[Federal Register Volume 80, Number 157 (Friday, August 14, 2015)]
[Rules and Regulations]
[Pages 48964-49079]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-19661]



[[Page 48963]]

Vol. 80

Friday,

No. 157

August 14, 2015

Part II





 Securities and Exchange Commission





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





17 CFR Parts 240 and 249





 Registration Process for Security-Based Swap Dealers and Major 
Security-Based Swap Participants; Final Rule

  Federal Register / Vol. 80 , No. 157 / Friday, August 14, 2015 / 
Rules and Regulations  

[[Page 48964]]


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

SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240 and 249

[Release No. 34-75611; File No. S7-40-11]
RIN 3235-AL05


Registration Process for Security-Based Swap Dealers and Major 
Security-Based Swap Participants

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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

SUMMARY: The Securities and Exchange Commission (the ``Commission'') is 
adopting new Rules 15Fb1-1 through 15Fb6-2 and Forms SBSE, SBSE-A, 
SBSE-BD, SBSE-C and SBSE-W in accordance with Section 15F of the 
Securities Exchange Act of 1934 (the ``Exchange Act''). Section 15F, 
which was added to the Exchange Act by Section 764(a) of Title VII of 
the Dodd-Frank Wall Street Reform and Consumer Protection Act (``Dodd-
Frank Act''), requires the Commission to issue rules to provide for the 
registration of security-based swap dealers (``SBS Dealers'') and major 
security-based swap participants (``Major SBS Participants'') 
(collectively, ``SBS Entities''). These new rules and forms establish a 
process by which SBS Entities can register (and withdraw from 
registration) with the Commission.

DATES: Effective Date: October 13, 2015.
    Compliance Date: The later of: Six months after the date of 
publication in the Federal Register of a final rule release adopting 
rules establishing capital, margin and segregation requirements for SBS 
Entities; the compliance date of final rules establishing recordkeeping 
and reporting requirements for SBS Entities; the compliance date of 
final rules establishing business conduct requirements under Exchange 
Act Sections 15F(h) and 15F(k); or the compliance date for final rules 
establishing a process for a registered SBS Entity to make an 
application to the Commission to allow an associated person who is 
subject to a statutory disqualification to effect or be involved in 
effecting security-based swaps on the SBS Entity's behalf.
    Counting Date: For purposes of complying with the registration and 
other requirements, persons are not required to begin calculating 
whether their activities meet or exceed the thresholds established in 
Exchange Act Rules 3a71-2, 3a67-3, and 3a67-5 until two months prior to 
the Compliance Date of these rules.

FOR FURTHER INFORMATION CONTACT: Paula Jenson, Deputy Chief Counsel; 
Joseph Furey, Assistant Chief Counsel; Bonnie Gauch, Senior Special 
Counsel; Joanne Rutkowski, Senior Special Counsel; or Jonathan Shapiro, 
Special Counsel; (202) 551-5550; Division of Trading and Markets, 
Securities and Exchange Commission, 100 F Street NE., Washington, DC 
20549-7010.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Background
    A. Dodd-Frank Act
    B. Proposed Rules
    C. Comments Received
    D. Summary of Final Rules
II. Final Exchange Act Rules and Forms
    A. Registration Application and Amendment
    1. Rule 15Fb2-1
    i. Form of Application
    ii. Senior Officer Certification
    iii. Conditional Registration
    iv. Electronic Filing and Completeness of the Application
    v. Standards for Granting or Initiating Proceedings to Determine 
Whether to Deny Registration
    vi. Comments on Substituted Compliance
    2. Amendments to Form SBSE, Form SBSE-A, and Form SBSE-BD: Rule 
15Fb2-3
    B. Associated Persons
    1. Associated Person Certification
    i. Associated Person Entities
    ii. Involved in Effecting Transactions
    iii. Licensing
    2. Questionnaire or Application for Employment and Background 
Checks
    3. Final Rule for Associated Person Certification
    C. Termination of Registration
    1. Duration of Registration: Rule 15Fb3-1
    2. Withdrawal: Rule 15Fb3-2
    3. Cancellation and Revocation: Rule 15Fb3-3
    D. Special Requirements for Nonresident SBS Entities
    1. Definition of Nonresident SBS Entities
    2. United States Agent for Service of Process
    3. Access to Books and Records, and Onsite Inspections and 
Examinations, of Nonresident SBS Entities
    E. Special Situations
    1. Succession: Rule 15Fb2-5
    2. Insolvency: Rule 15Fb2-6
    F. Electronic Signatures
    G. Forms
    1. Form SBSE
    2. Form SBSE-A
    3. Form SBSE-BD
    4. Form SBSE-C
    5. Form SBSE-W
III. Explanation of Dates
    A. Effective Date
    B. Registration Compliance Date
    C. SBS Entity Counting Date
IV. Paperwork Reduction Act
    A. Summary of Collection of Information
    B. Proposed Use of Information
    C. Respondents
    D. Total Initial and Annual Reporting and Recordkeeping Burdens
    1. Burden Associated With Filing Application Forms
    2. Burden Associated With Amending Application Forms
    3. Burdens Relating to Associated Persons
    4. Burdens on Nonresident SBS Entities
    5. Burden Related to Retention of Manually Signed Signature 
Pages
    6. Burden Associated With Filing Withdrawal Form
    E. Retention Period of Recordkeeping Requirements
    F. Collection of Information Is Mandatory
    G. Confidentiality
V. Economic Analysis
    A. Introduction and Broad Economic Considerations
    B. Baseline
    1. Current Security-Based Swap Market
    i. Dealing Structures and Participant Domiciles
    ii. Market Centers
    iii. Current Estimates of Number of SBS Dealers and Major SBS 
Participants
    2. Levels of Security-Based Swap Trading Activity
    3. Cross-Market Participation
    4. Statutory Disqualification
    C. Benefits of Registration
    1. Direct Benefits
    i. Disciplinary History and Other Information
    ii. Statutory Disqualification
    iii. Senior Officer Certification and Nonresident Entity 
Certification
    iv. Other Direct Benefits
    2. Indirect Benefits
    D. Costs of Registration
    1. Direct Compliance Costs
    2. Other Direct Costs
    i. Costs Related to the Disciplinary History Disclosure 
Requirement
    ii. Costs Related to Certifications
    iii. Costs Related to the Associated Person Requirements
    iv. Costs for Nonresident SBS Entities
    2. Indirect Costs
    E. Effects on Efficiency, Competition, and Capital Formation
    F. Registration Rule Alternatives
    1. Associated Person Certification Requirement
    2. Licensing, Control Affiliates and CCO Certification Regarding 
Associated Persons
    3. Requirements on Nonresidents
    4. Other Considerations
VI. Regulatory Flexibility Act Certification
VII. Statutory Basis

I. Background

A. Dodd-Frank Act

    Section 764 of the Dodd-Frank Act added Section 15F to the Exchange 
Act to require the Commission to adopt rules to provide for 
registration of SBS Entities. Section 15F(a) of the Exchange Act 
prohibits any person from acting as a ``security-based swap dealer'' 
\1\ or

[[Page 48965]]

``major security-based swap participant'' \2\ without being registered 
with the Commission.\3\ Section 15F(b)(1) further states that a person 
``shall register as a security-based swap dealer or major security-
based swap participant by filing a registration application with the 
Commission,'' and Section 15F(b)(2)(A) states that ``[t]he application 
shall be made in such form and manner as prescribed by the Commission, 
and shall contain such information, as the Commission considers 
necessary concerning the business in which the applicant is or will be 
engaged.'' In addition, Section 15F(d)(1) of the Exchange Act directs 
the Commission to ``adopt rules for persons that are registered as [SBS 
Entities] under [Section 15F].''
---------------------------------------------------------------------------

    \1\ See Exchange Act Section 3(a)(71)(A) [15 U.S.C. 78c(71)(A)] 
and Rule 3a71-1 [17 CFR 240.3a71-1]. See also, Further Definition of 
``Swap Dealer,'' ``Security-Based Swap Dealer,'' ``Major Swap 
Participant,'' ``Major Security-Based Swap Participant'' and 
``Eligible Contract Participant,'' Exchange Act Release No. 66868 
(Apr. 27, 2012), 77 FR 30596 (May 23, 2012) (``Intermediary 
Definitions Adopting Release'') and Application of ``Security-Based 
Swap Dealer'' and ``Major Security-Based Swap Participant'' 
Definitions to Cross-Border Security-Based Swap Activities, Exchange 
Act Release No. 72472 (Jun. 25, 2014), 79 FR 47278 (Aug. 12, 2014) 
(``Cross-Border Adopting Release'').
    \2\ See Exchange Act Section 3(a)(67)(A) [15 U.S.C. 78c(67)(A)] 
and Rule 3a67-1 [17 CFR 240.3a67-1]. See also, the Intermediary 
Definitions Adopting Release and Cross-Border Adopting Release.
    \3\ See Temporary Exemptions and Other Temporary Relief, 
Together With Information on Compliance Dates for New Provisions of 
the Securities Exchange Act of 1934 Applicable to Security-Based 
Swaps, Exchange Act Release No. 64678 (Jun. 15, 2011), 76 FR 36287, 
36299-300 (Jun. 22, 2011) (the ``Effective Date Release'').
---------------------------------------------------------------------------

B. Proposed Rules

    The Commission proposed new rules 15Fb1-1 through 15Fb6-1 and Forms 
SBSE, SBSE-A, SBSE-BD, SBSE-C, and SBSE-W to establish a process by 
which SBS Entities could register (and withdraw from registration) with 
the Commission.\4\ As described in the Registration Proposing Release, 
this process was designed to be comprehensive, and included, among 
other things: (1) A requirement to amend an inaccurate application for 
registration; (2) procedures for succession to, or withdrawal from, 
registration; (3) procedures for the Commission to cancel or revoke 
registration; (4) a requirement for an SBS Entity to certify that none 
of its associated persons that effect, or are involved in effecting, 
security-based swaps on the SBS Entity's behalf is subject to statutory 
disqualification; and (5) special requirements applicable to 
nonresident SBS Entities relating to service of process, opinion of 
counsel, Commission access to documents and Commission onsite 
examinations.
---------------------------------------------------------------------------

    \4\ Registration of Security-Based Swap Dealers and Major 
Security-Based Swap Participants, Exchange Act Release No. 65543 
(Oct. 12, 2011), 76 FR 65784 (Oct. 24, 2011) (the ``Registration 
Proposing Release'').
---------------------------------------------------------------------------

    The Commission re-proposed Forms SBSE, SBSE-A, and SBSE-BD in May 
2013.\5\ Among other things, the re-proposed Forms provide registrants 
with a method to provide the Commission with information regarding the 
registrant's intent to rely on a substituted compliance determination 
by the Commission with respect to those requirements in Exchange Act 
Section 15F and the rules and regulations thereunder for which the 
Commission determines that substituted compliance may be available.
---------------------------------------------------------------------------

    \5\ See Cross-Border Security-Based Swap Activities; Re-Proposal 
of Regulation SBSR and Certain Rules and Forms Relating to the 
Registration of Security-Based Swap Dealers and Major Security-Based 
Swap Participants, Exchange Act Release No. 69490 (May 1, 2013), 78 
FR 30968 (May 23, 2013) (``Cross-Border Proposing Release'').
---------------------------------------------------------------------------

    In general, the proposed rules would have required an SBS Entity to 
register with the Commission by filing either Form SBSE, Form SBSE-A, 
or Form SBSE-BD, as appropriate, electronically. The Commission would 
have then either granted conditional registration to the SBS Entity or 
initiated proceedings to deny registration. Once all of the substantive 
requirements applicable to SBS Entities were adopted by the Commission, 
the SBS Entity would have been required to electronically file Form 
SBSE-C, a certification signed by a knowledgeable senior officer 
stating that, to the best of that person's knowledge the SBS Entity had 
the operational, financial, and compliance capabilities to act as an 
SBS Dealer or Major SBS Participant, as appropriate. Upon receipt of 
that certification, the Commission would have either granted ongoing 
registration or instituted proceedings to deny such registration.
    The Commission's proposed registration requirements for SBS 
Entities were largely modeled after the registration regime applicable 
to broker-dealers,\6\ while also taking into account the Commodity 
Futures Trading Commission's (CFTC's) registration requirements for 
intermediaries.\7\ This approach was designed to both ease the 
regulatory burden on market participants that register as both an SBS 
Entity and a broker-dealer by establishing a consistent and 
complementary registration regime, and to avoid unnecessary duplication 
by permitting SBS Entities that are otherwise registered or registering 
as intermediaries with either the Commission or the CFTC to complete 
simplified application forms.
---------------------------------------------------------------------------

    \6\ This includes rules promulgated under Sections 15(b) and 
17(a) of the Exchange Act.
    \7\ 17 CFR 3.1 et. seq. Futures commission merchants (``FCMs'') 
and introducing brokers presently register with the CFTC by filing 
Form 7-R with the National Futures Association (``NFA''). On January 
11, 2012, the CFTC issued final rules requiring swap dealers and 
major swap participants to become and remain members of a registered 
futures association (the NFA is presently the only registered 
futures association) and amending Rule 3.10 to include swap dealers 
and major swap participants to the list of entities that must 
register by filing Form 7-R with the NFA. Registration of Swap 
Dealers and Major Swap Participants, 77 FR 2613 (Jan. 19, 2012) (the 
``CFTC Final Registration Rules''). At the same time, the CFTC 
delegated to NFA the authority to process swap dealer and major swap 
participant registration applications. See Performance of 
Registration Functions by National Futures Association With Respect 
To Swap Dealers and Major Swap Participants, 77 FR 2708 (Jan. 19, 
2012).
---------------------------------------------------------------------------

C. Comments Received

    In the Registration Proposing Release, the Commission requested 
comment on all aspects of the proposal, including specific questions 
and a number of more general requests. The Commission originally 
received four comment letters in response to the proposed rules and 
forms.\8\ The Commission later received 31 additional comment letters 
in response to the reopening of comment periods for certain proposals 
applicable to security-based swaps.\9\ Of those comment letters, one 
letter (from six industry groups) requested an extension of time to 
provide comment, and six specifically commented on the proposed 
registration process and forms.\10\
---------------------------------------------------------------------------

    \8\ Comments were received from Chris Barnard of Germany, dated 
Oct. 24, 2011 (the ``2011 Barnard Letter''); the Securities Industry 
and Financial Markets Association, dated Dec. 16, 2011 (the ``SIFMA 
Letter''); and Better Markets, Inc., dated Dec. 19, 2011 (the ``2011 
Better Markets Letter''). One other comment letter directed to the 
Registration Proposing Release file did not address the content of 
that release.
    \9\ Reopening of Comment Periods for Certain Rulemaking Releases 
and Policy Statement Applicable to Security-Based Swaps Proposed 
Pursuant to the Securities Exchange Act of 1934 and the Dodd-Frank 
Wall Street Reform and Consumer Protection Act, Exchange Act Release 
No. 69491 (May 1, 2013), 78 FR 30800 (May 23, 2013) (``Release 
Reopening the Comment Period'').
    \10\ See letters from: The Association of Financial Guaranty 
Insurers, dated Jul. 22, 2013 (the ``AFGI Letter''); Better Markets, 
Inc., dated Jul. 22, 2013 (the ``2013 Better Markets Letter''); the 
Institute of International Finance, dated Aug. 8, 2013 (the ``IIF 
Letter''); the Institute of International Bankers, dated Aug. 21, 
2013 (the ``IIB Letter''); the European Commission, dated Aug. 21, 
2013 (the ``EC Letter''); and Nomura Global Financial Products, 
Inc., dated September 10, 2014 (the ``Nomura Letter'').
---------------------------------------------------------------------------

    The Commission also received 38 comment letters in response to the 
Cross-Border Proposing Release, which re-proposed Regulation SBSR and 
certain rules and forms relating to the registration of SBS 
Entities.\11\ Of those,

[[Page 48966]]

three commented on the proposed registration process and forms.\12\
---------------------------------------------------------------------------

    \11\ Twenty-five persons submitted the same comment letter in 
response to both the Release Reopening the Comment Period and the 
Cross-Border Proposing Release.
    \12\ All of those persons submitted the same letter to both the 
Release Reopening the Comment Period and the Cross-Border Proposing 
Release. These include the IIF Letter, the IIB Letter, and the EC 
Letter.
---------------------------------------------------------------------------

    While commenters generally supported the proposed rules, a few 
raised various concerns, including whether a senior officer 
certification should be required; whether the Commission should require 
an independent pre-registration review of applicants; whether the 
Commission should require that SBS Entities investigate their 
associated persons; and whether nonresident applicants should be 
required to provide an opinion of counsel as to whether they can 
provide records to the Commission and allow the Commission to inspect 
them. Many commenters, while not commenting on the registration 
process, generally commented that the Commission should model its rules 
on those adopted by the CFTC in order to reduce the impact on market 
participants.

D. Summary of Final Rules

    The registration rules and Forms the Commission is adopting today 
largely follow those proposed, with certain modifications.\13\ In 
particular, as explained more fully below, we are adopting the 
following rules:\14\
---------------------------------------------------------------------------

    \13\ The Commission asked questions regarding limited 
registration in the Registration Proposing Release. See Registration 
Proposing Release, 76 FR at 65795, questions 62 through 66. We 
received one comment on this issue, which contended that ``the 
Commission should allow for limited designation and registration, 
including by trading unit, type of activity and type of 
counterparty.'' See the SIFMA Letter, at 10-11. The Commission later 
adopted Rule 3a71-1(c), in the Intermediary Definitions Adopting 
Release, to provide that ``a person that is a security-based swap 
dealer in general shall be deemed to be a security-based swap dealer 
with respect to each security-based swap it enters into, regardless 
of the type, class, or category of the security-based swap or the 
person's activities in connection with the security-based swap, 
unless the Commission limits the person's designation as a security-
based swap dealer to specified types, classes, or categories of 
security-based swaps or specified activities of the person in 
connection with security-based swaps.'' In that release, the 
Commission and the CFTC stated that the SEC expects to address the 
process for submitting an application for limited designation as a 
security-based swap dealer, along with principles to be used by the 
Commission in analyzing such applications, as part of separate 
rulemakings. See Intermediary Definitions Adopting Release, footnote 
573. The Commission has not yet addressed a process through which 
firms could submit an application for limited designation as a 
security-based swap dealer. In order to evaluate a process for 
limited registration, the Commission would need to consider how the 
substantive rules should be applied to entities that might be 
subject to limited designations. In light of the fact that the 
Commission has not yet adopted all rules implementing the Title VII 
regime that may affect how firms structure their security-based swap 
business and market practices more generally, the Commission is not 
addressing limited designation at this time.
    \14\ If any provision of these rules, or the application thereof 
to any person or circumstance, is held to be invalid, such 
invalidity shall not affect other provisions or application of such 
provisions to other persons or circumstances that can be given 
effect without the invalid provision or application.
---------------------------------------------------------------------------

     Rule 15Fb1-1 specifies the format and certain requirements 
for signatures to electronic submissions (including signatures within 
the forms and certifications required by Rules 15Fb2-1, 15Fb2-4 and 
15Fb6-2, discussed below).
     Rule 15Fb2-1 describes the process through which an SBS 
Entity can apply for registration with the Commission. This Rule 
identifies the Form of application various types of entities must use 
to register, how such application must be filed, and the standard the 
Commission will use to determine whether to grant registration. Under 
Rule 15Fb2-1, an application for registration of an SBS Entity must be 
filed on Form SBSE, Form SBSE-A or Form SBSE-BD, as appropriate. An 
applicant also must file Form SBSE-C as part of its application, which 
includes two separate certifications. One of those certifications, 
provided for in Rule 15Fb2-1(b), requires a senior officer of the 
applicant to certify that, after due inquiry, he or she has reasonably 
determined that the applicant has developed and implemented written 
policies and procedures reasonably designed to prevent violations of 
the federal securities laws and the rules thereunder, and that he or 
she has documented the process by which he or she reached such 
determination (the ``Senior Officer Certification'').
     Rule 15Fb2-3 requires an SBS Entity to promptly file an 
amendment where the information contained in its Form SBSE, Form SBSE-
A, or Form SBSE-BD, as applicable, or in any amendment thereto, is or 
has become inaccurate for any reason.
     Rule 15Fb2-4 requires that nonresident SBS Entities obtain 
a U.S. agent for service of process and an opinion of counsel 
determining that they can, as a matter of law, provide the Commission 
with access to their books and records and submit to onsite 
examination. Rule 15Fb2-4 also requires that, as part of their 
applications, these entities provide the Commission with information 
regarding their agent for service of process and certify that they can, 
as a matter of law, and will provide the Commission with access to 
their books and records and submit to onsite examination.
     Rule 15Fb2-5 provides a process through which an SBS 
Entity may succeed to the business of another SBS Entity.
     Rule 15Fb2-6 provides a process through which an executor, 
administrator, guardian, conservator, assignee for the benefit of 
creditors, receiver, trustee in insolvency or bankruptcy or other 
fiduciary appointed or qualified by order, judgment or decree of a 
court of competent jurisdiction may continue the business of an SBS 
Entity.
     Rule 15Fb3-1 concerns the duration of registration and 
provides that an SBS Entity will continue to be registered until the 
effective date of any cancellation, revocation or withdrawal of 
registration.
     Rule 15Fb3-2 provides a process by which an SBS Entity may 
withdraw from registration with the Commission.
     Rule 15Fb3-3 provides a process by which the Commission 
may cancel or revoke the registration of an SBS Entity.
     Rule 15Fb6-1 provides that unless otherwise ordered by the 
Commission, when it files an application to register with the 
Commission as an SBS Dealer or Major SBS Participant, an SBS Entity may 
permit a person that is associated with it that is not a natural person 
and that is subject to statutory disqualification to effect or be 
involved in effecting security-based swaps on its behalf, provided that 
the statutory disqualification(s), described in Sections 3(a)(39)(A) 
through (F) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(39)), occurred prior to the compliance date of this rule, and 
provided that it identifies each such associated person on Schedule C 
of Form SBSE (Sec.  249.1600 of this chapter), Form SBSE-A (Sec.  
249.1600a of this chapter), or Form SBSE-BD (Sec.  249.1600b of this 
chapter), as appropriate.
     Rule 15Fb6-2 requires that the Chief Compliance Officer 
(``CCO'') of an SBS Entity certify on Form SBSE-C that it neither 
knows, nor in the exercise of reasonable care should have known, that 
any person associated with it who effects or is involved in effecting 
security-based swaps on its behalf is subject to statutory 
disqualification, unless otherwise specifically provided by rule, 
regulation or order of the Commission (the ``CCO Certification 
Regarding Associated Persons''). This rule also requires that to 
support the certification, the CCO, or his or her designee, review and 
sign the questionnaire or application for employment executed by each 
of the

[[Page 48967]]

SBS Entity's associated persons who are natural persons and effect or 
are involved in effecting security-based swaps on behalf of the SBS 
Entity.
    In addition, the Commission is adopting the following forms:
     Form SBSE-BD, the registration form for SBS Entities 
registered or registering with the Commission as broker-dealers;
     Form SBSE-A, the registration form for SBS Entities 
registered or registering with the CFTC as swap dealers or major swap 
participants (and not also registered or registering with the 
Commission as broker-dealers);
     Form SBSE, the registration form for SBS Entities that do 
not fit either of the above categories;
     Form SBSE-C, the certification form for SBS entity 
applicants containing the Senior Officer Certification required by Rule 
15Fb2-1(b) and the CCO Certification Regarding Associated Persons 
required by Rule 15Fb6-2(a).
     Form SBSE-W, the form that SBS Entities would file for 
notice of withdrawal from registration.
    The Commission is not adopting proposed Rule 15Fb2-2T, which would 
have required SBS Entities, among other things, to file their 
applications in paper form, because the EDGAR system will be updated to 
receive these application Forms before the effective date of these 
rules.\15\
---------------------------------------------------------------------------

    \15\ See infra, Section II.A.1.iv.
---------------------------------------------------------------------------

    In developing these rules and forms, Commission staff consulted and 
coordinated with the CFTC and the prudential regulators.\16\
---------------------------------------------------------------------------

    \16\ 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 purpose of assuring regulatory 
consistency and comparability, to the extent possible.''
---------------------------------------------------------------------------

II. Final Exchange Act Rules and Forms

A. Registration Application and Amendment

1. Rule 15Fb2-1
    Rule 15Fb2-1, as adopted, describes the process through which an 
SBS Entity will apply for registration with the Commission. As set 
forth in the rule, each SBS Entity will complete and submit an 
application Form electronically. The Rule also requires that a senior 
officer of the SBS Entity must certify, on Form SBSE-C, that, after due 
inquiry, he or she has reasonably determined that the SBS Entity has 
developed and implemented written policies and procedures reasonably 
designed to prevent violations of the federal securities laws and the 
rules thereunder, and that he or she has documented the process by 
which he or she reached such determination. In addition, the rule 
prescribes the timing of such filings and the standard of review that 
will be applied by the Commission in determining whether to grant 
registration or institute proceedings to deny registration. While it 
may be appropriate for certain rules applicable to SBS Dealers to 
differ from those applicable to Major SBS Participants, the Commission 
believes that the registration rules and forms need not differ because 
the of information the Commission will need to review to determine 
whether to grant registration or institute proceedings to deny such 
registration is similar for both types of entities.
i. Form of Application
    As proposed, paragraph (a) of Rule 15Fb2-1 provided that an SBS 
Entity could apply for registration by filing either Form SBSE, Form 
SBSE-A, or Form SBSE-BD. The Commission proposed three separate Forms 
to recognize that, if an entity is already registered with the 
Commission or the CFTC, the Commission can otherwise access certain 
information on that registrant.\17\
---------------------------------------------------------------------------

    \17\ The Commission will be able to access information on 
registered broker-dealers through its access to the CRD system. Form 
SBSE-A, which would apply to entities already registered with the 
CFTC, requires that firms filing that form also submit a copy of the 
Form 7-R they file with NFA. See 17 CFR 3.10(a) (which generally 
requires that ``application for registration as a futures commission 
merchant, retail foreign exchange dealer, swap dealer, major swap 
participant, introducing broker, commodity pool operator, commodity 
trading advisor, or leverage transaction merchant must be on Form 7-
R, completed and filed with the NFA in accordance with the 
instructions thereto''). See also supra, footnote 7.
---------------------------------------------------------------------------

    As proposed, an SBS Entity that has filed Form BD via FINRA's 
Central Registration Depository (or ``CRD'') system to register as a 
broker-dealer would be able to use Form SBSE-BD to register with the 
Commission as an SBS Entity. Similarly, an SBS Entity that has filed 
Form 7-R with the CFTC (or its designee) to register as a swap dealer 
or major swap participant would be able to use Form SBSE-A to register 
with the Commission as an SBS Entity.\18\ All others would be required 
to use Form SBSE to register with the Commission as an SBS Entity. Form 
SBSE is, necessarily, a longer form because the entities using it would 
not have already submitted any of the requisite information the 
Commission can otherwise access. In the Cross-Border Proposing Release, 
the Commission re-proposed these registration forms to add questions 
relating to substituted compliance.\19\
---------------------------------------------------------------------------

    \18\ According to the instructions on Form SBSE-A, the applicant 
would also need to attach a copy of the Form 7-R they filed with NFA 
to the Form SBSE-A.
    \19\ See supra, footnote 5 and accompanying text.
---------------------------------------------------------------------------

    In general, commenters supported the application of SBS Entities 
via the use of these multiple Forms.\20\ The Commission is adopting 
paragraph (a) of Rule 15Fb2-1, as proposed, with two modifications. We 
have added a sentence stating that applicants shall also file as part 
of their application the required certifications on Form SBSE-C (Sec.  
249.1600c of this chapter). This is designed to clarify that the 
application for registration includes the certifications.\21\ We also 
made a technical change to increase the precision of paragraph (a) of 
Rule 15Fb2-1 by replacing the phrase ``in accordance with this 
section'' with the phrase ``in accordance with paragraph (c)'' because 
paragraph (c) specifies the method by which applicants must file their 
application forms.\22\
---------------------------------------------------------------------------

    \20\ See 2011 Barnard Letter, at 3 and SIFMA Letter, at 4.
    \21\ As discussed in more detail in Section II.A.iii. below, the 
requirement that an applicant file the certifications on Form SBSE-C 
at the same time they file an application on Form SBSE, SBSE-A, or 
SBSE-BD, as appropriate, facilitates conditional registration upon 
filing, which is designed to assure that existing entities are not 
required to cease operations pending the Commission's consideration 
of their application. We have also moved the CCO Certification 
Regarding Associated Persons, which had been included as Schedule G 
to the Forms, into Form SBSE-C. As proposed, that certification 
would have been required to be provided as part of Forms SBSE, SBSE-
A, and SBSE-BD.
    \22\ See infra, Section II.G. for a discussion of the 
information required on each of the Forms.
---------------------------------------------------------------------------

ii. Senior Officer Certification
    Proposed Rule 15Fb2-1(b)(1) and Form SBSE-C would have required 
that a knowledgeable senior officer of the SBS Entity certify that, 
after due inquiry, he or she has reasonably determined that the SBS 
Entity has the operational, financial, and compliance capabilities to 
act as an SBS Entity. In addition, the proposed Rule would have 
required that the senior officer certify that he or she had documented 
the process by which he or she reached that determination.\23\
---------------------------------------------------------------------------

    \23\ As proposed, this was a one-time certification (see 
Registration Proposing Release, 76 FR at 65810), where a senior 
officer would be certifying as to the SBS Entity's capabilities at 
the time of the certification (see Registration Proposing Release, 
at 65789-91).
---------------------------------------------------------------------------

    Two commenters took issue with the proposed Senior Officer 
Certification.\24\

[[Page 48968]]

One commenter indicated that it believes the Senior Officer 
Certification is unnecessary, overly burdensome, and unduly vague and 
indeterminate.\25\ This commenter pointed out that the untested nature 
of the Dodd-Frank regulatory regime would make it difficult for any 
senior officer to confidently or meaningfully certify that an SBS 
Entity would have the necessary capabilities.\26\ Both commenters 
contended that the Commission had not adequately defined ``operational, 
financial, and compliance capabilities'' nor what constitutes ``due 
inquiry.'' \27\ Further, one of the commenters suggested that, as an 
alternative, the Commission require a ``policies and procedures''-type 
certification, such as that set forth in Question 21 to the 
Registration Proposing Release.\28\
---------------------------------------------------------------------------

    \24\ See, e.g., SIFMA Letter, at 5-7; 2011 and the Better 
Markets Letter, at 5-6.
    \25\ See, e.g., SIFMA Letter, at 5-7.
    \26\ See, e.g., SIFMA Letter, at 5.
    \27\ See supra, footnote 24.
    \28\ See SIFMA Letter, at 6; and Registration Proposing Release, 
76 FR at 65791. In pertinent part, Question 21 asks, ``Should the 
Senior Officer Certification instead require that a senior officer 
certify that `to the best of his or her knowledge, after due 
inquiry, the security-based swap dealer or major security-based swap 
participant has developed and implemented written policies and 
procedures reasonably designed to prevent violation of federal 
securities laws, the rules thereunder, and applicable self-
regulatory organization rules?' ''
---------------------------------------------------------------------------

    As more fully discussed below, after considering the comments, we 
believe that we can still achieve the objective of the Senior Officer 
Certification, while avoiding undue uncertainty over what the senior 
officer is certifying to, by adopting a certification requirement 
similar to the one articulated in Question 21 in the Registration 
Proposing Release.
    Specifically, the Senior Officer Certification requirement, as 
adopted in Rule 15Fb2-1(b) and Form SBSE-C, requires that a senior 
officer \29\ certify that: (1) After due inquiry, he or she has 
reasonably determined that the security-based swap dealer or major 
security-based swap participant has developed and implemented written 
policies and procedures reasonably designed to prevent violation of 
federal securities laws and the rules thereunder, and (2) he or she has 
documented the process by which he or she reached such 
determination.\30\ The language of this certification is similar to the 
language in Question 21, and to the language that was supported by the 
commenter.\31\ However, we retained the requirement for the senior 
officer to have made a reasonable determination from the proposed 
certification, and modified the language from what was presented in 
Question 21 to eliminate the reference to ``applicable self-regulatory 
organization rules'' because SBS Entities generally will not be subject 
to those rules.\32\ In addition, we retained the proposed requirement 
that the senior officer certify that he or she had documented the 
process by which he or she reached his or her determination. We 
received no comment on that aspect of the certification and believe it 
would be helpful to the staff when performing examinations to assure 
compliance with the certification requirement.
---------------------------------------------------------------------------

    \29\ For purposes of this certification requirement, the term 
``senior officer'' is intended to cover only the most senior 
executives in the organization, such as an applicant's chief 
executive officer, chief financial officer, chief legal officer, 
chief compliance officer, president, or other person at a similar 
level. Additionally, the person who signs the certification must 
have the legal authority to bind the applicant.
    \30\ See Form SBSE-C, Certification 1. Similar to what was 
proposed, this is a one-time certification, for purposes of 
registration, where the senior officer certifies as to his or her 
understanding of the SBS Entity's policies and procedures at the 
time the certification is signed. While this certification is only 
required at the time of initial registration, Exchange Act Section 
15F(k)(2) establishes duties for a CCO which include, among other 
things, a requirement that the CCO ensure compliance with Exchange 
Act Section 15F and the regulations thereunder relating to security-
based swaps, including each rule prescribed by the Commission under 
this section. In addition, the Commission has proposed rules that 
would require each SBS Entity to establish, maintain and enforce a 
system to supervise, and to supervise diligently, the business of 
the SBS Entity involving security-based swaps. Those proposed rules 
would require that this system be reasonably designed to achieve 
compliance with applicable federal securities laws and the rules and 
regulations thereunder. See Proposed Rule 15Fh-3(i). In addition, 
the proposed rules would require that an SBS Entity establish, 
maintain, and enforce written policies and procedures addressing the 
types of business in which the security-based swap dealer or major 
security-based swap participant is engaged that are reasonably 
designed to achieve compliance with applicable securities laws and 
the rules and regulations thereunder. See Proposed Rule 15Fh-
3(i)(2)(iii). The proposed rules also indicate that an SBS Entity 
would not be deemed to have failed to diligently supervise any other 
person if, among other things, it has established and maintained 
written policies and procedures, and a documented system for 
applying those policies and procedures, that would reasonably be 
expected to prevent and detect, insofar as practicable, any 
violation of the federal securities laws and the rules and 
regulations thereunder relating to security-based swaps. See 
Proposed Rule 15Fh-3(i)(3). See also, Business Conduct Standards for 
Security-Based Swap Dealers and Major Security-Based Swap 
Participants, Exchange Act Release No. 64766 (Jun. 29, 2011), 76 FR 
42396 (Jul. 18, 2011) (the ``Business Conduct Standards Proposing 
Release''), at 42419 through 42421.
    \31\ See supra, footnote 28.
    \32\ SBS Entities that are also registered as broker-dealers are 
subject to the rules of a self-regulatory organization (``SRO'') of 
which they are a member due to their being a registered broker-
dealer.
---------------------------------------------------------------------------

    We believe the certification standard that we are adopting in Rule 
15Fb2-1(b) and Form SBSE-C is more concrete and understandable than the 
one that we proposed.\33\ Thus, it should be easier for SBS Entities to 
implement. Further, we believe that the Senior Officer Certification we 
are adopting is reasonably designed to provide assurances that each SBS 
Entity has put in place a framework to enable it to operate in 
compliance with the applicable laws, rules and regulations. The 
certification requirement should help to protect both investors and 
markets from potential problems arising from SBS Entities that may have 
not put in place a framework that enables them to operate their 
security-based swap business in compliance with their regulatory 
obligations.\34\ Specifically, we believe that receipt of the Senior 
Officer Certification in Form SBSE-C, which requires that a senior 
officer certify that he or she has reasonably determined that the SBS 
Entity has developed and implemented written policies and procedures 
reasonably designed to prevent violation of federal securities laws and 
the rules thereunder, is further support that an SBS Entity has 
undertaken a thorough review of applicable regulations, including any 
rules adopted by the Commission relating to minimum operational, 
financial, and compliance standards.\35\

[[Page 48969]]

In essence, this Senior Officer Certification is designed to help 
assure that each SBS Entity has thought through what it needs to do to 
be able to operate in compliance with those requirements applicable to 
a registered SBS Entity under the federal securities laws (including 
those related to operations, financial and compliance standards), and 
has developed and implemented written policies and procedures 
reasonably designed to prevent violation of those laws, rules, and 
regulations.\36\
---------------------------------------------------------------------------

    \33\ This standard is used in Exchange Act Section 15(b)(4)(E) 
and we believe industry participants are familiar with it.
    \34\ See Registration Proposing Release, at 65789 through 65790.
    \35\ The Commission has separately proposed rules to establish 
financial, operational and compliance standards for SBS Entities, 
with which these entities would need to comply upon registration, if 
the Commission were to adopt the proposed rules. In the Registration 
Proposing Release, the Commission provided guidance regarding the 
meaning of the terms operational capability (at footnote 26), 
financial capability (at footnote 27), and compliance capability (at 
footnote 28). In its guidance regarding operational capability (or 
standards), the Commission stated that it expected ``that a key 
foundation for the Senior Officer Certification would be the 
capability of an SBS Entity to comply with the obligations that 
would be imposed by the Trade Acknowledgment Proposing Release 
[Trade Acknowledgment and Verification of Security-Based Swap 
Transactions, Exchange Act Release No. 63727 (Jan. 14, 2011) (76 FR 
3859, Jan. 21, 2011) (the ``Trade Acknowledgment Proposing 
Release'')], if adopted, other legal obligations applicable to the 
operations of an SBS Entity, and the capability of the SBS Entity to 
conduct its business as represented in the SBS Entity's application 
for ongoing registration. This would include rules proposed in 
Recordkeeping and Reporting Requirements for Security-Based Swap 
Dealers, Major Security-Based Swap Participants, and Broker-Dealers; 
Capital Rule for Certain Security- Based Swap Dealers, Exchange Act 
Release No. 71958, (Apr. 17, 2014) (79 FR 25194, May 2, 2014) (the 
``Books and Records Proposing Release''). In its guidance regarding 
financial capability, the Commission indicated that it would 
separately propose capital rules for SBS Entities (See e.g., 
Capital, Margin, and Segregation Requirements for Security-Based 
Swap Dealers and Major Security-Based Swap Participants and Capital 
Requirements for Broker-Dealers, Exchange Act Release No. 68071 
(Oct. 18, 2012), 77 FR 70214 (Nov. 23, 2012) (the ``Capital and 
Margin Proposing Release''). In its guidance regarding compliance 
capability, the Commission referenced the Business Conduct Standards 
Proposing Release.
    \36\ In the Business Conduct Standards Proposing Release the 
Commission proposed rules to prescribe business conduct standards 
for SBS Entities, as authorized under Exchange Act Section 15F(h) 
and 15F(k), including rules that relate to diligent supervision of 
the business of the registered SBS Entity (provided for in Exchange 
Act Section 15F(h)(1)(B)) and rules establishing the duties of the 
SBS Entity's CCO (provided for in Exchange Act Section 15F(k)). The 
Commission intends to clarify the obligations underlying these rules 
when it adopts rules under Exchange Act Sections 15F(h) and 15F(k).
---------------------------------------------------------------------------

    Another commenter, however, contended that, while the proposed 
process to require an application and certification would establish a 
registration process that is simple and efficient, the approach taken 
would be ineffective and would rely too much on the industry and on 
each entity seeking registration.\37\ This commenter suggested that the 
Commission independently review SBS Entities prior to granting 
registration.\38\ This commenter argued that requiring SEC pre-
registration investigations would harmonize the registration process 
for SBS Entities with others (including SRO review of broker-dealers 
and NFA review of swap entities), reduce regulatory arbitrage, and 
protect investors. This commenter also suggested, in the alternative, 
that we should require each SBS Entity to have an independent auditor 
conduct a pre-registration review.\39\
---------------------------------------------------------------------------

    \37\ See 2011 Better Markets Letter, at 2.
    \38\ Id., at 3-4.
    \39\ Id., at 5. The commenter did not specify what a pre-
registration review by an independent auditor should entail.
---------------------------------------------------------------------------

    The Commission is not, at this time, adopting the commenter's 
suggestion that the Commission conduct a pre-registration examination 
of each applicant, or that we require an applicant to obtain a pre-
registration review from an independent auditor.\40\ The Commission 
does not presently conduct pre-registration reviews for other types of 
market intermediary applicants, such as investment advisers, municipal 
advisors and transfer agents, or require that they obtain a pre-
registration examination from an independent auditor. We recognize that 
SROs perform pre-registration reviews for broker-dealers, however, the 
Exchange Act does not create an SRO structure for SBS Entities.\41\ The 
Commission believes that the Senior Officer Certification that 
applicants must submit should help ensure that each applicant itself 
has thoroughly reviewed what it must do to comply with applicable 
federal securities laws and the rules thereunder. In addition, the CCO 
Certification Regarding Associated Persons is designed to provide the 
Commission with representations that each applicant has determined that 
none of its associated persons who effect or are involved in effecting 
security-based swaps on its behalf is subject to a statutory 
disqualification, unless otherwise specifically provided by Commission 
rule, regulation or order.\42\ Additionally, the Commission will review 
all of the documents and other information provided by the applicants 
on the required Form. The Commission also may, based on an initial 
assessment of an application, request follow-up information from the 
applicant.\43\ The Commission believes that its review of the 
information provided in the application, coupled with the Senior 
Officer Certification as discussed above, is a reasonable approach to 
registration.
---------------------------------------------------------------------------

    \40\ As with any new class of registrants, Commission staff will 
incorporate oversight of those registrants into its examination 
program to review for compliance with the federal securities laws, 
rules and regulations.
    \41\ See infra, footnote 46 and accompanying text.
    \42\ See infra, Section II.B.3.
    \43\ In the case of an entity registered with the CFTC through 
NFA, the staff may contact the CFTC or NFA to discuss the 
application.
---------------------------------------------------------------------------

    As noted above, commenters asked that we clarify what we mean by 
``due inquiry'' in the certification requirement.\44\ Essentially, the 
senior officer should perform diligence regarding the content of what 
he or she is required to certify. We believe, however, that SBS 
Entities should have flexibility to determine the steps that the senior 
officer who must sign the certification will take to be comfortable 
that he or she has made appropriate inquiries regarding the SBS 
Entity's written policies and procedures in order to make the 
certification. For instance, a senior officer might review the SBS 
Entity's written policies and procedures and/or speak with the SBS 
Entity's legal and compliance personnel regarding the SBS Entity's 
written policies and procedures, how they were developed, and how they 
have been implemented by the SBS Entity. Alternatively, there may be 
one or more senior officers that are already familiar with the SBS 
Entity's written policies and procedures and how they have been 
developed and implemented. It would not be appropriate for a senior 
officer with little or no knowledge of the firm's written policies and 
procedures, or its processes to comply with applicable regulations, to 
sign this certification without taking any steps to learn more 
information. In light of this, we also have eliminated the requirement 
that the senior officer signing the form be ``knowledgeable'' because 
inclusion of the requirement that the senior officer be 
``knowledgeable'' in addition to requiring that the senior office make 
``due inquiry'' would be unnecessary.
---------------------------------------------------------------------------

