission received no comments on re-proposed Rule 
901(d)(1)(i), but has determined to adopt, as final Rule 901(d)(1), a 
modified rule that will, in the Commission's estimation, better 
accomplish the objective of ensuring that a registered SDR can identify 
each counterparty to a security-based swap. As re-proposed, the 
reporting side would have been required to report the participant ID of 
its counterparty only if the counterparty met the definition of 
``participant,'' which would have been limited by Rule 908(b). Under 
the re-proposed definition of ``participant,'' some counterparties to 
security-based swaps would not have become participants of the 
registered SDRs that receive reports of those security-based swaps 
under Rule 901(a). For example, if a U.S. person security-based swap 
dealer entered into a security-based swap with a non-U.S. person 
private fund in a transaction that is not conducted within the United 
States, the security-based swap dealer would have been a participant of 
the registered SDR to which the security-based swap is reported 
pursuant to Rule 901(a), but the private fund would not. In this 
circumstance, Rule 901(d)(1)(i), as re-proposed, would not have 
provided a mechanism for the reporting of the private fund's identity 
to the registered SDR; because the private fund would not have been a 
participant of that registered SDR it would not have received a 
``participant ID.''
    The Commission believes that it is necessary and appropriate for a 
registered SDR to obtain identifying information for all counterparties 
to security-based swaps that are subject to Regulation SBSR. Without 
this information being reported to a registered SDR, the Commission's 
ability to oversee the security-based swap market could be impaired 
because the Commission might not be able to determine the identity of 
each counterparty to a security-based swap reported to a registered SDR 
pursuant to Regulation SBSR.
    Final Rule 901(d)(1) addresses this concern by requiring the 
reporting side to report ``the counterparty ID or the execution agent 
ID of each counterparty, as applicable.'' The Commission is adopting, 
as Rule 900(j), the term ``counterparty ID,'' which means ``the UIC 
assigned to a counterparty to a

[[Page 14582]]

security-based swap.'' \136\ A ``counterparty'' is a person that is a 
direct or indirect counterparty of a security-based swap.\137\ A 
``direct counterparty'' is a person that is a primary obligor on a 
security-based swap,\138\ and an ``indirect counterparty'' is a 
guarantor of a direct counterparty's performance of any obligation 
under a security-based swap such that the direct counterparty on the 
other side can exercise rights of recourse against the indirect 
counterparty in connection with the security-based swap; for these 
purposes a direct counterparty has rights of recourse against a 
guarantor on the other side if the direct counterparty has a 
conditional or unconditional legally enforceable right, in whole or in 
part, to receive payments from, or otherwise collect from, the 
guarantor in connection with the security-based swap.\139\ Thus, the 
definition of ``counterparty ID'' encompasses UICs that identify all 
direct and indirect counterparties to a security-based swap, even if a 
particular counterparty is not a participant of a registered SDR.\140\
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    \136\ The Commission is not adopting the re-proposed definition 
of ``participant ID'' as this term is not used in Regulation SBSR, 
as adopted.
    \137\ See Rule 900(i).
    \138\ See Rule 900(k).
    \139\ See Rule 900(p). Re-proposed Rule 900(o) would have 
defined ``indirect counterparty'' to mean ``a guarantor of a direct 
counterparty's performance of any obligation under a security-based 
swap.'' The Commission is adopting, consistent with the approach it 
took in the cross-border context, a modified definition of 
``indirect counterparty'' to clarify the type of guarantor 
relationship that would cause a person to become an indirect 
counterparty for purposes of Regulation SBSR. See Securities 
Exchange Act Release No.72472 (June 25, 2014), 79 FR 47278, 47316-17 
(August 12, 2014) (``Cross-Border Adopting Release''). Final Rule 
900(p) defines ``indirect counterparty'' to mean a guarantor of a 
direct counterparty's performance of any obligation under a 
security-based swap such that the direct counterparty on the other 
side can exercise rights of recourse against the indirect 
counterparty in connection with the security-based swap; for these 
purposes, a direct counterparty has rights of recourse against a 
guarantor on the other side if the direct counterparty has a 
conditional or unconditional legally enforceable right, in whole or 
in part, to receive payments from, or otherwise collect from, the 
guarantor in connection with the security-based swap. Thus, under 
final Rule 900(p), a person becomes an indirect counterparty to a 
security-based swap if the guarantee offered by the person permits a 
direct counterparty on the other side of the transaction to exercise 
rights of recourse against the person in connection with the 
security-based swap. The Commission believes that, if a recourse 
guarantee exists, it is reasonable to assume that the other side of 
the transaction would look both to the direct counterparty and its 
guarantor(s) for performance on the security-based swap. If the 
direct counterparty fails to fulfill its payment obligations on the 
security-based swap, its guarantor would be obligated to make the 
required payments. As noted in the Cross-Border Adopting Release, 
such rights may arise in a variety of contexts. The meaning of the 
terms ``guarantee,'' ``recourse,'' and any related terms used in 
Regulation SBSR is the same as the meaning of those terms in the 
Cross-Border Adopting Release and the rules adopted therein.
    \140\ The process for obtaining UICs, including counterparty 
IDs, is described in Section X, infra.
---------------------------------------------------------------------------

    The Commission believes final Rule 901(d)(1) will accomplish the 
Commission's objective of obtaining identifying information for all 
counterparties to a security-based swap and improve regulatory 
oversight and surveillance of the security-based swap market. The 
counterparty ID will allow registered SDRs, the Commission, and other 
relevant authorities to track activity by a particular market 
participant and facilitate the aggregation and monitoring of that 
market participant's security-based swap positions.
    The Commission also is adopting a requirement in Rule 901(d)(1)(i) 
for the reporting side to report the ``execution agent ID'' as 
applicable.\141\ This situation could arise if the identity of a 
counterparty is not known at the time of execution.\142\ In this 
circumstance, the reporting side would report the execution agent ID 
because it would not know the counterparty ID.
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    \141\ See infra Section II(C)(3)(b)(i) (discussing execution 
agent ID).
    \142\ The Commission believes the reporting side may not know 
the counterparty ID of the other side if, for example, the security-
based swap will be allocated after execution. Section VIII describes 
how Regulation SBSR applies to security-based swaps involving 
allocation.
---------------------------------------------------------------------------

    Regulation SBSR requires reporting of the UIC of each counterparty 
to a security-based swap.\143\ One commenter stated that ``each series 
or portfolio within each trust should be given its own LEI/UCI number 
to address possible confusion between series or portfolios within the 
same trust. Each portfolio is distinct with its own separate assets and 
liabilities.'' \144\ The Commission agrees with this commenter and 
notes that Rule 901(d)(1) requires the reporting of the UIC for each 
counterparty to a security-based swap, whether not the counterparty is 
a legal person.\145\ If a counterparty is an entity other than a legal 
person, such as a series or portfolio within a trust, or an account, 
Rule 901(d)(1) requires the reporting of the UIC that identifies that 
counterparty.
---------------------------------------------------------------------------

    \143\ See Rule 901(d)(1); Rule 907(a)(5) (requiring a registered 
SDR to have written policies and procedures for assigning UICs in a 
manner consistent with Rule 903).
    \144\ Institutional Investors Letter at 6.
    \145\ Consequently, the word ``person,'' as used in this 
release, includes any counterparty to a security-based swap, 
including a counterparty that is not a legal person. Cf. Cross-
Border Adopting Release, 79 FR 47312 (providing that an account, 
whether discretionary or not, of a U.S. person also is a U.S. 
person--even though accounts generally are not considered separate 
legal persons--and noting that this prong of the ``U.S. person'' 
definition focuses on the party that actually bears the risk arising 
from a security-based swap transaction).
---------------------------------------------------------------------------

    Finally, the Commission notes that although it is not adopting a 
definition of ``participant ID,'' the concept of a ``participant'' is 
still utilized in Regulation SBSR. Rule 900(u), as adopted, defines 
``participant,'' with respect to a registered SDR, as ``a counterparty, 
that meets the criteria of Sec.  242.908(b), of a security-based swap 
that is reported to that registered security-based swap data repository 
to satisfy an obligation under Sec.  242.901(a).'' \146\ The adopted 
definition makes clear that a person becomes a participant of a 
particular registered SDR only if the person meets the criteria of Rule 
908(b) and is a counterparty to a security-based swap that is reported 
to that registered SDR on a mandatory basis. A counterparty would not 
become a participant of all registered SDRs as a result of being a 
counterparty to a security-based swap that is subject to Regulation 
SBSR and reported to a particular registered SDR as required by Rule 
901(a). The adopted definition also clarifies that a counterparty would 
not become a participant of a registered SDR as a result of any non-
mandatory report \147\ submitted to that registered SDR.\148\ 
Similarly, a counterparty that meets the criteria of Rule 908(b) would 
not become a participant of any registered SDR if the security-based 
swap is reported pursuant to a substituted compliance determination 
under Rule 908(c), because such a security-based swap would not be 
reported to a registered SDR pursuant to Rule 901(a).
---------------------------------------------------------------------------

    \146\ Re-proposed Rule 900(s) would have defined ``participant'' 
as ``a person that is a counterparty to a security-based swap that 
meets the criteria of Sec.  242.908(b).''
    \147\ See infra Section VI(D)(1) (discussing non-mandatory 
reports).
    \148\ Assume, for example, that Fund X is a U.S. person and 
engages in a single uncleared security-based swap with a registered 
security-based swap dealer. Further assume that the registered 
security-based swap dealer, who has the duty to report the 
transaction under the reporting hierarchy, elects to submit the 
required transaction report to SDR P, and also submits a non-
mandatory report of the transaction to SDR Q. Fund X is now a 
participant of SDR P but not of SDR Q. Under Rule 900(u), Fund X 
would not become a participant of SDR Q unless and until it enters 
into a future security-based swap that is reported on a mandatory 
basis to SDR Q.
---------------------------------------------------------------------------

    The final definition of ``participant'' is less comprehensive than 
the re-proposed definition because Rule 908(b), as adopted, is narrower 
than Rule 908(b), as re-proposed. As discussed in Section XV(D), infra, 
final Rule 908(b) includes U.S. persons, registered security-based swap 
dealers, and registered major security-based

[[Page 14583]]

swap participants. The Commission is not at this time taking action on 
the prong of re-proposed Rule 908(b) that would have caused a person to 
become a participant solely by being a counterparty to a security-based 
swap that is a transaction conducted within the United States. As a 
result, fewer non-U.S. persons are likely to ``meet the criteria of 
Rule 908(b),'' as adopted, because a non-U.S. person that is a 
counterparty of a security-based swap would meet the criteria of final 
Rule 908(b) only if that counterparty is a registered security-based 
swap dealer or a registered major security-based swap participant. 
Thus, only a U.S. person, a registered security-based swap dealer, or a 
registered major security-based swap participant could be a 
``participant'' under Regulation SBSR.
b. Rule 901(d)(2)--Additional UICs
    Rule 901(d)(1)(ii), as re-proposed, would have required reporting 
of, as applicable, the broker ID, desk ID, and trader ID of the direct 
counterparty on the reporting side. The Commission preliminarily 
believed that the reporting of this information would help to promote 
effective oversight, enforcement, and surveillance of the security-
based swap market by the Commission and other relevant 
authorities.\149\ The Commission noted, for example, that this 
information would allow regulators to track activity by a particular 
participant, a particular desk, or a particular trader. In addition, 
relevant authorities would have greater ability to observe patterns and 
connections in trading activity, or examine whether a trader had 
engaged in questionable activity across different security-based swap 
products. Such identifiers also would facilitate aggregation and 
monitoring of the positions of security-based swap counterparties, 
which could be of significant benefit for systemic risk 
management.\150\
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    \149\ See Regulation SBSR Proposing Release, 75 FR 75217.
    \150\ See id.
---------------------------------------------------------------------------

    Adopted Rule 901(d)(2) modifies re-proposed Rule 901(d)(1)(ii) in 
certain respects. First, final Rule 901(d)(2) replaces the defined term 
``desk ID'' with the defined term ``trading desk ID.'' Second, final 
Rule 901(d)(2) now includes a requirement to report the branch ID and 
the execution agent ID of the direct counterparty on the reporting 
side, in addition to the broker ID, trading desk ID, and trader ID. In 
conjunction with this requirement, final Rule 900 includes the new 
defined terms ``branch ID'' and ``execution agent ID.'' Third, final 
Rule 900 includes a revised definition of ``trader ID.'' Thus, final 
Rule 901(d)(2) requires reporting of, ``[a]s applicable, the branch ID, 
broker ID, execution agent ID, trader ID, and trading desk ID of the 
direct counterparty on the reporting side.'' \151\
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    \151\ As discussed in greater detail in Section XIII(A), infra, 
Rule 906(a), as adopted, requires reporting to a registered SDR of 
the branch ID, broker ID, execution agent ID, trader ID, and trading 
desk ID, as applicable, of a direct counterparty to a security-based 
swap that is not the reporting side. Thus, Rules 901(d)(2) and 
906(a) together require reporting, as applicable, of the branch ID, 
broker ID, execution agent ID, trader ID, and trading desk ID of 
each direct counterparty to a security-based swap.
---------------------------------------------------------------------------

i. Branch ID and Execution Agent ID
    Rule 901(d)(2), as adopted, requires the reporting of, as 
applicable, the branch ID and execution agent ID of the direct 
counterpart on the reporting side, in addition to the broker ID, trader 
ID, and trading desk ID of the direct counterparty on the reporting 
side. The ``branch ID'' is the ``UIC assigned to a branch or other 
unincorporated office of a participant.'' \152\ The Commission did not 
include a requirement to report the branch ID in Rule 901(d), as 
proposed or as re-proposed. However, the Commission now believes that 
it is appropriate to include in Regulation SBSR a new concept of the 
branch ID and require reporting of the branch ID, when a transaction is 
conducted through a branch, as part of Rule 901(d)(2), as adopted. 
Reporting of the branch ID, where applicable, will help identify the 
appropriate sub-unit within a large organization that executed a 
security-based swap (if a transaction were in fact conducted through 
that sub-unit). This information also will facilitate the aggregation 
and monitoring of security-based swap transactions by branch, at the 
level of the registered SDR and potentially within the firm itself.
---------------------------------------------------------------------------

    \152\ See Rule 900(d).
---------------------------------------------------------------------------

    Final Rule 901(d)(2) also includes another UIC, the ``execution 
agent ID,'' that was not included in the proposal or re-proposal. Rule 
900(m), as adopted, provides that the execution agent ID is the ``UIC 
assigned to any person other than a broker or trader that facilitates 
the execution of a security-based swap on behalf of a direct 
counterparty.'' The Commission initially proposed to require reporting 
of the broker ID in order to obtain a record of an agent that 
facilitates a transaction, if there is such an agent. The Commission 
now recognizes, however, that entities other than registered brokers 
could act as agents in a security-based swap transaction. For example, 
an asset manager could be acting as an agent on behalf of a fund 
counterparty but likely would not be a broker-dealer. The definition of 
``execution agent ID'' is designed to encompass the entities in 
addition to brokers that may act as agents for security-based swap 
counterparties. The broker ID,\153\ which also must be reported under 
final Rule 901(d)(2), will identify a registered broker, if any, that 
intermediates a security-based swap transaction between two direct 
counterparties and itself is not a counterparty to the transaction.
---------------------------------------------------------------------------

    \153\ ``Broker ID'' is defined as ``the UIC assigned to a person 
acting as a broker for a participant.'' See Rule 900(e).
---------------------------------------------------------------------------

    The Commission believes that obtaining information about a broker 
or execution agent, if any, involved in the transaction will provide 
regulators with a more complete understanding of the transaction and 
could provide useful information for market surveillance purposes. The 
Commission notes that some security-based swap transactions may involve 
multiple agents. For example, an asset manager could use a broker to 
facilitate the execution of a security-based swap on behalf of one or 
more of the funds that it advises. In that case, final Rule 901(d) 
would require reporting of the counterparty ID of the direct 
counterparty (the fund), the execution agent ID (for the asset 
manager), and the broker ID (of the broker that intermediated the 
transaction).
ii. Revised Defined Terms in Rule 901(d)(2)
    Rule 901(d)(1)(ii), as re-proposed, would have required the 
reporting of, among other things, the desk ID of the direct 
counterparty on the reporting side. Rule 900(i), as re-proposed, would 
have defined ``desk ID'' as the UIC assigned to the trading desk of a 
participant or of a broker of a participant. Rule 900, as re-proposed, 
did not include a definition of ``desk.'' Final Rule 901(d)(2) requires 
the reporting of the ``trading desk ID,'' rather than the ``desk ID.'' 
Accordingly, the defined term ``desk ID'' is being replaced in Rule 900 
with the defined term ``trading desk ID,'' which Rule 900(ll) defines 
as ``the UIC assigned to the trading desk of a participant.'' Unlike 
re-proposed Rule 900, which provided no definition of the term 
``desk,'' final Rule 900(kk) provides a definition of the term 
``trading desk.'' Specifically, final Rule 900(kk) defines ``trading 
desk'' to mean, ``with respect to a counterparty, the smallest discrete 
unit of organization of the participant

[[Page 14584]]

that purchases or sells financial instruments for the account of the 
participant or an affiliate thereof.'' The Commission believes that 
adding a definition of ``trading desk'' will help to clarify the rule 
by describing the type of structure within an enterprise that must 
receive a trading desk ID. The ``trading desk ID'' concept is designed 
to identify, within a large organization, the smallest discrete unit 
that initiated a security-based swap transaction. Requiring the 
reporting of the trading desk ID will assist regulators in monitoring 
the activities and exposures of market participants. The trading desk 
ID could, among other things, facilitate investigations of suspected 
manipulative or abusive trading practices.\154\
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    \154\ The trading desk ID also might allow relevant authorities 
to determine whether a particular trading desk is engaging in 
activity that could disrupt the security-based swap markets. For 
example, in early 2012, a trading desk of JPMorgan Chase and Company 
known as the Chief Investment Office executed transactions in 
synthetic credit derivatives that declined in value by at least $6.2 
billion later in the year. According to the report of the United 
States Senate Permanent Subcommittee on Investigations, these 
trades, which were unknown to the bank's regulators, were ``so large 
in size that they roiled world credit markets.'' Report of the 
United States Senate Permanent Subcommittee on Investigations, 
JPMorgan Chase Whale Trades: A Case History of Derivatives Risks and 
Abuses (March 15, 2013), available at http://www.hsgac.senate.gov/subcommittees/investigations/hearings/chase-whale-trades-a-case-history-of-derivatives-risks-and-abuses (last visited October 7, 
2014). The existence of a trading desk ID could, in the future, 
facilitate the ability of relevant authorities to detect this type 
of trading activity.
---------------------------------------------------------------------------

    Final Rule 901(d)(2) also requires reporting of, if applicable, the 
trader ID of the direct counterparty on the reporting side. Re-proposed 
Rule 900(gg) would have defined ``trader ID'' as ``the UIC assigned to 
a natural person who executes security-based swaps.'' This definition 
would encompass a direct counterparty that executed a security-based 
swap, as well as a trader acting as agent that executes a security-
based swap on behalf of a direct counterparty. The Commission did not 
intend for the definition of ``trader ID'' to include both direct 
counterparties (whose counterparty IDs must be provided pursuant to 
Rule 901(d)(1)) and traders acting in an agency capacity that execute 
security-based swaps on behalf of a direct counterparty. To narrow the 
definition of ``trader ID'' so that it includes only traders that 
execute security-based swaps on behalf of direct counterparties, final 
Rule 900(jj) defines ``trader ID'' as ``the UIC assigned to a natural 
person who executes one or more security-based swaps on behalf of a 
direct counterparty.'' The direct counterparty would be the person, 
account, or fund that is the direct counterparty to the security-based 
swap that employs the trader.
iii. Response to Comments
    One commenter supported the proposed requirement for reporting 
broker ID, desk ID, and trader ID, stating that these UICs would ``give 
regulators a capability to aggregate position and trade data in 
multiple ways including by individual trader to spot concentration risk 
and insider trading.'' \155\ A second commenter argued that desk 
structures change relatively frequently and personnel often rotate or 
transfer to other firms; therefore, the effort to maintain trader ID 
and desk ID information in a registered SDR could exceed its 
usefulness.\156\ The commenter also indicated that information 
regarding the desk ID and trader ID would be available from a firm's 
audit trail.\157\
---------------------------------------------------------------------------

    \155\ GS1 Letter at 39 (also stating that these elements ``would 
be most critical for performing trading oversight and compliance 
functions such as trading ahead analysis, assessing trader price 
collusion, analyzing audit trail data from multiple derivatives 
markets as well as underlying cash markets . . . Also, lack of 
unique, unambiguous and universal identification of broker, desks 
and traders was one of the significant deterrents to analyzing the 
May 6, 2010 flash crash''). Another commenter generally supported 
the information required to be reported pursuant to Rule 901(d). See 
Barnard I at 2.
    \156\ See DTCC II at 11.
    \157\ See id.
---------------------------------------------------------------------------

    The Commission questions whether consistent and robust information 
about a firm's desk and trader activity is available from firms' audit 
trails. Even if it were, the Commission believes that reporting of the 
trader ID and the trading desk ID--as well as the branch ID, broker ID, 
and execution agent ID--will help to assure that information concerning 
the persons involved in the intermediation and execution of a security-
based swap is readily available to the Commission and other relevant 
authorities. This information could assist in monitoring and overseeing 
the security-based swap market and facilitate investigations of 
suspected manipulative or abusive trading practices.
    Two other commenters raised issues with requiring reporting of 
broker, trader, and trading desk IDs.\158\ One of these commenters 
believed that reporting these UICs would require ``great cost and 
effort'' from firms, including the costs associated with establishing 
and maintaining UICs in the absence of a global standard.\159\ The 
commenter also noted that not all of these identifiers are required to 
be reported in other jurisdictions.\160\ In a joint comment letter with 
another trade association, this commenter also stated that, because 
these UICs are not currently reported by any participants in the OTC 
derivatives markets, ``[t]he industry will need to develop standards 
and appropriate methodology to effectively report this information.'' 
\161\ This comment expressed concern that the proposed requirement 
``will create significant `noise' as a result of booking restructuring 
events (due to either technical or desk reorganization considerations). 
We therefore recommend that such information be either excluded, or 
that participants report the Desk ID and Trader ID associated with the 
actual trade or lifecycle events, but not those resulting from internal 
reorganization events.'' \162\
---------------------------------------------------------------------------

    \158\ See ISDA III at 2; ISDA IV at 8; ISDA/SIFMA at 11.
    \159\ ISDA III at 2; ISDA IV at 8.
    \160\ See ISDA IV at 8 (stating that ``[u]nder EMIR rules, 
broker ID is required, but not desk ID or trader ID. In Canada, only 
broker ID is required, but we note that reporting entities are 
struggling with the availability of an LEI to identify brokers that 
have not been subject to a mandate to obtain one''). See also ISDA 
III at 2.
    \161\ ISDA/SIFMA at 11.
    \162\ Id. See also ISDA IV at 8 (``We suggest that the 
Commission eliminate broker ID, desk ID and trader ID from the list 
of reportable secondary trade information. If the Commission wants 
to retain these fields we strongly believe a cost-benefit analysis 
should be conducted'').
---------------------------------------------------------------------------

    The Commission recognizes that, currently, UICs for branches, 
execution agents, trading desks, and individual traders are generally 
not in use. While the Commission agrees with the commenters that there 
could be a certain degree of cost and effort associated with 
establishing and maintaining UICs, the Commission believes that such 
costs have already been taken into account when determining the costs 
of Regulation SBSR.\163\ The costs of developing such UICs are included 
in the costs for Rule 901 (detailing the data elements that must be 
reported) and Rule 907 (detailing the requirement that SDRs develop 
policies and procedures for the reporting of the required data 
elements).
---------------------------------------------------------------------------

    \163\ See infra Section XXII(C)(1) (providing the economic 
analysis of these requirements).
---------------------------------------------------------------------------

    The Commission confirms that these UICs must be reported pursuant 
to Rule 901(d)(2) only in connection with the original 
transaction.\164\
---------------------------------------------------------------------------

    \164\ Thus, a participant would not be required to ``re-report'' 
a transaction to the registered SDR if, for example, the trader who 
executed the transaction leaves the firm some time afterwards. 
However, the participant will be subject to the policies and 
procedures of the registered SDR for, among other things, assigning 
UICs in a manner consistent with Rule 903. See infra Section IV. 
Those policies and procedures could include a requirement for the 
participant to regularly notify the registered SDR about changes in 
persons or business units requiring a UIC.

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[[Page 14585]]

c. Rule 901(d)(3)--Payment Stream Information
    Rule 901(d)(1)(iii), as proposed and re-proposed, would have 
required the reporting side to report the amount(s) and currenc(ies) of 
any up-front payment(s) and a description of the terms and 
contingencies of the payment streams of each direct counterparty to the 
other. The Commission stated that this requirement would include, for a 
credit default swap, an indication of the counterparty purchasing 
protection, the counterparty selling protection, and the terms and 
contingencies of their payments to each other; and, for other security-
based swaps, an indication of which counterparty is long and which is 
short.\165\ The Commission noted that this information could be useful 
to regulators in investigating suspicious trading activity.\166\
---------------------------------------------------------------------------

    \165\ See Regulation SBSR Proposing Release, 75 FR 75218, note 
62.
    \166\ See id.
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    One commenter stated the view that proposed Rule 901(d)(1)(iii) was 
duplicative of proposed Rule 901(d)(1)(v), which would require 
reporting of the data elements necessary to determine the market value 
of a transaction.\167\ The commenter stated, further, that proposed 
Rule 901(d)(1)(iii) was unclear about the required form of the 
description of the terms and contingencies of the payment streams, and 
requested further clarification of this proposed requirement.\168\
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    \167\ See DTCC II at 10.
    \168\ See DTCC II at 10; DTCC V at 12.
---------------------------------------------------------------------------

    The Commission agrees with the commenter's concerns regarding the 
need to clarify the information required to be reported under these 
provisions of Rule 901. Accordingly, the Commission is revising adopted 
Rule 901(d)(3) to require the reporting, to the extent not provided 
pursuant to Rule 901(c)(1), of the terms of any fixed or floating rate 
payments, or otherwise customized or non-standardized payment streams, 
including the frequency and contingencies of any such payments.\169\ As 
discussed above, adopted Rule 901(c)(1)(iv) requires the reporting side 
to report the terms of any standardized fixed or floating rate 
payments, and the frequency of any such payments.\170\ To the extent 
that a security-based swap includes fixed or floating rate payments 
that do not occur on a regular schedule or are otherwise customized or 
non-standardized, final Rule 901(d)(3) requires the reporting of the 
terms of those payments, including the frequency and contingencies of 
the payments. The Commission believes that the changes to final Rule 
901(d)(3) make clear that Rule 901(d)(3) requires reporting of 
customized or non-standardized payment streams, in contrast to the 
standardized payment streams required to be reported pursuant to Rule 
901(c)(1)(iv). The terms required to be reported could include, for 
example, the frequency of any resets of the interest rates of the 
payment streams. The terms also could include, for a credit default 
swap, an indication of the counterparty purchasing protection and the 
counterparty selling protection, and, for other security-based swaps, 
an indication of which counterparty is long and which counterparty is 
short. The Commission believes that information concerning the non-
standard payment streams of a security-based swap could be useful to 
the Commission or other relevant authorities in assessing the nature 
and extent of counterparty obligations and risk exposures. The 
Commission believes that the changes made to Rule 901(d)(3) will help 
clarify the information required to be reported under the rule and will 
eliminate any redundancy between the information required to be 
reported under Rules 901(c)(1)(iv) and 901(d)(3).
---------------------------------------------------------------------------

    \169\ As discussed above, the requirement to report the 
amount(s) and currenc(ies) of any up-front payments now appears in 
Rule 901(c)(3), rather than in Rule 901(d). Rule 901(c)(3), as 
adopted, requires reporting of the price of a security-based swap, 
including the currency in which the price is expressed and the 
amount(s) and currenc(ies) of any up-front payments.
    \170\ If information concerning the terms and frequency of any 
regular fixed or floating rate payments is included in the product 
ID for the security-based swap, the reporting side is required to 
report only the product ID, and would not be required to separately 
report the terms and frequency of any regular fixed or floating rate 
payments in addition to the product ID. See Rule 901(c)(1); Section 
III(B)(2)(b)(ii), supra.
---------------------------------------------------------------------------

    In addition, as discussed more fully below, the Commission is 
revising re-proposed Rule 901(d)(1)(v), which is renumbered as final 
Rule 901(d)(5), to indicate that Rule 901(d)(5) requires the reporting 
of additional data elements necessary to determine the market value of 
a transaction only to the extent that the information has not been 
reported pursuant to Rule 901(c) or other provisions of Rule 901(d). 
The Commission believes that these changes address the concern that 
Rule 901(d)(i)(iii) was duplicative of Rule 901(d)(1)(v).
d. Rule 901(d)(4)--Titles and Dates of Agreements
    Rule 901(d)(1)(iv), as proposed, would have required reporting of 
the title of any master agreement, or any other agreement governing the 
transaction (including the title of any document governing the 
satisfaction of margin obligations), incorporated by reference and the 
date of any such agreement. Rule 901(d)(1)(v), as proposed, would have 
required reporting of the data elements necessary for a person to 
determine the market value of the transaction. The Commission noted 
that proposed Rule 901(d)(1)(v) would require, for a security-based 
swap that is not cleared, information related to the provision of 
collateral, such as the title and date of the relevant collateral 
agreement. The Commission preliminarily believed that these 
requirements, together with other information required to be reported 
under Rule 901(d), would facilitate regulatory oversight of 
counterparties by providing information concerning counterparty 
obligations.\171\ The Commission re-proposed Rules 901(d)(1)(iv) and 
901(d)(1)(v) without revision in the Cross-Border Proposing Release.
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    \171\ See Regulation SBSR Proposing Release, 75 FR 75218.
---------------------------------------------------------------------------

    In proposing Rules 901(d)(1)(iv) and 901(d)(1)(v), the Commission 
balanced the burdens associated with reporting entire agreements 
against the benefits of having information about these agreements, and 
proposed to require reporting only of the title and date of such master 
agreements and any other agreement governing the transaction. 
Similarly, the Commission indicated that proposed Rule 901(d)(1)(v) 
would require the reporting of the title and date of any collateral 
agreements governing the transaction.\172\
---------------------------------------------------------------------------

    \172\ See id. at 75218, note 63.
---------------------------------------------------------------------------

    One commenter disagreed with the Commission's proposed approach. 
This commenter expressed the view that Regulation SBSR should be more 
explicit in requiring reports of information concerning collateral and 
margin for use by regulators because this information would be 
important for risk assessment and other purposes.\173\
---------------------------------------------------------------------------

    \173\ See Better Markets I at 7-8 (arguing that, to facilitate 
oversight, security-based swap counterparties should be required to 
report the core data elements of their collateral arrangements, 
including, at a minimum: (1) The parties to the agreement; (2) the 
thresholds for forbearance of posted collateral applicable to each 
party; (3) the triggers applicable to each party that would require 
immediate funding (termination of forbearance); and (4) the 
methodology for measuring counterparty credit risk); Better Markets 
III at 4-5.
---------------------------------------------------------------------------

    The Commission agrees that it is important for regulatory 
authorities to have access to information concerning the collateral and 
margin associated with security-based swap transactions. The Commission 
also is mindful,

[[Page 14586]]

however, that requiring the reporting of detailed information 
concerning the master agreement and other documents governing security-
based swaps could impose significant burdens on market participants. In 
addition, the Commission notes that one commenter on proposed 
Regulation SBSR stated that it would not be possible, in all cases, to 
identify the collateral associated with a particular security-based 
swap transaction because collateral is calculated, managed, and 
processed at the portfolio level rather than at the level of individual 
transactions.\174\
---------------------------------------------------------------------------

    \174\ See ISDA/SIFMA I at 14-15. Specifically, the commenter 
stated that the calculation of exposure collateral ``is performed at 
a netted portfolio level and cannot be broken down to the 
transaction level--it is simply not possible to identify the 
specific exposure collateral or the `exposure' associated with any 
particular transaction.'' See id. at 14. The commenter noted, 
further, that the independent amount, an optional additional amount 
of collateral that two counterparties may negotiate, ``may be 
specified at transaction level, at portfolio level, at some 
intermediate level (a combination of product type, currency and 
maturity, for instance), and possible a hybrid of all three. 
Therefore it may or may not be possible to identify the [independent 
amount] associated with a particular transaction, but as a general 
matter this association cannot be reliably made.'' See id. at 15.
---------------------------------------------------------------------------

    In light of these considerations, the Commission believes that, for 
security-based swaps that are not clearing transactions, requiring 
reporting of the title and date of any master agreement, collateral 
agreement, margin agreement, or any other agreement incorporated by 
reference into the security-based swap contract--but not the agreements 
themselves or detailed information concerning the agreements--will 
facilitate regulatory oversight of the security-based swap market by 
providing regulators with a more complete understanding of a security-
based swap counterparty's obligations while not imposing significant 
burdens on market participants. The Commission anticipates that, if a 
situation arose where the Commission or another relevant authority 
needed to consult information about a transaction contained in one of 
the related agreements, the Commission could request the agreement from 
one of the security-based swap counterparties. Knowing the title and 
date of the agreement will assist relevant authorities in identifying 
the agreement and thereby expedite the process of obtaining the 
necessary information.
    One commenter argued that the ``level of change'' necessary to 
incorporate the titles and dates of master agreements into individual 
trade messages was excessive and recommended that the trade level 
reference continue to follow the current process of referencing the 
lowest level governing document, which would permit the identification 
of all of the other relevant documents.\175\ Another commenter 
questioned the value of requiring reporting of the title and date of 
party level agreements.\176\ This commenter stated that, because other 
jurisdictions do not require reporting of the ``title and date of a 
Credit Support Agreement or other similar document (``CSA'') governing 
the collateral arrangement between the parties . . . global trade 
repositories do not currently have fields to support separate reporting 
of data pertaining to the CSA from those which define the master 
agreement. Equally challenging is firms' ability to report data 
pertaining to the CSA as the terms of these agreements are not readily 
reportable in electronic format nor could this be easily or accurately 
achieved.'' \177\ Noting that other global regulators have limited 
their trade reporting requirements to the relevant date and type of the 
master agreement, the commenter believed that the information required 
to be reported should be limited to the identification of party level 
master agreements that govern all of the derivatives transactions 
between the parties, and should not include master confirmations or 
other documentation that is used to facilitate confirmation of the 
security-based swap.\178\
---------------------------------------------------------------------------

    \175\ See DTCC II at 11.
    \176\ See ISDA IV at 8.
    \177\ Id.
    \178\ See id.
---------------------------------------------------------------------------

    The Commission understands that reporting the titles and dates of 
agreements for individual security-based swap transactions may require 
some modification of current practices. However, the Commission 
believes that it is important for regulators to know such titles and 
dates so that the Commission and other relevant authorities would know 
where to obtain further information about the obligations and exposures 
of security-based swap counterparties, as necessary. The Commission 
believes that requiring reporting of the titles and dates of master 
agreements and other agreements governing a transaction--but not the 
agreements themselves or detailed information concerning the 
agreements--would provide regulators with access to necessary 
information without creating an unduly burdensome reporting obligation. 
Therefore, the Commission is adopting Rule 901(d)(1)(iv) substantially 
as proposed and re-proposed, while renumbering it final Rule 901(d)(4). 
With respect to the commenter's concern regarding the difficulty of 
reporting the terms of the documentation governing a security-based 
swap, the Commission emphasizes that final Rule 901(d)(4) requires 
reporting only of the titles and dates of the documents specified in 
Rule 901(d)(4), but not the terms of these agreements.
    The commenter also requested additional clarity regarding the 
proposed requirement generally.\179\ As discussed above, Rule 
901(d)(1)(iv), as proposed and re-proposed, would have required 
reporting of ``the title of any master agreement, or any other 
agreement governing the transaction (including the title of any 
document governing the satisfaction of margin obligations), 
incorporated by reference and the date of any such agreement.'' The 
proposed rule also would have required reporting of the title and date 
of any collateral agreements governing the transaction.\180\ Although 
the rule, as proposed and re-proposed, would have required reporting of 
the title and date of any master agreement, margin agreement, 
collateral agreement, and any other document governing the transaction 
that is incorporated by reference, the Commission agrees that it would 
be useful to state more precisely the information required to be 
reported and to clarify the scope of the rule. Rule 901(d)(4), as 
adopted, requires reporting of, ``[f]or a security-based swap that is 
not a clearing transaction, the title and date of any master agreement, 
collateral agreement, margin agreement, or any other agreement 
incorporated by reference into the security-based swap contract.'' The 
new language makes clear that Rule 901(d)(4) applies only to security-
based swaps that are not clearing transactions (i.e., security-based 
swaps that do not have a registered clearing agency as a direct 
counterparty). Any such agreements relating to a clearing transaction 
would exist by operation of the rules of the registered clearing 
agency, and therefore do not need to be reported pursuant to Regulation 
SBSR because the Commission could obtain information from the 
registered clearing agency as necessary.
---------------------------------------------------------------------------

    \179\ See DTCC V at 12.
    \180\ See Regulation SBSR Proposing Release, 75 FR 75218, note 
63.
---------------------------------------------------------------------------

e. Rule 901(d)(5)--Other Data Elements
    Rule 901(d)(1)(v), as re-proposed, would have required reporting of 
the data elements necessary for a person to determine the market value 
of a transaction. The Commission is adopting Rule 901(d)(1)(v) 
substantially

[[Page 14587]]

as re-proposed, but renumbering it as Rule 901(d)(5) and making certain 
technical and clarifying changes in response to comments.
    As discussed above, re-proposed Rule 901(d)(1)(iii) would have 
required reporting of the amount(s) and currenc(ies) of any up-front 
payments and the terms and contingencies of the payment streams of each 
direct counterparty to the other. One commenter believed that re-
proposed Rule 901(d)(1)(iii) was duplicative of re-proposed Rule 
901(d)(1)(v),\181\ and asked the Commission to provide additional 
clarity on what re-proposed Rule 901(d)(1)(v) requires.\182\ To address 
these comments, the Commission is revising adopted Rule 901(d)(5) to 
require the reporting, to the extent not required pursuant to Rule 
901(c) or other provisions of Rule 901(d), of any additional data 
elements included in the agreement between the counterparties that are 
necessary for a person to determine the market value of the 
transaction.
---------------------------------------------------------------------------

    \181\ See DTCC II at 10.
    \182\ See DTCC V at 12.
---------------------------------------------------------------------------

    Another commenter expressed concern that the requirements of re-
proposed Rule 901(d)(1)(v) were vague, ``leaving reporting parties and 
trade repositories with the task of establishing the reportable data 
with potentially different result.'' \183\ This commenter recommended 
that Commission revise the rule to clarify the requirement to report 
``(i) the mark-to-market value and currency code and (ii) the date and 
time of the valuation in Coordinated Universal Time . . .'' \184\ 
Further, because information necessary to determine the market value of 
a transaction ``is determined as part of end of day processes,'' the 
commenter requested that the timeframe for reporting data pertaining to 
market value be based on the end of the day on which the relevant data 
was determined.\185\
---------------------------------------------------------------------------

    \183\ ISDA IV at 9.
    \184\ Id.
    \185\ See id.
---------------------------------------------------------------------------

    In response to these concerns, the Commission emphasizes that 
neither Regulation SBSR, as proposed and re-proposed, nor Regulation 
SBSR, as adopted, requires the reporting of the market value of a 
security-based swap (although the negotiated price of the actual 
transaction is required to be reported), either on a one-time or 
ongoing basis.\186\ As noted above, final Rule 901(d)(5) requires 
reporting, to the extent not required pursuant to Rule 901(c) or other 
provisions of Rule 901(d), of any additional data elements included in 
the agreement between the counterparties that are necessary to 
determine the market value of the transaction. This refers to all of 
the contractual terms and conditions of a security-based swap that a 
party would need to perform its own calculation of the market value of 
the security-based swap using its own market data. Although the 
reporting side must include, as part of the initial transaction report, 
the information necessary to determine the market value of the 
transaction, Regulation SBSR does not require the reporting side to 
take the additional step of calculating and reporting the market value 
of the transaction, nor does it require the reporting side to provide 
any market data that would be needed to calculate the market value of 
the transaction.
---------------------------------------------------------------------------

    \186\ In contrast, the CFTC's swap data reporting rules require 
reporting parties to report the market value of swap transactions to 
a CFTC-registered swap data repository on a daily basis. See 17 CFR 
45.4(a)(2).
---------------------------------------------------------------------------

    Rule 901(d)(5) is designed to help to ensure that all of the 
material terms of the agreement between the counterparties that is 
necessary to determine the market value of a security-based swap are 
available to the Commission and other relevant authorities.\187\ The 
Commission continues to believe that this requirement will facilitate 
regulatory oversight by giving relevant authorities the information 
necessary to value an entity's security-based swap positions and 
calculate the exposure resulting from those positions. However, the 
final language of Rule 901(d)(5) is designed to eliminate any overlap 
with other provisions of Rule 901(c) or 901(d). For example, if a 
security-based swap has a product ID, the Commission presumes that all 
information necessary to identify the security-based swap and determine 
the market value of the transaction could be derived from the product 
ID (or the identification information behind that particular product 
ID). Therefore, it would not be necessary to report any additional 
information pursuant to Rule 901(d)(5) for a security-based swap for 
which a product ID is reported.
---------------------------------------------------------------------------

    \187\ This could include--by way of example and not of 
limitation--information about interest rate features, commodities, 
or currencies that are part of the security-based swap contract.
---------------------------------------------------------------------------

    In addition, the Commission is further clarifying the rule by 
making a technical change to indicate that final Rule 901(d)(5) 
requires the reporting only of data elements ``included in the 
agreement between the counterparties.'' The Commission believes that 
the rule as proposed and re-proposed--which did not include this 
phrase--could have been interpreted to require the reporting of 
information external to the agreement between the counterparties that 
could have helped determine the market value of the security-based swap 
(e.g., the levels of supply and demand in the market for the security-
based swap). The Commission intended, however, to require reporting 
only of information included in the agreement between the 
counterparties, not of general market information. Accordingly, final 
Rule 901(d)(5) requires the reporting only of data elements ``included 
in the agreement between the counterparties'' that are necessary for a 
person to determine the market value of the transaction.
    Finally, one commenter believed that proposed Rule 901(d)(1)(v) 
should require reporting only of the full terms of a security-based 
swap as laid out in the trade confirmation.\188\ Although the 
Commission agrees that the full terms of a trade confirmation could, in 
some cases, provide the data elements included in the agreement between 
the counterparties that are necessary to determine the market value of 
a transaction, the Commission notes that the information required to be 
reported pursuant Rule 901(d)(5) would not necessarily be limited to 
information included in the trade confirmation. Not all market 
participants observe the same conventions for confirming their trades. 
The Commission understands that confirmations for some types of trades 
are significantly more standardized than others. Some trades may have 
critical terms included in other documentation, such as master 
confirmation agreements or credit support annexes. Moreover, 
confirmation practices in the future may differ from current 
confirmation practices. The Commission believes, therefore, that 
restricting information reported in accordance with Rule 901(d)(5) to 
the information included in the confirmation would not provide the 
Commission and other relevant authorities with sufficient information 
regarding the market value of a security-based swap.
---------------------------------------------------------------------------

    \188\ See DTCC II at 10.
---------------------------------------------------------------------------

f. Rule 901(d)(6)--Submission to Clearing
    Rule 901(d)(1)(vi), as re-proposed, would have required reporting 
of the following data element: ``If the security-based swap will be 
cleared, the name of the clearing agency.'' This information would 
allow the Commission to verify, if necessary, that a security-based 
swap was cleared, and to identify the clearing agency that cleared the 
transaction. The

[[Page 14588]]

Commission received no comments on this provision and is adopting it 
substantially as re-proposed, with minor clarifying changes and 
renumbered as Rule 901(d)(6). Rule 901(d)(6), as adopted, requires 
reporting of the following: ``If applicable, and to the extent not 
provided pursuant to paragraph (c) of this section, the name of the 
clearing agency to which the security-based swap will be submitted for 
clearing.''
    For some security-based swaps, the name of the clearing agency that 
clears the security-based swap could be inherent in the product ID. 
Rule 901(d)(6), as adopted, clarifies that the name of the clearing 
agency to which the security-based swap will be submitted for clearing 
need not be reported if that information is inherent in the product ID. 
In addition, the new language regarding whether the security-based swap 
will be submitted for clearing reflects the possibility that a clearing 
agency could reject the security-based swap for clearing after it has 
been submitted. The Commission believes that it would be useful to know 
the name of the clearing agency to which the transaction is submitted, 
even if the clearing agency rejects the transaction.
g. Rule 901(d)(7)--Indication of Use of End-User Exception
    Rule 901(d)(1)(vii), as re-proposed, would have required reporting 
of whether a party to the transaction invoked the so-called ``end user 
exception'' from clearing, which is contemplated in Section 3C(g) of 
the Exchange Act.\189\ Section 3C(g)(6) of the Exchange Act \190\ 
provides for the Commission to request information from persons that 
invoke the exception. The Commission preliminarily believed that 
requiring reporting of whether the exception was invoked in the case of 
a particular security-based swap would assist the Commission in 
monitoring use of the exception.\191\
---------------------------------------------------------------------------

    \189\ 15 U.S.C. 78c-3(g). Section 3C(g)(1) of the Exchange Act 
provides that the general clearing mandate set forth in Section 
3C(a)(1) of the Exchange Act will not apply to a security-based swap 
if one of the counterparties to the security-based swap: (1) Is not 
a financial entity; (2) is using security-based swaps to hedge or 
mitigate commercial risk; and (3) notifies the Commission, in a 
manner set forth by the Commission, how it generally meets if 
financial obligations associated with entering into non-cleared 
security-based swaps. The application of Section 3C(g)(1) is solely 
at the discretion of the security-based swap counterparty that 
satisfies these conditions. See Securities Exchange Act Release No. 
63556 (December 15, 2010), 75 FR 79992 (December 21, 2010).
    \190\ 15 U.S.C. 78c-3(g)(6).
    \191\ See Regulation SBSR Proposing Release, 75 FR 75218.
---------------------------------------------------------------------------

    One commenter argued that the Commission should not use the trade 
reporting mechanism ``to police the end-user exception.'' \192\ The 
commenter expressed concern with an end user having to certify 
eligibility with each transaction and stated that ``it is illogical 
that filings by swap dealers should determine the eligibility of the 
end user.'' \193\ The Commission acknowledges the commenter's concerns 
but believes that they are misplaced. Re-proposed Rule 901(d)(1)(vii) 
would not require reporting of any information as to the end user's 
eligibility to invoke the exception for a specific transaction; 
instead, it would require reporting only of the fact of the exception 
being invoked. The Commission could then obtain information from a 
registered SDR regarding instances of the exception being invoked and 
could determine, as necessary, whether to further evaluate whether the 
exception had been invoked properly. The Commission does not believe 
that it is necessary or appropriate to require information about the 
end user's eligibility to invoke the exception to be reported under 
Rule 901(d). Therefore, the Commission has determined to adopt Rule 
901(d)(1)(vii) as re-proposed, but is renumbering it as Rule 901(d)(7).
---------------------------------------------------------------------------

    \192\ Cravath Letter at 3.
    \193\ Id. at 4.
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h. Rule 901(d)(8)--Description of Settlement Terms
    Rule 901(d)(1)(viii), as re-proposed, would have required, for a 
security-based swap that is not cleared, a description of the 
settlement terms, including whether the security-based swap is cash-
settled or physically settled, and the method for determining the 
settlement value. In the Regulation SBSR Proposing Release, the 
Commission stated its preliminary belief that this information would 
assist relevant authorities in monitoring the exposures and obligations 
of security-based swap market participants.\194\ One commenter 
expressed the view that the settlement terms could be derived from 
other data fields and thus recommended deletion of this data element, 
or in the alternative, requested additional clarity on what would be 
required pursuant to this provision.\195\
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    \194\ See 75 FR 75218.
    \195\ See DTCC V at 12.
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    Re-proposed Rule 901(d)(1)(viii) is being adopted substantially as 
re-proposed but renumbered as final Rule 901(d)(8) and now includes 
certain revisions that respond to the commenter and clarify the 
operation of the rule. Rule 901(d)(8), as adopted, requires: ``[t]o the 
extent not provide pursuant to other provisions of this paragraph (d), 
if the direct counterparties do not submit the security-based swap to 
clearing, a description of the settlement terms, including whether the 
security-based swap is cash-settled or physically settled, and the 
method for determining the settlement value.'' The Commission believes 
that the final rule makes clear that there is no requirement to report 
information concerning the settlement terms of an uncleared security-
based swap if the information was reported pursuant to another 
provision of Rule 901(d). Similarly, there is no requirement to report 
the settlement terms pursuant to Rule 901(d)(8) if the settlement terms 
are inherent in the product ID. Final Rule 901(d)(8) is designed to 
facilitate regulatory oversight by providing the Commission and other 
relevant authorities with information necessary to understand the 
exposures of security-based swap counterparties.
i. Rule 901(d)(9)--Platform ID
    Rule 901(d)(1)(ix), as re-proposed, would have required reporting 
of the venue where a security-based swap was executed. This would 
include, if applicable, an indication that a security-based swap was 
executed bilaterally in the OTC market.\196\ This information could be 
useful for a variety of purposes, including studying the development of 
security-based swap execution facilities (``SB SEFs'') or conducting 
more detailed surveillance of particular security-based swap 
transactions. In the latter case, the Commission or another relevant 
authority would find it helpful to know the execution venue, from which 
it could obtain additional information as appropriate.
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    \196\ See Regulation SBSR Proposing Release, 75 FR 75218.
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    One commenter, in discussing the entity that should assign 
transaction IDs, suggested that linking a trade to a particular 
platform potentially could result in the unintentional disclosure of 
the identities of the counterparties.\197\ The Commission notes that 
information concerning the venue where a security-based swap was 
executed, like all secondary trade information reported under Rule 
901(d), is not required to be, and thus may not be, publicly 
disseminated. Because the platform ID may not be publicly disseminated, 
there is no potential for it to unintentionally

[[Page 14589]]

identify the counterparties to the transaction.
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    \197\ See DTCC II at 15-16.
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    The Commission continues to believe that information identifying 
the venue where a security-based swap was executed, whether on a 
trading platform or in the OTC market, is necessary information for 
relevant authorities to conduct surveillance in the security-based swap 
market and understand developments in the security-based swap market 
generally. Therefore, the Commission is adopting the rule substantially 
as re-proposed and renumbering it as final Rule 901(d)(9).
    One commenter asked the Commission to clarify that re-proposed Rule 
901(d)(1)(ix) would require reporting only of execution platforms 
required to register with the Commission or the CFTC.\198\ The 
Commission believes that final Rule 901(d)(9) largely accomplishes this 
result. Specifically, the Commission has revised Rule 901(d)(9) to 
require reporting, if applicable, of the ``platform ID,'' rather than 
the ``execution venue'' more broadly. To implement this requirement, 
the Commission also is adopting a definition of ``platform.'' Final 
Rule 900(v) defines a ``platform'' as ``a national securities exchange 
or a security-based swap execution facility that is registered or 
exempt from registration.'' \199\ Rule 900(w) defines ``platform ID'' 
as the UIC assigned to the platform on which a security-based swap is 
executed. The platform ID, like other UICs, must be assigned as 
provided in Rule 903. The Commission believes that this approach makes 
clear that other entities that may be involved in executing 
transactions, such as inter-dealer brokers, are not considered 
platforms for purposes of this reporting requirement.\200\
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    \198\ See ISDA IV at 9.
    \199\ The Commission believes that transactions occurring on a 
registered SB SEF as well as an exempt SB SEF should be reported to 
a registered SDR. Certain entities that currently meet the 
definition of ``security-based swap execution facility'' are not yet 
registered with the Commission and will not have a mechanism for 
registering until the Commission adopts final rules governing the 
registration and core principles of SB SEFs. These entities 
currently operate pursuant to an exemption from certain otherwise 
applicable provisions of the Exchange Act. See Securities Exchange 
Act Release No. 34-64678 (June 15, 2011), 76 FR 36287, 36292-93 
(June 22, 2011) (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). In addition, the Commission has raised the possibility of 
granting exemptions to certain foreign security-based swap markets 
that otherwise would meet the definition of ``security-based swap 
execution facility.'' See Cross-Border Proposing Release, 78 FR 
31056 (``The Commission preliminarily believes that it may be 
appropriate to consider an exemption as an alternative approach to 
SB SEF registration depending on the nature or scope of the foreign 
security-based swap market's activities in, or the nature or scope 
of the contacts the foreign security-based swap market has with, the 
United States''). The adopted definition of ``platform'' requires 
such entities to be identified in SDR transaction reports and thus 
will enable the Commission and other relevant authorities to observe 
transactions that occur on such exempt SB SEFs.
    \200\ Consistent with Rule 901(d)(9), a registered SDR could 
create a single identifier for transactions that are not executed on 
a national securities exchange or a SB SEF that is registered or 
exempt from registration.
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j. Rule 901(d)(10)--Transaction ID of Any Related Transaction
    Regulation SBSR, as proposed and re-proposed, was designed to 
obtain complete and accurate reporting of information regarding a 
security-based swap from its execution through its termination or 
expiration. In the Regulation SBSR Proposing Release, the Commission 
noted that maintaining an accurate record of the terms of a security-
based swap would require reporting of life cycle event information to a 
registered SDR.\201\ The term ``life cycle event'' includes 
terminations, novations, and assignments of existing security-based 
swaps.\202\ As discussed in greater detail in Sections V(C)(5) and 
VIII(A), infra, a new security-based swap may arise following the 
allocation, termination, novation, or assignment of an existing 
security-based swap, and that the reporting side for the new security-
based swap must report the transaction to a registered SDR.\203\ The 
Commission believes that it should be able to link any new security-
based swaps that arise from the termination, novation, or assignment of 
an existing security-based swap to the original transaction. For 
example, when a single security-based swap is executed as a bunched 
order and then allocated among multiple counterparties, the Commission 
and other relevant authorities should be able to link the allocations 
to the executed bunched order.\204\ The ability to link a security-
based swap that arises from an allocation, termination, novation, or 
assignment back to the original security-based swap(s) will help to 
assure that the Commission and relevant authorities have an accurate 
and current representation of counterparty exposures.
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    \201\ See 75 FR 75220. The Commission re-affirmed the importance 
of life cycle event reporting for security-based swaps in the Cross-
Border Proposing Release. See 75 FR 31068.
    \202\ See infra Section XXI(A) (discussing the definition of 
``life cycle events'').
    \203\ Certain terminations, such as the termination of an alpha 
upon acceptance for clearing, result in the creation of new 
security-based swaps (e.g., the beta and gamma). Similarly, 
security-based swaps that are terminated during netting or 
compression exercises result in the creation of new security-based 
swaps. Regardless of the circumstances, if a security-based swap 
arises from the termination of an existing security-based swap, the 
reporting side for the new security-based swap must report the 
transaction to a registered SDR as required by Rule 901(a).
    \204\ See infra Section VIII (explaining the application of 
Regulation SBSR to security-based swaps involving allocations).
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    To facilitate the Commission's ability to map a resulting security-
based swap back to the original transaction--particularly if the 
original transaction and the resulting transaction(s) are reported to 
different registered SDRs--the Commission is adopting Rule 901(d)(10), 
which requires the reporting side for a security-based swap that arises 
from an allocation, termination, novation, or assignment of one or more 
existing security-based swaps, to report ``the transaction ID of the 
allocated, terminated, assigned, or novated security-based swap(s), 
except in the case of a clearing transaction that results from the 
netting or compression of other clearing transactions.'' \205\ The 
Commission does not believe that it is necessary to require reporting 
of the transaction ID for clearing transactions that result from other 
clearing transactions because clearing transactions occur solely within 
the registered clearing agency and are used by the registered clearing 
agency to manage the positions of clearing members and, possibly their 
clients. Thus, it would not be necessary for regulatory authorities to 
have the ability to link together clearing transactions that result 
from other clearing transactions.
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    \205\ See infra Section V(B) (discussing the definition of 
``clearing transaction'').
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k. Information That Is Not Required by Rule 901(d)
    One commenter, responding to a question in the Regulation SBSR 
Proposing Release,\206\ stated that the Commission should not require 
reporting of the purpose of a security-based swap because it could 
reveal proprietary information, and because the parties to a security-
based swap often will have several reasons for executing the 
transaction.\207\ The Commission agrees that counterparties could have 
multiple reasons for entering into a security-based swap, and that 
requiring reporting of a particular reason could be impractical. 
Furthermore, different sides to the same transactions would likely have 
different reasons for entering into it. The

[[Page 14590]]

Commission notes, further, that it did not propose to require reporting 
of the purpose of the security-based swap and Rule 901, as adopted, 
does not include a requirement to report this information.
---------------------------------------------------------------------------

    \206\ See 75 FR 75218 (question 39).
    \207\ See ISDA/SIFMA I at 12. See also Barnard I at 2 (stating 
that the commenter was ``not convinced'' that the Commission should 
require reporting of the purpose of a security-based swap 
transaction).
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    Two commenters recommended that the Commission require reporting of 
valuation data on an ongoing basis.\208\ The Commission emphasizes that 
it did not propose to require the reporting of valuation data in either 
the Regulation SBSR Proposing Release or the Cross-Border Proposing 
Release, and that it is not adopting such a requirement at this 
time.\209\ However, the Commission will continue to assess the 
reporting and public dissemination regime under Regulation SBSR and 
could determine to propose additional requirements, such as the 
reporting of valuations, as necessary or appropriate. In addition, the 
Commission notes that the data elements required under Rules 901(c) and 
901(d) are designed to allow the public, the Commission, other relevant 
authorities, or a data analytics firm engaged by a relevant authority, 
to calculate the market value of a security-based swap at the time of 
execution of the trade.\210\
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    \208\ See DTCC II at 10; Markit I at 3. A third commenter, 
discussing the Commission's proposed rules governing recordkeeping 
and reporting requirements for security-based swap dealers, major 
security-based swap participants, and broker-dealers (Securities 
Exchange Act Release No. 34-71958 (April 17, 2014), 79 FR 25194 (May 
2, 2014)), urged the Commission to provide guidance regarding the 
methods these entities should use to produce valuation information). 
See Levin Letter at 3-4. A fourth commenter asked the Commission to 
confirm that there is no requirement to report valuation data on a 
daily basis, provided that there has been no change in the data. See 
ISDA IV at 11.
    \209\ See also Section II(B)(3)(e), supra.
    \210\ See Rule 901(d)(5) (requiring reporting of any additional 
data elements included in the agreement between the counterparties, 
to the extent not already provided under another provision of Rule 
901(c) or 901(d), that are necessary for a person to determine the 
market value of the transaction); Regulation SBSR Proposing Release, 
75 FR 75218 (``the reporting of data elements necessary to calculate 
the market value of a transaction would allow regulators to value an 
entity's [security-based swap] positions and calculate the exposure 
resulting from those provisions'').
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C. Reporting of Historical Security-Based Swaps

1. Statutory Basis and Proposed Rule
    Section 3C(e)(1) of the Exchange Act \211\ requires the Commission 
to adopt rules providing for the reporting to a registered SDR or to 
the Commission of security-based swaps entered into before the date of 
enactment of Section 3C (i.e., July 21, 2010). By its terms, this 
provision is not limited to security-based swaps that were still open 
as of the date of enactment of the Dodd-Frank Act. In the Regulation 
SBSR Proposing Release, the Commission took the preliminary view that 
an attempt to collect many years' worth of transaction-level security-
based swap data (including data on terminated or expired security-based 
swaps) would not enhance the goal of price discovery, nor would it be 
particularly useful to relevant authorities or market participants in 
implementing a forward-looking security-based swap reporting and 
dissemination regime.\212\ The Commission also took the preliminary 
view that collecting, reporting, and processing all such data would 
involve substantial costs to market participants with little potential 
benefit. Accordingly, the Commission proposed to limit the reporting of 
security-based swaps entered into prior to the date of enactment to 
only those security-based swaps that had not expired as of the date of 
enactment of the Dodd-Frank Act (``pre-enactment security-based 
swaps'').
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    \211\ 15 U.S.C. 78c-3(e)(1).
    \212\ See 75 FR 75223-24.
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    In addition, Section 3C(e)(2) of the Exchange Act \213\ requires 
the Commission to adopt rules that provide for the reporting of 
security-based swaps entered into on or after the date of enactment of 
Section 3C (``transitional security-based swaps'').\214\
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    \213\ 15 U.S.C. 78c 3(e)(2).
    \214\ See Regulation SBSR Proposing Release, 75 FR 75224. See 
also re-proposed Rule 900(kk) (defining ``transitional security-
based swap'' to mean ``any security-based swap executed on or after 
July 21, 2010, and before the effective reporting date'').
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    The Commission proposed Rule 901(i) to implement both of these 
statutory requirements. Rule 901(i), as proposed, would have required a 
reporting party to report all of the information required by Rules 
901(c) and 901(d) for any pre-enactment security-based swap or 
transitional security-based swap (collectively, ``historical security-
based swaps''), to the extent such information was available. Thus, 
Rule 901(i), as proposed and re-proposed, would have required the 
reporting only of security-based swaps that were open on or executed 
after the date of enactment (July 21, 2010). The Commission further 
proposed that historical security-based swaps would not be subject to 
public dissemination. In the Cross-Border Proposing Release, the 
Commission re-proposed Rule 901(i) in its entirety with only one 
technical revision, to replace the term ``reporting party'' with 
``reporting side.''
2. Final Rule and Discussion of Comments Received
    As adopted, Rule 901(i) states: ``With respect to any pre-enactment 
security-based swap or transitional security-based swap in a particular 
asset class, and to the extent that information about such transaction 
is available, the reporting side shall report all of the information 
required by [Rules 901(c) and 901(d)] to a registered security-based 
swap data repository that accepts security-based swaps in that asset 
class and indicate whether the security-based swap was open as of the 
date of such report.'' In adopting Rule 901(i), the Commission is 
making minor changes to the rule as re-proposed in the Cross-Border 
Proposing Release. The Commission has added the clause ``in a 
particular asset class'' following ``transitional security-based swap'' 
and the clause ``to a registered security-based swap data repository 
that accepts security-based swaps in that asset class.'' The security-
based swap market is segregated into different asset classes, and an 
SDR might choose to collect and maintain data for only a single asset 
class. These new clauses clarify that a reporting side is not obligated 
to report historical security-based swaps in a particular asset class 
to a registered SDR that does not accept security-based swaps in that 
asset class. A reporting side's duty to report a historical security-
based swap in a particular asset class arises only when there exists a 
registered SDR that accepts security-based swaps in that asset class.
    The Commission also is adopting the definition of ``pre-enactment 
security-based swap'' as proposed and re-proposed.\215\ Further, the 
Commission is adopting the definition of ``transitional security-based 
swap'' substantially as proposed and re-proposed, with one clarifying 
change and a technical revision to eliminate the obsolete term 
``effective reporting date.'' \216\ Rule

[[Page 14591]]

900(nn), as adopted, defines ``transitional security-based swap'' to 
mean ``a security-based swap executed on or after July 21, 2010, and 
before the first date on which trade-by-trade reporting of security-
based swaps in that asset class to a registered security-based swap 
data repository is required pursuant to Sec. Sec.  242.900 through 
242.909.'' Thus, only those security-based swaps that were open as of 
the date of enactment (July 21, 2010) or opened thereafter must be 
reported. The Commission continues to believe that the costs of 
reporting security-based swaps that terminated or expired before July 
21, 2010, would not justify any potential benefits, particularly given 
the difficulty of assembling records concerning these transactions 
after many years. One commenter specifically agreed with the 
Commission's proposal to limit reporting of security-based swaps 
entered into prior to the date of enactment only to those that had not 
expired as of that date.\217\
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    \215\ See Rule 900(y).
    \216\ The term ``effective reporting date'' was used in the 
compliance schedule set out in re-proposed Rule 910, which the 
Commission is not adopting. The ``effective reporting date,'' would 
have been defined to mean, with respect to a registered [SDR], the 
date six months after the registration date. The ``registration 
date'' would have been defined to mean, with respect to a registered 
SDR, ``the date on which the Commission registers the security-based 
swap data repository, or, if the Commission registers the security-
based swap data repository before the effective date of Sec. Sec.  
242.900 through 242.911, the effective date of Sec. Sec.  242.900 
through 242.911.'' See re-proposed Rules 900(l) and 900(bb), 
respectively. The Commission is making a conforming change to delete 
the defined terms ``effective reporting date'' and ``registration 
date'' from final Rule 900. As noted in Section I(F) above, the 
Commission is proposing a new compliance schedule for Rules 901, 
902, 903, 904, 905, 906, and 908 of Regulation SBSR in the 
Regulation SBSR Proposed Amendments Release.
    \217\ See ISDA I at 2, note 1.
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    However, this commenter also expressed concern that a blanket 
requirement to report all pre-enactment security-based swaps ``risks 
double-counting and presenting a distorted view of certain markets.'' 
\218\ In particular, the commenter indicated that compression exercises 
and tri-party novations raised concerns regarding the potential for 
double-counting. The Commission shares the commenter's concern that 
double-counting could create a distorted view of the security-based 
swap market. Therefore, the Commission is adding new language at the 
end of the Rule 901(i) which provides that the reporting side of a pre-
enactment or transitional security-based swap must ``indicate whether 
the security-based swap was open as of the date of such report.'' This 
information is necessary to allow a registered SDR to calculate a 
participant's open positions established before the time trade-by-trade 
reporting becomes mandatory for a particular asset class.
---------------------------------------------------------------------------

    \218\ Id. at 4.
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    The commenter also stated that ``inter-affiliate security-based 
swaps should not be subject to reporting.'' \219\ The Commission 
disagrees with this suggestion. As described in Section IX, infra, the 
Commission believes generally that inter-affiliate security-based swaps 
should be subject to regulatory reporting and public dissemination. The 
Commission thus believes that pre-enactment inter-affiliate security-
based swaps also should be subject to regulatory reporting, assuming 
that such security-based swaps were opened after the date of enactment 
or still open as of the date of enactment. The Commission notes, 
however, that no information reported pursuant to Rule 901(i) will be 
publicly disseminated.
---------------------------------------------------------------------------

    \219\ ISDA I at 5.
---------------------------------------------------------------------------

    Having access to information regarding historical security-based 
swaps will help the Commission and other relevant authorities continue 
to develop a baseline understanding of positions and risk in the 
security-based swap market, starting on the date of enactment of the 
Dodd-Frank Act, which contemplates the regime for regulatory reporting 
of all security-based swaps. These transaction reports will provide a 
benchmark against which to assess the development of the security-based 
swap market over time, and help the Commission to prepare reports that 
it is required to provide to Congress.
    One commenter, while generally supporting the Commission's proposal 
to require reporting of historical security-based swaps to a registered 
SDR, argued that only open contracts should be reported.\220\ The 
Commission partially agrees with this comment and thus, as noted above, 
is requiring reporting of only pre-enactment security-based swaps that 
were open as of the date of enactment. However, the Commission believes 
that all security-based swaps entered into on or after the date of 
enactment should be reported--even if they expired or were terminated 
before trade-by-trade reporting becomes mandatory--and that the 
reporting side should indicate whether the security-based swap was open 
as of the date of such report. While reporting of terminated or expired 
transitional security-based swaps is not necessary for the calculation 
of market participants' open positions, this information will assist 
the Commission and other relevant authorities to create, for 
surveillance purposes, at least a partial audit trail \221\ of 
transactions executed after the date of enactment and, more generally, 
to analyze market developments since the date of enactment.
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    \220\ See DTCC II at 17.
    \221\ The Commission notes that Rule 901(i) by its terms 
requires the reporting of historical security-based swaps only ``to 
the extent such information is available.'' Thus, if information 
about terminated or expired transitional security-based swaps no 
longer exists, it would not be required to be reported under Rule 
901(i).
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    This commenter also argued that security-based swaps ``only [in] 
their current state should need to be reported, without additional 
information like execution time.'' \222\ A second commenter expressed 
concern that the reporting requirements for historical security-based 
swaps could require parties to modify existing trades that occurred in 
a heretofore unregulated market in order to comply with Rule 
901(i).\223\ A third commenter expressed concern that ``[t]he 
submission of non-electronic transaction confirmations [for pre-
enactment security-based swaps] will be extremely burdensome for 
reporting entities,'' \224\ and recommended instead that the Commission 
``permit the reporting in a common electronic format of the principal 
electronic terms'' of each such pre-enactment security-based swap.\225\
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    \222\ DTCC II at 17. See also ISDA I at 5 (requesting that the 
Commission clarify that market participants are not required to 
provide trade execution time information for pre-enactment security-
based swap transactions).
    \223\ See Roundtable Letter at 11 (stating that ``any effort to 
alter the terms or documentation of existing swaps would be resource 
intensive with potentially significant negative consequences'').
    \224\ Deutsche Bank Letter at 2.
    \225\ Id. at 3.
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    For several reasons, the Commission believes that Rule 901(i) 
strikes a reasonable balance between the burdens placed on security-
based swap counterparties and the policy goal of enabling the 
Commission and other relevant authorities to develop a baseline 
understanding of counterparties' security-based swap positions. First, 
the Commission notes that Rule 901(i) requires reporting of the data 
elements set forth in Rules 901(c) and 901(d) only to the extent such 
information is available. The Commission does not expect, nor is it 
requiring, reporting sides to create or re-create data related to 
historical security-based swaps. Thus, if the time of execution of a 
historical security-based swap was not recorded by the counterparties, 
it is not required to be reported under Rule 901(i). Similarly, Rule 
901(i) does not require counterparties to modify existing transactions 
in any way to ensure that all data fields are complete. By limiting the 
reporting requirement to only that information that is available, the 
Commission is acknowledging that, for historical security-based swaps, 
certain information contemplated by Rules 901(c) and 901(d) may not be 
available. The Commission generally believes that the benefits of 
requiring security-based swap counterparties to reconstruct the missing 
data elements--including, for example, the time of execution--
potentially several years after the time of execution--would not 
justify the costs.

[[Page 14592]]

    The Commission agrees with the commenter who argued that providing 
large volumes of non-electronic confirmations to registered SDRs is not 
desirable, and that the Commission instead should require reporting in 
a ``common electronic format.'' \226\ As discussed in Section IV, 
infra, Rules 907(a)(1) and 907(a)(2) require registered SDRs to 
establish and maintain policies and procedures that enumerate the 
specific data elements and the acceptable data formats for transaction 
reporting, including of historical security-based swaps. The Commission 
expects that registered SDRs and their participants will consult 
regarding the most efficient and cost effective ways to report the 
transaction information required by Rule 901(i). Furthermore, to the 
extent that information regarding a historical security-based swap 
already has been reported to a person that will register with the 
Commission as an SDR--or to a person that itself will not seek 
registration as an SDR but will transfer the historical security-based 
swap information to an affiliate that registers as an SDR--Rule 901(i) 
would be satisfied, and would not require resubmission of that 
information to the registered SDR.\227\
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    \226\ Deutsche Bank Letter at 2-3.
    \227\ One commenter, DTCC, noted that the Trade Information 
Warehouse could provide an affiliate that will seek registration as 
an SDR with information related to security-based swaps that were 
previously reported to the Trade Information Warehouse. See DTCC II 
at 17.
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    Finally, the Commission notes an issue relating to the reporting of 
the counterparty ID of historical security-based swaps. As commenters 
have discussed,\228\ certain foreign jurisdictions have privacy laws or 
blocking statutes that may prohibit the disclosure of the identity of a 
counterparty to a financial transaction, such as a security-based swap 
transaction. Thus, the reporting side of a cross-border security-based 
swap could face a dilemma: Comply with Regulation SBSR and report the 
identity of the counterparty and thereby violate the foreign law, or 
comply with the foreign law by withholding the identity of the 
counterparty and thereby violate Regulation SBSR. As discussed in 
Section XVI(B), infra, the Commission will consider requests for 
exemptions from the requirement under Rule 901(i) to report the 
identity of a counterparty with respect to historical security-based 
swaps.
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    \228\ See infra note 956.
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III. Where To Report Data

A. All Reports Must Be Submitted to a Registered SDR

    Section 13A(a)(1) of the Exchange Act \229\ provides that ``[e]ach 
security-based swap that is not accepted for clearing by any clearing 
agency or derivatives clearing organization shall be reported to--(A) a 
registered security-based swap data repository described in Section 
13(n); 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.'' Section 13(m)(1)(G) of the Exchange Act \230\ provides 
that ``[e]ach security-based swap (whether cleared or uncleared) shall 
be reported to a registered security-based swap data repository.'' Rule 
901(b) implements these statutory requirements.
---------------------------------------------------------------------------

    \229\ 15 U.S.C. 78m-1(a)(1).
    \230\ 15 U.S.C. 78m(m)(1)(G).
---------------------------------------------------------------------------

    Rule 901(b), as re-proposed, would have required reporting of the 
security-based swap transaction information required under Regulation 
SBSR ``to a registered security-based swap data repository or, if there 
is no registered security-based swap data repository that would accept 
the information, to the Commission.'' In addition, Rule 13n-5(b)(1)(ii) 
under the Exchange Act, adopted as part of the SDR Adopting Release, 
requires an SDR that accepts reports for any security-based swap in a 
particular asset class to accept reports for all security-based swaps 
in that asset class that are reported to the SDR in accordance with 
certain SDR policies and procedures. In view of this requirement under 
Rule 13n-5(b)(1)(ii) and the statutory requirement in Section 
13(m)(1)(G) that all security-based swaps, whether cleared or 
uncleared, must be reported to a registered SDR, the Commission does 
not anticipate that any security-based swaps will be reported directly 
to the Commission.
    Some commenters noted the potential advantages of designating a 
single registered SDR for each asset class.\231\ Another commenter, 
however, believed that a diverse range of options for reporting 
security-based swap data would benefit the market and market 
participants.\232\ These comments concerning the development of 
multiple registered SDRs are discussed in Section XIX, infra. No 
commenters opposed Rule 901(b), and the Commission is adopting Rule 
901(b) with technical modifications to clarify the rule.\233\
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    \231\ See DTCC II at 14-15 (noting the potential for 
fragmentation of data and overstatement of net open interest and net 
exposure if security-based swaps in the same asset class are 
reported to multiple registered SDRs); ISDA/SIFMA I at note 12 
(stating that the designation of a single registered SDR per asset 
would provide valuable efficiencies because there would be no 
redundancy of platforms or need for additional data aggregation, 
which would reduce the risk of errors associated with transmitting, 
aggregating, and analyzing data from multiple sources).
    \232\ See MFA I at 6.
    \233\ Rule 901(b), as re-proposed, would have required reporting 
of the security-based swap transaction information required under 
Regulation SBSR ``to a registered security-based swap data 
repository or, if there is no registered security-based swap data 
repository that would accept the information, to the Commission.'' 
Final Rule 901(b) provides: ``If there is no registered security-
based swap data repository that will accept the report required by 
Sec.  242.901(a), the person required to make such report shall 
instead provide the required information to the Commission.''
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B. Duties of Registered SDR Upon Receiving Transaction Reports

1. Rule 901(f)--Time Stamps
    Rule 901(f), as re-proposed, provided that ``[a] registered 
security-based swap data repository shall time stamp, to the second, 
its receipt of any information submitted to it pursuant to paragraph 
(c), (d), (e), or (i) of this section.'' The Commission preliminarily 
believed that this requirement would help regulators to evaluate 
certain trading activity.\234\ For example, a reporting side's pattern 
of submitting late transaction reports could be an indicator of 
weaknesses in the reporting side's internal compliance processes. 
Accordingly, the Commission preliminarily believed that the ability to 
compare the time of execution with the time of receipt of the report by 
the registered SDR could be an important component of surveillance 
activity conducted by relevant authorities.
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    \234\ See Regulation SBSR Proposing Release, 75 FR 75221.
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    One commenter, noting that proposed Rule 901(f) would require time-
stamping to the nearest second, argued that ``[t]ime-stamping increment 
should be as small as technologically practicable, but in any event no 
longer than fractions of milliseconds.'' \235\ The commenter expressed 
the view that, especially in markets with multiple SB SEFs or where 
algorithmic trading occurs, ``the sequencing of trade data for 
transparency and price discovery, as well as surveillance and 
enforcement purposes, will require much smaller increments of time-
stamping.'' \236\ The Commission notes, however, that Rule 901(f) is 
designed to allow the Commission to learn when a transaction has been 
reported to a registered SDR, not when the transaction was executed. 
The interim phase of applying Regulation SBSR allows transactions to

[[Page 14593]]

be reported up to 24 hours after time of execution. The Commission 
believes that no purpose would be served by knowing the moment of 
reporting to the subsecond. Instead, the Commission believes that this 
comment is germane instead to the reporting of time of execution. 
Therefore, the Commission has considered this comment in connection 
with Rule 901(c)(2) rather than with Rule 901(f).\237\
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    \235\ Better Markets I at 9.
    \236\ Id.
    \237\ See supra notes 76 and 77 and accompanying text.
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    The Commission continues to believe that requiring a registered SDR 
to timestamp, to the second, its receipt of any information pursuant to 
paragraphs (c), (d), (e), or (i) of Rule 901 is appropriate, and is 
adopting Rule 901(f) as re-proposed. Rule 901(f) will allow the 
Commission to compare the time of execution against the time of receipt 
by the registered SDR to ascertain if a transaction report has been 
submitted late.
2. Rule 901(g)--Transaction IDs
    Rule 901(g), as proposed and re-proposed, would have provided that 
``[a] registered security-based swap data repository shall assign a 
transaction ID to each security-based swap.'' The transaction ID was 
defined in both the proposal and re-proposal as ``the unique 
identification code assigned by a registered security-based swap data 
repository to a specific security-based swap.'' The Commission 
preliminarily believed that a unique transaction ID would allow 
registered SDRs, regulators, and counterparties to more easily track a 
security-based swap over its duration and would facilitate the 
reporting of life cycle events and the correction of errors in 
previously reported security-based swap information.\238\ The 
transaction ID of the original security-based swap would allow for the 
linking of the original report to a report of a life cycle event. 
Similarly, the transaction ID would be required to be included on an 
error report to identify the transaction to which the error report 
pertained.
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    \238\ See Regulation SBSR Proposing Release, 75 FR 75221.
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    In proposing Rule 901(g), the Commission preliminarily believed 
that, because each transaction is unique, it would not be necessary or 
appropriate to look to an internationally recognized standards setting 
body for assigning such identifiers.\239\ Instead, proposed Rule 901(g) 
would have required a registered SDR to use its own methodology for 
assigning transaction IDs.\240\
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    \239\ See id.
    \240\ See id.
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    Two commenters generally supported use of the transaction ID.\241\ 
One commenter stated that transaction IDs would allow for a complete 
audit trail, permit the observation of concentrations of trading and 
risk exposure at the transaction level, and facilitate more timely 
analysis of market events.\242\ The second commenter agreed that a 
transaction ID would be essential for reporting life cycle event and 
secondary trade information, as well as corrections to reported 
information.\243\
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    \241\ See GS1 Proposal at 42; DTCC II at 15.
    \242\ See GS1 Proposal at 42 (also stating that transaction IDs 
would benefit internal compliance departments and self-regulatory 
organizations).
    \243\ See DTCC II at 15. Another commenter believed that 
proposed Regulation SBSR would require public dissemination of the 
transaction ID, and argued that the transaction ID should not be 
publicly disseminated, as it could compromise the identity of the 
counterparties to the security-based swap. The commenter suggested 
instead that an SDR could create a separate identifier solely for 
purposes of public dissemination. See ISDA IV at 17. Under 
Regulation SBSR, as adopted, the transaction ID is not a data 
element of security-based swap transaction that is required to be 
publicly disseminated. Thus, registered SDRs must identify 
transactions in public reports without using the transaction ID. See 
infra Section XII(C) (discussing requirement for registered SDRs to 
establish and maintain policies and procedures for disseminating 
life cycle events).
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    Commenters expressed mixed views regarding the entity that should 
assign the transaction ID. One commenter stated that a platform should 
assign the transaction ID to assure that the identifier is assigned at 
the earliest point in the life of a transaction.\244\ A second 
commenter suggested that registered SDRs should assign transaction 
IDs,\245\ or have the flexibility to accept transaction IDs already 
generated by the reporting side or to assign transaction IDs when 
requested to do so.\246\ A third commenter expressed concern that 
registered SDRs would assign transaction IDs in a non-standard manner, 
which could hinder regulators' ability to gather transaction data 
across registered SDRs to reconstruct an audit trail.\247\ A fourth 
commenter, a trade association, recommended that security-based swaps 
be identified by a Unique Trade Identifier (``UTI'') created either by 
the reporting side or by a platform (including an execution venue or an 
affirmation or middleware or electronic confirmation platform) on 
behalf of the parties.\248\ This commenter noted that it has worked 
with market participants to develop a standard for creating and 
exchanging a single unique transaction identifier suitable for global 
reporting.\249\
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    \244\ See Tradeweb Letter at 5.
    \245\ DTCC II at 16 (arguing that this approach would 
``eliminate any unintentional disclosure issues which stem from 
linking a trade to a specific SEF, potentially increasing the 
instances of unintended identification of the trade parties'').
    \246\ See DTCC V at 14.
    \247\ See GS1 Proposal at 42-43 (recommending an identification 
system that would allow counterparties, participants, SB SEFs, and 
registered SDRs to assign transaction IDs to specific transactions).
    \248\ See ISDA III at 2.
    \249\ See id. In a subsequent comment letter, this commenter 
indicated that it ``strongly believe[s] the party reporting the SBS 
should assign or provide the Transaction ID'' rather than a 
registered SDR. ISDA IV at 11 (stating that ``many SBS already have 
been reported to other global jurisdictions for which a . . . UTI 
(including a CFTC Unique Swap Identifier) has already been assigned 
by one of the parties or a central execution, affirmation or 
confirmation platform in accordance with industry standard practices 
for trade identifiers that have developed in the absence of a global 
regulatory standard. For the sake of efficiency and in consideration 
of global data aggregation, we recommend that the Commission allow a 
reporting party to use the UTI already established for a SBS for 
further reporting under SBSR and acknowledge that trades subject to 
reporting under SBSR may be assigned a trade identifier in 
accordance with existing industry UTI practices'').
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    After careful consideration, the Commission has determined to adopt 
Rule 901(g) with modifications to respond to concerns raised by the 
commenters. Final Rule 901(g) provides that a registered SDR ``shall 
assign a transaction ID to each security-based swap, or establish or 
endorse a methodology for transaction IDs to be assigned by third 
parties.'' The Commission is also making a conforming change to the 
definition of ``transaction ID.'' Final Rule 900(mm) defines 
``transaction ID'' as ``the UIC assigned to a specific security-based 
swap transaction.'' As re-proposed, ``transaction ID'' would have been 
defined as ``the unique identification code assigned by a registered 
security-based swap data repository to a specific security-based 
swap.'' \250\ By eliminating the reference to a UIC ``assigned by a 
registered security-based swap data repository,'' the revised 
definition contemplates that a third party could assign a transaction 
ID under Regulation SBSR. However, because the Commission believes that 
the registered SDR is in the best position to promote the necessary 
uniformity for UICs that will be reported to it, the reporting side 
would be permitted to report a transaction ID generated by a third 
party only if the third party had employed a methodology for generating 
transaction IDs that had been established or endorsed by the registered 
SDR.
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    \250\ See re-proposed Rule 900(jj).
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    Rule 901(g), as adopted, provides flexibility by requiring a 
registered SDR either to assign a transaction ID itself or to establish 
or endorse a methodology for assigning transaction IDs. Thus, under 
adopted Rule 901(g), an SB SEF,

[[Page 14594]]

a counterparty, or another entity could assign a transaction ID, 
provided that it assigned the transaction ID using a methodology 
established or endorsed by the registered SDR. This approach will allow 
market participants to determine the most efficient and effective 
procedures for assigning transaction IDs and will accommodate the use 
of different processes that might be appropriate in different 
circumstances.\251\ For example, an SB SEF might generate the 
transaction ID for a security-based swap executed on its facilities 
(provided the SB SEF does so using a methodology established or 
endorsed by the registered SDR \252\), while a registered SDR or 
security-based swap dealer counterparty might generate the transaction 
ID for a security-based swap that is not executed on an SB SEF.
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    \251\ This approach will allow a platform to assign the 
transaction ID in certain cases, as recommended by a commenter. See 
Tradeweb Letter at 5.
    \252\ Thus, the Commission only partially agrees with the 
commenter who believed that the registered SDR should assign 
transaction IDs, in order to ``eliminate any unintentional 
disclosure issues which stem from linking a trade to a specific SEF, 
potentially increasing the instances of unintended identification of 
the trade parties.'' DTCC II at 16. The Commission shares the 
commenter's concern that the transaction ID not result in the 
unintended identification of the counterparties. However, this would 
not require that the registered SDR itself issue the transaction ID 
in all cases; the registered SDR could allow submission of 
transaction IDs generated by third parties (such as SB SEFs or 
counterparties), provided that the registered SDR endorsed the 
methodology whereby third parties can generate transaction IDs. 
Furthermore, the Commission notes that the transaction ID is not a 
data element required by Rule 901(c) and thus it should not be 
publicly disseminated--so market observers should not be able to 
learn the transaction ID in any case.
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IV. How To Report Data--Rules 901(h) and 907

A. Introduction

    Designing a comprehensive system of transaction reporting and post-
trade transparency for security-based swaps involves a constantly 
evolving market, thousands of participants, and potentially millions of 
transactions. The Commission does not believe that it is necessary or 
appropriate to specify by rule every detail of how this system should 
operate. On some matters, there may not be a single correct approach 
for carrying out the purposes of Title VII's requirements for 
regulatory reporting and public dissemination of security-based swap 
transactions.
    The Commission believes that registered SDRs will play an important 
role in developing, operating, and improving the system for regulatory 
reporting and public dissemination of security-based swaps. Registered 
SDRs are at the center of the market infrastructure, as the Dodd-Frank 
Act requires all security-based swaps, whether cleared or uncleared, to 
be reported to them.\253\ Accordingly, the Commission believes that 
some reasonable flexibility should be given to registered SDRs to carry 
out their functions--for example, to specify the formats in which 
counterparties must report transaction data to them, connectivity 
requirements, and other protocols for submitting information. 
Furthermore, the Commission anticipates that counterparties will make 
suggestions to registered SDRs for altering and improving their 
practices, or developing new policies and procedures to address new 
products or circumstances, consistent with the requirements set out in 
Regulation SBSR.
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    \253\ See 15 U.S.C. 13m(m)(1)(G).
---------------------------------------------------------------------------

    Accordingly, proposed Rule 907 would have required each registered 
SDR to establish and maintain written policies and procedures 
addressing various aspects of security-based swap transaction 
reporting. Proposed Rules 907(a)(1) and 907(a)(2) would have required a 
registered SDR to establish policies and procedures enumerating the 
specific data elements that must be reported, the acceptable data 
formats, connectivity requirements, and other protocols for submitting 
information; proposed Rule 907(a)(3) would have required a registered 
SDR to establish policies and procedures for reporting errors and 
correcting previously submitted information; proposed Rule 907(a)(4) 
would have required a registered SDR to establish policies and 
procedures for, among other things, reporting and publicly 
disseminating life cycle events and transactions that do not reflect 
the market; proposed Rule 907(a)(5) would have required a registered 
SDR to establish policies and procedures for assigning UICs; proposed 
Rule 907(a)(6) would have required a registered SDR to establish 
policies and procedures for obtaining ultimate parent and affiliate 
information from its participants; and proposed Rule 907(b) would have 
required a registered SDR to establish policies and procedures for 
calculating and publicizing block trade thresholds. The Commission also 
proposed to require registered SDRs to make their policies and 
procedures publicly available on their Web sites, and to update them at 
least annually.\254\ Rule 901(h), as proposed and re-proposed, would 
have required reports to be made to a registered SDR ``in a format 
required by the registered security-based swap data repository, and in 
accordance with any applicable policies and procedures of the 
registered security-based swap data repository.''
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    \254\ See proposed Rules 907(c) and 907(d).
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    Furthermore, because all security-based swaps must be reported to a 
registered SDR, registered SDRs are uniquely positioned to know of any 
instances of untimely, inaccurate, or incomplete reporting. Therefore, 
proposed Rule 907(e) would have required registered SDRs to have the 
capacity to provide the Commission with reports related to the 
timeliness, accuracy, and completeness of the data reported to them.
    The Commission re-proposed Rule 907 as part of the Cross-Border 
Proposing Release with only minor conforming changes.\255\ Rule 901(h) 
was re-proposed without revision.
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    \255\ As initially proposed, Rule 907 used the term ``reporting 
party.'' As described in the Cross-Border Proposing Release, the 
term ``reporting party'' was replaced with ``reporting side'' in 
Rule 907 and throughout Regulation SBSR.
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B. Rules 907(a)(1), 907(a)(2), and 901(h)--Data Elements and Formats

    The comments addressing Rule 907 were generally supportive of 
providing flexibility to registered SDRs to develop policies and 
procedures.\256\ One commenter stated, for example, that overly 
prescriptive rules for how data is reported will almost certainly 
result in less reliable or redundant data flowing into an SDR when 
higher quality data is available. In this commenter's view, the 
Commission should not prescribe the exact means of reporting for SDRs 
to meet regulatory obligations, and SDRs should be afforded the 
flexibility to devise the most efficient, effective, and reliable 
methods of furnishing the Commission with the complete set of data 
necessary to fulfill regulatory obligations.\257\ The Commission is 
adopting Rule 907 with some revisions noted below.
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    \256\ See DTCC IV at 5. See also Barnard I at 3.
    \257\ See DTCC IV at 5.
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    Final Rule 907(a)(1) requires a registered SDR to establish and 
maintain written policies and procedures that ``enumerate the specific 
data elements of a security-based swap that must be reported, which 
shall include, at a minimum, the data elements specified in [Rules 
901(c) and 901(d)].'' The Commission revised Rule 907(a)(1) to make 
certain non-substantive changes and to move the requirement to 
establish policies and procedures for life cycle event reporting from 
final Rule 907(a)(1) to final Rule 907(a)(3).\258\ Final

[[Page 14595]]

Rule 907(a)(2) requires 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.'' The Commission is 
adopting Rule 907(a)(2) as re-proposed.
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    \258\ As initially proposed, Rule 907(a)(1) would have required 
policies and procedures that enumerate the specific data elements of 
a security-based swap or life cycle event that a reporting party 
must report. In addition, proposed Rule 907(a)(4) would have 
required a registered SDR to establish policies and procedures for 
reporting and publicly disseminating life cycle events, among other 
things. The Commission is consolidating the requirements to 
establish policies and procedures for reporting life cycle events in 
final Rule 907(a)(3). See infra Section XII(C). The Commission also 
revised Rule 907(a)(1) so that the final rule text refers to the 
data elements ``that must be reported,'' rather than the data 
elements that a reporting side must report.
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    The Commission continues to believe that it is neither necessary 
nor appropriate to mandate a fixed schedule of data elements to be 
reported, or a single format or language for reporting such elements to 
a registered SDR. The Commission anticipates that industry standards 
for conveying information about security-based swap transactions will 
evolve over time, and the approach taken in Rule 907 is designed to 
allow Regulation SBSR's reporting requirements to evolve with them. The 
Commission further anticipates that security-based swap products with 
novel contract terms could be developed in the future. Establishing, by 
Commission rule, a fixed schedule of data elements risks becoming 
obsolete, as new data elements--as yet unspecified--could become 
necessary to reflect the material economic terms of such products. 
Final Rules 907(a)(1) and 907(a)(2) give registered SDRs the duty, but 
also the flexibility, to add, remove, or amend specific data elements 
or to adjust the required reporting protocols over time in a way that 
captures all of the material terms of a security-based swap while 
minimizing the reporting burden on its participants.\259\ One commenter 
supported this approach, stating that ``[a] registered SDR should have 
the flexibility to specify acceptable formats, connectivity 
requirements and other protocols for submitting information.'' \260\ 
The commenter added that ``[m]arket practice, including the 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.'' \261\ The Commission anticipates that feedback and ongoing 
input from participants will help registered SDRs to craft appropriate 
policies and procedures regarding data elements and reporting 
protocols.
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    \259\ While an SDR would have flexibility regarding the data 
elements and the protocols for reporting to the SDR, pursuant to 
Rule 13n-4(a)(5), which is being adopted in the SDR Adopting 
Release, the data provided by an SDR to the Commission must ``be in 
a form and manner acceptable to the Commission. . . .'' The 
Commission anticipates that it will specify the form and manner that 
will be acceptable to it for the purposes of direct electronic 
access.
    \260\ See DTCC II at 20.
    \261\ Id.
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    The same commenter, in a subsequent comment letter, expressed 
concern that market participants could adopt different interpretations 
of the requirement to report payment stream information, which could 
result in inconsistent reporting to registered SDRs.\262\ The 
Commission notes that final Rule 907(a)(1) requires a registered SDR to 
enumerate the specific data elements of a security-based swap that must 
be reported, and final 907(a)(2) requires a registered SDR, among other 
things, to specify acceptable data formats for submitting required 
information. Because Rules 907(a)(1) and 907(a)(2) provide a registered 
SDR with the authority to identify the specific data elements that must 
be reported with respect to the payment streams of a security-based 
swap and the format for reporting that information, the Commission does 
not believe that market participants will have flexibility to adopt 
inconsistent interpretations of the information required to be reported 
with respect to payment streams. Instead, persons with the duty to 
report transactions will be required to provide the payment stream 
information using the specific data elements and formats specified by 
the registered SDR.
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    \262\ See DTCC V at 11.
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    One commenter argued that a uniform electronic reporting format is 
essential, and was concerned that Rules 901(h) and 907(a)(2) would 
permit multiple formats and connectivity requirements for the 
submission of data to a registered SDR.\263\ The Commission considered 
the alternative of requiring a single reporting language or protocol 
for conveying information to registered SDRs, and three commenters 
encouraged the use of the FpML standard.\264\ While FpML could be a 
standard deemed acceptable by a registered SDR pursuant to Rule 
907(a)(2), the Commission does not believe that it is necessary or 
appropriate at this time for the Commission itself to require FpML as 
the only permissible standard by which reporting sides report 
transaction data to a registered SDR.\265\ The Commission is concerned 
that adopting a regulatory requirement for a single standard for 
reporting security-based swap transaction information to registered 
SDRs could result in unforeseen adverse consequences, particularly if 
that standard proves incapable of being used to carry information about 
all of the material data elements of all security-based swaps, both 
those that exist now and those that might be created in the future. 
Thus, the Commission has adopted an approach that permits registered 
SDRs to select their own standards for how participants must report 
data to those SDRs. The Commission agrees with the commenter who 
recommended that all acceptable data formats should be open-source 
structured data formats.\266\ The Commission believes that any 
reporting languages or protocols adopted by registered SDRs must be 
open-source structured data formats that are widely used by 
participants, and that information about how to use any such language 
or protocol is freely and openly available.\267\
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    \263\ See Better Markets I at 4.
    \264\ See DTCC II at 16; ISDA I at 4; ISDA/SIFMA I at 8.
    \265\ But see infra note 268.
    \266\ See Barnard Letter at 3.
    \267\ One commenter argued that the Commission should not 
require registered SDRs to support all connectivity methods, as the 
costs to do so would be prohibitive. See DTCC II at 20. Under Rule 
907(a)(2), as adopted, a registered SDR need not support all 
connectivity methods or data formats. A registered SDR may elect to 
support only one data format, provided that it is ``an open-source 
structured data format that is widely used by participants.''
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    The Commission believes that, however registered SDRs permit their 
participants to report security-based swap transaction data to the 
SDRs, those SDRs should be able to provide to the Commission normalized 
and uniform data, so that the transaction data can readily be used for 
regulatory purposes without the Commission itself having to cleanse or 
normalize the data.\268\

[[Page 14596]]

However, it does not follow that information must be submitted to a 
registered SDR using a single electronic reporting format. The 
Commission believes that a registered SDR should be permitted to make 
multiple reporting formats available to its participants if it chooses, 
provided that the registered SDR can quickly and easily normalize and 
aggregate the reported data in making it accessible to the Commission 
and other relevant authorities. If a registered SDR is not willing or 
able to normalize data submitted pursuant to multiple data formats, 
then its policies and procedures under Rule 907(a)(2) should prescribe 
a single data format for participants to use to submit data to the 
registered SDR.
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    \268\ See SDR Adopting Release, Section VI(D)(2)(c)(ii) (``data 
provided by an SDR to the Commission must be in a form and manner 
acceptable to the Commission . . . [T]he 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. The Commission continues to consider 
whether it should require the data to be provided to the Commission 
in a particular format. 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 [security-based swap] 
data by the Commission. The Commission intends to maximize the use 
of any applicable current industry standards for the description of 
[security-based swap] 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 [security-based swap] data reporting by SDRs. The 
Commission recognizes that as the [security-based swap] market 
develops, new or different data fields may be needed to accurately 
represent new types of [security-based swaps], 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'').
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    The Commission believes that the policies and procedures of a 
registered SDR, required by Rule 907(a)(1), likely will need to explain 
the method for reporting if all the security-based swap transaction 
data required by Rules 901(c) and 901(d) are being reported 
simultaneously, and how to report if responsive data are being provided 
at separate times.\269\ One way to accomplish this would be for the 
registered SDR to link the two reports by the transaction ID, which 
could be done by providing the reporting side with the transaction ID 
after the reporting side reports the information required by Rule 
901(c). The reporting side would then include the transaction ID with 
its submission of data required by Rule 901(d), thereby allowing the 
registered SDR to match the report of the Rule 901(c) data and the 
subsequent report of the Rule 901(d) data.
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    \269\ Regulation SBSR, as proposed and re-proposed, contemplated 
two ``waves'' of reporting: The Rule 901(c) information would have 
been required to be reported in real time, while the Rule 901(d) 
information could have been provided later (depending on the type of 
transaction, perhaps as much as one day after time of execution). 
However, because Regulation SBSR, as adopted, requires both sets of 
information to be reported within 24 hours of execution, the 
Commission anticipates that many reporting sides will choose to 
report both sets of information in only a single transaction report. 
Under Rule 901, as adopted, a reporting side is not prohibited from 
reporting the Rule 901(c) information before the Rule 901(d) 
information, provided that the policies and procedures of the 
registered SDR permit this outcome, and both sets of information are 
reported within the timeframes specified in Rule 901(j).
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    Finally, Rule 901(h), as re-proposed, would have provided: ``A 
reporting side shall electronically transmit the information required 
under this section in a format required by the registered security-
based swap data repository, and in accordance with any applicable 
policies and procedures of the registered security-based swap data 
repository.'' The Commission received only one comment on Rule 901(h), 
which is addressed above.\270\ The Commission is adopting Rule 901(h) 
as re-proposed, with two minor revisions to clarify the rule. First, 
the rule text has been revised to refer to ``A'' reporting side instead 
of ``The'' reporting side. Accordingly, the Commission has revised Rule 
901(h) to refer to the registered SDR to which a reporting side reports 
transactions. Second, Rule 901(h), as adopted, does not include the 
phrase ``and in accordance with any applicable policies and procedures 
of the registered security-based swap data repository.'' The Commission 
believes that it is sufficient for the rule to state that the reporting 
side must report the transaction information ``in a format required 
by'' the registered SDR.\271\
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    \270\ See supra note 263 and accompanying text.
    \271\ As noted above, 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 by the Commission of 
security-based swap data submitted to it by an SDR. See supra note 
268.
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C. Rule 907(a)(6)--Ultimate Parent IDs and Counterparty IDs

    As originally proposed, Rule 907(a)(6) would have required a 
registered SDR to establish and maintain written policies and 
procedures ``[f]or periodically obtaining from each participant 
information that identifies the participant's ultimate parent(s) and 
any other participant(s) with which the counterparty is affiliated, 
using ultimate parent IDs and participant IDs'' (emphasis added). The 
Commission re-proposed Rule 907(a)(6) with the word ``participant'' in 
place of the word ``counterparty.'' Re-proposed Rule 907(a)(6) would 
have required a registered SDR to establish and maintain written 
policies and procedures for periodically obtaining from each 
participant information that identifies the participant's ultimate 
parent(s) and any other participant(s) with which the counterparty is 
affiliated, using ultimate parent IDs and participant IDs. The 
Commission received one comment relating to Rule 907(a)(6), which 
suggested that parent and affiliate information could be maintained by 
a market utility rather than by one or more registered SDRs.\272\
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    \272\ See GS1 Proposal at 44.
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    The Commission notes that Regulation SBSR neither requires nor 
prohibits the development of a market utility for parent and affiliate 
information. Regulation SBSR requires a registered SDR to obtain parent 
and affiliate information from its participants and to maintain it, 
whether or not a market utility exists. Regulation SBSR does not 
prohibit SDR participants from storing parent and affiliate information 
in a market utility or from having the market utility report such 
information to a registered SDR as agent on their behalf, so long as 
the information is provided to the registered SDR in a manner 
consistent with Regulation SBSR and the registered SDR's policies and 
procedures.
    The Commission is adopting Rule 907(a)(6) substantially as re-
proposed, with a technical change to replace the word ``counterparty'' 
with the word ``participant'' and a conforming change to replace the 
reference to ``participant IDs'' with a reference to ``counterparty 
IDs.'' Thus, final Rule 907(a)(6) requires a registered SDR to 
establish and maintain written policies and procedures ``[f]or 
periodically obtaining from each participant information that 
identifies the participant's ultimate parent(s) and any participant(s) 
with which the participant is affiliated, using ultimate parent IDs and 
counterparty IDs'' (emphasis added).

V. Who Reports--Rule 901(a)

A. Proposed and Re-Proposed Rule 901(a)

    Section 13(m)(1)(F) of the Exchange Act \273\ provides that parties 
to a security-based swap (including agents of parties to a security-
based swap) shall be responsible for reporting security-based swap 
transaction information to the appropriate registered entity in a 
timely manner as may be prescribed by the Commission. Section 
13(m)(1)(G) of the Exchange Act \274\ provides that each security-based 
swap, ``whether cleared or uncleared,'' shall be reported to a 
registered SDR. Section 13A(a)(3) of the Exchange Act \275\ specifies 
the party obligated to report a security-based swap that is not 
accepted for clearing by any clearing agency or derivatives clearing 
organization. Rule 901(a), as adopted, assigns to specific persons the 
duty to report certain security-based swaps to a registered SDR, 
thereby

[[Page 14597]]

implementing Sections 13(m)(1)(F), 13(m)(1)(G), and 13A(a)(3) of the 
Exchange Act. In addition, in the Regulation SBSR Proposed Amendments 
Release, the Commission is proposing revisions to Rule 901(a), as 
adopted, to further implement these provisions of the Exchange Act as 
they apply to clearing transactions (as defined below) and transactions 
executed on platforms and that will be submitted to clearing.
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    \273\ 15 U.S.C. 78m(m)(1)(F).
    \274\ 15 U.S.C. 78m(m)(1)(G).
    \275\ 15 U.S.C. 78mA(a)(3).
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    As originally proposed, Rule 901(a) would have assigned reporting 
duties exclusively to one of the direct counterparties to a security-
based swap based on the nationality of the counterparties. The original 
proposal contemplated three scenarios: Both direct counterparties are 
U.S. persons, only one direct counterparty is a U.S. person, or neither 
direct counterparty is a U.S. person.\276\ Under the original proposal, 
if only one counterparty to a security-based swap is a U.S. person, the 
U.S. person would have been the reporting party. If neither 
counterparty is a U.S. person (and assuming the security-based swap is 
subject to Regulation SBSR), the counterparties would have been 
required to select the reporting party. Where both counterparties to a 
security-based swap are U.S. persons, the reporting party would have 
been determined according to the following hierarchy:
---------------------------------------------------------------------------

    \276\ See proposed Rules 901(a)(1)-(3); Regulation SBSR 
Proposing Release, 75 FR 75211.
---------------------------------------------------------------------------

    (i) If only one counterparty is a security-based swap dealer or 
major security-based swap participant, the security-based swap dealer 
or major security-based swap participant would be the reporting party.
    (ii) If one counterparty is a security-based swap dealer and the 
other counterparty is a major security-based swap participant, the 
security-based swap dealer would be the reporting party.
    (iii) With respect to any other security-based swap, the 
counterparties to the security-based swap would be required to select 
the reporting party.
    Under Rule 901(a) as originally proposed, for a security-based swap 
between: (1) A non-registered U.S. person; and (2) a security-based 
swap dealer or major security-based swap participant that is a non-U.S. 
person, the non-registered U.S. person would have been the reporting 
party. The Commission preliminarily believed that, as between a U.S. 
person and a non-U.S. person, it was more appropriate to assign the 
duty to report to the U.S. person, even if the non-U.S. person was a 
security-based swap dealer or major security-based swap 
participant.\277\
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    \277\ See Regulation SBSR Proposing Release, 75 FR 75211.
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    In the Cross-Border Proposing Release, the Commission revised 
proposed Rule 901(a) in two significant ways. First, the Commission 
proposed to expand the scope of Regulation SBSR to require reporting 
(and, in certain cases, public dissemination) of any security-based 
swap that has a U.S. person acting as guarantor of one of the direct 
counterparties, even if neither direct counterparty is a U.S. person. 
To effectuate this requirement, the Cross-Border Proposing Release 
added the following new defined terms: ``direct counterparty,'' 
``indirect counterparty,'' ``side,'' and ``reporting side.'' A ``side'' 
was defined to mean a direct counterparty of a security-based swap and 
any indirect counterparty that guarantees the direct counterparty's 
performance of any obligation under the security-based swap.\278\ The 
Commission revised proposed Rule 901(a) to assign the duty to report to 
a ``reporting side,'' rather than a specific counterparty. Re-proposed 
Rule 901(a) generally preserved the reporting hierarchy of Rule 901(a), 
as originally proposed, while incorporating the ``side'' concept to 
reflect the possibility that a security-based swap might have an 
indirect counterparty that is better suited for carrying out the 
reporting duty than a direct counterparty. Thus, Rule 901(a), as re-
proposed in the Cross-Border Proposing Release, would have assigned the 
reporting obligation based on the status of each person on a side 
(i.e., whether any person on the side is a security-based swap dealer 
or major security-based swap participant), rather than the status of 
only the direct counterparties. Second, the Commission proposed to 
expand the circumstances in which a security-based swap dealer or major 
security-based swap participant that is not a U.S. person would incur 
the duty to report a security-based swap.
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    \278\ See re-proposed Rule 900(ee); Cross-Border Proposing 
Release, 78 FR 31211. The Commission is adopting this term in Rule 
900(hh) with a minor modification to more clearly incorporate the 
definition of ``indirect counterparty.'' Final 900(hh) defines 
``side'' to mean ``a direct counterparty and any guarantor of that 
direct counterparty's performance who meets the definition of 
indirect counterparty in connection with the security-based swap.'' 
Final Rule 900(p) defines ``indirect counterparty'' to mean ``a 
guarantor of a direct counterparty's performance of any obligation 
under a security-based swap such that the direct counterparty on the 
other side can exercise rights of recourse against the indirect 
counterparty in connection with the security-based swap; for these 
purposes a direct counterparty has rights of recourse against a 
guarantor on the other side if the direct counterparty has a 
conditional or unconditional legally enforceable right, in whole or 
in part, to receive payments from, or otherwise collect from, the 
guarantor in connection with the security-based swap.''
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    Under Rule 901(a), as originally proposed, a non-U.S. person that 
is a direct counterparty to a security-based swap that was not executed 
in the United States or through any means of interstate commerce never 
would have had a duty to report the security-based swap, even if the 
non-U.S. person was a security-based swap dealer or major security-
based swap participant or was guaranteed by a U.S. person. As re-
proposed in the Cross-Border Proposing Release, Rule 901(a) re-focused 
the reporting duty primarily on the status of the counterparties, 
rather than on their nationality or place of domicile. Under re-
proposed Rule 901(a), the nationality of the counterparties would 
determine who must report only if neither side included a security-
based swap dealer or major security-based swap participant. In such 
case, if one side included a U.S. person while the other side did not, 
the side with the U.S. person would have been the reporting side. 
Similar to the original proposal, however, if both sides included a 
U.S. person or neither side included a U.S. person, the sides would 
have been required to select the reporting side.

B. Final Rule 901(a)

    Rule 901(a), as adopted, establishes a ``reporting hierarchy'' that 
specifies the side that has the duty to report a security-based 
swap.\279\ The reporting side, as determined by the reporting 
hierarchy, is required to submit the information required by Regulation 
SBSR to a registered SDR.\280\ The reporting side may select the 
registered SDR to which it makes the required

[[Page 14598]]

report. However, with respect to any particular transaction, all 
information required to be reported by Rule 901(a)(2)(ii), as adopted, 
must be reported to the same registered SDR. In the Regulation SBSR 
Proposed Amendments Release, issued as a separate release, the 
Commission is proposing additional provisions of Rule 901(a) that would 
assign reporting responsibilities for clearing transactions and 
platform-executed security-based swaps that will be submitted to 
clearing. The Commission also anticipates soliciting further comment on 
reporting duties for a security-based swap where neither side includes 
a registered security-based swap dealer or major security-based swap 
participant and neither side includes a U.S. person or only one side 
includes a U.S. person.\281\
---------------------------------------------------------------------------

    \279\ However, Rule 901(a) does not address who has the 
reporting duty for the following types of security-based swaps: (1) 
A clearing transaction; (2) a security-based swap that is executed 
on a platform and that will be submitted to clearing; (3) a 
security-based swap where neither side includes a registered 
security-based swap dealer, a registered major security-based swap 
participant, or a U.S. person; and (4) a security-based swap where 
one side consists of a non-registered U.S. person and the other side 
consists of a non-registered non-U.S. person.
    \280\ Final Rule 900(gg) defines ``reporting side'' to mean 
``the side of a security-based swap identified by Sec.  
242.901(a)(2).'' Rule 900(cc), as re-proposed, would have defined 
``reporting side'' to mean ``the side of a security-based swap 
having the duty to report information in accordance with Sec. Sec.  
242.900 through 911 to a registered security-based swap data 
repository, or, if there is no registered security-based swap data 
repository that would receive the information, to the Commission.'' 
Final Rule 900(gg) modifies the definition to define the reporting 
side by reference to final Rule 901(a), which identifies the person 
that will be obligated to report a security-based swap to a 
registered SDR under various circumstances.
    \281\ The Commission notes that Rule 901(a), as adopted, does 
address how the reporting duty is assigned when both sides include a 
U.S. person and neither side includes a registered security-based 
swap dealer or a registered major security-based swap participant. 
In that case, the sides would be required to select which is the 
reporting side. See Rule 901(a)(2)(ii)(E)(1).
---------------------------------------------------------------------------

1. Reporting Hierarchy
    Final Rule 901(a)(2)(ii) adopts the reporting hierarchy largely as 
proposed in the Cross-Border Proposing Release, but limits its scope. 
The reporting hierarchy in Rule 901(a), as proposed and as re-proposed 
in the Cross-Border Proposing Release, did not contain separate 
provisions to address reporting responsibilities for two kinds of 
security-based swaps that are described in the Regulation SBSR Proposed 
Amendments Release: Clearing transactions and security-based swaps that 
are executed on a platform and that will be submitted to clearing. The 
Regulation SBSR Proposed Amendments Release solicits comment on 
proposed rules that address the reporting of these types of security-
based swaps. The reporting hierarchy in Rule 901(a)(2)(ii), as adopted, 
applies to security-based swaps that are covered transactions.\282\ The 
reporting hierarchy is designed to locate the duty to report with 
counterparties who are most likely to have the resources and who are 
best able to support the reporting function.
---------------------------------------------------------------------------

    \282\ See supra notes 11-12 and accompanying text.
---------------------------------------------------------------------------

    Specifically, final Rule 901(a)(2)(ii) provides that, for a covered 
transaction, the reporting side will be as follows:
    (A) If both sides of the security-based swap include a registered 
security-based swap dealer, the sides shall select the reporting side.
    (B) If only one side of the security-based swap includes a 
registered security-based swap dealer, that side shall be the reporting 
side.
    (C) If both sides of the security-based swap include a registered 
major security-based swap participant, the sides shall select the 
reporting side.
    (D) If one side of the security-based swap includes a registered 
major security-based swap participant and the other side includes 
neither a registered security-based swap dealer nor a registered major 
security-based swap participant, the side including the registered 
major security-based swap participant shall be the reporting side.
    (E) If neither side of the security-based swap includes a 
registered security-based swap dealer or registered major security-
based swap participant: (1) If both sides include a U.S. person, the 
sides shall select the reporting side. (2) [Reserved].\283\
---------------------------------------------------------------------------

    \283\ This provision, as set forth in the Cross-Border Proposing 
Release, would have provided: ``If neither side of the security-
based swap includes a security-based swap dealer or major security-
based swap participant: (i) If both sides include a U.S. person or 
neither side includes a U.S. person, the sides shall select the 
reporting side. (ii) If only one side includes a U.S. person, that 
side shall be the reporting side.'' The Commission anticipates 
seeking further comment on how Title VII should apply to non-U.S. 
persons who engage in certain security-based swap activities in the 
United States, particularly dealing activities. Accordingly, the 
Commission is not deciding at this time how Regulation SBSR will 
apply to (1) transactions where there is no U.S. person, registered 
security-based swap dealer, or registered major security-based swap 
participant on either side; and (2) transactions where there is no 
registered security-based swap dealer or registered major security-
based swap participant on either side and there is a U.S. person on 
only one side. One commenter recommended that this proposed part of 
the hierarchy be revised to refer only to cases where both sides are 
U.S. persons, as the commenter did not believe that a security-based 
swap for which neither party is a security-based swap dealer, major 
security-based swap participant, or a U.S. person would be subject 
to reporting under Regulation SBSR. See ISDA IV at 19. As discussed, 
the Commission is not adopting this provision of proposed Rule 
901(a). The Commission anticipates seeking further comment on how 
Title VII should apply to non-U.S. persons who engage in certain 
security-based swap activities in the United States, particularly 
dealing activities, and is not deciding at this time how Regulation 
SBSR will apply to transactions where there is no U.S. person, 
registered security-based swap dealer, or registered major security-
based swap participant on either side. The Commission notes that, 
under final Rule 908(a)(1)(ii), a security-based swap is subject to 
regulatory reporting and public dissemination if it was accepted for 
clearing by a clearing agency having its principal place of business 
in the United States. See infra Section XV(C)(4).
---------------------------------------------------------------------------

    The following examples explain the operation of final Rule 
901(a)(2)(ii). For each example, assume that the relevant security-
based swap is not executed on a platform.
     Example 1. A non-registered U.S. person executes a 
security-based swap with a registered security-based swap dealer that 
is a non-U.S. person. Neither side has a guarantor. The registered 
security-based swap dealer is the reporting side.
     Example 2. Same facts as Example 1, except that the non-
registered U.S. person is guaranteed by a registered security-based 
swap dealer. Because both sides include a person that is a registered 
security-based swap dealer, the sides must select which is the 
reporting side.
     Example 3. Two private funds execute a security-based 
swap. Both direct counterparties are U.S. persons, neither is 
guaranteed, and neither is a registered security-based swap dealer or 
registered major security-based swap participant. The sides must select 
which is the reporting side.
    In Rule 901(a)(2)(ii), as adopted, the Commission has included the 
word ``registered'' before each instance of the terms ``security-based 
swap dealer'' and ``major security-based swap participant.'' A person 
is a security-based swap dealer or major security-based swap 
participant if that person meets the statutory definition of that term, 
regardless of whether the person registers with the Commission.\284\ A 
person meeting one of those statutory definitions must register with 
the Commission in that capacity. However, persons meeting one of the 
statutory definitions cannot register in the appropriate capacity until 
the Commission adopts registration rules for these classes of market 
participant. The Commission has proposed but not yet adopted 
registration rules for security-based swap dealers and major security-
based swap participants. Thus, currently, there are no registered 
security-based swap dealers even though many market participants act in 
a dealing capacity in the security-based swap market.
---------------------------------------------------------------------------

    \284\ See Section 3(a)(71) of the Exchange Act, 15 U.S.C. 
78c(a)(71) (defining ``security-based swap dealer''); Section 
3(a)(67) of the Exchange Act, 15 U.S.C. 78c(a)(67) (defining ``major 
security-based swap participant''). See also 17 CFR 240.3a71-2 
(describing the time at which a person will be deemed to be a 
security-based swap dealer); 17 CFR 240.3a67-8 (describing the time 
at which a person will be deemed to be a major security-based swap 
participant).
---------------------------------------------------------------------------

    Including the word ``registered'' before each instance of the terms 
``security-based swap dealer'' and ``major security-based swap 
participant'' in final Rule 901(a)(2)(ii) means that it will not be 
necessary for a person to evaluate whether it meets the definition of 
``security-based swap dealer'' or ``major security-based swap 
participant'' solely in connection with identifying which counterparty 
must report a

[[Page 14599]]

security-based swap under Regulation SBSR.\285\
---------------------------------------------------------------------------

    \285\ As the Commission noted in the Cross-Border Adopting 
Release, the assessment costs for making such evaluations are likely 
to be substantial. See Cross-Border Adopting Release, 79 FR 47330-
34. The Commission's approach here is consistent with the approach 
described in the Cross-Border Adopting Release, where the Commission 
noted that security-based swap dealers and major security-based swap 
participants ``will not be subject to the requirements applicable to 
those dealers and major participants until the dates provided in the 
applicable final rules.'' 79 FR 47368. See also Intermediary 
Definitions Adopting Release, 77 FR 30700.
---------------------------------------------------------------------------

    A result of the Commission's determination to apply duties in Rule 
901(a)(2)(ii) based on registration status rather than on meeting the 
statutory definition of ``security-based swap dealer'' or ``major 
security-based swap participant'' is that, until such persons register 
with the Commission as such, all covered transactions will fall within 
Rule 901(a)(2)(ii)(E). In other words, under the adopted reporting 
hierarchy, because neither side of the security-based swap includes a 
registered security-based swap dealer or registered major security-
based swap participant, the sides shall select the reporting side.
2. Other Security-Based Swaps
    Rule 901(a), as proposed and re-proposed in the Cross-Border 
Proposing Release, did not differentiate between platform-executed 
security-based swaps and other types of security-based swaps in 
assigning the duty to report. Similarly, the proposed and re-proposed 
rule would have assigned reporting obligations without regard to 
whether a particular security-based swap was cleared or uncleared.\286\ 
In the Regulation SBSR Proposing Release, the Commission expressed a 
preliminary view that cleared and uncleared security-based swaps should 
be subject to the same reporting procedures.\287\ The Commission 
preliminarily believed that security-based swap dealers and major 
security-based swap participants generally should be responsible for 
reporting security-based swap transactions of all types, because they 
are more likely than other counterparties to have appropriate systems 
in place to facilitate reporting.\288\
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    \286\ See 75 FR 75211.
    \287\ See id.
    \288\ See id.
---------------------------------------------------------------------------

    Commenters raised a number of concerns about the application of the 
reporting hierarchy to platform-executed security-based swaps that will 
be submitted to clearing and clearing transactions.\289\ The Commission 
has determined that final resolution of these issues would benefit from 
further consideration and public comment. Accordingly, in the 
Regulation SBSR Proposed Amendments Release, the Commission is 
proposing amendments to Rule 901(a) that would assign the reporting 
obligation for clearing transactions and platform-executed security-
based swaps that will be submitted to clearing.
---------------------------------------------------------------------------

    \289\ See infra Section V(C) for an overview of these comments. 
A detailed summary of and response to these comments appears in the 
Regulation SBSR Proposed Amendments Release.
---------------------------------------------------------------------------

    To differentiate between security-based swaps that are subject to 
the reporting hierarchy in Rule 901(a)(2)(ii) and those that are not, 
the Commission is defining a new term, ``clearing transaction,'' in 
Rule 900(g). A ``clearing transaction'' is ``a security-based swap that 
has a registered clearing agency as a direct counterparty.'' \290\ This 
definition encompasses all security-based swaps that a registered 
clearing agency enters into as part of its security-based swap clearing 
business. The definition includes, for example, any security-based 
swaps that arise if a registered clearing agency accepts a security-
based swap for clearing, as well as any security-based swaps that arise 
as part of a clearing agency's internal processes, such as security-
based swaps used to establish prices for cleared products and security-
based swaps that result from netting other clearing transactions of the 
same product in the same account into an open position.\291\
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    \290\ In connection with the definition of ``clearing 
transaction,'' the Commission is adopting a definition of 
``registered clearing agency.'' Final Rule 900(ee) defines 
``registered clearing agency'' to mean ``a person that is registered 
with the Commission as a clearing agency pursuant to section 17A of 
the Exchange Act (15 U.S.C. 78q-1) and any rules or regulations 
thereunder.'' In addition, the Commission is not adopting re-
proposed Rule 900(h), which would have defined the term 
``derivatives clearing organization'' to have the same meaning as 
provided under the Commodity Exchange Act. This term is not used in 
Regulation SBSR, as adopted, so the Commission is not including a 
definition of the term in Rule 900.
    \291\ Under Rule 900(g), a security-based swap that results from 
clearing is an independent security-based swap and not a life cycle 
event of a security-based swap that is submitted to clearing. Thus, 
Rule 901(e), which addresses the reporting of life cycle events, 
does not address what person has the duty to report the clearing 
transactions that arise when a security-based swap is accepted for 
clearing.
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    Two models of clearing--an agency model and a principal model--are 
currently used in the swap markets. In the agency model, which 
predominates in the U.S. swap market, a swap that is accepted for 
clearing--often referred to in the industry as an ``alpha''--is 
terminated and replaced with two new swaps, known as ``beta'' and 
``gamma.'' The Commission understands that, under the agency model, one 
of the direct counterparties to the alpha becomes a direct counterparty 
to the beta, and the other direct counterparty to the alpha becomes a 
direct counterparty to the gamma. The clearing agency would be a direct 
counterparty to each of the beta and the gamma.\292\ This release uses 
the terms ``alpha,'' ``beta,'' and ``gamma'' in the same way that they 
are used in the agency model of clearing in the U.S. swap market.\293\ 
The Commission notes that, under Regulation SBSR, an alpha is not a 
``clearing transaction,'' even though it is submitted for clearing, 
because it does not have a registered clearing agency as a direct 
counterparty.\294\
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    \292\ If both direct counterparties to the alpha are clearing 
members, the direct counterparties would submit the transaction to 
the clearing agency directly and the resulting beta would be between 
the clearing agency and one clearing member, and the gamma would be 
between the clearing agency and the other clearing member. The 
Commission understands, however, that, if the direct counterparties 
to the alpha are a clearing member and a non-clearing member (a 
``customer''), the customer's side of the trade would be submitted 
for clearing by a clearing member acting on behalf of the customer. 
When the clearing agency accepts the alpha for clearing, one of the 
resulting swaps--in this case, assume the beta--would be between the 
clearing agency and the customer, with the customer's clearing 
member acting as guarantor for the customer's trade. The other 
resulting swap--the gamma--would be between the clearing agency and 
the clearing member that was a direct counterparty to the alpha. 
See, e.g., Byungkwon Lim and Aaron J. Levy, ``Contractual Framework 
for Cleared Derivatives: The Master Netting Agreement Between a 
Clearing Customer Bank and a Central Counterparty,'' 10 Pratt's 
Journal of Bankruptcy Law (October 2014) 509, 515-17 (describing the 
clearing model for swaps in the United States).
    \293\ In the principal model of clearing, which the Commission 
understands is used in certain foreign swap markets, a customer is 
not a direct counterparty of the clearing agency. Under this model, 
a clearing member would clear a security-based swap for a customer 
by entering into a back-to-back swap with the clearing agency: The 
clearing member would become a direct counterparty to a swap with 
the customer, and then would become a counterparty to an offsetting 
swap with the clearing agency. In this circumstance, unlike in the 
agency model of clearing, the swap between the direct counterparties 
might not terminate upon acceptance for clearing.
    \294\ This release does not address the application of Section 5 
of the Securities Act of 1933, 15 U.S.C. 77a et seq. (``Securities 
Act''), to security-based swap transactions that are intended to be 
submitted to clearing (e.g., alpha transactions, in the agency model 
of clearing). Rule 239 under the Securities Act, 17 CFR 230.239, 
provides an exemption for certain security-based swap transactions 
involving an eligible clearing agency from all provisions of the 
Securities Act, other than the Section 17(a) anti-fraud provisions. 
This exemption does not apply to security-based swap transactions 
not involving an eligible clearing agency, including a transaction 
that is intended to be submitted to clearing, regardless of whether 
the security-based swaps subsequently are cleared by an eligible 
clearing agency. See Exemptions for Security-Based Swaps Issued By 
Certain Clearing Agencies, Securities Act Release No. 33-9308 (March 
30, 2012), 77 FR 20536 (April 5, 2012).

