[Federal Register Volume 81, Number 156 (Friday, August 12, 2016)]
[Rules and Regulations]
[Pages 53546-53655]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-17032]



[[Page 53545]]

Vol. 81

Friday,

No. 156

August 12, 2016

Part II





Securities and Exchange Commission





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17 CFR Part 242





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

  Federal Register / Vol. 81 , No. 156 / Friday, August 12, 2016 / 
Rules and Regulations  

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 242

[Release No. 34-78321; File No. S7-03-15]
RIN 3235-AL71


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

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: The Securities and Exchange Commission (``SEC'' or 
``Commission'') is adopting certain amendments to Regulation SBSR--
Reporting and Dissemination of Security-Based Swap Information 
(``Regulation SBSR''). Specifically, new Rule 901(a)(1) of Regulation 
SBSR requires a platform (i.e., a national securities exchange or 
security-based swap execution facility (``SB SEF'') that is registered 
with the Commission or exempt from registration) to report a security-
based swap executed on such platform that will be submitted to 
clearing. New Rule 901(a)(2)(i) of Regulation SBSR requires a 
registered clearing agency to report any security-based swap to which 
it is a counterparty. The Commission is adopting certain conforming 
amendments to other provisions of Regulation SBSR in light of the newly 
adopted amendments to Rule 901(a), and an amendment that would require 
registered security-based swap data repositories (``SDRs'') to provide 
the security-based swap transaction data that they are required to 
publicly disseminate to the users of the information on a non-fee 
basis. The Commission also is adopting amendments to Rule 908(a) to 
extend Regulation SBSR's regulatory reporting and public dissemination 
requirements to additional types of cross-border security-based swaps. 
The Commission is offering guidance regarding the application of 
Regulation SBSR to prime brokerage transactions and to the allocation 
of cleared security-based swaps. Finally, the Commission is adopting a 
new compliance schedule for the portions of Regulation SBSR for which 
the Commission has not previously specified compliance dates.

DATES: Effective Date: October 11, 2016.
    Compliance Dates: For a discussion of the Compliance Dates for 
Regulation SBSR, see Section X of the Supplementary Information.

FOR FURTHER INFORMATION CONTACT: Michael Gaw, Assistant Director, at 
(202) 551-5602; Sarah Albertson, Special Counsel, at (202) 551-5647; 
Yvonne Fraticelli, Special Counsel, at (202) 551-5654; Kathleen Gross, 
Special Counsel, at (202) 551-5305; David Michehl, Special Counsel, at 
(202) 551-5627; or Geoffrey Pemble, Special Counsel, at (202) 551-5628; 
all of the Division of Trading and Markets, Securities and Exchange 
Commission, 100 F Street NE., Washington, DC 20549-7010.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Introduction
II. Economic Considerations and Baseline Analysis
    A. Baseline
    1. Available Data Regarding Security-Based Swap Activity
    2. Clearing Activity in Single-Name CDS
    3. Current Market Structure for Security-Based Swap 
Infrastructure
    a. Exchanges and SB SEFs
    b. Clearing Agencies
    c. Trade Repositories
    d. Vertical Integration of Security-Based Swap Market 
Infrastructure
    4. Security-Based Swap Market: Market Participants and Dealing 
Structures
    a. Market Centers
    b. Common Business Structures for Firms Engaged in Security-
Based Swap Dealing Activity
    c. Current Estimates of Number of Security-Based Swap Dealers
    d. Arranging, Negotiating, and Executing Activity Using 
Personnel Located in a U.S. Branch or Office
    5. Security-Based Swap Market: Levels of Security-Based Swap 
Trading Activity
    6. Global Regulatory Efforts
    B. Economic Considerations
    1. Security-Based Swap Market Infrastructure
    2. Competition Among Security-Based Swap Infrastructure 
Providers
    3. Security-Based Swaps Trading by Non-U.S. Persons Within the 
United States
III. Reporting by Registered Clearing Agencies
    A. Background
    1. Clearing Process for Security Based Swaps
    2. Proposed Rules and General Summary of Comments
    B. Discussion and Final Rules
    C. Choice of Registered SDR for Clearing Transactions
    D. Scope of Clearing Agencies Covered by Final Rules
    E. Reporting Under the Principal Model of Clearing
    F. Clearing Transactions and Other Unique Identification Codes
    G. Reporting Whether an Alpha Transaction Is Accepted for 
Clearing
    H. A Registered Clearing Agency Must Know the Transaction ID of 
the Alpha and the Identity of the Alpha SDR
    I. Alpha Submitted to Clearing Before It Is Reported to a 
Registered SDR
    J. Consequences of Rejection
    K. Scope of Clearing Transactions
    L. Reporting of Historical Clearing Transactions
IV. Reporting by Platforms
    A. Overview
    B. A Platform Is Not Required To Report All Transactions 
Occurring on Its Facilities
    C. Data Elements That a Platform Must Report
    D. Platform Duty to Report Secondary Trade Information
    E. Platform Has No Duty To Report Life Cycle Events
    F. Implementation Issues
    G. Reporting Duty Applies Even to Unregistered Platforms
V. Additional Matters Concerning Platforms and Registered Clearing 
Agencies
    A. Extending ``Participant'' Status
    B. Examples of Reporting Workflows Involving Platforms and 
Registered Clearing Agencies
    C. Amendments to Rule 905(a)
    D. Requirements Related to Participant Providing Ultimate Parent 
and Affiliate Information to Registered SDR
    E. Additional Entities Must Have Policies and Procedures for 
Supporting Their Reporting Duties
VI. Reporting and Public Dissemination of Security-Based Swaps 
Involving Allocation
    A. Background
    B. Guidance on How Regulation SBSR Applies to Bunched Order 
Executions
    1. Example 1: Off-Platform Cleared Transaction
    a. Reporting the Bunched Order Alpha
    b. Reporting the Security-Based Swaps Resulting From Allocation
    2. Example 2: Cleared Platform Transaction
    a. Reporting the Bunched Order Alpha
    b. Reporting the Security-Based Swaps Resulting From Allocation
    C. Comments Received
    D. Conforming Amendment to Rule 901(d)(4)
VII. Reporting and Public Dissemination of Prime Brokerage 
Transactions
    A. Background
    B. Reporting of Security-Based Swaps Resulting From Prime 
Brokerage Arrangements
    1. If There Are Three Legs
    2. If There Are Two Legs
    C. Public Dissemination of Prime Brokerage Transactions
    D. If the Prime Broker Rejects the Initial Security-Based Swap
VIII. Prohibition on Registered SDRs From Charging Fees for or 
Imposing Usage Restrictions on Publicly Disseminated Data
    A. Background
    B. Comments Received and Final Rule
    C. Other Interpretive Issues
IX. Cross-Border Matters
    A. Introduction
    B. Existing Rules 901 and 908
    C. Extending Regulation SBSR to All ANE Transactions
    1. Description of Proposed Rule
    2. Discussion of Comments and Final Rule
    a. Impact on Regulatory Reporting
    b. Impact on Public Dissemination
    c. Impact of Substituted Compliance

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    D. Extending Regulation SBSR to All Transactions Executed on a 
U.S. Platform Effected By or Through a Registered Broker-Dealer
    E. Public Dissemination of Covered Cross-Border Transactions
    F. Expanding Rule 908(b)
    1. Expanding Rule 908(b) To Include All Platforms and Registered 
Clearing Agencies
    2. Expanding Rule 908(b) To Include Non-U.S. Persons Engaging in 
ANE Transactions
    G. Reporting Duties of Unregistered Persons
    1. Description of Proposed Rules
    2. Discussion of Comments and Final Rules
    a. Transactions Where One or Both Sides Consist Only of 
Unregistered Persons
    b. Transactions Involving a Registered Broker-Dealer
    H. Conforming Amendments
    1. Expanding Definition of ``Participant''
    2. Rule 901(d)(9)
    3. Limitation of Duty To Report Ultimate Parent and Affiliate 
Information
    I. Availability of Substituted Compliance
X. Compliance Schedule for Regulation SBSR
    A. Proposed Compliance Schedule
    B. General Summary of Comments Received
    C. Compliance Date 1
    1. Compliance With Regulation SBSR Follows Security-Based Swap 
Dealer Registration
    2. At Least Six Months Between First SDR to Register and 
Compliance Date 1
    3. There May Be Separate Compliance Dates for Separate Asset 
Classes
    4. ``First-Mover'' Concerns
    5. No Delay for Substituted Compliance Determinations
    6. No Delay for Adoption of SB SEF Rules
    7. Compliance With UIC Requirements
    a. UICs for Legal Entities
    b. Branch ID, Trading Desk ID, and Trader ID
    c. Transaction ID
    d. Product ID
    8. Switching of Reporting Side Designation
    D. Compliance Date 2
    E. New Compliance Date 3 for Historical Security-Based Swaps
    F. No Separate Compliance Dates for Cross-Border Transactions
    G. Exemptions Related to the Compliance Schedule
    H. Substituted Compliance Requests
XI. Paperwork Reduction Act
    A. Definitions--Rule 900
    B. Reporting Obligations--Rule 901
    1. Existing Rule 901
    2. Rule 901--Amendments
    a. Rule 901--Reporting Obligations Resulting From Amendments to 
Rule 901(a)(2)(ii)(E)
    i. Summary of Collection of Information
    ii. Respondents
    iii. Total Initial and Annual Reporting Burdens
    b. Rule 901--Reporting Obligations for Platforms and Clearing 
Agencies Resulting From Amendments to Rules 901(a)(1) and (2) and 
Platforms and Reporting Sides Resulting From Amendments to Rule 
901(a)(3)
    i. Summary of Collection of Information
    ii. Respondents
    iii. Total Initial and Annual Reporting Burdens
    a) Platforms and Registered Clearing Agencies
    b) Rule 901(a)(3) Burdens
    c) Bunched Order Executions and Allocations
    d) Prime Brokerage Transactions
    3. Rule 901--Aggregate Total PRA Burdens and Costs
    a. For Platforms
    b. For Registered Clearing Agencies
    c. For New Broker-Dealer Respondents
    d. For Reporting Sides
    C. Correction of Errors in Security-Based Swap Information--Rule 
905
    1. Existing Rule 905
    2. Amendments to Rule 905
    a. Summary of Collection of Information
    b. Respondents
    c. Total Initial and Annual Reporting Burdens
    i. New Broker-Dealer Respondents
    ii. For Platforms and Registered Clearing Agencies
    iii. For Non-Reporting Sides
    iv. For Registered SDRs
    v. Aggregate Reporting Burdens Under Rule 905
    D. Other Duties of Participants--Rule 906
    1. Existing Rule 906
    2. Amendments to Rule 906
    a. Rule 906(a)
    b. Rule 906(b)--Amendments
    c. Rule 906(c)--Amendments
    i. Summary of Collection of Information
    ii. Respondents
    iii. Total Initial and Annual Reporting and Recordkeeping 
Burdens
    3. Rule 906--Aggregate Total PRA Burdens and Costs
    a. For Platforms and Registered Clearing Agencies
    b. For Registered SDRs
    c. For Participants
    d. For New Broker-Dealer Respondents
    e. Aggregate Rule 906 Burdens
    E. Policies and Procedures of Registered SDRs--Rule 907
    1. Existing Rule 907
    2. Rule 907--Amendments
    3. Rule 907--Aggregate Total PRA Burdens and Costs
    F. Cross-Border Matters--Rule 908
    1. Existing Rule 908
    2. Rule 908--Amendments
    3. Rule 908--Aggregate Total Burdens and Costs
    G. Additional PRA Discussion
    1. Use of Information
    2. Recordkeeping Requirements
    3. Collection of Information Is Mandatory
    4. Confidentiality of Responses to Collection of Information
XII. Economic Analysis
    A. Programmatic Costs of Amendments to Regulation SBSR
    1. Programmatic Costs of Newly Adopted Requirements
    a. For Platforms and Registered Clearing Agencies
    b. For Platforms and Reporting Sides of Alphas
    c. Total Costs of Platforms, Registered Clearing Agencies, and 
Reporting Sides Relating to Amendments to Rule 901
    d. Reporting by Unregistered Persons
    2. Amendment to Rule 905(a)
    3. Amendments to Rule 906(c)
    4. Amendments That Subject Additional Cross-Border Security-
Based Swaps to Regulation SBSR
    a. ANE Transactions Involving Unregistered Entities
    b. Transactions Executed on a Platform or By or Through a 
Registered Broker-Dealer
    5. Amendments to Rule 908(b)
    6. Other Conforming Amendments
    7. Discussion of Comments Received
    B. Assessment Costs of Unregistered Entities Related to ANE 
Transactions
    1. Assessment Costs of Foreign Dealing Entities Engaged in ANE 
Transactions
    2. Assessment Costs of Unregistered U.S. Persons Engaging in 
Security-Based Swaps Against Foreign Entities
    3. Assessment Costs Associated With Rule 901(a)(2)(ii)(E)(4)
    4. Discussion of Comments Received
XIII. Economic Effects and Effects on Efficiency, Competition, and 
Capital Formation
    A. Reporting of Clearing Transactions
    B. Alternative Approaches to Reporting Clearing Transactions
    1. Alternative 1
    2. Alternative 2
    3. Alternative 3
    4. Commenter Views
    C. Reporting by Platforms
    1. Alternative Approaches to Reporting Platform-Executed 
Transactions
    D. Reporting of Clearing Transactions Involving Allocation
    E. Application of Regulation SBSR to Prime Brokerage 
Transactions
    F. Prohibition of Fees and Usage Restrictions for Public 
Dissemination
    G. Compliance Schedule for Regulation SBSR
    H. Amendments Related to Cross-Border Transactions
    1. Competition
    2. Efficiency
    3. Capital Formation
XIV. Regulatory Flexibility Act Certification
XV. Statutory Basis

I. Introduction

    Section 13A(a)(1) of the Exchange Act \1\ provides that each 
security-based swap that is not accepted for clearing by any clearing 
agency or derivatives clearing organization shall be subject to 
regulatory reporting. Section 13(m)(1)(G) of the Exchange Act \2\ 
provides that each security-based swap (whether cleared or uncleared) 
shall be reported to a registered SDR, and Section 13(m)(1)(C) of the 
Exchange Act \3\ generally provides that

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transaction, volume, and pricing data of security-based swaps shall be 
publically disseminated in real time.\4\
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    \1\ 15 U.S.C. 78m-1(a)(1). All references in this release to the 
Exchange Act refer to the Securities Exchange Act of 1934.
    \2\ 15 U.S.C. 78m(m)(1)(G).
    \3\ 15 U.S.C. 78m(m)(1)(C).
    \4\ In addition, Section 13(m)(1)(E) of the Exchange Act, 15 
U.S.C. 78m(m)(1)(E), provides that, with respect to cleared 
security-based swaps, the rule promulgated by the Commission related 
to public dissemination shall contain provisions, among others, that 
``specify the criteria for determining what constitutes a large 
notional security-based swap transaction (block trade) for 
particular markets and contracts'' and ``specify the appropriate 
time delay for reporting large notional security-based swap 
transactions (block trades) to the public.''
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    In February 2015, the Commission adopted Regulation SBSR,\5\ which 
consists of Rules 900 to 909 under the Exchange Act and provides for 
the regulatory reporting and public dissemination of security-based 
swap transactions. At the same time that it adopted Regulation SBSR, 
the Commission also proposed certain additional rules and guidance 
relating to regulatory reporting and public dissemination of security-
based swap transactions that were not addressed in the Regulation SBSR 
Adopting Release.\6\ In April 2015, the Commission proposed certain 
rules that would address the application of Title VII requirements to 
security-based swap activity engaged in by non-U.S. persons within the 
United States,\7\ including how Regulation SBSR would apply to such 
activity, and certain related issues. In this release, the Commission 
is adopting, with a number of revisions, the amendments to Regulation 
SBSR contained in the Regulation SBSR Proposed Amendments Release and 
the U.S. Activity Proposal.
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    \5\ Securities Exchange Act Release No. 74244 (February 11, 
2015), 80 FR 14564 (March 19, 2015) (``Regulation SBSR Adopting 
Release''). The Commission initially proposed Regulation SBSR in 
November 2010. See Securities Exchange Act Release No. 63346 
(November 19, 2010), 75 FR 75207 (December 2, 2010) (``Regulation 
SBSR Proposing Release''). In May 2013, the Commission re-proposed 
the entirety of Regulation SBSR as part of a larger release that 
proposed rules and interpretations regarding the application of 
Title VII of the Dodd-Frank Act (``Title VII'') to cross-border 
security-based swap activities. See Securities Exchange Act Release 
No. 69490 (May 1, 2013), 78 FR 30967 (May 23, 2013) (``Cross-Border 
Proposing Release'').
    \6\ Securities Exchange Act Release No. 74244 (February 11, 
2015), 80 FR 14740 (March 19, 2015) (``Regulation SBSR Proposed 
Amendments Release'').
    \7\ Securities Exchange Act Release No. 74834 (April 29, 2015), 
80 FR 27444 (May 13, 2015) (``U.S. Activity Proposal'').
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    The Commission received 18 comments on the Regulation SBSR Proposed 
Amendments Release \8\ and 16 comments on the U.S. Activity Proposal, 
of which seven addressed issues relating to Regulation SBSR.\9\ Below, 
the Commission responds to issues raised in those comments and 
discusses the amendments to Regulation SBSR being adopted herein. Some 
commenters directed comments to the rules the Commission already 
adopted in the Regulation SBSR Adopting Release.\10\ As the Commission 
stated in the Regulation SBSR Proposed Amendments Release, however, the 
Commission did not reopen comment on the rules that it adopted in the 
Regulation SBSR Adopting Release.\11\ Accordingly, these comments are 
beyond the scope of this release and are not addressed herein.
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    \8\ See letters to Brent J. Fields, Secretary, Commission, from 
Larry E. Thompson, Vice Chairman and General Counsel, Depository 
Trust & Clearing Corporation (``DTCC''), dated May 4, 2015 (``DTCC 
Letter''); Susan Milligan, Head of U.S. Public Affairs, LCH.Clearnet 
Group Limited, dated May 4, 2015 (``LCH.Clearnet Letter''); Marcus 
Sch[uuml]ler, Head of Regulatory Affairs, Markit, dated May 4, 2015 
(``Markit Letter''); and Vincent A. McGonagle, Director, Division of 
Market Oversight, and Phyllis P. Dietz, Acting Director, Division of 
Clearing and Risk, Wholesale Market Brokers' Association, Americas 
(``WMBAA''), dated May 4, 2015 (``WMBAA Letter''); letters to 
Elizabeth M. Murphy, Secretary, Commission, from Marisol Collazo, 
Chief Executive Officer, DTCC Data Repository (U.S.) LLC, Bruce A. 
Tupper, President, ICE Trade Vault, LLC, and Jonathan A. Thursby, 
Global Head of Repository Services, CME Group, dated June 10, 2015 
(``DTCC/ICE/CME Letter''); Kara Dutta, General Counsel, and Bruce A. 
Tupper, President, ICE Trade Vault, LLC, dated May 4, 2015 (``ICE 
Letter''); Tara Kruse, Director, Co-Head of Data, Reporting, and 
FpML, International Swaps and Derivatives Association, Inc. 
(``ISDA''), and Kyle Brandon, Managing Director, Director of 
Research, Securities Industry and Financial Markets Association 
(``SIFMA''), dated May 4, 2015 (``ISDA/SIFMA Letter''); undated 
letter from Timothy W. Cameron, Managing Director-Head, and Laura 
Martin, Managing Director and Associate General Counsel, Asset 
Management Group, SIFMA (``SIFMA-AMG II''); letters to the 
Secretary, Commission, from Dennis M. Kelleher, President and Chief 
Executive Officer, Stephen W. Hall, Securities Specialist, and Todd 
Philips, Attorney, Better Markets, Inc., dated May 4, 2015 (``Better 
Markets Letter''); Allan D. Grody, President, Financial InterGroup 
Holdings Ltd, dated May 18, 2015 (``Financial InterGroup Letter''); 
and Tara Kruse, Director, Co-Head of Data, Reporting, and FpML, 
ISDA, dated November 25, 2015 (``ISDA III''); letter to Michael Gaw, 
Assistant Director, Office of Market Supervision (``OMS''), Division 
of Trading and Markets, Commission, from Bert Fuqua, General 
Counsel, Investment Bank Americas Legal, UBS AG, and Michael Loftus, 
Managing Director, Investment Bank Americas Legal, UBS AG, dated May 
6, 2016 (``UBS Letter''); letter to Michael Gaw, Assistant Director, 
OMS, Division of Trading and Markets (``Division''), Commission, and 
Tom Eady, Senior Policy Advisor, Division, Commission, from Tara 
Kruse, Director, Co-Head of Data, Reporting and FpML, ISDA, dated 
August 3, 2015 (``ISDA II''); letter from Chris Barnard, dated May 
4, 2015 (``Barnard I''). Four comments, although submitted to the 
comment file for the Regulation SBSR Proposed Amendments Release, 
were not germane to the proposal and are not considered here.
    \9\ See UBS Letter and letters to Brent J. Fields, Secretary, 
Commission, from Dan Waters, Managing Director, ICI Global, dated 
July 13, 2015 (``ICI Global Letter''); Sarah A. Miller, Chief 
Executive Officer, Institute of International Bankers (``IIB''), 
dated July 13, 2015 (``IIB Letter''); David Geen, General Counsel, 
ISDA, dated July 13, 2015 (``ISDA I''); Timothy W. Cameron, Managing 
Director-Head, and Laura Martin, Managing Director and Associate 
General Counsel, Asset Management Group, SIFMA, dated July 13, 2015 
(``SIFMA-AMG I''); Kenneth E. Bentsen, Jr., President and Chief 
Executive Officer, SIFMA, and Rich Foster, Senior Vice President and 
Senior Counsel for Regulatory and Legal Affairs, Financial Services 
Roundtable (``FSR''), dated July 13, 2015 (``SIFMA/FSR Letter''); 
letter from Chris Barnard, dated June 26, 2015 (``Barnard II'').
    \10\ The issues raised by these commenters included, for 
example, the 24-hour reporting delay adopted in the Regulation SBSR 
Adopting Release; the ability to report all transaction information 
required by Regulation SBSR in light of certain foreign privacy 
laws; the identification of indirect counterparties; public 
dissemination of certain illiquid security-based swaps; the 
requirement for registered SDRs to disseminate the full notional 
size of all transactions; and the requirement that a registered SDR 
immediately disseminate information upon receiving a transaction 
report.
    \11\ See 80 FR at 14741, n. 8.
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II. Economic Considerations and Baseline Analysis

    To provide context for understanding the rules being adopted today 
and the related economic analysis that follows, this section describes 
the current state of the security-based swap market and the existing 
regulatory framework; it also identifies broad economic considerations 
that underlie the likely economic effects of these rules.