    \44\ See SIFMA Letter at 6.
---------------------------------------------------------------------------

    One commenter also contended that this requirement differed from 
the CFTC's registration requirements for swap entities, and that the 
lack of a similar certification requirement in the CFTC's proposed 
registration rule ``provides further evidence that such a requirement 
is not needed to promote financial stability or investor protection.'' 
\45\ While this certification requirement differs from rules adopted by 
the CFTC to register swap dealers and major swap participants, the 
Commodity Exchange Act (``CEA'') and the Exchange Act differ in some 
respects. While the provisions in the CEA directly relating to swap 
dealers and major swap participants are similar to those in the 
Exchange Act relating to SBS Entities, other CEA provisions provide the 
CFTC with the ability to require swap dealers and major swap 
participants to become members of NFA, and thus leverage the existing 
registration process and forms (including a pre-registration review by 
NFA) used by other CFTC registrants.\46\ However, Exchange Act Sections 
15A(a) and 3(a)(3)(B) limit the membership of national securities 
associations to brokers and dealers. In light of the fact that SBS 
Entities are not subject to SRO oversight, and thus are not subject to 
the registration review process of an SRO, the adopted Senior Officer 
Certification is designed to cause SBS Entities to consider whether 
they have taken steps

[[Page 48970]]

to thoroughly review the federal securities laws and the rules 
thereunder that are applicable to SBS Entities and develop and 
implement written policies and procedures that are reasonably designed 
to prevent violation of the those laws, rules and regulations.
---------------------------------------------------------------------------

    \45\ See id.
    \46\ CEA Section 17(b)(2) permits any CFTC registrant to become 
a member of a registered futures association (i.e., NFA) and CEA 
Section 8a(5) gives the CFTC rulemaking authority ``to effectuate 
any of the provisions or to accomplish any of the purposes of this 
Act.'' In addition, CEA Section 4s(b)(4) gives the CFTC general 
authority to prescribe rules applicable to swap dealers and major 
swap participants.
---------------------------------------------------------------------------

iii. Conditional Registration
    The Commission proposed in Rule 15Fb2-1 a conditional registration 
requirement that would have required an SBS Entity to apply for 
conditional registration by submitting a complete Form SBSE, Form SBSE-
A, or Form SBSE-BD to the Commission, then file a Senior Officer 
Certification (on Form SBSE-C) \47\ before the Last Compliance Date 
\48\ to facilitate the Commission's review of each firm's application 
for ongoing, permanent registration. The Commission proposed 
conditional registration as a way to register SBS Entities within the 
Dodd-Frank Act deadline, while allowing SBS Entities to come into 
compliance with new rules on each respective compliance date and then 
providing the certification after the last compliance date.\49\
---------------------------------------------------------------------------

    \47\ Form SBSE-C was designed to provide a standard format by 
which SBS Entities could file their Senior Officer Certifications 
(discussed in Section II.1.ii., supra).
    \48\ The term ``Last Compliance Date'' was defined, in paragraph 
(e) to proposed Rule 15Fb2-1, to mean the latest date, designated by 
the Commission, by which SBS Entities must comply with any of the 
initial, substantive rules promulgated under Section 15F.
    \49\ See also infra Sections II.A.1.v., which discusses the 
proposed standard for granting conditional registration in proposed 
Rule 15Fb2-1(e)(1), and II.C.1., which discusses the proposed timing 
of conditional registration in proposed Rule 15Fb3-1.
---------------------------------------------------------------------------

    The Commission is adopting a conditional registration process, but 
with changes to take into account the adopted definitions of SBS Dealer 
and Major SBS Participant, the timing of the compliance date for 
registration (see Section III below), and the modification to the 
certification.
    Pursuant to Rules 3a71-2 and 3a67-8, upon filing of a complete 
application, a person is deemed to be an SBS Dealer or a Major SBS 
Participant, respectively.\50\ However, Exchange Act Section 15F(a) 
makes it unlawful for a person to act as an SBS Entity unless the 
person is registered as such with the Commission. Consequently, we 
believe it is necessary and appropriate to provide conditional 
registration for SBS Entities upon the filing of a complete application 
on Form SBSE, SBSE-A, or SBSE-BD, as applicable, and Form SBSE-C so 
that existing entities are not required to cease operations during the 
Commission's consideration of their application. Thus, we are adopting 
a conditional registration process to permit applicants to continue 
engaging in security-based swap activities after they file an 
application to register as an SBS Entity but before the Commission acts 
on their application for ongoing registration.
---------------------------------------------------------------------------

    \50\ Pursuant to Exchange Act Rule 3a71-2(b), a person will be 
deemed not to be a security-based swap dealer until the earlier of 
the date on which it submits a complete application for registration 
or two months after the end of the month in which that person 
becomes no longer able to take advantage of the de minimis 
exception. Rule 3a71-2(b). Similarly, a person that meets the 
criteria in Rule 3a67-1(a) to be a major security-based swap 
participant will be deemed not to be a major security-based swap 
participant until the earlier of the date on which it submits a 
complete application for registration or two months after the 
quarter in which it met those criteria. See Rule 3a67-8. See also, 
Intermediary Definitions Adopting Release which, among other things, 
further defines the terms ``security-based swap dealer'' and ``major 
security-based swap participant.'' In that release, adopted jointly 
with the CFTC, the Commission adopted Rule 3a71-2, which provides a 
de minimis exemption from the definition of ``security-based swap 
dealer,'' and provided timeframes within which an entity must 
register with the Commission after it exceeds the de minimis 
threshold [at 77 FR 30643, 30754 and 30756]. The Commission also 
adopted Rule 3a67-8, which establishes the timing requirements 
within which a person must register with the Commission if it meets 
the criteria in Rule 3a67-1 to be a major security-based swap 
participant.
---------------------------------------------------------------------------

    Under the rule as adopted, an applicant must submit the Senior 
Officer Certification on Form SBSE-C at the same time it submits its 
Form SBSE, SBSE-A or SBSE-BD, as applicable. Given that the compliance 
date for the SBS Entity registration rules is not immediate and we have 
amended Form SBSE-C to include a modified Senior Officer Certification 
along with the CCO Certification Regarding Associated Persons, the 
certifications will be a necessary part of the Commission's 
determination of whether to grant, or institute proceedings to deny, 
ongoing registration. Consequently, applicants must file the 
certifications on Form SBSE-C as part of their applications at the same 
time they file Form SBSE, SBSE-A, or SBSE-BD, as applicable. Thus, 
paragraph (d) of new Rule 15Fb2-1 states that a person that has filed a 
complete Form SBSE-C and Form SBSE, SBSE-A, or SBSE-BD, as applicable, 
with the Commission in accordance with paragraph (c) within the time 
periods set forth in Exchange Act rules 3a67-8 and 3a71-2, as 
applicable, and has not withdrawn from registration,\51\ will be 
conditionally registered.\52\
---------------------------------------------------------------------------

    \51\ A conditionally registered SBS Entity would withdraw from 
registration by filing Form SBSE-W as described in more detail below 
in Section II.C.2.
    \52\ Once an SBS Entity is conditionally registered, all of the 
Commission's rules applicable to registered SBS Entities will apply 
to the entity and it must comply with them. For instance, a 
conditionally registered SBS Entity will be required to comply with 
any recordkeeping rules applicable to SBS Entities. In addition, the 
staff may choose to conduct an examination of a conditionally 
registered firm.
---------------------------------------------------------------------------

    An applicant will be considered to be conditionally registered upon 
filing a complete application, but will not have ongoing registration 
until the Commission takes action to grant such registration. In that 
regard, final Rule 15Fb3-1(b), discussed more fully below, provides 
that a person conditionally registered as an SBS Entity will continue 
to be so registered until the date the registrant withdraws from 
registration or the Commission grants or denies the person's ongoing 
registration in accordance with Rule 15Fb2-1(e).
iv. Electronic Filing and Completeness of the Application
    Paragraph (c)(1) of proposed Rule 15Fb2-1 would have established 
that the application, certification, and any additional registration 
documents would need to be filed electronically with the Commission or 
its designee. In addition, paragraph (c)(2) of proposed Rule 15Fb2-1 
would have provided that an SBS Entity's application submitted pursuant 
to paragraph (c)(1) will be considered filed only when a complete Form 
SBSE, Form SBSE-A, or Form SBSE-BD, as appropriate, and all required 
additional documents are filed with the Commission or its designee. In 
addition, the Commission proposed temporary Rule 15Fb2-2T to require 
SBS Entities to, among other things, file their applications on Form 
SBSE, Form SBSE-A, or Form SBSE-BD, as applicable, and all additional 
documents in paper form by sending them in hard-copy to the Commission, 
notwithstanding paragraph (c)(1) of Rule 15Fb2-1, if the development of 
an electronic system to receive those Forms was not yet functional by 
the time final rules were adopted.
    The Commission stated in the Registration Proposing Release that it 
``[anticipated] that the EDGAR system will be expanded to facilitate 
registration of SBS Entities because it likely would provide the most 
cost-effective solution.'' \53\ In addition, the instructions to 
proposed Forms SBSE, SBSE-A, and SBSE-BD all indicated that ``[t]he 
applicant must file [the Form] through the EDGAR system, and must 
utilize the EDGAR Filer Manual (as defined in 17 CFR 232. 11) to file 
and amend [the Form] electronically to

[[Page 48971]]

assure the timely acceptance and processing of those filings.''
---------------------------------------------------------------------------

    \53\ See the Registration Proposing Release, at 65793.
---------------------------------------------------------------------------

    One commenter stated that its members believe that the use of the 
EDGAR system to facilitate registration may raise technological issues 
for entities whose computer systems cannot access the EDGAR system 
because of incompatible security protocols or technology.\54\ This 
commenter suggested that the Commission should provide at least six 
months between the adoption of final rules and the effective date of 
the registration requirement to allow for resolution of these types of 
issues.
---------------------------------------------------------------------------

    \54\ See SIFMA Letter, at 3.
---------------------------------------------------------------------------

    The Commission is adopting proposed paragraph (c)(1) regarding the 
electronic filing requirement substantially as proposed. Thus, 
paragraph (c)(1) of Rule 15Fb2-1 will require applications and any 
additional documents to be filed electronically with the Commission 
through the Commission's EDGAR system.\55\ Given the timing of the 
compliance date for these rules (see Section III below), we believe 
firms will have sufficient time to work out any technological issues 
associated with filing registration forms through the Commission's 
EDGAR system. The Commission is not adopting Rule 15Fb2-2T because the 
EDGAR system will be updated to receive these application Forms before 
the compliance date of these rules.
---------------------------------------------------------------------------

    \55\ As discussed in the Registration Proposing Release, because 
the registration forms will be required to be submitted through 
EDGAR, the electronic filing requirements of Regulation S-T will 
apply. See 17 CFR 232 (governing the electronic submission of 
documents filed with the Commission). General information about 
EDGAR is available at http://www.sec.gov/info/edgar.shtml, where the 
EDGAR Filer Manual can also be accessed. The EDGAR Filer Manual 
contains all the technical specifications for filers to submit 
filings using the EDGAR system. The Commission recommends that 
applicants read this filer manual before they begin using the 
system. Generally, entities filing documents in electronic format 
through the EDGAR system must comply with the applicable provisions 
of the EDGAR Filer Manual in order to assure the timely acceptance 
and processing of those filings.
---------------------------------------------------------------------------

    In the Registration Proposing Release, the Commission also 
discussed the possibility of requiring firms to ``tag'' data submitted 
using a computer markup language that can be processed by software 
programs for analysis (such as eXtensible Markup Language (XML) and 
eXtensible Business Reporting Language (XBRL)).\56\ At that time we 
indicated that collecting the information in a standardized format 
would allow us to make the information available to the public in a 
format that makes it easier to review and manipulate.\57\ We received 
no comments on the possible use of XML or XBRL.
---------------------------------------------------------------------------

    \56\ See Registration Proposing Release, 76 FR at 65806.
    \57\ Id.
---------------------------------------------------------------------------

    The process we will use to collect the Forms, and the data 
contained thereon, is consistent with what was proposed. The Forms are 
being developed with a graphical user interface that will allow users 
to complete a fillable Form on the EDGAR Web site.\58\ As the data will 
be collected in a structured format, we believe it is not necessary to 
require that SBS Entities submit the information in a ``tagged'' 
format. Collecting the data in a structured format will allow us to 
make the data public in a manner that will enable users of that data to 
retrieve, search, and analyze the data through automated means.
---------------------------------------------------------------------------

    \58\ To access the Forms, applicants will need to complete the 
Form ID process and obtain a CIK number and passcode from the 
Commission.
---------------------------------------------------------------------------

    We are also planning to allow a batch filing process utilizing the 
XML tagged data format that firms could use to upload application 
information to the EDGAR system. Applicants and SBS Entities will not 
be required to utilize this process, but may choose to do so. We 
believe that some applicants and/or SBS entities may prefer to register 
or amend their Forms using the batch XML format because it would allow 
them to automate aspects of the registration process, which may 
minimize burdens and generate efficiencies. This may be especially true 
for firms that are already using Edgar's Filer Constructed Submissions 
capabilities to submit other forms. In connection with the batch filing 
process, we anticipate publishing a taxonomy of XML data tags in 
advance of the compliance date for SBS Entity registration for use by 
filers taking advantage of the optional batch submission process.\59\
---------------------------------------------------------------------------

    \59\ Use of such an XML taxonomy will allow the Commission to 
normalize the data received using the batch filing process with the 
data collected through the use of the structured Forms and thereby 
make the data available to the public in a seamless way.
---------------------------------------------------------------------------

    The Commission received no comments on paragraph (c)(2) of proposed 
Rule 15Fb2-1, and is adopting that paragraph, substantially as 
proposed.\60\
---------------------------------------------------------------------------

    \60\ We modified the rule text of proposed Rule 15Fb2-1(c)(2) to 
eliminate the phrase ``or its designee.'' As applications will be 
submitted through the Commission's EDGAR system, they will not be 
submitted to any designee.
---------------------------------------------------------------------------

v. Standards for Granting or Instituting Proceedings to Determine 
Whether to Deny Registration
    Paragraph (d) of proposed Rule 15Fb2-1 would have provided that the 
Commission may grant or deny applications for conditional and ongoing 
registration, and set forth the standards the Commission would use to 
make that determination. In particular, paragraph (d)(1) of the 
proposed rule specified that the Commission would grant conditional 
registration if it found the applicant's application was complete, and 
paragraph (d)(2) specified that the Commission would grant ongoing 
registration if it finds that the requirements of Exchange Act Section 
15F(b) are satisfied. Proposed paragraph (d)(1) also indicated that the 
Commission may institute proceedings to determine whether conditional 
registration should be denied if it found that that the applicant is 
subject to a statutory disqualification (as defined in 15 U.S.C. 
78c(a)(39)) or if the Commission was aware of inaccurate statements in 
the application. In addition, proposed paragraph (d)(2) indicated that 
the Commission may institute proceedings to determine whether ongoing 
registration should be denied if it found that the requirements of 
Exchange Act Section 15F(b) had not been satisfied, the applicant is 
subject to a statutory disqualification (as defined in Exchange Act 
Section 78c(a)(39)), or if the Commission is aware of inaccurate 
statements in the application or certification. Paragraph (d)(2) also 
stated that the Commission may grant or deny ongoing registration based 
on an SBS Entity's application and certification, and that a 
conditionally registered SBS Entity need not submit a new application 
to apply for ongoing registration, but must amend its application, as 
required pursuant to Sec.  240.15Fb2-3. The Commission received no 
comments on proposed paragraph (d).
    As discussed above, we have made conditional registration automatic 
upon submission of a complete application, which includes Form SBSE-C 
and Form SBSE, SBSE-A or SBSE-BD, as applicable. Paragraph (d) of Rule 
15Fb2-1 as adopted states that an applicant that has submitted a 
complete Form SBSE-C and a complete Form SBSE, SBSE-A, or SBSE-BD, as 
applicable, in accordance with Rule 15Fb2-1(c) within the time periods 
set forth in Rule 3a67-8 (if the person is a Major SBS Participant) or 
Rule 3a71-2(b) (if the person is an SBS Dealer), and has not withdrawn 
its registration shall be conditionally registered.\61\ Therefore, we 
are not adopting the proposed standards for granting conditional 
registration or instituting proceedings to

[[Page 48972]]

determine whether to deny conditional registration.
---------------------------------------------------------------------------

    \61\ See supra, Section II.A.1.iii.
---------------------------------------------------------------------------

    The Commission is adopting the standards for making a determination 
to grant or deny ongoing registration proposed in paragraph (d)(2) with 
two modifications, and renumbering it as paragraph (e) to Rule 15Fb2-1. 
First, we amended the reference to Exchange Act Section 3(a)(39). As 
described in Section II.B. below in the discussion about proposed Rule 
15Fb6-1, Exchange Act Section 15F(b)(6) uses the term ``statutory 
disqualification,'' but the definition of statutory disqualification in 
the Exchange Act specifically relates to a person's association with an 
SRO.\62\ To address this inconsistency, we amended the rule text to 
replace the phrase ``as defined in Section 3(a)(39) of the Securities 
Exchange Act of 1934'' with the phrase ``as described in Sections 
3(a)(39)(A)-(F) of the Securities Exchange Act of 1934.'' This updated 
cross-reference incorporates the underlying issues that give rise to 
statutory disqualification without reference to SRO membership.\63\ In 
addition, we added the phrase ``or cannot'' to clarify that we may 
institute proceedings to deny where we are unable to make a finding due 
to, for example, a lack of necessary information.
---------------------------------------------------------------------------

    \62\ See infra footnote 78 and accompanying text.
    \63\ We intend for this description to parallel Exchange Act 
Section 3(a)(39). If Congress were to amend the definition of 
statutory disqualification in Exchange Act Section 3(a)(39), we 
believe it would be appropriate for the Commission to consider 
amending Rule 15Fb6-2 to assure that this description remains 
consistent with the statutory definition.
---------------------------------------------------------------------------

    Rule 15Fb2-1(e) as adopted states that the Commission may deny or 
grant ongoing registration to an SBS Dealer or Major SBS Participant 
based on an SBS Dealer's or Major SBS Participant's application, filed 
pursuant to paragraph (a) of this section. In addition, Rule 15Fb2-1(e) 
as adopted provides that the Commission will grant ongoing registration 
if it finds that the requirements of Exchange Act Section 15F(b) are 
satisfied. Further, Rule 15Fb2-1(e) provides that the Commission may 
institute proceedings to determine whether ongoing registration should 
be denied if it does not or cannot make such finding, if the applicant 
is subject to a statutory disqualification (described in Sections 
3(a)(39)(A) through (F) of the Exchange Act), or the Commission is 
aware of inaccurate statements in the application, and that such 
proceedings shall include notice of the grounds for denial under 
consideration and opportunity for hearing. Finally, the rule states 
that at the conclusion of such proceedings, the Commission shall grant 
or deny such registration. The Commission intends to notify entities 
electronically through the EDGAR system when registration is granted, 
and will make information regarding registration status publicly 
available on EDGAR.
    As indicated above, final Rule 15Fb2-1(e) also states that such 
proceedings will include notice of the grounds for denial under 
consideration and opportunity for hearing, and that at the conclusion 
of the proceedings, the Commission shall grant or deny such 
registration. An applicant would have the opportunity (once proceedings 
are commenced) to provide information as to why the Commission should 
grant registration.
    In addition, as ongoing registration is no longer contingent on an 
applicant filing a Form SBSE-C after the ``Last Compliance Date,'' but 
rather the certification must be filed as part of the initial 
submission of the application, we removed the language in proposed Rule 
15Fb2-1(d)(2) stating that a conditionally registered SBS Entity need 
not submit a new application to apply for ongoing registration. We also 
revised the cross-references given the fact that the requirement to 
file a certification on Form SBSE-C is now included in paragraph (a) 
rather than paragraph (b).
vi. Comments on Substituted Compliance
    In the Cross Border Proposing Release, the Commission proposed Rule 
3a71-5 to facilitate certain substituted compliance determinations by 
the Commission for foreign SBS Dealers.\64\ Paragraph (a)(3) of that 
proposed rule specified that the Commission would not make a 
substituted compliance determination with respect to registration 
requirements described in Sections 15F(a)-(d) of the Exchange Act and 
the rules and regulations thereunder.
---------------------------------------------------------------------------

    \64\ See Cross-Border Proposing Release, at 31207-8.
---------------------------------------------------------------------------

    One commenter urged the Commission to consider conditions upon 
which it could allow appropriate foreign market participants to satisfy 
the registration requirements through compliance with the relevant 
requirements in their home jurisdictions, with appropriate notice of 
such compliance to the SEC.\65\ This commenter urged the Commission not 
to delay its implementation of its proposed rules to address this issue 
but to keep consideration ``open in order to achieve the full benefits 
of substituted compliance over the full range of regulatory issues in 
due course.'' \66\
---------------------------------------------------------------------------

    \65\ See IIF Letter, at 3-4.
    \66\ See id. at 4.
---------------------------------------------------------------------------

    After further considering the purposes of our proposed approach to 
substituted compliance, the Commission continues to believe that 
substituted compliance should not be available for SBS Entity 
Registration. Requiring foreign persons that engage in security-based 
swap dealing activity at levels above the SBS Dealer de minimis 
threshold to register serves an important regulatory function that 
would be significantly impaired by permitting substituted compliance.
    Specifically, the Commission has inspection and examination 
authority over registered SBS Entities, including access to relevant 
books and records.\67\ As we have noted, ``this approach to territorial 
application of Title VII provides a reasonable means of helping to 
ensure that our regulatory framework focuses on security-based swap 
activity that is most likely to raise the concerns that Congress 
intended to address in Title VII.'' \68\ The Commission's inspection 
and examination authority is part of proper oversight of such dealers, 
and any limitation on oversight of foreign registered SBS Dealers would 
impair the Commission's effective regulation of these firms and their 
security-based swap transactions because it would deprive the 
Commission of a full picture of their business.\69\ Permitting a 
foreign SBS Dealer to satisfy these requirements through compliance 
with the relevant requirements in its home jurisdiction, even with 
appropriate notice of such compliance to the Commission, may deprive 
the Commission of the necessary information, including information 
resulting from inspection

[[Page 48973]]

and examination of the books and records of a firm engaged in dealing 
activity at levels above the de minimis threshold.
---------------------------------------------------------------------------

    \67\ See Exchange Act Section 15F(f)(1)(C) (requiring registered 
security-based swap dealers and registered major security-based swap 
participants to keep books and records ``open to inspection and 
examination by any representative of the Commission'').
    \68\ See Cross-Border Adopting Release, at 47288.
    \69\ See Cross-Border Proposing Release, at 31015. See also, 
Application of Certain Title VII Requirements to Security-Based Swap 
Transactions Connected With a Non-U.S. Person's Dealing Activity 
That Are Arranged, Negotiated, or Executed by Personnel Located in a 
U.S. Branch or Office or in a U.S. Branch or Office of an Agent, 
Exchange Act Release No. 74834 (Apr. 29, 2015), 80 FR 27444 (May 13, 
2015) (the ``Cross-Border Activity Proposing Release''), at footnote 
163 and accompanying text (noting that the Commission must have 
access to books and records of firms that engage in dealing activity 
in the United States to effectively monitor the market for abusive 
and manipulative conduct). For this reason, the Commission is also 
adopting a rule that would require nonresident security-based swap 
dealers to certify that they can, as a matter of law, and will 
provide the Commission with access to their books and records and 
submit to onsite examination. See infra, Section II.D.3.
---------------------------------------------------------------------------

    As we have previously noted, access to books and records is 
necessary to ensure that the Commission is able to monitor the market 
for abusive and manipulative practices connected with security-based 
swap activity in the United States.\70\ Accordingly, we are not 
providing for substituted compliance in the context of the registration 
requirement.\71\ The Commission intends to consider the potential 
availability of substituted compliance in connection with other 
requirements applicable to SBS Dealers, when the Commission considers 
final rules to implement those requirements.
---------------------------------------------------------------------------

    \70\ See Cross-Border Activity Proposing Release, at 27466. We 
have also noted that Title VII recordkeeping requirements will 
likely be the Commission's primary tool in monitoring compliance 
with applicable securities laws, including the antifraud provisions 
of these laws. See id. See also Requirements for Security-Based Swap 
Dealers, Major Security-Based Swap Participants, and Broker-Dealers; 
Capital Rule for Certain SBSDs; Proposed Rules, Exchange Act Release 
No. 71958 (April 17, 2014), 79 FR 25194, 25199 (May 2, 2014) (citing 
Commission Guidance to Broker-Dealers on the Use of Electronic 
Storage Media under the Electronic Signatures in Global and National 
Commerce Act of 2000 with Respect to Rule 17a-4(f), Exchange Act 
Release No. 44238 (May 1, 2001), 66 FR 22916 (May 7, 2001); Books 
and Records Requirements for Brokers and Dealers Under the 
Securities Exchange Act of 1934, Exchange Act Release No. 44992 
(October 26, 2001), 66 FR 55818 (November 2, 2001)).
    \71\ Given the importance of ensuring that we have the ability 
to inspect and examine every security-based swap dealer whose 
relevant dealing activity exceeds the security-based swap dealer de 
minimis threshold, we think it appropriate to address whether 
substituted compliance should be allowed with respect to our 
registration rules in the context of this rulemaking, rather than 
keep open consideration of substituted compliance for the 
registration rules, as suggested by the commenter. However, the 
Commission is not addressing in this rulemaking the potential 
availability of substituted compliance for SBS Dealers with respect 
other Commission rules to which SBS Dealers would be subject as a 
registered SBS Dealer. Instead, we intend to address substituted 
compliance issues for other rulemakings in the releases finalizing 
those rules.
---------------------------------------------------------------------------

2. Amendments to Form SBSE, Form SBSE-A, and Form SBSE-BD: Rule 15Fb2-3
    As proposed, Rule 15Fb2-3 would have required an SBS Entity to 
promptly file an amendment electronically with the Commission, or its 
designee to amend its application to correct any information it 
determines was, or had become, inaccurate for any reason. The 
Commission indicated in the release that the proposed rule was based on 
Exchange Act Rule 15b3-1, applicable to registered broker-dealers, 
which has worked well to assure that broker-dealers promptly amend 
their applications.\72\ In addition, the Commission indicated that, for 
purposes of proposed Rule 15Fb2-3, it believed that it would be 
appropriate to interpret the term ``promptly'' to mean within 30 
days.\73\
---------------------------------------------------------------------------

    \72\ See Registration Proposing Release, footnote 54.
    \73\ See Registration Proposing Release, footnote 53.
---------------------------------------------------------------------------

    The Commission received no comments regarding this proposed rule, 
and is adopting it substantially as proposed. However, we modified the 
rule to make two changes. As the application for registration now 
includes the certifications on Form SBSE-C,\74\ we revised the rule to 
specify that if an SBS Entity finds that the information contained in 
its Form SBSE, Form SBSE-A, or Form SBSE-BD, as appropriate, or in any 
amendment thereto, is or has become inaccurate for any reason, the SBS 
Entity shall promptly file an amendment to the appropriate Form to 
correct such information. This change clarifies that the certifications 
on Form SBSE-C are one-time certifications and Form SBSE-C need not be 
amended.\75\ We also made a technical change to specify that amendments 
must be made through the Commission's EDGAR system, and to remove the 
phrase ``its designee'' because amendments will be filed through the 
EDGAR system directly with the Commission.\76\ The Commission believes 
this rule is necessary in order for it to have prompt access to 
accurate information as part of its ongoing oversight of SBS Entities.
---------------------------------------------------------------------------

    \74\ See supra, Section II.A.1.i., and Rule 15Fb2-1(a).
    \75\ For more information on the Senior Officer Certification, 
see supra, Section II.A.1.ii. For more information on the CCO 
Certification Regarding Associated Persons, see infra, Section II.B. 
For more information on Form SBSE-C, see infra, Section II.G.4. See 
also footnote 30; Exchange Act Sections 15F(b)(6), 15F(h), and 
15F(k); and rules proposed in the Business Conduct Standards 
Proposing Release.
    \76\ See supra, Section II.A.1.iv.
---------------------------------------------------------------------------

B. Associated Persons

    Paragraph (b)(6) of Exchange Act Section 15F generally prohibits an 
SBS Dealer or Major SBS Participant, except as otherwise permitted by 
rule, regulation or order of the Commission, from permitting any person 
associated with the SBS Dealer or Major SBS Participant who is subject 
to a ``statutory disqualification'' to effect or be involved in 
effecting security-based swaps on behalf of the SBS Entity if the SBS 
Entity knew, or in the exercise of reasonable care should have known, 
of the statutory disqualification.\77\
---------------------------------------------------------------------------

    \77\ On June 15, 2011, the Commission issued an Order that, 
among other things, granted temporary relief from compliance with 
Exchange Act Section 15F(b)(6), and Exchange Act Section 29(b), 15 
U.S.C. 78cc(b), concerning enforceability of contracts that would 
violate, among other provisions, Exchange Act Section 15F(b)(6). See 
the Effective Date Release. That Order expires on the effective date 
of rules adopted by the Commission to register SBS Entities. The 
Commission will consider separately extending the expiration date of 
the temporary relief.
---------------------------------------------------------------------------

    Although Exchange Act Section 15F(b)(6) does not define ``subject 
to a statutory disqualification,'' the term has an established meaning 
under Section 3(a)(39) of the Exchange Act, which defines circumstances 
that would subject a person to a statutory disqualification with 
respect to membership or participation in, or association with a member 
of, an SRO. In the Registration Proposing Release, proposed rule 15Fb6-
1 referenced the definition of ``statutory disqualification'' set forth 
in Section 3(a)(39), and the Commission proposed to make this 
definition applicable to Exchange Act Section 15F(b)(6), 
notwithstanding the absence of an SRO for SBS Entities.\78\ 
Accordingly, as proposed, a person would have been ``subject to a 
statutory disqualification'' for purposes of proposed Rule 15Fb6-1 if 
that person would be subject to disqualification from association with 
a member of an SRO under the provisions of Section 3(a)(39) of the 
Exchange Act.\79\
---------------------------------------------------------------------------

    \78\ See Registration Proposing Release 76 FR at 65795 (stating 
that Exchange Act Section 15F(b)(6) applies to ``associated persons 
who are subject to a `statutory disqualification' (as defined in 
Exchange Act Section 3(a)(39))'').
    \79\ Likewise, in a similar context, the Commission has proposed 
to adopt the definition of ``statutory disqualification,'' as set 
forth in Section 3(a)(39), for SBS Entities. See Business Conduct 
Standards Proposing Release, at 42404 n.42429-30, and 42454 
(proposed Rule 15Fh-2(f)).
---------------------------------------------------------------------------

    Paragraph (a) of proposed Rule 15Fb6-1 would have prohibited an SBS 
Entity from acting as an SBS Dealer or Major SBS Participant unless it 
had certified electronically on Schedule G of its application Form that 
no person associated with it who effects or is involved in effecting 
security-based swaps on its behalf is subject to statutory 
disqualification as defined in paragraph (3)(a)(39) of the Exchange 
Act.\80\ Paragraph (b) of proposed Rule 15Fb6-1 would have required an 
SBS Entity, to support the certification required in paragraph (a), to 
obtain a questionnaire or application for employment executed by each 
of its

[[Page 48974]]

associated persons who effects or is involved in effecting security-
based swaps on behalf of the SBS Entity that contains certain, 
specified information, which would serve as a basis for a background 
check of the associated person.\81\ The proposal also would have 
required that the questionnaire or application be reviewed and signed 
by the SBS Entity's CCO. Paragraph (c) of proposed Rule 15Fb6-1 would 
have required that an SBS Entity maintain all questionnaires and 
applications for employment obtained pursuant to proposed paragraph (b) 
as part of its books and records for at least three years after the 
associated person has terminated his or her association with the SBS 
Entity.
---------------------------------------------------------------------------

    \80\ As proposed, if an associated person later became 
statutorily disqualified, the SBS Entity would have been required to 
ensure that the associated person did not continue to effect or be 
involved in effecting security-based swaps on the SBS Entity's 
behalf and/or promptly amend its Schedule G in accordance with 
proposed Rule 15Fb2-3. See Registration Proposing Release, at 65795-
96.
    \81\ As proposed, Schedule G would have required that the 
applicant certify that it had ``performed background checks on all 
of its associated persons who effect or are involved in effecting, 
or who will effect or be involved in effecting, security-based swaps 
on its behalf, and determined that no associated person who effects 
or is involved in effecting, or who will effect or be involved in 
effecting, security-based swaps on its behalf is subject to 
statutory disqualification, as defined in Section 3(a)(39) of the 
Securities Exchange Act of 1924.'' See Proposed Schedule G, 
Registration Proposing Release, at 65841, 65863 and 65878. The 
Commission asked questions regarding the Forms, including Schedule G 
(76 FR at 65802 to 65805), but received no comments on Schedule G.
---------------------------------------------------------------------------

    The Commission stated in the Registration Proposing Release that it 
believed the term ``involved in effecting'' security based swaps would 
encompass associated persons engaged in functions necessary to 
facilitate the SBS Entity's security-based swap business, including, 
but not limited to, associated persons involved in drafting and 
negotiating master agreements and confirmations, persons recommending 
security-based swap transactions to counterparties, persons on a 
trading desk actively involved in effecting security-based swap 
transactions, persons pricing security-based swap positions and 
managing collateral for the SBS Entity, and persons assuring that the 
SBS Entity's security-based swap business operates in compliance with 
applicable regulations.\82\ In short, the term would encompass persons 
engaged in functions necessary to facilitate the SBS Entity's security-
based swap business.
---------------------------------------------------------------------------

    \82\ Registration Proposing Release, at 65795, footnote 56.
---------------------------------------------------------------------------

    The Commission received one comment regarding the scope of the 
proposed certification and information requirements in proposed 
paragraphs (a) and (b) of Rule 15Fb6-1.\83\ The commenter stated its 
belief that, based on the Commission's definition of the phrase 
``involved in effecting,'' SBS Entities could have hundreds, if not 
thousands, of associated natural persons who effect or are involved in 
effecting security-based swaps.\84\ Moreover, the commenter stated that 
the definition of ``associated person'' could be read to extend not 
just to natural persons, but also to entities that are affiliates of 
SBS Entities.\85\ As a result, the commenter stated its view that 
prohibiting statutorily disqualified entities from effecting or being 
involved in effecting security-based swaps could result in 
``considerable'' business disruptions and other ramifications.\86\ To 
address these concerns, the commenter suggested that the Commission 
could (1) limit the scope of associated persons of SBS Entities solely 
to natural persons, or (2) narrow the types of activities that would 
cause an associated person to be deemed to be ``involved in effecting 
security-based swaps.'' \87\
---------------------------------------------------------------------------

    \83\ See SIFMA Letter, at 7-9.
    \84\ Id.
    \85\ Id.
    \86\ Id. The commenter did not provide supporting data regarding 
the number of associated persons or the magnitude of any potential 
business disruptions.
    \87\ Id.
---------------------------------------------------------------------------

1. Associated Person Certification
i. Associated Person Entities
    Exchange Act Section 3(a)(70) generally defines the term ``persons 
associated with'' an SBS Entity to include (i) any partner, officer, 
director, or branch manager of an SBS Entity (or any person occupying a 
similar status or performing similar functions); (ii) any person 
directly or indirectly controlling, controlled by, or under common 
control with an SBS Entity; or (iii) any employee of an SBS Entity.\88\ 
The definition of ``person'' under Exchange Act Section 3(a)(9) is not 
limited to natural persons, but extends to both entities and natural 
persons.\89\ Thus, the statutory prohibition in Exchange Act Section 
15F(b)(6), with respect to associated persons of an SBS Entity subject 
to a statutory disqualification, extends to both natural persons and 
entities.
---------------------------------------------------------------------------

    \88\ See 15 U.S.C. 78c(a)(70). The definition generally excludes 
persons whose functions are solely clerical or ministerial. See also 
Registration Proposing Release, footnote 55, and Cross-Border 
Activity Proposing Release, footnote 193.
    \89\ 15 U.S.C. 78c(a)(9) (``The term `person' means a natural 
person, company, government, or political subdivision, agent, or 
instrumentality of a government.'').
---------------------------------------------------------------------------

    In the Registration Proposing Release, the Commission asked whether 
it was possible that an associated person that is an entity that 
effects or is involved in effecting security-based swaps on behalf of 
an SBS Entity would be subject to a statutory disqualification and, if 
so, if we should consider excepting those persons from the prohibition 
in Section 15F(b)(6).\90\ We also asked whether we should except such 
persons globally or on an individual basis, and whether there should be 
any differentiation in relief based upon whether the person was a 
natural person or an entity.\91\ As indicated above, one commenter 
noted that ``business disruptions and other ramifications stemming from 
an entire entity being statutorily disqualified from effecting or being 
involved in effecting security-based swaps could be considerable.'' 
\92\ This commenter suggested a number of ways the Commission could 
address this issue, including a suggestion that the Commission limit 
the scope of associated persons of SBS Entities solely to natural 
persons. We note that the CFTC rules provide that associated persons of 
swap dealers and major swap participants are natural persons.\93\
---------------------------------------------------------------------------

    \90\ See Registration Proposing Release, question 90.
    \91\ See Registration Proposing Release, questions 91 and 93.
    \92\ See SIFMA Letter, at 8.
    \93\ The CFTC amended CEA Regulation 1.3(aa), which generally 
defines the term ``associated person'' for purposes of entities 
registered with it, to cover swap dealers and major swap 
participants. Consequently, with respect to swap dealers and 
security-based swap dealers, the definition reads, ``(aa) Associated 
Person. This term means any natural person who is associated in any 
of the following capacities with: [. . .] (6) A swap dealer or major 
swap participant as a partner, officer, employee, agent (or any 
natural person occupying a similar status or performing similar 
functions), in any capacity that involves: (i) The solicitation or 
acceptance of swaps (other than in a clerical or ministerial 
capacity); or (ii) The supervision of any person or persons so 
engaged.
     Section 4s(b)(6) of the CEA [7 U.S.C. 6s(b)(6)], which is 
equivalent to Section 15F(b)(6) of the Exchange Act, provides that: 
``Except to the extent otherwise specifically provided by rule, 
regulation, or order, it shall be unlawful for a swap dealer or a 
major swap participant to permit any person associated with a swap 
dealer or a major swap participant who is subject to a statutory 
disqualification to effect or be involved in effecting swaps on 
behalf of the swap dealer or major swap participant, if the swap 
dealer or major swap participant knew, or in the exercise of 
reasonable care should have known, of the statutory 
disqualification.''
---------------------------------------------------------------------------

    After taking into consideration the comment and the implementation 
of the equivalent CEA provision, the Commission is adopting Rule 15Fb6-
1, which provides that unless otherwise ordered by the Commission, when 
it files an application to register with the Commission as an SBS 
Dealer or Major SBS Participant, an SBS entity may permit a person 
associated with such SBS Entity that is not a natural person and that 
is subject to a statutory disqualification, to effect or be involved in 
effecting security-based swaps on its behalf, provided that the 
statutory

[[Page 48975]]

disqualification(s), described in Sections 3(a)(39)(A) through (F) of 
the Securities Exchange Act, occurred prior to the compliance date of 
this rule, and provided that it identifies each such associated person 
on Schedule C of Form SBSE, Form SBSE-A, or Form SBSE-BD, as 
appropriate. As discussed below, this rule is designed to facilitate an 
orderly registration process by minimizing potential market disruptions 
that could occur when firms engaged in the security-based swap business 
trigger the requirements to register with the Commission.
    As highlighted above, the scope of the prohibition in Section 
15F(b)(6) of the Exchange Act covers a wide range of actions beyond 
Commission orders and conduct related to the securities markets, 
including actions by SROs, state regulators, criminal authorities and 
foreign jurisdictions occurring over a length of time. In addition, the 
term associated person is expansive and extends to, among other things, 
partners of an SBS Entity and persons directly or indirectly 
controlling, controlled by, or under common control with an SBS Entity, 
all of which could include a non-natural person.\94\ Moreover, the 
conduct that led to the statutory disqualification of an associated 
person that is not a natural person may pertain to management practices 
that occurred a long time ago and may have been remediated or acts 
engaged in by personnel that are no longer employed by the associated 
person. Further, as discussed below in Section II.B.1.ii., we generally 
view the term ``involved in effecting'' to extend to key aspects of the 
overall process of effecting security-based swap transactions, 
including sales, booking, and cash and collateral management 
activities.
---------------------------------------------------------------------------

    \94\ See supra, footnote 89.
---------------------------------------------------------------------------

    If the prohibition in Section 15F(b)(6) of the Exchange Act were to 
be applied without this relief, the Commission is concerned about the 
potential for market disruptions. The Commission's concern is 
particularly focused on the application of the prohibition under 
Section 15F(b)(6) with respect to non-natural associated persons, and 
during the transition period when firms engaged in the security-based 
swap business, with existing processes and relationships to facilitate 
that business, trigger the requirement to register with the Commission. 
Specifically, SBS Entities are likely to rely on non-natural associated 
persons to provide security-based swap related services to the SBS 
Entity, such as advisory, booking, and cash or collateral management 
services. SBS Entities engaged in the security-based swap market may 
need to either cease operations, even temporarily, due to not being 
able to utilize these services of their associated entities, or move 
these services to another entity that may not be as well positioned to 
handle them, which could have an impact on the security-based swap 
market.\95\
---------------------------------------------------------------------------

    \95\ See SIFMA Letter at 8.
---------------------------------------------------------------------------

    With respect to natural persons, we believe that replacing, even 
temporarily, a natural person performing a particular security-based 
swap function would not create the same practical issues as with moving 
the services provided by a non-natural person associated person to 
another entity. For example, we believe that moving the cash and 
collateral management services from one entity to another would have a 
much more significant impact on the ability of the SBS Entity to 
operate than assigning a different natural person to negotiate and 
execute security-based swap transactions. Further, natural person 
associated persons are the persons responsible for actually performing 
or overseeing the functions necessary to effect security-based swap 
activities. As such, we do not believe this transitional relief in Rule 
15Fb6-1 should be extended to cover associated persons that are natural 
persons.\96\
---------------------------------------------------------------------------