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[[Page 14600]]

C. Discussion of Comments and Basis for Final Rule

    The Commission requested and received comment on a wide range of 
issues related to Rule 901(a), as proposed and re-proposed in the 
Cross-Border Proposing Release. As described in more detail below, 
commenters addressed a number of topics, including the application of 
Rule 901(a) to sides rather than direct counterparties, the role of 
agents in the reporting process, the application of Rule 901(a) to 
cleared security-based swaps, and the types of entities that should be 
required to report security-based swaps.
1. Application of the Reporting Hierarchy to Sides
    The Commission received a number of comments on the reporting 
hierarchy in proposed Rule 901(a).\295\ As described in the Cross-
Border Proposing Release, a number of commenters objected to the 
reporting hierarchy in Rule 901(a), as originally proposed, on the 
grounds that it would unfairly impose reporting burdens on non-
registered U.S.-person counterparties that enter into security-based 
swaps with non-U.S.-person security-based swap dealers or major 
security-based swap participants.\296\ In the Cross-Border Proposing 
Release, the Commission re-proposed a modified reporting hierarchy in 
response to the commenters' concerns.\297\
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    \295\ See ISDA/SIFMA I at 19; DTCC II at 8; ICI I at 5 (stating 
that security-based swap dealers are the only market participants 
that currently have the standardization necessary to report the 
required security-based swap data); SIFMA I at 3 (arguing that an 
end user should not incur higher transaction costs or potential 
legal liabilities depending on the domicile of its counterparty); 
Vanguard Letter at 6 (stating that non-U.S. person security-based 
swap dealers and major security-based swap participants would be 
more likely to have appropriate systems in place to facilitate 
reporting than unregistered counterparties).
    \296\ See Cross-Border Proposing Release, 78 FR 31066. See also 
note 295, supra (describing the relevant comments).
    \297\ See re-proposed Rule 901(a); Cross-Border Proposing 
Release, 78 FR 31066, 31212.
---------------------------------------------------------------------------

    The Commission believes that a non-registered person should not 
incur the duty to report a security-based swap when a registered 
security-based swap dealer or registered major security-based swap 
participant, directly or indirectly, is on the other side of the 
transaction, and is adopting the reporting hierarchy in Rule 
901(a)(2)(ii) to effect this result. Rule 901(a), as adopted, is 
designed to assign reporting duties to the person best positioned to 
discharge those duties. The Commission believes that registered 
security-based swap dealers and registered major security-based swap 
participants, regardless of whether they are U.S. persons, will have 
greater technological capability than non-registered persons to report 
security-based swaps as required by Regulation SBSR. Accordingly, the 
Commission is adopting the reporting hierarchy in Rule 901(a)(2)(ii) 
largely as re-proposed to give registered security-based swap dealers 
and registered major security-based swap participants reporting 
obligations, regardless of whether they are U.S. persons. Furthermore, 
the Commission believes that it is appropriate to assign the duty to 
report to the side that includes a non-U.S. person registered security-
based swap dealer or major security-based swap participant, even as an 
indirect counterparty, if neither the direct or indirect counterparty 
on the other side includes a registered security-based swap dealer or a 
registered major security-based swap participant. The fact that a 
person is a registered security-based swap dealer or registered major 
security-based swap participant implies that the person has substantial 
contacts with the U.S. security-based swap market and thus would 
understand that it could incur significant regulatory duties arising 
from its security-based swap business, or has voluntarily registered 
and chosen to undertake the burdens associated with such registration. 
The fact that a person is a registered security-based swap dealer or 
registered major security-based swap participant also implies that the 
person has devoted substantial infrastructure and administrative 
resources to its security-based swap business, and thus would be more 
likely to have the capability to carry out the reporting function than 
a non-registered counterparty.
    In response to the Cross-Border Proposing Release, one commenter 
raised concerns about burdens that the re-proposed reporting hierarchy 
might place on U.S. persons.\298\ This commenter noted that certain 
non-U.S. persons might engage in security-based swap dealing activities 
in the United States below the de minimis threshold for security-based 
swap dealer registration. The commenter expressed the view that an 
unregistered non-U.S. person that is acting in a dealing capacity 
likely would have ``greater technological capability and resources 
available to fulfill the reporting function'' than an unregistered U.S. 
person that is not acting in a dealing capacity.\299\ The commenter 
suggested that, when an unregistered U.S. person enters into a 
security-based swap with an unregistered non-U.S. person that is acting 
in a dealing capacity, it ``would be more efficient and fair'' to allow 
the counterparties to choose the reporting side than to assign the 
reporting obligation to the unregistered U.S. person.\300\
---------------------------------------------------------------------------

    \298\ See IIB Letter at 26.
    \299\ See id.
    \300\ See id.
---------------------------------------------------------------------------

    The Commission acknowledges these comments. The Commission did not 
propose, and is not adopting, rules that would permit counterparties to 
choose to impose reporting burdens on the unregistered non-U.S. person 
that is acting in a dealing capacity in this scenario. The Commission 
believes that the issue of whether the counterparties should be able to 
choose the reporting side when an unregistered non-U.S. person acts in 
a dealing capacity with respect to a security-based swap involving an 
unregistered U.S. person would benefit from further comment. 
Accordingly, Rule 901(a)(2)(ii), as adopted, does not assign a 
reporting side for security-based swaps involving an unregistered non-
U.S. person and an unregistered U.S. person.
    Other commenters focused on the Commission's proposal to introduce 
the ``side'' concept to the reporting hierarchy. In response to the 
Cross-Border Proposing Release, three comments recommended that direct 
counterparties bear reporting duties, rather than sides (i.e., that 
guarantors of direct counterparties not incur reporting 
responsibilities).\301\ One of these commenters recommended that a non-
U.S. company that provides its U.S. affiliate with a guarantee should 
not be subject to reporting responsibilities because the non-U.S. 
company would be outside the Commission's jurisdiction.\302\ Another 
commenter noted that non-U.S. guarantors should not cause a security-
based swap to become reportable.\303\ The Commission generally agrees 
with these comments. As discussed in more detail in Section XV(C)(5), 
infra, Rule 908(a) of Regulation SBSR makes clear that a non-U.S. 
person guarantor would not cause a security-based swap to become 
reportable, unless the guarantor is a registered security-based swap 
dealer or a registered major security-based swap participant.\304\ 
Moreover, Rule 908(b)

[[Page 14601]]

provides that, notwithstanding any other provision of Regulation SBSR, 
a non-U.S. person guarantor of a security-based swap that is reportable 
would not incur any obligation under Regulation SBSR, including a 
reporting obligation under Rule 901(a)(2)(ii), unless the guarantor is 
a registered security-based swap dealer or a registered major security-
based swap participant. Thus, for a security-based swap involving, on 
one side, the guaranteed U.S. affiliate of an unregistered non-U.S. 
person, only the guaranteed U.S. affiliate could incur reporting 
obligations under Regulation SBSR.\305\
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    \301\ See JSDA Letter at 6; ISDA III; ISDA IV at 3-4.
    \302\ See JSDA Letter at 6.
    \303\ See ISDA IV at 4 (recommending that the Commission should 
not include non-U.S. person guarantors in the definition of 
``indirect counterparty'').
    \304\ Section XV(C)(5), infra, explains why the Commission has 
determined that security-based swaps having non-U.S. person 
guarantors that are registered as security-based swap dealers or 
major security-based swap participants should be reportable under 
Regulation SBSR.
    \305\ If the non-U.S. person guarantor is a registered security-
based swap dealer or major security-based swap participant, the 
exclusion in Rule 908(b) would not apply, and both the direct and 
indirect counterparties would jointly incur the duty to report.
---------------------------------------------------------------------------

    The Commission disagrees with the broader point made by the 
commenters, however, and continues to believe that it is appropriate to 
adopt a final rule that places the reporting duty on the reporting 
side, rather than on a specific counterparty on the reporting side. The 
Commission notes that Rule 908(b)--which is discussed in more detail in 
Section XV, infra--limits the types of counterparties that incur 
obligations under Regulation SBSR to U.S. persons, registered security-
based swap dealers, and registered major security-based swap 
participants. A person that does not fall within one of the categories 
enumerated in Rule 908(b) incurs no duties under Regulation SBSR. 
Accordingly, there may be situations where the direct counterparty on 
the reporting side--rather than the indirect counterparty, as in the 
commenter's example--would not fall within Rule 908(b) and therefore 
would incur no obligation under Regulation SBSR.\306\ There will be 
cases where all counterparties on the reporting side fall within Rule 
908(b). In these cases, Rule 901(a)(2)(ii), as adopted, provides 
reasonable flexibility to the counterparties on the reporting side to 
determine the specific person who will carry out the function of 
reporting the security-based swap on behalf of the reporting side. As 
stated in the Cross-Border Proposing Release, the Commission 
``understands that many reporting parties already have established 
linkages to entities that may register as registered SDRs, which could 
significantly reduce the out-of-pocket costs associated with 
establishing the reporting function.'' \307\ A reporting side could 
leverage these existing linkages, even if the entity that has 
established connectivity to the registered SDR is an indirect 
counterparty to the transaction.
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    \306\ Rule 908(a) describes when Regulation SBSR applies to a 
security-based swap having at least one side that includes a non-
U.S. person. See infra Section XV(C).
    \307\ 78 FR 31066 (citing Regulation SBSR Proposing Release, 75 
FR 75265).
---------------------------------------------------------------------------

    The other commenters argued that incorporating indirect 
counterparties into current reporting practices could take considerable 
effort, because these practices, developed for use with the CFTC's swap 
data reporting regime, do not consider the registration status of 
indirect counterparties.\308\ The commenter recommended that the 
industry should be permitted to use existing reporting party 
determination logic because negotiating the identity of the reporting 
side on a trade-by-trade basis would not be feasible.\309\ Furthermore, 
one commenter noted that there is no industry standard source for 
information about indirect counterparties. As a result, ``despite the 
requirement for participants to [provide] this information to [a 
registered SDR], there is a chance that the parties . . . could come up 
with a different answer as to which of them is associated with an 
indirect counterparty.'' \310\
---------------------------------------------------------------------------

    \308\ See ISDA III; ISDA IV at 3-4 (noting also that Canada's 
swap data reporting regime resembles the CFTC's swap data reporting 
regime in so far as it does not consider the status of indirect 
counterparties).
    \309\ See ISDA III.
    \310\ Id. See also ISDA IV at 3-4.
---------------------------------------------------------------------------

    The Commission acknowledges these commenters' concerns, but 
continues to believe that it is appropriate for the reporting hierarchy 
to take into account both the direct and indirect counterparties on 
each side. Even without an industry standard source for information 
about indirect counterparties, counterparties to security-based swaps 
will need to know the identity and status of any indirect 
counterparties on a trade-by-trade basis to determine whether the 
transaction is subject to Regulation SBSR under final Rule 908(a).\311\ 
By considering the status of indirect counterparties when assigning 
reporting obligations, Regulation SBSR is designed to reduce reporting 
burdens on non-registered persons without imposing significant new 
costs on other market participants, even though market participants may 
need to modify their reporting workflows. The Commission believes that 
market participants could adapt the mechanisms they develop for 
purposes of adhering to Rule 908(a) to facilitate compliance with the 
reporting hierarchy in Rule 901(a)(2)(ii). For example, the 
documentation for the relevant security-based swap could alert both 
direct counterparties to the fact that one counterparty's obligations 
under the security-based swap are guaranteed by a registered security-
based swap dealer or registered major security-based swap participant. 
The counterparties can use that information to identify which side 
would be the reporting side for purposes of Regulation SBSR.
---------------------------------------------------------------------------

    \311\ See infra Section XV.
---------------------------------------------------------------------------

    The Commission further believes that incorporating indirect 
counterparties into current reporting workflows is unlikely to cause 
substantial disruption to existing reporting logic because the status 
of an indirect counterparty likely will alter reporting practices in 
few situations. Most transactions in the security-based swap market 
today involve at least one direct counterparty who is likely to be a 
security-based swap dealer.\312\ In such case, the current industry 
practice of determining the reporting side based only on the status of 
direct counterparties is likely to produce a result that is consistent 
with Rule 901.\313\ The Commission understands that, in the current 
security-based swap market, market participants that are likely to be 
non-registered persons transact with each other only on rare occasions. 
In these circumstances, the status of an indirect counterparty could 
cause one side to become the reporting side, rather than leaving the 
choice of reporting side to the counterparties. For example, if a 
registered security-based swap dealer or registered major security-
based swap participant guarantees one side of such a trade, the side 
including the non-registered person and the guarantor would, under Rule 
901(a)(2), be the reporting side. The Commission believes that, if a 
registered security-based swap dealer or registered major security-
based swap participant is willing to accept the responsibility of 
guaranteeing the performance of duties

[[Page 14602]]

under a security-based swap contract, it should also be willing to 
accept the responsibility of having to report that security-based swap 
to satisfy Regulation SBSR. In any event, the Commission believes that, 
if a guarantor's security-based swap activities are extensive enough 
that it must register as a security-based swap dealer or major 
security-based swap participant, it would have systems in place to 
ensure that it complies with the regulatory obligations attendant to 
such registration, including any reporting obligations for security-
based swaps.
---------------------------------------------------------------------------

    \312\ See Cross-Border Adopting Release, 79 FR 47293 (noting 
that transactions between two ISDA-recognized dealers represent the 
bulk of trading activity in the single-name credit default swap 
market).
    \313\ Assume, for example, that a security-based swap dealer 
executes a transaction with a non-registered person, and that 
current industry practices default the reporting obligation to the 
security-based swap dealer. This result is consistent with Rule 
901(a)(2)(ii)(B), which states that the side including the 
registered security-based swap dealer will be the reporting side for 
such transactions. Assume, however, that the non-registered direct 
counterparty is guaranteed by another registered security-based swap 
dealer. Because both sides include a registered security-based swap 
dealer, Rule 901(a)(2)(ii)(A) requires the sides to select the 
reporting side. Agreeing to follow current industry practices--and 
locating the duty on the side that has the direct counterparty that 
is a registered security-based swap dealer--would be consistent with 
Rule 901(a)(2)(ii)(A).
---------------------------------------------------------------------------

    Finally, one commenter requested that the Commission provide 
guidance that reporting parties could follow when the reporting 
hierarchy instructs them to select the reporting side.\314\ The 
Commission does not believe at this time that it is necessary or 
appropriate for the Commission itself to provide such guidance, because 
the determination of which counterparty is better positioned to report 
these security-based swaps is likely to depend on the facts and 
circumstances of the particular transaction and the nature of the 
counterparties. Rule 901(a)(2)(ii), as adopted, instructs the sides to 
select the reporting side only when the two sides are of equal status 
(i.e., when both sides include a registered security-based swap dealer 
or when neither side includes a registered security-based swap dealer 
or registered major security-based swap participant). The Commission 
understands that, under existing industry conventions, market 
participants who act in a dealing capacity undertake the reporting 
function. Thus, the Commission believes that Rule 901(a)(2)(ii), as 
adopted, is not inconsistent with these current industry practices. 
Furthermore, the Commission would not be averse to the development and 
use of new or additional industry standards that create a default for 
which side would become the reporting side in case of a ``tie,'' 
provided that both sides agree to use such standards.
---------------------------------------------------------------------------

    \314\ See Better Markets I at 10.
---------------------------------------------------------------------------

 2. Reporting by Agents
    In the Regulation SBSR Proposing Release, the Commission noted that 
Rule 901(a) would not prevent a reporting party from entering into an 
agreement with a third party to report a security-based swap on behalf 
of the reporting party.\315\ Several commenters strongly supported the 
use of third-party agents to report security-based swaps.\316\
---------------------------------------------------------------------------

    \315\ See 75 FR 75211.
    \316\ See Barnard I at 2; DTCC II at 7; DTCC III at 13 (allowing 
third-party service providers to report security-based swaps would 
reduce the regulatory burden on counterparties and would assure 
prompt compliance with reporting obligations); ISDA/SIFMA I at 17 
(noting that portions of the OTC derivatives market likely would 
rely on third-party agents to meet their reporting obligations); 
MarkitSERV I at 9; MarkitSERV II at 7-8; MarkitSERV III at 4-5.
---------------------------------------------------------------------------

    Four commenters addressed the types of entities that may wish to 
report security-based swaps on behalf of reporting parties. One 
commenter stated that platforms, clearing agencies, brokers, and stand-
alone data reporting vendors potentially could provide reporting 
services to security-based swap counterparties.\317\ Another commenter 
requested that the Commission clarify that a security-based swap 
counterparty that was not the reporting party under Rule 901(a) would 
be able to agree contractually to report a security-based swap on 
behalf of the reporting party under Rule 901(a).\318\ A third commenter 
noted that many market participants will look to third-party service 
providers to streamline the reporting process.\319\ One commenter, 
however, recommended that the Commission should consider limiting the 
use of third-party reporting service providers to SB SEFs or other 
reporting market intermediaries, such as exchanges, because allowing 
unregulated third parties with potentially limited experience could 
lead to incomplete or inaccurate security-based swap reporting.\320\
---------------------------------------------------------------------------

    \317\ See ISDA/SIFMA I at 17 (explaining that there likely would 
be competition to provide reporting services and that market 
participants would be able to contract with appropriate vendors to 
obtain the most efficient allocation of reporting responsibilities).
    \318\ See SIFMA I at 2, note 3.
    \319\ See MarkitSERV IV at 3.
    \320\ See Tradeweb Letter at 4-5.
---------------------------------------------------------------------------

    Although the Commission agrees that security-based swap transaction 
information must be reported in a timely and accurate manner to fulfill 
the transparency and oversight goals of Title VII, the Commission does 
not believe that it is necessary, at this time, to allow only regulated 
intermediaries to perform reporting services on behalf of a reporting 
side. The Commission believes that reporting sides have a strong 
incentive to ensure that agents who report on their behalf have the 
capability and dedication to perform this function. In this regard, the 
Commission notes that any reporting side who contracts with a third 
party, including the non-reporting side, to report a security-based 
swap transaction on its behalf would retain the obligation to ensure 
that the information is provided to a registered SDR in the manner and 
form required under Regulation SBSR. Thus, a reporting side could be 
held responsible if its agent reported a security-based swap 
transaction to a registered SDR late or inaccurately.
    In addition, the Commission believes that allowing entities other 
than regulated intermediaries to provide reporting services to 
reporting persons could enhance competition and foster innovation in 
the market for post-trade processing services. This could, in turn, 
encourage more efficient reporting processes to develop over time as 
technology improves and the market gains experience with security-based 
swap transaction reporting. Accordingly, Rule 901(a), as adopted, does 
not limit the types of entities that may serve as reporting agents on 
behalf of reporting sides of security-based swaps. Furthermore, nothing 
in Rule 901(a), as adopted, prohibits the reporting side from using the 
non-reporting side to report as agent on its behalf.\321\
---------------------------------------------------------------------------

    \321\ See SIFMA I at 2, note 3.
---------------------------------------------------------------------------

3. Reporting Clearing Transactions
    In establishing proposed reporting obligations, Regulation SBSR, as 
proposed and as re-proposed, did not differentiate between cleared and 
uncleared security-based swaps. Accordingly, cleared and uncleared 
security-based swaps would have been treated in the same manner for 
purposes of reporting transactions to a registered SDR. Multiple 
commenters addressed the reporting of cleared and uncleared security-
based swaps. Two commenters supported the Commission's proposal to 
assign reporting obligations for cleared security-based swaps through 
the reporting hierarchy in all circumstances.\322\ These commenters 
noted that the Commission's proposal would allow security-based swap 
counterparties, rather than clearing agencies, to choose the registered 
SDR that receives data about their security-based swaps.\323\ Other 
commenters objected to the proposal on statutory and operational 
grounds.\324\ Two commenters argued that Title VII's security-based 
swap reporting provisions and Regulation SBSR should

[[Page 14603]]

not extend to clearing transactions.\325\ In the alternative, they 
argued that, if the Commission requires clearing transactions to be 
reported to a registered SDR, the clearing agency that clears a 
security-based swap should have the duty to report the associated 
clearing transactions to a registered SDR of its choice because, ``in 
contrast to uncleared [security-based swaps], the Clearing Agency is 
the sole party who holds the complete and accurate record of 
transactions and positions for cleared [security-based swaps] and in 
fact is the only entity capable of providing accurate and useful 
positional information on cleared [security-based swaps] for systemic 
risk monitoring purposes.''\326\
---------------------------------------------------------------------------

    \322\ See DTCC VI at 8-9; MarkitSERV III at 4-5. See also DTCC 
VII passim (suggesting operational difficulties that could arise if 
a person who is not a counterparty to a security-based swap has the 
duty to report); DTCC VIII (noting that ``there has been a long held 
view that the SEC proposed model [for security-based swap data 
reporting] provides for a better defined process flow approach that 
achieves data quality, assigns proper ownership of who should 
report, and provides the most cost efficiencies for the industry as 
a whole'').
    \323\ See DTCC VI at 8-9; MarkitSERV III at 3-5.
    \324\ See CME/ICE Letter at 2-4; ICE Letter at 2-5; CME II at 4; 
ISDA IV at 5.
    \325\ See CME/ICE Letter at 2, 4; CME II at 4.
    \326\ CME/ICE Letter at 3-4. See also ICE Letter at 2-5 (arguing 
that a clearing agency would be well-positioned to issue a 
termination message for a swap that has been accepted for clearing 
and subsequently report the security-based swaps that result from 
clearing); DTCC X (arguing for allowing the reporting side to 
determine which SDR to report to for cleared security-based swaps); 
ISDA IV at 5 (expressing the view that ``the clearing agency is 
best-positioned to report cleared [security-based swaps] timely and 
accurately as an extension of the clearing process'').
---------------------------------------------------------------------------

    After careful consideration of the comments, the Commission has 
determined not to apply the reporting hierarchy in Rule 901(a)(2)(ii), 
as adopted, to clearing transactions.\327\ In the Regulation SBSR 
Proposed Amendments Release, the Commission is proposing to revise Rule 
901(a) to assign reporting duties for clearing transactions.\328\ 
However, the reporting hierarchy in Rule 901(a)(2)(ii), as adopted, 
applies to alpha transactions that are not executed on a platform.\329\
---------------------------------------------------------------------------

    \327\ As stated above, a clearing transaction is a security-
based swap that has a registered clearing agency as a direct 
counterparty.
    \328\ Rule 901(a), as adopted, reserves Rule 901(a)(2)(i) for 
assigning reporting obligations for clearing transactions.
    \329\ Reporting requirements for platform-executed alphas are 
discussed in Section V(C)(4), infra, and in the Regulation SBSR 
Proposed Amendments Release.
---------------------------------------------------------------------------

    One commenter expressed the view that reporting the alpha ``adds 
little or no value to an analysis of market exposure since it is 
immediately replaced by the beta and gamma and cannot exist unless the 
swap is cleared.'' \330\ This commenter argued, therefore, that alpha 
transactions should not be reported to registered SDRs. The Commission 
disagrees with this comment, and believes instead that having a record 
of all alphas at registered SDRs will ensure that registered SDRs 
receive complete information about security-based swap transactions 
that are subject to the Title VII reporting requirement. This 
requirement is designed, in part, to provide valuable information about 
the types of counterparties active in the security-based swap market. 
Reconstructing this information from records of betas and gammas would 
be less efficient and potentially more prone to error than requiring 
reports of the alpha in the first instance. Furthermore, requiring 
reporting of the alpha transaction eliminates the need to address 
issues that would arise if there is a delay between the time of 
execution of the alpha and the time that it is submitted to clearing, 
or if the transaction is rejected by the clearing agency.
---------------------------------------------------------------------------

    \330\ ISDA IV at 6.
---------------------------------------------------------------------------

    This commenter also stated that, if the alpha is reported, the 
``key to improving data quality is to have a single party responsible 
for reporting a cleared transaction, and thus with respect to whether 
reporting for purposes of public dissemination and/or reporting to a 
[registered SDR], the clearing agency should be responsible for the 
alpha once it is accepted for clearing.'' \331\ This commenter believed 
that this approach allows the data pertaining to the execution of the 
alpha to be more easily and accurately linked to the resulting beta and 
gamma.\332\ The Commission also sees the importance in being able to 
link information about the alpha to a related beta and gamma. However, 
the Commission does not believe that relying solely on the clearing 
agency to report transaction information is the only or the more 
appropriate way to address this concern. As discussed in Section 
II(B)(3)(j), supra, the Commission is adopting in Rule 901(d)(10) a 
requirement that the reports of new security-based swaps (such as a 
beta and gamma) that result from the allocation, termination, novation, 
or assignment of one or more existing security-based swaps (such as an 
alpha) must include the transaction ID of the allocated, terminated, 
assigned, or novated security-based swap(s). This requirement is 
designed to allow the Commission and other relevant authorities to link 
related transactions across different registered SDRs.
---------------------------------------------------------------------------

    \331\ Id.
    \332\ Id.
---------------------------------------------------------------------------

 4. Reporting by a Platform
    Commenters expressed mixed views regarding reporting by platforms. 
Some commenters, addressing Rule 901(a) as originally proposed, 
recommended that the Commission require a platform to report security-
based swaps executed on or through its facilities.\333\ One of these 
commenters stated that a platform would be in the best position to 
ensure the accurate and timely reporting of a transaction executed on 
its facilities.\334\ Another commenter expressed the view that having 
platforms report security-based swaps would facilitate economies in the 
marketplace by reducing the number of reporting entities.\335\
---------------------------------------------------------------------------

    \333\ See ICI I at 5; Tradeweb Letter at 3-4; Vanguard Letter at 
2, 7.
    \334\ See Tradeweb Letter at 3. This commenter also stated that 
the counterparties to a transaction executed on a platform should be 
relieved of any reporting obligations because they would not be in a 
position to control or confirm the accuracy of the information 
reported or to control the timing of the platform's reporting. See 
id. at 3-4.
    \335\ See Vanguard Letter at 7.
---------------------------------------------------------------------------

    Four commenters, however, recommended that the Commission not 
impose reporting requirements on platforms.\336\ Three of these 
commenters argued that certain practical considerations militate 
against assigning reporting duties to platforms.\337\ Specifically, 
these commenters believed that a platform might not have all of the 
information required to be reported under Rules 901(c) and 901(d).\338\ 
These commenters further noted that, even if a platform could report 
the execution of a security-based swap, it would lack information about 
life cycle events.\339\ The third commenter stated that it could be 
less efficient for a platform to report than to have counterparties 
report.\340\
---------------------------------------------------------------------------

    \336\ See ISDA/SIFMA I at 18; ISDA IV at 7; MarkitSERV III at 4; 
WMBAA II at 6.
    \337\ See ISDA/SIFMA I at 18; ISDA IV at 7; WMBAA II at 6.
    \338\ See id.
    \339\ See WMBAA II at 6 (observing that it would take a platform 
at least 30 minutes to gather and confirm the accuracy of all 
required information and recommending that the reporting party 
should be able to contract with a SB SEF to report a security-based 
swap on its behalf); ISDA/SIFMA I at 17-18 (noting that a platform 
may not know whether a security-based swap submitted for clearing 
had been accepted for clearing); ISDA IV at 7 (noting that certain 
aspects of the CFTC regime for reporting bilateral swaps executed on 
facility have been challenging due to the difficulty for SEFs to 
know and report certain trade data that is not essential to the 
trade execution, and because of the shared responsibility for 
reporting since the SEF/DCM is responsible for the initial creation 
data reporting and the SD/MSP is responsible for the continuation 
data reporting).
    \340\ See MarkitSERV III at 4.
---------------------------------------------------------------------------

    After careful consideration of the issues raised by the commenters, 
the Commission has determined not to apply the reporting hierarchy in 
Rule 901(a)(2)(ii), as adopted, to platform-executed transactions that 
will be submitted to clearing. In the Regulation SBSR Proposed 
Amendments Release, the Commission is proposing to assign reporting 
duties for platform-executed security-based swaps that will be

[[Page 14604]]

submitted to clearing.\341\ If the security-based swap will not be 
submitted to clearing, the platform would have no reporting obligation, 
and the reporting hierarchy in final Rule 901(a)(2)(ii) would 
apply.\342\ The Commission notes that Section 13A(a)(3) of the Exchange 
Act provides that, for a security-based swap not accepted by any 
clearing agency, one of the counterparties must report the transaction. 
The reporting hierarchy of final Rule 901(a)(2)(ii) implements that 
provision and clarifies which side has the duty to report. The 
Commission believes that, in the case of security-based swaps that will 
not be submitted to clearing, the counterparties either will know each 
other's identity at the time of execution or the they will learn this 
information from the platform immediately or shortly after 
execution,\343\ which will allow them to determine which side will 
incur the duty to report under Rule 901(a)(2)(ii), as adopted.
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    \341\ Rule 901(a), as adopted, reserves Rule 901(a)(1) for 
assigning reporting obligations for platform-executed security-based 
swaps that will be submitted to clearing.
    \342\ See ISDA IV at 7 (recommending that for a bilateral 
transaction executed on a platform that is not intended for 
clearing, one of the counterparties should be responsible for 
reporting, per the proposed reporting hierarchy).
    \343\ Market participants typically are unwilling to accept the 
credit risk of an unknown counterparty and therefore generally would 
not execute a security-based swap anonymously, unless the 
transaction would be cleared. Based on discussions with market 
participants, however, the Commission understands that certain 
temporarily registered CFTC SEFs offer ``work-up'' sessions that 
allow for anonymous execution of uncleared swaps in a limited 
circumstance. In a ``work-up'' session, after a trade is executed, 
other SEF participants may be given the opportunity to execute the 
same product at the same price. In a typical work-up session, the 
SEF would ``flash'' the execution to other SEF participants, who 
could then submit long or short interest to trade at the same price. 
The Commission understands that such interest could be submitted 
anonymously, and that a participant in a work-up session must agree 
to accept the credit risk of any other participant, if the work-up 
is conducted in a product that is not cleared. The Commission 
understands that the platform will inform each participant that 
executes a trade of the identity of its counterparty shortly after 
completion of the work-up session.
---------------------------------------------------------------------------

5. Reporting of a Security-Based Swap Resulting From a Life Cycle Event
    Rule 901(e)(1)(i) requires the reporting side for a security-based 
swap to report a life cycle event of that security-based swap--such as 
a termination, novation, or assignment--to the registered SDR to which 
it reported the original transaction.\344\ Certain life cycle events 
may result in the creation of a new security-based swap. The Commission 
is modifying Rule 901(a) to identify the reporting side for this new 
security-based swap.\345\
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    \344\ However, a reporting side is not required to report 
whether or not a security-based swap has been accepted for clearing. 
See infra Section XII(A) (discussing life cycle event reporting).
    \345\ Security-based swaps resulting from an allocation are 
discussed in greater detail in Section VIII(A) infra.
---------------------------------------------------------------------------

    Rule 901(e), as adopted, identifies the reporting side for a life 
cycle event. Rule 901(e) does not, however, address who will be the 
reporting side for a new security-based swap that arises from a life 
cycle event (such as a termination) of an existing security-based 
swap.\346\ To identify the reporting side for the new security-based 
swap, the Commission is modifying the introductory language of final 
Rule 901(a) to provide that a ``security-based swap, including a 
security-based swap that results from the allocation, termination, 
novation, or assignment of another security-based swap, shall be 
reported'' as provided in the rest of the rule.\347\ This change 
responds to a commenter who suggested that reporting obligations be 
reassessed upon novation based on the current registration status of 
the remaining party and the new party to the security-based swap.\348\ 
The reporting side designated by Rule 901(a) for the new transaction 
could be different from the reporting side for the original 
transaction.\349\ The reporting side for the new security-based swap 
would be required to report the transaction within 24 hours of the time 
of creation of the new security-based swap.\350\
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    \346\ As re-proposed, paragraphs (1) and (2) of Rule 901(e) 
would have identified the reporting side for a security-based swap 
resulting from a life cycle event, if the reporting side for the 
initial security-based swap ceased to be a counterparty to the 
security-based swap resulting from the life cycle event. The 
Commission believes that these proposed provisions are unnecessary 
in light of the reporting hierarchy in Rule 901(a). Therefore, as 
described above, the Commission has determined that security-based 
swap counterparties should use the reporting hierarchy in Rule 
901(a) to determine the reporting side for all security-based swaps, 
including security-based swaps that result from a life cycle event 
to another security-based swap.
    \347\ As proposed, this introductory language read ``[t]he 
reporting party shall be as follows.'' In the Cross-Border Proposing 
Release, the Commission proposed to modify this language to be 
``[t]he reporting side for a security-based swap shall be as 
follows.''
    \348\ See ISDA IV at 7.
    \349\ Assume, for example, that a registered security-based swap 
dealer and a hedge fund execute a security-based swap. The execution 
does not occur on a platform and the transaction will not be 
submitted to clearing. Under Rule 901(a)(2)(ii)(B), as adopted, the 
registered security-based swap dealer is the reporting side for the 
transaction. Assume further that three days after execution the 
registered security-based swap dealer and the hedge fund agree that 
the registered security-based swap dealer will step out of the trade 
through a novation and will be replaced by a registered major 
security-based swap participant. Pursuant to Rule 901(e), as 
adopted, the registered security-based swap dealer would be required 
to report the novation to the same registered SDR that received the 
initial report of the security-based swap. At this point, the 
transaction between the registered security-based swap dealer and 
the hedge fund is complete and the registered security-based swap 
dealer would have no further reporting obligations with respect to 
the transaction. Under Rule 901(a)(2)(ii)(D), as adopted, the 
registered major security-based swap participant is the reporting 
side for the security-based swap that results from the novation of 
the transaction between the registered security-based swap dealer 
and the hedge fund. The registered major security-based swap 
participant is the reporting side for the resulting transaction.
    \350\ If the time that is 24 hours after the time of the 
creation of the new security-based swap would fall on a day that is 
not a business day, the report of the new security-based swap would 
be due by the same time on the next day that is a business day. See 
Rule 901(j).
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    Rule 901(d)(10) requires the reporting side for the new security-
based swap to report the transaction ID of the original security-based 
swap as a data element of the transaction report for the new security-
based swap.\351\ The Commission believes that this requirement will 
allow the Commission and other relevant authorities to link the report 
of a new security-based swap that arises from the allocation, 
termination, novation, or assignment of an existing security-based swap 
to the original security-based swap. As a result of these links, the 
Commission believes that it is not necessary or appropriate to require 
that a security-based swap that arises from the allocation, 
termination, novation, or assignment of an existing security-based swap 
be reported to the same registered SDR that received the transaction 
report of the original transaction. Thus, the reporting side for a 
security-based swap that arises as a result of the allocation, 
termination, novation, or assignment of an existing security-based swap 
could report the resulting new security-based swap to a registered SDR 
other than the registered SDR that received the report of the original 
security-based swap.
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    \351\ Rule 901(d)(10) provides that if a ``security-based swap 
arises from the allocation, termination, novation, or assignment of 
one or more existing security-based swaps,'' the reporting side must 
report ``the transaction ID of the allocated, terminated, assigned, 
or novated security-based swap(s), except in the case of a clearing 
transaction that results from the netting or compression of other 
clearing transactions.'' See supra Section II(C)(3)(k) (discussing 
Rule 901(d))(10)).
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VI. Public Dissemination--Rule 902

A. Background

    In addition to requiring regulatory reporting of all security-based 
swaps, Regulation SBSR seeks to implement Congress's mandate for real-
time public dissemination of all security-based swaps. Section 
13(m)(1)(B) of the Exchange Act authorizes the Commission ``to make 
security-based

[[Page 14605]]

swap transaction and pricing data available to the public in such form 
and at such times as the Commission determines appropriate to enhance 
price discovery.'' \352\ Section 13(m)(1)(C) of the Exchange Act \353\ 
authorizes the Commission to provide by rule for the public 
availability of security-based swap transaction, volume, and pricing 
data as follows:
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    \352\ 15 U.S.C. 78m(m)(1)(B). Section 13m(1)(E) of the Exchange 
Act, 15 U.S.C. 78m(m)(1)(E), requires the Commission rule for real-
time public dissemination of security-based swap transactions to: 
(1) ``specify the criteria for determining what constitutes a large 
notional security-based swap transaction (block trade) for 
particular markets and contracts'' and (2) ``specify the appropriate 
time delay for reporting large notional security-based swap 
transactions (block trades) to the public.'' The treatment of block 
trades is discussed in Section VII, infra.
    \353\ 15 U.S.C. 78m(m)(1)(C).
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    (1) With respect to those security-based swaps that are subject to 
the mandatory clearing requirement described in Section 3C(a)(1) of the 
Exchange Act (including those security-based swaps that are excepted 
from the requirement pursuant to Section 3C(g) of the Exchange 
Act),\354\ the Commission shall require real-time public reporting for 
such transactions; \355\
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    \354\ 15 U.S.C. 78c-3(g).
    \355\ Section 3C(a)(1) of the Exchange Act, 15 U.S.C. 78c-
3(a)(1), provides that it shall be unlawful for any person to engage 
in a security-based swap unless that person submits such security-
based swap for clearing to a clearing agency that is registered 
under the Exchange Act or a clearing agency that is exempt from 
registration under the Exchange Act if the security-based swap is 
required to be cleared. Section 3C(g)(1) of the Exchange Act, 15 
U.S.C. 78c-3(g)(1), provides that requirements of Section 3C(a)(1) 
will not apply to a security-based swap if one of the counterparties 
to the security-based swap (1) is not a financial entity; (2) is 
using security-based swaps to hedge or mitigate commercial risk; and 
(3) notifies the Commission, in a manner set forth by the 
Commission, how it generally meets its financial obligations 
associated with entering into non-cleared security-based swaps.
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    (2) With respect to those security-based swaps that are not subject 
to the mandatory clearing requirement described in Section 3C(a)(1) of 
the Exchange Act, but are cleared at a registered clearing agency, the 
Commission shall require real-time public reporting for such 
transactions;
    (3) With respect to security-based swaps that are not cleared at a 
registered clearing agency and which are reported to a SDR or the 
Commission under Section 3C(a)(6),\356\ the Commission shall require 
real-time public reporting for such transactions, in a manner that does 
not disclose the business transactions and market positions of any 
person; and
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    \356\ The reference in Section 13(m)(1)(C)(iii) of the Exchange 
Act to Section 3C(a)(6) of the Exchange Act is incorrect. Section 3C 
of the Exchange Act does not contain a paragraph (a)(6). See 
generally Am. Petroleum Institute v. SEC, 714 F.3d 1329, 1336-37 (DC 
Cir 2013) (explaining that ``[t]he Dodd Frank Act is an enormous and 
complex statute, and it contains'' a number of ``scriveners' 
errors'').
---------------------------------------------------------------------------

    (4) With respect to security-based swaps that are determined to be 
required to be cleared under Section 3C(b) of the Exchange Act but are 
not cleared, the Commission shall require real-time public reporting 
for such transactions.\357\
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    \357\ Section 3C(b)(1) of the Exchange Act requires the 
Commission to review on an ongoing basis each security-based swap, 
or any group, category, type, or class of security-based swap to 
make a determination that such security-based swap, or group, 
category, type, or class of security-based swap should be required 
to be cleared.
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    Furthermore, Section 13(m)(1)(D) of the Exchange Act \358\ 
authorizes the Commission to require registered entities (such as 
registered SDRs) to publicly disseminate the security-based swap 
transaction and pricing data required to be reported under Section 
13(m) of the Exchange Act. Finally, Section 13(n)(5)(D)(ii) of the 
Exchange Act \359\ requires SDRs to provide security-based swap 
information ``in such form and at such frequency as the Commission may 
require to comply with public reporting requirements.''
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    \358\ 15 U.S.C. 78m(m)(1)(D).
    \359\ 15 U.S.C. 78m(n)(5)(D)(ii).
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    In view of these statutory provisions, the Commission proposed Rule 
902--Public Dissemination of Transaction Reports. In the Regulation 
SBSR Proposing Release, the Commission expressed its belief that the 
best approach would be to require market participants to report 
transaction information to a registered SDR and require registered SDRs 
to disseminate that information to the public.\360\ Many commenters 
expressed general support for public dissemination of security-based 
swap information.\361\ In addition, as discussed more fully below, the 
Commission received a large number of comments addressing specific 
aspects of public dissemination of transaction reports.\362\
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    \360\ See 75 FR 75227.
    \361\ See Barnard I at 3 (recommending full post-trade 
transparency as soon as technologically and practically feasible, 
with an exemption to permit delayed reporting of block trades); CII 
Letter at 2 (``the transparency resulting from the implementation of 
the proposed rules would not only lower systemic risk and strengthen 
regulatory oversight, but also, importantly for investors, enhance 
the price discovery function of the derivatives market''); DTCC II 
at 17-18 (noting that the proposed rules are designed to balance the 
benefits of post-trade transparency against the potentially higher 
costs of transferring or hedging a position following the 
dissemination of a report of a block trade); Ethics Metrics Letter 
at 3 (last-sale reporting of security-based swap transactions will 
``provide material information to eliminate inefficiencies in 
pricing [financial holding company] debt and equity in the U.S. 
capital markets''); FINRA Letter at 1 (stating that the proposed 
trade reporting and dissemination structure, and the information it 
would provide to regulators and market participants, are vital to 
maintaining market integrity and investor protection); Getco Letter 
at 3 (noting that in the absence of accurate and timely post-trade 
transparency for most security-based swap transactions only major 
dealers will have pricing information and therefore new liquidity 
providers will not participate in the security-based swap market); 
ICI I at 1-2 (stating that market transparency is a key element in 
assuring the integrity and quality of the security-based swap 
market); Markit I at 4 (stating that security-based swap data should 
be made available on a non-delay basis to the public, media, and 
data vendors); MFA I at 1 (supporting the reporting of security-
based swap transaction data to serve the goal of market 
transparency); SDMA I at 4 (``Post-trade transparency is not only a 
stated goal of the Dodd-Frank Act it is also an instrumental 
component in establishing market integrity. By creating real time 
access to trade information for all market participants, confidence 
in markets increases and this transparency fosters greater 
liquidity''); ThinkNum Letter passim; Shatto Letter passim.
    \362\ See infra notes 377 to 386 and accompanying text and 
Section VI(D).
---------------------------------------------------------------------------

    The current market for security-based swaps is opaque. Dealers know 
about order flow that they execute, and may know about other dealers' 
transactions in certain instances, but information about executed 
transactions is not widespread. Market participants--particularly non-
dealers--have to rely primarily on their understanding of the market's 
fundamentals to arrive at a price at which they would be willing to 
assume risk. The Commission believes that, by reducing information 
asymmetries between dealers and non-dealers and providing more equal 
access to all post-trade information in the security-based swap market, 
post-trade transparency could help reduce implicit transaction costs 
and promote greater price efficiency.\363\ The availability of post-
trade information also could encourage existing market participants to 
increase their activity in the market and encourage new participants to 
join the market--and, if so, increase liquidity and competition in the 
security-based swap market. In addition, all market participants will 
have more comprehensive information with which to make trading and 
valuation determinations.
---------------------------------------------------------------------------

    \363\ See infra Section XXII(C)(2)(a). See also infra note 1255 
(discussing implicit transaction costs).
---------------------------------------------------------------------------

    Security-based swaps are complex derivative products, and there is 
no single accepted way to model a security-based swap for pricing 
purposes. The Commission believes that post-trade pricing and volume 
information will allow valuation models to be adjusted to reflect how 
other market participants have valued a security-based swap product at 
a specific moment in time. Public dissemination of last-sale

[[Page 14606]]

information also will aid dealers in deriving better quotations, 
because they will know the prices at which other market participants 
have traded. Last-sale information also will aid end users and other 
non-registered entities in evaluating current quotations by allowing 
them to request additional information if a dealer's quote differs from 
the prices of the most recent transactions. Furthermore, smaller market 
participants that view last-sale information will be able to test 
whether quotations offered by dealers before the last sale were close 
to the price at which the last sale was executed. In this manner, post-
trade transparency will promote price competition and more efficient 
price discovery in the security-based swap market.
    The Commission is adopting Rule 902 with certain modifications and 
technical changes discussed in more detail below. Final Rule 902(a) 
sets forth the basic duty of a registered SDR to publicly disseminate 
transaction reports. Final Rule 902(c) sets forth certain types of 
security-based swaps and certain other information about security-based 
swaps that a registered SDR shall not publicly disseminate. Final Rule 
902(d), the so-called ``Embargo Rule,'' is designed to promote fair 
access to information about executed security-based swaps.\364\
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    \364\ Final Rule 902(d) provides that ``[n]o person shall make 
available to one or more persons (other than a counterparty or post-
trade processor) transaction information relating to a security-
based swap before the primary trade information about the security-
based swap is submitted to a registered security-based swap data 
repository.''
---------------------------------------------------------------------------

    Rule 902(b), as proposed and re-proposed, would have established a 
mechanism for registered SDRs to publicly disseminate transaction 
reports of block trades. As discussed in more detail in Section VII, 
infra, the Commission is not adopting thresholds for determining what 
constitutes a block trade. Accordingly, the Commission believes that it 
is not necessary or appropriate at this time to adopt rules 
specifically addressing the public dissemination of block trades.

B. Registered SDR's Duty To Disseminate--Rule 902(a)

    Rule 902(a), as proposed and re-proposed, would have required a 
registered SDR to publicly disseminate a transaction report of any 
security-based swap immediately upon receipt of transaction information 
about the security-based swap, except in the case of a block 
trade.\365\ Further, Rule 902(a), as initially proposed, provided that 
the transaction report would consist of ``all the information reported 
by the reporting party pursuant to Sec.  242.901, plus any indicator or 
indicators contemplated by the registered security-based swap data 
repository's policies and procedures that are required by Sec.  
242.907.'' Rule 902(a) was revised and re-proposed as part of the 
Cross-Border Proposing Release to add that a registered SDR would not 
have an obligation to publicly disseminate certain types of cross-
border security-based swaps that are required to be reported but not 
publicly disseminated.\366\
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    \365\ The Commission recognized, however, that there may be 
circumstances when a registered SDR's systems might be unavailable 
for publicly disseminating transaction data. In such cases, proposed 
Rule 902(a) would have required a registered SDR to disseminate the 
transaction data immediately upon its re-opening. See Regulation 
SBSR Proposing Release, 75 FR 75228. Rule 904 of Regulation SBSR 
deals with hours of operation of registered SDRs and related 
operational procedures. See infra Section XI.
    \366\ This carve-out was necessitated by re-proposed Rule 
908(a), which contemplated situations where a security-based swap 
would be required to be reported to a registered SDR but not 
publicly disseminated. See 78 FR 31060.
---------------------------------------------------------------------------

    Commenters generally were supportive of the Commission's approach 
of requiring registered SDRs to be responsible for public dissemination 
of security-based swap transaction reports.\367\ One commenter, for 
example, stated that allowing other types of entities to have the 
regulatory duty to disseminate data could lead to undue complications 
for market participants.\368\ In addition, the commenter expressed the 
view that real-time public dissemination of security-based swap data is 
a ``core function'' of registered SDRs, and that permitting only 
registered SDRs to publicly disseminate security-based swap data would 
help to assure the accuracy and completeness of the data.\369\ However, 
one commenter appeared to recommend that a clearing agency should be 
responsible for public dissemination of ``relevant pricing data for a 
security-based swap subject to clearing.'' \370\
---------------------------------------------------------------------------

    \367\ See FINRA Letter at 5; DTCC II at 18 (stating that SDRs 
should be able to disseminate data effectively and should be the 
sole source of data dissemination); DTCC IV at 4; MarkitSERV I at 7-
8 (stating that only registered SDRs, or their agents, should be 
permitted to disseminate security-based swap data); Thomson Reuters 
Letter at 6-7 (stating that publication and dissemination of 
security-based swap transaction information should be the 
responsibility of registered SDRs rather than SB SEFs).
    \368\ See DTCC II at 18.
    \369\ See DTCC IV at 4.
    \370\ See ISDA IV at 6 (stating that ``as regards public 
dissemination of relevant pricing data for a SBS subject to 
clearing, such reporting should be done by the clearing agency when 
a SBS is accepted for clearing and the clearing agency reports for 
the beta and gamma'').
---------------------------------------------------------------------------

    The Commission has carefully analyzed the comments and is adopting 
the approach of requiring public dissemination through registered SDRs. 
The Commission believes that this approach will promote efficiency in 
the security-based swap market, or at least limit inefficiency.\371\ 
Section 13(m)(1)(G) of the Exchange Act \372\ provides that ``[e]ach 
security-based swap (whether cleared or uncleared) shall be reported to 
a registered security-based swap data repository.'' Thus, security-
based swaps would have to be reported to registered SDRs regardless of 
the mechanism that the Commission chooses for public dissemination. By 
requiring registered SDRs to carry out the task of public 
dissemination, the Commission will not require reporting steps beyond 
those already required by the Exchange Act. Furthermore, the Commission 
believes that assigning registered SDRs the duty to publicly 
disseminate will help promote efficiency and consistency of post-trade 
information. Market observers will not have to obtain market data from 
potentially several other sources--such as SB SEFs, clearing agencies, 
or the counterparties themselves--to have a full view of security-based 
swap market activity.
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    \371\ See infra Section XXII(B)(2).
    \372\ 15 U.S.C. 78m(m)(1)(G).
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1. Format of Disseminated Data
    In the Regulation SBSR Proposing Release, the Commission 
acknowledged that multiple uniquely formatted data feeds could impair 
the ability of market participants to receive, understand, or compare 
security-based swap transaction data and thus undermine its value.\373\ 
Furthermore, the Commission suggested that one way to address that 
issue would be to dictate the exact format and mode of providing 
required security-based swap data to the public, while acknowledging 
various problems with that approach.\374\ The Commission proposed, 
however, to identify in proposed Rules 901(c) and 901(d) the categories 
of information that would be required to be reported, and to require 
registered SDRs to establish and maintain policies and procedures that, 
among other things, would specify the data elements that would be 
required to be reported.\375\ The Commission preliminarily believed 
that this approach would promote the reporting of uniform, material 
information for each security-based swap, while providing flexibility 
to account for

[[Page 14607]]

changes to the security-based swap market over time.\376\
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    \373\ See 75 FR 75227.
    \374\ See id.
    \375\ See id. at 75213.
    \376\ See id.
---------------------------------------------------------------------------

    Two commenters generally supported the Commission's approach of 
providing registered SDRs with the flexibility to define the relevant 
data fields.\377\ However, one commenter stated that the final rules 
should clearly identify the data fields that will be publicly 
disseminated.\378\ Another commenter emphasized the importance of 
presenting security-based swap information in a format that is useful 
for market participants, and expressed concern that proposed Regulation 
SBSR did ``nothing to ensure that the data amassed by individual SDRs 
is aggregated and disseminated in a form that is genuinely useful to 
traders and regulators and on a nondiscriminatory basis.'' \379\ This 
commenter further believed that to provide meaningful price discovery, 
data must be presented in a format that allows market participants to 
view it in near-real time, fits onto the limited space available on 
their trading screens, and allows them to view multiple markets 
simultaneously.\380\
---------------------------------------------------------------------------

    \377\ See Barnard I at 2 (stating that the categories of 
information required to be reported under the proposed rules should 
be ``complete and sufficient so that its dissemination will enhance 
transparency and price discovery''); MarkitSERV I at 10 (expressing 
support for the Commission's ``proposal to provide [registered] SDRs 
with the authority to define the relevant fields on the basis of 
general guidelines as set out by the SEC'').
    \378\ See ISDA/SIFMA I at 10. See also ISDA IV at 9 and Section 
II(2)(a), supra, for a response.
    \379\ Better Markets II at 2-3 (also arguing that the Commission 
should require disclosure of the component parts of a complex 
transaction to prevent market participants from avoiding 
transparency by creating complex composite transactions).
    \380\ See Better Markets I at 3; Better Markets II at 4.
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    The Commission has carefully considered these comments and 
continues to believe that it is not necessary or appropriate at this 
time for the Commission to dictate the format and mode of public 
dissemination of security-based swap transaction information by 
registered SDRs. Therefore, Rule 902(a), as adopted, provides 
registered SDRs with the flexibility to set the format and mode of 
dissemination through its policies and procedures, as long as the 
reports of security-based swaps that it publicly disseminates include 
the information required to be reported by Rule 901(c), plus any 
``condition flags'' contemplated by the registered SDR's policies and 
procedures under Rule 907.\381\ The Commission notes that it 
anticipates proposing for public comment detailed specifications of 
acceptable formats and taxonomies that would facilitate an accurate 
interpretation, aggregation, and analysis by the Commission of 
security-based swap data submitted to it by an SDR. The Commission 
intends to maximize the use of any applicable current industry 
standards for the description of security-based swap data, and build 
upon such standards to accommodate any additional data fields as may be 
required.
---------------------------------------------------------------------------

    \381\ The Commission notes that final Rule 902(a) references 
``condition flags,'' rather than ``indicator or indicators,'' as was 
proposed, to conform with Rule 907, as adopted.
---------------------------------------------------------------------------

2. Timing of Public Dissemination
    Rule 902(a), as re-proposed, would have required a registered SDR 
to publicly disseminate a transaction report of a security-based swap 
immediately upon (1) receipt of information about the security-based 
swap from a reporting side, or (2) re-opening following a period when 
the registered SDR was closed, unless the security-based swap was a 
block trade or a cross-border security-based swap that was required to 
be reported but not publicly disseminated. One commenter agreed with 
the proposed requirement, stating that reported security-based swap 
transaction information ``should be made available on a non-delayed 
basis to the public, media, and data vendors.'' \382\
---------------------------------------------------------------------------

    \382\ Markit I at 4.
---------------------------------------------------------------------------

    The Commission is adopting the requirement contained in Rule 
902(a), as re-proposed, that a registered SDR must disseminate a 
transaction report of a security-based swap ``immediately upon receipt 
of information about the security-based swap, or upon re-opening 
following a period when the registered security-based swap data 
repository was closed.'' \383\ ``Immediately,'' as used in this 
context, implies a wholly automated process to accept the incoming 
information, process the information to assure that only information 
required to be disseminated is disseminated, and disseminate a trade 
report through electronic means.
---------------------------------------------------------------------------

    \383\ See infra Section XI (discussing Rule 904, which deals 
with hours of operation of registered SDRs and related operational 
procedures).
---------------------------------------------------------------------------

3. Dissemination of Life Cycle Events
    Rule 902(a), as adopted, provides that, in addition to transaction 
reports of security-based swaps, a registered SDR ``shall publicly 
disseminate . . . a life cycle event or adjustment due to a life cycle 
event.'' Rule 902(a), as proposed and re-proposed, did not specifically 
refer to such information, but, as noted in the Regulation SBSR 
Proposing Release, proposed Rule 907(a)(4) would have required a 
registered SDR to ``establish and maintain written policies and 
procedures describing how reporting parties shall report--and, 
consistent with the enhancement of price discovery, how the registered 
SDR shall publicly disseminate--reports of, and adjustments due to, 
life cycle events.'' \384\ One commenter argued that the Commission 
should limit public dissemination to new trading activity and should 
exclude maintenance or life cycle events.\385\ The Commission 
disagrees, and believes instead that, if information about a security-
based swap is publicly disseminated but subsequently one or more of the 
disseminated data elements is revised due to a life cycle event (or an 
adjustment due to a life cycle event), the revised information would 
provide market observers a more accurate understanding of the market. 
The Commission, therefore, is clarifying Rule 902(a) to make clear the 
requirement to disseminate life cycle events. Final Rule 902(a) 
provides, in relevant part, that a registered SDR ``shall publicly 
disseminate a transaction report of the security-based swap or a life 
cycle event or adjustment due to a life cycle event immediately upon 
receipt.'' \386\
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    \384\ Regulation SBSR Proposing Release, 75 FR 75237.
    \385\ See ISDA/SIFMA I at 12. See also ISDA IV at 13 (arguing 
that only life cycle events that result in a change to the price of 
a security-based swap should be subject to public dissemination, and 
requesting that ``any activity on a [security-based swap] that does 
not affect the price of the reportable [security-based swap]'' be 
excluded from public dissemination).
    \386\ To enhance the usefulness of a public transaction report 
of a life cycle event, final Rule 907(a)(3) requires a registered 
SDR to have policies and procedures for appropriately flagging 
public reports of life cycle events. See infra Section XII(C). This 
requirement is designed to promote transparency by allowing market 
observers to distinguish original transactions from life cycle 
events.
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4. Correction of Minor Drafting Error
    Rule 902(a), as initially proposed and re-proposed, provided that 
the transaction report that is publicly disseminated ``shall consist of 
all the information reported pursuant to Rule 901, plus any indicator 
or indicators contemplated by the registered security-based swap data 
repository's policies and procedures that are required by Rule 907'' 
(emphasis added). However, in the Regulation SBSR Proposing Release, 
the Commission specified that the transaction report that is 
disseminated should consist of all the information reported pursuant to 
Rule

[[Page 14608]]

901(c).\387\ The statement from the preamble of the Regulation SBSR 
Proposing Release is correct. The Commission did not intend for all of 
the information reported pursuant to Rule 901 to be publicly 
disseminated;\388\ this would include, for example, regulatory data 
reported pursuant to Rule 901(d) and information about historical 
security-based swaps reported pursuant to Rule 901(i). The Commission 
is correcting this drafting error so that final Rule 902(a) explicitly 
states that the ``transaction report shall consist of all the 
information reported pursuant to Sec.  242.901(c), plus any condition 
flags contemplated by the registered security-based swap data 
repository's policies and procedures that are required by Sec.  
242.907'' (emphasis added).
---------------------------------------------------------------------------

    \387\ See 75 FR 75212-13.
    \388\ Two comments specifically noted this lack of clarity. See 
ISDA/SIFMA I at 12; ISDA IV at 14.
---------------------------------------------------------------------------

5. Use of Agents by a Registered SDR To Carry Out the Public 
Dissemination Function
    One commenter discussed the appropriateness of third-party service 
providers carrying out the public dissemination function on behalf of 
registered SDRs.\389\ The Commission believes that, in the same way 
that reporting sides may engage third-party agents to report 
transactions on their behalf, registered SDRs may engage third-party 
providers to carry out the public dissemination function on their 
behalf. In both cases, the entity with the legal duty would remain 
responsible for compliance with Regulation SBSR if its agent failed to 
carry out the function in a manner stipulated by Regulation SBSR. Thus, 
reporting sides and registered SDRs should engage only providers that 
have the capacity and reliability to carry out those duties.
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    \389\ See MarkitSERV I at 7-8.
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C. Definition of ``Publicly Disseminate''

    In the Regulation SBSR Proposing Release, the Commission defined 
``publicly disseminate'' in Rule 900 to mean ``to make available 
through the Internet or other electronic data feed that is widely 
accessible and in machine-readable electronic format.'' The Commission 
re-proposed this definition renumbering it Rule 900(y), in the Cross-
Border Proposing Release.
    The Commission received no comment letters directly discussing the 
proposed definition, although as noted above many commenters commented 
on various other aspects of public dissemination, including the format 
of disseminated data \390\ and timing of public dissemination.\391\ The 
Commission is adopting the definition of ``publicly disseminate'' as 
proposed and re-proposed. The Commission continues to believe that, to 
satisfy the statutory mandate for public dissemination, security-based 
swap transaction data must be widely accessible in a machine-readable 
electronic format. These data are too numerous and complex for direct 
human consumption and thus will have practical use only if they can be 
downloaded and read by computers. The definition of ``publicly 
disseminate'' recognizes the Internet as one, but not the only, 
possible electronic medium to make these data available to the public.
---------------------------------------------------------------------------

    \390\ See supra Section VII(B)(1).
    \391\ See supra Section VII(B)(2).
---------------------------------------------------------------------------

D. Exclusions From Public Dissemination--Rule 902(c)

 1. Discussion of Final Rule
    Rule 902(c), as proposed and re-proposed, set forth three kinds of 
information that a registered SDR would be prohibited from 
disseminating. First, in Rule 902(c)(1), the Commission proposed that a 
registered SDR would be prohibited from disseminating the identity of 
any counterparty to a security-based swap. This would implement Section 
13(m)(1)(E)(i) of the Exchange Act,\392\ which requires the 
Commission's rule providing for the public dissemination of security-
based swap transaction and pricing information to ensure that ``such 
information does not identify the participants.'' The Commission 
received three comments that generally urged the Commission to ensure 
the anonymity of security-based swap counterparties, either through 
non-dissemination of the identity of any counterparty or by limiting 
public dissemination of other data elements they believed could lead to 
disclosure of counterparties' identities.\393\ To address the 
commenters' concerns, the Commission is adopting Rule 902(c)(1) as 
proposed and re-proposed, with one conforming change.\394\ Final Rule 
902(c)(1) explicitly prohibits a registered SDR from disseminating the 
identity of any counterparty. Further, Rule 902(a) explicitly provides 
for the public dissemination of a transaction report that consists only 
of ``the information reported pursuant to Sec.  242.901(c), plus any 
condition flags contemplated by the registered security-based swap data 
repository's policies and procedures that are required by Sec.  
242.907.'' Limiting the publicly disseminated trade report to these 
specific data elements is designed to further avoid disclosure of any 
counterparty's identity, including the counterparty ID of a 
counterparty, even in thinly-traded markets.\395\
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    \392\ 15 U.S.C. 13m(m)(1)(E)(i). This section is applicable to 
security-based swaps that are subject to Sections 13(m)(1)(C)(i) and 
(ii) of the Exchange Act--i.e., security-based swaps that are 
subject to the mandatory clearing requirement in Section 3C(a)(1) 
and security-based swaps that are not subject to the mandatory 
clearing requirement in Section 3C(a)(1) but are cleared.
    \393\ See Deutsche Bank Letter at 6 (asking the SEC and CFTC to 
impose strict requirements on an SDR's handling, disclosure, and use 
of identifying information); DTCC II at 9 (noting that trading 
volume in most single name credit derivatives is ``extremely thin'' 
and disclosing small data samples, particularly from narrow time 
periods, may not preserve the anonymity of the trading parties); 
ISDA/SIFMA I at 12; MFA I at 2 (arguing that participant IDs should 
not be included in any publicly disseminated transaction report to 
protect identities and proprietary trading strategies of security-
based swap market participants).
    \394\ Re-proposed Rule 902(c)(1) would have prohibited a 
registered SDR from publicly disseminating the identity of either 
counterparty to a security-based swap. Final Rule 902(c)(1) 
prohibits a registered SDR from publicly disseminating the identity 
of any counterparty to a security-based swap. Final Rule 900(i) 
defines counterparty to mean ``a person that is a direct 
counterparty or indirect counterparty of a security-based swap.'' 
This conforming change to Rule 902(c)(1) makes clear that a 
registered SDR may not publicly disseminate the identity of any 
counterparty--direct or indirect--of a security-based swap.
    \395\ See infra Section VI(D)(1)(f) (discussing public 
dissemination of thinly-traded products).
---------------------------------------------------------------------------

    Second, the Commission proposed in Rule 902(c)(2) that, with 
respect to a security-based swap that is not cleared at a clearing 
agency and that is reported to a registered SDR, a registered SDR would 
be prohibited from disseminating any information disclosing the 
business transactions and market positions of any person. This would 
implement Section 13(m)(1)(C)(iii) of the Exchange Act,\396\ which 
provides that, with respect to the security-based swaps that are not 
cleared and which are reported to an SDR or the Commission, ``the 
Commission shall require real-time public reporting . . . in a manner 
that does not disclose the business transactions and market positions 
of any person.'' The Commission received no comments that directly 
addressed proposed Rule 902(c)(2), although one commenter noted that 
``all market participants have legitimate interests in the protection 
of their confidential and identifying financial information.'' \397\ By 
prohibiting a registered SDR from disseminating any information 
disclosing the business transactions and market positions of any 
person, the Commission believes that Rule 902(c)(2) will help preserve 
the confidential information of market participants, in

[[Page 14609]]

addition to implementing Section 13(m)(1)(C)(iii) of the Exchange Act. 
Accordingly, the Commission is adopting Rule 902(c)(2) as proposed and 
re-proposed.
---------------------------------------------------------------------------

    \396\ 15 U.S.C. 13(m)(1)(C)(iii).
    \397\ Deutsche Bank Letter at 6.
---------------------------------------------------------------------------

    Third, the Commission preliminarily believed that it would be 
impractical and unnecessary for a registered SDR to publicly 
disseminate reports of historical security-based swaps reported 
pursuant to Rule 901(i), and therefore included this exclusion in 
proposed Rule 902(c)(3).\398\ The Commission received no comments 
regarding proposed Rule 902(c)(3). The Commission continues to believe 
that it would be impractical for a registered SDR to publicly 
disseminate reports of historical security-based swaps reported 
pursuant to Rule 901(i). Accordingly, the Commission is adopting Rule 
902(c)(3) as proposed and re-proposed.
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    \398\ 75 FR 75286.
---------------------------------------------------------------------------

    The Commission calls particular attention to the relationship 
between Rules 901(i), 901(e), and 902. Rule 901(i) requires reporting 
of historical security-based swaps to a registered SDR. Rule 902(c)(3) 
provides that the initial transaction reported pursuant to Rule 901(i) 
shall not be publicly disseminated. A historical security-based swap 
might remain open after market participants are required to begin 
complying with the requirement in Rule 901(e) to report life cycle 
events.\399\ If a life cycle event of a historical security-based swap 
relating to any of the primary trade information--i.e., the data 
elements enumerated in Rule 901(c)--occurs after public dissemination 
is required for security-based swaps in a particular asset class, Rule 
902(a) would require the registered SDR to publicly disseminate a 
report of that life cycle event, plus any condition flags required by 
the registered SDR's policies and procedures under Rule 907. In other 
words, Rule 902(c)(3)'s exclusion from public dissemination for 
historical security-based swaps applies only to the initial 
transaction, not to any life cycle event of that historical security-
based swap relating to the primary trade information that occurs after 
public dissemination in that asset class is required. Therefore, life 
cycle events relating to the primary trade information of historical 
security-based swaps must, after the public dissemination requirement 
goes into effect, be publicly disseminated.\400\
---------------------------------------------------------------------------

    \399\ See Regulation SBSR Proposed Amendments Release, Section 
VII (proposing a new compliance schedule for Regulation SBSR).
    \400\ For example, a termination of a historical security-based 
swap--occurring after public dissemination in that asset class 
becomes required--would have to be publicly disseminated. A 
termination represents the change in the notional amount of the 
transaction from a positive amount to zero. Because the notional 
amount is a Rule 901(c) element, the termination of the historical 
security-based swap would have to be publicly disseminated.
---------------------------------------------------------------------------

    At the same time, correcting an error in the Rule 901(c) 
information relating to a historical security-based swap would not 
trigger public dissemination of a corrected report. Rule 905 applies to 
all information reported pursuant to Regulation SBSR, including 
historical security-based swaps that must be reported pursuant to Rule 
901(i). Rule 905(b)(2) requires the registered SDR to publicly 
disseminate a correction of a transaction only if the corrected 
information falls within Rule 901(c) and the transaction previously was 
subject to a public dissemination requirement. Historical security-
based swaps are not subject to the public dissemination requirement; 
therefore, corrections to Rule 901(c) information in historical 
security-based swaps are not subject to public dissemination either.
    Rule 902(a), as proposed, would have provided that a registered SDR 
shall publicly disseminate a transaction report of a security-based 
swap reported to it, ``[e]xcept in the case of a block trade.'' Rule 
902(a), as re-proposed, would have retained the exception for block 
trades and added a second exception, for ``a trade that is required to 
be reported but not publicly disseminated.'' \401\ In final Regulation 
SBSR, the Commission is revising Rules 902(a) and 902(c) to consolidate 
into a single rule--Rule 902(c)--all the types of security-based swaps 
and the kinds of information that a registered SDR is prohibited from 
disseminating. Therefore, Rule 902(a), as adopted, now provides that a 
registered SDR shall publicly disseminate a transaction report of a 
security-based swap ``except as provided in paragraph (c) of this 
section.''
---------------------------------------------------------------------------

    \401\ This second exception was necessitated by revisions to 
Rule 908 made in the Cross-Border Proposing Release that would have 
provided that certain cross-border security-based swaps would be 
subject to regulatory reporting but not public dissemination. See 78 
FR 31215.
---------------------------------------------------------------------------

    In addition to adopting subparagraphs (1), (2), and (3) of Rule 
902(c), as proposed and re-proposed, the Commission is modifying Rule 
902(c) to expand the number of exclusions from public dissemination 
from three to seven. First, the Commission is adding Rule 902(c)(4), 
which prohibits a registered SDR from disseminating a non-mandatory 
report, and is adding a new Rule 900(r) to define ``non-mandatory 
report'' as any information provided to a registered SDR by or on 
behalf of a counterparty other than as required by Regulation SBSR. 
Situations may arise when the same transaction may be reported to two 
separate registered SDRs. This could happen, for example, if the 
reporting side reports a transaction to one registered SDR, as required 
by Rule 901, but the other side elects to submit the same transaction 
information to a second registered SDR. The Commission has determined 
that any non-mandatory report should be excluded from public 
dissemination because the mandatory report of that transaction will 
have already been disseminated, and the Commission seeks to avoid 
distorting the market by having two public reports issued for the same 
transaction.\402\
---------------------------------------------------------------------------

    \402\ See infra Section XIX (explaining how a registered SDR can 
determine whether the report it receives is a non-mandatory report).
---------------------------------------------------------------------------

    Second, the Commission is adding Rule 902(c)(5), which prohibits a 
registered SDR from disseminating any information regarding a security-
based swap that is subject to regulatory reporting but not public 
dissemination under final Rule 908(a) of Regulation SBSR.\403\ Rule 
902(a), as re-proposed, would have prohibited a registered SDR from 
publicly disseminating information concerning a cross-border security-
based swap that is required to be reported but not publicly 
disseminated. The Commission received no comments on this specific 
provision, and is relocating it from re-proposed Rule 902(a) to final 
Rule 902(c)(5). Rule 902(c)(5), as adopted, will prohibit a registered 
SDR from disseminating ``[a]ny information regarding a security-based 
swap that is required to be reported pursuant to Sec. Sec.  242.901 and 
242.908(a)(1) but is not required to be publicly disseminated pursuant 
to Sec.  242.908(a)(2).''
---------------------------------------------------------------------------

    \403\ See infra Section XV(A).
---------------------------------------------------------------------------

    Third, the Commission is adding Rule 902(c)(6), which prohibits a 
registered SDR from disseminating any information regarding certain 
types of clearing transactions.\404\ Regulation SBSR, as proposed and 
re-proposed, did not provide any exemption from public dissemination 
for clearing transactions. However, the Commission has determined that 
publicly disseminating reports of clearing transactions that arise from 
the acceptance of a security-based swap for clearing by a registered 
clearing agency or that result from netting other clearing transactions 
would be unlikely to further Title VII's transparency objectives. Any 
security-based swap transaction, such as an

[[Page 14610]]

alpha, that precedes a clearing transaction must be publicly 
disseminated. Clearing transactions, such as the beta and the gamma, 
that result from clearing a security-based swap or from netting 
clearing transactions together do not have price discovery value 
because they are mechanical steps taken pursuant to the rules of the 
clearing agency. Therefore, the Commission believes that non-
dissemination of these clearing transactions is appropriate in the 
public interest and consistent with the protection of investors.
---------------------------------------------------------------------------

    \404\ Rule 900(f) defines ``clearing transaction'' as ``a 
security-based swap that has a registered clearing agency as a 
direct counterparty.''
---------------------------------------------------------------------------

    Fourth, the Commission is adding Rule 902(c)(7), which prohibits a 
registered SDR from disseminating any information regarding the 
allocation of a security-based swap. As discussed in more detail in 
Section VIII, infra, the Commission has determined that, to comply with 
this prohibition, a registered SDR will satisfy its public 
dissemination obligations for a security-based swap involving 
allocation by disseminating only the aggregate notional amount of the 
executed bunched order that is subsequently allocated. The Commission 
believes that this is an appropriate means of public dissemination, 
because the price and size of the executed bunched order were 
negotiated as if the transaction were a single large trade, rather than 
as individual smaller trades. In the Commission's view, public 
dissemination of the allocations would not enhance price discovery 
because the allocations are not individually negotiated.\405\ 
Furthermore, although the Commission has taken the approach in other 
situations of requiring public dissemination of the transaction but 
with a condition flag to explain the special circumstances related to 
the transaction,\406\ for the reasons stated above, the Commission does 
not believe that this approach is appropriate here. Rule 902(c)(7)'s 
exception to public dissemination for the individual allocations also 
is designed to address commenter concerns that publicly disseminating 
the sizes of individual allocations could reveal the identities or 
business strategies of fund groups that execute trades on behalf of 
multiple client funds.\407\ For similar reasons, Rule 902(c)(7), as 
adopted, prohibits a registered SDR from publicly disseminating the 
fact that an initial security-based swap has been terminated and 
replaced with several smaller security-based swaps as part of the 
allocation process.\408\ The Commission believes that any marginal 
benefit of publicly disseminating this type of termination event would 
not be justified by the potential risk to the identity or business 
strategies of fund groups that execute trades on behalf of multiple 
client funds.\409\
---------------------------------------------------------------------------

    \405\ The size in which a transaction is executed could 
significantly affect the price of the security-based swap. Thus, all 
other things being equal, the price negotiated for a large trade 
could be significantly different from the price negotiated for a 
small trade. Publicly disseminating the prices of small trades that 
are allocated from the bunched order execution might not provide any 
price discovery value for another small trade if it were to be 
negotiated individually. Nor does the Commission believe that 
publicly disseminating the prices and sizes of the allocations would 
provide any more price discovery than a single print of the bunched 
order execution, because the allocations result from a single 
negotiation for the bunched order size. However, if ``child'' 
transactions of a larger ``parent'' transaction are priced 
differently from the parent transaction, these child transactions 
would not fall within the exclusion in Rule 902(c)(7).
    \406\ See infra Section IX (discussing requirements for public 
dissemination of inter-affiliate security-based swaps).
    \407\ See MFA I at 2-3 (``we are concerned that post-allocation 
[security-based swap] data, if publicly disseminated, will allow any 
of the fund's counterparties to identify transactions that the fund 
executed with others. Counterparties are often aware of an 
investment manager's standard fund allocation methodology and 
therefore, reporting transactions at the allocated level with trade 
execution time will make evident an allocation scheme that other 
participants can easily associate with a particular investment 
manager'').
    \408\ Ordinarily, the termination of a security-based swap that 
has been publicly disseminated would itself be an event that must be 
publicly disseminated. See Rule 902(a) (generally providing that a 
registered SDR shall publicly disseminate a transaction report of a 
security-based swap ``or a life cycle event or adjustment due to a 
life cycle event'' immediately upon receiving an appropriate 
transaction report).
    \409\ For the reasons noted above, the Commission believes that 
it is necessary or appropriate in the public interest, and is 
consistent with the protection of investors, to exclude these types 
of information from public dissemination under Regulation SBSR.
---------------------------------------------------------------------------

    Registered SDRs will need to rely on the information provided by 
reporting sides to determine whether Rule 902(c) excludes a particular 
report from public dissemination. As described in more detail in 
Section VI(G), Rule 907(a)(4)(iv) requires a registered SDR, among 
other things, to establish and maintain written policies and procedures 
directing its participants to apply to the transaction report a 
condition flag designated by the registered SDR to indicate when the 
report of a transaction covered by Rule 902(c) should not be publicly 
disseminated.\410\ A registered SDR would not be liable for a violation 
of Rule 902(c) if it disseminated a report of a transaction that fell 
within Rule 902(c) if the reporting side for that transaction failed to 
appropriately flag the transaction as required by Rule 907(a)(4).
---------------------------------------------------------------------------

    \410\ Rule 907(a)(4) provides registered SDRs with some 
discretion in determining how a reporting side must flag reported 
data that will be excluded from public dissemination. See infra 
Section VI(G).
---------------------------------------------------------------------------

 2. Other Exclusions From Public Dissemination Sought by Commenters
    Several commenters advanced arguments against public dissemination 
of various types of security-based swaps. The Commission notes at the 
outset that the statutory provisions that require public dissemination 
of security-based swap transactions state that all security-based swaps 
shall be publicly disseminated.
a. Customized Security-Based Swaps
    Several commenters expressed the view that transaction information 
regarding customized security-based swaps should not be publicly 
disseminated because doing so would not enhance price discovery, would 
be of limited use to the public, or could be confusing or misleading to 
market observers.\411\ However, one commenter urged the Commission to 
require public dissemination of all of the information necessary to 
calculate the price of a customized security-based swap.\412\
---------------------------------------------------------------------------

    \411\ See Barclays Letter at 3; Cleary II at 6, 16 (stating that 
public reporting of customized security-based swaps would not aid 
price discovery, and that the Commission should require the public 
dissemination of key terms of a customized transaction and an 
indication that it is customized); DTCC II at 9 (noting the 
difficulty of comparing price data across transactions that are non-
standard and have different terms); ISDA/SIFMA I at 11 (stating that 
customized security-based swaps provide little to no price discovery 
value and should not be subject to public dissemination); MFA I at 3 
(arguing that Congress did not intend to require public 
dissemination of comprehensive information for customized security-
based swaps and that price discovery serves a purpose only if there 
is a broad market for the relevant transaction, which is not the 
case with customized security-based swaps).
    \412\ See Better Markets I at 7; Better Markets II at 3 (stating 
that many transactions characterized as too complex for reporting or 
dissemination are, in fact, composites of more straightforward 
transactions, and that there should be disclosure of information 
concerning these components to provide meaningful transparency and 
to prevent market participants from avoiding disclosure by creating 
composite transactions).
---------------------------------------------------------------------------

    Section 13(m)(1)(C) of the Exchange Act\413\ authorizes the 
Commission to provide by rule for the public availability of security-
based swap transaction, volume, and pricing data for four types of 
security-based swaps, which together comprise the complete universe of 
potential security-based swaps. With respect to ``security-based swaps 
that are not cleared at a registered clearing agency and which are 
reported to a security-based swap data repository''--which category 
would include customized or bespoke security-

[[Page 14611]]

based swaps--Section 13(m)(1)(C) provides that ``the Commission shall 
require real-time public reporting for such transactions, in a manner 
that does not disclose the business transactions and market positions 
of any person'' (emphasis added).
---------------------------------------------------------------------------

    \413\ 15 U.S.C. 13(m)(1)(C)(iii).
---------------------------------------------------------------------------

    The Commission does not believe that the commenters who argued 
against disseminating reports of bespoke transactions have provided 
sufficient justification for an exception to public dissemination. To 
the contrary, the Commission believes that dissemination of transaction 
reports of customized security-based swaps could still provide useful 
information to market observers. Although all of the material elements 
of a bespoke transaction necessary to understand the market value might 
not be publicly disseminated, it is an overstatement to argue 
categorically that bespoke transactions would have no price discovery 
value, as certain commenters suggested.\414\ The disseminated price 
could, for example, still have an anchoring effect on price 
expectations for future negotiations in similar or related products, 
even in thinly-traded markets. Furthermore, even if it is difficult to 
compare price data across customized transactions, by disseminating 
reports of all bespoke transactions, market observers can understand 
the relative number and aggregate notional amounts of transactions in 
bespoke products versus standardized products.
---------------------------------------------------------------------------

    \414\ See supra note 411.
---------------------------------------------------------------------------

    The Commission recognizes, however, that market observers should 
have information that permits them to readily distinguish transactions 
in standardized products from transactions in bespoke security-based 
swaps. Accordingly, Rule 901(c)(1)(v) provides that, when reporting a 
transaction to a registered SDR, the reporting side must attach a flag 
to indicate whether a security-based swap is customized to the extent 
that the other information provided pursuant to Rule 901(c) does not 
provide all of the material information necessary to identify the 
security-based swap or does not contain the data elements necessary to 
calculate the price of the security-based swap. In addition, final Rule 
907(a)(4) requires a registered SDR to establish policies and 
procedures concerning the use of appropriate flags on disseminated 
transaction reports that are designed to assist market observers in 
interpreting the relevance of a transaction.
b. Inter-Affiliate Transactions
    Several commenters argued that the Commission should not require 
public dissemination of inter-affiliate security-based swaps. Issues 
relating to regulatory reporting and public dissemination of inter-
affiliate transactions are discussed in Section IX, infra.
c. Security-Based Swaps Entered Into in Connection With a Clearing 
Member's Default
    One commenter argued that reports of security-based swaps effected 
in connection with a clearing agency's default management processes 
following the default of a clearing member should not be publicly 
disseminated in real time.\415\ This commenter believed that public 
dissemination of these transactions could undermine a clearing agency's 
default management processes and have a negative effect on market 
stability, particularly because a default likely would occur during 
stressed market conditions. Accordingly, the commenter recommended that 
reports of security-based swaps entered into in connection with a 
clearing agency's default management processes be made available to the 
Commission in real time but not publicly disseminated until after the 
default management processes have been completed, as the Commission 
determines appropriate.
---------------------------------------------------------------------------

    \415\ See LCH.Clearnet Letter at 2 (explaining that, to manage a 
defaulting clearing member's portfolio, a clearing agency would rely 
on its non-defaulting members to provide liquidity for a small 
number of large transactions that would be required to hedge the 
defaulting member's portfolio, and the ability of non-defaulting 
members to provide liquidity for these transactions would be 
impaired if the transactions were reported publicly before the 
members had an opportunity to mitigate the risks of the 
transactions).
---------------------------------------------------------------------------

    The Commission believes that, at present, the commenter's concerns 
are addressed by the Commission's approach for the interim phase of 
Regulation SBSR, which offers reporting sides up to 24 hours after the 
time of execution to report a security-based swap.\416\ The Commission 
believes that this approach strikes an appropriate balance between 
promoting post-trade transparency and facilitating the default 
management process, and is broadly consistent with the commenter's 
suggestion to allow for public dissemination after the default 
management process has been completed. Further, the commenter suggested 
that such transactions typically occur in large size; thus, 
transactions entered into by surviving clearing members might qualify 
for any block exception, if the Commission were to promulgate such an 
exception in the future. The Commission intends to revisit the 
commenter's concern in connection with its consideration of block 
thresholds and other potential rules relating to block trades.
---------------------------------------------------------------------------

    \416\ See Rule 901(j); Section VII(B), infra. If 24 hours after 
the time of execution would fall on a day that is not a business 
day, reporting would be required by the same time on the next day 
that is a business day.
---------------------------------------------------------------------------

d. Total Return Security-Based Swaps
    Three commenters argued that there should be no public 
dissemination of total return security-based swaps (``TRSs''), which 
offer risks and returns proportional to a position in a security, 
securities, or loan(s) on which a TRS is based.\417\ One of these 
commenters argued that ``TRS pricing information is of no value to the 
market because it is driven by many considerations including the 
funding levels of the counterparties to the TRS and therefore may not 
provide information about the underlying asset for the TRS.'' \418\ 
Another commenter suggested that the fact that TRSs are hedged in the 
cash market, where trades are publicly disseminated, would mitigate the 
incremental price discovery benefit of public dissemination of the 
TRSs.\419\ Similarly, a third commenter argued that requiring public 
dissemination of an equity TRS transaction would not enhance 
transparency, and could confuse market participants, because the 
hedging transactions are already publicly disseminated.\420\
---------------------------------------------------------------------------

    \417\ See Barclays Letter at 2-3; Cleary II at 13-14; ISDA/SIFMA 
I at 13.
    \418\ ISDA/SIFMA I at 13.
    \419\ See Cleary II at 13-14. The primary concern of this 
commenter with respect to equity TRSs was the proposed exclusion of 
equity TRSs from the reporting delay for block trades. See id. The 
Commission expects to consider this comment in connection with its 
consideration of rules for block trades.
    \420\ See Barclays Letter at 3. The commenter also expressed 
more general concerns regarding the potential consequences of 
reduced liquidity in the equity TRS market, noting that if liquidity 
in the equity TRS market is impaired, liquidity takers could migrate 
away from a diversified universe of security-based swap 
counterparties to a more concentrated group of prime brokers, which 
could increase systemic risk by concentrating large risk positions 
with a small number of prime brokers. See Barclays Letter at 8.
---------------------------------------------------------------------------

    The Commission has carefully considered these comments but believes 
that these commenters have not provided sufficient justification to 
support a blanket exclusion from public dissemination for TRSs. The 
Commission believes, rather, that market observers should be given an 
opportunity to decide how to interpret the relevance of a disseminated 
trade to the state of the market, and reiterates that relevant 
statutory provisions state that all security-based swaps shall be 
publicly disseminated. These statutory provisions do not by their terms 
distinguish such public dissemination

[[Page 14612]]

based on particular characteristics of a security-based swap.
    The Commission also has considered the argument advanced by one of 
the commenters that requiring instantaneous public dissemination of an 
equity TRS transaction could confuse market participants, because the 
hedging transactions are already publicly disseminated.\421\ The 
Commission disagrees that dissemination of both transactions (i.e., the 
initial transaction and the hedge) would cause confusion. In other 
securities markets, public dissemination of initial transactions and 
their hedges occur on a regular basis.\422\ Valuable information could 
be obtained by observing whether transactions in related products 
executed close in time have the same or different prices.\423\ The 
commenter who expressed concerns about potential negative consequences 
of reduced liquidity in the equity TRS market provided no evidence to 
support its claim.\424\
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    \421\ See Barclays Letter at 3.
    \422\ For example, a trade in a listed single-stock option is 
frequently hedged by a trade in the underlying stock. Each trade is 
disseminated via the relevant consolidated tape.
    \423\ For example, a difference in prices between an equity TRS 
and the underlying securities might suggest mispricing of either leg 
of the trade, signaling to market participants the existence of 
economic rents they could subsequently compete away. Additionally, 
price discrepancies also could be related to fees or liquidity 
premiums charged by equity TRS dealers. See infra Section 
XXII(B)(2)(a).
    \424\ See Barclays Letter at 8.
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e. Transactions Resulting From Portfolio Compression
    One group of commenters argued that transactions resulting from 
portfolio compression exercises do not reflect trading activity, 
contain no market information, and thus should be excluded from public 
dissemination.\425\ One member of that group requested clarification 
that only trades representing the end result of a netting or 
compression would need to be reported. This commenter expressed the 
view that publicly disseminating original transactions as well as the 
transactions that result from netting or compression would result in 
double-counting and could present a distorted view of the market.\426\
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    \425\ See ISDA/SIFMA I at 12. See also DTCC II at 20 (stating, 
with respect to portfolio compression activities, that ``an exact 
pricing at individual trade level between parties is not meaningful 
and, therefore, these transactions should not be disseminated''); 
ISDA IV at 13.
    \426\ See ISDA I at 4-5.
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    The Commission recognizes that portfolio compression is designed to 
mitigate risk between counterparties by reducing gross exposures, and 
any new security-based swaps executed as a result reflect existing net 
exposures and might not afford market participants an opportunity to 
negotiate new terms. Nevertheless, there may be some value in allowing 
market observers to see how often portfolio compressions occur and how 
much net exposure is left after much of the gross exposure is 
terminated. Furthermore, it is possible that new positions arising from 
a compression exercise could be repriced, and thus offer new and useful 
pricing information to market observers. Therefore, the Commission is 
not convinced that there would be so little value in disseminating such 
transactions that they all should be excluded from public 
dissemination, even though the original transactions that are netted or 
compressed may previously have been publicly disseminated. With respect 
to the commenter's concern regarding double-counting, the Commission 
notes that Rule 907(a)(4) requires a registered SDR to have policies 
and procedures for flagging special circumstances surrounding certain 
transactions, which could include transactions resulting from portfolio 
compression. The Commission believes that market observers should have 
the ability to assess reports of transactions resulting from portfolio 
compressions, and that a condition flag identifying a transaction as 
the result of a portfolio compression exercise would help to avoid 
double-counting.
f. Thinly Traded Products
    Three commenters expressed concern about the potential impact of 
real-time public dissemination on thinly traded products.\427\ One of 
these commenters suggested that ``security-based swaps traded by fewer 
than ten market makers per month should be treated as illiquid and 
subject to public reporting only on a weekly basis.'' \428\ The 
Commission disagrees with this suggestion. In other classes of 
securities--e.g., listed equity securities, OTC equity securities, 
listed options, corporate bonds, municipal bonds--all transactions are 
disseminated in real time, and there is no delayed reporting for 
products that have only a limited number of market makers. The 
Commission is not aware of characteristics of the security-based swap 
market that are sufficiently different from those other markets to 
warrant delayed reporting because of the number of market makers. 
Furthermore, given the high degree of concentration in the U.S. 
security-based swap market, many products have fewer than ten market 
makers. Thus, the commenter's suggestion--if accepted by the 
Commission--could result in delayed reporting for a substantial 
percentage of security-based swap transactions, which would run counter 
to Title VII's goal of having real-time public dissemination for all 
security-based swaps (except for block trades). Finally, as noted 
above, the Title VII provisions that mandate public dissemination on a 
real-time basis do not make any exception for security-based swaps 
based on the number of market makers.
---------------------------------------------------------------------------

    \427\ See Bachus/Lucas Letter at 2; ISDA IV at 14; UBS Letter at 
1. These comments also are discussed in Section VII(B) infra.
    \428\ UBS Letter at 1, note 5.
---------------------------------------------------------------------------

    Another commenter expressed concern that mandating real-time 
reporting of thinly-traded products and illiquid markets could increase 
the price of entering into a derivatives contract to hedge risk by 
facilitating speculative front-running.\429\ Another commenter 
expressed concern about the impact of real-time post-trade transparency 
for illiquid security-based swaps on pre-trade transparency that 
currently exists in the form of indicative prices provided by dealers 
to their clients (known as ``runs'').\430\ This commenter requested 
that the Commission provide illiquid security-based swaps with an 
exception from real-time reporting and instead allow for delays roughly 
commensurate with the trading frequency of the security-based 
swap.\431\ Under the adopted rules, counterparties generally will have 
up to 24 hours after the time of execution to report security-based 
swap transactions. This reporting timeframe is designed, in part, to 
minimize the potential for market disruption resulting from public 
dissemination of any security-based swap transaction during the interim 
phase of Regulation SBSR. The Commission anticipates that, during the 
interim period, it will collect and analyze data concerning the sizes 
of transactions that potentially affect liquidity in different segments 
of the market in connection with considering block thresholds.
---------------------------------------------------------------------------

    \429\ See Bachus/Lucas Letter at 2.
    \430\ See ISDA IV at 14 (expressing concern that the combination 
of name-attributed runs and a rapidly disseminated set of post-trade 
information would make it relatively easy for many participants to 
reconstruct the identity of parties to a particular transaction, 
which may reduce dealers' willingness to disseminate pre-trade price 
information in the form of runs, thereby reducing pre-trade 
transparency).
    \431\ See id.

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[[Page 14613]]

E. Dissemination of Block Transactions--Rule 902(b)

    Rule 902(b), as proposed and re-proposed, would have required a 
registered SDR to publicly disseminate a transaction report for a block 
trade (except for the notional amount of the transaction) immediately 
upon receipt of the information about the block trade from the 
reporting party, along with the transaction ID and an indicator that 
the report represented a block trade. Rule 902(b) would further have 
required the registered SDR to disseminate a complete transaction 
report for the block trade, including the full notional amount of the 
transaction, within specified timeframes ranging from eight to 26 hours 
after execution, depending on the time when the security-based swap was 
executed. Thus, under Rule 902(b), as proposed and re-proposed, market 
participants would learn the price of a security-based swap block trade 
in real time, and would learn the full notional amount of the 
transaction on a delayed basis.\432\
---------------------------------------------------------------------------

    \432\ The only difference between Rule 902(b) as proposed and as 
re-proposed was that the term ``reporting party'' was changed to 
``reporting side.''
---------------------------------------------------------------------------

    For the reasons discussed in detail in Section VII(B), infra, the 
Commission is not adopting Rule 902(b).

F. The Embargo Rule--Rule 902(d)

    Rule 902(d), as proposed, would have provided that ``[n]o person 
other than a registered security-based swap data repository shall make 
available to one or more persons (other than a counterparty) 
transaction information relating to a security-based swap before the 
earlier of 15 minutes after the time of execution of the security-based 
swap; or the time that a registered security-based swap data repository 
publicly disseminates a report of that security-based swap.'' In other 
words, the information about the security-based swap transaction would 
be ``embargoed'' until a registered SDR has in fact publicly 
disseminated a report of the transaction (or until such time as a 
transaction should have been publicly disseminated). Rule 902(d) is 
also referred to as the ``Embargo Rule.'' Rule 902(d) was not revised 
as part of the Cross-Border Proposing Release, and was re-proposed in 
exactly the same form as had been initially proposed.
    Under Regulation SBSR, only registered SDRs must publicly 
disseminate security-based swap transaction data to the public. 
However, other persons with knowledge of a transaction--the 
counterparties themselves or the venue on which a transaction is 
executed--also might wish to disclose information about the transaction 
to third parties (whether for commercial benefit or otherwise). An 
unfair competitive advantage could result if some market participants 
could obtain security-based swap transaction information before others. 
Regulation SBSR, by carrying out the Congressional mandate to publicly 
disseminate all security-based swap transactions, is intended to reduce 
information asymmetries in the security-based swap market and to 
provide all market participants with better information--and better 
access to information--to make investment decisions. Therefore, the 
Commission proposed Rule 902(d), which would have imposed a partial and 
temporary restriction on sources of security-based swap transaction 
information other than registered SDRs.
    Three commenters supported the view that market participants 
(including SB SEFs) should not be permitted to distribute their 
security-based swap transaction information before such information is 
disseminated by a registered SDR.\433\ However, three other commenters 
strongly opposed the proposed Embargo Rule.\434\ Other commenters 
expressed a concern that the proposed Embargo Rule would make it more 
difficult for SB SEFs to offer ``work-up'' \435\ functionality.\436\ 
This ``work-up'' process, according to one of the commenters, is 
designed to foster liquidity in the security-based swap market and to 
facilitate the execution of larger-sized transactions.\437\
---------------------------------------------------------------------------

    \433\ See Markit II at 4 (stating that if SB SEFs were permitted 
to disseminate data elements of a security-based swap transaction, 
confusion and data fragmentation would inevitably result, which 
would ultimately undermine the goal of increased transparency); 
Barnard I at 4 (stating that market participants should be 
prohibited from distributing their market data prior to the 
dissemination of that data by a registered SDR to prevent the 
development of a two-tier market); ISDA IV at 17 (stating that ``it 
is unclear why any person should be allowed to make the data 
available to another market data source ahead of the time that [an 
SDR] is allowed to publicly disseminate such transaction,'' and 
recommending that proposed Rule 902(d) be revised to refer only to 
the time that an SDR disseminates a report of the security-based 
swap).
    \434\ See GFI Letter at 2; SDMA II at 4; WMBAA Letter at 8-9.
    \435\ See GFI Letter at 3 (``A typical workup transaction begins 
when two market participants agree to transact at a certain price 
and quantity. The transaction does not necessarily end there, 
however, and the two participants then have the opportunity to 
transact further volume at the already-established price. 
Thereafter, other market participants may join the trade and 
transact with either the original counterparties to the trade or 
with other firms if they agree to trade further volume at the 
established price''); SDMA II at 3 (``Trade work ups are a common 
practice in which the broker looks for additional trading interest 
at the same time a trade is occurring--or ``flashing'' on the 
screen--in the same security at the same price. The ability to view 
the price of a trade as it is occurring is critical to broker's 
ability to locate additional trading interest. The immediate flash 
to the marketplace increases the probability that additional buyers 
and sellers, of smaller or larger size, will trade the same security 
at the same time and price''); WMBAA II at 3 (``Work-up enables 
traders to assess the markets in real-time and make real-time 
decisions on trading activity, without the fear of moving the market 
one way or another'').
    \436\ See GFI Letter at 3; SDMA II at 3 (if ``the SB SEF is 
prohibited from `flashing' the price of a trade as it occurs and the 
brokers must wait until after the SB SDR has disclosed the price, 
the broker's window of opportunity to locate additional trading 
interest will close''); WMBAA II at 3.
    \437\ See GFI Letter at 3.
---------------------------------------------------------------------------

    The Commission has carefully reviewed the comments received and has 
determined to revise the Embargo Rule to provide that the act of 
sending a report to a registered SDR--not the act of the registered SDR 
actually disseminating it--releases the embargo. Rule 902(d), as 
adopted, provides: ``No person shall make available to one or more 
persons (other than a counterparty or a post-trade processor) 
transaction information relating to a security-based swap before the 
primary trade information about the security-based swap is sent to a 
registered security-based swap data repository'' (emphasis added).
    The Commission agrees with the majority of commenters that it would 
be beneficial for security-based swap market participants to have the 
ability to disseminate and receive transaction data without being 
constrained by the time when a registered SDR disseminates the 
transaction information. The Commission understands that, in some 
cases, entities that are likely to become SB SEFs may want to broadcast 
trades executed electronically across their platforms to all 
subscribers, because knowing that two counterparties have executed a 
trade at a particular price can, in some cases, catalyze trading by 
other counterparties at the same price. Allowing dissemination of 
transaction information to occur simultaneously

[[Page 14614]]

with transmission to a registered SDR will allow SB SEF participants to 
see last-sale information for the particular markets on which they are 
trading, which could facilitate the work-up process and thus enhance 
price discovery.
    One commenter expressed concern, however, that permitting the 
distribution of market data prior to dissemination of the information 
by a registered SDR could result in the development of a two-tier 
market.\438\ Although the Commission generally shares the commenter's 
concern about information asymmetries, the Commission does not believe 
that Rule 902(d), as adopted, raises that concern. Certain market 
participants might learn of a completed transaction before others who 
rely on public dissemination through a registered SDR. However, the 
time lag is likely to be very small because Rule 902(a) requires a 
registered SDR to publicly disseminate a transaction report 
``immediately upon receipt of information about the security-based 
swap.'' The Commission understands that, under the current market 
structure, trading in security-based swaps occurs for the most part 
manually (rather than through algorithmic means) and infrequently. 
Thus, obtaining knowledge of a completed transaction through private 
means a short time before others learn of the transaction from a 
registered SDR is unlikely, for the foreseeable future, to provide a 
significant advantage. Furthermore, as discussed above regarding the 
``work-up'' process, the most likely recipients of direct information 
about the completed transaction are other participants of the SB SEF. 
Thus, an important segment of the market--i.e., competitors of the 
counterparties to the original transaction in the work up who are most 
likely to have an interest in trading the same or similar products--are 
still benefitting from post-trade transparency, even if it comes via 
the work-up process on the SB SEF rather than through a registered SDR.
---------------------------------------------------------------------------

    \438\ See Barnard I at 4.
---------------------------------------------------------------------------

    Two commenters raised arguments related to the ownership of the 
security-based swap transaction data and were concerned that the 
proposed Embargo Rule would place improper restrictions on the use of 
security-based swap market data.\439\ One of these commenters 
recommended that the Commission revise the Embargo Rule ``in such a way 
that . . . the security-based swap counterparties and SB SEFs [would] 
continue to have the ability to market and commercialize their own 
proprietary data.'' \440\ The other commenter recommended that the 
Commission make clear that nothing in the final rules is intended ``to 
impose or imply any limit on the ability of market participants . . . 
to use and/or commercialize data they create or receive in connection 
with the execution or reporting of swap data.'' \441\
---------------------------------------------------------------------------

    \439\ See WMBAA II at 8; Tradeweb Letter II at 6.
    \440\ WMBAA II at 8.
    \441\ Tradeweb Letter II at 6.
---------------------------------------------------------------------------

    The Commission declines to revise Rule 902(d) in the manner 
suggested by these commenters. As the Commission notes in the SDR 
Adopting Release, ``the issue of who owns the data is not particularly 
clear cut, particularly when value is added to it.'' \442\ If the 
Commission were to revise the rule in the manner suggested by 
commenters, it would seem to make a presumption about who owns the 
data, which may be viewed as the Commission favoring one business model 
over another. As further noted in the SDR Adopting Release, the 
Commission does not support any particular business model \443\ and, 
therefore, does not believe it is necessary or appropriate to revise 
the rule as suggested by these commenters.
---------------------------------------------------------------------------

    \442\ SDR Adopting Release, Section VI(D)(3)(c)(iii) (citing 
difficulties associated with determining ownership of data as one of 
several reasons for not adopting, at this time, a rule prohibiting 
an SDR and its affiliates from using, for commercial purposes, 
security-based swap data that the SDR maintains without obtaining 
express written consent from both counterparties to the security-
based swap transaction or the reporting party). See also Securities 
Exchange Act Release 63825 (February 2, 2011), 76 FR 10948 (February 
28, 2011) at 10961-7 (``SB SEF Proposing Release'') (discussing the 
proposed imposition of certain requirements on SB SEFs with respect 
to services provided and fees charged).
    \443\ See SDR Adopting Release, Section III(D) (discussing 
business models of SDRs).
---------------------------------------------------------------------------

    As originally proposed, the Embargo Rule had an exception for 
disseminating the transaction information to counterparties, as the 
counterparties to the transaction should be allowed to receive 
information about their own security-based swap transactions 
irrespective of whether such information has been reported to or 
disseminated by a registered SDR. However, two commenters noted that SB 
SEFs also will need to provide transaction data to entities involved in 
post-trade processing, irrespective of whether the embargo has been 
lifted.\444\ The Commission recognizes that, after a trade is executed, 
there are certain entities that perform post-trade services--such as 
matching, confirmation, and reporting--that may need to receive the 
transaction information before it is sent to a registered SDR. For 
example, a third party could not act as agent in reporting a 
transaction to a registered SDR on behalf of a reporting side if it 
could not receive information about the executed transaction before it 
was submitted to the registered SDR. In the Regulation SBSR Proposing 
Release, the Commission stated that counterparties to a security-based 
swap could rely on agents to report security-based swap data on their 
behalf.\445\ Without an exception, such use of agents could be impeded, 
an action the Commission did not intend. Accordingly, the Commission is 
revising the Embargo Rule to add an explicit exception for ``post-trade 
processors.'' The Commission is also adding a new paragraph (x) to 
final Rule 900, which defines ``post-trade processor'' as ``any person 
that provides affirmation, confirmation, matching, reporting, or 
clearing services for a security-based swap transaction.''
---------------------------------------------------------------------------

    \444\ See BlackRock Letter at 9; ISDA IV at 17 (recommending a 
carve-out from Rule 902(d) for third-party service providers that 
one or both counterparties use for execution, confirmation, trade 
reporting, portfolio reconciliation and other services that do not 
include the public dissemination of security-based swap data).
    \445\ See 75 FR 75211-12.
---------------------------------------------------------------------------

    Finally, one commenter recommended a carve-out from Rule 902(d) not 
only for counterparties, but also for their affiliates, ``to allow for 
internal communication of SBS data.'' \446\ Rule 902(d)--as proposed, 
re-proposed, and adopted--includes a carve-out for counterparties, 
which could include affiliates, to the extent that an affiliate is an 
indirect counterparty as defined in Rule 900. The Commission continues 
to believe that it is necessary for counterparties to know when they 
have executed a trade. The Commission further notes that Rule 902(d), 
as adopted, contains an exception for post-trade processors,\447\ which 
could include post-trade processors that are affiliates of the 
counterparties. Thus, Rule 902(d) would not prohibit a counterparty to 
a security-based swap transaction from providing the transaction 
information to an affiliate before providing it to a registered SDR, if 
that affiliate will serve as the counterparty's agent for reporting the 
transaction to the registered SDR. However, Rule 902--as proposed, re-
proposed, and adopted--includes no broad carve-out for all affiliates 
of the counterparties. The Commission does not see a basis for allowing 
such a broad

[[Page 14615]]

exception for all affiliates, which could undermine the purpose of Rule 
902(d), as discussed above.
---------------------------------------------------------------------------

    \446\ ISDA IV at 17.
    \447\ See Rule 900(x) (defining ``post-trade processor'' as 
``any person that provides affirmation, confirmation, matching, 
reporting, or clearing services for a security-based swap 
transaction'').
---------------------------------------------------------------------------

G. Condition Flags--Rule 907(a)(4)

    Rule 907(a)(4), as originally proposed, would have required a 
registered SDR to establish and maintain written policies and 
procedures ``describing how reporting parties shall report and, 
consistent with the enhancement of price discovery, how the registered 
security-based swap depository shall publicly disseminate, reports of, 
and adjustments due to, life cycle events; security-based swap 
transactions that do not involve an opportunity to negotiate any 
material terms, other than the counterparty; and any other security-
based swap transactions that, in the estimation of the registered 
security-based swap data depository, do not accurately reflect the 
market.'' The Commission re-proposed Rule 907(a)(4) in the Cross-Border 
Proposing Release with only minor technical revisions.\448\
---------------------------------------------------------------------------

    \448\ The Commission changed the words ``reporting parties'' to 
``reporting sides'' and ``depository'' to ``repository.''
---------------------------------------------------------------------------

    One commenter expressed the view that a registered SDR should have 
the flexibility to determine and apply special indicators.\449\ Another 
commenter suggested that, to be meaningfully transparent, security-
based swap transaction data should include ``condition flags'' 
comparable to those used in the bond market.\450\ As discussed more 
fully below, the Commission agrees that such ``condition flags'' could 
provide additional transparency to the security-based swap market. The 
Commission believes that the condition flags that registered SDRs will 
develop pursuant to final Rule 907(a)(4) could provide information 
similar to the information provided by the condition flags used in the 
bond market. The registered SDR's condition flags could include, for 
example, flags indicating that a security-based swap was an inter-
affiliate transaction or a transaction entered into as part of a trade 
compression.
---------------------------------------------------------------------------

    \449\ See Barnard I at 3.
    \450\ See MarkitSERV I at 10.
---------------------------------------------------------------------------

    A third commenter suggested that a registered SDR should not have 
discretion to determine whether a particular transaction reflects the 
market, as the registered SDR may not have sufficient information to 
make such a determination.\451\ The Commission agrees with the 
commenter that a registered SDR may not have sufficient information to 
ascertain whether a particular transaction ``do[es] not accurately 
reflect the market,'' as would have been required under Rule 907(a)(4), 
as originally proposed. Therefore, the Commission will not require the 
registered SDR to have policies and procedures for attaching an 
indicator that merely conveys that the transaction, in the estimation 
of the registered SDR, does not accurately reflect the market.
---------------------------------------------------------------------------

    \451\ See DTCC II at 20.
---------------------------------------------------------------------------

    Instead, the Commission believes that requiring the registered SDR 
to provide information about any special circumstances associated with 
a transaction report could help market observers better understand the 
report and enhance transparency. For example, Rule 901(c)(1)(v), as 
adopted, requires a reporting side to attach a flag if a security-based 
swap is customized to the extent that other information provided for 
the swap does not provide all of the material information necessary to 
identify the customized security-based swap or does not contain the 
data elements necessary to calculate the price.\452\ In addition, Rule 
905(b)(2), as adopted, requires a registered SDR that receives a 
correction to information that it previously disseminated publicly to 
publicly disseminate a corrected transaction report with an indication 
that the report relates to a previously disseminated transaction.\453\
---------------------------------------------------------------------------

    \452\ See supra Section II(B)(2)(b)(vi).
    \453\ See infra Section XX(B).
---------------------------------------------------------------------------

    The Commission, therefore, is adopting Rule 907(a)(4) with certain 
additional language to respond to the comments and to clarify how Rule 
907(a)(4) should apply in circumstances contemplated by but not fully 
addressed in the original proposal or the re-proposal. The Commission 
has revised Rule 907(a)(4) as follows: New subparagraph (i) requires 
the registered SDR to have policies and procedures for ``identifying 
characteristic(s) of a security-based swap, or circumstances associated 
with the execution or reporting of the security-based swap, that could, 
in the fair and reasonable estimation of the registered security-based 
swap data repository, cause a person without knowledge of these 
characteristic(s) or circumstances to receive a distorted view of the 
market.'' This language retains the idea that the appropriate 
characteristics or circumstances remain ``in the estimation of'' the 
registered SDR, but requires the SDR's exercise of this discretion to 
be ``fair and reasonable'' to emphasize that the estimation should not 
result in flags that would not allow market observers to better 
understand the transaction reports that are publicly disseminated. Rule 
907(a)(4)(i), as adopted, also widens the scope of transactions to 
which the provision applies.\454\ This provision grants a registered 
SDR the flexibility to determine which special circumstances require 
flags and to change that determination over time, if warranted.\455\ 
Subparagraph (ii) provides that the registered SDR's policies and 
procedures must ``establish[ ] flags to denote such characteristic(s) 
or circumstance(s),'' explicitly incorporating the concept of condition 
flags suggested by the commenter.\456\ Subparagraph (iii) requires 
policies and procedures ``directing participants to apply such flags, 
as appropriate, in their reports'' to the registered SDR. Finally, 
subparagraph (iv) requires these policies and procedures to address, in 
part, ``applying such flags to disseminated reports to help to prevent 
a distorted view of the market.''
---------------------------------------------------------------------------

    \454\ This revision to Rule 907(a)(4) also removes the 
references to public dissemination of life cycle events that were 
proposed and re-proposed. These references have been relocated to 
final Rule 907(a)(3). Rule 907(a)(3), as proposed and re-proposed, 
addressed only the reporting and public dissemination of error 
reports. Life cycle events are similar to error reports in that they 
reflect new information that relates to a previously executed 
security-based swap. Therefore, Rule 907(a)(3), as adopted, now 
requires a registered SDR to have policies and procedures for 
``specifying procedures for reporting life cycle events and 
corrections to previously submitted information, making 
corresponding updates or corrections to transaction records, and 
applying an appropriate flag to the transaction report to indicate 
that the report is an error correction required to be disseminated 
by [Rule 905(b)(2)] or is a life cycle event, or any adjustment due 
to a life cycle event, required to be disseminated by [Rule 
902(a)].'' See infra Section XII(C).
    \455\ See Barnard I at 3.
    \456\ See MarkitSERV I at 10.
---------------------------------------------------------------------------

    The Commission also is adopting Rule 907(a)(4) with certain 
additional language in subparagraph (iv) that clarifies the handling of 
security-based swap information that is required to be reported under 
Rule 901 but which a registered SDR is required by Rule 902(c) not to 
publicly disseminate. As noted above, even in the initial proposal, the 
Commission contemplated that certain information would fall into this 
category.\457\ Rule 907(a), as originally proposed, would have required 
a registered SDR to establish and maintain policies and procedures that 
addressed, among other things, the public dissemination of security-
based swap data. Carrying out that duty in a manner consistent with 
Rule 902--and, in particular, with Rule 902(c)--will necessarily 
require a registered SDR to differentiate reported information that is 
required to be publicly disseminated from reported information that is

[[Page 14616]]

required not to be publicly disseminated.\458\ The new language in 
final Rule 907(a)(4)(iv)(B) calls attention to this particular 
requirement. Rule 907(a)(4)(iv)(B), as adopted, requires the registered 
SDR to have policies and procedures for suppressing from public 
dissemination a transaction referenced in Rule 902(c).\459\
---------------------------------------------------------------------------

    \457\ See Regulation SBSR Proposing Release, 75 FR 75234-35.
    \458\ One commenter noted its view that Rule 907(a)(4), as 
proposed, seemed to delegate to the discretion of the SDR whether 
and how certain security-based swap activity would be publicly 
disseminated, and requested that the Commission clearly establish in 
Regulation SBSR that certain security-based swap activity is not 
subject to public dissemination. See ISDA IV at 13. The Commission 
believes that the rules as adopted do clearly establish what 
security-based swap activity is not subject to public dissemination. 
Rule 902(a), as adopted, requires the registered SDR to publicly 
disseminate a transaction report of a security-based swap, or a life 
cycle event or adjustment due to a life cycle event, immediately 
upon receipt of information about the security-based swap, except as 
provided in Rule 902(c). Rule 902(c) provides a list of information 
and types of security-based swap transactions that a registered 
security-based swap shall not disseminate. See supra Section VI(D).
    \459\ Under Rule 907(a)(4)(iv), the registered SDR's policies 
and procedures must direct the reporting side to apply appropriate 
flags to transaction reports. In the case of a report falling within 
Rule 902(c), the reporting side for the relevant transaction is 
required to use the flag that signals to the registered SDR that the 
report should not be publicly disseminated. The Commission notes 
that Rule 907(a)(4) affords registered SDRs some discretion to 
determine precisely how a reporting side must flag reported data 
that will be excluded from public dissemination under Rule 902(c). 
For example, a registered SDR may determine not to require a 
specific ``do not disseminate'' tag for historical security-based 
swaps if it is clear from context that they are historical security-
based swaps and not current transactions. As described in Section 
VI(D) above, the Commission does not believe that a registered SDR 
would violate Rule 902(c) if it disseminated a report of a 
transaction that fell within Rule 902(c) if the reporting side fails 
to appropriately flag the transaction.
---------------------------------------------------------------------------

    In addition to the requirements for indications in the case of 
error reports or bespoke transactions, the Commission believes that 
registered SDRs generally should include the following in its list of 
condition flags:
     Inter-affiliate security-based swaps. As discussed in 
detail in Section VI(D), infra, the Commission is not exempting inter-
affiliate transactions from public dissemination. However, the 
Commission believes it could be misleading if market observers did not 
understand that a transaction involves affiliated counterparties.
     Transactions resulting from netting or compression 
exercises.\460\ The Commission believes that market observers should be 
made aware that these transactions are related to previously existing 
transactions and generally do not represent new risks being assumed by 
the counterparties.
---------------------------------------------------------------------------

    \460\ This applies only to transactions resulting from netting 
or compression exercises other than through a registered clearing 
agency. Security-based swaps resulting from netting or compression 
exercises carried out by a registered clearing agency are not 
subject to public dissemination. See Rule 902(c)(6). See also supra 
Section VI(D)(1) (explaining Rule 902(c)(6)); Section VI(D)(2)(v) 
(explaining why the Commission believes that transactions resulting 
from portfolio compression--other than clearing transactions--should 
be publicly disseminated).
---------------------------------------------------------------------------

     Transactions resulting from a ``forced trading session'' 
conducted by a clearing agency.\461\ The Commission believes that it 
would be helpful for market observers to understand that such 
transactions may not be available to market participants outside of the 
forced trading session.
---------------------------------------------------------------------------

    \461\ Entities that the Commission previously exempted from 
certain Exchange Act requirements, including clearing agency 
registration, have informed the Commission that they undertake 
``forced trading'' sessions in order to promote accuracy in the end-
of-day valuation process. See, e.g., Securities Exchange Act Release 
No. 59527 (March 6, 2009), 74 FR 10791, 10796 (March 12, 2009) 
(Order Granting Temporary Exemptions Under the Securities Exchange 
Act of 1934 in Connection With Request on Behalf of ICE U.S. Trust 
LLC Related to Central Clearing of Credit Default Swaps, and Request 
for Comments) (describing ``forced trading sessions'' conducted by a 
clearing agency as follows: ``ICE Trust represents that, in 
connection with its clearing and risk management process, it will 
calculate an end-of-day settlement price for each Cleared CDS in 
which an ICE Trust Participant has a cleared position, based on 
prices submitted by ICE Trust Participants. As part of this mark-to-
market process, ICE Trust will periodically require ICE Trust 
Participants to execute certain CDS trades at the applicable end-of-
day settlement price. Requiring ICE Trust Participants to trade CDS 
periodically in this manner is designed to help ensure that such 
submitted prices reflect each ICE Trust Participant's best 
assessment of the value of each of its open positions in Cleared CDS 
on a daily basis'').
---------------------------------------------------------------------------

     Transactions reported more than 24 hours after execution. 
The Commission believes that there is price discovery value in 
disseminating the transaction report, particularly in cases where there 
are few or no other recent last-sale reports in that product. However, 
all market observers should understand that the report is no longer 
timely and thus may not reflect the current market at the time of 
dissemination.
     Transactions resulting from default of a clearing member. 
The Commission believes that the fact that the transaction was 
necessitated by a clearing agency's need to have surviving clearing 
members assume the positions of a defaulting clearing member is 
important information about understanding the transaction and market 
conditions generally.
     Package trades. ``Package trade'' is a colloquial term for 
a multi-legged transaction of which a security-based swap constitutes 
one or more legs. Market observers should be made aware that the 
reported price of a security-based swap that is part of a package trade 
might reflect other factors--such as the exchange of an instrument that 
is not a security-based swap--that are not reflected in the transaction 
report of the security-based swap itself.
    This list is by way of example and not of limitation. There are 
likely to be other types of transactions or circumstances associated 
with particular transactions that may warrant a condition flag. The 
Commission anticipates that each registered SDR will revise its list 
over time as the security-based swap market evolves and registered SDRs 
and market participants gain greater insight into how to maximize the 
effectiveness of publicly disseminated transaction reports.