A. Baseline

    To assess the economic impact of the final rules described in this 
release, the Commission employs as a baseline the security-based swap 
market as it exists at the time of this release, including applicable 
rules that the Commission already has adopted but excluding rules that 
the Commission has proposed but not yet finalized.\12\ The analysis 
includes the statutory and regulatory provisions that currently govern 
the security-based swap market pursuant to the Dodd-Frank Act, rules 
adopted in the Intermediary Definitions Adopting Release,\13\ the 
Cross-Border Adopting Release,\14\ the SDR Adopting Release,\15\ and 
the U.S. Activity Adopting Release.\16\ In addition, the baseline

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includes rules that have been adopted but for which compliance is not 
yet required, including the SBS Entity Registration Adopting 
Release,\17\ the Regulation SBSR Adopting Release,\18\ and the External 
Business Conduct Adopting Release,\19\ as these final rules--even if 
compliance is not required--are part of the existing regulatory 
landscape that market participants must take into account when 
conducting their security-based swap activity.
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    \12\ The Commission 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 (``ESMA''), on practices in the security-based swap 
market.
    \13\ See Securities Exchange Act Release No. 66868 (April 27, 
2012), 77 FR 30596 (May 23, 2012) (``Intermediary Definitions 
Adopting Release'').
    \14\ See Securities Exchange Act Release No. 72472 (June 25, 
2014), 79 FR 47278 (August 12, 2014) (``Cross-Border Adopting 
Release'').
    \15\ See Securities Exchange Act Release No. 74246 (February 11, 
2015), 80 FR 14438 (March 19, 2015) (``SDR Adopting Release'').
    \16\ See Securities Exchange Act Release No. 77104 (February 10, 
2016), 81 FR 8598 (February 19, 2016) (``U.S. Activity Adopting 
Release'').
    \17\ See Securities Exchange Act Release No. 75611 (August 5, 
2015), 80 FR 48963 (August 14, 2015) (``SBS Entities Registration 
Adopting Release'').
    \18\ See supra note 5.
    \19\ See Securities Exchange Act Release No. 77617 (April 14, 
2016), 81 FR 29960 (May 13, 2016) (``External Business Conduct 
Adopting Release'').
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    The following sections provide an overview of aspects of the 
security-based swap market that are likely to be most affected by the 
amendments and guidance being adopted today, as well as elements of the 
current market structure, such as central clearing and platform 
trading, that are likely to determine the scope of transactions that 
will be covered by them.
1. Available Data Regarding Security-Based Swap Activity
    The Commission's understanding of the market is informed in part by 
available data on security-based swap transactions, though the 
Commission acknowledges that limitations in the data prevent the 
Commission from quantitatively characterizing certain aspects of the 
market.\20\ Because these data do not cover the entire market, the 
Commission has developed an understanding of market activity using a 
sample of transaction data that includes only certain portions of the 
market. The Commission believes, however, that the data underlying its 
analysis here provide reasonably comprehensive information regarding 
single-name credit default swap (``CDS'') transactions and the 
composition of participants in the single-name CDS market.
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    \20\ The Commission also relies on qualitative information 
regarding market structure and evolving market practices provided by 
commenters, both in letters and in meetings with Commission staff, 
and knowledge and expertise of Commission staff.
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    Specifically, the Commission's 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 CDS market during the period from 2008 to 2015. According 
to data published by the Bank for International Settlements (``BIS''), 
the global notional amount outstanding in single-name CDS was 
approximately $7.18 trillion,\21\ in multi-name index CDS was 
approximately $4.74 trillion, and in multi-name, non-index CDS was 
approximately $373 billion. The total gross market value outstanding in 
single-name CDS was approximately $284 billion, and in multi-name CDS 
instruments was approximately $137 billion.\22\ The global notional 
amount outstanding in equity forwards and swaps as of December 2015 was 
$3.32 trillion, with total gross market value of $147 billion.\23\ As 
these figure show (and as the Commission has previously noted), 
although the definition of security-based swaps is not limited to 
single-name CDS, single-name CDS make up a vast majority of security-
based swaps in terms of notional amount outstanding, and the Commission 
believes that the single-name CDS data are sufficiently representative 
of the market to inform the Commission's analysis of the state of the 
current security-based swap market.\24\
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    \21\ The global notional amount outstanding represents the total 
face amount of the swap used to calculate payments. The gross market 
value is the cost of replacing all open contracts at current market 
prices.
    \22\ See Semi-annual OTC derivatives statistics (December 2015), 
Table D5, available at http://www.bis.org/statistics/derstats.htm 
(last viewed May 25, 2016).
    \23\ These totals include both swaps and security-based swaps, 
as well as products that are excluded from the definition of 
``swap,'' such as certain equity forwards.
    \24\ See U.S. Activity Adopting Release, 81 FR at 8601.
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    The Commission notes that the data available to it from TIW do not 
encompass those CDS transactions that both: (1) Do not involve U.S. 
counterparties; \25\ and (2) are based on non-U.S. reference entities. 
Notwithstanding this limitation, the TIW data should provide sufficient 
information to permit the Commission to identify the types of market 
participants active in the security-based swap market and the general 
pattern of dealing within that market.\26\
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    \25\ The Commission has classified accounts as ``U.S. 
counterparties'' based on TIW's entity domicile determinations. The 
Commission notes, however, that TIW's entity domicile determinations 
are not necessarily identical in all cases to the definition of 
``U.S. person'' under Exchange Act Rule 3a71-3(a)(4), 17 CFR 
240.3a71-3(a)(4).
    \26\ The challenges the Commission faces 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, 80 FR at 14699-700.
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    One commenter recommended that the Commission collect a more 
complete set of data to more precisely estimate the number of non-U.S. 
persons that would be affected by the proposed rules.\27\ Given the 
absence of comprehensive reporting requirements for security-based swap 
transactions, and the fact that the location of personnel that arrange, 
negotiate, or execute a security-based swap transaction is not 
currently available in TIW, a more precise estimate of the number of 
non-U.S. persons affected by the adopted rules is not currently 
feasible.
---------------------------------------------------------------------------

    \27\ See ISDA Letter at 3, 7 (arguing that the Commission lacks 
complete data to estimate the number of non-U.S. persons that use 
U.S. personnel to arrange, negotiate, or execute security-based swap 
transactions or the number of registered U.S. broker-dealers that 
intermediate these transactions and that this ``makes it difficult 
or impossible for the Commission to formulate a useful estimate of 
the market impact, cost and benefits of the Proposal''; suggesting 
that the Commission ``gather[ ] more robust and complete data prior 
to finalizing a rulemaking that will have meaningful impact on a 
global market'').
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2. Clearing Activity in Single-Name CDS
    Currently, there is no regulatory requirement in the United States 
to clear security-based swaps. Clearing for certain single-name CDS 
products occurs on a voluntary basis. Voluntary clearing activity in 
single-name CDS has steadily increased in recent years. As of the end 
of 2015, ICE Clear Credit accepted for clearing security-based swap 
products based on a total of 232 North American corporate reference 
entities, 174 European corporate reference entities, and 21 individual 
sovereign reference entities.
    Figure 1, below, shows characteristics of new trades in single-name 
CDS that reference North American standard corporate ISDA 
documentation. In particular, the figure documents that about half of 
all clearable transactions are cleared. Analysis of trade activity from 
January 2011 to December 2015 indicates that, out of $3,460 billion of 
notional amount traded in North American corporate single-name CDS 
products that are accepted for clearing during the 60 months ending 
December 2015, approximately 70%, or $2,422 billion, had 
characteristics making them suitable for clearing by ICE Clear Credit 
and represented trades between two ICE Clear Credit clearing members. 
Approximately 80% of this notional value, or $1,938 billion, was 
cleared through ICE Clear Credit, or 56% of the total volume of new 
trade activity. As of the end of 2015, ICE Clear Europe

[[Page 53550]]

accepted for clearing single-name CDS products referencing a total of 
176 European corporate reference entities and seven sovereign reference 
entities. Analysis of new trade activity from January 2011 to December 
2015 indicates that, out of [euro]1,963 billion of notional volume 
traded in European corporate single-name CDS products that are accepted 
for clearing during the 60 months ending December 2015, approximately 
58%, or [euro]1,139 billion, had characteristics making them suitable 
for clearing by ICE Clear Europe and represented trades between two ICE 
Clear Europe clearing members. Approximately 71% of this notional 
amount, or [euro]805 billion, was cleared through ICE Clear Europe, or 
41% of the total volume of new trade activity.\28\
---------------------------------------------------------------------------

    \28\ These numbers do not include transactions in European 
corporate single-name CDS that were cleared by ICE Clear Credit. 
During the sample period, a total of 2,168 transactions in European 
corporate single-name CDS (with a total gross notional amount of 
approximately [euro]11 billion) were cleared by ICE Clear Credit. 
All but one of these transactions occurred between 2014 and 2015. 
For historical data, see https://www.theice.com/marketdata/reports/99 (last visited on May 25, 2016).
[GRAPHIC] [TIFF OMITTED] TR12AU16.000

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

    \29\ The Commission believes that it is reasonable to assume 
that, when clearing occurs within 14 days of execution, 
counterparties made the decision to clear at the time of execution 
and not as a result of information arriving after execution.
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3. Current Market Structure for Security-Based Swap Infrastructure
a. Exchanges and SB SEFs
    The rules and amendments adopted herein address how transactions 
conducted on platforms (i.e., national securities exchanges and SB 
SEFs) must be reported under Regulation SBSR. Currently, there are no 
SB SEFs registered with the Commission, and as a result, there is no 
registered SB SEF trading activity to report. There are, however, 
currently 22 swap execution facilities (``SEFs'') that are either 
temporarily registered with the Commodity Futures Trading Commission 
(``CFTC'') or whose temporary registrations are pending with the CFTC 
and currently are exempt from registration with the Commission.\30\ As 
the Commission noted in the U.S. Activity Adopting Release, the cash 
flows of security-based swaps and other swaps are closely related and 
many participants in the swap market also participate in the security-
based swap market.\31\ Likewise, the Commission believes that it is 
possible that some entities that currently act as SEFs will register 
with the Commission as SB SEFs. The Commission anticipates that, owing 
to the smaller size of the security-based swap market, there will be 
fewer platforms for executing transactions in security-based swaps than 
the 22 SEFs reported within the CFTC's jurisdiction. Under newly 
adopted Rule 901(a)(1), a platform is required to report to a 
registered SDR any security-based swap transaction that is executed on 
the platform and submitted to clearing.
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    \30\ See Securities Exchange Act Release No. 64678 (June 15, 
2011), 76 FR 36287, at 36306 (June 22, 2011) (Temporary Exemptions 
and Other Temporary Relief, Together With Information on Compliance 
Dates for New Provisions of the Securities Exchange Act of 1934 
Applicable to Security-Based Swaps) (``Effective Date Release'') 
(exempting persons that operate a facility for the trading or 
processing of security-based swaps that is not currently registered 
as a national securities exchange or that cannot yet register as an 
SB SEF because final rules for such registration have not yet been 
adopted from the requirements of Section 3D(a)(1) of the Exchange 
Act until the earliest compliance date set forth in any of the final 
rules regarding registration of SB SEFs). A list of SEFs that are 
either temporarily registered with the CFTC or whose temporary 
registrations are pending with the CFTC is available at http://sirt.cftc.gov/SIRT/SIRT.aspx?Topic=SwapExecutionFacilities (last 
visited May 25, 2016).
    \31\ See 81 FR at 8609.
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b. Clearing Agencies
    The market for clearing services in the security-based swap market 
is currently concentrated among a handful of firms. Table 1 lists the 
firms that currently clear index and single-name CDS and identifies the 
segments of the market each firm serves. While there may be several 
choices available to participants interested in cleared index CDS

[[Page 53551]]

transactions, only two firms (albeit with the same parent) clear 
sovereign single-name CDS and only a single firm serves the market for 
North American single-name CDS. Concentration of clearing services 
within a limited set of clearing agencies can be explained, in part, by 
the existence of strong economies of scale in central clearing.\32\
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    \32\ See Securities Exchange Act Release No. 68080 (October 22, 
2012), 77 FR at 66265 (November 2, 2012) (noting that economies of 
scale can result in natural monopolies). See also Craig Pirrong, 
``The Industrial Organization of Execution, Clearing and Settlement 
in Financial Markets,'' Working Paper (2007), available at http://www.bauer.uh.edu/spirrong/Clearing_silos.pdf (last visited May 25, 
2016) (discussing the presence of economies of scale in central 
clearing).
---------------------------------------------------------------------------

    The rules adopted today will, among other things, assign regulatory 
reporting duties for clearing transactions (i.e., security-based swaps 
to which registered clearing agencies are direct counterparties). Any 
rule that would assign reporting duties for clearing transactions would 
affect the accessibility of data related to a large number of security-
based swap transactions. In addition, the number of clearing 
transactions would affect the magnitude of the regulatory burdens 
associated with those reporting duties.

                                         Table 1--Clearing Agencies Currently Clearing Index and Single-Name CDS
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      North American      European         Japanese        Sovereign          Index
--------------------------------------------------------------------------------------------------------------------------------------------------------
ICE Clear Credit \33\..............................................               X                X   ...............               X                X
ICE Clear Europe \34\..............................................  ...............               X   ...............               X                X
CME \35\...........................................................  ...............  ...............  ...............  ...............               X
LCH.Clearnet \36\..................................................  ...............               X   ...............  ...............               X
JSCC \37\..........................................................  ...............  ...............               X   ...............               X
--------------------------------------------------------------------------------------------------------------------------------------------------------

c. Trade Repositories
    The market for data services has evolved along similar lines. While 
there is currently no mandatory reporting requirement for the single-
name CDS market, virtually all transactions are voluntarily reported to 
TIW, which maintains a legal record of transactions.\38\ That there 
currently is a single dominant provider of recordkeeping services for 
security-based swaps is consistent with the presence of a natural 
monopoly for a service that involves a predominantly fixed cost 
investment with low marginal costs of operation.
---------------------------------------------------------------------------

    \33\ A current list of single-name and index CDS cleared by ICE 
Clear Credit is available at: https://www.theice.com/publicdocs/clear_credit/ICE_Clear_Credit_Clearing_Eligible_Products.xls (last 
visited May 25, 2016).
    \34\ A current list of single-name and index CDS cleared by ICE 
Clear Europe is available at: https://www.theice.com/publicdocs/clear_europe/ICE_Clear_Europe_Cleared_Products_List.xlsx (last 
visited on May 25, 2016).
    \35\ A current list of CDS cleared by CME is available at: 
http://www.cmegroup.com/trading/cds/files/cleared-cds-product-specs.xls (last visited May 25, 2016).
    \36\ A current list of single-name and index CDS cleared by 
LCH.Clearnet is available at: http://www.lchclearnet.com/documents/731485/762470/cdsclear_product_list_oct_2015_.xlsx/20b23881-9973-4671-8e78-ee4cfc04b693 (last visited May 25, 2016).
    \37\ A current list of single-name and index CDS cleared by the 
Japanese Securities Clearing Corporation is available at: http://www.jscc.co.jp/en/data/en/2015/05/Settlement_Prices.pdf (last 
visited May 25, 2016).
    \38\ See http://www.dtcc.com/derivatives-services/trade-information-warehouse (last visited May 25, 2016) (describing the 
function and coverage of TIW).
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    There are currently no SDRs registered with the Commission.\39\ 
Registration requirements are part of the new rules discussed in the 
SDR Adopting Release.\40\ In the absence of SEC-registered SDRs, the 
analysis of the economic effects of the adopted rules and amendments 
discussed in this release on SDRs is informed by the experience of the 
CFTC-registered swap data repositories that operate in the swap market. 
The CFTC has provisionally registered four swap data repositories to 
accept transactions in swap credit derivatives.\41\
---------------------------------------------------------------------------

    \39\ ICE Trade Vault, LLC, and DTCC Data Repository (U.S.) LLC 
(``DDR'') each have filed an application with the Commission to 
register as an SDR. See Securities Exchange Act Release No. 77699 
(April 22, 2016), 81 FR 25475 (April 28, 2016) (ICE Trade Vault); 
Securities Exchange Act Release No. 78216 (June 30, 2016), 81 FR at 
44379 (July 7, 2016).
    \40\ See 80 FR at 14457-69.
    \41\ A list of swap data repositories provisionally registered 
with the CFTC is available at http://sirt.cftc.gov/sirt/sirt.aspx?Topic=DataRepositories (last visited May 25, 2016).
---------------------------------------------------------------------------

    It is reasonable to estimate that a similar number of persons 
provisionally registered with the CFTC to service the equity and credit 
swap markets might seek to register with the Commission as SDRs, and 
that other persons could seek to register with both the CFTC and the 
Commission as swap data repositories and SDRs, respectively. There are 
economic incentives for the dual registration attributed to the fact 
that many of the market participants in the security-based swap market 
also participate in the swap market. Moreover, once a swap data 
repository is registered with the CFTC and the required infrastructure 
for regulatory reporting and public dissemination is in place, the 
marginal costs for a swap data repository to also register with the 
Commission as an SDR, adding products and databases and implementing 
modifications to account for differences between Commission and CFTC 
rules, will likely be lower than the initial cost of registration with 
the CFTC.
d. Vertical Integration of Security-Based Swap Market Infrastructure
    The Commission has already observed vertical integration of swap 
market infrastructure: Clearing agencies have entered the market for 
record keeping services for swaps by provisionally registering 
themselves, or their affiliates, as swap data repositories with the 
CFTC. Under the CFTC swap reporting regime, two provisionally 
registered swap data repositories are, or are affiliated with, clearing 
agencies that clear swaps. These clearing agencies have adopted rules 
providing that they will satisfy their CFTC swap reporting obligations 
by reporting to their own, or their affiliated, swap data 
repository.\42\ As a result, beta and gamma transactions and subsequent 
netting transactions that arise from the clearing process are reported 
by each of these clearing agencies to their associated swap data 
repositories.
---------------------------------------------------------------------------

    \42\ See CME Clearing Rule 1001 (Regulatory Reporting of Swap 
Data); ICE Clear Credit Clearing Rule 211 (Regulatory Reporting of 
Swap Data).
---------------------------------------------------------------------------

4. Security-Based Swap Market: Market Participants and Dealing 
Structures
a. Market Centers
    Financial groups engaged in security-based swap dealing activity 
operate in multiple market centers and carry out such activity with 
counterparties

[[Page 53552]]

around the world.\43\ Several commenters noted that many market 
participants that engage in dealing activity prefer to use traders and 
manage risk for security-based swaps in the jurisdiction where the 
underlier is traded.\44\ Thus, although a significant amount of the 
dealing activity in security-based swaps on U.S. reference entities 
involves non-U.S. dealers, the Commission understands that these 
dealers tend to carry out much of the security-based swap trading and 
related risk-management activities in these security-based swaps within 
the United States.\45\ Some dealers have explained that being able to 
centralize their trading, sales, risk management, and other activities 
related to U.S. reference entities in U.S. operations (even when the 
resulting transaction is booked in a foreign entity) improves the 
efficiency of their dealing business.\46\
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    \43\ See U.S. Activity Adopting Release, 81 FR at 8603-604.
    \44\ See IIB Letter at 2; SIFMA/FSR Letter at 6; ISDA I at 5; 
MFA/AIMA Letter at 7, n. 34.
    \45\ See IIB Letter at 2; SIFMA/FSR Letter at 6; ISDA Letter at 
5.
    \46\ See id.
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    Consistent with these operational concerns and the global nature of 
the security-based swap market, the available data appear to confirm 
that participants in this market are in fact active in market centers 
around the globe. Although, as noted above, the available data do not 
permit the Commission to identify the location of personnel in a 
transaction, TIW transaction records indicate that firms that are 
likely to be security-based swap dealers operate out of branch 
locations in key market centers around the world, including New York, 
London, Tokyo, Hong Kong, Chicago, Sydney, Toronto, Frankfurt, 
Singapore and the Cayman Islands.
    Given these market characteristics and practices, 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 
where economic decisions are made by managers on behalf of beneficial 
owners. And market activity may occur in a jurisdiction other than 
where the market participant or its counterparty books the transaction. 
Similarly, a participant in the security-based swap market may be 
exposed to counterparty risk from a counterparty located in a 
jurisdiction that is different from the market center or centers in 
which it participates.
b. Common Business Structures for Firms Engaged in Security-Based Swap 
Dealing Activity
    A financial group that engages in a global security-based swap 
dealing business in multiple market centers may choose to structure its 
dealing business in a number of different ways. This structure, 
including where it books the transactions that constitute that business 
and how it carries out market-facing activities that generate those 
transactions, reflects a range of business and regulatory 
considerations, which each financial group may weigh differently.
    A financial group may choose to book all of its security-based swap 
transactions, regardless of where the transaction originated, in a 
single, central booking entity. That entity generally retains the risk 
associated with that transaction, but it also may lay off that risk to 
another affiliate via a back-to-back transaction or an assignment of 
the security-based swap.\47\ Alternatively, a financial group may book 
security-based swaps arising from its dealing business in separate 
affiliates, which may be located in the jurisdiction where it 
originates the risk associated with those security-based swaps, or 
alternatively, the jurisdiction where it manages that risk.\48\ Some 
financial groups may book transactions originating in a particular 
region to an affiliate established in a jurisdiction located in that 
region.\49\
---------------------------------------------------------------------------

    \47\ See U.S. Activity Adopting Release, 81 FR at 8604.
    \48\ See id.
    \49\ There is some indication that this booking structure is 
becoming increasingly common in the market. See, e.g., ``Regional 
swaps booking replacing global hubs,'' Risk.net (Sept. 4, 2015), 
available at: http://www.risk.net/risk-magazine/feature/2423975/regional-swaps-booking-replacing-global-hubs.
---------------------------------------------------------------------------

    Regardless of where a financial group determines to book its 
security-based swaps arising out of its dealing activity, it is likely 
to operate offices that perform sales or trading functions in one or 
more market centers in other jurisdictions. Maintaining sales and 
trading desks in global market centers permits the financial group to 
deal with counterparties in that jurisdiction or in a specific 
geographic region, or to ensure that it is able to provide liquidity to 
counterparties in other jurisdictions, for example, when a 
counterparty's home financial markets are closed.\50\ A financial group 
engaged in security-based swap dealing business also may choose to 
manage its trading book in particular reference entities or securities 
primarily from a trading desk that can take advantage of local 
expertise in such products or that can gain access to better liquidity, 
which may permit it to more efficiently price such products or to 
otherwise compete more effectively in the security-based swap 
market.\51\ Some financial groups prefer to centralize risk management, 
pricing, and hedging for specific products with the personnel 
responsible for carrying out the trading of such products to mitigate 
operational risk associated with transactions in those products.
---------------------------------------------------------------------------

    \50\ These offices may be branches or offices of the booking 
entity itself, or branches or offices of an affiliated agent, such 
as, in the United States, a registered broker-dealer. See U.S. 
Activity Adopting Release, 81 FR at 8604-605.
    \51\ See id. at 8605.
---------------------------------------------------------------------------

    The financial group affiliate that books these transactions may 
carry out related market-facing activities, whether in its home 
jurisdiction or in a foreign jurisdiction, using either its own 
personnel or the personnel of an affiliated or unaffiliated agent. For 
example, the financial group may determine that another affiliate in 
the financial group employs personnel who possess expertise in relevant 
products or who have established sales relationships with key 
counterparties in a foreign jurisdiction, making it more efficient to 
use the personnel of the affiliate to engage in security-based swap 
dealing activity on its behalf in that jurisdiction.\52\ In these 
cases, the affiliate that books these transactions and its affiliated 
agent may operate as an integrated dealing business, each performing 
distinct core functions in carrying out that business.
---------------------------------------------------------------------------

    \52\ See id.
---------------------------------------------------------------------------

    Alternatively, the financial group affiliate that books these 
transactions may in some circumstances determine to engage the services 
of an unaffiliated agent through which it can engage in dealing 
activity. For example, a financial group may determine that using an 
interdealer broker may provide an efficient means of participating in 
the interdealer market in its own, or in another, jurisdiction, 
particularly if it is seeking to do so anonymously or to take a 
position in products that trade relatively infrequently.\53\ A 
financial group may also use unaffiliated agents that operate at its 
direction. Such an arrangement may be particularly valuable in enabling 
a financial group to service clients or access liquidity in

[[Page 53553]]

jurisdictions in which it has no security-based swap operations of its 
own.
---------------------------------------------------------------------------

    \53\ The Commission understands that inter-dealer brokers may 
provide voice or electronic trading services that, among other 
things, permit dealers to take positions or hedge risks in a manner 
that preserves their anonymity until the trade is executed. These 
inter-dealer brokers also may play a particularly important role in 
facilitating transactions in less-liquid security-based swaps.
---------------------------------------------------------------------------

    The Commission understands that financial group affiliates (whether 
affiliated with U.S.-based financial groups or not) that are 
established in foreign jurisdictions may use any of these structures to 
engage in dealing activity in the United States, and that they may seek 
to engage in dealing activity in the United States to transact with 
both U.S.-person and non-U.S.-person counterparties. In transactions 
with non-U.S.-person counterparties, these foreign affiliates may 
affirmatively seek to engage in dealing activity in the United States 
because the sales personnel of the non-U.S.-person dealer (or of its 
agent) in the United States have existing relationships with 
counterparties in other locations (such as Canada or Latin America) or 
because the trading personnel of the non-U.S. person dealer (or of its 
agent) in the United States have the expertise to manage the trading 
books for security-based swaps on U.S. reference securities or 
entities. The Commission understands that some of these foreign 
affiliates engage in dealing activity in the United States through 
their personnel (or personnel of their affiliates) in part to ensure 
that they are able to provide their own counterparties, or those of 
financial group affiliates in other jurisdictions, with access to 
liquidity (often in non-U.S. reference entities) during U.S. business 
hours, permitting them to meet client demand even when the home markets 
are closed. In some cases, such as when seeking to transact with other 
dealers through an interdealer broker, these foreign affiliates may 
act, in a dealing capacity, in the United States through an 
unaffiliated, third-party agent.
c. Current Estimates of Number of Security-Based Swap Dealers
    Security-based swap activity is concentrated in a relatively small 
number of dealers, which already represent a small percentage of all 
market participants active in the security-based swap market.\54\ Based 
on an analysis of 2015 data, the Commission's earlier estimates of the 
number of entities likely to register as security-based swap dealers 
remain largely unchanged.\55\ Of the approximately 50 entities that the 
Commission estimates might register as security-based swap dealers, the 
Commission believes that it is reasonable to expect 22 to be non-U.S. 
persons.\56\ Under the rules as they currently exist, the Commission 
identified approximately 170 entities engaged in single-name CDS 
activity, with all counterparties, of $2 billion or more. Of those 
entities, 104 are expected to incur assessment costs to determine 
whether they meet the definition of ``security-based swap dealer.'' 
Approximately 47 of these entities are non-U.S. persons.\57\
---------------------------------------------------------------------------

    \54\ See U.S. Activity Adopting Release, 81 FR at 8605.
    \55\ See id.
    \56\ These estimates are based on the number of accounts in 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 the 
Commission is limited in observing transaction records for activity 
between non-U.S. persons that reference U.S. underliers, and to 
account for the fact that the Commission does not observe security-
based swap transactions other than in single-name CDS. See U.S. 
Activity Adopting Release, 81 FR at 8605.
    \57\ See id.
---------------------------------------------------------------------------

    Many of these dealers are already subject to other regulatory 
frameworks under U.S. law based on their role as intermediaries or on 
the volume of their positions in other products, such as swaps. 
Available data support the Commission's prior estimates, based on the 
Commission's experience and understanding of the swap and security-
based swap market, that, of the 55 firms that might register as 
security-based swap dealers or major security-based swap participants, 
approximately 35 would also be registered with the CFTC as swap dealers 
or major swap participants.\58\ Based on an analysis of TIW data and 
filings with the Commission, the Commission estimates that 16 market 
participants that will register as security-based swap dealers have 
already registered with the Commission as broker-dealers and are thus 
subject to Exchange Act and Financial Industry Regulatory Authority 
(``FINRA'') requirements applicable to such entities. Finally, as the 
Commission discusses below, some dealers may be subject to similar 
requirements in one or more foreign jurisdictions.\59\
---------------------------------------------------------------------------

    \58\ See id.
    \59\ See id. at 8605-606.
---------------------------------------------------------------------------

    Finally, the Commission also notes that it has adopted rules for 
the registration of security-based swap dealers and major security-
based swap participants, although market participants are not yet 
required to comply with those rules.\60\ Thus, there are not yet any 
security-based swap dealers or major security-based swap participants 
registered with the Commission.
---------------------------------------------------------------------------