    \96\ An SBS Entity could seek relief to allow an associated 
person subject to statutory disqualification to effect or be 
involved in effecting security-based swaps on its behalf. Paragraph 
(b)(6) of Exchange Act Section 15F gives the Commission authority to 
grant exceptions to the general prohibition ``by rule, regulation, 
or order.'' In addition, the Commission has proposed in a separate 
rulemaking today to provide a procedure by which SBS Entities could 
seek such relief. Applications by Security-Based Swap Dealers or 
Major Security-Based Swap Participants for Statutorily Disqualified 
Associated Persons to Effect or be Involved in Effecting Security-
Based Swaps, Exchange Act Release No. 75612 (Aug. 5, 2015) (the 
``Rule 194 Proposing Release''). See also infra Section III.B., 
which discusses the relationship between the compliance date and 
proposed Rule 194.
---------------------------------------------------------------------------

    We therefore are adopting a rule that is designed to facilitate an 
orderly registration process by minimizing the potential for market 
disruption in a targeted manner. Specifically, Rule 15Fb6-1 is 
applicable only to SBS Entity associated persons that are not natural 
persons, and the relief provided by the rule will only be available to 
firms at the time that they submit applications to register as SBS 
Entities. If an SBS Entity is associated with an entity that effects or 
is involved in effecting security-based swaps on its behalf that 
becomes subject to a statutory disqualification after the compliance 
date of these rules but prior to the SBS Entity registering with the 
Commission, if an SBS Entity that is registered wants to associate with 
an entity that is subject to statutory disqualification that will 
effect or be involved in effecting security-based swaps on its behalf, 
or if an entity with which an SBS Entity is associated and that effects 
or is involved in effecting security-based swaps on its behalf becomes 
subject to statutory disqualification after the SBS Entity has 
registered, the SBS Entity would need to seek relief from the 
Commission.\97\
---------------------------------------------------------------------------

    \97\ Id.
---------------------------------------------------------------------------

    We included the phrase ``unless otherwise ordered by the 
Commission'' to make clear that the rule does not preclude the 
Commission from exercising its authority under Exchange Act Sections 
15F(l) and 21 to take certain actions against associated persons of SBS 
Entities, including barring them from association with an SBS Entity, 
if it finds the associated person to have engaged in certain enumerated 
activities. Likewise, we have also included the phrase ``provided that 
the statutory disqualification(s), described in Sections 3(a)(39)(A) 
through (F) of the Securities Exchange Act of 1934, occurred prior to 
the compliance date of this rule'' to make clear that this rule does 
not apply with respect to statutory disqualifications of non-natural 
associated persons of the SBS Entity that occur in the future (i.e., 
after the compliance date of the registration rules).
    Finally, the SBS Entity is required to identify, on Schedule C of 
Form SBSE, Form SBSE-A, or Form SBSE-BD, as appropriate, those non-
natural persons associated with it, as of the date it submits an 
application for registration, that are subject to statutory 
disqualification and that it permits to effect or be involved in 
effecting security-based swaps on its behalf under the exclusion 
provided for in Rule 15Fb6-1. This condition is designed to provide the 
Commission with information to assist in its oversight of SBS 
Entities,\98\ and to provide market participants with information 
regarding the extent to which an SBS Entity relies on this provision.
---------------------------------------------------------------------------

    \98\ As discussed in more detail in Section II.G. below, the 
Commission will use the information provided in the application for 
registration, including Schedule C, as part of its ongoing oversight 
of an SBS Entity (for example by assisting representatives of the 
Commission in the preparation for examination of an SBS Entity, or 
more broadly to monitor risks specific to a firm or to the market 
more generally or to assess trends across firms).
---------------------------------------------------------------------------

    The Commission believes that the approach in Rule 15Fb6-1 
appropriately considers the potentially competing objectives of 
facilitating an orderly

[[Page 48976]]

registration process by minimizing the potential for market and 
counterparty disruption while maintaining strong investor protections. 
In particular, while the rule provides targeted relief with respect to 
non-natural person entities when an SBS Entity initially registers with 
the Commission, it is not applicable to associated persons who are 
natural persons and would not apply to entities an SBS Entity may want 
to associate with after it is registered nor to statutorily 
disqualifying events that occur after the compliance date of the rule.
ii. Involved in Effecting Transactions
    The Commission has previously interpreted the term ``effecting 
transactions'' in the context of securities transactions to include a 
number of activities, ranging from identifying potential purchasers to 
settlement and confirmation of a transaction.\99\ The statutory 
provision on statutory disqualification in Section 15F(b)(6) of the 
Exchange Act includes the phrase ``involved in effecting,'' separately 
and in addition to ``effecting.'' We understand the inclusion of two 
separate terms in Section 5F(b)(6) to mean that the terms have 
different meanings, and that the term ``involved in effecting'' 
includes a broader range of activities than simply ``effecting'' 
security-based swap transactions. Further, while the commenter 
suggested that we narrow the scope of the term ``involved in 
effecting,'' it did not suggest that we treat ``effect'' and ``involved 
in effecting'' as having the same meaning.\100\
---------------------------------------------------------------------------

    \99\ See, e.g., Temporary Rule 11a2-2(T), which states, ``a 
member [of a national securities exchange] `effects' a securities 
transaction when it performs any function in connection with the 
processing of that transaction, including, but not limited to, (1) 
transmission of a order for execution, (2) execution of the order, 
(3) clearance and settlement of the transaction, and (4) arranging 
for the performance of any such function.'' 17 CFR 240.11a2-2(T) 
(2014), and Definition of Terms in and Specific Exemptions for 
Banks, Savings Associations, and Savings Banks Under Sections 
3(a)(4) and 3(a)(5) of the Securities Exchange Act of 1934, 
Securities Exchange Act Release No. 44291 (May 11, 2001), 66 FR 
27760, 27772-73 (May 18, 2001) (where the Commission stated that 
``[e]ffecting transactions in securities includes more than just 
executing trades or forwarding securities orders to a broker-dealer 
for execution. Generally, effecting securities transactions can 
include participating in the transactions through the following 
activities: (1) Identifying potential purchasers of securities; (2) 
screening potential participants in a transaction for 
creditworthiness; (3) soliciting securities transactions; (4) 
routing or matching orders, or facilitating the execution of a 
securities transaction; (5) handling customer funds and securities; 
and (6) preparing and sending transaction confirmations (other than 
on behalf of a broker-dealer that executes the trades).'' (footnotes 
omitted)).
    \100\ See SIFMA Letter, at 8.
---------------------------------------------------------------------------

    Generally, we view the types of activities covered by the term 
``involved in effecting'' in Section 15F(b)(6) to relate directly to 
key aspects of the overall process of effecting security-based swap 
transactions, including sales, booking and cash and collateral 
management activities. We believe it would be inappropriate to focus 
solely on the persons that effect transactions and not also on those 
that are involved more broadly in these key aspects of the process 
necessary to facilitate transactions, because persons involved in these 
key aspects of the process have the ability, through their conduct 
(intentional or unintentional), to increase risks to investors, 
counterparties and the markets. However, we are further clarifying the 
meaning of the term ``involved in effecting,'' as discussed below.
    In the Registration Proposing Release we explained our view 
generally that ``involved in effecting'' included ``persons on a 
trading desk actively involved in effecting security-based swap 
transactions.'' Upon further consideration, we did not mean to imply 
(by use of the term ``actively'') that there is some minimum amount of 
trading a person working on a trading desk must be involved with to be 
considered ``involved in effecting'' security-based swap transactions. 
In general, our focus is on the type of activity, not the amount of 
activity. In addition, we believe it is preferable to use the term 
``executing'' because it is more precise and eliminates the perceived 
definitional circularity. We believe it is appropriate to clarify our 
guidance in this manner because the totality of the guidance provided 
covers other key aspects of the overall process of effecting security-
based swap transactions.
    We also are clarifying that by including ``persons assuring that 
the SBS Entity's security-based swap business operates in compliance 
with applicable regulations,'' we intended to include only ``persons 
directly supervising'' the persons engaged in the other, specified 
activities. We believe that it is appropriate to view the scope more 
narrowly rather than to suggest that it includes all persons at an SBS 
Entity in any way involved in assuring compliance with applicable 
rules. Consequently, we believe the term ``involved in effecting 
security-based swaps'' generally means engaged in functions necessary 
to facilitate the SBS Dealer's or Major SBS Participant's security-
based swap business, including, but not limited to the following 
activities: (1) Drafting and negotiating master agreements and 
confirmations; (2) recommending security-based swap transactions to 
counterparties; (3) being involved in executing security-based swap 
transactions on a trading desk; (4) pricing security-based swap 
positions; (5) managing collateral for the SBS Entity; and (6) directly 
supervising persons engaged in the activities described in items (1) 
through (5) above.
iii. Licensing
    Another commenter suggested that the Commission should establish 
licensing requirements.\101\ After considering the comment, the 
Commission is not at this time adopting licensing requirements for 
associated persons of SBS Entities. While SROs generally establish 
licensing and qualification requirements for those persons associated 
with their member broker-dealers,\102\ there is no similar SRO 
regulatory system for security based swap dealers.\103\ In addition, 
the Commission does not have licensing or qualification requirements 
for other market intermediaries registered with it that are not subject 
to regulation by an SRO. Furthermore, as discussed above, the CCO 
certification should provide assurance that associated persons of SBS 
Entities that effect or are involved in effecting security-based swap 
transactions are not statutorily disqualified by attesting that the 
firm has itself performed this review. We believe that a CCO would have 
incentive to provide an accurate certification due to potential 
regulatory consequences. Consequently, we do not believe a licensing 
scheme is necessary at this time, and we are not adopting a licensing 
scheme.
---------------------------------------------------------------------------

    \101\ See the 2011 Better Markets Letter, at 7-8.
    \102\ See e.g., FINRA's NASD Rule 1031 and FINRA Rule 1230(b)(6) 
(applicable to associated persons of broker-dealers), and MSRB Rules 
G-2 and G-3 (applicable to associated persons of municipal 
securities brokers and municipal securities dealers). See also, 15 
U.S.C. 78f(c)(3)(A) and (B), 15 U.S.C. 78o-3(g)(3)(A) and (B), and 
15 U.S.C. 78o-4(b)(2)(A)(iii) authorizing such rules.
    \103\ See supra, discussion in Section II.A.1.ii.
---------------------------------------------------------------------------

2. Questionnaire or Application for Employment and Background Checks
    As noted, to support the certification required by paragraph (a) of 
proposed Rule 15Fb6-1, proposed Rule 15Fb6-1(b) would have required 
that an SBS Entity obtain a questionnaire or application for employment 
executed by each of its associated persons who effects or is involved 
in effecting security based swaps on the SBS Entity's behalf which 
would serve as a basis for a background check of the associated person 
and be reviewed and signed by the SBS Entity's CCO (or his

[[Page 48977]]

or her designee). In addition, proposed Schedule G to Forms SBSE, SBSE-
A, and SBSE-BD would have required the SBS Entity's CCO to certify that 
the applicant had performed background checks on all of its associated 
persons who effect or are involved in effecting, or who will effect or 
be involved in effecting, security-based swaps on its behalf and 
determined that no associated person who effects or is involved in 
effecting, or who will effect or be involved in effecting, security-
based swaps on its behalf is subject to statutory disqualification, as 
defined in Section 3(a)(39) of the Exchange Act.
    One commenter stated that entities that screen employees pursuant 
to other regulatory requirements may decide to register as SBS 
Entities, and that the Commission should confirm that SBS Entities that 
are also registered as broker-dealers or that have affiliated broker-
dealers may rely on the questionnaires and background checks they 
conduct of associated persons under Commission and FINRA rules to 
satisfy their Rule 15Fb6-1 background check obligation, and allow SBS 
Entities that are not broker-dealers but are overseen by a prudential 
regulator to rely on the questionnaires and background checks they 
conduct pursuant to the requirements of their prudential regulator to 
satisfy those obligations.\104\
---------------------------------------------------------------------------

    \104\ See SIFMA Letter, at 9.
---------------------------------------------------------------------------

    The rules as adopted do not specify what steps an SBS Entity should 
take to perform a background check.\105\ The required employment 
questionnaire or application includes a significant amount of 
information that can be helpful to determine whether an associated 
person may be subject to a statutory disqualification.\106\ In 
addition, we believe financial institutions already take steps to 
verify the background of their employees, such as by calling past 
employers and checking references. In some cases calling references and 
past employers may be sufficient, while in other circumstances a firm 
may decide to take additional steps. We believe it is important for 
firms to have flexibility to perform background checks, as long as 
those checks provide them with sufficient comfort to certify that none 
of the SBS Entity's employees who effect or are involved in effecting 
security-based swaps on the SBS Entity's behalf are subject to 
statutory disqualification, unless otherwise specifically provided by 
rule, regulation or order of the Commission.\107\
---------------------------------------------------------------------------

    \105\ See infra, Section II.B.3.
    \106\ See infra, footnote 120 and accompanying text. See also, 
17 CFR 240-17a-3(a)(12)(i) and proposed Rule 18a-5(b)(8)(i).
    \107\ See, Rule 194 Proposing Release.
---------------------------------------------------------------------------

    As noted, the rules as adopted do not specify what steps an SBS 
Entity should take to perform a background check. As such, with respect 
to an SBS Entity whose associated persons are also associated with an 
affiliated broker-dealer, CFTC-registered entity, or bank, there may be 
circumstances where the SBS Entity and its CCO are able to rely on 
current background checks of dual employees performed by an affiliated, 
regulated entity, as long as those checks provide them with sufficient 
comfort to certify that none of the SBS Entity's employees who effect 
or are involved in effecting security-based swaps on the SBS Entity's 
behalf are subject to statutory disqualification, unless otherwise 
specifically provided by rule, regulation or order of the 
Commission.\108\
---------------------------------------------------------------------------

    \108\ As we have amended paragraph (b) of Rule 15Fb6-2 to 
require that the CCO, or his or her designee, sign the questionnaire 
or application that the SBS Entity is required to obtain pursuant to 
the relevant recordkeeping rule applicable to such SBS Entity, we 
believe it would be appropriate for the Commission to address the 
issue of whether an SBS Entity can fulfill its obligation to obtain 
questionnaires or applications for employment by relying on other 
documents in the release that will address the recordkeeping 
requirements for SBS Entities. See infra, footnotes 120 and 121 and 
accompanying text for a discussion of Rule 15Fb6-2(b). See also, 
Rule 194 Proposing Release.
---------------------------------------------------------------------------

    One commenter stated that the statutory disqualification 
requirements would apply to a foreign registered SBS Entity as a whole 
(i.e., an entity-level, as opposed to transaction-level, requirement), 
without regard to the identity of a given counterparty, resulting in 
situations where non-U.S. employees of non-U.S. SBS Entities who do not 
interact with U.S. customers would be required to submit to U.S. 
background checks for statutory disqualification purposes.\109\ This 
commenter indicated that this approach diverges from that adopted by 
the CFTC, which it states does not apply its statutory disqualification 
requirements to associated persons of its registrants who engage in 
activity outside the U.S. and limit such activity to customers located 
outside the U.S.\110\ This commenter recommended that the Commission 
re-categorize licensing and statutory disqualification requirements as 
transaction-level requirements because limiting background checks to 
personnel interacting with U.S. persons would help eliminate potential 
conflicts with local privacy laws, which the commenter states in some 
cases may prohibit background checks for employees based abroad.\111\
---------------------------------------------------------------------------

    \109\ See IIB letter, at 20.
    \110\ Id.
    \111\ Id.
---------------------------------------------------------------------------

    As noted in Section II.A.1.vi., in the Cross Border Proposing 
Release the Commission proposed Rule 3a71-5 to facilitate certain 
substituted compliance determinations by the Commission for foreign SBS 
Dealers.\112\ Paragraph (a)(3) of that proposed rule specified that the 
Commission would not make a substituted compliance determination with 
respect to registration requirements described in Sections 15F(a)-(d) 
of the Exchange Act and the rules and regulations thereunder. As 
discussed above, the Commission continues to believe that substituted 
compliance should not be available for SBS Entity Registration.\113\ 
The Commission holds this view with respect to all aspects of SBS 
Entity registration, including the requirements relating to statutory 
disqualification.
---------------------------------------------------------------------------

    \112\ See Cross-Border Proposing Release, at 31207-8. See also 
Cross-Border Proposing Release, at 31015-31016.
    \113\ See supra, Section II.A.1.vi.
---------------------------------------------------------------------------

    Exchange Act Section 15F(b)(6) generally prohibits an SBS Entity, 
except as otherwise permitted by rule, regulation or order of the 
Commission, from permitting any person associated with the SBS Entity 
who is subject to a ``statutory disqualification'' to effect or be 
involved in effecting security-based swaps on behalf of the SBS Entity 
if the SBS Entity knew, or in the exercise of reasonable care should 
have known, of the statutory disqualification. Rule 15Fb6-2(a) as 
adopted states that no registered SBS Entity shall act as an SBS Entity 
unless it has certified that no person associated with such SBS Entity 
who is effecting or involved in effecting security-based swaps on 
behalf of the SBS Entity is subject to statutory disqualification, 
unless otherwise specifically provided by rule, regulation or order of 
the Commission. Rule 15Fb6-2(b) as adopted further states that (1) to 
support the certification required by paragraph (a), the SBS Entity's 
CCO, or his or her designee, shall review and sign the questionnaire or 
application for employment, which the SBS Entity is required to obtain 
pursuant to the relevant recordkeeping rule applicable to such SBS 
Entity, executed by each associated person who is a natural person and 
who effects or is involved in effecting security based swaps on the SBS 
Entity's behalf; and (2) the questionnaire or application shall serve 
as a basis for a background check of the associated person to verify

[[Page 48978]]

that the person is not subject to statutory disqualification.\114\
---------------------------------------------------------------------------

    \114\ See also Form SBSE-C and Rule 15Fb6-2(b).
---------------------------------------------------------------------------

    The requirements in paragraph (b) of Rule 15Fb6-2 are designed to 
support the CCO Certification Regarding Associated Persons required by 
paragraph (a) of the rule, and the CCO Certification Regarding 
Associated Persons is designed to provide the Commission with 
representations regarding the applicant's compliance with the statutory 
disqualification provision in Section 15F(b)(6) of the Exchange Act. We 
believe that these requirements are important aspects of our 
registration regime for SBS Entities, as they will in part help ensure 
that SBS Entities are performing the necessary diligence to support the 
requirements of Exchange Act Section 15F(b)(6). The requirements in 
Rule 15Fb6-2(b) regarding questionnaires or applications and background 
checks are important elements of each SBS Entity's determination with 
respect to whether its associated persons that effect or are involved 
in effecting security-based swap transactions are subject to statutory 
disqualifications, and can serve as an effective tool for the 
Commission to use to assess the SBS Entity's diligence with respect to, 
and compliance with, the requirements of paragraph (a) of the rule. The 
Commission has considered the function that these statutory 
disqualification requirements play in the effective oversight and 
regulation of SBS Entities and has concluded that entity-level 
classification--and application to all associated persons--will provide 
for more effective oversight and regulation. Thus, while the Commission 
has taken into consideration the commenter's concerns regarding the 
potential impact of certain foreign privacy laws, we are not convinced 
at this time of a need or basis to provide an exclusion for SBS 
Entities from the statutory disqualification requirements with respect 
to certain of its associated persons that are natural persons who 
effect or are involved in effecting security-based swaps on its behalf. 
Accordingly, under our final rules, we continue to treat these 
requirements as entity-level requirements applicable to all associated 
persons of the registered foreign SBS Entity that effect or are 
involved in effecting security-based swap transactions.
3. Final Rule for Associated Person Certification
    Therefore, for the reasons discussed above, we are adopting the 
language proposed as Rule 15Fb6-1 as Rule 15Fb6-2 with some 
modifications, as described below. Paragraph (a) of Rule 15Fb6-2, as 
adopted, requires that an SBS Entity certify, on Form SBSE-C, that it 
neither knows, nor in the exercise of reasonable care should have 
known, that any person associated with it who effects or is involved in 
effecting security-based swaps on its behalf is subject to statutory 
disqualification, as described in Sections 3(a)(39)(A) through (F) of 
the Exchange Act, unless otherwise specifically provided by rule, 
regulation or order of the Commission.\115\ We incorporated the phrase 
``neither knows, nor in the exercise of reasonable care should have 
known'' to assure that the language in the certification more closely 
tracks the requirements of Exchange Act Section 15F(b)(6). We added the 
phrase ``unless otherwise specifically provided by rule, regulation or 
order of the Commission'' to this paragraph to acknowledge that if the 
Commission provides relief to allow an SBS Entity to permit a person 
associated with it who is subject to a statutory disqualification to 
effect or be involved in effecting security-based swaps on its 
behalf,\116\ the SBS Entity may do so.\117\ In addition, we amended the 
reference to Exchange Act Section 3(a)(39) in the rule text to replace 
the phrase ``as defined in Section 3(a)(39) of the Securities Exchange 
Act of 1934'' with the phrase ``as described in Sections 3(a)(39)(A)-
(F) of the Securities Exchange Act of 1934.'' This updated cross-
reference incorporates the underlying issues that give rise to 
statutory disqualification without reference to SRO membership.\118\ 
Finally, as described more fully in Sections II.G.1 and II.G.4 below, 
we have moved the CCO Certification Regarding Associated Persons from 
Schedule G into Form SBSE-C. This change clarifies that the CCO 
Certification Regarding Associated Persons is required only at the time 
of registration to provide the Commission with information before 
making a determination as to whether to grant registration or institute 
proceedings to deny registration.\119\
---------------------------------------------------------------------------

    \115\ The certification must be accurate when it is signed. 
Final Rule 15Fb1-1(b), described below in Section II.F., would 
require each SBS Entity to maintain a manually signed copy of this 
certification as part of its books and records until at least three 
years after the certification has been replaced or is no longer 
effective.
    \116\ E.g., See, Rule 15Fb6-1 and the Rule 194 Proposing 
Release.
    \117\ See supra, footnote 96. This language is designed to track 
Exchange Act Section 15F(b)(6), which states, in part, ``[e]xcept to 
the extent otherwise specifically provided by rule, regulation or 
order of the Commission, it shall be unlawful . . .''
    \118\ As proposed, the associated person certification in 
Schedule G included the phrase ``will effect or be involved in 
effecting,'' while the associated person certification requirement 
in proposed Rule 15Fb6-1(a) did not. Because the certification is 
not designed to be forward-looking, and to ensure that Rule 15Fb6-2 
and Form SBSE-C, as adopted, have the same language for the same 
certification, we removed the phrase ``will effect or be involved in 
effecting'' from the certification contained in Form SBSE-C as 
adopted.
    \119\ 15 U.S.C. 78o-10(b)(6).
---------------------------------------------------------------------------

    Paragraph (b) of Rule 15Fb6-2 as adopted states that, to support 
the certification required by paragraph (a), an SBS Entity's CCO, or 
his or her designee, shall review and sign each questionnaire or 
application for employment, which the SBS Entity is required to obtain 
pursuant to the relevant recordkeeping rule applicable to such SBS 
Entity, executed by each associated person who is a natural person and 
who effects or is involved in effecting security based swaps on the SBS 
Entity's behalf, and that the questionnaire or application shall serve 
as a basis for a background check of the associated person to verify 
that the person is not subject to statutory disqualification. We have 
amended paragraph (b) of Rule 15Fb6-2 in recognition of the fact that 
the Commission separately proposed Rule 18a-5(b)(8)(i), as part of its 
proposed recordkeeping and reporting rules that would be applicable to 
stand-alone SBS Dealers, stand-alone Major SBS Participants, bank SBS 
Dealers, and bank Major SBS Participants, which would require SBS 
Entities to obtain an employment questionnaire or application from 
their associated persons that would contain the same information as in 
proposed Rule 15Fb6-2(b).\120\ We do not believe that it would be 
efficient or necessary to repeat the same requirement for obtaining 
such questionnaires or applications in two separate Commission 
rules.\121\ We believe that it is more appropriate to include the 
underlying requirement to obtain the questionnaires or applications in 
the Commission rule that would broadly cover the books and records 
requirements for an SBS Entity, and to provide in Rule 15Fb6-2 the

[[Page 48979]]

requirement that the CCO sign and review the questionnaire or 
application that the SBS Entity is required to obtain pursuant to the 
relevant recordkeeping rule applicable to such SBS Entity, and use it 
as a basis for a background check, to support the certification 
required by Rule 15Fb6-2(a).
---------------------------------------------------------------------------

    \120\ See Books and Records Proposing Release, at 25205.
    \121\ Paragraph (c) of proposed Rule 15Fb6-1 also would have 
established a requirement to maintain these employment 
questionnaires and applications for at least three years after the 
associated person has terminated his or her association with the SBS 
Entity. This is substantially the same as the requirement in 
proposed Rule 18a-6(b) relating to the records created in accordance 
with Rule 18a-5(b)(8)(i). Rule 15Fb6-2 as adopted, removes this 
proposed requirement because we intend for the recordkeeping rule to 
comprehensively address recordkeeping issues.
---------------------------------------------------------------------------

    In addition, we have revised final Rule 15Fb6-2(b) to add the 
phrase ``who is a natural person'' in recognition of the fact that only 
natural persons would be required to complete this type of 
questionnaire or application. Consequently, the CCO (or the CCO's 
designee) only must review and sign questionnaires or applications for 
associated persons that are natural persons. Rule 15Fb6-2(b) as adopted 
also states that the questionnaire or application shall serve as a 
basis for a background check of the associated person to verify that 
the person is not subject to statutory disqualification. This provision 
is designed to help ensure that due regard is paid to this requirement 
to collect information on employees and that the SBS Entity's CCO or 
designee reviews the application and takes any other necessary steps to 
assure that none of the SBS Entity's employees who effect or are 
involved in effecting security-based swaps on the SBS Entity's behalf 
is subject to statutory disqualification, unless otherwise specifically 
provided by rule, regulation or order of the Commission. As paragraph 
(b) of Rule 15Fb6-2 is designed to support the certification required 
by paragraph (a) at the time of registration, it does not impose 
ongoing obligations. However, the Commission emphasizes that the 
obligation to comply with Section 15F(b)(6) of the Exchange Act is 
ongoing.

C. Termination of Registration

1. Duration of Registration: Rule 15Fb3-1
    Exchange Act Section 15F(b)(3) provides that ``each registration 
under this section shall expire at such time as the Commission may 
prescribe by rule or regulation.'' This provision is similar to CEA 
Section 6f(a)(1), which provides that ``each registration shall expire 
on December 31 of the year for which issued or at such other time, not 
less than one year from the date of issuance, as the Commission may by 
rule, regulation, or order prescribe. . . .'' CEA Rule 3.10(b) 
provides, among other things, that persons registered with the CFTC 
pursuant to CEA Rule 3.10 ``will continue to be so registered until the 
effective date of any revocation or withdrawal of such registration.''
    As proposed, paragraph (a) of Rule 15Fb3-1 would have established a 
similar continuous registration as is set forth in CEA Rule 3.10(b), 
providing that registered SBS Entities ``continue to be so registered 
until the effective date of any cancellation, revocation or withdrawal 
of such registration or any other event the Commission determines 
should trigger expiration.'' Paragraph (b) of the proposed rule would 
have established the timeframes within which conditional registration 
would expire if ongoing registration was not obtained.\122\ Paragraph 
(c) of the proposed rule would have allowed the Commission to extend 
conditional registration for good cause. The Commission received no 
comments on this proposed rule.
---------------------------------------------------------------------------

    \122\ More specifically, proposed paragraph (b)(1) would have 
provided that during the transitional period conditional 
registration granted by the Commission would expire on the last 
compliance date for SBS Entities that filed a completed application 
before the last compliance date, unless the SBS Entity filed with 
the Commission a certification, in which case conditional 
registration extended an additional thirty days. Proposed paragraph 
(b)(2) would have provided that after the last compliance date, 
conditional registration granted by the Commission to major 
security-based swap participants would expire four months after the 
major security-based swap participant filed its completed 
application, unless the major security-based swap participant filed 
a certification; in which case the conditional registration extended 
an additional thirty days.
---------------------------------------------------------------------------

    We are adopting this proposed rule with several modifications. 
First, we modified the language of paragraph (a) to eliminate the 
phrase ``or any other event the Commission determines should trigger 
expiration'' because if we determine an SBS Entity's registration 
should terminate we would follow the revocation process set forth in 
Rule 15Fb3-3. Consequently, this phrase is extraneous and could cause 
confusion if not removed. In addition, we have modified the language of 
paragraph (b) to provide that a person conditionally registered as an 
SBS Entity will continue to be so registered until the date the 
registrant withdraws from registration or the Commission grants or 
denies the person's ongoing registration, as described in Rule 15Fb2-
1(e). We also eliminated paragraph (c), because applicants will be 
conditionally registered upon filing a complete application, and 
conditional registration will not expire until the Commission either 
grants or denies ongoing registration. Thus, there is no instance in 
which an applicant's conditional registration would need to be 
extended.
2. Withdrawal: Rule 15Fb3-2
    As proposed, Rule 15Fb3-2 was designed to provide a process by 
which an SBS Entity may withdraw from registration with the Commission. 
The rule was based on Exchange Act Rule 15b6-1, which has historically 
worked well to facilitate broker-dealer withdrawals.\123\
---------------------------------------------------------------------------

    \123\ Registration Proposing Release, at footnote 62.
---------------------------------------------------------------------------

    Proposed Rule 15Fb3-2(a) would have required an SBS Entity to 
electronically file a notice of withdrawal from registration on Form 
SBSE-W (described in more detail below in Section II.G.4) in accordance 
with the instructions to the Form. It also would have required that an 
SBS Entity amend its Form SBSE, Form SBSE-A, or Form SBSE-BD, as 
appropriate, in accordance with proposed Rule 15Fb2-3 to update any 
inaccurate information prior to filing its notice of withdrawal from 
registration. The Commission received no comments on this aspect of the 
proposed rule. We are adopting paragraph (a) of Rule 15Fb3-2 
substantially as proposed, but with a modification to specify that Form 
SBSE-W must be filed with the Commission through the Commission's EDGAR 
system.
    Paragraph (b) of proposed Rule 15Fb3-2 would have provided that a 
notice of withdrawal from registration filed by an SBS Entity generally 
becomes effective on the 60th day after the SBS Entity files Form SBSE-
W. However, as discussed in the Registration Proposing Release, the 
Commission recognizes that there may be circumstances in which it would 
be advisable to provide flexibility in scheduling the termination of 
business operations to registered entities seeking to withdraw from 
registration.\124\ Further, we may determine that it would be 
appropriate for a registered entity that is under investigation by the 
Commission to maintain its registered status in order to allow the 
Commission to conclude a pending investigation without prematurely 
instituting a proceeding to impose conditions on the registered 
entity's withdrawal. In such instances, we believe it better serves the 
interests of all parties to provide registered entities and the 
Commission with the flexibility to extend the effective date of 
withdrawal, either by consent or Commission order. Thus, paragraph (b) 
of proposed Rule 15Fb3-2 identified specific situations in which 
notices of withdrawal from registration would not become effective on 
the 60th day after the SBS Entity filed Form SBSE-W. Specifically, 
proposed paragraph (b) stated that rather than becoming effective on 
the 60th day, the notices of withdrawal would instead

[[Page 48980]]

become effective ``within such longer period of time as to which such 
SBS Dealer or Major SBS Participant consents or which the Commission by 
order may determine as necessary or appropriate in the public interest 
or for the protection of investors, or within such shorter period of 
time as the Commission may determine.''
---------------------------------------------------------------------------

    \124\ See Registration Proposing Release, at 65798.
---------------------------------------------------------------------------

    Paragraph (b) of proposed Rule 15Fb3-2 also provided that if the 
Commission institutes proceedings prior to the effective date of Form 
SBSE-W to censure, place limitations on the activities, functions or 
operations of, or suspend or revoke the registration of the SBS Entity, 
or to impose terms or conditions upon the SBS Entity's withdrawal, the 
notice of withdrawal shall not become effective except at such time and 
upon such terms and conditions as the Commission deems necessary or 
appropriate in the public interest or for the protection of investors.
    The Commission received no comments on paragraph (b) of proposed 
Rule 15Fb3-2, and is adopting it as proposed.
3. Cancellation and Revocation: Rule 15Fb3-3
    Proposed Rule 15Fb3-3 was designed to provide the Commission with 
the ability to either cancel or revoke a registered SBS Entity's 
registration. Paragraph (a) of proposed Rule 15Fb3-3 would have 
provided that the Commission shall cancel an SBS Entity's registration 
if the Commission finds that it is no longer in existence or has ceased 
to do business as an SBS Entity. As highlighted in the Registration 
Proposing Release, this cancellation process is designed to help the 
Commission allocate its examination and other resources to entities 
that are actively engaged in business regulated by the Commission.\125\
---------------------------------------------------------------------------

    \125\ See Registration Proposing Release, at 65799.
---------------------------------------------------------------------------

    Paragraph (b) of proposed Rule 15Fb3-3 would have provided that the 
Commission, by order, shall censure, place limitations on the 
activities, functions, or operations of, or revoke (on a permanent or 
temporary basis) the registration of any SBS Entity that has registered 
with the Commission if it makes a finding as specified in Section 
15F(l)(2) of the Exchange Act.\126\ This paragraph of the Rule would 
implement the authority in Section 15F(l)(2) of the Exchange Act.
---------------------------------------------------------------------------

    \126\ See Exchange Act Section 15F(l)(2), stat. at 15 U.S.C. 
78o-10(l) (providing authority to the Commission to censure, place 
limitations on the activities, functions, or operations of, or 
revoke the registration of any SBS Entity).
---------------------------------------------------------------------------

    The Commission received no comments on this proposed rule, and is 
adopting it as proposed.

D. Special Requirements for Nonresident SBS Entities

    As proposed, Rule 15Fb2-4 would have required, among other things, 
nonresident SBS Entities that register with the Commission to: (1) 
Appoint an agent for service of process in the United States (other 
than the Commission or a Commission member, official or employee) upon 
whom may be served any process, pleadings, or other papers in any 
action brought against the nonresident SBS Entity; (2) furnish the 
Commission with the identity and address of its agent for service of 
process; (3) certify that the firm can, as a matter of law, provide the 
Commission with prompt access to its books and records and can, as a 
matter of law, submit to onsite inspection and examination by the 
Commission; and (4) provide the Commission with an opinion of counsel 
concurring that the firm can, as a matter of law, provide the 
Commission with prompt access to its books and records and can, as a 
matter of law, submit to onsite inspection and examination by the 
Commission. Proposed Rule 15Fb2-4 also would have required registered 
nonresident SBS Entities to re-certify within 90 days after any changes 
in the legal or regulatory framework that would impact the nonresident 
SBS Entity's ability to provide, or the manner in which it provides, 
the Commission prompt access to its books and records or impacts the 
Commission's ability to inspect and examine the registered nonresident 
SBS Entity.
1. Definition of Nonresident SBS Entities
    Paragraph (a) of proposed Rule 15Fb2-4 would have defined the terms 
``nonresident security-based swap dealer'' and ``nonresident major 
security-based swap participant'' for purposes of Rule 15Fb2-4. Under 
this proposed definition, the term ``nonresident'' SBS Entity would 
have been defined to mean: in the case of an individual, one who 
resides, or has his or her principal place of business, ``in any place 
not in the United States;'' in the case of a corporation, one 
incorporated in or having its principal place of business ``in any 
place not in the United States;'' and in the case of a partnership or 
other unincorporated organization or association, one having its 
principal place of business ``outside the United States.'' The 
Commission received no comments on paragraph (a) of Rule 15Fb2-4, and 
is adopting these definitions as proposed with one technical change to 
make the language in the three sub-paragraphs (applicable to 
individuals, corporations, and partnerships) consistent.\127\
---------------------------------------------------------------------------

    \127\ As proposed, paragraphs (a)(1) and (a)(2) included the 
phrase ``not in the United States,'' while paragraph (a)(3) used the 
phrase ``outside the United States.'' We modified paragraph (a)(3) 
to track the phrase included in paragraphs (a)(1) and (a)(2), ``not 
in the United States.''
---------------------------------------------------------------------------

2. United States Agent for Service of Process
    Paragraphs (b)(1) and (2) of proposed Rule 15Fb2-4 would have 
required that each nonresident SBS Entity registered or registering 
with the Commission obtain a written irrevocable consent and power of 
attorney appointing an agent for service of process in the United 
States (other than the Commission or a Commission member, official or 
employee) upon whom may be served any process, pleadings, or other 
papers in any action brought against the nonresident SBS Entity, and 
furnish the Commission with the identity and address of its agent for 
services of process on Schedule F to Form SBSE, Form SBSE-A, or Form 
SBSE-BD, as applicable.\128\ Paragraph (b)(1) also would have required 
that the consent and power of attorney be signed by both the 
nonresident SBS Entity and the agent(s) for service of process. 
Paragraphs (b)(3) and (b)(4) of proposed Rule 15Fb2-4 would have 
required that registered nonresident SBS Entities promptly appoint a 
successor agent if it discharges its identified agent for service of 
process or if its agent for service of process is unwilling or unable 
to accept service on its behalf, and promptly inform the Commission, 
through an amendment of the Schedule F of Form SBSE, Form SBSE-A, or 
Form SBSE-BD, as appropriate, of any change to either its agent for 
service of process or the name or address of its existing agent for 
service of process. These requirements are important to facilitate the 
ability of the Commission and others (for example, the U.S. Department 
of Justice and any other agency with the power to enforce the Exchange 
Act) to serve process on a nonresident SBS Entity to enforce the 
Exchange Act. Finally, paragraph (b)(5) of proposed Rule 15Fb2-4 would 
have required that the registered nonresident SBS Entity maintain, as 
part of its books and records, the agreement identified in paragraph 
(b)(1) for at least three years after the agreement is terminated.
---------------------------------------------------------------------------

    \128\ Paragraphs (b)(1) and (b)(2) of proposed Rule 15Fb2-4, 
respectively.
---------------------------------------------------------------------------

    The Commission received no comments on paragraphs (b)(1) through

[[Page 48981]]

(b)(3) of Rule 15Fb2-4, and is adopting them as proposed. We are 
adopting paragraphs (b)(4) and (b)(5) with one modification to each to 
address the documentation of successor agents for service of process. 
First, we have modified paragraph (b)(4) to clarify that if a 
nonresident SBS Entity appoints a successor agent for service of 
process, it must follow the same process described in paragraph (b)(1). 
We also modified paragraph (b)(5) to require that SBS Entities preserve 
agreements obtained not only under paragraphs (b)(1), but also under 
paragraph (b)(4). While we originally intended that SBS Entities would 
use the same process when replacing an agent for service of process as 
they did when initially appointed an agent for service of process, we 
realize that the proposed rule text was unclear on this point.
3. Access to Books and Records, and Onsite Inspections and 
Examinations, of Nonresident SBS Entities
    The Commission proposed to require that each nonresident SBS Entity 
registering with the Commission certify on Schedule F of Form SBSE, 
Form SBSE-A, or Form SBSE-BD, as appropriate, that it can, as a matter 
of law, provide the Commission with prompt access to its books and 
records and can, as a matter of law, submit to onsite inspection and 
examination by the Commission.\129\ The proposal also would have 
required that this certification be supported by an opinion of counsel 
obtained by the nonresident SBS Entity.\130\
---------------------------------------------------------------------------

    \129\ See proposed Rule 15Fb2-4(c)(1)(i) and Schedule F.
    \130\ See proposed Rule 15Fb2-4(c)(1)(ii) and Schedule F.
---------------------------------------------------------------------------

    The Commission received three comments on these proposed 
requirements. Two commenters contended that the Commission should not 
require the opinion of counsel from foreign SBS Entities because many 
non-U.S. entities currently engaged in the SBS business in the U.S. 
will be legally prevented from registering as SBS Entities.\131\ One 
commenter expressed concern that requiring nonresident SBS Entities to 
provide an opinion of counsel and certify that they can provide the 
Commission with access to their records and submit to inspections could 
decrease market liquidity and cause market disruptions, and could 
introduce competitive disparities with respect to market access.\132\ 
The third commenter stated, in a section of its letter titled ``Direct 
access to Firm Records,'' that SBS Entities should not be required to 
certify or obtain an opinion of counsel because ``any need to access 
the books or records of [a European Union] firm or to carry-out onsite 
inspections of [European Union] firms, should be addressed through 
cooperation with the relevant national regulator, via supervisory 
cooperation and information sharing which are well established channels 
for cooperative oversight of firms that are internationally active.'' 
\133\
---------------------------------------------------------------------------

    \131\ See SIFMA Letter, at 9-10, and IIB Letter, at 19.
    \132\ See IIB Letter, at 19.
    \133\ See EC Letter at 3. We understand the term ``European 
Union firm'' to mean an SBS Entity who is located in, and subject to 
the regulations of, one of the European Union member states.
---------------------------------------------------------------------------

    While it is possible that nonresident SBS Entities in jurisdictions 
with legal barriers could be prevented from registering with the 
Commission because they are unable to comply with the certification 
requirement, these firms also could choose to restructure their 
respective businesses such that the registered entity can make the 
appropriate certification to allow it to register. In addition, this 
requirement is designed to decrease, rather than increase, competitive 
disparities between SBS Entities registered with the Commission with 
respect to their ability to provide access to records and submit to 
examinations because U.S. SBS Entities must provide access to records 
and are subject to our examinations.\134\ While we recognize that this 
requirement may be an issue for some prospective registrants, we 
believe that significant elements of an effective regulatory regime are 
the Commission's abilities to access registered SBS Entities' books and 
records and to inspect and examine the operations of registered SBS 
Entities.\135\ Some jurisdictions' laws may require regulators to 
redact certain information prior to providing the books and records to 
the SEC or withhold certain records altogether. Thus, if the Commission 
were to rely solely on information-sharing arrangements with foreign 
regulators, it could be unable to obtain complete copies of those 
records, which could compromise the Commission's ability to effectively 
supervise registered SBS Entities. Therefore, we continue to believe 
that the Commission must have assurances about access to those 
entities' records and the ability to inspect and examine them in order 
to effectively fulfill its regulatory oversight responsibilities with 
respect to SBS Entities registered with us.
---------------------------------------------------------------------------

    \134\ See, Exchange Act Sections 15F(f)(1)(C), 15F(j)(4)(B), and 
the Books and Records Proposing Release, which proposed Rule 18a-
6(d) and changes to Rule 17a-4.
    \135\ See, e.g., Dagong Global Credit Rating Agency, Exchange 
Act Release No. 62968 (Sept. 22, 2010) (denying application as an 
NRSRO due to applicant's inability to comply with U.S. securities 
laws, in part because records requests would have to be approved by 
a Chinese regulator); Dominick & Dominick, Inc., Exchange Act 
Release No. 29243 (May 29, 1991) (settled administrative proceeding 
involving a broker-dealer's failure to furnish promptly to the 
Commission copies of certain records required to be kept pursuant to 
Exchange Act Section 17(a)(1) and Rule 17a-3 thereunder where the 
broker-dealer initially asserted that Swiss law prevented it from 
producing the required records).
---------------------------------------------------------------------------

    Moreover, obtaining information through any third party raises the 
risk of delay in obtaining information needed to complete staff 
examinations. Delays in obtaining such information could compromise the 
ability of the Commission to supervise registered SBS Entities 
effectively, particularly in the case of SEC staff examinations 
initiated for cause. The Commission continues to believe that it must 
be able to access registered SBS Entity books and records and inspect 
and examine them without only going through a third party, such as a 
foreign regulator, to effectively fulfill its regulatory oversight 
responsibilities.
    The Commission's memoranda of understanding with foreign 
counterparts on supervisory cooperation matters (Supervisory MOUs) 
reflect the Commission's approach to access described above, and are 
intended to supplement, not replace the Commission's authority to 
obtain books and records from registrants and conduct onsite 
examinations without only going through a third party.\136\ In the 
Commission's view, supervisory cooperation complements the Commission's 
access to SEC registrants in the oversight context.\137\ Using various 
supervisory cooperation mechanisms, including Supervisory MOUs, SEC 
staff and our foreign counterparts regularly consult, cooperate, and 
exchange supervisory information on a confidential basis about 
regulated entities that operate

[[Page 48982]]

across borders, which assist staff with focusing their examinations and 
identifying potential risk areas at Commission registrants, among other 
things. Our Supervisory MOUs also discuss how the SEC and foreign 
regulators cooperate during onsite visits at these firms.
---------------------------------------------------------------------------

    \136\ The Commission's comprehensive supervisory MOUs generally 
contain the following paragraph: ``This MOU does not limit an 
Authority in taking solely those measures described herein in 
fulfillment of its supervisory functions. In particular, this MOU 
does not affect any right of any Authority to communicate with, 
conduct an On-Site Visit of (subject the procedures described in 
Article Four), or obtain information or documents from, any Person 
subject to its jurisdiction that is located in the territory of the 
other Authority.'' The Commission's Supervisory Cooperation MOUs can 
be accessed at: http://www.sec.gov/about/offices/oia/oia_cooparrangements.shtml#reg.
    \137\ See The International Organization of Securities 
Commission's (IOSCO) Final Report on Principles Regarding Cross-
Border Supervisory Cooperation at 15 (noting that ``[supervisory 
cooperation] is not a mechanism for altering regulatory obligations 
or limiting regulatory responsibility with respect to regulators 
that have regulated entities in common).''
---------------------------------------------------------------------------

    In light of the above, the Commission is adopting paragraph 
(c)(1)(ii) of Rule 15Fb2-4 as proposed, and is adopting paragraph 
(c)(1)(i) with one modification. As proposed, paragraph (c)(1)(i) would 
have required a nonresident SBS Entity to certify on Schedule F of Form 
SBSE, Form SBSE-A, or Form SBSE-BD, as appropriate, that it ``can as a 
matter of law'' provide the Commission with prompt access to its books 
and records and submit to onsite inspection and examination. As 
adopted, Rule 15Fb2-4(c)(1)(i) now requires the nonresident SBS Entity 
to certify that it ``can, as a matter of law, and will'' do those 
things.\138\ This change from the proposal is intended to make clear to 
a nonresident SBS Entity that it is making an affirmative commitment to 
comply with its obligation to provide the Commission with prompt access 
to its books and records.\139\
---------------------------------------------------------------------------

    \138\ Failure to make this certification or provide an opinion 
of counsel would constitute a basis for the Commission to deny an 
application for registration.
    \139\ In accordance with Rule 15Fb1-1(b), as adopted, the SBS 
Entity will need to maintain a manually signed copy of this 
certification as part of its books and records until at least three 
years after the certification has been replaced or is no longer 
effective. See infra, Section II.F for a discussion of Rule 15Fb1-1.
---------------------------------------------------------------------------

    Paragraph (c)(2) of proposed Rule 15Fb2-4 would have required that 
registered nonresident SBS Entities re-certify, on Schedule F to Form 
SBSE, Form SBSE-A, or Form SBSE-BD, as applicable, within 90 days after 
any changes in the legal or regulatory framework that would impact the 
nonresident SBS Entity's ability to provide, or the manner in which it 
provides, the Commission prompt access to its books and records or 
impacts the Commission's ability to inspect and examine the nonresident 
SBS Entity. The re-certification would have been required to include a 
revised opinion of counsel describing how, as a matter of law, the 
entity will continue to meet its obligations to provide the Commission 
with prompt access to its books and records and to be subject to 
Commission inspection and examination under the new regulatory regime. 
The Commission did not receive any comments on this requirement. We are 
adopting this provision as proposed. The Commission emphasizes that if 
a registered nonresident SBS Entity becomes unable to comply with this 
certification because of such changes, or otherwise, then this may be a 
basis for the Commission to institute proceedings to consider revoking 
the nonresident SBS Entity's registration.