VII. Block Trades and the Interim Phase of Regulation SBSR

    Section 13m(1)(E) of the Exchange Act \462\ requires the Commission 
rule for real-time public dissemination of security-based swap 
transactions to: (1) ``Specify the criteria for determining what 
constitutes a large notional security-based swap transaction (block 
trade) for particular markets and contracts'' and (2) ``specify the 
appropriate time delay for reporting large notional security-based swap 
transactions (block trades) to the public.'' In addition, Section 
13m(1)(E)(iv) of the Exchange Act \463\ requires the Commission rule 
for real-time public dissemination of security-based swap transactions 
to contain provisions that ``take into account whether the public 
disclosure [of transaction and pricing data for security-based swaps] 
will materially reduce market liquidity.'' \464\
---------------------------------------------------------------------------

    \462\ 15 U.S.C. 78m(m)(1)(E).
    \463\ 15 U.S.C. 78m(m)(1)(E)(iv).
    \464\ These statutory mandates apply only with respect to 
cleared security-based swaps. The Dodd-Frank Act does not require 
the Commission to specify block thresholds or dissemination delays 
or to take into account how public disclosure will materially reduce 
market liquidity with respect to uncleared security-based swaps. For 
security-based swaps that are not cleared but are reported to an SDR 
or the Commission under Section 3C(a)(6) of the Exchange Act, ``the 
Commission shall require real-time public reporting for such 
transactions, in a manner that does not disclose the business 
transactions and market positions of any person.'' 15 U.S.C. 
78m(1)(C)(iii).
---------------------------------------------------------------------------

    As discussed further below, the Commission is neither proposing nor 
adopting rules relating to block trades at this time. However, the 
rules, as adopted, establish an interim phase of Regulation SBSR. 
During this first phase, as described below, reporting sides--with 
certain minor exceptions--will have up to 24 hours (``T+24 hours'') 
after the time of execution to report a transaction. The registered SDR 
that receives the transaction information would then be required to 
publicly

[[Page 14617]]

disseminate a report of the transaction immediately thereafter.
    The Commission recognizes that the introduction of mandated post-
trade transparency in the security-based swap market could have a 
significant impact on market participant behavior and the provision of 
liquidity. The interim phase is designed, among other things, to 
generate information about how market participants behave in an 
environment with post-trade transparency. Furthermore, once the first 
phase is implemented, reporting sides will be required under Regulation 
SBSR to report, among other things, the time of execution of their 
security-based swap transactions. As described in a staff analysis of 
the inventory management of dealers in the market for single-name CDS 
based on transaction data from DTCC-TIW, security-based swap 
transaction data currently stored in DTCC-TIW include the time of 
reporting, but not the time of the execution.\465\ Having the execution 
time instead of only the reporting time will enable staff to perform a 
more robust and granular analysis of any hedging that may or may not 
occur within the first 24-hour period after execution. After collecting 
and analyzing data that are more granular and reflect the reactions of 
market participants to T+24 hour post-trade transparency, the 
Commission anticipates that it will undertake further rulemaking to 
propose and adopt rules related to block trades and the reporting and 
public dissemination timeframe for non-block trades.
---------------------------------------------------------------------------

    \465\ See ``Inventory risk management by dealers in the single-
name credit default swap market'' (October 17, 2014) at 5, available 
at http://www.sec.gov/comments/s7-34-10/s73410-184.pdf (``Hedging 
Analysis'').
---------------------------------------------------------------------------

A. Proposed Rules Regarding Block Trades

    The Commission did not propose specific thresholds for block trades 
in the Regulation SBSR Proposing Release. Instead, the Commission 
described general criteria that it would consider when setting specific 
block trade thresholds in the future.\466\ The Commission stated that 
it ``preliminarily believes that the general criteria for what 
constitutes a large notional security-based swap transaction must be 
specified in a way that takes into account whether public disclosure of 
such transactions would materially reduce market liquidity, but 
presumably should be balanced by the general mandate of Section 
13(m)(1) of the Exchange Act, which provides that data on security-
based swap transactions must be publicly disseminated in real time, and 
in a form that enhances price discovery.'' \467\ The Commission further 
stated: ``For post-trade transparency to have a negative impact on 
liquidity, market participants would need to be affected in a way that 
either: (1) Impacted their desire to engage in subsequent transactions 
unrelated to the first; or (2) impacted their ability to follow through 
with further actions after the reported transaction has been completed 
that they feel are a necessary consequence of the reported 
transaction.'' \468\
---------------------------------------------------------------------------

    \466\ See Regulation SBSR Proposing Release, 75 FR 75228.
    \467\ Id. at 75228-29.
    \468\ Id. at 75229.
---------------------------------------------------------------------------

    The Commission noted, with respect to the first case, that post-
trade dissemination of transaction prices could lead to narrower 
spreads and reduce participants' willingness to trade. However, the 
Commission noted that liquidity could be enhanced if market 
participants increased their trading activity as a result of the new 
information. Because it would be difficult, if not impossible, to 
estimate with certainty which factor would prevail in the evolving 
security-based swap market, the Commission was guided by the general 
mandate of Section 13(m)(1) and the Commission's preliminary belief 
that even in illiquid markets, transaction prices form the foundation 
of price discovery.\469\ Therefore, the Commission proposed that prices 
for block trades be disseminated in the same fashion as prices for non-
block transactions.
---------------------------------------------------------------------------

    \469\ See id.
---------------------------------------------------------------------------

    The Commission noted that, in the second case, counterparties may 
intend to take further action after an initial transaction for hedging 
purposes. The Commission believed that, for a transaction that was 
sufficiently large, disseminating the size of such a transaction could 
signal to the market that there is the potential for another large 
transaction in a particular security-based swap or related 
security.\470\ Therefore, in order to give the market time to absorb 
any subsequent transactions, the Commission stated that it 
preliminarily believed that the size of a sufficiently large 
transaction should be suppressed for a certain period of time to 
provide time for subsequent transactions.\471\
---------------------------------------------------------------------------

    \470\ See id.
    \471\ See id.
---------------------------------------------------------------------------

    In the Regulation SBSR Proposing Release, the Commission noted a 
variety of metrics that could be used to determine whether a security-
based swap transaction should be considered a block trade.\472\ They 
included: (1) The absolute size of the transaction; (2) the size of the 
transaction relative to other similar transactions; (3) the size of the 
transaction relative to some measure of overall volume for that 
security-based swap instrument; and (4) the size of the transaction 
relative to some measure of overall volumes for the security or 
securities underlying the security-based swap.\473\ The Commission 
stated that the metric should be chosen in a way that minimizes 
inadvertent signaling to the market of potential large follow-on 
transactions.\474\
---------------------------------------------------------------------------

    \472\ The Commission considered several tests including a 
percentage test (the top N-percent of trade would be considered 
block) and set forth data from the Depository Trust Clearing 
Corporation (``DTCC'') regarding single-name corporate CDS and 
single name sovereign CDS. The Commission noted that the observed 
trade sizes would suggest certain cut-off points when considering 
single-name corporate CDS or sovereigns as a whole. The Commission 
also noted, however, that there may still be differences in 
liquidity between individual corporates and sovereigns, as well as 
linkages between the underlying cash markets and the CDS markets 
that a simple percentage or threshold test would not capture. In 
addition, the Commission's Division of Risk, Strategy, and Financial 
Innovation (which has been renamed the Division of Economic and Risk 
Analysis) prepared an analysis of several different block trade 
criteria in January 2011, based on the same DTCC data. The analysis 
examined fixed minimum notional amount thresholds; dynamic volume-
based thresholds based on the aggregate notional amount of all 
executions in a CDS instrument over the past 30 calendar days; and a 
combination of dynamic volume-based thresholds and fixed minimum 
thresholds of $10 and $25 million, respectively. See id. at 75230-
31.
    \473\ See id.
    \474\ See id.
---------------------------------------------------------------------------

    Although the Commission did not propose block thresholds, the 
Commission did propose two ``waves'' of public dissemination of block 
trades for when it had adopted block thresholds. Rule 902(b), as 
proposed and re-proposed, would have required a registered SDR to 
publicly disseminate a transaction report of a security-based swap that 
constitutes a block trade immediately upon receipt of information about 
the block trade from the reporting party. The transaction report would 
have been required to consist of all the information reported pursuant 
to Rule 901(c)--except for the notional amount--plus the transaction ID 
and an indicator that the report represents a block trade. The second 
wave would have required the registered SDR to publicly disseminate a 
complete transaction report for the block trade (including the 
transaction ID and the full notional amount) between 8 and 26 hours 
after the execution of the block trade. Thus, under Rule 902(b), as 
proposed and re-proposed, market participants would have learned the 
price and all other primary trade

[[Page 14618]]

information (except notional amount) about a block trade in real time, 
and the full notional amount of the transaction on a delayed 
basis.\475\ Registered SDRs would have been responsible for calculating 
the specific block thresholds based on the formula established by the 
Commission and publicizing those thresholds, but the Commission 
emphasized that a registered SDR would be performing ``mechanical, non-
subjective calculations'' when determining block trade thresholds.\476\
---------------------------------------------------------------------------

    \475\ Rule 902(b)(3), as proposed and re-proposed, would have 
provided that, if a registered SDR was closed when it otherwise 
would be required to disseminate information concerning a block 
trade, the registered SDR would be required to disseminate the 
information immediately upon re-opening.
    \476\ See Regulation SBSR Proposing Release, 75 FR 75228.
---------------------------------------------------------------------------

    The Commission proposed and re-proposed a variety of other 
provisions related to block trades. Proposed Rule 900 defined ``block 
trade'' to mean a large notional security-based swap transaction that 
satisfied the criteria in Rule 907(b). Proposed Rule 907(b) would have 
required a registered SDR to establish and maintain written policies 
and procedures for calculating and publicizing block trade thresholds 
for security-based swaps in accordance with the criteria and formula 
for determining block size specified by the Commission. Proposed Rule 
907(b)(2) also would have provided that a registered SDR should not 
designate as a block trade: (1) Any security-based swap that is an 
equity total return swap or is otherwise designed to offer risks and 
returns proportional to a position in the equity security or securities 
on which the security-based swap is based; or (2) any security-based 
swap contemplated by Section 13(m)(1)(C)(iv) of the Exchange Act.\477\
---------------------------------------------------------------------------

    \477\ 15 U.S.C. 78m(m)(1)(C)(iv) (``With respect to security-
based swaps that are determined to be required to be cleared under 
section 78c-3(b) of this title but are not cleared, the Commission 
shall require real-time public reporting for such transactions'').
---------------------------------------------------------------------------

B. Potential Impact on Liquidity

    The Commission received several comments addressing the issue of 
timing for public dissemination and the potential impact of public 
dissemination on liquidity. The commenters vary significantly in their 
views on this issue. One commenter stated that the proposed timeframes 
for publicly disseminating security-based swap transaction reports 
would not materially reduce market liquidity.\478\ Another commenter, 
however, expressed the view that ``[t]here is insufficient liquidity in 
the single-name credit default swap market to support real-time public 
dissemination of non-block transaction data for all but a handful of 
instruments without creating price moving events.'' \479\ A third 
commenter expressed concern that real-time security-based swap 
reporting, ``if implemented without adequate safeguards, could 
unnecessarily increase the price of entering into a derivatives 
contract to hedge risk'' \480\ and cautioned that requiring real-time 
reporting of thinly traded products in illiquid markets in an effort to 
compel derivatives to trade similarly to exchange-listed products 
represented ``a fundamentally flawed approach that demonstrates a lack 
of understanding of the existing market structure.'' \481\ A fourth 
commenter expressed concern about the impact of real-time post-trade 
transparency for illiquid security-based swaps on pre-trade 
transparency that currently exists in the form of indicative prices 
provided by dealers to their clients (known as ``runs'').\482\ This 
commenter requested that the Commission provide illiquid security-based 
swaps with an exception from real-time reporting and instead allow for 
delays roughly commensurate with the trading frequency of the security-
based swap.\483\
---------------------------------------------------------------------------

    \478\ See Barnard I at 2.
    \479\ UBS Letter at 1.
    \480\ Bachus/Lucas Letter at 2.
    \481\ Id.
    \482\ See ISDA IV at 14 (expressing concern that the combination 
of name-attributed runs and a rapidly disseminated set of post-trade 
information would make it relatively easy for many participants to 
reconstruct the identity of parties to a particular transaction, 
which might reduce dealers' willingness to disseminate pre-trade 
price information in the form of runs, thereby reducing pre-trade 
transparency).
    \483\ See id., note 21 (stating, for example, that a 24-hour 
delay would be appropriate for a security-based swap that trades, on 
average, once per day, and security-based swap that trades 10 times 
per day could be reported in real time).
---------------------------------------------------------------------------

    In addition, several commenters raised concerns about the effect of 
an improperly designed block trade regime.\484\ One commenter stated 
that an appropriate block exemption is critical to the successful 
implementation of Title VII.\485\ Several commenters expressed the view 
that improper block thresholds or definitions would adversely impact 
liquidity.\486\ One commenter noted that the SEC and CFTC's proposed 
block trade rules would adversely impact liquidity.\487\ By contrast, 
one commenter recommended that the Commission consider that increased 
transparency of trades that are large relative to the liquidity of the 
product may attract new entrants to the market and may result in 
increased liquidity.\488\
---------------------------------------------------------------------------

    \484\ See Barclays Letter at 8; BlackRock Letter at 8, note 10; 
Cleary I at 10-11; Cleary II at 2; Institutional Investors Letter at 
4; ISDA/SIFMA I at 2; ISDA/SIFMA Block Trade Study at 6; ISDA/SIFMA 
II at 8; J.P. Morgan Letter at 5; WMBAA I at 3.
    \485\ See ISDA/SIFMA I at 2.
    \486\ See Barclays Letter at 8 (stating that overly broad block 
trade thresholds could adversely impact the liquidity and pricing of 
security-based swaps); J.P. Morgan Letter at 5 (stating that 
liquidity may be significantly reduced if too few trades receive 
block treatment); BlackRock Letter at 8, note 10 (expressing concern 
that it could become infeasible for market participants to enter 
into block trades for some products if the Commissions fail to 
balance liquidity and price transparency correctly); Institutional 
Investors Letter at 4 (noting, with specific reference to the CFTC's 
proposed rules, that the benefits of large trades could be negated, 
and institutional investors' costs increased, if block trade sizes 
were set too high); ISDA/SIFMA II at 8 (stating that an overly 
restrictive definition of block trade has great potential to 
adversely affect the ability to execute and hedge large 
transactions); WMBAA I at 3 (expressing the view that block trade 
thresholds ``be set at such a level that trading may continue 
without impacting market participants' ability to exit or hedge 
their trades'').
    \487\ See Cleary II at 2.
    \488\ See GETCO Letter at 1-2.
---------------------------------------------------------------------------

    The Commission has considered these comments as well as the 
statutory requirement that the Commission rule for public dissemination 
of security-based swap transactions contain provisions that ``take into 
account whether the public disclosure [of transaction and pricing data 
for security-based swaps] will materially reduce market liquidity.'' 
\489\ The Commission is adopting these final rules for regulatory 
reporting and public dissemination of security-based swaps with a view 
toward implementing additional rules in one or more subsequent phases 
to define block thresholds and to revisit the timeframes for reporting 
and public dissemination of block and non-block trades. This approach 
is designed to increase post-trade transparency in the security-based 
swap market--even in its initial phase--while generating new data that 
could be studied in determining appropriate block thresholds after the 
initial phase. The Commission also considered several comments related 
to the timing of public dissemination and believes that at present the 
commenters' concerns are appropriately addressed by the Commission's 
adoption of T+24 hour reporting during the interim phase.
---------------------------------------------------------------------------

    \489\ 15 U.S.C. 78m(m)(1)(E). However, this mandate applies only 
with respect to cleared security-based swaps. No provision of Title 
VII requires the Commission to specify block thresholds or 
dissemination delays, or to take into account how public disclosure 
will materially reduce market liquidity, for uncleared security-
based swaps.
---------------------------------------------------------------------------

    During this phase, the reporting side will have up to 24 hours 
after the time of execution of a security-based swap transaction to 
report it to a registered

[[Page 14619]]

SDR, regardless of its notional amount.\490\ The registered SDR will be 
required, for all dissemination-eligible transactions,\491\ to publicly 
disseminate a report of the transaction immediately upon receipt of the 
information. Even with the T+24 reporting of transactions, the 
Commission anticipates being able to collect significant new 
information about how market participants behave in an environment with 
post-trade transparency, which will inform the Commission's analysis 
and effort to determine what block thresholds and time delays may be 
appropriate.
---------------------------------------------------------------------------

    \490\ For a security-based swap that is subject to regulatory 
reporting and public dissemination solely by operation of Rule 
908(a)(1)(ii), however, a reporting side is required to report the 
information required under Rules 901(c) and 901(d) within 24 hours 
of acceptance for clearing. See Rule 901(j); Section XV(C)(4), 
infra.
    \491\ See Rule 902(c) (setting forth certain types of security-
based swaps that are not to be publicly disseminated).
---------------------------------------------------------------------------

    In developing a regulatory regime for post-trade transparency in 
the security-based swap market, the Commission is cognizant of rules 
adopted by the CFTC to provide for post-trade transparency in the swap 
market. Commission staff analyzed the effect of the adoption of post-
trade transparency in the swap market, which is regulated by the 
CFTC.\492\ That analysis shows no discernible empirical evidence of 
economically meaningful effects of the introduction of post-trade 
transparency in the swap market at this time. In particular, the study 
did not find negative effects such as reduced trading activity. Based 
on this analysis, the Commission believes that post-trade transparency 
does not seem to have a negative effect on liquidity and market 
activity in the swap market.\493\
---------------------------------------------------------------------------

    \492\ See ``Analysis of post-trade transparency under the CFTC 
regime'' (October 17, 2014), available at http://www.sec.gov/comments/s7-34-10/s73410-183.pdf (``Analysis of Post-Trade 
Transparency''). See also infra Sections XXII(C)(2)(b), 
XXII(C)(2)(c), XXII(C)(3)(a), and XXII(D)(4)(b). The one comment 
that the Commission received on the Analysis of Post-Trade 
Transparency did not directly address the staff's analysis. This 
comment is discussed in notes 688 and 1011, infra.
    \493\ See Analysis of Post-Trade Transparency at 1 (``While we 
acknowledge that there are significant differences between the index 
[credit default swap] market and the security-based swap market, the 
data analysis presented here may enhance the Commission's 
understanding of the potential economic effects of mandated 
post[hyphen]trade transparency in the security[hyphen]based swap 
market'').
---------------------------------------------------------------------------

1. T+24 Hour Reporting for All Transactions
    The Commission initially proposed to require reporting to a 
registered SDR of the primary trade information of all security-based 
swaps ``as soon as technologically practicable, but in no event later 
than 15 minutes after the time of execution of the security-based swap 
transaction.'' \494\ For all dissemination-eligible transactions other 
than block trades, the registered SDR would have been required to 
publicly disseminate a report of the transaction immediately and 
automatically upon receipt of the transaction. As proposed, block 
trades would have been subject to two-part dissemination: (1) An 
initial report with suppressed notional amount disseminated in real-
time; and (2) a full report including notional amount disseminated 
between 8 to 26 hours after execution.\495\
---------------------------------------------------------------------------

    \494\ See Rules 901(c) and 900 (definition of ``real time''), as 
originally proposed.
    \495\ Rule 902(b)(1), as proposed and re-proposed, would have 
provided: ``If the security-based swap was executed on or after 
05:00 UTC and before 23:00 UTC of the same day, the transaction 
report [for the block trade] (including the transaction ID and the 
full notional amount) shall be disseminated at 07:00 UTC of the 
following day.'' Proposed Rule 902(b)(2) would have provided: ``If 
the security-based swap was executed on or after 23:00 UTC and up to 
05:00 UTC of the following day, the transaction report (including 
the transaction ID and the full notional size) shall be disseminated 
at 13:00 UTC of that following day.'' Those block trades executed at 
the end of each window would receive an 8 hour dissemination delay 
and those blocks executed at 5:00 UTC would receive a 26 hour 
dissemination delay. The delay for all other block trades would vary 
between 8 and 26 hours, depending on the time of execution.
---------------------------------------------------------------------------

    Commenters expressed mixed views regarding the proposed reporting 
timeframes. Two commenters generally supported them.\496\ However, 
several commenters stated that, at least in the near term, it would be 
difficult to comply with the reporting timeframes as proposed.\497\ One 
of these commenters argued, for example, that the benefits of providing 
security-based swap information within minutes of execution did not 
outweigh the infrastructure costs of building a mechanism to report in 
real time, particularly given the likelihood of errors.\498\ Another 
commenter expressed concern that ``the 15 minute limit is not 
technologically practicable under existing communications and data 
infrastructure.'' \499\
---------------------------------------------------------------------------

    \496\ See FINRA Letter at 2 (supporting the Commission's 
proposal to require reporting as soon as technologically 
practicable, but in no event later than 15 minutes after the time of 
execution); Barnard I at 3 (recommending full post-trade 
transparency as soon as technologically and practicably feasible, 
with an exemption permitting delayed reporting for block trades).
    \497\ See DTCC II at 9-10; ICI I at 4-5; ISDA III at 1 (``Not 
all market participants have the ability to report within 15 or 30 
minutes of execution''); MarkitSERV I at 9 (``complying with a 
strict 15-minute deadline even for non-electronically executed or 
confirmed trades will require significant additional implementation 
efforts by the industry at a time when resources are already 
stretched in order to meet other requirements under the [Dodd-Frank 
Act]''); MFA I at 5.
    \498\ See MFA I at 5.
    \499\ ICI I at 4.
---------------------------------------------------------------------------

    Commenters also advocated that the Commission phase-in reporting 
deadlines over time, similar to the implementation model for TRACE, to 
allow regulators to assess the impact of post-trade transparency on the 
security-based swap market.\500\ One commenter noted that phased-in 
implementation would allow regulators to assess the impact of 
transparency on the security-based swap market and make adjustments, if 
necessary, to the timing of dissemination and the data that is 
disseminated.\501\ Other commenters echoed the belief that a phased 
approach would allow the Commission to assess the impact of public 
reporting on liquidity in the security-based swap market, monitor 
changes in the market, and adjust the reporting rules, if 
necessary.\502\
---------------------------------------------------------------------------

    \500\ See Barnard I at 4; CCMR I at 2; Cleary II at 18-21; DTCC 
II at 9-10, 24-25; DTCC III at 10; DTCC IV at 8-9; Roundtable Letter 
at 4-9; FINRA Letter at 4-5; Institutional Investors Letter at 3; 
ISDA/SIFMA I at 9-10; ISDA/SIFMA Block Trade Study at 2, 7; 
MarkitSERV I at 9-10; MFA Recommended Timeline at 1; UBS Letter at 
2-3; WMBAA III at 4-6. Based on its experience with industry-wide 
processes, one commenter suggested that there could be a ``shake-
out'' period during which problems with reported data could surface. 
The commenter urged the Commission to consider this possibility and 
provide a means to assure that information is of high quality before 
dissemination is permitted. See DTCC II at 9-10.
    \501\ See FINRA Letter at 5. See also ISDA/SIFMA Block Trade 
Study at 2 (stating that phased implementation would provide 
regulators with time to test and refine preliminary standards).
    \502\ See CCMR I at 2; Cleary II at 19; ISDA/SIFMA Block Trade 
Study at 2; UBS Letter at 2.
---------------------------------------------------------------------------

    Three commenters recommended a 24-hour delay for reporting block 
trades,\503\ and one recommended a delay of at least five days with an 
indefinite delay of full notional size.\504\ Of those commenters, two 
also suggested that the delay could be reduced or refined after the 
Commission gathers additional information about the security-based swap 
market.\505\ In contrast, two commenters recommended block delays as 
short as 15 minutes.\506\ In addition,

[[Page 14620]]

several commenters opposed two-part transaction reporting for block 
trades. These commenters believed that all information about a block 
trade, including the notional amount of the transaction, should be 
subject to a dissemination delay to provide liquidity providers with 
adequate time to hedge their positions.\507\ Two commenters recommended 
initially setting block sizes low and over time collecting data to 
determine an appropriate block trade size.\508\
---------------------------------------------------------------------------

    \503\ See ICI I at 3; SIFMA I at 5 (``a 24-hour delay would 
better ensure that block liquidity providers are able to offset 
their risk regardless of the time during the trading day at which 
the block is executed''); Vanguard Letter at 4; Viola Letter at 2 
(``At a minimum, the data in question should be delayed from the 
public reporting requirements at least one (1) day after the trade 
date''). Cf. Phoenix Letter at 4 (recommending end-of-day 
dissemination of block trades).
    \504\ See ISDA IV at 16.
    \505\ See ICI I at 3-4; Vanguard Letter at 4, note 3.
    \506\ See Better Markets I at 5-6 and at 4-5 (stating that no 
compelling economic justification exists for delaying the immediate 
public dissemination of any data regarding block trades, and that 
the minimum duration of any delay in reporting block trades should 
be ``far shorter'' than the delays included in Regulation SBSR); 
Better Markets III at 4-5; SDMA Letter at 2.
    \507\ See Cleary II at 12 (even without disclosure of the 
notional amount, observers may be able to infer information about a 
trade and predict subsequent hedging activity); Goldman Sachs Letter 
at 6 (disclosure of the fact that a block trade occurred could still 
impact liquidity); ICI I at 2 (recommending a delay of all block 
trade information); ISDA/SIFMA I at 3 (delaying disclosure of 
notional amount is only a ``partial solution''); SIFMA I at 3-4 (all 
block trade information should be delayed, otherwise immediate trade 
signaling could harm end users); Vanguard Letter at 2, 4 (all block 
trades should be delayed 24 hours, and establishment of a block 
regime should be delayed until the Commission has had time to assess 
how reporting affects the market).
    \508\ See Institutional Investors Letter at 4; MFA Recommended 
Timeline at 4.
---------------------------------------------------------------------------

    In addition, Commission staff has undertaken an analysis of the 
inventory management of dealers in the market for single-name CDS based 
on transaction data from DTCC-TIW.\509\ The analysis, in line with 
prior studies of hedging in this market,\510\ shows that, after most 
large transactions between a dealer and customer are executed, dealers 
do not appear to hedge resulting exposures by executing offsetting 
transactions (either with other dealers or other customers) in the same 
single-name CDS. In instances where dealers appear to hedge resulting 
exposures following a large trade in single-name CDS written on the 
same reference entity, they generally do so within a maximum of 24 
hours after executing the original trade.
---------------------------------------------------------------------------

    \509\ See Hedging Analysis.
    \510\ See Kathryn Chen, et al., Federal Reserve Bank of New York 
Staff Report, An Analysis of CDS Transactions: Implications for 
Public Reporting (September 2011), available at http://www.newyorkfed.org/research/staff_reports/sr517.html, last visited 
September 22, 2014. See also http://www.dtcc.com/repository-otc-data.aspx, last visited September 22, 2014. This study uses an 
earlier sample of DTCC-TIW transaction data to identify hedging of 
transactions in single-name CDS. They find little evidence of 
hedging via offsetting trades in the same instrument and conclude by 
saying that ``requiring same day reporting of CDS trading activity 
may not significantly disrupt same day hedging activity, since 
little such activity occurs in the same instrument.''
---------------------------------------------------------------------------

    One commenter responded to this analysis, asserting that dealers, 
rather than hedging security-based swap exposures using offsetting 
transactions in the same instruments, might choose instead to hedge 
their security-based swap exposures in related assets, and that these 
types of hedging behaviors were not measured in the Commission staff 
analysis. The commenter further suggested that the use of cross-market 
hedges could be particularly important for transactions in single-name 
CDS that are especially illiquid.\511\ The Commission acknowledges that 
the staff's analysis was limited to same-instrument hedging.\512\ 
However, the Commission notes that, to the extent that security-based 
swap positions can be hedged using other assets--as the commenter 
suggests--these additional opportunities would suggest that dealers 
would likely need less time to hedge than if hedging opportunities 
existed only within the security-based swap market.
---------------------------------------------------------------------------

    \511\ See ISDA IV at 15 (stating that ``participants may enter 
into risk mitigating transactions using other products that are more 
readily available at the time of the initial trade (for example CD 
index product [sic], CDS in related reference entities, bonds or 
loans issued by the reference entity or a related entity, equities 
or equity options)''). In addition, the commenter stated that it 
``interprets the data in the study to imply that such temporary 
hedges in other asset classes (rather than offsetting transactions 
in the precise reference entity originally traded) are the norm for 
an illiquid market.'' See id.
    \512\ See Chen et al., supra note 510, at 6. Like the Chen et 
al. report, which was cited by the commenter, the Commission staff 
analysis did not incorporate data that would allow it to identify 
hedging in corporate bonds or equities, because appropriate data 
were not available. The commenter did not provide any analysis, 
rationale, or data demonstrating how public dissemination of a 
single-name CDS transaction within 24 hours would negatively impact 
a dealer from being able to hedge this exposure in another market, 
such as a broad-based CDS index.
---------------------------------------------------------------------------

    In view of these comments and the staff analysis, the Commission is 
modifying Regulation SBSR's timeframes for reporting security-based 
swap transaction information as follows. First, Rules 901(c) and 
901(d), as adopted, require reporting sides to report the information 
enumerated in those rules ``within the timeframe specified in paragraph 
(j) of this section''--i.e., by Rule 901(j). Rule 901(j), as adopted, 
provides that the reporting timeframe for Rules 901(c) and 901(d) shall 
be ``within 24 hours after the time of execution (or acceptance for 
clearing in the case of a security-based swap that is subject to 
regulatory reporting and public dissemination solely by operation of 
Sec.  242.908(a)(1)(ii)), or, if 24 hours after the time of execution 
or acceptance for clearing, as applicable, would fall on a day that is 
not a business day, by the same time on the next day that is a business 
day.'' Under Rule 902(a), as adopted, the registered SDR that receives 
the transaction report from the reporting side is required, as proposed 
and re-proposed, to publicly disseminate a report of that transaction 
immediately upon receipt. The Commission believes that this approach 
will improve post-trade transparency and respond to commenters' 
concerns. In particular, the Commission believes that this approach 
addresses concerns relating to potential market impact, the ability to 
report in real time, and the length of delay for dissemination of block 
trade information.\513\ Thus, the T+24 hour approach is designed to 
improve post-trade transparency in the security-based swap market in 
the near term, while generating additional data that the Commission can 
evaluate in considering appropriate treatment of block trades.
---------------------------------------------------------------------------

    \513\ Although two commenters advocated shorter block trade 
delays, the Commission believes that it would be prudent to allow 
for the accumulation of additional data about the effect of post-
trade transparency on the security-based swap market before 
considering shorter reporting and dissemination timeframes for block 
trades. The Commission may consider shorter timeframes in the future 
but believes that it is neither necessary nor appropriate to adopt 
these commenters' recommendations at this time.
---------------------------------------------------------------------------

    At this time, the Commission is not adopting the provisions of 
proposed and re-proposed Rule 902 that would have provided for real-
time public dissemination of non-block trades. However, the Commission 
is adopting, substantially as proposed and re-proposed, what was 
originally designed to be the second wave of block dissemination--i.e., 
disseminating the full trade details, including the true notional 
amount, at one of two points in the day (either 07:00 or 13:00 UTC) 
after an initial report of the transaction (without the notional 
amount) had been disseminated in real time.\514\ The Commission is now 
simplifying that approach by eliminating the idea of ``batch 
dissemination'' at two points during the day, and instead allowing for 
T+24 hour reporting for all transactions, regardless of the time of 
execution. Furthermore, in the absence of a standard to differentiate 
block from non-block transactions, the Commission believes that it is 
appropriate to require the same T+24 hour reporting for all 
transactions.\515\
---------------------------------------------------------------------------

    \514\ See Rule 902(b), as proposed and re-proposed.
    \515\ As discussed in more detail in Section VII(B)(3), infra, 
if 24 hours after the time of execution would fall on a non-business 
day (i.e., a Saturday, Sunday, or U.S. federal holiday), reporting 
would instead be required by the same time on the next business day.
---------------------------------------------------------------------------

    This interim phase is designed to allow the accumulation of 
empirical

[[Page 14621]]

data and is consistent with various comments that emphasized the need 
for further study and analysis of empirical data prior to establishing 
block trading rules.\516\ Several commenters noted that implementing 
the rules requiring reporting to registered SDRs prior to the block 
trading rules would provide security-based swap transaction data (in 
addition to historical data) that could be used in the formation of 
block trade thresholds.\517\ One of these commenters stated, for 
example, that it would be premature to adopt block trade thresholds 
prior to the commencement of reporting to registered SDRs because SDR 
reporting would increase the amount of information available across 
various markets and asset classes.\518\ Commenters also recommended 
several methods for obtaining and analyzing empirical data,\519\ 
including independent academic research\520\ and a review of a 
statistically significant data set for each security-based swap 
category.\521\
---------------------------------------------------------------------------

    \516\ See ABC Letter at 7-8; CCMR I at 4 (``The Commission 
should set the thresholds low at first in order to collect data that 
will enable them to make informed decisions about the final delay 
and threshold determinations''); Institutional Investors Letter at 
4-5 (stating, in reference to the CFTC's proposed rules, that the 
marketplace currently lacks sufficient collection and analysis of 
swap trading data to establish block trade thresholds); ICI II at 8 
(``We agree with the SEC that it should defer its proposed 
rulemaking regarding block thresholds until after SDRs register with 
the SEC and the SEC begins to receive and analyze data required to 
be reported under the final rules or until after SB swap transaction 
information begins to be publicly reported''); MFA I at 4 
(recommending that the Commission study and obtain empirical 
evidence to determine block trade definitions for each asset class 
to assure that the final rules do not disrupt the markets or reduce 
liquidity); ISDA/SIFMA I at 4-5 (recommending significant detailed 
research, including independent academic research, before 
determining block size thresholds and reporting delays for 
particular security-based swap transactions); ISDA/SIFMA II at 8 
(stating that market-based research and analysis should be employed 
to provide the basis for the determination of well-calibrated block 
trading exemption rules); SIFMA II at 8 (``Until a liquid SBS 
trading market develops on SB-SEFs and exchanges, the Commission 
will not be able to make informed decisions on the definition of a 
block or an appropriate public reporting time frame. For the same 
reason, real-time reporting should be implemented gradually. Block 
trade thresholds should be set at a low level at first, such that 
many trades are treated as blocks, and raised slowly by the 
Commission when doing so is supported by market data''). But see 
SDMA Letter at 3 (stating that swap transaction data are available 
today and block trade thresholds could be established without 
delay).
    \517\ See Institutional Investors Letter at 4 (recommending that 
the CFTC collect market data for one year before adopting rules 
relating to block trades); MFA II, Recommended Timeline at 4; WMBAA 
III at 6; FIA/FSF/ISDA/SIFMA Letter at 6.
    \518\ See FIA/FSF/ISDA/SIFMA Letter at 6, note 6.
    \519\ See ISDA/SIFMA I at 4; Goldman Sachs Letter at 5.
    \520\ See ISDA/SIFMA I at 4.
    \521\ See Goldman Sachs Letter at 5 (stating that the Commission 
could obtain the necessary data by asking large dealers to provide 
information on a confidential basis and supplementing that 
information with data obtained from a survey of other market 
participants).
---------------------------------------------------------------------------

    Although more data and analyses about executed transactions are now 
available than when the Commission originally issued the Regulation 
SBSR Proposing Release,\522\ these data provide limited insights into 
how post-trade transparency might affect market behavior if executed 
transactions were to become publicly known on a real-time or near-real-
time basis.\523\ The Commission has information from DTCC-TIW about 
most CDS trades over the past few years \524\ and can analyze the 
frequency of execution and the notional trade sizes. However, the 
Commission believes that these data permit only speculative inferences 
about the potential market impact of those trades being made public. 
Currently, there is little post-trade transparency in the security-
based swap market, so the current trading generally is informed only 
imperfectly, if at all, about earlier trading.
---------------------------------------------------------------------------

    \522\ See, e.g., Chen et al., supra note 510.
    \523\ See ICI II at 8 (``Any data on which the SEC could rely 
currently to develop a methodology for determining minimum block 
trade sizes will not adequately represent or reflect the swaps 
market once the Dodd-Frank requirements (including public reporting 
of swap data) are fully implemented''). Two commenters pointed to 
evidence suggesting negative effects of post-trade transparency in 
other securities markets. See ISDA/SIFMA Block Trade Study at 4-5 
(stating that some studies had concluded that transparency had 
negatively impacted markets, including the Canadian stock markets 
and the London Stock Exchange); J.P. Morgan Letter at 2-4 (stating 
that anecdotal evidence reported in one study supported the view 
that institutional customers experienced less deep markets as a 
result of TRACE reporting, and that adverse impacts could be more 
substantial for CDS).
    \524\ See http://www.dtcc.com/repository-otc-data.aspx (last 
visited September 22, 2014) for a description of aggregated data 
disseminated by DTCC. See also infra Section XXII(B)(1) for a 
description of transaction data obtained by the Commission.
---------------------------------------------------------------------------

    Several aspects of the Commission's adopted rules are designed to 
help facilitate the collection of data relating to how post-trade 
transparency affects market behavior. The Commission is adopting, as 
re-proposed, the requirement that the trade report include the time of 
execution and the requirement that the registered SDR mark the time 
that it receives the trade report. These requirements are designed to 
help inform the Commission as to the length of time between the 
execution of a transaction and when the transaction is reported to a 
registered SDR, which should provide useful data to the Commission in 
analyzing trends in reporting timeframes. These timeframes would 
provide some insight into the beliefs of market participants regarding 
the length of the reporting delay that they deem necessary to minimize 
the market impact of a transaction. Observing trades being reported to 
a registered SDR with varying delays after execution could provide the 
Commission with greater insight as to what market participants consider 
to be market-impacting trades. Further, the Commission believes that 
this approach would address, during the interim phase, the concerns of 
the commenters who believed that a public dissemination regime with 
inappropriately low block trade thresholds could harm market liquidity, 
and those who argued that market participants would need an extended 
period of time to comply with the requirements to report within shorter 
timeframes.
    Although any participant could take the full 24 hours to report a 
given trade, there may be incentives to submit trade reports in 
substantially less than 24 hours. The Commission understands that, in 
some cases, entities that are likely to become SB SEFs (``pre-SEFs'') 
may want to broadcast trades executed electronically across their 
platforms to all subscribers in order to catalyze trading by other 
counterparties at the same price.\525\ This ``work-up'' process, 
according to a commenter, is designed to foster liquidity in the 
security-based swap market and to facilitate the execution of larger-
sized transactions.\526\ If pre-SEFs and their participants want to 
continue their current practices and broadcast a subset of their 
executed trades across the platform in real time to facilitate work-
ups, they will be subject to Rule 902(d), which embargos transaction 
information until the information is transmitted to a registered 
SDR.\527\ Therefore, any pre-SEF or user of a pre-SEF that wants to 
continue to have real-time information about a completed trade 
broadcast as part of a work-up must ensure that the initial transaction 
is reported to a registered SDR no later than the time at which it is 
broadcast to users of the pre-SEF.
---------------------------------------------------------------------------

    \525\ See supra Section VI(F) (discussing Embargo Rule).
    \526\ See GFI Letter at 3.
    \527\ See supra Section VI(F).
---------------------------------------------------------------------------

    In response to commenters who advocated shorter reporting time 
frames or block trade delays, the Commission notes that it anticipates 
further refining the reporting timeframes when it proposes and 
implements final block

[[Page 14622]]

trade rules, at which point reporting sides will have had more time to 
test and implement their reporting systems and processes. This approach 
was recommended by several commenters.\528\
---------------------------------------------------------------------------

    \528\ See Institutional Investors Letter at 4 (recommending that 
the CFTC collect market data for one year before adopting rules 
relating to block trades); MFA II, Recommended Timeline at 4; WMBAA 
III at 6; FIA/FSF/ISDA/SIFMA Letter at 6 (appropriate block trade 
thresholds, and therefore real-time reporting requirements, can be 
established only after the commencement of SDR reporting to 
regulators and careful analysis of security-based swap market 
transaction data). This approach is also broadly consistent with the 
implementation of the TRACE system, which shortened reporting 
requirements over time. Several commenters recommended a phased 
reporting approach analogous to TRACE. See CCMR I at 2; Cleary II at 
20; DTCC II at 9-10; FINRA Letter at 4-5; ISDA/SIFMA I at 10; ISDA/
SIFMA Block Trade Study at 2; UBS Letter at 2-3; WMBAA II at 5.
---------------------------------------------------------------------------

2. Reporting Timeframe for Trades Executed Prior to Weekends or U.S. 
Federal Holidays
    While most transactions will have 24 hours within which to be 
reported, Rule 901(j) also provides that, ``if 24 hours after the time 
of execution would fall on a day that is not a business day, [the 
transaction must be reported] by the same time on the next day that is 
a business day.'' The Commission's intent is to afford security-based 
swap counterparties--during the interim phase--the equivalent of at 
least an entire business day to hedge their positions, if they so 
desire, before the transaction must be reported and publicly 
disseminated. Without clarifying that, during the interim phase, 
reporting requirements fall only on business days, for a transaction 
executed on the day before a weekend or holiday, the counterparties 
would have less than the number of business hours of a regular business 
day to hedge a transaction if reporting were required within 24 hours 
of execution.
    The Commission is also adopting a definition of ``business day'' to 
clarify the ``not a business day'' provision. ``Business day'' is 
defined in Rule 900(f) as ``a day, based on U.S. Eastern Time, other 
than a Saturday, Sunday, or a U.S. federal holiday.'' Counterparties to 
the trade may be in different time zones and/or jurisdictions; in the 
absence of Rule 900(f) there could be confusion about whether the ``not 
a business day'' provision referred to the jurisdiction and time zone 
of one side or the jurisdiction and time zone of the other. Because 
Regulation SBSR is designed to implement Title VII's regulatory 
reporting and public dissemination requirements for the U.S. security-
based swap market, the Commission is designating U.S. Eastern Time 
(which may be either Eastern Standard Time or Eastern Daylight Time) as 
the time zone on which the reporting side should base its reporting for 
purposes of Rules 900(f) and 901(j). The Commission also is excluding 
U.S. federal holidays from the definition of ``business day.'' The 
following examples are designed to help explain the application of this 
provision:
     Example 1. A trader executes a trade at 04:59 UTC on 
Friday (11:59 p.m. EST on Thursday). This particular Friday is not a 
U.S. federal holiday. The reporting side must report by 04:59 UTC on 
Saturday (11:59 p.m. EST on Friday).
     Example 2. A trader executes a trade at 05:01 UTC on 
Friday (12:01 a.m. EST on Friday). The reporting side must report by 
05:01 UTC on Monday (12:01 a.m. EST on Monday), provided that this 
particular Monday is not a U.S. federal holiday.
     Example 3. A trader executes a trade at 14:42 UTC on 
Friday (9:42 a.m. EST on Friday). The reporting side must report by 
14:42 UTC on Monday (9:42 a.m. EST on Monday), provided that this 
particular Monday is not a U.S. federal holiday.
     Example 4. A trader executes a trade at 13:42 UTC on 
Friday (9:42 a.m. EDT on Friday). The following Monday is Labor Day, a 
U.S. federal holiday. The reporting party must report by 13:42 UTC on 
Tuesday (9:42 a.m. EDT on Tuesday).
     Example 5. A trader executes a trade at 16:45 UTC on 
Wednesday, November 26, 2014 (11:45 a.m. EST on Wednesday, November 26, 
2014). Thursday, November 27, 2014 is Thanksgiving, a U.S. federal 
holiday. The reporting party must report by 16:45 UTC on Friday, 
November 28, 2014 (11:45 a.m. EST on Friday, November 28, 2014).
     Example 6. A trader executes a trade at 16:45 UTC on a 
Wednesday (11:45 a.m. EST on Wednesday). Thursday is not a U.S. federal 
holiday, but a large blizzard causes emergency closures in New York 
City and several other U.S. cities. The reporting party must report by 
16:45 UTC on Thursday (11:45 a.m. EST on Thursday).
3. Other Revisions To Accommodate the Interim Phase
    In addition to the changes noted above, the Commission is adopting 
the following technical changes to Regulation SBSR to implement the 
interim phase of reporting and public dissemination. First, the 
Commission is not adopting certain sections of rule text that referred 
to block trades and marking those sections as ``Reserved.'' Rule 
900(c), as re-proposed, would have defined a ``block trade'' as a large 
notional security-based swap transaction that meets the criteria set 
forth in proposed Rule 907(b). Rule 907(b), as proposed and re-
proposed, would have required a registered SDR to establish and 
maintain policies and procedures ``for calculating and publicizing 
block trade thresholds for all security-based swap instruments reported 
to the registered security-based swap data repository in accordance 
with the criteria and formula for determining block size as specified 
by the Commission.'' Rule 907(b), as proposed and re-proposed, also 
would have excluded equity TRS instruments and any security-based swap 
contemplated by Section 13(m)(1)(C)(iv) of the Exchange Act \529\ from 
the definition of ``block trade.'' Because the Commission anticipates 
soliciting public comment on block thresholds and other rules related 
to block trades--including what role (if any) registered SDRs should 
play in calculating those thresholds--the Commission is not at this 
time defining the term ``block trade'' in Rule 900(c) or adopting Rule 
907(b). Similarly, because the Commission is not at this time adopting 
the requirement to report in real time, the Commission is not adopting 
a definition of ``real time'' in Rule 900.
---------------------------------------------------------------------------

    \529\ 15 U.S.C. 78m(m)(1)(C)(iv).
---------------------------------------------------------------------------

    Second, the Commission has determined not to utilize the term 
``security-based swap instrument'' \530\ in Regulation SBSR. The 
Commission devised the original definition of ``security-based swap 
instrument'' in connection with its overall analysis of the block trade 
issue. In the Regulation SBSR Proposing Release, the Commission stated 
its preliminary belief that it would not be appropriate to establish 
different block trade thresholds for similar instruments with different 
maturities. Thus, the proposed definition of ``security-based swap 
instrument'' did not include any distinction based on tenor or date 
until expiration.\531\
---------------------------------------------------------------------------

    \530\ Proposed Rule 900 would have defined ``security-based swap 
instrument'' to mean ``each security-based swap in the same asset 
class, with the same underlying reference asset, reference issuer, 
or reference index.'' This definition was included, without change, 
in re-proposed Rule 900(dd).
    \531\ See 75 FR 75231.
---------------------------------------------------------------------------

    One commenter discussed the concept of security-based swap 
instruments in the context of its overall discussion of block trade 
issues.\532\ The commenter argued that a different block size threshold 
would have to be

[[Page 14623]]

calculated for each category of security-based swap instrument, so the 
boundaries of those categories would greatly impact market 
participants' ability to engage in block trading. The commenter 
recommended, therefore, that instruments be classified in as few 
categories as possible.\533\ Another commenter argued that the 
definition of ``security-based swap instrument'' ``should provide for 
more granular distinctions between different types of transaction 
within a single asset class to avoid grouping together transactions 
with quite different characteristics.'' \534\
---------------------------------------------------------------------------

    \532\ See CCMR I at 3.
    \533\ See id.
    \534\ ISDA/SIFMA I at 10.
---------------------------------------------------------------------------

    The Commission anticipates soliciting public comment on block trade 
thresholds at a later date. Because the initial intent of the term 
``security-based swap instrument'' was to delineate separate categories 
of security-based swaps that could have separate block trade 
thresholds, the Commission is not adopting the term ``security-based 
swap instrument'' at this time. The Commission anticipates soliciting 
public comment on whether and how to establish different categories of 
security-based swaps--and what, if any, block thresholds and 
dissemination delays will apply to those different categories--when it 
solicits comment on block thresholds.
    Further, proposed Rule 902(b) would have specified the delay for 
dissemination of certain information about block trades to the public 
as well as what information a registered SDR should disseminate 
immediately. Because the Commission anticipates that it will re-propose 
all aspects of Regulation SBSR as they pertain to block trades, the 
Commission is not adopting Rule 902(b) at this time.
    Rules 901(j), as adopted, require the reporting of both primary and 
secondary trade information, respectively, for a security-based swap no 
later than 24 hours after the time of execution (or acceptance for 
clearing in the case of a security-based swap that is subject to 
regulatory reporting and public dissemination solely by operation of 
Rule 908(a)(1)(ii)), or, if 24 hours after the time of execution or 
acceptance for clearing, as applicable, would fall on a day that is not 
a business day, by the same time on the next day that is a business 
day. Re-proposed Rule 901(d)(2) would have required the reporting side 
to report what final Rule 901(d) now terms the ``secondary trade 
information'' promptly, but in any event, no later than: (1) 15 minutes 
after the time of execution for a security-based swap that is executed 
and confirmed electronically; (2) 30 minutes after the time of 
execution for a security-based swap that is confirmed electronically 
but not executed electronically; or (3) 24 hours after the time of 
execution for a security-based swap that is not executed or confirmed 
electronically. In proposing these reporting timeframes, the Commission 
recognized that the amount of time required for counterparties to 
report the information required under proposed Rule 901(d)(1) depended 
upon, among other things, the extent to which the security-based swap 
was customized and whether the security-based swap was executed or 
confirmed electronically or manually.\535\
---------------------------------------------------------------------------

    \535\ See Regulation SBSR Proposing Release, 75 FR 75219. The 
Commission believed that the information required under Rule 
901(d)(1) would be available relatively quickly for a security-based 
swap that was executed and confirmed electronically because most of 
the required information would already be in an electronic format. 
On the other hand, the Commission recognized that, for security-
based swaps that are not executed or confirmed electronically, 
additional time might be needed to systematize the information 
required under Rule 901(d)(1) and put it into the appropriate 
format. See id.
---------------------------------------------------------------------------

    Generally, commenters' views regarding the regulatory reporting 
timeframes in proposed Rule 901(d)(2) were mixed. While some commenters 
expressed concerns that the proposed timeframes were too lenient or 
incentivized slower technologies,\536\ other commenters expressed the 
view that the reporting timeframes in proposed Rule 901(d)(2) were not 
practicable.\537\ One of these commenters noted the likelihood of 
errors if reporting timeframes were too short.\538\ Another commenter 
urged the Commission to strike an appropriate balance between speed and 
accuracy in establishing timeframes for regulatory reporting.\539\ One 
commenter suggested that, initially, the Rule 901(d) regulatory 
reporting timeframes should be set closer to current market capability, 
with electronically confirmable trades reported within 24 hours.\540\ 
This commenter recommended a phase-in period to allow reporting parties 
to develop the necessary reporting capabilities, after which time 
shorter timeframes could be implemented.\541\
---------------------------------------------------------------------------

    \536\ See Better Markets I at 9 (noting that technology that 
would permit reporting within much shorter timeframes is widely 
available, and that market participants routinely adhere to much 
shorter timeframes for their own business and internal reporting); 
Tradeweb Letter at 5 (different reporting timeframes based on the 
method of execution potentially could create incentives for market 
participants not to take advantage of available technology); SDMA I 
at 3 (stating, with reference to the CFTC's proposed rules, that 
different reporting timeframes based on method of execution could 
create a `race to the slowest' among swap execution facilities, with 
market participants favoring slower-reporting swap execution 
facilities over more efficient and transparent facilities).
    \537\ See MFA Letter at 5; DTCC II at 12.
    \538\ See MFA Letter at 5.
    \539\ See ISDA/SIFMA I at 9.
    \540\ See DTCC II at 12.
    \541\ See id.
---------------------------------------------------------------------------

    The Commission is not adopting the reporting timeframes proposed in 
Rule 901(d)(2), and is therefore renumbering Rule 901(d)(1) as Rule 
901(d).\542\ Because Rule 901(j), as adopted, allows reporting sides up 
to 24 hours to report the primary trade information pursuant to Rule 
901(c) (or until the same time on the next business day if the trade 
occurs less than 24 hours before a weekend or federal holiday), the 
Commission believes that it is appropriate also to modify the timeframe 
for reporting the secondary trade information set forth in Rule 901(d) 
to harmonize with the Rule 901(c) requirement. Although both the 
primary and secondary trade information must be reported within 24 
hours of the time of execution or acceptance for clearing, as 
applicable (or until the same time on the next business day if the 
trade occurs less than 24 hours before a weekend or federal holiday), 
Rule 901 does not require that all of the information enumerated in 
Rules 901(c) and 901(d) be provided in a single trade report. Thus, a 
reporting side could, if permitted by the policies and procedures of 
the relevant registered SDR, make an initial report of the primary 
trade information followed by a subsequent report containing secondary 
trade information, so long as both reports were provided within the 
timeframe prescribed by Rule 901(j).\543\
---------------------------------------------------------------------------

    \542\ See supra Section II(C)(2).
    \543\ However, the registered SDR's policies and procedures 
adopted under Rule 907(a)(1) generally should explain to reporting 
sides how to report if all the security-based swap transaction data 
required by Rules 901(c) and 901(d) is being reported 
simultaneously, and how to report if responsive data are being 
provided at separate times. In the latter case, the registered SDR 
should provide the reporting side with the transaction ID after the 
reporting side reports the information required by Rule 901(c). The 
reporting side would then include the transaction ID with its 
submission of data required by Rule 901(d), thereby allowing the 
registered SDR to match the Rule 901(c) report with the subsequent 
Rule 901(d) report.
---------------------------------------------------------------------------

    The Commission acknowledges the issues raised by the commenters 
regarding the proposed reporting timeframes, and, in particular, the 
concerns that unreasonably short reporting timeframes would result in 
the submission of inaccurate transaction information. The Commission 
believes that the 24-hour reporting timeframe being adopted in Rule 
901(j) strikes an appropriate balance, for the interim phase, between 
the need for prompt reporting of security-based swap transaction 
information and allowing

[[Page 14624]]

reporting entities sufficient time to develop fast and robust reporting 
capability. The Commission notes that some commenters supported a 24-
hour reporting timeframe as consistent with existing industry reporting 
capability,\544\ and believes that this timeframe addresses commenters' 
concerns that some elements of the required information might not be 
available within the initially proposed reporting timeframes.\545\
---------------------------------------------------------------------------

    \544\ See DTCC II at 12; MFA at 5.
    \545\ See Cleary II at 15-16.
---------------------------------------------------------------------------

    Finally, Rule 901(d)(2), as proposed and re-proposed, would have 
established reporting timeframes based on whether a security-based swap 
is executed and/or confirmed electronically. The term ``confirm'' 
appeared only in Rule 901(d)(2), as proposed and re-proposed.\546\ 
Because this term does not appear in Rule 901(d)(2), as adopted, the 
Commission has determined not to adopt a definition for the term 
``confirm'' in final Rule 900.\547\
---------------------------------------------------------------------------

    \546\ Rule 900(e), as re-proposed, defined ``confirm'' as ``the 
production of a confirmation that is agreed to by the parties to be 
definitive and complete and that has been manually, electronically, 
or, by some other legally equivalent means, signed.''
    \547\ One commenter suggested that the Commission use the term 
``issued,'' rather than ``confirm'' to better reflect existing 
market practice with respect to confirming the terms of a security-
based swap. See ISDA IV at 10. The deletion of the term ``confirm'' 
from Regulation SBSR, as adopted, addresses this concern.
---------------------------------------------------------------------------

4. Dissemination of Notional Amount
    The Commission is mindful of comments expressing concern about 
dissemination of the full notional amount for block trades.\548\ For 
example, two commenters expressed the view that disseminating the 
notional amount of a block trade could jeopardize the anonymity of the 
counterparties.\549\ One commenter, who noted that TRACE never requires 
the dissemination of the exact notional amount of block transactions, 
suggested that the Commission had not fully explained its rationale for 
not adopting this approach for security-based swaps.\550\ Numerous 
commenters supported dissemination of the notional amount of block 
trades through a ``masking'' or ``size plus'' convention comparable to 
that used by TRACE, in which transactions larger than a specified size 
would be reported as ``size plus.'' \551\
---------------------------------------------------------------------------

    \548\ See Cleary II at 13 (``we would recommend that the SEC 
gather further data on the costs and benefits of disclosing notional 
size before requiring such disclosure for all transactions''); ISDA/
SIFMA I at 5 (size of a block trade transaction should not be 
disclosed at any time); ISDA/SIFMA II at 8 (same); ISDA/SIFMA Block 
Trade Study at 26-27 (noting that reporting of notional amounts of 
block trades will hamper the execution of large-sized trades and 
recommending dissemination of capped volume information); Phoenix 
Letter at 3; SIFMA I at 5; UBS Letter at 2 (arguing actual notional 
amount of an illiquid security-based swap would provide information 
to the market about potential hedging activity); WMBAA II at 7 
(arguing that dissemination of the full notional amount could 
jeopardize the anonymity of counterparties to the trade).
    \549\ See WMBAA II at 7 (also noting that the result may be that 
counterparties are less willing to engage in large transactions); 
Phoenix Letter at 3 (stating that reporting block trades at the same 
time as non-block trades could jeopardize the anonymity of the block 
trade).
    \550\ See Cleary II at 13.
    \551\ See WMBAA II at 7; ISDA/SIFMA I at 5; ISDA/SIFMA Block 
Trade Study at 2, 26-27; Vanguard Letter at 5; Goldman Sachs Letter 
at 6; SIFMA I at 5; J.P. Morgan Letter at 12-13; MFA I at 4; MFA III 
at 8; UBS Letter at 2; FIA/FSF/ISDA/SIFMA Letter at 6; Phoenix 
Letter at 3; ISDA IV at 16.
---------------------------------------------------------------------------

    Under Rule 902(a), as adopted, a registered SDR is required to 
publicly disseminate (for all dissemination-eligible transactions 
\552\), immediately upon receipt of the transaction report, all of the 
elements required by Rule 901(c), including the true notional amount of 
the transaction (as opposed to a ``capped'' or ``bucketed'' notional 
amount). The Commission believes the T+24 hour approach during the 
interim phase should address commenters' concerns about disseminating 
the true notional amount of a transaction, including concerns about 
preserving the anonymity of counterparties.\553\ One commenter 
expressed concern about reporting blocks and non-blocks in the same 
timeframe, which, the commenter stated, would prevent market 
participants from being able to hedge the trade.\554\ The Commission 
believes that a 24-hour timeframe for reporting of transaction 
information should address any concerns about disseminating the true 
notional amount of any transaction and allow market participants who 
choose to hedge adequate time to accomplish a majority of their hedging 
activity before transaction data is publicly disseminated.\555\ During 
the interim phase when no transaction must be reported in less than 24 
hours after execution, the Commission will be able to collect and 
analyze transaction information to develop an understanding of how 
market participants are reacting to the introduction of mandated post-
trade transparency. The Commission expects to study, among other 
things, the frequency with which security-based swap market 
participants transact in non-standard notional amounts, and will 
attempt to observe whether the market reacts differently to last-sale 
prints of any non-standard sizes versus more conventional sizes. Based 
on such data and analysis, the Commission anticipates considering 
whether it may be appropriate to establish notional caps or rounding 
conventions in disseminated reports.
---------------------------------------------------------------------------

    \552\ See Rule 902(c) (requiring that certain types of security-
based swaps not be publicly disseminated).
    \553\ One commenter appears to agree generally with this 
approach. See J.P. Morgan Letter at 14 (`` `un-masked' trade-by-
trade notional amounts should eventually be disseminated . . . in 
order to facilitate analysis of market trends by market participants 
and the academic community'').
    \554\ See Phoenix Letter at 3.
    \555\ The Commission further notes that equity total return 
swaps are synthetic substitutes for positions in the underlying 
equity security or securities; therefore, the Commission believes 
that it would not be appropriate to allow masking for a synthetic 
substitute when there is no masking exceptions to public 
dissemination in the cash equities markets.
---------------------------------------------------------------------------

5. Analysis Period
    As discussed in Section XXII(C)(3)(a), infra, during the interim 
phase, the Commission will have access to more useful data about how 
different security-based swap trades of different sizes and with 
different reporting delays might be affecting subsequent behavior in 
the market, as well as any additional data and analysis that might be 
submitted by third parties.\556\ Furthermore, once implemented, 
reporting sides will be required under Regulation SBSR to submit their 
security-based swap execution times to a registered SDR. As noted 
above, security-based swap transaction data currently stored in DTCC-
TIW includes the time of reporting but not the time of the 
execution.\557\ Having the execution time instead of only the reporting 
time will allow a more robust and granular analysis of any hedging that 
may or may not occur within the first 24-hour period after execution.
---------------------------------------------------------------------------

    \556\ See ICI II at 7 (``We also support the SEC re-opening for 
comment certain issues related to block trades--such as the required 
time delays--in connection with the future SEC proposal regarding 
how to define block trades'').
    \557\ See Hedging Analysis at 5.
---------------------------------------------------------------------------

    The Commission is directing its staff to use data collected during 
the interim phase to publish a report for each asset class of security-
based swaps assessing the impact of post-trade transparency on that 
asset class. The Appendix to Rule 901 of Regulation SBSR sets forth the 
guidelines for these reports, which must be completed no later than two 
years following the initiation of public dissemination of SBS 
transaction data by the first registered SDR in each asset class.\558\
---------------------------------------------------------------------------

    \558\ See infra Section XXII(C)(3)(a) (describing the importance 
of conducting additional data analysis during the interim phase).
---------------------------------------------------------------------------

    The completion of the staff's report for an asset class will mark 
the beginning of an analysis period, during which the Commission 
anticipates

[[Page 14625]]

considering the report, any public comments received on the report, and 
any other relevant data and information, including the Commission's 
original proposal to define ``real time'' in the context of Section 
13(m) of the Exchange Act to mean ``as soon as technologically 
practicable, but in no event later than 15 minutes after the time of 
execution of a security-based swap transaction.'' \559\ Based on this 
analysis, the Commission anticipates that it will prepare a proposal 
that would address, among other things: (1) The criteria for 
determining what constitutes a large notional security-based swap 
transaction (block trade) for particular markets and contracts; and (2) 
the appropriate time delay for disseminating large notional security-
based swap transactions (block trades) to the public.\560\ The 
Commission believes that the approach of studying security-based swap 
market activity once post-trade transparency is implemented, but before 
adopting block trade rules, accords with the recommendations of several 
commenters.\561\
---------------------------------------------------------------------------

    \559\ See Regulation SBSR Proposing Release, 75 FR 75284.
    \560\ See 15 U.S.C. 78m(m)(1)(E)(ii)-(iii). The Commission 
anticipates that these proposed rules also would address certain 
issues raised by commenters during the comment period for Regulation 
SBSR. For example, several commenters proposed calculation 
methodologies for block trade thresholds. See, e.g., Goldman Sachs 
Letter at 4-6; ISDA/SIFMA I at 4; Better Markets I at 6; WMBAA II at 
3; ISDA/SIFMA Block Trade Study at 26; Cleary II at 14 (supporting 
various tests or methodologies for establishing block trade 
thresholds). Commenters suggested various approaches for how often 
block thresholds should be updated. See ISDA/SIFMA I at 5 (stating 
that block trade thresholds should be updated at least every three 
months because liquidity in the OTC markets may change quickly); 
ISDA/SIFMA II at 8 (stating that the block trading exemption rules 
should be updated quarterly); ISDA/SIFMA Block Trade Study at 2 
(stating that the reporting rules should be re-evaluated regularly 
to ensure that they reflect the changing characteristics of the 
market); ICI I at 3 (stating that block trade thresholds would need 
to be reviewed more than once a year to remain meaningful); WMBAA II 
at 5 (recommending that block trade thresholds be updated at 
appropriate intervals); MFA III at 8 (stating that an SB SEF's swap 
review committee should periodically determine what constitutes a 
``block'' for each security-based swap or security-based swap class 
that the SF SEF trades). See also Barclays Letter at 5 (generally 
supporting a 30-calendar-day look-back for determining block size 
thresholds).
    \561\ See Institutional Investors Letter at 4 (recommending that 
the CFTC collect market data for one year before adopting rules 
relating to block trades); MFA II, Recommended Timeline at 4; WMBAA 
III at 6; FIA/FSF/ISDA/SIFMA Letter at 6 (appropriate block trade 
thresholds, and therefore real-time reporting requirements, can be 
established only after the commencement of SDR reporting to 
regulators and careful analysis of security-based swap market 
transaction data). This approach is also broadly consistent with the 
implementation of the TRACE system, which shortened reporting 
requirements over time. Several commenters recommended a phased 
reporting approach analogous to TRACE. See CCMR I at 2; Cleary II at 
20; DTCC II at 9-10; FINRA Letter at 4-5; ISDA/SIFMA I at 10; ISDA/
SIFMA Block Trade Study at 2; UBS Letter at 2-3; WMBAA II at 5.
---------------------------------------------------------------------------

VIII. Reporting and Public Dissemination of Security-Based Swaps 
Involving Allocation

    This section explains the application of Regulation SBSR to certain 
security-based swaps executed by an asset manager on behalf of multiple 
clients--transactions involving what are sometimes referred to as 
``bunched orders.'' \562\ To execute a bunched order, an asset manager 
negotiates and executes a security-based swap with a counterparty, 
typically a security-based swap dealer, on behalf of multiple clients. 
The bunched order could be executed on- or off-platform. The asset 
manager would allocate a fractional amount of the aggregate notional 
amount of the transaction to each client, either at the time of 
execution or some time after execution. Allocation results in the 
termination of the executed bunched order and the creation of new 
security-based swaps between the security-based swap dealer and the 
accounts managed by the asset manager.\563\ By executing a bunched 
order, the asset manager avoids having to negotiate the account-level 
transactions individually, and obtains exposure for each account on the 
same terms (except, perhaps, for size).
---------------------------------------------------------------------------

    \562\ The Commission recognizes that market participants may use 
a variety of other terms to refer to such transactions, including 
``blocks,'' ``parent/child'' transactions, and ``splits.'' The 
Commission has determined to use a single term, ``bunched orders,'' 
for purposes of this release, as this appears to be a widely 
accepted term. See, e.g., ``Bunched orders challenge SEFs,'' 
MarketsMedia (March 25, 2014), available at http://marketsmedia.com/bunched-orders-challenge-sefs/ (last visited September 22, 2014); 
``Cleared bunched trades could become mandatory rule,'' Futures and 
Options World (October 31, 2013) (available at http://www.fow.com/3273356/Cleared-bunched-trades-could-become-mandatory-rule.html 
(last visited September 22, 2014).
    \563\ In aggregate, the notional amount of the security-based 
swaps that result from the allocation is the same as the notional 
amount of the executed bunched order.
---------------------------------------------------------------------------

A. Discussion of Comments Received and Application of Regulation SBSR

    In response to the Regulation SBSR Proposing Release, one commenter 
stated that asset managers commonly use bunched orders and allocations 
in the OTC derivatives market, and recommended that publicly 
disseminating the execution of a bunched order--without the allocation 
information--would satisfy the transparency objective of Title VII and 
be consistent with TRACE reporting.\564\ The commenter also expressed 
the view that the reporting party for a bunched order execution should 
be obligated to report allocation information, which would be necessary 
to indicate the final placement of risk derived from the initial 
trade.\565\ The discussion below explains how Regulation SBSR's 
regulatory reporting and public dissemination requirements apply to 
executed bunched orders that are subject to the reporting hierarchy in 
Rule 901(a)(2)(ii) and the security-based swaps that result from the 
allocation of these transactions, to the extent that the resulting 
security-based swaps are not cleared. The Regulation SBSR Proposed 
Amendments Release is proposing guidance for reporting platform-
executed bunched orders that will be submitted to clearing and 
security-based swaps that result from the allocation of a bunched order 
if the resulting security-based swaps are cleared.
---------------------------------------------------------------------------

    \564\ See ISDA/SIFMA I at 7-8. See also ISDA IV at 10, 13 
(asserting that the bunched order execution could be disseminated 
publicly, but that post-allocation activities should be excluded 
from public dissemination).
    \565\ See id. at 8.
---------------------------------------------------------------------------

    Regulation SBSR requires bunched order executions to be reported 
like other security-based swaps. The reporting side for a bunched order 
execution subject to the reporting hierarchy in Rule 901(a)(2)(ii) 
\566\ must report the information required by Rules 901(c) and 901(d) 
for the bunched order execution, including the notional amount of the 
bunched order execution, to a registered SDR.\567\ The information 
described in final Rule 901(c) will be publicly disseminated under 
final Rule 902(a), like any other security-based swap transaction that 
does not fall within the enumerated exceptions to public dissemination 
in Rule 902(c).\568\ The Commission believes that it is appropriate to 
enhance price discovery, and thus consistent with the statutory 
provisions governing public dissemination of security-based swaps, to 
require public dissemination of a single transaction report showing the 
aggregate notional amount of the bunched order execution (i.e., the 
size

[[Page 14626]]

prior to allocation).\569\ The public thereby will know the full size 
of the bunched order execution and that this size was negotiated at a 
single price. The reporting side for a bunched order execution also 
must report life cycle events for the bunched order execution--
including the termination of the executed bunched order that result 
from its allocation--to the registered SDR that receives the initial 
report of the transaction.
---------------------------------------------------------------------------

    \566\ See supra Section V. A bunched order execution will be 
subject to this reporting hierarchy unless it is executed on a 
platform and submitted to clearing.
    \567\ Rule 901(d)(1) requires the reporting side for a security-
based swap to report ``the counterparty ID or the execution agent ID 
of each counterparty, as applicable.'' The Commission notes that an 
asset manager acts as an execution agent for the clients that 
receive allocations of an executed bunched order.
    \568\ See supra Section VI.
    \569\ See 15 U.S.C. 13(m)(1)(B) (authorizing the Commission to 
make security-based swap transaction and pricing data available to 
the public ``in such form and at such times as the Commission 
determines appropriate to enhance price discovery'').
---------------------------------------------------------------------------

    When a bunched order execution is allocated, new security-based 
swaps are created that must be reported to a registered SDR pursuant to 
Rule 901(a). To clarify that point, the introductory language to final 
Rule 901(a) states that a ``security-based swap, including a security-
based swap that results from the allocation, termination, novation, or 
assignment of another security-based swap, shall be reported'' as 
provided in the rest of the rule.\570\ Reporting of the security-based 
swaps resulting from the allocation of a bunched order execution should 
assure that the Commission and other relevant authorities know the 
final placement of risk that results from the bunched order 
execution.\571\ As with any other security-based swap, the reporting 
side for a security-based swap resulting from an allocation is 
determined by Rule 901(a). Also, as with any other security-based swap, 
the reporting side must make the required report within 24 hours of the 
time that the new security-based swap is created--not within 24 hours 
of the time of execution of the original bunched order.\572\ Under Rule 
901(d)(10), the reporting side for a security-based swap resulting from 
an allocation must report the transaction ID of the executed bunched 
order as part of the report of the new security-based swap.\573\ This 
requirement will allow the Commission and other relevant authorities to 
link a report of a bunched order execution to the smaller security-
based swaps that result from the allocation of the bunched order 
execution. Because these related transactions can be linked across 
registered SDRs using the transaction ID of the bunched order 
execution, the Commission believes that it is not necessary or 
appropriate to require that the security-based swaps resulting from the 
allocation be reported to the same registered SDR that received the 
transaction report of the original transaction.
---------------------------------------------------------------------------

    \570\ See supra Section V(C)(5).
    \571\ As stated above, allocation also results in the 
termination of the bunched order execution, which is a life cycle 
event of the original transaction. This life cycle event must be 
reported, in accordance with Rule 901(e), to the registered SDR that 
receives the report of the original bunched order execution.
    \572\ If 24 hours after the time of allocation would fall on a 
day that is not a business day, the report of the security-based 
swaps resulting from the allocation would be due by the same time on 
the next day that is a business day. See Rule 901(j). One commenter 
requested that Regulation SBSR reflect that the timeframe for 
reporting security-based swaps resulting from a bunched order 
execution commence upon receipt of the identity of the 
counterparties to the bunched order execution by the reporting party 
during its own business hours. See ISDA IV at 10. The Commission 
believes that the requirement that the reporting side make the 
required report within 24 hours of the time that the new security-
based swap is created is responsive to this comment.
    \573\ Rule 901(d)(10), as adopted, provides that, if a 
``security-based swap arises from the allocation, termination, 
novation, or assignment of one or more existing security-based 
swaps,'' the reporting side must report ``the transaction ID of the 
allocated, terminated, assigned, or novated security-based 
swap(s),'' subject to one exception that would not apply to an 
allocation that is not submitted for clearing.
---------------------------------------------------------------------------

    The Commission agrees with the commenters who recommended that 
publicly disseminating the execution of a bunched order--without the 
allocation information--would satisfy the transparency objective of 
Title VII.\574\ Therefore, Regulation SBSR does not require a 
registered SDR to publicly disseminate reports of the new security-
based swaps that result from an allocation. In fact, as described 
above, Rule 902(c)(7), as adopted, prohibits a registered SDR from 
disseminating ``[a]ny information regarding the allocation of a 
security-based swap.'' \575\ This approach also accords with the 
recommendation of the commenter who urged that the aggregate notional 
amount prior to allocation be disseminated, rather than the individual 
transaction sizes, in order to preserve anonymity of the asset manager 
and its clients.\576\
---------------------------------------------------------------------------

    \574\ See ISDA/SIFMA I at 7-8; ISDA IV at 10, 13.
    \575\ See supra Section VI(D).
    \576\ See MFA I at 2-3 (``Counterparties are often aware of an 
investment manager's standard fund allocation methodology and 
therefore, reporting transactions at the allocated level . . . will 
make evident an allocation scheme that other participants can easily 
associate with a particular investment manager'').
---------------------------------------------------------------------------

    The Commission notes that Rule 907(a)(1), as adopted, requires a 
registered SDR to establish and maintain policies and procedures that, 
among other things, enumerate the specific data elements of a security-
based swap that must be reported. Registered SDRs should consider 
describing, as part of these policies and procedures, the means by 
which persons with a duty to report bunched order executions--and the 
new security-based swaps that result from the allocation--must report 
the information required by Rules 901(c) and 901(d).

B. Example: Reporting and Public Dissemination for an Uncleared Bunched 
Order Execution

    The following example demonstrates how Regulation SBSR applies to a 
bunched order execution that will not be cleared and the security-based 
swaps that result from the allocation of that bunched order execution. 
Assume that an asset manager, acting on behalf of several investment 
fund clients, executes a bunched order with a registered security-based 
swap dealer. Assume that the transaction is not submitted to clearing 
and there are no indirect counterparties on either side. The execution 
of the bunched order could occur either on a platform or not.
1. Reporting the Executed Bunched Order
    Under Rule 901(a)(2)(ii), as adopted, the registered security-based 
swap dealer is the reporting side for the bunched order execution 
because only one side of the transaction includes a registered 
security-based swap dealer. Under final Rules 901(c) and 901(d), the 
registered security-based swap dealer has up to 24 hours after the time 
of execution of the bunched order to report all applicable primary and 
secondary trade information to a registered SDR. The registered 
security-based swap dealer must report the entire notional amount of 
the executed bunched order as part of the Rule 901(c) primary trade 
information.\577\ Rule 902(a) requires the registered SDR to publicly 
disseminate a single last-sale print showing the aggregate notional 
amount of the bunched order execution immediately upon receiving the 
report from the registered security-based swap dealer.
---------------------------------------------------------------------------

    \577\ See Rule 901(c)(4) (requiring reporting of the notional 
amount of a security-based swap and the currency in which the 
notional amount is denominated).
---------------------------------------------------------------------------

 2. Reporting the Allocations
    Regulation SBSR also requires reporting to a registered SDR of the 
security-based swaps that result from allocation of the bunched order 
execution.\578\ As the reporting side for the executed bunched order, 
the registered security-based swap dealer must make a life cycle event 
report, in accordance with Rule 901(e), to notify the registered SDR 
that received the report of the executed bunched order

[[Page 14627]]

that the trade has been allocated, which terminates the security-based 
swap. Pursuant to Rule 901(a)(2)(ii), the registered security-based 
swap dealer also is the reporting side for each security-based swap 
resulting from allocation of the bunched order execution because only 
one side of the transaction includes a registered security-based swap 
dealer.\579\ If the asset manager provides the allocation information 
to the registered security-based swap dealer prior to or 
contemporaneous with the bunched order execution, the registered 
security-based swap dealer could report the bunched order execution and 
the security-based swaps that result from its allocation to a 
registered SDR at the same time.\580\ If the asset manager does not 
provide the allocation information to the registered security-based 
swap dealer until some time after execution of the bunched order, the 
registered security-based swap dealer must report each security-based 
swap resulting from the allocation within 24 hours of the allocation. 
In either case, the reports of the security-based swaps resulting from 
the allocation of the bunched order execution must include the 
counterparty IDs of each investment fund and the notional amount of 
each security-based swap resulting from the allocation. In either case, 
Rule 901(d)(10) requires each report of a security-based swap resulting 
from the allocation to include the transaction ID of the bunched order 
execution so that the Commission and other relevant authorities will 
have the ability to link each resulting transaction with the initial 
bunched order execution.
---------------------------------------------------------------------------

    \578\ See Rule 901(a) (requiring that a security-based swap, 
``including a security-based swap that results from the allocation, 
termination, novation, or assignment of another security-based swap 
shall be reported'' as provided in the rest of the rule).
    \579\ The Commission assumes that the investment funds would not 
be registered security-based swap dealers for purposes of these 
examples.
    \580\ Even though the reports could be made at the same time, 
Rule 901(a) requires a report of a bunched order execution and an 
associated allocation to be maintained as separate records by a 
registered SDR because the execution of the bunched order and the 
allocations are separate reportable security-based swap 
transactions.
---------------------------------------------------------------------------

IX. Inter-Affiliate Security-Based Swaps

A. Background and Summary of Final Rule

    Regulation SBSR, as initially proposed, did not contemplate any 
exception from reporting for inter-affiliate security-based swaps. In 
the Regulation SBSR Proposing Release, the Commission expressed the 
preliminary view that a report of an inter-affiliate security-based 
swap should be publicly disseminated with an indicator identifying the 
transaction as an inter-affiliate security-based swap.\581\ The 
Commission noted that, for such transactions, ``there might not be an 
arm's length negotiation over the terms of the [security-based swap] 
transaction, and disseminating a report of the transaction without 
noting that fact would be inimical to price discovery.'' \582\ Rule 
907(a)(4), as proposed, would have required a registered SDR to 
establish and maintain written policies and procedures describing, 
among other things, how reporting parties would report--and consistent 
with the enhancement of price discovery, how the registered SDR would 
publicly disseminate--security-based swap transactions that do not 
involve an opportunity to negotiate any material terms, other than the 
counterparty.\583\
---------------------------------------------------------------------------

    \581\ See 75 FR 75214-15.
    \582\ Id. at 75215.
    \583\ See id. at 75237.
---------------------------------------------------------------------------

    The Commission received several comments regarding inter-affiliate 
security-based swaps in response to the Regulation SBSR Proposing 
Release and discussed those comments in the Cross-Border Proposing 
Release.\584\ Although the Cross-Border Proposing Release did not 
propose to revise any portion of Regulation SBSR with regard to the 
treatment of inter-affiliate security-based swaps, the Commission 
provided some preliminary thoughts on how Regulation SBSR could be 
applied to them, particularly as regards to public dissemination, in a 
manner that could address commenters' concerns without taking the step 
of suppressing all inter-affiliate transactions from public 
dissemination.\585\ In response to the Cross-Border Proposing Release, 
the Commission received additional comments, described below, regarding 
the application of Regulation SBSR to inter-affiliate security-based 
swaps.
---------------------------------------------------------------------------

    \584\ See 78 FR 31069-72.
    \585\ See id. at 31071-72.
---------------------------------------------------------------------------

    Regulation SBSR, as adopted, applies to all security-based swaps, 
including inter-affiliate security-based swaps. The Commission has 
considered, but is not adopting, any exemption from Regulation SBSR's 
regulatory reporting or public dissemination requirements for inter-
affiliate security-based swaps. Therefore, Rules 901(c) and 901(d) 
require reporting of inter-affiliate security-based swaps; Rule 901(i) 
requires reporting of historical inter-affiliate security-based swaps; 
and Rule 902 requires public dissemination of inter-affiliate security-
based swaps. Furthermore, Rule 907(a)(4) requires a registered SDR to 
establish and maintain policies and procedures that, among other 
things, identify characteristics of or circumstances associated with 
the execution or reporting of a security-based swap that could, in the 
fair and reasonable estimation of the registered SDR, cause a person 
without knowledge of such characteristics or circumstances to receive a 
distorted view of the market. As discussed in Section VI(G), supra, the 
Commission generally believes that a registered SDR should establish a 
flag for inter-affiliate security-based swaps to help market observers 
better understand the information that is publicly disseminated.

B. Discussion of Comments

1. Regulatory Reporting of Inter-Affiliate Security-Based Swaps
    Most of the comments relating to inter-affiliate security-based 
swaps, in response to both the initial proposal and the Cross-Border 
Proposing Release (which re-proposed Regulation SBSR in its entirety), 
pertained to public dissemination. However, one commenter stated that, 
because inter-affiliate transactions should not be publicly 
disseminated, it also should be unnecessary to ``collect'' information 
about them.\586\ Another commenter on the Regulation SBSR Proposing 
Release argued that, for a foreign entity registered as a bank holding 
company and subject to the consolidated supervision of the Federal 
Reserve System, the reporting of inter-affiliate transactions would be 
superfluous because the Federal Reserve has ``ample authority to 
monitor transactions among affiliates,'' \587\ suggesting that even 
regulatory reporting of inter-affiliate security-based swaps should not 
be necessary.\588\ In the Cross-Border Proposing Release, the 
Commission specifically asked whether commenters believed that cross-
border inter-affiliate security-based swaps should be excluded from the 
regulatory reporting requirements of Regulation SBSR and, if so, under 
what circumstances such security-based swaps should be excluded.\589\ 
No commenters on the Cross-Border Proposing Release responded to this 
particular question pertaining to regulatory reporting.
---------------------------------------------------------------------------

    \586\ Cravath Letter at 9.
    \587\ Japanese Banks Letter at 5.
    \588\ See also Multiple Associations IV at 6 (stating that 
``many of the transaction-based requirements in Title VII, such as . 
. . trade reporting rules, generally do not further legislative or 
regulatory purposes when applied to inter-affiliate swaps,'' but 
without specifying whether the comment was with respect to 
regulatory reporting, public dissemination, or both).
    \589\ See 78 FR 31072.

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[[Page 14628]]

    The Commission continues to believe that the Commission and other 
relevant authorities should have ready access to information about the 
specific counterparties that hold positions in all security-based swaps 
subject to Regulation SBSR. While it is true that the Federal Reserve 
or perhaps another relevant authority might exercise consolidated 
supervision over a group, such supervision might not provide the 
Commission and other relevant authorities with current and specific 
information about security-based swap positions held by the group's 
subsidiaries. As a result, it would likely be more difficult for 
relevant authorities to conduct general market analysis or surveillance 
of market behavior, and could present difficulties during a crisis, 
when ready access to accurate and timely information about specific 
risk exposures might be crucial. Furthermore, the statutory provisions 
that require regulatory reporting of security-based swap transactions 
state that ``each'' security-based swap shall be reported; these 
statutory provisions do not by their terms limit the reporting 
requirement to transactions having particular characteristics (such as 
being negotiated at arm's length).\590\ Even absent these constraints, 
for the reasons described above, the Commission does not believe that 
an exemption from regulatory reporting for these transactions would be 
appropriate. Therefore, Regulation SBSR subjects inter-affiliate 
security-based swaps to regulatory reporting.\591\
---------------------------------------------------------------------------

    \590\ Section 13A(a)(1) of the Exchange Act, 15 U.S.C. 78m-
1(a)(1), provides that each security-based swap that is not accepted 
for clearing shall be subject to regulatory reporting. Section 
13(m)(1)(G) of the Exchange Act, 15 U.S.C. 78m(m)(1)(G), provides 
that each security-based swap (whether cleared or uncleared) shall 
be reported to a registered SDR.
    \591\ In addition, one group of commenters acknowledged that ``a 
number of rules that apply to the core operations of a registered 
entity will perforce apply to such entity's inter-affiliate swap 
transactions and could further Dodd-Frank policy purposes.'' 
Multiple Associations Letter at 9. These commenters stated that 
inter-affiliate transactions would need to be taken into account in 
calculating an entity's capital requirements, and that internal 
recordkeeping requirements are essential to the oversight of the 
security-based swap business. See id. The Commission notes that 
regulatory reporting of all security-based swaps, including inter-
affiliate security-based swaps, will assist the Commission and other 
relevant authorities in overseeing compliance with these capital and 
recordkeeping requirements, as the regulatory report of an entity's 
security-based swap activity could provide an external check of the 
internal records of such entities' positions and activities.
---------------------------------------------------------------------------

2. Public Dissemination of Inter-Affiliate Security-Based Swaps
    As discussed below, some commenters raised concerns regarding the 
public dissemination of inter-affiliate security-based swaps. After 
carefully considering the issues raised by these commenters, the 
Commission has determined to adopt Regulation SBSR with no exemption 
from the public dissemination requirements for inter-affiliate 
security-based swaps.
    As a preliminary matter, the Commission notes that, once a 
security-based swap transaction has been reported to a registered SDR, 
the counterparties assume no additional burdens associated with public 
dissemination of the transaction. That function will be carried out 
solely by the registered SDR. Thus, requiring registered SDRs to 
publicly disseminate security-based swaps, including inter-affiliate 
security-based swaps, will not increase the compliance burden on 
security-based swap counterparties.
    One commenter argued that inter-affiliate security-based swaps 
should not be subject to public dissemination because ``public 
reporting could confuse market participants with irrelevant 
information'' and suggested that ``the Commissions collect data on 
these transactions but not require dissemination to the public at 
large.'' \592\ Another commenter stated that an inter-affiliate 
transaction ``does not contain any additional price information beyond 
that contained in the transaction with the customer.'' \593\ One group 
of commenters argued that publicly disseminating inter-affiliate 
transactions ``will distort the establishment of position limits, 
analysis of open interest, determinations of block trade thresholds and 
performance of other important regulatory analysis, functions and 
enforcement activities that require an accurate assessment of the 
[security-based] swaps market.'' \594\ These commenters stated, 
further, that inter-affiliate security-based swaps ``could be required 
to be publicly reported in multiple jurisdictions, even though they are 
not suitable for reporting in any jurisdiction.'' \595\
---------------------------------------------------------------------------

    \592\ Cleary II at 17. See also SIFMA/FIA/Roundtable Letter at 
A-44 (stating that ``real-time reporting of inter-affiliate 
[security-based swaps] . . . would distort market information and 
thus have a detrimental market and commercial impact'').
    \593\ ISDA/SIFMA I at 13. See also ISDA IV at 13 (recommending 
that inter-affiliate trades should not be subject to public 
dissemination).
    \594\ Multiple Associations Letter at 11-12. See also ISDA I at 
5 (stating, in the context of pre-enactment security-based swaps, 
that inter-affiliate security-based swaps should not be subject to 
reporting).
    \595\ Multiple Associations Letter at 16.
---------------------------------------------------------------------------

    An accurate assessment of the security-based swap market will be 
necessary for a wide range of functions, potentially including--as 
noted by this group of commenters--analysis of open interest and the 
establishment of block trade thresholds.\596\ The Commission believes 
that users of security-based swap market data--whether regulators, 
SDRs, market participants, or the public at large--should have an 
accurate and undistorted view of the market. However, it does not 
follow that public dissemination of inter-affiliate security-based 
swaps will necessarily prevent an accurate assessment of the security-
based swap market.
---------------------------------------------------------------------------

    \596\ See id. at 11-12.
---------------------------------------------------------------------------

    The need to distinguish reports of initial transactions from 
subsequent inter-affiliate transactions exists whether or not the 
latter are publicly disseminated. As noted above, the Commission is 
requiring each registered SDR to adopt, among others, policies and 
procedures for flagging transaction reports that have special 
circumstances.\597\ This flagging mechanism is designed to provide 
regulators with a more accurate view of the security-based swap market, 
and the same mechanism can be applied to publicly disseminated last-
sale reports to give market observers the same view. The Commission 
continues to believe that the commenters' concerns about the 
potentially limited price discovery value of inter-affiliate security-
based swaps can be addressed through the public dissemination of 
relevant data that flags such limitations, rather than suppressing 
these transactions from public dissemination entirely. Additionally, 
even if the report of an initial security-based swap transaction has 
been publicly disseminated in another jurisdiction, the Commission 
believes that it would be preferable to disseminate a report of the 
subsequent inter-affiliate transaction with an appropriate condition 
flag rather than suppressing a report of the inter-affiliate

[[Page 14629]]

transaction from public dissemination through a registered SDR. Public 
dissemination of such a transaction by a registered SDR would help to 
assure that information concerning the transaction was readily 
available to participants in the U.S. market and other market 
observers.
---------------------------------------------------------------------------

    \597\ These policies and procedures could address not only 
reporting of whether a security-based swap is an inter-affiliate 
transaction, but also whether the initial security-based swap was 
executed in a jurisdiction with public dissemination requirements. 
This could be either the United States or another jurisdiction that 
imposes last-sale transparency requirements similar to those in 
Regulation SBSR. Further, these policies and procedures also could 
address whether to indicate the approximate time when the initial 
security-based swap was executed. For example, there could be 
condition flags for the initial security-based swap having been 
executed within the past 24 hours, between one and seven days 
before, or longer than seven days before. An indication that the 
initial trade was executed less than 24 hours before could provide 
significant price discovery value, while an indication that the 
initial trade was executed over a week before could, all things 
being equal, have less. However, even information about a trade 
executed over a week ago (or more) could have price discovery value 
for security-based swaps that trade infrequently.
---------------------------------------------------------------------------

    One group of commenters argued that ``use of inter-affiliate 
[security-based swaps] not only allows risks to reside where they are 
more efficiently managed, but it also has a net positive effect on an 
institution's assets and liquidity, as well as on its efficiency in 
deploying capital. For these reasons, we believe that there should be 
an inter-affiliate exemption from the public dissemination 
requirements.'' \598\ Another commenter raised similar concerns, 
arguing that ``public reporting of inter-affiliate transactions could 
seriously interfere with the internal risk management practices of a 
corporate group'' and that ``[p]ublic disclosure of a transaction 
between affiliates could prompt other market participants to act in a 
way that would prevent the corporate group from following through with 
its risk management strategy by, for instance, causing adverse price 
movements in the market that the risk-carrying affiliate would use to 
hedge.'' \599\ The Commission agrees generally that corporate groups 
should engage in appropriate risk management practices. However, the 
Commission does not agree that Regulation SBSR, as adopted, is inimical 
to effective risk management. The Commission notes that, during the 
first phase of Regulation SBSR, all security-based swaps--regardless of 
size--must be reported within 24 hours from the time of execution and--
except with regard to transactions falling within Rule 902(c)--
immediately publicly disseminated. As discussed in Section VII, supra, 
this reporting timeframe is designed, in part, to minimize any 
potential for market disruption resulting from public dissemination of 
any security-based swap transaction during the interim phase of 
Regulation SBSR. The Commission anticipates that, during the interim 
period, it will collect and analyze data concerning the sizes of 
transactions that potentially affect liquidity in the market. If the 
Commission ultimately determines that some form of block trade 
exception to real-time public dissemination is appropriate, an inter-
affiliate security-based swap of block size would be able to avail 
itself of that exception. The Commission sees no basis for concluding, 
at this time, that inter-affiliate security-based swaps are more 
difficult to hedge than other types of security-based swaps, or that 
the hedging of these transactions presents unique concerns that would 
not also arise in connection with the hedging of a security-based swap 
that was not an inter-affiliate transaction. Therefore, the Commission 
does not agree with the commenters' concern that public dissemination 
of inter-affiliate security-based swaps will impede the ability of 
corporate groups to hedge.
---------------------------------------------------------------------------

    \598\ SIFMA/FIA/Roundtable Letter at A-44.
    \599\ Cleary II at 17.
---------------------------------------------------------------------------

    Another group of commenters argued that ``affiliates often enter 
into these swaps on terms linked to an external trade being hedged. If 
markets have moved before the inter-affiliate trade is entered into on 
the SEF or reported as an off-exchange trade, market participants could 
also misconstrue the market's true direction and depth.'' \600\ This 
comment suggests that last-sale reports of transactions that appear out 
of the order in which the transactions in fact occurred could mislead 
market observers. The Commission shares this concern but does not 
conclude that the appropriate response is to suppress all inter-
affiliate transactions from public dissemination. The Commission 
believes instead that this issue can be addressed by requiring the 
dissemination of the date and time of execution on the last-sale 
report.\601\ This requirement is designed to allow market observers to 
construct a time-sequenced record of all transactions in the security-
based swap market and thereby counteract the possibility that certain 
transactions could be reported and publicly disseminated out of the 
order in which they were in fact executed.
---------------------------------------------------------------------------

    \600\ See Multiple Associations Letter at 12.
    \601\ See Rule 901(c)(2).
---------------------------------------------------------------------------

    Some commenters stated that inter-affiliate security-based swaps 
``are typically risk transfers with no market impact.'' \602\ This 
statement does not exclude the possibility that some inter-affiliate 
security-based swaps might have a market impact. The Commission sees no 
basis to conclude at this time that inter-affiliate security-based 
swaps do not provide price discovery value or other useful information 
to market observers. Market observers might be able to discern useful 
information from the last-sale reports of some inter-affiliate 
security-based swaps, and the Commission believes that market observers 
should be given the opportunity to do so--particularly given the Title 
VII mandate that all security-based swaps shall be publicly 
disseminated. The value of this information to market observers is 
unknown at this time, because market observers have never before had 
the opportunity to view comprehensive last-sale information from the 
security-based swap market. Suppressing all inter-affiliate security-
based swaps from public dissemination would eliminate any potential 
that market observers could develop ways to utilize this information. 
Thus, under the final rules, market observers who wish to evaluate the 
entire record of transactions, including inter-affiliate transactions, 
will have the opportunity to do so. As discussed above, the Commission 
disagrees with the commenters who argued that ``[r]equiring real-time 
reporting of inter-affiliate [security-based swaps] . . . would distort 
market information and thus have a detrimental market and commercial 
impact.'' \603\ Because such transactions will be flagged, market 
observers can simply--if they wish--remove from their analysis any 
transactions having an inter-affiliate flag.
---------------------------------------------------------------------------

    \602\ SIFMA/FIA/Roundtable Letter at A-44; Multiple Associations 
Letter at 11 (emphasis added).
    \603\ SIFMA/FIA/Roundtable Letter at A-44.
---------------------------------------------------------------------------

    The Commission sees one circumstance where public dissemination of 
an inter-affiliate transaction could have significant price discovery 
value: When the initial transaction is effected in a foreign 
jurisdiction without a public dissemination requirement and is not 
otherwise subject to public dissemination under Regulation SBSR, and 
the subsequent inter-affiliate transaction--between one of the original 
counterparties and one of its affiliate--would be publicly disseminated 
if it fell within Rule 908(a)(1). Commenters' views that public 
dissemination of an inter-affiliate transaction would be duplicative 
and distorting are premised on the view that the initial transaction 
is, in fact, publicly disseminated, which may not always be the 
case.\604\ Therefore, public dissemination of the subsequent inter-
affiliate transaction might be the only way for the market to obtain 
any pricing information about the related pair of transactions.\605\ In 
the Cross-Border Proposing Release, the Commission specifically noted 
this

[[Page 14630]]

circumstance and requested comment on it.\606\ No commenters responded.
---------------------------------------------------------------------------

    \604\ See Multiple Associations Letter at 12 (``The market-
facing swaps already will have been reported and therefore, to 
require that inter-affiliate swaps also be reported will duplicate 
information'').
    \605\ In addition, even if the initial transaction is publicly 
disseminated, the Commission does not believe that publicly 
disseminating the second, inter-affiliate transaction would cause 
observers to obtain a distorted view of the market, as long as the 
second transaction is flagged as an inter-affiliate transaction. See 
supra Section VI(G).
    \606\ See 78 FR 31072.
---------------------------------------------------------------------------

    Finally, one commenter on the Cross-Border Proposing Release argued 
that the Commission should propose a comprehensive rule regarding 
inter-affiliate security-based swaps ``before finalizing the 
substantive underlying rules governing the SBS markets.'' \607\ The 
commenter reasoned that ``a separate proposed rule, like the Cross-
Border Proposal, is necessary to ensure that market participants are 
accorded sufficient opportunity to comment on the interplay between the 
Commission's proposed rules and inter-affiliate trades.'' \608\
---------------------------------------------------------------------------

    \607\ SIFMA/FIA/Roundtable Letter at A-28.
    \608\ Id. at A-30.
---------------------------------------------------------------------------

    The Commission notes that Regulation SBSR, as initially proposed, 
did not contemplate any exception for inter-affiliate security-based 
swaps, and the Regulation SBSR Proposing Release discussed at various 
points how proposed Regulation SBSR would apply to inter-affiliate 
transactions.\609\ The Commission received comments regarding the 
reporting of inter-affiliate transactions in response to both the 
Regulation SBSR Proposing Release and the Cross-Border Proposing 
Release. Commenters on the Cross-Border Proposing Release's discussion 
of the application of Regulation SBSR to inter-affiliate security-based 
swaps did not raise any new issues that had not already been raised in 
response to the Regulation SBSR Proposing Release. In addition, as 
noted above, the Commission discussed in the Cross-Border Proposing 
Release the comments regarding inter-affiliate transactions submitted 
in response to the Regulation SBSR Proposing Release.\610\ After 
carefully considering all of these comments, the Commission believes 
that commenters had sufficient opportunity to present their views on 
inter-affiliate transactions in Regulation SBSR and therefore it is 
appropriate at this time to adopt final rules relating to regulatory 
reporting and public dissemination of security-based swaps, including 
inter-affiliate security-based swaps.
---------------------------------------------------------------------------

    \609\ See 75 FR 75215, 75234, 75237.
    \610\ See 78 FR 31069-72.
---------------------------------------------------------------------------

X. Rule 903--Use of Codes

    Regulation SBSR, as adopted, permits or, in some instances, 
requires security-based swap counterparties to report coded information 
to registered SDRs. These codes, known as unique identification codes 
(``UICs''), will be used to identify products, transactions, and legal 
entities, as well as certain business units and employees of legal 
entities.\611\ Rule 903 of Regulation SBSR establishes standards for 
assigning and using coded information in security-based swap reporting 
and dissemination to help ensure that codes are assigned in an orderly 
manner and that regulators, market participants, and the public are 
able to interpret coded information stored and disseminated by 
registered SDRs.
---------------------------------------------------------------------------

    \611\ See supra Section II (describing UICs that must be 
reported to registered SDRs pursuant to Regulation SBSR).
---------------------------------------------------------------------------

A. Proposed Treatment of Coded Information

    As initially proposed, Regulation SBSR would have established a 
process for assigning UICs in Rule 900 and addressed the standards for 
using coded information in Rule 903. Proposed Rule 900 would have 
provided that a ``unique identification code'' or ``UIC'' would be the 
unique code assigned to a person, unit of a person, or product by or on 
behalf of an internationally recognized standards-setting body 
(``IRSB'') that imposes fees and usage restrictions that are fair and 
reasonable and not unreasonably discriminatory. The proposed definition 
of ``UIC'' further would have provided that, if there existed no IRSB 
meeting these criteria, a registered SDR would have been required to 
assign all necessary UICs using its own methodology. Similarly, if an 
IRSB meeting the criteria existed but had not assigned a relevant UIC, 
the registered SDR would have been required to assign that UIC using 
its own methodology. When the Commission re-proposed Regulation SBSR as 
part of the Cross-Border Proposing Release, it designated the 
definition of ``UIC'' as re-proposed Rule 900(nn) but made no changes 
to the substance of the definition.\612\
---------------------------------------------------------------------------

    \612\ See 78 FR 31211-12.
---------------------------------------------------------------------------

    Rule 903, as originally proposed, would have permitted the use of 
codes in place of certain data elements for purposes of reporting and 
publicly disseminating the information required under proposed Rules 
901 and 902 of Regulation SBSR, provided that the information to 
interpret such codes is ``widely available on a non-fee basis.'' When 
the Commission re-proposed Rule 903, it replaced the term ``reporting 
party'' with ``reporting side'' but otherwise made no substantive 
revisions to the rule.\613\
---------------------------------------------------------------------------

    \613\ See id. at 31213.
---------------------------------------------------------------------------

B. Comments Received and Final Rule 903

1. Relocation of UIC Provisions Into Rule 903
    Final Rule 903 is divided into paragraphs (a) and (b). Rule 903(a) 
sets out the requirements that registered SDRs must follow when 
assigning UICs. Similar requirements were initially proposed as part of 
the definition of ``UIC'' in Rule 900, and re-proposed without revision 
in Rule 900(nn). The Commission now believes that it would be more 
consistent with the overall structure of Regulation SBSR to move any 
substantive requirements from the definitions rule (Rule 900) and into 
an operative rule. Therefore, the Commission's substantive requirements 
for a registered SDR's use of UICs are now located in final Rule 
903.\614\ As described below, the Commission is adopting these 
requirements substantially as proposed, but with certain changes as 
described below. In particular, Rule 903(a), as adopted, includes new 
language regarding Commission recognition of international systems for 
assigning UICs. In addition, final Rule 903(a) provides that, if the 
Commission has recognized such a system that assigns UICs to persons, 
each participant of a registered SDR shall obtain a UIC from or through 
that system for identifying itself, and each participant that acts as a 
guarantor of a direct counterparty's performance of any obligation 
under a security-based swap that is subject to Rule 908(a) shall, if 
the direct counterparty has not already done so, obtain a UIC for 
identifying the direct counterparty from or through that system, if 
that system permits third-party registration without a requirement to 
obtain prior permission of the direct counterparty.
---------------------------------------------------------------------------

    \614\ Accordingly, the Commission is now adopting a simplified 
definition of ``UIC.'' See Rule 900(qq) (defining ``UIC'' as ``a 
unique identification code assigned to a person, unit of a person, 
product, or transaction''). See also infra Section X(B)(2) 
(discussing final Rule 903(a)).
---------------------------------------------------------------------------

    Final Rule 903(b) imposes certain restrictions on how coded 
information may be reported and publicly disseminated. Rule 903(b) 
substantially incorporates the earlier versions of Rule 903, with 
certain conforming and technical changes described below.
2. Comments Regarding UICs and Final Rule 903(a)
    The Commission received several comments on the proposed rules 
relating to UICs and the development of internationally recognized LEIs 
generally. One commenter expressed concern that, absent a methodology

[[Page 14631]]

outlined by a standard-setting body, multiple UICs could be assigned by 
different regulators to the same financial entity, thereby creating 
compliance burdens, operational difficulties, and opportunities for 
confusion.\615\ Another commenter believed that, absent internationally 
recognized LEIs, requiring SDR-specific UICs would create 
inconsistencies among different SDRs.\616\ This commenter recommended 
that the Commission postpone this requirement until an international 
taxonomy exists that can be applied consistently.\617\ A third 
commenter stated that it is imperative that a single source of 
reference data and unambiguous identifiers be established.\618\ A 
fourth commenter argued that ``[s]ignificant progress in establishing 
the GLEIS has been made to date, and the time for further expanding the 
use of the LEI through rulemaking is favorable.'' \619\ A fifth 
commenter noted that the CFTC's swap reporting rules require the use of 
LEIs and urged the Commission, for the sake of clarity and consistency, 
to replace its reference to ``unique counterparty identifiers'' with 
``Legal Entity Identifiers,'' unless the Commission's rule was intended 
to include identifiers beyond LEIs.\620\ A sixth commenter suggested 
that the rules reflect primary use of the LEI as a party identifier and 
the need to use an LEI ``when available,'' recognizing that a reporting 
party may request but cannot compel its counterparties to obtain an 
LEI.\621\
---------------------------------------------------------------------------

    \615\ See ICI I at 6.
    \616\ See DTCC V at 14 (also noting that, while global standards 
for identification codes are likely to exist for some data fields, 
certain global identifiers will not exist).
    \617\ See id. See also Bloomberg Letter at 1 (``an identifier 
system should be comprehensive and global'').
    \618\ See Benchmark Letter at 1.
    \619\ See letter from Kenneth E. Bentsen, Jr., President and 
CEO, SIFMA, to the Honorable Jacob J. Lew, Chairman, Financial 
Stability Oversight Council, dated April 11, 2014, available at 
http://www.sifma.org/newsroom/2014/sifma_pushes_for_broad_use_of_leis_to_promote_financial_stability/ 
(last visited January 13, 2015). In a prior comment letter, this 
commenter recommended that ``industry utilities'' be considered for 
assigning unique IDs for legal entities/market participants, as well 
as for transactions and products. See ISDA/SIFMA I at 8. See also 
SWIFT Letter at 2 (expressing support for a global standard for 
identifying security-based swap market participants); DTCC X 
(stating that there has been significant adoption globally on 
transaction ID, product ID, and LEI standards).
    \620\ See Levin Letter at 4.
    \621\ See ISDA IV at 12. Regulation SBSR, as adopted, does not 
compel a counterparty on a reporting side to a security-based swap 
to obtain an LEI for a counterparty on the other side of the 
transaction.
---------------------------------------------------------------------------

    The Commission is adopting in Rule 903(a) the provisions relating 
to the process for assigning UICs largely as proposed and re-proposed, 
but--reflecting the comments described above--is including two new 
requirements: (1) That the Commission recognize an IRSS before the use 
of UICs from that IRSS becomes mandatory under Regulation SBSR; and (2) 
that, if the Commission has recognized an IRSS that assigns UICs to 
persons, each participant of a registered SDR shall obtain a UIC from 
or through that IRSS. As noted below, the Commission is recognizing the 
GLEIS as an IRSS for assigning LEIs. Final Rule 903(a) states: ``If an 
internationally recognized standards-setting system that imposes fees 
and usage restrictions on persons that obtain UICs for their own usage 
that are fair and reasonable and not unreasonably discriminatory and 
that meets the requirements of paragraph (b) of this section is 
recognized by the Commission and has assigned a UIC to a person, unit 
of a person, or product (or has endorsed a methodology for assigning 
transaction IDs), the registered security-based swap data repository 
shall employ that UIC (or methodology for assigning transaction IDs). 
If no such system has been recognized by the Commission, or a 
recognized system has not assigned a UIC to a particular person, unit 
of a person, or product (or has not endorsed a methodology for 
assigning transaction IDs), the registered security-based swap data 
repository shall assign a UIC to that person, unit of person, or 
product using its own methodology (or endorse a methodology for 
assigning transaction IDs). If the Commission has recognized such a 
system that assigns UICs to persons, each participant of a registered 
security-based swap data repository shall obtain a UIC from or through 
that system for identifying itself, and each participant that acts as a 
guarantor of a direct counterparty's performance of any obligation 
under a security-based swap that is subject to Sec.  242.908(a) shall, 
if the direct counterparty has not already done so, obtain a UIC for 
identifying the direct counterparty from or through that system, if 
that system permits third-party registration without a requirement to 
obtain prior permission of the direct counterparty.'' \622\
---------------------------------------------------------------------------

    \622\ See infra Section X(B)(3) (explaining the Commission's 
rationale for adopting final Rule 903(a)).
---------------------------------------------------------------------------

    The Commission shares commenters' desire to have identifiers that 
are widely recognized, which would increase efficiency at both the SDR 
and market participant level. To avoid confusion about when an IRSS 
meets the standards of Rule 903, the Commission has modified the rule 
to provide that UICs issued by a particular IRSS would not become 
mandatory under Regulation SBSR unless the Commission has recognized 
the IRSS. As detailed below, the Commission is recognizing the GLEIS, 
applying the standards provided in Rule 903. The Commission will apply 
the standards provided in Rule 903 to any future assessment of whether 
an IRSS should be recognized as a provider of UICs for purposes of 
Regulation SBSR. Specifically, the Commission will consider whether the 
IRSS imposes fees and usage restrictions on persons that obtain UICs 
for their own usage that are fair and reasonable and not unreasonably 
discriminatory, and whether the information necessary to interpret the 
codes assigned by or through the IRSS is widely available to users of 
the information on a non-fee basis and without usage restrictions.\623\
---------------------------------------------------------------------------

    \623\ See infra Section X(B)(3) (discussing final Rule 903(b)).
---------------------------------------------------------------------------

    Since Regulation SBSR was initially proposed in 2010, significant 
strides have been made in the development of a globally recognized LEI. 
The Commission hereby recognizes the GLEIS, which operates under a 
regulatory oversight committee (``ROC''), as an internationally 
recognized standards-setting system (``IRSS'') \624\ that meets the 
requirements of Rule 903 of Regulation SBSR. The Commission notes that 
the LEI Regulatory Oversight Committee (``LEI ROC'') currently includes 
members that are official bodies from over 40 jurisdictions.\625\ LEIs 
are being issued by over 30 pre-local operating units (``pre-LOUs'') 
around the globe, including the Global Markets Entity Identifier 
(``GMEI'') Utility in the United States.\626\ Furthermore, the 
Commission believes that the GLEIS imposes fees and usage restrictions 
on persons that obtain UICs

[[Page 14632]]

for their own usage that are fair and reasonable and not unreasonably 
discriminatory under Rule 903(a).\627\ The Commission also understands 
that the GLEIS does not impose any fees for usage of or access to its 
LEIs, and that all of the associated reference data needed to 
understand, process, and utilize the LEIs are widely and freely 
available and not subject to any usage restrictions.\628\ Therefore, 
the Commission believes that the LEIs issued by or through the GLEIS 
meet the standards of Rule 903(b), which are discussed in the section 
immediately below. The Commission also notes that it would expect to 
revisit its recognition of the GLEIS if the GLEIS were to modify its 
operations in a manner that causes it no longer to meet the standards 
of Rule 903. The Commission believes that the provisions of Rule 903--
coupled with the Commission's recognition of the GLEIS--will facilitate 
the reporting and analysis of security-based swap transaction data, 
because (1) each participant of a registered SDR must be identified 
using the same LEI for all transactions reported pursuant to Regulation 
SBSR, and regardless of which registered SDR holds records of its 
transactions, and (2) a participant, when it acts as guarantor of a 
direct counterparty to a security-based swap that is subject to Rule 
908(b), is required to obtain an LEI from or through the GLEIS if the 
direct counterparty does not already have an LEI and if the system 
permits third-party registration without a requirement to obtain prior 
permission of the direct counterparty.\629\
---------------------------------------------------------------------------

    \624\ Regulation SBSR, as proposed and re-proposed, would have 
employed the term ``internationally recognized standards-setting 
body'' rather than ``internationally recognized standards-setting 
system,'' which is used in Regulation SBSR, as adopted. The 
Commission made this revision to better reflect the process of LEI 
issuance. LEIs are being assigned by a number of different bodies in 
different jurisdictions being coordinated through a global system, 
rather than by a single body.
    \625\ The Commission is a member of the Executive Committee of 
the LEI ROC. The LEI ROC is a stand-alone committee established 
pursuant to recommendations by the Financial Stability Board 
(``FSB'') that was subsequently endorsed by the Group of 20 nations. 
See Financial Stability Board (``FSB''), A Global Legal Entity 
Identifier for Financial Markets (June 8, 2012), available at http://www.leiroc.org/publications/gls/roc_20120608.pdf (last visited 
September 22, 2014); http://www.treasury.gov/resource-center/international/g7-g20/Documents/G20%20Ministerial%20Communique%20November%204-5-2012-Mexico%20City.pdf (last visited September 22, 2014).
    \626\ See https://www.gmeiutility.org/index.jsp.
    \627\ See FSB, A Global Legal Entity Identifier for Financial 
Markets, at 20 (``Fees, where and when imposed, should be modest and 
set on a non-profit cost-recovery basis'') and at 20, note 20 (``It 
is possible that some jurisdictions could be willing to fund the LEI 
issuance from public sources and provide LEIs to its local entities 
free of charge''). As of December 26, 2014, the cost of obtaining an 
LEI from the GMEI Utility was $200, plus a $20 surcharge for the LEI 
Central Operating Unit. The annual cost of maintaining an LEI from 
the GMEI Utility was $100, plus a $20 surcharge for the LEI Central 
Operating Unit. See https://www.gmeiutility.org/frequentlyAskedQuestions.jsp.
    \628\ See, e.g., http://www.financialstabilityboard.org/wp-content/uploads/r_120608.pdf?page_moved=1, at 9 (``Access to the LEI 
and associated reference data will be free and open to all users, 
and there should be no `bundling' of other services alongside the 
LEI by providers which forces users to pay directly or indirectly 
for the LEI''). In addition, LEI information can be downloaded at no 
cost from pre-LOU Web sites. See, e.g., https://www.gmeiutility.org/ 
(providing a link for downloading an FTP file containing LEI 
information).
    \629\ The Commission understands that the GLEIS permits one firm 
to register a second firm when the first firm has a controlling 
interest over the second. See https://www.gmeiutility.org/frequentlyAskedQuestions.jsp (``Who can register an entity for the 
LEI?'').
---------------------------------------------------------------------------

    As noted above, one commenter recommended that, for clarity and 
consistency with the CFTC's swap reporting rules, the Commission refer 
to LEIs, rather than UICs, unless the Commission intended to include 
identifiers beyond LEIs.\630\ Although the Commission agrees that the 
use of the term ``LEI'' would provide greater consistency with the 
CFTC's rules, Regulation SBSR continues to refer to UICs, rather than 
LEIs, for two reasons. First, as the commenter suggested, the term 
``UIC'' in Regulation SBSR includes identifiers in addition to LEIs, 
such as identifiers for products, transactions, business units of legal 
entities (i.e., branches and trading desks), and individual 
traders.\631\ Second, the GLEIS does not extend to natural persons or 
sub-legal entity business units, such as a branches and trading desks. 
Because at present the Commission has not recognized an IRSS for these 
types of UICs, a registered SDR is required to assign UICs to these 
entities using its own methodology. Thus, because Regulation SBSR 
refers to identifiers in addition to LEIs, Regulation SBSR continues to 
refer to UICs rather than LEIs.
---------------------------------------------------------------------------

    \630\ See Levin Letter at 4.
    \631\ Rule 900(qq), as adopted, defines UIC to mean ``a unique 
identification code assigned to a person, unit of a person, product, 
or transaction.''
---------------------------------------------------------------------------

    The Commission acknowledges that, under final Rule 903(a), 
different registered SDRs could, in theory, assign different UICs to 
the same person, unit of a person, or product. Inconsistent UICs could 
require the Commission and other relevant authorities to map the UICs 
assigned by one registered SDR to the corresponding UICs assigned by 
other registered SDRs to obtain a complete picture of the market 
activity pertaining to a particular person or business unit.\632\ 
Although mapping may present certain challenges, the Commission 
believes that this approach is better than the likely alternative of 
having market participants assign UICs to identify persons, units of 
persons, or products according to their own methodologies.\633\ In 
other words, the Commission believes that UICs, even if they are SDR-
specific, will provide a streamlined way of reporting, disseminating, 
and interpreting security-based swap information.\634\ The Commission 
believes that requiring registered SDRs to develop their own UICs--but 
only for UICs that are not assigned by or through an IRSS that has been 
recognized by the Commission--will result in less confusion than the 
currently available alternatives, such as allowing each reporting side 
to utilize its own nomenclature conventions, which would subsequently 
have to be normalized by registered SDRs themselves or by the 
Commission.
---------------------------------------------------------------------------

    \632\ To avoid this possibility with respect to the 
identification of legal persons that are participants of at least 
one registered SDR, the Commission has recognized the GLEIS--by or 
through which LEIs are issued--as an IRSS that meets the criteria of 
Rule 903. The Commission is requiring that, if the Commission has 
recognized such a system that assigns UICs to persons, each 
participant of a registered SDR shall obtain a UIC from or through 
that system. The Commission notes that a single person may act in 
various capacities in the security-based swap market. For example, a 
person could be a direct counterparty with respect to some 
transactions while acting as a broker with respect to other 
transactions. If that person is a participant of a registered SDR, 
that person must obtain an LEI from or through the GLEIS to identify 
itself in all applicable security-based swap transaction reports, 
regardless of the capacity in which the person acted with respect to 
a particular transaction.
    \633\ The Commission notes, however, that Regulation SBSR does 
not prohibit one registered SDR from utilizing the UICs that were 
originally assigned by another SDR.
    \634\ See infra Section XIX (discussing regulatory implications 
of having multiple registered SDRs).
---------------------------------------------------------------------------

    The Commission further understands that, at this time, neither the 
GLEIS nor any other IRSS has assigned product IDs or established a 
methodology for assigning transaction IDs. Therefore, a registered SDR 
also is required under Rule 903(a) to assign, or endorse a methodology 
for assigning, product IDs and transaction IDs. One commenter 
recommended that ``industry utilities'' be considered for assigning 
unique IDs, including transaction IDs and product IDs.\635\ With 
respect to product IDs, Rule 903(a) provides a registered SDR with 
flexibility to assign a product ID created by an industry utility, in 
the absence of an IRSS recognized by the Commission that issues product 
IDs. Thus, if an industry utility developed product IDs,\636\ a 
registered SDR could endorse that industry utility as the means for 
assigning such product IDs, and require use of those product IDs for 
reporting and publicly dissemination transaction information in its 
policies and procedures required by Rule 907(a).
---------------------------------------------------------------------------

    \635\ See ISDA/SIFMA I at 8. See also ISDA IV at 12 (requesting 
that the Commission acknowledge the ISDA OTC Taxonomy as an 
acceptable product ID for reporting under Regulation SBSR and 
recognize that reporting parties, as opposed to SDRs, are generally 
best positioned to assign these values). In the context of the 
development of product IDs, the Commission is not at this time 
making any determination as to whether the ISDA OTC Taxonomy system 
constitutes an IRSS under Regulation SBSR, or whether the product 
IDs issued under the ISDA OTC Taxonomy system meet the criteria of 
Rule 903.
    \636\ See id.
---------------------------------------------------------------------------

    With respect to transaction IDs, a registered SDR--in the absence 
of an IRSS recognized by the Commission that has endorsed a methodology 
for assigning transaction IDs--is required to

[[Page 14633]]

assign transaction IDs or endorse a methodology for assigning 
transaction IDs.\637\ A number of commenters recommended that 
Regulation SBSR permit transaction IDs generated by persons other than 
a registered SDR.\638\ The Commission generally agrees with these 
comments, and has revised the UIC provisions relating to transaction 
IDs as follows. Although Rule 900, as proposed and re-proposed, would 
have defined ``transaction ID'' as ``the unique identification code 
assigned by registered security-based swap data repository to a 
specific security-based swap,'' the definition of ``UIC'' in proposed 
Rule 900(nn) did not mention transaction IDs. The final definition of 
``UIC'' includes transaction IDs in addition to identification codes 
for persons, units of persons, and products. The final definition of 
``transaction ID'' is ``the UIC assigned to a specific security-based 
swap transaction,'' without the limitation that it be assigned by a 
registered SDR. The Commission agrees with these commenters that 
requiring a registered SDR to use transaction IDs assigned only by a 
registered SDR would not be practical. The Commission believes that it 
would be more efficient and consistent with current practice in the 
security-based swap market to allow transaction IDs to be assigned at 
or shortly after execution, by a counterparty, platform, or post-trade 
processor. Final Rule 903(a) includes language that contemplates that 
an IRSS or registered SDR may ``endorse a methodology for assigning 
transaction IDs.'' This formulation makes clear that transaction IDs 
need not be assigned by an IRSS or registered SDR itself, but can be 
assigned by security-based swap counterparties, platforms, or post-
trade processors using the IRSS's or registered SDR's methodology. Any 
entity that assigns the transaction ID must do so in accordance with 
the methodology endorsed by a recognized IRSS or, in the absence of a 
recognized IRSS that has endorsed a methodology for assigning 
transaction IDs, by the registered SDR that will receive the report of 
the transaction.\639\
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    \637\ See Rule 903(a). See also supra Section III(B)(2) 
(discussing transaction IDs).
    \638\ See DTCC V at 14 (recommending that the Commission allow 
flexibility for a registered SDR to accept transaction IDs already 
generated by the reporting side or to assign transaction IDs where 
such request is made); ISDA III at 2; ISDA IV at 11; Tradeweb Letter 
at 5 (arguing that SB SEFs and exchanges should be permitted to 
assign transaction IDs).
    \639\ See Rule 903(a). Thus, for example, a counterparty or 
platform must not generate 40-character transaction IDs if the 
registered SDR requires and can accept only 32-character transaction 
IDs.
---------------------------------------------------------------------------

    Two commenters addressed the types of entities that can act as 
IRSSs. One of these commenters recommended that for-profit entities be 
permitted to act as reference data registration authorities,\640\ while 
the other commenter argued that LEIs should be issued by a not-for-
profit entity that operates on the principle of cost recovery, and that 
the industry should determine the appropriate model for cost 
recovery.\641\ The Commission does not believe that it is necessary or 
appropriate to specify the type of entity--for-profit or non-profit--
that can establish or operate an IRSS. Whichever the case, final Rule 
903(a) specifies that the UICs issued by an IRSS may be used under 
Regulation SBSR only if the IRSS that imposes fees and usage 
restrictions that are fair and reasonable and not unreasonably 
discriminatory and that meets the criteria of Rule 903(b) has been 
recognized by the Commission. In other words, the overall character of 
the IRSS's operation does not matter for purposes of compliance with 
Regulation SBSR (i.e., whether it is a for-profit or non-profit entity) 
so long as any fees and usage restrictions imposed with respect to UICs 
meets the requirements of Rule 903(a). In addition, any codes used as, 
or as part of, UICs under Regulation SBSR must meet the standards of 
Rule 903(b), which are described below.
---------------------------------------------------------------------------

    \640\ See GS1 Proposal at 53.
    \641\ See ISDA/SIFMA I at 8.
---------------------------------------------------------------------------

3. Comments on Proposed Rule 903 and Final Rule 903(b)
    Commenters expressed differing views regarding whether the 
providers of UICs--and product IDs in particular--should be able to 
charge fees for the codes or for the information necessary to interpret 
the codes. One commenter supported the proposed requirement that 
information necessary to interpret reported or publicly disseminated 
codes be available free of charge.\642\ However, a second commenter--a 
provider of product identification codes for security-based swaps--
stated that Regulation SBSR should not require product identifiers to 
be freely available.\643\ This commenter noted that maintaining a 
reliable identification system for security-based swaps requires a 
substantial level of investment, and recommended that the providers of 
product identification codes be permitted to charge commercially 
reasonable fees for developing and maintaining the codes.\644\ A third 
commenter recommended that existing licensing codes be used for product 
IDs to the extent possible, because using existing codes would be 
easier for registered SDRs; the use of new codes would require ongoing 
maintenance and the development of specific processes for reporting, 
which could result in poorer quality data submissions.\645\
---------------------------------------------------------------------------

    \642\ See Barnard I at 3 (noting that making this information 
available for free could eliminate confusion).
    \643\ See Markit I at 6 (stating that identifier systems 
provided on an automated basis and/or for free ``generally are not 
adequate for the intended goals'').
    \644\ See id.
    \645\ See DTCC II at 16. The commenter supported the continued 
use of existing license codes, including the Markit Reference Entity 
Database (``RED'')TM codes currently used in trade 
confirmations for credit derivatives and the Reuters Instrument 
Codes (``RIC'') used in electronic messages for equity derivatives. 
The commenter further noted that without RED codes, the description 
of a reference entity in submitted data could vary, even in minor 
ways (e.g., the punctuation used in an abbreviation), creating 
difficulties for the SDR that would be required to correctly 
identify the reference entity. This commenter also suggested that 
the Commission adopt a rule that would provide existing licensing 
codes at a reduced cost for small volume market participants. As 
described below, final Rule 903(b) permits the use of codes in 
security-based swap reports under Regulation SBSR only if the 
information necessary to interpret the codes is widely available on 
a non-fee basis.
---------------------------------------------------------------------------

    After careful consideration of these comments, the Commission 
continues to believe that the information necessary to interpret any 
codes used by registered SDRs must be ``widely available on a non-fee 
basis.'' Thus, the Commission is adopting this key feature of Rule 
903(b) as proposed and re-proposed. A primary goal of Title VII is to 
use reporting and public dissemination of security-based swap data as a 
means of monitoring risks and increasing transparency, both to 
regulators and the public, of the security-based swap markets. If the 
transaction data that are reported and publicly disseminated contain 
codes and the information necessary to interpret such codes is not 
widely available on a non-fee basis, these Title VII goals could be 
frustrated. In the absence of Rule 903(b), a registered SDR could 
require--or acquiesce in the use of--proprietary, fee-based 
identification codes, thereby requiring all users of the security-based 
swap market data to pay the code creator, directly or indirectly, for 
the information necessary to interpret the codes. Users of the data 
also might be subject to usage restrictions imposed by the code 
creator.
    Currently, the security-based swap market data typically include 
fee-based codes, and all market participants and market observers must 
pay license fees and agree to various usage restrictions to

[[Page 14634]]

obtain the information necessary to interpret the codes. The Commission 
believes that allowing continuation of the status quo would not satisfy 
the Title VII mandate to increase security-based swap market 
transparency through public dissemination. If information to understand 
embedded codes is not widely available on a non-fee basis, information 
asymmetries would likely continue to exist between large market 
participants who pay for the codes and others market participants. One 
commenter suggested that alternatives could be developed to the status 
quo of using fee-based codes in security-based swap market data.\646\ 
The Commission welcomes the development of such alternatives, and 
believes that Rule 903(b), as adopted, will likely encourage such 
development.
---------------------------------------------------------------------------

    \646\ See Bloomberg Letter at 2. This commenter stated that it 
would be possible to develop a public domain symbology for security-
based swap reference entities that relied on products in the public 
domain to ``provide an unchanging, unique, global and inexpensive 
identifier.'' According to this commenter, its proprietary symbology 
product for securities could provide a starting point for a 
security-based swap symbology product.
---------------------------------------------------------------------------

    Furthermore, the Commission believes that the public dissemination 
requirements in Title VII should allow observers of the market to 
incorporate the information contained in public reports of security-
based swaps into any decisions they might take regarding whether and 
how to participate in the market (or even to avoid participation), and 
for intermediaries in the market to incorporate this information to 
provide better advice to their clients about the market. The Commission 
does not believe that these objectives would be advanced if the ability 
of market participants to understand public reports of security-based 
swap transactions were conditioned on agreeing to pay fees to a code 
creator. The Commission similarly believes that subjecting the public's 
use of this information to restrictions imposed by a code creator also 
could frustrate the objectives of public dissemination. In addition, 
allowing continuation of the status quo would retard the ability of the 
Commission and other relevant authorities to obtain and analyze 
comprehensive security-based swap information.
    The Commission recognizes the usefulness of codes. They make 
reporting more efficient because providing just one code--a product ID, 
for example--can eliminate the need to report multiple data elements 
individually. Codes also facilitate the standardized representation of 
security-based swap data and thereby make reporting (and understanding 
reported data) more reliable and efficient.\647\ With respect to 
product IDs specifically, the Commission believes that unless an IRSS 
has been recognized by the Commission and can assign product IDs, 
registered SDRs should be free to choose between using an existing 
mechanism for assigning product IDs--assuming it is consistent with 
Rule 903(b)--and developing a new product classification system. If all 
existing product identification codes require users of the transaction 
information to pay a fee, then a registered SDR may not require or 
permit use of those codes for reporting and public dissemination. The 
registered SDR would be required to issue UICs using its own 
methodology and make the information necessary to interpret those codes 
available on a non-fee basis.
---------------------------------------------------------------------------

    \647\ For example, in the absence of an LEI, different persons 
might refer to a particular legal entity as ``XYZ,'' ``XYZ Corp.'', 
or ``XYZ Corporation.'' Confusion about whether all of these terms 
refer to same entity would be minimized, if not wholly eliminated, 
if all parties referred to the entity using the same code (e.g., 
``ABCD12345'').
---------------------------------------------------------------------------

    In light of the requirement in Rule 903(b) that the information 
necessary to interpret coded information be widely available on a non-
fee basis, it would be inconsistent with the rule for a registered SDR 
to permit information to be reported pursuant to Rule 901, or to 
publicly disseminate information pursuant to Rule 902, using codes in 
place of certain data elements if the registered SDR imposes, or 
permits the imposition of, any usage restrictions on the disseminated 
information. The purpose of Rule 903(b) is to help ensure that the 
public is able to utilize the last-sale information provided by 
Regulation SBSR without limitation or expense.
    The commenter that provides product identification codes for 
security-based swaps also noted that proposed Regulation SBSR would 
allow an IRSB that develops counterparty identifiers to charge fees, 
and believed that providers of product IDs should receive comparable 
treatment.\648\ In response to this comment, the Commission believes 
that it is appropriate to make minor revisions to the rule language to 
clarify its original intent and thereby eliminate any apparent 
contradiction between the two paragraphs of Rule 903. When the 
Commission originally proposed that an IRSB could impose fees and usage 
restrictions as long as they were fair and reasonable and not 
unreasonably discriminatory, the Commission intended that language to 
apply to persons that obtain UICs for their own usage (such as a legal 
entity that seeks to identify itself as a counterparty when engaging in 
security-based swap transactions), not ultimate users of the 
information (such as third parties who might wish to enter into a 
security-based swap with that entity as the reference entity). The 
Commission believes that this distinction is consistent with 
international efforts to develop a global LEI.\649\
---------------------------------------------------------------------------

    \648\ See Markit Letter at 6.
    \649\ See Charter of the Regulator Oversight Committee for the 
Global Legal Entity Identifier (LEI) System (November 5, 2012), 
http://www.leiroc.org/publications/gls/roc_20121105.pdf (last 
visited September 22, 2014) (``ROC Charter''). The ROC Charter 
provides that the mission of the ROC is ``to uphold the governance 
principles of and to oversee the Global LEI System, in the broad 
public interest.'' Id. at 1. The ROC Charter further provides that, 
in protecting the broad public interest, the objectives of the ROC 
include ``open and free access to publicly available data from the 
Global LEI System,'' and specifically includes the following 
principle: ``all public data should be readily available on a 
continuous basis, easily and widely accessible using modern 
technology, and free of charge.'' Id. at 2 (emphasis added). At the 
same time, the ROC Charter states that ``any entities required, or 
eligible, to obtain an LEI [must be] able to acquire one under open 
and non-discriminatory terms.'' Id. One such term is that ``fees, 
where and when imposed by the [Central Operating Unit], are set on a 
non-profit cost-recovery basis.'' Id.
---------------------------------------------------------------------------

    In Rule 903(a), as adopted, the Commission is inserting after the 
words ``fees and usage standards'' the new words ``on persons that 
obtain UICs for their own usage.'' \650\ This language clarifies that 
it is consistent with Rule 903(a) for a registered SDR to accept codes 
for which the code creator assesses fair and reasonable fees on market 
participants that need to identify themselves, their agents, or parts 
of their organizations when engaging in financial activities. For 
example, Rule 903(a) would permit a registered SDR to charge 
participants that need to acquire UICs that are assigned by registered 
SDRs, such as counterparty IDs, ultimate parent IDs, branch IDs, 
trading desk IDs, and trader IDs.
---------------------------------------------------------------------------

    \650\ Final Rule 903(a) thus provides: ``If an internationally 
recognized standards-setting system that imposes fees and usage 
restrictions on persons that obtain UICs for their own usage that 
are fair and reasonable and not unreasonably discriminatory is 
recognized by the Commission and has assigned a UIC to a person, 
unit of a person, or product (or has endorsed a methodology for 
assigning transaction IDs), the registered security-based swap data 
repository shall employ that UIC (or methodology for assigning 
transaction IDs). If no such system has been recognized by the 
Commission, or a recognized system has not assigned a UIC to a 
particular person, unit of a person, or product (or has not endorsed 
a methodology for assigning transaction IDs), the registered 
security-based swap data repository shall assign a UIC to that 
person, unit of person, or product using its own methodology (or 
endorse a methodology for assigning transaction IDs)'' (emphasis 
added).
---------------------------------------------------------------------------

    In Rule 903(b), as adopted, the Commission is inserting the words 
``to users of the information'' immediately

[[Page 14635]]

after the phrase ``widely available.'' \651\ The users of information 
referred to in final Rule 903(b) could include the Commission, other 
relevant authorities, or any person who wishes to view or utilize the 
publicly disseminated security-based swap transaction data for any 
purpose. As noted above, the Commission does not believe that access to 
this information should be impeded by having to pay fees or agree to 
usage restrictions in order to understand any coded information that 
might be contained in the transaction data.
---------------------------------------------------------------------------

    \651\ Final Rule 903(b) thus provides: ``A registered security-
based swap data repository may permit information to be reported 
pursuant to Sec.  242.901, and may publicly disseminate that 
information pursuant to Sec.  242.902, using codes in place of 
certain data elements, provided that the information necessary to 
interpret such codes is widely available to users of the information 
on a non-fee basis'' (emphasis added).
---------------------------------------------------------------------------

    The Commission notes that Rule 903(b) prevents registered SDRs and 
code creators from impeding a person's ability to obtain the 
information necessary to interpret coded information used in reporting 
or public dissemination under Regulation SBSR. Rule 903(b) is not 
intended to prevent a registered SDR from charging for its SDR 
services. To the contrary, registered SDRs are expressly permitted to 
charge fees for their SDR services that are fair and reasonable and not 
unreasonably discriminatory.\652\
---------------------------------------------------------------------------

    \652\ See Rule 13n-4(c)(1)(i) under the Exchange Act, which is 
part of the SDR Adopting Release. But see Regulation SBSR Proposed 
Amendments Release, Section VI (proposing to prohibit SDRs from 
charging fees for publicly disseminating regulatorily mandated 
transaction data).
---------------------------------------------------------------------------

    The Commission notes that it is making an additional revision to 
the language in re-proposed in Rule 903 to conform final Rule 903(b) to 
the Commission's original intent and to avoid any potential conflict 
with final Rule 901(h). Rule 901(h), as adopted, provides that the 
reporting side shall electronically transmit the information required 
under Rule 901 to a registered SDR ``in a format required by the 
registered [SDR].'' Under re-proposed Rule 903, the reporting side 
could ``provide information to a registered [SDR] . . . using codes in 
place of certain data elements.'' \653\ This language in re-proposed 
903 could have been read to give the reporting side discretion to 
select what codes it could use for reporting transaction information to 
a registered SDR., The Commission has revised final Rule 903(b) to more 
clearly reflect its original intent: That reporting sides shall report 
information in a format required by the registered SDR.\654\ Thus, Rule 
903(b), as adopted, provides that a registered SDR ``may permit 
information to be reported . . . using codes in place of certain data 
elements.'' The Commission believes that final Rule 903(b), read 
together with final Rule 901(h), makes clear that a reporting side may 
provide coded information to a registered SDR only to the extent 
permitted by the registered SDR and only in a format required by the 
SDR. Therefore, the reporting side may not exercise its own discretion 
when selecting codes to use in its reports to the registered SDR, 
regardless of whether the codes otherwise comport with Rule 903.
---------------------------------------------------------------------------

    \653\ Specifically, re-proposed Rule 903 provided that ``The 
reporting side may provide information to a registered security-
based swap data repository pursuant to Sec.  242.901 and a 
registered security-based swap data repository may publicly 
disseminate information pursuant to Sec.  242.902 using codes in 
place of certain data elements, provided that the information 
necessary to interpret such codes is widely available on a non-fee 
basis.''
    \654\ See supra Section IV (discussing Rule 901(h)). See also 
Rule 907(a)(5) (requiring a registered SDR to establish and maintain 
policies and procedures for assigning UICs in a manner consistent 
with Rule 903); Rule 907(a)(2) (requiring a registered SDR to 
establish and maintain policies and procedures that specify, among 
other things, protocols for submitting information, including but 
not limited to UICs).
---------------------------------------------------------------------------

    Finally, one commenter expressed concern that, although Regulation 
SBSR, as initially proposed, would have required that the information 
necessary to interpret codes be made available for free, the proposal 
would not have prevented a code creator from charging for other 
uses.\655\ In this commenter's view, ``[a] widely used identifier can 
become a de facto standard for anyone doing business in the relevant 
marketplace. This creates the potential for abuse, defeating the entire 
purpose of promoting the broad availability of identifiers.'' \656\ 
This commenter believed instead that, ``[a]s long as all market 
participants have the unfettered freedom to introduce alternative 
identifiers and to map those identifiers to the standard, however, 
multiple, competing identifiers can provide an inexpensive solution.'' 
\657\ The Commission shares the commenter's concern that identification 
codes not become a tool for monopolistic abuse. This is why the 
Commission is requiring in Rule 903(b) that, if such codes will be used 
for reporting or publicly disseminating security-based swap transaction 
data, ``the information necessary to interpret such codes [must be] 
widely available to users of the information on a non-fee basis.'' 
Thus, the Commission does not believe it will be necessary for market 
participants to introduce alternative identifiers, although Regulation 
SBSR would not prohibit them from doing so.
---------------------------------------------------------------------------

    \655\ See Bloomberg Letter at 2.
    \656\ Id.
    \657\ Id.
---------------------------------------------------------------------------

C. Policies and Procedures of Registered SDRs Relating to UICs

    As proposed and re-proposed, Rule 907(a)(5) would have required a 
registered SDR to establish and maintain written policies and 
procedures for assigning: (1) A transaction ID to each security-based 
swap that is reported to it; and (2) UICs established by or on behalf 
of an IRSB that imposes fees and usage restrictions that are fair and 
reasonable and not unreasonably discriminatory (or, if no standards-
setting body meets these criteria or a standards-setting body meets 
these criteria but has not assigned a UIC to a particular person, unit 
of a person, or product, assigning a UIC using its own methodology).
    The Commission received several comments, noted above, that 
discussed utilization of UICs generally and considered them in 
connection with Rule 907(a)(5).\658\ The Commission also received a 
comment that generally encouraged the Commission to adopt a convention 
for assigning unique IDs and incorporating a pilot or early adopter 
program for certain products and participants that would allow for end-
to-end testing and proof of concept.\659\
---------------------------------------------------------------------------

    \658\ See supra notes 615 to 618 and accompanying text.
    \659\ See ISDA/SIFMA I at 8.
---------------------------------------------------------------------------

    As discussed above, the Commission believes that UICs--even if 
utilized on an SDR-specific basis in the absence of UICs issued by a 
recognized IRSS--will create a more consistent and transparent system 
for reporting and analyzing security-based swap transactions. 
Therefore, the Commission continues to believe that it is important for 
registered SDRs to have policies and procedures providing for the 
issuance of such UICs and is adopting a modified version of Rule 
907(a)(5) that requires registered SDRs to establish written policies 
and procedures ``[f]or assigning UICs in a manner consistent with [Rule 
903].'' This is a conforming change to be consistent with the 
Commission's decision to locate the substantive requirements for the 
assignment of UICs in Rule 903.\660\ With respect to the comment 
received, the Commission believes that market participants can work 
with entities that are likely to register with the Commission as SDRs 
on pilot programs for certain products and conventions for assigning 
UICs. However, the Commission does not believe it would be appropriate 
for the Commission itself to adopt such

[[Page 14636]]

conventions; the Commission believes instead that greater expertise in 
coding data will reside in the industry and, in particular, at 
registered SDRs. The Commission further believes that Rule 900(qq), 
which defines ``UIC,'' and Rule 903, which establishes standards for 
the use of UICs provide adequate parameters for the development of a 
UIC system. The Commission believes that allowing the industry to 
develop conventions for assigning UICs will likely result in a more 
efficient and flexible UIC regime than if the Commission were to adopt 
such conventions itself.
---------------------------------------------------------------------------

    \660\ See supra Section X(B)(1).
---------------------------------------------------------------------------

XI. Operating Hours of Registered SDRs--Rule 904

    Title VII of the Dodd-Frank Act does not explicitly address or 
prescribe the hours of operation of the reporting and public 
dissemination regime that it requires. The security-based swap market 
is global in nature, and security-based swaps are executed throughout 
the world and at any time of the day. In light of the global nature of 
the security-based swap market, the Commission believes that the public 
interest is served by requiring near-continuous reporting and public 
dissemination of security-based swap transactions, no matter where or 
when they are executed (subject to the cross-border rules discussed in 
Section XV, infra). Furthermore, having a near-continuous reporting and 
public dissemination regime would reduce the incentive for market 
participants to defer execution of security-based swap transactions 
until after regular business hours to avoid post-trade transparency. 
Accordingly, the Commission proposed Rule 904, which would have 
required a registered SDR to design its systems to allow for near-
continuous receipt and dissemination of security-based swap data. A 
registered SDR would have been permitted to establish ``normal closing 
hours'' and to declare, on an ad hoc basis, ``special closing hours,'' 
subject to certain requirements. Rule 904 was not revised as part of 
the Cross-Border Proposing Release, and was re-proposed in exactly the 
same form as initially proposed.
    As discussed below, three commenters addressed proposed Rule 904. 
The Commission has carefully reviewed the comments received and has 
determined to adopt Rule 904, as proposed and re-proposed, subject to 
one conforming change, as discussed below.\661\
---------------------------------------------------------------------------

    \661\ In addition, the Commission is making a technical 
conforming change to revise the title of the rule to refer to 
``registered'' SDRs.
---------------------------------------------------------------------------

    Rule 904, as adopted, requires a registered SDR to have systems in 
place to receive and disseminate information regarding security-based 
swap data on a near-continuous basis, with certain exceptions. First, 
under final Rule 904(a), a ``registered SDR may establish normal 
closing hours when, in its estimation, the U.S. market and major 
foreign markets are inactive.'' Second, under final Rule 904(b), a 
registered SDR ``may declare, on an ad hoc basis, special closing hours 
to perform system maintenance that cannot wait until normal closing 
hours.'' Rule 904(b) further provides that a registered SDR shall, ``to 
the extent reasonably possible under the circumstances, avoid 
scheduling special closing hours during [periods] when, in its 
estimation, the U.S. market and major foreign markets are most 
active.'' Rules 904(a) and 904(b) each require the registered SDR to 
provide participants and the public with reasonable advance notice of 
its normal closing hours and special closing hours, respectively.
    Rule 904(c) specifies requirements for handling and disseminating 
reported data during a registered SDR's normal and special closing 
hours. During normal closing hours and, to the extent reasonably 
practicable during special closing hours, a registered SDR is required 
to ``have the capability to receive and hold in queue'' the transaction 
data that it receives. Pursuant to Rule 904(d), immediately upon system 
re-opening following normal closing hours or special closing hours 
(assuming it was able to hold incoming data in queue), the registered 
SDR is required to publicly disseminate any transaction data required 
to be reported under Rule 901(c) that it received and held in queue. 
Finally, pursuant to Rule 904(e), if the registered SDR could not, 
while it was closed, receive and hold in queue reported information, it 
would be required, immediately upon resuming normal operations, to send 
a notice to all participants that it had resumed normal operations but 
could not, while closed, receive and hold in queue such transaction 
information. Therefore, any participant that had an obligation to 
report information--but was unable to do so because of the registered 
SDR's inability to receive and hold data in queue--would be required 
upon notification by the registered SDR to promptly report the 
information to the registered SDR.
    As proposed and re-proposed, Rule 904(e) would have provided that 
if a participant could not fulfil a reporting obligation due to a 
registered SDR's inability to receive and hold data in queue, the 
participant would be required to report the information ``immediately'' 
upon receiving a notification that the registered SDR has resumed 
normal operations. The Commission has decided to replace the word 
``immediately'' with the word ``promptly'' in the final rule because 
``promptly'' emphasizes the need for information to be submitted 
without unreasonable delay while affording participants a practical 
degree of flexibility. In general, the Commission believes that 
submitting a required report ``promptly'' implies ``as soon as 
practicable.''
    The three commenters that addressed Rule 904 were generally 
supportive of the goal of promoting transparency and price discovery 
though a regime of continuous reporting and public dissemination,\662\ 
although one of these commenters pointed out the need for registered 
SDRs to close periodically to perform necessary system 
maintenance.\663\ Two of these commenters also suggested alternative 
operating hours and procedures for registered SDRs.\664\ One commenter 
stated that the requirements that a registered SDR have normal closing 
hours only when neither U.S. nor international markets are active, and 
should continue to receive the relevant transaction data and hold them 
in queue even when the registered SDR is closed for normal or ad hoc 
special closing hours, exceeded the capabilities of currently existing 
reporting infrastructures. The commenter argued that such requirements 
would increase the risk of infrastructure failure because SDRs would 
not have adequate time to maintain and update their systems.\665\ This 
commenter suggested that, if systems are required to be available on a 
24-hour basis, the Commission should define operating hours to be 24 
hours from Monday to Friday, and consider allowing additional closing 
hours either ``when markets are less active'' or ``when only less 
active markets are open.'' \666\
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    \662\ See Barnard I at 3; Markit I at 1; DTCC II at 1.
    \663\ See Markit I at 4.
    \664\ See Markit I at 4-5; DTCC II at 19-20; DTCC IV at 4 
(recommending that SDRs operate on a 24/6.5 basis to reflect the 
global nature of the financial markets and process transactions in 
real time, while also maintaining multiple levels of operational 
redundancy and data security).
    \665\ See Markit I at 4.
    \666\ Markit I at 4-5.
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    The Commission believes there are compelling reasons to implement a 
system of reporting and public dissemination that, in general, operates 
near-continuously. As discussed above,

[[Page 14637]]

the Commission believes that requiring near-continuous reporting and 
public dissemination of security-based swaps--except for when, in the 
estimation of a registered SDR, the U.S. market and major foreign 
markets are inactive--will serve the public interest and reduce 
incentives for market participants to trade outside of regular business 
hours. The Commission, however, recognizes the need for a registered 
SDR to have closing hours to maintain and update its systems, and Rules 
904(a) and 904(b), as adopted, specifically allow registered SDRs to 
have normal and special closing hours. Further, while Rule 904(b) 
states that a registered SDR should avoid scheduling special closing 
hours during a time when, in its estimation, the U.S. and major foreign 
markets are most active, the Commission notes that a registered SDR is 
required to do so only ``to the extent reasonably possible under the 
circumstances.'' As such, the Commission believes that Rules 904(a) and 
904(b) provide sufficient flexibility to registered SDRs in determining 
their closing times to perform the necessary maintenance procedures. 
The Commission does not believe it would be appropriate to require 
registered SDRs to operate 24 hours only from Monday to Friday, as the 
commenter suggests, as certain major foreign markets may be active 
during hours that fall within the weekend in the United States.
    The Commission recognizes the commenter who asserted that the 
proposed requirement for a registered SDR to receive and hold in the 
queue the data required to be reported during its closing hours 
``exceeds the capabilities of currently-existing reporting 
infrastructures.'' \667\ The Commission notes that this comment was 
submitted in January 2011. Since that time, however, provisionally 
registered CFTC SDRs that are likely also to register as SDRs with the 
Commission appear to have developed the capability of receiving and 
holding data in queue during their closing hours.\668\ Accordingly, the 
Commission believes that it is appropriate to require registered SDRs 
to hold data in queue during their closing hours should help to prevent 
market disruptions by enabling reporting sides for security-based swaps 
to report transactions at all times.
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    \667\ Markit I at 4.
    \668\ See, e.g., DDR Rulebook, Section 7.1 (DDR System 
Accessibility) (``Data submitted during DDR System down time is 
stored and processed once the service has resumed''), available at 
http://www.dtcc.com/~/media/Files/Downloads/legal/rules/
DDR_Rulebook.pdf (last visited October 7, 2014).
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XII. Subsequent Revisions to Reported Security-Based Swap Information