    \60\ In the SBS Entity Registration Adopting Release, the 
Commission established the compliance date for security-based swap 
dealer and major security-based swap participant registration (the 
``SBS entities registration compliance date'') 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 entities 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 entities' behalf. See 80 FR at 
48964.
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d. Arranging, Negotiating, and Executing Activity Using Personnel 
Located in a U.S. Branch or Office
    Under rules recently adopted by the Commission as part of the U.S. 
Activity Adopting Release, non-U.S. persons will be required to apply 
transactions with other non-U.S. persons in connection with their 
dealing activity towards their de minimis thresholds when those 
transactions are arranged, negotiated, or executed by personnel located 
in a U.S. branch or office, or by personnel of an agent of such non-
U.S. person located in a U.S. branch or office.\61\ As a result of this 
requirement, certain market participants will likely incur costs 
associated with determining the location of relevant personnel who 
arrange, negotiate, or execute a transaction,\62\ and, having 
determined the locations, these market participants will be able to 
identify those transactions that are arranged, negotiated, or executed 
by personnel located in a U.S. branch or office, or by personnel of an 
agent of such non-U.S. person located in a U.S. branch or office. The 
Commission estimated that an additional 20 non-U.S. persons, beyond the 
56 identified under the Cross-Border Adopting Release, were likely to 
incur assessment costs in connection with the de minimis exception as a 
result of these rules.\63\
---------------------------------------------------------------------------

    \61\ See Rule 3a71-3(C) under the Exchange Act, 17 CFR 240.3a71-
3(C).
    \62\ See U.S. Activity Adopting Release, 81 FR at 8627-28.
    \63\ See id. at 8627.
---------------------------------------------------------------------------

    To estimate the number of unregistered foreign entities that 
arrange, negotiate, or execute security-based swap transactions using 
U.S. personnel in connection with their dealing activity for the 
purpose of this rulemaking, Commission staff used 2015 TIW single-name 
CDS transaction data to identify foreign entities that have three or 
more counterparties that are not recognized as dealers by ISDA and that 
traded less than $3 billion in notional volume and identified four 
entities that

[[Page 53554]]

met these criteria. In 2015, these four entities were counterparties to 
1,080 transactions in single-name CDS, referencing 186 reference 
entities, with a total notional volume of $5.2 billion. The Commission 
believes that these foreign dealing entities that are likely to remain 
unregistered engage in transactions in essentially the same products as 
foreign dealing entities that are likely to register as security-based 
swap dealers. The Commission staff observed in the 2015 data that 
foreign dealing entities that are likely to register as security-based 
swap dealers based on single-name CDS transaction activity in 2015 
traded in 185 out of the 186 reference entities that the smaller 
foreign dealing entities had traded in.
    These smaller foreign dealing entities were counterparties to a 
very small number of security-based swaps involving foreign dealing 
entities engaging in U.S. activity. Using 2015 TIW data, the Commission 
estimates that foreign dealing entities that likely would register with 
Commission as security-based swap dealers based on their transaction 
activity in 2015, were counterparties to nearly all security-based 
swaps involving foreign dealing entities engaging in U.S. activity.\64\
---------------------------------------------------------------------------

    \64\ The Commission staff analysis of TIW transaction records 
indicates that approximately 99.72% of single-name CDS price-forming 
transactions and 99.73% of price-forming transaction volume in 2015 
that involved foreign dealing entities involved a foreign dealing 
entity likely to register with the Commission as a security-based 
swap dealer based on its 2015 transaction activity.
---------------------------------------------------------------------------

5. Security-Based Swap Market: Levels of Security-Based Swap Trading 
Activity
    As already noted, firms that act as dealers play a central role in 
the security-based swap market. Based on an analysis of 2015 single-
name CDS data in TIW, accounts of those firms that are likely to exceed 
the security-based swap dealer de minimis thresholds and trigger 
registration requirements intermediated transactions with a gross 
notional amount of approximately $5.8 trillion, approximately 60% of 
which was intermediated by the top five dealer accounts.\65\
---------------------------------------------------------------------------

    \65\ The Commission staff analysis of TIW transaction records 
indicates that approximately 99% of single-name CDS price-forming 
transactions in 2015 involved an ISDA-recognized dealer.
---------------------------------------------------------------------------

    These dealers transact with hundreds or thousands of 
counterparties. Approximately 24% of accounts of firms expected to 
register as security-based dealers and observable in TIW have entered 
into security-based swaps with over 1,000 unique counterparty accounts 
as of year-end 2015.\66\ Another 24% of these accounts transacted with 
500 to 1,000 unique counterparty accounts; 16% transacted with 100 to 
500 unique accounts; and 36% of these accounts intermediated swaps with 
fewer than 100 unique counterparties in 2015. The median dealer account 
transacted with 481 unique accounts (with an average of approximately 
635 unique accounts). Non-dealer counterparties transacted almost 
exclusively with these dealers. The median non-dealer counterparty 
transacted with three dealer accounts (with an average of approximately 
four dealer accounts) in 2015.
---------------------------------------------------------------------------

    \66\ Many dealer entities and financial groups transact through 
numerous accounts. Given that individual accounts may transact with 
hundreds of counterparties, the Commission may infer that entities 
and financial groups may transact with at least as many 
counterparties as the largest of their accounts.
---------------------------------------------------------------------------

    Figure 2 below describes the percentage of global, notional 
transaction volume in North American corporate single-name CDS reported 
to TIW between January 2008 and December 2015, separated by whether 
transactions are between two ISDA-recognized dealers (interdealer 
transactions) or whether a transaction has at least one non-dealer 
counterparty.
    Figure 2 also shows that the portion of the notional volume of 
North American corporate single-name CDS represented by interdealer 
transactions has remained fairly constant and that interdealer 
transactions continue to represent a significant majority of trading 
activity, even as notional volume has declined over the past seven 
years,\67\ from more than $6 trillion in 2008 to less than $1.3 
trillion in 2015.\68\
---------------------------------------------------------------------------

    \67\ 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.
    \68\ This estimate is lower than the gross notional amount of 
$5.8 trillion noted above as it includes only the subset of single-
name CDS referencing North American corporate documentation. See 
supra note 65.

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[[Page 53555]]

[GRAPHIC] [TIFF OMITTED] TR12AU16.001

    The high level of interdealer trading activity reflects the central 
position of a small number of dealers, each of which intermediates 
trades with many hundreds of counterparties. While the Commission is 
unable to quantify the current level of trading costs for single-name 
CDS, those dealers appear to enjoy market power as a result of their 
small number and the large proportion of order flow that they privately 
observe.
    Against this backdrop of declining North American corporate single-
name CDS activity, about half of the trading activity in North American 
corporate single-name CDS reflected in the set of data that the 
Commission analyzed was between counterparties domiciled in the United 
States and counterparties domiciled abroad, as shown in Figure 3 below. 
Using the self-reported registered office location of the TIW accounts 
as a proxy for domicile, the Commission estimates that only 12% of the 
global transaction volume by notional volume between 2008 and 2015 was 
between two U.S.-domiciled counterparties, compared to 48% entered into 
between one U.S.-domiciled counterparty and a foreign-domiciled 
counterparty and 40% entered into between two foreign-domiciled 
counterparties.\69\
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    \69\ For purposes of this discussion, the Commission has assumed 
that the registered office location reflects the place of domicile 
for the fund or account, but the Commission notes that this domicile 
does not necessarily correspond to the location of an entity's sales 
or trading desk. See U.S. Activity Adopting Release, 81 FR at 8607, 
n. 83.
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    If the Commission considers the number of cross-border transactions 
instead from the perspective of the domicile of the corporate group 
(e.g., by classifying a foreign bank branch or foreign subsidiary of a 
U.S. entity as domiciled in the United States), the percentages shift 
significantly. Under this approach, the fraction of transactions 
entered into between two U.S.-domiciled counterparties increases to 
33%, and to 52% for transactions entered into between a U.S.-domiciled 
counterparty and a foreign-domiciled counterparty. By contrast, the 
proportion of activity between two foreign-domiciled counterparties 
drops from 40% to 16%. 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 accounts 
for a higher percentage of security-based swap activity than U.S. 
subsidiaries of foreign firms and U.S. branches of foreign banks. It 
also demonstrates that financial groups based in the United States are 
involved in an overwhelming majority (approximately 85%) of all 
reported transactions in North American corporate single-name CDS.
    Financial groups based in the United States are also involved in a 
majority of interdealer transactions in North American corporate 
single-name CDS. Of transactions on North American corporate single-
name CDS between two ISDA-recognized dealers and their branches or 
affiliates, 93% of transaction notional volume involved at least one 
account of an entity with a U.S. parent.
    The Commission notes, in addition, that a significant majority of 
North American corporate single-name CDS transactions occur in the 
interdealer market or between dealers and foreign non-dealers, with the 
remaining (and much smaller) portion of the market consisting of 
transactions between dealers and U.S.-person non-dealers. Specifically, 
74% of North American corporate single-name CDS transactions involved 
either two ISDA-recognized dealers or an ISDA-recognized dealer

[[Page 53556]]

and a foreign non-dealer. Approximately 16.5% of such transactions 
involved an ISDA-recognized dealer and a U.S.-person non-dealer.
[GRAPHIC] [TIFF OMITTED] TR12AU16.002

6. Global Regulatory Efforts
    In 2009, the G20 Leaders--whose membership includes the United 
States, 18 other countries, and the European Union--addressed global 
improvements in the OTC derivatives markets. They expressed their view 
on a variety of issues relating to OTC derivatives contracts. In 
subsequent summits, the G20 Leaders have returned to OTC derivatives 
regulatory reform and encouraged international consultation in 
developing standards for these markets.\70\
---------------------------------------------------------------------------

    \70\ See, e.g., G20 Leaders' Final Declaration (November 2011), 
paragraph 24, available at: http://www.g20.utoronto.ca/2011/2011-cannes-declaration-111104-en.html (last visited on May 25, 2016).
---------------------------------------------------------------------------

    Foreign legislative and regulatory efforts have focused on five 
general areas: moving OTC derivatives onto organized trading platforms, 
requiring central clearing of OTC derivatives, requiring post-trade 
reporting of transaction data for regulatory purposes and public 
dissemination of anonymized versions of such data, establishing or 
enhancing capital requirements for non-centrally cleared OTC 
derivatives transactions, and establishing or enhancing margin and 
other risk mitigation requirements for non-centrally cleared OTC 
derivatives transactions. The rules being adopted in this release will 
affect a person's obligations with respect to post-trade reporting of 
transaction data for public dissemination and regulatory purposes under 
Regulation SBSR.
    Foreign jurisdictions have been actively implementing regulations 
of the OTC derivatives markets. Regulatory transaction reporting 
requirements are in force in a number of jurisdictions, including the 
European Union, Hong Kong SAR, Japan, Australia, Brazil, Canada, China, 
India, Indonesia, South Korea, Mexico, Russia, Saudi Arabia, and 
Singapore; other jurisdictions are in the process of proposing 
legislation and rules to implement these requirements.\71\ The CFTC, 
the 13 Canadian provinces and territories, the European Union, and 
Japan have adopted requirements to publicly disseminate transaction-
level data about OTC derivatives transactions. In addition, a number of 
foreign jurisdictions have initiated the process of implementing margin 
and other risk mitigation requirements for non-centrally cleared OTC 
derivatives transactions.\72\ Several jurisdictions have also taken 
steps to implement the Basel III recommendations governing capital 
requirements for financial entities, which include enhanced capital 
charges for non-centrally cleared OTC derivatives transactions.\73\ 
There

[[Page 53557]]

has been limited progress in moving OTC derivatives onto organized 
trading platforms among G20 countries. The CFTC mandated the trading of 
certain interest rate swaps and index CDS on CFTC-regulated SEFs in 
2014. Japan implemented a similar requirement for a subset of Yen-
denominated interest rate swaps in September 2015. The European Union 
has adopted legislation that addresses trading OTC derivatives on 
regulated trading platforms, but has not mandated specific OTC 
derivatives to trade on these platforms. This legislation also should 
promote post-trade public transparency in OTC derivatives markets by 
requiring the price, volume, and time of derivatives transactions 
conducted on these regulated trading platforms to be made public in as 
close to real time as technically possible.\74\
---------------------------------------------------------------------------

    \71\ See Financial Stability Board, OTC Derivatives Market 
Reforms Tenth Progress Report on Implementation (November 2015), 
available at http://www.fsb.org/wp-content/uploads/OTC-Derivatives-10th-Progress-Report.pdf (last visited on May 25, 2016). The 
Financial Stability Board's report on a peer review of trade 
reporting confirmed that most Financial Stability Board member 
jurisdictions have trade reporting requirements in place. See 
Financial Stability Board, Thematic Review on OTC Derivatives Trade 
Reporting (November 2015), available at http://www.fsb.org/wp-content/uploads/Peer-review-on-trade-reporting.pdf (last visited on 
May 25, 2016).
    \72\ In November 2015, the Financial Stability Board reported 
that 12 member jurisdictions participating in its tenth progress 
report on OTC derivatives market reforms had in force a legislative 
framework or other authority to require exchange of margin for non-
centrally cleared transactions and had published implementing 
standards or requirements for consultation or proposal. A further 11 
member jurisdictions had a legislative framework or other authority 
in force or published for consultation or proposal. See Financial 
Stability Board, OTC Derivatives Market Reforms Tenth Progress 
Report on Implementation (November 2015), available at http://www.financialstabilityboard.org/wp-content/uploads/OTC-Derivatives-10th-Progress-Report.pdf (last visited on May 25, 2016).
    \73\ In November 2015, the Financial Stability Board reported 
that 18 member jurisdictions participating in its tenth progress 
report on OTC derivatives market reforms had in force standards or 
requirements covering more than 90% of transactions that require 
enhanced capital charges for non-centrally cleared transactions. A 
further three member jurisdictions had a legislative framework or 
other authority in force and had adopted implementing standards or 
requirements that were not yet in force. An additional three member 
jurisdictions had a legislative framework or other authority in 
force or published for consultation or proposal. See Financial 
Stability Board, OTC Derivatives Market Reforms Tenth Progress 
Report on Implementation (November 2015), available at http://www.financialstabilityboard.org/wp-content/uploads/OTC-Derivatives-10th-Progress-Report.pdf (last visited on May 25, 2016).
    \74\ See Regulation (EU) No 600/2014 of the European Parliament 
and of the Council of 15 May 2014 on markets in financial 
instruments and amending Regulation (EU) no 648/2012), available at: 
http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32014R0600&from=EN (last visited on May 25, 2016).
---------------------------------------------------------------------------

B. Economic Considerations

    In the Regulation SBSR Adopting Release, the Commission highlighted 
certain overarching effects on the security-based swap market that it 
believes will result from the adoption of Regulation SBSR. These 
benefits could include, generally, improved market quality, improved 
risk management, greater efficiency, and improved oversight by the 
Commission and other relevant authorities.\75\ Regulation SBSR requires 
market participants to make infrastructure investments in order to 
report security-based swap transactions to registered SDRs, and for 
SDRs to make infrastructure investments to receive and store that 
transaction data and to publicly disseminate transaction data in a 
manner required by Rule 902 of Regulation SBSR.
---------------------------------------------------------------------------

    \75\ See Regulation SBSR Adopting Release, 80 FR at 14699-705.
---------------------------------------------------------------------------

    The amendments to Regulation SBSR being adopted today will, among 
other things, impose certain requirements on the platforms,\76\ 
registered clearing agencies, and registered SDRs that constitute 
infrastructure for the security-based swap market and provide services 
to counterparties who participate in security-based swap transactions. 
The adopted amendments and the guidance provided will affect the manner 
in which these infrastructure providers compete with one another and 
exercise market power over security-based swap counterparties. In turn, 
there will be implications for the security-based swap counterparties 
who utilize these infrastructure providers and the security-based swap 
market generally.
---------------------------------------------------------------------------

    \76\ A platform is a national securities exchange or security-
based swap execution facility that is registered or exempt from 
registration. See Rule 900(v), 17 CFR 242.900(v).
---------------------------------------------------------------------------

    In addition, the Commission is adopting regulatory reporting and 
public dissemination requirements under Regulation SBSR for certain 
types of cross-border security-based swaps not currently addressed in 
Regulation SBSR. Subjecting additional types of security-based swaps to 
regulatory reporting and public dissemination will affect the overall 
costs and benefits associated with Regulation SBSR and have 
implications for transparency, competition, and liquidity provision in 
the security-based swap market.
1. Security-Based Swap Market Infrastructure
    Title VII requires the Commission to create a new regulatory regime 
for the security-based swap market that, among other things, includes 
trade execution, central clearing, and reporting requirements aimed at 
increasing transparency and customer protection as well as mitigating 
the risk of financial contagion.\77\ These new requirements, once 
implemented, might require market participants, who may have previously 
engaged in bilateral transaction activity without any need to engage 
third-party service providers, to interface with platforms, registered 
clearing agencies, and registered SDRs.
---------------------------------------------------------------------------

    \77\ See Cross-Border Adopting Release, 79 FR at 47285.
---------------------------------------------------------------------------

    As a general matter, rules that require regulated parties to obtain 
services can have a material impact on the prices of those services in 
the absence of a competitive market for those services. In particular, 
if service providers are monopolists or otherwise have market power, 
requiring market participants to obtain their services can potentially 
allow the service providers to increase the profits that they earn from 
providing the required services.\78\ Because Title VII requires the 
Commission to implement rules requiring market participants to use the 
services provided by platforms,\79\ registered clearing agencies,\80\ 
and registered SDRs,\81\ these requirements could reduce the 
sensitivity of demand to changes in prices or quality of the services 
of firms that create and develop security-based swap market 
infrastructure. As such, should security-based swap infrastructure 
providers-such as platforms, registered clearing agencies, and 
registered SDRs-enjoy market power, they might be able to change their 
prices or service quality without a significant effect on demand for 
their services. In turn, these changes in prices or quality could have 
negative effects on activity in the security-based swap market.
---------------------------------------------------------------------------

    \78\ These effects, as they relate specifically to the rules and 
amendments, as well as alternative approaches, are discussed in 
Section XIII, infra.
    \79\ See 15 U.S.C. 78c-3(h)(1).
    \80\ See 15 U.S.C. 78c-3(a)(1).
    \81\ See 15 U.S.C. 78m(m)(1)(G).
---------------------------------------------------------------------------

    As discussed in Section XIII, infra, the amendments to Regulation 
SBSR being adopted today could have an impact on the level of 
competition among suppliers of trade reporting services and affect the 
relative bargaining power of suppliers and consumers in determining the 
prices of those services. In particular, when the supply of trade 
reporting services is concentrated among a small number of firms, 
consumers of these services have few alternative suppliers from which 
to choose. Such an outcome could limit the incentives to produce more 
efficient trade reporting processes and services and could, in certain 
circumstances, result in less security-based swap transaction activity 
than would otherwise be optimal. In the case of security-based swap 
transaction activity, welfare losses could result from higher costs to 
counterparties for hedging financial or commercial risks.
2. Competition Among Security-Based Swap Infrastructure Providers
    As noted above, the Commission recognizes how regulatory 
requirements may affect the demand for services provided by platforms, 
registered clearing agencies, and SDRs, and, in turn, the ability of 
these entities to exercise their market power. The Commission's 
economic analysis of the amendments adopted today considers how the 
competitive landscape for platforms, registered clearing agencies, and 
registered SDRs might affect the market power of these entities and 
hence the level and allocation of costs related to regulatory 
requirements. Some of the factors that may influence this competitive 
landscape have to do with the nature of trade reporting and are 
unrelated to regulation, while others

[[Page 53558]]

may be a result of, or influenced by, the rules that the Commission is 
adopting in this release. To the extent that the adopted rules inhibit 
competition among infrastructure providers, they could result in fees 
charged to counterparties that deviate from the underlying costs of 
providing services.
    As a general matter, trade execution, clearing, and reporting 
services are likely to be concentrated among a small number of 
providers. For example, SDRs and clearing agencies must make 
significant infrastructure and human capital investments to enter their 
respective markets, but once these start-up costs are incurred, the 
addition of data management by SDRs or transaction clearing services by 
clearing agencies is likely to occur at low marginal costs. As a 
result, the per-transaction cost to provide infrastructure services 
quickly falls for SDRs and clearing agencies as their customer base 
grows, because they are able to amortize the fixed costs associated 
with serving counterparties over a larger number of transactions. These 
economies of scale would be expected to favor incumbent service 
providers who can leverage their market position to discourage entry by 
potential new competitors that face significant fixed costs to enter 
the market. As a result, the markets for clearing services and SDR 
services are likely to be dominated by a small number of firms that 
each have large market share, which is borne out in the current 
security-based swap market.\82\
---------------------------------------------------------------------------

    \82\ See supra Section II(A).
---------------------------------------------------------------------------

    Competition among registered clearing agencies and registered SDRs 
could also be influenced by the fact that security-based swap market 
participants incur up-front costs for each connection that they 
establish with an SDR or clearing agency. If these costs are 
sufficiently high, an SDR or clearing agency could establish itself as 
an industry leader by ``locking-in'' customers who are unwilling or 
unable to make a similar investment for establishing a connection with 
a competitor.\83\ An SDR or clearing agency attempting to enter the 
market or increase market share would have to provide services valuable 
enough, or set fees low enough, to offset the costs of switching from a 
competitor. In this way, costs to security-based swap market 
participants of interfacing with market infrastructure could serve as a 
barrier to entry for firms that would like to provide market 
infrastructure services provided by SDRs and clearing agencies.
---------------------------------------------------------------------------

    \83\ See Joseph Farrell and Paul Klemperer, ``Coordination and 
Lock-in: Competition with Switching Costs and Network Effects,'' in 
Handbook of Industrial Organization, Mark Armstrong and Robert 
Porter (ed.) (2007), at 1972. The authors describe how switching 
costs affect entry, noting that, on one hand, ``switching costs 
hamper forms of entry that must persuade customers to pay those 
costs'' while, on the other hand, if incumbents must set a single 
price for both new and old customers, a large incumbent might focus 
on harvesting its existing customer base, ceding new customers to 
the entrant. In this case, a competitive market outcome would be 
characterized by prices for services that equal the marginal costs 
associated with providing services to market participants. This is 
because, in a competitive market with free entry and exit of firms, 
a firm that charges a price that is higher than marginal cost would 
lose sales to existing firms or entrants that are willing to provide 
the same service at a lower price. Such price competition prevents 
firms from charging prices that are above marginal costs.
---------------------------------------------------------------------------

    The rules adopted today might also influence the competitive 
landscape for firms that provide security-based swap market 
infrastructure. Fundamentally, requiring the reporting of security-
based swap transactions to SDRs creates an inelastic demand for 
reporting services that would not be present if not for regulation. 
This necessarily reduces a counterparty's ability to bargain with 
infrastructure service providers over price or service because the 
option of not reporting is unavailable. Moreover, infrastructure 
requirements imposed by Title VII regulation will increase the fixed 
costs of an SDR operating in the security-based swap market and 
increase the barriers to entry into the market, potentially 
discouraging firms from entering the market for SDR services. For 
example, under Rule 907, as adopted, registered SDRs are required to 
establish and maintain certain written policies and procedures. The 
Commission estimated that this requirement will impose initial costs on 
each registered SDR of approximately $12,250,000.\84\
---------------------------------------------------------------------------

    \84\ See Regulation SBSR Adopting Release, 80 FR at 14718, n. 
1343.
---------------------------------------------------------------------------

    The rules adopted today might also affect the competitive landscape 
by increasing the incentives for security-based swap infrastructure 
service providers to integrate horizontally or vertically. As a general 
matter, firms engage in horizontal integration when they expand their 
product offerings to include similar goods and services or to acquire 
competitors. For example, swap data repositories that presently serve 
the swap market might horizontally integrate by offering similar 
services in the security-based swap market. Firms vertically integrate 
by entering into businesses that supply the market that they occupy 
(``backward vertical integration'') or by entering into businesses that 
they supply (``forward vertical integration'').
    As discussed in more detail in Section XIII(A), infra, while 
adopting a reporting methodology that assigns reporting 
responsibilities to registered clearing agencies, which will hold the 
most complete and accurate information for cleared transactions, could 
minimize potential data discrepancies and errors, rules that give 
registered clearing agencies discretion over where to report 
transaction data could provide incentives for registered clearing 
agencies to create affiliate SDRs and compete with other registered 
SDRs for post-trade reporting services. The cost to a clearing agency 
of entering the market for SDR services is likely to be low, given that 
many of the infrastructure requirements for entrant SDRs are shared by 
clearing agencies. Clearing agencies already have the infrastructure 
necessary for capturing transaction records from clearing members and 
might be able to leverage that preexisting infrastructure to provide 
services as an SDR at lower incremental cost than other new SDRs. 
Because all clearing transactions, like all other security-based swaps, 
must be reported to a registered SDR, there would be a set of 
potentially captive transactions that clearing agencies could initially 
use to vertically integrate into SDR services.\85\
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    \85\ A registered clearing agency expanding to provide SDR 
services is an example of forward vertical integration. In the 
context of the rules adopted today, SDRs ``consume'' the data 
supplied by registered clearing agencies. Clearing agencies engage 
in forward vertical integration by creating or acquiring the SDRs 
that consume the data that they produce as a result of their 
clearing business.
---------------------------------------------------------------------------