E. Special Situations

1. Succession: Rule 15Fb2-5
    The Commission proposed Rule 15Fb2-5 to provide a process through 
which an SBS Entity could succeed to the business of another SBS 
Entity.\140\ As proposed, Rule 15Fb2-5(a) would have provided that, if 
an SBS Entity succeeds to and continues the business of another SBS 
Entity, the registration of the predecessor SBS Entity would remain 
effective as the registration of the successor if the successor files 
an application for registration in accordance with Rule 15Fb2-1 within 
30 days after such succession, and the predecessor files a notice of 
withdrawal from registration on Form SBSE-W. Paragraph (b) of proposed 
Rule 15Fb2-5 would have provided that a successor firm that succeeds to 
the business of another, where the ownership or control of the SBS 
Entity does not change (e.g., where the firm is changing its date or 
state of incorporation, form of organization, or the composition of a 
partnership), may simply amend the registration of the predecessor SBS 
Entity on Form SBSE, Form SBSE-A, or Form SBSE-BD, as appropriate, 
within 30 days after the change. The Commission received no comments on 
this proposed rule, and is adopting it as proposed.
---------------------------------------------------------------------------

    \140\ The proposed rule was based on Exchange Act Rule 15b1-3, 
which is applicable to registered brokers and dealers and 
facilitates succession of registrants (see Registration Proposing 
Release, at footnote 72). Consistent with the use of the term in 
connection with broker-dealer registration, the term ``succession'' 
means that a successor firm acquires or assumes substantially all of 
the assets and liabilities of the predecessor firm. Registration of 
Successors to Broker-Dealers and Investment Advisers, Exchange Act 
Release No. 31661 (Dec. 28, 1992) (58 FR 7 (Jan. 4, 1993)).
---------------------------------------------------------------------------

2. Insolvency: Rule 15Fb2-6
    The Commission proposed Rule 15Fb2-6 to provide a process through 
which an executor, administrator, guardian, conservator, assignee for 
the benefit of creditors, receiver, trustee in insolvency or bankruptcy 
or other fiduciary appointed or qualified by order, judgment or decree 
of a court of competent jurisdiction could continue the business of an 
SBS Entity.\141\ Specifically, proposed Rule 15Fb2-6 would have 
provided that the registration of the SBS Entity shall be deemed to be 
the registration of the appointed fiduciary to continue the business of 
the registered SBS Entity; provided that the fiduciary filed with the 
Commission, within 30 days after entering upon the performance of his 
or her duties, an amended Form SBSE, Form SBSE-A, or Form SBSE-BD, as 
appropriate, indicating the fiduciary's position with respect to 
management of the SBS Entity, along with a copy of the order, judgment, 
decree, or other document appointing the fiduciary. The Commission 
believes it is important to provide a fiduciary with time to close-out 
positions and/or wind down an SBS Entity's business. The Commission 
received no comments on this proposed rule, and is adopting it as 
proposed.
---------------------------------------------------------------------------

    \141\ The proposed rule was based on Exchange Act Rule 15b1-4, 
which applies to broker-dealer registrations. Rule 15b1-4 allows 
fiduciaries to wind-up broker-dealer businesses without the need to 
separately register as a broker-dealer (see Registration Proposing 
Release, at footnote 74).
---------------------------------------------------------------------------

F. Electronic Signatures

    The Commission proposed Rule 15Fb1-1 to establish requirements 
regarding electronically submitted forms and certifications that 
contain signatures. Proposed paragraph (a) of Rule 15Fb1-1 would have 
specified the format required for signatures to, or within, electronic 
submissions (including signatures within the forms and certifications 
required by proposed Rules 15Fb2-1, 15Fb2-4 and 15Fb6-2, discussed 
above).\142\ Specifically,

[[Page 48983]]

proposed paragraph (a) of Rule 15Fb1-1 would have required that 
required signatures in electronic submissions be in typed form rather 
than manual format. In addition, that paragraph would have specified 
that signatures in an HTML, XML or XBRL document that are not required 
may, but are not required to, be presented in a graphic or image file 
within the electronic filing. Further, proposed paragraph (a) of Rule 
15Fb1-1 would have specified that when used in connection with an 
electronic filing, the term ``signature'' meant an electronic entry in 
the form of a magnetic impulse or other form of computer data 
compilation of any letters or series of letters of characters 
comprising a name, executed, adopted or authorized as a signature.
---------------------------------------------------------------------------

    \142\ This rule is based on Section 302 of Regulation S-T [17 
CFR 232.302] and is designed to require standard formatting of 
electronic signatures and provide the Commission with the ability to 
obtain additional documents to verify those signatures. Paragraph 
(a) of Section 302 generally requires that required signatures to, 
or within, any electronic submission (as specified) must be in typed 
form rather than manual format; signatures in an HTML document that 
are not required may, but are not required to, be presented in an 
HTML graphic or image file within the electronic filing, in 
compliance with the formatting requirements of the EDGAR Filer 
Manual; when used in connection with an electronic filing, the term 
``signature'' means an electronic entry in the form of a magnetic 
impulse or other form of computer data compilation of any letters or 
series of letters or characters comprising a name, executed, adopted 
or authorized as a signature; and signatures are not required in 
unofficial PDF copies submitted in accordance with Sec.  232.104. 
Paragraph (b) of Section 302 requires that each signatory to an 
electronic filing (as specified) shall manually sign a signature 
page or other document authenticating, acknowledging or otherwise 
adopting his or her signature that appears in typed form within the 
electronic filing; that such document shall be executed before or at 
the time the electronic filing is made and shall be retained by the 
filer for a period of five years; that, upon request, an electronic 
filer shall furnish to the Commission or its staff a copy of any or 
all documents retained pursuant to this section. Finally, paragraph 
(c) of Section 302 states that where the Commission's rules require 
a registrant to furnish to a national securities exchange or 
national securities association paper copies of a document filed 
with the Commission in electronic format, signatures to such paper 
copies may be in typed form.
---------------------------------------------------------------------------

    In addition, proposed paragraph (b) of Rule 15Fb1-1 would have 
required that each signatory to such an electronic filing manually sign 
a signature page or other document authenticating, acknowledging or 
otherwise adopting his or her signature that appeared in typed form 
within the electronic filing either before or at the time the 
electronic filing is made. Proposed paragraph (b) also would have 
required that the SBS Entity create the manually signed document when 
the electronic form is submitted, and furnish a copy of that document 
to the Commission upon request. Proposed paragraph (c) of Rule 15Fb1-1 
would have prohibited a person required to provide a signature on an 
electronic submission from having another person sign the form or 
certification on his or her behalf pursuant to a power of attorney or 
other form of confirming authority.\143\ Finally, proposed paragraph 
(d) would have required that the SBS Entity retain the manually signed 
document associated with Schedules F and G of Forms SBSE, SBSE-A, or 
SBSE-BD, as appropriate, until at least three years after the form or 
certification has been replaced or is no longer effective.
---------------------------------------------------------------------------

    \143\ Paragraph (c) of Rule 15Fb1-1 is based on paragraph (c) of 
Exchange Act Rule 15d-14, which states, ``[a] person required to 
provide a certification specified in paragraph (a), [. . .] may not 
have the certification signed on his or her behalf pursuant to a 
power of attorney or other form of confirming authority.''
---------------------------------------------------------------------------

    The Commission received no comments on proposed Rule 15Fb1-1. The 
Commission believes that these provisions are necessary to assure that 
persons signing certifications can be held responsible for their 
statements. We therefore are adopting Rule 15Fb1-1 substantially as 
proposed, but with a modification in paragraph (a) to eliminate 
reference to conditional registration and to change the phrase ``series 
of letters of characters'' to ``series of letters or characters'' to 
correct this typographical error.

G. Forms

1. Form SBSE
    As proposed, Form SBSE was generally based on Form BD (the 
consolidated Form used by broker-dealers to register with the 
Commission, states and SROs), as modified to recognize differences 
between the broker-dealer and security-based swap businesses. We 
explained in the Registration Proposing Release that using Form BD as a 
template for the registration of SBS Entities would be logical and 
efficient because Form BD has been used to gather and organize 
information concerning applicants' business operations to facilitate 
registration decisions, as well as ongoing examination and monitoring 
of registrations, and SBS Entities will be subject to many requirements 
similar to those that affect broker-dealers.\144\
---------------------------------------------------------------------------

    \144\ Registration Proposing Release, at 65802.
---------------------------------------------------------------------------

    The Commission re-proposed Form SBSE in the Cross-Border Proposing 
Release to add three questions and to add a new instruction to clarify 
that if an application is not filed properly or completely, it may be 
delayed or rejected.\145\ Two of the new questions were designed to 
elicit information with respect to substituted compliance. The other 
requested information on whether potential applicants are registered 
with or subject to the jurisdiction of a foreign financial regulatory 
authority, which would provide the Commission with information 
regarding other regulatory schemes that may be applicable to an 
applicant. In addition, the re-proposal modified proposed Schedule F to 
provide applicants with additional space to provide information on 
foreign regulators with which they may be registered or that otherwise 
have jurisdiction over them.
---------------------------------------------------------------------------

    \145\ Cross-Border Proposing Release, at 31027-8 and 31224-77.
---------------------------------------------------------------------------

    The Commission requested comment on all aspects of Form SBSE in the 
Registration Proposing Release and in the Cross-Border Proposing 
Release. The Commission received one comments on proposed Form 
SBSE.\146\ The commenter contended that several of the required 
disclosures on proposed Form SBSE, including the disclosure of 
disciplinary matters affecting control affiliates, appear to impose 
significant burdens on registrants.\147\
---------------------------------------------------------------------------

    \146\ See SIFMA Letter, at page 4.
    \147\ Id.
---------------------------------------------------------------------------

    The Commission believes that the information proposed to be 
disclosed on Form SBSE, including the disclosure of disciplinary 
matters affecting control affiliates, is necessary and appropriate for 
it to be able to effectively carry out its responsibilities with 
respect to registration and on-going oversight of SBS Entities. While 
we recognize that there may be costs involved in collecting and 
providing this information, we have tailored these forms to minimize 
costs for applicants by providing shorter forms for applicants already 
registered or registering with the Commission as broker-dealers and 
applicants already registered or registering with the CFTC as swap 
dealers or major swap participants so that they are not required to 
submit duplicative information. The information provided through those 
disclosure reporting pages on the applicant and its control affiliates 
will help the Commission identify potential risks to the applicant, the 
markets, and investors, and determine whether the Commission should 
grant registration.\148\ The information also will be used by 
examination staff to help understand potential risks on a going forward 
basis and to assist in determining which firms should be examined.
---------------------------------------------------------------------------

    \148\ Pursuant to Rule 15Fb2-1(e), the Commission will grant 
ongoing registration if it finds that the requirements of Exchange 
Act Section 15F(b) are satisfied, but may institute proceedings to 
determine whether ongoing registration should be denied if it does 
not make such finding or if the applicant is subject to a statutory 
disqualification (as described in Sections 3(a)(39)(A) through (F) 
of the Exchange Act), or the Commission is aware of inaccurate 
statements in the application or certification.
---------------------------------------------------------------------------

    An applicant's control affiliates are persons it controls, who 
control it, or who are under common control with it, and thus are in a 
unique position to impact the applicant's operations. To the extent a 
control affiliate controls the applicant, it is in a unique position to 
affect the applicant's ability to comply with applicable regulations, 
and a disciplinary proceeding could reflect issues shared by the 
applicant. To the extent a control affiliate is under the applicant's 
control, if it is subject to a disciplinary proceeding it may provide 
insights into issues also present at the applicant, and could have a 
financial impact on the applicant.\149\ Further, the

[[Page 48984]]

types of disclosures required by the Forms are generally limited to 
significant actions (e.g., relating to felonies, whether the applicant 
or a control affiliate has been found to have made a false statement or 
omission or violated applicable regulations, or whether the applicant 
or a control affiliate has been suspended from engaging in an 
investment-related business). It is important for us to be aware of 
these issues not just at registration, but also on an ongoing basis to 
inform our oversight of registered SBS Entities. Given this we believe 
it is important for SBS Entities to include this information when they 
register and on a going forward basis (i.e., by amending their 
application), so that we can fully consider the firm's disciplinary 
history and how the disciplinary history of its control affiliates may 
impact its ability to comply with our regulations.
---------------------------------------------------------------------------

    \149\ For instance, a disciplinary proceeding against an 
applicant's subsidiary relating to lax internal controls, while not 
conclusively indicative of problems at the applicant, could indicate 
the applicant may need to review and strengthen its own internal 
controls. Similarly, if a disciplinary proceeding against an 
affiliated entity under common control highlights supervisory 
issues, it could indicate that the organization more generally--
including the applicant--may need to strengthen the supervisory 
structure.
---------------------------------------------------------------------------

    The Commission is adopting Form SBSE, substantially as re-proposed, 
but modified as follows. First, we added text throughout the Form to 
elicit information regarding unique identification codes (or ``UICs''), 
which the applicant or its control affiliates might have, as well as a 
definition for UICs.\150\ We included UICs in Regulation SBSR,\151\ and 
believe it is appropriate to collect this information, to the extent 
such persons have been assigned UICs, in Form SBSE for use by the staff 
and the public. Second, we have made a technical change to provide 
additional clarification of applicable law. In particular, the re-
proposed Form stated ``intentional misstatements or omissions of facts 
may constitute criminal violations.'' We have modified this statement 
to clarify that intentional misstatements or omissions of fact when 
filing information with the Commission may constitute a federal 
criminal violation under 18 U.S.C. 1001 and 15 U.S.C. 78ff(a).\152\
---------------------------------------------------------------------------

    \150\ The definition reads, ``For purposes of Form SBSE, the 
term ``unique identification code'' or ``UIC'' means a unique 
identification code assigned to a person by an internationally 
recognized standards-setting system that is recognized by the 
Commission [pursuant to Rule 903(a) of Regulation SBSR (17 CFR 
242.903(a))].'' In the SBSR Adopting Release, the Commission 
recognized the Global LEI System as meeting the criteria specified 
in Rule 903. We also made this change to Forms SBSE-A and SBSE-BD.
    \151\ Regulation SBSR--Reporting and Dissemination of Security-
Based Swap Information, Exchange Act Release No. 74244, (Feb. 11, 
2015), 80 FR 14564 (Mar. 19, 2015) (the ``Regulation SBSR Adopting 
Release''). In particular, see Rule 901(qq) and Rule 903(a).
    \152\ The addition of the citations to 18 U.S.C. 1001 and 15 
U.S.C. 78ff(a) are designed to clarify which federal criminal 
statute would be violated. We made the same modification to all of 
the Forms as adopted.
---------------------------------------------------------------------------

    Thus, as adopted, Form SBSE requires an applicant to provide 
certain general corporate and contact information.\153\ Further, the 
applicant must identify whether it is applying to register as an SBS 
Dealer or Major SBS Participant and whether it is succeeding to the 
business of another SBS Entity,\154\ and must briefly describe its 
business.\155\ In addition, the applicant must provide information 
regarding other regulators with which it may already be registered, 
including foreign regulators.\156\ The Form also requires that the 
applicant provide information as to whether any other person, firm or 
organization will hold its books and records or execute, trade, 
custody, clear or settle on behalf of the applicant.\157\ In addition, 
Form SBSE requires that the applicant indicate whether it intends to 
hold or maintain any funds or securities to collateralize counterparty 
transactions.\158\ Form SBSE also elicits information regarding whether 
the applicant intends to compute capital or margin, or price customer 
or proprietary positions, using mathematical models and whether the 
applicant is subject to regulation by a prudential regulator.\159\ The 
applicant also must provide information regarding whether it intends to 
work with the Commission and its primary regulator to have the 
Commission determine whether the requirements of its primary 
regulator's regulatory system are comparable to the Commission's or 
avail itself of a previously granted substituted compliance 
determination.\160\ The applicant also must provide information 
regarding the identity of persons who directly or indirectly control, 
are controlled by, or are under common control with the applicant and 
whether those persons are in the securities, investment advisory, or 
banking business.\161\ Finally, Form SBSE requires that the applicant 
provide information regarding certain criminal, regulatory, civil 
judicial, and financial actions taken against the applicant and its 
control affiliates.\162\ Form SBSE must be signed by the applicant.
---------------------------------------------------------------------------

    \153\ Specifically, Form SBSE requires the following: The 
applicant's name, address, tax identification number, phone number, 
other names the business might be known as, a mailing address if it 
differs from the main address, the firm's Web site address, and the 
identity and contact information for the SBS Entity's contact person 
and CCO. See Form SBSE, Item 1. In addition, Form SBSE requires an 
applicant to provide its location and date of origin, its type of 
organization (e.g., corporation, partnership, limited liability 
company), the month of its fiscal year end, and whether it is a U.S. 
branch of a nonresident entity. See Form SBSE, Items 6 and 8.
    \154\ See Form SBSE, Items 2 and 9 and Schedule D.
    \155\ See Form SBSE, Item 7.
    \156\ See Form SBSE, Items 15, 16, and 17, and Schedules D and 
F.
    \157\ See Form SBSE, Item 11 and Schedule D.
    \158\ See Form SBSE, Item 10.
    \159\ See Form SBSE, Items 4 and 5.
    \160\ See Form SBSE, Item 3.
    \161\ See Form SBSE, Items 12 and 13, and Schedules A, B, and D.
    \162\ See Form SBSE, Item 14. For each ``Yes'' answer to one of 
the sub-parts of Item 14, the applicant must also file a 
corresponding disclosure reporting page (or ``DRP'')) to provide 
additional information.
---------------------------------------------------------------------------

    Form SBSE also contains Schedules A, B, C, D, and F. Schedules A 
and B to Form SBSE are used to elicit more specific information on the 
applicant's direct and indirect owners. Schedule D to Form SBSE 
furnishes space for the applicant to provide additional information 
regarding its responses to certain questions in the Form.\163\ Schedule 
F to Form SBSE provides nonresident applicants with a standard manner 
to provide the required certification regarding access, and also 
elicits information regarding the applicant's agent for service of 
process and the foreign regulators with which the applicant may be 
registered, as required by Rule 15Fb2-4. As described more fully above 
in Section II.1. regarding Associated Persons, we also added new 
Schedule C to Form SBSE to elicit information regarding non-natural 
associated persons subject to statutory disqualification that the SBS 
Entity permits to effect or be involved in effecting security-based 
swaps on its behalf under the Rule 15Fb6-1 exclusion.\164\
---------------------------------------------------------------------------

    \163\ See Items 1.C.2, 9, 11, 12, 13, 15, and 16 of Form SBSE.
    \164\ Schedule C was also added to Forms SBSE-A and SBSE-BD.
---------------------------------------------------------------------------

    The Commission intends to use the information disclosed by 
applicants in Form SBSE (including the Schedules and DRPs), along with 
the certifications in Form SBSE-C, to determine whether to grant 
registration or institute proceedings to determine whether to deny 
registration. In addition, this information will assist the Commission 
in its ongoing oversight of an SBS Entity, for example by assisting 
representatives of the Commission in the preparation for examination of 
an SBS Entity, or more broadly to monitor risks specific to a firm or 
to the market more generally or to assess trends across firms.

[[Page 48985]]

2. Form SBSE-A
    The Commission proposed Form SBSE-A to allow applicants that are 
not registered with the Commission as broker-dealers, but that are 
registered or registering with the CFTC as either a swap dealer or 
major swap participant, to use a shorter registration form to file 
their application for registration with the Commission.\165\ Form SBSE-
A was designed to make it easier for dual applicants to file with both 
agencies.\166\ An applicant filing with the Commission on Form SBSE-A 
would also need to provide the Commission with a copy of the form it 
files with NFA to register as a swap dealer or major swap 
participant.\167\ Form SBSE-A was designed to provide the Commission 
with data generally not included on the forms the applicant must file 
with the CFTC that the Commission will need to adequately review an 
application for registration.\168\ As discussed in the Registration 
Proposing Release, while some information elicited via Form SBSE-A also 
may be elicited by the CFTC's form (e.g., the applicant's name, 
address, and phone number), the Commission stated that it is necessary 
for the Commission to receive this information directly to allow the 
Commission to match the Form SBSE-A with the CFTC Form and to 
coordinate the information elicited through Form SBSE-A with other 
information the Commission may have on the applicant.\169\ The 
Commission further stated that it believed that allowing these 
applicants to use Form SBSE-A, rather than Form SBSE, should reduce the 
costs and burdens associated with filing distinctly different forms to 
register with both the Commission and CFTC.\170\
---------------------------------------------------------------------------

    \165\ See Registration Proposing Release, at 65804.
    \166\ Id.
    \167\ In the CFTC Final Registration Rules, the CFTC amended 
Rule 3.10(a) to require that swap dealers and major swap 
participants register by filing Form 7-R with the NFA. Swap dealers 
and major swap participant applicants must include with their Form 
7-R any necessary Forms 8-R. See Registration of Swap Dealers and 
Major Swap Participants, 77 FR 2613 (Jan. 19, 2012). See also supra, 
footnote 7.
    \168\ See Registration Proposing Release, at 65804. We believe 
the information elicited by Forms SBSE-A, along with information 
included on the Form 7-R the applicant is required to provide, will 
provide us with substantially the same information as what is 
elicited by Form SBSE.
    \169\ Id.
    \170\ Id.
---------------------------------------------------------------------------

    The Commission re-proposed Form SBSE-A in the Cross-Border 
Proposing Release to make changes similar to those made to Form SBSE--
to add the same instruction and to add three questions to Form SBSE, 
and to modify Schedule F in the same manner.\171\ As discussed above in 
Section II.G.2, the new instruction was designed to clarify that if an 
application is not filed properly or completely, it may be delayed or 
rejected. Two of the new questions were designed to elicit information 
with respect to substituted compliance. The third requests information 
on whether the applicant is registered with or subject to the 
jurisdiction of a foreign financial regulatory authority, which would 
provide the Commission with information regarding other regulatory 
schemes that may be applicable to an applicant. Finally, the re-
proposal modified Schedule F to provide applicants with additional 
space to provide information on foreign regulators with which they may 
be registered or that otherwise have jurisdiction over them.
---------------------------------------------------------------------------

    \171\ Cross-Border Proposing Release, at 31027-28 and 31224-77.
---------------------------------------------------------------------------

    The Commission requested comment on all aspects of Form SBSE-A in 
the Registration Proposing Release and the Cross-Border Proposing 
Release. While the Commission received no comments on Form SBSE-A, we 
did receive one comment on Form SBSE that could also be applicable to 
Form SBSE-A.\172\ Specifically, the commenter contended that several of 
the required disclosures on proposed Form SBSE, including the 
disclosure of disciplinary matters affecting control affiliates, appear 
to impose significant burdens on registrants.\173\ As discussed in more 
detail in Section II.G.1 above, the Commission believes that the 
information proposed to be disclosed on these Forms, including the 
disclosure of disciplinary matters affecting control affiliates, is 
necessary and appropriate for it to be able to effectively carry out 
its responsibilities with respect to registration and on-going 
oversight of SBS Entities.
---------------------------------------------------------------------------

    \172\ See SIFMA Letter at 4.
    \173\ Id.
---------------------------------------------------------------------------

    The Commission is adopting Form SBSE-A, substantially as re-
proposed, with the same modifications made to the Form SBSE.\174\ We 
also added text to clarify that the Form 7-R the applicant provides 
must be legible.
---------------------------------------------------------------------------

    \174\ See supra, footnotes 150 (regarding UICs), 152 (regarding 
material misstatements and omissions), and 164 (regarding Schedule 
C).
---------------------------------------------------------------------------

    Thus, as adopted, Form SBSE-A requires an applicant to provide 
certain general corporate and contact information.\175\ In addition, 
Form SBSE-A elicits information as to whether the applicant is 
succeeding to the business of a currently registered SBS Entity.\176\ 
Form SBSE-A also requires an applicant to indicate whether it is a U.S. 
branch of a nonresident entity.\177\ Further, the applicant must 
identify whether it is applying to register as an SBS Dealer or Major 
SBS Participant, and briefly describe its business.\178\ The applicant 
also must provide information regarding other regulators with which it 
may already be registered, including foreign regulators, and whether it 
engages in any other non-securities, financial services industry-
related business.\179\ The Form also requires that the applicant 
provide information as to whether any other person, firm or 
organization will hold its books and records or execute, trade, 
custody, clear or settle on behalf of the applicant.\180\ Form SBSE-A 
also elicits information regarding whether the applicant intends to 
compute capital or margin, or price customer or proprietary positions, 
using mathematical models, and whether it intends to hold or maintain 
any funds or securities to collateralize counterparty 
transactions.\181\ In addition, the applicant must provide information 
regarding the identity of persons who directly or indirectly control, 
are controlled by, or are under common control with the applicant and 
whether those persons are in the securities, investment advisory, or 
banking business, as well as information on the applicant's 
principals.\182\ The applicant also must provide information regarding 
whether it intends to work with the Commission and its primary 
regulator to have the Commission determine whether the requirements of 
its primary regulator's regulatory system are comparable to the 
Commission's or avail itself of a previously granted

[[Page 48986]]

substituted compliance determination.\183\ Form SBSE-A must be signed 
by the applicant.
---------------------------------------------------------------------------

    \175\ Specifically, Form SBSE requires the following: The 
applicant's name, address, tax identification number, phone number, 
other names the business might be known as, a mailing address if it 
differs from the main address, the firm's Web site address, and the 
identity and contact information for the SBS Entity's contact person 
and CCO. See Form SBSE-A, Item 1.
    \176\ See Form SBSE-A, Item 16.
    \177\ See Form SBSE-A, Item 6.
    \178\ See Form SBSE-A, Items 2 and 7.
    \179\ See Form SBSE-A, Items 5, 8, 9, 10, 11 and 17, and 
Schedule F.
    \180\ See Form SBSE-A, Item 13 and Schedule B.
    \181\ See Form SBSE-A, Items 4 and 12.
    \182\ See Form SBSE-A, Items 14 and 15, and Schedule B, and 
Items 18 and 19 and Schedules A and B. Schedule A identifies all 
principals who are individuals (i.e., natural persons). Item 19 
requests that the applicant identify, on Section IV of Schedule B, 
all principals who are not individuals. As the CFTC does not require 
principals that are not natural persons provide information on past 
regulatory actions, Schedule B indicates that the applicant must 
complete Schedule D of the Form SBSE-A and the relevant DRP pages 
for all persons identified in Section IV. This will assure that the 
Commission has similar information to consider when reviewing Forms 
SBSE-A as is available when they review Forms SBSE and SBSE-BD.
    \183\ See Form SBSE-A, Item 3.
---------------------------------------------------------------------------

    Form SBSE-A also contains Schedules A, B, C, D, and F. Schedules A, 
B, and D differ slightly from those attached to Form SBSE. Schedule A 
to Form SBSE-A furnishes space for an applicant to list all of its 
principals that are individuals. Schedule B to Form SBSE-A furnishes 
space for the applicant to provide additional information regarding its 
responses to certain questions in the Form. Schedule D to Form SBSE-A, 
which applicants must complete for each principal identified in Section 
IV of Schedule B, requires that the applicant provide information 
regarding certain criminal, regulatory, civil judicial, and financial 
actions taken against each identified principal that is not an 
individual/natural person.\184\ As with Form SBSE, Schedule C elicits 
information regarding non-natural associated persons subject to 
statutory disqualification that the SBS Entity permits to effect or be 
involved in effecting security-based swaps on its behalf under the Rule 
15Fb6-1 exclusion, and Schedule F provides nonresident applicants with 
a place to provide the required certification regarding access, and 
elicits information regarding the applicant's agent for service of 
process and the foreign regulators with which the applicant may be 
registered, as required by Rule 15Fb2-4.
---------------------------------------------------------------------------

    \184\ See Form SBSE-A, Schedule D. For each ``Yes'' answer to 
one of the questions in Schedule D, the applicant must also file a 
corresponding DRP to provide additional information.
---------------------------------------------------------------------------

    The Commission intends to use the information disclosed by 
applicants in Form SBSE-A (including the Schedules and DRPs), together 
with the information disclosed on CFTC Form 7-R and the certifications 
in Form SBSE-C, to determine whether to grant registration or institute 
proceedings to determine whether to deny registration. In addition, 
this information will assist the Commission in its ongoing oversight of 
an SBS Entity, for example by assisting representatives of the 
Commission in the preparation for examination of an SBS Entity, or more 
broadly to monitor risks specific to a firm or to the market more 
generally or to assess trends across firms.
3. Form SBSE-BD
    Similar to the Form SBSE-A, the Commission proposed that applicants 
also registered or registering with the Commission as broker-dealers 
file their application for registration on an alternative to Form SBSE, 
or Form SBSE-BD.\185\ Form SBSE-BD was based on Form BD, but is 
designed to provide the Commission with data not included on the Form 
BD (to which the Commission already has access).\186\ The Commission 
stated its belief that requiring that these applicants use Form SBSE-BD 
should reduce the costs and burdens on applicants that are already 
registered or registering with the Commission as broker-dealers.\187\
---------------------------------------------------------------------------

    \185\ Registration Proposing Release, at 65805.
    \186\ Id. The information elicited by Forms SBSE-BD, along with 
information included on the applicant's Form BD, will provide us 
with substantially the same information as what is elicited by Form 
SBSE.
    \187\ Id.
---------------------------------------------------------------------------

    The Commission re-proposed Form SBSE-BD in the Cross-Border 
Proposing Release to add the same instructions as were proposed to be 
added to Forms SBSE and SBSE-A, to add the same question proposed to be 
added to Forms SBSE and SBSE-A that requests information on whether the 
applicant is registered with or subject to the jurisdiction of a 
foreign financial regulatory authority, and to modify Schedule F to 
provide applicants with additional space to provide information on 
foreign regulators with which they may be registered or that otherwise 
have jurisdiction over them.\188\ We did not propose to add the other 
two questions relating to substituted compliance because the Commission 
proposed that it would not grant any substituted compliance relief for 
a registered broker-dealer.\189\
---------------------------------------------------------------------------

    \188\ Cross-Border Proposing Release, at 31027-28.
    \189\ Id. at 31028 n.587.
---------------------------------------------------------------------------

    The Commission requested comment on all aspects of Form SBSE-BD in 
the Registration Proposing Release and in the Cross-Border Proposing 
Release. The Commission received one comment on proposed Form SBSE-
BD.\190\ This commenter highlighted the fact that the forms, as 
proposed and re-proposed, fail to recognize that a registered OTC 
derivatives dealer may also apply for registration as an SBS 
Entity.\191\ As OTC derivatives dealers must file Form BD with the 
Commission to register as an OTC derivatives dealer,\192\ we believe it 
is appropriate to permit these entities to file Form SBSE-BD, rather 
than Form SBSE. We have added new Item 5 to Form SBSE-BD to ask whether 
an applicant is already registered with the Commission as an OTC 
derivatives dealer so that the Commission can be made aware of, and 
consider, this information when making a determination regarding 
whether to grant registration.
---------------------------------------------------------------------------

    \190\ See Nomura Letter.
    \191\ This commenter states, ``NGFP suggests that the Commission 
contemplate dually-registered OTC DD/SBSD entities by making 
conforming changes to the registration form to reflect a 
registrant's status as an OTC DD (as opposed to only considering a 
full purpose broker-dealer/SBSD).'' See Nomura Letter, at 2.
    \192\ See Rule 15b1-1(a).
---------------------------------------------------------------------------

    The Commission is adopting Form SBSE-BD, substantially as re-
proposed, with three modifications. First, as highlighted above, we 
added new Item 5 to Form SBSE-BD to ask whether an applicant is already 
registered with the Commission as an OTC derivatives dealer to address 
an issue raised by a commenter. In addition, we made the same 
modifications made to the Form SBSE.\193\ Thus, as adopted, Form SBSE-
BD requires an applicant to provide certain general corporate and 
contact information.\194\ Further, the applicant must identify whether 
it is applying to register as an SBS Dealer or Major SBS Participant, 
and briefly describe its business.\195\ Further, the applicant must 
provide information regarding whether it is registered, or registering, 
with the CFTC as a swap dealer or major swap participant, and whether 
it is registered with a foreign financial regulatory authority.\196\ 
The applicant also must provide information regarding whether it is 
subject to regulation by a prudential regulator (as defined in 3(a)(39) 
of the CEA).\197\ Form SBSE-BD must be signed by the applicant. Form 
SBSE-BD also contains the same Schedules C and F as are included with 
Forms SBSE and SBSE-A, and are described above in Section II.G.1.
---------------------------------------------------------------------------

    \193\ See supra, footnotes 152 (regarding UICs), 152 (regarding 
material misstatements and omissions), and 164 (regarding Schedule 
C).
    \194\ Specifically, Form SBSE requires the following: the 
applicant's name, central registration depository number, the firm's 
Web site address, and the identity and contact information for the 
SBS Entity's contact person and CCO. See Form SBSE-BD, Item 1.
    \195\ See Form SBSE-BD, Items 2 and 6.
    \196\ See Form SBSE-BD, Items 3 and 7, and Schedule F.
    \197\ See Form SBSE-BD, Item 4.
---------------------------------------------------------------------------

    The Commission intends to use the information disclosed by 
applicants in Form SBSE-BD, together with the information disclosed in 
Form BD and the certifications in Form SBSE-C, to determine whether to 
grant registration or institute proceedings to determine whether to 
deny registration. In addition, this information will assist the 
Commission in its ongoing oversight of an SBS Entity, for example by 
assisting representatives of the Commission in the preparation for 
examination of an SBS Entity, or more broadly to monitor risks specific 
to a firm or to the market more generally or to assess trends across 
firms.

[[Page 48987]]

4. Form SBSE-C
    The Commission proposed Form SBSE-C to provide SBS Entities with a 
standard format and process through which to file the Senior Officer 
Certification required pursuant to proposed Rule 15Fb2-1(b), and all 
SBS Entities would have been required to file Form SBSE-C to be 
considered for ongoing registration.\198\ As proposed, Form SBSE-C 
would have included instructions both requiring electronic submission 
and explaining how the form should be filed electronically, and would 
have included the applicant's name, date, and SEC number, along with 
the signature, name and title of the senior officer signing the 
certification.\199\
---------------------------------------------------------------------------

    \198\ See Registration Proposing Release, at 65805.
    \199\ Id.
---------------------------------------------------------------------------

    We are adopting Form SBSE-C as proposed, but with 
modifications.\200\ First, we amended the Form to reflect the changes 
to the Senior Officer Certification discussed above.\201\ The 
certification now requires that a senior officer of the applicant 
certify that, after due inquiry, he or she has reasonably determined 
that the SBS Entity has developed and implemented written policies and 
procedures reasonably designed to prevent violation of the federal 
securities laws and the rules thereunder, and that he or she has 
documented the process by which he or she reached such determination.
---------------------------------------------------------------------------

    \200\ We also made a technical change to add the same text 
included in the other Forms to inform applicants that intentional 
misstatements or omissions of fact when filing information with the 
Commission may constitute a federal criminal violation under 18 
U.S.C. 1001 and 15 U.S.C. 78ff(a). See supra, footnote 152.
    \201\ See supra, Section II.A.1.ii.
---------------------------------------------------------------------------

    We also have moved the CCO Certification Regarding Associated 
Persons, which previously was included in Schedule G to Forms SBSE, 
SBSE-A, and SBSE-BD, into Form SBSE-C.\202\ Rule 15Fb2-3 as adopted 
requires that an SBS Entity amend its Form SBSD, SBSD-A, or SBSD-BD, as 
applicable, if it becomes inaccurate, and this includes the schedules. 
While other requirements impose an ongoing obligation on SBS Entities 
to collect information on associated persons to assure that they are 
not subject to statutory disqualification, unless otherwise 
specifically provided by rule, regulation or order of the Commission, 
the CCO Certification Regarding Associated Persons is a one-time 
certification to provide the Commission with information before making 
a determination as to whether to grant registration or institute 
proceedings to deny registration.\203\ To clarify this, we are moving 
the CCO Certification Regarding Associated Persons from Schedule G into 
Form SBSE-C.
---------------------------------------------------------------------------

    \202\ While this certification may only need to be signed once, 
the prohibition in Exchange Act Section 15F(b)(6) is ongoing.
    \203\ 15 U.S.C. 78o-10(b)(6).
---------------------------------------------------------------------------

    As the Senior Officer Certification provides us with an indication 
that the applicant has reviewed the applicable rules and has developed 
and implemented written policies and procedures reasonably designed to 
prevent violation of the federal securities laws and the rules 
thereunder, and the CCO Certification Regarding Associated Persons 
provides us with an indication that the applicant has reviewed 
information regarding its associated persons to assure that none is 
subject to statutory disqualification unless otherwise provided by 
Commission rule, regulation or order, the Commission will consider 
these certifications contained in Form SBSE-C, along with the 
information disclosed by applicants in Forms SBSE, SBSE-A, or SBSE-BD, 
as applicable (including the Schedules and DRPs), to determine whether 
it is appropriate to grant registration or institute proceedings to 
determine whether to deny registration.
5. Form SBSE-W
    The Commission proposed Form SBSE-W to provide SBS Entities with a 
form through which they could withdraw from Commission 
registration.\204\ The Form was based on Form BDW (the Form used by 
broker-dealers to withdraw from registration with the Commission), 
because the Commission has found Form BDW to be an effective vehicle 
for gathering information necessary for it and the SROs to determine 
whether it is appropriate to allow a registered broker-dealer to 
withdraw from registration.\205\ As proposed, Form SBSE-W was modified 
from Form BDW to recognize differences between the broker-dealer and 
security-based swap businesses.\206\
---------------------------------------------------------------------------

    \204\ Registration Proposing Release, at 65806.
    \205\ Id.
    \206\ Id.
---------------------------------------------------------------------------

    The purpose of proposed Form SBSE-W was to provide registrants with 
a simple, consistent process to notify the Commission when they wish to 
withdraw from registration, and to provide the Commission with 
information to help it determine whether it is necessary or appropriate 
in the public interest for the protection of investors to permit a 
registered SBS Entity to withdraw from registration (and, if so, at 
what time and upon what terms and conditions).
    The Commission received no comment on Form SBSE-W, and is adopting 
it substantially as proposed.\207\ We revised General Instruction 3, 
which stated that a firm must file Form SBSE-W electronically, to 
specify that ``[t]he registrant must file Form SBSE-W through the EDGAR 
system, and must utilize the EDGAR Filer Manual (as defined in 17 CFR 
232. 11) to file and amend Form SBSE-W electronically to assure the 
timely acceptance and processing of those filings.''
---------------------------------------------------------------------------

    \207\ We made a change also made in Form SBSE and discussed 
above. See supra, footnote 152.
---------------------------------------------------------------------------

    Thus, as adopted, Form SBSE-W requires a registered SBS Entity to 
provide its name, address, tax identification number, phone number, 
other names the business might be known as, a mailing address if it 
differs from the main address, the firm's Web site address, and 
regulatory identification numbers assigned to it.\208\ Further, the 
registered SBS Entity must identify whether it is withdrawing from 
registration as an SBS Dealer or Major SBS Participant.\209\ Further, 
the registered SBS Entity must identify the date it ceased doing a 
security-based swap business, and provide information on the reason it 
is seeking to withdraw from SEC registration.\210\ The registered SBS 
Entity also must provide information regarding whether it holds any 
segregated counterparty collateral, and if it is the subject of, or 
named in, any investment-related investigations, customer-initiated 
complaints, or private civil litigations.\211\ Finally, Form SBSE-W 
requests information on the location where the entity's books and 
records will be located, and who will have custody of those records (so 
the Commission will know who to contact, after the entity withdraws, to 
gain access to those records).\212\ Form SBSE-W specifies that a 
registered SBS Entity must update any incomplete or inaccurate 
information contained on Form SBSE, Form SBSE-A or Form SBSE-BD, as 
appropriate, prior to filing its notice of withdrawal on Form SBSE-W. 
In addition, Form SBSE-W must be signed by the applicant.
---------------------------------------------------------------------------

    \208\ See Form SBSE-W, Item 1.
    \209\ See Form SBSE-W, Item 2.
    \210\ See Form SBSE-W, Items 3 and 4.
    \211\ See Form SBSE-W, Items 5 and 6.
    \212\ See Form SBSE-W, Item 7.
---------------------------------------------------------------------------

    The Commission intends to use the information collected by Form 
SBSE-W to help it determine whether it is necessary or appropriate in 
the public interest for the protection of investors to permit a 
registered SBS Entity to withdraw from registration (and, if so, at

[[Page 48988]]

what time and upon what terms and conditions, if any).