 A. Reporting Life Cycle Events--Rule 901(e)

 1. Description of Proposal and Re-Proposal
    Rule 901(e), as proposed and re-proposed, would have required the 
reporting of certain life cycle event information. ``Life cycle event'' 
was defined in the proposal and re-proposal to mean ``with respect to a 
security-based swap, any event that would result in a change in the 
information reported to a registered security-based swap data 
repository under Sec.  242.901, including a counterparty change 
resulting from an assignment or novation; a partial or full termination 
of the security-based swap; a change in the cash flows originally 
reported; for a security-based swap that is not cleared, any change to 
the collateral agreement; or a corporate action affecting a security or 
securities on which the security-based swap is based (e.g., merger, 
dividend, stock split, or bankruptcy). Notwithstanding the above, a 
life cycle event shall not include the scheduled expiration of the 
security-based swap, a previously described and anticipated interest 
rate adjustment (such as a quarterly rate adjustment), or other event 
that does not result in any change to the contractual terms of the 
security-based swap.''
    Re-proposed Rule 901(e) would have provided that ``For any life 
cycle event, and any adjustment due to a life cycle event, that results 
in a change to information previously reported pursuant to Rule 901(c), 
901(d), or 901(i), the reporting side shall promptly provide updated 
information reflecting such change to the entity to which it reported 
the original transaction, using the transaction ID,'' subject to two 
exceptions. Under Rule 901(e)(1), as re-proposed, if the reporting side 
ceased to be a counterparty to the security-based swap due to any 
assignment or novation and if the new side included a U.S. person, a 
security-based swap dealer, or a major security-based swap participant, 
the new side would be the reporting side following the assignment or 
novation. Under re-proposed Rule 901(e)(2), if the new side did not 
include a U.S. person, a security-based swap dealer, or a major 
security-based swap participant, the other side would be the reporting 
side following the assignment or novation.
    In proposing Rule 901(e), the Commission preliminarily believed 
that the reporting of life cycle event information would provide 
regulators with access to information about significant changes that 
occur over the duration of a security-based swap.\669\ The Commission 
also stated that the reporting of life cycle event information would 
help to assure that regulators have accurate and up-to-date information 
concerning outstanding security-based swaps and the current obligations 
and exposures of security-based swap counterparties.\670\
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    \669\ See Regulation SBSR Proposing Release, 75 FR 75220.
    \670\ See id. In a separate rulemaking, the Commission is 
adopting a rule that will require a registered SDR to establish, 
maintain, and enforce written policies and procedures reasonably 
designed to calculate positions for all persons with open security-
based swaps for which the SDR maintains records. See SDR Adopting 
Release (adopting Rule 13n-5(b)(2) under the Exchange Act).
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    In determining the entity that would be required to report life 
cycle event information, the Commission's approach in proposing and re-
proposing Rule 901(e) was that, generally, the person who originally 
reported the initial transaction would have the responsibility to 
report any subsequent life cycle event.\671\ However, if the life cycle 
event were an assignment or novation that removed the original 
reporting party, either the new counterparty or the remaining original 
counterparty would have to be the reporting party.\672\
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    \671\ See Cross-Border Proposing Release, 78 FR 31068.
    \672\ Rule 901(e), as initially proposed, would have provided 
that the new counterparty would be the reporting party if it is a 
U.S. person; the other original counterparty would become the 
reporting party if the new counterparty is not a U.S. person.
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    In re-proposing Regulation SBSR, the Commission included the new 
concept of a ``reporting side,'' which would have included the direct 
counterparty and any indirect counterparty. The Cross-Border Proposing 
Release also proposed to impose greater duties to report transactions 
on non-U.S. person security-based swap dealers or major security-based 
swap participants. Accordingly, the Commission re-proposed Rule 901(e) 
to provide that the duty to report would switch to the other side only 
if the new side did not include a U.S. person (as in the originally 
proposed rule) or a security-based swap dealer or major security-based 
swap participant. The Commission preliminarily believed that, if the 
new side included a security-based swap dealer or major security-based 
swap participant, the new side should retain the duty to report. This 
approach was designed to align reporting duties with the market 
participants that the Commission believed would be better

[[Page 14638]]

suited to carrying them out, because non-U.S. person security-based 
swap dealers and major security-based swap participants likely would 
have taken significant steps to establish and maintain the systems, 
processes and procedures, and staff resources necessary to report 
security-based swaps.\673\
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    \673\ See Cross-Border Proposing Release, 78 FR 31068.
---------------------------------------------------------------------------

2. Final Rules Relating to Life Cycle Events and Response to Comments
a. General Comment and Definition of ``Life Cycle Event''
    One commenter expressed support for the requirement to report life 
cycle event information, stating that the reporting of life cycle event 
information was necessary for detailed market regulation and for 
prudential and central bank regulation.\674\ The commenter noted that 
``[m]any life cycle events are price-forming or significantly change 
the exposures under a trade. . . .'' \675\ In subsequent comment 
letters, this commenter stated that the definition of ``life cycle 
event'' was overly broad, and that life cycle events should be limited 
to those that impact the counterparties to or the pricing of the 
security-based swap.\676\ Specifically, the commenter suggested that 
the Commission define ``life cycle event'' to mean ``an event that 
would result in a change in the counterparty or price of a security-
based swap reported to the registered [SDR].'' \677\ However, another 
commenter believed that the proposed definition was ``clear, 
sufficient, and complete.'' \678\
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    \674\ See DTCC II at 13.
    \675\ See id.
    \676\ See DTCC V at 11; DTCC VI at 9.
    \677\ DTCC VI at 9.
    \678\ Barnard I at 3.
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    After careful consideration, the Commission is adopting the 
definition of ``life cycle event'' in Rule 900(q) substantially as re-
proposed, but with certain minor modifications to respond to comments 
and to clarify the original intent of the rule.\679\ First, the 
Commission is making a technical change to the definition to indicate 
that a life cycle event refers to any event that would result in a 
change in the information reported ``under Sec.  242.901(c), (d), or 
(i),'' rather than any event that would result in a change in the 
information reported ``under Sec.  242.901'' (as re-proposed). This 
technical change will conform the definition of ``life cycle event'' to 
the requirements of Rule 901(e), as re-proposed and as adopted, which 
requires the reporting of a change to information previously reported 
pursuant to paragraph (c), (d), or (i) of Rule 901. By defining ``life 
cycle event'' in this manner, the Commission aims to ensure that 
information reported pursuant to Rules 901(c), (d), and (i) is updated 
as needed, so that the data maintained by registered SDRs remains 
current for the duration of a security-based swap. This requirement 
should help to ensure that the data accessible to the Commission 
through registered SDRs accurately reflects the current state of the 
market. Therefore, the Commission does not believe that it is 
appropriate to limit the definition of ``life cycle event'' to post-
execution events that impact the counterparties to or the pricing of a 
security-based swap, as suggested by the commenter.\680\ Although the 
final definition of ``life cycle event'' encompasses these types of 
events, it also encompasses other information reported pursuant to 
Rules 901(c), 901(d), or 901(i).
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    \679\ Rule 900(q), as adopted, defines ``life cycle event'' to 
mean ``with respect to a security-based swap, any event that would 
result in a change in the information reported to a registered 
security-based swap data repository under Sec.  242.901(c), (d) or 
(i), including: An assignment or novation of the security-based 
swap; a partial or full termination of the security-based swap; a 
change in the cash flows originally reported; for a security-based 
swap that is not a clearing transaction, any change to the title or 
date of any master agreement, collateral agreement, margin 
agreement, or any other agreement incorporated by reference into the 
security-based swap contract; or a corporate action affecting a 
security or securities on which the security-based swap is based 
(e.g., a merger, dividend, stock split, or bankruptcy). 
Notwithstanding the above, a life cycle event shall not include the 
scheduled expiration of the security-based swap, a previously 
described and anticipated interest rate adjustment (such as a 
quarterly interest rate adjustment), or other event that does not 
result in any change to the contractual terms of the security-based 
swap.''
    \680\ See DTCC VI at 9. See also DTCC II at 13 (stating that 
``[m]any life cycle events are price-forming or significantly change 
the exposures under a trade. . . . The current definition supports 
reporting of these events'').
---------------------------------------------------------------------------

    One commenter asked that the Commission remove the reference to 
``dividends'' in the definition of ``life cycle event'' because 
dividends ``are contract intrinsic events that do not result in a 
change to the contractual terms of the SBS and therefore, should not be 
defined as reportable life cycle events.'' \681\ The Commission does 
not believe that it is necessary to revise the definition of ``life 
cycle event'' as the commenter suggests. As indicated above, the 
definition of ``life cycle event'' provides, in relevant part, that a 
life cycle event includes ``any event that would result in a change in 
the information reported to a registered [SDR] . . . including . . . a 
corporate action affecting a security or securities on which the 
security-based swap is based (e.g., a merger, dividend, stock split, or 
bankruptcy)'' (emphasis added). Thus, a regular payment of a dividend 
that does not require a restatement of the terms of the security-based 
swap would not constitute a life cycle event. However, other actions 
involving dividends could be life cycle events. For example, the 
distribution of a stock dividend that required an adjustment to the 
notional terms of an equity security-based swap--or any other corporate 
action related to dividends that resulted in a modification of one or 
more terms of the security-based swap--would be a life cycle event and 
therefore would have to be reported pursuant to Rule 901(e).
---------------------------------------------------------------------------

    \681\ ISDA IV at 11.
---------------------------------------------------------------------------

    Second, the Commission is clarifying that a life cycle event 
includes ``an assignment or novation of the security-based swap,'' 
instead of ``a counterparty change resulting from an assignment or 
novation.'' The Commission notes that, while assignments and novations 
necessarily include a counterparty change, assignments and novations 
also may involve modifications to other terms of the security-based 
swap reported pursuant to paragraphs (c), (d), or (i) of Rule 901. 
These modifications are the type of changes that the Commission 
believes should be reported to a registered SDR; therefore, the 
Commission is modifying the definition of ``life cycle event'' to 
clarify this view.
    Third, the Commission is making a technical change to the 
definition to indicate that a life cycle event includes, for a 
security-based swap that is not a clearing transaction, ``any change to 
the title or date of any master agreement, collateral agreement, margin 
agreement, or any other agreement incorporated by reference into the 
security-based swap contract.'' As re-proposed, the definition of 
``life cycle event'' would have included, ``for a security-based swap 
that is not cleared, any change to the collateral agreement.'' One 
commenter questioned the need to include a reference to a change in the 
collateral agreement in the definition of ``life cycle event'' because 
``collateral agreement terms are not among the data required to be 
reported upon execution.'' \682\ The Commission agrees with the 
commenter that collateral agreement terms are not

[[Page 14639]]

required to be reported, and the definition of ``life cycle event'' in 
final Rule 900(q) no longer refers to changes in the collateral 
agreement. To assure that Rule 901(e) operates as intended, the 
Commission has modified the definition of ``life cycle event'' in final 
Rule 900(q) to reference, with respect to a security-based swap that is 
not a clearing transaction, the same terms that must be reported 
pursuant to Rule 901(d)(4).\683\ Thus, if there were a change in the 
title or date of a master agreement, collateral agreement, margin 
agreement, or other agreement incorporated by reference into a 
security-based swap contract, such a change would be a ``life cycle 
event'' as defined in final Rule 900(q), and final Rule 901(e) would 
require reporting of that change.
---------------------------------------------------------------------------

    \682\ DTCC VI at 9. Another commenter stated that the parties to 
a collateral agreement rarely modify their agreement over its life, 
and that any change to a collateral agreement would require 
extensive negotiation between the counterparties. Accordingly, the 
commenter believed that the cost of establishing reporting processes 
to detect and report changes to a collateral agreement would 
outweigh the usefulness of reporting them. See ISDA/SIFMA I at 16.
    \683\ Final Rule 901(d)(4) requires, for a security-based swap 
that is not a clearing transaction, reporting of the title and date 
of any master agreement, collateral agreement, margin agreement, or 
other agreement incorporated by reference in the security-based swap 
contract.
---------------------------------------------------------------------------

    Finally, two commenters argued that the ``Commission's 
classification of a swap being accepted for clearing as a life cycle 
event is inconsistent with the operations of a Clearing Agency'' 
because clearing may require the ``termination of the pre-existing 
alpha swap in order to create two new, unique swaps.'' \684\ The 
Commission agrees that any security-based swap that results from 
clearing an alpha should not be considered a life cycle event of the 
alpha, although the termination of the alpha would be such a life cycle 
event.\685\ The Commission believes that the new term ``clearing 
transaction'' makes clear that security-based swaps that result from 
clearing (e.g., betas and gammas in the agency model) are independent 
security-based swaps, not life cycle events of the security-based swap 
that is submitted to clearing (e.g., alpha security-based swaps).
---------------------------------------------------------------------------

    \684\ CME/ICE Letter at 3. As discussed in Section V, supra, in 
the agency model of clearing, and sometimes in the principal model 
as well, acceptance of an alpha for clearing terminates the alpha.
    \685\ See Securities Exchange Act Release No. 66703 (March 30, 
2012), 77 FR 20536-37 (April 5, 2012) (noting that ``when a 
security-based swap between two counterparties . . . is executed and 
submitted for clearing, the original contract is extinguished and 
replaced by two new contracts where the [clearing agency] is the 
buyer to the seller and the seller to the buyer''). This treatment 
also would be consistent with CFTC regulations. See 17 CFR 
39.12(b)(6) (CFTC rule providing that derivatives clearing 
organizations that clear swaps must have rules providing that, among 
other things, ``upon acceptance of a swap by the derivatives 
clearing organization for clearing: (i) The original swap is 
extinguished; [and] (ii) The original swap is replaced by an equal 
and opposite swap between the derivatives clearing organization and 
each clearing member acting as principal for a house trade or acting 
as agent for a customer trade'').
---------------------------------------------------------------------------

b. Final Rule 901(e)(1)
    As described above, re-proposed Rule 901(e) would have required the 
reporting side to promptly report any life cycle event, or any 
adjustment due to a life cycle event, that resulted in a change to 
information previously reported pursuant to Rule 901(c), (d), or (i) to 
the entity to which it reported the original transaction, using the 
transaction ID. Rule 901(e), as proposed and re-proposed, also included 
provisions for determining which counterparty would report the life 
cycle event. The Commission is adopting a modified version of Rule 
901(e) to address comments received and to implement certain technical 
changes. The Commission also has changed the title of the rule from 
``Duty to report any life cycle event of a security-based swap'' in the 
re-proposal to ``Reporting of life cycle events'' in the final rule. In 
addition, final Rule 901(e) provides that a life cycle event or 
adjustment due to a life cycle event must be reported within the 
timeframe specified in Rule 901(j).
    Although the definition of ``life cycle event'' would encompass the 
disposition of a security-based swap that has been submitted to 
clearing (e.g., whether, under the agency model of clearing, the alpha 
security-based swap has been accepted for clearing or rejected by the 
clearing agency), the Commission believes that it is appropriate to 
address the reporting of this specific type of life cycle event in the 
context of the Regulation SBSR Proposed Amendments Release, which 
address a number of topics regarding the reporting of security-based 
swaps that will be submitted to clearing or that have been cleared. 
Accordingly, final Rule 901(e)(1)(i) indicates that the reporting side 
shall not have a duty to report whether or not a security-based swap 
has been accepted for clearing or terminated by a clearing agency, and 
instead provides that ``A life cycle event, and any adjustment due to a 
life cycle event, that results in a change to information previously 
reported pursuant to paragraph (c), (d), or (i) of this section shall 
be reported by the reporting side, except that the reporting side shall 
not report whether or not a security-based swap has been accepted for 
clearing.''
c. Final Rule 901(e)(2)
    Re-proposed Rule 901(e) would have required the reporting side to 
include the transaction ID in a life cycle event report, and to report 
life cycle event information to the entity to which it reported the 
original transaction. Final Rule 901(e)(2) retains both of these 
requirements.\686\ The Commission believes that including the 
transaction ID in a life cycle event report will help to ensure that it 
is possible to link the report of a life cycle event to the report of 
the initial security-based swap of which it is a life cycle event. One 
commenter supported the requirement to report life cycle events to the 
same entity that received the original transaction report.\687\ The 
commenter stated that requiring a single registered SDR to receive, 
store, and report, where appropriate, all relevant information related 
to a given security-based swap throughout its life cycle would help to 
prevent fragmentation and ensure that corrections to previously 
reported data could be easily identified by the public.\688\ The 
Commission generally agrees with these views, and final Rule 901(e)(2) 
retains the requirement to report life cycle events to the same entity 
to which the original transaction was reported.
---------------------------------------------------------------------------

    \686\ Final Rule 901(e)(2) provides that ``All reports of life 
cycle events and adjustments due to life cycle events shall be 
reported within 24 hours of the time of occurrence of the life cycle 
event to the entity to which the original security-based swap 
transaction was reported and shall include the transaction ID of the 
original transaction.''
    \687\ See MarkitSERV I at 8.
    \688\ See id. See also DTCC IX at 2.
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d. Reporting Timeframe for Life Cycle Events
    Rule 901(e), as proposed and re-proposed, would have required life 
cycle events to be reported by the reporting side ``promptly.'' Two 
commenters believed that it was appropriate to require that life cycle 
events be reported ``promptly.'' \689\ One of these commenters also 
stated that life cycle events could require different processing times 
based on the nature of the event, and asked the Commission to clarify 
the meaning of ``promptly'' with respect to life cycle event 
reporting.\690\ In particular, the commenter stated that ``the term 
`promptly,' . . . without further explanation, may be interpreted by 
reporting parties differently for similar events and processes, 
particularly in a market where certain processes have historically 
taken a

[[Page 14640]]

number of days to effect.'' \691\ This commenter also suggested that 
the Commission revise Rule 901(e) to allow for the flexibility of 
reporting life cycle events either event-by-event or through one daily 
submission that would include multiple events.\692\ Another commenter 
stated that the required time for reporting both life cycle events and 
corrections should be stronger and more specific than the proposed 
requirement that they be reported ``promptly.'' \693\
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    \689\ See Barnard I at 3; DTCC II at 13.
    \690\ See DTCC II at 13. The commenter stated that life cycle 
events that are price-forming events subject to confirmation could 
be reported within the same timeframes as initial reports of these 
events. However, the commenter indicated that life cycle events 
resulting from other processes, such as corporate actions or credit 
events, ``where many trades will be impacted simultaneously and 
processing may be manual or automated,'' would require different 
amounts of time to report. See id.
    \691\ DTCC II at 13.
    \692\ See DTCC V at 11. See also ISDA III (requesting that 
``reporting parties be allowed to report lifecycle events either 
intra-day or as an end-of day [sic] update to the terms of the 
[security-based swap]''). Further, one commenter noted that the CFTC 
rules allow a life cycle event to be reported either as event data 
on the same day as the event occurs or daily as ``state data,'' and 
that non-swap dealers or non-major swap participants may report 
these events either as life cycle event data or as state data no 
later than the end of the first business day following the event. 
See ISDA IV at 11. This commenter requested that the Commission 
confirm in its rules that the same approach and timelines may be 
applied to meet the requirements of Regulation SBSR. The Commission 
notes that Rules 901(e) and 901(j), as adopted, provide for 
reporting of a life cycle event or an adjustment due to a life cycle 
event within 24 hours after the occurrence of the life cycle event 
or the adjustment due to the life cycle event. The Commission notes, 
further, that Rule 901(e)(1) requires the reporting of a life cycle 
event, and any adjustment due to a life cycle event, that results in 
a change to information previously reported pursuant to Rule 901(c), 
901(d), or 901(i). Thus, Rule 901(e)(1) contemplates the reporting 
of the specific changes to previously reported information. Reports 
of life cycle events, therefore, must clearly identify the nature of 
the life cycle event for each security-based swap. It is not 
sufficient merely to re-report all of the terms of the security-
based swap each day without identifying which data elements have 
changed. However, Regulation SBSR would not prevent a registered SDR 
from developing for its members a mechanism or other service that 
automates or facilitates the production of life cycle events from 
state data.
    \693\ See Better Markets I at 9.
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    After careful consideration, the Commission does not believe that 
it would be appropriate to require life cycle events or adjustments due 
to life cycle events to be reported more quickly than the time within 
which information relating to the original transaction must be 
reported. As noted in Section VII(B)(3), supra, final Rule 901(j) 
provides that the transaction information required by Rules 901(c) and 
901(d) generally must be reported within 24 hours of the time of 
execution. Similarly, Rule 901(j) provides that the reporting timeframe 
for Rule 901(e) shall be 24 hours after the occurrence of the life 
cycle event or the adjustment due to the life cycle event. The 
Commission believes that 24 hours should provide sufficient time to 
report life cycle events even if the processing of some of these events 
is not yet fully automated.\694\ The Commission believes, further, that 
specifying a time within which life cycle event information must be 
reported will address the commenter's concern that reporting sides 
could adopt different interpretations of the reporting timeframe. The 
Commission notes that it anticipates soliciting comment on the 
timeframe for reporting life cycle events, adjustments, and clearing 
transactions in the future, when it considers block thresholds and time 
delays.
---------------------------------------------------------------------------

    \694\ See DTCC II at 13. The Commission also believes that the 
24-hour timeframe for reporting life cycle events will allow 
reporting sides to determine whether to report life cycle events on 
an intra-day or end-of-day basis. See DTCC V at 11; ISDA III. 
Reports of life cycle events, however, must clearly identify the 
nature of the life cycle event for each security-based swap. It is 
not sufficient merely to re-report all of the terms of the security-
based swap each day without identifying which data elements have 
changed. See also note 692 supra.
---------------------------------------------------------------------------

e. Re-Proposed Rule 901(e)(2)
    The Commission has determined not to adopt re-proposed Rule 
901(e)(2), which would have specified the reporting side following an 
assignment or novation of the security-based swap.\695\ One commenter 
noted that, under the current market practice for reporting novations, 
the reporting party is re-determined based on the current status of the 
parties.\696\ This commenter noted that the current practice allows the 
reporting party logic to be consistent for new as well as novated 
trades, and recommended that the Commission use a consistent 
methodology for reporting of new trades and novations. The Commission 
agrees that using a single methodology for assigning reporting 
obligations would be administratively easier than using one methodology 
when a security-based swap is first executed and a different 
methodology when the counterparties change as a result of an assignment 
or novation. As the Commission explained above,\697\ it has determined 
that the reporting side following an assignment or novation will be 
determined using the procedures in Rule 901(a).
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    \695\ Re-proposed Rule 901(e)(2) would have provided that the 
duty to report life cycle event information following an assignment 
or novation would switch to the other side only if the new side did 
not include a U.S. person (as in the originally proposed rule) or a 
security-based swap dealer or major security-based swap participant. 
As the Commission explained in the Cross-Border Proposing Release, 
if the new side included a security-based swap dealer or major 
security-based swap participant, the new side should retain the duty 
to report. See 78 FR 31068.
    \696\ See ISDA III.
    \697\ See supra Section V(C)(5).
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f. Additional Comments Regarding Life Cycle Event Reporting
    One commenter believed that life cycle events should be reported 
using standard market forms, such as the trade confirmation for 
novations and early terminations, and the exercise notice for an 
exercise.\698\ Contrary to the commenter's suggestion, the Commission 
believes that registered SDRs should be responsible for specifying the 
precise manner and format for reporting data. Moreover, the Commission 
understands that standard market forms may exist for some, but not all, 
of the life cycle events that must be reported under Regulation SBSR. 
Therefore, the Commission has determined not to prescribe a format for 
reporting sides to report life cycle event information. Instead, Rule 
907(a)(3), as adopted, requires a registered SDR to establish and 
maintain written policies and procedures that specify how reporting 
sides are to report life cycle events and corrections to previously 
submitted information, for making corresponding updates or corrections 
to transaction records, and for applying an appropriate flag to these 
transaction reports.\699\
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    \698\ See DTCC II at 13.
    \699\ See infra Section XII(C).
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    One commenter stated that it was critical for the SEC and the CFTC 
to adopt consistent regulatory approaches ``[i]n the life cycle event 
model across asset classes.'' \700\ The Commission agrees that would be 
useful for the Commissions to adopt consistent approaches to the 
reporting of life cycle event information to the extent possible. The 
Commission believes that Regulation SBSR's approach to life cycle event 
reporting is broadly consistent with the approach taken by the CFTC. 
For example, because the agencies have adopted similar definitions, the 
life cycle event information required to be reported under the rules of 
both agencies is substantially similar.\701\ In addition, both 
agencies' rules require that life cycle events be reported to the same 
entity that received the report of the original transaction, and both 
agencies' rules require the entity that reports the initial transaction 
to also report life cycle events for the transaction. The Commission 
notes that a registered SDR that accepts transaction reports for both 
swaps and security-based swaps could establish policies and procedures 
for reporting life cycle events of security-based swaps that are 
comparable to its policies and

[[Page 14641]]

procedures for reporting life cycle events of swaps, provided that its 
policies and procedures for reporting life cycle events of security-
based swaps comply with the requirements of Regulation SBSR.
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    \700\ ISDA/SIFMA I at 6.
    \701\ See CFTC Rule 45.1, 17 CFR 45.1. The Commissions' ongoing 
reporting requirements differ, however, with respect to the 
reporting of valuation information. The CFTC's rules require 
reporting of valuation data as well as life cycle event data. As 
discussed in above in Section II(B)(3)(k), the Commission is not 
requiring reporting of valuation data for security-based swaps.
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    Another commenter expressed the view that Regulation SBSR ``should 
clarify what shall be reported as the time of execution for a life 
cycle event for purposes of public dissemination.'' \702\ The commenter 
stated that the CFTC requires market participants to report the 
execution time of the original trade as the execution time for a life 
cycle event for the trade. The commenter suggested that, under this 
approach, ``the data that is publicly disseminated for lifecycle events 
may not be that meaningful to the public as it does not include any 
indication of the point in time the reported price has been traded.'' 
\703\ The commenter stated, further, that the time of execution for a 
life cycle event for purposes of public dissemination ``should be the 
date and time such price-forming event is agreed.'' \704\
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    \702\ ISDA IV at 13 (emphasis in original).
    \703\ Id.
    \704\ Id. at 13-14.
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    As discussed in Section VII(B)(3), supra, final Rule 901(j) 
provides that the reporting timeframe for a life cycle event shall be 
24 hours after the occurrence of the life cycle event or the adjustment 
due to the life cycle event. Final Rule 902(a) requires a registered 
SDR to publicly disseminate a transaction report of a life cycle event, 
or adjustment due to a life cycle event, immediately upon receipt of 
the information. Thus, under Regulation SBSR, a life cycle event, or an 
adjustment due to a life cycle event, must be reported and publicly 
disseminated within 24 hours after the occurrence of the life cycle 
event or adjustment due to the life cycle event. The Commission 
believes that together these requirements will provide market observers 
with certain information concerning the time when the life cycle event 
occurred. However, the Commission notes that Regulation SBSR, as 
proposed and re-proposed, did not require the reporting or public 
dissemination of the time of execution of a life cycle event, and 
Regulation SBSR, as adopted, likewise includes no such requirements.

B. Error Corrections--Rule 905

    As the Commission noted in the Regulation SBSR Proposing Release, 
any system for transaction reporting must accommodate the possibility 
that certain data elements may be incorrectly reported.\705\ Therefore, 
the Commission proposed Rule 905 to establish procedures for correcting 
errors in reported and disseminated security-based swap information.
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    \705\ See 75 FR 75236.
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    In the Cross-Border Proposing Release, the Commission modified 
proposed Rule 905 slightly to correspond with certain new provisions in 
re-proposed Rule 908, which contemplated that certain types of cross-
border security-based swaps would be required to be reported but not 
publicly disseminated. Rule 905 was re-proposed to clarify that, if a 
registered SDR receives corrected information relating to a previously 
submitted transaction report, it would be required to publicly 
disseminate a corrected transaction report only if the initial 
security-based swap were subject to the public dissemination 
requirement.\706\ The Commission also made certain other technical and 
conforming changes,\707\ but otherwise re-proposed Rule 905 was 
substantially similar to proposed Rule 905.
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    \706\ As discussed above in Section VI, Rule 902 requires a 
registered SDR to immediately publicly disseminate a transaction 
report of a security-based swap, or a life cycle event or adjustment 
due to a life cycle event. If a security-based swap falls into the 
category of regulatory reporting but not public dissemination, there 
would be no need to publicly disseminate the correction because the 
initial security-based swap was not publicly disseminated.
    \707\ The Commission modified the language from ``counterparty'' 
or ``party'' to ``side'' in the re-proposal of Rule 905. Additional 
minor changes were made for clarification such as inserting 
``transaction'' in Rule 905(a)(1) and changing an ``a'' to ``the'' 
in Rule 905(b)(1). Re-proposed Rule 905 also substitutes the word 
``counterparties''--which is a defined term in Regulation SBSR--for 
the word ``parties,'' which was used in the initial proposal but was 
not a defined term.
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    As discussed below, the Commission received several comments on 
proposed Rule 905. After consideration of the comments, the Commission 
has determined to adopt Rule 905 with certain minor editorial 
revisions.\708\
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    \708\ For example, the title of final Rule 905(a) is ``Duty to 
correct,'' rather than ``Duty of counterparties to correct.'' In 
addition, the Commission is deleting a reference to ``security-based 
swap transaction'' from Rule 905(a)(2), as well as a reference to 
``reporting side'' in Rule 905(b)(1).''
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    Rule 905(a) applies to any counterparty to a security-based swap 
that discovers an error in the information reported with respect to 
that security-based swap. If a non-reporting side discovers the error, 
the non-reporting side shall promptly notify the reporting side of the 
error. Once the reporting side receives notification of the error from 
the non-reporting side, or if the reporting side discovers the error on 
its own, the reporting side must promptly submit an amended report--
containing corrected data--to the registered SDR that received the 
erroneous transaction report. The reporting side must submit the report 
required by Rule 905(a) in a manner consistent with the policies and 
procedures of the registered SDR that are contemplated by Rule 
907(a)(3).\709\
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    \709\ See infra Section XII(C).
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    Rule 905(b) details the responsibilities of a registered SDR to 
correct information and re-disseminate corrected information, where 
appropriate. If a registered SDR either discovers an error in the 
security-based swap information or receives notification of an error 
from a reporting side, the registered SDR is required to verify the 
accuracy of the terms of the security-based swap and, following such 
verification, promptly correct the information in its system. If the 
erroneous information contains any primary trade information enumerated 
in Rule 901(c) (and the transaction is dissemination-eligible \710\), 
the registered SDR must publicly disseminate a corrected transaction 
report of the security-based swap promptly following verification of 
the trade by the counterparties to the security-based swap, with an 
indication that the report relates to a previously disseminated 
transaction.\711\
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    \710\ See Rule 902(c) (listing certain transactions that a 
registered SDR may not publicly disseminate).
    \711\ See Rule 905(b)(2). When verifying information pursuant to 
Rule 905(b), a registered SDR must comply with the standards of Rule 
13n-5. In particular, Rule 13n-5(b)(1)(iii) provides that an SDR 
``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.''
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    Three commenters were generally supportive of the proposed error 
reporting procedures. One commenter believed that publicly 
disseminating error reports would ``increase confidence in the 
integrity of the markets.'' \712\ Another commenter stated that it 
supported ``the objective of prompt correction of errors by the 
reporting party.'' \713\ A third commenter expressed support for 
requiring a reporting party to correct previously reported erroneous 
data, and agreed that it was appropriate for a non-reporting 
counterparty to have the obligation to notify the reporting party of an 
error of which it is aware.\714\
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    \712\ Barnard I at 3.
    \713\ ISDA/SIFMA I at 9.
    \714\ See MFA I at 5.

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[[Page 14642]]

    The third commenter also sought guidance regarding the application 
of Rule 905 if a dispute arose between a reporting side and non-
reporting side concerning whether a report was, in fact, 
erroneous.\715\ The commenter urged the Commission to provide in its 
final rule that, if corrected information is not promptly reported to 
the registered SDR because of a dispute over whether an error exists, 
the non-reporting party side may itself report the disputed data to the 
registered SDR; the commenter believed that, in such cases, the 
Commission should oblige the registered SDR to review promptly the 
disputed data with the counterparties.\716\
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    \715\ See id.
    \716\ See id.
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    The Commission notes that, in a separate release, it is adopting 
Rule 13n-5(b)(6) under the Exchange Act, which requires an 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.\717\ As the Commission 
notes in adopting that rule, only the parties to a dispute can resolve 
it. Thus, the SDR itself is not required to resolve the dispute, 
although the Commission believes that SDRs must provide processes to 
facilitate resolution, which would improve the quality and accuracy of 
the security-based swap data that the SDR holds. The Commission is 
interpreting the term ``error'' in final Rule 905 as one which both 
sides to the transaction would reasonably regard as such. If the 
counterparties dispute whether an error exists, then the counterparties 
can use an SDR's procedures and facilities established under Rule 13n-
5(b)(6) to attempt to resolve the dispute. If the dispute-resolution 
process under Rule 13n-5(b)(6) yielded agreement that an error exists, 
then Rule 905 would require the counterparties to correct the 
error.\718\
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    \717\ See SDR Adopting Release.
    \718\ In the context of trade reporting, one commenter stated: 
``Confirmation processes are designed to identify when economic 
terms to trades have changed, distinguishing between expected events 
under an existing confirmation and amendments of economic terms due 
to the modification in terms . . . The trade confirmation is a 
bilateral process in which both parties agree to the confirmation, 
thereby ensuring any errors in the original data are corrected.'' 
DTCC II at 5. The Commission believes that this comment supports the 
approach taken above, that counterparties to a transaction do not 
incur duties under Rule 905 unless an error is detected that both 
sides would regard as such.
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    The third commenter also asked the Commission, in the context of 
Rule 905, to clarify that the reporting is for informational purposes 
and does not affect the terms of the trade; otherwise, ``[a]bsent some 
mechanism to make the report nonbinding pending a dispute, the 
correction mechanics in the Proposed Rule will result in the reporting 
party (typically the SBS dealer) prevailing in any dispute.'' \719\ The 
Commission does not believe that reporting of an error in previously 
submitted security-based swap transaction information can change the 
terms of the trade. Reporting is designed to capture the terms of the 
trade, not to establish such terms. The Commission's expectation, 
however, is that the report of a security-based swap provided to and 
held by a registered SDR will reflect, fully and accurately, the terms 
of the trade agreed to by the counterparties. If a counterparty becomes 
aware that the record held by the registered SDR does not accurately 
reflect the terms of the trade, that counterparty incurs a duty under 
Rule 905 to take action to have that record corrected.
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    \719\ Id. at 5-6.
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    A fourth commenter argued that the specific root cause of such 
amendments (for example a booking error or a trade amendment between 
parties) could be omitted.\720\ The Commission notes that Rule 905 does 
not require the reporting side to include the root cause of the error. 
This commenter also urged the Commission to clarify that reporting 
parties are not responsible for data that are inaccurately transcribed 
or corrupted after submission to the registered SDR. The Commission 
notes that the obligations under Rule 905 attach to a counterparty to a 
security-based swap only after that counterparty ``discovers'' the 
error or, if the counterparty is the reporting side, after it 
``receives notification'' of the error from the non-reporting 
side.\721\ Thus, a security-based swap counterparty incurs no duty 
under Rule 905 if its transaction data are inaccurately transcribed or 
corrupted after submission to the registered SDR unless the 
counterparty discovers the inaccurate transcription or corruption. 
Thus, under Rule 905, a counterparty would incur no duty to correct 
data errors of which it is unaware.\722\
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    \720\ See ISDA/SIFMA I at 9.
    \721\ Rule 905(a).
    \722\ The registered SDR, however, must comply with Rule 13n-
5(b)(1)(iii) under the Exchange Act, which provides, in relevant 
part: ``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.''
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    Finally, a fifth commenter believed that Rule 905 should provide an 
error reporting timeframe that is stronger and more specific than the 
proposed requirement that such reports be submitted ``promptly.'' \723\ 
The Commission continues to believe that ``promptly'' is an appropriate 
standard because it emphasizes the need for corrections to be submitted 
without unreasonable delay while affording reporting sides a practical 
degree of flexibility
---------------------------------------------------------------------------

    \723\ See Better Markets I at 9.
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C. Policies and Procedures for Reporting Life Cycle Events and 
Corrections

    Rule 907(a)(3), as originally proposed, would have required a 
registered SDR to establish and maintain written policies and 
procedures for ``specifying how reporting parties are to report 
corrections to previously submitted information in its records that is 
subsequently discovered to be erroneous, and applying an appropriate 
indicator to any transaction report required to be disseminated by 
[Rule 905(b)(2)] that the report relates to a previously disseminated 
transaction.'' Rule 907(a)(3), as re-proposed, would have required a 
registered SDR to establish and maintain written policies and 
procedures for ``specifying how reporting sides are to report 
corrections to previously submitted information, making corrections to 
information in its records that is subsequently discovered to be 
erroneous, and applying an appropriate indicator to any report required 
to be disseminated by [Rule 905(b)(2)] that the report relates to a 
previously disseminated transaction.''
    The Commission received no adverse comment on Rule 907(a)(3) and is 
adopting it as re-proposed with a slight modification. Rule 907(a)(3), 
as adopted, requires a registered SDR to establish and maintain 
policies and procedures for ``specifying procedures for reporting life 
cycle events and corrections to previously submitted information, 
making corresponding updates or corrections to transaction records, and 
applying an appropriate flag to the transaction report to indicate that 
the report is an error correction required to be disseminated by [Rule 
905(b)(2)] or is a life cycle event, or any adjustment due to a life 
cycle event, required to be disseminated by [Rule 902(a)]'' (emphasis 
added). The Commission is adding to final Rule 907(a)(3) the explicit 
requirement that a registered SDR establish and maintain policies and 
procedures regarding the reporting and flagging of life cycle events. 
The Commission believes that these

[[Page 14643]]

additions will improve the ability of the Commission and other relevant 
authorities to identify and analyze life cycle events of security-based 
swaps.
    In the case of a life cycle event or error correction, the initial 
transaction has already been reported to the registered SDR, and the 
subsequent report involves some type of revision to the previously 
submitted report. The Commission seeks to have the ability to observe a 
security-based swap transaction throughout its life, which requires the 
ability to connect subsequently reported events to the original 
transaction. The Commission also seeks to avoid mistaking life cycle 
events or corrections of previously submitted reports for new 
transactions, which could result in overcounting the gross notional 
amount of the security-based swap market or subsets thereof. Therefore, 
the Commission believes that registered SDRs must have appropriate 
policies and procedures that stipulate how reporting sides must report 
such follow-on events, and how the registered SDR itself can 
distinguish them and record them properly.
    Just as the Commission believes that a registered SDR should be 
given reasonable flexibility to enumerate specific data elements to be 
reported and the method for reporting them, the Commission also 
believes that a registered SDR should be given reasonable flexibility 
regarding the handling of corrections to previously submitted 
information. As discussed above, final Rule 905 does not require the 
reporting side to report the cause of an error.\724\ Nor does Rule 905 
set forth a specific procedure for how a registered SDR must accept a 
report of a life cycle event or error correction. Accordingly, a 
registered SDR's policies and procedures under Rule 907(a)(3) could 
require resubmission of the entire record with or without an indication 
of which elements in that record had been revised. Alternatively, a 
registered SDR's policies and procedures could require a submission of 
only the data element or elements that had been revised. The Commission 
notes, however, that Rule 905(b)(2) requires a registered SDR to 
publicly disseminate a corrected transaction report of a security-based 
swap, if erroneously reported information relates to a security-based 
swap that had been publicly disseminated and falls into any of the 
categories of information enumerated in Rule 901(c). Therefore, a 
registered SDR will need to have a means of identifying changes in 
reported data so that it can identify the changed element or elements 
in the publicly disseminated correction report.
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    \724\ See supra note 721 and accompanying text.
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    The Commission notes that Rule 907(a)(3) requires a registered 
SDR's policies and procedures also to address how the registered SDR 
will apply an appropriate condition flag to any corrected transaction 
report that must be re-disseminated. Market observers should be able to 
understand that a transaction report triggered by Rule 905(b)(2) or 
Rule 902(a) does not represent a new transaction, but merely a revision 
to a previous transaction. Without an indication to that effect, market 
observers could misunderstand the true state of the market.\725\ To 
provide observers with a clear view of the market, public reports of 
life cycle events should allow observers to identify the security-based 
swap subject to the life cycle event. The Commission notes, however, 
that registered SDRs may not use the transaction ID for this function 
because the transaction ID is not a piece of ``information reported 
pursuant to [Rule 901(c)]'' or a condition flag.\726\ Moreover, the 
Commission believes that knowledge of the transaction ID should remain 
limited to counterparties, infrastructure providers, and their agents, 
and should not be widely known. Knowledge of the transaction ID by 
additional parties could raise data integrity issues, as such 
additional parties could accidentally or even intentionally submit 
``false corrections'' to the registered SDR regarding transactions to 
which they were never a counterparty. This could damage the otherwise 
accurate record of the original transaction. Screening out improperly 
submitted ``corrections''--or repairing damage to the registered SDR's 
records that a false correction might cause--could become a significant 
and unwanted burden on registered SDRs. Therefore, registered SDRs, in 
their policies and procedures under Rule 907(a)(3), will need to use 
some means other than the transaction ID to indicate that a publicly 
disseminated report triggered by Rule 905(b)(2) or Rule 902(a) pertains 
to a previously disseminated transaction.\727\
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    \725\ One such condition flag could be for voided trades. There 
may be scenarios in which a security-based swap is executed (or 
thought to be executed), subsequently reported to a registered SDR, 
and publicly disseminated by that SDR--but later voided or canceled 
for some reason. For example, a transaction might be submitted to 
clearing but rejected by the clearing agency, and the counterparties 
could deem their agreement to be void ab initio. In this situation, 
the Commission believes the registered SDR could satisfy its 
obligation to publicly disseminate under Regulation SBSR by 
including a condition flag that the previously disseminated 
transaction report had been voided or canceled.
    \726\ See Rule 902(a).
    \727\ For example, DTCC Data Repository, LLC (``DDR'') utilizes 
an Event Identifier (``EID'') to maintain the integrity of a 
transaction throughout its lifecycle and enable public 
identification of events, including corrections, which occur with 
respect to the transaction. See DDR Rulebook, Section 4.1 at http://
dtcc.com/~/media/Files/Downloads/legal/rules/DDR_Rulebook.ashx, last 
visited September 22, 2014. The EID is separate from the Unique Swap 
Identifiers (``USI''), which is the CFTC-equivalent of the 
transaction ID. See also ISDA/SIFMA I at 10 (recommending that 
initial trades should carry a ``primary reference number'' when 
disseminated, ``and all amendments of that trade would then produce 
iterations of the original reference number'').
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XIII. Other Duties of Participants

A. Duties of Non-Reporting Sides To Report Certain Information--Rule 
906(a)

    The Commission believes that a registered SDR generally should 
maintain complete information for each security-based swap reported to 
the registered SDR, including UICs for both sides of a transaction. 
Although Regulation SBSR generally takes the approach of requiring only 
one side to report the majority of the transaction information,\728\ 
the Commission recognizes that it might not be feasible or desirable 
for the reporting side to report to a registered SDR all of the UICs of 
the non-reporting side. To address this issue, the Commission proposed 
Rule 906(a), which would provide a means for a registered SDR to obtain 
UICs from the non-reporting side.
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    \728\ Section 13A(a)(3) of the Exchange Act, 15 U.S.C. 78m-
1(a)(1), stipulates which counterparty must report a security-based 
swap that is not accepted by any clearing agency or derivatives 
clearing organization. That provision does not contemplate reporting 
by the other direct counterparty. Title VII does not stipulate who 
should report cleared security-based swaps. However, Section 
13(m)(1)(F) of the Exchange Act, 15 U.S.C. 78m(m)(1)(F), provides 
that ``[p]arties to a security-based swap (including agents of the 
parties to a security-based swap) shall be responsible for reporting 
security-based swap transaction information to the appropriate 
registered entity in a timely manner as may be prescribed by the 
Commission.''
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    Rule 906(a), as initially proposed, would have established 
procedures designed to ensure that a registered SDR obtains UICs for 
both direct counterparties to a security-based swap. As initially 
proposed, Rule 906(a) would have required a registered SDR to identify 
any security-based swap reported to it for which the registered SDR 
does not have the participant ID and (if applicable) the broker ID, 
desk ID, and trader ID of each counterparty. The registered SDR would 
have been required to send a report once a day to each of its 
participants identifying, for each security-based swap to which that

[[Page 14644]]

participant is a counterparty, the security-based swap(s) for which the 
registered SDR lacks participant IDs and (if applicable) a broker ID, 
desk ID, or trader ID. The participant would have been required to 
provide the missing information within 24 hours of receiving this 
report from the registered SDR.
    When the Commission re-proposed Regulation SBSR as part of the 
Cross-Border Proposing Release, it made conforming changes to Rule 
906(a) to reflect the introduction of the ``reporting side'' concept 
and to clarify that the participant ID, broker ID, desk ID, and trader 
ID must be reported only for direct counterparties.\729\
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    \729\ See 78 FR 31214.
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    The Commission has decided to adopt Rule 906(a) substantially as 
re-proposed, with conforming changes related to including branch ID and 
execution agent ID among the UICs that must be provided to the 
registered SDR \730\ and other minor technical changes.\731\
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    \730\ As discussed above, see supra Section II(C), the 
Commission has added ``branch ID'' and ``execution agent ID'' to the 
UICs required to be reported under Regulation SBSR. The Commission 
believes that reporting the branch ID and the execution agent ID for 
both counterparties to a security-based swap, if applicable, to a 
registered SDR will assist the Commission and other relevant 
authorities in overseeing the security-based swap market. 
Accordingly, the Commission has included branch ID and execution 
agent ID as UICs that registered SDRs must obtain pursuant to Rule 
906(a).
    \731\ The Commission has determined to use the term 
``counterparty ID'' rather than ``participant ID'' and to use the 
term ``trading desk ID'' rather than ``desk ID'' throughout 
Regulation SBSR. See supra Sections II(B)(3)(b) and II(C)(3)(c). In 
addition, the Commission has inserted the word ``direct'' 
immediately before each instance of the word ``counterparty.'' When 
the Commission re-proposed Rule 906(a), it made conforming changes 
to reflect the introduction of the ``reporting side'' concept and to 
clarify that relevant UICs for the non-reporting side must be 
reported only for direct counterparties. The word ``counterparty'' 
occurs in two places in final Rule 906(a), but the re-proposed rule 
inserted ``direct'' before ``counterparty'' only after the first 
occurrence. Final Rule 906(a) inserts ``direct'' before 
``counterparty'' both times that the word ``counterparty'' is used. 
Final Rule 906(a) also includes modifications that clarify that the 
term ``participant,'' as used in Rule 906(a), means a participant in 
a registered SDR. The Commission has made similar modifications 
throughout final Rule 906. The Commission also is revising the final 
sentence of Rule 906(a) to clarify that the participant referred to 
in that sentence is a participant of a registered SDR, and to 
clarify that a participant that receives a Rule 906(a) report from a 
registered SDR is responsible for providing missing UIC information 
for its side of each security-based swap referenced in the report. 
The participant is not responsible for providing any missing UIC 
information pertaining to the other side of the transaction. 
Accordingly, the last sentence of Rule 906(a) states: ``A 
participant of a registered security-based swap data repository that 
receives such a report shall provide the missing information with 
respect to its side of each security-based swap referenced in the 
report to the registered security-based swap data repository within 
24 hours.'' In addition, the Commission is revising the rule to 
refer to execution agents to conform to Rule 901(d)(1)(i). Finally, 
to more accurately reflect the requirements of the rule, the 
Commission is changing the title of the rule to ``Identifying 
missing UIC information.''
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    The Commission received two comment letters from the same commenter 
addressing proposed Rule 906(a). The first letter, which responded to 
the initial proposal, stated that regulators must have the UICs of both 
counterparties to a security-based swap to accurately track 
exposures.\732\ The commenter believed that, ideally, this process 
would be supported electronically and that the use of third-party 
services should meet this requirement.\733\
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    \732\ See DTCC II at 16. This commenter also suggested that desk 
IDs and trader IDs should not be required to be reported due to the 
fact that desk structures are changed relatively frequently and 
traders often rotate to different desks or transfer to different 
firms. See DTCC II at 11. This suggestion is addressed above in 
Section II(C)(3)(c).
    \733\ See DTCC II at 16.
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    The Commission generally shares the commenter's view that 
registered SDRs should maintain UICs for both sides of a security-based 
swap.\734\ The Commission notes that Rule 901(d) requires the reporting 
side to report the branch ID, broker ID, execution agent ID, trader ID, 
and trading desk ID--as applicable--only for the direct counterparty on 
its side. Rule 901(d)(1) requires the reporting side to report only the 
counterparty ID or execution agent ID, as applicable, of a counterparty 
on the other side. The Commission could have required the reporting 
side to provide UIC information for both sides of the transaction, but 
this would obligate a non-reporting side to furnish its UIC information 
to the reporting side so that the additional UICs could be reported by 
the reporting side. There are circumstances where a non-reporting side 
might be unable or unwilling to provide its UIC information to the 
reporting side. Therefore, the Commission is instead requiring the 
registered SDR to obtain these UICs from the non-reporting side through 
the Rule 906(a) process.\735\ Obtaining UICs for both sides will 
enhance the Commission's ability to carry out its responsibility to 
oversee the security-based swap market, because the Commission will be 
able to identify individual traders and business units that are 
involved in security-based swap transactions.\736\
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    \734\ However, if the non-reporting side for the security-based 
swap does not meet the definition of ``participant'' in Rule 900(u), 
Rule 906(a) would not require the registered SDR to request UIC 
information from the non-reporting side. This result is consistent 
with the Regulation SBSR Proposing Release. See 75 FR 75240 (``Thus, 
the Commission anticipates that there would be some SBSs reported to 
and captured by a registered SDR where only one counterparty of the 
SBS is a participant'').
    \735\ Rule 906(a) provides: ``A registered security-based swap 
data repository shall identify any security-based swap reported to 
it for which the registered security-based swap data repository does 
not have the counterparty ID and (if applicable) the broker ID, 
branch ID, execution agent ID, trading desk ID, and trader ID of 
each direct counterparty. Once a day, the registered security-based 
swap data repository shall send a report to each participant of the 
registered security-based swap data repository or, if applicable, an 
execution agent, identifying, for each security-based swap to which 
that participant is a counterparty, the security-based swap(s) for 
which the registered security-based swap data repository lacks 
counterparty ID and (if applicable) broker ID, branch ID, execution 
agent ID, desk ID, and trader ID. A participant of a registered 
security-based swap data repository that receives such a report 
shall provide the missing information with respect to its side of 
each security-based swap referenced in the report to the registered 
security-based swap data repository within 24 hours.'' Rule 900(u) 
defines ``participant,'' with respect to a registered SDR, as ``a 
counterparty, that meets the criteria of Sec.  242.908(b), of a 
security-based swap that is reported to that registered security-
based swap data repository to satisfy an obligation under Sec.  
242.901(a).''
    \736\ Nothing in Regulation SBSR prevents a non-reporting side 
from voluntarily providing all of its applicable UICs to the 
reporting side, so that the reporting side could, as agent, report 
all of the non-reporting side's UICs together with the rest of the 
data elements required by Rules 901(c) and 901(d). If this were to 
occur, the registered SDR would not need to send a Rule 906(a) 
report to the non-reporting side inquiring about the non-reporting 
side's missing UICs.
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    In a subsequent comment letter, in response to the re-proposal of 
Regulation SBSR, the same commenter expressed concern that Rule 906(a) 
could require a registered SDR to send reports to and obtain 
information from persons who might not be participants of that 
registered SDR.\737\ More generally, this commenter suggested that 
registered SDRs should not police security-based swap reports for 
deficiencies or unpopulated data fields in any manner that requires the 
registered SDR to take affirmative action to obtain information.\738\
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    \737\ See DTCC V at 13. As noted above, however, Rule 906(a), as 
adopted, requires the registered SDR to obtain UIC information only 
from non-reporting sides that are participants of that registered 
SDR.
    \738\ See DTCC V at 13.
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    The Commission disagrees with the commenter's suggestion that 
registered SDRs should have no duty to review the completeness of 
security-based swap reports or obtain missing information from 
participants. To the contrary, the Commission believes that registered 
SDRs are best situated to review reported data for completeness because 
they have a statutory and regulatory duty to accept and maintain 
security-based swap data, as prescribed by the Commission.\739\ 
Imposing an affirmative duty on registered SDRs to verify the 
completeness of reported data and to

[[Page 14645]]

obtain missing data should increase the reliability of data maintained 
by registered SDRs while decreasing the possibility of registered SDRs 
providing incomplete reports to relevant authorities. This, in turn, 
will facilitate oversight of the security-based swap market, which is a 
primary objective Title VII.
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    \739\ See 15 U.S.C. 78m(n)(5).
---------------------------------------------------------------------------

    Rule 906(a) requires registered SDRs to communicate with 
participants that are not reporting sides under Regulation SBSR. As 
discussed above, these communications are required to ensure that a 
registered SDR maintains complete UIC information for both sides of 
each security-based swap transaction that is reported to the registered 
SDR. The Commission recognizes that some non-reporting sides may not 
wish to connect directly to a registered SDR because they may not want 
to incur the costs of establishing a direct connection. Rule 906(a) 
does not prescribe the means registered SDRs must use to obtain 
information from non-reporting sides. As a result, registered SDRs have 
broad discretion to establish a methodology for notifying non-reporting 
sides of missing UIC information and obtaining UIC reports from the 
non-reporting side. For example, a registered SDR could send 
notifications and receive reports via email, in accordance with its 
policies and procedures.\740\ Registered SDRs should consider allowing 
non-reporting sides to provide the information required by Rule 906(a) 
in a minimally-burdensome manner.
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    \740\ See supra Section IV (discussing Rule 907(a)(2)).
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    Historical security-based swaps must be reported to a registered 
SDR pursuant to Rule 901(i). The Commission acknowledges that broker 
IDs, branch IDs, execution agent IDs, trading desk IDs, and trader IDs 
do not yet exist and will not exist until assigned by registered SDRs. 
Therefore, these UICs are not data elements applicable to historical 
security-based swaps. Accordingly, registered SDRs are not required 
under Rule 906(a) to identify these UICs as missing or to communicate 
to non-reporting side participants that they are missing, and non-
reporting side participants are not required by Rule 906(a) to provide 
these UICs to a registered SDR with respect to any historical security-
based swaps.

B. Duty To Provide Ultimate Parent and Affiliate Information to 
Registered SDRs--Rule 906(b)

    To assist the Commission and other relevant authorities in 
monitoring systemic risk, a registered SDR should be able to identify 
and calculate the security-based swap exposures of its participants on 
an enterprise-wide basis.\741\ Therefore, the Commission proposed Rule 
906(b), which would have required each participant of a registered SDR 
to provide to the registered SDR information sufficient to identify its 
ultimate parent(s) and any affiliate(s) of the participant that also 
are participants of the registered SDR. Proposed Rule 906(b) would have 
required a person to provide parent and affiliate information to a 
registered SDR immediately upon becoming a participant.\742\ Proposed 
Rule 906(b) also would have required a participant to promptly notify 
the registered SDR of any changes to reported parent or affiliate 
information.
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    \741\ The Commission notes that Rule 13n-5(b)(2) under the 
Exchange Act provides: ``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.''
    \742\ The policies and procedures of a registered SDR will 
establish on-boarding procedures for participants.
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    The Commission also proposed rules to define the relationships that 
could give rise to reporting obligations under Rule 906(b). Proposed 
Rule 900 would have defined an ``affiliate'' as ``any person that, 
directly or indirectly, controls, is controlled by, or is under common 
control with, a person'' and ``control'' 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.'' \743\ The Commission 
also proposed definitions of ``parent'' and ``ultimate parent'' to 
identify particular categories of affiliated entities based on a 
person's ability to control an affiliate. Specifically, proposed Rule 
900 would have defined ``parent'' to mean ``a legal person that 
controls a participant'' and ``ultimate parent'' as ``a legal person 
that controls a participant and that itself has no parent.'' The 
Commission also proposed to define ``ultimate parent ID'' as ``the UIC 
assigned to an ultimate parent of a participant.''
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    \743\ Proposed Rule 900 further would have provided that a 
person would be presumed to control another person if the person: 
``(1) [i]s a director, general partner or officer exercising 
executive responsibility (or having similar status or functions); 
(2) [d]irectly 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 (3) [i]n the case of a partnership, has the right to 
receive, upon dissolution, or has contributed, 25 percent or more of 
the capital.''
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    The Commission re-proposed the definitions of ``affiliate,'' 
``control,'' ``parent,'' ``ultimate parent,'' and ``ultimate parent 
ID,'' and Rule 906(b) without change in the Cross-Border Proposing 
Release.\744\
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    \744\ See 78 FR 31210-11. The definition of ``affiliate'' was 
re-proposed as Rule 900(a). The definitions of ``control,'' 
``parent,'' and ``ultimate parent'' were re-proposed as Rules 
900(f), 900(r), and 900(ll), respectively. Re-proposed Rule 900(mm) 
contained the definition of ``ultimate parent ID.''
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    After considering the comments received, which are discussed below, 
the Commission is adopting Rule 906(b), as proposed and re-proposed, 
subject to two clarifying changes.\745\ Obtaining ultimate parent and 
affiliate information will assist the Commission in monitoring 
enterprise-wide risks related to security-based swaps. If participants 
are not required to identify which of their affiliates also are 
participants of a particular registered SDR, the Commission or other 
relevant authorities might be unable to calculate the security-based 
swap exposures of that ownership group using data held in the 
registered SDR. As a result, systemic risk might build undetected 
within an ownership group, even if all security-based swaps for that 
enterprise were reported to the same registered SDR. The lack of 
transparency regarding OTC derivatives exposures within the same 
ownership group was one of the factors that hampered regulators' 
ability to respond to the financial crisis of 2007-08.\746\
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    \745\ Specifically, the Commission is modifying Rule 906(b) to 
clarify that the term ``participant,'' means a participant in a 
registered SDR. The Commission also is replacing the term 
``participant ID'' with ``counterparty ID.''
    \746\ See Financial Crisis Inquiry Commission, ``The Financial 
Crisis Inquiry Report: Final Report of the National Commission on 
the Causes of the Financial and Economic Crisis in the United 
States,'' January 2011, at xxi, available at: http://www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf, last visited September 22, 2014 
(explaining that relevant authorities ``lacked a full understanding 
of the risks and interconnections in the financial markets'' prior 
to and during the financial crisis, including, among other things, 
the exposures created by Lehman Brothers' derivatives contracts).
---------------------------------------------------------------------------

    The Commission believes that a reasonable means of monitoring 
security-based swap positions on a group-wide basis is by requiring 
each participant of a registered SDR to provide information sufficient 
to identify the participant's ultimate parent(s) and any affiliate(s) 
of the participant that also are participants of the registered SDR, 
using ultimate parent IDs and counterparty IDs.\747\ Rule

[[Page 14646]]

906(b), as adopted, imposes an affirmative obligation on participants 
of a registered SDR to provide this ownership and affiliation 
information to a registered SDR immediately upon becoming a participant 
of that SDR. The participant also must notify the registered SDR 
promptly of any changes to that information. To minimize burdens on 
participants and to align the burdens as closely as possible with the 
purpose behind the requirement, Rule 906(b) does not require a 
participant of a registered SDR to provide information to the 
registered SDR about all of its affiliates, but only those that are 
also participants of the same registered SDR.
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    \747\ Among other things, Rule 906(b) should enable the 
Commission and other relevant authorities to identify quickly 
security-based swaps of a corporate group that have been reported to 
the registered SDR, including security-based swaps held by 
securitization vehicles that are controlled by financial 
institutions.
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    The Commission received three comments addressing proposed Rule 
906(b).\748\ One commenter supported the proposed rule, stating that 
parent and affiliate information, along with other information required 
to be reported by Regulation SBSR, is critical to providing regulators 
with a comprehensive view of the swaps market and assuring that 
publicly reported data is accurate and meaningful.\749\ This commenter 
further stated that registered SDRs should have the power to obtain 
parent and affiliate information from firms, because this information 
would help to illustrate the full group level exposures of firms and 
the impact of the failure of any participant.\750\ The Commission 
generally agrees with the commenter's points and continues to believe 
that identifying security-based swap exposures within an ownership 
group is critical to monitoring market activity and detecting potential 
systemic risks. The existence of data vendors that provide parent and 
affiliate information may reduce any burdens on participants associated 
with reporting such information to a registered SDR,\751\ but the 
Commission does not view this as an adequate substitute for having the 
information reported to and readily available from registered SDRs. 
Title VII's regulatory reporting requirement is designed to allow the 
Commission and other relevant authorities to have access to 
comprehensive information about security-based swap activity in 
registered SDRs. The Commission believes that it would be inimical to 
that end for relevant authorities to have all the transaction 
information in registered SDRs but be forced to rely on information 
from outside of registered SDRs to link positions held by affiliates 
within the same corporate group.
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    \748\ See DTCC II at 13-14; ICI I at 6; GS1 Proposal at 43-44.
    \749\ See DTCC II at 13-14.
    \750\ See id. at 17. This commenter believed that a registered 
SDR likely would obtain parent and affiliate information from a data 
vendor and allow participants to review and approve the data.
    \751\ See id.
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    Two commenters suggested clarifications or modifications to the 
proposed rule.\752\ One commenter expressed concerns about how Rule 
906(b) would apply to agents, noting that investment advisers 
frequently execute a single security-based swap transaction on behalf 
of multiple accounts and allocate the notional amount of the 
transaction among these accounts at the end of the day.\753\ The 
commenter stated that advisers often do not know all of the affiliates 
of their clients and, as a result, might be unable to comply with Rule 
906(b).\754\ The commenter recommended that ``the Commission clarify 
that an adviser that has implemented reasonable policies and procedures 
to obtain the required information about affiliates and documented its 
efforts to obtain the information from its clients be deemed to have 
satisfied [Rule 906(b) of] Regulation SBSR.'' \755\
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    \752\ See ICI I at 6; GS1 Proposal at 43-44.
    \753\ See ICI I at 6, note 9.
    \754\ See id.
    \755\ Id.
---------------------------------------------------------------------------

    The Commission believes that it is unnecessary to modify Rule 
906(b) in response to this comment. The Commission notes that Rule 
906(b) imposes no obligations on an execution agent, such as an 
investment adviser that executes a single security-based swap on behalf 
of multiple accounts and allocates the notional amount of the 
transaction among those accounts at the end of the day. Rather, it 
would be the counterparty itself that would have the responsibility 
under Rule 906(b).
    Another commenter expressed the view that the information required 
to be reported by Rule 906(b) should be placed in prescribed XBRL 
templates or other such input mechanisms that would capture this 
information at its source for all downstream processes in the financial 
supply chain to use.\756\ The Commission has determined not to specify 
the manner or format in which security-based swap counterparties must 
provide ultimate parent and affiliate information to a registered SDR. 
The Commission believes that it would be preferable to allow each 
registered SDR to determine a suitable way to receive and maintain 
ultimate parent and affiliate information about its participants. The 
Commission notes that Rule 907(a)(6), as adopted, requires a registered 
SDR to establish and maintain written policies and procedures for 
periodically obtaining from each participant information that 
identifies the participant's ultimate parent(s) and any other 
participant(s) with which the counterparty is affiliated, using 
ultimate parent IDs and counterparty IDs.\757\
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    \756\ See GS1 Proposal at 43.
    \757\ As originally proposed, Rule 907(a)(6) would have required 
a registered SDR to establish and maintain written policies and 
procedures ``[f]or periodically obtaining from each participant 
information that identifies the participant's ultimate parent(s) and 
any other participant(s) with which the counterparty is affiliated, 
using ultimate parent IDs and participant IDs'' (emphasis added). 
The Commission re-proposed Rule 907(a)(6) with the word 
``participant'' in place of the word ``counterparty.''
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    The Commission received three comments on the definitions of 
``control'' and ``affiliate.'' \758\ No commenters specifically 
addressed the definitions of ``parent,'' ``ultimate parent,'' or 
``ultimate parent ID.'' After carefully evaluating these comments, the 
Commission is adopting the definitions of ``affiliate,'' ``control,'' 
``parent,'' ``ultimate parent,'' and ``ultimate parent ID'' as proposed 
and re-proposed.\759\
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    \758\ See DTCC II at 17; Multiple Associations Letter at 7-8; 
SIFMA I at 6.
    \759\ Final Rule 900(a) defines ``affiliate,'' while the 
definitions of ``control,'' ``parent,'' ``ultimate parent'' and 
``ultimate parent ID'' are in Rules 900(h), 900(t), 900(oo), and 
900(pp), respectively.
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    One commenter stated its view that the proposed definition of 
``control'' was improper.\760\ This commenter believed that the 
proposed 25% threshold for presuming control was too low, and that 
obtaining the information required by Rule 906(b) from entities with 
which a security-based swap market participant has less than a majority 
ownership relationship would be overly burdensome, and, in some cases, 
not practicable.\761\ The commenter recommended that the Commission 
amend the definition to presume control based on no less than majority 
ownership.\762\
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    \760\ See SIFMA I at 6.
    \761\ See id.
    \762\ See id.
---------------------------------------------------------------------------

    The Commission disagrees that, for purposes of Regulation SBSR, 
control should be presumed to exist only if there is majority 
ownership. Rule 906(b) is designed to assist the Commission and other 
relevant authorities in monitoring group-wide security-based swap 
exposures by enabling a registered SDR to provide them with the 
information necessary to calculate positions in security-based swaps 
held within the same ownership group that are reported to that 
registered SDR. If the Commission were to adopt definitions of 
``control'' and ``affiliate'' that were based on majority ownership,

[[Page 14647]]

participants would be required to identify fewer entities as 
affiliates, even if certain indicia of affiliation were present. The 
Commission believes that, to carry out its oversight function for the 
security-based swap market, it should err on the side of inclusion 
rather than exclusion when considering which positions are part of the 
same ownership group for general oversight purposes.
    The Commission also notes that the definition of ``control'' as 
adopted in Rule 900(h) is consistent with the definition used in other 
Commission rules and forms,\763\ so market participants should be 
accustomed to applying this definition in the conduct of their business 
activities. Furthermore, the CFTC's swap data reporting rules employ a 
materially similar definition of ``control'' for purposes of 
determining whether two market participants are affiliated with each 
other.\764\ If the Commission were to adopt a different definition of 
``control,'' market participants would need to determine their 
affiliates under both sets of rules, thereby imposing what the 
Commission believes would be unnecessary costs on market participants.
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    \763\ See, e.g., Rule 300(f) of Regulation ATS under the 
Exchange Act, 17 CFR 242.300(f); Rule 19g2-1(b)(2) under the 
Exchange Act, 17 CFR 240.19g2-1(b)(2); Form 1 (Application for, and 
Amendments to Application for, Registration as a National Securities 
Exchange or Exemption from Registration Pursuant to Section 5 of the 
Exchange Act); Form BD (Uniform Application for Broker-Dealer 
Registration). See also Rule 3a55-4(b)(2) under the Exchange Act, 17 
CFR 240.3a55-4(b)(2) (defining control to mean ownership of 20% or 
more of an issuer's equity, or the ability to direct the voting of 
20% or more of the issuer's voting equity).
    \764\ See 17 CFR 45.6(a) (defining ``control'' in the context of 
the CFTC's LEI system); 17 CFR 45.6(e)(2).
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    One commenter suggested that the Commission and the CFTC use a 
consistent definition of ``affiliate'' throughout the Title VII 
rulemakings \765\ and recommended that the Commission and CFTC use the 
definition of ``affiliated group'' in the Commissions' proposed joint 
rulemaking to further define the terms swap dealer, security-based swap 
dealer, major swap participant, major security-based swap participant, 
and eligible contract participant (``Entity Definitions Proposing 
Release'').\766\ The Commission does not believe it is appropriate to 
adopt, for purposes of Regulation SBSR, the definition of ``affiliated 
group'' that was proposed in the Entity Definitions Proposing Release. 
The final rules defining ``swap dealer,'' ``security-based swap 
dealer,'' ``major swap participant,'' ``major security-based swap 
participant,'' and ``eligible contract participant'' (``Final Entity 
Definition Rules'') did not adopt a definition of ``affiliated group.'' 
\767\ When the Commission and CFTC adopted the Final Entity Definition 
Rules they specifically rejected the notion that an ``affiliated 
group'' should include only those entities that report information or 
prepare financial statements on a consolidated basis as a prerequisite 
for being affiliated because they did not believe that whether or not 
two entities are affiliated should change according to changes in 
accounting standards.\768\ The Commission continues to believe that 
changes in accounting standards should not determine whether two 
entities are affiliated and therefore declines to adopt the definition 
of ``affiliated group'' that it proposed in the Entity Definitions 
Proposing Release.
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    \765\ See Multiple Associations Letter at 7-8.
    \766\ Securities Exchange Act Release No. 63452 (December 7, 
2010), 75 FR 80174 (December 21, 2010). In the Entity Definitions 
Proposing Release, ``affiliated group'' would have been used to 
describe the range of counterparties that a security-based swap 
market participant would need to count for purposes of determining 
whether it qualified for a de minimis exception from the definition 
of ``security-based swap dealer.'' For purposes of the Entity 
Definitions Proposing Release, the Commissions stated that an 
affiliated group would be defined as ``any group of entities that is 
under common control and that reports information or prepares its 
financial statements on a consolidated basis.'' See 75 FR 80180, 
note 43.
    \767\ Securities Exchange Act Release No. 66868 (April 27, 
2012), 77 FR 30596 (May 23, 2012).
    \768\ See id. at 30625.
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C. Policies and Procedures of Registered Security-Based Swap Dealers 
and Registered Major Security-Based Swap Participants To Support 
Reporting--Rule 906(c)

    For the security-based swap reporting requirements established by 
the Dodd-Frank Act to achieve the objectives of enhancing price 
transparency and providing regulators with access to data to help carry 
out their oversight responsibilities, the information that participants 
provide to registered SDRs must be reliable. Ultimately, the majority 
of security-based swaps likely will be reported by registered security-
based swap dealers and registered major security-based swap 
participants. The Commission believes that requiring these participants 
to adopt policies and procedures to address their security-based swap 
reporting obligations will increase the accuracy and reliability of the 
transaction reports that they submit to registered SDRs.
    Proposed Rule 906(c) would have required a participant that is a 
security-based swap dealer or major security-based swap participant to 
establish, maintain, and enforce written policies and procedures that 
are reasonably designed to ensure that the participant complies with 
any obligations to report information to a registered SDR in a manner 
consistent with Regulation SBSR and the policies and procedures of any 
registered SDR of which it is a participant. The policies and 
procedures contemplated by proposed Rule 906(c) were intended to 
promote complete and accurate reporting of security-based swap 
information by participants that are security-based swap dealers and 
major security-based swap participants, consistent with their 
obligations under the Dodd-Frank Act and Regulation SBSR. Proposed Rule 
906(c) also would have required a security-based swap dealer or major 
security-based swap participant to review and update its policies and 
procedures at least annually. The Commission re-proposed Rule 906(c) 
without change as part of the Cross-Border Proposing Release.\769\ The 
one commenter who addressed this aspect of Regulation SBSR stated that 
proposed Rule 906(c) is ``a necessary part of risk governance and 
compliance.'' \770\
---------------------------------------------------------------------------

    \769\ See 78 FR 31214.
    \770\ Barnard I at 3.
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    The Commission agrees and is adopting Rule 906(c), largely as 
proposed and re-proposed, subject to two modifications.\771\ As 
proposed and re-proposed, Rule 906(c) would have required security-
based swap dealers and major security-based swap participants to 
establish, maintain, and enforce written policies and procedures to 
support security-based swap transaction reporting. As discussed above, 
Rule 906(c), as adopted, imposes this duty only on registered security-
based swap dealers and registered major security-based swap 
participants.\772\ Second, Rule 906(c), as adopted, does not include 
the phrase ``and the policies and procedures of any registered 
security-based swap data repository of which it is a participant.'' The 
Commission believes that it is sufficient to require that the policies 
and procedures of registered security-based swap dealers and registered 
major security-based swap participants be reasonably designed to ensure 
compliance with the reporting

[[Page 14648]]

obligations under Regulation SBSR.\773\ Additionally, the Commission 
anticipates that SDRs will enter into contractual arrangements with 
reporting sides for the reporting of transactions required to be 
reported under Regulation SBSR, and that such arrangements likely will 
stipulate the various rights and obligations of the parties when 
reporting security-based swap transactions.
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    \771\ The Commission also revised Rule 906(c), to clarify that 
the term ``participant'' means a participant of a registered SDR.
    \772\ See supra Section V(B)(1) (explaining that, during the 
period before the Commission has adopted rules for the registration 
of security-based swap dealers and major security-based swap 
participants, the Commission seeks to avoid imposing costs on market 
participants who otherwise would have to assess whether they are 
security-based swap dealers or major security-based swap 
participants).
    \773\ The Commission notes that a reporting side is also 
required to electronically transmit information required under 
Regulation SBSR to a registered SDR in a format required by that 
SDR. See Rule 901(h); note 268, supra, and accompanying text.
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    Rule 906(c) is designed to promote greater accuracy and 
completeness of reported security-based swap transaction data by 
requiring the participants that will bear substantial reporting 
obligations under Regulation SBSR to adopt policies and procedures that 
are reasonably designed to ensure that their reports are accurate and 
reliable. If these participants do not have written policies and 
procedures for carrying out their reporting duties, compliance with 
Regulation SBSR might depend too heavily on key individuals or ad hoc 
and unreliable processes. The Commission, therefore, believes that 
registered security-based swap dealers and registered major security-
based swap participants should be required to establish written 
policies and procedures which, because they are written and can be 
shared throughout the organization, should be independent of any 
specific individuals. Requiring such participants to adopt and maintain 
written policies and procedures relevant to their reporting 
responsibilities, as required under Rule 906(c), should help to improve 
the degree and quality of overall compliance with the reporting 
requirements of Regulation SBSR. Periodic review of the policies and 
procedures, as required by Rule 906(c), should help ensure that these 
policies and procedures remain well functioning over time.
    The value of requiring policies and procedures in promoting 
regulatory compliance is well-established. Internal control systems 
have long been used to strengthen the integrity of financial reporting. 
For example, Congress recognized the importance of internal control 
systems in the Foreign Corrupt Practices Act, which requires public 
companies to maintain a system of internal accounting controls.\774\ 
Broker-dealers also must maintain policies and procedures for various 
purposes.\775\ The Commission believes that requiring each registered 
security-based swap dealer and registered major security-based swap 
participant to adopt and maintain written policies and procedures 
designed to promote compliance with Regulation SBSR is consistent with 
Congress's goals in adopting the Dodd-Frank Act.
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    \774\ See 15 U.S.C. 78m(b)(2)(B).
    \775\ See, e.g., FINRA Conduct Rule 3010(b) (requiring FINRA 
member broker-dealers to establish and maintain written procedures 
``that are reasonably designed to achieve compliance with applicable 
securities laws and regulations, and with the applicable Rules of 
[the NASD]''); FINRA Conduct Rule 3012 (requiring FINRA member 
broker-dealers to establish and maintain written supervisory 
procedures to ensure that internal policies and procedures are 
followed and achieve their intended objectives).
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    The policies and procedures required by Rule 906(c) could address, 
among other things: (1) The reporting process and designation of 
responsibility for reporting security-based swap transactions; (2) the 
process for systematizing orally negotiated security-based swap 
transactions; (3) order management system outages or malfunctions, and 
when and how back-up systems are to be used in connection with required 
reporting; (4) verification and validation of all information relating 
to security-based swap transactions reported to a registered SDR; (5) a 
training program for employees responsible for security-based swap 
transaction reporting; (6) control procedures relating to security-
based swap transaction reporting and designation of personnel 
responsible for testing and verifying such policies and procedures; and 
(7) reviewing and assessing the performance and operational capability 
of any third party that carries out any duty required by Regulation 
SBSR on behalf of the registered security-based swap dealer or 
registered major security-based swap participant.\776\
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    \776\ See 75 FR 75234.
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XIV. Other Aspects of Policies and Procedures of Registered SDRs

A. Public Availability of Policies and Procedures

    Rule 907(c), as proposed and re-proposed, would have required a 
registered SDR to make its policies and procedures publicly available 
on its Web site. The Commission did not receive any comments on Rule 
907(c) and is adopting it as proposed and re-proposed. This public 
availability requirement will allow all interested parties to 
understand how the registered SDR is utilizing the flexibility it has 
in operating the transaction reporting and dissemination system. Being 
able to review the current policies and procedures will provide an 
opportunity for participants to make suggestions to the registered SDR 
for altering and improving those policies and procedures, in light of 
new products or circumstances, consistent with the principles set out 
in Regulation SBSR.

B. Updating of Policies and Procedures

    Proposed Rule 907(d) would have required a registered SDR to 
``review, and update as necessary, the policies and procedures required 
by [Regulation SBSR] at least annually.'' Proposed Rule 907(d) also 
would have required the registered SDR to indicate the date on which 
its policies and procedures were last reviewed. The Cross-Border 
Proposing Release re-proposed Rule 907(d) without revision.
    The Commission did not receive any comments on Rule 907(d) and is 
adopting it as proposed and re-proposed. The Commission continues to 
believe that a registered SDR should periodically review its policies 
and procedures to ensure that they remain well-functioning over time. 
The Commission also continues to believe that requiring registered SDRs 
to indicate the date on which their policies and procedures were last 
reviewed will allow regulators and SDR participants to understand which 
version of the policies and procedures are current. A registered SDR 
could satisfy this obligation by, for example, noting when individual 
sections were last updated or by reissuing the entirety of the policies 
and procedures with an ``as of'' date. The Commission notes that, 
regardless of the method chosen and although only the most current 
version of a registered SDR's policies and procedures must be publicly 
available pursuant to Rule 907, the registered SDR must retain prior 
versions of those policies and procedures for regulatory purposes 
pursuant to Rule 13n-7(b) under the Exchange Act,\777\ as adopted by 
the Commission.\778\ These records would help the Commission, if 
conducting a review of a registered SDR's past actions, to understand 
what policies and procedures were in force at the time.
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    \777\ 17 CFR 240.13n-7(b)(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'').
    \778\ See SDR Adopting Release.
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C. Provision of Certain Reports to the Commission

    Under Title VII, the Commission is responsible for regulating and 
overseeing the security-based swap market, including the trade 
reporting obligations imposed by Regulation

[[Page 14649]]

SBSR.\779\ The Commission believes that, to carry out this 
responsibility, it will be necessary to obtain from each registered SDR 
information related to the timeliness, accuracy, and completeness of 
data reported to the registered SDR by the SDR's participants. Required 
data submissions that are untimely,\780\ inaccurate,\781\ or incomplete 
\782\ could compromise the regulatory data that the Commission would 
utilize to carry out its oversight responsibilities. Furthermore, 
required data submissions that are untimely, inaccurate, or incomplete 
could diminish the value of publicly disseminated reports that are 
meant to promote transparency and price discovery.
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    \779\ Under Title VII, registered SDRs are not self-regulatory 
organizations and thus lack the enforcement authority that self-
regulatory organizations have over their members under the Exchange 
Act. Any information or reports requested by the Commission under 
Rule 907(e) would assist the Commission in examining for and 
enforcing compliance with Regulation SBSR by reporting parties.
    \780\ For example, a registered SDR would be able to determine 
that a reporting side had reported late if the date and time of 
submission were more than 24 hours after the date and time of 
execution reported by the reporting side (or, if 24 hours after the 
time of execution would have fallen on a day that was not a business 
day, then after that same time on the next business day). See Rule 
901(j).
    \781\ Some examples of clearly inaccurate data would include 
using lettered text in a field that clearly requires a number (or 
vice versa), or using a UIC that corresponds to no valid LEI or to a 
UIC issued or endorsed by the registered SDR.
    \782\ An example of an incomplete report would be leaving one or 
more required reporting fields blank.
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    Accordingly, the Commission proposed and re-proposed Rule 907(e), 
which would have required a registered SDR to ``have the capacity to 
provide to the Commission, upon request, information or reports related 
to the timeliness, accuracy, and completeness of data reported to it'' 
pursuant to Regulation SBSR and the registered SDR's policies and 
procedures. The sole commenter on this provision agreed that an SDR 
should be able to ``readily provide the Commission with any relevant 
information,'' but noted that an SDR might not be in the best position 
to confirm the accuracy of the trade information it receives.\783\ The 
commenter believed that ultimate responsibility for the submission of 
accurate and complete information belongs with the reporting side, and 
that Rule 907(e) should be revised to reflect that an SDR's information 
will ``only be as timely, accurate, and complete as provided to it by 
parties to the trade.'' \784\
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    \783\ DTCC V at 14.
    \784\ Id.
---------------------------------------------------------------------------

    The Commission is adopting Rule 907(e) with a minor revision. The 
final rule provides that a registered SDR ``shall provide, upon 
request, information or reports . . .'' rather than, as proposed and 
re-proposed, that a registered SDR ``shall have the capacity to provide 
. . .'' This language better conveys the Commission's expectation that, 
not only must a registered SDR have the capacity to provide the 
relevant information or reports, it must in fact provide such 
information or reports when the Commission requests. The Commission 
believes that this revision accords with the commenter who stated that 
an SDR should be able to ``readily provide the Commission with any 
relevant information.'' \785\
---------------------------------------------------------------------------

    \785\ See note 783, supra.
---------------------------------------------------------------------------

    However, the Commission is not revising Rule 907(e) to reflect that 
an SDR's information will ``only be as timely, accurate, and complete 
as provided to it by parties to the trade,'' as requested by the 
commenter.\786\ The Commission appreciates that there could be certain 
data elements submitted by reporting sides that a registered SDR could 
not reasonably be expected to know are inaccurate. For example, if the 
reporting side submits a valid trader ID for trader X when in fact the 
transaction was carried out by trader Y, the Commission would not 
expect a Rule 907(e) report provided by a registered SDR to reflect 
this fact. The Commission notes, however, that Rule 13n-5(b)(1)(iii) 
under the Exchange Act requires an 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 
security-based swap data repository is complete and accurate.'' Thus, 
the Commission could require a registered SDR to include in a Rule 
907(e) report any instances where a reporting side reported a trader ID 
that fails the SDR's validation rules, because the SDR is in a position 
to know which trader IDs (and other UICs) are consistent with UICs 
assigned to traders of its participants.\787\
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    \786\ Id.
    \787\ See also Section 13(n)(5)(B) of the Exchange Act, 15 
U.S.C. 78m(n)(5)(B) (requiring an SDR to ``confirm with both 
counterparties to the security-based swap the accuracy of the data 
that was submitted''); Rule 13n-4(b)(3) under the Exchange Act 
(implementing that requirement).
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XV. Rule 908--Cross-Border Reach of Regulation SBSR

    Security-based swap business currently takes place across national 
borders, with agreements negotiated and executed between counterparties 
in different jurisdictions (which might then be booked and risk-managed 
in still other jurisdictions).\788\ Given the global nature of the 
market and to help ensure an effective regime for regulatory reporting 
and public dissemination of security-based swap transactions under 
Title VII, it is important that Regulation SBSR identify which 
transactions in this global market will be subject to these Title VII 
requirements. Regulation SBSR, as initially proposed in November 2010, 
included Rule 908, which sought to address the cross-border application 
of the regulatory reporting and public dissemination requirements. In 
the Cross-Border Proposing Release, issued in May 2013, the Commission 
re-proposed Rule 908 with substantial revisions. Commenters' views on 
re-proposed Rule 908 and the final rule, as adopted by the Commission, 
are discussed in detail below, following a discussion of the 
Commission's approach to cross-border application of its authority 
under Title VII and the Exchange Act generally.
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    \788\ Security-based swap market data indicates that many 
security-based swap transactions involve activity in more than one 
jurisdiction. See infra Section XXII(B)(1)(b) (noting that data in 
the Trade Information Warehouse reveals that approximately 13% of 
price-forming transactions in North American single-name CDS 
transaction from January 2008 to December 2013 were between two 
U.S.-domiciled counterparties; 48% of such transactions were cross-
border transactions between a U.S.-domiciled counterparty and a 
foreign-domiciled counterparty; and an additional 39% were between 
two foreign-domiciled counterparties).
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A. General Considerations

    As stated in the Cross-Border Adopting Release, the Commission 
continues to believe that a territorial approach to the application of 
Title VII--including the requirements relating to regulatory reporting 
and public dissemination of security-based swap transactions--is 
appropriate.\789\ This approach, properly understood, 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.\790\ Once the Commission has identified the activity regulated 
by the statutory provision, it then determines whether a person is 
engaged in conduct that the statutory provision regulates and whether 
this conduct occurs within the United States.\791\
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    \789\ See 79 FR 47287.
    \790\ See Morrison v. Nat'l Australia Bank, Ltd., 130 S. Ct. 
2869, 2884 (2010) (identifying focus of statutory language to 
determine what conduct was relevant in determining whether the 
statute was being applied to domestic conduct).
    \791\ When the statutory text does not describe the relevant 
activity with specificity or provides for further Commission 
interpretation of statutory terms or requirements, this analysis may 
require the Commission to identify through interpretation of the 
statutory text the specific activity that is relevant under the 
statute or to incorporate prior interpretations of the relevant 
statutory text. See Cross-Border Adopting Release, 79 FR 47287 
(explaining the Commission's approach to interpreting Title VII 
requirements).

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[[Page 14650]]

    Under the foregoing analysis, when a U.S. person enters into a 
security-based swap, the security-based swap necessarily exists at 
least in part within the United States. The definition of ``U.S. 
person''--adopted in the Cross-Border Adopting Release and incorporated 
by reference into Regulation SBSR--is intended, in part, to identify 
those persons for whom it is reasonable to infer that a significant 
portion of their financial and legal relationships is likely to exist 
within the United States, and that it is therefore reasonable to 
conclude that risk arising from their security-based swap activities 
could manifest itself within the United States, regardless of the 
location of their counterparties, given the ongoing nature of the 
obligations that result from security-based swap transactions.\792\ 
Under its territorial approach, the Commission seeks to apply Title 
VII's regulatory reporting and public dissemination requirements in a 
consistent manner to differing organizational structures that serve 
similar economic purposes, and thereby avoid creating different 
regulatory outcomes for differing legal arrangements that raise similar 
policy considerations and pose similar economic risks to the United 
States.\793\ Therefore, as discussed in the Cross-Border Adopting 
Release, this territorial application of Title VII requirements extends 
to the activities of U.S. person conducted through a foreign branch or 
office \794\ and to the activities of a non-U.S. person for which the 
U.S. person provides a recourse guarantee.\795\
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    \792\ See 79 FR 47288-89. As discussed below, the Commission is 
adopting a definition of ``U.S. person'' in Regulation SBSR that 
cross-references the definition adopted as part of the Cross-Border 
Adopting Release.
    \793\ See id. at 47344.
    \794\ See id. at 47289.
    \795\ See id. at 47289-90.
---------------------------------------------------------------------------

    The Commission further notes that Section 15F(f)(1)(A) of the 
Exchange Act \796\ provides that each registered security-based swap 
dealer and major security-based swap participant ``shall make such 
reports as are required by the Commission, by rule or regulation, 
regarding the transactions and positions and financial condition of the 
registered security-based swap dealer or major security-based swap 
participant.'' \797\
---------------------------------------------------------------------------

    \796\ 15 U.S.C. 78o-10(f)(1)(A).
    \797\ In addition, Section 30(c) of the Exchange Act, 15 U.S.C. 
78dd(c), authorizes the Commission to apply Title VII to persons 
transacting a business ``without the jurisdiction of the United 
States'' if they contravene rules that the Commission has prescribed 
as ``necessary or appropriate to prevent the evasion of any 
provision'' of Title VII. As the Commission stated in the Cross-
Border Adopting Release, Section 30(c) does not require a finding 
that actual evasion has occurred or is occurring to invoke the 
Commission's authority to reach activity ``without the jurisdiction 
of the United States'' or to limit application of Title VII to 
security-based swap activity ``without the jurisdiction of the 
United States'' only to business that is transacted in a way that is 
purposefully intended to evade Title VII. See 79 FR 47291. The focus 
of this provision is not whether such rules impose Title VII 
requirements only on entities engaged in activity that is 
consciously evasive, but whether the rules are generally ``necessary 
or appropriate'' to prevent potential evasion of Title VII. The 
Commission therefore disagrees with the commenter who stated that 
the Commission ``should not adopt an extraterritorial regulatory 
framework premised on the assumption that activities conducted 
outside the U.S. will be undertaken abroad for the purpose of 
evasion.'' Cleary III at 5.
---------------------------------------------------------------------------

    Finally, the Commission seeks to minimize the potential for 
duplicative or conflicting regulations. The Commission recognizes the 
potential for market participants who engage in cross-border security-
based swap activity to be subject to regulation under Regulation SBSR 
and parallel rules in foreign jurisdictions in which they operate. To 
address this possibility, the Commission--as described in detail 
below--is adopting a ``substituted compliance'' framework. The 
Commission may issue a substituted compliance determination if it finds 
that the corresponding requirements of the foreign regulatory system 
are comparable to the relevant provisions of Regulation SBSR, and are 
accompanied by an effective supervisory and enforcement program 
administered by the relevant foreign authorities.\798\ The availability 
of substituted compliance is designed to reduce the likelihood of 
cross-border market participants being subject to potentially 
conflicting or duplicative reporting requirements.
---------------------------------------------------------------------------

    \798\ See Rule 908(c). See also infra Section XV(E).
---------------------------------------------------------------------------

B. Definition of ``U.S. Person''

    In the Regulation SBSR Proposing Release, the Commission proposed 
to define ``U.S. person'' as ``a natural person that is a U.S. citizen 
or U.S. resident or a legal person that is organized under the 
corporate laws of any part of the United States or has its principal 
place of business in the United States.'' \799\ In the Cross-Border 
Proposing Release, the Commission introduced a new definition of ``U.S. 
person'' that it proposed to use in all Title VII rulemakings to 
promote consistency and transparency, which differed from the initially 
proposed definition in certain respects. Re-proposed Rule 900(pp) would 
have defined ``U.S. person'' by cross-referencing proposed Rule 3a71-
3(a)(7), which would have defined ``U.S. person'' as:
---------------------------------------------------------------------------

    \799\ Rule 900 as initially proposed. See also Regulation SBSR 
Proposing Release, 75 FR 75284.
---------------------------------------------------------------------------

    (i) Any natural person resident in the United States;
    (ii) any partnership, corporation, trust, or other legal person 
organized or incorporated under the laws of the United States or having 
its principal place of business in the United States; and
    (iii) any account (whether discretionary or non-discretionary) of a 
U.S. person.\800\
---------------------------------------------------------------------------

    \800\ See Cross-Border Proposing Release, 78 FR 31207.
---------------------------------------------------------------------------

    The Commission received extensive comment on this proposed 
definition of ``U.S. person'' and responded to those comments in the 
Cross-Border Adopting Release.\801\
---------------------------------------------------------------------------

    \801\ See 79 FR 47303-13. These comments focused on the proposed 
definition generally and did not address the application of the 
definition to Regulation SBSR.
---------------------------------------------------------------------------

    The Commission adopted a definition of ``U.S. person'' in the 
Cross-Border Adopting Release as Rule 3a71-3(a)(4) under the Exchange 
Act, which reflects a territorial approach to the application of Title 
VII.\802\ The Commission believes that using the same definition of 
``U.S. person'' in multiple Title VII rules could benefit market 
participants by eliminating complexity that might result from the use 
of different definitions for different Title VII rules. Accordingly, 
final Rule 900(ss) of Regulation SBSR defines ``U.S. person'' to have 
the same meaning as in Rule 3a71-3(a)(4). Rule 3a71-3(a)(4)(i) defines 
``U.S. person'' as: (1) A natural person resident in the United States; 
\803\ (2) 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 
\804\ in the

[[Page 14651]]

United States; (3) an account (whether discretionary or non-
discretionary) of a U.S. person; or (4) any estate of a decedent who 
was a resident of the United States at the time of death. As discussed 
in the Cross-Border Adopting Release, the Commission believes that a 
definition of ``U.S. person'' that focused solely on whether a legal 
person is organized, incorporated, or established in the United States 
could encourage some entities to move their place of incorporation to a 
non-U.S. jurisdiction to avoid complying with Title VII, while 
maintaining their principal place of business in the United 
States.\805\
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    \802\ See Cross-Border Adopting Release, 79 FR 47308, note 255.
    \803\ Rule 3a71-3(a)(5) under the Exchange Act, 17 CFR 240.3a71-
3(a)(4), defines ``United States'' as the United States of America, 
its territories and possessions, any State of the United States, and 
the District of Columbia.
    \804\ Rule 3a71-3(a)(4)(ii) under the Exchange Act, 17 CFR 
240.3a71-3(a)(4)(ii), defines ``principal place of business'' as the 
location from which the officers, partners, or managers of the legal 
person primarily direct, control, and coordinate the activities of 
the legal person. With respect to an externally managed investment 
vehicle, this location is the office from which the manager of the 
vehicle primarily directs, controls, and coordinates the investment 
activities of the vehicle. See also Cross-Border Adopting Release, 
79 FR 47308 (discussing the Commission's rationale for adopting the 
``principal place of business'' test).
    \805\ See id., 79 FR 47309, note 262 (``The final definition of 
`principal place of business' will help ensure that entities do not 
restructure their business by incorporating under foreign law while 
continuing to direct, control, and coordinate the operations of the 
entity from within the United States, which would enable them to 
maintain a significant portion of their financial and legal 
relationships within the United States while avoiding application of 
Title VII requirements to such transactions'').
---------------------------------------------------------------------------

    By incorporating Rule 3a71-3(a)(4) by reference, Regulation SBSR 
also incorporates subparagraph (iv) of Rule 3a71-3(a)(4), which allows 
a person to rely on a counterparty's representation that the 
counterparty is not a U.S. person, unless such person knows or has 
reason to know that the representation is inaccurate. As explained in 
the Cross-Border Adopting Release,\806\ Rule 3a71-3(a)(4)(iv) reflects 
a constructive knowledge standard for reliance. Under this standard, a 
counterparty is permitted to rely on a representation, unless such 
person knows or has reason to know that it is inaccurate. A person 
would have reason to know the representation is not accurate if a 
reasonable person should know, under all of the facts of which the 
person is aware, that it is not accurate.\807\ Expressly permitting 
market participants to rely on such representations in the ``U.S. 
person'' definition should help facilitate the determination of which 
side to a security-based swap is the reporting side and mitigate 
challenges that could arise in determining a counterparty's U.S.-person 
status under the final rule.\808\ It permits the party best positioned 
to make this determination to perform an analysis of its own U.S.-
person status and convey, in the form of a representation, the results 
of that analysis to its counterparty. Such representations should help 
reduce the potential for inconsistent classification and treatment of a 
person by its counterparties and promote uniform application of Title 
VII.\809\
---------------------------------------------------------------------------

    \806\ See id. at 47313.
    \807\ To the extent that a person has knowledge of facts that 
could lead a reasonable person to believe that a counterparty may 
not be a U.S. person under the definition, it might need to conduct 
additional diligence before relying on the representation. See id. 
at 47313, note 302.
    \808\ As discussed below, under Rule 908(a), the U.S.-person 
status of the counterparties to a security-based swap is one factor 
in determining whether the security-based swap is subject to 
Regulation SBSR. If a security-based swap is subject to Regulation 
SBSR, the U.S.-person status of the counterparties may influence the 
determination of the reporting side under Rule 901(a)(2)(ii). See 
supra Section V(B).
    \809\ The final rule permitting reliance on representations with 
respect to a counterparty's U.S.-person status applies only to the 
definition of ``U.S. person'' as used in Regulation SBSR and does 
not apply to any determination of a person's U.S.-person status 
under any other provision of the federal securities laws, including 
Commission rules, regulations, interpretations, or guidance.
---------------------------------------------------------------------------

    Rule 3a71-3(a)(4)(iii)--and thus Regulation SBSR--provides that the 
term ``U.S. person'' does not include the International Monetary Fund, 
the International Bank for Reconstruction and Development, the Inter-
American Development Bank, the Asian Development Bank, the African 
Development Bank, the United Nations; their agencies and pension plans; 
and any other similar international organizations and their agencies 
and pension plans. Therefore, a security-based swap involving any such 
institution, for that fact alone, will not be subject to regulatory 
reporting or public dissemination under Regulation SBSR.\810\ However, 
as discussed in Section XVI(A), infra, a security-based swap 
transaction involving such an institution could be subject to 
regulatory reporting and/or public dissemination, depending on the 
domicile and registration status of the other side of the transaction.
---------------------------------------------------------------------------

    \810\ See infra Section XV(C) (discussing when a security-based 
swap is subject to regulatory reporting and public dissemination).
---------------------------------------------------------------------------

    Finally, similar to the approach taken by the Commission in the 
Cross-Border Adopting Release for purposes of the de minimis 
calculation,\811\ a change in a counterparty's U.S.-person status after 
a security-based swap is executed would not affect the original 
transaction's treatment under Regulation SBSR. However, if that person 
were to enter into another security-based swap following its change in 
status, any duties required by Regulation SBSR would be determined 
according to the new status of that person at the time of the second 
security-based swap.
---------------------------------------------------------------------------

    \811\ See 79 FR 47313, note 300.
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C. Scope of Security-Based Swap Transactions Covered by Requirements of 
Regulation SBSR--Rule 908(a)

1. Transactions Involving a Direct Counterparty That Is a U.S. Person
    Under both the proposal and re-proposal, any security-based swap 
that had a direct counterparty that is a U.S. person would have been 
subject to both regulatory reporting and public dissemination, 
regardless of the registration status or domicile of any counterparty 
on the other side of the transaction. Commenters generally did not 
object to this aspect of the proposal and the re-proposal.\812\
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    \812\ Some commenters supported a cross-border jurisdictional 
regime that would apply security-based swap regulation on the basis 
of whether a direct counterparty to a security-based swap is a U.S. 
person. See, e.g., JFMC Letter at 5; JSDA Letter at 3-4; AFR Letter 
at 4, 13-14. These commenters did not, however, raise this 
suggestion specifically in the context of Regulation SBSR. See also 
IIB Letter at 11 (observing that a status-based test for 
jurisdictional application would be more appropriate than a 
territorial approach based on the location of conduct). The Cross-
Border Adopting Release addressed these comments. See 79 FR 47302-
06.
---------------------------------------------------------------------------

    Final Rule 908(a)(1)(i) provides, in relevant part, that a 
security-based swap shall be subject to regulatory reporting and public 
dissemination if ``[t]here is a direct . . . counterparty that is a 
U.S. person on either or both sides of the transaction.'' Thus, any 
security-based swap that has a direct counterparty that is a U.S. 
person is subject to both regulatory reporting and public 
dissemination, regardless of the registration status or domicile of any 
counterparty on the other side of the transaction. This determination 
is consistent with the territorial application of Title VII described 
above, because any security-based swap that has a U.S.-person direct 
counterparty exists at least in part within the United States. One 
purpose of the rule is to allow the Commission and other relevant 
authorities to access, for regulatory and supervisory purposes, a 
record of each such transaction. A second purpose of the rule is to 
carry out the Title VII mandate for public dissemination of security-
based swap transactions. The transparency benefits of requiring public 
dissemination of security-based swaps involving at least one U.S.-
person direct counterparty would inure to other U.S. persons and the 
U.S. market generally, as other participants in the U.S. market are 
likely to transact in the same or related instruments.

[[Page 14652]]

2. Transactions Conducted Through a Foreign Branch or Office
    Rule 908(a), as initially proposed, treated foreign branches and 
offices of U.S. persons as integral parts of the U.S. person 
itself.\813\ Therefore, Rule 908(a), as initially proposed, would not 
have treated a security-based swap transaction executed by or through a 
foreign branch or office of a U.S. person any differently than any 
other transaction executed by the U.S. person.
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    \813\ See Regulation SBSR Proposing Release, 75 FR 75240 
(``Because a branch or office has no separate legal existence under 
corporate law, the branch or office would be an integral part of the 
U.S. person itself'').
---------------------------------------------------------------------------

    In the Cross-Border Proposing Release, the Commission revised its 
approach to transactions conducted through a foreign branch. Although 
all transactions conducted through a foreign branch or office would 
have been subject to regulatory reporting, re-proposed Rule 
908(a)(2)(iii) would have provided an exception to public dissemination 
for transactions conducted through a foreign branch when the other side 
is a non-U.S. person who is not a security-based swap dealer.\814\ In 
proposing this exception to public dissemination for such transactions 
conducted through a foreign branch, the Commission stated that it was 
``concerned that, if it did not take this approach, non-U.S. market 
participants might avoid entering into security-based swaps with the 
foreign branches of U.S. banks so as to avoid their security-based 
swaps being publicly disseminated.'' \815\ However, Rule 908(a)(2) 
would have subjected a transaction conducted through a foreign branch 
to public dissemination if there was, on the other side, a U.S. person 
(including a foreign branch) \816\ or a security-based swap 
dealer.\817\
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    \814\ In the Cross-Border Proposing Release, the term 
``transaction conducted through a foreign branch'' was defined in 
re-proposed Rule 900(hh) to cross-reference the definition of that 
term in proposed Rule 3a71-3(a)(4) under the Exchange Act, and the 
term ``foreign branch'' was defined in re-proposed Rule 900(n) to 
cross-reference the definition of foreign branch in proposed Rule 
3a71-3(a)(1). In the Cross-Border Adopting Release, the Commission 
adopted the term ``foreign branch'' as proposed and adopted the term 
``transaction conducted through a foreign branch'' with certain 
modifications. See 79 FR 47322.
    \815\ Cross-Border Proposing Release, 78 FR 31063.
    \816\ See re-proposed Rule 908(a)(2)(ii).
    \817\ See re-proposed Rule 908(a)(2)(iv).
---------------------------------------------------------------------------

    One commenter expressed the view that foreign branches should be 
treated the same as non-U.S.-person security-based swap dealers for 
purposes of public dissemination, and that security-based swaps between 
two non-U.S. persons, between a non-U.S. person and a foreign branch, 
and between two foreign branches should not be subject to public 
dissemination.\818\ Another commenter, however, stated that ``it should 
be expected that most jurisdictions would seek to apply their rules to 
transactions between two of their own domiciled persons, despite some 
of the activity being conducted abroad.'' \819\ A third commenter 
recommended that the exception to public dissemination for foreign 
branches be eliminated, so that security-based swaps between a foreign 
branch and any non-U.S. person would be subject to public 
dissemination.\820\
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    \818\ See SIFMA/FIA/Roundtable Letter at A-43.
    \819\ IIB Letter at 9. The commenter also noted that ``EMIR [the 
European Markets Infrastructure Regulation] would apply to 
transactions between the U.S. branches of two entities established 
in the EU,'' id., and thus appeared to suggest that U.S. regulation 
should apply to transactions between two foreign branches of U.S. 
persons.
    \820\ See Better Markets IV at 23.
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    As noted above, the Commission is adopting the requirement that any 
security-based swap transaction having a direct counterparty that is a 
U.S. person, including a security-based swap conducted through a 
foreign branch, shall be subject to regulatory reporting. The 
Commission has determined not to adopt the proposed exception from 
public dissemination for certain transactions conducted through a 
foreign branch. Thus, under Rule 908(a)(1)(i), as adopted, any 
security-based swap transaction conducted through a foreign branch is 
subject to both regulatory reporting and public dissemination. Under 
the territorial approach to the application of Title VII requirements 
discussed above, a foreign branch has no separate existence from the 
U.S. person itself. Therefore, any security-based swap transaction 
conducted through a foreign branch is a security-based swap executed by 
the U.S. person itself, and any security-based swap executed by a U.S. 
person exists at least in part within the United States.\821\ The Title 
VII requirements for regulatory reporting and public dissemination 
apply to all security-based swap transactions that exist in whole or in 
part within the United States, unless an exception applies.
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    \821\ See Cross-Border Adopting Release, 79 FR 47289 (describing 
the application of the security-based swap dealer de minimis 
threshold with respect to foreign branches or offices of U.S. 
persons). The Commission notes that a transaction conducted by a 
U.S. person through any other office that does not have a separate 
legal identity from the U.S. person, even if such office does not 
meet the definition of ``foreign branch'' in Rule 3a71-3(a)(2) of 
the Exchange Act, also is a transaction conducted by the U.S. person 
directly, and thus is subject to regulatory reporting and public 
dissemination under Rule 908(a)(1)(i), as adopted.
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    Upon further consideration, the Commission believes that the 
exception from public dissemination for foreign branches in Rule 
908(a), as re-proposed, is not warranted. Granting an exception to 
public dissemination for certain transactions conducted through a 
foreign branch could have created incentives for some U.S. persons to 
utilize foreign branches to evade Title VII's public dissemination 
requirements.\822\ This could be the case particularly in a foreign 
jurisdiction that does not apply rules for public dissemination to all 
or some transactions conducted through foreign branches operating 
within that jurisdiction. Thus, the Commission disagrees with the 
commenter who expressed the view that foreign branches should be 
treated the same as non-U.S. person security-based swap dealers for 
purposes of public dissemination,\823\ and that security-based swaps 
between two non-U.S. persons, between a non-U.S. person and a foreign 
branch, and between two foreign branches should not be subject to 
public dissemination.\824\
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    \822\ Under Rule 908(a)(2)(iii), as re-proposed, public 
dissemination would have applied to a security-based swap between a 
U.S. person direct counterparty and a non-U.S. person (other than a 
security-based swap dealer) unless the U.S. person conducted the 
transaction through a foreign branch. Thus, the U.S. person could 
have directed a non-U.S.-person counterparty to interact only with 
its foreign branch staff, which would have made the transaction 
eligible for the exception provided by re-proposed Rule 
908(a)(2)(iii).
    \823\ As discussed in Section XV(C)(6), infra, if a transaction 
involving a registered security-based swap dealer or registered 
major security-based swap participant does not fall within Rule 
908(a)(1), Rule 908(a)(2), as adopted, subjects that transaction to 
regulatory reporting but not public dissemination.
    \824\ See SIFMA/FIA/Roundtable Letter at A-43.
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 3. Transactions Guaranteed by a U.S. Person
    Regulation SBSR, as initially proposed, did not impose reporting 
requirements based on whether a U.S. person acts as a guarantor of a 
security-based swap. As re-proposed, however, Rule 908(a)(1)(ii) would 
have required regulatory reporting of any security-based swap that had 
a U.S.-person guarantor, even when no direct counterparty was a U.S. 
person.\825\ In addition, Rule 908(a)(2), as re-proposed, would have 
required public dissemination of some, but not all, transactions having 
a U.S.-person indirect counterparty. Re-proposed Rule 908(a)(2)(ii) 
would have provided, in

[[Page 14653]]

relevant part, that a security-based swap is subject to public 
dissemination if there is an indirect counterparty that is a U.S. 
person on each side of the transaction.\826\ Re-proposed Rule 
908(a)(2)(iv) would have provided, in relevant part, that a transaction 
where one side includes a U.S.-person (including an indirect 
counterparty that is a U.S. person) and the other side includes a non-
U.S. person that is a security-based swap dealer would be subject to 
public dissemination. However, a transaction would have been excepted 
from public dissemination if one side consisted of a non-U.S.-person 
direct counterparty and a U.S.-person guarantor, where neither is a 
security-based swap dealer or major security-based swap participant, 
and the other side includes no counterparty that is a U.S. person, 
security-based swap dealer, or major security-based swap participant (a 
``covered cross-border transaction'').\827\
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    \825\ Also in the Cross-Border Proposing Release, the Commission 
proposed new terms ``direct counterparty'' and ``indirect 
counterparty'' to distinguish the primary obligor on the security-
based swap from the person who guarantees the primary obligor's 
performance, respectively. The Commission also proposed the term 
``side'' to refer to the direct counterparty and any guarantor of 
the direct counterparty. See 78 FR 31211.
    \826\ The Commission noted in the Cross-Border Proposing Release 
that, where U.S. persons have an interest on both sides of a 
transaction, even if indirectly, the transaction generally should be 
subject to Title VII's public dissemination requirement. See 78 FR 
31062.
    \827\ As used in this release, a ``covered cross-border 
transaction'' refers to a transaction that meets the description 
above and will not be submitted to clearing at a registered clearing 
agency having its principal place of business in the United States.
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    Commenters generally did not object to the Commission's proposal to 
subject transactions between direct counterparties who are U.S. persons 
to regulatory reporting or public dissemination. However, commenters 
expressed mixed views about extending regulatory reporting and public 
dissemination requirements to transactions involving U.S.-person 
guarantors.\828\ One of these commenters stated that a guarantee of a 
security-based swap transaction by a U.S. person should not affect 
whether the transaction is subject to regulatory reporting or public 
dissemination, because there is too tenuous a nexus to justify applying 
Regulation SBSR on the basis of the guarantee alone.\829\ Another 
commenter recommended that a security-based swap between two non-U.S. 
persons be subject to Commission regulation only where the transaction 
is ``guaranteed by a U.S. person for a significant value.'' \830\ A 
third commenter, however, recommended that the Commission apply Title 
VII rules to transactions in which the risk flows back to a U.S. 
entity, including transactions involving guaranteed foreign 
subsidiaries and branches of U.S. entities.\831\
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    \828\ See SIFMA/FIA/Roundtable Letter at A-41; ESMA Letter at 3; 
AFR Letter at 4, 13-14.
    \829\ See SIFMA/FIA/Roundtable Letter at A-41.
    \830\ ESMA Letter at 3.
    \831\ See AFR Letter at 4, 13-14 (noting that the geographic 
location of the entities ultimately responsible for security-based 
swap liabilities should determine the application of the 
Commission's rules implementing the Dodd-Frank Act). Another 
commenter stated that the proposed definition of ``indirect 
counterparty'' in Regulation SBSR implies that an indirect 
counterparty can cause a trade to be subject to reporting even in 
cases where the direct counterparties to the trade would not lead to 
the conclusion that the trade is reportable. The commenter 
recommended that the Commission amend the definition of ``indirect 
counterparty'' to make it clear that its scope is limited to U.S.-
person guarantors and not all guarantors, to be consistent with the 
intent demonstrated by the Commission in the preamble where 
reference is made to U.S.-person guarantors. See ISDA IV at 4. 
Although the Commission has not amended the definition of ``indirect 
counterparty'' in this manner, such an amendment is not necessary 
because Rule 908(a)(i), as adopted, effectively reaches the same 
result. Rule 908(a)(i) provides that a security-based swap will be 
subject to regulatory reporting and public dissemination if there is 
a direct or indirect counterparty that is a U.S. person on either or 
both sides of the transaction.
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    The Commission is adopting, as re-proposed, in Rule 908(a)(1)(ii) 
the requirement that any transaction involving a U.S.-person guarantor 
is subject to regulatory reporting. The Commission has determined to 
continue to consider whether to carve out covered cross-border 
transactions from public dissemination. Thus, Rule 908(a)(1)(i), as 
adopted, requires public dissemination of all security-based swap 
transactions having a U.S.-person guarantor.\832\ This approach is 
consistent with the territorial approach to applying Title VII 
requirements, described above. A security-based swap with a U.S.-person 
indirect counterparty is economically equivalent to a security-based 
swap with a U.S.-person direct counterparty, and both kinds of 
security-based swaps exist, at least in part, within the United States. 
As the Commission observed in the Cross-Border Adopting Release, the 
presence of a U.S. guarantor facilitates the activity of the non-U.S. 
person who is guaranteed and, as a result, the security-based swap 
activity of the non-U.S. person cannot reasonably be isolated from the 
U.S. person's activity in providing the guarantee.\833\ The financial 
resources of the U.S.-person guarantor could be called upon to satisfy 
the contract if the non-U.S. person fails to meet its obligations. 
Thus, the extension of a guarantee is economically equivalent to a 
transaction entered into directly by the U.S.-person guarantor. 
Accordingly, Rule 908(a)(1)(i), as adopted, provides that a security-
based swap shall be subject to regulatory reporting and public 
dissemination if ``[t]here is a direct or indirect counterparty that is 
a U.S. person on either or both sides of the transaction'' (emphasis 
added). The Commission disagrees with the commenter who stated that a 
guarantee of a security-based swap transaction by a U.S. person should 
not affect whether the transaction is subject to regulatory reporting 
or public dissemination, because there is too tenuous a nexus to 
justify applying Regulation SBSR on the basis of the guarantee 
alone.\834\ Under the territorial approach described above, any 
security-based swap guaranteed by a U.S. person exists at least in part 
within the United States, which triggers the application of Title VII 
requirements. The Commission believes that this is true regardless of 
whether a particular guarantee is ``for a significant value.'' \835\ 
Furthermore, if the Commission does not require regulatory reporting of 
security-based swaps that are guaranteed by U.S. persons--in addition 
to security-based swaps having a U.S.-person direct counterparty--the 
Commission and other relevant authorities could be less likely to 
detect potential market abuse or the build-up of potentially 
significant risks within individual firms or groups or more widespread 
systemic risks to the U.S. financial system.
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    \832\ As discussed below, compliance with Rule 908(a)(1)(i) is 
not required until the Commission establishes a compliance date for 
this provision.
    \833\ See 79 FR 47289 (discussing dealing transactions of non-
U.S. persons that are subject to recourse guarantees by their U.S. 
affiliates).
    \834\ See SIFMA/FIA/Roundtable Letter at A-41.
    \835\ See ESMA Letter at 3.
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    The Commission anticipates seeking additional comment on whether or 
not to except covered cross-border transactions from public 
dissemination in the future. Furthermore, as discussed in the proposed 
compliance schedule for Rules 901, 902, 903, 904, 905, 906, and 908 of 
Regulation SBSR set forth in the Regulation SBSR Proposed Amendments 
Release, the Commission is proposing to defer the compliance date for 
Rule 908(a)(1)(i) with respect to the public dissemination of covered 
cross-border transactions until such time as the Commission has 
received and considered comment on such an exception. Thus, although 
covered cross-border transactions are subject to public dissemination 
under Rule 908(a)(1)(i), as adopted, there would be no public 
dissemination of any such transaction until the Commission considers 
whether these transactions should be excepted from public 
dissemination.

[[Page 14654]]

4. Transactions Accepted for Clearing by a U.S. Clearing Agency
    Re-proposed Rules 908(a)(1)(iv) and 908(a)(2)(v) would have 
required regulatory reporting and public dissemination, respectively, 
of security-based swaps that are ``cleared through a clearing agency 
having its principal place of business in the United States.'' One 
commenter agreed that ``Dodd-Frank's reporting requirements should 
apply to any transaction that . . . was cleared through a registered 
clearing organization having its principal place of business in the 
U.S.'' \836\ Two other commenters objected.\837\ One of these 
commenters observed that Regulation SBSR could require regulatory 
reporting and public dissemination of transaction information before 
the transaction is submitted for clearing; as a result, circumstances 
could arise where the sides would not know whether a particular 
security-based swap is subject to regulatory reporting and public 
dissemination until after reporting deadlines have passed.\838\ The 
other commenter argued that the proposed requirement might discourage 
market participants from clearing transactions in the United States, 
which would be contrary to the objective of reducing systemic 
risk.\839\ Another commenter argued that a transaction between two non-
U.S. persons that is cleared through a clearing agency having its 
principal place of business in the United States should not be subject 
to public dissemination, ``although the clearing agency can provide 
information for regulatory purposes.'' \840\
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    \836\ Id. at 4.
    \837\ See CME II at 5; SIFMA/FIA/Roundtable Letter at A-42.
    \838\ See CME II at 5.
    \839\ See SIFMA/FIA/Roundtable Letter at A-42.
    \840\ ISDA/SIFMA I at 19. The Regulation SBSR Proposed 
Amendments Release addresses the issue of whether registered 
clearing agencies should be required to report security-based swap 
transaction information to a registered SDR.
---------------------------------------------------------------------------

    The Commission is adopting Rule 908(a)(1)(ii) with two 
modifications. The rule, as adopted, provides that a security-based 
swap shall be subject to regulatory reporting and public dissemination 
if ``[t]he security-based swap is accepted for clearing by a clearing 
agency having its principal place of business in the United States.'' 
Rule 908(a)(1)(ii), as adopted, is consistent with the territorial 
approach discussed above. Just as a security-based swap to which a U.S. 
person is a direct or indirect counterparty exists, at least in part, 
within the United States, a security-based swap that is accepted for 
clearing by a clearing agency having its principal place of business in 
the United States also exists, at least in part, within the United 
States. Such acceptance creates ongoing obligations that are borne by a 
U.S. person and thus are properly viewed as existing within the United 
States.\841\
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    \841\ See Cross-Border Adopting Release, 79 FR 47302-03, note 
186 (explaining that security-based swap activity that ``results in 
a transaction involving a U.S. counterparty creates ongoing 
obligations that are borne by a U.S. person, and thus is properly 
viewed as occurring within the United States'').
---------------------------------------------------------------------------

    The Commission acknowledges the concerns of the commenter who 
observed that Regulation SBSR, as re-proposed, could have required 
regulatory reporting and public dissemination of transaction 
information before the transaction is submitted for clearing.\842\ 
Currently, clearing in the security-based swap market is voluntary. 
Therefore, counterparties--if they decide to clear a transaction at 
all--might not submit the transaction to a clearing agency until some 
time after it is executed. The final rule reflects the Commission's 
view that, if a security-based swap is subject to regulatory reporting 
and public dissemination solely because of Rule 908(a)(1)(ii),\843\ the 
duty to report the trade is not triggered by the execution of the 
security-based swap but rather by the registered clearing agency's 
acceptance of the transaction for clearing.\844\ The Commission 
believes that it would not be appropriate to link the reporting 
requirement to the time of execution, because the registered clearing 
agency's acceptance of the transaction for clearing might not take 
place until several days after the time of execution.
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    \842\ See CME II at 5.
    \843\ A transaction also could be subject to regulatory 
reporting and public dissemination because it meets the first prong 
of Rule 908(a)(1): It could have a U.S. person on either or both 
sides of the transaction. Such a transaction must be reported within 
24 hours after the time of execution, regardless of whether the 
transaction is accepted for clearing. See Rule 901(j).
    \844\ See supra Sections II(A)(2)(a) and II(B)(2) (explaining 
that Rule 901(j) provides that the reporting timeframes applicable 
to Rules 901(c) and 901(d) are triggered by acceptance for clearing, 
not the time of execution, if a security-based swap is subject to 
regulatory reporting and public dissemination solely by operation of 
Rule 908(a)(1)(ii)).
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    The Commission disagrees with the commenter who argued that a 
transaction between two non-U.S. persons that is cleared through a 
clearing agency having its principal place of business in the United 
States should not be subject to public dissemination, ``although the 
clearing agency can provide information for regulatory purposes.'' 
\845\ The Commission believes that such transactions--subject to the 
modifications to the rule text noted above--should be subject to both 
regulatory reporting and public dissemination and therefore is not 
adopting the this commenter's recommendation. For the reasons described 
above, the Commission believes that such transactions exist at least in 
part within the United States; therefore, Title VII's requirements for 
both regulatory reporting and public dissemination properly apply to 
such transactions. This approach will permit the Commission and other 
relevant authorities the ability to observe in a registered SDR all of 
the alpha transactions that have been accepted by a registered clearing 
agency having its principal place of business in the United States and 
to carry out oversight of security-based swaps that exist at least in 
part within the United States. Furthermore, the Commission believes 
that public dissemination of such transactions will have value to 
participants in the U.S. security-based swap market, who are likely to 
trade the same or similar products, as these products have been made 
eligible for clearing by a registered clearing agency having its 
principal place of business in the United States.\846\
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    \845\ ISDA/SIFMA I at 19.
    \846\ Another commenter argued that, if the Commission applied 
Regulation SBSR to security-based swaps involving non-U.S. 
counterparties that nevertheless are cleared through a clearing 
agency having its principal place of business in the United States, 
the Commission could require reporting of such transactions to a 
registered SDR ``without exercising further jurisdiction over'' the 
transaction. Soci[eacute]t[eacute] G[eacute]n[eacute]rale Letter at 
12. The commenter believed that ``[t]his solution would provide the 
Commission and U.S. market participants with information about swaps 
cleared in the United States without conflicting with foreign 
regulatory schemes.'' Id. The Commission's decision to require such 
transactions to be reported and publicly disseminated pursuant to 
Regulation SBSR does not necessarily indicate that they will be 
subjected to other requirements of Title VII. The Commission intends 
to address the scope of each of those requirements, including their 
applicability to the types of transactions identified by this 
commenter, in subsequent rulemakings.
---------------------------------------------------------------------------

    Furthermore, the Commission disagrees with the commenter who argued 
that requiring regulatory reporting and public dissemination of 
transactions cleared through a U.S. clearing agency is likely to 
discourage market participants from clearing transactions in the United 
States.\847\ The Commission questions whether the commenters' assertion 
would in fact come to pass. Market participants are likely to consider 
multiple factors when deciding whether and where to clear a security-
based swap. These factors could include the cost of clearing, the

[[Page 14655]]

types of products that can be cleared, the safeguards that clearing 
agencies put in place for customer funds, and clearing agency policies 
on netting and margin. Commenters offered no support for the assertion 
that the application of regulatory reporting and public dissemination 
requirements to transactions that are accepted for clearing by a U.S. 
clearing agency would be a deciding or even a significant factor in 
whether to clear or the choice of clearing agency. Even if this 
assertion were true, however, the Commission believes that it is 
appropriate, for the reasons discussed above, to subject these 
transactions to regulatory reporting and public dissemination.
---------------------------------------------------------------------------

    \847\ See SIFMA/FIA/Roundtable Letter at A-42.
---------------------------------------------------------------------------

    Finally, the Commission recognizes that the reporting hierarchy in 
Rule 901(a)(2)(ii), as adopted, does not assign reporting obligations 
for two kinds of cross-border transaction: (1) A transaction where 
there is no U.S. person, registered security-based swap dealer, or 
registered major security-based swap participant on either side; and 
(2) a transaction where there is no registered security-based swap 
dealer or registered major security-based swap participant on either 
side and there is a U.S. person on only one side. If such a transaction 
is accepted for clearing by a registered clearing agency having its 
principal place of business in the United States, neither side--under 
Regulation SBSR as adopted by the Commission--is required to report the 
transaction to a registered SDR. However, as described in Section V(B), 
supra, the Commission anticipates soliciting further comment on how 
Regulation SBSR should be applied to transactions involving 
unregistered non-U.S. persons, including how reporting duties should be 
assigned for the two kinds of transaction noted above.
5. Transactions Involving a Registered Security-Based Swap Dealer or 
Registered Major Security-Based Swap Participant That Is Not a U.S. 
Person
    Under re-proposed Rule 908(a)(1)(iii), a security-based swap would 
have been subject to regulatory reporting if there is a direct or 
indirect counterparty that is a security-based swap dealer or major 
security-based swap participant on either side of the transaction, 
regardless of the counterparties' place of domicile and regardless of 
the place of execution of the transaction. Under Rule 908(a), as 
initially proposed, a counterparty's status as a security-based swap 
dealer or major security-based swap participant would not by itself 
have triggered reporting obligations for a particular security-based 
swap.\848\
---------------------------------------------------------------------------

    \848\ See proposed Rule 908(a); Regulation SBSR Proposing 
Release, 75 FR 75239-40.
---------------------------------------------------------------------------

    One commenter recommended expanding the public dissemination 
requirement to include security-based swaps that occur outside the 
United States between a non-U.S. person security-based swap dealer and 
a non-U.S. person that is not guaranteed by a U.S. person,\849\ and 
between two non-U.S. person security-based swap dealers.\850\
---------------------------------------------------------------------------

    \849\ See Better Markets IV at 23.
    \850\ See id. at 24.
---------------------------------------------------------------------------

    Rule 908(a)(2), as adopted, provides: ``A security-based swap that 
is not included within paragraph (a)(1) of this section shall be 
subject to regulatory reporting but not public dissemination if there 
is a direct or indirect counterparty on either or both sides of the 
transaction that is a registered security-based swap dealer or a 
registered major security-based swap participant.'' \851\ Thus, a 
security-based swap between a non-U.S. person registered security-based 
swap dealer or registered major security-based swap participant and 
another non-U.S. person (which could include another non-U.S. person 
registered security-based swap dealer or registered major security-
based swap participant), and where neither direct counterparty is 
guaranteed by a U.S. person, would be subject to regulatory reporting 
but not public dissemination. This treatment of security-based swaps 
involving non-U.S. person registered security-based swap dealers and 
non-U.S. person registered major security-based swap participants is 
generally consistent with re-proposed Rule 908(a); the language of 
final Rule 908(a)(2) is designed to clarify that outcome.\852\
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    \851\ A security-based swap involving a U.S.-person that is 
registered as a security-based swap dealer or major security-based 
swap participant is included in Rule 908(a)(1) and is thus subject 
to both regulatory reporting and public dissemination. A security-
based swap between a non-U.S. person that is registered as a 
security-based swap dealer or major security-based swap participant 
and a U.S. person (including a foreign branch or office) also is 
included in Rule 908(a)(1).
    \852\ Rule 908(a)(1)(iii), as re-proposed, would have required 
regulatory reporting of a security-based swap having a direct or 
indirect counterparty that is a registered security-based swap 
dealer or registered major security-based swap participant on either 
side of the transaction. However, Rule 908(a)(2), as re-proposed, 
did not list the existence of a registered security-based swap 
dealer or registered major security-based swap participant on either 
side of the transaction, for that reason alone, as triggering public 
dissemination.
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    The Commission is not at this time taking the view that a security-
based swap involving a registered security-based swap dealer or 
registered major security-based swap participant, for that reason 
alone, exists within the United States. Therefore, the Commission is 
not subjecting any transactions involving a non-U.S.-person registered 
security-based swap dealer or registered major security-based swap 
participant, for its registration status alone, to any requirement 
under Regulation SBSR based on a territorial application of Title VII. 
However, the Commission is requiring non-U.S.-person registered 
security-based swap dealers and registered major security-based swap 
participants to report their security-based swap transactions pursuant 
to Rule 908(a)(2).\853\ Requiring reporting to a registered SDR of all 
transactions entered into by registered security-based swap dealers and 
registered major security-based swap participants will provide the 
Commission and other relevant authorities with important information to 
help with the assessment of their positions and financial 
condition.\854\ Such information could in turn assist the Commission 
and other relevant authorities in assessing and addressing potential 
systemic risks caused by these security-based swap positions, or in 
detecting insider trading or other market abuse.
---------------------------------------------------------------------------

    \853\ See Section 15F(f)(1)(A) of the Exchange Act, 15 U.S.C. 
78o-10(f)(1)(A) (providing that each registered security-based swap 
dealer and major security-based swap participant ``shall make such 
reports as are required by the Commission, by rule or regulation, 
regarding the transactions and positions and financial condition of 
the registered security-based swap dealer or major security-based 
swap participant'').
    \854\ In the Cross-Border Proposing Release, the Commission 
noted its longstanding view that an entity that has registered with 
the Commission subjects itself to the entire regulatory system 
governing such regulated entities. See 78 FR 30986.
---------------------------------------------------------------------------

    The Commission notes that a non-U.S. person that is registered as a 
security-based swap dealer or major security-based swap participant, 
when reporting a transaction that falls within Rule 908(a)(2), must 
comply with the policies and procedures of the registered SDR regarding 
how to flag the transaction as not subject to public dissemination. The 
Commission would not view a registered SDR as acting inconsistent with 
Rule 902 for publicly disseminating a security-based swap that falls 
within Rule 908(a)(2) if the reporting side had failed to appropriately 
flag the transaction.
6. No Final Rule Regarding Transactions Conducted Within the United 
States.
    Under re-proposed Rule 908(a)(1)(i), a security-based swap would 
have been subject to regulatory reporting if it was a transaction 
conducted within the

[[Page 14656]]

United States.\855\ Re-proposed Rule 908(a)(1)(i) preserved the 
principle--but not the specific language--from the initial proposal 
that a security-based swap would be subject to regulatory reporting if 
it is executed in the United States.\856\ When the Commission re-
proposed Rule 908(a)(1)(i) in the Cross-Border Proposing Release, the 
Commission expressed concern that the language in the Regulation SBSR 
Proposing Release could have required a security-based swap to be 
reported if it had only the slightest connection with the United 
States.\857\
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    \855\ A security-based swap would be a ``transaction conducted 
within the United States'' if it is solicited, negotiated, executed, 
or booked within the United States, by or on behalf of either 
counterparty to the transaction, regardless of the location, 
domicile, or residence status of either counterparty to the 
transaction. See proposed Rule 240.3a71-3(a)(5) under the Exchange 
Act; Cross-Border Proposing Release, 78 FR 31297; re-proposed Rule 
900(ii). The word ``counterparty'' as used within this term would 
have the same meaning as ``direct counterparty'' in re-proposed Rule 
900(j) of Regulation SBSR. See Cross-Border Proposing Release, 78 FR 
31061.
    \856\ Rule 908(a), as initially proposed, would have required 
regulatory reporting of any security-based swap that is ``executed 
in the United States or through any means of interstate commerce.'' 
See Regulation SBSR Proposing Release, 75 FR 75287.
    \857\ See 78 FR 31061.
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    Re-proposed Rules 908(a)(1)(i) and 908(a)(2)(i) would have 
subjected a security-based swap transaction to Regulation SBSR's 
regulatory reporting and public dissemination requirements, 
respectively, if the security-based swap was a ``transaction conducted 
within the United States.'' Commenters expressed divergent views 
regarding this provision \858\ and, after careful consideration, the 
Commission has decided not to adopt re-proposed Rule 908(a)(1)(i) or 
908(a)(2)(i) at this time. As discussed above, the Commission 
anticipates seeking additional public comment on whether and, if so, 
how regulatory reporting and public dissemination requirements should 
be applied to transactions involving non-U.S. persons when they engage 
in conduct within the United States.\859\
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    \858\ See ABA Letter at 3; Citadel Letter at 1-2; Cleary III at 
28; IAA Letter at 6; IIB Letter at 9; SIFMA/FIA/Roundtable Letter at 
A-42; Pearson Letter at 2; FOA Letter at 7-8; JFMC Letter at 4-5; 
ISDA IV at 18.
    \859\ In addition, the Commission has authority to promulgate 
rules, including additional regulatory requirements, applicable to 
persons transacting a business in security-based swaps ``without the 
jurisdiction of the United States'' when ``necessary or 
appropriate'' to prevent evasion of the provisions of Title VII of 
the Dodd-Frank Act. The Commission is not necessarily exercising the 
full extent of its authorities today but will be monitoring for gaps 
in reporting of swaps outside the United States that could be an 
evasion of the Commission's rules and regulations. See Section 30(c) 
of the Exchange Act, 15 U.S.C. 78dd(c).
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D. Limitations on Counterparty Reporting Obligations--Rule 908(b)

    As-proposed, Rule 908(b) would have provided that, notwithstanding 
any other provision of Regulation SBSR, a direct or indirect 
counterparty to a security-based swap would not incur any obligation 
under Regulation SBSR unless the counterparty is:
    (1) A U.S. person;
    (2) a security-based swap dealer or major security-based swap 
participant; or
    (3) a counterparty to a transaction conducted within the United 
States.
    The Commission received no comments that specifically addressed re-
proposed Rule 908(b).\860\
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    \860\ However, several commenters argued that specific 
requirements under Regulation SBSR should not apply to certain kinds 
of counterparties in certain circumstances. All of these comments 
are discussed in relation to Rule 908(a) in the section immediately 
above.
---------------------------------------------------------------------------

    At this time, the Commission is adopting only the first two prongs 
of Rule 908(b). Thus, Rule 908(b), as adopted, provides that, 
notwithstanding any other provision of Regulation SBSR, a person shall 
not incur any obligation under Regulation SBSR unless it is a U.S. 
person, a registered security-based swap dealer, or a registered major 
security-based swap participant. As discussed above, U.S. persons can 
be subjected to requirements under Title VII because their 
transactions, whether undertaken directly or indirectly, exist at least 
in part within the United States. Furthermore, registered security-
based swap dealers and registered major security-based swap 
participants are required to report their security-based swap 
transactions.\861\
---------------------------------------------------------------------------

    \861\ See supra Section XV(C)(5), note 853 and accompanying 
text.
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    Rule 908(b) is designed to specify the types of persons that will 
incur duties under Regulation SBSR. If a person does not come within 
any of the categories enumerated by Rule 908(b), it would not incur any 
duties under Regulation SBSR. Under Rule 908(b), as adopted, a non-U.S. 
person incurs no duties under Regulation SBSR unless it is a registered 
security-based swap dealer or registered major security-based swap 
participant. The Commission believes that this modification will reduce 
assessment costs and provide greater legal certainty to counterparties 
engaging in cross-border security-based swaps. The Commission 
anticipates soliciting additional public comment on whether regulatory 
reporting and/or public dissemination requirements should be extended 
to transactions occurring within the United States between non-U.S. 
persons and, if so, which non-U.S. persons should incur reporting 
duties under Regulation SBSR.