    Entry into the SDR market by registered clearing agencies could 
potentially lower the cost of SDR services if clearing agencies are 
able to transmit data to an affiliated SDR at a lower cost relative to 
transmitting the same data to an independent SDR. The Commission 
believes that this is likely to be true for clearing transactions, 
given that the clearing agency and the affiliated SDR would have 
greater control over the reporting process relative to sending clearing 
transaction data to an independent SDR. Even if registered clearing 
agencies did not enter the market for SDR services, their ability to 
pursue a vertical integration strategy could motivate incumbent SDRs to 
offer competitive service models.
    However, the Commission recognizes that the entry of clearing-
agency-affiliated SDRs might not necessarily result in increased 
competition among SDRs or result in lower costs for SDR services. In an 
environment where registered clearing agencies with affiliated SDRs 
have discretion to send their clearing transaction data to their

[[Page 53559]]

affiliates, security-based swap market participants who wish to submit 
their transactions to clearing may have reduced ability to direct the 
reporting of the clearing transaction to an independent SDR. As a 
result, clearing-agency-affiliated SDRs would not directly compete with 
independent SDRs on the basis of price or quality, because they inherit 
their clearing agency affiliate's market share. This might allow 
clearing agency incumbents to exercise market power through their 
affiliated SDRs relative to independent SDRs.
3. Security-Based Swaps Trading by Non-U.S. Persons Within the United 
States
    Several broad economic considerations have informed the 
Commission's approach to identifying transactions between two non-U.S. 
persons that should be subject to certain Title VII requirements. The 
Commission has taken into account the potential impact that rules 
already adopted as part of the Regulation SBSR Adopting Release might 
have on competition between U.S. persons and non-U.S. persons when they 
engage in security-based swap transactions with non-U.S. persons, along 
with the implications of these competitive frictions for the ability of 
market participants to obtain liquidity in a market that is 
predominantly over-the-counter. In particular, competitive disparities 
could arise between U.S. dealing entities and foreign dealing entities 
\86\ using personnel located in a U.S. branch or office when serving 
unregistered non-U.S. counterparties. In the absence of the rules 
adopted today, U.S. dealing entities and their agents would bear the 
costs associated with regulatory reporting and public dissemination 
requirements when trading with unregistered non-U.S. counterparties, 
while foreign dealing entities that use U.S.-based personnel to trade 
with the same unregistered non-U.S. counterparties would not bear such 
regulatory costs if these foreign dealing entities are not subject to 
comparable regulatory requirements in their home jurisdictions. Thus, 
these foreign dealing entities could offer liquidity at a lower cost to 
unregistered non-U.S. persons thereby gaining a competitive advantage 
over U.S. dealing entities.
---------------------------------------------------------------------------

    \86\ Throughout this release, a ``dealing entity'' refers to an 
entity that engages in security-based swap dealing activity 
regardless of whether the volume of such activity exceeds the de 
minimis threshold established by the Commission that would cause the 
entity to be a ``security-based swap dealer'' and thus require the 
entity to register with the Commission as a security-based swap 
dealer.
---------------------------------------------------------------------------

    Competitive disparities could also arise between U.S. persons and 
non-U.S. persons that trade with foreign dealing entities that use U.S. 
personnel to arrange, negotiate, or execute security-based swap 
transactions.\87\ A transaction between an unregistered U.S. person and 
a foreign dealing entity that uses U.S. personnel to arrange, 
negotiate, or execute the transaction is subject to regulatory 
reporting and public dissemination under existing Rule 908(a)(1)(i). In 
the absence of newly adopted Rule 908(a)(1)(v), a transaction between 
an unregistered non-U.S. person and the foreign dealing entity engaging 
in ANE activity would not be subject to Regulation SBSR. This could 
create a competitive advantage for unregistered non-U.S. persons over 
similarly situated U.S. persons when unregistered non-U.S. persons 
trade with foreign dealing entities that engage in ANE activity. Such a 
foreign dealing entity might be able to offer liquidity to an 
unregistered non-U.S. person at a lower price than to an unregistered 
U.S. person, because the foreign dealing entity that is engaging in ANE 
activity would not have to embed the potential costs of regulatory 
reporting and public dissemination into the price offered to the 
unregistered non-U.S. counterparty. By contrast, the price offered by 
that foreign dealing entity to an unregistered U.S. counterparty likely 
would reflect these additional costs.
---------------------------------------------------------------------------

    \87\ Throughout this release, a security-based swap transaction 
involving a non-U.S.-person counterparty that, in connection with 
its dealing activity, has arranged, negotiated, or executed using 
its personnel located in a U.S. branch or office, or the personnel 
of its agent located in a U.S. branch or office, is referred to as 
an ``ANE transaction''; the arrangement, negotiation, and/or 
execution of such a security-based swap by personnel of a non-U.S. 
person located in a U.S. branch or office, or by the personnel of 
its agent located in a U.S. branch or office are referred to as 
``ANE activities'' or ``engaging in ANE activity''; and the 
personnel located in the U.S. branch or office of the foreign 
dealing entity, or (if applicable) the personnel of its agent 
located in a U.S. branch or office, are referred to as ``U.S. 
personnel.''
---------------------------------------------------------------------------

    The Commission acknowledges, however, that applying Title VII rules 
based on the location of personnel who engage in relevant conduct could 
provide incentives for these foreign dealing entities to restructure 
their operations to avoid triggering requirements under Regulation 
SBSR. For example, a foreign dealing entity could restrict its U.S. 
personnel from intermediating transactions with non-U.S. persons or use 
agents who are located outside the United States when engaging in 
security-based swap transactions with non-U.S. persons.
    In addition, disparate treatment of transactions depending on 
whether they are arranged, negotiated, or executed by personnel located 
in a U.S. branch or office could create fragmentation among agents that 
may seek to provide services to foreign dealing entities. To the extent 
that using agents with personnel located in a U.S. branch or office 
might result in regulatory costs being imposed on foreign dealing 
entities, such entities might prefer and primarily use agents located 
outside the United States, while U.S. dealers might continue to use 
agents located in the United States.

III. Reporting by Registered Clearing Agencies

A. Background

    Section 13(m)(1)(F) of the Exchange Act \88\ provides that parties 
to a security-based swap (including agents of parties to a security-
based swap) shall be responsible for reporting security-based swap 
transaction information to the appropriate registered entity in a 
timely manner as may be prescribed by the Commission. Section 
13(m)(1)(G) of the Exchange Act \89\ provides that each security-based 
swap (whether cleared or uncleared) shall be reported to a registered 
SDR. Section 13A(a)(3) of the Exchange Act \90\ specifies the party 
obligated to report a security-based swap that is not accepted for 
clearing by any clearing agency or derivatives clearing organization. 
To implement these statutory provisions, the Commission in February 
2015 adopted Rule 901(a) of Regulation SBSR, which designates the 
persons who must report all security-based swaps except: (1) Clearing 
transactions; \91\ (2) security-based swaps that are executed on a 
platform and that will be submitted to clearing; (3) transactions where 
there is no U.S. person, registered security-based swap dealer, or 
registered major security-based swap participant on either side; and 
(4) transactions where there is no registered security-based swap 
dealer or registered major security-based swap participant on either 
side and there is a U.S. person on only one

[[Page 53560]]

side (``covered transactions''). This section addresses reporting 
duties for clearing transactions--i.e., the security-based swaps in 
category (1) above.\92\
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    \88\ 15 U.S.C. 78m(m)(1)(F).
    \89\ 15 U.S.C. 78m(m)(1)(G).
    \90\ 15 U.S.C. 78m-1(a)(3).
    \91\ Rule 900(g) defines ``clearing transaction'' as ``a 
security-based swap that has a registered clearing agency as a 
direct counterparty.'' This definition describes security-based 
swaps that arise when a registered clearing agency accepts a 
security-based swap for clearing as well as security-based swaps 
that arise as part of a clearing agency's internal processes, 
including those used to establish prices for cleared products and 
those resulting from netting other clearing transactions of the same 
product in the same account into a new open position. See Regulation 
SBSR Adopting Release, 80 FR at 14599.
    \92\ Security-based swaps in category (2) are discussed in 
Section IV, infra. Security-based swaps in categories (3) and (4) 
are discussed in Section IX, infra.
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1. Clearing Process for Security-Based Swaps
    As discussed in the Regulation SBSR Adopting Release and the 
Regulation SBSR Proposed Amendments Release, two models of clearing--an 
agency model and a principal model--are currently used in the swap 
markets.\93\ In the agency model, which predominates in the United 
States, a swap that is submitted to clearing--typically referred to in 
the industry as an ``alpha''--is, if accepted by the clearing agency, 
terminated and replaced with two new swaps, known as the ``beta'' and 
``gamma.'' One of the direct counterparties \94\ to the alpha becomes a 
direct counterparty to the beta, the other direct counterparty to the 
alpha becomes a direct counterparty to the gamma, and the clearing 
agency becomes a direct counterparty to each of the beta and the 
gamma.\95\ This release uses the terms ``alpha,'' ``beta,'' and 
``gamma'' in the same way that the Commission understands they are used 
in the agency model of clearing in the U.S. swap market. As noted in 
the Regulation SBSR Adopting Release, an alpha is not a ``clearing 
transaction'' under Regulation SBSR, even though it is submitted for 
clearing, because it does not have a registered clearing agency as a 
direct counterparty.\96\
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    \93\ See Regulation SBSR Adopting Release, 80 FR at 14599; 
Regulation SBSR Proposed Amendments Release, 80 FR at 14742-43.
    \94\ Existing Rule 900(k) defines ``direct counterparty'' as ``a 
person that is a primary obligor on a security-based swap.''
    \95\ If both direct counterparties to the alpha are clearing 
members, the direct counterparties would submit the transaction to 
the clearing agency directly and the resulting beta would be between 
the clearing agency and one clearing member, and the gamma would be 
between the clearing agency and the other clearing member. The 
Commission understands, however, that, if the direct counterparties 
to the alpha are a clearing member and a non-clearing member (a 
``customer''), the customer's side of the trade would be submitted 
for clearing by a clearing member acting on behalf of the customer. 
When the clearing agency accepts the alpha for clearing, one of the 
resulting swaps--in this case, assume the beta--would be between the 
clearing agency and the customer, with the customer's clearing 
member acting as guarantor for the customer's trade. The other 
resulting swap--the gamma--would be between the clearing agency and 
the clearing member that was a direct counterparty to the alpha. 
See, e.g., Byungkwon Lim and Aaron J. Levy, ``Contractual Framework 
for Cleared Derivatives: The Master Netting Agreement Between a 
Clearing Customer Bank and a Central Counterparty,'' 10 Pratt's J. 
of Bankr. Law 509, 515-517 (LexisNexis A.S. Pratt) (describing the 
clearing model for swaps in the United States); LCH.Clearnet Letter 
at 2 (generally concurring with the Commission's depiction of the 
agency model of clearing).
    \96\ See 80 FR at 14599. This release does not address the 
application of Section 5 of the Securities Act of 1933, 15 U.S.C. 
77a et seq. (``Securities Act''), to security-based swap 
transactions that are intended to be submitted to clearing (i.e., 
alphas, in the agency model of clearing). Rule 239 under the 
Securities Act, 17 CFR 230.239, provides an exemption for certain 
security-based swap transactions involving an eligible clearing 
agency from all provisions of the Securities Act, other than anti-
fraud provisions of Section 17(a) of the Securities Act. This 
exemption does not apply to security-based swap transactions not 
involving an eligible clearing agency, including a transaction that 
is intended to be submitted to clearing, regardless of whether the 
security-based swaps subsequently are cleared by an eligible 
clearing agency. See Exemptions for Security-Based Swaps Issued By 
Certain Clearing Agencies, Securities Act Release No. 33-9308 (March 
30, 2012), 77 FR 20536 (April 5, 2012).
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2. Proposed Rules and General Summary of Comments
    In the Regulation SBSR Proposed Amendments Release, the Commission 
proposed a new paragraph (a)(2)(i) of existing \97\ Rule 901(a), which 
would designate a registered clearing agency as the reporting side for 
all clearing transactions to which it is a counterparty. In its 
capacity as the reporting side, the registered clearing agency would be 
permitted to select the registered SDR to which it reports.\98\
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    \97\ Throughout this release, the Commission distinguishes 
``existing'' provisions of Regulation SBSR--i.e., provisions of 
Regulation SBSR that the Commission adopted in the Regulation SBSR 
Adopting Release in February 2015--from provisions that the 
Commission is adopting in this release.
    \98\ See Regulation SBSR Proposed Amendments Release, 80 FR at 
14746-47.
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    The Commission also proposed certain rules that would specify the 
reporting requirements for life cycle events attendant to the clearing 
process. The determination by a registered clearing agency of whether 
or not to accept an alpha for clearing is a life cycle event of the 
alpha.\99\ Existing paragraph (i) of Rule 901(e)(1) generally requires 
the reporting side for a security-based swap to report a life cycle 
event of that security-based swap, ``except that the reporting side 
shall not report whether or not a security-based swap has been accepted 
for clearing.'' Under existing Rule 901(e)(2), a life cycle event must 
be reported ``to the entity to which the original security-based swap 
transaction was reported.'' In the Regulation SBSR Proposed Amendments 
Release, the Commission proposed a new paragraph (ii) of Rule 901(e)(1) 
that would require a registered clearing agency to report to the 
registered SDR that received or will receive the transaction report of 
the alpha (the ``alpha SDR'') whether or not it has accepted an alpha 
security-based swap for clearing.\100\ The Commission also proposed to 
amend the definition of ``participant'' in existing Rule 900(u) to 
include a registered clearing agency that is required to report whether 
or not it accepts an alpha for clearing.\101\
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    \99\ See id., 80 FR at 14746, 14748. A life cycle event is, with 
respect to a security-based swap, any event that would result in a 
change in the information reported to a registered security-based 
swap data repository under Rule 901(c), 901(d), or 901(i), including 
an assignment or novation of the security-based swap; a partial or 
full termination of the security-based swap; a change in the cash 
flows originally reported; for a security-based swap that is not a 
clearing transaction, any change to the title or date of any master 
agreement, collateral agreement, margin agreement, or any other 
agreement incorporated by reference into the security-based swap 
contract; or a corporate action affecting a security or securities 
on which the security-based swap is based (e.g., a merger, dividend, 
stock split, or bankruptcy). Notwithstanding the above, a life cycle 
event shall not include the scheduled expiration of the security-
based swap, a previously described and anticipated interest rate 
adjustment (such as a quarterly interest rate adjustment), or other 
event that does not result in any change to the contractual terms of 
the security-based swap. See 17 CFR 242.900(q).
    \100\ See Regulation SBSR Proposed Amendments Release, 80 FR at 
14748.
    \101\ See id. at 14751.
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    If the registered clearing agency does not know the identity of the 
alpha SDR, the registered clearing agency would be unable to report to 
the alpha SDR whether or not it accepted the alpha transaction for 
clearing, as required by proposed Rule 901(e)(1)(ii). Therefore, the 
Commission proposed a new paragraph (3) of Rule 901(a), which would 
require the platform or reporting side for a security-based swap that 
has been submitted to clearing to promptly provide the relevant 
registered clearing agency with the identity of the alpha SDR and the 
transaction ID of the alpha transaction that will be or has been 
submitted to clearing.\102\
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    \102\ See id. at 14748.
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    The Commission requested and received comment on a wide range of 
issues related to these proposed amendments. Four commenters generally 
supported the Commission's proposal to require the registered clearing 
agency to report clearing transactions and to allow it to select the 
SDR to which it reports.\103\ One of these commenters noted that a 
clearing agency is ``the sole party who holds the complete and accurate 
record of transactions and positions'' for clearing transactions.\104\ 
Another commenter

[[Page 53561]]

agreed, noting that alternative reporting workflows ``could require a 
person who does not have information about [a] clearing transaction at 
the time of its creation to report that transaction.'' \105\ The 
commenter expressed the view that the Commission's proposal for 
reporting clearing transactions ``is simple in that the same party in 
each and every transaction will be the party with the reporting 
requirement,'' and that this approach would eliminate confusion ``as to 
who has the obligation to report the initial trades and different life-
cycle events.'' \106\ Two commenters expressed the view that clearing 
agencies can leverage existing reporting processes and the existing 
infrastructure that they have in place with market participants and 
vendors to report clearing transactions.\107\ A third commenter 
observed that requiring clearing agencies to report clearing 
transactions would be ``efficient, cost effective and promote[ ] global 
data consistency,'' because clearing agencies already report 
transactions under swap data reporting rules established by the CFTC 
and certain foreign jurisdictions, such as the European Union and 
Canada.\108\
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    \103\ See LCH.Clearnet Letter at 3; Better Markets Letter at 2; 
ISDA/SIFMA Letter at 24; ICE Letter at 1, 5.
    \104\ ICE Letter at 1, 3 (arguing that no person other than a 
clearing agency has complete information about beta and gamma 
security-based swaps and that the reporting hierarchy in Rule 
901(a)(2)(ii) is not suitable for reporting clearing transactions).
    \105\ Better Markets Letter at 4.
    \106\ Id. at 2.
    \107\ See ICE Letter at 5; LCH.Clearnet Letter at 8.
    \108\ ISDA/SIFMA Letter at 24.
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    However, one commenter opposed assigning the reporting duty to the 
registered clearing agency, arguing instead that the reporting side for 
the alpha transaction should be the reporting side for any subsequent 
clearing transactions.\109\ Another commenter expressed support for the 
Commission's proposal to require registered clearing agencies to report 
betas and gammas, but disagreed with the Commission's proposal to 
permit registered clearing agencies to choose the registered SDR that 
receives these reports.\110\
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    \109\ See Markit Letter at 2-3.
    \110\ See DTCC Letter at 5-6.
---------------------------------------------------------------------------

B. Discussion and Final Rules

    After careful consideration of the comments, the Commission is 
adopting paragraph (2)(i) of Rule 901(a) as proposed. As a result, a 
registered clearing agency is the reporting side for all clearing 
transactions to which it is a counterparty.\111\ In its capacity as the 
reporting side, the registered clearing agency is permitted to select 
the registered SDR to which it reports.
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    \111\ In its capacity as a reporting side, a registered clearing 
agency must report all of the primary trade information and 
secondary trade information required by existing Rules 901(c) and 
901(d), respectively, for each security-based swap to which it is a 
counterparty. See infra Section III(F) (discussing the UICs that a 
registered clearing agency must report).
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    The Commission believes that, because a registered clearing agency 
creates the clearing transactions to which it is a counterparty, the 
registered clearing agency is in the best position to provide complete 
and accurate information to a registered SDR about the clearing 
transactions resulting from the security-based swaps that it clears. 
Two commenters noted that swap clearing agencies currently report 
clearing transactions to CFTC-registered swap data repositories, thus 
evidencing their ability to report clearing transactions.\112\ The 
Commission's determination to assign to registered clearing agencies 
the duty to report clearing transactions should promote efficiency in 
the reporting process under Regulation SBSR by leveraging these 
existing workflows.
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    \112\ See ICE Letter at 5; LCH.Clearnet Letter at 8. The 
Commission notes that the CFTC has adopted rules that would impose 
reporting responsibilities on these clearing agencies similar to 
those that the Commission is adopting today. See Amendments to Swap 
Data Recordkeeping and Reporting Requirements for Cleared Swaps, 
Final Rule, 80 FR 41736 (June 27, 2016).
---------------------------------------------------------------------------

    In the Regulation SBSR Proposed Amendments Release, the Commission 
considered three alternatives to requiring the clearing agency to 
report clearing transactions: (1) Utilize the reporting hierarchy in 
existing Rule 901(a)(2)(ii); (2) modify that reporting hierarchy to 
place registered clearing agencies above other non-registered persons, 
but below registered security-based swap dealers and major security-
based swap participants; and (3) require the reporting side of the 
alpha to report both the beta and the gamma.\113\ The Commission 
assessed each alternative and expressed the preliminary view that none 
would be as efficient and reliable as assigning the reporting duty to 
the registered clearing agency.\114\ The Commission noted that each of 
the three alternatives could place the duty to report the clearing 
transaction on a person who does not have information about the 
clearing transaction at the time of its creation; to discharge its 
duty, this person would have to obtain necessary transaction 
information from the registered clearing agency or from a counterparty 
to the registered clearing agency.\115\
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    \113\ See 80 FR at 14745-46.
    \114\ See id.
    \115\ See id., 80 FR at 14746.
---------------------------------------------------------------------------

    One commenter urged the Commission to adopt Alternative 3--i.e., to 
designate the reporting side for the alpha as the reporting side for 
the beta and gamma.\116\ The commenter stated that the non-clearing-
agency counterparties to the beta and gamma will always obtain 
information regarding their clearing transactions as a part of the 
clearing process.\117\ The commenter suggested, therefore, that 
Alternative 3 would not result in unnecessary data transfers prior to 
reporting. In support of Alternative 3, the commenter noted that an 
alpha counterparty could rely on a ``middleware reporting agent [who] 
could perform all steps necessary to report an alpha transaction as 
well as the associated beta and gamma security-based swaps in a matter 
of seconds, while a clearing agency could, at best, perform only the 
last two steps.'' \118\ Furthermore, while endorsing Alternative 3, the 
commenter also believed that Alternatives 1 and 2 would be preferable 
to the Commission's proposed approach.\119\
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    \116\ See Markit Letter at 13.
    \117\ See id. at 5, 13. The commenter stated that a clearing 
agency ``must, as a matter of course, send the cleared SBS trade 
record straight through to the sides of the trade or, if relevant, 
any non-affiliated reporting side (e.g., the platform or reporting 
agent). In other words, for the clearing agency to transmit a 
message indicating that a trade has or has not been accepted for 
clearing (a necessary last step to conclude cleared transactions 
between the clearinghouse and the parties to the beta and gamma 
trades) there is no `extra step.' '' Id. at 5.
    \118\ Id. at 7 (also stating that the interconnectedness of the 
middleware provider makes it ``better able to ensure the accuracy of 
trade records and the linkage between alpha, beta, and gamma trade 
records'').
    \119\ See id. at 13 (``these other alternatives, relative to the 
Proposal, encourage competition based on quality of service and cost 
and the rule of reporting agents and are more likely to result in 
outcomes whereby the same SDR will receive alpha, beta, and gamma 
trades'').
---------------------------------------------------------------------------

    Finally, the commenter suggested a fourth alternative to address 
the concern of an alpha counterparty having to report a clearing 
transaction to which it is not a counterparty. The commenter suggested 
that ``the platform would remain the reporting side for all platform-
executed trades while for bilateral or off platform cleared 
transactions, the reporting side would be the clearing agency. However, 
the clearing agency would be required to submit beta and gamma trade 
records to the alpha SDR (which would be determined by the alpha trade 
reporting side and not the clearing agency).'' \120\
---------------------------------------------------------------------------

    \120\ Id.
---------------------------------------------------------------------------

    The Commission believes that assigning reporting duties for 
clearing transactions to registered clearing agencies will be more 
efficient and reliable than any of the alternatives discussed in the 
Regulation SBSR Proposed Amendments Release or

[[Page 53562]]

raised by the commenter. Because each of these alternatives could 
assign the reporting duty to a person who does not have information 
about the clearing transaction at the time of its creation, the person 
with the reporting duty would have to rely on the clearing agency, 
directly or indirectly, to provide it with the information to be 
reported:
     Alternative 1 would be to utilize the existing reporting 
hierarchy in Regulation SBSR. Since a registered clearing agency is not 
a registered security-based swap dealer or registered major security-
based swap participant, it would occupy the lowest rung in the 
hierarchy. Therefore, in any clearing transaction between a registered 
clearing agency and a registered security-based swap dealer or 
registered major security-based swap participant, the registered 
security-based swap dealer or registered major security-based swap 
participant would incur the reporting duty. However, the registered 
security-based swap dealer or registered major security-based swap 
participant would be dependent on the registered clearing agency to 
supply the information that must be reported.\121\
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    \121\ For any clearing transaction between a registered clearing 
agency and a non-registered person that is not guaranteed by a 
registered security-based swap dealer or registered major security-
based swap participant, the reporting hierarchy in existing Rule 
901(a)(2)(i) would require the sides to select the reporting side. 
In these circumstances, it is likely that the counterparties would 
select the registered clearing agency as the reporting side for the 
clearing transactions. Assigning the duty to report clearing 
transactions directly to the clearing agency is consistent with the 
Commission's objective of minimizing the possibility that the 
reporting obligation would be imposed on a non-registered 
counterparty. See Regulation SBSR Adopting Release, 80 FR at 14598.
---------------------------------------------------------------------------

     Alternative 2 is similar to Alternative 1 in that the 
registered security-based swap dealer or registered major security-
based swap participant with the reporting duty would be dependent on 
the registered clearing agency to supply the information that would be 
reported.
     Alternative 3 would designate the reporting side for the 
alpha as the reporting side for the beta and gamma. Under this 
alternative, the alpha reporting side would need to obtain information 
from the clearing agency to report its own clearing transaction. The 
alpha reporting side also would need to obtain, either from the non-
reporting side or from the registered clearing agency, information 
about the clearing transaction of the alpha's non-reporting side. The 
Commission believes that Alternative 3 would be difficult to implement 
operationally and could create confidentiality concerns, because it 
does not offer a mechanism for reporting of subsequent clearing 
positions created by the registered clearing agency in the account of 
the non-reporting side of the alpha.\122\
---------------------------------------------------------------------------

    \122\ Assume, under Alternative 3, that P and Q execute a 
security-based swap (S1) and submit it to a registered clearing 
agency (CA). P is the reporting side of the S1 alpha. When CA 
accepts the alpha for clearing, P would then have to report the beta 
between P and CA and the gamma between Q and CA (gamma1). Further 
assume that Q executes a second transaction (S2) in the same product 
as S1 with R, and that R is the reporting side for S2. If CA accepts 
S2 for clearing, R then must report the beta between R and CA and 
the gamma between Q and CA (gamma2). In its next netting cycle, CA 
nets together gamma1 and gamma2 to create a new security-based swap 
representing the net open position (NOP) of Q in that product. Under 
Alternative 3, it is unclear who should report NOP as between P and 
R, because NOP is a security-based swap resulting from the netting 
of security-based swaps involving both P and R. Furthermore, Q 
likely will not want P or R to know of its additional activity in 
that product with other counterparties.
---------------------------------------------------------------------------