III. Explanation of Dates

A. Effective Date

    These final rules will be effective 60 days following publication 
in the Federal Register.

B. Registration Compliance Date

    One commenter stated that it believed it to be ``critical that, 
before registration is required, the Commission finalize (i) the rules 
defining `security-based swap,' `security-based swap dealer' and `major 
security-based swap participant;' (ii) the rules imposing capital and 
margin requirements on SBSDs and MSBSPs; (iii) its position on inter-
affiliate security-based swaps; and (iv) its position on the 
extraterritorial application of Title VII,'' because ``[u]ntil that 
time, market participants will not be able to fully analyze the 
critical entity structuring issues that allow them to determine which 
entities to register and prepare for Title VII compliance.'' \213\ 
Other commenters, both to the Registration Proposing Release and other 
Commission requests for comment, expressed similar sentiments.\214\
---------------------------------------------------------------------------

    \213\ See SIFMA Letter, at 3. In response to the Commission's 
Statement of General Policy on Sequencing of Dodd-Frank Act 
Compliance Dates (Statement of General Policy on 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 (77 FR 
35625, Jun. 14, 2012), SIFMA reiterated this position. See 8/13/2012 
SIFMA Letter at 6, and 1/13/15 SIFMA Letter, at 3-4.
    \214\ See, e.g., IIB Letter, at 28, which states, ``final cross-
border rules should be available well in advance of the deadline for 
SBSD and MSBSP registration, as these registrants will be subject to 
a number of complex new rules.'' See also comment letter from a 
group of entities (including American Bankers Association, ABA 
Securities Association, The Clearing House Association L.L.C., 
Financial Services Forum, Financial Services Roundtable, Futures 
Industry Association, Institute of International Bankers, 
International Swaps and Derivatives Association, Investment Company 
Institute, Managed Funds Association, and Securities Industry and 
Financial Markets Association), generally regarding ``Comment 
Periods and Implementation of New Derivatives Regulations'' (and not 
associated with any particular release), dated Dec. 6, 2010, which 
states (on page 2) ``We also are concerned about a process that 
provides for provisional registration of entities prior to adoption 
of final rules defining the various categories of registrants and 
establishing their respective obligations. A more logical sequence 
would first adopt definitions for the different regulated entities, 
then requirements for such entities, and finally registration of 
such entities.''
---------------------------------------------------------------------------

    With respect to the particular issues identified by one of the 
commenters,\215\ the Commission has adopted rules governing the 
application of the ``security-based swap dealer'' and ``major security-
based swap participant'' definitions to cross-border security-based 
swap activities,\216\ as well as the treatment of inter-affiliate swaps 
for purposes of performing the SBS Dealer de minimis and Major SBS 
Participant position threshold calculation.\217\ The Commission has not 
yet finalized other proposed rules applicable to SBS Entities.\218\
---------------------------------------------------------------------------

    \215\ See SIFMA Letter, at 3; 8/13/2012 SIFMA Letter, at 6; and 
1/13/15 SIFMA Letter, at 3-4.
    \216\ See Exchange Act rule 3a71-3 (addressing application of 
``security-based swap dealer'' definition to cross-border security-
based swap activities); Exchange Act rule 3a67-10 (addressing 
application of ``major security-based swap participant'' definition 
to cross-border security-based swap positions). The Commission 
proposed certain amendments to these rules in April 2015 to address 
security-based swap transactions involving two non-U.S. persons that 
are arranged, negotiated, or executed by personnel of a dealer in 
the United States, but as noted in that release, we do not expect 
those amendments to require additional entities to register as 
security-based swap dealers. See Cross-Border Activity Proposing 
Release, at footnote 384 and accompanying text.
    \217\ See Exchange Act rule 3a71-1(d) (excluding from the 
security-based swap dealer de minimis threshold calculations 
security-based swaps with a person's majority-owned affiliates); 
Exchange Act rule 3a67-3(e) (excluding from the major security-based 
swap participant threshold calculations security-based swap 
positions with counterparties that are a person's majority-owned 
affiliates).
    \218\ See the Capital and Margin Proposing Release, the Books 
and Records Proposing Release, the Trade Acknowledgment Proposing 
Release, and the Business Conduct Standards Proposing Release.
---------------------------------------------------------------------------

    We recognize that firms may need time to review the rules we adopt 
for SBS Entities before they can make informed decisions relating to 
business structure, including whether they will continue to conduct a 
security-based swap business in the U.S., and to determine which of 
their associated persons may be subject to the statutory prohibition 
provision before they register. For that reason, we are establishing a 
compliance date for the final rules adopted in this release as the 
later of: six months after the date of publication in the Federal 
Register of a final rule release adopting rules establishing capital, 
margin and segregation requirements for SBS Entities; the compliance 
date of final rules establishing recordkeeping and reporting 
requirements for SBS Entities; the compliance date of final rules 
establishing business conduct requirements under Exchange Act Sections 
15F(h) and 15F(k); or the compliance date for final rules establishing 
a process for a registered SBS Entity to make an application to the 
Commission to permit an associated person who is subject to a statutory 
disqualification to effect or be involved in effecting security-based 
swaps on its behalf (such date referred to as the ``Registration 
Compliance Date'').

C. SBS Entity Counting Date

    The general calculations to determine whether a person may fit the 
definition of the term SBS Dealer and Major SBS Participant have been 
in place since 2012. We believe, however, that it is appropriate to 
provide firms with the ability to review the final rules that will be 
applicable to SBS Entities so that they can decide whether to continue 
to engage in the type of business that would require registration, 
modify their business practices, or cease those activities. In the 
Intermediary Definitions Adopting Release, the Commission explained 
that persons determined to be SBS Dealers or Major SBS Participants 
under the regulations adopted therein need not register as such until 
the dates provided for in the Commission's final rules regarding SBS 
Entity registration requirements, ``and will not be subject to the 
requirements applicable to those dealers and major participants until 
the dates provided in the applicable final rules.'' \219\ The 
Commission is now providing the dates on which SBS Entities will become 
subject to the requirements applicable to them based on their status as 
either an SBS Dealer or Major SBS Participant. Specifically, the 
Commission now believes that, for purposes of complying with the 
registration and other requirements, persons are not required to begin 
calculating whether their activities meet or exceed the thresholds 
established in Exchange Act Rules 3a71-2, 3a67-3, and 3a67-5 until two 
months prior to the Registration Compliance Date (``SBS Entity Counting 
Date''). This means that with respect to compliance with the 
registration and other requirements applicable to SBS Dealers and Major 
SBS Participants, only security-based swap positions connected with the 
dealing activity in which the person--or any other entity controlling, 
controlled by or under common control with the person--engages on or 
after the SBS Entity Counting Date will ``count'' toward determining 
that person's status as a ``security-based swap dealer'' and only 
positions held on or after the SBS Counting Date will count towards 
determining that person's status as a ``major security-based swap 
participant.''
---------------------------------------------------------------------------

    \219\ See Cross-Border Adopting Release, at 47368.
---------------------------------------------------------------------------

    To the extent that a person's status as an SBS Entity is based on a 
test that requires that person to look-back over a period of time, no 
transactions entered into prior to the SBS Entity Counting Date will 
``count'' for purposes of the relevant test. For example, Exchange

[[Page 48989]]

Act Rule 3a71-2, which implements the statutory exception from the 
``security-based swap dealer'' definition for a person who engages in a 
de minimis quantity of security-based swap dealing, is based on 
positions entered into by a person (and, subject to certain exceptions, 
any other entity controlling, controlled by or under common control 
with that person) over the preceding 12 months. While the Commission 
recognizes that, for purposes of this example, there would not be a 
full 12 months of positions to consider until the date that is one year 
from the date of the SBS Entity Counting Date, we do, however, expect 
that some larger SBS Dealers will cross a de minimis threshold within a 
shorter period of time. In no event, however, would a person be deemed 
to be an SBS Dealer or Major SBS Participant at any point prior to the 
SBS Entity Counting Date.
    These timing requirements should provide firms with adequate time 
to review the final rules applicable to SBS Entities and make 
appropriate business decisions before triggering the requirement to 
register. This compliance timeline is designed to eliminate situations 
where persons engaged in security-based swap business trigger the 
registration requirement before final substantive rules applicable to 
SBS Entities are published, decide to cease the business activities 
that would require registration, but still must register because of the 
twelve month look-back required by the calculations in the definitions 
of the terms SBS Dealer and Major SBS Participant.\220\
---------------------------------------------------------------------------

    \220\ See generally, 17 CFR 3a67-1 through 3a67-9 and 17 CFR 
3a71-1 through 3a71-2.
---------------------------------------------------------------------------

IV. Paperwork Reduction Act

    Certain provisions of Rules 15Fb1-1 through 15Fb6-2 and Forms SBSE, 
SBSE-A, SBSE-BD, and SBSE-W contain ``collection of information 
requirements'' within the meaning of the Paperwork Reduction Act of 
1995 (``PRA''). An agency may not conduct or sponsor, and a person is 
not required to respond to, a collection of information unless it 
displays a currently valid control number. The Commission has submitted 
the information to the Office of Management and Budget (``OMB'') for 
review in accordance with 44 U.S.C. 3507 and 5 CFR 1320.11. The title 
of this collection is ``Registration Rules for Security-Based Swap 
Entities.'' The collection of information was assigned OMB Control No. 
3235-0696.
    In the Registration Proposing Release, the Commission solicited 
comments on the collection of information burdens associated with 
proposed Rules 15Fb1-1 through 15Fb6-1 and Forms SBSE, SBSE-A, SBSE-BD, 
and SBSE-W.\221\ In particular, the Commission asked whether commenters 
agree with the Commission's estimate of the number of respondents and 
the burden associated with compliance with these rules and forms.\222\ 
As discussed more fully above in Section I.C, the Commission originally 
received four comment letters in response to the proposed rules and 
forms.\223\ The Commission later received 31 additional comment letters 
in response to the Release Reopening the Comment Period, of which six 
specifically commented on the proposed registration process and 
forms.\224\ The Commission also received 38 comment letters in response 
to the Cross-Border Proposing Release.\225\ Of those, three commented 
on the proposed registration process and forms.\226\ One of the eleven 
commenters that commented on issues relating to the registration 
process and forms raised issues relating directly or indirectly to the 
PRA discussion.\227\ This commenter raised issue with the Commission's 
estimate as to the number of associated persons an SBS Entity may 
employ, and is addressed in the discussion of Rules 15Fb6-1 and 15Fb6-2 
below.
---------------------------------------------------------------------------

    \221\ See Registration Proposing Release, at 65812.
    \222\ Id.
    \223\ See supra, footnote 8.
    \224\ See supra, footnote 10.
    \225\ See supra, footnote 11.
    \226\ See supra, footnote 12.
    \227\ See SIFMA Letter at 7-8.
---------------------------------------------------------------------------

A. Summary of Collection of Information

    As required by Exchange Act Section 15F, the Commission is adopting 
Rules 15Fb1-1 through 15Fb6-2 and Forms SBSE, SBSE-A, SBSE-BD, SBSE-C 
and SBSE-W to facilitate registration and withdrawal of SBS Entities.
    Pursuant to paragraph (a) of Rule 15Fb2-1, each SBS Entity must 
file an application with the Commission to register. Forms SBSE, SBSE-
A, and SBSE-BD and the schedules thereto require SBS Entities to 
provide specified information. Form SBSE is for SBS Entities not 
registered or registering with the Commission as broker-dealers, nor 
registered or registering with the CFTC as swap dealers or major swap 
participants. Form SBSE-A is for SBS Entities not registered or 
registering with the Commission as broker-dealers but registered or 
registering with the CFTC as swap dealers or major swap participants. 
Form SBSE-BD is for SBS Entities that are registered or registering 
with the Commission as brokers or dealers. Schedules A through E of 
these Forms and the DRPs require SBS Entities to provide certain, 
specified information, as applicable. The Commission took efforts to 
minimize burdens and costs associated with the application process by 
adopting alternate registration forms for SBS Entities that are 
registered or registering either with the CFTC as swap dealers or major 
swap participants or with the Commission as broker-dealers. The 
alternative forms (Forms SBSE-A and SBSE-BD) are shorter and should 
require that an SBS Entity expend less effort to research, complete, 
and file than Form SBSE. An SBS Entity would only need to research, 
complete, and file one of the Forms.
    Paragraph (a) also requires that each SBS Entity must file 
certifications on Form SBSE-C. This Form contains the Senior Officer 
Certification required by Rule 15Fb2-1(b) and the CCO Certification 
Regarding Associated Persons required by Rule 15Fb6-2(a).
    Rule 15Fb2-3 requires that SBS Entities promptly amend their Forms 
SBSE, SBSE-A, and SBSE-BD with the Commission if they find that the 
information contained therein has become inaccurate. SBS Entities will 
only need to amend that aspect of the Form that has become inaccurate.
    Rule 15Fb6-2(a) states that no SBS Entity may act as an SBS Entity 
unless it has certified, on Form SBSE-C, that it neither knows, nor in 
the exercise of reasonable care should have known, that any person 
associated with it who effects or is involved in effecting security-
based swaps on its behalf is subject to a statutory disqualification. 
Rule 15Fb6-2(b) requires that, to support this certification, the SBS 
Entity's CCO (or his or her designee) must review and sign the 
questionnaire or application for employment the SBS Entity is required 
to obtain pursuant to the relevant recordkeeping rule applicable to the 
SBS Entity, executed by each associated person who is a natural person 
and who effects or is involved in effecting security-based swaps on the 
SBS Entity's behalf. Rule 15Fb6-2(b) also indicates that the 
questionnaire or application shall serve as the basis for a background 
check of the associated person to verify that the associated person is 
not subject to statutory disqualification. SBS Entities would only need 
to fulfill this obligation for associated persons that effect or are 
involved in effecting security-based swaps on behalf of the SBS Entity.
    Rule 15Fb2-4 requires each nonresident SBS Entity to obtain and 
maintain a written consent and power of attorney appointing an agent in 
the

[[Page 48990]]

United States for service of process. This consent and power of 
attorney must be signed by the nonresident SBS Entity and the named 
agent for service of process. In addition, Rule 15Fb2-4 requires that 
each nonresident SBS Entity obtain an opinion of counsel stating that 
it can, as a matter of law, provide the Commission with access to 
records and the ability to conduct onsite examinations. Such an opinion 
of counsel must be attached to the SBS Entity's filed application (Form 
SBSE, SBSE-A, or SBSE-BD, as appropriate) as a required document. An 
SBS Entity must also re-certify on Schedule F of such Forms within 90-
days after any changes in the legal or regulatory framework that would 
impact the SBS Entity's ability to provide, or manner in which it 
provides, the Commission with prompt access to its books and records or 
that impacts the Commission's ability to inspect and examine the SBS 
Entity. The SBS Entity's re-certification must be accompanied by a 
revised opinion of counsel regarding the new regulatory regime. These 
entities also must file an additional schedule (Schedule F) with their 
application form to identify the firm's U.S. agent for service of 
process and to certify that the firm can, as a matter of law, and will 
provide the Commission with access to its books and records and submit 
to onsite inspection and examination by the Commission. Further, such 
entities must communicate promptly to the Commission through an 
amendment to Schedule F any change of agent for service of process or 
any change of name or address of an agent for service of process. In 
addition, each nonresident SBS Entity must maintain its written 
agreement appointing a U.S. agent for service of process until at least 
three years after the agreement is terminated.
    Pursuant to Rule 15Fb1-1, each signatory to an electronic filing 
must, when the electronic filing is made, manually sign a signature 
page or other document adopting his or her signature that appears in 
typed form within the electronic filing. The SBS Entity must retain the 
manually-signed page until at least three years after the form or 
certification has been replaced or is no longer effective.
    Rule 15Fb3-2 requires that an SBS Entity seeking to withdraw from 
Commission registration file Form SBSE-W, and Form SBSE-W requires SBS 
Entities to provide specified information to withdraw from 
registration.
    Rule 15Fb2-5 provides, in paragraph (a), that an SBS Entity 
succeeding to and continuing the business of a registered SBS Entity 
shall be deemed to remain effective under the registration of the 
predecessor as long as the successor files an application, within 30 
days of the succession, in accordance with Rule 15Fb2-1 and the 
retiring entity files a notice of withdrawal on Form SBSE-W. Paragraph 
(b) of 15Fb2-5 provides that for certain types of changes that are more 
ministerial in nature, a person succeeding to and continuing the 
business of a registered SBS Entity shall be deemed to remain effective 
under the registration of the predecessor as long as the successor, 
within 30 days, amends its application on the appropriate Form. As this 
rule simply allows the successor to continue the operations of the 
registered SBS Entity, and the form filing and amendment requirements 
are contained in Rule 15Fb2-1, 15Fb2-3, and 15Fb3-2, any paperwork 
burdens are included under those rules.
    Rule 15Fb2-6 provides that the registration of an SBS Entity shall 
be deemed to be the registration of a fiduciary, appointed or qualified 
by order, judgement or decree of a court of competent jurisdiction, as 
long as the fiduciary files Form SBSE, Form SBSE-A, or Form SBSE-BD, as 
appropriate. As this rule simply allows the successor to continue the 
operations of the registered SBS Entity, and the form filing and 
amendment requirements are contained in Rule 15Fb2-1, any paperwork 
burdens are included under that rule.

B. Proposed Use of Information

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

C. Respondents

    Rule 15Fb1-1 through 15Fb6-2 facilitate registration with the 
Commission of entities that fit the definition of ``security-based swap 
dealer'' or ``major security-based swap participant.'' \228\ Forms 
SBSE, SBSE-A, and SBSE-BD, as applicable, are applications through 
which SBS Entities would register with the Commission.
---------------------------------------------------------------------------

    \228\ See supra, footnotes 1 and 2.
---------------------------------------------------------------------------

    In the Registration Proposing Release the Commission stated its 
belief that approximately fifty entities may fit within the definition 
of SBS Dealer and up to five entities may fit within the definition of 
Major SBS Participant.\229\ Further, the Commission estimated that 
thirty-five of those registrants would also be engaged in the swaps 
business and would register with the CFTC as swap dealers or major swap 
participants and would be able to register using Form SBSE-A, sixteen 
of those registrants would already be registered as broker-dealers and 
could register using Form SBSE-BD,\230\ and four of those registrants 
would not otherwise be registered with the CFTC or the Commission will 
seek to become an SBS Entity and would need to register using Form 
SBSE.\231\
---------------------------------------------------------------------------

    \229\ Registration Proposing Release, at 65808.
    \230\ Nomura commented that the proposed Forms did not recognize 
the possibility that OTC derivatives dealers might seek to register 
as SBS Entities. As described above in Section II.G.3., we added a 
question to Form SBSE-BD to allow OTC derivatives dealers to 
identify themselves when filing that form because they have already 
submitted Form BD.
    \231\ Id.
---------------------------------------------------------------------------

    We received no comments on these estimates, and continue to believe 
they are appropriate.

D. Total Initial and Annual Reporting and Recordkeeping Burdens

1. Burden Associated With Filing Application Forms
    Rule 15Fb2-1 requires that each SBS Entity register with the 
Commission by filing either Form SBSE, SBSE-A or SBSE-BD. The 
Commission designed the application process to provide alternative 
forms for SBS Entities that are, or are registering as swap dealers, 
major swap participants, or broker-dealers to use to register (Forms 
SBSE-A and SBSE-BD). Each SBS Entity is required to complete and file 
one of these forms.
Form SBSE
    While it is likely that the time necessary to complete these forms 
would vary depending on the nature and complexity of the entity's 
business, we estimated in the Registration Proposing Release that the 
average time necessary for an SBS Entity to research the questions, and 
complete and file a Form SBSE (including the Schedules \232\ and DRPs) 
would be approximately one work week or forty hours.\233\ In the Cross 
Border Proposing Release, we increased this hour burden estimate by two 
hours to account for the addition of

[[Page 48991]]

certain questions to Form SBSE.\234\ While we have added new Schedule C 
to Form SBSE, as applicants must have already identified statutorily 
disqualified persons in order to provide the certification on Form 
SBSE-C, we do not believe that listing statutorily disqualified entity 
associated persons on Schedule C will measurably increase the time it 
will take to complete Form SBSE. As discussed above, the Commission 
estimates that approximately four firms would need to register using 
Form SBSE. Consequently, the total burden associated with filing Forms 
SBSE would be approximately 168 hours.\235\
---------------------------------------------------------------------------

    \232\ Except Schedule F, which is dealt with separately below. 
As discussed in more detail above in Sections II.B. and II.G.1., 
Schedule G was moved into Form SBSE-C.
    \233\ Registration Proposing Release, at 65808.
    \234\ Cross Border Proposing Release, at 31104. We received no 
comments on this estimate, and continue to believe it is 
appropriate.
    \235\ (42 hours x 4 SBS Entities) = 168 hours total.
---------------------------------------------------------------------------

Form SBSE-A
    We indicated our belief in the Registration Proposing Release that, 
as Form SBSE-A is shorter than the Form SBSE, it should take an SBS 
Entity approximately 80% of the time that it would take to research, 
complete, and file a Form SBSE (including the Schedules \236\ and 
DRPs), or thirty two hours.\237\ In the Cross Border Proposing Release, 
we increased this hour burden estimate by two hours to account for the 
addition of certain questions to Form SBSE.\238\ As with Form SBSE, we 
do not believe that listing statutorily disqualified entity associated 
persons on Schedule C will measurably increase the time it will take to 
complete Form SBSE-A. As discussed above, the Commission estimates that 
approximately thirty-five firms would also be registered with the CFTC 
and therefore would need to register using Form SBSE-A. Consequently, 
the total burden associated with filing Forms SBSE-A would be 
approximately 1,190 hours.\239\
---------------------------------------------------------------------------

    \236\ See supra footnote 232.
    \237\ Registration Proposing Release, at 65808-9.
    \238\ Cross Border Proposing Release, at 31104. We received no 
comments on this estimate, and continue to believe it is 
appropriate.
    \239\ (34 hours x 35 SBS Entities) = 1,190 hours total.
---------------------------------------------------------------------------

Form SBSE-BD
    In the Registration Proposing Release we stated our belief that, as 
Form SBSE-BD is shorter than either Form SBSE or Form SBSE-A and 
broker-dealers who would be filing Form SBSE-BD are familiar with 
Commission terminology and forms, researching, completing, and filing a 
Form SBSE-BD should take an SBS Entity approximately 25% of the time 
that it would take to research, complete, and file a Form SBSE 
(including the Schedules \240\), or ten hours.\241\ In the Cross Border 
Proposing Release, we increased this hour burden estimate by one half 
hour to account for the addition of one new question.\242\ As with Form 
SBSE and Form SBSE-A, we do not believe that listing statutorily 
disqualified entity associated persons on Schedule C would measurably 
increase the time it will take to complete Form SBSE-BD. As discussed 
above, the Commission estimates that approximately sixteen SBS Entities 
would need to register using Form SBSE-BD. Consequently, the total 
burden associated with filing Forms SBSE-BD would be approximately 168 
hours.\243\
---------------------------------------------------------------------------

    \240\ See supra footnote 232
    \241\ Registration Proposing Release, at 65809.
    \242\ Cross Border Proposing Release, at 31104. We received no 
comments on this estimate, and continue to believe it is 
appropriate.
    \243\ (10\1/2\ hours x 16 SBS Entities) = 168 hours total.
---------------------------------------------------------------------------

Form SBSE-C
    As indicated in Section II.G.4. above, we are adopting Form SBSE-C 
with some modifications. As discussed in Section II.A.1.ii., we have 
modified the text of the Senior Officer Certification to instead 
require that a senior officer certify that after due inquiry, he or she 
has reasonably determined that the applicant has developed and 
implemented written policies and procedures reasonably designed to 
prevent violation of federal securities laws, the rules thereunder and 
has documented the process by which he or she reached such 
determination.\244\ As discussed in Sections II.B. and II.G.4. above, 
we have also moved the CCO Certification Regarding Associated Persons, 
which had been included as Schedule G to Forms SBSE, SBSE-A, and SBSE-
BD, into Form SBSE-C.
---------------------------------------------------------------------------

    \244\ See Form SBSE-C.
---------------------------------------------------------------------------

    The Commission has previously estimated that it would take a senior 
officer approximately twenty hours to review, document, and update 
compliance procedures,\245\ which the staff believes would be analogous 
to reviewing an SBS Entity's written policies and procedures and or 
taking whatever other actions he or she deems necessary to gain comfort 
to sign the Senior Officer Certification. In the Registration Proposing 
Release, we stated our belief that the burden associated with having a 
senior officer sign a certification likely would be approximately five 
hours.\246\ Consequently, the total burden associated with having a 
senior officer review an SBS Entity's written policies and procedures 
and or taking whatever other actions he or she deems necessary to gain 
comfort necessary to sign the Senior Officer Certification and to then 
sign the certification on Form SBSE-C would be approximately 1,375 
hours for all entities.\247\
---------------------------------------------------------------------------

    \245\ See, e.g., Risk Management Controls for Brokers or Dealers 
With Market Access, Exchange Act Release No. 63241 (Nov. 3, 2010), 
75 FR 69792, at 69816 (Nov. 15, 2010).
    \246\ Registration Proposing Release, at 65809. We received no 
comments on this estimate, and continue to believe it is 
appropriate.
    \247\ (5 hours + 20 hours) x 55 SBS Entities = 1,375 hours 
total.
---------------------------------------------------------------------------

    The Commission proposed, in the Business Conduct Standards 
Proposing Release, to require that each SBS Entity establish, maintain, 
enforce and promptly update written policies and procedures addressing 
the supervision of the types of security-based swap business in which 
the SBS Entity is engaged that are reasonably designed to achieve 
compliance with applicable securities laws and the rules and 
regulations thereunder.\248\ That rulemaking accounted for the burden 
associated with establishing written procedures.
---------------------------------------------------------------------------

    \248\ See supra, footnote 30.
---------------------------------------------------------------------------

    As discussed in more detail below in Section IV.D.3. regarding 
Associated Persons, the Commission estimated in the Registration 
Proposing Release that it would take a CCO approximately one hour to 
certify on Schedule G that no associated person that effects or is 
involved in effecting security-based swaps on behalf of the SBS Entity 
is subject to a statutory disqualification.\249\ While we received no 
comments on this estimate of the time it would take for the CCO to 
certify, we did receive one comment alleging that our estimates as to 
the number of associated persons was too low and failed to include 
associated persons that were not natural persons. Our prior estimate 
was based on the assumption that the CCO would already have the 
knowledge necessary to sign the certification because he or she (or his 
or her designee) would have reviewed and signed each associated 
persons' employment applications or questionnaires and conducted 
background checks on those persons. To the extent this certification 
requires a CCO to also consider whether associated persons that are not 
natural persons are subject to statutory disqualification, and the CCO 
(or his or her designee) would not have already reviewed employment 
questionnaires or applications or conducted background checks on those

[[Page 48992]]

persons, we modified our original estimate to accommodate such a 
review.
---------------------------------------------------------------------------

    \249\ Registration Proposing Release, at 65811.
---------------------------------------------------------------------------

    As discussed in more detail below in Section IV.D.3., we now 
estimate that each SBS Entity may have, on average 10 associated 
persons that are not natural persons effecting or involved in effecting 
security-based swaps on their behalf. Further, we believe it would 
likely take, on average, approximately five hours for a CCO to collect 
information from its legal or other internal departments or its holding 
company to determine whether each of its associated persons that is not 
a natural person is subject to statutory disqualification. Thus, we 
estimate that it would take a CCO approximately 50 hours to obtain 
sufficient information that none of its associated persons is subject 
to statutory disqualification to gain sufficient comfort that none of 
these associated persons that effect or are involved in effecting 
security-based swaps are subject to statutory disqualification to allow 
them to sign the certification. As a result of this change, the 
Commission staff now estimates that the total burden to all SBS 
Entities to complete the CCO Certification Regarding Associated Persons 
on Form SBSE-C would be approximately 2,805 hours.\250\
---------------------------------------------------------------------------

    \250\ (10 associated persons that are not natural persons x 5 
hours to gain comfort that the entity is not subject to statutory 
disqualification x 55 SBS Entities) + (1 hour for CCO to sign 
certification x 55 SBS Entities) = 2,805 hours.
---------------------------------------------------------------------------

    Consequently, the total burden associated with filing Form SBSE-C, 
which now includes both of these certification, would be approximately 
4,180 hours.\251\
---------------------------------------------------------------------------

    \251\ 1,375 hours + 2,805 hours = 4,180 hours.
---------------------------------------------------------------------------

2. Burden Associated With Amending Application Forms
    Rule 15Fb2-3 requires that SBS Entities amend their Forms SBSE, 
SBSE-A, and SBSE-BD, as applicable, if they find that the information 
contained therein has become inaccurate. While SBS Entities may need to 
update their Forms periodically, it likely will not cost a significant 
amount to make such changes because each firm will have already 
completed Form SBSE, Form SBSE-A, or Form SBSE-BD, as applicable, and 
will only need to amend that aspect of the Form that has become 
inaccurate. Based on the number of amendments the Commission receives 
annually on Form BD, the Commission estimates that each SBS Entity will 
file approximately three amendments annually.\252\ We estimated, in the 
Registration Proposing Release, that while it is likely that the time 
necessary to file an amendment to Form SBSE, Form SBSE-A, or Form SBSE-
BD, as applicable, may vary depending on the nature and complexity of 
the information to be amended, based on experience relative to Form BD, 
we believed it would take an SBS Entity, on average, approximately one 
hour to amend its application each time it files an amendment.\253\ 
Consequently, the total burden associated with amending Forms SBSE, 
SBSE-A, and SBSE-BD, as applicable, would be approximately 165 
hours.\254\
---------------------------------------------------------------------------

    \252\ On March 1, 2015 there were 4,253 broker-dealers 
registered with the Commission (based on Form BD data). The 
Commission received 15,638, 15,491, 13,271, 12,902, and 14,330 
amended Forms BD during the fiscal years ending 9/30/2010, 9/30/
2011, 9/30/2012, 9/30/2013 and 9/30/2014, respectively. ((15,638 + 
15,491 + 13,271 + 12,902 + 14,330)/5 years)/4,253 broker-dealers = 
3.4 amendments per broker-dealer per year.
    \253\ Registration Proposing Release, at 65809. We received no 
comments on this estimate, and continue to believe it is 
appropriate.
    \254\ 1 hour x three per year x 55 SBS Entities = 165 hours. 
This burden estimate includes the burden associated with the 
requirement to amend Forms SBSE, SBSE-A, or SBSE-BD, as appropriate, 
before filing Form SBSE-W. See infra, Section IV.D.6.
---------------------------------------------------------------------------

3. Burdens Relating to Associated Persons
    As adopted, Rule 15Fb6-2 requires that each SBS Entity must have 
its CCO certify, on Form SBSE-C, that the SBS Entity has performed 
background checks on all of its associated persons who effect or are 
involved in effecting security-based swaps on its behalf, and neither 
knows, nor in the exercise of reasonable care should have known, that 
any associated person who effects or is involved in effecting security-
based swaps on its behalf is subject to a statutory disqualification, 
unless otherwise specifically provided by rule, regulation or order. 
Rule 15Fb6-2, as adopted, also requires that, to support this 
certification, the SBS Entity's CCO (or his or her designee) review and 
sign the questionnaire or application obtained in compliance with the 
applicable recordkeeping rule, and use it as the basis for a background 
check of the associated person to verify that the associated person is 
not subject to statutory disqualification. Paragraph (b) of Rule 15Fb2-
1 also states that the questionnaire or applications must serve as the 
basis for a background check of the associated person to verify that 
the person is not subject to statutory disqualification. SBS Entities 
only need to fulfill this obligation for associated persons that effect 
or are involved in effecting security-based swaps on behalf of the SBS 
Entity. In addition, as adopted, the certification required by Rule 
15Fb6-1(a) is only required at the time of registration. As the 
requirement to review and sign employment questionnaires and 
applications is designed to support that certification, Rule 15Fb6-2(b) 
does not impose ongoing obligations. In the Registration Proposing 
Release, the Commission estimated (based on the staff's experience 
relative to the securities and OTC derivatives industries) that SBS 
Entities each have, on average, twenty-five associated persons that 
effect or are involved in effecting security-based swaps on behalf of 
the SBS Entity.
    The Commission received a comment on our estimate of the number of 
associated persons each SBS Entity may have effect or be involved in 
effecting security based swaps on its behalf.\255\ Specifically, this 
commenter stated that it believed ``the Commission significantly 
underestimates the burden the Proposal's associated person 
investigation requirement will impose on prospective'' SBS Entities, 
and that SBS Entities ``could have hundreds, if not thousands, of 
associated natural persons that will effect or will be involved in 
effecting security-based swaps'' and more if the definition of 
``associated person'' is read to extend not just to natural persons but 
also to entities.\256\
---------------------------------------------------------------------------

    \255\ See SIFMA Letter at 7-8.
    \256\ Id.
---------------------------------------------------------------------------

    As stated above in Section II.B, we are limiting the scope of the 
prohibition so that unless otherwise ordered by the Commission, when it 
files an application to register with the Commission as an SBS Dealer 
or Major SBS Participant, an SBS Entity may permit a person associated 
with it that is not a natural person and that is subject to statutory 
disqualification to effect or be involved in effecting security-based 
swaps on its behalf, provided that the statutory disqualification(s), 
described in Sections 3(a)(39)(A) through (F) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(39)(A)-(F)), occurred prior to 
the compliance date of this rule. In addition, we clarified in Rule 
15Fb6-2(b) that an SBS Entity's CCO is only required to review and sign 
questionnaires and applications of natural persons, because those are 
the only types of persons that would generally submit such a 
questionnaire or application. Based on the fact that the statutory 
prohibition is limited to persons who effect or are involved in 
effecting security-based swaps on an SBS Entity's behalf (and not all 
associated persons), as well as staff experience and observations, we

[[Page 48993]]

estimate that each SBS Entity could have approximately ten affected 
associated persons that are entities.
    With respect to associated persons who are natural persons, in 
light of this comment that we significantly underestimated the burden 
the Proposal's associated person investigation requirement will impose 
on prospective'' SBS Entities, and that SBS Entities ``could have 
hundreds, if not thousands, of associated natural persons that will 
effect or will be involved in effecting security-based swaps,'' the 
Commission has reviewed its estimates. While not exactly analogous in 
this situation to SBS Dealers,\257\ we reviewed available data 
regarding the number of persons associated with broker-dealers. As of 
December 31, 2014 there were 447 clearing broker-dealers \258\ which, 
on average, each employed 423 persons who were registered.\259\ 
Consequently, we now estimate that each SBS Dealer will have 423 
associated persons that are natural persons that effect or are involved 
in effecting security-based swaps on their behalf.\260\ Since Major SBS 
Participant registration requirements are triggered by position 
thresholds (as opposed to activity and volume thresholds for dealer 
registration),\261\ we anticipate that entities which may seek to 
register with the Commission as Major SBS Participants are more likely 
to resemble hedge funds and investment advisors. To estimate the number 
of natural persons associated with Major SBS Participants, we used 
regulatory filings by registered investment advisers on Form ADV. Based 
on this analysis, as of January 2, 2015 there were 11,506 registered 
investment advisers which each had on average 63 employees. Using this 
average as the basis, we thus estimate that each Major SBS Participant 
will have 63 associated persons that are natural persons that effect or 
are involved in effecting security-based swaps on their behalf.
---------------------------------------------------------------------------

    \257\ Security-based swap dealers will be limited to sales of 
security-based swaps, whereas broker-dealers are generally engaged 
in the sale of a broader range of financial instruments. Thus, it is 
likely that fewer people would be needed to facilitate this 
business.
    \258\ This information was drawn from FOCUS Report filings 
submitted by broker-dealers as of December 31, 2014. While there are 
far more broker-dealers registered with the Commission, we believe 
clearing broker-dealers are more analogous to SBS Dealers. Many 
introducing broker-dealers are quite small, and focus their business 
on particular types of instruments (e.g., mutual funds or limited 
partnership shares). Clearing broker-dealers extend margin, hold 
customer collateral, and engage in a range of activities that we 
believe SBS Entities would perform as part of their business. 
However, clearing broker-dealers also generally service a large 
number of customer accounts, which likely would differ from the 
security-based swap business. We believe that SBS Entities likely 
would effect transactions with a more limited number of investors 
and counterparties and, thus, would generally employ fewer 
associated persons.
    \259\ In estimating the number of associated persons that effect 
or are involved in effecting security-based swaps on behalf of SBS 
Dealers, we believe that it is more appropriate to use the number of 
registered persons of broker-dealers rather than the number of 
persons associated with a broker-dealer. In the brokerage business, 
persons who are engaged in the securities business of a broker-
dealer must register, while associated persons of a broker-dealers 
include individuals performing a broader range of functions, 
including those that may do require registration. Exchange Act 
Section 15Fb(6) and Rule 15Fb6-2 capture only associated persons who 
effect or are involved in effecting security-based swaps on behalf 
of SBS Entities, not all associated persons of an SBS Entity. We 
believe that the type of activities captured by this category of 
associated persons is more akin to the types of activities performed 
by persons that engage in the securities business of a broker-
dealer, and thus must register, than to associated persons of a 
broker-dealer in general.
    \260\ We recognize that SBS Entities will be limited to sales of 
security-based swaps, whereas broker-dealers are generally engaged 
in the sale of a broader range of financial instruments; thus less 
staff may be needed to facilitate this business.
    \261\ See Intermediary Definitions Adopting Release, at 30748.
---------------------------------------------------------------------------

    The Registration Proposing Release estimated that it would take a 
CCO (or the CCO's designee) approximately one hour to review and sign a 
relevant employee's employment record to determine that associated 
persons who effect or are involved in effecting security-based swaps on 
their behalf are not subject to statutory disqualification.\262\ If the 
SBS Entity has not already performed a background check of the 
employee, we estimate that it may take the CCO (or the CCO's designee) 
an additional hour to conduct whatever additional review may be 
necessary.\263\ Consequently, the Commission estimates that the burden 
for each SBS Dealer that is registered or registering with the 
Commission or the CFTC would be 423,\264\ and the burden for each other 
SBS Dealer would be 846.\265\ We have no basis to determine whether 
Major SBS Participants would already be registered or registering with 
the Commission or the CFTC, but we assume that all five will be dually-
registered. Thus, the burden for each Major SBS Participant would be 
approximately 63.\266\ We therefore estimate that the total burden to 
all SBS Entities to have their CCOs (or designees) review and sign the 
employment application or questionnaire for each associated person who 
is a natural person and who effects or is involved in effecting 
security-based swaps on their behalf and/or conduct whatever review may 
be necessary to assure that each such associated person is not subject 
to statutory disqualification would be approximately 23,157 hours.\267\
---------------------------------------------------------------------------

    \262\ Registration Proposing Release, at 65810. We received no 
comments on this estimate, and continue to believe it is 
appropriate.
    \263\ The Commission continues to believe that SBS Entities that 
are registered with the Commission or the CFTC must already conduct 
a review to determine if their associated persons are statutorily 
disqualified persons in the CEA and the Exchange Act. See 15 U.S.C. 
78f(c)(2), 78o-3(g)(2), and 78q(f)(2), and 7 U.S.C. 6k(5) and 
12a(1).
    \264\ 423 associated persons x 1 hour = 423.
    \265\ 423 associated persons x 2 hours = 846.
    \266\ 63 associated persons x 1 hour = 63.
    \267\ ((One hour x 423 associated persons that are natural 
persons x (30 SBS Dealers that are registered or registering with 
the CFTC + 16 SBS Dealers that are registered or registering with 
the Commission as broker-dealers)) = 19,458 hours for SBS Dealers 
already registered or registering with the Commission or CFTC. (One 
hour x 63 associated persons x 5 Major SBS Participants) = 315 hours 
for Major SBS Participants. (Two hours x 4 SBS Dealers that are not 
otherwise registered or registering with the Commission or the CFTC 
x 423 associated persons) = 3,384 hours. 19,458 hours + 315 hours + 
3,384 hours = 23,157.
---------------------------------------------------------------------------