E. Substituted Compliance--Rule 908(c)

1. General Considerations
    The security-based swap market is global in scope, and relevant 
authorities around the globe are in the process of adopting security-
based swap reporting and public dissemination requirements within their 
jurisdictions. Once these new requirements are finalized and take 
effect, market participants that engage in security-based swap 
transactions involving more than one jurisdiction could be subject to 
conflicting or duplicative reporting or public dissemination 
obligations. As initially proposed, Regulation SBSR did not contemplate 
that the reporting and public dissemination requirements associated 
with cross-border security-based swaps could be satisfied by complying 
with the rules of a foreign jurisdiction instead of U.S. rules. Thus, 
in many cases, counterparties to a security-based swap would have been 
required to comply with proposed Regulation SBSR even if reporting of a 
security-based swap also was required under the rules of a foreign 
jurisdiction.
    As discussed in the Cross-Border Proposing Release,\862\ a number 
of commenters urged the Commission to allow compliance with comparable 
home country requirements to substitute for compliance with the 
parallel U.S. requirements.\863\ In response to those comments and 
recognizing that other jurisdictions may implement regulatory reporting 
and public dissemination regimes for security-based swaps that are 
comparable to the requirements set forth in Title VII and Regulation 
SBSR, the Commission re-proposed Rule 908 in the Cross-Border Proposing 
Release to include a new paragraph (c). Rule 908(c), as re-proposed, 
would have permitted, under certain conditions, substituted compliance 
for regulatory reporting and public dissemination requirements relating 
to security-based swaps. The Commission preliminarily believed that the 
availability of substituted compliance would reduce the likelihood that 
market participants would be subject to potentially conflicting or 
duplicative sets of rules while still meeting the statutory and policy 
objectives of Title VII. Re-proposed Rule 908(c) would have

[[Page 14657]]

specified the security-based swaps that would be eligible for 
substituted compliance and would have established procedures for market 
participants to request, and for the Commission to issue, substituted 
compliance orders.
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    \862\ See 78 FR 31092.
    \863\ See, e.g., Cleary III at 15-16; Davis Polk I at 7, 11; 
Davis Polk II at 21-22; Soci[eacute]t[eacute] G[eacute]n[eacute]rale 
Letter at 11; CCMR II at 2. See also Cross-Border Adopting Release, 
79 FR 47357-58 (discussing several comments relating to substituted 
compliance issues generally).
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    As discussed in detail below, the Commission is adopting Rule 
908(c) substantially as re-proposed, with minor modifications also 
described below. The Commission believes in general that, if a foreign 
jurisdiction applies a comparable system for the regulatory reporting 
and public dissemination of security-based swaps, it would be 
appropriate to consider permitting affected market participants to 
comply with the foreign requirements to satisfy the comparable 
requirements of Regulation SBSR. Where the Commission finds that a 
foreign jurisdiction's reporting and public dissemination requirements 
are comparable to those implemented by the Commission, Rule 908(c) 
provides that the Commission may make a substituted compliance 
determination with respect to such jurisdiction for these requirements. 
The Commission believes that permitting substituted compliance could 
reduce the likelihood that market participants would be subject to 
conflicting or duplicative regulation with respect to a security-based 
swap transaction.
    In adopting Rule 908(c), the Commission is not making any 
assessment at this time regarding whether any foreign jurisdiction's 
requirements for regulatory reporting and public dissemination of 
security-based swaps are comparable to Regulation SBSR. Furthermore, 
because the analysis of any particular foreign jurisdiction would be 
very fact specific, it is impractical for the Commission to opine at 
this time on whether specific aspects of a foreign system would or 
would not allow the Commission to make a comparability determination. 
In view of the many technical differences that could exist between the 
Commission's Title VII rules and parallel requirements in other 
jurisdictions, the Commission stated in the Cross-Border Proposing 
Release that ``the Commission would endeavor to take a holistic 
approach in making substituted compliance determinations--that is, we 
would ultimately focus on regulatory outcomes as a whole with respect 
to the requirements within the same category rather than a rule-by-rule 
comparison.'' \864\ The Commission continues to believe that this 
approach to comparability is appropriate, and intends to focus on 
regulatory outcomes as a whole when considering whether to make a 
comparability determination.
---------------------------------------------------------------------------

    \864\ 78 FR 31085-86.
---------------------------------------------------------------------------

2. Substituted Compliance Procedure--Rule 908(c)(2)(i)
    Rule 908(c)(2)(i), as re-proposed, would have allowed the 
Commission, conditionally or unconditionally, by order, to make a 
substituted compliance determination regarding regulatory reporting and 
public dissemination with respect to a foreign jurisdiction ``if that 
foreign jurisdiction's requirements for regulatory reporting and public 
dissemination of security-based swaps are comparable to otherwise 
applicable requirements'' under Regulation SBSR.
    A number of commenters endorsed the Commission's proposal to permit 
substituted compliance with Regulation SBSR.\865\ One of these 
commenters noted, for example, that substituted compliance would reduce 
burdens on businesses in the United States and elsewhere without 
weakening oversight, thus allowing firms to use funds more 
efficiently.\866\ However, two commenters recommended that the 
Commission narrow the proposed availability of substituted compliance. 
One of these commenters stated that the Commission's proposed controls 
on substituted compliance would be inadequate.\867\ The commenter 
further stated that, although substituted compliance potentially has a 
legitimate role to play in a cross-border regulatory regime, the 
greater the scope for substituted compliance, the stricter the controls 
should be on the ability to substitute foreign rules for U.S. 
rules.\868\ The other commenter stated that the Cross-Border Proposing 
Release failed to provide an adequate legal or policy justification for 
allowing substituted compliance.\869\ This commenter believed that, 
rather than using substituted compliance, the Commission should 
exercise its exemptive authority sparingly and only upon finding an 
actual conflict exists with a particular foreign regulation.\870\
---------------------------------------------------------------------------

    \865\ See ESMA Letter at 2-3; FOA Letter at 2-3; IIF Letter at 
1-2; JSDA Letter at 2; MFA/AIMA Letter at 5-7.
    \866\ See IIF Letter at 3.
    \867\ See AFR Letter at 8.
    \868\ See id.
    \869\ See Better Markets IV at 3, 24-25 (noting that the 
Commission's duty is to protect investors and the public consistent 
with congressional policy, not to minimize the costs, burdens, or 
inconvenience that regulation imposes on industry).
    \870\ See id. at 26.
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    The Commission has carefully considered these comments and 
determined to adopt Rule 908(c)(2)(i) as re-proposed, with one 
modification, as described in Section XV(E)(3), infra. Permitting 
substituted compliance should reduce the likelihood that market 
participants face duplicative or contradictory reporting or public 
dissemination requirements, and thereby decrease costs and 
administrative burdens on market participants without compromising the 
regulatory goals of Title VII. The requirements for substituted 
compliance are designed to ensure that the Title VII requirements for 
regulatory reporting and public dissemination of security-based swaps 
are being satisfied, albeit through compliance with the rules of a 
foreign jurisdiction rather than the specific provisions of Regulation 
SBSR.
3. Security-Based Swaps Eligible for Substituted Compliance--Rule 
908(c)(1)
    Rule 908(c)(1), as re-proposed, would have provided that compliance 
with the regulatory reporting and public dissemination requirements in 
Sections 13(m) and 13A of the Exchange Act, and the rules and 
regulations thereunder, may be satisfied by compliance with the rules 
of a foreign jurisdiction that is the subject of a substituted 
compliance order issued by the Commission, provided that at least one 
of the direct counterparties to the security-based swap is either a 
non-U.S. person or a foreign branch, and the transaction is not 
solicited, negotiated, or executed within the United States. Thus, 
under re-proposed Rule 908(c)(1), certain kinds of security-based swaps 
would not have been eligible for substituted compliance even if they 
were subject to reporting and public dissemination requirements in a 
foreign jurisdiction.\871\ Specifically, a security-based swap between 
two U.S. persons would not have been eligible for substituted 
compliance with respect to regulatory reporting and public 
dissemination, even if the security-based swap was solicited, 
negotiated, and executed outside the United States.\872\ Furthermore, 
re-proposed Rule 908(c)(1) would not have allowed for the possibility 
of substituted compliance with respect to regulatory reporting and 
public dissemination if the relevant direct counterparty that was

[[Page 14658]]

either a non-U.S. person or foreign branch (or its agent)--regardless 
of place of domicile--solicited, negotiated, or executed a security-
based swap from within the United States.
---------------------------------------------------------------------------

    \871\ If the rules of a foreign jurisdiction did not apply to 
the security-based swap, there would be no need to consider the 
possibility of substituted compliance, because there would be no 
foreign rules that could substitute for the applicable U.S. rules.
    \872\ As noted in the Cross-Border Proposing Release, this 
assumed that neither U.S. person is acting through a foreign branch. 
If either or both U.S. persons is acting through a foreign branch, 
the security-based swap between those U.S. persons would have been 
eligible for substituted compliance under Rule 908(c)(1), as re-
proposed. See 78 FR 31093-94, note 1149.
---------------------------------------------------------------------------

    The Commission received two comment letters in response to re-
proposed Rule 908(c)(1), both of which addressed the proposal to limit 
substituted compliance availability to security-based swaps that are 
not solicited, negotiated, or executed in the United States.\873\ One 
of these commenters recommended that the Commission remove this 
requirement altogether.\874\ The other commenter noted that, as a 
general matter, it is virtually impossible to determine on a trade-by-
trade basis whether each specific contact with a counterparty or 
potential counterparty has some nexus to the United States, and urged 
the Commission to subject security-based swaps to Title VII regulation 
solely according to whether counterparties are U.S. persons.\875\
---------------------------------------------------------------------------

    \873\ See ISDA II at 5; SIFMA/FIA/Roundtable Letter at 3-4. A 
third commenter expressed the view that any swap involving a U.S. 
person and a non-U.S. person should be eligible for substituted 
compliance. See CCMR II at 2-3.
    \874\ See ISDA II at 5.
    \875\ See SIFMA/FIA/Roundtable Letter at 3-4. This commenter did 
not raise this comment expressly in the context of Rule 908(c)(1), 
however.
---------------------------------------------------------------------------

    In response to these comments, the Commission has decided to adopt 
a modified version of Rule 908(c)(1) that does not condition 
substituted compliance eligibility on the location of execution, 
negotiation, or solicitation of a particular transaction.\876\ Under 
Rule 908(c)(1), as adopted, a security-based swap is eligible for 
substituted compliance with respect to regulatory reporting and public 
dissemination if at least one of the direct counterparties to the 
security-based swap is either a non-U.S. person or a foreign branch. 
Thus, Rule 908(c)(1) permits a security-based swap between a U.S. 
person and the New York branch of a foreign bank (i.e., a non-U.S. 
person with operations inside the United States) to be eligible for 
substituted compliance, provided that a substituted compliance order is 
in effect with respect to the home country of the foreign bank that 
operates the U.S. branch. The standard in Rule 908(c)(1), as adopted, 
is consistent with the Commission's decision not to impose, at this 
time, reporting or public dissemination requirements based solely on 
whether a transaction is conducted within the United States.
---------------------------------------------------------------------------

    \876\ Rule 908(c)(1), as adopted, provides: ``Compliance with 
the regulatory reporting and public dissemination requirements in 
sections 13(m) and 13A of the Act (15 U.S.C. 78m(m) and 78m-1), and 
the rules and regulations thereunder, may be satisfied by compliance 
with the rules of a foreign jurisdiction that is the subject of a 
Commission order described in paragraph (c)(2) of this section, 
provided that at least one of the direct counterparties to the 
security-based swap is either a non-U.S. person or a foreign 
branch.''
---------------------------------------------------------------------------

    Regarding which security-based swaps are eligible for the 
possibility of substituted compliance, the Commission believes that, if 
at least one direct counterparty to a security-based swap is a foreign 
branch or a non-U.S. person (even if the non-U.S. person is a 
registered security-based swap dealer or registered major security-
based swap participant, or is guaranteed by a U.S. person), the 
security-based swap should be eligible for consideration for a 
substituted compliance determination under Regulation SBSR. This 
approach recognizes that a transaction involving a foreign branch or a 
non-U.S. person faces the possibility of being subject to reporting 
requirements in multiple jurisdictions (the United States and another 
jurisdiction whose rules may govern the transaction). The approach 
adopted by the Commission of allowing any transaction involving a 
foreign branch or non-U.S. person to be eligible to be considered for 
substituted compliance is designed to limit disincentives for non-U.S. 
persons to transact security-based swaps with U.S. persons by allowing 
for the possibility that compliance with the rules of a foreign 
jurisdiction could be substituted for compliance with the specific 
provisions of Regulation SBSR when the non-U.S. person transacts with a 
U.S. person. This approach also would allow for a reasonable 
minimization of reporting burdens on foreign branches and non-U.S. 
persons in situations where the local jurisdiction in which they 
operate does not offer the possibility of substituted compliance.
4. Requests for Substituted Compliance--Rule 908(c)(2)(ii)
    Rule 908(c)(2)(ii), as re-proposed, would have established the 
process for market participants to follow when applying for a 
substituted compliance determination: ``Any person that executes 
security-based swaps that would, in the absence of a substituted 
compliance order, be required to be reported pursuant to [Regulation 
SBSR] may file an application, pursuant to the procedures set forth in 
Sec.  240.0-13 of this chapter, requesting that the Commission make a 
substituted compliance determination regarding regulatory reporting and 
public dissemination with respect to a foreign jurisdiction the rules 
of which also would require reporting and public dissemination of those 
security-based swaps. Such application shall include the reasons 
therefor and such other information as the Commission may request.''
    A number of commenters recommended that the Commission permit 
foreign regulators, as well as market participants, to file an 
application for a substituted compliance determination.\877\ Some of 
these commenters noted that foreign regulatory authorities would be 
well-positioned to describe their regulatory frameworks and manner of 
supervision, and, in any event, their involvement would be needed to 
negotiate the memorandum of understanding that the Commission proposed 
to require as a precondition of granting a substituted compliance 
order.\878\ One commenter also stated that the CFTC's Cross-Border 
Guidance \879\ contemplates accepting applications for substituted 
compliance from non-U.S. regulators.\880\ Two commenters suggested that 
substituted compliance applications should be submitted by foreign 
regulatory authorities, rather than individual firms.\881\
---------------------------------------------------------------------------

    \877\ See ABA Letter at 5; ICI II at 11; IIB Letter at 27; IIF 
Letter at 4; ISDA II at 4; JFMC Letter at 7-8; FOA Letter at 4 
(noting that the Commission should begin discussions with the 
European Commission to establish an agreed approach for the 
coordinated oversight of the transatlantic security-based swap 
markets); SIFMA/FIA/Roundtable Letter at A-36.
    \878\ See ICI II at 11; ISDA II at 4. Re-proposed Rule 
908(c)(2)(iv), described below, would have required the Commission 
to enter into a supervisory and enforcement memorandum of 
understanding or other agreement with the relevant foreign 
regulator(s) prior to issuing a substituted compliance order 
covering a foreign jurisdiction.
    \879\ Interpretive Guidance and Policy Statement Regarding 
Compliance with Certain Swap Regulations, 78 FR 45292 (July 26, 
2013).
    \880\ See ISDA II at 4.
    \881\ See ESMA Letter at 3 (recommending that comparability 
determinations should be requested at the European Union-level, 
rather than by individual firms); JSDA Letter at 2. See also Pearson 
Letter at 3 (recommending that the review of a foreign regime be 
conducted in cooperation solely with the relevant foreign regulators 
or legislators, not firms).
---------------------------------------------------------------------------

    The Commission is adopting Rule 908(c)(2)(ii) largely as re-
proposed, with a few minor revisions. First, consistent with the 
adoption of Rule 0-13 in the Cross-Border Adopting Release, the 
Commission has revised Rule 908(c)(2)(ii) to permit foreign financial 
regulatory authorities to submit applications for substituted 
compliance determinations on behalf of market participants subject to 
their jurisdictions.\882\
---------------------------------------------------------------------------

    \882\ See 79 FR 47358 (``We are persuaded that allowing foreign 
regulators to submit such requests would promote the completeness of 
requests and promote efficiency in the process for considering such 
requests, in light of foreign regulators' expertise regarding their 
domestic regulatory system, including the effectiveness of their 
compliance and enforcement mechanisms, and to allow for a single 
point of contact to facilitate the consideration of substituted 
compliance requests associated with the jurisdiction'').

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[[Page 14659]]

    Second, Rule 908(c)(2)(ii), as re-proposed, would have permitted 
filing by any ``person that executes security-based swaps.'' Read 
literally, this language in the re-proposed rule could have permitted 
persons who are not subject to Regulation SBSR to seek a substituted 
compliance determination. The Commission seeks to limit the scope of 
persons who can apply for substituted compliance determinations to 
foreign financial regulators and parties that would be subject to 
Regulation SBSR, because these persons have the greatest knowledge 
about the foreign jurisdiction in question. Moreover, in the case of 
market participants active in that jurisdiction, they will be directly 
impacted by potentially overlapping rules and thus have the greatest 
interest in making the strongest case for substituted compliance. 
Accordingly, Rule 908(c)(2)(ii), as adopted, permits a ``party that 
potentially would comply with requirements under [Regulation SBSR] 
pursuant to a substituted compliance order,'' \883\ or the relevant 
foreign financial regulatory authority or authorities in that 
jurisdiction,\884\ to file an application requesting a substituted 
compliance determination.\885\
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    \883\ This could be either a U.S. person or a non-U.S. person 
that engages in activity in that jurisdiction.
    \884\ This formulation of final Rule 908(c)(2)(ii) closely 
follows the language of Rule 0-13(a) under the Exchange Act, 17 CFR 
240.0-13(a), which provides in relevant part that an application for 
substituted compliance must be submitted to the Commission ``by a 
party that potentially would comply with requirements under the 
Exchange Act pursuant to a substituted compliance order, or by the 
relevant foreign financial regulatory authority or authorities.''
    \885\ Thus, the Commission disagrees with the commenters who 
argued that substituted compliance applications should be submitted 
only by foreign regulatory authorities, rather than individual 
firms. See ESMA Letter at 3; JSDA Letter at 2. Although obtaining 
information from foreign regulatory authorities could be an 
important aspect of the substituted compliance review, the 
Commission sees no basis for denying individual firms that might 
comply with requirements of Regulation SBSR pursuant to a 
substituted compliance order the ability to request substituted 
compliance and thereby initiate that review. See Cross-Border 
Adopting Release, 79 FR 47358 (``We are not . . . foreclosing the 
ability of a market participant itself to submit a request that it 
be able to comply with Exchange Act requirements pursuant to a 
substituted compliance order'').
---------------------------------------------------------------------------

    Third, the Commission has determined not to include the final 
sentence of re-proposed Rule 908(c)(2)(ii)--``[s]uch application shall 
include the reasons therefor and such other information as the 
Commission may request''--in final Rule 908(c)(2)(ii). Rule 0-13(e) 
under the Exchange Act, as adopted in the Cross-Border Adopting 
Release, provides detailed requirements regarding the information 
required to be submitted (e.g., supporting documentation, including 
information regarding applicable regulatory requirements, compliance 
monitoring by foreign regulators, and applicable precedent).\886\ In 
light of the cross-reference to Rule 0-13 in final Rule 908(c)(2)(ii), 
the last sentence of re-proposed Rule 908(c)(2)(ii) is unnecessary and 
therefore is not included in final Rule 908(c)(2)(ii).
---------------------------------------------------------------------------

    \886\ See id. In addition, Rule 0-13(h) requires the Commission 
to publish in the Federal Register a notice that a complete 
application has been submitted.
---------------------------------------------------------------------------

5. Findings Necessary for Substituted Compliance--Rule 908(c)(2)(iii)
    Rule 908(c)(2)(iii), as re-proposed, would have provided that, in 
making a substituted compliance determination with respect to a foreign 
jurisdiction, the Commission shall take into account such factors as it 
determines are appropriate, such as the scope and objectives of the 
relevant foreign regulatory requirements, as well as the effectiveness 
of the supervisory compliance program administered, and the enforcement 
authority exercised, by the foreign financial regulatory authority to 
support oversight of its regulatory reporting and public dissemination 
system for security-based swaps. Furthermore, Rule 908(c)(2)(iii), as 
re-proposed, would have provided that the Commission would not make a 
substituted compliance determination with respect to regulatory 
reporting and public dissemination unless the Commission found that the 
relevant foreign regulatory regime provided for the reporting and 
public dissemination of comparable data elements in a manner and 
timeframe comparable to those required by Regulation SBSR.\887\ As a 
prerequisite to any substituted compliance determination, re-proposed 
Rule 908(c)(2)(iii) also would have required that the Commission have 
direct electronic access to the security-based swap data held by the 
trade repository or foreign regulatory authority.\888\ Lastly, re-
proposed Rule 908(c)(2)(iii) would have required the Commission to find 
that any trade repository or foreign regulatory authority in the 
foreign jurisdiction is subject to requirements regarding data 
collection and maintenance; systems capacity, resiliency, and security; 
and recordkeeping that are comparable to the requirements imposed on 
registered SDRs.\889\
---------------------------------------------------------------------------

    \887\ See Cross-Border Proposing Release, 78 FR 31215.
    \888\ See id.
    \889\ See id.
---------------------------------------------------------------------------

    The Commission has determined to adopt Rule 908(c)(2)(iii) as re-
proposed, subject to two minor changes, one in each of Rules 
908(c)(2)(iii)(B) and 908(c)(2)(iii)(D), which are discussed below. 
Final Rule 908(c)(2)(iii) provides that, in making a substituted 
compliance determination, the Commission shall take into account such 
factors that it determines are appropriate, which include but are not 
limited to the scope and objectives of the relevant foreign regulatory 
requirements, as well as the effectiveness of the supervisory 
compliance program administered, and the enforcement authority 
exercised, by the foreign financial regulatory authority to support 
oversight of its regulatory reporting and public dissemination system 
for security-based swaps. The rule further provides that the Commission 
shall not make such a substituted compliance determination unless it 
finds that:
    (A) The data elements that are required to be reported pursuant to 
the rules of the foreign jurisdiction are comparable to those required 
to be reported pursuant to Rule 901;
    (B) The rules of the foreign jurisdiction require the security-
based swap to be reported and publicly disseminated in a manner and a 
timeframe comparable to those required by Regulation SBSR (or, in the 
case of transactions that are subject to regulatory reporting but not 
public dissemination, the rules of the foreign jurisdiction require the 
security-based swaps to be reported in a manner and timeframe 
comparable to those required by Regulation SBSR);
    (C) The Commission has direct electronic access to the security-
based swap data held by a trade repository or foreign regulatory 
authority to which security-based swaps are reported pursuant to the 
rules of that foreign jurisdiction; and
    (D) Any trade repository or foreign regulatory authority in the 
foreign jurisdiction that receives and maintains required transaction 
reports of security-based swaps pursuant to the laws of that foreign 
jurisdiction is subject to requirements regarding data collection and 
maintenance; systems capacity, integrity, resiliency, availability, and 
security; and recordkeeping that are comparable to the requirements 
imposed on security-based swap data

[[Page 14660]]

repositories by the Commission's rules and regulations.\890\
---------------------------------------------------------------------------

    \890\ See Rule 908(c)(2)(iii)(A)-(D), as adopted, and infra note 
910.
---------------------------------------------------------------------------

    Although no commenters discussed the appropriateness of considering 
the examination and enforcement practices of foreign regulators in 
making a substituted compliance determination for Regulation SBSR 
specifically, a number of commenters addressed the general concept of 
considering actual practices in the foreign jurisdiction as part of the 
substituted compliance determination. Certain commenters generally 
supported the retention by the Commission of the authority to decline 
to make a comparability finding based on the substantive enforcement of 
foreign regulatory regimes.\891\ Two of these commenters noted, 
however, that supervisory practices differ significantly among 
jurisdictions.\892\ One of these commenters stated: ``This lack of 
commonality should not be assumed to be a defect in supervisory 
standards; common objectives may be reached through differing means.'' 
\893\ This commenter expressed the general view, however, that ``a 
general, high-level inquiry into the existence of an examination and 
enforcement process and institutions to support it arguably should 
inform views about the comparability of outcomes.'' \894\
---------------------------------------------------------------------------

    \891\ See ABA Letter at 5; AFR Letter at 12; Better Markets IV 
at 3, 29-32; ISDA II at 6.
    \892\ See FOA Letter at 6; ISDA II at 6.
    \893\ ISDA II at 6.
    \894\ Id.
---------------------------------------------------------------------------

    The Commission agrees that the examination and enforcement 
practices of each foreign jurisdiction will need to be evaluated on a 
case-by-case basis, and anticipates that it will consider whether the 
regulatory protections provided in that jurisdiction's security-based 
swap markets are substantially realized through sufficiently vigorous 
supervision and enforcement. While the Commission believes that common 
objectives may be reached through differing means, the Commission also 
believes that compliance with a foreign jurisdiction's rules for 
reporting and public dissemination of security-based swaps should be a 
substitute for compliance with the U.S. rules only when the foreign 
jurisdiction has a reporting and public dissemination regime comparable 
to that of the United States. This determination must consider actual 
practices and implementation as well as written laws and regulations of 
the foreign jurisdiction.
a. Data Element Comparability--Rule 908(c)(2)(iii)(A)
    The Commission received several comments regarding the data element 
comparability determination required by what is now final Rule 
908(c)(2)(iii)(A). Two commenters recommended that the Commission 
determine whether a foreign jurisdiction has comparable security-based 
swap reporting requirements based on a holistic review of that 
jurisdiction's regulations and the local market environment.\895\ Some 
commenters suggested that the Commission should determine whether the 
security-based swap reporting framework of a foreign jurisdiction is 
designed to achieve the G-20 goals of transparency in the derivatives 
markets.\896\
---------------------------------------------------------------------------

    \895\ See JFMC Letter at 7; ISDA II at 8. Other commenters 
expressed a general preference for a holistic review of a relevant 
jurisdiction's security-based swap regulatory regime but did not 
expressly reference Regulation SBSR in this context. See, e.g., 
SIFMA/FIA/Roundtable Letter at A-37-A-38; Pearson Letter at 3; IIF 
Letter at 5; ICI II at 11; JFMC Letter at 1; MFA/AIMA Letter at 5 
(observing that a line-by-line or rule-by-rule analysis would place 
a significant burden on the Commission, and potentially result in 
disjointed regulation); ABA Letter at 5.
    \896\ See ICI II at 12; ISDA II at 8 (noting also that 
jurisdictions may choose to establish goals and requirements that 
are ancillary to the G-20 regulatory goals, but these ancillary 
requirements should not become a barrier to an effective cross-
border compliance regime that furthers the G-20 goals). With respect 
to security-based swap reporting, the ``G-20 goals'' referenced by 
these commenters were articulated in the Leaders' Statement at the 
Pittsburgh Summit (September 24-25, 2009), available at: https://www.g20.org/sites/default/files/g20_resources/library/Pittsburgh_Declaration.pdf, last visited September 22, 2014.
---------------------------------------------------------------------------

    The Commission is adopting re-proposed Rule 908(c)(2)(iii)(A) 
without revision. Under the final rule, the foreign jurisdiction must 
require reporting of data elements comparable to those required under 
Rule 901 of Regulation SBSR for the Commission to make a comparability 
determination. If the data elements required by the foreign 
jurisdiction are not comparable, important information about a 
security-based swap might not be captured by the foreign trade 
repository or foreign regulatory authority. This could create gaps or 
inconsistencies in the information available to the Commission and 
impair the Commission's ability to monitor the security-based swap 
market. As noted in Section XV(E)(1), supra, the Commission generally 
agrees with the commenters who expressed the view that the Commission 
should take a ``holistic'' or ``outcomes-based'' view of another 
jurisdiction's rules when making a substituted compliance 
determination, rather than conduct a ``line-by-line'' or ``rule-by-
rule'' analysis. At this time, the Commission does not believe that it 
is sufficient to consider only whether the data elements required by 
the foreign regulatory regime are designed to achieve the objectives of 
the G-20 with respect to reporting. The G-20 objectives are a high-
level set of principles designed to guide jurisdictions in adopting 
reforms for the OTC derivatives markets. Therefore, the Commission 
believes that it is necessary and appropriate to consider whether the 
data elements reported under that jurisdiction's rules are comparable 
to those required under Rule 901 of Regulation SBSR--not whether they 
are comparable to the G-20 standards--in deciding whether to grant a 
substituted compliance determination. If the Commission took the 
opposite view, it would be difficult to conclude that the oversight and 
transparency goals of Title VII were being satisfied through compliance 
with the rules of the foreign jurisdiction in lieu of Regulation 
SBSR.\897\
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    \897\ One commenter urged the Commission to ``replace the 
apparently subjective `outcomes-based' standard for comparison with 
a more rigorous and objective standard based on the underlying 
rules.'' AFR Letter at 9. For the reasons noted above, the 
Commission is adopting a ``comparable'' standard, rather than the 
type of review suggested by the commenter. This commenter further 
stated: ``Another reason that `outcomes-based' assessment may not be 
adequate is that the inter-operability of different rule sets may be 
critical to the effectiveness of the overall international regime . 
. . this is the case for standardization of data formats in 
reporting, and may also be true for various risk management elements 
that must be standardized across a global financial institution.'' 
Id. at 10. The Commission intends to work with foreign regulatory 
authorities to develop more uniform data standards to allow maximum 
aggregability while minimizing market participant costs and burdens 
that would result from having to report in different jurisdictions 
using different data standards and formats.
---------------------------------------------------------------------------

b. Timeframe of Reporting and Public Dissemination--Rule 
908(c)(2)(iii)(B)
    The Commission also is adopting Rule 908(c)(2)(iii)(B) as re-
proposed, subject to certain conforming changes.\898\ Rule 
908(c)(2)(iii)(B), as adopted, provides that the Commission shall not 
issue a substituted compliance determination unless the relevant 
foreign jurisdiction requires security-based swaps to be reported and 
publicly disseminated ``in

[[Page 14661]]

a manner and a timeframe comparable to those required by [Regulation 
SBSR].'' Given the Title VII requirements that all security-based swaps 
be reported to a registered SDR and that security-based swaps be 
publicly disseminated in real time, the Commission believes that 
allowing substituted compliance with the rules of a foreign 
jurisdiction that has reporting timeframes and dissemination outcomes 
not comparable to those in the United States would run counter to the 
objectives and requirements of Title VII. If the Commission allowed 
substituted compliance for such a jurisdiction, the Commission might 
have access to less regulatory data about the security-based swap 
market, or price discovery could be less efficient, than would have 
been the case if Regulation SBSR applied in its entirety. Thus, for 
example, the Commission generally does not anticipate permitting 
substituted compliance with respect to regulatory reporting and public 
dissemination under Rule 908(c) if a foreign jurisdiction does not 
(among other things) impose public dissemination requirements for all 
security-based swaps on a trade-by-trade basis.\899\ Thus, the 
Commission disagrees with the commenter who suggested that a non-U.S. 
public dissemination regime that disseminates data on an aggregate 
basis should be deemed comparable to Regulation SBSR.\900\
---------------------------------------------------------------------------

    \898\ As re-proposed, this rule would have provided that the 
Commission shall not make a substituted compliance determination 
unless it finds that the ``rules of the foreign jurisdiction require 
the security-based swap to be reported and publicly disseminated in 
a manner and a timeframe comparable to those required by Sec. Sec.  
242.900 through 242.911.'' As discussed previously, Regulation SBSR, 
as adopted, consists of Rules 900 through 909 under the Exchange 
Act. Therefore, the reference in re-proposed Rule 908(c)(2)(iii)(B) 
to ``Sec. Sec.  242.900 through 242.911'' is being revised to read: 
``Sec. Sec.  242.900 through 242.909.''
    \899\ Although the Commission is requiring reporting and public 
dissemination of security-based swaps within 24 hours of the time of 
execution during the first initial phase of Regulation SBSR, see 
Rule 901(j), the Commission anticipates considering provisions to 
implement the Title VII requirement for real-time public 
dissemination. Therefore, the Commission would view a foreign 
jurisdiction's regime for public dissemination of security-based 
swaps as comparable only if it (1) had rules providing for real-time 
public dissemination of all security-based swaps currently, or (2) 
was following a comparable process of moving to real-time public 
dissemination for all security-based swaps in phases.
    \900\ See JSDA Letter at 2. Another commenter requested that the 
Commission determine that Japan has comparable security-based swap 
reporting standards. See JFMC Letter at 8. This comment is beyond 
the scope of this rulemaking. However, after Regulation SBSR becomes 
effective, market participants in this jurisdiction that would rely 
on a substituted compliance determination, or their regulators, may 
submit a request for substituted compliance with respect to 
regulatory reporting and public dissemination if they believe that 
the rules in that jurisdiction satisfy the criteria for substituted 
compliance described in Rule 908(c).
---------------------------------------------------------------------------

    One commenter stated that ``[c]omparability should be addressed 
flexibly with respect to public dissemination, recognizing that in 
certain jurisdictions' [sic] transparency obligations are linked to use 
of a trading venue and fall on the venue.'' \901\ Another commenter 
recommended that the Commission should not determine that a foreign 
jurisdiction lacks comparable security-based swap reporting rules based 
on technical differences in the timeframes for, or manner of, 
reporting.\902\ Whether the Commission grants a substituted compliance 
determination will depend on the facts and circumstances pertaining to 
a particular request. Thus, it is difficult to address concerns such as 
those raised by these two commenters in the abstract. As the Commission 
noted in Section XV(E)(1), supra, it will assess comparability in a 
holistic manner rather than on a rule-by-rule basis.
---------------------------------------------------------------------------

    \901\ ISDA II at 9.
    \902\ See ICI II at 12.
---------------------------------------------------------------------------

c. Direct Electronic Access--Rule 908(c)(2)(iii)(C)
    The Commission also is adopting Rule 908(c)(2)(iii)(C) as re-
proposed. Rule 908(c)(2)(iii)(C) provides that the Commission may not 
issue a substituted compliance order with respect to regulatory 
reporting and public dissemination in a foreign jurisdiction unless 
``[t]he Commission has direct electronic access to the security-based 
swap data held by a trade repository or foreign regulatory authority to 
which security-based swaps are reported pursuant to the rules of that 
foreign jurisdiction.'' \903\ Commenters expressed differing views 
regarding the direct electronic access requirement in re-proposed Rule 
908(c)(2)(iii)(C). One commenter expressed support for the proposed 
requirement, believing that direct electronic access is a critical 
element for adequate monitoring of risks to U.S. financial 
stability.\904\ However, two commenters objected to the proposed direct 
electronic access requirement.\905\ One of these commenters suggested 
that the Commission should not require direct electronic access at this 
time, but should instead wait for the ``FSB'' to develop plans ``to 
produce and share globally aggregated trade repository data that 
authorities need for monitoring systemic risks.'' \906\ Another 
commenter ``urge[d] the Commission to take into account the issue of 
foreign jurisdictions' privacy laws before imposing a blanket 
requirement that [the Commission] have direct electronic access.'' 
\907\
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    \903\ Under Rule 900(l), as adopted, ``direct electronic 
access'' has the same meaning as in Rule 13n-4(a)(5) under the 
Exchange Act, discussed in the SDR Adopting Release. Rule 13n-
4(a)(5) defines ``direct electronic access'' 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.
    \904\ See AFR Letter at 9 (noting that the Commission should 
seek to analyze data from foreign repositories in conjunction with 
U.S.-sourced data to determine the swap exposure of an entity on a 
global basis).
    \905\ See IIF Letter at 7; ISDA II at 8.
    \906\ Id. at 8. The second commenter did not offer a rationale 
for its opposition to the proposed direct electronic access 
requirement. See IIF Letter at 7.
    \907\ SIFMA/FIA/Roundtable Letter at A-46 (stating that over a 
dozen jurisdictions have been identified where local law prohibits 
the disclosure of client names to non-local regulators that do not 
have an information-sharing treaty or agreement in place with the 
local regulator, some of which cannot be satisfied by counterparty 
consent).
---------------------------------------------------------------------------

    After carefully considering the comments received, the Commission 
continues to believe that requiring direct electronic access to 
security-based swap data held by a trade repository or foreign 
regulatory authority is a necessary part of any substituted compliance 
determination. Thus, the Commission does not believe that it should 
rely instead on the FSB or other international bodies developing 
arrangements for trade repositories and relevant authorities to share 
information across jurisdictions. While these cross-border information-
sharing arrangements are important, and the Commission will continue to 
participate in such efforts, granting substituted compliance without 
direct electronic access would not be consistent with the underlying 
premise of substituted compliance: That a comparable regulatory result 
is reached through compliance with foreign rules rather than with the 
corresponding U.S. rules. If the Commission were to grant substituted 
compliance for a foreign jurisdiction where the Commission did not have 
direct electronic access to the facility to which security-based swap 
transactions of that jurisdiction are reported, the Commission might 
not have access to transaction information for portions of the 
security-based swap market that it otherwise would have the ability to 
surveil.\908\ If the Commission were to rely solely on international 
information-sharing agreements, it could face substantial delays before 
a foreign trade repository or foreign regulatory authority, even acting 
expeditiously, could compile and make available to the Commission data 
relating to a substantial volume of transactions. Delays in obtaining 
such data could compromise the ability of the Commission to supervise 
security-based swap market participants, or to share information with 
other relevant U.S. authorities in a timely fashion. Thus,

[[Page 14662]]

the Commission believes that direct electronic access to security-based 
swap data held by the foreign trade repository or foreign regulatory 
authority to which security-based swap transactions are reported in the 
foreign jurisdiction must be a prerequisite to issuing a substituted 
compliance order with respect to Regulation SBSR applying to that 
jurisdiction.
---------------------------------------------------------------------------

    \908\ See supra note 788 (providing statistics regarding the 
amount of cross-border trading in the security-based swap market).
---------------------------------------------------------------------------

    The Commission has taken into consideration the comment that 
certain jurisdictions have privacy laws or blocking statutes that 
could, in certain cases, render a foreign trade repository or foreign 
regulatory authority unable to provide the Commission with direct 
electronic access to transaction information that would include the 
identity of the counterparties. The Commission is not persuaded that 
this consideration should remove direct electronic access as a 
requirement for substituted compliance under Regulation SBSR. Indeed, 
if foreign privacy laws result in the Commission having less than 
comparable access to the security-based swap transaction data held at a 
foreign trade repository or foreign regulatory authority than the 
Commission otherwise would have if no substituted compliance order were 
in effect, then the premise of substituted compliance would not be met. 
Although foreign regulatory authorities would likely have access to 
information about security-based swap transactions that exist at least 
in part in their jurisdictions, these authorities might lack the 
ability to share this information with the Commission. As a result, it 
could be difficult if not impossible for the Commission or any other 
relevant authority, foreign or domestic, to observe the build-up of 
systemic risks created by the global security-based swap activity of 
U.S. persons. In sum, the Commission believes that, if it does not have 
direct electronic access to the transaction information reported to the 
foreign trade repository or foreign regulatory authority, substituted 
compliance would not yield a comparable outcome and the requirements of 
Rule 908(c)(2) would not be met.\909\ The Commission believes that, in 
this situation, the specific requirements of Regulation SBSR should 
continue to apply; if necessary supervisory information cannot be 
obtained via direct electronic access to the security-based swap data 
held by a foreign trade repository or foreign regulatory authority, 
then such transactions must continue to be reported to a registered 
SDR, from which the Commission can obtain such information.
---------------------------------------------------------------------------

    \909\ See also infra Section XVI(A) (addressing the impact of 
foreign privacy laws on Regulation SBSR).
---------------------------------------------------------------------------

d. Trade Repository Capabilities--Rule 908(c)(2)(iii)(D)
    The Commission received no comments on Rule 908(c)(2)(iii)(D) and 
is adopting that rule as re-proposed, with certain minor changes. Final 
Rule 908(c)(2)(iii)(D) provides that the Commission shall not make a 
substituted compliance determination with respect to regulatory 
reporting and public dissemination unless it finds that ``[a]ny trade 
repository or foreign regulatory authority in the foreign jurisdiction 
that receives and maintains required transaction reports of security-
based swaps pursuant to the laws of that foreign jurisdiction is 
subject to requirements regarding data collection and maintenance; 
systems capacity, integrity, resiliency, availability, and security; 
and recordkeeping that are comparable to the requirements imposed on 
security-based swap data repositories by the Commission's rules and 
regulations'' (emphasis added). In the re-proposed rule, the 
highlighted language would have read ``. . . by Sec. Sec.  240.13n-5 
through 240.13n-7 of this chapter.'' Because requirements imposed on 
registered SDRs relating to data collection and maintenance; systems 
capacity, integrity, resiliency, availability, and security; and 
recordkeeping could be imposed by Commission rules and regulations 
other than or in addition to Rules 13n-5 through 13n-7 under the 
Exchange Act, the Commission believes that it would be more appropriate 
to use the broader language in the text of final Rule 
908(c)(2)(iii)(D). The Commission continues to believe that, to allow 
substituted compliance for regulatory reporting and public 
dissemination with respect to a foreign jurisdiction, any entity in 
that foreign jurisdiction that is required to receive and maintain 
security-based swap transaction data must have protections and 
operability standards comparable to those imposed on SEC-registered 
SDRs.
    In addition, the re-proposed rule would have required, in relevant 
part, that--in connection with a substituted compliance determination--
the foreign trade repository or foreign regulatory authority must be 
subject to requirements for ``systems capacity, resiliency, and 
security'' that are comparable to parallel U.S. requirements. That 
provision in final Rule 908(c)(2)(iii)(D) now states, ``systems 
capacity, integrity, resiliency, availability, and security.'' The 
addition of ``integrity'' and ``availability'' to characterize the 
expected operational capability of the foreign trade repository or 
foreign regulatory authority is derived from a parallel change that the 
Commission made in adopting final Rule 13n-6 under the Exchange Act 
that applies to SEC-registered SDRs.\910\ Because these standards apply 
to SEC-registered SDRs, the Commission believes that it is appropriate 
for Rule 908(c)(2)(iii)(D) to include them as elements necessary for a 
finding that a foreign trade repository or foreign regulatory authority 
is subject to comparable regulatory duties.
---------------------------------------------------------------------------

    \910\ See SDR Adopting Release, note 831.
---------------------------------------------------------------------------

e. Memoranda of Understanding--Rule 908(c)(2)(iv)
    Rule 908(c)(2)(iv), as re-proposed, would have required that, 
before issuing a substituted compliance order relating to regulatory 
reporting and public dissemination with respect to a foreign 
jurisdiction, the Commission shall have entered into a supervisory and 
enforcement memorandum of understanding (``MOU'') or other arrangement 
with the relevant foreign financial regulatory authority or authorities 
under such foreign financial regulatory system addressing oversight and 
supervision of the applicable security-based swap market. No commenters 
addressed this proposed requirement.
    The Commission is adopting Rule 908(c)(2)(iv) with certain minor 
revisions. First, the Commission is modifying the rule to indicate that 
a substituted compliance determination may require the Commission to 
enter into more than one MOU or other arrangement with a foreign 
authority. Second, the Commission has modified the rule to provide that 
such MOUs or other arrangements would ``address[ ] supervisory and 
enforcement cooperation and other matters arising under the substituted 
compliance determination.'' \911\ These clarifications are designed to 
facilitate discussions between the Commission and relevant foreign 
regulators.
---------------------------------------------------------------------------

    \911\ Rule 908(c)(2)(iv).
---------------------------------------------------------------------------

    The Commission expects that any grant of substituted compliance 
would be predicated on the presence of enforcement MOUs or other 
arrangements that provide formal mechanisms by which the Commission can 
request assistance and obtain documents and information from foreign 
authorities regarding enforcement matters involving securities. 
Substituted compliance also may be expected to be predicated on the 
presence of supervisory MOUs or other

[[Page 14663]]

arrangements that provide formal mechanisms by which the Commission can 
request assistance and obtain non-public information from foreign 
authorities related to the oversight of dually regulated entities. As a 
result, such MOUs or other arrangements should help the Commission 
ensure compliance with Title VII requirements for regulatory reporting 
and public dissemination.
    In addition, any grant of substituted compliance may be conditioned 
upon the Commission entering into other MOUs or arrangements that 
address additional matters specific to the substituted compliance 
determination. Such MOUs or other arrangements, among other respects, 
may be expected to help promote the effectiveness of substituted 
compliance by providing mechanisms by which the Commission may request 
information and/or monitor for circumstances where the foreign regime 
may no longer be comparable to the counterpart Title VII requirements 
(due, for example, to changes in the substantive legal framework of the 
foreign regime that are inconsistent with the understandings that 
underpinned the Commission's initial grant of substituted compliance). 
In addition, such MOUs or other arrangements may provide mechanisms by 
which the Commission could request information and monitor the 
effectiveness of the enforcement and supervision capabilities of the 
appropriate foreign regulator(s). More generally, such MOUs or other 
arrangements can provide mechanisms by which the Commission could 
obtain information relevant to the assessment of comparability.
f. Modification or Withdrawal of Substituted Compliance Order
    Rule 908(c)(2)(v), as re-proposed, would have provided that the 
Commission may, on its own initiative, modify or withdraw a substituted 
compliance order with respect to regulatory reporting and public 
dissemination in a foreign jurisdiction, at any time, after appropriate 
notice and opportunity for comment. The Commission is adopting Rule 
908(c)(2)(v) as re-proposed, without revision.
    Situations can arise where it would be necessary or appropriate to 
modify or withdraw a substituted compliance order. A modification or 
withdrawal could be necessary if, after the Commission issues a 
substituted compliance order, the facts or understandings on which the 
Commission relied when issuing that order are no longer true. The 
Commission believes, therefore, that it is appropriate to establish a 
mechanism whereby it could, at any time and on its own initiative, 
modify or withdraw a previously issued substituted compliance order 
with respect to regulatory reporting and public dissemination, after 
appropriate notice and opportunity for comment. Having made a 
comparability determination, the Commission should have the ability to 
periodically review the determination and decide whether the 
substituted compliance determination should continue to apply.\912\ The 
Commission could determine to condition a substituted compliance order 
on an ongoing duty to disclose relevant information. Thus, the 
Commission generally agrees with the commenter who argued that persons 
making use of substituted compliance should be responsible for 
informing the Commission if factors on which the Commission relied in 
making the determination change in any material way.\913\
---------------------------------------------------------------------------

    \912\ The Commission made a similar statement in the Cross-
Border Proposing Release. See 78 FR 31089. Three commenters agreed 
with the statement. See AFR Letter at 12; Better Markets IV at 30; 
IIF Letter at 4, 7.
    \913\ See Better Markets IV at 29, 32.
---------------------------------------------------------------------------

    Two commenters generally supported the re-proposed Rule 
908(c)(2)(v) requirement for the Commission to publish for comment 
proposed withdrawals or modifications.\914\ Several commenters also 
recommended that any final decision by the Commission to modify or 
withdraw a comparability determination should include a phase-in period 
to provide market participants adequate opportunity to make necessary 
adjustments to their compliance systems and processes.\915\ The 
Commission generally agrees with these comments, and believes that all 
affected persons should have appropriate notice of the introduction, 
withdrawal, or modification of a substituted compliance order so as to 
minimize undue disruptions in the market. The Commission will address 
phase-in issues and timeframes on a case-by-case basis--in the relevant 
order that introduces, modifies, or withdraws substituted compliance--
depending on the facts and circumstances of the particular situation.
---------------------------------------------------------------------------

    \914\ See ABA Letter at 6; ISDA II at 9.
    \915\ See FOA Letter at 5; IIF Letter at 7; SIFMA/FIA/Roundtable 
Letter at A-37.
---------------------------------------------------------------------------

6. Consideration of Regulatory Reporting and Public Dissemination in 
the Commission's Analysis of Substituted Compliance
    When the Commission re-proposed Rule 908(c) in the Cross-Border 
Proposing Release, it expressed a preliminary view that regulatory 
reporting and public dissemination should be considered together in the 
Commission's analysis of whether to permit substituted compliance.\916\ 
If the Commission were to adopt that approach, security-based swap 
transactions would not be eligible for substituted compliance if there 
were comparable foreign rules in one area but not the other. In other 
words, a foreign jurisdiction that has comparable rules for regulatory 
reporting of security-based swap transactions but not comparable rules 
for public dissemination of such transactions would not have been 
eligible for substituted compliance under Regulation SBSR.
---------------------------------------------------------------------------

    \916\ See 78 FR 31096.
---------------------------------------------------------------------------

    Three commenters suggested that the Commission consider making 
separate substituted compliance determinations for regulatory reporting 
and public dissemination.\917\ One of these commenters expressed the 
view that making separate determinations is appropriate because 
regulatory reporting and public dissemination serve distinct 
goals.\918\ This commenter also argued that, due to the significant 
costs associated with documentation, procedures, and technological 
systems necessary to comply with reporting regimes, the possibility of 
separate substituted compliance determinations for regulatory reporting 
and public dissemination could substantially reduce costs for non-U.S. 
market participants while still achieving the Commission's important 
market surveillance and transparency goals.\919\ One of the other 
commenters argued that ``[d]ifferences among jurisdictions in the 
timing of reporting . . . should be evaluated in light of systemic risk 
and market supervisory objectives, rather than policies of facilitating 
price discovery.'' \920\ The commenter concluded, therefore, that 
``[s]uch flexibility should include the potential for separate 
determinations regarding

[[Page 14664]]

regulatory reporting and public dissemination requirements.'' \921\
---------------------------------------------------------------------------

    \917\ See IIB Letter at 25; ISDA II at 9; SIFMA/FIA/Roundtable 
Letter at A-45.
    \918\ See IIB Letter at 25 (``regulatory reporting provides the 
Commission with the tools for market surveillance and oversight of 
its regulated markets, while public dissemination is designed to 
provide the market, rather than regulators, real-time price 
transparency'').
    \919\ See id.
    \920\ ISDA II at 9.
    \921\ Id.
---------------------------------------------------------------------------

    Notwithstanding these comments, the Commission continues to believe 
that--subject to one exception described below--regulatory reporting 
and public dissemination should be considered together for purposes of 
substituted compliance under Rule 908(c). Even if regulatory reporting 
and public dissemination serve different policy goals, the Commission 
believes that treating regulatory reporting and public dissemination 
separately would not further those goals as effectively as considering 
these requirements together. The Commission agrees with the commenters 
who argued that regulatory reporting serves important market oversight 
goals.\922\ However, the Commission disagrees that these objectives 
should be pursued ``rather than policies of facilitating price 
discovery.'' \923\ Title VII requires the Commission to pursue both 
sets of policy goals. If the Commission were to permit substituted 
compliance for regulatory reporting but not for public dissemination, 
certain transactions could be reported to a foreign trade repository or 
a foreign regulatory authority in lieu of a registered SDR but would 
(in theory) still be subject to the Regulation SBSR's public 
dissemination requirements in Rule 902. Under Regulation SBSR, 
registered SDRs are charged with publicly disseminating information 
about security-based swap transactions. To carry out its public 
dissemination function, a registered SDR must obtain data about 
security-based swap transactions that Regulation SBSR requires it to 
publicly disseminate. If this data were reported to a foreign trade 
repository or foreign regulatory authority under the terms of a 
substituted compliance order, it would be impractical, if not 
impossible, for a registered SDR to disseminate that transaction data, 
as required under Rule 902. In other words, because the registered SDR 
needs a report of the transaction from the reporting side in order to 
carry out public dissemination, no purpose would be served--and indeed 
public dissemination could be compromised--by removing the duty to 
report the transaction to a registered SDR in lieu of the duty to 
report it to the foreign trade repository or foreign regulatory 
authority.\924\ The Commission continues to believe that it is 
impractical and unnecessary to devise an alternate method of public 
dissemination for security-based swaps that are reported in a foreign 
jurisdiction pursuant to a substituted compliance order. The Commission 
concludes, therefore, that a foreign jurisdiction's regulatory 
reporting and public dissemination requirements--subject to one 
exception described immediately below--shall be considered together for 
purposes of evaluating comparability for purposes of a substituted 
compliance determination under Rule 908(c).
---------------------------------------------------------------------------

    \922\ Id.; IIB Letter at 25.
    \923\ ISDA II at 9.
    \924\ The Commission specifically raised this issue in the 
Cross-Border Proposing Release and asked how public dissemination 
could be carried out if substituted compliance were in effect for 
regulatory reporting but not for public dissemination. See 78 FR 
31096.
---------------------------------------------------------------------------

    One commenter argued that the Commission should be able to issue a 
substituted compliance order solely in respect of regulatory reporting 
that would apply to cross-border security-based swaps that are subject 
to regulatory reporting but not public dissemination under Regulation 
SBSR.\925\ Under Rule 908(a), as adopted, there is one kind of 
security-based swap that is subject to regulatory reporting but not 
public dissemination: A transaction with a non-U.S. person that is 
registered as a security-based swap dealer or major security-based swap 
participant on one side and no U.S. person on the other side. Upon 
further consideration, the Commission agrees with the commenter and is 
adopting Rule 908(c) with certain revisions that will allow the 
Commission to issue a substituted compliance order with respect to 
regulatory reporting but not public dissemination with respect to this 
subset of cross-border transactions. The Commission has added a second 
sentence to the language in re-proposed Rule 908(c)(2)(i) to carry out 
this aim.\926\ The Commission also revised one prong of re-proposed 
Rule 908(c)(iii) to exclude consideration of the reporting timeframes 
for public dissemination in cases where the Commission is considering a 
substituted compliance request with respect to cross-border 
transactions that are, under Regulation SBSR, subject to regulatory 
reporting but not public dissemination. The Commission believes that 
offering the possibility of substituted compliance for these kinds of 
cross-border transactions could reduce compliance burdens for affected 
persons without reducing the capability of the Commission and other 
relevant authorities to oversee the security-based swap market.
---------------------------------------------------------------------------

    \925\ See IIB Letter at 25 (``the separate possibility of 
substituted compliance for either regulatory reporting or public 
dissemination could substantially reduce costs for non-U.S. market 
participants while still achieving the Commission's important market 
surveillance and transparency goals'').
    \926\ Rule 908(c)(2)(i).
---------------------------------------------------------------------------

XVI. Other Cross-Border Issues

A. Foreign Public Sector Financial Institutions

    In response to the Regulation SBSR Proposing Release, six 
commenters expressed concern about applying the requirements of Title 
VII to the activities of foreign public sector financial institutions 
(``FPSFIs''), such as foreign central banks and multilateral 
development banks.\927\ One commenter, the European Central Bank 
(``ECB''), noted that security-based swaps entered into by the Federal 
Reserve Banks are excluded from the definition of ``swap'' in the 
Commodity Exchange Act (``CEA'') \928\ and that the functions of 
foreign central banks and the Federal Reserve are broadly comparable. 
The ECB argued, therefore, that security-based swaps entered into by 
foreign central banks should likewise be excluded from the definition 
of ``swap.'' \929\ A second commenter, the World Bank (representing the 
International Bank for Reconstruction and Development, the 
International Finance Corporation, and other multilateral development 
institutions of which the United States is a member) also argued 
generally that the term ``swap'' should be defined to exclude any 
transaction involving a multilateral development bank.\930\ The World 
Bank further noted that EMIR--the E.U. counterpart to Title VII of the 
Dodd-Frank Act--would expressly exclude multilateral development banks 
from its coverage.\931\
---------------------------------------------------------------------------

    \927\ See BIS Letter passim; CEB at 2, 4; ECB Letter passim; ECB 
Letter II passim; EIB Letter passim; Nordic Investment Bank Letter 
at 1; World Bank Letter I passim.
    \928\ Section 1a(47)(B)(ix) of the CEA, 7 U.S.C. 1a(47)(B)(ix), 
excludes from the definition of ``swap'' any agreement, contract, or 
transaction a counterparty of which is a Federal Reserve Bank, the 
federal government, or a federal agency that is expressly backed by 
the full faith and credit of the United States. A security-based 
swap includes any swap, as defined in the CEA, that is based on, 
among other things, a narrow-based index or a single security or 
loan. See Section 3(a)(68) of the Exchange Act, 15 U.S.C. 
78c3(a)(68).
    \929\ See ECB Letter I at 2; ECB Letter II at 2. See also EIB 
Letter at 1; Nordic Development Bank at 1.
    \930\ See World Bank Letter I at 6-7.
    \931\ See id. at 4. See also EIB Letter at 7 (``As a matter of 
comity, actions by U.S. financial regulators should be consistent 
with the laws of other jurisdictions that provide exemption from 
national regulation for government-owned multinational developments 
such as the [EIB]'').
---------------------------------------------------------------------------

    The ECB and BIS stated that foreign central banks enter into 
security-based swaps solely in connection with their public mandates, 
which require them to

[[Page 14665]]

act confidentially in certain circumstances.\932\ The ECB argued in 
particular that public disclosure of its market activities could 
compromise its ability to take necessary actions and ``could cause 
signaling effects to other market players and finally hinder the policy 
objectives of such actions.'' \933\ Another commenter, the Council of 
Europe Development Banks (``CEB''), while opposing application of Title 
VII requirements to multilateral development banks generally, did not 
object to the CFTC and SEC preserving their authority over certain 
aspects of their transactions, such as by imposing reporting 
requirements.\934\ Similarly, the World Bank believed that the 
definition of ``swap'' could be qualified by a requirement that 
counterparties would treat such transactions as swaps solely for 
reporting purposes.\935\
---------------------------------------------------------------------------

    \932\ See BIS Letter at 4-5; ECB Letter I at 3.
    \933\ ECB Letter I at 3. See also ECB Letter II at 2.
    \934\ See CEB Letter at 4. However, the CEB did not state a view 
as to whether FPSFI trades should be subject to post-trade 
transparency.
    \935\ See World Bank Letter I at 7.
---------------------------------------------------------------------------

    In the Cross-Border Proposing Release, the Commission sought 
additional information to assist with analysis of this issue and asked 
a number of questions, including questions relating to how active 
FPSFIs are in the security-based swap market generally; the extent to 
which FPSFIs engage in security-based swap activity with U.S. persons; 
whether there are any characteristics of FPSFI activity in the 
security-based swap market that could make it easier for market 
observers to detect an FPSFI as a counterparty or that could make it 
easier to detect an FPSFI's business transactions or market positions; 
and whether there are steps that the Commission could take to minimize 
such information leakage short of suppressing all FPSFI trades from 
public dissemination.\936\ The Commission specifically requested that 
commenters on this issue focus on the security-based swap market, not 
the market for other swaps. In addition, commenters were requested to 
answer only with respect to security-based swap activity that would be 
subject to Regulation SBSR, and not with respect to activity that, 
because of other factors, would not be subject to Regulation SBSR in 
any case.\937\
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    \936\ See 78 FR 31074.
    \937\ See id.
---------------------------------------------------------------------------

    Only a few commenters on the Cross-Border Proposing Release 
responded to any of these questions or offered additional comments on 
FPSFI issues related to Regulation SBSR. One commenter, FMS-
Wertmanagement (``FMS''), an instrumentality of the government of the 
Federal Republic of Germany that manages certain legacy financial 
portfolios, stated that security-based swaps form only a small portion 
of its overall derivatives portfolio, and that it does not enter into 
any new security-based swaps ``except with the purpose of restructuring 
existing security-based swaps within the limits of its winding-up 
strategy.'' \938\ This commenter, however, did not provide an opinion 
regarding how any provisions of Regulation SBSR would affect its 
operations; instead, the primary opinion expressed in the comment was 
that FPSFIs such as FMS should not be required to register as security-
based swap dealers or major security-based swap participants and be 
subject to the attendant requirements.\939\ Another commenter, KfW 
Bankengruppe (``KfW''), is also an instrumentality of the Federal 
Republic of Germany and engages in ``promotional lending 
opportunities.'' \940\ KfW indicated that it has in the past engaged in 
a small number of security-based swap transactions but none 
recently.\941\ Like FMS, KfW argued that FPSFIs should not be subject 
to regulation as security-based swap dealers or major security-based 
swap participants and did not otherwise comment on any issues specific 
to Regulation SBSR.\942\ A third commenter, the World Bank, stated 
that, ``We do not object to reporting of our transactions by U.S. 
counterparties or non-U.S. counterparties that are independently 
required to be registered with the Commission. Our concern is limited 
to ensuring that non-U.S. counterparties that are otherwise not subject 
to regulation could become subject to certain requirements solely 
because a transaction with us could be deemed to be a `Transaction 
conducted within the United States.' We are amenable to any solution 
that fixes this problem.'' \943\ A fourth commenter agreed with the 
World Bank, arguing that the term ``transaction conducted within the 
United States,'' which as proposed in the Cross-Border Proposing 
Release would trigger the regulatory reporting requirement, should be 
modified to exclude transactions with FPSPIs.\944\
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    \938\ FMS Letter at 8. See also IDB Letter at 1 (noting that IDB 
does not currently enter into security-based swaps but that it may 
do so in the future, and expressing concern about applying the 
requirements of Title VII to the activities of FPSFIs).
    \939\ See id. at 8-11.
    \940\ KfW Letter at 1.
    \941\ KfW indicated, for example, that between 2009 and 2012 it 
engaged in only four new trades to acquire credit protection, all in 
2011; that the last time it had sold credit protection was in 2009; 
and that as of 2012 the outstanding notional amount of the credit 
protection it had purchased was zero. See id. at Annex A.
    \942\ See id. at 1-6.
    \943\ World Bank Letter at 6, note 11.
    \944\ See Sullivan Letter at 18-19.
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    The Commission believes that a security-based swap to which an 
FPSFI is a counterparty (``FPSFI trade'') should not, on that basis 
alone, be exempt from regulatory reporting. By the same token, however, 
the Commission also believes that a security-based swap to which an 
FPSFI is a counterparty--even if headquartered in the United States--
should not, on that basis alone, be subject to regulatory reporting. 
All FPSFIs, even FPSFIs that are based in the United States, are deemed 
non-U.S. persons under the Commission's Title VII rules.\945\ As with 
any other security-based swap transaction having a direct counterparty 
that is a non-U.S. person, a transaction involving an FPSFI as a direct 
counterparty would be subject to Regulation SBSR's regulatory reporting 
requirements only if it met one of the conditions in Rule 908(a)(1). 
Thus, a transaction between an FPSFI and a U.S. person would be subject 
to regulatory reporting.\946\ However, a transaction between an FPSFI 
and a non-U.S. person would be subject to regulatory reporting only if 
the non-U.S. person is a registered security-based swap dealer or a 
registered major security-based swap participant or is guaranteed by a 
U.S. person, a registered security-based swap dealer, or a registered 
major security-based swap participant.\947\ As noted above,\948\ the 
Commission has declined to adopt the term ``transaction conducted 
within the United States,'' which was proposed in the Cross-Border 
Proposing Release. In the Conduct Re-Proposal, the Commission 
anticipates soliciting additional comment on such transactions as they 
relate to regulatory reporting and public dissemination under 
Regulation SBSR.
---------------------------------------------------------------------------

    \945\ See Rule 3a71-3(a)(4)(iii) under the Exchange Act 
(specifically excluding from the term ``U.S. person'' the 
International Monetary Fund, the International Bank for 
Reconstruction and Development, the Inter-American Development Bank, 
the Asian Development Bank, the African Development Bank, the United 
Nations, and their agencies, affiliates, and pension plans, and any 
other similar international organizations, their agencies, 
affiliates, and pension plans).
    \946\ See Rule 908(a)(1) (requiring regulatory reporting of a 
security-based swap where there is a direct or indirect counterparty 
that is a U.S. person on either side of the transaction).
    \947\ See Rule 901(a)(1)(i) and (ii).
    \948\ See supra Section XV(C)(3)(iv).
---------------------------------------------------------------------------

    Regulatory reporting of FPSFI trades involving, on the other side, 
a U.S. person, a registered security-based swap dealer, or a registered 
major security-based swap participant will facilitate

[[Page 14666]]

the Commission's ability to carry out our regulatory oversight 
responsibilities with respect to registered entities, U.S. persons, and 
the U.S. security-based swap market more generally. The Commission 
notes that this approach was endorsed by the World Bank and another 
commenter in response to the original Regulation SBSR Proposing 
Release.\949\
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    \949\ See CEB Letter at 4; World Bank Letter I at 7 (stating 
that, although swaps involving FPSFIs as counterparties generally 
should be exempt from the definition of ``swap,'' they should be 
treated as swaps solely for reporting purposes).
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    Finally, the Commission does not believe that a sufficient basis 
exists to support an exemption from public dissemination for FPSFI 
trades. The Commission is aware of no characteristics of security-based 
swap transactions executed by FPSFIs that indicate that an exemption 
from the public dissemination requirements of Regulation SBSR would be 
appropriate. No commenters suggested that FPSFIs use security-based 
swaps differently from other market participants or that publicly 
disseminating FPSFI trades would provide an inaccurate view of the 
market. Moreover, based on the comments received, it appears that that 
FPSFI participation in the security-based swap market--rather than the 
swap market generally--is extremely limited.\950\ Thus, if security-
based swap activity consists of such a small portion of FPSFI 
activities, it is less apparent that an exemption is warranted; the 
harm that would result from disseminating security-based swap 
transactions--assuming such harm exists--would, all other things being 
equal, be less the fewer such transactions there are. The Commission 
notes, in any event, that Regulation SBSR contains provisions relating 
to public dissemination that are designed to protect the identity of 
security-based swap counterparties \951\ and prohibit a registered SDR 
(with respect to uncleared security-based swaps) from disclosing the 
business transactions and market positions of any person.\952\ The 
Commission also notes that, during the interim phase of Regulation 
SBSR, no transaction must be reported before 24 hours after execution. 
This approach is designed to minimize any adverse market impact of 
publicly disseminating any security-based swap transactions, when the 
Commission has not yet proposed and adopted block trades thresholds and 
the associated dissemination delays for the benefit of all 
counterparties, including FPSFIs. Given these potential protections for 
all security-based swap counterparties, not just FPSFIs, the Commission 
does not at this time see a basis to exempt FPSFI trades from public 
dissemination.
---------------------------------------------------------------------------

    \950\ See BIS Letter at 3 (stating that the BIS generally does 
not transact security-based swaps such as credit default swaps or 
equity derivatives); KfW Letter at Annex A; FMS Letter at 8.
    \951\ See Rule 902(c)(1) (requiring a registered SDR not to 
disseminate the identity of any counterparty to a security-based 
swap).
    \952\ See Rule 902(c)(2).
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B. Foreign Privacy Laws Versus Duty To Report Counterparty IDs

    Rule 901(d), as adopted, sets forth the data elements that must be 
reported to a registered SDR for regulatory purposes. One such element 
is the ``counterparty ID'' of each counterparty, which will enable the 
Commission to determine every person who is a counterparty, direct or 
indirect, to a security-based swap. The Commission believes that it 
could be necessary to assess the positions and trading activity of any 
counterparty in order to carry out its regulatory duties for market 
oversight.\953\ Since only one side of the transaction is required to 
report, the reporting side is required to provide the counterparty ID 
of any counterparty on the other side.\954\ Without this requirement, 
the registered SDR would not have a record of the identity of the other 
side.
---------------------------------------------------------------------------

    \953\ The Commission and other relevant authorities have a 
strong interest in being able to monitor the risk exposures of U.S. 
persons, particularly those involved in the security-based swap 
market, as the failure or financial distress of a U.S. person could 
impact other U.S. persons and the U.S. economy as a whole. The 
Commission and other relevant authorities also have an interest in 
obtaining information about non-U.S. counterparties that enter into 
security-based swaps with U.S. persons, because the ability of such 
non-U.S. counterparties to perform their obligations under those 
security-based swaps could impact the financial soundness of U.S. 
persons. See, e.g., S. Comm. on Banking, Hous., & Urban Affairs, The 
Restoring American Financial Stability Act of 2010, S. Rep. No. 111-
176, at 32 (``As a key element of reducing systemic risk and 
protecting taxpayers in the future, protections must include 
comprehensive regulation and rules for how the OTC derivatives 
market operates. Increasing the use of central clearinghouses, 
exchanges, appropriate margining, capital requirements, and 
reporting will provide safeguards for American taxpayers and the 
financial system as a whole'') (emphasis added).
    \954\ However, as described above in Section II(C)(3)(b), the 
reporting side might not know the counterparty ID of a counterparty 
by the time it must report the transaction (e.g., if the trade is to 
be allocated to a series of funds, and the fund manager has not yet 
determined the allocation). In such case, the reporting side would 
know the identity of the execution agent acting for the funds and 
thus would be required to report the execution agent ID instead of 
the counterparty ID with the initial transaction report.
---------------------------------------------------------------------------

    Some commenters cautioned that U.S. persons might be restricted 
from complying with such a requirement in cases where a security-based 
swap is executed outside the United States.\955\ One of these 
commenters stated, for example, that the London branch of a U.S. person 
would need its counterparty's consent to identify that party under U.K. 
law.\956\ The commenter noted that, in this case, the reporting party 
is located in a jurisdiction where applicable local law restricts the 
reporting party from reporting the identity of a counterparty. The same 
commenter added that, in a similar transaction executed by a Paris 
branch of a U.S. firm, French law requires the branch to obtain the 
consent of the counterparty every time that it wants to report that 
counterparty's identity.\957\ Another of these commenters urged the 
Commission to ``consider carefully and provide for consistency with, 
foreign privacy laws, some of which carry criminal penalties for 
wrongful disclosure of information,'' \958\ but did not provide further 
detail. A third commenter argued, without further explanation, that 
allowing substituted compliance when both parties are not domiciled in 
the United States could avoid problems with foreign privacy laws 
conflicting with U.S. reporting requirements.\959\
---------------------------------------------------------------------------

    \955\ See DTCC Letter II at 21; ISDA/SIFMA Letter I at 20. In 
addition, two comments on the Commission's interim final temporary 
rule on the reporting of security-based swaps entered into before 
July 21, 2010, Securities Exchange Act Release No. 63094 (October 
13, 2010), 75 FR 64643 (October 20, 2010), made similar points. See 
Deutsche Bank Letter at 5 (``In some cases, dissemination or 
disclosure of [counterparty] information could lead to severe civil 
or criminal penalties for those required to submit information to an 
SDR pursuant to the Interim Final Rules. These concerns are 
particularly pronounced because of the expectation that Reportable 
Swap data will be reported, on a counterparty identifying basis, to 
SDRs, which will be non-governmental entities, and not directly to 
the Commissions''); ISDA I at 6 (``In many cases, counterparties to 
cross-border security-based swap transactions will face significant 
legal and reputational obstacles to the reporting of such 
information. Indeed, disclosure of such information may lead to 
civil penalties in some jurisdictions and even criminal sanctions in 
other jurisdictions'').
    \956\ See DTCC Letter II at 21.
    \957\ See id.
    \958\ ISDA/SIFMA Letter I at 20.
    \959\ See Cleary II at 17-18.
---------------------------------------------------------------------------

    In the Cross-Border Proposing Release, the Commission stated that 
it sought to understand more precisely if--and, if so, how--requiring a 
party to report the transaction pursuant to Regulation SBSR (including 
disclosure of the other side's identity to a registered SDR) might 
cause it to violate local law in a foreign jurisdiction where it 
operates. Before determining whether any exception to reporting the 
counterparty's counterparty ID might be necessary or appropriate, the

[[Page 14667]]

Commission sought additional information about any such foreign privacy 
laws and asked a number of questions about this issue.\960\
---------------------------------------------------------------------------

    \960\ See 78 FR 31073.
---------------------------------------------------------------------------

    In response to the questions, one commenter listed specific 
provisions in foreign laws that would prevent the reporting side from 
identifying its foreign counterparty.\961\ Another commenter noted that 
reporting parties could face issues with identifying the counterparty 
if ``either (i) consent is required for disclosing trade data to the 
Commission and such consent has not or cannot be obtained or (ii) a 
counterparty consent is not sufficient to overcome the data privacy 
restrictions.'' \962\ This commenter requested that the Commission 
``recognize in [Regulation SBSR] the necessity for reporting parties to 
redact/mask counterparty-identifying information'' if they reasonably 
believe that disclosure of such information may violate the laws of 
another jurisdiction.\963\ Commenters did not suggest any rule text for 
a possible exemption from proposed Rule 901(d)(1)(i) or discuss the 
effects of granting substituted compliance on avoiding foreign legal 
barriers to reporting.
---------------------------------------------------------------------------

    \961\ See IIB Letter at 19, note 45.
    \962\ ISDA IV at 19.
    \963\ Id.
---------------------------------------------------------------------------

    Based on the comment received as well as other sources 
consulted,\964\ the Commission understands that some laws and 
regulations exist in foreign jurisdictions that may limit or prevent 
reporting of counterparty ID to an SEC-registered SDR pursuant to 
Regulation SBSR. These types of restrictions may include privacy laws, 
which generally restrict disclosure of certain identifying information 
about a natural person or entity,\965\ and so-called ``blocking 
statutes'' (including secrecy laws) which typically prevent the 
disclosure of information relating to third parties and/or foreign 
governments.\966\ Several jurisdictions with possible legal and 
regulatory barriers also have reported that they are in the process of 
modifying their legislation and regulations to remove such 
barriers.\967\ Therefore, it is difficult for the Commission to assess 
the extent to which legal and regulatory barriers will continue to 
exist that would hinder the ability of parties to meet the reporting 
requirement of Regulation SBSR.
---------------------------------------------------------------------------

    \964\ See letter from Robert Pickel, Chief Executive Officer, 
ISDA, to David A. Stawick, Secretary, CFTC, dated August 27, 2012 
(``ISDA CFTC Letter''), passim, available at www2.isda.org/attachment/NjY2NQ==/Comment%20Letter%20-%20CFTC%20Reporting%20Obligations%20Cross%20Border%20FINAL%20082712.pdf (last visited January 13, 2015) (discussing a survey of privacy 
laws in a number of foreign jurisdictions); FSB OTC Derivatives 
Working Group (ODWG), OTC Derivatives Market Reforms: Fifth Progress 
Report on Implementation (April 15, 2013); Seventh Progress Report 
on Implementation (April 8, 2014); OTC Derivatives Regulators Group 
(ODRG), Report on Agreed Understandings to Resolving Cross-Border 
Conflicts, Inconsistencies, Gaps And Duplicative Requirements 
(August 2013); ODRG, Report on Cross-Border Implementation Issues 
(September 2013).
    \965\ The Commission understands that the privacy law 
limitations on disclosure of certain identifying information related 
to natural persons or entities can usually (but not always) be 
overcome by counterparty consent to such disclosure. Even where 
express consent resolves any outstanding privacy law issues, 
obtaining consent from the necessary counterparties may require 
market education and additional time to implement. See ISDA CFTC 
Letter at 8.
    \966\ The Commission understands that blocking statue barriers 
to reporting normally cannot be waived by the person or entity that 
is the subject of the information, though the person or entity may, 
in some circumstances, apply for an exemption to report certain 
information. See id.
    \967\ See ODWG Seventh Progress Report, supra note 965, at 10.
---------------------------------------------------------------------------

    The Commission recognizes that security-based swap counterparties 
that will incur the duty to report pre-enactment and transactional 
security-based swaps pursuant to Rule 901(i) may have entered into some 
of those transactions with counterparties in jurisdictions that have 
privacy laws or blocking statutes that may prohibit these reporting 
sides from disclosing the identities of these foreign counterparties. 
At the time that these transactions were executed, there was no 
regulatory requirement to report the identity of the counterparty under 
the United States securities laws. Therefore, the Commission believes 
that it would be inappropriate to compel a reporting side to disclose 
the identity of a counterparty to a historical security-based swap now, 
if such disclosure would violate applicable foreign law and the 
reporting side could not reasonably have foreseen a future conflict 
with applicable U.S. law. The Commission will consider requests from 
reporting sides for exemptions, pursuant to Section 36 of the Exchange 
Act,\968\ from the requirement to report counterparty IDs of historical 
security-based swaps executed up to the last day before the effective 
date of these final rules. Any such request should be filed pursuant to 
Rule 0-12 under the Exchange Act \969\ and include: (1) The name of the 
jurisdiction or jurisdictions which the requester believes prohibit it 
from being able to carry out the duty under Rule 901(i) of reporting 
the identity of a counterparty; and (2) a discussion of the laws of the 
jurisdiction or jurisdictions that prohibit such reporting, and why 
compliance with the duty to report the counterparty ID under Rule 
901(i) is limited or prohibited.\970\ Upon the effective date of these 
final rules, every security-based swap counterparty that is the 
reporting side for one or more security-based swaps will eventually 
have to report, among other things, the identity of each of its 
counterparties.\971\
---------------------------------------------------------------------------

    \968\ 15 U.S.C. 78mm.
    \969\ 17 CFR 240.0-12.
    \970\ For example, to support an exemption request, the 
requester should consider discussing whether obtaining waivers from 
its counterparties is an acceptable practice under the law of the 
foreign jurisdiction.
    \971\ The rules adopted in this release will be effective 60 
days after publication in the Federal Register. For Rules 900, 907, 
and 909, the compliance date is the same as the effective date. The 
Commission is proposing a new compliance schedule for Rules 901, 
902, 903, 904, 905, 906, and 908 of Regulation SBSR. See Regulation 
SBSR Proposed Amendments Release, Section VII. Market participants 
will not have to comply with the requirements in those rules--such 
as the requirement in Rule 901(i) to report historical security-
based swaps--until certain dates that will be specified when the 
Commission takes final action on the proposed compliance schedule.
---------------------------------------------------------------------------

C. Antifraud Authority

    The provisions of Regulation SBSR and the interpretive guidance 
discussed above relate solely to the applicability of the security-
based swap regulatory reporting and public dissemination requirements 
under Title VII. Regulation SBSR does not limit the cross-border reach 
of the antifraud provisions or other provisions of the federal 
securities laws that are not addressed by this release.\972\
---------------------------------------------------------------------------

    \972\ For example, security-based swaps, as securities, are 
subject to the provisions of the Securities Act and the rules and 
regulations thereunder applicable to securities. The Securities Act 
requires that any offer and sale of a security must either be 
registered under the Securities Act, see Section 5 of the Securities 
Act, 15 U.S.C. 77e, or made pursuant to an exemption from 
registration, see, e.g., Sections 3 and 4 of the Securities Act, 15 
U.S.C. 77c and 77d. In addition, the Securities Act requires that 
any offer to sell, offer to buy or purchase, or sale of a security-
based swap to any person who is not an eligible contract participant 
must be registered under the Securities Act. See Section 5(e) of the 
Securities Act, 15 U.S.C. 77e(e). Because of the statutory language 
of Section 5(e), exemptions from this requirement in Sections 3 and 
4 of the Securities Act are not available.
---------------------------------------------------------------------------

    In Section 929P(b) of the Dodd-Frank Act,\973\ Congress added 
provisions to the federal securities laws confirming the Commission's 
broad cross-border antifraud authority.
---------------------------------------------------------------------------

    \973\ The antifraud provisions of the securities laws include 
Section 17(a) of the Securities Act, 15 U.S.C. 77q(a); Sections 9, 
10(b), 14(e), and 15(c)(1)-(2) and (7) of the Exchange Act, 15 
U.S.C. 78i, 78j, 78n, 78o(c)(1)-(2); Section 206 of the Investment 
Advisers Act of 1940, 15 U.S.C. 80b-6; and any rule or regulation of 
the Commission promulgated under these statutory provisions.
---------------------------------------------------------------------------

    In the Cross-Border Adopting Release, the Commission adopted Rule 
250.1

[[Page 14668]]

under the Exchange Act,\974\ which sets forth the Commission's 
interpretation of its cross-border authority.\975\ Rule 250.1(a) 
provides that the antifraud provisions of the securities laws apply to: 
``(1) Conduct within the United States that constitutes significant 
steps in furtherance of the violation; or (2) Conduct occurring outside 
the United States that has a foreseeable substantial effect within the 
United States.'' Nothing in this Regulation SBSR limits the broad 
cross-border application of the anti-fraud provisions as set forth in 
Rule 250.1.
---------------------------------------------------------------------------

    \974\ 17 CFR 250.1.
    \975\ See Cross-Border Adopting Release, 79 FR 47360.
---------------------------------------------------------------------------

D. International Coordination Generally

    Several commenters urged the Commission to coordinate their efforts 
to implement Title VII requirements with those of foreign regulators 
who also are imposing new requirements on the OTC derivatives 
markets.\976\ For example, one commenter urged the SEC and CFTC ``to 
harmonize their real-time reporting regimes with each other and with 
those of comparable international regulators.'' \977\ Similarly, a 
second commenter stated that the SEC and CFTC ``should work with 
foreign regulators that plan to create their own real-time reporting 
regimes to harmonize their requirements regarding the timing of 
dissemination and the data to be disseminated.'' \978\ The same 
commenter urged the SEC and CFTC ``to continue their efforts in 
establishing a globally harmonized approach to creating [LEIs].'' \979\ 
Other commenters believed generally that global coordination is 
necessary to develop LEIs and other identification codes.\980\
---------------------------------------------------------------------------

    \976\ See, e.g., Cleary III at 36; Markit III at 2; SIFMA I at 
5-6; WMBAA III at 3 (``U.S. regulations also need to be in harmony 
with regulations of foreign jurisdictions''); NGFP Letter at 1-2; 
AFGI Letter at 1 (urging the Commission to ensure the consistent 
regulation of financial guaranty insurers); CDEU Letter at 2; 
PensionsEurope Letter at 1-2 (urging the Commission to avoid 
conflicts with European regulatory requirements); Barnard II at 1-2; 
Six Associations Letter at 1-2 (expressing general support for 
coordination among regulators with respect to the regulation of 
swaps and security-based swaps); CCMR II, passim.
    \977\ SIFMA I at 5-6.
    \978\ Markit III at 2.
    \979\ Id. at 4-5.
    \980\ See Benchmark at 1; Bloomberg Letter at 1; DTCC V at 14.
---------------------------------------------------------------------------

    The Commission agrees broadly with these commenters that 
international coordination will be helpful in developing robust and 
efficient regimes for regulating cross-border security-based swap 
activity and overseeing the security-based swap market. The Commission 
is cognizant of its duty under Section 752(a) of the Dodd-Frank Act 
\981\ and remains committed to engaging in bilateral and multilateral 
discussions with foreign regulatory authorities to carry out this goal. 
The Commission staff has consulted and coordinated with the CFTC, 
prudential regulators,\982\ and foreign regulatory authorities 
consistent with the consultation provisions of the Dodd-Frank Act,\983\ 
and more generally as part of its domestic and international 
coordination efforts. The Commission staff has participated in numerous 
bilateral and multilateral discussions with foreign regulatory 
authorities addressing the regulation of OTC derivatives.\984\ Through 
these discussions and the Commission's participation in various 
international task forces and working groups, it has gathered 
information about foreign regulatory reform efforts and discussed the 
possibility of conflicts and gaps, as well as inconsistencies and 
duplications, between U.S. and foreign regulatory regimes. The 
Commission has taken and will continue to take these discussions into 
consideration in developing rules, forms, and interpretations for 
implementing Title VII of the Dodd-Frank Act.
---------------------------------------------------------------------------

    \981\ 15 U.S.C. 8325 (``In order to promote effective and 
consistent global regulation of swaps and security-based swaps, the 
Commodity Futures Trading Commission, the Securities and Exchange 
Commission, and the prudential regulators . . . as appropriate, 
shall consult and coordinate with foreign regulatory authorities on 
the establishment of consistent international standards with respect 
to the regulation (including fees) of swaps'').
    \982\ The term ``prudential regulator'' is defined in Section 
1a(39) of the CEA, 7 U.S.C. 1a(39), and that definition is 
incorporated by reference in Section 3(a)(74) of the Exchange Act, 
15 U.S.C. 78c(a)(74).
    \983\ Section 712(a)(2) of the Dodd-Frank Act provides in part 
that the Commission shall ``consult and coordinate to the extent 
possible with the Commodity Futures Trading Commission and the 
prudential regulators for the purposes of assuring regulatory 
consistency and comparability, to the extent possible.''
    \984\ Senior representatives of OTC derivatives market 
regulators from G20 jurisdictions have met on a number of occasions 
to discuss international coordination of OTC derivatives 
regulations, including as part of the OTC Derivatives Regulators 
Group. See, e.g., Report of the OTC Derivatives Regulators Group on 
Cross-Border Implementation Issues (March 2014), available at 
https://www.g20.org/sites/default/files/g20_resources/library/Report%20of%20the%20OTC%20Derivatives%20Regulators%20Group%20on%20Cross-Border%20Implementation%20Issues.pdf; Joint Press Statement of 
Leaders on Operating Principles and Areas of Exploration in the 
Regulation of the Cross-Border OTC Derivatives Market (December 4, 
2012), available at http://www.sec.gov/news/press/2012/2012-251.htm; 
Joint Statement on Regulation of OTC Derivatives Markets (May 7, 
2012), available at: http://www.sec.gov/news/press/2012/2012-85.htm; 
Joint Statement on Regulation of OTC Derivatives Markets (December 
9, 2011), available at: http://www.sec.gov/news/press/2011/2011-260.htm, each last visited September 22, 2014. The Commission 
participates in the FSB's Working Group on OTC Derivatives 
Regulation (``ODWG''), both on its own behalf and as the 
representative of the International Organization of Securities 
Commissions (``IOSCO''), which is co-chair of the ODWG. The 
Commission also serves as one of the co-chairs of the IOSCO Task 
Force on OTC Derivatives Regulation.
---------------------------------------------------------------------------

XVII. Rule 909--SIP Registration

    Section 3(a)(22)(A) of the Exchange Act \985\ defines a SIP as 
``any person engaged in the business of (i) collecting, processing, or 
preparing for distribution or publication, or assisting, participating 
in, or coordinating the distribution or publication of, information 
with respect to transactions in or quotations for any security (other 
than an exempted security) or (ii) distributing or publishing (whether 
by means of a ticker tape, a communications network, a terminal display 
device, or otherwise) on a current and continuing basis, information 
with respect to such transactions or quotations.'' Security-based swaps 
are securities under the Exchange Act.\986\ Because Regulation SBSR 
requires registered SDRs to collect security-based swap transaction 
reports from participants and to distribute data from such reports, 
registered SDRs will be SIPs for purposes of the Exchange Act.
---------------------------------------------------------------------------

    \985\ 15 U.S.C. 78c(a)(22)(A).
    \986\ See 15 U.S.C. 78c(a)(10).
---------------------------------------------------------------------------

    Section 11A(c)(1) of the Exchange Act \987\ provides that the 
Commission may prescribe rules requiring SIPs to, among other things, 
assure ``the fairness and usefulness of the form and content'' \988\ of 
the information that they disseminate, and to assure that ``all other 
persons may obtain on terms which are not unreasonably discriminatory'' 
the transaction information published or distributed by SIPs.\989\ 
Section 11A(c)(1) applies regardless of whether a SIP is registered 
with the Commission as such.
---------------------------------------------------------------------------

    \987\ 15 U.S.C. 78k-1(c)(1).
    \988\ 15 U.S.C. 78k-1(c)(1)(B).
    \989\ 15 U.S.C. 78k-1(c)(1)(D).
---------------------------------------------------------------------------

    The provisions of Section 11A(b)(5) and11A(b)(6) of the Exchange 
Act, however, apply only to registered SIPs. Requiring a registered SDR 
to register with the Commission as a SIP would subject that entity to 
Section 11A(b)(5) of the Exchange Act,\990\ which requires a registered 
SIP to notify the Commission whenever it prohibits or limits any 
person's access to its services. Upon its own motion or upon 
application by any aggrieved person, the Commission could review the 
registered SIP's action.\991\ If the Commission finds that the person 
has been discriminated

[[Page 14669]]

against unfairly, it could require the SIP to provide access to that 
person.\992\ Section 11A(b)(6) of the Exchange Act also authorizes the 
Commission to take certain regulatory action as may be necessary or 
appropriate against a registered SIP.\993\
---------------------------------------------------------------------------

    \990\ 15 U.S.C. 78k-1(b)(5).
    \991\ See 15 U.S.C. 78k-1(b)(5)(A)
    \992\ See 15 U.S.C. 78k-1(b)(5)(B).
    \993\ See 15 U.S.C. 78k-1(b)(6) (providing that the Commission, 
by order, may censure or place limitations upon the activities, 
functions, or operations of any registered SIP or suspend for a 
period not exceeding 12 months or revoke the registration of the 
SIP, if the Commission finds, on the record after notice and 
opportunity for hearing, that such censure, placing of limitations, 
suspension, or revocation is in the public interest, necessary or 
appropriate for the protection of investors or to assure the prompt, 
accurate, or reliable performance of the functions of such SIP, and 
that such SIP has violated or is unable to comply with any provision 
of this title or the rules or regulations thereunder).
---------------------------------------------------------------------------

    Section 11A(b)(1) of the Exchange Act \994\ provides that a SIP not 
acting as the ``exclusive processor'' \995\ of any information with 
respect to quotations for or transactions in securities is exempt from 
the requirement to register with the Commission as a SIP unless the 
Commission, by rule or order, determines that the registration of such 
SIP ``is necessary or appropriate in the public interest, for the 
protection of investors, or for the achievement of the purposes of 
[Section 11A].'' An SDR does not engage on an exclusive basis on behalf 
of any national securities exchange or registered securities 
association in collecting, processing, or preparing for distribution or 
publication any information with respect to transactions or quotations 
in securities; therefore, an SDR does not fall under the statutory 
definition of ``exclusive processor.''
---------------------------------------------------------------------------

    \994\ 15 U.S.C. 78k-1(b)(1).
    \995\ 15 U.S.C. 78c(a)(22)(B) (defining ``exclusive processor'' 
as any securities information processor or self-regulatory 
organization which, directly or indirectly, engages on an exclusive 
basis on behalf of any national securities exchange or registered 
securities association, or any national securities exchange or 
registered securities association which engages on an exclusive 
basis on its own behalf, in collecting, processing, or preparing for 
distribution or publication any information with respect to (1) 
transactions or quotations on or effected or made by means of any 
facility of such exchange or (2) quotations distributed or published 
by means of any electronic system operated or controlled by such 
association).
---------------------------------------------------------------------------

    To subject an SDR to the requirements of Sections 11A(b)(5) and 
11A(b)(6), the Commission would need, by rule or order, to make the 
determination under Section 11A(b)(1) noted above. Accordingly, the 
Commission proposed Rule 909 to require a registered SDR also to 
register with the Commission as a SIP on existing Form SIP. The 
Commission requested comment on this proposed requirement, and whether 
it should combine Form SIP and Form SDR to create a joint registration 
form. In the Cross-Border Proposing Release, the Commission re-proposed 
Rule 909 without revision.
    The Commission believes that requiring registered SDRs to register 
as SIPs will help to ensure fair access to important security-based 
swap transaction data reported to and publicly disseminated by them. 
The Commission believes that the additional authority over a registered 
SDR/SIP provided by Sections 11A(b)(5) and 11A(b)(6) of the Exchange 
Act will ensure that these entities offer security-based swap market 
data on terms that are fair and reasonable and not unreasonably 
discriminatory. Therefore, the Commission believes that registering 
SDRs as SIPs is necessary or appropriate in the public interest, for 
the protection of investors, or for the achievement of the purposes of 
Section 11A of the Exchange Act. Section 11A of the Exchange Act 
establishes broad goals for the development of the securities markets 
and charges the Commission with establishing rules and policies that 
are designed to further these objectives. Section 11A(a) states, among 
other things, that it is in the public interest and appropriate for the 
protection of investors and the maintenance of fair and orderly markets 
to assure economically efficient execution of securities transactions; 
the availability to brokers, dealers, and investors of information with 
respect to quotations for and transactions in securities; and an 
opportunity for investors' orders to be executed without the 
participation of a dealer. Requiring registered SDRs also to register 
with the Commission as SIPs is designed to help achieve these 
objectives in the still-developing security-based swap market.
    One commenter stated that, because of the duplicative nature of the 
information required by Form SDR and Form SIP, the Commission should 
combine the two forms so that an SDR could register as both an SDR and 
a SIP using only one form.\996\ As an alternative, the commenter 
suggested that an SDR be permitted to use either Form SDR or Form SIP 
to register as both an SDR and a SIP.\997\
---------------------------------------------------------------------------

    \996\ See DTCC III at 9.
    \997\ See id.
---------------------------------------------------------------------------

    Rule 909, as re-proposed, stated that ``[a] registered security-
based swap data repository shall also register with the Commission as a 
securities information processor on Form SIP.'' For reasons discussed 
in the SDR Adopting Release, the Commission agrees that Form SDR should 
be revised to accommodate SIP registration.\998\ Accordingly, Rule 909, 
as adopted, eliminates the reference to Form SIP and states instead 
that ``[a] registered security-based swap data repository shall also 
register with the Commission as a securities information processor on 
Form SDR.'' There are no filing requirements in addition to the Form 
SDR for a person to register as both a SIP and an SDR.
---------------------------------------------------------------------------

    \998\ See SDR Adopting Release, Section VI(A)(1)(c). Form SDR is 
being adopted by the Commission as part of the SDR Adopting Release. 
Form SDR will be used 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 a SIP, and for 
amendments by registered SIPs that are not dually registered as an 
SDR and a SIP.
---------------------------------------------------------------------------

XVIII. Constitutional Questions About Reporting and Public 
Dissemination

    One commenter argued that the reporting and dissemination 
requirements of Regulation SBSR could violate the First and Fifth 
Amendments to the Constitution by compelling ``non-commercial speech'' 
without satisfying a strict scrutiny standard and by ``taking'' 
transaction and/or holding data without just compensation.\999\
---------------------------------------------------------------------------

    \999\ See Viola Letter at 3-4.
---------------------------------------------------------------------------

    As a preliminary matter, the Commission presumes ``that Congress 
acted constitutionally when it passed the statute.'' \1000\ 
Furthermore, the Commission has carefully considered the commenter's 
arguments and pertinent judicial precedent, and believes that the 
commenter does not raise any issue that would preclude the Commission's 
adoption of Regulation SBSR's regulatory reporting and public 
dissemination requirements substantially as proposed and re-proposed. 
The Commission does not believe that the public dissemination 
requirements of Regulation SBSR violate the First Amendment. Under the 
federal securities laws, the Commission imposes a number of 
requirements that compel the provision of information to the Commission 
itself or to the public. The Supreme Court has suggested that only 
limited scrutiny under the First Amendment applies to securities 
regulation, and that the government permissibly regulates ``public 
expression by issuers of and dealers in

[[Page 14670]]

securities.'' \1001\ And in other contexts, the required disclosure of 
purely factual and uncontroversial information has also been subjected 
to only limited First Amendment scrutiny.\1002\
---------------------------------------------------------------------------

    \1000\ See Nebraska v. EPA, 331 F.3d 995, 997 (D.C. Cir. 2003) 
(``Agencies do not ordinarily have jurisdiction to pass on the 
constitutionality of federal statutes.'') (citing Thunder Basin Coal 
Co. v. Reich, 510 U.S. 200, 215 (1994)); Todd v. SEC, 137 F.2d 475, 
478 (6th Cir. 1943) (same); William J. Haberman, 53 SEC 1024, 1029 
note 14 (1998) (``[W]e have no power to invalidate the very statutes 
that Congress has directed us to enforce.'') (citing Milton J. 
Wallace, 45 SEC 694, 697 (1975); Walston & Co., 5 SEC 112, 113 
(1939)).
    \1001\ See, e.g., Paris Adult Theatre I v. Slaton, 413 U.S. 49, 
64 (1973) (stating also that the First Amendment does not 
``preclude[ ] States from having `blue sky' laws to regulate what 
sellers of securities may write or publish . . . ''). See also SEC 
v. Wall St. Pub. Inst., Inc., 851 F.2d 365, 373 (D.C. Cir. 1988) 
(``Speech relating to the purchase and sale of securities . . . 
forms a distinct category of communications'' in which ``the 
government's power to regulate [speech about securities] is at least 
as broad as with respect to the general rubric of commercial 
speech'').
    \1002\ See, e.g., Rumsfeld v. Forum for Academic and 
Institutional Rights, Inc., 547 U.S. 47, 61-62 (2006); Am. Meat 
Inst. v. U.S. Dep't of Agric., 760 F.3d 18, 21-22 (D.C. Cir. 2014); 
N.Y. State Rest. Ass'n v. N.Y. City Bd. of Health, 556 F.3d 114, 132 
(2d Cir. 2009) (citing Nat'l Elec. Mfrs. Ass'n v. Sorrell, 272 F.3d 
104, 113-115 (2d Cir. 2001)).
---------------------------------------------------------------------------

    Nor does the Commission believe that public dissemination 
requirements of Regulation SBSR violate the Fifth Amendment. To 
constitute a regulatory taking, the government action must (1) affect a 
property interest, and (2) go ``too far'' in so doing.\1003\ The 
Supreme Court has identified several factors to be considered in 
determining whether the government action goes too far, such as ``the 
character of the governmental action, its economic impact, and its 
interference with reasonable investment-backed expectations.'' \1004\ 
The requirements at issue here directly advance the government's 
legitimate interest in enhancing price discovery by, among other 
things, reducing information asymmetries, enhancing transparency, and 
improving confidence in the market. The character of the government 
action, therefore, weighs against Rule 902(a) being a taking. The 
Commission further believes that the regulatory reporting and public 
dissemination requirements of Regulation SBSR do not impose an 
unconstitutional economic impact \1005\ or interfere with reasonable 
investment-backed expectations. Regulation SBSR does not interfere with 
market participants' reasonable investment-backed expectations because 
the financial markets are an industry with a long tradition of 
regulation focused on promoting disclosure of information to investors. 
Businesses that operate in an industry with a history of regulation 
have no reasonable expectation that regulation will not be strengthened 
to achieve established legislative ends.\1006\ Although security-based 
swaps did not become securities and thus did not become fully subject 
to the regulatory regime for securities regulation until after passage 
of the Dodd-Frank Act, the Commission believes that the economic 
similarity of markets in securities and security-based swaps strongly 
suggests that market participants could have anticipated regulation at 
a future date. Furthermore, the Commission believes that the commenter 
has provided no argument to support the proposition that the mere fact 
that security-based swaps were not fully subject to the Exchange Act 
until passage of the Dodd-Frank Act necessarily implies that it was 
unconstitutional for Congress to amend the Exchange Act to cover these 
securities.
---------------------------------------------------------------------------

    \1003\ See Ruckleshaus v. Monsanto Co., 467 U.S. 986, 1000-01, 
1005 (1984).
    \1004\ Id. at 1005 (quoting PruneYard Shopping Center v. Robins, 
447 U.S. 74, 83 (1980)).
    \1005\ See District Intown Properties Ltd. P'ship v. District of 
Columbia, 198 F.3d 874, 883 (D.C. Cir. 1999) (requiring a Fifth 
Amendment claim to ``put forth striking evidence of economic 
effects'').
    \1006\ District Intown Properties Ltd. P'ship v. District of 
Columbia, 198 F.3d 874, 884 (D.C. Cir. 1999); see also Ruckelshaus 
v. Monsanto Co., 467 U.S. 986, 1008-09 (1984) (finding no reasonable 
investment-backed expectations because ``the possibility was 
substantial'' in an industry long ``the focus of great public 
concern and significant government regulation'' that Congress 
``would find disclosure to be in the public interest''); Maine Educ. 
Ass'n Benefits Trust v. Cioppa, 695 F.3d 154-156 (1st Cir. 2012) 
(finding no reasonable investment-backed expectations because the 
Maine legislature's ``continued expansion of this right of access'' 
to information about insurance plans to a type of plan not covered 
by previous statutes providing a right of access was ``reasonably 
foreseeable'' in light of ``the historically heavy and continuous 
regulation of insurance in Maine'').
---------------------------------------------------------------------------

XIX. What happens if there are multiple SDRs?

    The provisions of Title VII that amended the Exchange Act to 
require the registration of security-based swap data repositories do 
not require that there be only a single SDR; in fact, these provisions 
contemplate that there could be multiple SDRs registered with the 
Commission.\1007\ Therefore, no provision of Regulation SBSR, as 
adopted, is designed to require or promote the use of only a single 
SDR. The Commission believes, however, that it must consider how the 
Title VII goals of monitoring and reducing systemic risk and promoting 
transparency in the security-based swap market will be achieved if 
there are multiple registered SDRs.
---------------------------------------------------------------------------

    \1007\ See Section 13(n) of the Exchange Act, 15 U.S.C. 78m.
---------------------------------------------------------------------------

    One commenter believed that a diverse range of options for 
reporting security-based swap data would benefit the market and market 
participants.\1008\ However, other commenters raised various concerns 
with having multiple registered SDRs. Two commenters recommended that 
the Commission designate a single registered SDR per asset class.\1009\ 
Similarly, a third commenter stated that ``the Commission should 
consider designating one [registered SDR] per SBS asset class to act as 
the industry consolidator of SBS data for the Commission and for the 
purpose of public reporting.'' \1010\ This commenter also recommended 
that all life cycle events be reported to the same registered SDR that 
received the original transaction report and that registered SDRs be 
required to accept all security-based swaps in an asset class to 
further reduce fragmentation of data across multiple SDRs.
---------------------------------------------------------------------------

    \1008\ See MFA Letter at 6.
    \1009\ See ISDA I at 4; ISDA/SIFMA I at 9, note 12 (noting that, 
with a single SDR, there would be no redundancy of platforms, no 
need for additional levels of data aggregation for each asset class, 
reduced risk of errors, and greater transparency).
    \1010\ MarkitSERV I at 8. The commenter also urged the 
Commission to ``ensure that there is consistency between the fields 
that different SBS SDRs in the same asset class would collect and 
report in order to lay the foundation for the data to be 
consolidatable.'' Id. See also DTCC IX at 3. See supra Section 
II(B)(2) for discussion of the Commission's approach to ensure 
consistency. Another commenter also noted that ``if there is more 
than one registered SDR for an asset class, it may prove difficult 
for the Commission to ensure that all registered SDRs calculate the 
same block thresholds for the same SBS instruments.'' WMBAA II at 4. 
As discussed in more detail above in Section VII, the Commission is 
not yet adopting or proposing block trade rules.
---------------------------------------------------------------------------

    Another commenter warned of the risks of security-based swaps being 
reported to multiple SDRs, stating that, ``[u]nless data fragmentation 
can be avoided, the primary lessons of the 2008 financial crisis, as 
related to OTC derivatives trading, will not have been realistically or 
adequately taken into account.'' \1011\ This commenter noted the 
``large one-way trades put on by AIG in mortgage related credit 
derivatives'' and stated that ``if AIG had chosen to try to hide [its] 
trades by reporting to multiple repositories, these systemically risky 
positions would not have been discovered absent a `super repository' 
that aggregated the trade level data of the various reporting 
repositories in a manner as to detect the large one-way aggregate 
positions.'' \1012\ The same commenter stated in a subsequent comment 
letter that, if there are multiple registered SDRs, 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.'' \1013\ One option 
suggested by this commenter was utilizing Section 13(n)(5)(D)(i) of the 
Exchange Act,\1014\ which requires an

[[Page 14671]]

SDR to ``provide direct electronic access to the Commission (or any 
designee of the Commission, including another registered entity).'' The 
commenter explained that, using this authority, ``the Commission could 
designate one [SDR] as the recipient of information from other [SDRs] 
in order to have consolidation and direct electronic access for the 
Commission.'' \1015\
---------------------------------------------------------------------------

    \1011\ See DTCC II at 15.
    \1012\ Id.
    \1013\ DTCC IV at 5.
    \1014\ 15 U.S.C. 78m(n)(5)(D)(i).
    \1015\ DTCC I at 7.
---------------------------------------------------------------------------

    Four commenters urged the Commission to mandate the consolidation 
of publicly disseminated security-based swap data.\1016\ One of these 
commenters stated that ``in order to most effectively increase 
transparency in the swaps markets, it will be important for the real-
time swaps data to be available on a consolidated basis.'' \1017\ The 
second commenter believed that a central consolidator or the Commission 
must have the authority to compel all participants, including 
registered SDRs, to submit data to assure that there is a single, 
comprehensive, and accurate source for security-based swap data.\1018\ 
A third commenter, citing the regime for producing consolidated public 
information in the U.S. equity markets, stated that ``there is no 
obvious reason why a similar regime could not succeed for security-
based swaps.'' \1019\ In addition, this commenter believed that ``the 
ideal approach would be collaboration by the SEC and the CFTC to create 
(or facilitate the direct creation of) a single, central system that 
performs these data dissemination functions.'' \1020\ The fourth 
commenter cautioned that the failure to make real-time data available 
on a consolidated basis would especially disadvantage less frequent and 
smaller users of the transaction data, who would not be able to obtain 
an accurate view of market activity because of the cost and complexity 
of accessing multiple data sources.\1021\
---------------------------------------------------------------------------

    \1016\ See Barnard I at 3; Better Markets II at 6; FINRA Letter 
at 5; MarkitSERV I at 7.
    \1017\ MarkitSERV I at 7.
    \1018\ See FINRA Letter at 5 (also noting that mandating the 
consolidation of security-based swap transaction data would help to 
assure uniformity, thereby promoting market integrity and investor 
protection).
    \1019\ Better Markets II at 6. However, the commenter cautioned 
that the security-based swap data dissemination regime must avoid 
the direct data feeds that have developed in the equity markets 
because these data feeds allow ``high-frequency traders to bypass 
the aggregation and dissemination procedure, at the expense of 
retail and other investors.'' Id.
    \1020\ Id. at 4.
    \1021\ See MarkitSERV I at 7-8.
---------------------------------------------------------------------------

    The Commission shares the concerns of these commenters. The 
regulatory goals underpinning the Title VII requirements for regulatory 
reporting and public dissemination of security-based swap transaction 
information could be frustrated if the information cannot be easily 
aggregated and normalized. The Commission notes, however, that the 
statutory provisions allow for the possibility of multiple SDRs.\1022\ 
The Commission therefore seeks to develop a regulatory framework that 
would accommodate multiple SDRs, but mitigates the undesirable 
fragmentation of regulatory data that would come from incompatible data 
standards.
---------------------------------------------------------------------------

    \1022\ In the Regulation SBSR Proposing Release, the Commission 
stated that requiring registered SDRs to be the registered entities 
with the duty to disseminate security-based swap transaction 
information--rather than, for example, SB SEFs, clearing agencies, 
or the counterparties themselves--would produce some degree of 
mandated consolidation of that information and help to provide 
consistency in the form of the reported information. See 75 FR 
75227. However, the Commission acknowledges that this approach 
cannot guarantee consolidation of the published data because of the 
possibility of multiple registered SDRs.
---------------------------------------------------------------------------

    At the same time, the Commission generally agrees with the 
commenter who stated that 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.'' \1023\ The requirement that all life cycle events 
must be reported to the same registered SDR that received the report of 
the initial transaction is designed to minimize some potential problems 
of having multiple registered SDRs, such as overstating open interest. 
Although the reporting side can choose the registered SDR to which to 
report the initial transaction, all subsequent life cycle events must 
then be reported to that registered SDR. The Commission believes that 
this requirement will facilitate its ability to track security-based 
swaps over their duration and minimize instances of double counting the 
same economic activity, which could occur if the records of life cycle 
event reports did not indicate their relationship to earlier occurring 
transactions.\1024\
---------------------------------------------------------------------------

    \1023\ DTCC IV at 5.
    \1024\ Thus, the Commission concurs with the commenter who 
recommended that all life cycle events be reported to the same 
registered SDR that received the original transaction report. See 
MarkitSERV I at 8.
---------------------------------------------------------------------------

    Similarly, the Commission is adopting Rules 902(c)(4) and 907(a)(4) 
to address potential issues arising from non-mandatory reports (which 
could include duplicate reports of transactions reported to a second 
SDR when a mandatory report has already been provided to a first SDR). 
Rule 902(c)(4) prohibits a registered SDR from publicly disseminating a 
report of a non-mandatory transaction; this requirement is designed to 
prevent market observers from over-estimating the true amount of market 
activity, which could occur if the same transaction was disseminated by 
two SDRs. Rule 907(a)(4) requires registered SDRs to establish and 
maintain policies and procedures, among other things, for how 
participants must identify non-mandatory reports to the SDR, so that 
the SDR will be able to avoid publicly disseminating them.
    The Commission believes that problems associated with the existence 
of multiple registered SDRs can be minimized to the extent that such 
SDRs refer to the same persons or things in the same manner. Thus, 
final Rule 903 provides that, if an IRSS that meets certain criteria is 
recognized by the Commission and has assigned a UIC to a person, unit 
of a person, or product, all registered SDRs must use that UIC in 
carrying out their responsibilities under Regulation SBSR. As discussed 
in Section X(B)(2), supra, the Commission has recognized the GLEIS--
through which LEIs can be obtained--as an IRSS that meets the criteria 
of Rule 903. Therefore, if an entity has an LEI issued by or through 
the GLEIS, that LEI must be used for all purposes under Regulation 
SBSR. Furthermore, Rule 903(a)--in connection with the Commission's 
recognition of the GLEIS--requires all persons who are participants of 
at least one registered SDR to obtain an LEI from or through the GLEIS 
for use under Regulation SBSR, and each participant that acts as a 
guarantor of a direct counterparty's performance of any obligation 
under a security-based swap that is subject to Rule 908(a) shall, if 
the direct counterparty has not already done so, obtain a UIC for 
identifying the direct counterparty from or through that system, if 
that system permits third-party registration without a requirement to 
obtain prior permission of the direct counterparty.
    The Commission is particularly hopeful that a robust system for 
product IDs could greatly improve the usability of security-based swap 
data, both for regulators and for market observers that obtain publicly 
disseminated transaction information. The product ID could minimize 
administrative burdens by rendering unnecessary the separate reporting 
of several data elements. Product IDs also should more easily 
distinguish standardized from non-standardized products and, thus, 
should

[[Page 14672]]

facilitate aggregation of the public feeds issued from different 
registered SDRs.
    The Commission did not propose to take any specific actions towards 
consolidation of the security-based swap data disseminated by different 
registered SDRs. As the Commission stated in the Regulation SBSR 
Proposing Release, it considered mandating one consolidated reporting 
entity to disseminate all security-based swap transaction data for each 
asset class by requiring each registered SDR in an asset class to 
provide all of its security-based swap data to a ``central processor'' 
that would also be a registered SDR.\1025\ The Commission noted that 
there is substantial precedent for this approach in the equity markets, 
where market participants may access a consolidated quote for national 
markets system securities and a consolidated tape reporting executed 
transactions. The Commission stated, however, that such approach ``may 
not be warranted given the present [security-based swap] market 
structure.'' \1026\
---------------------------------------------------------------------------

    \1025\ See 75 FR 75227.
    \1026\ Id.
---------------------------------------------------------------------------

    The Commission continues to believe there is no need at this time 
to require consolidation of the publicly disseminated security-based 
swap data.\1027\ Although it is likely that there will be multiple 
registered SDRs, it is unclear at present the extent to which each will 
be publicly disseminating a significant number of transactions.\1028\ 
Furthermore, the Commission currently believes that, to the extent that 
there are different SDR data feeds that warrant consolidation and that 
such feeds cannot readily be aggregated by market observers themselves, 
certain market data vendors may be able to do so for commercially 
reasonable fees. As different SDRs register with the Commission and 
these SDRs implement Regulation SBSR, the Commission will monitor the 
situation and consider taking such action as it deems necessary in 
order to better carry about the Title VII policy of promoting greater 
transparency in the security-based swap market.
---------------------------------------------------------------------------

    \1027\ In response to the commenter who recommended requiring 
registered SDRs to accept all security-based swaps in an asset class 
to reduce fragmentation of data, the Commission notes that Rule 13n-
5(b)(1)(ii) under the Exchange Act, adopted as part of the SDR 
Adopting Release, requires an SDR that accepts reports for any 
security-based swap in a particular asset class to accept reports 
for all security-based swaps in that asset class that are reported 
to the SDR in accordance with that SDR's policies and procedures.
    \1028\ The Commission notes that, under Rule 902(c)(6), most 
clearing transactions will not be publicly disseminated. Therefore, 
to the extent that a registered SDR receives only clearing 
transactions, it would likely be required to publicly disseminate 
few if any security-based swap transactions.
---------------------------------------------------------------------------

    The Commission also acknowledges the recommendation made by one 
commenter to use Section 13(n)(5)(D)(i) of the Exchange Act to direct 
all regulatory reports received by multiple registered SDRs into a 
single ``aggregator'' SDR.\1029\ The Commission believes that Rule 13n-
4(b)(5), as adopted,\1030\ helps to address these concerns. Rule 13n-
4(b)(5) requires an SDR to provide the Commission with direct 
electronic access to the data stored by the SDR. As stated in the SDR 
Adopting Release:
---------------------------------------------------------------------------

    \1029\ See DTCC I at 7 (``Under Section 13 of the Exchange Act . 
. . security-based swap data repositories shall `provide direct 
electronic access to the Commission (or any designee of the 
Commission, including another registered entity.' Under this 
authority, the Commission could designate one security-based swap 
data repository as the recipient of information from other security 
based-swap data repositories in order to have consolidation and 
direct access for the Commission'') (citation omitted).
    \1030\ See SDR Adopting Release, Section VI(D)(2)(c)(ii).

data [provided by an SDR to the Commission] must be in a form and 
manner acceptable to the Commission . . . [T]he 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.\1031\

    \1031\ See id. The SDR Adopting Release states, further, that 
``[t]he Commission recognizes that as the [security-based swap] 
market develops, new or different data fields may be needed to 
accurately represent new types of [security-based swap data], in 
which case the Commission may provide updated specifications of 
formats and taxonomies to reflect these new developments. Therefore, 
the Commission intends to publish guidance, as appropriate, on the 
form and manner that will be acceptable to it for the purposes of 
direct electronic access'' (internal citations omitted).
---------------------------------------------------------------------------

    Thus, the Commission does not believe that it is necessary or 
appropriate at this time to direct registered SDRs to provide their 
transaction data to a single ``aggregator'' SDR, because the SDR rules 
are designed to facilitate the Commission's ability to aggregate 
information directly. As registered SDRs and their participants develop 
experience with the Regulation SBSR reporting regime and the Commission 
develops experience with overseeing that regime, the Commission may 
consider re-evaluating the need for or the desirability of an 
aggregator SDR in the future.

XX. Section 31 Fees

    In the Regulation SBSR Proposing Release,\1032\ the Commission also 
proposed certain amendments to Rule 31 under the Exchange Act,\1033\ 
which governs the calculation and collection of fees and assessments 
owed by self-regulatory organizations to the Commission pursuant to 
Section 31 of the Exchange Act.\1034\
---------------------------------------------------------------------------

    \1032\ See 75 FR 75245-46.
    \1033\ 17 CFR 240.31.
    \1034\ 15 U.S.C. 78ee.
---------------------------------------------------------------------------

    Section 991 of the Dodd-Frank Act amended Section 31(e)(2) of the 
Exchange Act to provide that certain fees and assessments required 
under Section 31 will be required to be paid by September 25, rather 
than September 30.\1035\ Therefore, the Commission proposed to make a 
corresponding change to the definition of ``due date'' in Rule 
31(a)(10)(ii) under the Exchange Act \1036\ by replacing a reference to 
``September 30'' with a reference to ``September 25.''
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    \1035\ Section 991 of the Dodd Frank Act provides, in relevant 
part: ``(1) AMENDMENTS.--Section 31 of the Securities Exchange Act 
of 1934 (15 U.S.C. 78ee) is amended . . . in subsection (e)(2), by 
striking `September 30' and inserting `September 25'.''
    \1036\ 17 CFR 240.31(a)(10)(ii).
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    The Commission also proposed to exempt security-based swap 
transactions from the application of Section 31 transaction fees. 
Section 31(c) of the Exchange Act \1037\ requires a national securities 
association to pay fees based on the ``aggregate dollar amount of sales 
transacted by or through any member of such association otherwise than 
on a national securities exchange of securities . . . registered on a 
national securities exchange or subject to prompt last sale reporting 
pursuant to the rules of the Commission or a registered national 
securities association.'' Pursuant to Section 761(a) of the Dodd-Frank 
Act,\1038\ security-based swaps are securities.\1039\ Accordingly, when 
security-based swap transactions become subject to prompt last-sale 
reporting pursuant to the rules of the Commission, the members of a 
national securities association that effect sales of security-based 
swaps other than on an exchange would become liable for Section 31 fees 
for any such sales.\1040\ Because of certain potential difficulties in 
fairly and evenly applying Section 31 fees for sales of security-based 
swaps,\1041\ the Commission proposed to exercise its authority under 
Section 31(f) of the Exchange Act \1042\ to exempt

[[Page 14673]]

all such sales from the application of Section 31 fees. To carry out 
that objective, the Commission proposed to add a new subparagraph (ix) 
to Rule 31(a)(11), which defines the term ``exempt sale,'' to include 
as an exempt sale ``[a]ny sale of a security-based swap.'' The 
Commission also proposed to add a new paragraph (19) to Rule 31(a) to 
provide a definition for the term ``security-based swap.''
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    \1037\ 15 U.S.C. 78ee(c).
    \1038\ 15 U.S.C. 78c(a)
    \1039\ See 15 U.S.C. 78c(a)(10).
    \1040\ A national securities exchange also would be liable for 
fees in connection with any transactions in security-based swaps 
executed on its market. See 15 U.S.C. 78ee(b).
    \1041\ See Regulation SBSR Proposing Release, 75 FR 75245-46.
    \1042\ 15 U.S.C. 78ee(f) (``The Commission, by rule, may exempt 
any sale of securities or any class of sales of securities from any 
fee or assessment imposed by this section, if the Commission finds 
that such exemption is consistent with the public interest, the 
equal regulation of markets and brokers and dealers, and the 
development of a national market system.'').
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    One commenter submitted two comment letters on this aspect of the 
proposal relating to Rule 31.\1043\
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    \1043\ See OneChicago I at 2-3 (arguing that, because ``exchange 
for physical'' (``EFP'') transactions conducted on OneChicago are 
economically similar to security-based swap transactions, EFP 
transactions also should be exempt from Section 31 fees or, 
alternatively, that security-based swaps should be subject to 
Section 31 fees); OneChicago II (same).
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    The Commission is not adopting these proposed revisions to Rule 
31(a). As discussed above, the Commission is not yet requiring that 
security-based swap transactions be publicly disseminated in real time. 
Because security-based swaps are not yet subject to prompt last-sale 
reporting pursuant to the rules of the Commission or a national 
securities association,\1044\ sales of security-based swaps are not yet 
subject to Section 31 fees. In the future, the Commission anticipates 
soliciting public comment on block thresholds and the timeframe in 
which non-block security-based swap transactions must be publicly 
disseminated. At such time, when implementation of prompt last-sale 
public dissemination of security-based swap transactions would subject 
them to Section 31 fees, the Commission can revisit whether to adopt 
the proposed exemption for security-based swaps from Section 31 fees.
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    \1044\ See supra Section VII (discussing phased approach to 
public dissemination and block trades, which will permit security-
based swap transactions to be reported any time up to 24 hours after 
the time of execution (or, if 24 hours after the time of execution 
would fall on a day that is not a business day, by the same time on 
the next day that is a business day) during the first phase).
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XXI. Paperwork Reduction Act

    Certain provisions of Regulation SBSR contain ``collection of 
information requirements'' within the meaning of the Paperwork 
Reduction Act of 1995 (``PRA'').\1045\ The Commission published notices 
requesting comment on the collection of information requirements 
relating to Regulation SBSR, as originally proposed, in the Regulation 
SBSR Proposing Release \1046\ and, as re-proposed, in the Cross-Border 
Proposing Release \1047\ and submitted relevant information to the 
Office of Management and Budget (``OMB'') for review in accordance with 
the PRA.\1048\ The titles for the collections are: (1) Rule 901--
Reporting Obligations--For Reporting Sides; (2) Rule 901--Reporting 
Obligations--For Registered SDRs; (3) Rule 902--Public Dissemination of 
Transaction Reports; (4) Rule 904--Operating Hours of Registered 
Security-Based Swap Data Repositories; (5) Rule 905--Correction of 
Errors in Security-Based Swap Information--For Reporting Sides; (6) 
Rule 905--Correction of Errors in Security-Based Swap Information--Non-
Reporting Sides; (7) Rule 906(a)--Other Duties of All Participants--For 
Registered SDRs; (8) Rule 906(a)--Other Duties of All Participants--For 
Non-Reporting Sides; (9) Rule 906(b)--Other Duties of All 
Participants--For All Participants; (10) Rule 906(c)--Other Duties of 
All Participants--For Covered Participants; (11) Rule 907--Policies and 
Procedures of Registered Security-Based Swap Data Repositories; and 
(12) Rule 908(c)--Substituted Compliance (OMB Control No. 3235-0718). 
Compliance with these collections of information requirements is 
mandatory. An agency may not conduct or sponsor, and a person is not 
required to respond to, a collection of information unless the agency 
displays a currently valid control number.
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    \1045\ 44 U.S.C. 3501 et seq.
    \1046\ See Regulation SBSR Proposing Release, 75 FR 75251-61.
    \1047\ See Cross-Border Proposing Release, 78 FR 31115-18.
    \1048\ 44 U.S.C. 3507; 5 CFR 1320.11.
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    The Commission is adopting Regulation SBSR, which contains these 12 
collections of information, largely as re-proposed, with certain 
revisions suggested by commenters or designed to clarify the 
rules.\1049\ The rules, as adopted, establish a ``reporting hierarchy'' 
that specifies the side that has the duty to report a security-based 
swap that is a covered transaction \1050\ and provides for public 
dissemination of security-based swap transaction information (except as 
provided in Rule 902(c)). Registered SDRs are required to establish and 
maintain certain policies and procedures regarding how transaction data 
are reported and disseminated, and participants of registered SDRs that 
are registered security-based swap dealers or registered major 
security-based swap participants are required to establish and maintain 
policies and procedures that are reasonably designed to ensure that 
they comply with applicable reporting obligations. Regulation SBSR also 
requires a person that registers with the Commission as an SDR also to 
register with the Commission as a SIP.
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    \1049\ In addition, the Commission, in separate releases, is 
adopting rules relating to SDR registration, duties, and core 
principles and proposing amendments to Regulation SBSR.
    \1050\ See supra notes 11-12 and accompanying text.
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    The hours and costs associated with complying with Regulation SBSR 
constitute reporting and cost burdens imposed by each collection of 
information. Certain estimates (e.g., the number of reporting sides, 
the number of non-reporting sides, the number of participants, and the 
number of reportable events \1051\ pertaining to a security-based swap 
transaction) contained in the Commission's earlier PRA assessments have 
been updated to reflect the rule text of Regulation SBSR, as adopted, 
as well as additional information and data now available to the 
Commission, as discussed in further detail below. The Commission 
believes that the methodology used for calculating the re-proposed 
paperwork burdens set forth in the Cross-Border Proposing Release is 
appropriate and has received no comments to the contrary. The revised 
paperwork burdens estimated by the Commission herein are consistent 
with those made in connection with the re-proposal of Regulation SBSR, 
which was included in the Cross-Border Proposing Release. However, as 
described in more detail below, certain estimates have been modified, 
as necessary, to conform to the adopted rules and to reflect the most 
recent data available to the Commission.
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    \1051\ A reportable event includes both an initial security-
based swap transaction, required to be reported pursuant to Rule 
901(a), as well as a life cycle event, the reporting of which is 
governed by Rule 901(e).
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    The Commission requested comment on the collection of information 
requirements included in both the Regulation SBSR Proposing Release and 
the Cross-Border Proposing Release. As noted above, the Commission 
received 86 comment letters on the Regulation SBSR Proposing Release 
and six comment letters on the Cross-Border Proposing Release that 
specifically referenced Regulation SBSR. Although the comment letters 
did not specifically address the Commission's estimates for the 
proposed collection of information requirements, views of commenters 
relevant to the Commission's analysis of burdens, costs, and benefits 
of Regulation SBSR are discussed below.
    The rules containing these specific collections of information are 
discussed further below.