     Under the fourth alternative,\123\ while the Commission 
concurs with the approach of requiring the registered clearing agency 
to report the resulting beta and gamma transactions, the Commission 
believes that the registered clearing agency, when it has the duty to 
report security-based swaps, should be able to choose the registered 
SDR to which it reports.\124\
---------------------------------------------------------------------------

    \123\ See Markit Letter at 13.
    \124\ See infra Section III(C).
---------------------------------------------------------------------------

    In general, the Commission believes that Regulation SBSR should not 
assign reporting obligations to persons who lack direct access to the 
information necessary to make the report. With respect to clearing 
transactions, a person who lacked direct access to the necessary 
information would be obligated to obtain the information from the 
clearing agency or another party who has access to that information to 
discharge its reporting duties. Placing the reporting duty on the non-
clearing-agency side would create additional reporting steps and each 
extra reporting step could introduce some possibility for discrepancy, 
error, or delay. The Commission believes that discrepancies, errors, 
and delays are less likely to occur if the duty to report clearing 
transactions is assigned to registered clearing agencies directly, 
because there would be no intermediate steps where data would have to 
be transferred between parties before it is sent to a registered SDR. 
Therefore, the Commission is adopting Rule 901(a)(2)(i) as proposed. A 
registered clearing agency has complete information about all clearing 
transactions to which it is a counterparty. This includes not only 
betas and gammas that arise from clearing alphas, but also security-
based swaps that result from the clearing agency netting together betas 
and gammas of the same person in the same product to create new open 
positions in successive netting cycles. Under the alternatives 
discussed above, a person other than the registered clearing agency 
would have to obtain information from the clearing agency to report the 
clearing transactions--not just once, to report the initial beta and 
gamma, but potentially with every netting cycle of the registered 
clearing agency. This further increases the risks that there could be 
discrepancies, errors, or delays in reporting new clearing transactions 
as they are created.
    The commenter who endorsed Alternative 3 also argued that ``[t]he 
Proposal's failure to acknowledge the efficiency benefits and reduced 
costs that result from the presence of middleware reporting agents is a 
serious defect.'' \125\ To the contrary, the Commission has considered 
the potential economic effects of new Rule 901(a)(2)(i) and the 
alternatives noted above, including the role that agents might play in 
reporting security-based swap transactions under these different 
alternatives.\126\ The Commission notes that, while Regulation SBSR 
permits the use of agents to carry out reporting duties, it does not 
require the use of an agent.
---------------------------------------------------------------------------

    \125\ Markit Letter at 8. See also id. at 6 (``The Proposal 
ignores the efficiency gains resulting from the presence of 
middleware reporting agents in the market for SDR and post-trade 
processing services despite noting such benefits in the Regulation 
SBSR Final Rule'') and 8 (``The efficiency benefits introduced by 
the presence of middleware reporting agents, if they were properly 
accounted for by the Commission . . . would have provided additional 
and, in our opinion, decisive support to the three alternative 
approaches described by the Commission'').
    \126\ See infra Sections XIII(A) and (B).
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C. Choice of Registered SDR for Clearing Transactions

    In the Regulation SBSR Proposed Amendments Release, the Commission 
considered whether, if a registered clearing agency is assigned the 
duty to report clearing transactions, the clearing agency should be 
permitted to choose the registered SDR to which it reports or whether 
it should be required to report them to the alpha SDR.\127\ The 
Commission proposed to allow a registered clearing agency to choose the 
registered SDR to which it reports clearing transactions.\128\ The 
Commission recognized that this approach might result in beta and gamma 
security-based swaps being reported to a registered SDR other than

[[Page 53563]]

the alpha SDR, thereby requiring the Commission to link these trades 
together across SDRs.\129\
---------------------------------------------------------------------------

    \127\ See 80 FR at 14746-47.
    \128\ See id.
    \129\ See id.
---------------------------------------------------------------------------

    Some commenters supported the Commission's proposal to allow the 
registered clearing agency to select the registered SDR to which it 
reports.\130\ Other commenters, however, recommended that the 
Commission require the registered clearing agency to report the beta 
and gamma transactions to the alpha SDR.\131\ These commenters 
generally believed that requiring beta and gamma security-based swaps 
to be reported to the alpha SDR would reduce data fragmentation and 
enhance the Commission's ability to obtain a complete and accurate 
understanding of the security-based swap market.\132\
---------------------------------------------------------------------------

    \130\ See ICE Letter at 1; LCH.Clearnet Letter at 3; ISDA/SIFMA 
Letter at 24.
    \131\ See Better Markets Letter at 2, 4-5 (``we are concerned 
that allowing the clearing agency to report data to a different SDR 
than the one to which the initial alpha trade was reported could 
cause potential complications, such as double-counting or bifurcated 
data''); DTCC Letter at 2, 6; Markit Letter at 6.
    \132\ See id. See also DTCC Letter at 5 (predicting that the 
Commission ``would encounter various implementation challenges'' in 
linking alpha security-based swaps to the associated beta and gamma 
transactions that had been reported to different SDRs because SDRs 
might ``store, maintain, and furnish data to regulators in formats 
different from other trade repositories'').
---------------------------------------------------------------------------

    One commenter endorsed the view that clearing should be considered 
a life cycle event of the alpha transaction, and that the clearing 
agency should be required to report the termination of the alpha, as 
well as the beta and gamma, to the alpha SDR.\133\ In this commenter's 
view, ``[m]aintaining all records related to an alpha trade in a single 
SB SDR will help to ensure that regulators are able to efficiently 
access and analyze all reports related to an SB swap regardless of 
where or how the transaction was executed and whether it is cleared.'' 
\134\
---------------------------------------------------------------------------

    \133\ See DTCC Letter at 4, 6.
    \134\ DTCC Letter at 4.
---------------------------------------------------------------------------

    Another commenter noted that, in its experience with CFTC swap data 
reporting rules, clearing agencies ``generally send beta and gamma 
records to an affiliated SDR'' even though other market participants 
generally prefer using an SDR not affiliated with the clearing 
agency.\135\ In this commenter's view, clearing agencies do not 
``provide services or fees that make them competitive as SDRs for all 
swap trade records.'' \136\ The commenter believed that the 
Commission's proposed approach would result in tying of clearing 
services to SDR services and create a market for SDR and post-trade 
processing services that is unresponsive to market forces.\137\ The 
commenter also stated that ``middleware reporting agents can offer an 
even lower price'' than registered clearing agencies for reporting beta 
and gamma transactions.\138\
---------------------------------------------------------------------------

    \135\ Markit Letter at 6.
    \136\ Id.
    \137\ See id. at 2-3, 12 (stating that, if a registered clearing 
agency is permitted to choose the registered SDR to which it reports 
clearing transactions, the clearing agency ``can more easily 
leverage a dominant clearing agency position to gain a dominant SDR 
positon by selecting an affiliated SDR as its SDR of choice for beta 
and gamma trades'').
    \138\ See id. at 4, 7-8 (noting that, ``[i]n contrast to 
currently registered SBS clearing agencies . . . middleware 
reporting agents, such as MarkitSERV, are connected to numerous 
trade repositories globally and have achieved economies of scale 
with respect to the straight-through processing of cleared swaps 
across numerous clearinghouses and regulatory reporting regimes'').
---------------------------------------------------------------------------

    Regulation SBSR generally allows the person with a duty to report 
to choose the registered SDR to which it reports.\139\ This approach is 
designed to promote efficiency by allowing the person with the 
reporting duty to select the registered SDR based on greatest ease of 
use, the lowest fees, or other factors that are relevant to the person 
with whom the duty rests. As noted in the Regulation SBSR Adopting 
Release, a clearing transaction is an independent security-based swap 
and not a life cycle event of an alpha security-based swap that is 
submitted to clearing.\140\ Under Rule 901(a)(2)(i), as adopted herein, 
a registered clearing agency is the reporting side for all clearing 
transactions to which it is a counterparty; because the registered 
clearing agency has the duty to report, it also has the ability to 
choose the registered SDR. The Commission considered requiring the 
registered clearing agency to report the beta and gamma to the alpha 
SDR. But had the Commission done so, the registered clearing agency 
would be required to report clearing transactions to a registered SDR 
that might not offer the clearing agency what it believes to be the 
most efficient or convenient means of discharging its reporting duty, 
as others with a reporting duty are permitted to do. As noted in 
Section XIII(A), infra, a clearing agency may be able to realize 
efficiency gains through vertical integration of clearing and SDR 
services and may choose to use an affiliated SDR. However, if an 
independent SDR or middleware reporting agent offers a competitive 
service model that provides a clearing agency with a duty to report a 
more efficient or cost-effective means of fulfilling its reporting 
obligations, the registered clearing agency may choose to use those 
instead.
---------------------------------------------------------------------------

    \139\ See Regulation SBSR Adopting Release, 80 FR at 14597-98 
(``The reporting side may select the registered SDR to which it 
makes the required report'').
    \140\ See 80 FR at 14599, n. 291. However, the determination by 
a registered clearing agency of whether or not to accept the alpha 
for clearing is a life cycle event of the alpha transaction. As 
discussed above, new Rule 901(e)(1)(ii) requires a registered 
clearing agency to report these life cycle events to the alpha SDR.
---------------------------------------------------------------------------

    One commenter expressed the view that requiring the beta and gamma 
to be reported to the alpha SDR would help to ensure that regulators 
are able to efficiently access and analyze all reports related to a 
security-based swap.\141\ The commenter also stated that a clearing 
agency will need to incur costs to establish connections with alpha 
SDRs for purposes of reporting whether or not the clearing agency has 
accepted the alpha for clearing.\142\ The commenter cautioned, 
furthermore, that ``[t]he proposed process assumes that, in all 
instances, the transaction ID provided to the clearing agency would be 
accurate.'' \143\ The commenter stated that only the alpha SDR would be 
able to ascertain whether the alpha transaction ID is valid based on 
its existing inventory.\144\ The commenter concluded that, ``[r]ather 
than establishing a complex reporting process for clearing transactions 
and potentially introducing data quality issues . . . the Commission 
[should] consider preservation of high quality data and ready access to 
a full audit trail as the paramount concerns that should govern the 
choice of SB SDR for clearing transactions.'' \145\ Finally, the 
commenter questioned the ease with which the Commission would be able 
to track related transactions across SDRs through the transaction ID, 
stating that ``the Commission would likely be forced to expend 
significant resources harmonizing data sets from multiple SDRs, thereby 
hindering the Commission's ready access to a comprehensive audit 
trail.'' \146\
---------------------------------------------------------------------------

    \141\ See DTCC Letter at 4. See also Markit Letter at 13 
(raising as an alternative to the Commission's proposed approach 
that the Commission should require a clearing agency to report the 
beta and gamma to the alpha SDR).
    \142\ See DTCC Letter at 5.
    \143\ Id. The commenter added that it has encountered issues 
under the CFTC's swap reporting framework when transaction IDs have 
been reported inconsistently for the same trade. See id.
    \144\ See id.
    \145\ Id.
    \146\ Id.
---------------------------------------------------------------------------

    The Commission has considered the commenter's arguments but 
continues to believe that it is appropriate to allow a registered 
clearing agency to choose the registered SDR to which it reports. 
Although the commenter is correct that Regulation SBSR will require a

[[Page 53564]]

registered clearing agency to report to the alpha SDR whether or not 
the clearing agency accepts the alpha for clearing, this does not 
necessarily mean that the clearing agency would find it more efficient 
or convenient to make initial (and life cycle event) reports of 
clearing transactions to the alpha SDR. Betas, gammas, and transactions 
that arise from subsequent clearing cycles are independent security-
based swaps. It is possible that a registered clearing agency might 
conclude that a registered SDR other than the alpha SDR is better 
suited for reporting these new transactions. Of course, if the 
registered clearing agency determines that reporting beta and gamma 
security-based swaps to the alpha SDR is, in fact, equally convenient 
or more convenient than connecting and reporting to a different SDR, 
the registered clearing agency would be free to make this choice under 
new Rule 901(a)(2)(i).
    The Commission shares the commenter's concern about ensuring that a 
termination reported by a registered clearing agency to an alpha SDR 
includes a valid transaction ID of an alpha held by that SDR and 
acknowledges the commenter's observation that this might not always 
occur in the CFTC's swap reporting regime. Because Rule 901(g) requires 
a registered SDR to assign a transaction ID to each security-based swap 
(or establish or endorse a methodology for transaction IDs to be 
assigned by third parties), the registered SDR should know the 
transaction ID of every security-based swap reported to it on a 
mandatory basis. If a registered clearing agency submits a termination 
report with a transaction ID that the registered SDR cannot match to an 
alpha transaction report, the registered SDR's policies and procedures 
must specify how this situation will be addressed.\147\ The SDR's 
policies and procedures could provide, for example, that the registered 
SDR will hold the termination report from the registered clearing 
agency in a pending state until either (1) the registered SDR obtains a 
valid transaction ID from the registered clearing agency (if the 
registered clearing agency originally had reported an incorrect 
transaction ID); or (2) the registered SDR determines that it can 
otherwise match the termination report against the correct alpha (if 
the clearing agency reported the correct transaction ID but the correct 
transaction ID did not for some reason appear in the report of the 
alpha transaction). Furthermore, in the Regulation SBSR Proposed 
Amendments Release, the Commission acknowledged that it might not be 
possible for a registered SDR to determine immediately whether a 
particular transaction ID is invalid because a registered clearing 
agency could report whether or not it has accepted an alpha for 
clearing before the registered SDR has received a transaction report 
for that alpha.\148\ The Commission stated that, in such case, the 
registered SDR should address this possibility in its policies and 
procedures, which could provide, for example, that the registered SDR 
would hold a registered clearing agency's report of the disposition of 
an alpha in a pending state until the registered SDR receives the 
transaction report of the alpha; the registered SDR could then 
disseminate as a single report the security-based swap transaction 
information and the fact that the alpha had been terminated.\149\ 
Because the reporting side for an alpha generally has 24 hours from the 
time of execution to report the transaction,\150\ the duration of the 
pending state generally should not exceed 24 hours after receipt of the 
clearing agency's report of whether or not it has accepted the alpha 
for clearing. The Commission staff intends to evaluate whether the 
termination reports submitted by registered clearing agencies to an 
alpha SDR are appropriately matched to the alpha.
---------------------------------------------------------------------------

    \147\ See Rule 13n-5(b)(1)(i) under the Exchange Act, 17 CFR 
240.13n-5(b)(1)(i) (requiring every SDR to establish, maintain, and 
enforce written policies and procedures reasonably designed for the 
reporting of complete and accurate transaction data); Rule 13n-
5(b)(1)(iii) under the Exchange Act, 17 CFR 240.13n-5(b)(1)(iii) 
(requiring every SDR to establish, maintain, and enforce written 
policies and procedures reasonably designed to satisfy itself that 
the transaction data that has been submitted to the SDR is complete 
and accurate).
    \148\ See Regulation SBSR Proposed Amendments Release, 80 FR at 
14748.
    \149\ See id.
    \150\ See Rule 901(j).
---------------------------------------------------------------------------

    The Commission also believes that the adopted approach of allowing 
a registered clearing agency to choose the registered SDR to which it 
reports clearing transactions is, unlike any alternatives 
considered,\151\ properly designed to account for the possibility that 
alphas could be reported to several different SDRs. Consider the 
following example:
---------------------------------------------------------------------------

    \151\ See supra notes 113 to 124 and accompanying text.
---------------------------------------------------------------------------

     On Day 1, Party A executes three alpha transactions (T1, 
T2, and T3) in Product XYZ.
     T1 is reported to SDR1. T2 is reported to SDR2. T3 is 
reported to SDR3.
     All three alpha transactions are submitted to Clearing 
Agency K and accepted for clearing.
     Clearing Agency K creates Beta1 and Gamma1 after 
terminating T1, Beta2 and Gamma2 after terminating T2, and Beta3 and 
Gamma3 after terminating T3.
     Assume that Party A is the direct counterparty to Beta1, 
Beta2, and Beta3.
    If, as suggested by some commenters, the Commission required Beta1 
and Gamma1 to be reported to SDR1, Beta2 and Gamma2 to be reported to 
SDR2, and Beta3 and Gamma3 to be reported to SDR3, operational 
difficulties would result when Clearing Agency K nets Beta1, Beta2, and 
Beta3 as part of its settlement cycle because each of the Betas has 
been reported to a different SDR.
     At the end of Day 1, Clearing Agency K nets Beta1, Beta2, 
and Beta3 together to create a net open position (NOP) of Party A in 
Product XYZ.
     As part of the netting process, Clearing Agency K 
terminates Beta1, Beta2, and Beta 3. Under new Rule 901(e)(1)(ii), 
Clearing Agency K would have to report the termination of Beta1 to 
SDR1, the termination of Beta2 to SDR2, and the termination of Beta3 to 
SDR3.
     NOP is a new security-based swap and must be reported to a 
registered SDR.
    Under the commenters' alternate approach, it is not apparent which 
registered SDR should receive the report of NOP, because NOP 
incorporates transactions that were originally reported to three 
different registered SDRs. Reporting NOP to each of SDR1, SDR2, and 
SDR3 serves no purpose because the same position would be reflected in 
three separate SDRs and could lead to confusion about the true size of 
the security-based swap market.
    The Commission also disagrees with the commenter's view that the 
Commission's ability to understand or analyze reported data would be 
impaired by permitting registered clearing agencies to select the 
registered SDR for reporting clearing transactions.\152\ The Commission 
acknowledges that it will likely be necessary for the Commission's 
staff to link an alpha to the associated beta and gamma across 
different SDRs to obtain a complete understanding of transactions that 
clear. The Commission believes, however, that there are sufficient 
tools to facilitate this effort. Existing Rule 901(d)(10), for example, 
requires reporting of the ``prior transaction ID'' if a security-based 
swap arises from the allocation, termination, novation, or assignment 
of one or more prior security-based swaps. Therefore, the Commission 
believes that it is

[[Page 53565]]

appropriate to allow a registered clearing agency to choose where to 
report the beta and gamma, even if it chooses to report to a registered 
SDR other than the alpha SDR.
---------------------------------------------------------------------------

    \152\ See DTCC Letter at 4.
---------------------------------------------------------------------------

    The Commission acknowledges that permitting a registered clearing 
agency to report clearing transactions to a registered SDR other than 
the alpha SDR also could increase complexity for market participants 
who would prefer to have reports of all of their security-based swaps 
in a single SDR.\153\ The Commission notes that SDRs are required to 
``collect and maintain accurate SBS transaction data so that relevant 
authorities can access and analyze the data from secure, central 
locations, thereby putting them in a better position to monitor for 
potential market abuse and risks to financial stability.'' \154\ The 
Commission notes, in addition, that Regulation SBSR permits a security-
based swap counterparty to make non-mandatory reports of security-based 
swaps to an SDR of its choice (if the SDR is willing to accept 
them).\155\ Thus, to the extent that SDRs are willing to accept such 
non-mandatory reports, non-clearing-agency counterparties of clearing 
transactions would have a mechanism for consolidating reports of their 
transactions in a single SDR if such counterparties wished to do so.
---------------------------------------------------------------------------

    \153\ See id. at 16.
    \154\ SDR Adopting Release, 80 FR at 14440.
    \155\ See Rule 900(r) (defining a ``non-mandatory report'' as 
any information provided to a registered SDR by or on behalf of a 
counterparty other than as required by Regulation SBSR).
---------------------------------------------------------------------------

    The Commission does not agree with the assertion made by one 
commenter that permitting a registered clearing agency to report 
clearing transactions to a registered SDR of its choice necessarily 
results in the tying of clearing services to SDR services.\156\ Under 
the rules being adopted today, the user of clearing services--i.e., an 
alpha counterparty that clears a security-based swap at a registered 
clearing agency--has no obligation to report the subsequent clearing 
transaction.
---------------------------------------------------------------------------

    \156\ See Markit Letter at 3, 9-10.
---------------------------------------------------------------------------

    Because Regulation SBSR does not require an alpha counterparty to 
have ongoing obligations to report subsequent information about the 
clearing transaction, such as life cycle events or daily marks, to the 
registered SDR that is selected by the clearing agency, alpha 
counterparties will not be required to establish connections to 
multiple SDRs and to incur fees for reporting information to those 
SDRs.

D. Scope of Clearing Agencies Covered by Final Rules

    Proposed Rule 901(a)(2)(ii) would assign clearing agencies a duty 
to report under Regulation SBSR based on their registration status, not 
on their principal place of business. Thus, a foreign clearing agency, 
like a U.S. clearing agency, would be required to report all security-
based swaps of which it is a counterparty if it is registered with the 
Commission. Commenters had differing recommendations with respect to 
the scope of clearing agencies that should be covered by proposed Rule 
901(a)(2)(ii). Two commenters expressed the view that the rule should 
apply to all registered clearing agencies, regardless of their 
principal place of business.\157\ A third commenter agreed that a 
registered clearing agency with its principal place of business inside 
the United States should be required to report all clearing 
transactions, but took a different view with respect to a registered 
clearing agency with its principal place of business outside the United 
States; the non-U.S. clearing agency, according to the commenter, 
should be required to report only clearing transactions involving a 
U.S. person.\158\
---------------------------------------------------------------------------

    \157\ See LCH.Clearnet Letter at 9 (``Registered clearing 
agencies are best placed to report cleared transactions. Assigning 
these obligations to other participants for foreign domiciled 
clearing agencies will needlessly complicate the reporting 
landscape''); ISDA/SIFMA Letter at 24.
    \158\ See ICE Letter at 5.
---------------------------------------------------------------------------

    Final Rule 901(a)(2)(i) assigns the reporting obligation for a 
clearing transaction to a registered clearing agency that is a 
counterparty to the transaction. The rule applies to any registered 
clearing agency without regard to the location of its principal place 
of business. The Commission generally believes that, if a person 
registers with the Commission as a clearing agency, it should assume 
the same obligations as all other persons that register as clearing 
agencies.\159\ Conversely, new Rule 901(a)(2)(i) does not apply to 
unregistered clearing agencies (e.g., persons that act as clearing 
agencies outside the United States that are not required to, and choose 
not to, register with the Commission).
---------------------------------------------------------------------------

    \159\ The Commission notes, however, that the reporting duty of 
a registered clearing agency under new Rule 901(a)(2)(i) must be 
read in connection with Rule 908(a), amendments to which the 
Commission is adopting today. In other words, a registered clearing 
agency must report only those security-based swaps that fall within 
Rule 908(a). It is likely that many clearing transactions of a 
registered clearing agency having its principal place of business 
outside the United States would not fall within any prong of Rule 
908(a) and thus would not have been reported by the registered 
clearing agency pursuant to Rule 901(a)(2)(i). For example, a 
clearing transaction between a registered clearing agency and a non-
U.S. person that is not registered with the Commission as a 
security-based swap dealer or major security-based swap participant, 
and who is not utilizing U.S. personnel to arrange, negotiate, or 
execute the clearing transaction, would not fall within any prong of 
Rule 908(a).
---------------------------------------------------------------------------

    A fourth commenter requested the Commission to clarify whether 
clearing agencies that are ``deemed registered'' under the Exchange Act 
are ``registered clearing agencies'' for purposes of Regulation SBSR, 
which would trigger the duty to report clearing transactions even 
before they complete a full registration process with the 
Commission.\160\ The Commission previously has stated that each 
clearing agency that is deemed registered is required ``to comply with 
all requirements of the Exchange Act and the rules and regulations 
thereunder applicable to Registered Clearing Agencies.'' \161\ Pursuant 
to this guidance, a ``deemed registered'' clearing agency is required 
to comply with all requirements of Regulation SBSR that are applicable 
to registered clearing agencies.\162\
---------------------------------------------------------------------------

    \160\ See ISDA/SIFMA at 26.
    \161\ Securities Exchange Act Release No. 69284 (April 3, 2013), 
68 FR at 21046, 21048 (April 9, 2013).
    \162\ This commenter also sought guidance regarding the 
reporting obligations relating to a security-based swap between a 
clearing agency that has been exempted from registration by the 
Commission and a counterparty. See ISDA/SIFMA Letter at 26. The 
Commission does not believe that this issue is ripe for 
consideration. The Commission anticipates that it would consider 
this issue if it exempts from registration a clearing agency that 
acts as a central counterparty for security-based swaps.
---------------------------------------------------------------------------

E. Reporting Under the Principal Model of Clearing

    Two commenters acknowledged that the agency model of clearing 
predominates in the United States but requested that the Commission 
clarify the application of Rule 901(a)(2)(ii) to security-based swaps 
cleared under the principal model of clearing.\163\ One of these 
commenters recommended that the Commission require all clearing 
transactions to be reported according to the workflows used in the 
agency model of clearing.\164\ By contrast, the other

[[Page 53566]]

commenter argued that ``a set of clearing transactions should be 
reported in accordance with the actual applied clearing model.'' \165\
---------------------------------------------------------------------------

    \163\ See ISDA/SIFMA Letter at 25 (``Although we do not have 
reason to believe the principal model will become prevalent in the 
U.S. market, it will be used in a percentage of SBS reportable under 
SBSR especially by non-U.S. parties registered as SBSDs or MSBSPs 
which may be the direct or indirect counterparty to a SBS. Providing 
additional guidance on the treatment of SBS cleared via the 
principal model would be useful to promote data accuracy and 
consistency''); ICE Letter at 2-3.
    \164\ See ICE Letter at 3 (arguing that reporting principal 
clearing workflows is unnecessarily complicated and costly and 
``results in a duplicative representation of cleared records 
submitted to repositories'').
    \165\ ISDA/SIFMA Letter at 26.
---------------------------------------------------------------------------