    The Commission believes that signing the required certification 
will not take a significant amount of time. In the Registration 
Proposing Release the Commission estimated that it would take a CCO 
approximately one hour to certify on Schedule G that no associated 
person that effects or is involved in effecting security-based swaps on 
behalf of the SBS Entity is subject to a statutory 
disqualification.\268\ This was based on the assumption that the CCO 
(or his or her designee) had reviewed and signed the associated 
persons' employment applications or questionnaires and performed 
background checks on those persons. However, to the extent this 
certification requires a CCO to also consider whether associated 
persons that are not natural persons are subject to statutory 
disqualification, and the CCO (or his or her designee) would not have 
already reviewed employment questionnaires or applications or conducted 
background checks on those persons, the certification may take longer 
than our original estimate. Based on staff experience and observation, 
we believe that SBS Entities would most likely have affiliated entities 
as associated persons that are not natural persons. However, to the 
extent that an SBS Entity has a non-affiliated entity as an associated 
person that is not a natural person, it is likely they would have 
reviewed information on those

[[Page 48994]]

associated persons when the relationship was established. Based on 
staff experience and industry norms we understand that as part of their 
existing business practices financial institutions generally collect 
information from business partners to gain comfort and reduce 
risks.\269\ Consequently, we believe it would likely take, on average, 
approximately five hours for a CCO to collect information from its 
legal or other internal departments or its holding company to determine 
whether each of its associated persons that is not a natural person is 
subject to statutory disqualification. Thus, we estimate that it would 
take a CCO approximately 50 hours to obtain sufficient information that 
none of its associated persons is subject to statutory disqualification 
\270\ and one hour to sign the certification.
---------------------------------------------------------------------------

    \268\ Registration Proposing Release, at 65811. We received no 
comments on this estimate, and continue to believe it is 
appropriate, even with the modification to the certification to add 
the phrase ``unless otherwise specifically provided by rule, 
regulation or order of the Commission,'' because the modification 
should not change the burden associated with this certification 
requirement.
    \269\ Firms generally collect information to assure that a 
business partner will be able to perform activities, provide timely 
payments, and will not expose it any unknown or unnecessary risks.
    \270\ 10 associated persons that are not natural persons x 5 
hours = 50 hours.
---------------------------------------------------------------------------

    We have modified the requirement so that this CCO certification is 
no longer contained in Schedule G, but in Form SBSE-C. The Commission 
staff estimates that the total burden to all SBS Entities to complete 
the CCO Certification Regarding Associated Persons on Form SBSE-C would 
be approximately 2,805 hours,\271\ and we have included these hours 
above in the burden associated with Form SBSE-C (see Section IV.D.1.).
---------------------------------------------------------------------------

    \271\ 51 hours x 55 SBS Entities = 2,805 hours.
---------------------------------------------------------------------------

    To the extent that approximately 35 SBS Entities will also be 
registered with the CFTC as swap entities and 16 will also be 
registered as broker-dealers, the burdens and costs associated with 
reviewing associated persons' backgrounds will likely be significantly 
less than this because those firms' employment applications likely 
contain the appropriate information and because we are allowing SBS 
Entities to rely on background checks performed in those contexts.
4. Burdens on Nonresident SBS Entities
    In the Cross Border Proposing Release, the Commission estimated 
that approximately 18 entities will be registered foreign SBS Dealers, 
as defined in proposed Rule 3a71-3(a)(3) or foreign Major SBS 
Participants, as defined in proposed Rule 3a67-10(a)(1). Since that 
time we have come to believe that 22 nonresident entities will fit the 
definition of nonresident SBS Dealer or nonresident Major SBS 
Participant and will, therefore, need to register with the 
Commission.\272\ Rule 15Fb2-4 requires that each nonresident SBS Entity 
file an additional schedule (Schedule F) as part of the application 
they file with the Commission, to identify its U.S. agent for service 
of process and to certify that the firm can, as a matter of law, 
provide the Commission with access to its books and records and can, as 
a matter of law, and will submit to onsite inspection and examination 
by the Commission.
---------------------------------------------------------------------------

    \272\ See Cross-Border Activity Proposing Release, at 27452.
---------------------------------------------------------------------------

    In the Registration Proposing Release the Commission estimated that 
the average time necessary for a nonresident SBS Entity to complete and 
file Schedule F would be approximately one hour.\273\ We stated our 
belief in the Cross Border Proposing Release that adding the new 
section to Schedule F could increase the amount of time it would take 
for an SBS Entity to complete this form by one-half hour.\274\ Thus, 
the Commission estimates that the total burden for all nonresident SBS 
Entities to complete and file Schedule F would be approximately 33 
hours.\275\
---------------------------------------------------------------------------

    \273\ Registration Proposing Release, at 65811.
    \274\ Cross Border Proposing Release, at 31105. We received no 
comments on this estimate, and continue to believe it is 
appropriate.
    \275\ 1\1/2\ hours x 22 nonresident SBS Entities = 33 hours.
---------------------------------------------------------------------------

    The Commission estimates, based on internet research,\276\ that it 
would cost each nonresident SBS Entity approximately $179 annually to 
appoint and maintain a relationship with a U.S. agent for service of 
process. Consequently, the total cost for all nonresident SBS Entities 
to appoint and maintain relationships with U.S. agents for service of 
process is approximately $3,938 per year.\277\
---------------------------------------------------------------------------

    \276\ See, e.g., http://www.incorp.com/registered-agent-resident-agent-services.aspx (as of June 23, 2015, $99 per state per 
year), https://ct.wolterskluwer.com/registered-agent-services?mm_campaign=Enter_Campaign_Code_Here&keyword=registered%20agent&utm_source=Google&utm_medium=CPC&utm_campaign=RegisteredAgent&jadid=69563123457&jap=1t3&jk=registered%20agent&jkId=gc:a8a8ae4cd4a6542cf014a97541e8d183e:t1_p:k_registered%20agent:pl_&jp=&js=1&jsid=35672&jt=1 (as of June 23, 2015, $289 per year), and https://www.ailcorp.com/services/registered-agent (as of June 23, 2015, $149 
per year). The staff sought Web sites that provided pricing 
information and a comprehensive description of their registered 
agent services. We calculated our estimate by averaging the costs 
provided on these three Web sites--($99 + $289 + $149)/3 = $179.
    \277\ $179 per nonresident SBS Entity x 22 nonresident SBS 
Entities = $3,938.
---------------------------------------------------------------------------

    In addition, nonresident SBS Entities likely will incur outside 
legal costs associated with obtaining an opinion of counsel. In the 
Registration Proposing Release the Commission estimated that each 
nonresident SBS Entity would incur, on average, approximately $25,000 
in outside legal costs to obtain the necessary opinion of counsel.\278\ 
Consequently, we estimate that the total cost for all nonresident SBS 
Entities to obtain this opinion of counsel would be approximately 
$550,000.\279\
---------------------------------------------------------------------------

    \278\ Registration Proposing Release, at 65811. While a 
nonresident SBS Entity or its outside counsel would also need to 
monitor the foreign jurisdiction's legal and regulatory framework so 
that it can submit a new opinion of counsel and re-certify on 
Schedule F if the foreign laws changed, we believe that it is usual 
and customary for a nonresident SBS Entity to continually monitor 
the applicable law and regulations in the jurisdiction in which it 
resides, so we don't believe it would incur any additional paperwork 
costs to monitor those regulations for purposes of this rulemaking. 
We received no comments on this estimate, and continue to believe it 
is appropriate.
    \279\ $25,000 x 22 SBS Entities = $550,000.
---------------------------------------------------------------------------

    Nonresident entities must also amend Schedule F to inform the 
Commission if they replace their agent for service of process or if 
information regarding their existing agent for service of process 
changes. We do not believe this would occur frequently, and therefore 
estimate that ten percent of the nonresidents may need to amend their 
Schedule F to reflect these types of changes annually. Consequently, we 
estimate that the total annual burden for SBS Entities to amend 
Schedule F to reflect changes in information regarding their agent for 
service of process would be 3 hours.\280\
---------------------------------------------------------------------------

    \280\ 22 nonresident SBS Entities x 10% = approximately 2 SBS 
Entities. 2 SBS Entities x 1\1/2\ hours = 3 hours.
---------------------------------------------------------------------------

    An SBS Entity must also re-certify on Schedule F of such Forms 
within 90-days after any changes in the legal or regulatory framework 
that would impact the SBS Entity's ability to provide, or manner in 
which it provides, the Commission with prompt access to its books and 
records or that impacts the Commission's ability to inspect and examine 
the SBS Entity. The SBS Entity's re-certification must be accompanied 
by a revised opinion of counsel regarding the new regulatory regime. We 
do not believe this would occur frequently, and therefore estimate that 
one nonresident entity may need to recertify annually. Thus, the total 
ongoing burden associated with this requirement would be approximately 
1\1/2\ hours and $25,000 annually.
5. Burden Related to Retention of Manually Signed Signature Pages
    Pursuant to Rule 15Fb1-1, each signatory to an electronic filing 
must, when the electronic filing is made, manually sign a signature 
page or other document adopting his or her signature that appears in 
typed form within the electronic filing. This manually signed page must 
be retained by the SBS Entity until at least three years after the form

[[Page 48995]]

or certification has been replaced or is no longer effective. 
Consequently, each SBS Entity will need to maintain at least three 
pages with manually signed signatures (the execution page of Form SBSE, 
SBSE-A, or SBSE-BD, as applicable, Schedule C and Schedule G). In 
addition, nonresident SBS Entities also would need to retain a manually 
signed copy of Schedule F. As so few pages would need to be retained, 
the staff believes the burden associated with retaining them would not 
be significant. Thus, the Commission estimated in the Registration 
Proposing Release that it would take each SBS Entity approximately 10 
minutes annually to assure that these pages are retained.\281\ 
Consequently, it would take approximately 9 hours annually for all SBS 
Entities.\282\
---------------------------------------------------------------------------

    \281\ Registration Proposing Release, at 65811. We received no 
comments on this estimate, and continue to believe it is 
appropriate.
    \282\ (10 minutes x 55 SBS Entities)/60 minutes = 9.17 hours.
---------------------------------------------------------------------------

6. Burden Associated With Filing Withdrawal Form
    As discussed in the Registration Proposing Release, the Commission 
believes that entities will not enter and exit this business regularly 
because the cost and effort to register as an SBS Entity will be 
significant.\283\ As the Form SBSE-W is only one page and consists of 
information readily available to SBS Entities, the Commission estimates 
(based on experience relative to Form BD-W) that it likely would take 
an SBS Entity, on average, approximately one hour to complete and file 
a Form SBSE-W. While the Commission believes it is unlikely that SBS 
Entities will withdraw from registration often or within the first 
year, solely for purposes of this PRA the Commission believes that one 
SBS Entity may file Form SBSE-W to withdraw from registration annually 
and the total burden associated with completing and filing Form SBSE-W 
would be approximately one hour each year.\284\ We included these 
estimates in the Registration Proposing Release and received no comment 
on our estimates. Consequently, the estimated paperwork burden for 
filing Form SBSE-W is one hour annually for all SBS Entities.\285\
---------------------------------------------------------------------------

    \283\ See Registration Proposing Release, at 65811.
    \284\ The burden associated with the requirement to amend Forms 
SBSE, SBSE-A, or SBSE-BD, as appropriate before filing Form SBSE-W 
is included in the burden described with respect to amending those 
forms more generally.
    \285\ 1 hour x 1 entity per year = 1 hour.
---------------------------------------------------------------------------

E. Retention Period of Recordkeeping Requirements

    Proposed Rules 15Fb1-1 through 15Fb6-2 and Forms SBSE, SBSE-A, 
SBSE-BD, and SBSE-W would require that each respondent retain certain 
records and information for three years.

F. Collection of Information is Mandatory

    Any collections of information required pursuant to Rules 15Fb1-1 
through 15Fb6-2 and Forms SBSE, SBSE-A, and SBSE-BD are mandatory to 
permit the Commission to determine whether applicants meet the 
standards for registration, and to fulfill its oversight 
responsibilities.
    The collections of information required pursuant to Rule 15Fb3-2 
and Form SBSE-W are mandatory to allow the Commission to determine 
whether it is in the public interest to allow an SBS Entity to withdraw 
from registration.

G. Confidentiality

    SBS Entity applications on Forms SBSE, SBSE-A, and SBSE-BD 
(including the Schedules and DRPs) filed with the Commission as 
required by Rule 15Fb2-1, will be made public.
    All amendments to SBS Entity applications, required by Rule 15Fb2-
3, will be made public.
    SBS Entities' Form SBSE-C certifications, required by Rules 15Fb2-1 
and 15Fb6-2 and filed as part of their applications, will be made 
public.
    The review and signature of the CCO (or the CCO's designee) that is 
used as the basis for a background check of the associated person to 
verify that the associated person is not subject to statutory 
disqualification, will be retained by the SBS Entity. To the extent the 
Commission obtains copies of these records, they will be kept 
confidential, subject to applicable law.
    SBS Entities' Schedules F and attached opinions of counsel, 
required by Rule 15Fb2-4 and filed with the Commission as part of their 
applications, will be made public. Written consents and powers of 
attorney appointing an agent in the United States for service of 
process obtained and maintained for three years after the agreement is 
terminated to comply with Rule 15Fb2-4 will be retained by the SBS 
Entity. To the extent the Commission obtains copies of these records, 
they will be kept confidential, subject to applicable law.
    Manually signed signature pages or other document adopting 
signatures that appear in typed form within electronic filings 
submitted by SBS Entities that are created are retained by SBS Entities 
in accordance with Rule 15Fb1-1. To the extent the Commission obtains 
copies of these records, they will be kept confidential, subject to 
applicable law.
    SBS Entities' Forms SBSE-W, required by Rule 15Fb3-2 and filed with 
the Commission, will be made public.

V. Economic Analysis

A. Introduction and Broad Economic Considerations

    As discussed above, consistent with our mandate under Title VII of 
the Dodd-Frank Act, the Commission is adopting final rules and forms 
that establish a process by which SBS Entities can register (and 
withdraw from registration) with the Commission. This section presents 
a detailed analysis of the particular economic effects--including the 
costs and benefits and the impact on efficiency, competition, and 
capital formation--that may result from our final rules.
    Section 3(f) of the Exchange Act requires the Commission, when 
engaging in rulemaking that requires the Commission to consider or 
determine whether an action is necessary or appropriate in the public 
interest, to consider, in addition to the protection of investors, 
whether the action will promote efficiency, competition, and capital 
formation. Further, section 23(a)(2) of the Exchange Act requires the 
Commission, when adopting rules under the Exchange Act, to consider the 
impact that any new rule would have on competition and to not adopt any 
rule that would impose a burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Exchange Act.
    In the Registration Proposing Release, the Commission solicited 
comments on all aspects of the costs and benefits associated with the 
proposed rules, including any effect the proposed registration rule may 
have on efficiency, competition, and capital formation. The Commission 
has considered these comments and has modified some of the rules being 
adopted today from the proposal in ways designed to reduce the 
cumulative burden and costs associated with complying with the 
registration requirements. Nonetheless, the Commission recognizes--as 
reflected in the economic analysis--that the final rules establish new 
requirements applicable to SBS Entities and that complying with these 
requirements will entail significant costs to SBS Entities. In 
considering the economic consequences of these final rules we have been 
mindful of the link between various registration requirements and

[[Page 48996]]

the scope of the persons that will register as dealers or Major SBS 
Participants, as well as the direct costs and indirect costs these 
rules will impose on market participants. We have considered the likely 
costs and benefits of the registration process on resident and 
nonresident SBS Entities, security-based swap counterparties, and 
participants in reference security markets. As discussed throughout 
this release, the Commission believes that the new requirements are 
necessary and appropriate for SBS Entity registration and for enabling 
the Commission's effective oversight of security-based swap markets. 
The Commission believes these final registration rules should result in 
substantial benefits and will not impose a burden on competition that 
is not necessary or appropriate in furtherance of the purposes of the 
Exchange Act.
    The final registration rules establish a process that enables 
resident and nonresident market participants that meet SBS Entity 
registration thresholds to register and participate as dealers and 
major participants in U.S. security-based swap markets pursuant to 
Title VII. This section provides background about the rules being 
adopted, placing them in the context of Title VII and identifying 
broader economic considerations behind the more detailed assessment of 
the likely economic effects discussed in the sections that follow. The 
economic analysis addresses, among other things, the effects of the 
final registration rules on both the market participants that are 
expected to register with the Commission and face a compliance burden, 
and on the nonresident market participants from jurisdictions with 
strict blocking laws, privacy laws, secrecy laws and other legal 
barriers that may be legally unable to comply with final SBS Entity 
registration requirements concerning access to books and records.
    The Commission has considered the potential benefits, costs, and 
effects on competition, efficiency and capital formation of 
registration rules as they pertain to resident and nonresident SBS 
Entities and other market participants in Sections V.C, V.D and V.E, 
below. In considering the costs and benefits of these rules, we are 
mindful of the various considerations that must be taken into account 
in establishing the baseline against which these costs and benefits may 
be evaluated. A key consideration is that registration requirements, 
while integral to the regulatory requirements that will be imposed on 
SBS Entities pursuant to Title VII, do not establish the scope or 
nature of substantive requirements of the Title VII regulatory regime 
or their related costs and benefits. Our economic analysis reflects 
rules adopted as part of the Intermediary Definitions Adopting Release, 
the Cross-Border Adopting Release, Regulation SBSR and SDR Rules and 
Core Principles. The economic impact of the final registration rules 
will occur predominantly through the application of the substantive 
requirements outlined in future substantive Title VII rules, without, 
as a general matter, altering the nature of those substantive 
requirements. Although final registration rules do not define the 
specific substantive requirements, they may affect which entities 
register with the Commission and become subject to the Title VII 
requirements, which may influence the overall costs and benefits of 
particular regulatory requirements, and of the Title VII regulatory 
framework as a whole. For example, potential benefits and costs of 
pending clearing, business conduct, and capital and margin 
requirements, may depend on whether and which SBS Entities are required 
to and choose to register as SBS Entities and become subject to the 
Title VII regime, as opposed to exit the U.S. market and remain outside 
of the scope of the Title VII substantive rules. In formulating these 
rules, we have taken into account their anticipated costs and benefits 
to market participants, the incentives of market participants to 
register, and the ability of certain market participants to register 
and continue to participate in U.S. security-based swap markets. Many 
of the effects of the final registration rules flow not from the 
registration process directly, but rather indirectly from establishing 
a population of registered entities subject to the Title VII regulatory 
requirements. If some SBS Entities restructure or lower their security-
based swap market participation in response to final registration 
rules, the ensuing programmatic costs and benefits of the Title VII 
regulatory regime may be impacted.\286\
---------------------------------------------------------------------------

    \286\ As in the Intermediary Definitions Adopting Release, we 
use ``programmatic costs and benefits'' to refer to economic costs 
and benefits that stem from having a population of registered 
entities complying with the fully-implemented Title VII regulatory 
regime.
---------------------------------------------------------------------------

    Title VII provides a statutory framework for the OTC derivatives 
market and divides authority to regulate that market between the CFTC 
(which regulates swaps) and the Commission (which regulates security-
based swaps). The Title VII framework requires certain market 
participants to register with the Commission as SBS Dealers or Major 
SBS Participants and subjects such entities to certain requirements. 
The economic analysis below considers both the various required 
disclosures and certifications in the rules being adopted, and how they 
compare to alternatives, such as CFTC swap dealer and major swap 
participant registration rulemakings. We have assessed whether certain 
SBS Entities may have already registered with the CFTC as swap dealers 
or major swap participants, and how potential differences in 
registration requirements may lead to frictions in single-name CDS and 
index CDS markets.
    The Commission is cognizant of the potential flow from regulations 
that impact security-based swap markets into underlying securities 
markets. End-users may demand security-based swaps in order to hedge or 
mitigate credit risk of reference securities. For example, since CDS 
can protect bond investors, CDS may reduce fire sale risk, increase 
liquidity of underlying bonds and decrease yield spreads. As both CDS 
and corporate bonds price credit risk of the underlying reference 
security, information may flow between the two markets. These channels 
would indicate a potential positive spillover effect between 
transparency, pricing and liquidity in security-based swap markets, and 
market quality in bond markets, with implications for firm ability to 
place debt and raise external financing necessary for real investments. 
At the same time, CDS markets are sometimes more liquid than the 
underlying bond markets and dominated by large institutional traders, 
hence, price discovery and liquidity in the single name CDS market need 
not necessarily translate into informational efficiency or liquidity in 
the underlying bond markets. In formulating the registration rules 
being adopted, the Commission has considered the likely effects of 
registration-related disclosure requirements, requirements that might 
preclude certain nonresident SBS Entities from registering, and the 
overall registration burden for SBS Entities on security-based swap and 
reference security markets.
    The final registration rules govern the application process for 
entities required to register with the Commission as SBS Entities, as 
well as withdrawal, cancellation and revocation of registration, and 
include certifications relating to policies and procedures addressing 
compliance, access to books and records, and statutorily disqualified 
persons who effect or are involved in effecting security-based swap 
transactions. The Commission has sought to accommodate a variety of

[[Page 48997]]

expected SBS Entity filers with tailored registration forms designed to 
minimize the economic costs of registration for some SBS Entities that 
are already filing similar information with regulatory authorities. The 
final registration rules include registration forms SBSE, SBSE-A for 
entities already registered with the CFTC as swap dealers or major swap 
participants, SBSE-BD for entities already registered with the 
Commission as broker dealers, and SBSE-W for withdrawal from 
registration.
    At the outset, the Commission notes that, where possible, it has 
attempted to quantify the costs, benefits, and effects on efficiency, 
competition, and capital formation expected to result from adopting 
these rules and forms. In many cases, however, the Commission is unable 
to quantify the economic effects because it lacks the information 
necessary to provide a reasonable estimate. For example, we lack data 
on the complexity and variety of current SBS Entity business structures 
and activities; the degree of SBS Entity business reliance on 
associated persons subject to a statutory disqualification, as well as 
the location and specificity of expertise of such persons; the 
feasibility of potential restructuring through which nonresident SBS 
Entities may be able to bring themselves out of the potential reach of 
foreign blocking laws, privacy laws, secrecy laws and other legal 
barriers; profitability of SBS Entity dealing activities at different 
transaction volumes; and how other SBS Entities, new entrants, and 
other market participants, including those currently not transacting in 
security-based swap markets, may react to individual registration 
rules. To the best of our knowledge, no such data are publicly 
available and commenters have not provided data to allow such 
quantification. Further, the compliance date for registration rules is 
the later of six months after publication in the Federal Register of 
final capital, margin and segregation rules; the compliance date of 
final rules establishing recordkeeping and reporting requirements for 
SBS Entities; the compliance date of final rules establishing business 
conduct requirements under Exchange Act Sections 15F(h) and 15F(k); or 
the compliance date for final rules establishing a process for a 
registered SBS Entity to make an application to the Commission to allow 
an associated person who is subject to a statutory disqualification to 
effect or be involved in effecting security-based swaps on the SBS 
Entity's behalf. Therefore, we cannot quantify how market participants 
currently expected to register as SBS Entities may choose to 
restructure or cease their U.S. security-based swap market 
participation in response to the pending substantive requirements of 
Title VII, or whether or how many new participants may choose to enter 
the U.S. security-based swap market as SBS Entities in order to avail 
themselves of the greater transparency and counterparty protections 
stemming from Title VII. Where we cannot quantify, we discuss in 
qualitative terms the economic effects, including the costs and 
benefits, of entity registration.

B. Baseline

    To assess the economic impact of the final rules described in this 
release, we are using as our baseline the security-based swap market as 
it exists at the time of this release, including applicable rules we 
have already adopted but excluding rules that we have proposed but not 
yet finalized.\287\ The analysis includes the statutory and regulatory 
provisions that currently govern the security-based swap market 
pursuant to the Dodd-Frank Act, as well as rules adopted in the 
Intermediary Definitions Adopting Release, the Cross-Border Adopting 
Release, the Regulation SBSR Adopting Release, and the SDR Rules and 
Core Principles Adopting Release.\288\ Our understanding of the market 
is informed by available data on security-based swap transactions, 
though we acknowledge the data limit the extent to which we can 
quantitatively characterize the market. Because these data do not cover 
the entire market, we have developed an understanding of market 
activity using a sample that includes only certain portions of the 
market.
---------------------------------------------------------------------------

    \287\ We also considered, where appropriate, the impact of rules 
and technical standards promulgated by other regulators, such as the 
CFTC and the European Securities and Markets Authority, on practices 
in the security-based swap market.
    \288\ As noted above, we have not yet adopted other substantive 
requirements of Title VII that may affect how firms structure their 
security-based swap business and market practices more generally.
---------------------------------------------------------------------------

1. Current Security-Based Swap Market
    Our analysis of the state of the current security-based swap market 
is based on data obtained from the DTCC Derivatives Repository Limited 
Trade Information Warehouse (``TIW''), especially data regarding the 
activity of market participants in the single-name credit-default swap 
(``CDS'') market during the period from 2008 to 2014. According to data 
published by the Bank for International Settlements (``BIS''), the 
global notional amount outstanding in equity forwards and swaps as of 
December 2014 was $2.50 trillion. The notional amount outstanding in 
single-name CDS was approximately $9.04 trillion, in multi-name index 
CDS was approximately $6.75 trillion, and in multi-name, non-index CDS 
was approximately $611 billion.\289\ Our analysis in this release 
focuses on the data relating to single-name CDS. As we have previously 
noted, although the definition of security-based swaps is not limited 
to single-name CDS, we believe that the single-name CDS data are 
sufficiently representative of the market and therefore can directly 
inform the analysis of the state of the current security-based swap 
market.\290\
---------------------------------------------------------------------------

    \289\ See Semi-annual OTC derivatives statistics at December 
2014, Table 19, available at http://www.bis.org/statistics/dt1920a.pdf (accessed July 29, 2015).
    \290\ While other repositories may collect data on transactions 
in total return swaps on equity and debt, we do not currently have 
access to such data for these products (or other products that are 
security-based swaps). In the Cross-Border Proposing Release, we 
explained that we believed that data related to single-name CDS was 
reasonable for purposes of this analysis, as such transactions 
appear to constitute roughly 82% of the security-based swap market 
as measured on a notional basis. See Cross-Border Proposing Release, 
footnote 1301 at 31120. No comments disputed these assumptions, and 
we therefore continue to believe that, although the BIS data reflect 
the global OTC derivatives market, and not just the U.S. market, 
these ratios are an adequate representation of the U.S. market.
    Also consistent with our approach in that release, with the 
exception of the analysis regarding the degree of overlap between 
participation in the single-name CDS market and the index CDS market 
(cross-market activity), our analysis below does not include data 
regarding index CDS as we do not currently have sufficient 
information to identify the relative volumes of index CDS that are 
swaps or security-based swaps.
---------------------------------------------------------------------------

    We believe that the data underlying our analysis here provide 
reasonably comprehensive information regarding single-name CDS 
transactions and the composition of the single-name CDS market 
participants. We note that the data available to us from TIW do not 
encompass those CDS transactions that both: (i) Do not involve U.S. 
counterparties; \291\ and (ii) are based on non-U.S. reference 
entities. Notwithstanding this limitation, we believe that the TIW data 
provide sufficient information to identify the types of market 
participants active in the security-based swap market and the general 
pattern of dealing within that market.\292\
---------------------------------------------------------------------------

    \291\ We note that DTCC-TIW's entity domicile determinations may 
not reflect our definition of ``U.S. person'' in all cases. Our 
definition of ``U.S. person'' follows the Cross-Border Adopting 
Release, at 47303.
    \292\ The challenges we face in estimating measures of current 
market activity stems, in part, from the absence of comprehensive 
reporting requirements for security-based swap market participants. 
The Commission has adopted rules regarding trade reporting, data 
elements, and public reporting for security-based swaps that are 
designed to, when fully implemented, provide us with appropriate 
measures of market activity. See Regulation SBSR Adopting Release, 
at 14699-700.

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

[[Page 48998]]

    Final registration rules require nonresident SBS Entities to make a 
certification that they can, as a matter of law, and will provide the 
Commission with prompt access to books and records and submit to onsite 
inspection and examination by the Commission. As anticipated in the 
Registration Proposing Release and noted by commenters, nonresident SBS 
Entities in a number of foreign jurisdictions that have blocking laws, 
privacy laws, secrecy laws and other legal barriers may be unable to 
comply with this requirement as it may conflict with the laws in their 
home jurisdictions. The following sections discuss common dealing 
structures, participant domiciles and market centers, and quantify 
extensive nonresident SBS Entity participation and cross-border trading 
in security-based swap markets as they exist today.
i. Dealing Structures and Participant Domiciles
    Dealers occupy a central role in the security-based swap market and 
SBS Dealers use a variety of business models and legal structures to 
engage in dealing business with counterparties in jurisdictions all 
around the world.\293\ As we noted in the Cross-Border Adopting Release 
and discussed below, both U.S.-based and foreign-based entities use 
certain dealing structures for a variety of legal, tax, strategic, and 
business reasons.\294\ Dealers may use a variety of structures in part 
to reduce risk and enhance credit protection based on the particular 
characteristics of each entity's business.
---------------------------------------------------------------------------

    \293\ Commission staff analysis of TIW transaction records 
indicates that approximately 99% of single-name CDS price-forming 
transactions in 2014 involved an ISDA-recognized dealer. ``Price-
forming transactions'' include all new transactions, assignments, 
modifications to increase the notional amounts of previously 
executed transactions, and terminations of previously executed 
transactions. Transactions terminated, transactions entered into in 
connection with a compression exercise, and expiration of contracts 
at maturity are not considered price forming and are therefore 
excluded, as are replacement trades and all bookkeeping-related 
trades. See Cross-Border Proposing Release, footnote 1312 at 31121. 
For the purpose of this analysis, the ISDA-recognized dealers are 
those identified by ISDA as belonging to the dealer group, including 
JP Morgan Chase, Morgan Stanley, Bank of America, Goldman Sachs, 
Deutsche Bank, Barclays, Citigroup, UBS, Credit Suisse, RBS Group, 
BNP Paribas, HSBC, Soci[eacute]t[eacute] G[eacute]n[eacute]rale, 
Credit Agricole, Wells Fargo, and Nomura. See, e.g., http://www2.isda.org/functional-areas/research/surveys/operations-benchmarking-surveys/.
    \294\ See Cross-Border Adopting Release, at 30976.
---------------------------------------------------------------------------

    Bank and non-bank holding companies may use subsidiaries to deal 
with counterparties. A U.S.-based holding company may engage in dealing 
activity through a foreign subsidiary that faces both U.S. and foreign 
counterparties, and foreign dealers may choose to deal with U.S. and 
foreign counterparties through U.S. subsidiaries. Similarly, a non-
dealer user of security-based swaps may participate in the market using 
an agent in its home country or abroad. An investment adviser located 
in one jurisdiction may transact in security-based swaps on behalf of 
beneficial owners that reside in another.
    In some situations, an entity's performance under security-based 
swaps may be supported by a guarantee provided by an affiliate. Such 
guarantees may take the form of a blanket guarantee of an affiliate's 
performance on all security-based swap contracts, or a guarantee may 
apply only to a specified transaction or counterparty. Guarantees may 
give counterparties to a dealer direct recourse to the holding company 
or another affiliate for its dealer-affiliate's obligations under 
security-based swaps for which that dealer-affiliate acts as 
counterparty.

[[Page 48999]]

[GRAPHIC] [TIFF OMITTED] TR14AU15.000

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

    \295\ Following publication of the Warehouse Trust Guidance on 
CDS data access, 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 TIW. When an account does not report a 
registered office location, we have 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.
---------------------------------------------------------------------------

    As depicted in Figure 1, the domicile of new accounts participating 
in the market has shifted 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. Alternatively, 
the shifts in new account domicile we observe in Figure 1 may be 
unrelated to restructuring or increased foreign participation. For 
example, changes in the domicile of new accounts over time may reflect 
improvements in reporting by market participants to TIW rather than a 
change in market participant structure. Additionally, because the data 
only include 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 or increased transactions in single-name CDS on U.S. 
reference entities by foreign persons.
ii. Market Centers
    Security-based swap participants currently appear to be active in 
market centers across the globe. Participants in the security-based 
swap market may bear the financial risk of a security-based swap 
transaction in a location different from the location where the 
transaction is arranged, negotiated, or executed or the location where 
economic decisions are made by managers on behalf of beneficial owners. 
Similarly, a participant in the security-based swap market may be 
exposed to counterparty risk from a jurisdiction that is different from 
the market center or centers in which it participates. Depending on the 
U.S. person status of the counterparties and the location of the 
activity, security-based swap transactions that occur across borders or 
within foreign jurisdictions may trigger U.S. registration requirements 
and may also be subject to rules in foreign jurisdictions.
    The TIW transaction records include, in many cases, information on 
particular branches involved in transactions, which may provide limited 
insight as to where security-based swap activity is actually being 
carried out.\296\ These data indicate branch locations in New York,

[[Page 49000]]

London, Tokyo, Hong Kong, Chicago, Sydney, Toronto, Frankfurt, 
Singapore and the Cayman Islands. Because transaction records in the 
TIW data provided to the Commission do not indicate explicitly the 
location in which particular transactions were arranged, negotiated or 
executed, these locations may not represent the full set of locations 
in which activities relevant for these proposed rules take place. 
Moreover, because we cannot identify the location of transactions 
within TIW, we are unable to estimate the general distribution of 
transaction volume across market centers.
---------------------------------------------------------------------------

    \296\ The value of this information is limited in part because 
some market participants may use business models that do not involve 
branches to carry out business in jurisdictions other than their 
home jurisdiction. For example, some market participants may use 
affiliated or unaffiliated agents to enter into security-based swap 
transactions in other jurisdictions on their behalf. The available 
data currently does not allow us to identify with certainty which 
type of structure is being used in any particular transaction.
---------------------------------------------------------------------------

iii. Current Estimates of Number of SBS Dealers and Major SBS 
Participants
    In the Regulation SBSR Adopting Release, we estimated, based on an 
analysis of TIW data, that out of more than 4,000 entities engaged in 
single-name CDS activity worldwide in 2013, 170 entities engaged in 
single-name CDS activity at a sufficiently high level that they would 
be expected to incur assessment costs to determine whether they meet 
the ``security-based swap dealer'' definition.\297\ Approximately 45 of 
these entities are non-U.S. persons and are expected to incur 
assessment costs as a result of engaging in dealing activity with 
counterparties that are U.S. persons or engaging in dealing activity 
that involves recourse to U.S. persons.\298\ Analysis of those data 
further indicated that potentially 50 entities may engage in dealing 
activity that would exceed the de minimis threshold, and thus 
ultimately have to register as SBS Dealers. 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.\299\
---------------------------------------------------------------------------

    \297\ See Regulation SBSR Adopting Release, at 14693.
    \298\ See Exchange Act Rule 3a71-3(b).
    \299\ See Regulation SBSR Adopting Release 14693. Also See 
Cross-Border Adopting Release, footnotes 150 and 153 at 47296 and 
47297 (describing the methodology employed by the Commission to 
estimate the number of potential SBS Dealers and Major SBS 
Participants).
---------------------------------------------------------------------------

    As we noted in the Cross-Border Dealing Activity Proposing Release, 
updated analysis of 2014 data leaves many of these estimates largely 
unchanged.\300\ We estimate that approximately 170 entities engaged in 
single-name CDS activity at a sufficiently high level that they would 
be expected to incur assessment costs to determine whether they meet 
the ``security-based swap dealer'' definition. Approximately 56 of 
these entities are non-U.S. persons. Of the approximately 50 entities 
that we estimate may potentially register as SBS Dealers, we believe it 
is reasonable to expect 22 to be non-U.S. persons.\301\
---------------------------------------------------------------------------

    \300\ See Cross Border Dealing Activity Proposing Release, at 
27452.
    \301\ These estimates are based on the number of accounts in 
DTCC-TIW data with total notional volume in excess of de minimis 
thresholds, increased by a factor of two, to account for any 
potential growth in the security-based swap market, to account for 
the fact that we are limited in observing transaction records for 
activity between non-U.S. persons that reference U.S. underliers, 
and to account for the fact that we do not observe security-based 
swap transactions other than in single name CDS. See Cross Border 
Dealing Activity Proposing Release, 80 FR at 27452. Also see 
Intermediary Definitions Adopting Release, foonote 1457 at 30725.
---------------------------------------------------------------------------

    In addition, in the proposed registration requirements for SBS 
Dealers and Major SBS Participants, we estimated, based on our 
experience and understanding of the swap and security-based swap 
markets that of the 55 firms that might register as SBS Dealers or 
Major SBS Participants, approximately 35 would also register with the 
CFTC as swap dealers or major swap participants.\302\ Available data 
suggest that these numbers remain largely unchanged.\303\ Finally, 
based on our analysis of TIW data and supervisory filings, we estimate 
that sixteen market participants expected to register as SBS Entities 
have already registered with the Commission as broker-dealers. In sum, 
based on our analysis of TIW data and the current population of 
registered broker-dealers, swap dealers, and OTC derivative dealers, we 
anticipate that up to four entities seeking to register with the 
Commission as SBS Entities will not have already registered as broker-
dealers or as swap dealers.
---------------------------------------------------------------------------

    \302\ See Registration Proposing Release, at 65808.
    \303\ Based on our analysis of 2014 DTCC-TIW data and the list 
of swap dealers provisionally-registered with the CFTC, and applying 
the methodology used in the Intermediary Definitions Adopting 
Release, we estimate that substantially all registered security-
based swap dealers would also register as swap dealers with the 
CFTC. See Cross Border Dealing Activity Proposing Release, at 27458. 
See also CFTC list of provisionally registered swap dealers, 
available at http://www.cftc.gov/LawRegulation/DoddFrankAct/registerswapdealer.
---------------------------------------------------------------------------

2. Levels of Security-Based Swap Trading Activity
    Below we describe the levels of security-based swap trading 
activity and its concentration among SBS Dealers and Major SBS 
Participants. Since registration rules may affect resident and 
nonresident SBS Entities differently, we further discuss domicile 
issues and participant structures operating across jurisdictions in 
security-based swap markets as they exist today.
    Single-name CDS contracts make up the vast majority of security-
based swap products and most are written on corporate issuers, 
corporate securities, sovereign countries, or sovereign debt (reference 
entities and securities). Figure 2 below describes the percentage of 
global, notional transaction volume in North American corporate single-
name CDS reported to the TIW between January 2008 and December 2014, 
separated by whether transactions are between two ISDA-recognized 
dealers (inter-dealer transactions) or whether a transaction has at 
least one non-dealer counterparty.
    Annual trading activity with respect to North American corporate 
single-name CDS in terms of notional volume has declined from more than 
$6 trillion in 2008 to less than $3 trillion in 2014.\304\ While 
notional volume has declined over the past six years, the portion of 
the notional volume represented by inter-dealer transactions has 
remained fairly constant and inter-dealer transactions continue to 
represent a significant majority of trading activity, whether measured 
in terms of notional value or number of transactions (see Figure 2).
---------------------------------------------------------------------------

    \304\ The start of this decline predates the enactment of the 
Dodd-Frank Act and the proposal of rules thereunder, which is 
important to note for the purpose of understanding the economic 
baseline for this rulemaking.
---------------------------------------------------------------------------

    The high level of inter-dealer trading activity reflects the 
central position of a small number of dealers, each of which 
intermediates trades between many hundreds of counterparties. While the 
Commission is unable to quantify the current level of trading costs for 
single-name CDS, dealers appear to enjoy market power as a result of 
their small number and the large proportion of order flow they 
privately observe. This market power in turn appears to be a key 
determinant of trading costs in this market.

[[Page 49001]]

[GRAPHIC] [TIFF OMITTED] TR14AU15.001

    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 we 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 TIW accounts, the 
Commission estimates that only 12 percent of the global transaction 
volume by notional volume between 2008 and 2014 was between two U.S.-
domiciled counterparties, compared to 48 percent entered into between 
one U.S.-domiciled counterparty and a foreign-domiciled counterparty 
and 40 percent entered into between two foreign-domiciled 
counterparties (see Figure 3).\305\
---------------------------------------------------------------------------

    \305\ For purposes of this discussion, we have assumed that the 
registered office location reflects the place of domicile for the 
fund or account, but we note that this domicile does not necessarily 
correspond to the location of an entity's sales or trading desk. See 
Cross Border Dealing Activity Proposing Release, footnote 44, at 
27451.
---------------------------------------------------------------------------

    When the domicile of TIW accounts is instead defined according to 
the domicile of an account holder's ultimate parents, headquarters, or 
home offices (e.g., classifying a foreign bank 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 32 percent, and to 51 percent 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 40 percent to 17 percent 
when domicile is defined as the ultimate parent's domicile. As noted 
earlier, foreign subsidiaries of U.S. parent companies and foreign 
branches of U.S. banks, and U.S. subsidiaries of foreign parent 
companies and U.S. branches of foreign banks may transact with U.S. and 
foreign counterparties. However, this change in respective shares based 
on different classifications suggests that the activity of foreign 
subsidiaries of U.S. firms and foreign branches of U.S. banks is 
generally higher than the activity of U.S. subsidiaries of foreign 
firms and U.S. branches of foreign banks.