[[Page 14674]]

A. Definitions--Rule 900

    Rule 900 sets forth definitions of various terms used in Regulation 
SBSR. In the Regulation SBSR Proposing Release, the Commission stated 
its belief that Rule 900, since it contains only definitions of 
relevant terms, would not be a ``collection of information'' within the 
meaning of the PRA.\1052\ Although Rule 900, as adopted, contains 
revisions to re-proposed Rule 900, including additions and deletions of 
certain defined terms and modification of others, the Commission 
continues to believe that Rule 900 does not constitute a ``collection 
of information'' within the meaning of the PRA.
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    \1052\ See Regulation SBSR Proposing Release, 75 FR 75246.
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B. Reporting Obligations--Rule 901

    Rule 901, as adopted, sets forth various requirements relating to 
the reporting of covered transactions. Rule 901 of Regulation SBSR, as 
adopted, contains ``collection of information requirements'' within the 
meaning of the PRA. The title of this collection is ``Rule 901--
Reporting Obligations.''
1. Summary of Collection of Information
    Title VII of the Dodd-Frank Act amended the Exchange Act to require 
the reporting of security-based swap transactions. Accordingly, the 
Commission is adopting Rule 901 under the Exchange Act to implement 
this requirement. Rule 901 specifies, with respect to each reportable 
event pertaining to covered transactions, who is required to report, 
what data must be reported, when it must be reported, where it must be 
reported, and how it must be reported. Rule 901(a), as adopted, 
establishes a ``reporting hierarchy'' that specifies the side that has 
the duty to report a security-based swap that is a covered 
transaction.\1053\ The reporting side, as determined by the reporting 
hierarchy, is required to submit the information required by Regulation 
SBSR to a registered SDR. The reporting side may select the registered 
SDR to which it makes the required report.
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    \1053\ See supra notes 11-12 and accompanying text.
---------------------------------------------------------------------------

    Pursuant to Rule 901(b), as adopted, if there is no registered SDR 
that will accept the report required by Rule 901(a), the person 
required to make the report must report the transaction to the 
Commission. Rule 901(c) sets forth the primary trade information and 
Rule 901(d) sets forth the secondary trade information that must be 
reported. Under the final rules, covered transactions--regardless of 
their notional amount--must be reported to a registered SDR at any 
point up to 24 hours after the time of execution, or, in the case of a 
security-based swap that is subject to regulatory reporting and public 
dissemination solely by operation of Rule 908(a)(1)(ii), within 24 
hours after the time of acceptance for clearing.\1054\ Except as 
required by Rule 902(c), the information reported pursuant to Rule 
901(c) must be publicly disseminated. Information reported pursuant to 
Rule 901(d) is for regulatory purposes only and will not be publicly 
disseminated.
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    \1054\ See supra Section VII(B)(1) (discussing Rule 901(j) and 
the rationale for 24-hour reporting timeframe). In addition, as 
discussed in more detail in Section VII(B), supra, if 24 hours after 
the time of execution would fall on a non-business day (i.e., a 
Saturday, Sunday, or U.S. federal holiday), reporting would be 
required by the same time on the next business day. As discussed in 
Section XV(C)(4), supra, Rule 908(a)(1)(ii), as adopted, provides 
that a security-based swap that is subject to regulatory reporting 
and public dissemination solely by operation of Rule 908(a)(1)(ii)--
i.e., because the security-based swap has been accepted for clearing 
by a clearing agency having its principal place of business in the 
United States--must be reported within 24 hours of acceptance for 
clearing.
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    Rule 901(e) requires the reporting of life cycle events, and 
adjustments due to life cycle events, within 24 hours of the time of 
occurrence, to the entity to which the original transaction was 
reported. The report must contain the transaction ID of the original 
transaction.
    In addition to the reporting duties that reporting sides incur 
under Rule 901, Rule 901 also imposes certain duties on a registered 
SDR that receives security-based swap transaction data. Rule 901(f) 
requires a registered SDR to timestamp, to the second, any information 
submitted to it pursuant to Rule 901, and Rule 901(g) requires a 
registered SDR to assign a transaction ID to each security-based swap, 
or establish or endorse a methodology for transaction IDs to be 
assigned by third parties. Rule 901(h) requires reporting sides to 
electronically transmit the information required by Rule 901 in a 
format required by the registered SDR.
    Rule 901(i) requires reporting of pre-enactment security-based 
swaps and transitional security-based swaps to the extent that 
information about such transactions is available.
    As detailed in Sections II to V, supra, in adopting Rule 901, the 
Commission has made certain changes to Rule 901, both as originally 
proposed and as re-proposed in the Cross-Border Proposing Release, in 
response to comments or in order to clarify various provisions. The 
Commission believes that these changes do not substantially alter the 
underlying method of computing the paperwork burdens, but do result in 
changes to the number of impacted entities and the number to 
transactions covered by the rules, thus impacting the paperwork burden 
totals that were previously estimated for Rule 901.
2. Use of Information
    The security-based swap transaction information required to be 
reported pursuant to Rule 901 will be used by registered SDRs, market 
participants, the Commission, and other relevant authorities. The 
information reported by reporting sides pursuant to Rule 901 will be 
used by registered SDRs to publicly disseminate reports of security-
based swap transactions, as well as to offer a resource for the 
Commission and other relevant authorities to obtain detailed 
information about the security-based swap market. Market participants 
will use the public market data feed, among other things, to assess the 
current market for security-based swaps and to assist in the valuation 
of their own positions. The Commission and other relevant authorities 
will use information about security-based swap transactions reported to 
and held by registered SDRs to monitor and assess systemic risks, as 
well as for market surveillance purposes.
3. Respondents
    Rule 901(a) assigns reporting duties for covered transactions. In 
the Cross-Border Proposing Release, the Commission revised its 
preliminary estimate to 300 respondents.\1055\ The Commission continues 
to believe that it is reasonable to use 300 as an estimate of 
``reporting sides'' (as that term was used in the Cross-Border 
Proposing Release).
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    \1055\ See Cross-Border Proposing Release, 78 FR 31113 (lowering 
the estimate of reporting sides from 1,000 to 300).
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    The Commission notes that, since issuing the Regulation SBSR 
Proposing Release, the Commission has obtained additional and more 
granular data regarding participation in the security-based swap market 
from DTCC-TIW. These historical data suggest that, among the 300 
reporting sides, approximately 50 are likely to be required to register 
with the Commission as security-based swap dealers and approximately 
five are likely to register as major security-based swap 
participants.\1056\ These data further suggest that these 55 reporting 
sides likely will account for the vast majority of recent security-
based swap transactions and reports and that there

[[Page 14675]]

are only a limited number of security-based swap transactions that do 
not include at least one of these larger counterparties on either 
side.\1057\
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    \1056\ See id. at 31103.
    \1057\ As a result, the Commission generally will continue to 
use 300 as an estimate of the number of reporting sides. In cases 
where a rule is more limited in its application, for example Rule 
906(c), the Commission may use a different number that reflects some 
subset of the estimated 300 reporting sides. See also Cross-Border 
Adopting Release, 79 FR 47300 (stating that 55 firms might register 
as security-based swap dealers or major security-based swap 
participants).
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    Rule 901 imposes certain duties on registered SDRs. In the 
Regulation SBSR Proposing Release, the Commission preliminarily 
estimated that the number of registered SDRs would not exceed ten, an 
estimate that was affirmed in the Cross-Border Proposing Release.\1058\ 
The Commission continues to believe that it is reasonable to estimate 
ten registered SDR respondents for the purpose of estimating collection 
of information burdens for Regulation SBSR.
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    \1058\ See Regulation SBSR Proposing Release, 75 FR 75247; See 
also Cross-Border Proposing Release, 78 FR 31113.
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4. Total Initial and Annual Reporting and Recordkeeping Burdens
    Pursuant to Rule 901, covered transactions must be reported to a 
registered SDR or to the Commission. Together, sections (a), (b), (c), 
(d), (e), (h), and (j) of Rule 901 set forth the parameters that govern 
how reporting sides report covered transactions. Rule 901(i) addresses 
the reporting of pre-enactment and transitional security-based swaps. 
These reporting requirements impose initial and ongoing burdens on 
reporting sides. The Commission believes that these burdens will be a 
function of, among other things, the number of reportable events and 
the data elements required to be reported for each such event. Rule 
901(f) requires a registered SDR to the time stamp, to the second, all 
reported information, and Rule 901(g) requires a registered SDR to 
assign a transaction ID to each security-based swap, or establish or 
endorse a methodology for transaction IDs to be assigned by third 
parties. These requirements impose initial and ongoing burdens on 
registered SDRs.
a. Baseline Burdens
    In the Regulation SBSR Proposing Release, the Commission estimated 
that respondents would face three categories of burdens to comply with 
Rule 901.\1059\ First, each entity that would incur a duty to report 
security-based swap transactions pursuant to Regulation SBSR (a 
``reporting party'' \1060\) would likely have to develop an internal 
order and trade management system (``OMS'') capable of capturing the 
relevant transaction information.\1061\ Second, each such entity would 
have to implement a reporting mechanism.\1062\ Third, each such entity 
would have to establish an appropriate compliance program and support 
for the operation of any OMS and reporting mechanism.\1063\ In the 
Regulation SBSR Proposing Release, the Commission preliminarily 
estimated that the initial, aggregate annualized burden associated with 
Rule 901 would be 1,438 hours per reporting party--for a total of 
1,438,300 hours for all reporting parties--in order to develop an OMS, 
implement a reporting mechanism, and establish an appropriate 
compliance program and support system.\1064\ The Commission 
preliminarily estimated that the ongoing aggregate annualized burden 
associated with Rule 901 would be 731 hours per reporting party, for a 
total of 731,300 hours for all reporting parties.\1065\ The Commission 
further estimated that the initial aggregate annualized dollar cost 
burden on reporting parties associated with Rule 901 would be $201,000 
per reporting party, for a total of $201,000,000 for all reporting 
parties.\1066\
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    \1059\ See Regulation SBSR Proposing Release, 75 FR 75248.
    \1060\ In the Regulation SBSR Proposing Release, the Commission 
proposed the term ``reporting party'' to describe the entity with 
the duty to report a particular security-based swap transaction. See 
75 FR 75211. In the Cross-Border Proposing Release, the Commission 
revised the term ``reporting party'' to ``reporting side'' as part 
of the re-proposal of Regulation SBSR. See 78 FR 31059.
    \1061\ See Regulation SBSR Proposing Release, 75 FR 75248.
    \1062\ See id.
    \1063\ See id.
    \1064\ See id. at 75250.
    \1065\ See id.
    \1066\ See id. In the Cross-Border Proposing Release, the 
Commission noted that the Regulation SBSR Proposing Release 
incorrectly stated this total as $301,000 per reporting party. The 
correct number is $201,000 per reporting party ($200,000+$1,000). 
See 78 FR 31113, note 1259.
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b. Burdens of Final Rule 901
    For Reporting Sides. The reporting hierarchy is designed to place 
the duty to report covered transactions on counterparties who are most 
likely to have the resources and who are best able to support the 
reporting function.
    Reporting sides that fall under the reporting hierarchy in Rule 
901(a)(2)(ii) incur certain burdens as a result thereof with respect to 
their reporting of covered transactions. As stated above, the 
Commission believes that an estimate of 300 reporting sides that would 
incur the duty to report under Regulation SBSR is reasonable for 
estimating collection of information burdens under the PRA. This 
estimate includes all of those persons that incur a reporting duty 
under Regulation SBSR, as adopted, including registered security-based 
swap dealers and registered major security-based swap participants. 
This estimate also includes some smaller counterparties to security-
based swaps that could incur a reporting duty, but many fewer than 
estimated in the PRA of the Regulation SBSR Proposing Release.
    As discussed in more detail in Section V, supra, Rule 901(a)(2)(ii) 
adopts the reporting hierarchy set forth in the Cross-Border Proposing 
Release, but limits its application to uncleared transactions. The 
Commission believes, however, that this limitation will not materially 
change the number of reporting sides for PRA purposes, as there likely 
would be a significant overlap between the approximately 300 reporting 
sides reporting uncleared transactions and those reporting other 
security-based swaps.
    In the Regulation SBSR Proposing Release, the Commission 
preliminarily estimated that there would be 15.5 million reportable 
events associated with security-based swap transactions per year.\1067\ 
In the Cross-Border Proposing Release, in addition to lowering its 
estimate of the number of reporting sides from 1,000 to 300, the 
Commission also revised its estimate of the number of reportable events 
to approximately 5 million.\1068\ Since issuing the Cross-Border 
Proposing Release, however, the Commission has obtained additional and 
more granular data regarding participation in the security-based swap 
market from DTCC-TIW. As a result, the Commission is now further 
revising its estimate of the number of reportable events. Accordingly, 
the Commission now estimates that there will be approximately 3 million 
reportable events per year under Rule 901, as adopted.\1069\ The 
Commission further

[[Page 14676]]

estimates that approximately 2 million of these reportable events will 
consist of uncleared transactions (i.e., those transactions that will 
be reported to a registered SDR by the reporting sides). The Commission 
noted in the Cross-Border Proposing Release, and continues to believe, 
that the reduction in the estimate of the number of reportable events 
per year is likely a result of several factors.\1070\
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    \1067\ See Regulation SBSR Proposing Release, 75 FR 75248.
    \1068\ See Cross-Border Proposing Release, 78 FR 31114.
    \1069\ According to data published by the Bank for International 
Settlements, the global notional amount outstanding in equity 
forwards and swaps as of December 2013 was $2.28 trillion. The 
notional amount outstanding in single-name CDS was approximately 
$11.32 trillion, in multi-name index CDS was approximately $8.75 
trillion, and in multi-name, non-index CDS was approximately $950 
billion. See Semi-annual OTC derivatives statistics at end-December 
2013 (June 2014), Table 19, available at http://www.bis.org/statistics/dt1920a.pdf (last visited September 22, 2014). For the 
purposes of this analysis, the Commission assumes that multi-name 
index CDS are not narrow-based index CDS and, therefore, are not 
security-based swaps. The Commission also assumes that all 
instruments reported as equity forwards and swaps are security-based 
swaps, potentially resulting in underestimation of the proportion of 
the security-based swap market represented by single-name CDS. Based 
on those assumptions, single-name CDS appear to constitute roughly 
82% of the security-based swap market. Although the BIS data reflect 
the global OTC derivatives market, and not just the U.S. market, the 
Commission believes that it is reasonable to assume these ratios 
would be similar in the U.S. market. The Commission now estimates 
that there were approximately 2.26 million single-name CDS 
transactions in 2013. Because single-name CDS appear to constitute 
roughly 78% of the security-based swap market, the Commission now 
estimates that there are approximately 3 million security-based swap 
transactions (i.e., 2,260,000/0.78=2,898,329 reportable events).
    \1070\ See 78 FR 31115.
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    The Commission believes that, once a respondent's reporting 
infrastructure and compliance systems are in place, the burden of 
reporting each individual reportable event will be small when compared 
to the burdens of establishing the reporting infrastructure and 
compliance systems.\1071\ As stated above, the Commission estimates 
that 2 million of the 3 million total reportable events would consist 
of the initial reporting of security-based swaps as well as the 
reporting of any life cycle events. The Commission estimates that of 
the 2 million reportable events, approximately 900,000 would involve 
the reporting of new security-based swap transactions, and 
approximately 1,100,000 would involve the reporting of life cycle 
events under Rule 901(e). The Commission estimates that Rule 901(a) 
would result in reporting sides having a total burden of 4,500 hours 
attributable to the initial reporting of security-based swaps by 
reporting sides to registered SDRs under Rules 901(c) and 901(d) over 
the course of a year.\1072\ The Commission further estimates that 
reporting sides would have a total burden of 5,500 hours attributable 
to the reporting of life cycle events under Rule 901(e) over the course 
of a year.\1073\ Therefore, the Commission believes that Rule 901, as 
adopted, would result in a total reporting burden for reporting sides 
under Rules 901(c) and (d) along with the reporting of life cycle 
events under Rule 901(e) of 10,000 burden hours per year. The 
Commission continues to believe that many reportable events will be 
reported through electronic means and that the ratio of electronic 
reporting to manual reporting is likely to increase over time. The 
Commission continues to believe that the bulk of the burden hours 
estimated above will be attributable to manually reported transactions. 
Thus, reporting sides that capture and report transactions 
electronically will likely incur bear fewer burden hours than those 
reporting sides that capture and report transactions manually.
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    \1071\ In the Regulation SBSR Proposing Release, the Commission 
preliminarily estimated that reporting specific security-based swap 
transactions to a registered SDR--separate from the establishing of 
infrastructure and compliance systems that support reporting--would 
impose an annual aggregate cost of approximately $5,400,000. See 75 
FR 75265. The Commission further estimated that Rule 901 would 
impose an aggregate total first-year cost of approximately 
$1,039,000,000 and an ongoing annualized aggregate cost of 
approximately $703,000,000. See id. at 75280. See also Cross-Border 
Proposing Release, 78 FR 31115 (stating the Commission's preliminary 
belief that the reporting of a single reportable event would be de 
minimis when compared to the burdens of establishing the reporting 
infrastructure and compliance systems).
    \1072\ In the Regulation SBSR Proposing Release, the Commission 
estimated that it would take approximately 0.005 hours for each 
security-based swap transaction to be reported. See 75 FR 75249, 
note 195. The Commission calculates the following: ((900,000 x 
0.005)/(300 reporting sides)) = 15 burden hours per reporting side 
or 4,500 total burden hours attributable to the initial reporting of 
security-based swaps.
    \1073\ In the Regulation SBSR Proposing Release, the Commission 
estimated that it would take approximately 0.005 hours for each 
security-based swap transaction to be reported. See 75 FR 75249, 
note 195. The Commission calculates the following: ((1,100,000 x 
0.005)/(300 reporting sides)) = 18.33 burden hours per reporting 
side or 5,500 total burden hours attributable to the reporting of 
life cycle events under Rule 901(e).
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    Based on the foregoing, the Commission estimates that Rule 901, as 
adopted, will impose an estimated total first-year burden of 
approximately 1,394 hours \1074\ per reporting side for a total first-
year burden of 418,200 hours for all reporting sides.\1075\ The 
Commission estimates that Rule 901, as adopted, will impose ongoing 
annualized aggregate burdens of approximately 687 hours \1076\ per 
reporting side for a total aggregate annualized cost of 206,100 hours 
for all reporting sides.\1077\ The Commission further estimates that 
Rule 901, as adopted, will impose initial and ongoing annualized dollar 
cost burdens of $201,000 per reporting side, for total aggregate 
initial and ongoing annualized dollar cost burdens of 
$60,300,000.\1078\
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    \1074\ The Commission derived its estimate from the following: 
(355 hours (one-time hourly burden for establishing and OMS) + 172 
hours (one-time hourly burden for establishing security-based swap 
reporting mechanisms) + 180 hours (one-time hourly burden for 
compliance and ongoing support) = 707 hours (one-time total hourly 
burden). See Regulation SBSR Proposing Release, 75 FR 75248-50, 
notes 186, 194, and 201. (436 hours (annual-ongoing hourly burden 
for internal order management) + 33.3 hours (revised annual-ongoing 
hourly burden for security-based swap reporting mechanisms) + 218 
hours (annual-ongoing hourly burden for compliance and ongoing 
support) = 687.3 hours (one-time total hourly burden. See id. at 
75248-50, notes 187 and 201 (707 one-time hourly burden + 687 
revised annual-ongoing hourly burden = 1,394 total first-year hourly 
burden).
    \1075\ The Commission derived its estimate from the following: 
(1,394 hours per reporting side x 300 reporting sides) = 418,200 
hours.
    \1076\ See Cross-Border Proposing Release, 78 FR 31112-15.
    \1077\ The Commission derived its estimate from the following: 
(687 hours per reporting side x 300 reporting sides) = 206,100 
hours.
    \1078\ The Commission derived its estimate from the following: 
($201,000 per reporting side x 300 reporting sides) = $60,300,000. 
See Cross-Border Proposing Release, 78 FR 31113-15. The Commission 
originally estimated this burden based on discussions with various 
market participants. See Regulation SBSR Proposing Release, 75 FR 
75247-50.
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    For Registered SDRs. In the Regulation SBSR Proposing Release, the 
Commission set forth estimated burdens on registered SDRs related to 
Rule 901.\1079\ The Commission continues to believe that these 
estimated burdens are reasonable.
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    \1079\ See 75 FR 75250-51.
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    Rule 901(f) requires a registered SDR to time-stamp, to the second, 
information that it receives. Rule 901(g) requires a registered SDR to 
assign a unique transaction ID to each security-based swap it receives 
or establish or endorse a methodology for transaction IDs to be 
assigned by third parties. The Commission continues to believe that 
such design elements will pose some additional burdens to incorporate 
in the context of designing and building the technological framework 
that will be required of an SDR to become registered.\1080\ Therefore, 
the Commission estimates that Rules 901(f) and 901(g) will impose an 
initial one-time aggregate burden of 1,200 burden hours, which 
corresponds to 120 burden hours per registered SDR.\1081\ This figure 
is based on an estimate of ten registered SDRs, which the Commission 
continues to believe is reasonable.
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    \1080\ The Commission has adopted additional rules under the 
Exchange Act relating to the duties, data collection and maintenance 
requirements, and automated systems requirements of SDRs. See SDR 
Adopting Release.
    \1081\ See Regulation SBSR Proposing Release, 75 FR 75250. This 
figure is based on discussions with various market participants and 
is calculated as follows: [((Sr. Programmer at 80 hours) + (Sr. 
Systems Analyst at 20 hours) + (Compliance Manager at 8 hours) + 
(Director of Compliance at 4 hours) + (Compliance Attorney at 8 
hours)) x (10 registered SDRs)] = 1,200 burden hours, which is 120 
hours per registered SDR.
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    Once operational, these elements of each registered SDR's system 
will have to be supported and maintained. Accordingly, the Commission 
estimates that Rule 901(f) and 901(g) will impose

[[Page 14677]]

an annual aggregate burden of 1,520 burden hours, which corresponds to 
152 burden hours per registered SDR.\1082\ This figure represents an 
estimate of the burden for a registered SDR for support and maintenance 
costs for the registered SDR's systems to time stamp incoming 
submissions and assign transaction IDs.
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    \1082\ See Regulation SBSR Proposing Release, 75 FR 75250. This 
figure is based on discussions with various market participants as 
follows: [((Sr. Programmer at 60 hours) + (Sr. Systems Analyst at 48 
hours) + (Compliance Manager at 24 hours) + (Director of Compliance 
at 12 hours) + (Compliance Attorney at 8 hours)) x (10 SDRs)] = 
1,520 burden hours, which is 152 hours per registered SDR.
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    Thus, the Commission estimates that the first-year aggregate 
annualized burden on registered SDRs associated with Rules 901(f) and 
901(g) will be 2,720 burden hours, which corresponds to 272 burden 
hours per registered SDR.\1083\ Correspondingly, the Commission 
estimates that the ongoing aggregate annualized burden associated with 
Rules 901(f) and 901(g) will be 1,520 burden hours, which corresponds 
to 152 burden hours per registered SDR.\1084\ The above burden 
estimates pertaining to Rules 901(f) and 901(g) are identical to those 
set forth in the Regulation SBSR Proposing Release.\1085\
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    \1083\ See Regulation SBSR Proposing Release, 75 FR 75250. This 
figure is based on the following: [(1,200) + (1,520)] = 2,720 burden 
hours, which corresponds to 272 burden hours per registered SDR.
    \1084\ See supra note 1083.
    \1085\ See Regulation SBSR Proposing Release, 75 FR 75250.
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    Since Regulation SBSR, as adopted, requires reporting for only 
covered transactions, registered SDRs will be required to receive, 
process, and potentially disseminate a smaller number of security-based 
swaps than originally envisioned. Because the bulk of an SDR's burdens 
and costs under Regulation SBSR are not transaction-based, however, the 
Commission has determined that the burden and cost estimates set forth 
in the Cross-Border Proposing Release remain valid for the purposes of 
the PRA.
    In addition, the Commission recognizes that, since the publication 
of the Regulation SBSR Proposing Release, many entities already have 
spent considerable time and resources building the infrastructure that 
will support reporting of security-based swaps. Indeed, some reporting 
is already occurring voluntarily.\1086\ As a result, the Commission 
notes that the burdens and costs calculated herein could be greater 
than those actually incurred by affected parties as a result of the 
adoption of Regulation SBSR. Nonetheless, the Commission believes that 
its estimates represent a reasonable upper bound of the actual burdens 
and costs required to comply with Regulation SBSR.
---------------------------------------------------------------------------

    \1086\ DTCC currently compiles information on the credit default 
swap market. See http://www.dtcc.com/about/businesses-and-subsidiaries/ddr-us.aspx (last visited September 22, 2014).
---------------------------------------------------------------------------

5. Recordkeeping Requirements
    Rule 13n-5(b)(4) under the Exchange Act requires an SDR to maintain 
the transaction data and related identifying information that it 
collects for not less than five years after the applicable security-
based swap expires, and historical positions for not less than five 
years.\1087\ Accordingly, security-based swap transaction reports 
received by a registered SDR pursuant to Rule 901 will be required to 
be retained by the registered SDR for not less than five years.
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    \1087\ See SDR Adopting Release, Section VI(E)(4).
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6. Collection of Information Is Mandatory
    Each collection of information discussed above is mandatory.
7. Confidentiality of Responses to Collection of Information
    For the majority of security-based swap transactions, all of the 
information collected pursuant to Rule 901(c) will be widely available 
to the public because these transactions will be publicly disseminated 
by a registered SDR pursuant to Rule 902. However, certain security-
based swaps are not subject to Rule 902's public dissemination 
requirement; \1088\ therefore, information about these transactions 
will not be publicly available. In addition, reporting sides must 
provide certain information about security-based swap transactions 
pursuant to Rule 901(d). Rule 901(d) information is for regulatory 
purposes and will not be publicly disseminated.
---------------------------------------------------------------------------

    \1088\ See supra Section VI(D).
---------------------------------------------------------------------------

    An SDR, pursuant to Section 13(n)(5) of the Exchange Act and Rules 
13n-4(b)(8) and 13n-9 thereunder, must maintain the privacy of 
security-based swap information,\1089\ including information reported 
pursuant to Rule 901(d) of Regulation SBSR, as well as information 
about a security-based swap transaction reported pursuant to Rule 
901(c) where the transaction falls into a category enumerated in Rule 
902(c). To the extent that the Commission receives these kinds of 
information under Regulation SBSR, such information will be kept 
confidential, subject to the provisions of applicable law.
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    \1089\ See SDR Adopting Release, Sections VI(D)(2) and VI(I)(1).
---------------------------------------------------------------------------

C. Public Dissemination of Transaction Reports--Rule 902

    Rule 902(a), as adopted, requires a registered SDR to publicly 
disseminate a transaction report immediately upon receipt of 
information about a security-based swap, or a life cycle event or 
adjustment due to a life cycle event (or upon re-opening following a 
period when the registered SDR was closed), except in certain limited 
circumstances described in Rule 902(c). A published transaction report 
must consist of all the information reported pursuant to Rule 901(c), 
plus any condition flags required by the policies and procedures of the 
registered SDR to which the transaction is reported. Certain provisions 
of Rule 902 of Regulation SBSR contain ``collection of information 
requirements'' within the meaning of the PRA. The title of this 
collection is ``Rule 902--Public Dissemination of Transaction 
Reports.''
1. Summary of Collection of Information
    As adopted, Rule 902(a) generally requires that a registered SDR 
publicly disseminate a transaction report for each security-based swap 
transaction, or a life cycle event or adjustment due to a life cycle, 
immediately upon receipt of information about the security-based swap 
submitted by a reporting side pursuant to Rule 901(c). The transaction 
report must contain all of the information reported pursuant to Rule 
901(c) along with any condition flags required by the policies and 
procedures of the registered SDR to which the transaction is 
reported.\1090\ If its systems are unavailable to publicly disseminate 
these transaction data immediately upon receipt, the registered SDR is 
required to disseminate the transaction data immediately upon re-
opening. Rule 902(a), as adopted, provides registered SDRs with the 
authority and discretion to establish the content, format, and mode of 
dissemination through its policies and procedures, as long as it does 
so in compliance with the information required to be disseminated by 
Rule 901(c).
---------------------------------------------------------------------------

    \1090\ See Rule 907(a)(4).
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    Rule 902(b), as proposed and re-proposed, addressed how a 
registered SDR would be required to publicly disseminate transaction 
reports of block trades. As discussed in more detail above, the 
Commission is not adopting Rule 902(b).
    Rule 902(c), as adopted, prohibits a registered SDR from 
disseminating: (1) The identity of any counterparty to a security-based 
swap; (2) with respect to a security-based swap that is not cleared

[[Page 14678]]

at a registered clearing agency and that is reported to a registered 
SDR, any information disclosing the business transactions and market 
positions of any person; (3) any information regarding a security-based 
swap reported pursuant to Rule 901(i); (4) any non-mandatory report; 
(5) any information regarding a security-based swap that is required to 
be reported pursuant to Rule 901 and Rule 908(a)(1) but is not required 
to be publicly disseminated pursuant to Rule 908(a)(2); (6) any 
information regarding certain clearing transactions; and (7) any 
information regarding the allocation of a security-based swap.
    Rule 902(d) provides that no person shall make available to one or 
more persons (other than a counterparty or a post-trade processor) 
transaction information relating to a security-based swap before the 
reporting side transmits the primary trade information about the 
security-based swap to a registered SDR.
2. Use of Information
    The public dissemination requirements contained in Rule 902 are 
designed to promote post-trade transparency of security-based swap 
transactions.
3. Respondents
    The collection of information associated with the Rule 902 will 
apply to registered SDRs. As noted above, the Commission believes that 
an estimate of ten registered SDRs is reasonable for purposes of its 
analysis of burdens under the PRA.
4. Total Initial and Annual Reporting and Recordkeeping Burdens
    Rule 13n-5(b) sets forth requirements for collecting and 
maintaining transaction data that each SDR will be required to 
follow.\1091\ The SDR Adopting Release describes the relevant burdens 
and costs that complying with Rule 13n-5(b) will entail.\1092\
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    \1091\ See SDR Adopting Release, Section VI(E)(1).
    \1092\ See SDR Adopting Release, Section VII(D)(2).
---------------------------------------------------------------------------

    In the Regulation SBSR Proposing Release, the Commission stated its 
preliminary belief that a registered SDR would be able to integrate the 
capability to publicly disseminate security-based swap transaction 
reports required under Rule 902 as part of its overall system 
development for transaction data.\1093\ Based on discussions with 
industry participants, the Commission estimates that, to implement and 
comply with the public dissemination requirement of Rule 902, each 
registered SDR will incur a burden equal to an additional 20% of the 
first-year and ongoing burdens discussed in the SDR Registration 
Proposing Release.\1094\ This estimate was first proposed in the 
Regulation SBSR Proposing Release and reiterated in the Cross-Border 
Proposing Release, and the Commission believes that it remains 
valid.\1095\
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    \1093\ See Regulation SBSR Proposing Release, 75 FR 75252.
    \1094\ See Regulation SBSR Proposing Release, 75 FR 75252. See 
also SDR Adopting Release, Section VII(D)(2). This estimate was 
based on discussions with industry members and market participants, 
including entities that may register as SDRs under Title VII, and 
includes time necessary to design and program a registered SDR's 
system to calculate and disseminate initial and subsequent trade 
reports.
    \1095\ See Regulation SBSR Proposing Release, 75 FR 75252. See 
also Cross-Border Proposing Release, 78 FR 31198.
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    Based on the above, the Commission estimates that the initial one-
time aggregate burden imposed by Rule 902 for development and 
implementation of the systems needed to disseminate the required 
transaction information, including the necessary software and hardware, 
will be approximately 8,400 hours and a dollar cost of $2 million for 
each registered SDR, which aggregates to 84,000 hours and a dollar cost 
of $20 million for all SDR respondents.\1096\ In addition, the 
Commission estimates that annual aggregate burden (initial and ongoing) 
imposed by the Rule 902 will constitute approximately 5,040 hours and a 
dollar cost of $1.2 million for each registered SDR, which aggregates 
to 50,400 hours and a dollar cost of $12 million for all SDR 
respondents.\1097\ Thus, the Commission estimates that the total first-
year (initial) aggregate annualized burden on registered SDRs 
associated with public dissemination requirement under Rule 902 will be 
approximately 134,400 hours and a dollar cost of $32 million, which 
corresponds to a burden of 13,440 hours and a dollar cost of $3.2 
million for each registered SDR.\1098\
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    \1096\ See SDR Adopting Release, Section VII(D)(2) for the total 
burden associated with establishing SDR technology systems. The 
Commission derived this estimated burden from the following: 
[((Attorney at 1,400 hours) + (Compliance Manager at 1,600 hours) + 
(Programmer Analyst at 4,000 hours) + (Senior Business Analyst at 
1,400 hours)) x (10 registered SDRs)] = 84,000 burden hours, which 
corresponds to 8,400 hours per registered SDR.
    \1097\ See SDR Adopting Release, Section VII(D)(2) for the total 
ongoing annual burdens associated with operating and maintaining SDR 
technology systems. The Commission derived this estimated burden 
from the following: [((Attorney at 840 hours) + (Compliance Manager 
at 960 hours) + (Programmer Analyst at 2,400 hours) + (Senior 
Business Analyst at 840 hours)) x (10 registered SDRs)] = 50,400 
burden hours, which corresponds to 5,040 hours per registered SDR.
    \1098\ These estimates are based on the following: [(84,000 one-
time burden hours) + (50,400 annual burden hours)] = 134,400 burden 
hours, which corresponds to 13,440 hours per registered SDR; [($20 
million one-time dollar cost burden) + ($12 million annual dollar 
cost burden)] = $32 million cost burden, which corresponds to $3.2 
million per registered SDR.
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5. Recordkeeping Requirements
    Pursuant to Rule 13n-7(b) under the Exchange Act, a registered SDR 
is required 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 or regulations thereunder, 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.\1099\ This requirement encompasses all 
security-based swap transaction reports disseminated by a registered 
SDR pursuant to Rule 902 and are required to be retained for not less 
than five years.
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    \1099\ See SDR Adopting Release, Section VI(G)(2).
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6. Collection of Information Is Mandatory
    Each collection of information discussed above Is mandatory.
7. Confidentiality of Responses to Collection of Information
    Most of the information required under Rule 902 will be widely 
available to the public to the extent it is incorporated into security-
based swap transaction reports that are publicly disseminated by a 
registered SDR pursuant to Rule 902. However, Rule 902(c) prohibits 
public dissemination of certain kinds of transactions and certain kinds 
of transaction information. An SDR, pursuant to Sections 13(n)(5) of 
the Exchange Act and Rules 13n-4(b)(8) and 13n-9 thereunder will be 
under an obligation to maintain the privacy of this security-based swap 
information.\1100\ To the extent that the Commission receives 
confidential information pursuant to this collection of information, 
such information must be kept confidential, subject to the provisions 
of applicable law.
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    \1100\ See SDR Adopting Release, Sections VI(D)(2) and VI(I)(1).
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D. Coded Information--Rule 903

    Regulation SBSR, as adopted, permits or, in some instances, 
requires security-based swap counterparties to report coded information 
to registered SDRs using UICs. These UICs will be used to identify 
products, transactions, and persons, as well as certain business units 
and employees of legal persons.\1101\ Rule 903 establishes standards 
for assigning and using coded information in security-based swap

[[Page 14679]]

reporting and dissemination to help ensure that codes are assigned in 
an orderly manner and that relevant authorities, market participants, 
and the public are able to interpret coded information stored and 
disseminated by registered SDRs.
---------------------------------------------------------------------------

    \1101\ See supra Section II (describing UICs that must be 
reported to registered SDRs pursuant to Regulation SBSR).
---------------------------------------------------------------------------

    In the Regulation SBSR Proposing Release, the Commission stated its 
belief that Rule 903 would not be a ``collection of information'' 
within the meaning of the PRA because the rule would merely permit 
reporting parties and registered SDRs to use codes in place of certain 
data elements, subject to certain conditions.\1102\ In re-proposing 
Rule 903 in the Cross-Border Proposing Release, the Commission made 
only technical and conforming changes to Rule 903 to incorporate the 
use of the term ``side.'' \1103\ Rule 903, as adopted, includes a 
requirement that, if the Commission has recognized an IRSS that assigns 
UICs to persons, each participant of a registered SDR shall obtain a 
UIC from or through that IRSS.\1104\ Because the Commission also is 
recognizing the GLEIS--which issues LEIs--as an IRSS, any person who is 
a participant of one or more registered SDRs will have to obtain an LEI 
from or through the GLEIS. Therefore, the Commission now believes that 
Rule 903 constitutes a ``collection of information'' within the meaning 
of the PRA. The title of this collection is ``Rule 903--Coded 
Information.''
---------------------------------------------------------------------------

    \1102\ See Regulation SBSR Proposing Release, 75 FR 75252-53.
    \1103\ See Cross-Border Proposing Release, 78 FR 31117.
    \1104\ See supra Section X(B)(2).
---------------------------------------------------------------------------

1. Summary of Collection of Information
    Rule 903(a) provides that, if an IRSS that meets certain criteria 
is recognized by the Commission and has assigned a UIC to a person, 
unit of a person, or product (or has endorsed a methodology for 
assigning transaction IDs), all registered SDRs must use that UIC in 
carrying out their responsibilities under Regulation SBSR. If no such 
system has been recognized by the Commission, or if such a system has 
not assigned a UIC to a particular person, unit of a person, or product 
(or has not endorsed a methodology for assigning transaction IDs), the 
registered SDR must assign a UIC to that person, unit of a person, or 
product using its own methodology (or endorse a methodology for 
assigning transaction IDs). The following UICs are contemplated by 
Regulation SBSR: Branch ID, broker ID, counterparty ID, execution agent 
ID, platform ID, product ID, trader ID, trading desk ID, transaction 
ID, and ultimate parent ID. UICs are intended to allow registered SDRs 
and the Commission and other relevant authorities to aggregate 
transaction information across a variety of vectors. For example, the 
trader ID will allow the Commission and other relevant authorities to 
identify all trades carried out by an individual trader. The product ID 
will allow the Commission and other relevant authorities to identify 
all transactions in a particular security-based swap product. The 
transaction ID will allow counterparties and the registered SDR to link 
a series of life cycle events to each other and to the original 
transaction. As discussed in Section X(B)(2), supra, the Commission has 
recognized the GLEIS as an IRSS that meets the criteria of Rule 903. 
Therefore, if an entity has an LEI issued by or through the GLEIS, that 
LEI must be used for all purposes under Regulation SBSR. Furthermore, 
each participant that acts as a guarantor of a direct counterparty's 
performance of any obligation under a security-based swap that is 
subject to Sec.  242.908(a) shall, if the direct counterparty has not 
already done so, obtain a UIC for identifying the direct counterparty 
from or through that system, if that system permits third-party 
registration without a requirement to obtain prior permission of the 
direct counterparty.
2. Use of Information
    The information provided pursuant to Rule 903 is necessary to for 
any person who is a participant of at least one registered SDR to be 
identified by an LEI for reporting purposes under Regulation SBSR.
3. Respondents
    Rule 903 applies to any person who is a participant of at least one 
registered SDR. The Commission estimates that there may be up to 4,800 
security-based swap counterparties that are participants of one or more 
registered SDRs.\1105\ The Commission recognizes that, since the 
publication of the Regulation SBSR Proposing Release, many persons who 
are likely to become participants of one or more registered SDRs 
already have LEIs issued by or through the GLEIS. As a result, the 
burdens and costs actually incurred by participants as a result of the 
adoption of Regulation SBSR are likely to be less than the burdens and 
costs calculated herein. Specifically, as discussed in further detail 
in Section XXII(C)(4)(b), infra, based on transaction data from DTCC-
TIW, the Commission believes that no fewer than 3,500 of approximately 
4,800 accounts that participated in the market for single-name CDS in 
2013 currently have LEIs.\1106\ The Commission assumes that no market 
participants that currently have LEIs would continue to maintain their 
LEIs in the absence of Rule 903(a) in order to arrive at an upper bound 
on the ongoing costs associated with Rule 903(a). The Commission 
believes that this is a conservative approach, since regulators in 
certain other jurisdictions mandate the use of an LEI.\1107\ 
Consequently, the Commission estimates, for purposes of the PRA, that 
there may be as many as 1,300 participant respondents who will need to 
obtain an LEI and as many as 4,800 participants who will need to 
maintain an LEI.\1108\
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    \1105\ As noted in Section XXII(B)(1), infra, the available data 
do not include transactions between two foreign security-based swap 
market participants on foreign underlying reference entities. As a 
result, this estimate may not include certain foreign counterparties 
to security-based swaps.
    \1106\ Some counterparties reported in the transaction data may 
be guarantors of other non-U.S.-person-direct counterparties and, if 
so, may be responsible for obtaining and maintaining more than one 
LEI. As such, precisely quantifying the number of LEIs required by 
Rule 903(a) is not possible at this time. However, because many of 
these direct non-U.S.-person counterparties are likely from 
jurisdictions where regulators mandate the use of LEIs, the 
Commission believes that these counterparties will already have 
registered LEIs and will continue to maintain them.
    \1107\ The European Market Infrastructure Regulation requires 
use of codes to identify counterparties. See ``Trade Reporting'' 
(available at: http://www.esma.europa.eu/page/Trade-reporting) (last 
visited January 10, 2015).
    \1108\ In the Regulation SBSR Proposing Release, the Commission 
used an estimate of 5,000 participant respondents that might incur 
reporting duties under Regulation SBSR. This estimate included an 
estimated 1,000 entities regularly engaged in the CDS marketplace as 
well as 4,000 potential security-based swap counterparties that were 
expected to transact security-based swaps less frequently but that 
nonetheless would be considered ``participants.'' See Regulation 
SBSR Proposing Release, 75 FR 75254. Based on more recent data, the 
Commission has revised the estimated number of participant 
respondents to 4,800. The Commission notes that registered security-
based swap dealers and major security-based swap participants will, 
for some transactions, be the non-reporting side and are therefore 
included in this estimate.
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 4. Total Initial and Annual Reporting and Recordkeeping Burdens
    The Commission estimates that first-year aggregate burden imposed 
by Rule 903 will be 1,300 hours, which corresponds to 1 hour per 
participant, to account for the initial burdens of obtaining an 
LEI.\1109\ The Commission estimates that the ongoing burden imposed by 
Rule 903 will be 4,800 hours, which corresponds to 1 hour per 
participant, to account for ongoing

[[Page 14680]]

administration of the LEI.\1110\ In addition, for these participants, 
the assignment of an LEI will entail both one-time and ongoing costs 
assessed by local operation units (``LOUs'') of the GLEIS. The current 
cost for registering a new LEI is approximately $220, with an 
additional cost of $120 per year for maintaining an LEI.\1111\ For 
those participants that do not already have an LEI, the initial one-
time cost would be $286,000, or $220 per participant.\1112\ All 
participants would be required to maintain their LEI resulting in an 
annual cost of $576,000, or $120 per participant.\1113\
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    \1109\ This figure is based on the following: [Compliance 
Attorney at 1 hour/year) x (1,300 participants)] = 1,300 burden 
hours.
    \1110\ This figure is based on the following: [(Compliance 
Attorney at 1 hour/year) x (4,800 participants)] = 4,800 burden 
hours.
    \1111\ See ``GMEI Utility: Frequently Asked Questions'' 
(available at: https://www.gmeiutility.org/frequentlyAskedQuestions.jsp, detailing registration and maintenance 
costs for LEIs issued by GMEI, an endorsed pre-LOU of the interim 
GLEIS) (last visited January 4, 2015).
    \1112\ This figure is based on the following: [($220 
registration cost) x (1,300 participants not currently registered)] 
= $286,000.
    \1113\ This figure is based on the following: [($120 annual 
maintenance cost) x (4,800 participants not currently registered)] = 
$576,000. The Commission notes that, for those participants 
obtaining an LEI in the first year, the annual maintenance cost will 
be incurred beginning in the year following registration.
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5. Recordkeeping Requirements
    The applications that participants must complete in order to obtain 
an LEI issued by or through the GLEIS are not subject to any specific 
recordkeeping requirements for participants, to the extent that these 
participants are non-registered persons.\1114\ The Commission expects, 
however, that in the normal course of their business a participant of a 
registered SDR would keep records of the information entered in 
connection with its LEI application, such as the participant's legal 
name, registered address, headquarters address, and the entity's legal 
form.
---------------------------------------------------------------------------

    \1114\ See Securities Exchange Act Release No. 71958 (April 17, 
2014), 79 FR 25193 (May 2, 2014) (``SD/MSP Recordkeeping Proposing 
Release'') (proposing recordkeeping and reporting requirements for 
security-based swap dealers, major security-based swap participants, 
and broker-dealers).
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6. Collection of Information Is Mandatory
    Each collection of information discussed above is mandatory.
7. Confidentiality of Responses to Collection of Information
    The Commission believes that information submitted by participants 
in order to obtain an LEI issued by or through the GLEIS generally will 
be public.

E. Operating Hours of Registered SDRs--Rule 904

    Rule 904, as adopted, requires a registered SDR to have systems in 
place to continuously receive and disseminate information regarding 
security-based swap data with certain exceptions. Certain provisions of 
Rule 904 contain ``collection of information requirements'' within the 
meaning of the PRA. The title of this collection is ``Rule 904--
Operating Hours of Registered SDRs.''
1. Summary of Collection of Information
    Rule 904 requires a registered SDR to operate continuously, subject 
to two exceptions. First, under Rule 904(a) a registered SDR may 
establish normal closing hours during periods when, in its estimation, 
the U.S. market and major foreign markets are inactive. A registered 
SDR is required to provide reasonable advance notice to participants 
and to the public of its normal closing hours. Second, under Rule 
904(b) a registered SDR may declare, on an ad hoc basis, special 
closing hours to perform system maintenance that cannot wait until 
normal closing hours. A registered SDR is required, to the extent 
reasonably possible under the circumstances, to avoid scheduling 
special closing hours during when, in its estimation, the U.S. market 
and major foreign markets are most active; and provide reasonable 
advance notice of its special closing hours to participants and to the 
public.
    Rule 904(c) specifies requirements for handling and disseminating 
reported data during a registered SDR's normal and special closing 
hours. During normal closing hours and, to the extent reasonably 
practicable, during special closing hours, a registered SDR is required 
to have the capability to receive and hold in queue transaction data it 
receives.\1115\ Pursuant to Rule 904(d), immediately upon system re-
opening, the registered SDR is required to publicly disseminate any 
transaction data required to be reported under Rule 901(c) that it 
received and held in queue, in accordance with the requirements of Rule 
902. Pursuant to Rule 904(e), if a registered SDR cannot hold in queue 
transaction data to be reported, immediately upon re-opening the SDR is 
required to send a message to all participants that it has resumed 
normal operations. Thereafter, any participant that had an obligation 
to report transaction information to the registered SDR, but could not 
due to the registered SDR's inability to receive and hold in queue such 
transaction information, must promptly report the information to the 
registered SDR.\1116\
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    \1115\ See Rule 904(c).
    \1116\ See Rule 904(e).
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    The Commission originally stated its belief that there were not any 
costs or burdens applicable to participants as a result of Rule 
904(e).\1117\ The Commission continues to believe that this conclusion 
is appropriate. Specifically, the Commission believes that the process 
by which the registered SDR will notify participants that it has 
resumed operations would be automated. As a result, the Commission 
believes that the costs associated with building out the systems 
necessary for such notifications have already been accounted for in the 
costs of developing the registered SDRs systems associated with the 
receipt of security-based swap information under Rule 901.\1118\ As a 
result, the Commission continues to believe that Rule 904(e) is not a 
collection of information for participants.
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    \1117\ See Regulation SBSR Proposing Release, 75 FR 75253.
    \1118\ See id.
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2. Use of Information
    The information provided pursuant to Rule 904 is necessary to allow 
participants and the public to know the normal and special closing 
hours of the registered SDR, and to allow participants to take 
appropriate action in the event that the registered SDR cannot accept 
security-based swap transaction reports from participants.\1119\
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    \1119\ The Commission does not believe that Rule 904(c) will 
result in any burden within the meaning of the PRA. Rule 904(c) does 
not create new or additional duties to report security-based swap 
transactions.
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3. Respondents
    Rule 904 applies to all registered SDRs. As noted above, the 
Commission estimates that there will be ten registered SDRs.
4. Total Initial and Annual Reporting and Recordkeeping Burdens
    The Commission continues to estimate that that the one-time, 
initial burden, as well as ongoing annualized burden for each 
registered SDR associated with Rule 904 will be only minor additional 
burden beyond that necessary to ensure its basic operating capability 
under both Regulation SBSR and the SDR Registration Rules. The 
Commission estimates that the annual aggregate burden (first-year and 
ongoing) imposed by Rule 904 will be

[[Page 14681]]

360 hours, which corresponds to 36 hours per registered SDR.\1120\
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    \1120\ See Regulation SBSR Proposing Release, 75 FR 75253. This 
figure is based on the following: [(Operations Specialist at 3 
hours/month) x (12 months/year) x (10 registered SDRs)] = 360 burden 
hours.
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    One commenter asserted that the proposed requirement for a 
registered SDR to receive and hold in the queue the data required to be 
reported during its closing hours ``exceeds the capabilities of 
currently-existing reporting infrastructures.'' \1121\ However, the 
Commission notes that this comment was submitted in January 2011; since 
the receipt of this comment, provisionally registered CFTC SDRs that 
are likely also to register as SDRs with the Commission appear to have 
developed the capability of receiving and holding data in queue during 
their closing hours.\1122\ Thus, the Commission continues to believe 
that requiring registered SDRs to hold data in queue during their 
closing hours would not create a significant burden for registered 
SDRs.
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    \1121\ Markit I at 4.
    \1122\ See, e.g., DDR Rulebook, Section 7.1 (DDR System 
Accessibility) (``Data submitted during DDR System down time is 
stored and processed once the service has resumed''), available at 
http://www.dtcc.com/~/media/Files/Downloads/legal/rules/
DDR_Rulebook.pdf (last visited October 7, 2014).
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    The Commission does not believe Rule 904 imposes any separate 
collection of information on participants of registered SDRs not 
already accounted for under Rule 901.\1123\ Any respondent unable to 
report to a registered SDR, because such registered SDR was unable to 
receive the transaction report, would have to delay the submission of 
the transaction report. The Commission does not believe that the number 
of transaction reports impacted by this requirement would impact the 
burdens contained in this PRA.
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    \1123\ The requirement in Rule 904(e) for participants to report 
information to the registered SDR upon receiving a notice that the 
registered SDR resumed its normal operations is already considered 
as part of the participant's reporting obligations under Rule 901 
and thus is already included in the burden estimate for Rule 901.
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5. Recordkeeping Requirements
    Rule 13n-7(b) under the Exchange Act requires an 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 
or regulations thereunder, 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.\1124\ 
This requirement encompasses notices issued by a registered SDR to its 
participants under Rule 904.
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    \1124\ See SDR Adopting Release, Section VI(G)(2)
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6. Collection of Information Is Mandatory
    Each collection of information discussed above is mandatory.
7. Confidentiality of Responses to Collection of Information
    Any notices issued by a registered SDR to its participants, such as 
the notices required under Rule 904, would be publicly available.

F. Correction of Errors in Security-Based Swap Information--Rule 905

    Rule 905, as adopted, establishes procedures for correcting errors 
in reported and disseminated security-based swap information.
    Certain provisions of Rule 905 of Regulation SBSR contain 
``collection of information requirements'' within the meaning of the 
PRA. The title of this collection is ``Rule 905--Correction of Errors 
in Security-Based Swap Information.''
 1. Summary of Collection of Information
    Rule 905 establishes duties for security-based swap counterparties 
and registered SDRs to correct errors in information that previously 
has been reported.
    Counterparty Reporting Error. Under Rule 905(a)(1), where a side 
that was not the reporting side for a security-based swap transaction 
discovers an error in the information reported with respect to such 
security-based swap, the counterparty must promptly notify the 
reporting side of the error. Under Rule 905(a)(2), where a reporting 
side for a security-based swap transaction discovers an error in the 
information reported with respect to a security-based swap, or receives 
notification from its counterparty of an error, the reporting side must 
promptly submit to the entity to which the security-based swap was 
originally reported an amended report pertaining to the original 
transaction. The amended report must be submitted to the registered SDR 
in a manner consistent with the policies and procedures of the 
registered SDR required pursuant to Rule 907(a)(3).
    Duty of Registered SDR to Correct. Rule 905(b) sets forth the 
duties of a registered SDR relating to corrections. If the registered 
SDR either discovers an error in a transaction on its system or 
receives notice of an error from a reporting side, Rule 905(b)(1) 
requires the registered SDR to verify the accuracy of the terms of the 
security-based swap and, following such verification, promptly correct 
the erroneous information contained in its system. Rule 905(b)(2) 
further requires that, if such erroneous information relates to a 
security-based swap that the registered SDR previously disseminated and 
falls into any of the categories of information enumerated in Rule 
901(c), the registered SDR must publicly disseminate a corrected 
transaction report of the security-based swap promptly following 
verification of the trade by the counterparties to the security-based 
swap, with an indication that the report relates to a previously 
disseminated transaction.
 2. Use of Information
    The security-based swap transaction information required to be 
reported pursuant to Rule 905 will be used by registered SDRs, 
participants, the Commission, and other relevant authorities. 
Participants will be able to use such information to evaluate and 
manage their own risk positions and satisfy their duties to report 
corrected information to a registered SDR. A registered SDR will need 
the required information to correct security-based swap transaction 
records, in order to maintain an accurate record of a participant's 
positions as well as to disseminate corrected information. The 
Commission and other relevant authorities will need the corrected 
information to have an accurate understanding of the market for 
surveillance and oversight purposes.
 3. Respondents
    Rule 905 applies to all participants of registered SDRs. As noted 
above, the Commission estimates that there will be approximately 300 
reporting sides that incur the duty to report security-based swap 
transactions pursuant to Rule 901. In addition, the Commission 
estimates that there may be up to 4,800 security-based swap 
counterparties that are participants of one or more registered SDRs. 
Because any of these counterparties who are participants could become 
aware of errors in their reported transaction data, the Commission 
estimates that there may be as many as 4,800 respondents for purposes 
of the PRA.
    Rule 905 also applies to registered SDRs. As noted above, the 
Commission estimates there will be ten registered SDRs.

[[Page 14682]]

 4. Total Initial and Annual Reporting and Recordkeeping Burdens
    The duty to promptly submit amended transaction reports to the 
appropriate registered SDR after discovery of an error, as required 
under Rule 905(a)(2), will impose burdens on reporting sides. The duty 
to promptly notify the relevant reporting side after discovery of an 
error, as required under Rule 905(a)(1), will impose burdens on non-
reporting-side participants.
    With respect to reporting sides, the Commission believes that Rule 
905(a) will impose an initial, one-time burden associated with 
designing and building the reporting side's reporting system to be 
capable of submitting amended security-based swap transactions to a 
registered SDR. The Commission believes that designing and building 
appropriate reporting system functionality to comply with Rule 
905(a)(2) will be a component of, and represent an incremental ``add-
on'' to, the cost to build a reporting system and develop a compliance 
function as required under Rule 901. Based on discussions with industry 
participants, the Commission estimates this incremental burden to be 
equal to 5% of the one-time and annual burdens associated with 
designing and building a reporting system that is in compliance with 
Rule 901, plus 10% of the corresponding one-time and annual burdens 
associated with developing the reporting side's overall compliance 
program required under Rule 901. This estimate is based on similar 
calculations contained in the Regulation SBSR Proposing Release,\1125\ 
updated to reflect new estimates relating to the number of reportable 
events and the number of reporting sides. Thus, for reporting sides, 
the Commission estimates that Rule 905(a) will impose an initial 
(first-year) aggregate burden of 15,015 hours, which is 50.0 burden 
hours per reporting side,\1126\ and an ongoing aggregate annualized 
burden of 7,035 hours, which is 23.5 burden hours per reporting 
side.\1127\
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    \1125\ See Regulation SBSR Proposing Release, 75 FR 75254.
    \1126\ See Regulation SBSR Proposing Release, 75 FR 75254-55. 
This figure is calculated as follows: [(((172 burden hours for one-
time development of reporting system) x (0.05)) + ((33 burden hours 
annual maintenance of reporting system) x (0.05)) + ((180 burden 
hours one-time compliance program development) x (0.1)) + ((218 
burden hours annual support of compliance program) x (0.1))) x (300 
reporting sides)] = 15,015 burden hours, which is 50 burden hours 
per reporting side. The burden hours for annual maintenance of the 
reporting system has been updated to reflect new information on the 
number of reportable events. See supra note 1075.
    \1127\ See Regulation SBSR Proposing Release, 75 FR 75254-55. 
This figure is calculated as follows: [(((33 burden hours annual 
maintenance of reporting system) x (0.05)) + ((218 burden hours 
annual support of compliance program) x (0.1))) x (300 reporting 
sides)] = 7,035 burden hours, which is 23.5 burden hours per 
reporting side. The burden hours for annual maintenance of the 
reporting system has been updated to reflect new information on the 
number of reportable events. See supra note 1075.
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    The Commission believes that the actual submission of amended 
transaction reports required under Rule 905(a)(2) will not result in a 
material burden because this will be done electronically though the 
reporting system that the reporting side must develop and maintain to 
comply with Rule 901. The overall burdens associated with such a 
reporting system are addressed in the Commission's analysis of Rule 
901.
    With regard to non-reporting-side participants, the Commission 
believes that Rule 905(a) will impose an initial and ongoing burden 
associated with promptly notifying the relevant reporting party after 
discovery of an error as required under Rule 905(a)(1). The Commission 
estimates that the annual burden will be 998,640 hours, which 
corresponds to 208.05 burden hours per non-reporting-side 
participant.\1128\ This figure is based on the Commission's estimate of 
(1) 4,800 participants; and (2) 1 transaction per day per non-
reporting-side participant.\1129\ The burdens of Rule 905 on reporting 
sides and non-reporting-side participants will be reduced to the extent 
that complete and accurate information is reported to registered SDRs 
in the first instance pursuant to Rule 901.
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    \1128\ This burden was calculated using the same methodology as 
was used in the Regulation SBSR Proposing Release, updated to 
account for new estimates of the number of error notifications 
resulting from updates in the number of reportable events. See 
Regulation SBSR Proposing Release, 75 FR 75255. This figure is based 
on the following: [(1.14 error notifications per non-reporting-side 
participant per day) x (365 days/year) x (Compliance Clerk at 0.5 
hours/report) x (4,800 participants)] = 998,640 burden hours, which 
corresponds to 208.05 burden hours per non-reporting-side 
participant.
    \1129\ This figure is based on the following: [((2,000,000 
estimated annual security-based swap transactions) / (4,800 
participants)) / (365 days/year)] = 1.14 transactions per day, on 
average.
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    Rule 905(b) requires a registered SDR to develop protocols 
regarding the reporting and correction of erroneous information. The 
Commission believes, however, that this duty would represent only a 
minor extension of other duties for which the Commission is estimating 
burdens, and consequently, will not impose substantial additional 
burdens on a registered SDR. A registered SDR will be required to have 
the ability to collect and maintain security-based swap transaction 
reports and update relevant records under the rules adopted in the SDR 
Adopting Release. Likewise, a registered SDR must have the capacity to 
disseminate additional, corrected security-based swap transaction 
reports under Rule 902. The burdens associated with Rule 905--including 
systems development, support, and maintenance--are addressed in the 
Commission's analysis of those other rules. Thus, the Commission 
believes that Rule 905(b) will impose only an incremental additional 
burden on registered SDRs. The Commission estimates that developing and 
publicly providing the necessary procedures will impose on each 
registered SDR an initial one-time burden on each registered SDR of 
approximately 730 burden hours.\1130\ The Commission estimates that to 
review and update such procedures on an ongoing basis will impose an 
annual burden on each SDR of approximately 1,460 burden hours.\1131\
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    \1130\ See Regulation SBSR Proposing Release, 75 FR 75255. This 
figure is based on the following: [(Sr. Programmer at 80 hours) + 
(Compliance Manager at 160 hours) + (Compliance Attorney at 250 
hours) + (Compliance Clerk at 120 hours) + (Sr. System Analyst at 80 
hours) + (Director of Compliance at 40 hours)] = 730 burden hours.
    \1131\ See Regulation SBSR Proposing Release, 75 FR 75255. This 
figure is based on the following: [(Sr. Programmer at 160 hours) + 
(Compliance Manager at 320 hours) + (Compliance Attorney at 500 
hours) + (Compliance Clerk at 240 hours) + (Sr. System Analyst at 
160 hours) + (Director of Compliance at 80 hours)] = 1,460 burden 
hours.
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    Accordingly, the Commission estimates that the initial (first-year) 
aggregate annualized burden on registered SDRs under Rule 905 will be 
21,900 burden hours, which corresponds to 2,190 burden hours for each 
registered SDR.\1132\ The Commission further estimates that the ongoing 
aggregate annualized burden on registered SDRs under Rule 905 will be 
14,600 burden hours, which corresponds to 1,460 burden hours for each 
registered SDR.\1133\ This estimated burden is consistent with what the 
Commission proposed in the Regulation SBSR Proposing Release.
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    \1132\ This figure is based on the following: [(730 burden hours 
to develop protocols) + (1,460 burden hours annual support)) x (10 
registered SDRs)] = 21,900 burden hours, which corresponds to 2,190 
burden hours per registered SDR.
    \1133\ This figure is based on the following: [(1,460 burden 
hours annual support) x (10 registered SDRs)] = 14,600 burden hours, 
which corresponds to 1,460 burden hours per registered SDR.
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5. Recordkeeping Requirements
    Security-based swap transaction reports received pursuant to Rule 
905 are subject to Rule 13n-5(b)(4) under the Exchange Act. This rule 
requires an SDR to maintain the transaction data and related 
identifying information for not less than five years after the

[[Page 14683]]

applicable security-based swap expires and historical positions for not 
less than five years.\1134\
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    \1134\ See SDR Adopting Release, Section VI(E)(4).
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    With respect to information disseminated by a registered SDR in 
compliance with Rule 905(b)(2), Rule 13n-7(b) under the Exchange Act 
requires an SDR to keep and preserve at least one copy of all 
documents, including all policies and procedures required by the 
Exchange Act and the rules or regulations thereunder, 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.\1135\ This requirement encompasses amended 
security-based swap transaction reports disseminated by the registered 
SDR.
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    \1135\ See SDR Adopting Release, Section VI(G)(2).
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6. Collection of Information Is Mandatory
    Each collection of information discussed above is mandatory.
7. Confidentiality of Responses to Collection of Information
    Information collected pursuant to Rule 905 will be widely available 
to the extent that it corrects information previously reported pursuant 
to Rule 901(c) and incorporated into security-based swap transaction 
reports that are publicly disseminated by a registered SDR pursuant to 
Rule 902. Most of the information required under Rule 902 will be 
widely available to the public to the extent it is incorporated into 
security-based swap transaction reports that are publicly disseminated 
by a registered SDR pursuant to Rule 902. However, Rule 902(c) 
prohibits public dissemination of certain kinds of transactions and 
certain kinds of transaction information. An SDR, pursuant to Sections 
13(n)(5) of the Exchange Act and Rules 13n-4(b)(8) and 13n-9 thereunder 
is required to maintain the privacy of this security-based swap 
information. To the extent that the Commission receives confidential 
information pursuant to this collection of information, such 
information will be kept confidential, subject to the provisions of 
applicable law.

G. Other Duties of Participants--Rule 906

    Rule 906(a), as adopted, establishes procedures designed to ensure 
that a registered SDR obtains UICs for both counterparties to a 
security-based swap. Rule 906(b) requires each participant of a 
registered SDR to provide to the registered SDR information sufficient 
to identify its ultimate parent(s) and any affiliate(s) of the 
participant that also are participants of the registered SDR. Rule 
906(c) requires each participant that is a registered security-based 
swap dealer or registered major security-based swap participant to 
establish, maintain, and enforce written policies and procedures 
(updated at least annually) that are reasonably designed to ensure 
compliance with any security-based swap transaction reporting 
obligations in a manner consistent with Regulation SBSR.
    Certain provisions of Rule 906 of Regulation SBSR contain 
``collection of information requirements'' within the meaning of the 
PRA. The title of this collection is ``Rule 906--Duties of All 
Participants.''
    Although the Commission is adopting Rule 906 with certain minor 
changes from the version re-proposed in the Cross-Border Proposing 
Release, these changes do not increase the number of respondents to 
Rule 906 or affect the estimated burdens on respondents to Rule 906. 
Therefore, the Commission is not revising its estimate of the burdens 
associated with Rule 906.
1. Summary of Collection of Information
    Rule 906(a) sets forth a procedure designed to ensure that a 
registered SDR obtains relevant UICs for both sides of a security-based 
swap, not just of the reporting side. Rule 906(a) requires a registered 
SDR to identify any security-based swap reported to it for which the 
registered SDR does not have a counterparty ID and (if applicable) 
broker ID, trading desk ID, and trader ID of each counterparty. Rule 
906(a) further requires the registered SDR, once a day, to send a 
report to each participant identifying, for each security-based swap to 
which that participant is a counterparty, the security-based swap(s) 
for which the registered SDR lacks counterparty ID and (if applicable) 
broker ID, trading desk ID, and trader ID. A participant that receives 
such a report must provide the missing ID information to the registered 
SDR within 24 hours.
    Rule 906(b) requires each participant of a registered SDR to 
provide the registered SDR with information sufficient to identify the 
participant's ultimate parent(s) and any affiliate(s) of the 
participant that are also participants of the registered SDR.
    Rule 906(c) requires each participant that is a registered 
security-based swap dealer or registered major security-based swap 
participant to establish, maintain, and enforce written policies and 
procedures that are reasonably designed to ensure compliance with any 
security-based swap transaction reporting obligations in a manner 
consistent with Regulation SBSR. In addition, Rule 906(c) requires each 
such participant to review and update its policies and procedures at 
least annually.
 2. Use of Information
    The information required to be provided by participants pursuant to 
Rule 906(a) will complete missing elements of security-based swap 
transaction reports so that the registered SDR has, and can make 
available to the Commission and other relevant authorities, accurate 
and complete records for reported security-based swaps.
    Rule 906(b) will be used to ensure that the registered SDR has, and 
can make available to the Commission and other relevant authorities, 
group-wide security-based swap position information. This information 
will assist the Commission and other relevant authorities with 
monitoring systemic risks in the security-based swap market.
    The policies and procedures required under Rule 906(c) will be used 
by participants to aid in their compliance with Regulation SBSR, and 
also used by the Commission as part of its ongoing efforts to monitor 
and enforce compliance with the federal securities laws, including 
Regulation SBSR.
 3. Respondents
    Rules 906(a) and 906(b) apply to all participants of registered 
SDRs. Based on the information currently available to the Commission, 
the Commission now believes that there may be up to 4,800 
participants.\1136\ Rule 906(c) applies to participants that are 
registered security-based swap dealers or registered major security-
based swap participants. The Commission estimates that there will be 55 
registered security-based swap dealers and registered major security-
based swap dealers.
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    \1136\ The Commission originally estimated that there would be 
up to 5,000 participants. As discussed above, based on more updated 
and granular information available to the Commission, this estimate 
has been revised. See Regulation SBSR Proposing Release, 75 FR 
75256.
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    Rule 906 also imposes certain duties on registered SDRs. As noted 
above, the Commission estimates that there will be ten registered SDRs.
 4. Total Initial and Annual Reporting and Recordkeeping Burdens
a. For Registered SDRs
    Rule 906(a) requires a registered SDR, once a day, to send a report 
to each participant identifying, for each security-based swap to which 
that

[[Page 14684]]

participant is a counterparty, any security-based swap(s) for which the 
registered SDR lacks counterparty ID and (if applicable) broker ID, 
trading desk ID, and trader ID. The Commission estimates that there 
will be a one-time, initial burden of 112 burden hours for a registered 
SDR to create a report template and develop the necessary systems and 
processes to produce a daily report required by Rule 906(a).\1137\ 
Further, the Commission estimates that there will be an ongoing 
annualized burden of 308 burden hours for a registered SDR to generate 
and issue the daily reports, and to enter into its systems the ID 
information supplied by participants in response to the daily 
reports.\1138\
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    \1137\ See Regulation SBSR Proposing Release, 75 FR 75256. The 
Commission has derived the total estimated burdens based on the 
following estimates, which are based on the information provided to 
the Commission: (Senior Systems Analyst at 40 hours) + (Sr. 
Programmer at 40 hours) + (Compliance Manager at 16 hours) + 
(Director of Compliance at 8 hours) + (Compliance Attorney at 8 
hours) = 112 burden hours.
    \1138\ See Regulation SBSR Proposing Release, 75 FR 75256-57. 
The Commission has derived the total estimated burdens based on the 
following estimates, which are based on the information provided to 
the Commission: (Senior Systems Analyst at 24 hours) + (Sr. 
Programmer at 24 hours) + (Compliance Clerk at 260 hours) = 308 
burden hours.
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    Accordingly, the Commission estimates that the initial aggregate 
annualized burden for registered SDRs under Rule 906(a) will be 4,200 
burden hours for all SDR respondents, which corresponds to 420 burden 
hours per registered SDR.\1139\ The Commission estimates that the 
ongoing aggregate annualized burden for registered SDRs under Rule 
906(a) will be 3,080 burden hours, which corresponds to 308 burden 
hours per registered SDR.\1140\
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    \1139\ See Regulation SBSR Proposing Release, 75 FR 75256-57. 
The Commission derived its estimate from the following: [(112 + 308 
burden hours) x (10 registered SDRs)] = 4,200 burden hours, which 
corresponds to 420 burden hours per registered SDR.
    \1140\ See Regulation SBSR Proposing Release, 75 FR 75256-57. 
The Commission derived its estimate from the following: [(308 burden 
hours) x (10 registered SDRs)] = 3,080 burden hours, which 
corresponds to 308 burden hours per registered SDR.
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b. For Participants
i. Rule 906(a)
    Rule 906(a) requires any participant of a registered SDR that 
receives a report from that registered SDR to provide the missing UICs 
to the registered SDR within 24 hours. Because all SDR participants 
will likely be the non-reporting side for at least some transactions to 
which they are a counterparty, the Commission believes that all 
participants will be impacted by Rule 906(a). The Commission estimates 
that the initial and ongoing annualized burden under Rule 906(a) for 
all participants will be 199,728 burden hours, which corresponds to 
41.6 burden hours per participant.\1141\ This figure is based on the 
Commission's estimates of (1) 4,800 participants; and (2) approximately 
1.14 transactions per day per participant.\1142\
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    \1141\ This burden was calculated using the same methodology as 
was used in the Regulation SBSR Proposing Release, updated to 
account for new estimates of the number of missing information 
reports resulting from updates in the number of reportable events. 
See Regulation SBSR Proposing Release, 75 FR 75256-57. This figure 
is based on the following: [(1.14 missing information reports per 
participant per day) x (365 days/year) x (Compliance Clerk at 0.1 
hours/report) x (4,800 participants) = 199,728 burden hours, which 
corresponds to 41.6 burden hours per participant.
    \1142\ This figure is based on the following: [((2,000,000 
estimated annual security-based swap transactions) / 4,800 
participants)) / (365 days/year)] = 1.14 transactions per day, or 
approximately 1 transaction per day.
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ii. Rule 906(b)
    Rule 906(b) requires every participant to provide the registered 
SDR an initial parent/affiliate report and subsequent reports, as 
needed. The Commission estimates that there will be 4,800 participants, 
that each participant will connect to two registered SDRs on average, 
and that each participant will submit two reports each year.\1143\ 
Accordingly, the Commission estimates that the initial and ongoing 
aggregate annualized burden associated with Rule 906(b) will be 9,600 
burden hours, which corresponds to 2 burden hours per 
participant.\1144\ The aggregate burden represents an upper estimate 
for all participants; the actual burden will likely decrease because 
certain larger participants are likely to have multiple affiliates, and 
one member of the group could report ultimate parent and affiliate 
information on behalf of all of its affiliates at the same time.
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    \1143\ The Commission estimates that, during the first year, 
each participant will submit an initial report and one update report 
and, in subsequent years, will submit two update reports.
    \1144\ See Regulation SBSR Proposing Release, 75 FR 75257. This 
figure is based on the following: [(Compliance Clerk at 0.5 hours 
per report) x (2 reports/year/SDR connection) x (2 SDR connections/
participant) x (4,800 participants)] = 9,600 burden hours, which 
corresponds to 2 burden hours per participant.
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b. For Covered Participants
    Rule 906(c) requires each participant that is a registered 
security-based swap dealer or registered major security-based swap 
participant (each, a ``covered participant'') to establish, maintain, 
and enforce written policies and procedures that are reasonably 
designed to ensure compliance with any security-based swap transaction 
reporting obligations in a manner consistent with Regulation. Rule 
906(c) also requires the review and updating of such policies and 
procedures at least annually. The Commission estimates that the one-
time, initial burden for each covered participant to adopt written 
policies and procedures as required under Rule 906(c) will be 
approximately 216 burden hours.\1145\ As discussed in the Regulation 
SBSR Proposing Release,\1146\ this figure is based on the estimated 
number of hours to develop a set of written policies and procedures, 
program systems, implement internal controls and oversight, train 
relevant employees, and perform necessary testing. In addition, the 
Commission estimates the burden of maintaining such policies and 
procedures, including a full review at least annually, as required by 
Rule 906(c), will be approximately 120 burden hours for each covered 
participant.\1147\ This figure includes an estimate of hours related to 
reviewing existing policies and procedures, making necessary updates, 
conducting ongoing training, maintaining internal controls systems, and 
performing necessary testing. Accordingly, the Commission estimates 
that the initial aggregate annualized burden associated with Rule 
906(c) will be 18,480 burden hours, which corresponds to 336 burden 
hours per covered participant.\1148\ The Commission estimates that the 
ongoing aggregate annualized burden associated with Rule 906(c) will be 
6,600 burden hours, which corresponds to 120 burden hours per covered 
participant.\1149\
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    \1145\ See Regulation SBSR Proposing Release, 75 FR 75257. This 
figure is based on the following: [(Sr. Programmer at 40 hours) + 
(Compliance Manager at 40 hours) + (Compliance Attorney at 40 hours) 
+ (Compliance Clerk at 40 hours) + (Sr. Systems Analyst at 32 hours) 
+ (Director of Compliance at 24 hours)] = 216 burden hours per 
covered participant.
    \1146\ See Regulation SBSR Proposing Release, 75 FR 75257.
    \1147\ See Regulation SBSR Proposing Release, 75 FR 75257. This 
figure is based on the following: [(Sr. Programmer at 8 hours) + 
(Compliance Manager at 24 hours) + (Compliance Attorney at 24 hours) 
+ (Compliance Clerk at 24 hours) + (Sr. Systems Analyst at 16 hours) 
+ (Director of Compliance at 24 hours)] = 120 burden hours per 
covered participant.
    \1148\ This figure is based on the following: [(216 + 120 burden 
hours) x (55 covered participants)] = 18,480 burden hours.
    \1149\ This figure is based on the following: [(120 burden 
hours) x (55 covered participants)] = 6,600 burden hours.
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    Therefore, the Commission estimates that the total initial 
aggregate annualized burden associated with Rule 906 will be 232,008 
burden hours,\1150\

[[Page 14685]]

and the total ongoing aggregate annualized burden will be 219,008 
burden hours for all participants.\1151\
---------------------------------------------------------------------------

    \1150\ This figure is based on the following: [(4,200 burden 
hours for registered SDRs under Rule 906(a)) + (199,728 burden hours 
for participants under Rule 906(a)) + (9,600 burden hours for 
participants under Rule 906(b)) + (18,480 burden hours for covered 
participants under Rule 906(c))] = 232,008 burden hours.
    \1151\ This figure is based on the following: [(3,080 burden 
hours for registered SDRs under proposed Rule 906(a)) + (199,728 
burden hours for participants under proposed Rule 906(a)) + (9,600 
burden hours for participants under proposed Rule 906(b)) + (6,600 
burden hours for covered participants under proposed Rule 906(c))] = 
219,008 burden hours.
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5. Recordkeeping Requirements
    The daily reports that participants complete in order to provide 
missing UICs to a registered SDR pursuant to Rule 906(a) and the 
initial parent/affiliate reports and subsequent reports required by 
Rule 906(b) are not subject to any specific recordkeeping requirements 
for participants to the extent that these participants are non-
registered persons.\1152\ With regard to these reports, as well as any 
other information that a registered SDR may receive from participants 
pursuant to Rule 906, Rule 13n-5(b)(4) requires an SDR to maintain this 
information for not less than five years after the applicable security-
based swap expires.\1153\
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    \1152\ See Securities Exchange Act Release No. 71958 (April 17, 
2014), 79 FR 25193 (May 2, 2014) (``SD/MSP Recordkeeping Proposing 
Release'') (proposing recordkeeping and reporting requirements for 
security-based swap dealers, major security-based swap participants, 
and broker-dealers).
    \1153\ See SDR Adopting Release, Section VI(E)(4).
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    The Commission has proposed but not yet adopted recordkeeping 
requirements for registered security-based swap dealers and registered 
major security-based swap participants.\1154\
---------------------------------------------------------------------------

    \1154\ See SD/MSP Recordkeeping Proposing Release, 79 FR 25193.
---------------------------------------------------------------------------

6. Collection of Information Is Mandatory
    Each collection of information discussed above is mandatory.
7. Confidentiality of Responses to Collection of Information
    The collection of information required by Rule 906 will not be 
widely available. To the extent that the Commission receives 
confidential information pursuant this collection of information, such 
information will be kept confidential, subject to applicable law.

H. Policies and Procedures of Registered SDRs--Rule 907

    Rule 907, as adopted, requires each registered SDR to establish and 
maintain policies and procedures addressing various aspects of 
Regulation SBSR compliance. Certain provisions of Rule 907 of 
Regulation SBSR contain ``collection of information requirements'' 
within the meaning of the PRA. The title of this collection is ``Rule 
907--Policies and Procedures of Registered SDRs.''
1. Summary of Collection of Information
    Rule 907(a) requires a registered SDR to establish and maintain 
written policies and procedures that detail how it will receive and 
publicly disseminate security-based swap transaction information. Rule 
907(a)(4) requires policies and procedures for assigning ``special 
circumstances'' flags to the necessary transaction reports.
    Rule 907(c) requires a registered SDR to make its policies and 
procedures available on its Web site. Rule 907(d) requires a registered 
SDR to review, and update as necessary, the policies and procedures 
that it is required to have by Regulation SBSR at least annually. Rule 
907(e) requires a registered SDR to provide to the Commission, upon 
request, information or reports related to the timeliness, accuracy, 
and completeness of data reported to it pursuant to Regulation SBSR and 
the registered SDR's policies and procedures established thereunder.
2. Use of Information
    The policies and procedures required under Rules 907(a) and 907(b) 
will be used by reporting sides to understand the specific data 
elements of security-based swap transactions that they must report and 
the specific data formats and other reporting protocols that they will 
be required to use. These policies and procedures will be used 
generally by registered SDRs to aid in their compliance with Regulation 
SBSR, and also by the Commission as part of its ongoing efforts to 
monitor and enforce compliance with the federal securities laws, 
including Regulation SBSR. Finally, any information or reports provided 
to the Commission pursuant to Rule 907(e) will be used by the 
Commission to assess the timeliness, accuracy, and completeness of 
reported transaction data and assist the Commission's efforts to 
enforce applicable security-based swap reporting rules.
3. Respondents
    Rule 907 applies to registered SDRs. As noted above, the Commission 
estimates that there will be ten registered SDRs.
4. Total Initial and Annual Reporting and Recordkeeping Burdens
    The Commission estimates that the one-time, initial burden for a 
registered SDR to adopt written policies and procedures as required 
under Rule 907 will be approximately 15,000 hours.\1155\ As discussed 
in the Regulation SBSR Proposing Release, this figure is based on the 
estimated number of hours to develop a set of written policies and 
procedures, program systems, implement internal controls and oversight, 
train relevant employees, and perform necessary testing.\1156\ In 
addition, the Commission estimates the annual burden of maintaining 
such policies and procedures, including a full review at least 
annually, making available its policies and procedures on the 
registered SDR's Web site, and information or reports on non-
compliance, as required under Rule 907(e), will be approximately 30,000 
hours for each registered SDR.\1157\ As discussed in the Regulation 
SBSR Proposing Release, this figure includes an estimate of hours 
related to reviewing existing policies and procedures, making necessary 
updates, conducting ongoing training, maintaining relevant systems and 
internal controls systems, performing necessary testing, monitoring 
participants, and compiling data.
---------------------------------------------------------------------------

    \1155\ See Regulation SBSR Proposing Release, 75 FR 75259. This 
figure is based on the following: [(Sr. Programmer at 1,667 hours) + 
(Compliance Manager at 3,333 hours) + (Compliance Attorney at 5,000 
hours) + (Compliance Clerk at 2,500 hours) + (Sr. System Analyst at 
1,667 hours) + (Director of Compliance at 833 hours)] = 15,000 
burden hours per registered SDR. These burdens are the result of 
Rule 907 only and do not account for any burdens that result from 
the SDR Rules. Such burdens are addressed in a separate release. See 
SDR Adopting Release, Section VII.
    \1156\ See Regulation SBSR Proposing Release, 75 FR 75259. This 
figure also includes time necessary to design and program systems 
and implement policies and procedures to assign certain UICs, as 
required by Rule 907(a)(5).
    \1157\ See Regulation SBSR Proposing Release, 75 FR 75259. This 
figure is based on the following: [(Sr. Programmer at 3,333 hours) + 
(Compliance Manager at 6,667 hours) + (Compliance Attorney at 10,000 
hours) + (Compliance Clerk at 5,000 hours) + (Sr. System Analyst at 
3,333 hours) + (Director of Compliance at 1,667 hours)] = 30,000 
burden hours per registered SDR.
---------------------------------------------------------------------------

    The Commission estimates that the initial annualized burden 
associated with Rule 907 will be approximately 45,000 hours per 
registered SDR, which corresponds to an initial annualized aggregate 
burden of approximately 450,000 hours.\1158\ The Commission

[[Page 14686]]

estimates that the ongoing annualized burden associated with Rule 907 
will be approximately 30,000 hours per registered SDR,\1159\ which 
corresponds to an ongoing annualized aggregate burden of approximately 
300,000 hours.\1160\
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    \1158\ This figure is based on the following: [((15,000 burden 
hours per registered SDR) + (30,000 burden hours per registered 
SDR)) x (10 registered SDRs)] = 450,000 initial annualized aggregate 
burden hours during the first year.
    \1159\ See Regulation SBSR Proposing Release, 75 FR 75259. This 
figure is based on the following: [(Sr. Programmer at 3,333 hours) + 
(Compliance Manager at 6,667 hours) + (Compliance Attorney at 10,000 
hours) + (Compliance Clerk at 5,000 hours) + (Sr. System Analyst at 
3,333 hours) + (Director of Compliance at 1,667 hours)] = 30,000 
burden hours per registered SDR.
    \1160\ See Regulation SBSR Proposing Release, 75 FR 75259. This 
figure is based on the following: [(30,000 burden hours per 
registered SDR) x (10 registered SDRs)] = 300,000 ongoing, 
annualized aggregate burden hours.
---------------------------------------------------------------------------

5. Recordkeeping Requirements
    Rule 13n-7(b) under the Exchange Act requires an 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 
or regulations thereunder, 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. This 
requirement will encompass policies and procedures established by a 
registered SDR pursuant to Rule 907, and any information or reports 
provided to the Commission pursuant to Rule 907(e).
6. Collection of Information Is Mandatory
    Each collection of information discussed is mandatory.
7. Confidentiality of Responses to Collection of Information
    All of the policies and procedures required by Rule 907 will have 
to be made available by a registered SDR on its Web site and will not, 
therefore, be confidential. Any information obtained by the Commission 
from a registered SDR pursuant to Rule 907(e) relating to the 
timeliness, accuracy, and completeness of data reported to the 
registered SDR will be kept confidential subject to the provisions of 
applicable law.

I. Cross-Border Matters--Rule 908

    Rule 908(a), as adopted, defines when a security-based swap 
transaction will be subject to regulatory reporting and/or public 
dissemination. Specifically, Rule 908(a)(1)(i), as adopted, provides 
that a security-based swap shall be subject to regulatory reporting and 
public dissemination if ``[t]here is a direct or indirect counterparty 
that is a U.S. person on either or both sides of the transaction.'' 
Rule 908(a)(1)(ii), as adopted, provides that a security-based swap 
shall be subject to regulatory reporting and public dissemination if 
``[t]he security-based swap is submitted to a clearing agency having 
its principal place of business in the United States.'' Rule 908(a)(2), 
as adopted, provides that a security-based swap not included within the 
above provisions would be subject to regulatory reporting but not 
public dissemination ``if there is a direct or indirect counterparty on 
either or both sides of the transaction that is a registered security-
based swap dealer or a registered major security-based swap 
participant.''
    Regulation 908(b), as adopted, defines when a person might incur 
obligations under Regulation SBSR. Specifically, Rule 908(b) provides 
that, notwithstanding any other provision of Regulation SBSR, a person 
shall not incur any obligation under Regulation SBSR unless it is a 
U.S. person, a registered security-based swap dealer or registered 
major security-based swap participant.
    Rules 908(a) and 908(b) do not impose any collection of information 
requirements. To the extent that a security-based swap transaction or 
counterparty is subject to Rule 908(a) or 908(b), respectively, the 
collection of information burdens are calculated as part of the 
underlying rule (e.g., Rule 901, which imposes the basic duty to report 
security-based swap transaction information).
    Rule 908(c), as adopted, sets forth the requirements surrounding 
requests for substituted compliance. As adopted, Rule 908(c)(1) sets 
forth the general rule that compliance with the regulatory reporting 
and public dissemination requirements in sections 13(m) and 13A of the 
Act (15 U.S.C. 78m(m) and 78m-1), and the rules and regulations 
thereunder, may be satisfied by compliance with the rules of a foreign 
jurisdiction that is the subject of a Commission order described in 
Rule 908(c)(2), provided that at least one of the direct counterparties 
is either a non-U.S. person or a foreign branch.
    Rule 908(c) contains ``collection of information requirements'' 
within the meaning of the PRA. The title of this collection is ``Rule 
908(c)--Substituted Compliance.''
1. Summary of Collection of Information
    A party that potentially would comply with requirements under 
Regulation SBSR pursuant to a substituted compliance order or any 
foreign financial regulatory authority or authorities supervising such 
a person's security-based swap activities, may file an application 
requesting that the Commission make a substituted compliance 
determination pursuant to Rule 0-13 under the Exchange Act.\1161\ Such 
entity will be required to provide the Commission with any supporting 
documentation as the Commission may request, in addition to information 
that the entity believes is necessary for the Commission to make a 
determination, such as information demonstrating that the requirements 
applied in the foreign jurisdiction are comparable to the Commission's 
and describing the methods used by relevant foreign financial 
regulatory authorities to monitor compliance with those requirements.
---------------------------------------------------------------------------

    \1161\ See 17 CFR 200.0-13; Cross-Border Adopting Release, 79 FR 
47357-60.
---------------------------------------------------------------------------

2. Use of Information
    The Commission will use the information collected pursuant to Rule 
908(c)(2)(ii) to evaluate requests for substituted compliance with 
regard to regulatory reporting and public dissemination of security-
based swaps.
3. Respondents
    In the Cross-Border Proposing Release, the Commission preliminarily 
estimated that requests for substituted compliance determinations might 
arise in connection with security-based swap market participants and 
transactions in up to 30 discrete jurisdictions.\1162\ Because only a 
small number of jurisdictions have substantial OTC derivatives markets 
and are implementing OTC derivatives reforms, the Commission 
preliminarily estimated that it would receive approximately ten 
requests in the first year for substituted compliance determinations 
with respect to regulatory reporting and public dissemination pursuant 
to Rule 908(c)(2)(ii), and two requests each subsequent year.\1163\ 
Although the range of entities that are allowed to submit applications 
for substituted compliance has increased, the Commission does not 
believe that this warrants a change in its estimate of the number of 
requests that the Commission will receive. The Commission continues to 
believe that other considerations will determine the number of 
applications that it will receive, such as which jurisdictions have 
regulatory structures similar enough to the Commission's as to merit

[[Page 14687]]

a request and the number of entities potentially impacted by Regulation 
SBSR.
---------------------------------------------------------------------------

    \1162\ See Cross-Border Proposing Release, 78 FR 31109-10.
    \1163\ See id. at 31110. Rule 908(c)(2)(ii), as adopted, allows 
``[a] party that potentially would comply with requirements under 
[Regulation SBSR] . . . or any foreign financial regulatory 
authority or authorities supervising such a person's security-based 
swap activities may file an application.''
---------------------------------------------------------------------------

4. Total Initial and Annual Reporting and Recordkeeping Burdens
    Rule 908(c)(2)(ii), as adopted, applies to any person that requests 
a substituted compliance determination with respect to regulatory 
reporting and public dissemination of security-based swaps. In 
connection with each request, the requesting party must provide the 
Commission with any supporting documentation that the entity believes 
is necessary for the Commission to make a determination, including 
information demonstrating that the requirements applied in the foreign 
jurisdiction are comparable to the Commission's and describing the 
methods used by relevant foreign financial regulatory authorities to 
monitor compliance with those requirements. The Commission initially 
estimated, in the Cross-Border Proposing Release, that the total 
paperwork burden associated with submitting a request for a substituted 
compliance determination with respect to regulatory reporting and 
public dissemination will be approximately 1,120 hours, plus $1,120,000 
for 14 requests.\1164\ This estimate includes all collection burdens 
associated with the request, including burdens associated with 
analyzing whether the regulatory requirements of the foreign 
jurisdiction impose a comparable, comprehensive system for the 
regulatory reporting and public dissemination of all security-based 
swaps. Furthermore, this estimate assumes that each request will be 
prepared de novo, without any benefit of prior work on related 
subjects. The Commission notes, however, that as such requests are 
developed with respect to certain jurisdictions, the cost of preparing 
such requests with respect to other foreign jurisdictions could 
decrease.\1165\
---------------------------------------------------------------------------

    \1164\ The Commission staff estimates that the paperwork burden 
associated with making a substituted compliance request pursuant to 
Rule 908(c)(2)(ii) will be approximately 80 of in-house counsel 
time, plus $80,000 for the services of outside professionals (based 
on 200 hours of outside counsel time x $400). See id., Cross-Border 
Proposing Release, 78 FR 31110
    \1165\ If and when the Commission grants a request for 
substituted compliance, subsequent applications might be able to 
leverage work done on the initial application. However, the 
Commission is unable to estimate the amount by which the cost could 
decrease without knowing the extent to which different jurisdictions 
have similar regulatory structures.
---------------------------------------------------------------------------

    Assuming ten requests in the first year, the Commission staff 
estimated an aggregated burden for the first year will be 800 hours, 
plus $800,000 for the services of outside professionals.\1166\ The 
Commission preliminarily estimated that it would receive 2 requests for 
substituted compliance determinations pursuant to Rule 908(c)(2)(ii) in 
each subsequent year. Assuming the same approximate time and costs, the 
aggregate burden for each year following the first year will be up to 
160 hours of company time and $160,000 for the services of outside 
professionals.\1167\
---------------------------------------------------------------------------

    \1166\ The Commission staff estimates that the paperwork burden 
associated with making a substituted compliance request pursuant to 
Rule 242.908(c)(2)(ii) will be up to approximately 800 hours (80 
hours of in-house counsel time x 10 respondents), plus $800,000 for 
the services of outside professionals (based on 200 hours of outside 
counsel time x $400 x 10 respondents). See Cross-Border Proposing 
Release, 78 FR 31110.
    \1167\ The Commission staff estimates that the paperwork burden 
associated with making a substituted compliance request pursuant to 
Rule 242.908(c)(2)(ii) would be up to approximately 160 hours (80 
hours of in-house counsel time x 2 respondents) + plus $160,000 for 
the services of outside professionals (based on 200 hours of outside 
counsel time x $400 x 2 respondents). See Cross-Border Proposing 
Release, 78 FR 31110.
---------------------------------------------------------------------------

5. Recordkeeping Requirements
    Rule 908(c)(2)(ii) does not impose any recordkeeping requirements 
on entities that submit requests for a substituted compliance 
determination. The Commission has proposed but not yet adopted 
recordkeeping requirements for registered security-based swap dealers.
6. Collection of Information Is Mandatory
    The collection of information discussed above is mandatory for any 
entity seeking a substituted compliance determination from the 
Commission regarding regulatory reporting and public dissemination of 
security-based swaps.
7. Confidentiality of Responses to Collection of Information
    The Commission generally intends to make public the information 
submitted to it pursuant to any request for a substituted compliance 
determination under Rule 908(c)(2)(ii), including supporting 
documentation provided by the requesting party. However, a requesting 
party may submit a confidential treatment request pursuant to Rule 24b-
2 under the Exchange Act to object to public disclosure.

J. Registration of SDRs as Securities Information Processors--Rule 909

    Rule 909 requires a registered SDR also to register with the 
Commission as a SIP on Form SDR. Previously, in the Regulation SBSR 
Proposing Release, the Commission had proposed the use of a separate 
form, Form SIP. Based on the use of that form, the Commission stated in 
the Regulation SBSR Proposing Release that Rule 909 contained 
``collection of information requirements'' within the meaning of the 
PRA and thus, the Commission preliminarily estimated certain burdens on 
registered SDRs that would result from Rule 909.\1168\ As a result of 
the consolidation of SDR and SIP registration on a single form, the 
Commission now believes that Rule 909 does not constitute a separate 
``collection of information'' within the meaning of the PRA.\1169\
---------------------------------------------------------------------------

    \1168\ See Regulation SBSR Proposing Release, 75 FR 75261.
    \1169\ See SDR Adopting Release, Section VI(A)(1)(c).
---------------------------------------------------------------------------

XXII. Economic Analysis

    The Commission is sensitive to the economic consequences and 
effects, including costs and benefits, of its rules. Some of these 
costs and benefits stem from statutory mandates, while others are 
affected by the discretion exercised in implementing the mandates. The 
following economic analysis identifies and considers the costs and 
benefits--including the effects on efficiency, competition, and capital 
formation--that may result from the rules, as adopted . These costs and 
benefits are discussed below and have informed the policy choices 
described throughout this release.
    The Dodd-Frank Act amended the Exchange Act to require the 
regulatory reporting and public dissemination of all security-based 
swaps. To implement these requirements, Regulation SBSR requires that 
all security-based swaps to be reported to a registered SDR, and 
requires the registered SDR immediately to disseminate a subset of that 
information to the public. Regulation SBSR specifies the security-based 
swap information that must be reported, who has the duty to report, and 
the timeframes for reporting and disseminating information. Regulation 
SBSR also requires registered SDRs to establish policies and procedures 
governing the reporting and dissemination process, including procedures 
for utilizing unique identification codes for legal entities, units of 
legal entities (such as branches, trading desks, and individual 
traders), products, and transactions. In the Regulation SBSR Proposing 
Release, the Commission highlighted certain overarching benefits to the 
security-based swap markets that it preliminarily believed would result 
from the adoption of Regulation SBSR. These potential

[[Page 14688]]

benefits include, generally, improved market quality, improved risk 
management, greater efficiency, and improved Commission 
oversight.\1170\
---------------------------------------------------------------------------

    \1170\ See Regulation SBSR Proposing Release, 75 FR 75261-62.
---------------------------------------------------------------------------

    In the Cross-Border Proposing Release, the Commission re-proposed 
Regulation SBSR in its entirety and considered the changes to the 
initial assessments of costs and benefits associated with the re-
proposed rules. In doing so, the Commission explained that Regulation 
SBSR is intended to further the goals highlighted in the Regulation 
SBSR Proposing Release, while further limiting, to the extent 
practicable, the overall costs to the security-based swap market 
associated with regulatory reporting and public dissemination in cross-
border situations.\1171\ The adopted rules are designed to limit 
overall costs by imposing reporting duties and the associated costs on 
those parties who are most likely to have the necessary infrastructure 
in place to carry out the reporting function.\1172\ As the Commission 
noted, many of the revisions set forth in the re-proposal were 
suggested by commenters to the initial proposal and were designed, 
among other things, to better align reporting duties with larger 
entities that have greater resources and capability to report and to 
reduce the potential for duplicative reporting. The Commission stated 
that the revisions should help to limit, to the extent practicable, the 
overall costs to the security-based swap market associated with 
reporting in cross-border situations.\1173\
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    \1171\ See Cross-Border Proposing Release, 78 FR 31196-97.
    \1172\ While certain parties that generally will have the 
heaviest duties to report transactions (e.g., registered security-
based swap dealers and registered major security-based swap 
participants) will incur costs, the costs of those parties generally 
will be lower than they would be for other parties (e.g., non-
dealers) because those parties may already have the necessary 
infrastructure in place to report transactions and they will benefit 
from economies of scale due to the high volume of transactions that 
flows through them compared to other parties. Although security-
based swap dealers and major security-based swap participants might 
pass on these costs, at least in part, to their non-reporting 
counterparties, the costs that are passed on to non-reporting 
parties are likely to be lower than the costs that the non-reporting 
parties would face if they had direct responsibility to report these 
transactions.
    \1173\ See Cross-Border Proposing Release, 78 FR 31192.
---------------------------------------------------------------------------

    The Commission is now adopting Regulation SBSR, with certain 
revisions discussed in Sections I through XVII, supra.
    In assessing the economic impact of the rules, the Commission 
refers to the broader costs and benefits associated with the 
application of the adopted rules 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 
infrastructure participants (such as SDRs) in the security-based swap 
market. In several places the Commission also considers how the 
programmatic costs and benefits might change when comparing the adopted 
approach to other alternatives suggested by comment letters. The 
Commission's analysis also considers ``assessment'' costs--those that 
arise from current and future market participants expending resources 
to determine whether they are subject to Regulation SBSR, and could 
incur expenses in making this determination even if they ultimately are 
not subject to rules for which they made an assessment.
    The Commission's analysis also recognizes that certain market 
participants are subject to Regulation SBSR while potentially also 
being subject to requirements imposed by other regulators. Concurrent, 
and potentially duplicative or conflicting, regulatory requirements 
could be imposed on persons because of their resident or domicile 
status or because of the place their security-based swap transactions 
are conducted. Rule 908(c) establishes a mechanism whereby market 
participants who would be subject to both Regulation SBSR and a foreign 
regulatory regime could, subject to certain conditions, ``substitute 
compliance'' with the foreign regulatory regime for compliance with 
Regulation SBSR.

A. Broad Economic Considerations

    Among the primary economic considerations for promulgating the 
rules on the regulatory reporting and public dissemination of security-
based swap information are the risks to financial stability posed by 
security-based swap activity and exposures and the effect that the 
level of transparency in the security-based swap market may have on 
market participants' ability to efficiently execute trades. For 
example, on one hand, an increased level of transparency may make 
trading more efficient since market participants have additional 
information on which to base their trading decisions. On the other 
hand, if post-trade transparency makes hedging of large trades or 
trades in illiquid securities more difficult, it may make execution of 
these trades less efficient.\1174\
---------------------------------------------------------------------------

    \1174\ See Analysis of Post-Trade Transparency, in which 
Commission staff describes the effects of post-trade transparency on 
relatively illiquid swaps.
---------------------------------------------------------------------------

    As the Commission has noted previously,\1175\ the security-based 
swap market allows participants opportunities for efficient risk 
sharing. By transacting in security-based swaps, firms can lay off 
financial and commercial risks that they are unwilling to bear to 
counterparties who may be better-equipped to bear them. Risk transfer 
is accomplished through contractual obligations to exchange cash flows 
with different risk characteristics. These opportunities for risk 
sharing, however, also represent opportunities for risk transmission 
through a variety of channels. For instance, a credit event that 
triggers a large payout to one counterparty by a seller of credit 
protection, may render that protection seller unable to meet other 
payment obligations, placing its other counterparties under financial 
strain. In addition to the risk of sequential counterparty default, 
security-based swap relationships can transmit risks across asset 
classes and jurisdictional boundaries through liquidity and asset price 
channels.
---------------------------------------------------------------------------

    \1175\ See Cross-Border Adopting Release, 79 FR 47283-85.
---------------------------------------------------------------------------

    Unlike most other securities transactions, security-based swaps 
entail ongoing financial obligations between counterparties during the 
life of a transaction that could span several years. As a result of 
these ongoing obligations, market participants are exposed not only to 
the market risk of assets that underlie a security-based swap contract, 
but also to the credit risk of their counterparties until the 
transaction is terminated. These exposures create a web of financial 
relationships in which the failure of a single large firm active in the 
security-based swap market can have consequences beyond the firm 
itself. A default by such a firm, or even the perceived lack of 
creditworthiness of that firm, could produce contagion through 
sequential counterparty default or reductions in liquidity, willingness 
to extend credit, and valuations for financial instruments.\1176\
---------------------------------------------------------------------------

    \1176\ See, e.g., Markus K. Brunnermeier and Lasse Heje 
Pedersen, ``Market Liquidity and Funding Liquidity,'' Review of 
Financial Studies (2009); Denis Gromb and Dimitri Vayanos, ``A Model 
of Financial Market Liquidity,'' Journal of the European Economic 
Association (2010).
---------------------------------------------------------------------------

    Currently, the security-based swap market is an OTC market without 
standardized reporting or public

[[Page 14689]]

dissemination requirements.\1177\ Market participants observe only the 
details of transactions for which they are a counterparty, and there is 
no comprehensive and widely available source of information about 
transactions after they occur (post-trade transparency). As a result, 
the ability of a market participant to evaluate a potential transaction 
depends on its own transaction history and indicative (non-binding) 
quotes that it may obtain through fee-based services, and OTC market 
participants with the largest order flow have an informational 
advantage over other market participants. The value of private 
information to large dealers may, in part, explain why security-based 
swap market participants do not have sufficient incentive to 
voluntarily implement post-trade transparency.\1178\ Additionally, 
unless all market participants are subject to reporting rules, market 
participants who may prefer a more transparent market structure may not 
believe that the benefits of disseminating data about their own limited 
order flow justifies the costs associated with building and paying for 
the necessary infrastructure to support public dissemination of 
transaction information.
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    \1177\ There is voluntary reporting as well as voluntary 
clearing, as discussed in Section XXII(B). However, transaction 
level information is not made public through these channels. Only 
limited information (e.g., trading volume and notional outstanding) 
is available publicly on an aggregate basis, and often with a delay.
    \1178\ Throughout Section XXII, the term ``dealers'' refers to 
security-based swap market participant that engage in dealing 
activities while the term ``registered dealers'' are those required 
to register with the Commission. See Intermediary Definitions 
Adopting Release, 77 FR 30596; Cross-Border Adopting Release, 79 FR 
47277.
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    The discussion below presents an overview of the OTC derivatives 
markets, a consideration of the general costs and benefits of the 
regulatory reporting and public dissemination requirements, and a 
discussion of the costs and benefits of each rule within Regulation 
SBSR. The economic analysis concludes with a discussion of the 
potential effects of Regulation SBSR, as adopted, on efficiency, 
competition, and capital formation.

B. Baseline

    To assess the economic impact of the final rules described in this 
release, the Commission is using as a baseline the security-based swap 
market as it exists at the time of this release, including applicable 
rules adopted by the Commission but excluding rules that have been 
proposed but not yet finalized. The analysis includes the statutory and 
regulatory provisions that currently govern the security-based swap 
market pursuant to the Dodd-Frank Act. The Commission also has 
considered, where appropriate, the impacts on market practice of other 
regulatory regimes.
1. Current Security-Based Swap Market
    The Commission's analysis of the state of the current security-
based swap market is based on data obtained from DTCC-TIW, particularly 
data regarding the activity of market participants in the single-name 
credit default swap (CDS) market during the period from 2008 to 2013. 
Some of the Commission staff's analysis regarding the impact of CFTC 
trade reporting rules entails the use of open positions and transaction 
activity data for index credit default swap (index CDS) and single-name 
CDS during the period from July 1, 2011 to June 30, 2013, obtained from 
the DTCC-TIW and through the DTCC public Web site of weekly stock and 
volume reports.\1179\ The data for index CDS encompasses CDS on both 
broad-based security indices and narrow-based security indices, and 
``security-based swap'' in relevant part encompasses swaps based on 
single securities or on narrow-based security indices.\1180\
---------------------------------------------------------------------------

    \1179\ The DTCC public Web site can be found at http://www.dtcc.com/repository-otc-data.aspx, last visited September 22, 
2014. See also Analysis of Post-Trade Transparency.
    \1180\ See Section 3(a)(68) of the Exchange Act. See also 
Product Definitions Adopting Release, 77 FR 48208.
---------------------------------------------------------------------------

    While other trade 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 security-based swaps). As such, the Commission is 
unable to analyze security-based swaps other than those described 
above. However, the Commission believes that the single-name CDS data 
are representative of the market and therefore can directly inform the 
analysis of the state of the current security-based swap market.\1181\
---------------------------------------------------------------------------

    \1181\ See Cross-Border Proposing Release, 78 FR 31120.
---------------------------------------------------------------------------

    The Commission believes that the data underlying its analysis 
provides reasonably comprehensive information regarding the single-name 
CDS transactions and composition of the single-name CDS market 
participants. The Commission notes that the data available from DTCC-
TIW do not encompass those CDS transactions that both: (1) Do not 
involve U.S. counterparties \1182\; and (2) are based on reference 
entities domiciled outside the United States (non-U.S. reference 
entities). Notwithstanding this limitation, the Commission believes 
that the DTCC-TIW data provide information that is sufficient for the 
purpose of identifying the types of market participants active in the 
security-based swap market and the general characteristics of 
transactions within that market.\1183\
---------------------------------------------------------------------------

    \1182\ The Commission notes that DTCC-TIW's entity domicile 
determinations may not reflect the definition of ``U.S. person'' in 
Rule 900(ss).
    \1183\ Commission staff estimates, using data from 2013, that 
the transaction data include 77% of all single-name CDS transactions 
reported to DTCC-TIW.
---------------------------------------------------------------------------

a. Security-Based Swap Market Participants
    The available data supports the characterization of the security-
based swap market as one that relies on intermediation by a small 
number of entities that engage in dealing activities. In addition to 
this small number of dealing entities, thousands of other participants 
appear as counterparties to security-based swap contracts in the 
sample, and include, but are not limited to, investment companies, 
pension funds, private (hedge) funds, sovereign entities, and 
industrial companies. Most non-dealer users of security-based swaps do 
not directly engage in the trading of swaps with other non-dealers, but 
use dealers, banks, or investment advisers as intermediaries or agents 
to establish their positions. Based on an analysis of the 
counterparties to trades reported to the DTCC-TIW, there are 1,800 
entities that engaged directly in trading between November 2006 and 
December 2013.
    Table 1, below, highlights that close to three-quarters of these 
entities (DTCC-defined ``firms'' shown in DTCC-TIW, which are referred 
to here as ``transacting agents'') were identified as investment 
advisers, of which approximately 40% (about 30% of all transacting 
agents) were registered investment advisers under the Investment 
Advisers Act of 1940.\1184\ Although investment advisers comprise the 
vast majority of transacting agents, the transactions that they 
executed account for only 9.7% of all single-name CDS trading activity 
reported to the DTCC-TIW, measured by number of

[[Page 14690]]

transaction-sides.\1185\ The vast majority of transactions (84.1%) 
measured by number of transaction-sides were executed by ISDA-
recognized dealers.\1186\
---------------------------------------------------------------------------

    \1184\ See 15 U.S.C. 80b1-80b21. Transacting agents engage in 
the security-based swap market, without relying on an intermediary, 
on behalf of principals. For example, a university endowment may 
hold a position in a security-based swap that is built up by an 
investment adviser that transacts on the endowment's behalf. In this 
case, the university endowment is a principal that uses the 
investment adviser as a transacting agent.
    \1185\ Each transaction has two transaction sides, i.e., two 
transaction counterparties.
    \1186\ The 1,800 entities included all DTCC-defined ``firms'' 
shown in DTCC-TIW as transaction counterparties that report at least 
one transaction to DTCC-TIW as of December 2013. The staff in the 
Division of Economic and Risk Analysis classified these firms, which 
are shown as transaction counterparties, by machine matching names 
to known third-party databases and by manual classification. This is 
consistent with the methodology used in the re-proposal. See Cross-
Border Proposing Release, 78 FR 31120 note 1304. Manual 
classification was based in part on searches of the EDGAR and 
Bloomberg databases, the Commission's Investment Adviser Public 
Disclosure database, and a firm's public Web site or the public Web 
site of the account represented by a firm. The staff also referred 
to ISDA protocol adherence letters available on the ISDA Web site.

 Table 1--The Number of Transacting Agents 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
 \1187\......................
Other........................          115            6.4            1.0
                              ------------------------------------------
    Total....................        1,800          100            100
------------------------------------------------------------------------

    Principal  holders of CDS risk exposure are represented by 
``accounts'' in the DTCC-TIW.\1188\ The staff's analysis of these 
accounts in DTCC-TIW shows that the 1,800 transacting agents classified 
in Table 1 represent over 10,054 principal risk holders. Table 2, 
below, classifies these principal risk holders by their counterparty 
type and whether they are represented by a registered or unregistered 
investment adviser.\1189\ For instance, 256 banks in Table 1 allocated 
transactions across 369 accounts, of which 30 were represented by 
investment advisers. In the remaining 339 instances, banks traded for 
their own accounts. Meanwhile, 17 ISDA-recognized dealers in Table 1 
allocated transactions across 69 accounts.
---------------------------------------------------------------------------

    \1187\ For the purpose of this analysis, the ISDA-recognized 
dealers are those identified by ISDA as belonging to the G14 or G16 
dealer group during the period: 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, e.g., http://www.isda.org/c_and_a/pdf/ISDA-Operations-Survey-2010.pdf (last visited September 
22, 2014).
    \1188\ ``Accounts'' as defined in the DTCC-TIW context are not 
equivalent to ``accounts'' in the definition of ``U.S. person'' 
provided by Rule 3a71-3(a)(4)(i)(C) under the Exchange Act. 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.
    \1189\ Unregistered investment advisers include all investment 
advisers not registered under the Investment Advisers Act and may 
include investment advisers registered with a state or a foreign 
authority.
---------------------------------------------------------------------------

    Among the accounts, there are 1,086 special entities \1190\ and 636 
investment companies registered under the Investment Company Act.\1191\ 
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 that could not be classified 
appear to be private funds.\1192\
---------------------------------------------------------------------------

    \1190\ See Section 15F(h)(2)(C) of the Exchange Act, 15 U.S.C. 
78o-10(h)(2)(C) (defining ``special entity'' to include a federal 
agency; a state, state agency, city, county, municipality, or other 
political subdivision of a state; any employee benefit plan; any 
governmental plan; or any endowment).
    \1191\ There remain over 4,000 DTCC ``accounts'' unclassified by 
type. Although unclassified, each was manually reviewed to verify 
that it was not likely to be a special entity and instead was likely 
to be an entity such as a corporation, an insurance company, or a 
bank.
    \1192\ Private funds for the purpose of this analysis encompass 
various unregistered pooled investment vehicles, including hedge 
funds, private equity funds, and venture capital funds.

[[Page 14691]]



    Table 2--The Number and Percentage of Account Holders--by Type--Who Participate in the Security-Based Swap 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
                                                                              registered investment
                                                                                     adviser
                                                                   Represented by an
                                                                unregistered investment
                                                                        adviser
                                                                    Participant is
                                                               transacting agent \1193\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Private Funds................................................        2,914        1,395          48%        1,496          51%           23           1%
DFA 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        3,130          68%        1,294          28%          200           4%
                                                              ------------------------------------------------------------------------------------------
    All......................................................       10,054        6,453          64%        2,847          28%          752           7%
--------------------------------------------------------------------------------------------------------------------------------------------------------

i. Participant Domiciles
    The security-based swap market is global in scope, with 
counterparties located across multiple jurisdictions. A U.S.-based 
holding company may conduct dealing activity through a foreign 
subsidiary that faces both U.S. and foreign counterparties, and the 
foreign subsidiary may be guaranteed by its parent, making the parent 
responsible for performance under these security-based swaps.
---------------------------------------------------------------------------

    \1193\ This column reflects the number of participants who are 
also trading for their own accounts.

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

[[Page 14692]]

[GRAPHIC] [TIFF OMITTED] TR19MR15.003

    As depicted in Figure 1, over time a greater share of accounts 
entering the market 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 while 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 stimuli. There are, 
however, alternative explanations for the shifts in new account 
domicile that can be observed in Figure 1. Changes in the domicile of 
new accounts through time may reflect improvements in reporting by 
market participants to DTCC-TIW.\1195\ Additionally, because the data 
include only accounts that are domiciled in the United States, transact 
with U.S.-domiciled counterparties, or transact in single-name CDS 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.
---------------------------------------------------------------------------

    \1194\ Following publication of the Warehouse Trust Guidance on 
CDS data access, DTCC-TIW surveyed market participants, asking for 
the physical address associated with each of their accounts (i.e., 
where the account is organized as a legal entity). This is 
designated the registered office location by the DTCC-TIW. When an 
account does not report a registered office location, the Commission 
has assumed that the settlement country reported by the investment 
adviser or parent entity to the fund or account is the place of 
domicile. This treatment assumes that the registered office location 
reflects the place of domicile for the fund or account.
    \1195\ See supra note 3.
---------------------------------------------------------------------------

ii. Current Estimates of Dealers and Major Participants
    In its economic analysis of rules defining ``security-based swap 
dealer'' and ``major security-based swap participant,'' the Commission 
noted, using DTCC-TIW data for the year ending in December 2012, that 
it expected 202 entities to engage in dealer de minimis analysis.\1196\ 
Further, the Commission's analysis of single-name CDS transactions data 
suggested that only a subset of these entities engage in dealing 
activity and estimated 50 registered dealers as an upper bound based on 
the threshold for the de minimis exception adopted in that 
release.\1197\ The Commission also undertook an analysis of the number 
of security-based swap market participants likely to register as major 
security-based swap participants, and estimated a range of between zero 
and five such participants.\1198\ Based on data for the

[[Page 14693]]

year ending in December 2013, the Commission continues to believe that 
50 represents an upper bound on the number of dealers expected to 
register and between zero and five major participants will register. As 
a result of further experience with the DTCC-TIW data, the Commission 
now estimates, based on data for the year ending in December 2013, that 
the number of participants likely to engage in dealer de minimis 
analysis is approximately 170. Forty-eight of these participants are 
domiciled outside of the United States and have $2 billion in 
transactions with U.S. counterparties or that otherwise may have to be 
counted for purposes of the de minimis analysis.
---------------------------------------------------------------------------

    \1196\ See Cross-Border Adopting Release, 79 FR 47331.
    \1197\ Id. at 47296, note 150 (describing the methodology 
employed by the Commission to estimate the number of potential 
security-based swap dealers).
    \1198\ Id. at 47297, note 153 (describing the methodology 
employed by the Commission to estimate the number of potential major 
security-based swap participants).
---------------------------------------------------------------------------

iii. Security-Based Swap Data Repositories
    There are currently no SDRs registered with the Commission. 
However, the CFTC has provisionally registered four swap data 
repositories to accept credit derivatives. The Commission believes that 
these entities may register with the Commission as SDRs. Because most 
participants in the security-based swap market also participate in the 
swap market,\1199\ other persons might, in the future, seek to register 
with both the CFTC and the Commission as SDRs. In addition, once a swap 
data repository has established infrastructure sufficient to allow it 
to register with the CFTC, the costs for it to also register with the 
Commission as an SDR and adapt its business for security-based swap 
activity will likely be low relative to the costs for a wholly new 
entrant.
---------------------------------------------------------------------------

    \1199\ See infra Section XXII(B)(3).
---------------------------------------------------------------------------

b. Security-Based Swap Transaction Activity
    Single-name CDS contracts make up the vast majority of security-
based swap products and most are written on corporate issuers, 
corporate debt securities, sovereign countries, or sovereign debt 
securities (reference entities and reference securities). Figure 2, 
below, describes the percentage of global, notional transaction volume 
in U.S. single-name CDS reported to the DTCC-TIW between January 2008 
and December 2013, separated by whether transactions are between two 
ISDA-recognized dealers (interdealer transactions) or whether a 
transaction has at least one non-dealer counterparty.
    The level of trading activity with respect to U.S. single-name CDS 
in terms of notional volume has declined from more than $6 trillion in 
2008 to less than $3 trillion in 2013.\1200\ While notional volume has 
declined over the past six years, the share of interdealer transactions 
has remained fairly constant and interdealer transactions continue to 
represent the bulk of trading activity, whether measured in terms of 
notional value or number of transactions (see Figure 2).
---------------------------------------------------------------------------

    \1200\ The start of this decline predates the enactment of the 
Dodd-Frank Act and the proposal of rules thereunder. For the purpose 
of establishing an economic baseline, this seems to indicate that 
CDS market demand shrank prior to the enactment of the Dodd-Frank 
Act, and therefore the causes of trading volume declines may be 
independent of those related to the development of security-based 
swap market regulation. If the security-based swap market 
experiences further declines in trading activity, it would be 
difficult to identify the effects of the newly-developed security-
based swap market regulation apart from changes in trading activity 
that may be due to natural market forces or the anticipation of (or 
reaction to) proposed (or adopted) Title VII requirements. These 
estimates differ from previous estimates as a result of staff 
experience with transaction-level data provided by DTCC-TIW. First, 
the aggregate level of transaction activity presented in Figure 2 
more accurately reflects the notional amounts associated with 
partial assignments and terminations of existing security-based swap 
contracts. Second, the treatment of assignments in Figure 2 includes 
the counterparty type (dealer or non-dealer) of counterparties 
vacating trades in assignments as well as those entering.
---------------------------------------------------------------------------

    The high level of interdealer trading activity reflects the central 
position of a small number of dealers who each intermediate trades 
among many hundreds of counterparties. While the Commission is unable 
to quantify the current level of trading costs for single-name CDS, it 
appears that the market power enjoyed by dealers as a result of their 
small number and the large proportion of order flow they privately 
observe is a key determinant of trading costs in this market.

[[Page 14694]]

[GRAPHIC] [TIFF OMITTED] TR19MR15.004

    Against this backdrop of declining North American corporate single-
name CDS activity, about half of the trading activity in North American 
corporate single-name CDS reflected in the set of data that the 
Commission analyzed was between counterparties domiciled in the United 
States and counterparties domiciled abroad. Basing counterparty 
domicile on the self-reported registered office location of the DTCC-
TIW accounts, the Commission estimates that only 13% of the global 
transaction volume by notional volume between 2008 and 2013 was between 
two U.S.-domiciled counterparties, compared to 48% entered into between 
one U.S.-domiciled counterparty and a foreign-domiciled counterparty 
and 39% entered into between two foreign-domiciled counterparties (see 
Figure 3).\1201\
---------------------------------------------------------------------------

    \1201\ See supra notes 788 and 1183.
---------------------------------------------------------------------------

    When the domicile of DTCC-TIW accounts are instead defined 
according to the domicile of their ultimate parents, headquarters, or 
home offices (e.g., classifying a foreign branch or foreign subsidiary 
of a U.S. entity as domiciled in the United States), the fraction of 
transactions entered into between two U.S.-domiciled counterparties 
increases to 29%, and to 53% for transactions entered into between a 
U.S.-domiciled counterparty and a foreign-domiciled counterparty.
    Differences in classifications across different definitions of 
domicile illustrate the effect of participant structures that operate 
across jurisdictions. Notably, the proportion of activity between two 
foreign-domiciled counterparties drops from 39% to 18% when domicile is 
defined as the ultimate parent's domicile. As noted earlier, foreign 
subsidiaries of U.S. persons, foreign branches of U.S. persons, and 
U.S. subsidiaries of foreign persons, and U.S. branches of foreign 
persons may transact with U.S. and foreign counterparties. However, 
this decrease in share suggests that the activity of foreign 
subsidiaries of U.S. persons and foreign branches of U.S. persons is 
generally higher than the activity of U.S. subsidiaries of foreign 
persons and U.S. branches of foreign persons.
    By either of those definitions of domicile, the data indicate that 
a large fraction of North American corporate single-name CDS 
transaction volume is entered into between counterparties domiciled in 
two different jurisdictions or between counterparties domiciled outside 
the United States. For the purpose of establishing an economic 
baseline, this observation indicates that a large fraction of security-
based swap activity would be affected by the scope of any cross-border 
approach we take in applying the Title VII requirements. Further, the 
large fraction of North American corporate single-name CDS transactions 
between U.S.-domiciled and foreign-domiciled counterparties also 
highlights the extent to which security-based swap activity transfers 
risk across geographical boundaries, both facilitating risk sharing 
among market participants and allowing for risk transmission between 
jurisdictions.

[[Page 14695]]

[GRAPHIC] [TIFF OMITTED] TR19MR15.005


[[Page 14696]]


[GRAPHIC] [TIFF OMITTED] TR19MR15.006

    Figures 4 and 5 present the frequency distribution of trades by 
size for two subsamples of transactions observed in 2013. A salient 
feature of the trade size distribution is that trades tend to be 
clustered at ``round'' numbers: $1 million, $5 million, $10 million, 
etc. While large and very large trades do occur, less than 1% of the 
transactions in our sample were for notional amounts greater than $100 
million.
---------------------------------------------------------------------------

    \1202\ The left-most bar, labeled ``0'', represents the number 
of trades with notional values greater than $0 and less than $1 
million, while the next bar represents the number of trades with 
notional values greater than or equal to $1 million and less than $2 
million, and so on. The right-most bar, labeled ``30'', represents 
the number of trades with notional values of exactly $30 million.

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

[[Page 14697]]

[GRAPHIC] [TIFF OMITTED] TR19MR15.007

c. Counterparty Reporting
    While there is no mandatory reporting requirement for the single-
name CDS market yet, virtually all market participants voluntarily 
report their trades to DTCC-TIW, in some cases with the assistance of 
post-trade processors, which maintains a legal record of 
transactions.\1204\ Among other things, this centralized record-keeping 
facilitates settlement of obligations between counterparties when a 
default event occurs as well as bulk transfers of positions between 
accounts at a single firm or between firms. In addition, while there is 
not yet a mandatory clearing requirement in the single-name CDS market, 
market participants may choose to clear transactions voluntarily. 
However, neither voluntary reporting nor voluntary clearing results in 
data that are available to the public on a trade-by-trade basis.
---------------------------------------------------------------------------

    \1203\ The left-most bar, labeled ``30'', represents the number 
of trades with notional values greater than $30 and less than $50 
million, while the next bar represents the number of trades with 
notional values greater than or equal to $50 million and less than 
$70 million, and so on. The right-most bar, labeled ``710'', 
represents the number of trades with notional value greater than 
$710 million.
    \1204\ See ``ISDA CDS Marketplace: Exposures and Activity'' 
(available at http://www.isdacdsmarketplace.com/exposures_and_activity (last visited September 22, 2014).
---------------------------------------------------------------------------

    In the Regulation SBSR Proposing Release, the Commission 
preliminarily estimated that there would be 1,000 reporting parties 
\1205\ and 15.5 million reportable events per year.\1206\ In the Cross-
Border Proposing Release, the Commission revised its estimate of the 
number of reporting sides from 1,000 to 300 and revised its estimate of 
the number of reportable events from 15.5 million to approximately 5 
million.\1207\ These revised estimates were a result of the Commission 
obtaining additional and more granular data regarding participation in 
the security-based swap market from DTCC-TIW. As discussed above, since 
issuing the Cross-Border Proposing Release, the Commission has obtained 
additional and even more granular data regarding participation in the 
security-based swap market from DTCC-TIW. As a result, the Commission 
is now further revising its estimate of the number of reportable 
events. Accordingly, the Commission now estimates that 300 reporting 
sides will be required to report an aggregate total of approximately 3 
million reportable events per year under Rule 901, as adopted.\1208\
---------------------------------------------------------------------------

    \1205\ See 75 FR 75247.
    \1206\ See id. at 75248.
    \1207\ See 78 FR 31114.
    \1208\ See supra note 1070.

            Table 3--Trade Reports by Transaction Type, 2013
------------------------------------------------------------------------
                                                               Count
------------------------------------------------------------------------
Interdealer.............................................       1,231,796
Dealer--Non-Dealer......................................         482,860
Clearinghouse...........................................         546,041
                                                         ---------------
    Total...............................................       2,260,577
------------------------------------------------------------------------


[[Page 14698]]

d. Sources of Security-Based Swap Information
    There currently is no robust, widely accessible source of 
information about individual security-based swap transactions. 
Nevertheless, market participants can gather certain limited 
information for the single-name CDS \1209\ market from a variety of 
sources. First, indicative quotes can be obtained through market data 
vendors such as Bloomberg or Markit. These quotes typically do not 
represent firm commitments to buy or sell protection on particular 
reference entities. Since there is no commitment to buy or sell 
associated with indicative quotes, there are fewer incentives for 
market participants that post indicative quotes to quote prices that 
accurately reflect the fundamental value of the asset to be traded. 
However, market participants can glean information from indicative 
quotes that may inform their trading.
---------------------------------------------------------------------------

    \1209\ Regulation SBSR would also cover equity swaps (other than 
broad-based equity index swaps). However, the Commission has access 
to limited information concerning the equity swap market. As a 
result, the Commission's analysis is largely focused on the single-
name CDS market, for which the Commission has information.
---------------------------------------------------------------------------

    Second, there is limited, publicly-disseminated information about 
security-based swap market activity presented at an aggregate level. As 
mentioned above, market participants sometimes voluntarily clear their 
transactions, e.g., through ICE Clear Credit.\1210\ To support their 
risk management activities, clearing agencies compute and disseminate 
information such as end-of-day prices and aggregated volume to their 
clearing members. ICE Clear Credit also provides aggregated volume 
data.\1211\ Additionally, some large multilateral organizations 
periodically report measures of market activity. For example, the Bank 
for International Settlements (``BIS'') reports gross notional 
outstanding for single-name CDS and equity forwards and swaps 
semiannually.\1212\
---------------------------------------------------------------------------

    \1210\ Based on the transaction data from the DTCC-TIW, 
Commission staff has estimated that, during the three-year period 
from January 2011 until December 2013, approximately 21% of all 
transactions in CDS with North American single-name corporate 
reference entities and approximately 21% of all transactions in CDS 
with European single-name corporate reference entities were cleared.
    \1211\ Available at https://www.theice.com/marketdata/reports/98 
(last visited October 20, 2014).
    \1212\ Available at http://www.bis.org/statistics/derstats.htm 
(last visited October 20, 2014).
---------------------------------------------------------------------------

    Finally, market intermediaries may draw inferences about security-
based swap market activity from observing their customers' order flow 
or through inquiries made by other market participants who seek 
liquidity. This source of information is most useful for market 
participants with a large market share. As noted above, the ability to 
observe a larger amount of order flow allows for more precise estimates 
of demand.
    The paucity of publicly-available security-based swap data suggests 
a number of frictions that likely characterize the current state of 
efficiency, competition, and capital formation in the security-based 
swap market. As noted in Section XXII(A), without public dissemination 
of transaction information, security-based swap market participants 
with the largest order flow have an informational advantage over 
smaller competitors and counterparties. Moreover, as suggested by Table 
1, there is a great deal of heterogeneity in the level of order flow 
observed by market participants, with a small group of large dealers 
participating in most transactions. These large market participants can 
use this advantage to consolidate their own market power by 
strategically filling orders when it is to their advantage and leaving 
less profitable trades to competitors.
    Asymmetric information and dealer market power can result in 
financial market inefficiencies. With only a small number of liquidity 
suppliers competing for order flow, bid-ask spreads in the market may 
be wider than they would be under perfect competition between a larger 
number of liquidity suppliers. If this is the case, then it is possible 
that certain non-dealers who might otherwise benefit from risk-sharing 
afforded by security-based swap positions may avoid participating in 
the market because it is too costly for them to do so. For instance, if 
wide bid-ask spreads in the CDS market reduced the level of credit risk 
hedging by market participants, the result could be an inefficient 
allocation of credit risk in the economy as a whole. Additionally, 
financial market participants may avoid risk-sharing opportunities in 
the security-based swap market if they determine that lack of oversight 
by relevant authorities leaves the market prone to disruption. For 
example, if the threat of sequential counterparty default reduces 
security-based swap dealers' liquidity, then market participants may 
reduce their participation if they perceive a high risk that they will 
be unable to receive the contractual cash flows associated with their 
security-based swap positions. These sources of inefficiency can 
adversely affect capital formation if an inability for lenders and 
investors to efficiently hedge their economic exposures diminishes 
their willingness to fund certain borrowers and issuers with risky but 
profitable investing opportunities.
    Lack of publicly-available transaction information could affect 
capital formation in other ways. Information about security-based swap 
transactions can be used as input into valuation models. For example, 
the price of a single-name CDS contract can be used to produce 
estimates of default risk for a particular firm and these estimates 
can, in turn, be used by managers and investors to value the firm's 
projects. In the absence of last-sale information in the CDS market, 
market participants may build models of default risk using price data 
from other markets. They may, for instance, look to the firm's bond and 
equity prices, the prices of swaps that may have similar default risk 
exposure, or to the prices of comparable assets more generally.
2. Global Regulatory Efforts
a. Dealer and Major Swap Participant Definitions for Cross-Border 
Security-Based Swaps
    The Commission adopted final rules governing the application of the 
``security-based swap dealer'' and ``major security-based swap 
participant'' definitions with respect to cross-border security-based 
swap activity and exposures.\1213\ The final rules generally require, 
among other things, that non-U.S. persons assess whether their dealing 
activities with and exposures against U.S. persons or with recourse 
guarantees against U.S. persons rise above de minimis levels.\1214\ In 
the Cross-Border Adopting Release, the Commission discussed the costs 
that non-U.S. persons would incur in order to perform this assessment 
and the likely number of participants whose activity and exposures 
would likely be large enough to make such an assessment prudent.\1215\ 
These costs included amounts related to collecting, analyzing, and 
monitoring representations about the U.S.-person status of 
counterparties, and whether particular transactions had recourse 
guarantees against U.S. persons.\1216\
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    \1213\ See Cross-Border Adopting Release, 79 FR 47278.
    \1214\ See id. at 47301.
    \1215\ See id. at 47315.
    \1216\ See id. at 47332.
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b. International Regulatory Developments
    International efforts to coordinate the regulation of the OTC 
derivatives markets are underway, and suggest that many foreign 
participants will face

[[Page 14699]]

substantive regulation of their security-based swap activities that 
resemble rules the Commission is implementing. In 2009, leaders of the 
Group of 20 (``G20'')--whose membership includes the United States, the 
European Union, and 18 other countries--called for global improvements 
in the functioning, transparency, and regulatory oversight of OTC 
derivatives markets.\1217\ In subsequent summits, the G20 leaders have 
reiterated their commitment to OTC derivatives regulatory reform and 
encouraged international consultation in developing standards for these 
markets.\1218\ The FSB is a forum for international coordination of OTC 
derivatives reform and provides progress reports to the G20.\1219\
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    \1217\ See G20 Meeting, Pittsburgh, United States, September 
2009, available at: http://www.treasury.gov/resource-center/international/g7-g20/Documents/pittsburgh_summit_leaders_statement_250909.pdf (last visited 
September 22, 2014).
    \1218\ See, e.g., G20 Meeting, St. Petersburg, Russia, September 
2013, para. 71, available at https://www.g20.org/sites/default/files/g20_resources/library/Saint_Petersburg_Declaration_ENG_0.pdf 
(last visited September 22, 2014); G20 Meeting, Cannes, France, 
November 2011, available at https://www.g20.org/sites/default/files/g20_resources/library/Declaration_eng_Cannes.pdf (last visited 
September 22, 2014).
    \1219\ The FSB has published seven progress reports on OTC 
derivatives markets reform implementation that are available at 
http://www.financialstabilityboard.org/list/fsb_publications/index.htm.
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    Jurisdictions with major OTC derivatives markets have taken steps 
toward substantive regulation of these markets, though the pace of 
regulation varies. Rulemaking and legislation has focused on four 
general areas: Post-trade reporting and public dissemination of 
transaction data, moving OTC derivatives onto centralized trading 
platforms, clearing of OTC derivatives, and margin requirements for OTC 
derivatives transactions.
    Transaction reporting requirements have entered into force in 
Europe, Australia, Singapore, and Japan, with other jurisdictions in 
the process of proposing legislation and rules to implement these 
requirements. For example, in Canada, Ontario, Quebec, and Manitoba 
have transaction reporting requirements in force, while other provinces 
have proposed rules in that area. The European Union is currently 
considering updated rules for markets in financial instruments that 
will address derivatives market transparency and trading derivatives on 
regulated trading platforms.
3. Cross-Market Participation
    A single-name CDS contract covers default events for a single 
reference entity or reference security. These entities and securities 
are often part of broad-based indices on which market participants 
write index CDS. Index CDS contracts make payouts that are contingent 
on the default of one or more index components and allow participants 
to gain exposure to the credit risk of the basket of reference entities 
that comprise the index, which is a function of the credit risk of the 
index components. As a result of this construction, a default event for 
a reference entity that is an index component will result in payoffs on 
both single-name CDS written on the reference entity and index CDS 
written on indices that contain the reference entity. Because of this 
relationship between the payoffs of single-name and index CDS, prices 
of these products depend upon one another.
    Because payoffs associated with these single-name CDS and index CDS 
are dependent, hedging opportunities exist across these markets. 
Participants who sell protection on reference entities through a series 
of single-name CDS transactions can lay off some of the credit risk of 
their resulting positions by buying protection on an index that 
includes those reference entities. Entities that are active in one 
market are likely to be active in the other. Commission staff analysis 
of approximately 4,200 DTCC-TIW accounts that participated in the 
market for single-name CDS in 2013 revealed that approximately 2,200 of 
those accounts, or 52%, also participated in the market for index CDS. 
Of the accounts that participated in both markets, data regarding 
transactions in 2013 suggest that, conditional on an account 
transacting in notional volume of index CDS in the top third of 
accounts, the probability of the same account landing in the top third 
of accounts in terms of single-name CDS notional volume is 
approximately 62%; by contrast, the probability of the same account 
landing in the bottom third of accounts in terms of single-name CDS 
notional volume is only 15%.
    The CFTC's cross-border guidance and swap reporting rules have 
likely influenced the information that market participants collect and 
maintain about the swap transactions they enter into and the 
counterparties that they face.\1220\ Compliance with the CFTC's cross-
border guidance and swap reporting rules would require swap 
counterparties to collect and maintain data items required by the CFTC 
regulation if they had not done so before. To the extent that the same 
or similar information is needed to comply with Regulation SBSR, market 
participants can use infrastructure already in place as a result of 
CFTC regulation to comply with Regulation SBSR and the costs to these 
market participants would be reduced.
---------------------------------------------------------------------------

    \1220\ See ``Interpretive Guidance and Policy Statement 
Regarding Compliance With Certain Swap Regulations'' (July 17, 
2013), 78 FR 45292 (July 26, 2013) (``CFTC Cross-Border Guidance''). 
See also Sec. Indus. & Fin. Mkts. Ass'n v. CFTC, Civil Action No. 
13-1916 (PLF), slip op. at 89 (D.D.C. September 16, 2014).
---------------------------------------------------------------------------

    Commenters generally expressed concern about potential differences 
between CFTC rules and rules promulgated by the Commission.\1221\ In 
adopting Regulation SBSR, the Commission has been cognizant of the 
parallel rules imposed by the CFTC and the costs that would be imposed 
on market participants that must comply with both agencies' rules.
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    \1221\ See, e.g., SIFMA/FIA/Roundtable Letter at 3.
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C. Programmatic Costs and Benefits of Regulation SBSR

    The Commission preliminarily identified certain benefits of 
Regulation SBSR in both the Regulation SBSR Proposing Release and the 
Cross-Border Proposing Release. After careful consideration of all the 
issues raised by commenters, the Commission continues to believe that 
Regulation SBSR will result in certain benefits. These include 
promoting price discovery and lowering trading costs by improving the 
level of information to all market participants and by providing a 
means for the Commission and relevant authorities to gain a better 
understanding of the trading behaviors of participants in the security-
based swap market and to identify large counterparty exposures.\1222\ 
Additionally, the Commission believes that Regulation SBSR will improve 
risk management by those market participants that choose to supplement 
their existing risk management programs with publicly disseminated 
data. Risk management relies on accurate pricing, and valuation models 
generally yield better estimates with last-sale information being 
available as input.
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    \1222\ See Sections XXII(B)(1)(b), XXII(C)(2), and 
XXII(D)(2)(b). See also Amy K. Edwards, Lawrence Harris, & Michael 
S. Piwowar, Corporate Bond Market Transparency and Transaction 
Costs, J. of Fin., Vol. 62, at 1421-1451 (2007). It should be noted 
that Michael Piwowar, one of the co-authors of the first article 
cited, is currently an SEC Commissioner, and Amy Edwards, another of 
that article's co-authors, currently serves as an Assistant Director 
in the Commission's Division of Economic and Risk Analysis.