    The Commission concurs with the latter commenter: Regulation SBSR 
requires reporting of clearing transactions in accordance with the 
actual clearing model. Under the rules adopted today, any security-
based swap that is a clearing transaction--i.e., that has a registered 
clearing agency as a direct counterparty--must be reported by the 
registered clearing agency pursuant to new Rule 901(a)(2)(i).\166\ If a 
security-based swap is not a clearing transaction, it must be reported 
by the person designated by the other provisions of Rule 901(a).
---------------------------------------------------------------------------

    \166\ Existing Rule 902(c)(6) provides that a registered SDR 
shall not disseminate any information regarding a clearing 
transaction that arises from the acceptance of a security-based swap 
for clearing by a registered clearing agency or that results from 
netting other clearing transactions.
---------------------------------------------------------------------------

F. Clearing Transactions and Unique Identification Codes

    Rules 901(c) and 901(d), respectively, require the person with the 
duty to report to report all of the primary trade information and 
secondary trade information for each security-based swap to which it is 
a counterparty. Noting that existing Rule 901(d)(2) requires the 
reporting side to report, as applicable, the branch ID, broker ID, 
execution agent ID, trader ID, and trading desk ID of the direct 
counterparty on the reporting side, the Commission in the Regulation 
SBSR Proposed Amendments Release asked whether these types of unique 
identification codes (``UICs'') \167\ would ever be applicable to a 
registered clearing agency when it incurs the duty to report a clearing 
transaction.\168\ Three commenters suggested that these UICs are not 
applicable to clearing transactions and should not have to be reported 
by the clearing agency.\169\
---------------------------------------------------------------------------

    \167\ See Rule 900(qq) (defining ``UIC'' as ``a unique 
identification code assigned to a person, unit of a person, product, 
or transaction'').
    \168\ See 80 FR at 14752.
    \169\ See DTCC Letter at 16; ICE Letter at 4; LCH.Clearnet 
Letter at 8.
---------------------------------------------------------------------------

    The Commission agrees. In its capacity as a central counterparty 
for security-based swaps, a registered clearing agency does not engage 
in market-facing activity and thus would not utilize a branch, broker, 
execution agent, trader, or trading desk to effect security-based swap 
transactions. Therefore, these UICs are not applicable to clearing 
transactions, and a registered clearing agency need not report any UICs 
pursuant to Rule 901(d)(2).\170\
---------------------------------------------------------------------------

    \170\ The Commission also deems these UICs ``not applicable'' to 
the non-clearing agency side of a clearing transaction; therefore, 
under Rule 906(a), a registered SDR need not query a non-clearing-
agency participant for these UICs with respect to a clearing 
transaction, and the participant need not provide these UICs to the 
registered SDR with respect to any clearing transaction. As the 
Commission has previously stated when exempting most types of 
clearing transactions from public dissemination, clearing 
transactions ``are mechanical steps taken pursuant to the rules of 
the clearing agency.'' Regulation SBSR Adopting Release, 80 FR at 
14610. See also Rule 902(c)(6). Thus, the Commission does not 
believe that clearing transactions can meaningfully be said to 
involve a market-facing subdivision or agent of the counterparty 
such as the branch, trading desk, individual trader, broker, or 
execution agent. To the extent that there was meaningful 
participation by a branch, trading desk, individual trader, broker, 
or execution agent on behalf of the counterparty, these UICs must be 
provided in connection with the original alpha transaction--either 
in its capacity as the reporting side (in which case it would be 
required to provide these UICs pursuant to Rule 901(d)(2)) or as the 
non-reporting side (in which case it would be required to provide 
these UICs pursuant to Rule 906(a) if it were a participant of the 
registered SDR). Cf. DTCC Letter at 16 (while not specifically 
addressing the question of whether these UICs should be reported for 
the non-clearing-agency side of a clearing transaction, questioning 
whether the non-reporting side should be required to report these 
UICs for any transaction).
---------------------------------------------------------------------------

G. Reporting Whether an Alpha Transaction Is Accepted for Clearing

    Existing Rule 901(e)(1)(i) addresses the reporting requirements for 
most life cycle events and assigns the reporting duty for reporting 
those life cycle events to the reporting side of the original 
transaction. However, Rule 901(e)(1)(i) specifically provides that 
``the reporting side shall not report whether or not a security-based 
swap has been accepted for clearing.'' In the Regulation SBSR Proposed 
Amendments Release, the Commission proposed a new paragraph (ii) to 
Rule 901(e)(1) that would require a registered clearing agency that 
receives an alpha to report to the alpha SDR whether or not it has 
accepted the alpha for clearing.\171\
---------------------------------------------------------------------------

    \171\ See infra Section III(J) (discussing when an alpha has 
been rejected from clearing).
---------------------------------------------------------------------------

    Two commenters expressed support for proposed Rule 901(e)(1)(ii), 
noting that clearing agencies would be well-positioned to issue a 
termination report for the alpha and subsequently to report the beta 
and gamma to a registered SDR.\172\ However, two commenters objected to 
proposed Rule 901(e)(1)(ii). One of these commenters argued that 
proposed Rule 901(e)(1)(ii) was unnecessary because the counterparties 
to the alpha would learn of the disposition of the alpha from the 
clearing agency in the normal course of business, and could report this 
information to the alpha SDR.\173\ This commenter further asserted that 
concerns regarding ``data discrepancies, errors, or delays'' cited by 
the Commission in support of proposed Rule 901(e)(1)(ii) were unfounded 
and could be addressed, if necessary, through rulemaking or enforcement 
action to encourage clearing agencies to provide accurate and timely 
data to platforms and counterparties about clearing dispositions.\174\ 
Similarly, the second commenter that objected to proposed Rule 
901(e)(1)(ii) argued that the ``party that originally reported the 
alpha trade is best placed to report the result of clearing'' \175\ and 
that clearing agencies should not have to incur costs associated with 
establishing connectivity to alpha SDRs.\176\ This commenter also 
questioned why the Commission's approach to the reporting of cleared 
transactions differed from its approach to the reporting of prime 
brokerage transactions,\177\ where the Commission is requiring that the 
person who reported the initial leg of a prime brokerage transaction 
(not the prime broker) must report any life cycle event

[[Page 53567]]

resulting from whether the prime broker accepts or rejects that 
transaction.\178\
---------------------------------------------------------------------------

    \172\ See ICE Letter at 5 (``Upon acceptance for clearing, CAs 
should be required to report the alpha termination to the 
appropriate SDR storing the alpha swap''); ISDA/SIFMA Letter at 24 
(noting that the proposal would prevent the ``orphaning of alphas'' 
that currently occurs under the CFTC swap data reporting rules). Cf. 
DTCC Letter at 5-6, 17 (expressing support for proposed Rule 
901(e)(1)(ii), but in the context of DTCC's view, discussed supra, 
that clearing agencies also should be required to report betas and 
gammas to the alpha SDR).
    \173\ See Markit Letter at 5 (``the clearing agency must, as a 
matter of course, send the cleared SBS trade record straight through 
to the sides to the trade or, if relevant, any non-affiliated 
reporting side (e.g., the platform or reporting agent). In other 
words, for the clearing agency to transmit a message indicating that 
a trade has or has not been accepted for clearing (a necessary last 
step to conclude cleared transactions between the clearinghouse and 
the parties to the beta and gamma trades), there is no `extra step.' 
Moreover, the processing of cleared trades is nearly instantaneous, 
resulting in no operationally significant delay'').
    \174\ See id. This commenter also argued that Rule 901(e)(1)(ii) 
would be unnecessary if the Commission permitted the reporting side 
of the alpha to select the SDR that will receive reports of the 
associated beta and gamma. See id. at 15.
    \175\ LCH.Clearnet Letter at 8.
    \176\ See id. at 8-10 (arguing that the incremental costs of 
assigning the reporting obligation to the alpha reporting side would 
be small compared to the costs associated with registered clearing 
agencies having to establish connectivity to alpha SDRs). The 
Commission notes that one of the commenters that supported the 
general approach of requiring registered clearing agencies to incur 
reporting duties argued also that ``CAs [i.e., clearing agencies] 
should not incur SDR fees to report alpha termination messages. 
Requiring CAs to become a full `participant' of alpha SDRs, is 
unnecessary and overly burdensome for CAs.'' ICE Letter at 6.
    \177\ See LCH.Clearnet Letter at 7.
    \178\ See infra Section VII (discussing application of 
Regulation SBSR to security-based swaps arising from prime brokerage 
arrangements).
---------------------------------------------------------------------------

    After carefully considering the comments received, the Commission 
is adopting paragraph (ii) of Rule 901(e)(1) as proposed. Final Rule 
901(e)(1)(ii) is consistent with the Commission's general approach of 
assigning the reporting obligation for a security-based swap 
transaction to the person with the most complete and efficient access 
to the required information at the point of creation. Because a 
registered clearing agency determines whether to accept an alpha for 
clearing and controls the precise moment when the transaction is 
cleared, the Commission believes that the clearing agency is best 
placed to report the result of its decision.
    One commenter argued that requiring a registered clearing agency to 
report to an SDR not of its choosing whether it accepts an alpha for 
clearing ``is in contradiction with the Commission's reasons for 
permitting a registered clearing agency to decide which registered SDR 
to use for reporting of beta and gamma trades.'' \179\ The Commission 
does not believe that there is a contradiction in its reasoning. The 
person with the duty to report whether or not the alpha was accepted 
for clearing must report that information to the alpha SDR or else it 
would be difficult to pair the alpha transaction report with the report 
of its clearing disposition.\180\ The Commission believes that a 
registered clearing agency, because it chooses when and how to handle 
an alpha that is submitted for clearing, is best placed to report 
whether or not it accepts the alpha for clearing.
---------------------------------------------------------------------------

    \179\ LCH.Clearnet Letter at 3.
    \180\ Existing Rule 901(e)(2) requires a life cycle event to be 
reported to the same entity to which the original security-based 
swap transaction was reported. A termination of an alpha resulting 
from action by a registered clearing agency is a life cycle event of 
the alpha, and thus must be reported to the alpha SDR. Requiring the 
clearing disposition report to go to the alpha SDR will allow the 
alpha SDR to match the relevant reports and understand the 
disposition of the alpha. Allowing the registered clearing agency to 
report the disposition of the alpha to a registered SDR of its 
choice, rather than to the alpha SDR, could make it difficult, if 
not impossible, to match the alpha transaction report with the 
report of the alpha's clearing disposition. The Commission seeks to 
minimize the problem of ``orphan alphas,'' where it cannot readily 
be ascertained whether a transaction involving a product that is 
customarily submitted to clearing has in fact been submitted to 
clearing and, if so, whether it was accepted for clearing. If alpha 
transactions are not reported as terminated or they are reported as 
terminated but the alpha SDR cannot match the report of termination 
with the original transaction report--i.e., the alpha is 
``orphaned''--it would be more difficult for the Commission to carry 
out various oversight functions, such as calculating the total 
amount of open exposures resulting from security-based swap activity 
and understanding trends in clearing activity, including adherence 
to any clearing mandate.
---------------------------------------------------------------------------

    The Commission considered, but determined not to adopt, the 
alternative recommended by certain commenters of assigning to the 
person who has the duty to report the initial alpha (and thus can 
choose the alpha SDR) the duty of also reporting to the alpha SDR 
whether or not the registered clearing agency has accepted the alpha 
for clearing. The Commission acknowledges, as one commenter pointed 
out, that counterparties to security-based swaps that are submitted to 
clearing would in the normal course learn from the clearing agency 
whether or not a security-based swap has been accepted for clearing. 
The Commission believes, however, that requiring a registered clearing 
agency to report the termination of the alpha will increase the 
likelihood that the alpha termination will be reported accurately and 
without delay, thereby helping to minimize the problem of orphan alphas 
and helping to promote the integrity of reported security-based swap 
information. The adopted approach centralizes the function of reporting 
alpha dispositions in self-regulatory organizations that operate under 
rules approved by the Commission. Centralizing this reporting function 
into registered clearing agencies, rather than relying on a potentially 
large number of platforms and reporting sides to report alpha clearing 
dispositions, should help minimize the potential for data discrepancies 
and delays.\181\ Not all counterparties that may have a reporting 
obligation would be registered entities. The Commission thus has 
greater confidence in the ability of clearing agencies registered with 
the Commission to accurately report alpha dispositions. The Commission 
believes that the approach adopted today is preferable to an approach 
that would require platforms and reporting sides to report the alpha 
clearing disposition, given that these entities would first have to 
receive that information from the registered clearing agency. The 
Commission believes that the approach of requiring the registered 
clearing agency to report that information directly to the alpha SDR is 
preferable to relying on Commission rulemaking or enforcement action, 
as one commenter suggests,\182\ to address data accuracy concerns 
arising from the exchange of information from the clearing agency to 
the platform or reporting side.
---------------------------------------------------------------------------

    \181\ The Commission estimates that four registered clearing 
agencies will clear security-based swaps and thus incur duties under 
Regulation SBSR. See infra Section XI(B)(2)(b)(ii).
    \182\ See Markit Letter at 5.
---------------------------------------------------------------------------

    The Commission believes that the approach suggested by commenters 
to require the person who had the duty to report the alpha transaction 
also to report whether or not a clearing agency accepts an alpha for 
clearing is particularly unsuitable for situations where the alpha was 
executed on a platform and the platform incurs the duty to report that 
alpha under new Rule 901(a)(1).\183\ A platform is not a counterparty 
to the transaction and thus, unlike a counterparty, typically would not 
monitor or record life cycle events, or be involved in post-trade 
processing, of any transactions executed on the platform (beyond 
sending messages about executed transactions to other infrastructures, 
such as SDRs and clearing agencies, that do carry out post-trade 
processing functions). The commenters' suggested approach of requiring 
the person who has the duty to report the alpha also to report whether 
or not the clearing agency has accepted the alpha for clearing would 
thus require platforms to develop processes for tracking and reporting 
life cycle events of platform-executed alphas that they currently do 
not have.
---------------------------------------------------------------------------

    \183\ See infra Section IV(A) (discussing adopting of new Rule 
901(a)(1)).
---------------------------------------------------------------------------

    The Commission believes that it is more efficient to require a 
registered clearing agency to report all alpha dispositions, rather 
than having one rule for reporting the disposition of alphas that are 
executed on-platform and a different rule for reporting the disposition 
of alphas that are executed off-platform. The potential candidates for 
reporting the disposition of on-platform alphas include the platform, 
one of the sides of the alpha, and the clearing agency. As noted above, 
a platform is not well-positioned to perform this function. 
Furthermore, because neither side has the duty to report an on-platform 
alpha (because the platform has the duty), difficulty could arise from 
attempting to assign to one of the sides the duty to report the alpha 
disposition, particularly if the sides traded anonymously on the 
platform. Given the alternatives and for the reasons noted above, the 
Commission believes that the clearing agency is in the best position to 
report whether or not it has accepted a transaction for clearing, with 
respect to both on- and off-platform alphas. In this regard, the 
Commission notes that, once a clearing agency has established a 
mechanism for reporting to an SDR whether or not it has accepted on-
platform alphas for

[[Page 53568]]

clearing, there would be only minimal incremental burdens to send 
additional messages to that SDR to report whether or not the clearing 
agency has accepted off-platform alphas for clearing.
    As noted above, one commenter questioned why the Commission's 
approach to the reporting of whether or not an alpha is accepted for 
clearing differs from its approach to the reporting of life cycle 
events stemming from the acceptance or rejection by a prime broker of 
the initial leg of a prime brokerage transaction.\184\ The commenter 
correctly understands that, in the prime brokerage context, the 
reporting side of the first transaction of a prime brokerage workflow 
(whether in a two- or three-legged scenario) must report the 
termination of that transaction.\185\ In contrast, for a transaction 
submitted to clearing, the registered clearing agency, rather than the 
reporting side for the initial alpha transaction, must report whether 
or not it has accepted the alpha for clearing. The commenter disagrees 
with this approach to the reporting of transactions submitted to 
clearing, asserting that the reporting side or platform, as applicable, 
should report whether the alpha has been accepted for clearing.\186\
---------------------------------------------------------------------------

    \184\ See LCH.Clearnet Letter at 7.
    \185\ See infra Section VII(B) for a discussion of how 
Regulation SBSR applies to prime brokerage transactions, including 
both a two-legged and three-legged model.
    \186\ See LCH.Clearnet Letter at 3, 7.
---------------------------------------------------------------------------

    Although prime brokerage and clearing arrangements are similar in 
some ways, there also are differences that, the Commission believes, 
warrant different approaches to the reporting of a termination of the 
first leg of the overall transaction. A prime broker, like a registered 
clearing agency, has the most direct access to information about 
whether a transaction has been accepted. However, because a prime 
broker might not be subject to Rule 908(b) and thus might not be 
eligible to incur any duties under Regulation SBSR, there could be 
uncertainty as to who would be required to report the disposition of 
the first transaction. By contrast, a clearing transaction by 
definition includes a registered entity: The registered clearing 
agency. Therefore, there is no uncertainty as to whether the registered 
clearing agency could have the duty to report the disposition of the 
alpha.
    Finally, two commenters expressed concern about the costs 
associated with requiring registered clearing agencies to report 
whether or not they accept alphas for clearing.\187\ One commenter 
stated, for example, that ``[c]onnecting to all registered SDRs is 
necessary to ensure that the registered clearing agency is prepared to 
report to any SDR to which an alpha trade could be reported . . . 
[T]here is a significant cost to establishing and maintaining 
connectivity to registered SDRs to facilitate the reporting required by 
Rule 901.'' \188\ The second commenter argued that ``CAs [i.e., 
clearing agencies] should execute an agreement with [the alpha SDR] 
outlining the requirements to report termination messages; however, CAs 
should not incur SDR fees to report alpha termination messages.'' \189\ 
This commenter cautioned, furthermore, that ``[r]equiring CAs to become 
a full `participant' of alpha SDRs is unnecessary and overly burdensome 
for CAs.'' \190\
---------------------------------------------------------------------------

    \187\ See ICE Letter at 6 (stating that a clearing agency 
``should not incur SDR fees to report alpha termination messages''); 
LCH.Clearnet Letter at 8-10.
    \188\ LCH.Clearnet Letter at 3.
    \189\ ICE Letter at 6.
    \190\ Id.
---------------------------------------------------------------------------

    With respect to whether a registered SDR may impose a fee on a 
registered clearing agency for reporting to the SDR whether or not an 
alpha transaction has been accepted for clearing, neither the statute 
nor the applicable rules prohibit such a fee. The Commission notes, 
however, that existing Rule 13n-4(c)(1)(i) under the Exchange Act \191\ 
requires an SDR to ensure that any dues, fees, or other charges imposed 
by the SDR are fair and reasonable and not unreasonably discriminatory.
---------------------------------------------------------------------------

    \191\ 17 CFR 240.13n-4(c)(1)(i).
---------------------------------------------------------------------------

    With respect to the wider costs associated with clearing agencies' 
reporting of alpha clearing dispositions to registered SDRs, the 
Commission notes that Rule 901(e)(1)(ii), by its terms, requires 
registered clearing agencies to report only a limited amount of 
information (i.e., whether or not they have accepted a security-based 
swap for clearing, along with the transaction ID of the relevant alpha) 
and therefore does not require the clearing agency to have connectivity 
sufficient to report all of the primary and secondary trade information 
of a security-based swap.\192\ The Commission believes that registered 
SDRs should consider providing a minimally burdensome means for 
registered clearing agencies to report whether or not they accept an 
alpha for clearing.\193\
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    \192\ As described in more detail in Section XII(A), infra, the 
Commission has considered the costs of requiring registered clearing 
agencies to have the capability to report clearing dispositions to 
multiple alpha SDRs and the benefits associated with ensuring that 
the clearing disposition report is made by the person with immediate 
and direct access to the relevant information.
    \193\ For example, a registered SDR should consider how it will 
comply with Rule 13n-4(c)(1)(ii) under the Exchange Act, 17 CFR 
240.13n-4(c)(1)(ii), which requires that the SDR permit market 
participants to access specific services offered by the SDR 
separately, and Rule 13n-4(c)(1)(iii) under the Exchange Act, 17 CFR 
240.13n-4(c)(1)(iii), which requires the SDR to have objective 
criteria that would permit fair, open, and not unreasonably 
discriminatory access to services offered and data maintained by the 
SDR, when offering access to a registered clearing agency that seeks 
only to report whether or not it has accepted individual 
transactions for clearing.
---------------------------------------------------------------------------

    Accordingly, for similar reasons that the Commission is assigning 
to registered clearing agencies the duty to report all clearing 
transactions, the Commission also believes that it is appropriate to 
assign to the registered clearing agency--rather than to the person who 
had the initial duty to report the alpha (i.e., a reporting side or a 
platform)--the duty to report to the alpha SDR whether or not the 
clearing agency has accepted the alpha for clearing.

H. A Registered Clearing Agency Must Know the Transaction ID of the 
Alpha and the Identity of the Alpha SDR

    Existing Rule 901(e)(2) requires the person who has the duty to 
report a life cycle event to include in the report of the life cycle 
event the transaction ID of the original transaction. Under new Rule 
901(e)(1)(ii), a registered clearing agency that accepts or rejects an 
alpha transaction from clearing incurs this duty. The transaction ID of 
the alpha transaction is information that the registered clearing 
agency might not have, because the registered clearing agency is not 
involved in the execution or reporting of the alpha. Therefore, the 
Commission proposed a new paragraph (a)(3) of Rule 901(a), which would 
require the person who has the duty to report the alpha security-based 
swap to provide the registered clearing agency with the transaction ID 
of the alpha and the identity of the alpha SDR.
    One commenter ``acknowledged the value'' of the proposed rule and 
noted that in other jurisdictions the data flows to clearing agencies 
already include identification information for alpha transactions, so 
these data flows should be extensible to the security-based swap 
market.\194\ By contrast, a second commenter expressed the view that 
the proposed rule ``would add a layer of complexity to the reporting 
framework'' and noted that the reporting person for the alpha might 
provide an inaccurate transaction ID to the registered clearing

[[Page 53569]]

agency to which the trade is submitted.\195\
---------------------------------------------------------------------------

    \194\ See ISDA/SIFMA Letter at 25.
    \195\ DTCC Letter at 4-5.
---------------------------------------------------------------------------

    After carefully considering the comments received, the Commission 
is adopting Rule 901(a)(3) as proposed. Although Rule 901(a)(3) adds an 
additional step to the reporting framework, the Commission believes 
that this additional step is necessary to facilitate the linking of 
related transactions. Under new Rule 901(e)(1)(ii), a registered 
clearing agency must report to the entity to which the original 
security-based swap was reported whether or not it accepts the alpha 
for clearing. For the alpha SDR to link the registered clearing 
agency's report of acceptance or rejection to the appropriate 
transaction, the registered clearing agency must be able to include the 
transaction ID of the alpha transaction in its report to the alpha SDR. 
The Commission further believes that the person having the duty to 
report the alpha is best situated to also report the transaction ID of 
the alpha and the identity of the alpha SDR to the registered clearing 
agency. While it is true, as the commenter asserts, that the person 
having the duty to report the alpha might provide an inaccurate 
transaction ID to the registered clearing agency, the same could be 
said about any reporting requirement imposed by Regulation SBSR. This 
situation should be addressed, at least in part, by Rule 13n-5(b)(1)(i) 
under the Exchange Act,\196\ which requires every SDR to establish, 
maintain, and enforce written policies and procedures reasonably 
designed for the reporting of complete and accurate transaction data to 
the SDR.\197\ Furthermore, the person with the duty to report the alpha 
is certain to know the transaction ID and the identity of the alpha 
(since it selected the SDR) and thus is well placed to provide this 
information to the registered clearing agency, which would allow the 
clearing agency to discharge its duty under new Rule 901(e)(1)(ii).
---------------------------------------------------------------------------

    \196\ 17 CFR 240.13n-5(b)(1)(i).
    \197\ A registered SDR should consider including in its policies 
and procedures under Rule 13n-5(b)(1)(i) what actions to take if it 
receives clearing disposition information from a registered clearing 
agency that includes transaction IDs of alpha transactions that do 
not match to the records of any alpha transactions held at the 
registered SDR. The SDR might seek to call this discrepancy to the 
attention of the registered clearing agency so that the registered 
clearing agency could work with persons who are required by Rule 
901(a)(3) to provide the registered clearing agency with the 
transaction IDs of the alphas.
---------------------------------------------------------------------------

    Two commenters sought guidance regarding the means by which persons 
with the duty to report the alpha transaction could provide the 
transaction ID of the alpha and the identity of the alpha SDR to the 
registered clearing agency.\198\ One of these commenters stated that 
some platforms can provide the information required by Rule 901(a)(3) 
using third-party service providers, but cautioned that ``platforms 
would be forced to undertake a significant development investment if 
required to perform that function itself and to build functionality 
that replaces existing solutions.'' \199\ The commenter requested, 
therefore, that the Commission ``make clear in its final rules that 
platforms have discretion to determine the most appropriate 
technological manner in which they comply [with Rule 901(a)(3)].'' 
\200\ The other commenter expressed the view that ``the most efficient 
approach would be for clearing agencies to gather the choice of alpha 
SDR for an asset class or product once from all reporting sides and 
platforms, and retain and maintain as static data rather than requiring 
a notification on a transactional basis.'' \201\
---------------------------------------------------------------------------

    \198\ See ISDA/SIFMA Letter at 25; WMBAA Letter at 3.
    \199\ WMBAA Letter at 3.
    \200\ Id.
    \201\ ISDA/SIFMA Letter at 25.
---------------------------------------------------------------------------

    Final Rule 901(a)(3) does not prescribe a specific means by which 
the person with the duty to report an alpha must inform the registered 
clearing agency of the alpha's transaction ID and the identity of the 
alpha SDR. There is no prohibition on utilizing existing 
infrastructure. Thus, market participants may determine the most 
efficient way of communicating this information. The Commission notes, 
however, that Rule 901(a)(3) applies on a transaction-by-transaction 
basis. Thus, while it might be possible for a registered clearing 
agency to obtain and store static data regarding a reporting person's 
SDR preferences, Rule 901(a)(3) requires the person having the duty to 
report a particular alpha transaction to ensure that the registered 
clearing agency learns the identity of the SDR that holds the record of 
the particular alpha. If the person with the duty to report attempts to 
satisfy this obligation with static data and the data become stale or 
inaccurate with respect to a particular alpha, the reporting person 
would not satisfy its obligation under Rule 901(a)(3).