[[Page 49002]]

[GRAPHIC] [TIFF OMITTED] TR14AU15.002

    Non-dealer participants remain active in the single name CDS 
market. Based on our analysis of DTCC-TIW data on single name CDS 
positions as of the end of 2014, the total notional outstanding of non-
dealer accounts was approximately $1.3 trillion. There were three 
market participants with total notional outstanding of over $50 
billion, 16 market participants with total notional between $10 billion 
and $50 billion, 144 market participants with total notional between $1 
billion and $10 billion and 748 participants with total notional 
outstanding in single name CDS under $1 billion.
3. Cross-Market Participation
    As noted in the Cross-Border Dealing Activity Proposing Release, 
persons registered as SBS Dealers or Major SBS Participants are likely 
also to engage in swap activity, which is subject to regulation by the 
CFTC.\306\ Indeed, as we discuss above, we estimate that of the 55 
firms that might register as SBS Dealers or Major SBS Participants, 
approximately 35 will also register with the CFTC as swap dealers or 
major swap participants.
---------------------------------------------------------------------------

    \306\ See Cross Border Dealing Activity Proposing Release, at 
27458.
---------------------------------------------------------------------------

    This overlap reflects the relationship between single-name CDS 
contracts, which are security-based swaps, and index CDS contracts, 
which may be swaps or security-based swaps. A single-name CDS contract 
covers default events for a single reference entity or reference 
security. Index CDS contracts and related products make payouts that 
are contingent on the default of index components and allow 
participants in these instruments 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. 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 CDS and index 
CDS products, prices of these products depend upon one another,\307\ 
creating hedging opportunities across these markets.
---------------------------------------------------------------------------

    \307\ ``Correlation'' typically refers to linear relationships 
between variables; ``dependence'' captures a broader set of 
relationships that may be more appropriate for certain swaps and 
security-based swaps. See, e.g., Casella, George and Roger L. 
Berger, ``Statistical Inference'' (2002), at 171.
---------------------------------------------------------------------------

    These hedging opportunities mean that participants that are active 
in one market are likely to be active in the other. Commission staff 
analysis of approximately 4,500 TIW accounts that participated in the 
market for single-name CDS in 2014 revealed that approximately 2,500 of 
those accounts, or 56 percent, also participated in the market for 
index CDS. Of the accounts that participated in both markets, data 
regarding transactions in 2014 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 60 percent; 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 11 percent.
    Activity in security-based swap markets can impact underlying 
securities markets. Security-based swaps may be used in order to hedge 
or speculate on credit risk of reference securities. For instance, 
prices of both CDS and corporate bonds are sensitive to the credit risk 
of underlying reference securities and, therefore, trading across 
markets may sometimes result in a potential positive spillover effect 
between informational efficiency, pricing and liquidity in security-
based swap markets, and market quality in bond markets. At the same 
time, if some large institutional traders prefer to transact on their 
credit risk information

[[Page 49003]]

in more liquid markets in order to minimize price impact and improve 
execution quality, price discovery and liquidity in the single name CDS 
market may draw out these sophisticated investors and lead to a drying 
up of liquidity in the underlying bond markets.\308\
---------------------------------------------------------------------------

    \308\ Empirical evidence on the direction and significance of 
the CDS-bond market spillover is mixed. Massa and Zhang (2012) 
consider whether the presence of CDS improves pricing and liquidity 
of investment grade bonds in 2001-2009. They find a positive effect, 
strongest during the financial crisis period, and document a 
dampened effect of shocks on bond liquidity and spreads for bonds 
with CDS contracts. Das et al., (2014) consider the effects of CDS 
trading on the efficiency, pricing error and liquidity of corporate 
bond markets. They find that efficiency in corporate bond markets 
has not improved after the introduction of CDS trading and find no 
evidence of increases in market quality or bond liquidity. Boehmer, 
Chava and Tookes (2015) find the emergence of CDS has adversely 
affected equity market quality. Firms with traded CDS contracts on 
their debt experience significantly lower liquidity and price 
efficiency when these firms are closer to default and in times of 
high market volatility.
     See Massa & L. Zhang, CDS and the Liquidity Provision in the 
Bond Market (INSEAD Working Paper No. 2012/114/FIN, 2012), available 
at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2164675; M. 
Oehmke & A. Zawadowski, The Anatomy of the CDS Market (Working 
Paper, 2014), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2023108; S. Das, M. Kalimipalli & S. Nayak, 
Did CDS Trading Improve the Market for Corporate Bonds?, 111 J. Fin. 
Econ. 495 (2014); H. Tookes, E. Boehmer & S. Chava, Related 
Securities and Equity Market Quality: The Cases of CDS, forthcoming, 
J. Fin. & Quant. Analysis.
---------------------------------------------------------------------------

    Because of this link between security-based swaps and their 
underlying reference securities, registration rules are expected to 
affect not only SBS Entities and their counterparties, but also 
investors in underlying reference security markets. In the sections 
that follow we discuss and, wherever possible, quantify the potential 
costs and benefits of registration for affected parties.
4. Statutory Disqualification
    The final registration rules require SBS Entities to certify that 
no associated person that effects or is involved in effecting security-
based swaps on behalf of the SBS Entity is subject to statutory 
disqualification. The rule implements Exchange Act 15F(b)(6) that makes 
it unlawful for SBS Entities to permit associated persons subject to 
statutory disqualification to effect or be involved in effecting 
security-based swaps on behalf of SBS Entities, except to the extent 
otherwise specifically provided by rule, regulation, or order of the 
Commission. The Commission has provided temporary relief from the 
Exchange Act Section 15F(b)(6) prohibition for persons who were 
associated with an SBS Entity as of July 16, 2011; this temporary 
exception expires on the effective date of adopted SBS Entity 
registration rules.\309\
---------------------------------------------------------------------------

    \309\ See Effective Date Release, at 36301-02.
---------------------------------------------------------------------------

    Thus, there are currently no registered SBS Entities required to 
comply with either the statutory disqualification certifications in the 
final registration rules, or the prohibition in Exchange Act Section 
15F(b)(6) on associated statutorily disqualified persons effecting or 
involved in effecting security-based swaps on behalf of SBS Entities. 
Therefore, the appropriate baseline reflects the state of the world 
with relief from the general prohibition on disqualified associated 
persons effecting or being involved in effecting security-based swaps 
on behalf of SBS Entities.
    In evaluating the economic effects of final registration rules, we 
are mindful of the fact that due to the temporary relief currently in 
place, entities that are expected to register with the Commission as 
SBS Entities may not have restructured their business to be in 
compliance with the statutory prohibition in Exchange Act Section 
15F(b)(6) and may currently be associating with disqualified persons 
for the purposes of effecting security-based swaps. Since the CFTC's 
approach excepts associated entities from the scope of the 
disqualification requirement, SBS Entities that have cross-registered 
as swap entities may be continuing to associate with disqualified 
persons that are entities, but may have reassigned their current 
employees, hired new employees or secured natural person waivers from 
the NFA.

C. Benefits of Registration

    The economic benefits of entity registration stem from two sources: 
(1) The direct benefits of registration, such as requirements to 
provide information regarding disciplinary history and Senior Officer 
Certifications; and (2) the benefits that flow from having a population 
of registered participants complying with the Title VII regulatory 
framework for SBS Entities.
1. Direct Benefits
    The certifications and other requirements contained in the final 
registration rules may enable the Commission to more effectively 
oversee security-based swap markets. The Senior Officer Certification 
requirement helps ensure that the CCO considers whether an SBS Entity 
has developed and implemented written policies and procedures that 
would be reasonably designed to prevent violations of federal 
securities laws and rules thereunder. Information about SBS Entities 
and their control affiliates, including disciplinary history, may 
facilitate ongoing Commission risk assessments and oversight of SBS 
markets, as well as help market participants make more informed 
counterparty choices. Associated person certifications help ensure 
associated persons subject to a statutory disqualification, who may 
pose a risk to participants, are precluded from effecting or being 
involved in effecting security-based swap transactions on behalf of SBS 
Entities absent a Commission rule, regulation or order. The books and 
records certification helps to ensure the Commission will have access 
to records and data of nonresident SBS Entities to facilitate ongoing 
risk assessments and market surveillance, and that, like resident SBS 
Entities, all nonresident SBS Entities are able to be subject to 
Commission inspections and examinations as part of its regulatory 
oversight of SBS Entities.
i. Disciplinary History and Other Information
    Final registration rules require SBS Entities to submit to the 
Commission information about their business, including business 
description, registration status with other regulators and disciplinary 
histories, including those of control affiliates, with the information 
subsequently being made public by the Commission. Although much of the 
information required by registration forms is already publicly 
available for entities that are registered with the Commission as 
broker-dealers or with the CFTC as swap dealers, entities that are not 
cross-registered will make some of this information--for instance, 
disciplinary history of control affiliates--publicly available for the 
first time. All new entrants that are not cross-registered would have 
to provide this information as well, including as it pertains to their 
control affiliates. Further, SBS Entities seeking to avail themselves 
of the relief for associated entity disqualifications that precede the 
compliance date of final registration rules, will have to provide a 
list of disqualified associated entities which will be made public by 
the Commission as part of the registration application. The Commission 
believes these requirements may facilitate ongoing oversight of SBS 
Entities and may help market participants make more informed 
counterparty decisions.
    Informational asymmetry can negatively affect market participation 
and decrease the amount of trading--a problem commonly known as adverse

[[Page 49004]]

selection.\310\ For example, when information about the quality of a 
counterparty is scarce, market participants may be less willing to 
enter into transactions and the overall level of trading may fall. To 
the extent that adverse selection costs are present in security-based 
swap markets, market participants may become more informed and may 
increase their activity in security-based swaps, which may improve 
market quality.
---------------------------------------------------------------------------

    \310\ George A. Akerlof, The Market For ``Lemons'': Quality 
Uncertainty and the Market Mechanism, 84 Q.J. Econ. 488 (1970).
---------------------------------------------------------------------------

    To the extent that SBS market participants consider disciplinary 
history important in selecting security-based swap market 
counterparties, this registration requirement may help market 
participants make more informed counterparty choices. This requirement 
may also reduce counterparty selection of SBS Entities that have been 
the subject of disciplinary actions. Moreover, SBS Entities, knowing 
that disciplinary history must now be disclosed, may have further 
incentives to avoid engaging in misconduct (or may exit the market). 
The increased dissemination of information regarding disciplinary 
history may lead to improved quality-based competition among SBS 
Entities to the extent that market participants rely on this 
information in the selection process. Additionally, disciplinary 
history information on SBS Entities and their control affiliates may 
inform ongoing Commission oversight, risk assessments, and examination 
priorities.
ii. Statutory Disqualification
    As discussed in section V.B., SBS Entities may currently be 
permitting disqualified persons to effect or be involved in effecting 
security-based swaps. Associated person certifications are designed to 
help ensure that associated persons subject to a statutory 
disqualification, who may pose a risk to counterparties and the 
integrity of security-based swap markets as a whole, are precluded from 
effecting or being involved in effecting security-based swap 
transactions on behalf of SBS Entities absent a Commission rule, 
regulation or order. The associated person requirement may offer a 
degree of counterparty protection, which may differ for natural persons 
and entities, and induce market participants to increase their 
transaction volume or enter the market for the first time.
    The Commission has received comment urging a narrower definition of 
associated persons to include only natural persons, consistent with the 
CFTC's approach, arguing that ``business disruptions and other 
ramifications stemming from an entire entity being statutorily 
disqualified from effecting or being involved in effecting security-
based swaps could be considerable.'' \311\ Based on an analysis of 
DTCC-TIW and Form BD data, approximately three quarters of entities 
that are likely to trigger registration thresholds based on their 
dealing activity in single name CDS accounting for approximately 86% of 
overall U.S. CDS dealing activity in 2014 may be associating with a 
statutorily disqualified entity. Crucially, however, the general 
statutory prohibition and the requirements of final registration rules 
apply not to all associated entities, but only to those entities 
effecting or involved in effecting security-based swaps on behalf of 
SBS Entities. In addition, SBS Entities currently intermediating 
security-based swaps are frequently part of complex organizational 
structures, which may include hundreds of entities. While we estimate 
that approximately three quarters of potential registrants may be 
associating with a statutorily disqualified entity, the Commission 
lacks data or other information indicating whether associated 
disqualified entities are effecting or involved in effecting security-
based swaps on their behalf. We are, therefore, unable to determine 
whether and which SBS Entities may be affected by the final 
registration rule implementing the general statutory prohibition. 
However, taking into account commenter concerns, final rules allow SBS 
Entities to permit disqualified associated entity persons associated 
with them when they file applications to register with the Commission 
to effect or be involved in effecting security-based swaps on their 
behalf if the statutory disqualification(s) occurred prior to the 
compliance date of final registration rules. This aspect of the final 
rules benefits primarily those SBS Entities that associate with 
disqualified entities for their security-based swap dealing and would 
have had to incur costs of discontinuing current associations with 
disqualified entities and associating with different non-disqualified 
entities for the purposes of security-based swap transactions. This 
treatment of associated persons seeks to reduce potential costs for SBS 
Entities.
---------------------------------------------------------------------------

    \311\ See SIFMA letter at 8.
---------------------------------------------------------------------------

    The Commission recognizes that this exception may reduce potential 
counterparty benefits of a general prohibition on disqualified persons 
effecting or being involved in effecting security-based swaps on behalf 
of SBS Entities. We note that final rules require SBS Entities to 
provide a list of associated entities subject to statutory 
disqualification seeking to avail themselves of this relief, which will 
facilitate ongoing Commission supervision of SBS Entities, including as 
it pertains to disqualified entities. We also note that currently 
inter-dealer transactions account for over 60% of single-name CDS 
transactions, which reflects the central position of a small number of 
dealers, each of which may intermediate trades between many hundreds of 
counterparties. As a practical matter, SBS Entities may be able to 
easily reassign or disassociate from disqualified natural persons, 
whereas disassociating from disqualified entity persons may require 
significant business restructuring by SBS Entities. In light of the 
above considerations and of the central position of SBS Entities in 
security-based swap markets, this provision considers counterparty 
protections of the general prohibition and the risk of market 
disruptions.
iii. Senior Officer Certification and Nonresident Entity Certification
    The Senior Officer Certification and Nonresident Entity 
Certification requirements facilitate the Commission's ongoing 
oversight of resident and nonresident SBS Entities. The Senior Officer 
Certification requires senior officers to certify that SBS Entities 
have developed and implemented written policies and procedures 
reasonably designed to prevent violations of federal securities laws 
and rules thereunder. While the substantive requirement to develop and 
implement policies and procedures stems from pending business conduct 
rules, the certification ensures senior officers have reviewed the SBS 
Entity's policies and procedures, which may facilitate Commission 
oversight of SBS Entities.
    Further, to effectively fulfill its regulatory oversight 
responsibilities with respect to nonresident SBS Entities registered 
with it, the Commission must have access to those entities' records and 
the ability to examine them. The required certification and opinion of 
counsel regarding the nonresident SBS Entity's ability to provide 
prompt access to books and records and to be subject to onsite 
inspection and examination will facilitate ongoing supervision.
iv. Other Direct Benefits
    SBS Entity registration will be implemented with fillable forms 
with a graphical user interface on the EDGAR

[[Page 49005]]

Web site.\312\ Collecting the data in a structured format will allow 
the Commission to make the data public in a manner that will enable 
users of that data to retrieve, search, and analyze the data through 
automated means. This format may lower costs of analyzing possible 
counterparty risks arising from prior misconduct and other registration 
information of a large group of potential counterparties. This may 
enable counterparties and the marketplace to expend less time and money 
to independently obtain and compile information on individual SBS 
Entities. In addition, final registration forms require SBS Entities to 
list UICs for both SBS Entities and for their control affiliates, if 
such entities have UICs. The Commission has elsewhere stated that the 
use of 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.\313\ 
By securing information regarding SBS Entities with the use of UICs and 
through EDGAR Commission staff should be able to more efficiently 
retrieve and analyze the data it needs to effectively carry out its 
mission with respect to SBS Entity activities, including oversight, 
risk assessment, and examination priorities.
---------------------------------------------------------------------------

    \312\ As described in Section II.A.1., we are also developing a 
batch filing process utilizing the eXtensible Markup Language 
(``XML'') tagged data format that firms could use to upload 
application information to the EDGAR system should they choose to do 
so instead of utilizing fillable forms.
    \313\ See Regulation SBSR Adopting Release, at 14709.
---------------------------------------------------------------------------

2. Indirect Benefits
    The final registration rules create an SBS Entity registration 
regime, which facilitates the application of substantive requirements 
of Title VII to registered SBS Dealers and Major SBS Participants. The 
rules adopted in the Intermediary Definitions Adopting Release 
identified the dealing volume and other criteria for an SBS Entity 
determination. The final registration rules and forms rely on the 
adopted intermediary definitions and facilitate the application of 
Title VII requirements, such as capital and margin requirements, 
external business conduct rules, recordkeeping, and reporting 
requirements, to those entities that meet the dealing and major 
participant activity thresholds.
    Security-based swaps are more opaque and complex products than 
corporate bonds or equity. While sophisticated security-based swap 
market participants are likely to have the ability and resources to 
evaluate these complex products, less sophisticated market participants 
may be less able to overcome informational asymmetries when transacting 
with SBS Entities. As discussed above, informational asymmetry can 
negatively affect market participation and lower the amount of trading. 
Final registration rules will facilitate application of the Title VII 
regime with resulting benefits of increasing counterparty protection, 
transparency and regulatory oversight of SBS Entities.
    Since substantive requirements for SBS Entities have not yet been 
adopted, the Commission cannot currently evaluate the combined economic 
effects of facilitating the Title VII regime through registration. 
Importantly, registration requirements may ultimately impact the number 
of entities acting as dealers and major participants and providing 
liquidity to the SBS market, which may affect the programmatic benefits 
and costs of the substantive Title VII requirements. We note that the 
required certifications in the Registration rulemaking may directly 
affect which nonresident SBS Entities can register and be subject to 
the substantive requirements of Title VII (see Section V.E. on 
Efficiency, Competition and Capital Formation).

D. Costs of Registration

1. Direct Compliance Costs
    As discussed in section IV above, the Commission estimates that SBS 
Entities would incur costs of direct compliance associated with: (i) 
Researching and completing the forms, (ii) reviewing, completing and 
submitting the required certifications, and documenting the review 
process, (iii) obtaining or compiling the required questionnaires or 
employment applications, having the CCO review the questionnaires and 
certify that no relevant associated person is subject to statutory 
disqualification, (iv) the requirements that nonresident SBS Entities 
obtain an agreement for U.S. service of process and an opinion of 
counsel stating that they can provide the Commission with access to 
records, and (v) the requirement to retain manually signed signature 
pages.\314\
---------------------------------------------------------------------------

    \314\ See Registration Proposing Release, 76 FR at 65813 through 
65818. 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).
---------------------------------------------------------------------------

    The Commission estimates that filing forms SBSE would incur a cost 
of approximately $47,544,\315\ filing forms SBSE-A would incur a cost 
of approximately $336,770,\316\ and filing forms SBSE-BD would incur a 
cost of approximately $47,544.\317\ The Commission further estimates 
that the total cost associated with the Senior Officer Certification 
would be approximately $666,875 for all entities.\318\ The Commission 
estimates the combined annual cost to SBS Entities of amending their 
applications if they find that the information therein has become 
inaccurate at approximately $46,695 annually.\319\
---------------------------------------------------------------------------

    \315\ This figure is calculated as follows: (Compliance manager 
(42 hours) at $283 per hour) x 4 SBS entities = $47,544.
    \316\ This figure is calculated as follows: (Compliance manager 
(34 hours) at $283 per hour) x 35 SBS entities = $336,770.
    \317\ This figure is calculated as follows: (Compliance manager 
(10\1/2\ hours) at $283 per hour) x 16 SBS entities = $47,544.
    \318\ This figure is calculated as follows: (CCO (5 hours + 20 
hours) at $485 per hour) x 55 SBS Entities = $666,875. We continue 
to believe the pay for a CCO likely would be similar to the amount 
paid to other senior officers. For purposes of this estimate we 
assume that those a senior officer may consult with are paid at 
approximately the same level. See Registration Proposing Release 76 
FR at 65816.
    \319\ This figure is calculated as follows: (Compliance manager 
(1 hour) at $283 per hour) x 3 amendments x 55 SBS Entities = 
$46,695.
---------------------------------------------------------------------------

    Next, we estimate costs from associated person certifications. 
Section IV.D.3. of this release estimated that the total upfront burden 
to all SBS Entities to have their CCOs (or designees) review and sign 
each associated person's employment record and/or conduct whatever 
review may be necessary to assure that each associated natural person 
is not subject to statutory disqualification would be approximately 
23,157 hours, which we estimate may cost up to $11,231,145 for all SBS 
Entities.\320\ The cost of initial certifications for associated entity 
persons is estimated at $1,360,425.\321\
---------------------------------------------------------------------------

    \320\ This figure is calculated as follows: (CCO at $485 per 
hour) x 23,157 hours = $11,231,145. For purposes of this estimate we 
assume that designees are paid at approximately the same level as 
the CCO. If CCO designees, such as attorneys, bear the brunt of the 
burden or are compensated at significantly lower hourly rates in 
some SBS Entities, this assumption may lead us to overestimate the 
compliance cost. We recognize that the job title of the designee, 
extent of delegation and related costs will vary depending on the 
supervisory structure and complexity of each SBS Entity. We believe 
it is reasonable to interpret this figure as an upper bound on the 
potential cost of CCO certification.
    \321\ This figure is estimated as follows: (CCO at $485 per 
hour) x 2,805 hours = $1,360,425. Similar to the initial burden 
calculated above, we assume that CCO designees are paid at 
approximately the same level as CCOs. We believe it is reasonable to 
interpret this figure as an upper bound on the potential cost of CCO 
certification.
---------------------------------------------------------------------------

    The Commission further estimates that the total initial cost for 
all

[[Page 49006]]

nonresident SBS Entities to complete and file Schedule F would be 
approximately $9,339 \322\ in addition to initial outside legal costs 
of approximately $550,000 estimated in Section IV.D.4. The total annual 
cost for all nonresident SBS Entities to amend and file Schedule F on 
an ongoing basis would be approximately $1,273.50 \323\ in addition to 
outside legal costs of approximately $28,938. Lastly, the annual costs 
of retaining manually signed signature pages for all SBS Entities would 
be approximately $2,547 \324\ and the total annual cost of filing the 
withdrawal form for all SBS Entities would be approximately $283.\325\
---------------------------------------------------------------------------

    \322\ This figure is estimated as follows: (Compliance manager 
at $283 per hour) x 1\1/2\ hours x 22 SBS Entities = $9,339.
    \323\ This figure is estimated as follows: ((Compliance manager 
at $283 per hour) x 1\1/2\ hours x 2 SBS Entities to amend for 
changes to agent for service of process) + ((Compliance manager at 
$283 per hour) x 1\1/2\ hours x 1 SBS Entities to amend for changes 
in foreign law) = $1,273.50.
    \324\ This figure is estimated as follows: (Compliance manager 
at $283 per hour) x (10 minutes x 55 SBS Entities)/60 minutes = $283 
* approximately 9 hours = $2,547.
    \325\ This figure is estimated as follows: (Compliance manager 
at $283 per hour) x 1 hour = $283.
---------------------------------------------------------------------------

    Therefore, the Commission estimates that total initial quantifiable 
cost of registration of $14,249,642 \326\ and ongoing costs of 
$79,736.50 \327\ for all SBS Entities.
---------------------------------------------------------------------------

    \326\ This figure is estimated as follows: (Cost of filing forms 
SBSE, SBSE-A, SBSE-BD ($47,544 + $336,770 + $47,544)) + (Cost of 
Senior Officer Certification on form SBSE-C ($666,875)) + (Cost of 
associated person certifications on form SBSE-C ($11,231,145 + 
$1,360,425)) + (Cost of nonresidents filing Schedule F ($9,339)) + 
Cost of outside counsel ($550,000)) = $14,249,642.
    \327\ This figure is estimated as follows: (Amending application 
forms ($46,695)) + (Amending Schedule F (1,273.50)) + (Opinion of 
counsel and agent for service of process ($25,000+$3,938)) + 
(Retaining manually signed pages ($2,547)) + (Filing withdrawal form 
($283)) = $79,736.50.
---------------------------------------------------------------------------

2. Other Direct Costs
    The final registration rules would also entail a number of indirect 
costs for SBS Entities. While these costs are difficult to quantify 
with any degree of certainty as outlined in section V.A. and are, 
therefore, discussed qualitatively below, we recognize that they may be 
as, if not more, significant than the direct costs quantified above.
i. Costs Related to the Disciplinary History Disclosure Requirement
    Final registration rules require SBS Entities to disclose 
disciplinary history, including that of control affiliates, to the 
Commission. Since SBS Entity disclosures made during the registration 
process will be publicly available to investors, market participants 
will be able to easily access and compare such data for all SBS 
Entities. To the extent that market participants rely on disciplinary 
history information in counterparty choices and to the extent that 
market participants cannot easily observe this information for all 
participants (such as participants not otherwise registered with the 
Commission as broker-dealers or the CFTC as swap entities and for 
control affiliates), SBS Entities with prior disciplinary history may 
suffer a reputational loss and decreased customers and profits.
    We have also received comment that entities with extensive control 
affiliates may face a higher compliance burden.\328\ The commenter did 
not provide specific comments on the burden estimates in the 
Registration Proposing Release or provide any data regarding control 
affiliates; no such data is public or otherwise available to the 
Commission. Tailored registration forms are intended to reduce burdens 
for cross-registered entities. However, we recognize that some entities 
may have extensive control affiliate structures and, therefore, face a 
higher compliance burden. If such control affiliates have adverse 
disciplinary histories, some SBS Entities may also face greater 
reputational costs of making affiliate disciplinary history information 
public.
---------------------------------------------------------------------------

    \328\ See SIFMA Letter, at 4.
---------------------------------------------------------------------------

    Should certain entities choose to restructure their dealing in 
order to avoid SBS Entity registration and the requirement to provide 
disciplinary history information, they would incur costs of forgone 
profits that stem from having to reduce transaction volume from current 
levels to levels below the de minimis threshold, and/or costs of moving 
their security-based swap dealing abroad and outside of the reach of 
Title VII requirements that include registration. In short, we expect 
that SBS Entities affected by the disciplinary history requirement will 
trade off the costs of disclosure with the costs of restructuring, 
including opportunity costs of lost transaction volume. If certain SBS 
Entities choose to exit, security-based swap transactions and dealing 
may become more concentrated. Further, such public disclosure may deter 
SBS Entities that have significant disciplinary histories from entering 
the market. However, security-based swap transactions may become 
concentrated among regulated entities with less severe disciplinary 
history, which may be less likely to pose risk to counterparties.
ii. Costs Related to Certifications
    Final rules include a certification that a senior officer, after 
due inquiry, has reasonably determined that an SBS Entity has developed 
and implemented written policies and procedures reasonably designed to 
prevent violations of federal securities laws and rules thereunder, and 
that the senior officer has documented the process by which he or she 
reached such determination. Final rules also include a certification 
regarding statutorily disqualified associated persons. In addition to 
the direct burden estimated in Section V.D.1 above, we recognize that 
the certifications will increase senior officer liability risk and may 
lead SBS Entities to acquire additional insurance coverage. It is 
possible, therefore, that the certification requirements may result in 
liability insurance costs that are above what they would have been in 
the absence of the rule. The Commission is unable to estimate these 
costs given that it lacks specific information regarding current 
insurance costs for SBS Entities, the amount of the demand that there 
will be for increased coverage, and thereby the potential increases 
associated with the rule.
    In addition to liability insurance costs, certification 
requirements may affect the structure and levels of senior officer 
compensation. While the level and structure of a senior officer's pay 
package generally depends on factors such as the level of risk inherent 
in the entity's activities, the entity's growth prospects, and the 
scarcity and specificity of senior officer talent needed by the entity, 
it may also reflect personal preferences influenced by characteristics 
of the senior officer, including aversion to risk. In particular, risk 
aversion may lead senior officers to prefer pay packages with 
predictable payments, rather incentive-based compensation or pay 
packages that otherwise reflect underlying uncertainty.\329\
---------------------------------------------------------------------------

    \329\ Executives typically have personal preferences regarding 
the form of compensation received. To the extent that executives 
have different levels of risk aversion, they can arrive at different 
personal valuations of the same performance-based compensation 
package. Hence, more risk-averse executives may require additional 
compensation when paid in the form of less certain performance-based 
compensation
---------------------------------------------------------------------------

    For senior officers with established compensation packages, 
heightened liability risk may create an incentive to negotiate changes 
to the composition of their compensation packages. Because of the 
increased uncertainty arising from liability risk, risk-averse officers 
may lower the value that they attach to the

[[Page 49007]]

incentive-based component of their pay and may as a result demand an 
offset to bear the increased uncertainty. The offset could come in the 
form of a smaller portion of pay being comprised of incentive-based 
compensation, or through an increase in expected total compensation, 
which would come at a greater cost to SBS Entities. The extent of any 
such increase would depend on the structure and conditions of the labor 
market for senior officers in SBS Entities as well as other economic 
factors, including the negotiating environment and particular 
preferences of senior officers, which will likely vary among SBS 
Entities and are difficult to quantify with any degree of certainty.
iii. Costs Related to the Associated Person Requirements
    The associated person certification requires SBS Entities to 
certify that their associated persons, which include natural persons 
and legal entities, effecting or involved in effecting security-based 
swaps on their behalf are not subject to statutory disqualification. As 
we have noted in sections V.B and V.C.1.ii, Exchange Act Section 
15F(b)(6) generally prohibits SBS Entities from permitting statutorily 
disqualified associated persons to effect or be involved in effecting 
security-based swaps on their behalf; however, the Commission has 
granted temporary relief from the prohibition.
    All SBS entities will incur direct compliance costs of making the 
certification required in these final rules in section V.D.1 and 
V.D.2.ii. SBS Entities that are associating with disqualified persons 
for the purposes of effecting or being involved in effecting security-
based swaps will also incur costs of disassociating with or reassigning 
such disqualified persons, as well as costs of associating with new 
persons not subject to disqualification for the purposes of effecting 
or being involved in effecting security-based swaps.
    Importantly, final rules allow SBS Entities, when registering with 
the Commission, to permit associated disqualified entity persons to 
effect security based swaps, provided that the disqualification has 
occurred prior to the compliance date of registration rules. This 
exception is aimed at mitigating possible business disruptions \330\ 
for SBS Entities which may currently be associating with disqualified 
entities with potential follow-on effects for security based swap 
markets as a whole. The Commission recognizes that permitting some 
associated persons that are entities to effect or be involved in 
effecting security-based swaps on behalf of SBS Entities may pose risks 
of repeated misconduct and other violations. As discussed in section 
II.B.i, the Commission retains full enforcement authority with respect 
to such associated entity persons, and would be able to take action 
against entities and individuals based on violative conduct. Lastly, 
current market conditions reflect the state of the world with temporary 
blanket relief from the general prohibition on associated disqualified 
persons effecting or being involved in effecting security-based swaps 
on behalf of SBS Entities. Relative to that scenario, final 
registration rules implement the general statutory prohibition while 
providing limited relief to SBS Entities, when registering with the 
Commission, if associated entity persons were disqualified prior to the 
compliance date of the final rules.
---------------------------------------------------------------------------

    \330\ See SIFMA letter at 8.
---------------------------------------------------------------------------

    In addition to these considerations, we received comment that some 
SBS Entities may be unable to perform employee background checks 
necessary to ascertain statutory disqualification status of persons 
located in some foreign jurisdictions.\331\ If some SBS entities 
associate with persons in jurisdictions with blocking laws, privacy 
laws, secrecy laws and other legal barriers for the purposes of 
effecting security-based swaps, they may be unable to obtain requisite 
employee personally identifiable information in order to perform the 
statutory disqualification check, make the certification, and register 
as SBS Entities, or provide information to the SEC. The statutory 
disqualification requirement may, therefore, impose costs on such 
entities, requiring them to use other employees to effect their 
security-based swap transactions, to withdraw associated persons from 
the reach of jurisdictions with blocking laws, privacy laws, secrecy 
laws and other legal barriers, or decrease U.S. security-based swap 
volume below the thresholds. The Commission does not, among other 
things, have data on the locations of SBS Entity employees effecting 
security-based swaps in various foreign jurisdictions, their statutory 
disqualification status, the relative expertise of SBS Entities' 
employees outside these foreign jurisdictions, or profitability of 
current dealing activity at volumes in excess of the thresholds. We 
are, therefore, unable to quantitatively estimate the number of SBS 
Entities that may be affected or their costs of using other persons, 
relocating associated persons outside of these foreign jurisdictions or 
decreasing activity below the thresholds. The commenter did not provide 
any data to quantify the effects of possible conflicts with blocking 
laws, privacy laws, secrecy laws and other legal barriers as they 
pertain to employee questionnaires and a statutory disqualification 
determination, and such data are not otherwise publicly available. 
Based on FINRA's experience with low incidence of disqualification 
review applications by broker dealers seeking to associate with 
disqualified natural persons, we believe that, as a practical matter, 
SBS Entities may frequently be able to reassign or disassociate from 
disqualified employees. The Commission is not adopting an exception for 
natural persons at this time.
---------------------------------------------------------------------------

    \331\ See IIB Letter, at 19.
---------------------------------------------------------------------------

    The Commission has received comment that implementing the statutory 
prohibition on disqualified persons effecting or involved in effecting 
security-based swaps absent a Commission rule or order may cause 
business disruptions.\332\ The commenter did not provide data on the 
number of associated persons that may be affected or the extent of 
potential business disruptions. Based on somewhat analogous data from 
the NFA and FINRA, the Commission estimates that, on an annual basis, 
fewer than five SBS Entities would seek relief for natural persons 
subject to statutory disqualification to effect or be involved in 
effecting security-based swaps and fewer than two SBS Entities would 
seek relief for disqualified associated entities.\333\ Registration 
rules also

[[Page 49008]]

provide relief to SBS Entities, when registering with the Commission, 
associating with disqualified entities for the purpose of effecting 
security-based swaps if disqualification occurred prior to the 
compliance date of registration rules. We note that, as a practical 
matter, SBS Entities may be easily able to reassign or disassociate 
from disqualified natural persons, and SBS Entities currently 
intermediating large volumes of security-based swaps would be able to 
take advantage of the exception above. Finally, SBS Entities seeking to 
associate with disqualified persons may apply to the Commission for 
relief under Exchange Act Section 15F(b)(6).
---------------------------------------------------------------------------

    \332\ See SIFMA letter, at 8.
    \333\ While the incidence of statutory disqualification is 
difficult to quantify, we draw on data concerning an analogous 
statutory disqualification review process for broker-dealers. In 
2014, FINRA received 24 MC-400 applications for natural persons and 
10 MC-400A applications for entities. In total, FINRA has received 
177 MC-400 and 63 MC-400A applications during the same five year 
period (2010-2014). FINRA currently oversees approximately 4,000 
currently registered broker-dealers and 272,000 registered 
representatives. As discussed earlier, the Commission anticipates 55 
SBS Entities may register with the Commission with 423 associated 
persons per entity (23,265 associated persons in total). Therefore, 
we expect significantly fewer applications in security-based swap 
markets.
    Another somewhat analogous scenario is swap dealer statutory 
disqualification. According to NFA staff, between October 11, 2012 
and July 22, 2015, 11 applications had been made by Swap Entities to 
the NFA for the NFA to provide notice to the Swap Entity that, had 
the person applied for registration as an associated person, the NFA 
would have granted such registration. See CFTC staff No-Action 
Letter No. 12-15, http://www.cftc.gov/ucm/groups/public/@lrlettergeneral/documents/letter/12-15.pdf, at 5-8. The Commission 
has estimated that up to 55 SBS Entities may seek registration, 
while the CFTC has provisionally registered 112 Swap Entities 
(https://www.nfa.futures.org/NFA-swaps-information/regulatory-info-sd-and-msp/SD-MSP-registry.HTML; last accessed July 24, 2015). Using 
the above data from the NFA concerning 11 applications over 
approximately 2.78 years, results in an estimate of approximately 2 
applications per year (11*55/112)/2.78~=1.94).
    The Commission, however, recognizes that the number of 
applications received by the NFA may only present a partial picture 
of the potential impact of a disqualification because, inter alia, 
(1) the CFTC defines ``associated person'' of a Swap Entity to be 
limited solely to natural persons, not entities (see 17 CFR 
1.3(aa)(6)); (2) in CFTC Regulation 23.22(b), 17 CFR 23.22(b), the 
CFTC provided an exception from the prohibition set forth in CEA 
Section 4s(b)(6), 7 U.S.C. 6s(b)(6), for any person subject to a 
statutory disqualification who is already listed as a principal, 
registered as an associated person of another CFTC registrant, or 
registered as a floor broker or floor trader.
---------------------------------------------------------------------------

iv. Costs for Nonresident SBS Entities
    Under the final rules, nonresident SBS Entities will have to 
provide an opinion of counsel that they can, as a matter of law, 
provide the Commission with prompt access to books and records and 
submit to onsite inspection, and certify that, as a matter of law, they 
can and will provide prompt access to books and records for the 
purposes of facilitating Commission oversight, inspections and 
examinations. As recognized in the Registration Proposing Release and 
discussed by commenters, blocking laws, privacy laws, secrecy laws and 
other legal barriers in some foreign jurisdictions may make such 
certification and, hence, SBS Entity registration impossible for some 
nonresident SBS Entities.\334\
---------------------------------------------------------------------------

    \334\ See Registration Proposing Release, at 65800. Also see, 
e.g., SIFMA Letter, at 9-10, and IIB Letter, at 19.
---------------------------------------------------------------------------

    Nonresident SBS Entities precluded from registration due to 
blocking laws, privacy laws, secrecy laws and other legal barriers will 
bear the cost of lowering or restructuring their market activity below 
the SBS Dealer and Major SBS Participant annual thresholds that trigger 
registration requirements. Alternatively, nonresident SBS Entities that 
are unable to make the books and records certification may be able to 
relocate or otherwise restructure, such that they are no longer subject 
to foreign blocking laws, privacy laws, secrecy laws and other legal 
barriers that are not consistent with the required certification, and 
therefore continue U.S. security-based swap dealing in excess of the 
thresholds triggering registration requirements. The cost of the books 
and records certification to nonresident SBS Entities would thus 
include the costs of such potential relocation or restructuring, which 
depend on the legal and regulatory frameworks in various foreign 
jurisdictions and the organizational complexity of entities that may 
seek SBS Entity registration, including those currently unregistered 
with the Commission.
    Based on internal analysis of TIW data, as well as a review of CFTC 
staff no action letters, the Commission estimates that nonresident U.S. 
persons unable to make the books and records certification and register 
as SBS Entities currently account for approximately 18% of overall 
security-based swap dealing activity.\335\ The anticipated implications 
of this registration requirement for efficiency, competition and 
capital formation are discussed in Section V.E.
---------------------------------------------------------------------------

    \335\ More specifically, since we expect a large number of U.S. 
SBS Entities will have cross-registered as Swap Entities, we 
considered foreign jurisdictions where CFTC staff provided no-action 
relief for trade repository reporting requirements as they apply to 
swap dealers (available at http://www.cftc.gov/ucm/groups/public/@lrlettergeneral/documents/letter/15-01.pdf) to inform our analysis. 
These no-action letters identify a set of ``Enumerated 
Jurisdictions'' where blocking laws, privacy laws, secrecy laws and 
other legal barriers may inhibit compliance with regulatory 
requirements. We then matched the ``Enumerated Jurisdictions'' to 
the domicile classifications in the set of the 55 entities we 
anticipate will register as SBS Entities to identify the subset of 
affected entities. We estimate that this subset currently accounts 
for approximately 18% of overall dealing activity. This estimate is 
based on current market activity and could differ if affected 
nonresident SBS Entities seeking registration with the Commission 
are able to change their residency before the compliance date of 
final registration rules.
---------------------------------------------------------------------------

3. Indirect Costs
    As discussed in Sections V.A. and V.C.2. above, final registration 
rules create a population of SBS Entity registrants with activity and 
position volumes determined in the adopted intermediary definitions, 
which will be subject to ongoing Commission oversight and pending 
substantive Title VII requirements, including capital and margin, 
external business conduct, recordkeeping and reporting requirements. 
Entities choosing to register with the Commission as SBS Entities will 
incur the costs of compliance with substantive rules, as well as costs 
relating to Commission inspections and examinations. While the costs of 
pending Title VII rules will be evaluated in each substantive 
rulemaking, the Commission recognizes that registration facilitates the 
application of the substantive rules to SBS Entities and therefore SBS 
Entities registering with the Commission will incur additional costs 
related to other Title VII rules.