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[[Page 14700]]

1. Regulatory Reporting
a. Programmatic Benefits
    Rule 901, as adopted, requires all security-based swaps that are 
covered transactions \1223\ to be reported to a registered SDR, 
establishes a ``reporting hierarchy'' that determines which side must 
report the transaction, and sets out the data elements that must be 
reported. The Commission believes that requiring regulatory reporting 
of covered transactions will yield a number of benefits. First, Rule 
901 will provide a means for the Commission and other relevant 
authorities to gain a better understanding of the security-based swap 
market,\1224\ including the size and scope of that market, as the 
Commission would have access to transaction data held by any registered 
SDR. The Commission and other relevant authorities can analyze the 
security-based swap market and potentially identify exposure to risks 
undertaken by individual market participants or at various levels of 
aggregation, as well as credit exposures that arise between 
counterparties. Additionally, regulatory reporting will help the 
Commission and other relevant authorities in the valuation of security-
based swaps. For example, an improved ability of relevant authorities 
to value security-based swap exposures may assist these authorities in 
assessing compliance with rules related to capital requirements by 
entities that maintain such exposures on their balance sheets. Taken 
together, regulatory data will enable the Commission and other relevant 
authorities to conduct robust monitoring of the security-based swap 
market for potential risks to financial markets and financial market 
participants.
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    \1223\ See supra notes 11-12 and accompanying text.
    \1224\ Such relevant authorities are enumerated in Section 
13(n)(5)(G) of the Exchange Act, 15 U.S.C. 78m(n)(5)(G). See supra 
note 64.
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    Second, data reported pursuant to Rule 901 should improve relevant 
authorities' ability to oversee the security-based swap market to 
detect, deter, and punish market abuse. The Commission and other 
relevant authorities will be able, for example, to observe trading 
activity at the level of both trading desk and individual trader, using 
trading desk IDs and trader IDs, respectively. While the Commission 
acknowledges commenters' concerns regarding the costs associated with 
establishing and maintaining UICs, it has considered these costs in 
light of its belief that aggregation of the information contained in 
registered SDRs using appropriate UICs--such as broker ID, trader ID, 
and trading desk ID--will facilitate the ability of the Commission and 
other relevant authorities to examine for noncompliance and pursue 
enforcement actions, as appropriate.\1225\
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    \1225\ See supra notes 160 and 162.
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    Rule 901 could result in benefits by encouraging the creation and 
widespread use of generally accepted standards for reference 
information by security-based swap market participants and 
infrastructure providers (such as SDRs and clearing agencies). For 
example, Rule 901(c)(1) requires the reporting of a product ID, for 
security-based swaps that can be categorized as belonging to a product 
group. The development and wider usage of product IDs could result in 
greater efficiencies for market participants, infrastructure providers, 
and regulators, as identifying information about security-based swap 
products can be conveyed with a single ID code in place of several, 
perhaps dozens, of separate data elements. The development and wider 
usage of UICs generally will provide market participants with a more 
reliable means of identifying to each other the same products, persons, 
units of persons, and transactions. The costs associated with 
misidentifying these aspects of a transaction include additional time 
and resources spent to reconcile differing data elements across 
transaction records. Misidentification could also result in the 
cancellation of a transaction if, for example, it reveals disagreement 
between counterparties about the economic attributes of the 
transaction, such as the reference obligation underlying a CDS 
contract.
    UICs also could lead to greater regulatory efficiencies, as the 
Commission and other relevant authorities would have greater ability to 
aggregate transactions along a number of different vectors. Relevant 
authorities will have greater ability to observe patterns and 
connections in trading activity, such as whether a trader had engaged 
in questionable trading activity across different security-based swap 
products. The reporting of this information will facilitate more 
effective oversight, enforcement, and surveillance of the security-
based swap market by the Commission and other relevant authorities. 
These identifiers also will facilitate aggregation and monitoring of 
the positions of security-based swap counterparties, which could be of 
significant benefit to the Commission and other relevant authorities.
    The time stamp and transaction ID requirements under Rules 901(f) 
and 901(g), respectively, should facilitate data management by the 
registered SDR, as well as market supervision and oversight by the 
Commission and other regulatory authorities. The transaction ID 
required by Rule 901(g) also will provide an important benefit by 
facilitating the linking of subsequent, related security-based swap 
transactions that may be submitted to a registered SDR (e.g., a 
transaction report regarding a security-based swap life cycle event, or 
report to correct an error in a previously submitted report). 
Counterparties, the registered SDR, the Commission, and other relevant 
authorities also will benefit by having the ability to track changes to 
a security-based swap over the life of the contract, as each change can 
be linked to the initially reported transaction using the transaction 
ID.
    By requiring reporting of pre-enactment and transitional security-
based swap transactions to the extent the information is available, 
Rule 901(i) will provide the Commission and other relevant authorities 
with insight as to outstanding notional size, number of transactions, 
and number and type of participants in the security-based swap market. 
To the extent pre-enactment and transitional security-based swap 
transaction information is available and reported, Rule 901(i) may 
contribute to the development of a well regulated market for security-
based swaps by providing a benchmark against which to assess the 
development of the security-based swap market over time. The data 
reported pursuant to Rule 901(i) also could help the Commission prepare 
the reports that it is required to provide to Congress. At the same 
time, Rule 901(i) limits the scope of the transactions, and the 
information pertaining to those transactions, that must be reported in 
a manner designed to minimize undue burdens on security-based swap 
counterparties. First, Rule 901(i) requires reporting only of those 
security-based swaps that were open as of the date of enactment (July 
21, 2010) or opened thereafter. As discussed in Section II(C)(2), 
supra, Rule 901(i) requires reporting of the information required by 
Rules 901(c) and 901(d) only to the extent such information is 
available. Finally, the duty to report historical security-based swaps 
in a particular asset class is triggered only when there exists a 
registered SDR that can accept security-based swaps in that asset 
class.

[[Page 14701]]

b. Programmatic Costs
i. Reporting Security-Based Swap Transactions to a Registered SDR--Rule 
901
    The security-based swap reporting requirements contained in Rule 
901 will impose initial and ongoing costs on reporting sides.\1226\ The 
Commission continues to believe that certain of these costs would be a 
function of the number of reportable events and the data elements 
required to be submitted for each reportable event. The Commission 
continues to believe that security-based swap market participants will 
face three categories of costs to comply with Rule 901. First, each 
reporting side will likely have to establish and maintain an internal 
OMS capable of capturing relevant security-based swap transaction 
information so that it could be reported. Second, each reporting side 
will have to implement a reporting mechanism. Third, each reporting 
side will have to establish an appropriate compliance program and 
support for operating any OMS and reporting mechanism.\1227\ Such 
systems and mechanisms would likely be necessary to report data within 
the timeframe set forth in Rule 901(j), as it is unlikely that manual 
processes could capture and report the numerous required data elements 
relating to a security-based swaps. Many market participants may 
already have OMSs in place to facilitate voluntary reporting of 
security-based swap transactions or clearing activity. As a result, any 
additional costs related to systems and infrastructure will be limited 
to those reporting sides that either invest in new systems or must 
upgrade existing systems to meet minimum requirements for reporting. To 
the extent that the cost estimates discussed below do not take this 
cost limiting fact into account, they are an upper bound for the 
estimated costs.
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    \1226\ Certain estimates used throughout this Section XXII 
(e.g., the number of impacted entities, the number of reportable 
events, and the hourly cost rates used for each job category) have 
been updated from those estimated in the Cross-Border Proposing 
Release to reflect the rule text of Regulation SBSR, as adopted, as 
well as additional information and data now available to the 
Commission.
    \1227\ See also Regulation SBSR Proposing Release, 75 FR 75264.
---------------------------------------------------------------------------

    Although the Commission initially estimated that there would be 
1,000 reporting sides,\1228\ in the Cross-Border Proposing Release the 
Commission revised that estimate to 300.\1229\ No comments were 
received on the number of entities that would be reporting sides under 
Regulation SBSR. The Commission notes that, since issuing the 
Regulation SBSR Proposing Release, the Commission has obtained 
additional and more granular data regarding its estimate of the number 
of reporting sides. These historical data suggest that, among these 300 
reporting sides, approximately 50 are likely to be required to register 
with the Commission as security-based swap dealers and up to five are 
likely to register as major security-based swap participants.\1230\ 
These data further suggest that these 55 potential registrants likely 
will account for the vast majority of recent security-based swap 
transactions and transaction reports that will need to be reported by 
reporting sides, and that there are only a limited number of security-
based swap transactions that do not include at least one of these 
potential registrants on either side.\1231\
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    \1228\ See id. at 75247.
    \1229\ See Cross-Border Proposing Release, 78 FR 31113.
    \1230\ See id. at 31103.
    \1231\ As a result, the Commission generally will use 300 as an 
estimate of the number of reporting sides for Sec. Sec.  900-909 of 
Regulation SBSR. In cases where a rule is more limited in its 
application, for example Rule 906(c), the Commission may use a 
different number that reflects some subset of the estimated 300 
reporting sides.
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    The Commission estimates that internal order management costs 
related to Rule 901 will result in initial one-time aggregate costs of 
approximately $30,600,000, which corresponds to approximately $102,000 
for each reporting side.\1232\ The Commission continues to estimate 
that the cost to establish and maintain connectivity to a registered 
SDR to facilitate the reporting required by Rule 901 would impose an 
annual (first-year and ongoing) aggregate cost of approximately 
$60,000,000, which corresponds to $200,000 for each reporting 
side.\1233\ The Commission continues to estimate, as a result of having 
to establishing a reporting mechanism for security-based swap 
transactions, reporting sides will experience certain development, 
testing and support costs. Such costs would amount to an initial one-
time aggregate cost of approximately $14,700,000, which corresponds to 
an initial one-time cost of approximately $49,000 for each reporting 
side.\1234\ The Commission estimates that internal order management 
costs related to Rule 901 will impose ongoing annual aggregate costs of 
approximately $23,100,000, which corresponds to approximately $77,000 
per reporting side.\1235\ In addition, the Commission estimates that 
all reporting sides will incur an initial and ongoing aggregate annual 
cost of $300,000, which corresponds to $1,000 for each reporting 
side.\1236\
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    \1232\ This estimate is based on the following: [((Sr. 
Programmer (160 hours) at $303 per hour) + (Sr. Systems Analyst (160 
hours) at $260 per hour) + (Compliance Manager (10 hours) at $283 
per hour) + (Director of Compliance (5 hours) at $446 per hour) + 
(Compliance Attorney (20 hours) at $334 per hour)) x 300 reporting 
sides)] = $30,546,000, or approximately $30,600,000, or 
approximately $102,000 per reporting side. See Regulation SBSR 
Proposing Release, 75 FR 75264. These estimates have been adjusted 
to reflect the Commission's new estimate of the number of reporting 
sides. All hourly cost figures are based upon data from SIFMA's 
Management & Professional Earnings in the Securities Industry 2013 
(modified by the SEC staff to account for an 1800-hour-work-year and 
multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead).
    \1233\ This estimate is based on discussions of Commission staff 
with various market participants, as well as the Commission's 
experience regarding connectivity between securities market 
participants for data reporting purposes. The Commission derived the 
total estimated expense from the following: ($100,000 hardware- and 
software-related expenses, including necessary backup and 
redundancy, per SDR connection) x (2 SDR connections per reporting 
side) x (300 reporting sides) = $60,000,000, or $200,000 per 
reporting side. See Regulation SBSR Proposing Release, 75 FR 75265. 
These estimates have been adjusted to reflect the Commission's new 
estimate of the number of reporting sides.
    \1234\ This figure is based on discussions with various market 
participants and is calculated as follows: [((Sr. Programmer (80 
hours) at $303 per hour) + (Sr. Systems Analyst (80 hours) at $260 
per hour) + (Compliance Manager (5 hours) at $283 per hour) + 
(Director of Compliance (2 hours) at $446 per hour) + (Compliance 
Attorney (5 hours) at $334 per hour) x (300 reporting sides)] = 
$14,705,100, or approximately $14,700,000, or approximately $49,000 
per reporting side. See Regulation SBSR Proposing Release, 75 FR 
75265, adjusted to reflect the Commission's new estimate of the 
number of reporting sides.
    \1235\ This estimate is based on the following: [((Sr. 
Programmer (32 hours) at $303 per hour) + (Sr. Systems Analyst (32 
hours) at $260 per hour) + (Compliance Manager (60 hours) at $283 
per hour) + (Compliance Clerk (240 hours) at $64 per hour) + 
(Director of Compliance (24 hours) at $446 per hour) + (Compliance 
Attorney (48 hours) at $334 per hour)) x 300 reporting sides)] = 
$23,127,600, or approximately $23,100,000, or approximately $77,000 
per reporting side. See Regulation SBSR Proposing Release, 75 FR 
75264-5, adjusted to reflect the Commission's new estimate of the 
number of reporting sides.
    \1236\ This estimate is based on discussion of Commission staff 
with various market participants and is calculated as follows: 
[$250/gigabyte of storage capacity x (4 gigabytes of storage) x (300 
reporting sides)] = $300,000, or $1,000 per reporting side. See 
Regulation SBSR Proposing Release, 75 FR 75265, adjusted to reflect 
the Commission's new estimate of the number of reporting sides.
---------------------------------------------------------------------------

    The Commission, in the Regulation SBSR Proposing Release, estimated 
that reporting specific security-based swap transactions to a 
registered SDR as required by Rule 901 will impose an annual aggregate 
cost (first-year and ongoing) of approximately $5,400 for each 
reporting party.\1237\ This estimate was revised in the Cross-Border 
Proposing Release and this adopting release to reflect improved 
information

[[Page 14702]]

relating to the number of transactions and reporting sides. The 
Commission believes that the cost of reporting initial security-based 
swap transactions under Rule 901(c) will be approximately $340,000, or 
approximately $1,100 per reporting side.\1238\ The Commission further 
believes that the cost of reporting life cycle events under Rule 901(e) 
will be approximately $415,000, or approximately $1,400 per reporting 
side.\1239\ As a result, the Commission believes that the total cost 
(first-year and ongoing) of reporting security-based swap transactions 
under Rule 901, as adopted, will be approximately $750,000, or $2,500 
per reporting side.\1240\
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    \1237\ See Regulation SBSR Proposing Release, 75 FR 75208, notes 
195 and 299.
    \1238\ The Commission believes that 900,000 of the 2 million 
reportable events will be the result of reporting the initial 
security-based swap transaction under Rule 901(c). As a result, the 
Commission estimates: ((900,000 x 0.005 hours per transaction)/(300 
reporting sides)) = 15 burden hours per reporting side, or 4,500 
total burden hours. The resulting cost of such reporting would be: 
[((Compliance Clerk (7.5 hours) at $64 per hour) + (Sr. Computer 
Operator (7.5 hours) at $87 per hour)) x (300 reporting sides)] = 
approximately $340,000, or $1,133 per reporting side.
    \1239\ The Commission believes that 1,100,000 of the 2 million 
reportable events will be the result of reporting life cycle events 
under Rule 901(e). As a result, the Commission estimates: 
((1,100,000 x 0.005 hours per transaction)/(300 reporting sides)) = 
18.33 burden hours per reporting side, or 5,500 total burden hours. 
The resulting cost of such reporting would be: [((Compliance Clerk 
(9.17 hours) at $64 per hour) + (Sr. Computer Operator (9.17 hours) 
at $87 per hour)) x (300 reporting sides)] = approximately $415,000, 
or $1,383 per reporting side.
    \1240\ The Commission believes that the per reportable event 
transaction cost will not change and that only approximately 2 
million of these events will be reported by the reporting sides. As 
a result, the Commission now estimates: ((2 million x 0.005 hours 
per transaction)/(300 reporting sides)) = 33.3 burden hours per 
reporting side, or 10,000 total burden hours. The Commission 
therefore estimates the total cost to be: [((Compliance Clerk (16.7 
hours) at $64 per hour) + (Sr. Computer Operator (16.7 hours) at $87 
per hour)) x (300 reporting sides)] = approximately $750,000, or 
$2,500 per reporting side. See Regulation SBSR Proposing Release, 75 
FR 75208, notes 195 and 299. These estimates have been adjusted to 
reflect the Commission's new estimates of the number of reporting 
sides and number of reportable events.
---------------------------------------------------------------------------

    The Commission estimates that designing and implementing an 
appropriate compliance and support program will impose an initial one-
time aggregate cost of approximately $16,200,000, which corresponds to 
a cost of approximately $54,000 for each reporting side.\1241\
---------------------------------------------------------------------------

    \1241\ This figure is based on discussions with various market 
participants and is calculated as follows: [((Sr. Programmer (100 
hours) at $303 per hour) + (Sr. Systems Analyst (40 hours) at $260 
per hour) + (Compliance Manager (20 hours) at $283 per hour) + 
(Director of Compliance (10 hours) at $446 per hour) + (Compliance 
Attorney (10 hours) at $334 per hour) x (300 reporting sides)] = 
approximately $16,200,000, or $54,000 per reporting side. See 
Regulation SBSR Proposing Release, 75 FR 75266. These estimates have 
been adjusted to reflect the Commission's new estimate of the number 
of reporting sides.
---------------------------------------------------------------------------

    The Commission estimates that maintaining its compliance and 
support program would impose an ongoing annual aggregate cost of 
approximately $11,550,000, which corresponds to a cost of approximately 
$38,500 for each reporting side.\1242\
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    \1242\ This figure is based on discussions with various market 
participants and is calculated as follows: [((Sr. Programmer (16 
hours) at $303 per hour) + (Sr. Systems Analyst (16 hours) at $260 
per hour) + (Compliance Manager (30 hours) at $283 per hour) + 
(Compliance Clerk (120 hours) at $64 per hour) + (Director of 
Compliance (12 hours) at $446 per hour) + (Compliance Attorney (24 
hours) at $334 per hour) x (300 reporting sides)] = $11,563,800, or 
approximately $11,550,000, or approximately $38,500 per reporting 
side. See Regulation SBSR Proposing Release, 75 FR 75266. These 
estimates have been adjusted to reflect the Commission's new 
estimate of the number of reporting sides.
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    Summing these costs, the Commission estimates that the initial, 
aggregate annual costs associated with Rule 901 would be approximately 
$157,200,000, which corresponds to approximately $524,000 per reporting 
side.\1243\ The Commission estimates that the ongoing aggregate annual 
costs associated with Rule 901 will be approximately $95,700,000, which 
corresponds to approximately $319,000 per reporting side.\1244\
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    \1243\ This estimate is based on the following: (($102,000 + 
$200,000 + $49,000 + $2,500 + $54,000 + $77,000 + $1,000 + $38,500) 
x (300 reporting sides)) = $157,200,000, which corresponds to 
approximately $524,000 per reporting side. See Regulation SBSR 
Proposing Release, 75 FR 75264-6. These estimates have been adjusted 
to reflect the Commission's new estimate of the number of reporting 
sides.
    \1244\ This estimate is based on the following: (($200,000 + 
$2,500 + $77,000 + $1,000 + $38,500) x (300 reporting sides)) = 
$95,700,000, or approximately $319,000 per reporting side. See 
Regulation SBSR Proposing Release, 75 FR 75264-66. These estimates 
have been adjusted to reflect the Commission's new estimate of the 
number of reporting sides.
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    The Commission continues to believe that the costs associated with 
required reporting pursuant to Regulation SBSR could represent a 
barrier to entry for new, smaller firms that might not have the ability 
to comply with the proposed reporting requirements or for whom the 
expected benefits of compliance might not justify the costs of 
compliance. To the extent that Regulation SBSR might deter new firms 
from entering the security-based swap market, this would be a cost of 
the regulation and could negatively impact competition. Nevertheless, 
the Commission continues to believe that the reporting requirements 
will not impose insurmountable barriers to entry, as firms that are 
reluctant to acquire and build reporting infrastructure could engage 
with third-party service providers to carry out any reporting duties 
incurred under Regulation SBSR.\1245\
---------------------------------------------------------------------------

    \1245\ See also Regulation SBSR Proposing Release, 75 FR 75266.
---------------------------------------------------------------------------

    In the Cross-Border Proposing Release, the Commission stated its 
preliminary belief that the infrastructure-related costs identified in 
the Regulation SBSR Proposing Release associated with Rule 901, on a 
per-entity basis, would remain largely unchanged as a result of the re-
proposal. The Commission preliminarily estimated and continues to 
believe that the marginal burden of reporting additional transactions 
once a respondent's reporting infrastructure and compliance systems are 
in place would be de minimis when compared to the costs of putting 
those systems in place and maintaining them over time. This is because 
the only additional costs of reporting an individual transaction would 
be entering the required data elements into the firm's OMS, which could 
subsequently deliver the required transaction information to a 
registered SDR. In many cases, particularly with increased 
standardization of instruments and use of electronic trading, 
transaction information could more frequently be generated and 
maintained in electronic form, which could then be provided to a 
registered SDR through wholly automated processes. The Commission does 
not believe that the additional changes made to Rule 901 in this 
adopting release will have any measureable impact on the costs 
previously discussed in both the Regulation SBSR Proposing Release and 
the Cross-Border Proposing Release. As a result, the Commission 
believes that these previous estimates remain applicable.
    In the Cross-Border Proposing Release, the Commission noted that 
each reporting side would be required to report, on average, more 
security-based swap transactions than envisioned under the original 
proposal. The Commission further noted that smaller unregistered 
counterparties, that would have been required to report a small number 
of security-based swap transactions under the original proposal would, 
under re-proposed Rule 901(a), be less likely to have to incur 
reporting duties under Regulation SBSR, and thus less likely to have to 
incur the initial infrastructure-related costs of reporting.\1246\ The 
Commission noted its

[[Page 14703]]

preliminary agreement with certain commenters \1247\ that basing the 
reporting duty primarily on status as a security-based swap dealer or 
major security-based swap participant rather than on whether or not the 
entity is a U.S. person would, in the aggregate, reduce costs to the 
security-based swap market.
---------------------------------------------------------------------------

    \1246\ The Commission notes, however, that non-reporting sides 
would be required to provide certain information about a reportable 
transaction. See Rule 906(a), as originally proposed (requiring 
reporting, if applicable, of participant ID, broker ID, trading desk 
ID, and trader ID). See also Regulation SBSR Proposing Release, 75 
FR 75221 (discussing rationale for proposed Rule 906(a)).
    \1247\ See, e.g., DTCC II at 8; ICI Letter at 5; Cleary III at 
31. See also Vanguard Letter at 6; Cleary III at 28 (stating that 
requiring U.S. end users to report security-based swaps entered into 
with non-U.S. person security-based swap dealers would be unduly 
burdensome for end users and could negatively impact the 
competitiveness of affected U.S. markets).
---------------------------------------------------------------------------

    In the Cross-Border Proposing Release, the Commission noted two 
additional factors that could serve to limit the average per-
transaction costs across all affected entities. First, to the extent 
that security-based swap instruments become more standardized and trade 
more frequently on electronic platforms (rather than manually), the act 
of reporting transactions to a registered SDR should become less 
costly. These trends are likely to reduce the number of transactions 
that would necessitate the manual capture of bespoke data elements, 
which is likely to take more time and be more expensive than electronic 
capture. Second, the larger entities that would incur additional 
reporting duties under re-proposed Rules 901(a) and 908(a)(1)(iii)--
i.e., non-U.S. person security-based swap dealers and major security-
based swap participants--can benefit from certain economies of scale in 
carrying out reporting duties that might elude smaller, unregistered 
counterparties. The Commission continues to believe that these factors 
could limit the average per-transaction costs across all affected 
entities. However, the extent of these effects is difficult to 
quantify. It is difficult to predict how many transactions each 
reporting side will report under manual versus electronic capture. 
Furthermore, the Commission currently does not have information about 
the exact reporting systems and the associated cost structures of 
reporting sides. Therefore, while the Commission has considered the 
likely effects of electronic trade capture and more concentrated 
reporting obligations qualitatively, as above, the Commission is not 
able to quantify these effects.
    After reviewing comment letters received in response to the 
Regulation SBSR Proposing Release and the Cross-Border Proposing 
Release, as well as evaluating the most recent data available to the 
Commission, the Commission believes that these cost estimates, as 
adjusted to account for more recent data on the number of reporting 
sides, remain valid. The Commission has received no comments to the 
contrary.
ii. Registered SDRs--Receipt and Processing of Security-Based Swap 
Transactions--Rule 901
    Rule 901, as adopted, requires all security-based swaps that are 
covered transactions \1248\ to be reported to a registered SDR, 
establishes a ``reporting hierarchy'' that determines which side must 
report the transaction, and sets out the data elements that must be 
reported. Together, sections (a), (b), (c), (d), (e), and (h) of Rule 
901 set forth the parameters that govern how reporting sides must 
report security-based swap transactions. Rule 901(i) addresses the 
reporting of pre-enactment and transitional security-based swaps.
---------------------------------------------------------------------------

    \1248\ See supra notes 11-12 and accompanying text.
---------------------------------------------------------------------------

    In both the Regulation SBSR Proposing Release and the Cross-Border 
Proposing Release, the Commission discussed the potential costs to 
registered SDRs resulting from Rule 901. The Commission preliminarily 
estimated that the number of registered SDRs would not exceed ten in 
both releases. No comments discussed the potential number of entities 
that might register with the Commission as SDRs and incur duties under 
Regulation SBSR. The Commission continues to believe that it is 
reasonable to estimate ten registered SDRs for purposes of evaluating 
the costs and benefits of Regulation SBSR.
    As discussed above, Rule 901 imposes certain minor, additional 
requirements on registered SDRs, in addition to the major duties 
imposed on SDRs by Rules 902 and 907 of Regulation SBSR and the rules 
adopted as part of the SDR Adopting Release. Rule 901(f) requires a 
registered SDR to time stamp, to the lowest second increment 
practicable but in any event no greater than a second, its receipt of 
any information submitted to it pursuant to Rules 901(c), (d), or (e). 
Rule 901(g) requires a registered SDR to assign a transaction ID to 
each security-based swap reported or establish or endorse a methodology 
for transaction IDs to be assigned by third parties. Consequently, the 
Commission estimates that Rules 901(f) and 901(g) will impose an 
initial aggregate one-time cost of approximately $360,000, which 
corresponds to $36,000 per registered SDR.\1249\ With regard to ongoing 
costs, the Commission estimates that Rules 901(f) and 901(g) would 
impose an ongoing aggregate annual cost of $455,000, which corresponds 
to $45,500 per registered SDR.\1250\ This figure represents an estimate 
of the support and maintenance costs for the time stamp and transaction 
ID assignment elements of a registered SDR's systems.
---------------------------------------------------------------------------

    \1249\ This figure is calculated follows: [((Sr. Programmer (80 
hours) at $303 per hour) + (Sr. Systems Analyst (20 hours) at $260 
per hour) + (Compliance Manager (8 hours) at $283 per hour) + 
(Director of Compliance (4 hours) at $446 per hour) + (Compliance 
Attorney (8 hours) at $334 per hour) x (10 registered SDRs)] = 
$361,600, or approximately $360,000. All hourly cost figures are 
based upon data from SIFMA's Management & Professional Earnings in 
the Securities Industry 2013 (modified by the SEC staff to account 
for an 1,800-hour-work-year and multiplied by 5.35 to account for 
bonuses, firm size, employee benefits, and overhead). See also 
Regulation SBSR Proposing Release, 75 FR 75266, note 309.
    \1250\ This figure is calculated as follows: [((Sr. Programmer 
(60 hours) at $303 per hour) + (Sr. Systems Analyst (48 hours) at 
$260 per hour) + (Compliance Manager (24 hours) at $283 per hour) + 
(Director of Compliance (12 hours) at $446 per hour) + (Compliance 
Attorney (8 hours) at $334 per hour) x (10 registered SDRs)] = 
$454,760, or approximately $455,000. See also Regulation SBSR 
Proposing Release, 75 FR 75266, note 310.
---------------------------------------------------------------------------

    The Commission estimates that the initial aggregate annual cost 
associated with Rules 901(f) and 901(g) will be approximately $815,000, 
which corresponds to $81,500 per registered SDR.\1251\ The above costs 
per registered SDR are generally consistent with those set forth in the 
Cross-Border Proposing Release. It is possible, however, that the costs 
may be lower than previously estimated, as the Commission is now 
estimating fewer reportable events per year (5 million in the Cross-
Border Proposing Release versus 2 million events to be reported by the 
reporting sides).\1252\ In addition, to the extent that those persons 
planning on registering as SDRs have already expended resources in 
anticipation of the adoption of Regulation SBSR and as a result of CFTC 
regulations that are already in place, the costs to become a registered 
SDR could be significantly lower. As a result, the Commission's 
estimates should be viewed as an upper bound of the potential costs of 
Regulation SBSR.
---------------------------------------------------------------------------

    \1251\ This figure is based on the following: (($36,160 + 
$45,476) x (10 registered SDRs) = $816,360, or approximately 
$815,000, which corresponds to $81,636, or approximately $81,500 per 
registered SDR. See also Regulation SBSR Proposing Release, 75 FR 
75266, note 311.
    \1252\ See supra Section XXII (PRA discussion revising the 
Commission's estimate of the number of reportable events).
---------------------------------------------------------------------------

    After reviewing comment letters received in response to the 
Regulation SBSR Proposing Release and Cross-Border Proposing Release, 
as well as evaluating the most recent data available to the Commission, 
the

[[Page 14704]]

Commission continues to believe that its overall approach to the 
estimate of costs imposed on registered SDRs remain valid. The 
Commission received no comments to the contrary.
2. Public Dissemination
    Rule 902 requires the public dissemination of security-based swap 
transaction information. Rule 902(a), as adopted, sets out the core 
requirement that a registered SDR, immediately upon receipt of a 
transaction report of a security-based swap or life cycle event, must 
publicly disseminate information about the security-based swap or life 
cycle event, plus any condition flags contemplated by the registered 
SDR's policies and procedures that are required by Rule 907.
a. Programmatic Benefits
    There are benefits to public dissemination of security-based swap 
information, as is required by Rule 902. Among other things, by 
reducing information asymmetries, post-trade transparency has the 
potential to facilitate price discovery and price competition,\1253\ 
lower implicit transaction costs,\1254\ improve valuation of security-
based swap products, and increase liquidity in the security-based swap 
market.\1255\
---------------------------------------------------------------------------

    \1253\ See Edwards, et al., supra note 1223 supra.
    \1254\ As noted in Section XXII(B)(1)(b), dealing activity in 
the single-name CDS market is concentrated among a small number of 
firms that each enjoy informational advantages as a result of the 
large quantity of order flow they privately observe. Implicit 
transaction costs are the difference between the transaction price 
and the fundamental value, which could reflect adverse selection or 
could reflect compensation for inventory risk. In addition to these 
implicit transaction costs, security-based swap market participants 
may face explicit transaction costs such as commissions and other 
fees that dealers might charge non-dealers for access to the market.
    \1255\ See infra Section XXII(D)(2)(b). See also Regulation SBSR 
Proposing Release, 75 FR 75267.
---------------------------------------------------------------------------

    Requiring public dissemination of security-based swap transactions 
will provide all market participants and market observers with more 
extensive and more accurate information upon which to make trading and 
valuation determinations. In the absence of post-trade transparency, 
larger dealers possess private information in the form of transactions 
prices and volumes, and larger dealers enjoy a greater informational 
advantage than smaller dealers. As noted above in Section XXII(B), the 
bulk of security-based swap activity is dealer-intermediated. Non-
dealers and small dealers who perceive the informational advantage of 
their counterparties may be less willing to trade. By reducing the 
information advantage of large dealers, the public dissemination of 
security-based swap data may improve the negotiating position of 
smaller market participants such as non-dealers and small dealers, 
allowing them to access liquidity and risk sharing opportunities in the 
security-based swap market at lower implicit transaction costs.
    While the Commission has not yet adopted rules governing trading of 
security-based swaps on centralized venues such as exchanges and SB 
SEFs, post-trade transparency may have particular benefits for exchange 
or SB SEF trading.\1256\ In particular, providers of liquidity can use 
publicly disseminated transaction data as a key input into their orders 
and quotations, thereby increasing the efficiency of price formation. 
Market participants seeking liquidity can use recent last-sale prices 
in the same or similar products as a basis for initiating negotiations 
with liquidity providers. Liquidity seekers also can use public 
dissemination of other market participants' recent transactions in the 
same or similar products to evaluate the quality of quotes being 
offered or the quality of an execution given by a liquidity provider. 
Furthermore, public dissemination of all transactions may suggest to 
all market participants profitable opportunities to offer or take 
liquidity, based on the prices at which recent transactions were 
effected.
---------------------------------------------------------------------------

    \1256\ The size of benefits arising from the use of publicly 
disseminated transaction data for SB SEF trading depend on the 
trading models that SB SEFs support pursuant to rules ultimately 
adopted by the Commission. See SB SEF Proposing Release, 76 FR 
10948.
---------------------------------------------------------------------------

    Moreover, the Commission believes that post-trade pricing and 
volume information could allow valuation models to be adjusted to 
reflect how security-based swap counterparties have valued a security-
based swap product at a specific moment in time. Post-trade 
transparency of security-based swap transactions also could improve 
market participants' and market observers' ability to value security-
based swaps, especially in opaque markets or markets with low liquidity 
where recent quotations or last-sale prices may not exist or, if they 
do exist, may not be widely available. For example, a single-name CDS 
contract that expires in five years may yield information relevant for 
pricing other five-year CDS on the same firm, and will also provide 
information on default probabilities that may help price other CDS on 
the same firm with different maturities, or on other firms in the same 
industry.
    By improving valuations, post-trade transparency of security-based 
swap transactions could contribute to more efficient capital 
allocation. In particular, under the post-trade transparency regime of 
Regulation SBSR, market observers, whether or not they engage in the 
security-based swap transactions, could use information produced and 
aggregated by the security-based swap market as an input to both real 
investment decisions as well as financial investments in related 
markets for equity and debt.\1257\ Improved valuation, together with 
more efficient prices, that may arise as a result of publicly 
disseminated transaction information, could directly contribute to 
efficiency of capital allocation by firms whose obligations are 
referenced by security-based swaps.
---------------------------------------------------------------------------

    \1257\ See Philip Bond, Alex Edmans, and Itay Goldstein, ``The 
Real Effects of Financial Markets,'' Annual Review of Financial 
Economics, Vol. 4 (October 2012) (reviewing the theoretical 
literature on the feedback between financial market price and the 
real economy). See also Sugato Chakravarty, Huseyin Gulen, and 
Stewart Mayhew, ``Informed Trading in Stock and Option Markets,'' 
Journal of Finance, Vol. 59, No. 3 (2004) (estimating that the 
proportion of information about underlying stocks revealed first in 
option markets ranges from 10% to 20%).
---------------------------------------------------------------------------

    A number of studies of the corporate bond market have found that 
post-trade transparency, resulting from the introduction of TRACE, has 
reduced implicit transaction costs.\1258\ Post-trade transparency could 
have the same effect in the security-based swap market. The Commission 
acknowledges that the differences between the security-based swap 
market and other securities markets might be sufficiently great that 
post-trade transparency might not have the same effects in the 
security-based swap market.\1259\ Nevertheless, similarities in the way 
the security-based swap market and corporate bond market are 
structured--both markets evolved as dealer-centric OTC markets with 
limited pre- or post-trade transparency--suggest that some of the 
benefits that result from post-trade transparency in the corporate bond 
market also would arise in the security-based swap market as well.
---------------------------------------------------------------------------

    \1258\ See, e.g., Edwards, et al., supra note 1223; Hendrik 
Bessembinder, William F. Maxwell, & Kumar Venkataraman, Market 
Transparency, Liquidity Externalities, and Institutional Trading 
Costs in Corporate Bonds, J. of Fin. Econ., Vol. 82, at 251-288 
(2006).
    \1259\ In the Regulation SBSR Proposing Release, the Commission 
requested comment on whether post-trade transparency would have a 
similar effect on the security-based swap market as it has in other 
securities markets--and if not, why not. No commenters responded to 
the Commission's request.
---------------------------------------------------------------------------

    Public dissemination of security-based swap transactions is also 
designed to promote better valuation of security-based swaps 
themselves, as well as of underlying and related assets. In

[[Page 14705]]

transparent markets with sufficient liquidity, valuations generally can 
be derived from recent quotations and/or last-sale information. 
However, in opaque markets or markets with low liquidity--such as the 
current market for security-based swaps--recent quotations or last-sale 
information may not exist for many products or, if they do exist, may 
not be widely available.\1260\ Therefore, market participants holding 
assets that trade in opaque markets or markets with low liquidity 
frequently rely instead on pricing models to value their positions. 
These models could be imprecise or be based on assumptions subject to 
the evaluator's discretion. Thus, market participants holding the same 
or similar assets but using different valuation models might arrive at 
significantly different valuations.
---------------------------------------------------------------------------

    \1260\ See supra Section XXII(B)(1)(b) (describing current level 
of trading activity and liquidity in the security-based swap 
market).
---------------------------------------------------------------------------

    All other things being equal, valuation models--particularly for 
assets in illiquid markets, such as corporate bonds or security-based 
swaps--that include last-sale information in the valuation models 
generally will be more informative than models that do not or cannot 
include such inputs. Models without such inputs could be imprecise or 
be based on assumptions subject to the evaluator's discretion without 
having last-sale information to help identify or correct flawed 
assumptions. As discussed in Section XXII(B)(1)(d), valuation models 
typically have many inputs even in the absence of last-sale 
information. However, in general, models improve if the information set 
is broadened to include additional data related to fundamental value, 
and last-sale information is of particular relevance for pricing 
models. Research suggests that post-trade transparency helps reduce the 
range of valuations of assets that trade infrequently,\1261\ and it is 
likely that the security-based swap market participants and market 
observers will devise means to incorporate last-sale reports of the 
asset to be valued, reports of related assets, or reports of benchmark 
products that include the asset to be valued or closely related assets 
into their valuation models. This should result in more accurate 
valuations of security-based swaps generally, as all market 
participants and market observers would have the benefit of knowing how 
counterparties to a security-based swap valued the security-based swap 
at a specific moment in the recent past.
---------------------------------------------------------------------------

    \1261\ See Gjergji Cici, Scott Gibson, and John J. Merrick, Jr., 
``Missing the Marks? Dispersion in Corporate Bond Valuations Across 
Mutual Funds,'' Journal of Financial Economics, Volume 101, Issue 1 
(July 2011), at 206-26.
---------------------------------------------------------------------------

    In addition, post-trade transparency of security-based swaps that 
are CDS should promote better valuation of debt instruments and better 
understanding of the creditworthiness of debt issuers generally. CDS 
are contracts that offer protection against events of default by a debt 
issuer, such as a bankruptcy, debt restructuring, or a failure to pay. 
All other things being equal, CDS protection on a more creditworthy 
issuer costs less than CDS protection on a less creditworthy issuer. 
Furthermore, the cost of CDS protection on a single issuer may change 
over time: If the issuer's financial position strengthens, it is less 
likely to default on its debt and the cost of CDS protection on the 
issuer generally will decrease; if the issuer's financial condition 
weakens, the cost of CDS protection on the issuer generally will 
increase. Mandatory post-trade transparency of CDS transactions will 
offer market participants and market observers the ability to assess 
the market's view of the creditworthiness of entities underlying CDS 
contracts, which often are large and systemically significant debt 
issuers. Currently, last-sale information of CDS transactions generally 
is known only to the participants involved in a transaction (such as 
dealers who execute with clients and brokers who may be involved in 
negotiating transactions). Public dissemination of security-based swap 
transactions--both CDS and equity-based swaps--as required by 
Regulation SBSR, will reduce the information asymmetry between insiders 
who are involved in particular transactions and all others, and is thus 
designed to promote greater price efficiency in security-based swap 
markets, the related index swap markets, and the markets for the 
underlying securities.\1262\
---------------------------------------------------------------------------

    \1262\ See, e.g., Chakravarty, et al., note 1258, supra 
(estimating that the proportion of information about underlying 
stocks revealed first in option markets ranges from 10 to 20%).
---------------------------------------------------------------------------

    Public dissemination of transactions in CDS that are based on 
reference entities that issue TRACE-eligible debt securities should 
reinforce the pricing signals derived from individual transactions in 
debt securities generated by TRACE. Since prices in debt securities of 
an issuer and prices of CDS with that debt security as reference entity 
are related, any pricing signal received as a result of a trade in one 
asset market may inform prices in the other. In addition, if prices of 
debt securities in TRACE and last-sale information of related CDS are 
not consistent with each other, market participants may avail 
themselves of arbitrage opportunities across these two markets, thereby 
aligning the respective prices and enhancing price efficiency in both 
markets. Similarly, public dissemination of transactions in single-name 
security-based swaps should reinforce the pricing signals derived from 
public dissemination of transactions in index swaps, where the index 
includes those individual securities. In addition, post-trade 
transparency of security-based swap CDS under Regulation SBSR should 
indirectly bring greater transparency into the market for debt 
instruments (such as sovereign debt securities) that are not subject to 
mandatory public dissemination through TRACE or any other means by 
providing indirect pricing information. For example, last-sale 
information for CDS referencing sovereign debt may inform prices of the 
underlying sovereign debt.
b. Programmatic Costs
    Market participants may experience costs as a result of revealing 
the true size of their trades if public dissemination of this 
information makes it more difficult to hedge their positions. Further, 
public dissemination of true transaction sizes could result in higher 
costs if it allows market participants to infer the identities of 
particular counterparties. Thus, some commenters have argued for 
dissemination of the notional amount of block trades through a 
``masking'' or ``size plus'' convention comparable to that used by 
TRACE, in which transactions larger than a specified size would be 
reported as ``size plus.'' \1263\ The Commission considered this 
alternative, but has elected to require a registered SDR to publicly 
disseminate (for all dissemination-eligible transactions \1264\), 
immediately upon receipt of the transaction report, all of the elements 
required by Rule 901(c), including the true notional amount of the 
transaction. The Commission notes, first of all, that a dissemination 
cap could deprive the market of important information about overall 
exposure. With a cap in place, market participants would not have 
information about the true size of very large trades, thereby reducing 
the precision with which they could

[[Page 14706]]

estimate the level of risk arising from those large trades. 
Furthermore, as noted above in Section VII(B)(4), the Commission 
believes that a 24-hour timeframe for reporting of transaction 
information during the interim phase of Regulation SBSR should address 
any concerns about disseminating the true notional amount of any 
transaction and give market participants who choose to hedge adequate 
time to accomplish a majority of their hedging activity \1265\ before 
transaction data are publicly disseminated. During the interim phase, 
the Commission will be able to collect and analyze transaction 
information to develop an understanding of how market participants are 
reacting to the introduction of mandated post-trade transparency.
---------------------------------------------------------------------------

    \1263\ See WMBAA II at 7; ISDA/SIFMA I at 5; ISDA/SIFMA Block 
Trade Study at 2, 26-27; Vanguard Letter at 5; Goldman Sachs Letter 
at 6; SIFMA I at 5; J.P. Morgan Letter at 12-13; MFA I at 4; MFA III 
at 8; UBS Letter at 2; FIA/FSF/ISDA/SIFMA Letter at 6.
    \1264\ See Rule 902(c) (requiring that certain types of 
security-based swaps not be publicly disseminated).
    \1265\ Market participants typically hedge only a small fraction 
of large trades and, if they hedge, they tend to do so within one 
day. See Hedging Analysis.
---------------------------------------------------------------------------

    Under Rule 902(a), a registered SDR will be required to publicly 
disseminate a condition flag indicating whether two counterparties to a 
security-based swap are registered security-based swap dealers. The 
Commission received one comment expressing concern that disseminating 
such information would reduce the anonymity of counterparties, 
ultimately resulting in ``worse pricing and reduced liquidity for end-
users.'' \1266\ Public dissemination of this information will indicate 
that a transaction involved two counterparties that are dealers. 
Although flagging transactions between two registered security-based 
swap dealers does indeed provide information to the public that the 
transaction involved two dealers, thus restricting the set of possible 
counterparties, the Commission believes that, since the majority of 
transactions in the security-based swap market are between dealers, 
market observers are unlikely to be able to identify particular 
counterparties using this information.
---------------------------------------------------------------------------

    \1266\ ISDA IV at 16.
---------------------------------------------------------------------------

    Another potential cost of post-trade transparency is that it may 
increase inventory risks. Dealers often enter trades with their 
customers as a liquidity supplier. Dealers trying to hedge inventory 
following a trade might be put in a weaker bargaining position relative 
to subsequent counterparties if transactions prices and volumes are 
publicly-disseminated. With mandated post-trade transparency, the 
market will see when a large transaction or a transaction in an 
illiquid security occurs and is aware that the dealer who took the 
other side may attempt to hedge the resulting position. As a result, 
other market participants may change their pricing unfavorably for the 
dealer, making it more expensive for the dealer to hedge its position. 
Dealers could respond either by raising the liquidity premium charged 
to their clients or refusing to accommodate such trades. Such behavior 
could lead to lower trading volume or reduce the ability of certain 
market participants to manage risk, either of which could adversely 
affect all market participants. An increase in post-trade transparency 
could also drive trades to other markets or instruments that offer the 
opacity desired by traders, which could increase fragmentation, since 
trading would occur at more trading centers, or potentially reduce 
liquidity. This possibility is consistent with the argument that large, 
informed traders may prefer a less transparent trading environment that 
allows them to minimize the price impact of their trades. Public 
dissemination of security-based swap transaction information, 
therefore, could cause certain market participants to trade less 
frequently or to exit the market completely. A reduction in market 
activity by these participants, especially if they are large, informed 
traders, could have an adverse effect on market liquidity.
    We are currently unable to quantify the costs associated with 
market exit or reduced liquidity that might result from post-trade 
transparency. This is due to two factors: (1) Lack of robust data; and 
(2) lack of experimental conditions necessary for identifying the 
impact of post-trade transparency on the costs of hedging. As noted 
above, Commission staff has undertaken a study that attempts to 
identify instances of hedging behavior by dealers in the single-name 
CDS market. Subject to the data limitations described in the study, the 
low levels of such behavior suggest that, in aggregate, post-trade 
transparency is unlikely to drive down liquidity or increase the 
liquidity premium charged by dealers to non-dealers as a result of 
increasing the cost of hedging.\1267\ Commission staff has also 
undertaken a study of the effects of the introduction of mandatory 
post-trade transparency in the index CDS market pursuant to CFTC rules. 
Subject to the data limitations in the study, and the fact that the 
security-based swap and the swap markets are related but not identical, 
staff found little empirical evidence that the introduction of 
mandatory post-trade transparency in the index CDS market resulted in 
reduced trading activity, liquidity, or risk exposure in the index CDS 
market.\1268\ Moreover, studies of the corporate bond market, another 
largely OTC market, do not find evidence of market exit or reduced 
liquidity associated with post-transparency.\1269\
---------------------------------------------------------------------------

    \1267\ See Hedging Analysis.
    \1268\ See Analysis of Post-Trade Transparency.
    \1269\ See supra note 1259.
---------------------------------------------------------------------------

    Another potential cost of post-trade transparency as required under 
Rule 902 is that market observers could misinterpret or place undue 
importance on particular last-sale information that might not 
accurately reflect the market. For example, if a large market 
participant failed, it could be required to liquidate its portfolio at 
``fire sale'' prices. If market observers were not aware of any unusual 
conditions surrounding particular transaction prints, they might 
interpret fire sale prices to indicate changes to the economic 
fundamentals of security-based swap positions that they hold. If some 
of these market participants mark down the value of their portfolios, 
the result could be additional margin calls and further market stress. 
In these circumstances, use of valuation models that include last-sale 
data, but do not condition those data on the information about unusual 
conditions could lead to market de-stabilization.\1270\
---------------------------------------------------------------------------

    \1270\ See, e.g., Brunnermeier and Pedersen; Gromb and Vayanos, 
note 1177, supra.
---------------------------------------------------------------------------

    Rule 902(a) requires a registered SDR to publicly disseminate a 
transaction report of any security-based swap immediately upon receipt 
of transaction information about the security-based swap, except in in 
certain limited circumstances.\1271\ The published transaction report 
must consist of all the information reported pursuant to Rule 901(c), 
plus the execution time stamp and any necessary flags required by the 
registered SDR to which the transaction is reported.
---------------------------------------------------------------------------

    \1271\ See supra Section VI(D). In addition, registered SDRs 
shall not publicly disseminate reports of pre-enactment or 
transitional security-based swaps.
---------------------------------------------------------------------------

    Implementing and complying with the public dissemination 
requirement of Rule 902 will add 20% to the start-up and ongoing 
operational expenses that would otherwise be required of a registered 
SDR.\1272\ In particular, the Commission continues to estimate that the 
initial one-time aggregate costs for development and implementation of 
the systems needed to disseminate the required transaction information 
would be $20,000,000, which corresponds to $2,000,000 per registered 
SDR. Further, the Commission continues to estimate that aggregate 
annual costs for systems and connectivity upgrades associated

[[Page 14707]]

with public dissemination would be approximately $12,000,000, which 
corresponds to $1,200,000 per registered SDR. Thus the initial 
aggregate costs associated with Rule 902 are estimated to be 
$32,000,000, which corresponds to $3,200,000 per registered SDR. To the 
extent that those market participants planning on registering as SDRs 
have already expended resources if they voluntarily report their 
transactions or because they are registered SDRs with the CFTC, the 
costs to become a registered SDR could be significantly lower. As a 
result, the Commission's estimates should be viewed as an upper bound 
of the potential costs of Regulation SBSR.
---------------------------------------------------------------------------

    \1272\ See SDR Adopting Release, Section VIII(D)(2). See also 
Regulation SBSR Proposing Release, 75 FR 75269.
---------------------------------------------------------------------------

c. Alternative Approaches to Public Dissemination
    The Commission considered alternative approaches to the public 
dissemination of transactions information. First, the Commission has 
considered, but is not adopting, an exemption from Regulation SBSR's 
regulatory reporting or public dissemination requirements for inter-
affiliate security-based swaps, although the Commission generally 
believes that a registered SDR should consider establishing a flag for 
inter-affiliate security-based swaps to help market observers better 
understand the information that is publicly disseminated.\1273\
---------------------------------------------------------------------------

    \1273\ See supra Sections VI(D) and VI(G).
---------------------------------------------------------------------------

    Commenters had raised concerns about the public dissemination of 
inter-affiliate transactions, comments that the Commission carefully 
considered in its adoption of Rule 902.\1274\ As an example, one 
commenter argued that ``public reporting of inter-affiliate 
transactions could seriously interfere with the internal risk 
management practices of a corporate group'' and that ``[p]ublic 
disclosure of a transaction between affiliates could prompt other 
market participants to act in a way that would prevent the corporate 
group from following through with its risk management strategy by, for 
instance, causing adverse price movements in the market that the risk-
carrying affiliate would use to hedge.'' \1275\ As stated above, the 
Commission agrees generally that corporate groups should engage in 
appropriate risk management practices. However, the Commission does not 
agree that Regulation SBSR, as adopted, is inimical to effective risk 
management. The Commission notes that, during the interim phase of 
Regulation SBSR, all security-based swaps--regardless of size--must be 
reported within 24 hours from the time of execution and--except with 
regard to transactions falling within Rule 908(a)(2)--immediately 
publicly disseminated. As discussed in Section VII above, this 
reporting timeframe is designed, in part, to minimize any potential for 
market disruption resulting from public dissemination of any security-
based swap transaction during the interim phase of Regulation SBSR. The 
Commission anticipates that, during the interim period, it will collect 
and analyze data concerning the sizes of transactions that potentially 
affect liquidity in the market. The Commission sees no basis for 
concluding, at this time, that inter-affiliate security-based swaps are 
more difficult to hedge than other types of security-based swaps, or 
that the hedging of these transactions presents unique concerns that 
would not also arise in connection with the hedging of a security-based 
swap that was not an inter-affiliate transaction. Therefore, the 
Commission does not agree with the commenters' concern that public 
dissemination of inter-affiliate security-based swaps will impede the 
ability of corporate groups to hedge.
---------------------------------------------------------------------------

    \1274\ See supra Section XI(B).
    \1275\ Cleary II at 17.
---------------------------------------------------------------------------

    Second, the Commission considered other mechanisms for public 
dissemination, but has determined not to adopt any of them.\1276\ In 
the Regulation SBSR Proposing Release, the Commission discussed a 
``first touch'' approach to public dissemination, whereby a security-
based swap dealer or major security-based swap participant that is a 
counterparty to a security-based swap would be responsible for 
dissemination. Under a ``modified first touch'' approach, a platform on 
which a transaction was effected would be required to publicly 
disseminate a transaction occurring on its market. However, under 
either of these alternate approaches, market observers would be 
required to obtain and consolidate information from potentially dozens 
of different sources. As the Commission stated in the Regulation SBSR 
Proposing Release: ``Requiring registered SDRs to be the registered 
entities with the duty to disseminate information would produce some 
degree of mandated consolidation of [security-based swap] transaction 
data and help to provide consistency in the form of the reported 
information. This approach is designed to limit the costs and 
difficulty to market participants of obtaining and assembling data 
feeds from multiple venues that might disseminate information using 
different formats.'' \1277\
---------------------------------------------------------------------------

    \1276\ See Regulation SBSR Proposing Release, 75 FR 75227-28.
    \1277\ Id.
---------------------------------------------------------------------------

    Moreover, even though the alternative approaches noted above would 
allow market participants to circumvent registered SDRs while 
fulfilling the public dissemination requirement, neither alternative 
would reduce costs to market participants, since reporting sides would 
be required to report transactions to an SDR to fulfil the regulatory 
reporting requirement. The Commission received no comments that 
disagreed with the proposed approach imposing the duty to disseminate 
security-based swap transaction information on registered SDRs, and has 
adopted it as proposed.
3. Interim Phase for Reporting and Public Dissemination
    As discussed in more detail above, the rules, as adopted, establish 
an interim phase of Regulation SBSR. During this interim phase, all 
covered transactions--regardless of their notional size--must be 
reported to a registered SDR no later than 24 hours after the time of 
execution.\1278\ The registered SDR will be required to publicly 
disseminate a report of the transaction immediately upon receipt of the 
information, except for the information described in Rule 902(c).
---------------------------------------------------------------------------

    \1278\ If reporting would take place on a non-business day 
(i.e., a Saturday, Sunday, or U.S. federal holiday), then reporting 
would be required by the same time on the next day that is a 
business day.
---------------------------------------------------------------------------

    Commission staff has undertaken an analysis of the inventory 
management of dealers in the market for single-name CDS based on 
transaction data from DTCC-TIW.\1279\ The analysis shows that, when 
large trades in single-name CDS are hedged using offsetting trades in 
the single-name CDS with the same reference entity, the majority of 
hedging activity takes places within one day.\1280\ The Commission 
acknowledges the concerns of a commenter that this analysis does not 
consider hedging activity that might occur between

[[Page 14708]]

markets.\1281\ For example, dealers may use index CDS contracts to 
hedge exposures in single-name CDS. However, the Commission notes that 
the presence of hedging opportunities in other markets--particularly 
more liquid markets such as the market for index CDS--may increase the 
speed with which dealers are able to hedge security-based swap 
exposures, and may limit the extent to which public dissemination of 
transaction data with 24 hours of execution impairs their ability to 
hedge large exposures.\1282\
---------------------------------------------------------------------------

    \1279\ See Hedging Analysis.
    \1280\ The Commission staff analysis represents an update and 
extension of earlier work by staff of the Federal Reserve Bank of 
New York (Chen et al.), which identified same-day and next-day same-
instrument dealer hedging activity within a three-month (May 1, 
2010-July 31, 2010) sample of DTCC-TIW transaction data. Similar to 
the Commission staff analysis, these authors' results suggest that 
``large customer CDS trades are not typically hedged via offsetting 
trades in the same instrument soon after they have been 
transacted.'' The authors conclude by saying that ``requiring same 
day reporting of CDS trading activity may not significantly disrupt 
same day hedging activity, since little such activity occurs in the 
same instrument.'' See Chen et al., supra note 510, at 17.
    \1281\ See ISDA IV at 15 (stating that ``participants may enter 
into risk mitigating transactions using other products that are more 
readily available at the time of the initial trade (for example CD 
index product [sic], CDS in related reference entities, bonds or 
loans issued by the reference entity or a related entity, equities 
or equity options)).'' The commenter further ``interprets the data 
in the study to imply that such temporary hedges in other asset 
classes (rather than offsetting transactions in the precise 
reference entity originally traded) are the norm for an illiquid 
market.'' Id.
    \1282\ The Commission notes that the impact of cross-market 
hedging may depend on the market characteristics for hedging assets. 
If dealers use corporate bonds to hedge large single-name CDS 
exposures, then the relative illiquidity of the corporate bond 
market may make dealers' ability to hedge sensitive to public 
dissemination of single-name CDS transaction information. However, 
the commenter did not provide support for the proposition that 
dealers rely on the corporate bond or equity markets to hedge 
single-name CDS exposure. Appropriate data are not currently 
available to the Commission. By contrast, if dealers use more liquid 
assets to hedge--such as index CDS--then the relative liquidity of 
the market for hedging assets may make it less likely that dealers' 
orders are identified as hedging demand. This, in turn, reduces the 
likelihood that dealers will face higher costs of hedging as a 
result of public dissemination of the original security-based swap 
transaction.
---------------------------------------------------------------------------

    The same commenter further argued that, if single-name CDS on a 
reference entity trade infrequently, dealers may not have opportunities 
to hedge using the same instrument in a short period of time.\1283\ The 
Commission acknowledges that some market participants may take more 
than 24 hours to hedge exposures that result from large transactions in 
security-based swaps. As noted below, if a liquidity provider engages 
in a large trade in an illiquid security but cannot hedge its inventory 
risk within 24 hours, the result could be higher costs for liquidity 
provision. However, based on supplemental staff analysis of single-name 
CDS transaction data, the vast majority of large CDS transactions in 
the Hedging Analysis were written on reference entities with 
transaction activity occurring more than once per day, on 
average.\1284\ Hence, based on the available data, the Commission does 
not conclude that the liquidity of the single-name CDS included in the 
Hedging Analysis was insufficient to allow dealers ample opportunities 
to hedge exposures within five days. Taking into consideration staff 
analysis and comments on this analysis, the Commission continues to 
believe that a 24-hour time frame for reporting of transaction 
information should allow market participants who choose to hedge 
adequate time to accomplish a majority of their hedging activity before 
transaction data is publicly disseminated.
---------------------------------------------------------------------------

    \1283\ See id. (stating that ``If a reference entity trades less 
frequently than once per day, and a particular reference entity/
maturity combination trades less frequently than that, it is 
unlikely that a dealer could hedge a large transaction using CDS in 
the same reference entity even over a period of five days'').
    \1284\ In response to this comment, Commission staff examined 
the average trading frequency and volume of the reference entities 
represented in the sample of large transactions relative to 
reference entities in the overall sample. According to this 
supplemental analysis, for over 90% of the reference entities in the 
sample of ``seed transactions'' (as defined in the Hedging 
Analysis,) transaction activity took place, on average, one or more 
times per day between April 2013 and March 2014. Commission staff 
also examined transaction activity in the six-month period prior to 
the sample used in the Hedging Analysis to avoid confounding its 
measures of trading activity with the large transactions and 
subsequent hedging activity it identified within the original study 
period. In the six months prior to April 2013, approximately 85% of 
reference entities in the sample of seed transactions were involved 
in transaction activity an average of one or more times per day.
---------------------------------------------------------------------------

    Although any reporting side could take a full 24 hours to report a 
given trade under the interim phase, the final rules may provide 
incentives for reporting sides to submit trade reports in substantially 
less than 24 hours. In particular, as discussed above in Section 
VII(B)(1), because Rule 902(d) embargos transaction information until 
the information is transmitted to a registered SDR, any SB SEF that 
wants to continue the use of work-ups must ensure that transactions are 
reported to a registered SDR no later than the time at which a 
completed transaction is broadcast to the users of the SB SEF. 
Reporting sides may choose to report trades in less than 24 hours 
because their gains from work-ups exceed costs stemming from public 
dissemination.
a. Programmatic Benefits
    The Commission notes that the interim phase of Regulation SBSR will 
result in increased transparency in the security-based swap market, as 
compared to the current market. Several commenters expressed concern 
that a public dissemination regime with improper block trade thresholds 
could harm market liquidity.\1285\ A phased approach seeks to create 
some measure of post-trade transparency in the security-based swap 
market while avoiding the creation of inappropriate block standards.
---------------------------------------------------------------------------

    \1285\ See supra note 486.
---------------------------------------------------------------------------

    This interim phase will afford the Commission the opportunity to 
use data made available by registered SDRs to consider the potential 
impact, across different security-based swap asset classes, of various 
public dissemination times on transaction costs, hedging activity, and 
price efficiency for trades involving a range of notional amounts in 
instruments of varying liquidity.\1286\ Analysis of additional data is 
important for two key reasons. First, while the Commission has used 
available data to inform its current approach to regulatory reporting, 
the Commission expects the market to evolve in response to substantive 
regulation pursuant to Regulation SBSR and other Title VII rulemaking. 
In particular, additional post-trade transparency afforded by the 
interim phase may alter market participants' trading strategies in ways 
that will likely affect what constitutes an appropriate block trade 
threshold in an environment with post-trade transparency. Such changes 
to the regulatory environment for security-based swap transactions make 
additional data analysis critical to robust determination of block 
thresholds and associated dissemination delays.
---------------------------------------------------------------------------

    \1286\ See ISDA IV at 15 (noting that liquidity of CDS contracts 
on a reference entity may be a determinant of the risk management 
strategies of dealers attempting to hedge exposures generated when 
they engage in single-name CDS transactions).
---------------------------------------------------------------------------

    Second, the Commission believes that data elements such as 
reporting and execution time stamps required under Rule 901 will make 
data collected from registered SDRs more suitable than currently 
available data for examining relationships between reporting delays, 
notional amounts and other variables of economic interest. For example, 
as noted by Commission staff in its analysis of inventory risk 
management in the security-based swap market, although the CDS 
transaction data currently available to the Commission includes both 
the date and time at which DTCC received and recorded the transaction, 
only the date of the execution is reported to DTCC, and not the actual 
time of the execution.\1287\ Under Regulation SBSR, Commission staff 
will be able to identify not only the execution time, to the second, 
but also the length of time between when a transaction is executed and 
when a registered SDR receives the associated transaction report.
---------------------------------------------------------------------------

    \1287\ See Hedging Analysis.
---------------------------------------------------------------------------

    Accordingly, the Commission is directing its staff to issue a 
report, for

[[Page 14709]]

each asset class, regarding block thresholds and dissemination delays 
for large notional security-based swap transactions in each asset 
class. The reports are intended to inform the Commission's 
specification of criteria for determining what constitutes a block 
trade and the appropriate time delay for reporting block trades. The 
Commission will take into account the reports, along with public 
comment on the reports, in determining block thresholds and associated 
reporting delays.
    Each report will be linked to the availability of data from 
registered SDRs in that each report must be complete no later than two 
years following the initiation of public dissemination from the first 
registered SDR in that asset class. The Commission believes that this 
timeframe is necessary for a thorough analysis of the transaction data. 
First, a two-year timeframe will help ensure that Commission staff's 
econometric analysis will have statistical power sufficient to draw 
clear conclusions about the effects of notional amount and reporting 
delay on price impact, hedging activity, and price efficiency. Second, 
the Commission believes that this timeframe is sufficiently large to 
capture seasonal effects, such as periodic ``rolls'', that may affect 
trading behavior in the security-based swap market. Finally, a 
sufficiently long timeframe increases the likelihood that Commission 
staff can separate potential market impacts resulting from the 
introduction of mandated post-trade transparency from short-term 
macroeconomic trends and shocks that also could affect market behavior.
    While allowing time for data gathering and analysis by Commission 
staff that will inform the Commission about appropriate block 
thresholds and reporting delays, the interim approach to reporting and 
public dissemination may moderate the economic effects flowing from 
public dissemination of transaction data. By providing reporting sides 
up to 24 hours during the interim phase of Regulation SBSR in which to 
report their transactions, market observers will experience delays in 
obtaining information about market activity compared to an alternative 
policy of implementing a requirement for real-time reporting and public 
dissemination at the present time. For example, if there is a spike in 
activity or a significant price movement in a particular security-based 
swap product, market observers might not become aware of this until 24 
hours afterwards. Larger dealers that observe more order flow and 
execute more transactions than other market participants would, during 
the interim phase, continue to enjoy an informational advantage over 
others who are not yet aware of recently executed transactions.
b. Programmatic Costs
    While the Commission has considered whether there could be a 
reduction in the programmatic benefits of public dissemination 
associated with providing too much time before a security-based swap 
transaction must be reported and publicly disseminated, the Commission 
also has considered that 24 hours might be too little time for 
liquidity providers to manage inventory risk. If a liquidity provider 
who engages in a large trade, or in a trade in an illiquid security, 
cannot offset the risk within 24 hours, the costs for providing 
liquidity could rise, resulting in less liquidity provision (i.e., less 
size provided at the desired price, or the same size provided at worse 
prices). This result might be avoided in a regulatory environment 
offering a longer delay between the time of execution of a security-
based swap and the time that it must be reported and publicly 
disseminated.
4. Use of UICs
    Rule 903(a) provides that, if an IRSS meeting certain criteria is 
recognized by the Commission and issues a UIC, that UIC must be used by 
all registered SDRs and their participants in carrying out duties under 
Regulation SBSR. Under Rule 903(a), if the Commission has recognized 
such an IRSS that assigns UICs to persons, each participant of a 
registered SDR shall obtain a UIC from or through that system. If no 
IRSS that can issue particular types of UICs has been recognized, the 
registered SDR is required to assign such UICs using its own 
methodology.
    The following UICs are specifically required by Regulation SBSR: 
Counterparty ID, product ID, transaction ID, broker ID, branch ID, 
trading desk ID, trader ID, execution agent ID, platform ID, and 
ultimate parent ID. The security-based swap market data typically 
include fee-based codes, and all market participants and market 
observers must pay license fees and agree to various usage restrictions 
to obtain the information necessary to interpret the codes. Under Rule 
903(b), a registered SDR may permit information to be reported pursuant 
to Rule 901, and may publicly disseminate that information pursuant to 
Rule 902, using codes in place of certain data elements only if the 
information necessary to interpret those codes is widely available to 
users of the information on a non-fee basis.
a. Programmatic Benefits
    UICs will provide market participants that use a common registered 
SDR with a uniform way to refer to their counterparties and other 
persons or business units that might be involved in a transaction (such 
as brokers, trading desks, and individual traders). UICs are designed 
to allow registered SDRs, relevant authorities, and other users of data 
to quickly and reliably aggregate security-based swap transaction 
information by UIC along several dimensions (e.g., by product, by 
individual trader, or by corporate group (i.e., entities having the 
same ultimate parent)). The requirement for a registered SDR to refer 
to each person, unit of a person, product, or transaction with a single 
identifying code is designed to facilitate the performance of market 
analysis studies, surveillance activities, and systemic risk monitoring 
by relevant authorities through the streamlined presentation of 
security-based swap transaction data. These benefits apply on an SDR 
level, as each registered SDR is required to assign UICs using its own 
methodology if a relevant UIC is not available from an IRSS.
    To the extent that multiple SDRs use the same UICs, these benefits 
would apply across SDRs. In particular, because the Commission has 
recognized the GLEIS--through which LEIs can be obtained--as an IRSS 
that meets the criteria of Rule 903, if an entity has an LEI issued by 
or through the GLEIS, then that LEI must be used for all purposes under 
Regulation SBSR. The Commission believes that this will facilitate 
aggregation by relevant authorities for surveillance and monitoring 
purposes. Nevertheless, the Commission acknowledges potential 
impediments to uniformity of UICs across registered SDRs. While 
registered SDRs are required to use an LEI issued by the GLEIS to 
identify a counterparty to a reported transaction, this requirement 
extends to only those counterparties that have been assigned an LEI by 
the GLEIS. Under Rule 903(a), these counterparties will include all SDR 
participants that are U.S. persons, including special entities and 
investment advisers, as well as all SDR participants that are 
registered security-based swap dealers and registered major security-
based swap participants. Additionally, these counterparties will 
include non-U.S. subsidiaries of U.S. persons, when their performance 
under security-based swaps is guaranteed by a U.S. affiliate. For a 
person who is a counterparty to a security-based swap reported on a 
mandatory basis to a

[[Page 14710]]

registered SDR, who does not meet these conditions, and who has not 
obtained an LEI from the GLEIS, a registered SDR will be required to 
assign a UIC to that market participant using its own methodology. For 
such counterparties, this could result in the proliferation of multiple 
UIC assignments for the same entity to the extent that they are 
counterparties to security-based swaps that are reported across several 
SDRs that each assign a unique UIC.
    This could pose challenges to the relevant authorities and other 
users of data to quickly and reliably aggregate security-based swap 
transaction information, and potentially impede the performance of 
market analysis studies and surveillance activities. In particular, 
mapping the unique identifiers across SDRs would entail a manual 
process of connecting like entities initially, and maintaining such a 
mapping over time to the extent that an entity's organizational 
structure changes in a way that requires a change to the UIC. This 
manual process could slow or introduce errors into the analysis of 
transaction activity or economic exposures of such counterparties. 
Requiring all participants and the entities to which they provide 
guarantees to utilize LEIs under Regulation SBSR should minimize these 
potential difficulties. Using the same LEI for these counterparties 
across all registered SDRs eliminates the need for such mapping.
    Even absent uniformity of UICs, the use of such codes by a 
registered SDR and its participants could give rise to other 
significant potential benefits. The use of codes could improve the 
accuracy of the trade reporting system by streamlining the provision of 
data to the registered SDR. The product ID, for example, replaces 
several data elements that otherwise would have to be reported 
separately, thus enforcing the internal consistency of those data 
elements and reducing the likelihood of reporting errors.
    In adopting Rule 903, the Commission has considered not only the 
benefits of using unique identification codes generally, but also the 
benefits of ensuring that such codes can be readily understood. Rule 
903(b), as adopted, provides that a registered SDR may permit the use 
of codes in place of certain data elements for use in regulatory 
reporting and public dissemination of security-base swap transaction 
information only if the information necessary to interpret such codes 
is widely available to users of the information on a non-fee basis. 
This provision is intended to prevent any person who develops 
identification codes that might be used for the reporting or public 
dissemination of security-based swap transactions to charge fees or 
require other compensation from market participants, registered SDRs, 
other market infrastructure providers, and users of security-based swap 
data. Open access to UICs will promote the usage of public information 
about the security-based swap market, thereby furthering the statutory 
goals of Title VII. Rule 903(b) eliminates the possibility that market 
participants could be compelled to include fee-based codes in the 
transaction information that they are required to provide to a 
registered SDR, or that registered SDRs could be compelled to pay fees 
to code creators to be able to interpret the transaction information 
that is reported to them, or that market observers are compelled to pay 
fees to code creators to be able to interpret the security-based swap 
transaction information that is publicly disseminated. Rule 903(b) is 
designed to reduce barriers to entry into the security-based swap 
market \1288\ by counterparties as well as service providers, because 
it minimizes the need for them to pay fees to code creators as a cost 
of entry.
---------------------------------------------------------------------------

    \1288\ The fees that a new entrant would have to pay for the use 
of fee-based codes are a cost that may deter a potential market 
participant from entering the security-based swap market. Currently, 
there is no mandated post-trade transparency and the security-based 
swap market is an OTC market and opaque, which is a barrier to enter 
for the market, as new entrants are at an informational disadvantage 
compared to established market participants, especially large 
dealers with significant order flow.
---------------------------------------------------------------------------

b. Programmatic Costs
    Rule 903 could also impose certain costs on current security-based 
swap market participants. Currently, private coding systems exist in 
the security-based swap market.\1289\ To the extent that owners of 
these private coding systems do not make information to understand 
these codes widely available on a non-fee basis, Rule 903 would 
prohibit the use of such codes in the reporting or public dissemination 
of security-based swap transaction information carried out pursuant to 
Regulation SBSR. As a result of Rule 903, owners of these coding 
systems that otherwise might be used to report security-based swap 
transaction information will be restricted in their ability to profit 
from utilization of their codes for reporting under Regulation SBSR, 
although such codes could still be used for other purposes. To the 
extent that these owners currently generate revenue through fees 
charged to users of security-based swap data, Rule 903 could lower 
their revenues and cause them to increase revenues from other sources, 
including from those entities that wish to have identifiers assigned to 
them. Thus, Rule 903 may result in a reallocation of the costs 
associated with developing and maintaining UICs from users of data to 
producers of data.
---------------------------------------------------------------------------

    \1289\ The Commission is aware of one such product 
identification system that involves six-digit reference entity 
identifiers and three-digit reference obligations identifiers as 
well as a standard three-digit maturity identifier.
---------------------------------------------------------------------------

    Further, to the extent that market participants who currently 
utilized fee-based codes must reconfigure their systems and internal 
processes to use other codes (such as those issued by a registered SDR) 
that are compliant with Rule 903(b), the costs of such reconfiguration 
can be attributed to Rule 903(b). One commenter believed that reporting 
these UICs would require ``great cost and effort'' from firms, 
including the costs associated with establishing and maintaining UICs 
in the absence of a global standard.\1290\ The Commission also 
acknowledges commenter concerns that there could be a certain degree of 
cost and effort associated with incorporating new UICs into firms' 
internal processes and record-keeping systems.\1291\ However, the 
Commission believes that these costs are justified in the context of 
the programmatic benefits discussed in Section XXII(C)(4)(a), supra, 
such as the ability of relevant authorities to easily aggregate 
transaction reports on a variety of dimensions. The costs of developing 
such UICs are included in the discussion of the implementation of Rules 
901 (detailing the data elements that must be reported \1292\) and 907 
(detailing the requirement that SDRs develop policies and procedures 
for the reporting of the required data elements \1293\).
---------------------------------------------------------------------------

    \1290\ See ISDA III at 2.
    \1291\ See supra Section XXII(C)(1)(c); Section XXII(E)(1)(a) 
(detailing the data elements that must be reported); Section 
XXII(C)(6)(d) (detailing the requirement that SDRs develop policies 
and procedures for the reporting of the required data elements). See 
also note 160, supra.
    \1292\ See supra Section XXII(C)(1).
    \1293\ See supra Section XXII(C)(6)(d).
---------------------------------------------------------------------------

    Any person who is a participant of a registered SDR must obtain an 
LEI from or through the GLEIS. Based on transaction data from DTCC-TIW, 
the Commission believes that no fewer than 3,500 of approximately 4,800 
accounts that participated in the market for single-name CDS in 2013 
currently have LEIs and are likely to maintain these LEIs in the 
absence of Regulation

[[Page 14711]]

SBSR.\1294\ Therefore, the Commission believes that no more than 
approximately 1,300 DTCC-TIW accounts will have to obtain LEIs in order 
to comply with Rule 903(a). For these participants, the assignment of 
an LEI will result in one-time costs assessed by local operation units 
(``LOUs'') of the GLEIS associated with registering a new LEI. In 
addition to registration costs, LOUs assess an annual fee for LEI 
maintenance. The Commission assumes that no market participants that 
currently have LEIs would continue to maintain their LEIs in the 
absence of Rule 903(a) in order to arrive at an upper bound on the 
ongoing costs associated with Rule 903(a).
---------------------------------------------------------------------------

    \1294\ See supra note 1109. Commission staff used counterparty 
information provided by Avox to match account numbers in the DTCC-
TIW 2013 transactions data to their LEIs. Of 4,760 participating 
accounts, 3,533 had LEI information in their Avox counterparty 
record.
---------------------------------------------------------------------------

    The prices for registering a new LEI and maintaining an existing 
LEI vary by LOU. Commission staff collected registration and 
maintenance charges for nearly all of the pre-LOUs currently endorsed 
by the interim GLEIS.\1295\ Based on these charges, the Commission 
estimates a per-entity registration cost of between $84 and $220 and a 
per-entity maintenance cost of between $48 and $156.\1296\
---------------------------------------------------------------------------

    \1295\ See ``Endorsed Pre-LOUs of the Interim Global Legal 
Entity Identifier System (GLEIS)'', January 2, 2015 (available at 
http://www.leiroc.org/publications/gls/lou_20131003_2.pdf).
    \1296\ Commission staff converted all foreign currency amounts 
to U.S. dollars and added taxes and surcharges where these amounts 
were available.
---------------------------------------------------------------------------

    The Commission is aware of two factors that may reduce these costs 
over time. First, the GLEIS operates on a cost-recovery model. If the 
marginal cost of an LEI is low, then an increase in the volume of LEIs 
will reduce the average cost of obtaining an LEI. These cost savings 
will be passed through to market participants in the form of lower 
prices. Second, the ability of market participants to port LEIs to the 
LOU of their choice will result in competitive pressure that may limit 
the prices that LOUs are able to charge for services. The governance 
system of the GLEIS is in place to help ensure that these economic 
factors will be operative.
    The Commission expects that, in addition to the costs of obtaining 
an LEI from an LOU, each entity that registers a new LEI as a result of 
Rule 903(a) will incur start-up and ongoing administrative costs of no 
more than $334 per year.\1297\ The Commission believes, therefore, that 
the upper bound on aggregate costs to market participants arising from 
the obligation to obtain an LEI lies between $500,000 and $700,000 in 
the first year and between $1,600,000 and $2,100,000 in subsequent 
years.\1298\
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    \1297\ This estimate is based on one hour of a compliance 
attorney at $334 per hour and is based upon data from SIFMA's 
Management & Professional Earnings in the Securities Industry 2013 
(modified by the SEC staff to account for an 1,800-hour-work-year 
and multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead).
    \1298\ The lower end of the range for costs in the first year is 
calculated as: [(LEI Registration) $84 + (Administration) $334] x 
1,300 participants = $543,400. The upper end of the range for costs 
in the first year is calculated as: [(LEI Registration) $220 + 
(Administration) $334] x 1,300 participants = $720,200. The lower 
end of the range for costs in subsequent years is calculated as: 
[(LEI Maintenance) $48 + (Administration) $334] x 4,800 participants 
= $1,833,600. The upper end of the range for costs in subsequent 
years is calculated as: [(LEI Maintenance) $156 + (Administration) 
$334] x 4,800 participants = $2,352,000.
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5. Cross-Border Aspects of Regulation SBSR
    Rule 908(a)(1), as adopted, identifies the security-based swaps 
that will be subject to regulatory reporting and public dissemination. 
Rule 908(a)(2), as adopted, identifies the security-based swaps that 
will be subject to regulatory reporting but will not be publicly 
disseminated. Rule 908(b) provides that non-U.S. persons (except for 
non-U.S. persons that are registered security-based swap dealers or 
registered major security-based swap participants) have no duties under 
Regulation SBSR. Rule 908(c) provides that the Title VII requirements 
relating to regulatory reporting and public dissemination of security-
based swaps may be satisfied by compliance with the rules of a foreign 
jurisdiction if the Commission determines that the jurisdiction has 
requirements that are comparable to those of Regulation SBSR.
    As discussed further in Section XXII(D), the security-based swap 
market is a global market characterized by a high level of 
interconnectedness and significant information asymmetries. Because 
U.S. market participants and transactions regulated under Title VII are 
a subset of the overall global security-based swap market and the swap 
markets more generally, concerns surrounding risk and liquidity 
spillovers are part of the framework in which the Commission analyzes 
the effects of these rules. Additionally, relevant authorities in other 
jurisdictions are currently engaged in implementing their own 
regulatory reforms of the OTC derivatives markets. Because a large 
portion of security-based swap activity involves both U.S.-person and 
non-U.S. person counterparties, a key consideration in the Commission's 
analysis of the economic effects of these rules is the extent to which 
their application complements or conflicts with rules promulgated by 
foreign regulators.
a. Programmatic Benefits
    Rule 908 provides that a transaction will be subject to regulatory 
reporting if there is a direct or indirect counterparty on either or 
both sides that is a U.S. person, a registered security-based swap 
dealer, or a registered major security-based swap participant, or if 
the transaction is submitted to a clearing agency having its principal 
place of business in the United States.
    The Commission anticipates that regulatory data that it receives 
from registered SDRs will aid in its understanding of counterparty 
relationships in the global security-based swap market that are most 
likely to affect the U.S. financial markets. Such market data will 
allow the Commission to view, for example, large security-based swap 
exposures of U.S. persons, registered security-based swap dealers, 
registered major security-based swap participants, and U.S. clearing 
agencies that could have the potential to destabilize U.S. financial 
markets. Moreover, because registered security-based swap dealers and 
members of U.S. clearing agencies are likely to participate in other 
asset markets, regulatory reporting could help the Commission estimate 
the risk that a corporate event could impair the ability of these 
market participants to trade in other asset markets. An improved 
ability to measure such risks could help the Commission evaluate the 
ability of the Title VII regulatory regime to limit the risk of 
contagion between the security-based swap market and other asset 
markets.
    A second key programmatic benefit of regulatory reporting is that 
it would aid the Commission in detecting and taking appropriate action 
against market abuse. With comprehensive data on transaction volumes 
and prices involving U.S. persons, the Commission could help ensure 
that all market participants are able to benefit from the risk-sharing 
afforded by the security-based swap market on fair terms.
    Finally, security-based swap transaction data reported to 
registered SDRs would aid the Commission and other relevant authorities 
in enforcing other Title VII rules and deter noncompliance. For 
example, the Cross-Border Adopting Release set forth de minimis levels 
of activity and exposures above which market participants would have to 
either register as security-based swap dealers or as major security-
based

[[Page 14712]]

swap participants.\1299\ Regulatory reporting could help deter 
participants that engage in high transaction volume with counterparties 
that are expected to have a significant portion of their financial and 
legal relationships exist within the United States from avoiding the 
obligation to register with the Commission when their activity 
surpasses these thresholds.
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    \1299\ See Cross-Border Adopting Release, 79 FR 47301.
---------------------------------------------------------------------------

    Rule 908(a)(2) determines the scope of transactions subject to 
public dissemination requirements. A security-based swap must be 
publicly disseminated if there is a direct or indirect counterparty 
that is a U.S. person on either or both sides of the transaction, or if 
the transaction is submitted to a clearing agency having its principal 
place of business in the United States. Certain of the programmatic 
benefits of public dissemination are similar to those of regulatory 
reporting. For instance, public dissemination of transaction prices 
will enable U.S. persons to compare a quote provided by a registered 
security-based swap dealer against recent transaction prices for 
security-based swaps referencing the same or similar underlying 
entities. In addition, market participants will be able to analyze 
whether the price they paid for credit protection is commensurate with 
prices revealed by transaction activity immediately following their 
transaction. In both of these cases, public dissemination enables 
market participants to evaluate the quality of the prices that dealers 
offer, providing registered security-based swap dealers with additional 
incentives to quote narrower spreads.
    Rule 908(c) provides that the Title VII requirements relating to 
regulatory reporting and public dissemination of security-based swaps 
may be satisfied by compliance with the rules of a foreign jurisdiction 
if the Commission determines that the jurisdiction has requirements 
that are comparable to those of Regulation SBSR. In addition, to the 
extent that a market participant is able to take advantage of a 
substituted compliance determination made under Rule 908(c), the 
Commission does believe some cost reduction may be realized. If a 
market participant does not report to an SDR registered with the 
Commission, such market participant (whether it be a reporting side or 
not) would be able to avoid those costs detailed in this adopting 
release. A market participant evaluating whether or not to take 
advantage of substituted compliance would consider these potential cost 
reductions along with the costs it would incur in assessing the 
feasibility of substituted compliance and meeting any conditions 
attached to a substituted compliance determination by the 
Commission.\1300\ While, the Commission is, at this time, unable to 
estimate the net savings--as no substituted compliance determinations 
have been made--the highest level of savings possible for a reporting 
side that avails itself of substituted compliance is the aggregate cost 
of regulatory reporting under the final rules.\1301\
---------------------------------------------------------------------------

    \1300\ See Cross-Border Proposing Release, 78 FR 31202.
    \1301\ See supra Section XXII(C)(1) (discussing the quantifiable 
costs of regulatory reporting).
---------------------------------------------------------------------------

b. Programmatic Costs
    Rules 908(a)(1) and (2) require regulatory reporting of 
transactions that involve U.S. person counterparties, are submitted to 
U.S. clearing agencies, or that involve registered security-based swap 
dealers or registered major security-based swap participants.
    Other jurisdictions are developing rules relating to post-trade 
transparency for security-based swaps at different paces. The 
Commission is mindful that, in the near term and until full 
implementation of post-trade transparency requirements in the other 
jurisdictions that are comparable to those in Regulation SBSR, Rule 
908(a)(1) may intensify incentives for non-U.S. market participants to 
avoid contact with U.S. counterparties (whether acting directly or as 
guarantors of non-U.S. persons) in an effort to avoid the public 
dissemination requirements. This could result in reduced liquidity for 
U.S. market participants.\1302\
---------------------------------------------------------------------------

    \1302\ The efficiency implications for public dissemination of 
cross-border activity is discussed in Section XXII(D)(4)(b), infra.
---------------------------------------------------------------------------

    The Commission cannot readily quantify the costs that might result 
from reduced market access for U.S. persons or counterparties whose 
security-based swap activities benefit from recourse to U.S. persons 
because the Commission does not know what rules other jurisdictions may 
implement or the times at which they may implement their rules. 
However, while the Commission has not quantified these costs, it 
assessed them qualitatively and considered them in formulating the 
scope for requirements under the final rules.\1303\
---------------------------------------------------------------------------

    \1303\ See Cross-Border Adopting Release, 79 FR 47278-372 
(discussing recourse guarantees).
---------------------------------------------------------------------------

    As discussed in Section XXII(C)(5), supra, the Commission believes 
that most of the costs related to the cross-border application of 
Regulation SBSR are subsumed in the costs of Rules 901 and 902, with 
one exception. Specifically, requests for a substituted compliance 
determination would result in costs of preparing such requests. The 
Commission estimates the costs of submitting a request pursuant to Rule 
908(c) would be approximately $110,000.\1304\ The Commission further 
estimates that it will receive 10 requests in the first year and two 
requests each subsequent year, for a total cost in the first year of 
$1,100,000 and a total cost in each subsequent year of $220,000. Once 
such request is made, however, other market participants in the same 
jurisdiction that wish to rely on substituted compliance with respect 
to regulatory reporting and public dissemination would be able to rely 
on the Commission's substituted compliance determination. Accordingly, 
the assessment costs would only need to be incurred once with respect 
to the same area of a foreign regulatory system.
---------------------------------------------------------------------------

    \1304\ This estimate is based on information indicating that the 
average costs associated with preparing and submitting an 
application to the Commission for an order for exemptive relief 
under Section 36 of the Exchange Act in accordance with the 
procedures set forth in Rule 0-12 under the Exchange Act, 17 CFR 
240.0-12. A substituted compliance request contemplated by Rule 
908(c) would be made under Rule 0-13 under the Exchange Act, which 
sets forth procedures similar to those used by the Commission in 
considering exemptive order applications under Section 36. The 
Commission estimates that preparation of a request would require 
approximately 80 hours of in-house counsel time and 200 hours of 
outside counsel time. Such estimate takes into account the time 
required to prepare supporting documents necessary for the 
Commission to make a substituted compliance determination, 
including, without limitation, information regarding applicable 
requirements established by the foreign financial regulatory 
authority or authorities, as well as the methods used by the foreign 
financial regulatory authority or authorities to monitor compliance 
with these rules. Based upon data from SIFMA's Management & 
Professional Earnings in the Securities Industry 2013 (modified by 
the SEC staff to account for an 1,800-hour work-year and multiplied 
by 5.35 to account for bonuses, firm size, employee benefits, and 
overhead), the Commission estimates that the average national hourly 
rate for an in-house attorney is $380. The Commission estimates the 
costs for outside legal services to be $400 per hour. Accordingly, 
the Commission estimates the total cost to submit a request for a 
substituted compliance determination to be approximately $110,000 
($30,400 (based on 80 hours of in-house counsel time x $380) + 
$80,000 (based on 200 hours of outside counsel time x $400)).
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c. Assessment Costs
    The Commission believes that the assessment costs associated with 
determining the status of counterparties and the location of 
transactions should be primarily one-time costs of establishing a 
practice or compliance procedure. As discussed in the Cross-Border 
Proposing Release,\1305\ the

[[Page 14713]]

assessment costs associated with the substituted compliance would, in 
part, flow from the assessment of whether the counterparties to a 
security-based swap transaction satisfy the conditions of Rule 908(a). 
This assessment may be done by an in-house counsel reviewing readily 
ascertainable information. The Commission believes that the cost 
involved in making such assessment should not exceed one hour of in-
house counsel's time or $380.\1306\
---------------------------------------------------------------------------

    \1305\ See Cross-Border Proposing Release, 78 FR 31202.
    \1306\ See id., note 1954.
---------------------------------------------------------------------------

    The Commission believes that market participants will likely incur 
costs arising from the need to identify and maintain records concerning 
the status of their counterparties and the location of any clearing 
agency used. The Commission anticipates that potential applicants for 
substituted compliance are likely to request representations from their 
transaction counterparties to determine the counterparties' status. The 
Commission believes that the assessment costs associated with 
determining the status of counterparties should be primarily one-time 
costs of establishing a practice or compliance procedure of requesting 
and collecting representations from trading counterparties and 
maintaining the representations collected as part of the recordkeeping 
procedures and limited ongoing costs associated with requesting and 
collecting representations.\1307\ As discussed in the Cross-Border 
Proposing Release, the Commission believes that such one-time costs 
would be approximately $15,160.\1308\ The Commission believes that 
requesting and collecting representations would be part of the 
standardized transaction process reflected in the policies and 
procedures regarding security-based swap sales and trading practices 
and should not result in separate assessment costs.\1309\ To the extent 
that market participants have incurred costs relating to similar or 
same assessments for other Title VII requirements, their assessment 
costs with respect to substituted compliance may be less.
---------------------------------------------------------------------------

    \1307\ See id. at 31203.
    \1308\ See id.
    \1309\ See id., note 1957.
---------------------------------------------------------------------------

6. Other Programmatic Effects of Regulation SBSR
a. Operating Hours of Registered SDRs--Rule 904
    Paragraphs (c) to (e) of Rule 904 specify requirements for 
receiving, handling, and disseminating reported data during a 
registered SDR's normal and special closing hours. The Commission 
believes that these provisions will provide benefits in that they 
clarify how security-based swaps executed while a registered SDR is in 
normal or special closing hours would be reported and disseminated. The 
Commission believes that the costs of requirements under these rules 
will be related to providing notice to participants of its normal and 
special closing hours and to provide notice to participants that the 
SDR is available to accept transaction data after its system is 
unavailable.
    One commenter asserted that the proposed requirement for a 
registered SDR to receive and hold in the queue the data required to be 
reported during its closing hours ``exceeds the capabilities of 
currently-existing reporting infrastructures.'' \1310\ However, the 
Commission notes that this comment was submitted in January 2011; since 
the receipt of this comment, swap data repositories that are 
provisionally registered with the CFTC that are likely also to register 
as SDRs with the Commission appear to have developed the capability of 
receiving and holding data in queue during their closing hours.\1311\ 
Thus, the Commission continues to believe that requiring registered 
SDRs to hold data in queue during their closing hours would not create 
a significant burden for registered SDRs.
---------------------------------------------------------------------------

    \1310\ Markit I at 4.
    \1311\ See supra note 668.
---------------------------------------------------------------------------

    Rule 904, as adopted, requires a registered SDR to have systems in 
place to receive and disseminate information regarding security-based 
swap data on a near-continuous basis, except during ``normal closing 
hours'' and ``special closing hours.'' A registered SDR will be 
permitted to establish ``normal closing hours,'' which may occur only 
when, in the estimation of the registered SDR, the U.S. markets and 
other major markets are inactive. In addition, a registered SDR will be 
permitted to declare, on an ad hoc basis, special closing hours to 
perform routine system maintenance, subject to certain requirements. 
The re-proposal of Regulation SBSR in the Cross-Border Proposing 
Release only made minor technical changes to Rule 904.
    The Commission continues to believe that a registered SDR will not 
incur significant costs in connection with Rule 904. The requirement 
for a registered SDR to provide reasonable advance notice to 
participants and to the public of its normal and special closing hours, 
and to provide notice to participants that the SDR is available to 
accept transaction data after its system was unavailable will likely 
entail only a modest annual cost. The Commission estimates that the 
ongoing aggregate annual cost would be $45,000, which corresponds to 
$4,500 per registered SDR.\1312\
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    \1312\ The Commission derived this number as follows: 
[(Operations Specialist (36 hours) at $125 per hour) x (10 
registered SDRs)] = $45,000, which corresponds to $4,500 per 
registered SDR.
---------------------------------------------------------------------------

    The Commission does not believe there are significant one-time 
costs related to Rule 904. The Commission believes that, other than the 
costs related to the notice provisions cited above, any additional 
costs are subsumed in the costs associated with Rules 901 and 902. For 
example, the requirement for reporting sides to report information to 
the registered SDR upon receiving a notice that the registered SDR has 
resumed its normal operations would be part of the reporting sides' 
reporting obligations under Rule 901. The requirement to disseminate 
transaction reports held in queue should not present any costs in 
addition to those already contained in Rule 902. The Commission 
believes that the systems of the SDR would already have to account for 
system upgrades and maintenance, power outages, system overloads or 
other malfunctions or contingencies and as a result there would not be 
any additional quantifiable costs to also account for normal closing 
hours. Furthermore, to the extent that market participants have already 
expended resources in anticipation of the adoption of Regulation SBSR, 
the costs could be significantly lower. As a result, the Commission's 
estimates should be viewed as an upper bound of the potential costs of 
Regulation SBSR.
    After reviewing comment letters received in response to the 
Regulation SBSR Proposing Release and the Cross-Border Proposing 
Release, the Commission continues to believe that these cost estimates 
pertaining to Rule 904, as adopted, remain valid. The Commission has 
received no comments to the contrary.
b. Error Reporting--Rule 905
    Rule 905 requires any counterparty to a security-based swap that 
discovers an error in previously-reported information to take action to 
ensure that corrected information is provided to the registered SDR to 
which the initial transaction was reported. The rule also requires a 
registered SDR to verify any error reports that it receives and correct 
and, if necessary, publicly disseminate a corrected transaction report. 
This rule should enhance the overall reliability of security-based swap 
transaction data that must be maintained by registered

[[Page 14714]]

SDRs. For registered SDRs, the ability to verify disputed information, 
process a transaction report cancellation, accept a new security-based 
swap transaction report, and update relevant records are all 
capabilities that the registered SDR must implement to comply with its 
obligations under Regulation SBSR. Likewise, to comply with Rule 905, a 
registered SDR must disseminate a corrected transaction report in 
instances where the initial report included erroneous primary trade 
information. This will allow market observers to receive updated 
transaction information from the same source that publicly disseminated 
the original transaction and allow them to integrate updated 
transaction information into their understanding of the security-based 
swap market.
    Requiring participants to promptly correct erroneous transaction 
information should help ensure that the Commission and other relevant 
authorities have an accurate view of risks in the security-based swap 
market. Correcting inaccurate security-based swap transaction data held 
by a registered SDR also could benefit market participants by helping 
them to accurately value the security-based swaps they carry on their 
books.
    The Commission believes that the costs of requirements under these 
rules will be related to developing and publicly providing the 
necessary protocols for carrying out error correction and reporting.
    Rule 905(a), as adopted, establishes procedures for correcting 
errors in reported and disseminated security-based swap information, 
recognizing that any system for transaction reporting must accommodate 
for the possibility that certain data elements may be incorrectly 
reported. Rule 905(b), as adopted, sets forth the duties of a 
registered SDR to verify disputed information and make necessary 
corrections. If the registered SDR either discovers an error in a 
transaction on its system or receives notice of an error from a 
counterparty, Rule 905(b)(1) requires the registered SDR to verify the 
accuracy of the terms of the security-based swap and, following such 
verification, promptly correct the erroneous information contained in 
its system. Rule 905(b)(2) will further require that, if the erroneous 
transaction information contained any data that fall into the 
categories enumerated in Rule 901(c) as information required to be 
reported, the registered SDR would be required to publicly disseminate 
a corrected transaction report of the security-based swap promptly 
following verification of the trade by the counterparties to the 
security-based swap.
    The Commission continues to believe that promptly submitting an 
amended transaction report to the appropriate registered SDR after 
discovery of an error as required under Rule 905(a)(2) will impose 
costs on reporting sides. Likewise, the Commission continues to 
believes that promptly notifying the relevant reporting side after 
discovery of an error as required under Rule 905(a)(1) will impose 
costs on non-reporting-party participants.
    With respect to reporting side, the Commission continues to believe 
that Rule 905(a) will impose an initial, one-time cost associated with 
designing and building the reporting entity's reporting system to be 
capable of submitting amended security-based swap transactions to a 
registered SDR. In addition, reporting sides will face ongoing costs 
associated with supporting and maintaining the error reporting 
function.\1313\
---------------------------------------------------------------------------

    \1313\ The Commission continues to believe that the actual 
submission of amended transaction reports required under Rule 
905(a)(2) would not result in material, independent costs because 
this would be done electronically though the reporting system that 
the reporting party must develop and maintain to comply with Rule 
901. The costs associated with such a reporting system are addressed 
in the Commission's analysis of Rule 901. See supra Section 
XXII(C)(1)(b).
---------------------------------------------------------------------------

    The Commission continues to believe that designing and building 
appropriate reporting system functionality to comply with Rule 
905(a)(2) will be a component of, and represent an incremental ``add-
on'' to, the cost to build a reporting system and develop a compliance 
function as required under Rule 901.
    The Commission estimates this incremental burden to be equal to 5% 
of the one-time and annual costs associated with designing and building 
a reporting system that is in compliance with Rule 901,\1314\ plus 10% 
of the corresponding one-time and annual costs associated with 
developing the reporting side's overall compliance program required 
under Rule 901.\1315\ Thus, for reporting sides, the Commission 
estimates that Rule 905(a) will impose an initial (first-year) 
aggregate cost of $3,547,500, which is approximately $11,825 per 
reporting side,\1316\ and an ongoing aggregate annual cost of 
$1,192,500, which is approximately $4,000 per reporting side.\1317\
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    \1314\ See Regulation SBSR Proposing Release, 75 FR 75271-72.
    \1315\ See id.
    \1316\ This figure is calculated as follows: [((($49,000 one-
time reporting system development costs) x (0.05)) + (($2,500 annual 
maintenance of reporting system) x (0.05)) + (($54,000 one-time 
compliance program development) x (0.1)) + (($38,500 annual support 
of compliance program) x (0.1))) x (300 reporting sides)] = 
$3,547,500, or $11,825 per reporting side.
    \1317\ This figure is calculated as follows: [((($2,500 annual 
maintenance of reporting system) x (0.05)) + ((38,500 annual support 
of compliance program) x (0.1))) x (300 reporting sides)] = 
$1,192,500, or approximately $4,000 per reporting side.
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    With regard to participants who are not assigned the duty to report 
a particular transaction, the Commission believes that Rule 905(a) will 
impose an initial and ongoing cost associated with promptly notifying 
the relevant reporting side after discovery of an error as required 
under Rule 905(a)(1). The Commission estimates that such annual cost 
will be approximately $64,000,000, which corresponds to approximately 
$13,000 per participant.\1318\ This figure is based on the Commission's 
estimates of (1) 4,800 participants; and (2) 1.14 transactions per day 
per participant.\1319\
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    \1318\ This figure is based on the following: [(1.14 error 
notifications per non-reporting-side participant per day) x (365 
days/year) x (Compliance Clerk (0.5 hours/report) at $64 per hour) x 
(4,800 participants)] = $63,912,960, or approximately $64,000,000, 
which corresponds to approximately $13,000 per participant.
    \1319\ This figure is based on the following: [((2 million 
estimated annual security-based swap transactions)/(4,800 
participants))/(365 days/year)] = 1.14 transactions per day.
---------------------------------------------------------------------------

    Rule 905 also imposes duties on security-based swap counterparties 
and registered SDRs to correct errors in reported and disseminated 
information.
    The costs associated with establishing these capabilities, 
including systems development, support, and maintenance, are largely 
addressed in the Commission's analysis of those rules.\1320\ The 
Commission estimates that to develop and publicly provide the necessary 
protocols for carrying out these functions would impose on each 
registered SDR a cost of approximately $200,000.\1321\ The Commission 
estimates that to review and update such protocols will impose an 
annual cost on each registered SDR of $400,000.\1322\
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    \1320\ See SDR Adopting Release, Sections VIII and IX.
    \1321\ This figure is based on the following: [(Sr. Programmer 
(80 hours) at $303 per hour) + (Compliance Manager (160 hours) at 
$283 per hour) + (Compliance Attorney (250 hours) at $334 per hour) 
+ (Compliance Clerk (120 hours) at $64 per hour) + (Sr. Systems 
Analyst (80 hours) at $260 per hour) + (Director of Compliance (40 
hours) at $446 per hour) = $199,340, or approximately $200,000 per 
registered SDR.
    \1322\ This figure is based on the following: [(Sr. Programmer 
(160 hours) at $303 per hour) + (Compliance Manager (320 hours) at 
$283 per hour) + (Compliance Attorney (500 hours) at $334 per hour) 
+ (Compliance Clerk (240 hours) at $64 per hour) + (Sr. Systems 
Analyst (160 hours) at $260 per hour) + (Director of Compliance (80 
hours) at $446 per hour)] = $398,680, or approximately $400,000 per 
registered SDR.
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    Accordingly, the Commission estimates that the initial aggregate

[[Page 14715]]

annual cost on registered SDRs under Rule 905, as adopted, will be 
approximately $6,000,000, which corresponds to approximately $600,000 
for each registered SDR.\1323\ The Commission further estimates that 
the ongoing aggregate annual cost on registered SDRs under Rule 905, as 
adopted, will be approximately $4,000,000, which corresponds to 
approximately $400,000 for each registered SDR.
---------------------------------------------------------------------------

    \1323\ This figure is based on the following: [($199,340 to 
develop protocols) + ($398,680 for annual support)) x (10 registered 
SDRs)] = $5,980,200, or approximately $6,000,000, which corresponds 
to approximately $600,000 per registered SDR.
---------------------------------------------------------------------------

c. Other Participants' Duties--Rule 906
    Rule 906(a) requires a registered SDR to send a notice to security-
based swap counterparties that are participants of that SDR about any 
UIC information missing from transaction reports. Rule 906(a) also 
obligates such participants to provide the missing UIC information to 
the registered SDR upon receipt of such notice. Rule 906(a) is designed 
to enable a registered SDR to obtain a complete record of the necessary 
information for each security-based swap transaction and thereby enable 
the Commission and other relevant authorities to obtain a comprehensive 
picture of security-based swap transactions, which will facilitate 
surveillance and supervision of the security-based swap markets. More 
complete security-based swap records may provide the Commission 
necessary information to investigate specific transactions and market 
participants.
    Rule 906(b) is designed to enhance the Commission's ability to 
monitor and surveil the security-based swap markets by requiring each 
participant of a registered SDR to report the identity of its ultimate 
parent and any affiliates that also are participants of that registered 
SDR. Obtaining this ultimate parent and affiliate information will be 
helpful for understanding the risk exposures of not only individual 
participants, but also for related participants operating within a 
larger financial group. The Commission expects these costs of requiring 
participants to provide ultimate parent and affiliate information to 
registered SDRs will be modest and, in any event, believes that the 
costs of providing this information are justified. Having information 
on the ultimate parent and affiliate would enhance the ability of the 
Commission to monitor security-based swap exposures within ownership 
groups, allowing it to better assess the overall risk exposure of these 
groups. The Commission is also attempting to reduce these burdens by 
requiring participants to report the identity only of their ultimate 
parent(s) but not any intermediate parent(s). The Commission further 
notes that a participant is not required to provide any information 
about an affiliate, other than its counterparty ID.\1324\ The 
participant is not required to provide any transaction or other 
information on the affiliate's behalf.
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    \1324\ The Commission does not believe that the change in Rule 
906(b) from ``participant ID'' to ``counterparty ID'' will result in 
any change in the cost to participants. The information to be 
provided is similar in scope and will, in the Commission's 
estimation, better accomplish the objective of ensuring that a 
registered SDR can identify each counterparty to a security-based 
swap.
---------------------------------------------------------------------------

    Rule 906(c) is designed to enhance the overall reliability 
security-based swap transaction data that is required to be reported to 
a registered SDR pursuant to Rule 901 by requiring registered security-
based swap dealers and registered major security-based swap 
participants to establish, maintain, and enforce written policies and 
procedures addressing compliance with Regulation SBSR. Rule 901(a) 
should result in reliable reporting of security-based swap transaction 
data by requiring key participants to focus internal procedures on the 
reporting function. Reliable reporting would benefit counterparties, 
relevant authorities, and the market generally, by reducing the 
likelihood of errors in regulatory and publicly disseminated data. This 
could allow relevant authorities and the public to have confidence in 
the data and minimize the need to make corrections in the future.
    The Commission believes that the costs of requirements under these 
rules will be related to developing the written policies and procedures 
necessary to satisfy Rule 901's reporting requirements. Once 
development is complete, SDRs will face ongoing costs associated with 
maintaining and enforcing these policies and procedures.
    Rule 906(a) requires a registered SDR, once a day, to send a report 
to each participant identifying, for each security-based swap to which 
that participant is a counterparty, any security-based swap(s) for 
which the registered SDR lacks counterparty ID and (if applicable) 
broker ID, trading desk ID, and trader ID. Rule 906(a) requires a 
participant that receives such a report to provide the missing 
information to the registered SDR within 24 hours. Rule 906(b) requires 
participants to provide a registered SDR with information identifying 
the participant's affiliate(s) that are also participants of the 
registered SDR, as well as its ultimate parent(s). Additionally, under 
Rule 906(b), participants are required to promptly notify the 
registered SDR of any changes to the information previously provided. 
Rule 906(c) requires a participant that is a registered security-based 
swap dealer or registered major security-based swap participant to 
establish, maintain, and enforce written policies and procedures that 
are reasonably designed to ensure compliance with any security-based 
swap transaction reporting obligations in a manner consistent with 
Regulation SBSR.
    Rule 906(a) requires a participant that receives a daily report 
from a registered SDR to provide the missing UICs to the registered SDR 
within 24 hours. The Commission believes that Rule 906(a) will result 
in an initial and ongoing aggregate annual cost for all participants 
since even participants that are the reporting side for some 
transactions will be the non-reporting side for other transactions. The 
Commission estimates that Rule 906(a) will result in an initial and 
ongoing aggregate annual cost for participants of approximately 
$12,800,000, which corresponds to a cost of approximately $2,700 per 
participant.\1325\ This figure was based on the Commission's 
preliminary estimates of (1) 4,800 participants and (2) 1.14 
transactions per day per participant.\1326\
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    \1325\ This figure is based on the following: [(1.14 missing 
information reports per participant per day) x (365 days/year) x 
(Compliance Clerk (0.1 hours) at $64 per hour) x (4,800 
participants)] = $12,782,592, or approximately $12,800,000, which 
corresponds to approximately $2,700 per participant.
    \1326\ This figure is based on the following: [((2 million 
estimated annual security-based swap transactions)/(4,800 
participants))/(365 days/year)] = 1.14 transactions per day. See 
supra Section XXI.
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    Rule 906(b) requires every participant to provide a registered SDR 
an initial parent/affiliate report, using ultimate parent IDs and 
counterparty IDs, and updating that information, as necessary. The 
Commission continues to believe that the cost for each participant to 
submit an initial or update report will be $32.\1327\ The Commission 
estimates that each participant will submit two reports each 
year.\1328\ In addition, the Commission estimates that there may be 
4,800 security-based swap participants and that each one may connect to 
two registered SDRs. Accordingly, the Commission estimates that the 
initial and ongoing aggregate annual cost

[[Page 14716]]

associated with Rule 906(b) will be $614,400, which corresponds to $128 
per participant.\1329\
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    \1327\ This figure is based on the following: [(Compliance Clerk 
(0.5 hours) at $64 per hour) x (1 report)] = $32.
    \1328\ During the first year, the Commission believes each 
participant would submit its initial report and one update report. 
In subsequent years, the Commission estimates that each participant 
would submit two update reports.
    \1329\ This figure is based on the following: [($32/report) x (2 
reports/year/registered SDR connection) x (2 registered SDR 
connections/participant) x (4,800 participants)] = $614,400, which 
corresponds to $128 per participant.
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    Rule 906(c) requires each participant of a registered SDR that is a 
registered security-based swap dealer or registered major security-
based swap participant to establish, maintain, and enforce written 
policies and procedures that are reasonably designed to ensure 
compliance with any security-based swap transaction reporting 
obligations in a manner consistent with Regulation SBSR.\1330\ Rule 
906(c) also requires the review and updating of such policies and 
procedures at least annually. The Commission continues to estimate that 
developing and implementing written policies and procedures as required 
under the Rule 906 could result in a one-time initial cost to each 
registered security-based swap dealer or registered major security-
based swap participant of approximately $58,000.\1331\ This figure 
includes the estimated cost to develop a set of written policies and 
procedures, program systems, implement internal controls and oversight, 
train relevant employees, and perform necessary testing.\1332\ In 
addition, the Commission estimates that the annual cost to maintain 
such policies and procedures, including a full review at least 
annually, as required under the adopted rule, will be approximately 
$34,000 for each registered security-based swap dealer or registered 
major security-based swap participant.\1333\ This figure is based on an 
estimate of the cost to review existing policies and procedures, make 
any necessary updates, conduct ongoing training, maintain relevant 
systems and internal controls systems, and perform necessary testing.
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    \1330\ As is explained in the Paperwork Reduction Act 
discussion, the Commission estimates that there will be 
approximately 50 registered security-based swap dealers and 5 
registered major security-based swap participants for a total of 55 
respondents. See supra Section XXII(C)(1)(b)(i).
    \1331\ The Commission derived its estimate from the following: 
[(Sr. Programmer (40 hours) at $303 per hour) + (Compliance Manager 
(40 hours) at $283 per hour) + (Compliance Attorney (40 hours) at 
$334 per hour) + (Compliance Clerk (40 hours) at $64 per hour) + 
(Sr. Systems Analyst (32 hours) at $260 per hour) + (Director of 
Compliance (24 hours) at $446 per hour)] = $58,384, or approximately 
$58,000 per covered participant.
    \1332\ See Cross-Border Proposing Release, 78 FR 30994, note 
256.
    \1333\ The Commission derived its estimate from the following: 
[(Sr. Programmer (8 hours) at $303 per hour) + (Compliance Manager 
(24 hours) at $283 per hour) + (Compliance Attorney (24 hours) at 
$334 per hour) + (Compliance Clerk (24 hours) at $64 per hour) + 
(Sr. Systems Analyst (16 hours) at $260 per hour) + (Director of 
Compliance (24 hours) at $446 per hour)] = $33,632, or approximately 
$34,000 per covered participant.
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    Accordingly, the Commission estimates that the initial aggregate 
annual cost associated with Rule 906(c) would be approximately 
$5,060,000, which corresponds to $92,000 per covered participant.\1334\ 
The Commission further estimates that the ongoing aggregate annual cost 
associated with Rule 906(c) will be approximately $1,870,000, which 
corresponds to $34,000 per covered participant.\1335\
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    \1334\ The Commission derived its estimate from the following: 
[($58,000 + $34,000) x (55 covered participants)] = $5,060,000, or 
approximately $92,000 per covered participant.
    \1335\ The Commission derived its estimate from the following: 
[($34,000) x (55 covered participants)] = $1,870,000.
---------------------------------------------------------------------------

    Rule 906(a) requires a registered SDR, once a day, to send a report 
to each participant identifying, for each security-based swap to which 
that participant is a counterparty, the security-based swap(s) for 
which the registered SDR lacks counterparty ID and (if applicable) 
broker ID, branch ID, execution agent ID, trading desk ID, and trader 
ID. Under Rule 906(a), a participant that receives such a report will 
be required to provide the missing ID information to the registered SDR 
within 24 hours.
    The Commission believes that each registered SDR would face a one-
time, initial cost of approximately $33,000 to create a report template 
and develop the necessary systems and processes to produce a daily 
report required by Rule 906(a).\1336\ The Commission further believes 
that there will be an ongoing annual cost for a registered SDR to 
generate and issue the daily reports, and to enter into its systems the 
ID information supplied by participants in response to the daily 
reports, of approximately $30,000.\1337\
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    \1336\ The Commission derived its estimate from the following: 
[(Senior Systems Analyst (40 hours) at $260 per hour) + (Sr. 
Programmer (40 hours) at $303 per hour) + (Compliance Manager (16 
hours) at $283 per hour) + (Director of Compliance (8 hours) at $446 
per hour) + (Compliance Attorney (8 hours) at $334)] = $33,288, or 
approximately $33,000 per registered SDR.
    \1337\ The Commission derived its estimate from the following: 
[(Senior Systems Analyst (24 hours) at $260 per hour) + (Sr. 
Programmer (24 hours) at $303 per hour) + (Compliance Clerk (260 
hours) at $64 per hour)] = $30,152, or approximately $30,000 per 
registered SDR.
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    The Commission continues to estimate that the initial aggregate 
annual cost for registered SDRs associated with Rule 906(a) would be 
approximately $630,000, which corresponds to $63,000 per registered 
SDR.\1338\ The Commission estimates that the ongoing aggregate annual 
cost for registered SDRs associated with Rule 906(a) will be 
approximately $300,000, which corresponds to $30,000 per for registered 
SDR.
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    \1338\ The Commission derived its estimate from the following: 
[($33,288 + $30,152) x (10 registered SDRs)] = $634,400, or 
approximately $630,000, which corresponds to $63,440, or 
approximately $63,000 per registered SDR.
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d. Registered SDR Policies and Procedures--Rule 907
    Rule 907(a) requires a registered SDR to establish and maintain 
written policies and procedures with respect to the receipt, reporting, 
and dissemination of security-based swap transaction data pursuant to 
Regulation SBSR. Under Rules 907(a)(1) and (2), a registered SDR's 
policies and procedures must specify the data elements of a security-
based swap that must be reported and the reporting format that must be 
used for submitting information. Under Rule 907(a)(3), the registered 
SDR's policies and procedures must specify procedures for reporting 
life cycle events and corrections to previously submitted information. 
Rule 907(a)(4) requires policies and procedures for flagging 
transactions having special characteristics. Rules 907(a)(5) requires 
policies and procedures for assigning UICs in a manner consistent with 
Rule 903. Rule 907(a)(6) requires policies and procedures for 
periodically obtaining from each of its participants the ultimate 
parent and affiliate information required to be submitted to the SDR by 
Rule 906(b).
    By requiring SDRs to establish and maintain policies and procedures 
pursuant to Rule 907(a)(1), SDRs likely will have to consult with their 
participants in devising flexible and efficient methods of obtaining 
high quality transaction data from market participants. This rule 
allows SDRs to adjust their policies and procedures as market 
conventions and technologies change. For example, registered SDRs will 
have the flexibility to incorporate new reporting methodologies more 
quickly. In addition, Rule 907(a)(1) should reduce the likelihood that 
financial innovation that leads to a new security-based swap products 
will disrupt regulatory reporting and public dissemination of 
transaction information related to the new product.
    At the same time, the Commission believes that there are benefits 
to enforcing minimum standards for reporting transaction information, 
standards that will be established as a result of the requirement that 
SDRs develop policies and procedures in accordance with Rule 907. As 
noted in

[[Page 14717]]

Section XXII(B)(1)(a)(iii), the Commission anticipates that a small 
number of registered SDRs will serve the security-based swap market. 
These SDRs may enjoy market power relative to their participants, and 
we believe that imposing minimum standards on them is reasonable to 
mitigate the risk that imperfect competition leads to low quality data 
collection.
    Further, the requirement in Rule 907(c) that a registered SDR make 
publicly available on its Web site the policies and procedures required 
by Regulation SBSR will allow the public to better understand and 
interpret the data publicly disseminated by SDRs. For example, under 
Rule 907(a)(4)(i), a registered SDR will have policies and procedures 
that identify the characteristics of a security-based swap that could, 
in the fair and reasonable estimation of the registered SDR, cause a 
person without knowledge of these characteristics to receive a 
distorted view of the market. Making publicly available a description 
of the flags that it requires will allow the public to interpret the 
flags they observe in publicly disseminated data. Rule 907(d) requires 
registered SDRs to review, and update as necessary, the policies and 
procedures required by Regulation SBSR at least annually, and indicate 
the date on which they were last reviewed.
    Finally, Rule 907(e) requires a registered SDR to provide to the 
Commission, upon request, information or reports related to the 
timeliness, accuracy, and completeness of data reported to the 
registered SDR pursuant to Regulation SBSR and the registered SDR's 
policies and procedures established thereunder. Rule 907(e) will assist 
the Commission in examining for compliance with Regulation SBSR and in 
bringing enforcement or other administrative actions as necessary or 
appropriate. Required data submissions that are untimely, inaccurate, 
or incomplete could diminish the value of publicly disseminated reports 
that are designed to promote transparency and price discovery.
    The Commission believes that the costs of requirements under Rule 
907(a) are related to developing policies and procedures. Rules 907(c) 
and 907(d) require a registered SDR to update its policies and 
procedures as necessary and to post these policies and procedures on 
its Web site. Rule 907(e) requires a registered SDR to provide the 
Commission with information related to the timeliness, accuracy, and 
completeness of data reported to it pursuant to Regulation SBSR and the 
registered SDR's policies and procedures established thereunder.
    Under Regulation SBSR, registered SDRs have the flexibility to 
determine the precise means through which they will accept reports of 
security-based swap transaction data. Rather than setting--by rule--a 
fixed schedule of data elements that must be reported as well as the 
specific reporting language or reporting protocols that must be used, 
Regulation SBSR instead requires registered SDRs to establish and 
maintain policies and procedures that detail these requirements. 
Persons seeking to register as SDRs may have ongoing discussions with 
their participants--both before and after registration--about the 
appropriate means of permitting reporting in a manner that captures all 
the elements required by Rule 901 while minimizing the administrative 
burden on reporting sides. Also, the data elements necessary to 
understand a trade could evolve over time as new contracts are 
developed, or that the most efficient means of reporting also could 
evolve as new technologies or reporting languages are devised. In light 
of these considerations, the Commission believes that registered SDRs 
and, to the extent that SDRs seek discussion with them, market 
participants will be in a better position to define the necessary 
reporting elements over time as the security-based swap market evolves.
    As discussed above in Section IV, the Commission considered the 
alternative of requiring reporting parties to use a single reporting 
language or protocol in submitting data to registered SDRs, and three 
commenters encouraged the use of the FpML standard.\1339\
---------------------------------------------------------------------------

    \1339\ See DTCC II at 16; ISDA I at 4; ISDA/SIFMA I at 8.
---------------------------------------------------------------------------

    While specifying a single, acceptable standard would remove any 
ambiguity surrounding data formats that reporting parties could use for 
transaction reports, the Commission has chosen not to adopt such an 
approach, for three reasons. First, market participants may have 
preferences over the different open-source structured data formats 
available. By allowing registered SDRs to choose from among formats 
widely used by participants, the adopted approach allows SDRs to 
coordinate with their participants to select standards that allow 
reporting parties to efficiently carry out their obligations under Rule 
901. Second, allowing SDRs flexibility in the formats they accept 
should help ensure that they can accommodate innovations in the 
security-based swap market that lead to changes in data elements that 
must be reported under Rule 901. Third, the Commission believes that, 
so long as registered SDRs can make security-based swap transaction 
data accessible to the Commission using a uniform format and taxonomy, 
it may not be necessary to require reporting sides to report 
transaction data to registered SDRs using a single format or taxonomy. 
This approach gives a registered SDR the opportunity to differentiate 
its services by offering reporting sides the ability to report using 
different formats and taxonomies, if the SDR can convert these 
transaction reports into the uniform format and taxonomy pursuant to 
which the Commission will require the SDR to make transaction data 
accessible to the Commission.
    The Commission believes that ten registered SDRs will be subject to 
Rule 907, and that developing and implementing written policies and 
procedures as required under Rule 907, will result in an initial, one-
time cost to each registered SDR of approximately $4,100,000.\1340\ 
This figure includes the estimated cost to develop a set of written 
policies and procedures, program systems, implement internal controls 
and oversight, train relevant employees, perform necessary testing, 
monitor participants, and compile data. In addition, the Commission 
believes that its estimate for maintaining such policies and 
procedures, including a full review at least annually; making its 
policies and procedures publicly available on its Web site; and 
providing the Commission, upon request, information or reports related 
to the timeliness, accuracy, and completeness of data reported to it 
pursuant to Regulation SBSR, and the registered SDR's policies and 
procedures is reasonable. As a result, the Commission believes its 
preliminary estimate of approximately $8,200,000 for each registered 
SDR is valid.\1341\ This figure

[[Page 14718]]

is based on an estimate of the cost to review existing policies and 
procedures, make necessary updates, conduct ongoing training, maintain 
relevant systems and internal controls systems, perform necessary 
testing, monitor participants, and collect data.\1342\ Accordingly, the 
Commission estimates that the initial annual cost associated with Rule 
907 will be approximately $12,250,000 per registered SDR, which 
corresponds to an initial annual aggregate cost of approximately 
$122,500,000.\1343\ The Commission estimates that the ongoing annual 
cost associated with Rule 907 will be approximately $8,200,000 per 
registered SDR, which corresponds to an ongoing annual aggregate cost 
of approximately $82,000,000.\1344\ These figures are based, in part, 
on the Commission's experience with other rules that require entities 
to establish and maintain compliance with policies and 
procedures.\1345\
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    \1340\ The Commission derived its estimate from the following: 
[(Sr. Programmer (1,667 hours) at $303 per hour) + (Compliance 
Manager (3,333 hours) at $283 per hour) + (Compliance Attorney 
(5,000 hours) at $334 per hour) + (Compliance Clerk (2,500 hours) at 
$64 per hour) + (Sr. Systems Analyst (1,667 hours) at $260 per hour) 
+ (Director of Compliance (833 hours) at $446 per hour)] = 
$4,083,278, or approximately $4,100,000 per registered SDR. The 
Commission believes that potential SDRs that have similar policies 
and procedures in place may find that these costs would be lower, 
while potential SDRs that do not have similar policies and 
procedures in place may find that the potential costs would be 
higher.
    \1341\ The Commission derived its estimate from the following: 
[(Sr. Programmer (3,333 hours) at $303 per hour) + (Compliance 
Manager (6,667 hours) at $283 per hour) + (Compliance Attorney 
(10,000 hours) at $334 per hour) + Compliance Clerk (5,000 hours) at 
$64 per hour) + (Sr. Systems Analyst (3,333 hours) at $260 per hour) 
+ (Director of Compliance (1,667 hours) at $446 per hour)] = 
$8,166,722, or approximately $8,200,000 per registered SDR. The 
Commission believes that potential SDRs that have similar policies 
and procedures in place may find that these costs would be lower, 
while potential SDRs that do not have similar policies and 
procedures in place may find that the potential costs would be 
higher.
    \1342\ In the Regulation SBSR Proposing Release, the Commission 
also included ``calculate and publish block trade thresholds'' as 
one of the items in the list of items that an SDR would need to 
undertake on an ongoing basis with respect to its policies and 
procedures under Rule 907. See Regulation SBSR Proposing Release, 75 
FR 75276-77. Although the Commission is not adopting Rule 907(b) at 
this time, the costs discussed herein pertain to all of the policies 
and procedures of a registered SDR. The Commission does not believe 
that not adopting Rule 907(b), which applies only to policies and 
procedures relating to block trades, would have had a measureable 
impact on the costs related to developing the policies and 
procedures of the registered SDR. As a result, the Commission 
believes that its cost estimate continues to be valid.
    \1343\ The Commission derived its estimate from the following: 
[((4,083,278) + ($8,166,722)) x (10 registered SDRs)] = 
$122,500,000, or approximately $123,000,000.
    \1344\ The Commission derived its estimate from the following: 
[($8,166,722) x (10 registered SDRs)] = $81,667,220, or 
approximately $82,000,000.
    \1345\ See Cross-Border Proposing Release, 78 FR 30994, note 
256.
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    Finally, the Commission continues to believe that the Rule 907(e) 
requirement that a registered SDR must provide to the Commission, upon 
request, such information as the Commission determines necessary or 
appropriate for the Commission to perform the duties of the Commission, 
registered SDRs will incur costs. The Commission notes, however, that 
any such costs are already covered by rules governing SDRs adopted in 
the SDR Adopting Release and, thus, do not need to be separately 
considered here. Specifically, Rule 13n-5(b) requires a registered 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, and also to 
ensure that the transaction data and positions that it maintains are 
complete and accurate.\1346\ The Commission further believes that these 
capabilities will enable a registered SDR to provide the Commission 
information or reports as may be requested pursuant to Rule 907(e). The 
Commission believes that Rule 907(e) will not impose any costs on a 
registered SDR beyond those imposed by Rule 13n-5(b). Furthermore, to 
the extent that market participants have already expended resources in 
anticipation of the adoption of Regulation SBSR, the costs could be 
significantly lower. As a result, the Commission's estimates should be 
viewed as an upper bound of the potential costs of Regulation SBSR.
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    \1346\ See SDR Adopting Release, Rules 13n-5(b)(1)(iii) and 13n-
5(b)(3).
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    After reviewing comment letters received in response to the 
Regulation SBSR Proposing Release and the Cross-Border Proposing 
Release, as well as evaluating the most recent data available to the 
Commission, the Commission continues to believe that these cost 
estimates related to Rule 907, as adopted, remain valid.
e. SIP Registration by Registered SDRs--Rule 909
    Rule 909 requires a registered SDR to register with the Commission 
as a SIP. SIP registration of a registered SDR will help ensure fair 
access to important security-based swap transaction data reported to 
and publicly disseminated by the registered SDR. Specifically, 
requiring a registered SDR to register with the Commission as a SIP 
will subject it to Section 11A(b)(5) of the Exchange Act,\1347\ which 
provides that a registered SIP must notify the Commission whenever it 
prohibits or limits any person's access to its services. If the 
Commission finds that the person has been discriminated against 
unfairly, the Commission can require the SIP to provide access to that 
person.\1348\ Section 11A(b)(6) of the Exchange Act \1349\ also 
provides the Commission authority to take certain regulatory action as 
may be necessary or appropriate against a registered SIP.\1350\ 
Potential users of security-based swap market data will benefit from 
the Commission having the additional authority over a registered SDR/
SIP provided by Sections 11A(b)(5) and 11A(b)(6) to help ensure that 
these persons offer their security-based swap market data on terms that 
are fair and reasonable and not unreasonably discriminatory.
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    \1347\ 15 U.S.C. 78k-1(b)(5).
    \1348\ See 15 U.S.C. 78k-1(b)(5)(B).
    \1349\ 15 U.S.C. 78k-1(b)(6).
    \1350\ See supra note 994.
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    Because the Commission is adopting a revised Form SDR that 
incorporates certain requests for information derived from Form SIP and 
will not require submission of a separate Form SIP, all programmatic 
costs of completing Form SDR are included in the Commission's SDR 
Adopting Release.\1351\ As proposed and re-proposed, Regulation SBSR 
would have required the use of a separate form, existing Form SIP, for 
this purpose. In response to comments, however, the Commission is 
adopting a revised Form SDR that incorporates certain requests for 
information derived from Form SIP, and will not require submission of a 
separate Form SIP. All programmatic costs of completing Form SDR are 
scored in the SDR Adopting Release.\1352\ Therefore, final Rule 909 
itself imposes no programmatic costs on registered SDRs.
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    \1351\ See SDR Adopting Release, Section VIII(D)(1).
    \1352\ See id.
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7. Definitions--Rule 900
    The Commission believes that Rule 900 will not entail any material 
costs to market participants. Rule 900 defines terms used in Regulation 
SBSR and does not, in itself, impose any obligations or duties. To the 
extent that the scope of a particular definition subjects a person to 
one or more provisions of Regulation SBSR, the costs and benefits of 
that rule are assessed (and, where feasible, calculated) in light of 
the scope of persons affected. With respect to the definition of ``U.S. 
person,'' the Commission believes that the Commission's Title VII rules 
would benefit from having the same terms throughout and could, 
therefore, reduce assessment costs for market participants that might 
be subject to these rules.