I. Alpha Submitted to Clearing Before It Is Reported to a Registered 
SDR

    In the Regulation SBSR Adopting Release, the Commission described 
the interim phase for regulatory reporting and public 
dissemination,\202\ under which security-based swap transactions may be 
reported up to 24 hours after the time of execution (or, if 24 hours 
after the time of execution would fall on a day that is not a business 
day, by the same time on the next day that is a business day).\203\ 
However, the reporting timeframe for a life cycle event and any 
adjustment due to a life cycle event is within 24 hours after the 
occurrence of the life cycle event or the adjustment due to the life 
cycle event.\204\ Thus, an alpha might be submitted for clearing 
immediately after execution but not reported until 24 hours later (or 
longer, if 24 hours after the time of execution would fall on a day 
that is not a business day), and the clearing agency's obligation under 
new Rule 901(e)(1)(ii) to inform the alpha SDR whether or not it has 
accepted the alpha for clearing could arise before the alpha SDR has 
received the alpha's initial transaction report.\205\
---------------------------------------------------------------------------

    \202\ See 80 FR at 14616-25.
    \203\ See Rule 901(j). In the case of a security-based swap that 
is subject to regulatory reporting and public dissemination solely 
by operation of Rule 908(a)(1)(ii) (i.e., the security-based swap is 
accepted for clearing by a clearing agency having its principal 
place of business in the United States), Rule 901(j) requires 
reporting within 24 hours of the time of acceptance for clearing 
(or, if 24 hours after the time of acceptance would fall on a day 
that is not a business day, by the same time on the next day that is 
a business day).
    \204\ See Rule 901(j).
    \205\ To submit the report contemplated by new Rule 
901(e)(1)(ii), the registered clearing agency must know the 
transaction ID of the alpha. The person with the duty to report the 
alpha might know the alpha's transaction ID before it reports the 
transaction to a registered SDR. Under existing Rules 903(a) and 
907(a)(5) there is no requirement that a registered SDR itself 
assign a transaction ID. Under those rules, a registered SDR may 
allow third parties, such as reporting sides or platforms, to assign 
a transaction ID using a methodology endorsed by the registered SDR. 
If the registered SDR allows third parties to assign the transaction 
ID, the reporting side or platform could tell the registered 
clearing agency the alpha's transaction ID, which in turn could 
allow the registered clearing agency to report to the alpha SDR 
whether or not the alpha has been accepted for clearing before the 
alpha has been reported to the registered SDR. If, however, the 
person with the duty to report the alpha does not obtain the alpha's 
transaction ID until it reports the alpha to a registered SDR, the 
person could not provide the alpha's transaction ID to the 
registered clearing agency, and the registered clearing agency could 
not report whether or not it accepts the alpha for clearing until 
after it receives the alpha's transaction ID.
---------------------------------------------------------------------------

    To account for this possibility, the Commission proposed to amend 
existing Rule 901(e)(2) to require a life cycle event (which would 
include a notification by a registered clearing agency whether or not 
it has accepted an alpha for clearing) to be reported ``to the entity 
to which the original security-based swap transaction will be reported 
or has been reported'' (emphasis added). This amendment mirrors the 
language in new Rule 901(a)(3), which requires a person who reports an 
alpha to provide

[[Page 53570]]

the registered clearing agency the alpha's transaction ID and the 
identity of the registered SDR to which the alpha ``will be reported or 
has been reported.''
    The Commission received two comments on this proposed amendment, 
discussed below.\206\ For the reasons discussed below, the Commission 
is adopting the amendment to Rule 901(e)(2) as proposed.
---------------------------------------------------------------------------

    \206\ Comments pertaining to the reporting of an alpha that is 
rejected from clearing are discussed in the section immediately 
following.
---------------------------------------------------------------------------

    One commenter stated that, ``[i]n the situation where a termination 
message to an alpha swap is not found, the SDR should queue this 
message and attempt to reapply the termination message to newly 
submitted SBSs. This process should continue until the end of the 
current business day at which time an error message should be reported 
back to the clearing agency since the termination message could not be 
applied to a corresponding alpha.'' \207\ The Commission notes that it 
is not requiring a registered SDR to use a particular workflow to 
account for circumstances where the report of a life cycle event 
precedes the initial transaction report. Under Rule 901(e)(2), each 
registered SDR may use the workflow that it finds most effective, 
provided that it satisfies the requirements of the rule. A registered 
SDR generally should consider whether the policies and procedures it 
establishes under Rule 907(a) will address the situation where it 
receives a report from a registered clearing agency stating whether or 
not it has accepted an alpha (with a particular transaction ID) for 
clearing before the registered SDR receives a transaction report of the 
alpha. The policies and procedures could provide, for example, that the 
registered SDR would hold in a pending state a report from a registered 
clearing agency that it accepted the alpha for clearing until the SDR 
receives the alpha transaction report, and then disseminate the 
security-based swap transaction information and the fact that the alpha 
has been terminated as a single report.
---------------------------------------------------------------------------

    \207\ ICE Letter at 6.
---------------------------------------------------------------------------

    The second commenter argued that Regulation SBSR should ``prohibit 
[the alpha SDR] from publicly disseminating the rejection or acceptance 
report from the clearing agency ahead of the point at which the SDR 
receives and has publicly disseminated the report for the alpha.'' 
\208\ While the Commission shares the commenter's concern that a 
``stand alone'' termination not be publicly disseminated without the 
associated transaction report, the Commission does not believe that a 
new rule is necessary to avoid this result. Under existing rules, a 
registered SDR that receives a termination report of a security-based 
swap before it receives the initial transaction report cannot 
disseminate anything relating to the transaction. Existing Rule 902(a) 
requires this result because it provides, in relevant part, that the 
public report ``shall consist of all the information reported pursuant 
to [Rule 901(c)].'' Because the registered SDR has not yet received the 
transaction report of the alpha, it would lack ``all of the information 
reported'' pursuant to Rule 901(c) and thus could not make the report 
required by Rule 902(a). If the registered SDR holds in queue the 
notice of the disposition of the alpha, it would be required--when it 
subsequently receives the initial alpha transaction report--to 
immediately disseminate the Rule 901(c) information pertaining to the 
alpha as well as the fact that the alpha has been terminated if the 
alpha has been accepted for clearing.\209\
---------------------------------------------------------------------------

    \208\ ISDA/SIFMA Letter at 24.
    \209\ To address the case where an alpha is rejected from 
clearing, the Commission is adopting new Rule 902(c)(8), discussed 
in the subsection immediately below.
---------------------------------------------------------------------------

J. Consequences of Rejection

    Two commenters raised issues relating to the reporting of an alpha 
that is rejected from clearing.\210\ One of these commenters stated 
that ``[c]areful consideration needs to be made by SDRs as to how a 
report by the clearing agency that a trade has not been accepted for 
clearing would be reflected in the record for the SBS.'' \211\ The 
other commenter noted that ``[i]t is unclear what lifecycle event the 
registered clearing agency should report for rejected trades.'' \212\ 
This commenter stated that an alpha that is rejected from clearing 
might remain a bilateral trade, might be submitted to a different 
registered clearing agency, might be re-submitted to the same 
registered clearing agency, or might be torn up.\213\
---------------------------------------------------------------------------

    \210\ See ISDA/SIFMA Letter at 24; LCH.Clearnet Letter at 6.
    \211\ ISDA/SIFMA Letter at 24.
    \212\ LCH.Clearnet Letter at 6.
    \213\ See id.
---------------------------------------------------------------------------

    In some cases, depending on the contractual arrangement between the 
alpha counterparties, a registered clearing agency's rejection of an 
alpha will result in the immediate termination of the transaction.\214\ 
In other cases, as the commenter indicates, an alpha that is rejected 
from clearing could remain a bilateral trade with different terms. The 
latter case implies that the counterparties had effected a bilateral, 
off-platform transaction and that their contractual arrangement 
specifically contemplated that the counterparties could elect to 
preserve the original security-based swap as a bilateral transaction if 
the clearing agency rejects it from clearing.\215\ If the alpha 
counterparties do not have such an arrangement, then rejection from 
clearing terminates the alpha.\216\ But if the counterparties have such 
an arrangement and elect to preserve a transaction that has been 
rejected from clearing, the reporting side of the original transaction 
would be required by Rule 901(e) to report the amended terms of the 
security-based swap to the registered SDR as a life cycle event of the 
original transaction.\217\ A registered SDR must establish and maintain 
written policies and procedures for specifying procedures for reporting 
life cycle events, including those relating to a clearing agency's 
rejection of an alpha. A registered SDR could, for example, provide in 
its policies and procedures that it would, in the absence of any 
information provided by the reporting side to the contrary or in the 
case of a platform-executed alpha, treat the clearing agency's 
rejection of the alpha as a termination of the alpha.
---------------------------------------------------------------------------

    \214\ Under Rule 901(e)(1)(ii), as adopted herein, a registered 
clearing agency is required to report whether or not it has accepted 
a security-based swap for clearing.
    \215\ In the case of a platform-executed alpha, the security-
based swap arises by operation of the platform's rules, and there 
likely would not be a separate agreement between the counterparties 
that would allow for amendment in case of rejection, particularly 
for anonymous trades.
    \216\ The counterparties could choose to negotiate a new 
security-based swap, but this would be a different transaction than 
the alpha that had been rejected from clearing.
    \217\ A life cycle event is defined, in part, as ``with respect 
to a security-based swap, any event that would result in a change in 
the information reported to a registered security-based swap data 
repository under Rule 901 (c). . .'' Rule 900(q). Because the 
resulting bilateral transaction would no longer be intended to be 
submitted to clearing, the reporting side would be required, among 
other things, to modify the information previously reported pursuant 
to Rule 901(c)(6) (whether or not the counterparties intend that the 
security-based swap be submitted to clearing).
---------------------------------------------------------------------------

    As noted in Section III(I), supra, during the interim phase for 
regulatory reporting and public dissemination,\218\ an alpha might be 
submitted for clearing immediately after execution but not reported 
until more than 24 hours later, and the clearing agency's duty under 
new Rule 901(e)(1)(ii) to inform the alpha SDR whether or not the 
clearing agency has accepted the alpha for clearing could arise before 
the alpha SDR receives the initial transaction

[[Page 53571]]

report for the alpha. Therefore, during the interim phase, a registered 
SDR might receive notice of a clearing agency's rejection of an alpha 
before receiving the initial transaction report for that alpha.
---------------------------------------------------------------------------

    \218\ See Regulation SBSR Adopting Release, 80 FR at 14616-25.
---------------------------------------------------------------------------

    In this limited case, the Commission believes that no transaction 
report should be disseminated, and it is adopting a minor revision to 
existing Rule 902(c) to accomplish that end. Rule 902(c) lists the 
types of reported information and the types of security-based swap 
transactions that a registered SDR shall not publicly disseminate. The 
Commission is adding a new paragraph (c)(8) to Rule 902(c) to prohibit 
a registered SDR from disseminating ``[a]ny information regarding a 
security-based swap that has been rejected from clearing or rejected by 
a prime broker \219\ if the original transaction report has not yet 
been publicly disseminated.'' \220\ New Rule 902(c)(8) is designed to 
avoid public dissemination of an alpha transaction that has been 
rejected by the clearing agency, if the original transaction report has 
not already been publicly disseminated by a registered SDR. Rule 
902(c)(8) should help minimize public dissemination of events that do 
not reflect any ongoing market activity.\221\
---------------------------------------------------------------------------

    \219\ Because rejection by a prime broker has a similar effect 
to rejection by a clearing agency (i.e., it may result in 
termination of the initial transaction), the Commission is adopting 
language relating to prime broker transactions. See infra Section 
VII for additional discussion of prime broker transactions.
    \220\ The Commission is also making minor technical corrections 
to paragraphs (c)(6) and (7) of Rule 902(c) to accommodate the 
addition of (c)(8). The Commission is deleting the word ``or'' from 
the end of (c)(6) and the period from the end of (c)(7) and adding 
``; or'' to the end of paragraph (c)(7).
    \221\ As discussed in Section VII(D), infra, a similar situation 
could arise if a prime broker rejects a security-based swap that has 
been negotiated between a client and a third-party executing dealer. 
New Rule 902(c)(8) applies to security-based swaps that have been 
rejected by a registered clearing agency as well as those that have 
been rejected by a prime broker.
---------------------------------------------------------------------------

    New Rule 902(c)(8) applies only in cases of rejection prior to 
public dissemination of the original transaction report of the alpha. 
When the action of a registered clearing agency results in a 
termination of an alpha--whether because it was accepted by the 
clearing agency and replaced by the beta and gamma, or because it was 
rejected by the clearing agency--the termination of the alpha is a life 
cycle event of the alpha. If the registered SDR already has publicly 
disseminated the primary trade information of the alpha, the 
termination life cycle event also must be publicly disseminated. Rule 
907(a)(3) requires a registered SDR to have policies and procedures for 
flagging the report to indicate that the report is a life cycle event 
to ensure that market observers can understand that the report 
represents a revision to a previous transaction.\222\ A life cycle 
event is defined to include the termination of an alpha.
---------------------------------------------------------------------------

    \222\ See Regulation SBSR Adopting Release, 80 FR at 14643 
(``public reports of life cycle events should allow observers to 
identify the security-based swap subject to the lifecycle event''). 
However, the registered SDR may not use the transaction ID for this 
function and must use other means to link the transactions. See id.
---------------------------------------------------------------------------

    Rule 907(a)(4) requires the policies and procedures of a registered 
SDR, in relevant part, to identify characteristics of a security-based 
swap that could, in the fair and reasonable estimation of the 
registered SDR, cause a person without knowledge of those 
characteristics to receive a distorted view of the market and to apply 
condition flags to help prevent a distorted view of the market. The 
Commission believes that it would be difficult to comply with Rule 
907(a)(4) if the condition flags do not provide sufficient information 
about the specific characteristics to prevent the report from 
distorting observers' view of the market, including by distinguishing 
between a termination that results from successful clearing and a 
termination that results from rejection from clearing. If market 
observers are not given the ability to distinguish between alphas that 
terminate because they are successfully cleared and alphas that 
terminate because they are rejected from clearing, there would be no 
means for market observers to avoid developing a distorted view of the 
market.\223\ Separate flags for terminations that result from 
successful clearing of an alpha and terminations that result from 
rejection from clearing, both of which can be derived from the report 
of the alpha's clearing disposition provided by a registered clearing 
agency pursuant to Rule 901(e)(1)(ii), would be appropriate to prevent 
a distorted view of the market.
---------------------------------------------------------------------------

    \223\ For example, assume that two counterparties bilaterally 
execute a transaction that they wish to clear. The reporting side 
for the alpha reports the transaction to a registered SDR, which 
immediately publicly disseminates it. The counterparties then submit 
the transaction to clearing, but the alpha is rejected because there 
are clerical errors in the clearing submission report. The 
registered clearing agency reports the rejection to the alpha SDR, 
and the alpha SDR disseminates a termination. Shortly thereafter, 
the alpha counterparties re-execute the transaction, and the 
reporting side submits a second transaction report to the registered 
SDR, which immediately publicly disseminates it. The counterparties 
submit the new transaction to the clearing agency; this time the 
alpha successfully clears. The registered clearing agency reports 
this fact to the alpha SDR, which publicly disseminates the 
termination. If the condition flag indicates only that the alpha is 
terminated, market observers would likely draw the conclusion that 
twice as much market activity had occurred than was the case. 
However, if the condition flags distinguish termination for 
successful clearing from termination for rejection from clearing, 
market observers would understand that only the second transaction 
resulted in ongoing risk positions in the market.
---------------------------------------------------------------------------

K. Scope of Clearing Transactions

    One commenter expressed the view that the proposed rule does not 
address the reporting of trades that are part of a registered clearing 
agency's end-of-day pricing process.\224\ The commenter recommended 
that these trades be reported by a clearing agency because the clearing 
agency is ``the sole party who holds the necessary information to 
report trades resulting from downstream clearing processes.'' \225\ In 
the Regulation SBSR Adopting Release, the Commission noted that the 
definition of ``clearing transaction''--i.e., any security-based swap 
that has a clearing agency as a direct counterparty \226\--includes 
``security-based swaps that arise as part of a clearing agency's 
internal processes, such as security-based swaps used to establish 
prices for cleared products.'' \227\ In this release, the Commission is 
adopting new Rule 901(a)(2)(i), as proposed, that makes a registered 
clearing agency the reporting side for any security-based swap to which 
it is a counterparty. Thus, a security-based swap that arises from a 
clearing agency's process for establishing a price for a cleared 
product must be reported by the registered clearing agency if it is a 
counterparty to the transaction. Otherwise, the transaction must be 
reported by the person determined by the reporting hierarchy in 
existing Rule 901(a)(2)(ii).
---------------------------------------------------------------------------

    \224\ See ICE Letter at 9.
    \225\ Id.
    \226\ See Rule 900(g).
    \227\ 80 FR at 14599.
---------------------------------------------------------------------------

L. Reporting of Historical Clearing Transactions

    One commenter requested that the Commission clarify that a 
registered clearing agency ``is solely responsible for reporting 
historical SBS that are clearing transactions.'' \228\ The Commission 
concurs with this statement. Existing Rule 901(i) provides that, with 
respect to any historical security-based swap, the reporting side shall 
report all of the information required by Rules 901(c) and 901(d) to 
the extent that information about the transaction is available. Under 
new Rule 901(a)(2)(i), the reporting side for a clearing transaction is 
the registered clearing agency that is a counterparty to the 
transaction. The Commission

[[Page 53572]]

understands that all clearing agencies that are counterparties to 
historical security-based swaps are ``deemed registered'' clearing 
agencies.\229\ Therefore, a registered clearing agency is the reporting 
side for every historical clearing transaction to which it is a 
counterparty and must report information about such transactions, to 
the extent that information is available.
---------------------------------------------------------------------------

    \228\ ISDA/SIFMA Letter at 26.
    \229\ The Commission understands that ICE Clear Credit and ICE 
Clear Europe are the only registered clearing agencies that are 
counterparties to historical security-based swaps that fall within 
the definition of ``clearing transaction'' and thus would incur the 
duty to report those historical transactions. Both ICE Clear Credit 
LLC and ICE Clear Europe Limited were ``deemed registered'' in 
accordance with Title VII of the Dodd-Frank Act. See 15 U.S.C. 78q-
1(l) (the ``Deemed Registered Provision''). This provision applies 
to certain depository institutions that cleared swaps as 
multilateral clearing organizations and certain derivatives clearing 
organizations (``DCOs'') that cleared swaps pursuant to an exemption 
from registration as a clearing agency. As a result, ICE Clear 
Credit LLC, ICE Clear Europe Limited, and the Chicago Mercantile 
Exchange, Inc. (``CME'') were deemed registered with the Commission 
on July 16, 2011, solely for the purpose of clearing security-based 
swaps. In 2015 the Commission granted CME's request to withdraw its 
registration as a clearing agency. See Securities Exchange Act 
Release No. 76678 (December 17, 2015), 80 FR 79983 (December 23, 
2015). In its request to withdraw from registration, the CME stated 
that it had never conducted any clearing activity for security-based 
swaps. See Letter from Larry E. Bergmann and Joseph C. Lombard, on 
behalf of CME, to Brent J. Fields, Secretary, Commission, dated 
August 3, 2015.
---------------------------------------------------------------------------

    This commenter also stated that ``a clearing agency should not be 
expected to report the transaction ID of the alpha for an historical 
clearing transaction since such value may not be readily available.'' 
\230\ The Commission notes that a registered clearing agency would not 
be the counterparty to an alpha transaction and thus would incur no 
duty to report any primary or secondary trade information about the 
alpha.\231\
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    \230\ ISDA/SIFMA Letter at 26.
    \231\ This commenter also noted that ``in some cases a reporting 
side may be unable to report an historic alpha as before there was 
no regulatory need to distinguish the alpha from the beta or gamma 
and some firms may only have booked a position against the clearing 
agency. In that instance, our understanding is that the historical 
alpha would not be reportable.'' Id. If it is true that transaction 
information about a historical alpha no longer exists, there would 
be no duty to report the alpha pursuant to Rule 901(i). As the 
Commission stated in the Regulation SBSR Adopting Release, Rule 
901(i) requires the reporting of historical security-based swaps 
only to the extent that information about such transactions is 
available. See 80 FR at 14591.
---------------------------------------------------------------------------

IV. Reporting by Platforms

A. Overview

    In the Regulation SBSR Proposed Amendments Release, the Commission 
proposed a new paragraph (1) of Rule 901(a) providing that, if a 
security-based swap is executed on a platform and will be submitted to 
clearing (a ``platform-executed alpha''), the platform would incur the 
duty to report. In proposing Rule 901(a)(1), the Commission carefully 
assessed the transaction information that the platform might not have 
or might not be able to obtain easily, and proposed to require the 
platform to report only the information set forth in Rules 901(c) (the 
primary trade information), 901(d)(1) (the participant ID or execution 
agent ID for each counterparty, as applicable), 901(d)(9) (the platform 
ID), and 901(d)(10) (the transaction ID of any related 
transaction).\232\ For platform-executed security-based swaps that will 
not be submitted to clearing, existing Rule 901(a)(2) provides that one 
of the sides, as determined by that rule's ``reporting hierarchy,'' 
will have the duty to report.
---------------------------------------------------------------------------

    \232\ See Regulation SBSR Proposed Amendments Release, 80 FR at 
14749-50.
---------------------------------------------------------------------------

    Five commenters generally supported proposed Rule 901(a)(1).\233\ 
However, two commenters, while not objecting to platforms having 
reporting duties, argued that the Commission should expand Rule 
901(a)(1) to require a platform to report every transaction executed on 
the platform.\234\ In the view of one of these commenters, this 
approach would eliminate the confusion that could arise if the platform 
makes an erroneous determination about whether the transaction will be 
submitted to clearing.\235\ The second commenter cautioned that 
requiring a platform to report only platform-executed transactions that 
will be submitted to clearing would ``depart from current market 
practice . . . and create different reporting process flows for SEF 
executed and cleared trades versus SEF executed and uncleared trades.'' 
\236\ Another commenter, however, recommended that the Commission not 
expand the scope of Rule 901(a) to require platforms to report all 
platform-executed security-based swaps.\237\
---------------------------------------------------------------------------

    \233\ See Better Markets Letter at 2, 4 (noting that the 
``proposal ensures that the reporting party is specified and has all 
requisite information''); DTCC Letter at 6, 15 (stating that ``a 
platform is best placed to report the alpha trade because it has 
performed the execution and has all the relevant economic terms, 
IDs, and timestamps, to report to the [registered SDR]''); ICE 
Letter at 4; ISDA/SIFMA Letter at 5, 27; LCH.Clearnet Letter at 3.
    \234\ See DTCC Letter at 6; WMBAA Letter at 2.
    \235\ See WMBAA Letter at 2-3. Specifically, the commenter noted 
that the proposed rule could cause an SDR to receive duplicate 
reports, ``if the platform believes the transaction will be cleared 
and the counterparties do not clear the trade,'' or no post-trade 
report, ``if the platform believes the transaction will not be 
cleared and counterparties clear the trade.'' Id. at 3.
    \236\ DTCC Letter at 6, n. 14.
    \237\ See ISDA/SIFMA at 27.
---------------------------------------------------------------------------

    After carefully considering all the comments, the Commission has 
determined to adopt Rule 901(a)(1) largely as proposed, but with minor 
revisions. The revisions, discussed further below, reduce the scope of 
information that platforms are required to report by eliminating the 
need for platforms to identify the participation of indirect 
counterparties. New Rule 901(a)(1) is intended to promote the accuracy 
and completeness of security-based swap transaction data, while 
aligning the reporting duty with persons that are best able to carry it 
out. As the person with the duty to report the transaction, the 
platform would be able to select the registered SDR to which it 
reports.\238\
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    \238\ This is consistent with the Commission's guidance in the 
Regulation SBSR Adopting Release that, for transactions subject to 
the reporting hierarchy, the reporting side may choose the 
registered SDR to which it makes the report required by Rule 901. 
See 80 FR at 14597-98.
---------------------------------------------------------------------------

B. A Platform Is Not Required To Report All Transactions Occurring on 
Its Facilities

    If a platform-executed security-based swap will not be submitted to 
clearing, the platform would have no reporting duty under Regulation 
SBSR, and the reporting hierarchy in existing Rule 901(a)(2)(ii) would 
determine which side is the reporting side for the transaction.
    One commenter argued that ``a platform should report all trades 
executed on a SB SEF regardless of whether an SB swap will be submitted 
to clearing.'' \239\ The Commission disagrees. The Commission did not 
propose and is not adopting an extension to Rule 901(a)(1) that would 
require a platform to report all security-based swaps that are executed 
on its facilities. Moreover, the approach being adopted by the 
Commission avoids the need to develop an overly complicated rule that 
would be needed to identify, with respect to a platform-executed 
transaction that will not be submitted to clearing, what information 
would be reported by the platform and what information would be 
reported by one of the sides.\240\ The commenter acknowledges that 
requiring a platform to report uncleared security-based swaps executed 
on its facilities would necessitate additional reporting by at