E. Effects on Efficiency, Competition and Capital Formation

    Final registration rules may impose a burden on competition for 
smaller SBS Entities to the extent that they impose relatively fixed 
costs, which could represent a higher percentage of net income for 
smaller SBS Entities. However, registration costs may impact SBS 
Entities already registered as broker dealers with the Commission or 
swap entities with the CFTC to a lesser degree because we have 
accommodated cross-registered entities by providing separate and 
tailored forms that minimize duplicate disclosures. Indeed, based on an 
analysis of TIW data and the current population of registered broker 
dealers, swap dealers, and OTC derivative dealers, of the fifty SBS 
Dealers and up to five Major SBS Participants that may seek to register 
with the Commission as SBS Entities, we anticipate that up to four will 
not have already registered as broker dealers or as swap dealers.\336\ 
Our assessment is that all other registrants will be able to take 
advantage of the streamlined registration forms SBSE-A and SBSE-BD.
---------------------------------------------------------------------------

    \336\ See also Registration Proposing Release, at 65808.
---------------------------------------------------------------------------

    Beyond the cost of completing and submitting registration forms, 
some SBS Entities may be unable or unwilling to make the senior 
officer, associated person, books and records certifications and 
disciplinary history disclosures, and those SBS Entities could consider 
exiting the U.S. SBS market. We do not believe that the direct 
registration costs quantified in section V.D.1 would be high enough to 
materially affect the application for registration or prompt large 
scale exit by SBS Entities. However, reputational costs and direct 
burdens of disciplinary history disclosures, including those affecting 
control affiliates, books and records requirements and certifications 
for nonresident SBS Entities, and statutory disqualification 
requirements may impose significant and, possibly,

[[Page 49009]]

prohibitive costs on some SBS Entities. Such costs could lead to fewer 
intermediaries competing for security-based swap business in the U.S. 
market. At the same time, mitigating this potential impact, these 
requirements may offer a degree of counterparty protection and enable 
market participants to make more informed counterparty choices, 
potentially leading to increases in market participation and liquidity 
in security-based swaps.
    While programmatic costs and benefits of the substantive Title VII 
requirements will be assessed in each of the substantive rulemakings, 
we recognize that some SBS Entities may determine the registration 
requirements, substantive requirements and transparency of the Title 
VII regime are not cost-effective for them, and may withdraw from U.S. 
security-based swap markets or lower their dealing activity below the 
minimum thresholds which trigger registration.
    Some SBS entities outside of foreign jurisdictions with blocking 
laws, privacy laws, secrecy laws and other legal barriers may associate 
with persons in jurisdictions with blocking laws, privacy laws, secrecy 
laws and other legal barriers for the purposes of effecting security-
based swaps. Affected SBS Entities may be unable to perform background 
checks necessary to ascertain statutory disqualification status of 
associated persons located in these foreign jurisdictions. Should 
affected SBS Entities choose not to use other employees or entities to 
effect their security-based swap transactions or to withdraw associated 
persons from certain foreign jurisdictions, they may decrease U.S. 
security-based swap volume below the thresholds. This requirement may, 
therefore, preclude some SBS Entities from registering and place 
affected SBS Entities at a competitive disadvantage. Furthermore, 
depending on the specificity and scarcity of skills necessary to 
profitably effect security-based swaps, entities affected by foreign 
jurisdictions with blocking laws, privacy laws, secrecy laws and other 
legal barriers may choose to associate with different personnel for the 
purposes of effecting security-based swaps.
    As indicated by commenters,\337\ some nonresident SBS Entities 
meeting registration thresholds may be unable to satisfy the access to 
records requirement due to blocking laws, privacy laws, secrecy laws 
and other legal barriers. The unavailability of substituted compliance 
with respect to registration of SBS Entities, the requirement to 
provide an opinion of counsel indicating that the entity can, as a 
matter of law, provide the Commission with prompt access to its books 
and records, and the requirement to certify that the entity can and 
will provide the Commission with prompt access to its books and records 
may have competitive effects. In particular, foreign SBS Entities from 
certain jurisdictions may be forced to withdraw from U.S. security-
based swap markets or decrease their security-based swap market 
participation below the threshold levels if laws or other barriers in 
their local jurisdictions preclude them from complying with Title VII 
registration requirements, which may lead to differential market access 
and create competitive disadvantages for some non-resident SBS 
Entities.
---------------------------------------------------------------------------

    \337\ See letters from SIFMA, Futures Industry Association, and 
The Financial Services Roundtable Letter; Institute of International 
Bankers Letter; European Commission Letter.
---------------------------------------------------------------------------

    As discussed above, the Commission estimates that SBS Entities with 
up to 18% market share may be affected by the books and records 
requirement in foreign jurisdictions with blocking laws, privacy laws, 
secrecy laws and other legal barriers. The feasibility and costs of 
potential organizational restructuring--relocating, spinning off or in 
other ways severing an affiliation with a subsidiary, such that they 
are no longer subject to these foreign laws and other barriers and can 
make the books and records certification--are unclear. Due to the high 
concentration of dealing activity in security-based swap markets among 
large entities, the potential decrease in volume by affected SBS 
Entities may be significant. Potential withdrawal of affected SBS 
Entities from U.S. security-based swap markets may increase the market 
share and pricing power of remaining SBS Entities, which may result in 
higher costs of risk mitigation through security-based swaps for firms 
and market participants. If SBS Entities meeting registration 
thresholds are precluded from registration due to conflicts with 
foreign blocking laws, privacy laws, secrecy laws and other legal 
barriers, the total volume of trading and liquidity in security-based 
swap markets may decrease, which may be accompanied by lower price 
discovery and informational efficiency in security-based swap markets, 
as well as higher transaction costs for customers of dealers. However, 
SBS Entities currently participating in U.S. security-based swap market 
with lower transaction volumes may be able to capture the newly opened 
market share. Further, the newly available market share may encourage 
new entry. Thus, the overall effects of the books and records and 
associated person certification requirements on U.S. security-based 
swap market competition are unclear, and depend on whether affected 
volume is captured by existing dealers with large market share, 
existing dealers with small market share, or new entrants.
    As discussed above, in adopting these final rules, we are required 
to consider, in addition to competition, the impact of these rules on 
efficiency and capital formation. In many respects, the effect of these 
rules on efficiency and capital formation are expected to flow from 
their effects on competition. For example, markets that are 
competitive, with equal access by financial intermediaries to swaps, 
security-based swaps, and underlying reference securities, promote 
informational efficiencies, increased hedging opportunities, and 
therefore the efficient allocation of capital. In evaluating the 
economic effects of our rules, we have been mindful of the close 
relationship between single-name and index CDS contracts, as well as 
the linkages between security-based swaps and their underlying 
reference securities. Rules that facilitate access to CFTC-regulated 
and SEC-regulated swap and security-based swap markets should increase 
hedging opportunities for financial market intermediaries; such hedging 
opportunities reduce risks and allow intermediaries to facilitate a 
greater volume of financing activities, including issuance of equity 
and debt securities, and therefore contribute to capital formation.
    This may be particularly true in underlying securities markets, 
where potential pricing and liquidity effects in security-based swap 
markets may feed back and impact the market for reference entity 
securities. Security-based swap markets may enable better risk 
mitigation by investors in underlying reference securities, such as CDS 
hedging of credit risk of corporate bond investments. The possible 
contraction in security-based swap market participation by affected SBS 
Entities in or associating with persons in jurisdictions with blocking 
laws, privacy laws, secrecy laws and other legal barriers may adversely 
impact underlying reference security markets, including pricing and 
liquidity in corporate bond markets. This may have a negative effect on 
the ability of firms to raise debt capital in order to finance real 
investment. However, the spillover from deterioration in security-based 
swap markets into underlying reference security markets may also be 
positive.

[[Page 49010]]

Sophisticated institutional investors transact across CDS and bond 
markets to trade on information pertaining to the credit risk of 
underlying reference debt. A potential negative shock to security-based 
swap market liquidity and dealing by nonresident SBS Entities may, in 
fact, drive sophisticated institutions to search for liquidity pools 
and lower price impact of informed trades to reference security 
markets.\338\ If institutions begin to trade more actively in 
underlying reference security markets, such as corporate bond markets 
as a result, there may be positive effects on liquidity and 
informational efficiency of corporate bond markets. This may enable 
firms to raise more debt at potentially lower costs to finance real 
investment.\339\ However, to the extent that potential exit of SBS 
Entities due to foreign blocking laws, privacy laws, secrecy laws and 
other legal barriers and registration requirements creates 
opportunities for SBS Entities with smaller market share to capture 
more volume or opens up the opportunity for new entry, effects on 
security-based swap and reference security markets may differ from the 
scenario above.
---------------------------------------------------------------------------

    \338\ Some SBS Entities may also move their security-based swap 
transactions to foreign SBS markets with potential implications for 
foreign reference security markets. Also see Section V.B.3 on cross-
market participation.
    \339\ See Section V.B.3 above.
---------------------------------------------------------------------------

    Finally, as noted above, we estimate that entities in foreign 
jurisdictions with blocking laws, privacy laws, secrecy laws and other 
legal barriers currently account for 18% of security-based swap 
transaction activity, and the inability of these entities to make the 
required books and records certifications can potentially impose 
significant burdens on either the security-based swap market or certain 
participants. In crafting our final rules, we have attempted to 
minimize business disruptions and competitive burdens where possible. 
As we have discussed above, the Commission's inspection and examination 
authority is vital to proper oversight of SBS Dealers and Major SBS 
Participants, and any limitation on oversight of non-U.S. registered 
SBS entities would raise significant challenges to the Commission's 
effective regulation of these firms. Given our Exchange Act mandate to 
ensure the maintenance of fair, orderly, and efficient markets, and 
given our belief that examination authority and access to books and 
records is essential to enabling effective market oversight, the 
Commission believes that any burden on competition that results from 
the provisions in this rule is necessary and appropriate in furtherance 
of the purposes of the Exchange Act and thus consistent with Exchange 
Act Section 23(a)(2).

F. Registration Rule Alternatives

1. Associated Person Certification Requirement
    The Commission has evaluated alternatives to the associated person 
certification requirement, including narrowing the definition of 
associated persons to natural persons similar to the CFTC's approach. 
This alternative involves interpreting the prohibition under Exchange 
Act Section 15F(b)(6) to apply only to natural persons and providing 
blanket relief allowing SBS Entities to associate with disqualified 
persons that are not natural persons regardless of the nature or timing 
of disqualification, or any other factors. Under this alternative, 
treatment of associated entities would be identical for SBS Entities 
dually-registered with the CFTC, creating potential economies of scope 
for dual registrants in associating with persons that are entities. 
Further, this approach could eliminate associated person certification 
costs and barriers to entry for SBS Entities associating with 
disqualified entities. However, the Commission would not be able to 
prohibit those disqualified entities that pose a risk to counterparties 
and integrity of security-based swap markets from effecting or being 
involved in effecting security-based swaps on behalf of SBS Entities. 
Further, statutory disqualification and an inability to continue 
associating with SBS Entities creates a disincentive against underlying 
misconduct for associated persons, and a blanket exception for 
disqualified associated persons that are entities may reduce the 
disincentive against misconduct. These effects could reduce the 
counterparty protection benefits of the associated person certification 
and may pose a risk to market participants.
    The Commission is adopting an approach which permits SBS Entities, 
when registering with the Commission, to associate with disqualified 
entity persons if the conduct that gave rise to disqualification 
occurred prior to the compliance date of registration. Similar to the 
approach discussed above, this aspect of the final rules mitigates the 
risk of potential market disruptions from SBS Entities being unable to 
register due to associations with disqualified entities around the 
compliance date of final registration rules. The Commission also 
retains flexibility to grant relief for SBS Entities associating with 
disqualified entities under Exchange Act Section 15F(b)(6).
    The Commission also considered applying the statutory 
disqualification prohibition on a transaction level and limiting its 
application to associated persons conducting activity with U.S. person 
counterparties on behalf of U.S. SBS Entities. This alternative would 
effectively remove the associated person prohibition for foreign 
associated persons that engage in activity outside of the U.S. It would 
lower direct costs of the associated person certification, particularly 
for those SBS Entities which extensively associate with foreign 
associated persons. Further, it could lower potential barriers to 
registration of SBS Entities associating with persons in foreign 
jurisdictions with blocking laws, privacy laws, secrecy laws and other 
legal barriers, which may preclude background checks for foreign 
persons.\340\ Like other relief or exceptions from the prohibition this 
approach would lead to a greater number of disqualified persons being 
permitted to effect or be involved in effecting security-based swaps on 
behalf of U.S. SBS Entities outside of the U.S., diluting the positive 
signal of registration as a U.S. SBS Entity and related counterparty 
protections. SBS Entities engage in extensive cross-border activity and 
any counterparty risks to foreign counterparties of U.S. SBS Entities 
from foreign disqualified associated persons may spill over into 
trading and pricing with U.S. market participants. The Commission lacks 
data to support or quantify the effects of possible conflicts with 
foreign blocking laws, privacy laws, secrecy laws and other legal 
barriers as they pertain to employee questionnaires and a statutory 
disqualification determination. We do not have data about the location 
and statutory disqualification status of SBS Entity associated persons, 
as well as transaction level detail on the nature of their activities, 
in order to evaluate the possible costs and benefits of this 
alternative relative to the baseline as well as relative to the 
requirements in the final rules. Such data is also not available to the 
public. In light of the above considerations and the Commission's risk 
interest from foreign disqualified associated persons transacting on 
behalf of US SBS Entities, it is unclear that the overall economic 
effects of this alternative are more positive than those of the final 
rules being adopted. Final rules implement a general statutory 
prohibition on disqualification, while providing relief for certain SBS 
Entities associating with

[[Page 49011]]

disqualified entities. We further note that should some SBS Entities 
become precluded from registration or incur high costs as a result, for 
instance, of foreign person associations, affected SBS Entities could 
request relief from the Commission under Exchange Act Section 
15F(b)(6).
---------------------------------------------------------------------------

    \340\ See IIB letter, at 20.
---------------------------------------------------------------------------

    Another commenter proposed limiting ``the scope of who is 
considered to be an associated person effecting or involved in 
effecting security-based swaps.'' \341\ The commenter proposed that the 
Commission more narrowly define the relevant terms, for instance to 
align with the CFTC's proposed definition that limits the term to 
persons involved in the solicitation or acceptance of security-based 
swaps, or the supervision of any person or persons so engaged, or that 
the Commission exercise its statutory authority to grant exceptions 
from the statutory prohibition in Exchange Act Section 15F(b)(6). This 
alternative would decrease the scope of disqualified persons, resulting 
in lower costs for and offering greater flexibility to potential SBS 
Entity registrants, reducing barriers to entry and potentially 
increasing competition among SBS Entities. However, since a greater 
number of disqualified persons would be permitted to associate with SBS 
Entities in security-based swap markets, these alternatives may 
increase risks of fraud and other misconduct. If, for instance, persons 
involved in structuring security-based swaps, facilitating execution or 
handling customer funds and securities are excepted from the 
requirement, counterparty protection benefits of the statutory 
disqualification provision may be reduced. The Commission is providing 
relief for SBS Entities, when registering with the Commission, 
associated with disqualified entity persons if the statutory 
disqualification occurred prior to the compliance date of final 
registration rules. SBS Entities also may request relief from the 
Commission under Exchange Act 15F(b)(6).
---------------------------------------------------------------------------

    \341\ See SIFMA Letter, at 8.
---------------------------------------------------------------------------

2. Licensing, Control Affiliates and CCO Certification Regarding 
Associated Persons
    The Commission also considered alternatives to the CCO 
Certification Requirement. One alternative is to establish a licensing 
and examination regime to investigate associated persons before 
permitting them to effect or be involved in effecting security-based 
swaps on behalf of an SBS Entity.\342\ Such a regime may increase the 
level of screening of persons effecting security-based swaps at SBS 
Entities, potentially reducing risks to market participants and 
counterparties and establishing a minimum level of competence for 
associated persons. However, SBS Entities may be able to independently 
evaluate whether associated persons have necessary knowledge, skill and 
qualifications to price, arrange and execute security-based swap 
transactions. Given the extent of market integration, and since we 
expect a majority of SBS Entities will have already registered with the 
CFTC as swap entities, consistency in the regulatory treatment of swap 
and security-based swap entities is another important consideration. 
Specifically, the NFA waives examination requirements for associated 
persons whose activities are limited to swaps.\343\ Further, as 
discussed above, SBS Entities are not required to be members of SROs, 
which administer similar exams for brokers, futures professionals etc. 
In light of the above considerations, Commission objectives in 
registering and overseeing SBS Entities delineated in Section II, and 
constraints on SRO oversight of SBS Entities, at present time the 
Commission does not believe that cost and benefit considerations of 
this alternative are superior to the approach being adopted.
---------------------------------------------------------------------------

    \342\ See Better Markets Letter, at 7.
    \343\ See NFA Registration Proficiency Requirements: https://www.nfa.futures.org/nfa-registration/proficiency-requirements.html, 
accessed 05/12/2015.
---------------------------------------------------------------------------

    The requirement to provide information on the disciplinary matters 
affecting control affiliates may impose significant burdens on 
registrants.\344\ The Commission has examined the alternative of 
narrowing the requirement to exclude control affiliates, which would 
decrease the overall compliance burdens on applicants, potentially 
increasing incentives to register and marginally lowering a barrier to 
entry by SBS Entities with a large number of control affiliates. We 
note that the tailored registration forms we are adopting are designed 
to reduce burdens for those entities that have already registered with 
the CFTC as swap entities or with the Commission as broker dealers. 
Further, if applicants have control affiliates with a history of 
misconduct that they are not required to disclose to the Commission, 
the Commission's ability to perform risk assessment and market 
oversight duties may be affected, particularly in light of the high 
complexity of SBS Entity dealing structures. The Commission believes 
that disciplinary information about control affiliates is essential to 
ongoing supervision of SBS Entities. Further, making such disclosures 
public may enhance the ability of market participants to assess 
potential counterparty risks, particularly when dealing with SBS 
Entities with highly complex organizational forms, and make more 
informed counterparty choices.
---------------------------------------------------------------------------

    \344\ See SIFMA Letter, at 4.
---------------------------------------------------------------------------

    We have also considered the costs and benefits of alternatives of a 
pre-registration review performed by the Commission or an independent 
external audit of each SBS Entity as part of the registration 
process.\345\ A pre-registration review by the Commission or a third 
party independent audit could result in greater scrutiny of SBS 
Entities before they are permitted to transact in security-based swap 
markets in excess of the thresholds triggering registration 
requirements, potentially increasing counterparty protections and 
positive signaling benefits of registration as an SBS Entity. It would 
also be consistent with the CFTC's approach to registration of swap 
dealers and major swap participants. However, the CFTC was able to 
leverage its existing registration processes and forms, including a 
pre-registration review by NFA, by requiring swap entities to become 
members of the NFA,\346\ whereas the Exchange Act Sections 15A(a) and 
3(a)(3)(B) generally limit the membership of national securities 
associations to brokers and dealers. Final registration rules create a 
registration process through which the Commission will review applicant 
documents and information provided in the forms and may request follow-
up information from applicants based on initial assessment of 
applications. At this time it is unclear that, in the context of a 
highly concentrated market in US security-based swaps with a central 
role of a small number of SBS Entities, the overall economic effects of 
requiring extensive pre-registration reviews are more beneficial than 
the registration process being adopted by the Commission.
---------------------------------------------------------------------------

    \345\ See 2011 Better Markets Letter, at 3.
    \346\ See supra, foonote 46. See also supra, footnote 7.
---------------------------------------------------------------------------

    The Commission proposed requiring registering entities to certify 
that they have operational, financial and compliance capabilities to 
act as SBS Entities. The Commission has considered commenter \347\ 
concerns that the language of the proposed certification is unduly 
burdensome and insufficiently explicit. The commenters claimed that the 
requirement was burdensome due to a lack of clarity

[[Page 49012]]

regarding substantive Title VII rules and their impact on the 
certification, and that there was not an explicit list of factors to be 
taken into account to determine each capability. The Commission has 
been persuaded that the ``policies and procedures'' certification we 
are adopting is reasonably designed to provide assurances that each SBS 
Entity has put in place a framework to enable it to operate in 
compliance with the applicable laws, rules and regulations. Further, we 
believe it is more concrete and understandable than the certification 
that was proposed,\348\ and avoids uncertainty about potential 
definitions of capabilities and how they may be impacted by pending 
substantive Title VII rules. The Commission is adopting a requirement 
for a senior officer to certify that, after due inquiry, he or she has 
reasonably determined that the applicant has established, and maintains 
and reviews, policies and procedures reasonably designed to prevent 
violation of federal securities laws and rules thereunder, and that he 
or she has documented the process by which he or she reached such 
determination. The Commission expects this certification will be easier 
to implement and mitigates commenter concerns about undue burdens on 
registrants, while providing sufficient assurance that SBS Entities 
will be able to comply with securities laws and rules thereunder.
---------------------------------------------------------------------------

    \347\ See, e.g., SIFMA Letter, at 5-7; 2011 Better Markets 
Letter, at 5-6.
    \348\ See supra, footnote 33.
---------------------------------------------------------------------------

3. Requirements on Nonresidents
    The Commission has considered registration costs imposed on 
nonresident entities, particularly as they pertain to the books and 
records certification and the opinion of counsel,\349\ the alternative 
of substituted compliance with respect to registration requirements, 
and possible removal of the books and records certification requirement 
for nonresident SBS Entities. These alternatives would eliminate 
nonresident SBS Entity cost of obtaining an opinion of counsel as well 
as potential costs of restructuring security-based swap dealing such 
that these entities are no longer exceeding registration dealing 
thresholds. As a result, SBS Entities from jurisdictions with blocking 
laws, privacy laws, secrecy laws and other legal barriers, which we 
estimate may currently execute approximately 18% of SBS Dealing, would 
enjoy equal market access. However, these alternatives may preclude the 
Commission from accessing books and records of some registered 
entities, and impede the ability of the Commission to inspect and 
examine SBS Entities that it is overseeing and to conduct ongoing 
market surveillance and risk assessments. Further, these alternatives 
would introduce a disparity between nonresident SBS Entities in some 
foreign jurisdictions and all other SBS Entities with respect to their 
ability to submit to Commission inspections and examinations. 
Commission staff regularly access books and records in the Commission's 
oversight of registered entities for purposes of improving compliance, 
preserving market integrity, fraud prevention and ongoing risk 
assessments. The Commission's ability to examine entities subject to 
its oversight facilitates identification of compliance deficiencies and 
potential enforcement actions for securities law violations, as well as 
counterparty protection. Thus we are not adopting this alternative.
---------------------------------------------------------------------------

    \349\ See letters from: SIFMA, the Futures Industry Association, 
and the Financial Services Roundtable; the Institute of 
International Bankers; the European Commission, all dated August 21, 
2013.
---------------------------------------------------------------------------

    In formulating these final registration rules, we are sensitive to 
global regulatory efforts in OTC derivative markets. Due to the 
extensive cross-border activity by U.S. SBS Entities and nonresident 
SBS Dealers across jurisdictions, global regulation of swaps markets 
and, particularly, substantive requirements for swap market 
participants, are likely to have an effect on incentives to register 
with the Commission as SBS Entities. Jurisdictions with major OTC 
derivatives markets have taken steps toward substantive regulation of 
these markets, though the pace of regulation varies. Accordingly, many 
foreign participants likely will face substantive regulation of their 
security-based swap activities that may address concerns similar to 
those addressed by the Title VII regulatory framework. While the costs, 
benefits and economic effects of substantive rulemakings under Title 
VII will be evaluated in a global regulatory landscape in pending 
rules, we recognize that regulatory harmonization across countries, 
whenever feasible, may enhance competition, facilitate price discovery 
and trading across these markets, as well as prevent market frictions 
and persistent mispricing across countries. Absent a substituted 
compliance regime for registration,\350\ the books and records 
requirement for nonresident SBS Entities may preclude some foreign SBS 
Entities from registering with the Commission as discussed in Section 
V.E above. This may lead to market fragmentation with potential adverse 
effects on competition, price, informational efficiency and liquidity. 
However, the Commission continues to believe that its ability to 
inspect books and records and examine SBS Entities is integral to 
ongoing oversight of security-based swap markets.
---------------------------------------------------------------------------

    \350\ See IIF Letter, at 3-4.
---------------------------------------------------------------------------

4. Other Considerations
    Finally, the Commission received comment concerning potential 
adverse effects of the electronic method of filing through EDGAR.\351\ 
This commenter suggested that the Commission should provide at least 
six months between the adoption of final rules and the effective date 
of the registration requirement to allow for resolution of these types 
of issues. Electronic filing of data in a structured format facilitates 
Commission supervision and public dissemination of disclosures to 
market participants, improving transparency in security-based swap 
markets. The commenter indicated that the rule may impose a barrier to 
registration by entities if their computer systems cannot access the 
EDGAR system because of incompatible security protocols or technology. 
The commenter did not provide any cost estimates and the Commission has 
no information about potential deficiencies in SBS Entity technological 
and IT capabilities that would preclude registration. In an opaque and 
rapidly evolving market, electronic filing of disclosures as structured 
data has the benefit of streamlining analysis and aggregation across 
time, participants, instrument types and other important dimensions. We 
seek to minimize initial and ongoing compliance costs through the 
implementation of final registration rules, which will include an 
interactive form structured by the Commission, which will be submitted 
directly to EDGAR. Further, given the extended compliance date for 
these rules, we believe firms will have sufficient time to work out any 
technological issues associated with filing registration forms through 
the Commission's EDGAR system.
---------------------------------------------------------------------------

    \351\ See SIFMA Letter, at 3.
---------------------------------------------------------------------------

VI. Regulatory Flexibility Act Certification

    The Regulatory Flexibility Act (``RFA'') \352\ requires Federal 
agencies, in promulgating rules, to consider the impact of those rules 
on small entities. The Commission certified in the Registration 
Proposing Release, pursuant to Section 605(b) of the

[[Page 49013]]

RFA,\353\ that proposed Rules 15Fb1-1 through 15Fb6-2 and Forms SBSE, 
SBSE-A, SBSE-C, SBSE-BD, and SBSE-W would not, if adopted, have a 
significant economic impact on a substantial number of ``small 
entities.'' \354\ The Commission received no comments on this 
certification.
---------------------------------------------------------------------------

    \352\ 5 U.S.C. 601 et seq.
    \353\ 5 U.S.C. 605(b).
    \354\ Although Section 601(b) of the RFA defines the term 
``small entity,'' the statute permits agencies to formulate their 
own definitions. The Commission has adopted definitions for the term 
small entity for the purposes of Commission rulemaking in accordance 
with the RFA. Those definitions, as relevant to this proposed 
rulemaking, are set forth in Rule 0-10, 17 CFR 240.0-10. See 
Statement of Management on Internal Control, Exchange Act Release 
No. 18451 (January 28, 1982), 47 FR 5215 (Feb. 4, 1982).
---------------------------------------------------------------------------

    For purposes of Commission rulemaking in connection with the RFA, a 
small entity includes: (i) When used with reference to an ``issuer'' or 
a ``person,'' other than an investment company, an ``issuer'' or 
``person'' that, on the last day of its most recent fiscal year, had 
total assets of $5 million or less; \355\ or (ii) a broker-dealer with 
total capital (net worth plus subordinated liabilities) of less than 
$500,000 on the date in the prior fiscal year as of which its audited 
financial statements were prepared pursuant to Rule 17a-5(d) under the 
Exchange Act,\356\ 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.\357\ Under the 
standards adopted by the Small Business Administration, small entities 
in the finance and insurance industry include the following: (i) For 
entities in credit intermediation and related activities,\358\ entities 
with $550 million or less in assets or, (ii) for non-depository credit 
intermediation and certain other activities,\359\ $38.5 million or less 
in annual receipts; (iii) for entities in financial investments and 
related activities,\360\ entities with $38.5 million or less in annual 
receipts; (iv) for insurance carriers and entities in related 
activities,\361\ entities with $38.5 million or less in annual 
receipts, or 1,500 employees for direct property and casualty insurance 
carriers; and (v) for funds, trusts, and other financial vehicles,\362\ 
entities with $32.5 million or less in annual receipts.\363\
---------------------------------------------------------------------------

    \355\ See 17 CFR 240.0-10(a).
    \356\ See 17 CFR 240.17a-5(d).
    \357\ See 17 CFR 240.0-10(c).
    \358\ Including commercial banks, savings institutions, credit 
unions, firms involved in other depository credit intermediation, 
credit card issuing, sales financing, consumer lending, real estate 
credit, and international trade financing. 13 CFR 121.201 at 
Subsector 522.
    \359\ Including firms involved in secondary market financing, 
all other non-depository credit intermediation, mortgage and 
nonmortgage loan brokers, financial transactions processing, 
reserve, and clearing house activities, and other activities related 
to credit intermediation. 13 CFR 121.201 at Subsector 522.
    \360\ Including firms involved in investment banking and 
securities dealing, securities brokerage, commodity contracts 
dealing, commodity contracts brokerage, securities and commodity 
exchanges, miscellaneous intermediation, portfolio management, 
providing investment advice, trust, fiduciary and custody 
activities, and miscellaneous financial investment activities. 13 
CFR 121.201 at Subsector 523.
    \361\ Including direct life insurance carriers, direct health 
and medical insurance carriers, direct property and casualty 
insurance carriers, direct title insurance carriers, other direct 
insurance (except life, health and medical) carriers, reinsurance 
carriers, insurance agencies and brokerages, claims adjusting, third 
party administration of insurance and pension funds, and all other 
insurance related activities. 13 CFR 121.201 at Subsector 524.
    \362\ Including pension funds, health and welfare funds, other 
insurance funds, open-end investment funds, trusts, estates, and 
agency accounts, real estate investment trusts and other financial 
vehicles. 13 CFR 121.201 at Subsector 525.
    \363\ See 13 CFR 121.201.
---------------------------------------------------------------------------

    With respect to SBS Entities, based on feedback from market 
participants and our information about the security-based swap markets, 
the Commission continues to believe that (1) the types of entities that 
would engage in more than a de minimis amount of dealing activity 
involving security-based swaps--which generally would be large 
financial institutions--would not be ``small entities'' for purposes of 
the RFA; and (2) the types of entities that may have security-based 
swap positions above the level required to be ``major security-based 
swap participants'' would not be ``small entities'' for purposes of the 
RFA.\364\
---------------------------------------------------------------------------

    \364\ See Recordkeeping and Reporting Requirements for Security-
Based Swap Dealers, Major Security-Based Swap Participants, and 
Broker-Dealers; Capital Rule for Certain Security-Based Swap 
Dealers, Exchange Act Release No. 71958 (Apr. 17, 2014), 79 FR 
25194, 25296-97 & n.1441 (May 2, 2014); Further Definition of ``Swap 
Dealer,'' ``Security-Based Swap Dealer,'' ``Major Swap 
Participant,'' ``Major Security-Based Swap Participant'' and 
``Eligible Contract Participant,'' Exchange Act Release No. 66868 
(Apr. 27, 2012), 77 FR 30596, 30743 (May 23, 2012) (joint 
Commission/CFTC final rules).
---------------------------------------------------------------------------

    For the foregoing reasons, the Commission certifies that the SBS 
Entity registration rules and forms, as adopted would not have a 
significant economic impact on a substantial number of small entities 
for purposes of the RFA.

VII. Statutory Basis

    The Commission is adopting Rule 15Fb1-1 through 15Fb6-2 and Forms 
SBSE, SBSE-A, SBSE-BD, SBSE-C, and SBSE-W pursuant to Sections 15F(a) 
through (d), 17(a), 23(a) and 30 of the Securities Exchange Act of 
1934, as amended.

List of Subjects

17 CFR Part 240

    Registration, Reporting and recordkeeping requirements, Securities, 
Security-based swaps, Security-based swap dealers, Major security-based 
swap participants,

17 CFR Part 249

    Brokers, Reporting and recordkeeping requirements, Securities, 
Forms.

Text of Final Rules

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

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

0
1. The general authority citation for part 240 is revised to read as 
follows:

    Authority:  15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4, 
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78dd, 78ll, 78mm, 
80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, 7201 et seq., 
and 8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. 1350; 
and Pub. L. 111-203, 939A, 124 Stat. 1376 (2010), unless otherwise 
noted.
* * * * *

0
2. Add an undesignated center heading and Sec. Sec.  240.15Fb1-1 
through 240.15Fb6-2 to read as follows:

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

Sec.
240.15Fb1-1 Signatures.
240.15Fb2-1 Registration of security-based swap dealers and major 
security-based swap participants.
240.15Fb2-3 Amendments to Form SBSE, Form SBSE-A, and Form SBSE-BD.
240.15Fb2-4 Nonresident security-based swap dealers and major 
security-based swap participants.
240.15Fb2-5 Registration of successor to registered security-based 
swap dealer or major security-based swap participant.
240.15Fb2-6 Registration of fiduciaries.
240.15Fb3-1 Duration of registration.
240.15Fb3-2 Withdrawal from registration.
240.15Fb3-3 Cancellation or revocation from registration.
240.15Fb6-1 Associated persons.
240.15Fb6-2 Associated person certification.
* * * * *

[[Page 49014]]

Sec.  240.15Fb1-1.  Signatures.

    (a) Required signatures to, or within, any electronic submission 
(including, without limitation, signatories within the forms and 
certifications required by Sec. Sec.  240.15Fb2-1, 240.15Fb2-4, and 
240.15Fb6-2) must be in typed form rather than manual format. 
Signatures in an HTML, XML or XBRL document that are not required may, 
but are not required to, be presented in a graphic or image file within 
the electronic filing. When used in connection with an electronic 
filing, the term ``signature'' means an electronic entry in the form of 
a magnetic impulse or other form of computer data compilation of any 
letters or series of letters or characters comprising a name, executed, 
adopted or authorized as a signature.
    (b) Each signatory to an electronic filing (including, without 
limitation, each signatory to the forms and certifications required by 
Sec. Sec.  240.15Fb2-1, 240.15Fb2-4, and 240.15Fb6-2) shall manually 
sign a signature page or other document authenticating, acknowledging 
or otherwise adopting his or her signature that appears in typed form 
within the electronic filing. Such document shall be executed before or 
at the time the electronic filing is made. Upon request, the security-
based swap dealer or major security-based swap participant shall 
furnish to the Commission or its staff a copy of any or all documents 
retained pursuant to this paragraph (b).
    (c) A person required to provide a signature on an electronic 
submission (including, without limitation, each signatory to the forms 
and certifications required by Sec. Sec.  240.15Fb2-1, 240.15Fb2-4, and 
240.15Fb6-2) may not have the form or certification signed on his or 
her behalf pursuant to a power of attorney or other form of confirming 
authority.
    (d) Each manually signed signature page or other document 
authenticating, acknowledging or otherwise adopting his or her 
signature that appears in typed form within the electronic filing--
    (1) On Schedule F to Form SBSE (Sec.  249.1600 of this chapter), 
SBSE-A (Sec.  249.1600a of this chapter), or SBSE-BD (Sec.  249.1600b 
of this chapter), as appropriate, shall be retained by the filer until 
at least three years after the form or certification has been replaced 
or is no longer effective;
    (2) On Form SBSE-C (Sec.  249.1600c of this chapter) shall be 
retained by the filer until at least three years after the Form was 
filed with the Commission.


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

    (a) Application. An application for registration of a security-
based swap dealer or a major security-based swap participant that is 
filed pursuant to Section 15F(b) of the Securities Exchange Act of 1934 
(15 U.S.C. 78o-10(b)) shall be filed on Form SBSE (Sec.  249.1600 of 
this chapter) or Form SBSE-A (Sec.  249.1600a of this chapter) or Form 
SBSE-BD (Sec.  249.1600b of this chapter), as appropriate, in 
accordance with paragraph (c) and the instructions to the forms. 
Applicants shall also file as part of their application the required 
certifications on Form SBSE-C (Sec.  249.1600c of this chapter).
    (b) Senior Officer Certification. A senior officer shall certify on 
Form SBSE-C (Sec.  249.1600c of this chapter) that;
    (1) After due inquiry, he or she has reasonably determined that the 
security-based swap dealer or major security-based swap participant has 
developed and implemented written policies and procedures reasonably 
designed to prevent violation of federal securities laws and the rules 
thereunder, and
    (2) He or she has documented the process by which he or she reached 
such determination.
    (c) Filing--(1) Electronic filing. Every application for 
registration of a security-based swap dealer or major security-based 
swap participant and any additional registration documents shall be 
filed electronically with the Commission through the Commission's EDGAR 
system.
    (2) Filing date. An application of a security-based swap dealer or 
a major security-based swap participant submitted pursuant to paragraph 
(a) of this section shall be considered filed when an applicant has 
submitted a complete Form SBSE-C (Sec.  249.1600c of this chapter) and 
a complete Form SBSE (Sec.  249.1600 of this chapter), Form SBSE-A 
(Sec.  249.1600a of this chapter), or Form SBSE-BD (Sec.  249.1600b of 
this chapter), as appropriate, and all required additional documents 
electronically with the Commission.
    (d) Conditional registration. An applicant that has submitted a 
complete Form SBSE-C (Sec.  249.1600c of this chapter) and a complete 
Form SBSE (Sec.  249.1600 of this chapter) or Form SBSE-A (Sec.  
249.1600a of this chapter) or Form SBSE-BD (Sec.  249.1600b of this 
chapter), as applicable, in accordance with paragraph (b) within the 
time periods set forth in Sec.  240.3a67-8 (if the person is a major 
security-based swap participant) or Sec.  240.3a71-2(b) (if the person 
is a security-based swap dealer), and has not withdrawn its 
registration shall be conditionally registered.
    (e) Commission decision. The Commission may deny or grant ongoing 
registration to a security-based swap dealer or major security-based 
swap participant based on a security-based swap dealer's or major 
security-based swap participant's application, filed pursuant to 
paragraph (a) of this section. The Commission will grant ongoing 
registration if it finds that the requirements of Section 15F(b) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78o-10(b)) are satisfied. 
The Commission may institute proceedings to determine whether ongoing 
registration should be denied if it does not or cannot make such 
finding or if the applicant is subject to a statutory disqualification 
(as described in Sections 3(a)(39)(A) through (F) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(39)(A)-(F)), or the Commission 
is aware of inaccurate statements in the application. Such proceedings 
shall include notice of the grounds for denial under consideration and 
opportunity for hearing. At the conclusion of such proceedings, the 
Commission shall grant or deny such registration.


Sec.  240.15Fb2-3  Amendments to Form SBSE, Form SBSE-A, and Form SBSE-
BD.

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


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

    (a) Definition. For purposes of this section, the terms nonresident 
security-based swap dealer and nonresident major security-based swap 
participant shall mean:
    (1) In the case of an individual, one who resides, or has his or 
her principal place of business, in any place not in the United States;
    (2) In the case of a corporation, one incorporated in or having its 
principal place of business in any place not in the United States; or
    (3) In the case of a partnership or other unincorporated 
organization or

[[Page 49015]]

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


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

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


Sec.  240.15Fb2-6  Registration of fiduciaries.

    The registration of a security-based swap dealer or a major 
security-based swap participant shall be deemed to be the registration 
of any executor, administrator, guardian, conservator, assignee for the 
benefit of creditors, receiver, trustee in insolvency or bankruptcy, or 
other fiduciary,

[[Page 49016]]

appointed or qualified by order, judgment, or decree of a court of 
competent jurisdiction to continue the business of such registered 
security-based swap dealer or a major security-based swap participant; 
Provided, that such fiduciary files with the Commission, within 30 days 
after entering upon the performance of his or her duties, an amended 
Form SBSE (Sec.  249.1600 of this chapter), Form SBSE-A (Sec.  
249.1600a of this chapter), or Form SBSE-BD (Sec.  249.1600b of this 
chapter), as appropriate, indicating the fiduciary's position with 
respect to management of the firm and, as an additional document, a 
copy of the order, judgment, decree, or other document appointing the 
fiduciary.


Sec.  240.15Fb3-1  Duration of registration.

    (a) General. A person registered as a security-based swap dealer or 
major security-based swap participant in accordance with Sec.  
240.15Fb2-1 will continue to be so registered until the effective date 
of any cancellation, revocation or withdrawal of such registration.
    (b) Conditional registration. Notwithstanding paragraph (a) of this 
section, conditional registration shall expire on the date the 
registrant withdraws from registration or the Commission grants or 
denies the person's ongoing registration in accordance with Sec.  
240.15Fb2-1(e).


Sec.  240.15Fb3-2  Withdrawal from registration.

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


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

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


Sec.  240.15Fb6-1  Associated persons.

    Unless otherwise ordered by the Commission, when it files an 
application to register with the Commission as a security-based swap 
dealer or major security-based swap participant, a security-based swap 
dealer or a major security-based swap participant may permit a person 
that is associated with such security-based swap dealer or major 
security-based swap participant that is not a natural person and that 
is subject to statutory disqualification to effect or be involved in 
effecting security-based swaps on its behalf, provided that the 
statutory disqualification(s), described in Sections 3(a)(39)(A) 
through (F) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(39)(A)-(F)), occurred prior to the compliance date of this rule, 
and provided that it identifies each such associated person on Schedule 
C of Form SBSE (Sec.  249.1600 of this chapter), Form SBSE-A (Sec.  
249.1600a of this chapter), or Form SBSE-BD (Sec.  249.1600b of this 
chapter), as appropriate.


Sec.  240.15Fb6-2  Associated person certification.

    (a) Certification. No registered security-based swap dealer or 
major security-based swap participant shall act as a security-based 
swap dealer or major security-based swap participant unless it has 
certified electronically on Form SBSE-C (Section 249.1600c of this 
chapter) that it neither knows, nor in the exercise of reasonable care 
should have known, that any person associated with such security-based 
swap dealer or major security-based swap participant who effects or is 
involved in effecting security-based swaps on behalf of the security-
based swap dealer or major security-based swap participant is subject 
to a statutory disqualification, as described in Sections 3(a)(39)(A) 
through (F) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(39)(A)-(F)), unless otherwise specifically provided by rule, 
regulation or order of the Commission.
    (b) To support the certification required by paragraph (a) of this 
section, the security-based swap dealer's or major security-based swap 
participant's Chief Compliance Officer, or his or her designee, shall 
review and sign the questionnaire or application for employment, which 
the security-based swap dealer or major security-based swap participant 
is required to obtain pursuant to the relevant recordkeeping rule 
applicable to such security-based swap dealer or major security-based 
swap participant, executed by each associated person who is a natural 
person and who effects or is involved in effecting security based swaps 
on the security-based swap dealer's or major security-based swap 
participant's behalf. The questionnaire or application shall serve as a 
basis for a background check of the associated person to verify

[[Page 49017]]

that the person is not subject to statutory disqualification.

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

0
3. The authority citation for part 249 continues to read, in part, as 
follows:

    Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; 12 U.S.C. 
5461 et seq.; and 18 U.S.C. 1350, unless otherwise noted.
* * * * *

0
4. Add subpart Q to read as follows:

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

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


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

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


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

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


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

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


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

    This form shall be used to file required certifications on Form 
SBSE-C pursuant to Sec.  240.15Fb2-1(a) of this chapter.


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

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

    By the Commission.

    Dated: August 5, 2015.
Brent J. Fields,
Secretary.

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

BILLING CODE 8011-01-P

[[Page 49018]]

[GRAPHIC] [TIFF OMITTED] TR14AU15.003


[[Page 49019]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.004


[[Page 49020]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.005


[[Page 49021]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.006


[[Page 49022]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.007


[[Page 49023]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.008


[[Page 49024]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.009


[[Page 49025]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.010


[[Page 49026]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.011


[[Page 49027]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.012


[[Page 49028]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.013


[[Page 49029]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.014


[[Page 49030]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.015


[[Page 49031]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.016


[[Page 49032]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.017


[[Page 49033]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.018


[[Page 49034]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.019


[[Page 49035]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.020


[[Page 49036]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.021


[[Page 49037]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.022


[[Page 49038]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.023


[[Page 49039]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.024


[[Page 49040]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.025


[[Page 49041]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.026


[[Page 49042]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.027


[[Page 49043]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.028


[[Page 49044]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.029


[[Page 49045]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.030


[[Page 49046]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.031


[[Page 49047]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.032


[[Page 49048]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.033


[[Page 49049]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.034


[[Page 49050]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.035


[[Page 49051]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.036


[[Page 49052]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.037


[[Page 49053]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.038


[[Page 49054]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.039


[[Page 49055]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.040


[[Page 49056]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.041


[[Page 49057]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.042


[[Page 49058]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.043


[[Page 49059]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.044


[[Page 49060]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.045


[[Page 49061]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.046


[[Page 49062]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.047


[[Page 49063]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.048


[[Page 49064]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.049


[[Page 49065]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.050


[[Page 49066]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.051


[[Page 49067]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.052


[[Page 49068]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.053


[[Page 49069]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.054


[[Page 49070]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.055


[[Page 49071]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.056


[[Page 49072]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.057


[[Page 49073]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.058


[[Page 49074]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.059


[[Page 49075]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.060


[[Page 49076]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.061


[[Page 49077]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.062


[[Page 49078]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.063


[[Page 49079]]


[GRAPHIC] [TIFF OMITTED] TR14AU15.064

[FR Doc. 2015-19661 Filed 8-13-15; 8:45 am]
BILLING CODE 8011-01-C