D. Effects on Efficiency, Competition, and Capital Formation

1. Introduction
    Section 3(f) of the Exchange Act \1353\ requires the Commission, 
whenever it engages in rulemaking and is required to consider or 
determine whether an action is necessary or appropriate in the public 
interest, also to consider, in addition to the protection of investors, 
whether the action would promote efficiency, competition, and capital 
formation (``ECCF''). In addition, Section 23(a)(2) of the Exchange Act 
\1354\ requires the Commission, when making rules under

[[Page 14719]]

the Exchange Act, to consider the impact of such rules on competition. 
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.
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    \1353\ 15 U.S.C. 78c(f).
    \1354\ 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

    Regulation SBSR's effects on efficiency, competition, and capital 
formation are often closely related to one another, and it is difficult 
to distinguish between the effects of the final rules on each of these 
elements. For example, elements of a security-based swap market 
structure that foster competition between liquidity suppliers may 
result in narrower spreads and higher trading volume, eventually 
resulting in greater price efficiency. Similarly, a security-based swap 
market that provides low-cost opportunities for firms to hedge 
commercial and financial risks as a result of low implicit transaction 
costs may encourage capital formation by allowing these firms to share 
risks with market participants that are better able to bear them, 
thereby reducing their need to engage in precautionary savings. 
However, as the last example indicates, the final rules' effects on 
capital formation often arise indirectly through their effects on 
efficiency and competition.
    The following discussion of the effects of Regulation SBSR on 
efficiency, competition, and capital formation considers the regime 
that Regulation SBSR establishes for regulatory reporting and public 
dissemination as well as the particular means of implementation that 
the Commission has chosen, relative to alternative means of 
implementation considered. Because the various elements of these rules 
will affect the behavior of counterparties, infrastructure providers, 
and market participants in general, the Commission has considered the 
economic effects at each of these levels, including cases in which 
policy alternatives that may be privately efficient for individual 
actors, may nevertheless fail to be efficient for the overall market.
    Regulation SBSR establishes a regime for regulatory reporting and 
public dissemination of security-based swap transaction data. Under the 
final rules, the Commission and other relevant authorities will have 
access to detailed information about security-based swap transaction 
activity and about the risk exposures of security-based swap 
counterparties to both reference entities and to each other. At the 
same time, the public will enjoy unprecedented access to pricing and 
volume data of security-based swap transactions. Post-trade 
transparency in the security-based swap market will reduce information 
asymmetries, thereby allowing even small counterparties to base their 
trading decisions on information about activity in the broader market, 
which they would not be able to observe without post-trade 
transparency. Moreover, public dissemination of security-based swap 
transactions could be used as an input to economic decisions in other 
markets (e.g., the corporate equity or bond markets).
2. Regulatory Reporting
    As a result of the final rules, the Commission and other relevant 
authorities will have access, through registered SDRs, to comprehensive 
information about the security-based swap market. This information 
should improve relevant authorities' ability to oversee the security-
based swap market both for systemic risk purposes and to detect, deter, 
and address market abuse.
    Regulatory access to security-based swap data will facilitate 
monitoring of risk exposures with implications for financial stability 
that market participants do not internalize. For example, Regulation 
SBSR will provide relevant authorities with visibility into the 
security-based swap positions of a participant's ultimate parent. 
Regulation SBSR also will allow relevant authorities to detect unusual 
activity at a very granular level, by trading desk or even individual 
trader. Similarly, by filtering exposures to single-name CDS via the 
product ID, relevant authorities will be able to better understand any 
potential risk to financial stability that could arise if a corporate 
default triggers CDS payouts between counterparties. Information about 
the activity and exposures of security-based swap market participants 
could allow the Commission or other relevant authorities to take 
actions that reduce the likelihood of disruption to the smooth 
functioning of financial markets or to reduce the magnitude of such 
disruptions when they do occur.\1355\ If such disruptions also impair 
capital formation by reducing the ability or willingness of financial 
intermediaries or other market participants to borrow or lend, then 
market oversight that reduces financial instability may also facilitate 
capital formation.
---------------------------------------------------------------------------

    \1355\ See supra Section XXII(B)(1)(d) (describing current state 
of efficiency in the security-based swap market).
---------------------------------------------------------------------------

    The opacity of the security-based swap market can contribute to 
uncertainty during periods of financial crisis. In the absence of 
information about the outstanding obligations between counterparties to 
security-based swaps, financial market participants may face 
uncertainty over the extent to which large financial institutions are 
exposed to each other's credit risk. This environment may create 
incentives for financial market participants to reduce risk exposures 
and seek safer assets (such as cash or Treasury securities), which 
could lead to a significant reduction in investment in capital 
goods.\1356\ Under a robust regime of regulatory reporting, the 
Commission and other relevant authorities will have greater means to 
identify the extent of the relevant exposures and the interrelatedness 
of risks in the security-based swap market, which could be particularly 
important in times of financial stress. Providing relevant authorities 
access to information about outstanding obligations that result from 
security-based swap activity could allow these authorities to assist in 
the event of counterparty default. This knowledge could reduce market 
participants' uncertainty in times of stress, if, for example, it 
suggests to them a more orderly wind-down of risk exposures of the 
defaulting counterparty. To the extent that reduced uncertainty results 
in more efficient risk-sharing it may reduce market participants' 
demand for safe assets, as described above, and hence may improve the 
environment for capital formation.
---------------------------------------------------------------------------

    \1356\ If financial market participants invest their money in 
cash or Treasury securities, rather than riskier assets such as 
stocks or corporate bonds, this may make it more difficult for 
companies to raise capital and invest in capital goods.
---------------------------------------------------------------------------

    Regulatory reporting will also enable the Commission and other 
relevant authorities to improve their monitoring of market practices. 
This could have direct effects on competition in the security-based 
swap market. Absent regulation by the Commission and other relevant 
authorities, potential market participants may consider the potential 
costs of market abuse to be a barrier that discourages their entry into 
the security-based swap market. The knowledge that the Commission and 
other relevant authorities are able to conduct surveillance on the 
basis of regulatory reporting may lower their barriers to entry since 
surveillance and the resulting increased probability of detection may 
deter potential market abuse in the security-based swap market. This 
could result in broader participation and improved efficiency, 
competition, and capital formation due to the availability of more 
risk-sharing opportunities between market participants.

[[Page 14720]]

3. Public Dissemination
    Regulation SBSR establishes a requirement for public dissemination 
of security-based swap transaction information. Currently, public 
access to security-based swap transaction information is limited to 
aggregate pricing and volume data made available by clearing agencies 
and DTCC-TIW, as well as infrequent reporting by large multilateral 
organizations. There is no comprehensive or widely available source of 
transaction-by-transaction pricing and volume information.
    The Commission believes that public availability of pricing and 
volume data for individual security-based swaps, as required by Title 
VII, should promote efficiency and competition by enabling information 
produced by activity in the security-based swap markets to be used as 
an input to myriad economic decisions, when currently limited 
transaction information is generally available only to large dealers 
who observe customer order flow.\1357\ Thus, smaller market 
participants, being able to view all security-based swap transactions 
disseminated by registered SDRs, can observe from recently executed 
prices whether there may be profitable opportunities to enter the 
market, thereby increasing competition. In addition, a firm may use 
information about the pricing of CDS written on its debt to decide on 
the appropriate opportunity cost of capital to apply to the cash flows 
of new investment projects, thereby promoting efficiency. Similarly, a 
lender may use information about credit risk embedded in the pricing of 
CDS written on a borrower's existing debt to inform the lender's 
decision of whether or not to extend additional financing, thereby also 
promoting efficiency.
---------------------------------------------------------------------------

    \1357\ See supra Section XXII(B)(1)(d) (discussing sources of 
security-based swap information and efficiency in the current 
security-based swap market).
---------------------------------------------------------------------------

    As discussed in Section XXII(C)(2)(a), public dissemination of 
security-based swap transactions also may promote better valuation of 
underlying and related assets by allowing for the inclusion of last-
sale information into valuation models. Models without the input of 
last-sale information could be imprecise or be based on assumptions 
subject to the evaluator's discretion without having last-sale 
information to help identify or correct flawed assumptions. As a 
result, otherwise identical market participants holding the same asset 
but using different valuation models might arrive at significantly 
different valuations. This could result in these market participants 
developing very different views of their risk exposures, resulting in 
inefficient economic decisions. The Commission anticipates that market 
observers will incorporate last-sale information that is publicly 
disseminated by registered SDRs into their valuation models for the 
same and related assets. Such last-sale information will assist them in 
developing and validating their pricing models and improve the accuracy 
of the valuations that they use for a variety of purposes, such as 
making new investment decisions or managing the risk of existing 
positions. Efficient allocation of capital relies on accurate valuation 
of asset prices. Overvaluation of assets could result in a 
misallocation of capital, as investors seek to purchase or hold an 
asset that cannot deliver the anticipated risk-adjusted return. By the 
same token, undervalued assets represent investment opportunities that 
might go unpursued, because investors do not realize that a more 
attractive risk-adjusted return may be available. To the extent that 
post-trade transparency enables asset valuations to move closer to 
their fundamental values, capital should be more efficiently allocated.
    Information revealed through public dissemination of security-based 
swap transaction details takes on two key characteristics. First, use 
of a piece of information by one economic agent does not necessarily 
preclude use of the same information by another. Second, once 
information is made public under Regulation SBSR, it is, by definition, 
non-excludable. Dissemination cannot be limited only to those that have 
direct access to the information (such as dealers who observe 
significant order flow) or to larger market participants who are 
willing to pay for the information. These characteristics make it 
difficult for parties who report transaction data to capture the value 
that market participants and market observers may gain from receipt of 
publicly disseminated security-based swap data. As a result, public 
dissemination of security-based swap transaction information is prone 
to inefficient supply--for example, parties have an incentive to make 
incomplete reports of their activity. By establishing minimum 
requirements for what is reported and publicly disseminated, the 
Commission believes that Regulation SBSR will limit the degree of this 
inefficient supply.
    Public dissemination will also likely affect efficiency and 
competition within the security-based market. A primary economic effect 
of the final rules on public dissemination of transaction information 
is to reduce the degree of information asymmetry between market 
participants. Information asymmetries are currently endemic in the 
security-based swap market. Large dealers can observe a significant 
amount of order flow provided by their customers and know the prices at 
which their various customers have traded with them. Other market 
participants, including the customers of large dealers, generally do 
not know the prices that other market participants have paid or would 
be willing to pay for particular security-based swaps, what products 
are being transacted, or in what volumes. Large dealers collectively, 
who are able to observe their customers' orders and executions, may be 
able use this information to adjust the prices that they quote to 
extract profits at the expense of their customers.\1358\ Customers, 
with very limited ability to obtain information about the prices or 
sizes of others' transactions, are in an inferior bargaining position 
to the dealers that they face. To the extent that dealer private 
information counters the incentives for market participants to 
efficiently share risks using security-based swaps, it represents a 
dead-weight loss and not a simple reallocation of gains from trade 
between dealers and their customers.\1359\ Post-trade transparency 
increases the bargaining power of customers because knowledge of last-
sale prices in the same or similar instruments allows them to establish 
a baseline for negotiations with any dealer.
---------------------------------------------------------------------------

    \1358\ See, e.g., Bessembinder et al., supra note 1259.
    \1359\ A dead-weight loss means that the economy in aggregate is 
worse off. If market participants do not share risks efficiently as 
a result of their inferior bargaining position relative to dealers, 
then risks are not transferred to those market participants who are 
in the best position to bear them. A dead-weight loss results when 
the benefits that accrue to dealers as a result of their private 
information are less than the costs of inefficient risk sharing, or 
when dealers do not benefit at the equal expense of other market 
participants.
---------------------------------------------------------------------------

    Post-trade transparency in other financial markets has been shown 
to improve competition and efficiency by decreasing implicit 
transaction costs and improving the bargaining power of investors and 
other non-dealers. For example, a number of studies of the corporate 
bond market have found that post-trade transparency, resulting from the 
introduction of FINRA's TRACE system, reduced implicit transaction 
costs.\1360\ Reduced implicit transaction costs could encourage market 
entry, particularly of smaller dealers and non-dealers, and potentially 
increase risk sharing and price competition, thereby promoting 
efficiency. To the extent that the current security-based swap market

[[Page 14721]]

is similar to the corporate bond market prior to the introduction of 
TRACE, post-trade transparency could have similar effects in the 
security-based swap market.\1361\
---------------------------------------------------------------------------

    \1360\ See Edwards, et al., supra note 1223.
    \1361\ In the Regulation SBSR Proposing Release, the Commission 
requested comment on whether post-trade transparency would have a 
similar effect on the security-based swap market as it has in other 
securities markets--and if not, why not. See 75 FR 75226. No 
commenters responded to the Commission's request.
---------------------------------------------------------------------------

    Regulation SBSR will permit all market observers for the first time 
to see last-sale information of security-based swap transactions, 
thereby reducing the information asymmetry between dealers and non-
dealers.\1362\ Non-dealers may be able to use publicly disseminated 
information to negotiate more favorable prices from dealers or to 
decline to enter into security-based swaps offered at unfavorable 
prices, thereby improving the efficiency of risk sharing in the 
security-based swap market. Additionally, public dissemination could 
assist dealers in deriving better quotations, as knowledge of the 
prices and volumes at which other market participants have executed 
transactions could serve as a valuable input for quotations in the same 
or similar instruments.\1363\ As a result, dealers will have a better 
sense of the market and may not need to build large margins into their 
quotations to compensate for uncertainty in providing quotations. 
Increased competition from new entrants and quotations that more 
accurately reflect fundamental value could lead to lower implicit 
transaction costs for security-based swaps, which will encourage 
efficient risk sharing and promote price efficiency.\1364\
---------------------------------------------------------------------------

    \1362\ A similar information asymmetry, but to a lesser and 
varying degree, exists between larger and smaller dealers, and it 
would also be reduced.
    \1363\ See supra Section XXII(B)(2)(a) (discussing the benefits 
of improved valuation).
    \1364\ See Edwards, et al., supra note 1223.
---------------------------------------------------------------------------

    The Commission recognizes, however, that the final rules will not 
eliminate entirely the informational advantage of large intermediaries. 
These market participants will still have the advantage of seeing order 
flows or inquiries that are not ultimately executed and disseminated. 
They also will be able to see their completed transactions against 
customers in real time, while market observers who consume the 
transaction data that is publicly disseminated by registered SDRs might 
not--during the interim phase of Regulation SBSR--learn of these 
transactions until up to 24 hours after they are executed. In addition, 
an executing intermediary may derive an informational advantage from 
knowing the identities of both its counterparties and other customers 
who submit orders or make inquiries about liquidity.
    The Commission also acknowledges that implementing post-trade 
transparency in the security-based swap market could cause some market 
participants to execute fewer security-based swaps in the U.S. market 
or to exit the U.S. market completely and execute their transactions in 
foreign markets instead. To the extent that such events occur, these 
could be viewed as costs of the final rules that could have a 
detrimental impact on efficiency, competition, and capital formation. 
For example, certain market participants that are currently active in 
the market might not find it desirable for information about their 
security-based swaps to be publicly known. If market participants 
respond to the final rules by reducing their trading activity or 
exiting the market, or if the final rules raise barriers to entry, the 
result could be reduced competition between the remaining market 
participants. Besides reduced price competition, exit by certain 
participants from the market also could result in a less efficient 
allocation of credit risk. This could have implications for capital 
formation if market participants engage in precautionary savings and 
self-insurance rather than hedging their risks by using capital 
resources offered by third parties through security-based swaps.\1365\
---------------------------------------------------------------------------

    \1365\ The Commission notes there are also plausible cases in 
which Regulation SBSR might increase the efficiency of risk 
allocation while also reducing transaction volume. Market 
participants might determine, as a result of observing publicly 
disseminated price and volume data, that engaging in a security-
based swap transaction is an inefficient means of managing financial 
or commercial risks.
---------------------------------------------------------------------------

    Public dissemination of security-based swap transactions also may 
promote efficient valuation of various financial instruments. As a 
result of the final rules, all market participants and market observers 
will have the benefit of knowing how counterparties to a particular 
security-based swap valued the security-based swap at a specific moment 
in the recent past, and can incorporate this last-sale information into 
their own valuations for that security-based swap, as well as any 
related or underlying instrument.\1366\ To the extent that last-sale 
information results in valuations that are more informationally 
efficient, they may help improve financial stability by making risk 
management by financial institutions more efficient. This in turn could 
enhance the ability of market participants to accurately measure 
financial exposures to each of their counterparties.
---------------------------------------------------------------------------

    \1366\ See supra Section XXII(C)(2).
---------------------------------------------------------------------------

    Public dissemination of security-based swap transaction information 
could improve the efficiency of the security-based swap market through 
more efficient deployment of assets used as collateral for security-
based swap transactions. Appropriate collateral allocation is dependent 
on accurate valuation of security-based swaps. As the value of a 
security-based swap changes, the likelihood of one party having to make 
a payout to the other party also changes, which could impact the amount 
of collateral that one counterparty owes to the other. Hence, 
misvaluation of a security-based swap contract could lead to 
inefficient allocation of collateral across counterparties. To the 
extent that public dissemination of security-based swap transactions 
will help enable better valuations, instances of overcollateralization 
or undercollateralization should decrease. Furthermore, the better 
investors can judge the performance of collective investment vehicles 
because of better valuations, the more efficiently they can allocate 
their investment capital among available funds.
    Post-trade transparency of security-based swaps should promote more 
efficient valuation of securities on which security-based swaps are 
based. A clear example of this is the market for single-name CDS, where 
post-trade transparency may lead to better estimates of the 
creditworthiness of debt issuers. All other things being equal, CDS 
protection on a more creditworthy issuer costs less than CDS protection 
on a less creditworthy issuer. Furthermore, the cost of CDS protection 
on a single issuer may change over time, reflecting, in part, the 
financial position of the issuer. Mandatory post-trade transparency of 
CDS transactions will offer market participants and market observers 
the ability to dynamically assess the market's view of the 
creditworthiness of the reference entities that underlie CDS contracts, 
thus promoting efficiency in the market for cash bonds. For example, 
public dissemination of transactions in CDS on reference entities that 
issue TRACE-eligible debt securities will help reinforce the pricing 
signals derived from individual transactions in debt securities 
generated by TRACE. Market participants can arbitrage disparities in 
prices reflected in TRACE and as suggested in last-sale information of 
related CDS, helping create more overall efficiency in the market for 
credit. Similarly, public dissemination of transactions in single-name 
CDS should

[[Page 14722]]

reinforce the pricing signals derived from public dissemination of 
index CDS transactions. Post-trade transparency of security-based swap 
CDS under Regulation SBSR could indirectly bring greater transparency 
into the market for debt instruments (such as sovereign debt 
securities) that are not subject to mandatory public dissemination 
through TRACE or any other means.
    Finally, business owners and managers can use information gleaned 
from the publicly disseminated security-based swap transaction data 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. Transparent security-based swap 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.\1367\
---------------------------------------------------------------------------

    \1367\ See Bond, et al., note 1258, supra.
---------------------------------------------------------------------------

4. Implementation of Regulatory Reporting and Public Dissemination
a. Role of Registered SDRs
    In adopting Regulation SBSR, the Commission has attempted to design 
the duties of registered SDRs to promote efficiency of the reporting 
and public dissemination requirements and thereby minimize any adverse 
impacts on competition and capital formation. At the same time, the 
Commission acknowledges that, to the extent that the final rules place 
regulatory obligations on registered SDRs, these obligations may 
constitute a barrier to entry that, at the margin, reduces competition 
between registered SDRs. Regulation SBSR requires a registered SDR to 
publicly disseminate specified information about reported security-
based swap transactions immediately upon receipt. The Commission 
believes that this requirement will help promote an efficient 
allocation of public dissemination responsibilities for a number of 
reasons. First, registered SDRs--because of their role in the 
regulatory reporting function--already possess all of the information 
necessary to carry out public dissemination and would not have to 
collect additional information from other parties. Second, placing the 
duty to publicly disseminate on registered SDRs eliminates the need for 
the development of other infrastructure and mechanisms for public 
dissemination of security-base swap transaction information in addition 
to the infrastructure that is required to support regulatory 
reporting.\1368\ Third, users of publicly disseminated security-based 
swap data will be required to consolidate transaction data from only a 
small number of registered SDRs, rather than a potentially larger 
number of dissemination agents that might exist under an alternative 
regime. Under Rules 907(a)(1) and 907(a)(2), registered SDRs have the 
flexibility to determine the precise means through which they will 
accept reports of security-based swap transaction data. This degree of 
flexibility has implications for the efficiency of data collection. 
Registered SDRs could choose to innovate and adopt new reporting 
formats that could lower costs to market participants while maintaining 
the required level of information and data integrity. Moreover, in an 
effort to attract business, registered SDRs could decide to accept data 
from market participants in a wide variety of formats, taking on 
additional data management and systems burdens. Indeed, such an outcome 
could represent an efficient allocation of the costs of data 
management, in which a handful of registered SDRs invest in 
technologies to transform data rather than approximately 300 reporting 
sides making similar changes to their systems in an effort to provide 
identical reports to each SDR. The Commission acknowledges, however, 
that the same features that support a market structure that yields only 
a handful of registered SDRs could temper the incentives of these 
registered SDRs to compete on reporting efficiency. For example, 
registered SDRs could decide to accept data from customers in only one 
specific format. The Commission further anticipates efficiency gains if 
data elements necessary to understand a trade evolve over time as new 
security-based swap contracts are developed. Additionally, this 
approach may support competition among security-based swap 
counterparties by maintaining low barriers to entry with respect to 
reporting obligations under Regulation SBSR.
---------------------------------------------------------------------------

    \1368\ See supra Section XXII(C)(2)(c).
---------------------------------------------------------------------------

    Further, the final rules do not presume a market structure for 
registered SDRs. On one hand, this means that market participants, the 
Commission, and other relevant authorities cannot rely on efficiency 
gains from receiving security-based swap transaction data from a 
single, consolidated source, but must instead consolidate fragmented 
data from multiple SDRs. On the other hand, a monopoly in the market 
for SDR services could preclude innovations that may lead to higher 
quality outputs or lower costs for reporting parties, SDR participants 
more generally, the Commission, and other relevant authorities.
b. Interim Phase of Reporting Requirements and Block Rules
    As discussed above in Section VII, the Commission is adopting rules 
for regulatory reporting and public dissemination of security-based 
swaps that are intended only as the interim phase of implementation of 
these Title VII requirements. At a later date, the Commission 
anticipates seeking additional comment on potential block thresholds 
and associated block rules (such as the time delay for disseminating 
block trades and the time period for the mandatory reporting and public 
dissemination of non-block trades).
    Immediately implementing a complete regime that includes block 
trade thresholds and final reporting timeframes could improve 
efficiency, competition, and capital formation by increasing price 
transparency in the security-based swap market sooner. Several 
commenters, however, argued that requiring post-trade transparency for 
security-based swaps with incorrectly designed block trade thresholds 
could significantly damage the market,\1369\ and the Commission is 
concerned that disruptions to the market that could result from 
establishing block trading rules without the benefit of comprehensive 
data analysis could cause certain market participants to limit their 
security-based swap activity or to withdraw from the market entirely. 
This in turn could lead to reduced competition, higher prices, and 
inefficient allocations of risk and capital.
---------------------------------------------------------------------------

    \1369\ See supra note 486.
---------------------------------------------------------------------------

    Currently, there are no data that can be used to directly assess 
the impact of mandated post-trade transparency of security-based swap 
transactions on market behavior, because there is no widely available 
post-trade data to which the security-based swap market can 
react.\1370\ The Commission anticipates that the initial phase of 
Regulation SBSR will yield at least some useful data about how much 
time market participants believe they need to hedge transactions and 
how other

[[Page 14723]]

market participants react when they see transactions of different sizes 
with different delays after the time of execution. The phased approach 
is designed to introduce mandatory post-trade transparency in the 
security-based swap market while allowing the Commission sufficient 
time to gather and analyze data regarding potential block thresholds 
and dissemination delays.
---------------------------------------------------------------------------

    \1370\ The Commission's economic analysis of the effects of 
post-trade transparency on the security-based swap market has 
included indirect evidence from the swap market and from the 
security-based swap market. See Analysis of Post-Trade Transparency; 
Hedging Analysis.
---------------------------------------------------------------------------

    The Commission acknowledges that allowing up to 24 hours for 
reporting a security-based swap means that market participants not 
involved in that particular transaction, and other market observers, 
will not have access to information about the transactions for up to 24 
hours after the initial execution, depending upon the specific time 
when the transaction is reported. This delay could impact the 
development of more vigorous price competition in the security-based 
swap market because market participants who are involved in 
transactions would have access to potentially market-moving information 
up to 24 hours before those who are not. The Commission believes, 
however, that allowing up to 24 hours for transactions to be reported 
and publicly disseminated still represents a significant improvement 
over the status quo, where market participants report transactions to 
data repositories only on a voluntary basis and information about 
transaction is not publicly disseminated.
c. Use of UICs and Rule 903
    Regulation SBSR requires the use of several UICs in the reporting 
of security-based swap transactions. Use of UICs improves efficiency of 
data intake by registered SDRs and data analysis by relevant 
authorities and other users of data, as the reported security-based 
swap transaction information can be readily aggregated by UIC along 
several dimensions (e.g., product ID, trading desk ID, or trader ID). 
The efficiency gain in aggregation applies primarily at the SDR level 
in cases where the SDR uses its own UICs that are not otherwise applied 
at other SDRs (assuming that no IRSS exists to provide such UICs). To 
the extent that multiple SDRs were to use the same UICs--because they 
use UICs provided by an IRSS, such as the GLEIS, or because SDRs agree 
to recognize UICs assigned by another SDR \1371\--the efficiency gain 
would extend to aggregation across SDRs, although this is not required 
under Regulation SBSR. The efficiency gains described in this section 
may be limited to regulatory reporting and only extend to public 
dissemination to the extent that the relevant information is being 
publicly disseminated. Additionally, minimizing the operational risks 
arising from inconsistent identification of persons, units of persons, 
products, or transactions by counterparties and market infrastructure 
providers would enhance efficiency.
---------------------------------------------------------------------------

    \1371\ For example, assume that a person becomes a participant 
of a registered SDR and obtains UICs for its trading desks and 
individual traders from that SDR. Later, that person becomes a 
participant at a second registered SDR. The second SDR could issue 
its own set of UICs for this person's trading desks and individual 
traders, or it could recognize and permit use of the same UICs that 
had been assigned by the first registered SDR.
---------------------------------------------------------------------------

    Under Rule 903(b), as adopted, a registered SDR may permit 
information to be reported to it, and may publicly disseminate 
information, using codes in place of certain data elements only if the 
information necessary to interpret such codes is widely available to 
users of the information on a non-fee basis. If information to 
understand embedded codes is not widely available on a non-fee basis, 
information asymmetries would likely continue to exist between large 
market participants who pay for the codes and other market 
participants. Rents paid for the use of codes could decrease 
transparency and increase barriers to entry to the security-based swap 
market, because the cost of necessary licenses may reduce the 
incentives for smaller potential market participants to enter the 
market. Preventing this barrier to entry from forming should help 
promote competition by facilitating the entry of new market 
participants.
    One commenter suggested that alternatives could be developed to the 
status quo of using fee-based codes in security-based swap market 
data.\1372\ The Commission welcomes the development of such 
alternatives, and believes that Rule 903(b), as adopted, may encourage 
such development.
---------------------------------------------------------------------------

    \1372\ See Bloomberg Letter at 2 (stating that it would be 
possible to develop a public domain symbology for security-based 
swap reference entities that relied on products in the public domain 
to ``provide an unchanging, unique, global and inexpensive 
identifier'').
---------------------------------------------------------------------------

d. Rules Assigning the Duty To Report
    Rule 901(a) assigns the reporting obligation for security-based 
swaps other than clearing transactions and platform-executed 
transactions that are submitted to clearing. The reporting hierarchy in 
Rule 901(a) is designed to increase efficiency for market participants, 
as well as the Commission and other relevant authorities, by locating 
the duty to report with counterparties who are most likely to have the 
resources and who are best able to support the reporting function. 
Furthermore, Rule 901(a) seeks to increase efficiency by leveraging 
existing infrastructure to support security-based swap reporting, where 
practicable.
    The Commission anticipates that the majority of security-based 
swaps covered by Rule 901(a), as adopted, will include a registered 
security-based swap dealer or registered major security-based swap 
participant on at least one side. Many of the entities that are likely 
to register as security-based swap dealers or major security-based swap 
participants already have committed time and resources building the 
infrastructure to support reporting security-based swaps and some 
reporting to DTCC-TIW is occurring on a voluntary basis.\1373\ 
Moreover, many such entities currently report swaps pursuant to the 
CFTC's swap data reporting rules. Rule 901(a) is designed, as much as 
practicable, to allow these market participants to use these existing 
reporting capabilities and to minimize the chance that a market 
participant with limited involvement in the security-based swaps market 
might incur the duty to report. This approach could lead to lower 
barriers to entry into the market compared to the approach contemplated 
in the SBSR Proposing Release.\1374\ Also, by reducing infrastructure 
costs imposed on smaller market participants, this approach also could 
promote competition by reducing the likelihood that these smaller 
entrants without existing reporting capabilities would be required to 
incur fixed costs necessary to develop reporting capabilities. Finally, 
to the extent that non-registered persons are not required to devote 
resources to support transaction reporting--because reporting is 
carried out instead by registered security-based swap dealers and 
registered major security-based swap participants who, due to economies 
of scale and the presence of existing reporting capabilities, are 
likely to face relatively lower costs of reporting--such resources 
could be put to more efficient uses.\1375\
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    \1373\ As discussed in Section XXII(B)(1), supra, the data in 
DTCC-TIW are self-reported and the vast majority of trades involves 
at least one dealer as a counterparty. Further, both transaction 
counterparties submit records for confirmation, covering all likely 
registrants.
    \1374\ See Cross-Border Proposing Release, 78 FR 31194.
    \1375\ See supra Section XXII(C) (discussing the costs that 
reporting sides are likely to incur).
---------------------------------------------------------------------------

    The Commission recognizes that this approach puts smaller market 
participants on the same rung of the hierarchy with entities that 
likely meet

[[Page 14724]]

the definition of ``security-based swap dealer'' and will have to 
register with the Commission as such in the future. In theory, this 
could force these smaller market participants into a negotiation with 
the ``likely dealers,'' because Rule 901(a)(2)(ii)(E)(1) requires both 
sides to select the reporting side. The Commission believes that this 
outcome will be unlikely in practice. The Commission understands that 
voluntary reporting practices in the security-based swap market are 
broadly consistent with the principle behind the reporting hierarchy in 
Rule 901(a)(2)(ii): That the more sophisticated market participant 
should report the transaction. Moreover, market participants who are 
active in the security-based swap market are likely also to be active 
in the swap market, where CFTC rules have established a reporting 
hierarchy that assigns the heaviest reporting duties to swap dealers 
and major swap participants.\1376\ Because practices have already been 
established for larger market participants to assume reporting duties, 
it is likely that these practices will be applied in the security-based 
swap market even before the Commission adopts registration rules for 
security-based swap dealers and major security-based swap participants.
---------------------------------------------------------------------------

    \1376\ See 17 CFR 45.8 (providing a hierarchy for regulatory 
reporting of swaps); 17 CFR 43.3(a).
---------------------------------------------------------------------------

    One of the general principles underlying Rule 901(a) is that, if a 
person has the duty to report information under Regulation SBSR, it 
should also have the ability to choose the registered SDR to which it 
reports. The Commission believes that this approach will promote 
efficiency and competition, because it enables each person with a duty 
to report a security-based swap to connect and report transactions to 
the registered SDR (or SDRs) that offer it the highest quality services 
and/or the lowest fees to the extent that there is more than one SDR. 
Two commenters believed that the Commission could promote competition 
by allowing a counterparty to a security-based swap--typically a 
security-based swap dealer--to choose the registered SDR that receives 
information reported under Regulation SBSR.\1377\ The Commission agrees 
with the views of the commenters that allowing a counterparty to choose 
the registered SDR that received information reported under Regulation 
SBSR could promote competition. Rule 901(a), as adopted, reflects this 
approach by allowing the person with the duty to report to choose the 
registered SDR to which it reports.
---------------------------------------------------------------------------

    \1377\ See DTCC VI at 8-9; DTCC VIII; MarkitSERV III at 4-5.
---------------------------------------------------------------------------

    Finally, the Commission believes that, if Rule 901(a) affects 
capital formation at all, it would be in only a limited and indirect 
way. The Commission does not see--and no commenter has presented any 
evidence to suggest--that the economic considerations of how, where, 
and by whom security-based swap transactions will be reported to 
registered SDRs will have any direct bearing on how, how often, and at 
what prices market participants might be willing to transact. As 
mentioned above, by placing the reporting duty on the person with the 
most direct access to required information, Rule 901(a) is designed to 
minimize reporting burdens, which could facilitate a more efficient 
allocation of capital by reducing expenditures on security-based swap 
reporting infrastructure.
e. Embargo Rule
    Rule 902(d), the Embargo Rule, prohibits the release of security-
based swap transaction information to persons (other than a 
counterparty or post-trade processor) until that information has been 
transmitted to a registered SDR. The Embargo Rule is designed to 
promote competition among market participants in the security-based 
swap market by prohibiting persons who obtain knowledge of a security-
based swap transaction shortly after execution from providing 
information about that transaction to third parties before that 
information is provided to a registered SDR so that it can be publicly 
disseminated. In the absence of the Embargo Rule, selected third 
parties who are told about executions could obtain an informational 
advantage relative to other market participants, reducing the ability 
of these other market participants to compete in the market. The 
potential benefits of Regulation SBSR with respect to competition would 
suffer in the absence of the Embargo Rule, because market participants 
who gain earlier access to information could maintain a high degree of 
information asymmetry in the market.
    Rule 902(d), as adopted, includes a carve-out for post-trade 
processors, such as entities involved in comparing or clearing 
transactions. This carve-out is designed to promote efficiency in the 
processing of security-based swap transactions by recognizing that the 
policy goals of the Embargo Rule are not served by impeding the ability 
of security-based swap counterparties to obtain post-trade processing 
services. Post-trade processors must obtain information about a 
transaction to carry out their functions, even if the transaction has 
not yet been reported to a registered SDR. In the absence of the carve-
out, efficiency could be harmed if post-trade processors were barred 
from obtaining information about the transaction until it had been 
publicly disseminated by a registered SDR. Without this carve-out, 
Regulation SBSR could cause the services and functions provided by 
post-trade processors to be delayed. This could result in a disruption 
of current market practices, where post-trade processors provide a 
variety of services to security-based swap counterparties, and thus a 
reduction in security-based swap market efficiency.
5. Impact of Cross-Border Aspects of Regulation SBSR
a. General Considerations
    The security-based swap market is global in nature, and dealers and 
other market participants are highly interconnected within this global 
market. This interconnectedness provides a myriad of paths for 
liquidity and risk to move throughout the financial system and makes it 
difficult, in many cases, to precisely identify the impact of a 
particular entity's activity on financial stability or liquidity. As a 
corollary to this, it is difficult to isolate risk and liquidity 
problems to one geographical segment of the market. Further, as we 
noted in Section XXII(B)(1), security-based swap market participants in 
one jurisdiction can conduct activity through branches or subsidiaries 
located in another. These features of the market form the basis of the 
Commission's analysis of the effects of rule 908 on competition, 
efficiency and capital formation.
b. Regulatory Reporting and Public Dissemination
    Rule 908(a) generally applies regulatory reporting and public 
dissemination requirements depending on the characteristics of the 
counterparties involved in a transaction. The regulatory reporting 
requirement allows the Commission and other relevant authorities the 
ability to monitor risk and conduct market surveillance. Because the 
security-based swap market represents a conduit through which financial 
risks from foreign markets can manifest themselves in the United 
States, the Commission believes that it is appropriate to focus on 
those transactions that are likely to serve as routes for risk 
transmission to the United States, either because a direct or indirect 
counterparty is a U.S. person, is registered with the

[[Page 14725]]

Commission as a security-based swap dealer or major security-based swap 
participant, or if the transaction is submitted to a clearing agency 
having its principal place of business within the United States. A 
regulatory reporting requirement that did not include within its scope 
such transactions would provide the Commission with such an incomplete 
view of transaction activity with potential to undermine the stability 
of U.S. financial markets that it would likely undermine the beneficial 
effects of a regulatory requirement on efficiency, competition and 
capital formation.
    Under Regulation SBSR, as adopted, many of the provisions of 
Regulation SBSR will apply to a cross-border security-based swap if one 
of the direct counterparties, even if a non-U.S. person, is guaranteed 
by a U.S. person. For example, Rule 908(a)(1)(i) requires regulatory 
reporting of a security-based swap if there is a direct or indirect 
counterparty that is a U.S. person on either or both sides of the 
transaction. Because guarantees extended by U.S. persons on 
transactions executed abroad can nevertheless import risk into the 
United States, regulatory reporting of security-based swaps should 
extend to any security-based swap transaction having an indirect 
counterparty (i.e., a guarantor) that is a U.S. person. This will 
improve the Commission's ability to monitor risks posed by activity 
guaranteed by U.S. persons and, as a result, reduce any adverse impacts 
on efficiency, competition, and capital formation that might arise 
without this ability or that might arise from attempts by certain 
market participants to shift activity into guaranteed foreign 
subsidiaries in order to evade Regulation SBSR.
    Under the approach taken in this release, market participants could 
avoid regulatory reporting and public dissemination requirements by 
shifting activity into unguaranteed foreign subsidiaries, assuming 
there was no other basis for Regulation SBSR to apply, such as the 
direct counterparty being a U.S. person. Thus, the Commission's action 
in distinguishing between guaranteed and unguaranteed foreign 
subsidiaries of U.S. parent entities could affect how these parent 
entities allocate capital across the organization. For example, a U.S. 
parent could separately capitalize a foreign subsidiary to engage in 
transactions with non-U.S. persons. If the U.S. parent takes such 
action solely as a response to Title VII regulation, it is unlikely 
that such a move would improve the efficiency with which the parent 
allocates its capital.
    The primary economic effects of public dissemination of transaction 
information are related to improving market transparency. Rule 908(a) 
defines a scope of transactions subject to this requirement in the 
cross-border context that considers the benefits of public 
dissemination, including effects on efficiency, competition, and 
capital formation. The scope defined by Rule 908(a) also considers the 
potential costs that market participants could incur if counterparties 
restructure their operations so that their activity falls outside of 
the scope of Regulation SBSR and continues in a more opaque market. 
Such a response could result in lessened competition in the security-
based swap market within the United States, less efficient risk-sharing 
and pricing, and impaired capital formation.
    The public dissemination requirements under Regulation SBSR could 
affect the behavior of foreign market participants in ways that reduce 
market access for U.S. persons. For example, some non-U.S. persons 
might seek to minimize their contact with U.S. persons in an effort to 
avoid having their transactions publicly disseminated. Moreover, to the 
extent that the Commission's rules treat the foreign business of U.S. 
persons and non-U.S. persons differently from their respective U.S. 
business, market participants could perceive an incentive to 
restructure their business to separate their foreign and U.S. 
operations.
    Programmatic benefits of this scope, beyond those already noted as 
benefits of regulatory reporting, are related to the ability of market 
observers to condition their beliefs about the security-based swap 
market on realized transaction prices.\1378\ Post-trade transparency in 
the U.S. security-based swap market could have spillover benefits in 
foreign markets, even if those foreign markets impose no (or only 
limited) post-trade transparency requirements.\1379\ Post-trade 
transparency provided by Regulation SBSR will make transaction data 
available to any market observer in the world. These data will also 
allow global market observers to use security-based swap prices as an 
input for valuation models and trading decisions for the same or 
related instruments, thereby improving the efficiency of these 
processes.\1380\
---------------------------------------------------------------------------

    \1378\ The effects of public dissemination are discussed more 
generally in Section XXII(C)(2); the economic effects of Rule 908 
that relate to efficiency, competition, and capital formation are 
examined in Section XXII(D)(4)(i).
    \1379\ See Edwards, et al., supra note 1223. (presenting a model 
implying, and finding empirical evidence in TRACE data for, what the 
authors term a ``liquidity externality,'' i.e., improved market 
quality in certain securities that were not yet TRACE-eligible, when 
related securities had become subject to TRACE post-trade 
transparency).
    \1380\ See supra Section XXII(C)(2)(a) (discussing the benefits 
of improved valuation).
---------------------------------------------------------------------------

    Relevant authorities in other jurisdictions are currently engaged 
in implementing their own regulatory reforms of the OTC derivatives 
markets that could apply to participants in those foreign markets. 
Regulatory differences among jurisdictions in the global security-based 
swap markets could create incentives for business restructuring. To the 
extent that such restructuring results from regulatory incentives 
rather than economic fundamentals, efficiency in the real economy could 
be reduced. Conflicting regulations or unnecessary duplication of 
regulation also might lead to fragmented markets.\1381\
---------------------------------------------------------------------------

    \1381\ See, e.g., Arnoud W.A. Boot, Silva Dezelan, and Todd T. 
Milbourn, ``Regulatory Distortions in a Competitive Financial 
Services Industry,'' Journal of Financial Services Research, Vol. 
17, No. 1 (2000) (showing that, in a simple industrial organization 
model of bank lending, a change in the cost of capital resulting 
from regulation results in a greater loss of profits when regulated 
banks face competition from non-regulated banks than when 
regulations apply equally to all competitors); Victor Fleischer, 
``Regulatory Arbitrage,'' 89 Texas Law Review 227 (March 4, 2010) 
(discussing how, when certain firms are able to choose their 
regulatory structure, regulatory burdens are shifted onto those 
entities that cannot engage in regulatory arbitrage).
---------------------------------------------------------------------------

    Even if the substance of statutory and regulatory efforts across 
jurisdictions is comparable, different jurisdictions may impose new 
regulatory requirements on different timelines. To the extent that 
these timelines or the underlying requirements differ, market 
participants might have the opportunity to take advantage of these 
differences by making strategic choices, at least in the short term, 
with respect to their transaction counterparties and business models. 
For example, at a larger scale, firms may choose whether to participate 
in or withdraw from the U.S. security-based swap market. As a result of 
exits, registered security-based swap dealers that are U.S. persons 
might have less access to foreign markets, unless they were to 
restructure their business to conduct foreign transactions through 
unguaranteed foreign subsidiaries whose transactions with non-U.S. 
persons would not be subject to the regulatory reporting and public 
dissemination under Regulation SBSR.
    These potential restructurings could impact competition in the U.S. 
market. On one hand, the ability to restructure one's business rather 
than exit the U.S. market entirely to avoid application of Title VII to 
an entity's non-U.S. operations could reduce the number of entities 
that exit the market, thus

[[Page 14726]]

mitigating the negative effects on competition described above. On the 
other hand, non-registered U.S. persons may find that the only non-U.S. 
person registered security-based swap dealers that are willing to deal 
with them are those whose security-based swap business is sufficiently 
large to afford the compliance costs associated with regulatory 
reporting and public dissemination requirements. To the extent that 
smaller dealers have an incentive to exit the market, the overall level 
of competition in the market could decline.
    The Commission is mindful that, in the near term and until full 
implementation of comparable requirements for regulatory reporting and 
public dissemination of security-based swaps in other jurisdictions, 
the rules may generate incentives for market participants to 
restructure and reduce contact with U.S. market participants. As a 
result, for example, U.S. market participants seeking to hedge risk 
could face higher prices for hedging or fewer opportunities to hedge at 
all, which could impede capital formation. Another result could be 
inefficiency in risk allocation, because those market participants who 
are best placed to take on risks shared through security-based swap 
activity might be discouraged from doing so because of perceived 
necessity to avoid regulatory reporting and public dissemination 
requirements under Title VII. Furthermore, U.S. market participants 
that are able to restructure their business across national boundaries 
to avoid regulation are likely to be the largest financial institutions 
that can bear the greatest risks. The remaining firms will likely be 
smaller and have less capital with which to offer liquidity to the 
market.
    Restructuring of business lines to take advantage of low-
transparency regimes also would impede transparency, as fewer 
transactions would be subject to public dissemination under Regulation 
SBSR. Market participants who had relocated abroad would still be able 
to free-ride on price formation generated by the public dissemination 
of others' transactions in the same or similar instruments while not 
contributing any transactions of their own. The value of regulatory 
reporting and public dissemination in the U.S. market would be reduced 
to the extent that liquidity migrates to jurisdictions that are less-
transparent.\1382\
---------------------------------------------------------------------------

    \1382\ By the same token, regulatory reporting and public 
dissemination in the U.S. security-based swap market could have 
spillover benefits in foreign markets that trade the same or similar 
instruments as the U.S. market, even if those foreign markets impose 
no (or only limited) requirements. See supra note 1259.
---------------------------------------------------------------------------

c. Substituted Compliance
    Rule 908(c) provides that the Title VII requirements relating to 
regulatory reporting and public dissemination of security-based swaps 
may be satisfied by compliance with the rules of a foreign jurisdiction 
if the Commission issues an order determining that the jurisdiction has 
requirements that comparable to those of Regulation SBSR. Rule 908(c) 
is designed to promote efficiency, competition, and capital formation 
in the security-based swap market, to the extent practical, given the 
state of regulatory reform of the OTC derivatives market being applied 
by specific foreign jurisdictions.
    The Commission believes a regulatory regime that allows for 
substituted compliance under comparable foreign rules promotes 
efficiency by reducing the need for certain market participants to 
double report security-based swaps (i.e., once to a foreign trade 
repository or foreign regulatory authority and again to a registered 
SDR). Substituted compliance also has the potential to improve market 
and price efficiency by reducing or even eliminating instances of the 
same transaction being publicly disseminated under two separate 
systems. The Commission assumes that market observers will obtain and 
utilize last-sale information about security-based swaps from any 
available sources around the globe. Without substituted compliance, a 
security-based swap that met the jurisdictional requirements of Rule 
908(a)(2) of Regulation SBSR as well as the public dissemination rules 
of a foreign jurisdiction would be publicly disseminated in both 
jurisdictions. It might be difficult or impossible for market observers 
to understand that the two trade reports represent the same 
transaction, which would thus distort their view of the market. If the 
Commission were to issue a substituted compliance order with respect to 
that jurisdiction, market observers would see only a single report 
(emanating from the foreign jurisdiction) of that transaction.
    While the rules governing substituted compliance are not designed 
to promote efficiency at the regulatory level, they are designed at 
least to minimize detractions from regulatory efficiency. Under 
substituted compliance, certain cross-border transactions that 
otherwise would be reported to an SEC-registered SDR would instead be 
reported to a foreign trade repository or foreign regulatory authority. 
Final Rule 908(c) requires, among other things, direct electronic 
access to the foreign security-based swap data in order to make a 
substituted compliance determination. However, there could be some 
difficulties in normalizing and aggregating the data from SEC-
registered SDRs with the data from the foreign trade repositories or 
foreign regulatory authorities.
    Overall, the Commission believes that, on balance, there will be 
certain positive impacts on efficiency from allowing substituted 
compliance. The principle behind this approach is that the Commission 
would grant substituted compliance with respect to regulatory reporting 
and public dissemination of security-based swaps in another 
jurisdiction only if the requirements of that jurisdiction are 
comparable to otherwise applicable requirements in Regulation SBSR. If 
a foreign jurisdiction does not have a comparable regime for regulatory 
reporting and public dissemination of security-based swaps, allowing 
the possibility of substituted compliance could, on balance, erode any 
impacts of Regulation SBSR on efficiency, to the extent that the 
foreign jurisdiction's regulatory outcomes for regulatory reporting and 
public dissemination differ from those under Regulation SBSR. This 
result could be viewed as privately efficient by market participants 
who might otherwise restructure their activities to avoid public 
dissemination. However, the result also would be that many transactions 
with significant connections to the U.S. market would remain opaque, 
thus reducing opportunities for greater price competition and price 
discovery. Moreover, granting substituted compliance in such cases 
could provide incentives for foreign jurisdictions to impose lower 
regulatory standards for security-based swaps than those mandated by 
Title VII. Under the rules, as adopted, the Commission may not grant 
substituted compliance unless the foreign jurisdiction's rules are 
comparable to otherwise applicable requirements.
    Under Rule 908(c), the Commission could make a determination of 
comparability for regulatory reporting and public dissemination either 
separately or together. A few commenters argued that the Commission 
should separate them, which would, for example, permit substituted 
compliance for regulatory reporting for a foreign jurisdiction, but not 
for public dissemination.\1383\ The Commission agrees with the 
commenter's suggestions and has determined to take such an approach.

[[Page 14727]]

Permitting substituted compliance for regulatory reporting but not for 
public dissemination might be privately efficient for firms, who would 
be obligated to report transactions to a foreign jurisdiction for 
regulatory purposes, but would be obligated to only report to a 
registered SDR only those data elements necessary for public 
dissemination under Regulation SBSR. The Commission could, for 
instance, permit transactions to be reported into a foreign 
jurisdiction with no or only limited public dissemination requirements.
---------------------------------------------------------------------------

    \1383\ See supra note 917.
---------------------------------------------------------------------------

    One commenter correctly pointed out that there are a few classes of 
security-based swap for which Regulation SBSR requires regulatory 
reporting but not public dissemination and argued, therefore, that the 
Commission should permit itself to grant substituted compliance for 
regulatory reporting only (and not public dissemination) for these 
classes.\1384\ The Commission agrees with the commenter and is adopting 
Rule 908(c) with certain revisions that will allow the Commission to 
issue a substituted compliance order with respect to regulatory 
reporting but not public dissemination in such cases.\1385\ This 
revision should increase the scope of transactions that may enjoy the 
efficiency benefits of substituted compliance discussed above.
---------------------------------------------------------------------------

    \1384\ See IIB Letter at 25. See also Rule 902(c).
    \1385\ See supra Section XV(E)(6).
---------------------------------------------------------------------------

E. Aggregate Quantifiable Total Costs

    Based on the foregoing, the Commission estimates that Regulation 
SBSR will impose an initial one-time cost of approximately $194,500,000 
on all entities.\1386\ The Commission estimates that Regulation SBSR 
will impose a total ongoing annual aggregate cost of approximately 
$275,500,000 for all entities.\1387\ With regard to registered SDRs, 
the Commission estimates that Regulation SBSR will impose an initial 
aggregate one-time cost of approximately $63,700,000,\1388\ and an 
ongoing aggregate annual cost of approximately $98,800,000.\1389\
---------------------------------------------------------------------------

    \1386\ The Commission derived its estimate from the following: 
[($360,000 (Rule 901 one-time costs on registered SDRs)) + 
($20,000,000 (Rule 902 one-time costs on registered SDRs)) + 
($2,000,000 (Rule 905 one-time costs on registered SDRs)) + 
($330,000 (Rule 906 one-time costs on registered SDRs)) + 
($41,000,000 (Rule 907 one-time costs on registered SDRs)) + 
($3,190,000 (Rule 906 one-time costs on covered participants) + 
($121,800,000 (Rule 901 one-time costs on reporting sides) + 
($720,200 (Rule 903 one-time costs on SDR participants)) + 
($3,547,500 (Rule 905 one-time costs on reporting sides) + 
($1,540,000 (Rule 908(c) one-time costs on requesting entities)] = 
$194,487,700, or approximately $194,500,000.
    \1387\ The Commission derived its estimate from the following: 
[($455,000 (Rule 901 ongoing annual costs on registered SDRs)) + 
($12,000,000 (Rule 902 ongoing annual costs on registered SDRs)) + 
($45,000 (Rule 904 ongoing annual costs on registered SDRs)) + 
($4,000,000 (Rule 905 ongoing annual costs on registered SDRs)) + 
($300,000 (Rule 906 ongoing annual costs on registered SDRs)) + 
($82,000,000 (Rule 907 ongoing annual costs on registered SDRs)) + 
($1,870,000 (Rule 906 ongoing annual costs on covered participants)) 
+ ($95,700,000 (Rule 901 ongoing annual costs on reporting sides)) + 
($2,352,000 (Rule 903 one-time costs on SDR participants)) + 
($1,192,500 (Rule 905 ongoing annual costs on reporting sides)) + 
($64,000,000 (Rule 905 ongoing annual costs on non-reporting sides)) 
+ ($13,400,000 (Rule 906 ongoing annual costs on all participants)) 
+ ($1,540,000 (Rule 908(c) costs of requests in the first year)] = 
$275,444,500 or approximately $275,500,000.
    \1388\ The Commission derived its estimate from the following: 
[($360,000 (Rule 901 one-time costs on registered SDRs)) + 
($20,000,000 (Rule 902 one-time costs on registered SDRs)) + 
($2,000,000 (Rule 905 one-time costs on registered SDRs)) + 
($330,000 (Rule 906 one-time costs on registered SDRs)) + 
($41,000,000 (Rule 907 one-time costs on registered SDRs))] = 
$63,690,000 or approximately $63,700,000.
    \1389\ The Commission derived its estimate from the following: 
[($455,000 (Rule 901 ongoing annual costs on registered SDRs)) + 
($1,000,000 (Rule 902 ongoing annual costs on registered SDRs)) + 
($45,000 (Rule 904 ongoing annual costs on registered SDRs)) + 
($4,000,000 (Rule 905 ongoing annual costs on registered SDRs)) + 
($300,000 (Rule 906 ongoing annual costs on registered SDRs)) + 
($82,000,000 (Rule 907 ongoing annual costs on registered SDRs))] = 
$98,800,000.
---------------------------------------------------------------------------

XXIII. Regulatory Flexibility Act Certification

    The Regulatory Flexibility Act (``RFA'') requires federal agencies, 
in promulgating rules, to consider the impact of those rules on small 
entities. Section 603(a) of the Administrative Procedure Act,\1390\ 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.'' \1391\ Section 605(b) of the RFA \1392\ states that this 
requirement shall not apply to any proposed rule or proposed rule 
amendment which, if adopted, would not have a significant economic 
impact on a substantial number of small entities.
---------------------------------------------------------------------------

    \1390\ 5 U.S.C. 603(a).
    \1391\ Although Section 601(b) of the RFA defines the term 
``small entity,'' the statute permits agencies to formulate their 
own definitions. The Commission has adopted definitions for the term 
``small entity'' for the purposes of Commission rulemaking in 
accordance with the RFA. Those definitions, as relevant to this 
proposed rulemaking, are set forth in Rule 0-10 under the Exchange 
Act, 17 CFR 240.0-10. See Securities Exchange Act Release No. 18451 
(January 28, 1982), 47 FR 5215 (February 4, 1982) (File No. AS-305).
    \1392\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------

    In developing the final rules contained in Regulation SBSR, the 
Commission has considered their potential impact on small entities. For 
purposes of Commission rulemaking in connection with the RFA, a small 
entity includes: (1) When used with reference to an ``issuer'' or a 
``person,'' other than an investment company, an ``issuer'' or 
``person'' that, on the last day of its most recent fiscal year, had 
total assets of $5 million or less; \1393\ or (2) a broker-dealer with 
total capital (net worth plus subordinated liabilities) of less than 
$500,000 on the date in the prior fiscal year as of which its audited 
financial statements were prepared pursuant to Rule 17a-5(d) under the 
Exchange Act,\1394\ or, if not required to file such statements, a 
broker-dealer with total capital (net worth plus subordinated 
liabilities) of less than $500,000 on the last day of the preceding 
fiscal year (or in the time that it has been in business, if shorter); 
and is not affiliated with any person (other than a natural person) 
that is not a small business or small organization.\1395\
---------------------------------------------------------------------------

    \1393\ See 17 CFR 240.0-10(a).
    \1394\ 17 CFR 240.17a-5(d).
    \1395\ See 17 CFR 240.0-10(c).
---------------------------------------------------------------------------

    The Regulation SBSR Proposing Release stated that, based on input 
from security-based swap market participants and its own information, 
the Commission preliminarily believed that the majority of security-
based swap transactions have at least one counterparty that is either a 
security-based swap dealer or major security-based swap participant, 
and that these entities, whether registered broker-dealers or not, 
would exceed the thresholds defining ``small entities'' set out 
above.\1396\ Thus, the Commission noted that it preliminarily believed 
that neither of these types of entities would likely qualify as small 
entities for purposes of the RFA.\1397\ Moreover, in the Regulation 
SBSR Proposing Release, the Commission noted that, even in cases where 
one of the counterparties to a security-based swap was outside of the 
categories of security-based swap dealer or major security-based swap 
participant, the Commission preliminarily did not believe any such 
entities would be ``small entities'' as defined in Commission Rule 0-
10.\1398\ In this regard, the Commission noted that feedback from 
industry participants and the Commission's own information about the 
security-based swap market (including a survey conducted by the Office 
of the Comptroller of the Currency) indicated that only persons or 
entities with assets significantly in excess of $5 million participate 
in the

[[Page 14728]]

security-based swap market.\1399\ As a result, the Commission stated 
its preliminarily belief that the vast majority of, if not all, 
security-based swap transactions are between large entities for 
purposes of the RFA.\1400\
---------------------------------------------------------------------------

    \1396\ See Regulation SBSR Proposing Release, 75 FR 75282.
    \1397\ See id.
    \1398\ See id. at 75283.
    \1399\ See id.
    \1400\ See id.
---------------------------------------------------------------------------

    Similarly, in the Regulation SBSR Proposing Release, the Commission 
stated its preliminarily belief that the entities likely to register as 
SDRs would not be small entities.\1401\ Based on input from security-
based swap market participants and its own information, the Commission 
stated its preliminarily belief that most if not all the registered 
SDRs would be part of large business entities, and that all registered 
SDRs would have assets exceeding $5 million and total capital exceeding 
$500,000.\1402\ On this basis, the Commission preliminarily believed 
that the number of security-based swap transactions involving a small 
entity as that term is defined for purposes of the RFA would be de 
minimis and that no aspect of proposed Regulation SBSR would be likely 
to alter the type of counterparties presently engaging in security-
based swap transactions.\1403\ Therefore, the Commission preliminarily 
did not believe that proposed Regulation SBSR would impact any small 
entities.\1404\
---------------------------------------------------------------------------

    \1401\ See id.
    \1402\ See id.
    \1403\ See id.
    \1404\ See id.
---------------------------------------------------------------------------

    As a result, in the Regulation SBSR Proposing Release, the 
Commission certified that Regulation SBSR would not have a significant 
economic impact on a substantial number of small entities for purposes 
of the RFA and requested written comments regarding this 
certification.\1405\ Specifically, the Commission requested that 
commenters describe the nature of any impact on small entities, 
indicate whether they believe that participants and registered SDRs are 
unlikely to be small entities, and provide empirical data to support 
their responses.\1406\ The Commission did not receive any comments 
contrary to its conclusion.
---------------------------------------------------------------------------

    \1405\ See id.
    \1406\ See id.
---------------------------------------------------------------------------

    The Commission continues to believe that few if any security-based 
swap counterparties that would incur duties under Regulation SBSR, as 
adopted, are ``small entities'' as defined in Commission Rule 0-10. 
Feedback from industry participants and the Commission's own 
information about the security-based swap market indicate that only 
persons or entities with assets significantly in excess of $5 million 
participate in the security-based swap market.\1407\ The Commission 
continues to believe that the vast majority of, if not all, security-
based swap transactions are between large entities for purposes of the 
RFA.
---------------------------------------------------------------------------

    \1407\ See id. See also Cross-Border Proposing Release, 78 FR 
31205.
---------------------------------------------------------------------------

    Based on input from security-based swap market participants and its 
own information, the Commission continues to believe that registered 
SDRs would be part of large business entities, and that all registered 
SDRs would have assets exceeding $5 million and total capital exceeding 
$500,000. Therefore, the Commission continues to believe that none of 
the registered SDRs would be small entities.
    The Commission believes that the number of security-based swap 
transactions involving a small entity as that term is defined for 
purposes of the RFA would be de minimis. Moreover, the Commission does 
not believe that any aspect of Regulation SBSR would be likely to alter 
the type of counterparties presently engaging in security-based swap 
transactions. Therefore, the Commission does not believe that 
Regulation SBSR would impact any small entities.
    For the foregoing reasons, the Commission certifies that Regulation 
SBSR would not have a significant economic impact on a substantial 
number of small entities for purposes of the RFA.

XXIV. Statutory Basis and Text of Final Rules

    Pursuant to the Exchange Act, 15 U.S.C. 78a et seq., and 
particularly Sections 3C(e), 11A(b), 13(m)(1), 13A(a), 23(a)(1), 30(c), 
and 36(a), 15 U.S.C. 78c-3(e), 78k-1(b), 78m(m)(1), 78m-1(a), 
78w(a)(1), 78dd(c), and 78mm(a) thereof, the Commission is adopting 
Rules 900, 901, 902, 903, 904, 905, 906, 907, 908, and 909 under the 
Exchange Act.

List of Subjects in 17 CFR Part 242

    Brokers, 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 242--REGULATIONS M, SHO, ATS, AC, NMS, AND SBSR AND CUSTOMER 
MARGIN REQUIREMENTS FOR SECURITY FUTURES

0
1. The authority citation for part 242 continues to read as follows:

    Authority: 15 U.S.C. 77g, 77q(a), 77s(a), 78b, 78c, 78g(c)(2), 
78i(a), 78j, 78k-l(c), 78l, 78m, 78n, 78o(b), 78o(c), 78o(g), 
78q(a), 78q(b), 78q(h), 78w(a), 78dd-1, 78mm, 80a-23, 80a-29, and 
80a-37, unless otherwise noted.

0
2. The heading for part 242 is revised as set forth above.

0
3. Add Sec. Sec.  242.900, 242.901, 242.902, 242.903, 242.904, 242.905, 
242.906, 242.907, 242.908, and 242.909 under an undesignated center 
heading to read as follows:

Regulation SBSR--Regulatory Reporting and Public Dissemination of 
Security-Based Swap Information

Sec.
242.900 Definitions
242.901 Reporting obligations.
242.902 Public dissemination of transaction reports.
242.903 Coded information.
242.904 Operating hours of registered security-based swap data 
repositories.
242.905 Correction of errors in security-based swap information.
242.906 Other duties of participants.
242.907 Policies and procedures of registered security-based swap 
data repositories.
242.908 Cross-border matters.
242.909 Registration of security-based swap data repository as a 
securities information processor.


Sec.  242.900  Definitions.

    Terms used in Sec. Sec.  242.900 through 242.909 that appear in 
Section 3 of the Exchange Act (15 U.S.C. 78c) have the same meaning as 
in Section 3 of the Exchange Act and the rules or regulations 
thereunder. In addition, for purposes of Regulation SBSR (Sec. Sec.  
242.900 through 242.909), the following definitions shall apply:
    (a) Affiliate means any person that, directly or indirectly, 
controls, is controlled by, or is under common control with, a person.
    (b) Asset class means those security-based swaps in a particular 
broad category, including, but not limited to, credit derivatives and 
equity derivatives.
    (c) [Reserved].
    (d) Branch ID means the UIC assigned to a branch or other 
unincorporated office of a participant.
    (e) Broker ID means the UIC assigned to a person acting as a broker 
for a participant.
    (f) Business day means a day, based on U.S. Eastern Time, other 
than a Saturday, Sunday, or a U.S. federal holiday.
    (g) Clearing transaction means a security-based swap that has a 
registered clearing agency as a direct counterparty.
    (h) Control means, for purposes of Sec. Sec.  242.900 through 
242.909, the

[[Page 14729]]

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:
    (1) Is a director, general partner or officer exercising executive 
responsibility (or having similar status or functions);
    (2) 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
    (3) In the case of a partnership, has the right to receive, upon 
dissolution, or has contributed, 25 percent or more of the capital.
    (i) Counterparty means a person that is a direct counterparty or 
indirect counterparty of a security-based swap.
    (j) Counterparty ID means the UIC assigned to a counterparty to a 
security-based swap.
    (k) Direct counterparty means a person that is a primary obligor on 
a security-based swap.
    (l) Direct electronic access has the same meaning as in Sec.  
240.13n-4(a)(5) of this chapter.
    (m) Exchange Act means the Securities Exchange Act of 1934 (15 
U.S.C. 78a et seq.), as amended.
    (n) Execution agent ID means the UIC assigned to any person other 
than a broker or trader that facilitates the execution of a security-
based swap on behalf of a direct counterparty.
    (o) Foreign branch has the same meaning as in Sec.  240.3a71-
3(a)(1) of this chapter.
    (p) Indirect counterparty means a guarantor of a direct 
counterparty's performance of any obligation under a security-based 
swap such that the direct counterparty on the other side can exercise 
rights of recourse against the indirect counterparty in connection with 
the security-based swap; for these purposes a direct counterparty has 
rights of recourse against a guarantor on the other side if the direct 
counterparty has a conditional or unconditional legally enforceable 
right, in whole or in part, to receive payments from, or otherwise 
collect from, the guarantor in connection with the security-based swap.
    (q) Life cycle event means, with respect to a security-based swap, 
any event that would result in a change in the information reported to 
a registered security-based swap data repository under Sec.  
242.901(c), (d), or (i), including: An assignment or novation of the 
security-based swap; a partial or full termination of the security-
based swap; a change in the cash flows originally reported; for a 
security-based swap that is not a clearing transaction, any change to 
the title or date of any master agreement, collateral agreement, margin 
agreement, or any other agreement incorporated by reference into the 
security-based swap contract; or a corporate action affecting a 
security or securities on which the security-based swap is based (e.g., 
a merger, dividend, stock split, or bankruptcy). Notwithstanding the 
above, a life cycle event shall not include the scheduled expiration of 
the security-based swap, a previously described and anticipated 
interest rate adjustment (such as a quarterly interest rate 
adjustment), or other event that does not result in any change to the 
contractual terms of the security-based swap.
    (r) Non-mandatory report means any information provided to a 
registered security-based swap data repository by or on behalf of a 
counterparty other than as required by Sec. Sec.  242.900 through 
242.909.
    (s) Non-U.S. person means a person that is not a U.S. person.
    (t) Parent means a legal person that controls a participant.
    (u) Participant, with respect to a registered security-based swap 
data repository, means a counterparty, that meets the criteria of Sec.  
242.908(b), of a security-based swap that is reported to that 
registered security-based swap data repository to satisfy an obligation 
under Sec.  242.901(a).
    (v) Platform means a national securities exchange or security-based 
swap execution facility that is registered or exempt from registration.
    (w) Platform ID means the UIC assigned to a platform on which a 
security-based swap is executed.
    (x) Post-trade processor means any person that provides 
affirmation, confirmation, matching, reporting, or clearing services 
for a security-based swap transaction.
    (y) Pre-enactment security-based swap means any security-based swap 
executed before July 21, 2010 (the date of enactment of the Dodd-Frank 
Act (Pub. L. 111-203, H.R. 4173)), the terms of which had not expired 
as of that date.
    (z) Price means the price of a security-based swap transaction, 
expressed in terms of the commercial conventions used in that asset 
class.
    (aa) Product means a group of security-based swap contracts each 
having the same material economic terms except those relating to price 
and size.
    (bb) Product ID means the UIC assigned to a product.
    (cc) Publicly disseminate means to make available through the 
Internet or other electronic data feed that is widely accessible and in 
machine-readable electronic format.
    (dd) [Reserved].
    (ee) Registered clearing agency means a person that is registered 
with the Commission as a clearing agency pursuant to section 17A of the 
Exchange Act (15 U.S.C. 78q-1) and any rules or regulations thereunder.
    (ff) Registered security-based swap data repository means a person 
that is registered with the Commission as a security-based swap data 
repository pursuant to section 13(n) of the Exchange Act (15 U.S.C. 
78m(n)) and any rules or regulations thereunder.
    (gg) Reporting side means the side of a security-based swap 
identified by Sec.  242.901(a)(2).
    (hh) Side means a direct counterparty and any guarantor of that 
direct counterparty's performance who meets the definition of indirect 
counterparty in connection with the security-based swap.
    (ii) Time of execution means the point at which the counterparties 
to a security-based swap become irrevocably bound under applicable law.
    (jj) Trader ID means the UIC assigned to a natural person who 
executes one or more security-based swaps on behalf of a direct 
counterparty.
    (kk) Trading desk means, with respect to a counterparty, the 
smallest discrete unit of organization of the participant that 
purchases or sells security-based swaps for the account of the 
participant or an affiliate thereof.
    (ll) Trading desk ID means the UIC assigned to the trading desk of 
a participant.
    (mm) Transaction ID means the UIC assigned to a specific security-
based swap transaction.
    (nn) Transitional security-based swap means a security-based swap 
executed on or after July 21, 2010, and before the first date on which 
trade-by-trade reporting of security-based swaps in that asset class to 
a registered security-based swap data repository is required pursuant 
to Sec. Sec.  242.900 through 242.909.
    (oo) Ultimate parent means a legal person that controls a 
participant and that itself has no parent.
    (pp) Ultimate parent ID means the UIC assigned to an ultimate 
parent of a participant.
    (qq) Unique Identification Code or UIC means a unique 
identification code assigned to a person, unit of a person, product, or 
transaction.
    (rr) United States has the same meaning as in Sec.  240.3a71-
3(a)(5) of this chapter.

[[Page 14730]]

    (ss) U.S. person has the same meaning as in Sec.  240.3a71-3(a)(4) 
of this chapter.


Sec.  242.901  Reporting obligations.

    (a) Assigning reporting duties. A security-based swap, including a 
security-based swap that results from the allocation, termination, 
novation, or assignment of another security-based swap, shall be 
reported as follows:
    (1) [Reserved].
    (2) All other security-based swaps. For all security-based swaps 
other than platform-executed security-based swaps that will be 
submitted to clearing, the reporting side shall provide the information 
required by Sec. Sec.  242.900 through 242.909 to a registered 
security-based swap data repository. The reporting side shall be 
determined as follows:
    (i) [Reserved].
    (ii) Security-based swaps other than clearing transactions. (A) If 
both sides of the security-based swap include a registered security-
based swap dealer, the sides shall select the reporting side.
    (B) If only one side of the security-based swap includes a 
registered security-based swap dealer, that side shall be the reporting 
side.
    (C) If both sides of the security-based swap include a registered 
major security-based swap participant, the sides shall select the 
reporting side.
    (D) If one side of the security-based swap includes a registered 
major security-based swap participant and the other side includes 
neither a registered security-based swap dealer nor a registered major 
security-based swap participant, the side including the registered 
major security-based swap participant shall be the reporting side.
    (E) If neither side of the security-based swap includes a 
registered security-based swap dealer or registered major security-
based swap participant:
    (1) If both sides include a U.S. person, the sides shall select the 
reporting side.
    (2) [Reserved].
    (b) Alternate recipient of security-based swap information. If 
there is no registered security-based swap data repository that will 
accept the report required by Sec.  242.901(a), the person required to 
make such report shall instead provide the required information to the 
Commission.
    (c) Primary trade information. The reporting side shall report the 
following information within the timeframe specified in paragraph (j) 
of this section:
    (1) The product ID, if available. If the security-based swap has no 
product ID, or if the product ID does not include the following 
information, the reporting side shall report:
    (i) Information that identifies the security-based swap, including 
the asset class of the security-based swap and the specific underlying 
reference asset(s), reference issuer(s), or reference index;
    (ii) The effective date;
    (iii) The scheduled termination date;
    (iv) The terms of any standardized fixed or floating rate payments, 
and the frequency of any such payments; and
    (v) If the security-based swap is customized to the extent that the 
information provided in paragraphs (c)(1)(i) through (iv) of this 
section does not provide all of the material information necessary to 
identify such customized security-based swap or does not contain the 
data elements necessary to calculate the price, a flag to that effect;
    (2) The date and time, to the second, of execution, expressed using 
Coordinated Universal Time (UTC);
    (3) The price, including the currency in which the price is 
expressed and the amount(s) and currenc(ies) of any up-front payments;
    (4) The notional amount(s) and the currenc(ies) in which the 
notional amount(s) is expressed;
    (5) If both sides of the security-based swap include a registered 
security-based swap dealer, an indication to that effect;
    (6) Whether the direct counterparties intend that the security-
based swap will be submitted to clearing; and
    (7) If applicable, any flags pertaining to the transaction that are 
specified in the policies and procedures of the registered security-
based swap data repository to which the transaction will be reported.
    (d) Secondary trade information. In addition to the information 
required under paragraph (c) of this section, for each security-based 
swap for which it is the reporting side, the reporting side shall 
report the following information within the timeframe specified in 
paragraph (j) of this section:
    (1) The counterparty ID or the execution agent ID of each 
counterparty, as applicable;
    (2) As applicable, the branch ID, broker ID, execution agent ID, 
trader ID, and trading desk ID of the direct counterparty on the 
reporting side;
    (3) To the extent not provided pursuant to paragraph (c)(1) of this 
section, the terms of any fixed or floating rate payments, or otherwise 
customized or non-standard payment streams, including the frequency and 
contingencies of any such payments;
    (4) For a security-based swap that is not a clearing transaction, 
the title and date of any master agreement, collateral agreement, 
margin agreement, or any other agreement incorporated by reference into 
the security-based swap contract;
    (5) To the extent not provided pursuant to paragraph (c) of this 
section or other provisions of this paragraph (d), any additional data 
elements included in the agreement between the counterparties that are 
necessary for a person to determine the market value of the 
transaction;
    (6) If applicable, and to the extent not provided pursuant to 
paragraph (c) of this section, the name of the clearing agency to which 
the security-based swap will be submitted for clearing;
    (7) If the direct counterparties do not intend to submit the 
security-based swap to clearing, whether they have invoked the 
exception in Section 3C(g) of the Exchange Act (15 U.S.C. 78c-3(g));
    (8) To the extent not provided pursuant to the other provisions of 
this paragraph (d), if the direct counterparties do not submit the 
security-based swap to clearing, a description of the settlement terms, 
including whether the security-based swap is cash-settled or physically 
settled, and the method for determining the settlement value; and
    (9) The platform ID, if applicable.
    (10) If the security-based swap arises from the allocation, 
termination, novation, or assignment of one or more existing security-
based swaps, the transaction ID of the allocated, terminated, assigned, 
or novated security-based swap(s), except in the case of a clearing 
transaction that results from the netting or compression of other 
clearing transactions.
    (e) Reporting of life cycle events. (1)(i) Generally. A life cycle 
event, and any adjustment due to a life cycle event, that results in a 
change to information previously reported pursuant to paragraph (c), 
(d), or (i) of this section shall be reported by the reporting side, 
except that the reporting side shall not report whether or not a 
security-based swap has been accepted for clearing.
    (ii) [Reserved]
    (2) All reports of life cycle events and adjustments due to life 
cycle events shall, within the timeframe specified in paragraph (j) of 
this section, be reported to the entity to which the original security-
based swap transaction was reported and shall include the transaction 
ID of the original transaction.
    (f) Time stamping incoming information. A registered security-based 
swap data repository shall time stamp, to the second, its receipt of 
any information submitted to it pursuant to paragraph (c), (d), (e), or 
(i) of this section.
    (g) Assigning transaction ID. A registered security-based swap data

[[Page 14731]]

repository shall assign a transaction ID to each security-based swap, 
or establish or endorse a methodology for transaction IDs to be 
assigned by third parties.
    (h) Format of reported information. A reporting side shall 
electronically transmit the information required under this section in 
a format required by the registered security-based swap data repository 
to which it reports.
    (i) Reporting of pre-enactment and transitional security-based 
swaps. With respect to any pre-enactment security-based swap or 
transitional security-based swap in a particular asset class, and to 
the extent that information about such transaction is available, the 
reporting side shall report all of the information required by 
paragraphs (c) and (d) of this section to a registered security-based 
swap data repository that accepts security-based swaps in that asset 
class and indicate whether the security-based swap was open as of the 
date of such report.
    (j) Interim timeframe for reporting. The reporting timeframe for 
paragraphs (c) and (d) of this section shall be 24 hours after the time 
of execution (or acceptance for clearing in the case of a security-
based swap that is subject to regulatory reporting and public 
dissemination solely by operation of Sec.  242.908(a)(1)(ii)), or, if 
24 hours after the time of execution or acceptance, as applicable, 
would fall on a day that is not a business day, by the same time on the 
next day that is a business day. The reporting timeframe for paragraph 
(e) of this section shall be 24 hours after the occurrence of the life 
cycle event or the adjustment due to the life cycle event.

Appendix to 17 CFR 242.901 Reports Regarding the Establishment of Block 
Thresholds and Reporting Delays for Regulatory Reporting of Security-
Based Swap Transaction Data

    This appendix sets forth guidelines applicable to reports that 
the Commission has directed its staff to make in connection with the 
determination of block thresholds and reporting delays for security-
based swap transaction data. The Commission intends to use these 
reports to inform its specification of the criteria for determining 
what constitutes a large notional security-based swap transaction 
(block trade) for particular markets and contracts; and the 
appropriate time delay for reporting large notional security-based 
swap transactions (block trades) to the public in order to implement 
regulatory requirements under Section 13 of the Act (15 U.S.C. 78m). 
In producing these reports, the staff shall consider security-based 
swap data collected by the Commission pursuant to other Title VII 
rules, as well as any other applicable information as the staff may 
determine to be appropriate for its analysis.
    (a) Report topics. As appropriate, based on the availability of 
data and information, the reports should address the following 
topics for each asset class:
    (1) Price impact. In connection with the Commission's obligation 
to specify criteria for determining what constitutes a block trade 
and the appropriate reporting delay for block trades, the report 
generally should assess the effect of notional amount and observed 
reporting delay on price impact of trades in the security-based swap 
market.
    (2) Hedging. In connection with the Commission's obligation to 
specify criteria for determining what constitutes a block trade and 
the appropriate reporting delay for block trades, the report 
generally should consider potential relationships between observed 
reporting delays and the incidence and cost of hedging large trades 
in the security-based swap market, and whether these relationships 
differ for interdealer trades and dealer to customer trades.
    (3) Price efficiency. In connection with the Commission's 
obligation to specify criteria for determining what constitutes a 
block trade and the appropriate reporting delay for block trades, 
the report generally should assess the relationship between 
reporting delays and the speed with which transaction information is 
impounded into market prices, estimating this relationship for 
trades of different notional amounts.
    (4) Other topics. Any other analysis of security-based swap data 
and information, such as security-based swap market liquidity and 
price volatility, that the Commission or the staff deem relevant to 
the specification of:
    (i) The criteria for determining what constitutes a large 
notional security-based swap transaction (block trade) for 
particular markets and contracts; and
    (ii) The appropriate time delay for reporting large notional 
security-based swap transactions (block trades).
    (b) Timing of reports. Each report shall be complete no later 
than two years following the initiation of public dissemination of 
security-based swap transaction data by the first registered SDR in 
that asset class.
    (c) Public comment on the report. Following completion of the 
report, the report shall be published in the Federal Register for 
public comment.


Sec.  242.902  Public dissemination of transaction reports.

    (a) General. Except as provided in paragraph (c) of this section, a 
registered security-based swap data repository shall publicly 
disseminate a transaction report of a security-based swap, or a life 
cycle event or adjustment due to a life cycle event, immediately upon 
receipt of information about the security-based swap, or upon re-
opening following a period when the registered security-based swap data 
repository was closed. The transaction report shall consist of all the 
information reported pursuant to Sec.  242.901(c), plus any condition 
flags contemplated by the registered security-based swap data 
repository's policies and procedures that are required by Sec.  
242.907.
    (b) [Reserved].
    (c) Non-disseminated information. A registered security-based swap 
data repository shall not disseminate:
    (1) The identity of any counterparty to a security-based swap;
    (2) With respect to a security-based swap that is not cleared at a 
registered clearing agency and that is reported to the registered 
security-based swap data repository, any information disclosing the 
business transactions and market positions of any person;
    (3) Any information regarding a security-based swap reported 
pursuant to Sec.  242.901(i);
    (4) Any non-mandatory report;
    (5) Any information regarding a security-based swap that is 
required to be reported pursuant to Sec. Sec.  242.901 and 
242.908(a)(1) but is not required to be publicly disseminated pursuant 
to Sec.  242.908(a)(2);
    (6) Any information regarding a clearing transaction that arises 
from the acceptance of a security-based swap for clearing by a 
registered clearing agency or that results from netting other clearing 
transactions; or
    (7) Any information regarding the allocation of a security-based 
swap.
    (d) Temporary restriction on other market data sources. No person 
shall make available to one or more persons (other than a counterparty 
or a post-trade processor) transaction information relating to a 
security-based swap before the primary trade information about the 
security-based swap is sent to a registered security-based swap data 
repository.


Sec.  242.903  Coded information.

    (a) If an internationally recognized standards-setting system that 
imposes fees and usage restrictions on persons that obtain UICs for 
their own usage that are fair and reasonable and not unreasonably 
discriminatory and that meets the criteria of paragraph (b) of this 
section is recognized by the Commission and has assigned a UIC to a 
person, unit of a person, or product (or has endorsed a methodology for 
assigning transaction IDs), the registered security-based swap data 
repository shall employ that UIC (or methodology for assigning 
transaction IDs). If no such system has been recognized by the 
Commission, or a recognized system has not assigned a UIC to a 
particular person, unit of a person, or product (or has not endorsed a 
methodology for assigning transaction IDs), the registered security-
based swap data repository shall assign a UIC to that person, unit of 
person, or product using its own methodology (or endorse a methodology 
for assigning transaction IDs). If the

[[Page 14732]]

Commission has recognized such a system that assigns UICs to persons, 
each participant of a registered security-based swap data repository 
shall obtain a UIC from or through that system for identifying itself, 
and each participant that acts as a guarantor of a direct 
counterparty's performance of any obligation under a security-based 
swap that is subject to Sec.  242.908(a) shall, if the direct 
counterparty has not already done so, obtain a UIC for identifying the 
direct counterparty from or through that system, if that system permits 
third-party registration without a requirement to obtain prior 
permission of the direct counterparty.
    (b) A registered security-based swap data repository may permit 
information to be reported pursuant to Sec.  242.901, and may publicly 
disseminate that information pursuant to Sec.  242.902, using codes in 
place of certain data elements, provided that the information necessary 
to interpret such codes is widely available to users of the information 
on a non-fee basis.


Sec.  242.904  Operating hours of registered security-based swap data 
repositories.

    A registered security-based swap data repository shall have systems 
in place to continuously receive and disseminate information regarding 
security-based swaps pursuant to Sec. Sec.  242.900 through 242.909, 
subject to the following exceptions:
    (a) A registered security-based swap data repository may establish 
normal closing hours during periods when, in its estimation, the U.S. 
market and major foreign markets are inactive. A registered security-
based swap data repository shall provide reasonable advance notice to 
participants and to the public of its normal closing hours.
    (b) A registered security-based swap data repository may declare, 
on an ad hoc basis, special closing hours to perform system maintenance 
that cannot wait until normal closing hours. A registered security-
based swap data repository shall, to the extent reasonably possible 
under the circumstances, avoid scheduling special closing hours during 
periods when, in its estimation, the U.S. market and major foreign 
markets are most active; and provide reasonable advance notice of its 
special closing hours to participants and to the public.
    (c) During normal closing hours, and to the extent reasonably 
practicable during special closing hours, a registered security-based 
swap data repository shall have the capability to receive and hold in 
queue information regarding security-based swaps that has been reported 
pursuant to Sec. Sec.  242.900 through 242.909.
    (d) When a registered security-based swap data repository re-opens 
following normal closing hours or special closing hours, it shall 
disseminate transaction reports of security-based swaps held in queue, 
in accordance with the requirements of Sec.  242.902.
    (e) If a registered security-based swap data repository could not 
receive and hold in queue transaction information that was required to 
be reported pursuant to Sec. Sec.  242.900 through 242.909, it must 
immediately upon re-opening send a message to all participants that it 
has resumed normal operations. Thereafter, any participant that had an 
obligation to report information to the registered security-based swap 
data repository pursuant to Sec. Sec.  242.900 through 242.909, but 
could not do so because of the registered security-based swap data 
repository's inability to receive and hold in queue data, must promptly 
report the information to the registered security-based swap data 
repository.


Sec.  242.905  Correction of errors in security-based swap information.

    (a) Duty to correct. Any counterparty to a security-based swap that 
discovers an error in information previously reported pursuant to 
Sec. Sec.  242.900 through 242.909 shall correct such error in 
accordance with the following procedures:
    (1) If a side that was not the reporting side for a security-based 
swap transaction discovers an error in the information reported with 
respect to such security-based swap, the counterparty shall promptly 
notify the reporting side of the error; and
    (2) If the reporting side discovers an error in the information 
reported with respect to a security-based swap, or receives 
notification from its counterparty of an error, the reporting side 
shall promptly submit to the entity to which the security-based swap 
was originally reported an amended report pertaining to the original 
transaction report. If the reporting side reported the initial 
transaction to a registered security-based swap data repository, the 
reporting side shall submit an amended report to the registered 
security-based swap data repository in a manner consistent with the 
policies and procedures contemplated by Sec.  242.907(a)(3).
    (b) Duty of security-based swap data repository to correct. A 
registered security-based swap data repository shall:
    (1) Upon discovery of an error or receipt of a notice of an error, 
verify the accuracy of the terms of the security-based swap and, 
following such verification, promptly correct the erroneous information 
regarding such security-based swap contained in its system; and
    (2) If such erroneous information relates to a security-based swap 
that the registered security-based swap data repository previously 
disseminated and falls into any of the categories of information 
enumerated in Sec.  242.901(c), publicly disseminate a corrected 
transaction report of the security-based swap promptly following 
verification of the trade by the counterparties to the security-based 
swap, with an indication that the report relates to a previously 
disseminated transaction.


Sec.  242.906  Other duties of participants.

    (a) Identifying missing UIC information. A registered security-
based swap data repository shall identify any security-based swap 
reported to it for which the registered security-based swap data 
repository does not have the counterparty ID and (if applicable) the 
broker ID, branch ID, execution agent ID, trading desk ID, and trader 
ID of each direct counterparty. Once a day, the registered security-
based swap data repository shall send a report to each participant of 
the registered security-based swap data repository or, if applicable, 
an execution agent, identifying, for each security-based swap to which 
that participant is a counterparty, the security-based swap(s) for 
which the registered security-based swap data repository lacks 
counterparty ID and (if applicable) broker ID, branch ID, execution 
agent ID, desk ID, and trader ID. A participant of a registered 
security-based swap data repository that receives such a report shall 
provide the missing information with respect to its side of each 
security-based swap referenced in the report to the registered 
security-based swap data repository within 24 hours.
    (b) Duty to provide ultimate parent and affiliate information. Each 
participant of a registered security-based swap data repository shall 
provide to the registered security-based swap data repository 
information sufficient to identify its ultimate parent(s) and any 
affiliate(s) of the participant that also are participants of the 
registered security-based swap data repository, using ultimate parent 
IDs and counterparty IDs. Any such participant shall promptly notify 
the registered security-based swap data repository of any changes to 
that information.
    (c) Policies and procedures of registered security-based swap 
dealers and registered major security-based swap participants. Each 
participant of a registered security-based swap data

[[Page 14733]]

repository that is a registered security-based swap dealer or 
registered major security-based swap participant shall establish, 
maintain, and enforce written policies and procedures that are 
reasonably designed to ensure that it complies with any obligations to 
report information to a registered security-based swap data repository 
in a manner consistent with Sec. Sec.  242.900 through 242.909. Each 
such participant shall review and update its policies and procedures at 
least annually.


Sec.  242.907  Policies and procedures of registered security-based 
swap data repositories.

    (a) General policies and procedures. With respect to the receipt, 
reporting, and dissemination of data pursuant to Sec. Sec.  242.900 
through 242.909, a registered security-based swap data repository shall 
establish and maintain written policies and procedures:
    (1) That enumerate the specific data elements of a security-based 
swap that must be reported, which shall include, at a minimum, the data 
elements specified in Sec.  242.901(c) and (d);
    (2) 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;
    (3) For specifying procedures for reporting life cycle events and 
corrections to previously submitted information, making corresponding 
updates or corrections to transaction records, and applying an 
appropriate flag to the transaction report to indicate that the report 
is an error correction required to be disseminated by Sec.  
242.905(b)(2), or is a life cycle event, or any adjustment due to a 
life cycle event, required to be disseminated by Sec.  242.902(a);
    (4) For:
    (i) Identifying characteristic(s) of a security-based swap, or 
circumstances associated with the execution or reporting of the 
security-based swap, that could, in the fair and reasonable estimation 
of the registered security-based swap data repository, cause a person 
without knowledge of these characteristic(s) or circumstance(s), to 
receive a distorted view of the market;
    (ii) Establishing flags to denote such characteristic(s) or 
circumstance(s);
    (iii) Directing participants that report security-based swaps to 
apply such flags, as appropriate, in their reports to the registered 
security-based swap data repository; and
    (iv) Applying such flags:
    (A) To disseminated reports to help to prevent a distorted view of 
the market; or
    (B) In the case of a transaction referenced in Sec.  242.902(c), to 
suppress the report from public dissemination entirely, as appropriate;
    (5) For assigning UICs in a manner consistent with Sec.  242.903; 
and
    (6) For periodically obtaining from each participant information 
that identifies the participant's ultimate parent(s) and any 
participant(s) with which the participant is affiliated, using ultimate 
parent IDs and counterparty IDs.
    (b) [Reserved].
    (c) Public availability of policies and procedures. A registered 
security-based swap data repository shall make the policies and 
procedures required by Sec. Sec.  242.900 through 242.909 publicly 
available on its Web site.
    (d) Updating of policies and procedures. A registered security-
based swap data repository shall review, and update as necessary, the 
policies and procedures required by Sec. Sec.  242.900 through 242.909 
at least annually. Such policies and procedures shall indicate the date 
on which they were last reviewed.
    (e) A registered security-based swap data repository shall provide 
to the Commission, upon request, information or reports related to the 
timeliness, accuracy, and completeness of data reported to it pursuant 
to Sec. Sec.  242.900 through 242.909 and the registered security-based 
swap data repository's policies and procedures thereunder.


Sec.  242.908  Cross-border matters.

    (a) Application of Regulation SBSR to cross-border transactions. 
(1) A security-based swap shall be subject to regulatory reporting and 
public dissemination if:
    (i) There is a direct or indirect counterparty that is a U.S. 
person on either or both sides of the transaction; or
    (ii) The security-based swap is accepted for clearing by a clearing 
agency having its principal place of business in the United States.
    (2) A security-based swap that is not included within paragraph 
(a)(1) of this section shall be subject to regulatory reporting but not 
public dissemination if there is a direct or indirect counterparty on 
either or both sides of the transaction that is a registered security-
based swap dealer or a registered major security-based swap 
participant.
    (b) Limitation on obligations. Notwithstanding any other provision 
of Sec. Sec.  242.900 through 242.909, a person shall not incur any 
obligation under Sec. Sec.  242.900 through 242.909 unless it is:
    (1) A U.S. person; or
    (2) A registered security-based swap dealer or registered major 
security-based swap participant.
    (c) Substituted compliance--(1) General. Compliance with the 
regulatory reporting and public dissemination requirements in sections 
13(m) and 13A of the Act (15 U.S.C. 78m(m) and 78m-1), and the rules 
and regulations thereunder, may be satisfied by compliance with the 
rules of a foreign jurisdiction that is the subject of a Commission 
order described in paragraph (c)(2) of this section, provided that at 
least one of the direct counterparties to the security-based swap is 
either a non-U.S. person or a foreign branch.
    (2) Procedure. (i) The Commission may, conditionally or 
unconditionally, by order, make a substituted compliance determination 
regarding regulatory reporting and public dissemination of security-
based swaps with respect to a foreign jurisdiction if that 
jurisdiction's requirements for the regulatory reporting and public 
dissemination of security-based swaps are comparable to otherwise 
applicable requirements. The Commission may, conditionally or 
unconditionally, by order, make a substituted compliance determination 
regarding regulatory reporting of security-based swaps that are subject 
to Sec.  242.908(a)(2) with respect to a foreign jurisdiction if that 
jurisdiction's requirements for the regulatory reporting of security-
based swaps are comparable to otherwise applicable requirements.
    (ii) A party that potentially would comply with requirements under 
Sec. Sec.  242.900 through 242.909 pursuant to a substituted compliance 
order or any foreign financial regulatory authority or authorities 
supervising such a person's security-based swap activities may file an 
application, pursuant to the procedures set forth in Sec.  240.0-13 of 
this chapter, requesting that the Commission make a substituted 
compliance determination regarding regulatory reporting and public 
dissemination with respect to a foreign jurisdiction the rules of which 
also would require reporting and public dissemination of those 
security-based swaps.
    (iii) In making such a substituted compliance determination, the 
Commission shall take into account such factors as the Commission 
determines are appropriate, such as the scope and objectives of the 
relevant foreign regulatory requirements, as well as the effectiveness 
of the supervisory

[[Page 14734]]

compliance program administered, and the enforcement authority 
exercised, by the foreign financial regulatory authority to support 
oversight of its regulatory reporting and public dissemination system 
for security-based swaps. The Commission shall not make such a 
substituted compliance determination unless it finds that:
    (A) The data elements that are required to be reported pursuant to 
the rules of the foreign jurisdiction are comparable to those required 
to be reported pursuant to Sec.  242.901;
    (B) The rules of the foreign jurisdiction require the security-
based swap to be reported and publicly disseminated in a manner and a 
timeframe comparable to those required by Sec. Sec.  242.900 through 
242.909 (or, in the case of transactions that are subject to Sec.  
242.908(a)(2) but not to Sec.  242.908(a)(1), the rules of the foreign 
jurisdiction require the security-based swap to be reported in a manner 
and a timeframe comparable to those required by Sec. Sec.  242.900 
through 242.909);
    (C) The Commission has direct electronic access to the security-
based swap data held by a trade repository or foreign regulatory 
authority to which security-based swaps are reported pursuant to the 
rules of that foreign jurisdiction; and
    (D) Any trade repository or foreign regulatory authority in the 
foreign jurisdiction that receives and maintains required transaction 
reports of security-based swaps pursuant to the laws of that foreign 
jurisdiction is subject to requirements regarding data collection and 
maintenance; systems capacity, integrity, resiliency, availability, and 
security; and recordkeeping that are comparable to the requirements 
imposed on security-based swap data repositories by the Commission's 
rules and regulations.
    (iv) Before issuing a substituted compliance order pursuant to this 
section, the Commission shall have entered into memoranda of 
understanding and/or other arrangements with the relevant foreign 
financial regulatory authority or authorities under such foreign 
financial regulatory system addressing supervisory and enforcement 
cooperation and other matters arising under the substituted compliance 
determination.
    (v) The Commission may, on its own initiative, modify or withdraw 
such order at any time, after appropriate notice and opportunity for 
comment.


Sec.  242.909  Registration of security-based swap data repository as a 
securities information processor.

    A registered security-based swap data repository shall also 
register with the Commission as a securities information processor on 
Form SDR (Sec.  249.1500 of this chapter).

    By the Commission.

    Dated: February 11, 2015.

Brent J. Fields,
Secretary.

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

Appendix

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 Action

[Release No. 34-69491; File No. S7-34-10]

http://www.sec.gov/comments/s7-34-10/s73410.shtml

 Email message from Larry E. Thompson, Managing Director and 
General Counsel, Depository Trust & Clearing Corporation (``DTCC''), 
to Stephen Luparello, SEC, dated December 10, 2014 (``DTCC X'').
 Letter from Marisol Collazo, Chief Executive Officer, DTCC 
Data Repository US LLC, to Elizabeth M. Murphy, Secretary, SEC, 
dated November 14, 2014 (``DTCC IX'').
 Letter from Angie Karna, Managing Director, Legal, Nomura 
Global Financial Products, Inc., to Brent J. Fields, Secretary, SEC, 
dated September 10, 2014 (``NGFP Letter'')
 Letter from Carl Levin, Chairman, U.S. Senate Permanent 
Subcommittee on Investigations, to Kevin M. O'Neill, Deputy 
Secretary, SEC, dated July 3, 2014 (``Levin Letter'').
 Email message from Christopher Young, Director, U.S. Public 
Policy, ISDA, to Thomas Eady, SEC, dated March 27, 2014 (``ISDA 
III'').
 Email message from Marisol Collazo, Chief Executive 
Officer, DTCC Data Repository US LLC, to Thomas Eady and Michael J. 
Gaw, SEC, dated March 24, 2014 (with attached letters submitted to 
the CFTC regarding CME Rule 1001) (``DTCC VIII'').
 Email message from Marisol Collazo, Chief Executive 
Officer, DTCC Data Repository US LLC, to Thomas Eady, SEC, dated 
March 21, 2014 (with attached message submitted to the CFTC (``DTCC 
VII'').
 Letter from Kim Taylor, President, Clearing, CME Group, and 
Kara L. Dutta, General Counsel, ICE Trade Vault (``ICE''), LLC, to 
Elizabeth M. Murphy, Secretary, Commission, dated November 19, 2013 
(``CME/ICE Letter'').
 Letter from Kara L. Dutta, General Counsel, ICE Trade 
Vault, LLC, to Elizabeth M. Murphy, Secretary, Commission, dated 
September 23, 2013 (``ICE Letter'').
 Letter from Matti Lepp[auml]l[auml], Secretary General/CEO, 
PensionsEurope, to Elizabeth M. Murphy, Secretary, Commission, dated 
September 3, 2013 (``PensionsEurope Letter'').
 Letter from Americans for Financial Reform, to Elizabeth 
Murphy, Secretary, Commission, dated August 22, 2013 (``AFR 
Letter'').
 Letter from Anne-Marie Leroy, Senior Vice President and 
Group General Counsel, World Bank, and Fady Zeidan, Acting Deputy/
General Counsel, International Finance Corporation, to Elizabeth M. 
Murphy, Secretary, Commission, dated August 21, 2013 (``World Bank 
Letter'').
 Letter from Futures and Options Association, dated August 
21, 2013 (``FOA Letter'').
 Letter from Kenneth E. Bentsen, Jr., President, Securities 
Industry and Financial Markets Association (``SIFMA''); Walt Lukken, 
President & Chief Executive Officer, Futures Industry Association 
(``FIA''); and Richard M. Whiting, Executive Director and General 
Counsel, The Financial Services Roundtable (``Roundtable''), to 
Elizabeth M. Murphy, Secretary, Commission, dated August 21, 2013 
(``SIFMA/FIA/Roundtable Letter'').
 Letter from Per Sj[ouml]berg, Chief Executive Officer, and 
Christoffer Mohammar, General Counsel, TriOptima AB, to Elizabeth M. 
Murphy, Secretary, Commission, dated August 21, 2013 (``TriOptima 
Letter'').
 Letter from Larry E. Thompson, General Counsel, DTCC, to 
Elizabeth M. Murphy, Secretary, SEC, dated August 21, 2013 (``DTCC 
VI'').
 Letter from Jeff Gooch, Head of Processing, Markit, Chair 
and CEO, MarkitSERV, to Elizabeth M. Murphy, Secretary, Commission, 
dated August 21, 2013 (``MarkitSERV IV'').
 Letter from Coalition for Derivatives End-Users, to 
Elizabeth M. Murphy, Secretary, Commission, dated August 21, 2013 
(``CDEU Letter'').
 Letter from Kathleen Cronin, Senior Managing Director, 
General Counsel, CME Group Inc., to Elizabeth M. Murphy, Secretary, 
Commission, dated August 21, 2013 (``CME II'').
 Letter from Sarah A. Miller, Chief Executive Officer, 
Institute of International Bankers (``IIB''), to Elizabeth M. 
Murphy, Secretary, Commission, dated August 21, 2013 (``IIB 
Letter'').
 Letter from Sullivan & Cromwell LLP, to Elizabeth M. 
Murphy, Secretary, Commission, dated August 21, 2013 (``Sullivan 
Letter'').
 Letter from S[oslash]ren Elbech, Treasurer, and Jorge 
Alers, General Counsel, lnter-American Development Bank, to 
Elizabeth M. Murphy, Secretary, Commission, dated August 21, 2013 
(``IDB Letter'').
 Letter from Karrie McMillan, General Counsel, Investment 
Company Institute (``ICI'') and Dan Waters, Managing Director, ICI 
Global, to Elizabeth M. Murphy, Secretary, Commission, dated August 
21, 2013 (``ICI II'').
 Letter from Dennis M. Kelleher, President and CEO, Stephen 
W. Hall, Securities

[[Page 14735]]

Specialist, and Katelynn 0. Bradley, Attorney, Better Markets, Inc., 
to Elizabeth M. Murphy, Secretary, Commission, dated August 21, 2013 
(``Better Markets IV'').
 Letter from Monique S. Botkin, Associate General Counsel, 
Investment Adviser Association, to Elizabeth M. Murphy, Secretary, 
Commission, dated August 21, 2013 (``IAA Letter'').
 Letter from Patrick Pearson, European Commission, dated 
August 21, 2013 (``Pearson Letter'').
 Letter from Lutz-Christian Funke, Senior Vice President, 
and Frank Czichowski, Senior Vice President and Treasurer, KfW, to 
Elizabeth M. Murphy, Secretary, Commission, dated August 21, 2013 
(``KfW Letter'').
 Letter from Koichi lshikura, Executive Chief of Operations 
for International Headquarters, Japan Securities Dealers 
Association, to Elizabeth M. Murphy, Secretary, Commission, dated 
August 21, 2013 (``JSDA Letter'').
 Letter from Bruce E. Stern, Chairman, Association of 
Financial Guaranty Insurers, to Elizabeth M. Murphy, Secretary, 
Commission, dated August 20, 2013 (``AFGI Letter'').
 Letter from Ernst-Albrecht Brockhaus, Member of the 
Management Board, and Nico Zachert, Authorized Signatory, Legal/
Compliance, FMS Wertmanagement, to Elizabeth M. Murphy, Secretary, 
Commission, dated August 2013 (``FMS Letter'').
 Letter from Stuart J. Kaswell, Executive Vice President & 
Managing Director, General Counsel, Managed Funds Association 
(``MFA''), and Adam Jacobs, Director, Head of Markets Regulation, 
Alternative Investment Management Association, to Elizabeth M. 
Murphy, Secretary, Commission, dated August 19, 2013 (``MFA/AIMA 
Letter'').
 Letter from Jonathan B. Kindred and Shigesuke Kashiwagi, 
Co-chairs, Japan Financial Markets Council, to Elizabeth M. Murphy, 
Secretary, Commission, dated August 15, 2013 (``JFMC Letter'').
 Letter from Kevin Nixon, Managing Director, Institute of 
International Finance, to Elizabeth M. Murphy, Secretary, 
Commission, dated August 8, 2013 (``IIF Letter'').
 Letter from Larry E. Thompson, General Counsel, DTCC, to 
Elizabeth M. Murphy, Secretary, SEC, dated July 22, 2013 (``DTCC 
V'').
 Letter from Dennis Kelleher, President & CEO, and Stephen 
W. Hall, Securities Specialist, Better Markets, Inc., to Elizabeth 
M. Murphy, Secretary, Commission, dated July 22, 2013 (``Better 
Markets III'').
 Letter from Chris Barnard, to Commission, dated July 15, 
2013 (``Barnard II'').
 Letter from Gregory Ugwi, Strategist, ThinkNum.com, dated 
June 15, 2013 (``ThinkNum Letter'').
 Letter from FSR, FIA, IIB, International Swaps and 
Derivatives Association (``ISDA''), ICI, and SIFMA, to Elizabeth M. 
Murphy, Secretary, Commission, dated May 21, 2013 (``Six 
Associations Letter'').

Comments on Proposed Rule: Regulation SBSR--Reporting and Dissemination 
of Security-Based Swap Information

[Release No. 34-63346; File No. S7-34-10]

http://www.sec.gov/comments/s7-34-10/s73410.shtml

 Letter from Thomas G. McCabe, Chief Operating Officer, 
OneChicago, to Elizabeth M. Murphy, Secretary, Commission, dated 
March 1, 2013 (``OneChicago II'').
 Letter from Elizabeth K. King, Head of Regulatory Affairs, 
GETCO, to Elizabeth M. Murphy, Secretary, Commission, dated March 
21, 2012 (``GETCO Letter'').
Letter from Michael Hisler, Co-Founder, Swaps & Derivatives Market 
Association (``SDMA''), to Elizabeth M. Murphy, Secretary, 
Commission, dated October 19, 2011 (``SDMA II'').
 Letter from the ABA Securities Association, American 
Council of Life Insurers, FSR, FIA, IIB, ISDA, and SIFMA to David A. 
Stawick, Secretary, CFTC; Jennifer J. Johnson, Secretary, Federal 
Reserve Board; Robert E. Feldman, Executive Secretary, FDIC; Gary K. 
Van Meter, Director, Office of Regulatory Policy, Farm Credit 
Administration; Elizabeth M. Murphy, Secretary, Commission; Office 
of the Comptroller of the Currency; and Alfred M. Pollard, General 
Counsel, Federal Housing Finance Agency, dated September 8, 2011 
(``Multiple Associations Letter'').
 Letter from Scott Pintoff, General Counsel, GFI Group, Inc. 
(``GFI''), to Elizabeth M. Murphy, Secretary, Commission, dated July 
12, 2011 (``GFI Letter).
 Letter from Larry E. Thompson, General Counsel, the 
Depository Trust & Clearing Corporation (``DTCC''), to the Honorable 
Mary L. Schapiro, Chairman, Commission, and the Honorable Gary 
Gensler, Chairman, CFTC, dated June 3, 2011 (``DTCC IV'').
 Letter from Stephen Merkel, Chairman, Wholesale Markets 
Brokers' Association Americas (``WMBAA''), to the Honorable Mary L. 
Schapiro, Chairman, Commission, and the Honorable Gary Gensler, 
Chairman, CFTC, dated June 3, 2011 (``WMBAA III''). [Note: This 
comment letter is in fact dated ``June 3, 2010,'' but the Commission 
deems the true date to be June 3, 2011. The comment letter 
references proposed Regulation SBSR, which the Commission issued in 
November 2010, and thus the comment could not have been submitted in 
June 2010.]
 Letter from John R. Gidman, Association of Institutional 
Investors, to David A. Stawick, Secretary, CFTC, and Elizabeth M. 
Murphy, Secretary, Commission, dated June 2, 2011 (``Institutional 
Investors Letter''). [Note: This comment letter is in fact dated 
``June 2, 2010,'' but the Commission deems the true date to be June 
2, 2011. The comment letter references proposed Regulation SBSR, 
which the Commission issued in November 2010, and thus the comment 
could not have been submitted in June 2010.]
 Letter from Chris Koppenheffer, SDMA, to David A. Stawick, 
Secretary, CFTC, and Elizabeth M. Murphy, Secretary, Commission, 
dated June 1, 2011 (``SDMA I'').
 Letter from Richard M. Whiting, Executive Director and 
General Counsel, FSR, to David A. Stawick, Secretary, CFTC, and 
Elizabeth M. Murphy, Secretary, Commission, dated May 12, 2011 
(``Roundtable Letter'').
 Letter from Davis Polk & Wardwell LLP on behalf of The Bank 
of Tokyo-Mitsubishi UFJ. Ltd., Mizuho Corporate Bank, Ltd., and 
Sumitomo Mitsui Banking Corporation, to David A. Stawick, Secretary, 
CFTC, Elizabeth M. Murphy, Secretary, Commission, and Jennifer L. 
Johnson, Secretary, Federal Reserve Board, dated May 6, 2011 
(``Japanese Banks Letter'').
 Letter from Richard H. Baker, President and Chief Executive 
Officer, MFA, to the Honorable Mary L. Schapiro, Chairman, 
Commission, dated March 24, 2011 (``MFA II''), and attached ``MFA 
Recommended Timeline for Adoption and Implementation of Final Rules 
Pursuant to Title VII of the Dodd-Frank Act'' (``MFA Recommended 
Timeline'').
 Letter from Davis Polk & Wardwell LLP on behalf of Barclays 
Bank PLC, PNP Paribas S.A., Credit Suisse AG, Deutsche Bank AG, 
HSBS, Nomura Securities International, Inc., Rabobank Nederland, 
Royal Bank of Canada, The Royal Bank of Scotland Group, PLC, 
Soci[eacute]t[eacute] G[eacute]n[eacute]rale, The Toronto-Dominion 
Bank, and UBS AG, to David A. Stawick, Secretary, CFTC, Elizabeth M. 
Murphy, Secretary, Commission, and Jennifer L. Johnson, Secretary, 
Federal Reserve Board, dated February 17, 2011 (``Davis Polk II'').
 Letter from Robert Carpenter, President and Chief Executive 
Officer, GS1 U.S., Miguel A. Lopera, Chief Executive Officer, GS1 
Global, and Allan D. Grody, President, Financial Inter Group, to 
Elizabeth Murphy, Secretary, Commission, dated February 14, 2011 
(``GS1 Letter'') and ``GS1 & Financial InterGroup Response to 
Securities & Exchange Commission'' (``GS1 Proposal'').
 Letter from Edward J. Rosen, Cleary Gottlieb Steen & 
Hamilton LLP, on behalf of Bank of America Merrill Lynch, BNP 
Paribas, Citi, Credit Agricole Corporate and Investment Bank, Credit 
Suisse Securities (USA), Deutsche Bank AG, Morgan Stanley, Nomura 
Securities International, Inc., PNC Bank, Soci[eacute]t[eacute] 
General, UBS Securities LLC, and Wells Fargo & Company, to Elizabeth 
M. Murphy, Secretary, Commission, and David A. Stawick, Secretary, 
CFTC, dated February 14, 2011 (``Cleary II'').
 Letter from Charles Llewellyn, Regional Legal Counsel--
Americas, Society for Worldwide Interbank Financial 
Telecommunication SCRL (``SWIFT''), to the Commission, dated 
February 14, 2011 (``SWIFT Letter'').
 Letter from Patrick Durkin, Managing Director, Barclays 
Capital Inc. (``Barclays''), to Elizabeth M. Murphy, Secretary, 
Commission, dated February 11, 2010

[[Page 14736]]

(``Barclays Letter''). [Note: This comment letter is in fact dated 
``February 11, 2010,'' but the Commission deems the true date to be 
February 11, 2011. The comment letter references proposed Regulation 
SBSR, which the Commission issued in November 2010, and thus the 
comment could not have been submitted in February 2010.]
 Letter from Daniel G. Viola, Partner, Sadis & Goldberg LLP, 
to the CFTC and the Commission, dated February 7, 2011 (``Viola 
Letter'').
 Letter from Andrew Downes, Managing Director, UBS 
Investment Bank, and James B. Fuqua, Managing Director, UBS 
Securities LLC, to Elizabeth M. Murphy, Secretary, Commission, dated 
February 7, 2011 (``UBS Letter'').
 Letter from Cravath, Swaine & Moore, LLP, to Elizabeth M. 
Murphy, Secretary, Commission, dated February 6, 2011 (``Cravath 
Letter'').
 Letter from Richard G. Ketchum, Chairman and Chief 
Executive Officer, Financial Industry Regulatory Authority 
(``FINRA''), to Elizabeth M. Murphy, Secretary, Commission, dated 
January 27, 2011 (``FINRA Letter'').
 Letter from David G. Downey, Chief Executive Officer, 
OneChicago, LLC, to Elizabeth M. Murphy, Secretary, Commission, 
dated January 26, 2011 (``OneChicago I'').
 Letter from Dennis M. Kelleher, President and Chief 
Executive Officer, Stephen W. Hall, Securities Specialist, and 
Wallace C. Turbeville, Derivatives Specialist, Better Markets, Inc. 
(``Better Markets''), to Elizabeth M. Murphy, Secretary, Commission, 
dated January 24, 2011 (``Better Markets II'').
 Letter from Kevin Gould, President, Markit North America, 
Inc., to Elizabeth M. Murphy, Secretary, Commission, dated January 
24, 2011 (``Markit I'').
 Letter from Jeff Gooch, Chief Executive Officer, MarkitSERV 
LLC, to Elizabeth M. Murphy, Secretary, Commission, dated January 
24, 2011 (``MarkitSERV I'').
 Letter from Naphtali M. Hamlet, dated January 22, 2011 
(``Hamlet Letter'').
 Letter from Dennis M. Kelleher, President and Chief 
Executive Officer, Wallace C. Turbeville, Derivatives Specialist, 
and Stephen W. Hall, Better Markets, to Elizabeth M. Murphy, 
Secretary, Commission, dated January 18, 2011 (``Better Markets 
I'').
 Letter from Craig S. Donohue, Chief Executive Officer, CME 
Group, Inc., to Elizabeth M. Murphy, Secretary, Commission, dated 
January 18, 2011 (``CME I'').
 Letter from Larry E. Thompson, General Counsel, DTCC, dated 
January 18, 2011 (``DTCC II'').
 Letter from Beckwith B. Miller, Chief Executive Officer, 
Ethics Metrics LLC, to Elizabeth M. Murphy, Secretary, Commission, 
dated January 18, 2011 (``Ethics Metrics Letter'').
 Letter from Karrie McMillan, General Counsel, ICI, to 
Elizabeth M. Murphy, Secretary, Commission, dated January 18, 2011 
(``ICI I'').
 Letter from Robert Pickel, Executive Vice Chairman, ISDA, 
and Kenneth E. Bentsen, Jr., Executive Vice President, Public Policy 
and Advocacy, SIFMA, to Elizabeth M. Murphy, Secretary, Commission, 
dated January 18, 2011 (``ISDA/SIFMA I''), and accompanying study, 
``Block trade reporting for over-the-counter derivatives markets'' 
(``ISDA/SIFMA Block Trade Study'').
 Letter from Roger Liddell, Chief Executive, LCH.Clearnet 
Group Limited, to Elizabeth M. Murphy, Secretary, Commission, dated 
January 18, 2011 (``LCH.Clearnet Letter'').
 Letter from Stuart J. Kaswell, Executive Vice President, 
Managing Director, and General Counsel, Managed Funds Association, 
to Elizabeth M. Murphy, Secretary, Commission, dated January 18, 
2011 (``MFA I'').
 Letter from Timothy W. Cameron, Managing Director, Asset 
Management Group, SIFMA, to Elizabeth M. Murphy, Secretary, 
Commission, dated January 18, 2011 (``SIFMA I'').
 Letter from Lee H. Olesky, Chief Executive Officer, and 
Douglas L. Friedman, General Counsel, Tradeweb Markets LLC, to 
Elizabeth M. Murphy, Secretary, Commission, dated January 18, 2011 
(``Tradeweb Letter'').
 Letter from Gus Sauter, Managing Director and Chief 
Investment Officer, and John Hollyer, Principal and Head of Risk 
Management and Strategy Analysis, Vanguard, to Elizabeth M. Murphy, 
Secretary, Commission, dated January 18, 2011 (``Vanguard Letter'').
 Letter from Julian Harding, Chairman, WMBAA, to Elizabeth 
M. Murphy, Secretary, Commission, dated January 18, 2011 (``WMBAA 
II'').
 Letter from R. Martin Chavez, Managing Director, Goldman, 
Sachs & Co., David A. Stawick, Secretary, CFTC, and Elizabeth M. 
Murphy, Secretary, Commission, dated January 18, 2011 (``Goldman 
Sachs Letter'').
 Letter from R. Glenn Hubbard, Co-Chair, John L. Thornton, 
Co-Chair, and Hal S. Scott, Director, Committee on Capital Markets 
Regulation, David A. Stawick, Secretary, CFTC, and Elizabeth M. 
Murphy, Secretary, Commission, dated January 18, 2011 (``CCMR I'').
 Letter from Adam Litke, Bloomberg L.P., to Elizabeth M. 
Murphy, Secretary, Commission, dated January 14, 2011 (``Bloomberg 
Letter'').
 Letter from Laurel Leitner, Senior Analyst, Council of 
Institutional Investors, to Elizabeth M. Murphy, Secretary, 
Commission, dated January 13, 2011 (``CII Letter'').
 Letter from Jeremy Barnum, Managing Director, and Don 
Thompson, Managing Director and Associate General Counsel, J.P. 
Morgan, David A. Stawick, Secretary, CFTC, and Elizabeth M. Murphy, 
Secretary, Commission, dated January 12, 2011 (``J.P. Morgan 
Letter'').
 Letter from Davis Polk & Wardwell LLP on behalf of Barclays 
Bank PLC, PNP 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, UBS AG, to David A. Stawick, Secretary, 
CFTC, Elizabeth M. Murphy, Secretary, Commission, and Jennifer L. 
Johnson, Secretary, Federal Reserve Board, dated January 11, 2011 
(``Davis Polk I'').
 Letter from Suzanne H. Shatto, dated January 1, 2011 
(``Shatto Letter'').
 Letter from Spencer Bachus, Ranking Member, Committee on 
Financial Services, and Frank Lucas, Ranking Member, Committee on 
Agriculture, U.S. House of Representatives, to The Honorable Timothy 
Geithner, Secretary, Department of Treasury, the Honorable Gary 
Gensler, Chairman, CFTC, the Honorable Mary Schapiro, Chairman, 
Commission, and the Honorable Ben Bernanke, Chairman, Federal 
Reserve, dated December 16, 2010 (``Bachus/Lucas Letter'').
 Letter from Chris Barnard, dated December 3, 2010 
(``Barnard I'').
 Letter from Laura J. Schisgall, Managing Director and 
Senior Counsel, Soci[eacute]t[eacute] G[eacute]n[eacute]rale, to 
Ananda Radhakrishnan, Director, Division of Clearing and 
Intermediary Oversight, CFTC, John M. Ramsay, Deputy Director, 
Division of Trading and Markets, SEC, Mark E. Van Der Weide, Senior 
Associate Director, Federal Reserve Board, dated November 23, 2010 
(``Soci[eacute]t[eacute] G[eacute]n[eacute]rale Letter'').
 Letter from Julian Harding, WMBAA, David A. Stawick, 
Secretary, CFTC, and Elizabeth M. Murphy, Secretary, Commission, 
dated November 19, 2010 (``WMBAA I'').

Comments on 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

[Release No. 34-67177; File No. S7-05-12[

http://www.sec.gov/comments/s7-05-12/s70512.shtml

 Letter from Kenneth E. Bentsen, Jr., Executive Vice 
President, Public Policy and Advocacy, SIFMA, to Elizabeth M. 
Murphy, Secretary, Commission, dated August 13, 2012 (``SIFMA II'').

Comments on 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

[Release No. 34-69490; File No. S7-02-13]

http://www.sec.gov/comments/s7-02-13/s70213.shtml

 Letter from Karel Engelen, Senior Director, Head of Data, 
Reporting & FpML, ISDA, to Elizabeth M. Murphy, Secretary, 
Commission, dated November 14, 2014 (``ISDA IV'').
 Letter from Catherine T. Dixon, Chair, Federal Regulation 
of Securities Committee, American Bar Association, to Elizabeth M. 
Murphy, Secretary, Commission, dated October 2, 2013 (``ABA 
Letter'').
 Letter from Adam C. Cooper, Senior Managing Director and 
Chief Legal Officer,

[[Page 14737]]

Citadel LLC, to Elizabeth M. Murphy, Secretary, Commission, dated 
August 21, 2013 (``Citadel Letter'').
 Letter from R. Glenn Hubbard, John L. Thornton, Co-Chairs, 
and Hal S. Scott, Director, Committee on Capital Markets Regulation, 
to Elizabeth M. Murphy, Secretary, Commission, and Gary Barnett, 
Director, CFTC, dated August 17, 2013 (``CCMR II'').
 Letter from Robert Pickel, ISDA, to Elizabeth M. Murphy, 
Secretary, Commission, dated August 14, 2013 (``ISDA II'').
 Letter from Masaaki Tanaka, Deputy President, Mitsubishi 
UFJ Financial Group, Inc., to Elizabeth M. Murphy, Secretary, 
Commission, dated August 8, 2013 (``Mitsubishi Letter'').

Comments on Acceptance of Public Submissions for a Study on 
International Swap Regulation Mandated by Section 719(c) of the Dodd-
Frank Wall Street Reform and Consumer Protection Act

[Release No. 34-64926; File No. 4-635]

http://www.sec.gov/comments/4-635/4-635.shtml

 Letter from Ji[rcaron][iacute] Kr[oacute]l, Director of 
Government and Regulatory Affairs, Alternative Investment Management 
Association Limited to David A. Stawick, Secretary, CFTC, and 
Elizabeth M. Murphy, Secretary, Commission, dated September 26, 2011 
(``AIMA Letter'').

Comments on Product Definitions Contained in Title VII of the Dodd-
Frank Wall Street Reform and Consumer Protection Act

[Release No. 33-9204; File No. S7-16-11]

http://www.sec.gov/comments/s7-16-11/s71611.shtml

 Letter from Jacques Mirante-P[eacute]r[eacute], Chief 
Financial Officer, and Jan De Bel, General Counsel, Council of 
Europe Development Bank, dated July 22, 2011 (``CEB Letter'').
 Letter from A. Querejeta, Secretary General and General 
Counsel, and B. de Mazi[egrave]res, Director General, European 
Investment Bank, to David A Stawick, Secretary, CFTC, and Elizabeth 
M. Murphy, Secretary, SEC, dated July 22, 2011 (``EIB Letter'').
 Letter from G[uuml]nter Pleines, Head of Banking 
Department, and Diego Devos, General Counsel, Bank for International 
Settlements, to David A Stawick, Secretary, CFTC, and Elizabeth M. 
Murphy, Secretary, SEC, dated July 20, 2011 (``BIS Letter'').

Real-Time Reporting: Title VII Provisions of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act

http://www.sec.gov/comments/df-title-vii/real-time-reporting/real-time-reporting.shtml

 Letter from FIA, the Financial Services Forum (``FSF''), 
ISDA, and SIFMA to David A Stawick, Secretary, CFTC, and Elizabeth 
M. Murphy, Secretary, SEC, dated May 4, 2011 (``FIA/FSF/ISDA/SIFMA 
Letter'').
 Letter from Edward J. Rosen, Cleary Gottlieb Steen & 
Hamilton LLP on behalf of Bank of America Merrill Lynch, Barclays 
Capital, BNP Paribas, Citi, Credit Agricole Corporate and Investment 
Bank, Credit Suisse Securities (USA), Deutsche Bank AG, HSBC, Morgan 
Stanley, Nomura Securities International, Inc., PNC Bank, National 
Association, UBS Securities LLC, and Wells Fargo & Company, to David 
A Stawick, Secretary, CFTC, and Elizabeth M. Murphy, Secretary, SEC, 
dated October 25, 2010 (``Cleary I'').
 Letter from James W. Toffey, Chief Executive Officer, 
Benchmark Solutions, to David A Stawick, Secretary, CFTC, and 
Elizabeth M. Murphy, Secretary, SEC, dated October 1, 2010 
(``Benchmark Letter'').

Comments on Reporting of Security-Based Swap Transaction Data

[Release No. 34-63094; File No. s7-28-10]

http://www.sec.gov/comments/s7-28-10/s72810.shtml

 Letter from Larry E. Thompson, General Counsel, DTCC, to 
Elizabeth M. Murphy, Secretary, Commission, dated December 20, 2010 
(``DTCC I'').
 Letter from Robert Pickel, Executive Vice Chairman, ISDA, 
to Elizabeth Murphy, Secretary, Commission, dated December 10, 2010 
(``ISDA I'').
 Letter from Ernest C. Goodrich, Jr., Managing Director--
Legal Department, Deutsche Bank AG, and Marcel Riffaud, Managing 
Director, Legal Department, Deutsche Bank AG, to David A. Stawick, 
Secretary, CFTC, and to Elizabeth M. Murphy, Secretary, Commission, 
dated November 5, 2010 (``Deutsche Bank Letter'').

Comments on Proposed Rule: Registration and Regulation of Security-
Based Swap Execution Facilities

[Release No. 34-63825; File No. S7-06-11]

http://www.sec.gov/comments/s70611/s70611.shtml

 Letter from the American Benefits Council to Elizabeth M. 
Murphy, Secretary, Commission, dated April 8, 2011 (``ABC Letter'').
 Letter from Joanne Medero, Richard Prager, and Supurna 
VedBrat, BlackRock, Inc., to Elizabeth M. Murphy, Secretary, 
Commission, dated April 4, 2011 (``BlackRock Letter'').
 Letter from Kevin Gould, President, Markit North America, 
Inc., to Elizabeth Murphy, Secretary, Commission, dated April 4, 
2011 (``Markit II'').
 Letter from Robert Pickel, Executive Vice Chairman, ISDA, 
and Kenneth E. Bentsen, Jr. Executive Vice President, Public Policy 
and Advocacy, SIFMA, to Elizabeth M. Murphy, Secretary, Commission, 
dated April 4, 2011 (``ISDA/SIFMA II'').
 Letter from Jeff Gooch, Chief Executive Officer, 
MarkitSERV, to Elizabeth Murphy, Secretary, Commission, dated April 
4, 2011 (``MarkitSERV II'').
 Letter from Nancy C. Gardner, Executive Vice President and 
General Counsel, Markets Division, Thomson Reuters, to Elizabeth M. 
Murphy, Secretary, Commission, dated April 4, 2011 (``Thomson 
Reuters Letter'').
 Letter from Stuart J. Kaswell, Executive Vice President and 
Managing Director, General Counsel, MFA, to Elizabeth M. Murphy, 
Secretary, Commission, dated April 4, 2011 (``MFA III'').
 Letter from Nicholas J. Stephan, Chief Executive Officer, 
Phoenix Partners Group LP to Elizabeth M. Murphy, Secretary, 
Commission, dated April 4, 2011 (``Phoenix Letter'').

Comments on Proposed Rule: Security-Based Swap Data Repository 
Registration, Duties, and Core Principles

[Release No. 34-63347; File No. S7-35-10]

http://www.sec.gov/comments/s73510/s73510.shtml

 Letter from Larry E. Thompson, General Counsel, DTCC, to 
Elizabeth M. Murphy, Secretary, Commission, dated January 24, 2011 
(``DTCC III'').

Comments on Joint Public Roundtable on International Issues Relating to 
the Implementation of Title VII of the Dodd-Frank Wall Street Reform 
and Consumer Protection Act

[Release No. 34-64939; File No. 4-636]

http://www.sec.gov/comments/4-636/4-636.shtml

 Letter from Edward J. Rosen, Cleary Gottlieb Steen & 
Hamilton LLP, on behalf of Bank of America Merrill Lynch, Barclays 
Capital, BNP Paribas, Citi, Cre[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, UBS Securities LLC, to 
David A. Stawick, Secretary, CFTC; Elizabeth M. Murphy, Secretary, 
SEC; Jennifer J. Johnson, Secretary, Board of Governors of the 
Federal Reserve Board (``Federal Reserve Board''); Office of the 
Comptroller of the Currency; Robert E. Feldman, Executive Secretary, 
Federal Deposit Insurance Corporation (``FDIC''); Alfred M. Pollard, 
General Counsel, Federal Housing Finance Agency; and Gary K. Van 
Meter, Director, Office of Regulatory Policy, Farm Credit 
Administration, dated September 20, 2011 (``Cleary III'').
 Letter from Kevin Gould, President, Markit North America, 
Inc., to David A. Stawick, Secretary, CFTC, and Elizabeth M. Murphy, 
Secretary, Commission, dated September 19, 2011 (``Markit III'').
 Letter from Jeff Gooch, Chief Executive Officer, 
MarkitSERV, to David A. Stawick, Secretary, CFTC, and Elizabeth M. 
Murphy, Secretary, Commission, dated September 19, 2011 
(``MarkitSERV III'').

[FR Doc. 2015-03124 Filed 3-18-15; 8:45 am]
 BILLING CODE 8011-01-P