[[Page 53573]]

least one of the sides.\241\ As discussed in the subsection immediately 
below, the Commission believes that the transaction information germane 
to a platform-executed alpha can and should be reported by the 
platform.\242\ However, a transaction that will not be submitted to 
clearing is more likely to include bespoke or more counterparty-
specific data elements that would be more difficult for the platform to 
obtain from the counterparties and to report because such non-
standardized transactions would not lend themselves to routinized 
reporting.\243\ Rather than adopting an approach that would seek to 
identify each potential data element and to assign the duty to report 
it (as between the platform and one of the sides), the Commission 
instead is adopting an approach that requires the platform to report 
only those transactions executed on its system that will be submitted 
to clearing. In cases where a platform-executed transaction will not be 
submitted to clearing, existing Rule 901(a)(2)(ii) provides that one of 
the sides will have the duty to report, and this duty is not divided 
between the platform and the side.
---------------------------------------------------------------------------

    \239\ WMBAA Letter at 2.
    \240\ See ISDA/SIFMA Letter at 27 (agreeing with the 
Commission's approach of not requiring shared reporting of the same 
transaction and noting that ``[u]nder the CFTC Rules, we have 
experienced the difficulty of a shared obligation for reporting a 
swap'').
    \241\ See WMBAA Letter at 3 (``For uncleared SB swaps, . . . the 
platform should provide all readily available information, and the 
reporting side should be responsible for reporting the information 
not provided to the SB SEF'') (emphasis added).
    \242\ Thus, the sides would have no duty to report anything 
except missing UICs, as required by existing Rule 906(a). In Rule 
906(a), the Commission established a mechanism for obtaining missing 
UICs from non-reporting sides because it anticipated circumstances 
when they might be unable or unwilling to provide those UICs to the 
persons who have the initial reporting duty. See Regulation SBSR 
Adopting Release, 80 FR at 14644.
    \243\ For example, an uncleared transaction between two 
counterparties executed on an SB SEF is likely to involve one or 
more bilateral agreements between the counterparties that govern 
other facets of their relationship, such as margining and collateral 
arrangements. The title and date of any such agreement that is 
incorporated by reference into a security-based swap contract must 
be reported pursuant to existing Rule 901(d)(4). The Commission does 
not believe that it would be appropriate to require a platform to 
obtain this information from the counterparties and to incur the 
duty for reporting it.
---------------------------------------------------------------------------

    The commenter expressed concern that this approach could lead to 
confusion over reporting obligations when ``it is uncertain whether the 
transaction will be cleared upon execution.'' \244\ A platform can 
determine whether a particular security-based swap will be submitted to 
clearing implicitly through the product ID (e.g., if the security-based 
swap has a product ID of a ``made available to trade'' product or if 
the product ID otherwise specifies that the product will be submitted 
to clearing) or explicitly because the counterparties inform the 
platform of their intent.\245\ Counterparties could signal to a 
platform that they intend to clear a particular security-based swap 
using communications infrastructure provided by the platform to submit 
transaction information to a registered clearing agency or by otherwise 
specifically informing the platform before or at the time of execution 
of their intent to submit the trade to clearing. Absent an implicit or 
explicit indication before or at the time of execution that a 
particular security-based swap will be submitted to clearing, the 
platform can reasonably conclude that the transaction will not be 
submitted to clearing and thus that the platform has no reporting 
obligation. Thus, if the direct counterparties do not inform the 
platform before or at the point of execution that they intend to submit 
the transaction to clearing, the platform incurs no duty to report. In 
that case, the reporting hierarchy in existing Rule 901(a)(2)(ii) would 
apply to the security-based swap and the reporting side identified 
under Rule 901(a)(2)(ii) would be obligated to report the 
transaction.\246\
---------------------------------------------------------------------------

    \244\ WMBAA Letter at 2.
    \245\ The Commission notes that the certain execution venues 
that are registered with the CFTC as swap execution facilities have 
adopted rules that require swap counterparties to designate whether 
or not a swap will be submitted to clearing. See MarketAxess SEF 
Rulebook, Rule 905, available at: http://www.marketaxess.com/pdfs/cds/MKTX_SEF_Rulebook_Effective_08-24-2015.pdf (last visited May 25, 
2016); Bloomberg SEF Rulebook, Rule 533(a), available at: http://www.bbhub.io/professional/sites/4/BSEF-Rulebook-December-7-2015.pdf, 
(last visited May 25, 2016).
    \246\ The Commission encourages platforms and their participants 
to develop protocols for determining in advance of execution whether 
a particular transaction will be submitted to clearing to minimize 
ambiguity regarding which person--the platform or one of the sides--
will have the duty to report under Rule 901(a). If there is 
ambiguity regarding whether a particular transaction will be 
submitted to clearing, the counterparties are in the best position 
to resolve that ambiguity.
---------------------------------------------------------------------------

    Furthermore, the Commission believes that another alternate 
approach--of requiring all platform-executed transactions, even those 
that will be submitted to clearing, to be reported by one of the sides 
and not imposing any reporting duties on platforms--is impractical. As 
the Commission has noted, platform-executed alphas can be executed 
anonymously.\247\ Although some platform-executed transactions that 
will be submitted to clearing might not be executed anonymously, the 
Commission believes that it is more efficient to require the platform 
to report all security-based swaps executed on that platform that will 
be submitted to clearing, regardless of whether the counterparties are, 
in fact, anonymous to each other. The Commission believes that 
assigning the duty to report to the platform minimizes the number of 
reporting steps and thus minimizes the possibility of errors or delays 
in reporting the transaction to a registered SDR. Thus, the Commission 
believes that all platform-executed transactions that will be submitted 
to clearing should be reported by the platform. The Commission believes 
that this approach will be more efficient than if the platform had to 
assess on a transaction-by-transaction basis whether or not the 
counterparties are in fact unknown to each other.
---------------------------------------------------------------------------

    \247\ See Regulation SBSR Proposed Amendments Release, 80 FR at 
14748.
---------------------------------------------------------------------------

C. Data Elements That a Platform Must Report

    The Commission continues to believe that platforms should not be 
required to report information that they do not have or that it would 
be impractical for them to obtain. In the Regulation SBSR Proposed 
Amendments Release, the Commission carefully reviewed each data element 
contemplated by Rules 901(c) and 901(d) and proposed to require 
platforms to report only those data elements that it believed that 
would be readily obtainable and germane to the transaction.\248\ One 
commenter stated that ``[p]latforms could reasonably be expected to 
gather and report the primary trade information contained under Rule 
901(c),'' but cautioned that ``requiring platforms to report a subset 
of the secondary trade information contained under Rule 901(d) will be 
problematic,'' specifically noting that the platform could not 
reasonably be expected to know the guarantors of the direct 
counterparties.\249\ A second commenter also pointed to difficulties 
with a platform identifying indirect counterparties.\250\ In view of 
these comments, the Commission is adopting, largely as proposed, the 
list of data elements that the platform must report, but with minor 
revisions that remove any need for platforms to learn about indirect 
counterparties.\251\
---------------------------------------------------------------------------

    \248\ See 80 FR at 14749-50. One commenter generally agreed that 
platforms would have the information that the Commission proposed to 
require them to report. See Barnard I at 2.
    \249\ ICE Letter at 4.
    \250\ See ISDA/SIFMA Letter at 27.
    \251\ The Commission also is making a minor revision to replace 
the phrase ``the information required by'' in proposed Rule 
901(a)(1) with ``the information set forth in'' in final Rule 
901(a)(1). This revision is designed to clarify that a platform that 
incurs a reporting duty under Rule 901(a)(1) must discharge that 
duty by reporting certain elements that are set forth in Rules 
901(c) and 901(d).

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

[[Page 53574]]

    The Commission continues to believe that platforms will have or can 
readily obtain the primary trade information contemplated by Rules 
901(c)(1)-(4). For example, the platform will have information that 
identifies the products that it offers for trading.\252\ When a 
transaction is effected on the platform's facilities, the platform 
should have the ability to capture the price, the notional amount, and 
the date and time of execution.\253\ As discussed in the subsection 
immediately above, platforms should be able to ascertain either 
implicitly (via the product traded) or explicitly (from the 
counterparties) whether the direct counterparties intend that the 
security-based swap will be submitted to clearing, as required by Rule 
901(c)(6). If the direct counterparties do not inform the platform 
before or at the point of execution that they intend to submit the 
transaction to clearing, the platform incurs no duty under Rule 
901(c)(6).\254\
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    \252\ See Rule 901(c)(1).
    \253\ See Rule 901(c)(2)-(4).
    \254\ The Commission believes that this approach responds to the 
commenter who noted that, in some instances, a platform might not 
know the intent of the counterparties and thus would have difficulty 
complying with Rule 901(c)(6). See WMBAA Letter at 3.
---------------------------------------------------------------------------

    The platform will know the direct counterparty on each side of the 
transaction--or if one side will be allocated among a group of funds or 
accounts, the execution agent of that side. Therefore, final Rule 
901(a)(1) requires the platform to report the counterparty ID or the 
execution agent ID, as applicable, of each direct counterparty.
    The platform also can readily provide its own platform ID, as 
required by Rule 901(d)(9).
    Rule 901(d)(10) applies only if the security-based swap being 
reported arises from the allocation, termination, novation, or 
assignment of one or more existing security-based swaps. To the extent 
that a platform facilitates allocations, terminations, novations, or 
assignments of existing security-based swaps, the platform would be in 
a position to require its participants that engage in such exercises to 
provide the platform with the transaction IDs of the relevant existing 
security-based swaps, which the platform would report--along with the 
transaction information about any newly created transaction(s)--
pursuant to Rule 901(d)(10).
    As noted above, two commenters noted that it would be impractical 
for platforms to learn the identity of indirect counterparties to 
transactions effected on their facilities.\255\ The Commission agrees 
that it would be burdensome to require a platform to learn from the 
direct counterparties, on a trade-by-trade basis, whether either direct 
counterparty has a guarantor. Furthermore, the Commission now believes 
that there would be little benefit to imposing such a requirement. A 
platform-executed security-based swap, if it will be cleared, will be 
submitted to clearing shortly after execution and thus will have only a 
short lifespan. Shortly, or perhaps even immediately, after being 
submitted to clearing, it will likely either be terminated because it 
is accepted for clearing or terminated because it is rejected from 
clearing. In either case, the potential exposure of a guarantor of the 
alpha transaction--if there is a guarantor--is likely to be fleeting. 
In view of the potential burdens that a requirement to report indirect 
counterparties could place on platforms against only marginal benefits, 
the Commission has determined not to adopt any requirement for 
platforms to report indirect counterparties.\256\
---------------------------------------------------------------------------

    \255\ See ICE Letter at 4; ISDA/SIFMA Letter at 27 (stating that 
``[a] platform will not likely have advance access to complete 
information pertaining to whether there is an indirect counterparty 
on either side of the transaction,'' and that building a mechanism 
to capture the existence of indirect counterparties ``must be 
factored into the implementation timeframe for platforms'').
    \256\ This revision in final Rule 901(a)(1) does not affect the 
existing requirements for reporting a platform-executed transaction 
that will not be submitted to clearing. Such a transaction is 
governed by existing Rule 901(a)(2)(ii), which requires one of the 
sides to be the reporting side. The reporting side must report, 
among other things, all of the information required by Rule 901(d) 
including, as applicable, the identity of its own guarantor and any 
guarantor of the direct counterparty on the other side. Reporting of 
the guarantor(s) of a security-based swap will assist the Commission 
and other relevant authorities in monitoring the ongoing exposures 
of market participants.
---------------------------------------------------------------------------

    Existing Rule 901(c)(5) requires reporting of whether both sides of 
a security-based swap include a registered security-based swap dealer. 
One of the commenters who argued for the removal of the requirement for 
platforms to report indirect counterparties also noted that it would be 
difficult for platforms to comply with Rule 901(c)(5) if a registered 
security-based swap dealer was an indirect counterparty.\257\ The 
Commission agrees. Therefore, for the same reasons that it has decided 
not to adopt a requirement for platforms to report whether either 
direct counterparty has a guarantor, the Commission has revised final 
Rule 901(a)(1) to require a platform to indicate only when both direct 
counterparties of a security-based swap are registered security-based 
swap dealers--not, as originally proposed, if a registered security-
based swap dealer is present on both sides (e.g., as a guarantor). A 
platform will be able to learn from publicly available sources when its 
participants who effect transactions as direct counterparties are 
registered as security-based swap dealers.\258\
---------------------------------------------------------------------------

    \257\ See ISDA/SIFMA Letter at 27.
    \258\ See SBS Entity Registration Adopting Release, 80 FR at 
48972 (``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'').
---------------------------------------------------------------------------

D. Platform Duty To Report Secondary Trade Information

    Final Rule 901(a)(1) makes clear that the only secondary trade 
information that a platform must report is the counterparty ID of each 
direct counterparty (or execution agent, if applicable); \259\ the 
platform ID; \260\ and the transaction ID of the prior security-based 
swap if the platform-executed security-based swap results from the 
allocation, termination, novation, or assignment of the prior 
transaction.\261\
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    \259\ See Rule 901(d)(1). As noted above, final Rule 901(a)(1) 
requires a platform to report the counterparty IDs only of the 
direct counterparties to the transaction, not of any indirect 
counterparties.
    \260\ See Rule 901(d)(9).
    \261\ See Rule 901(d)(10).
---------------------------------------------------------------------------

    One commenter expressed concern about a platform having to report 
other secondary trade information, such as the title and date of any 
agreements incorporated by reference into the security-based swap 
contract.\262\ Rule 901(a)(1), both as proposed and as adopted, 
requires a platform to report only the secondary trade information 
specifically enumerated in the rule. The agreements contemplated by 
Rule 901(d)(4) are not so enumerated.\263\
---------------------------------------------------------------------------

    \262\ See WMBAA Letter at 4 (referencing requirement in Rule 
901(d)(4)).
    \263\ See ISDA/SIFMA Letter at 27 (correctly observing that the 
Commission did not propose to require platforms to report agreement 
information).
---------------------------------------------------------------------------

E. Platform Has No Duty To Report Life Cycle Events

    One commenter argued that platforms should have no duty to report 
life cycle event information because platforms have no involvement in a 
security-based swap after execution and would not have access to such 
information.\264\ The Commission agrees. Therefore, the Commission did 
not propose and is not adopting a requirement for platforms to report 
any life cycle events.
---------------------------------------------------------------------------

    \264\ See WMBAA Letter at 4.
---------------------------------------------------------------------------

    Existing Rule 901(e)(1)(i) provides that most life cycle events 
(and

[[Page 53575]]

adjustments due to life cycle events) must be reported by the reporting 
side. A platform is not a counterparty to a security-based swap and 
thus cannot be a reporting side. Therefore, existing Rule 901(e)(1)(i), 
by its terms, imposes no duty on platforms to report life cycle events. 
Furthermore, Rule 901(e)(1) includes one exception to the general rule 
that the reporting side must report life cycle events: New paragraph 
(e)(1)(ii), as adopted today, requires the registered clearing agency 
to which the platform-executed alpha is submitted to report to the 
alpha SDR whether or not it has accepted a security-based swap for 
clearing. The Commission believes that these are the only life cycle 
events germane to a platform-executed alpha--the transaction will 
either be terminated because it is accepted for clearing or terminated 
because it is rejected from clearing--and therefore is not imposing any 
requirement on the platform or either of the sides to report additional 
types of life cycle events for platform-executed alphas.

F. Implementation Issues

    One commenter encouraged the Commission ``to allow the use of 
existing reporting technology and reporting architecture to reduce the 
amount of additional technology investment required to comply'' with 
any reporting obligations.\265\ This commenter further requested that 
the Commission ``make clear in its final rules that platforms have 
discretion to determine the most appropriate technological manner in 
which they comply with the Commission's rules.'' \266\ The Commission 
has been sensitive to the current state of the security-based swap 
industry and, in particular, the technological baseline that is 
utilized by market participants and infrastructure providers to carry 
out business and regulatory functions. The Commission has sought to 
adopt final rules that minimize changes to systems and processes so far 
as they can be adapted to new reporting duties, while recognizing that 
new systems or processes, or fairly significant revisions to existing 
systems or processes, might be necessary in some cases.
---------------------------------------------------------------------------

    \265\ See WMBAA Letter at 3.
    \266\ Id.
---------------------------------------------------------------------------

    The Commission acknowledges that Rule 901(a)(1) will require 
platforms to develop, test, implement, and maintain technology to 
ensure connectivity to at least one registered SDR.\267\ Rule 901(a)(1) 
does not specify the reporting technology or reporting architecture for 
platforms to use, and platforms may use their existing technology and 
architecture to reduce the amount of additional technology investment 
required to comply with the rule. Moreover, the Commission affirms that 
platforms may retain third-party service providers to facilitate 
compliance with their reporting obligations. The Commission notes that 
platforms are no different from other persons having a duty to report 
that elect to use an agent to carry out that function; the person with 
the reporting duty would retain responsibility under Regulation SBSR 
for providing the required information in the required format.\268\
---------------------------------------------------------------------------

    \267\ See WMBAA Letter at 3.
    \268\ See Regulation SBSR Adopting Release, 80 FR at 14602.
---------------------------------------------------------------------------

    Finally, this commenter also urged the Commission to ``clearly 
outline the specific data fields, and permissible formats for reporting 
those data fields, required for post-trade reporting.'' \269\ When it 
adopted Regulation SBSR, the Commission took the approach of generally 
requiring reporting of general categories of data (such as the 
``price'') \270\ while requiring registered SDRs to establish and 
maintain written policies and procedures that specify the manner in 
which persons having a duty to report must provide security-based swap 
transaction data to the SDR.\271\ In the Regulation SBSR Adopting 
Release, the Commission considered whether to prescribe formats for the 
data elements required by Regulation SBSR, and concluded that ``it is 
neither necessary or appropriate to mandate a fixed schedule of data 
elements to be reported, or a single format or language for reporting 
such elements to a registered SDR.'' \272\ In the Regulation SBSR 
Proposed Amendments Release, the Commission did not propose a new 
approach for specifying how the required data elements must be reported 
to a registered SDR, and declines to adopt a new approach here.\273\
---------------------------------------------------------------------------

    \269\ WMBAA Letter at 2.
    \270\ See Rule 901(c)(3).
    \271\ See Rules 907(a)(1) and 907(a)(2). The Commission did, 
however, require reporting of some specific data elements. See, 
e.g., Rule 901(c)(6) (requiring reporting of whether the direct 
counterparties intend that the security-based swap will be submitted 
to clearing); Rule 901(d)(9) (requiring reporting of the platform 
ID, if applicable).
    \272\ 80 FR at 14595. The Commission noted, furthermore, that 
new security-based swap products are likely to develop over time and 
a rule establishing a fixed schedule of data elements could become 
obsolete as new data elements might become necessary to reflect 
material economic terms of new security-based swap products. See id.
    \273\ The Commission notes, however, that it has proposed an 
amendment to Rule 13n-4(a)(5) under the Exchange Act, 17 CFR 
240.13n-4(a)(5), that would specify the form and manner with which 
SDRs will be required to make security-based swap data available to 
the Commission. See Securities Exchange Act Release No. 76624 
(December 11, 2015), 80 FR 79757 (December 23, 2015).
---------------------------------------------------------------------------

G. Reporting Duty Applies Even to Unregistered Platforms

    New Rule 901(a)(1) imposes a reporting duty on any ``platform'' if 
a security-based swap that will be submitted to clearing is executed on 
the platform. One commenter requested the Commission to clarify 
``whether an alpha SBS entered into via an execution venue in advance 
of its registration or exemption as a national securities exchange or 
security-based swap execution facility is required to be reported to 
one of the sides.'' \274\ The commenter stated that ``[i]deally the 
registration or exemption of platforms would precede the compliance 
date for reporting under [Regulation] SBSR. Otherwise, the industry 
will need to transition the reporting responsibility which may lead to 
gaps or duplications in reporting since the relevant static data and 
any system architectural changes will not occur simultaneously.'' \275\ 
The commenter argued, in the alternative, that ``the Commission should 
exempt alphas from reporting in advance of platform registration.'' 
\276\ A second commenter stated that it ``is uncertain as to how the 
reporting obligations for a platform under Regulation SBSR would be 
fulfilled if the compliance dates are triggered before the Commission 
implements SB swap trading rules.'' \277\
---------------------------------------------------------------------------

    \274\ ISDA/SIFMA Letter at 28.
    \275\ Id.
    \276\ Id.
    \277\ WMBAA Letter at 5.
---------------------------------------------------------------------------

    In the Regulation SBSR Adopting Release, the Commission explained 
that there are certain entities that currently meet the definition of 
``security-based swap execution facility'' but that are not yet 
registered with the Commission and will not have a mechanism for 
registering as SB SEFs until the Commission adopts final rules 
governing the registration and core principles of SB SEFs. These 
entities currently operate pursuant to an exemption from certain 
provisions of the Exchange Act.\278\ To ensure that transactions that 
occur on such exempt SB SEFs are captured by Regulation

[[Page 53576]]

SBSR, existing Rule 900(v) defines ``platform'' as ``a national 
securities exchange or security-based swap execution facility that is 
registered or exempt from registration'' (emphasis added). Therefore, 
the Commission does not believe that it is necessary, as the commenter 
suggests, to transfer reporting duties from the platform to one of the 
sides, or to exempt alphas from reporting entirely, until the 
Commission adopts registration rules for SB SEFs. Doing so could 
significantly delay the benefits of regulatory reporting and public 
dissemination of platform-executed alpha transactions. Furthermore, the 
Commission understands that, although platforms for security-based 
swaps might not yet be registered with the Commission, they likely 
already possess significant post-trade processing capabilities because 
of their activities in the swaps market, which subjects them to 
reporting duties under CFTC rules.\279\ In any event, unregistered 
platforms will have an extended period in which to prepare for their 
reporting duties under Regulation SBSR, as new transactions in an asset 
class will not have to be reported until at least six months after the 
first SDR that can accept transactions in that asset class registers 
with the Commission.\280\
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    \278\ See Securities Exchange Act Release No. 64795 (July 1, 
2011), 76 FR 39927 (July 7, 2011). In this order, the Commission 
granted entities that meet the statutory definition of ``exchange'' 
solely due to their activities relating to security-based swaps a 
temporary exemption from the requirement to register as a national 
securities exchange in Sections 5 and 6 of the Exchange Act, 15 
U.S.C. 78e and 78f. This included entities that would meet the 
statutory definition of ``security-based swap execution facility'' 
but that otherwise would not be subject to the requirements under 
Sections 5 and 6 of the Exchange Act.
    \279\ See 17 CFR 43.8(h) (reporting by SEF or designated 
contract market).
    \280\ See infra Section X (discussing compliance dates).
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V. Additional Matters Concerning Platforms and Registered Clearing 
Agencies

A. Extending ``Participant'' Status

    Existing Rule 901(h) requires ``a reporting side'' to 
electronically transmit the information required by Rule 901 in a 
format required by the registered SDR. In the Regulation SBSR Proposed 
Amendments Release, the Commission proposed to replace the term 
``reporting side'' in Rule 901(h) with the phrase ``person having a 
duty to report.'' Under Rule 901(a), as amended by this release, a 
platform or registered clearing agency might incur a reporting duty 
even if it is not one of the sides to the transaction.\281\ All persons 
who have a duty to report under Regulation SBSR--i.e., platforms, 
reporting sides, and registered clearing agencies that must report 
whether or not a security-based swap is accepted for clearing--must 
electronically transmit the information required by Rule 901 in a 
format required by the registered SDR. Replacing ``reporting side'' 
with ``person having the duty to report'' in Rule 901(h) extends this 
requirement to all persons with reporting duties, even if they are not 
one of the sides. The Commission received no comments that specifically 
addressed the amendment to Rule 901(h) \282\ and is adopting this 
amendment as proposed.
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    \281\ The Commission proposed to expand Rule 908(b) to include 
all platforms and registered clearing agencies. This amendment to 
Rule 908(b) is discussed in Section IX, infra.
    \282\ But see ISDA/SIFMA Letter at 29 (endorsing a similar 
amendment to Rule 905(a)(1) that expands that rule from ``the 
reporting side'' to ``the person having the duty to report'').
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    Under existing Rule 900(u), platforms and registered clearing 
agencies would not be participants of registered SDRs solely as a 
result of having a duty to report security-based swap transaction 
information pursuant to Rule 901(a)(1) or 901(e)(1)(ii), 
respectively.\283\ In the Regulation SBSR Proposed Amendments Release, 
the Commission expressed the preliminary view that platforms and 
registered clearing agencies should be participants of any registered 
SDR to which they report security-based swap transaction information on 
a mandatory basis. Consistent with this view, the Commission proposed 
to amend the definition of ``participant'' in Rule 900(u) to include a 
platform that is required to report a security-based swap pursuant to 
Rule 901(a)(1) or a registered clearing agency that is required to 
report a life cycle event pursuant to Rule 901(e)(1)(ii).\284\
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    \283\ Existing Rule 900(u) provides that a ``[p]articipant, with 
respect to a registered security-based swap data repository, means a 
counterparty, that meets the criteria of [Rule 908(b)], of a 
security-based swap that is reported to that registered security-
based swap data repository to satisfy an obligation under [Rule 
901(a)].''
    \284\ A registered clearing agency that is required to report a 
clearing transaction pursuant to Rule 901(a)(2)(i) is a counterparty 
to that security-based swap and is thus covered by the existing 
definition of ``participant.''
---------------------------------------------------------------------------

    One commenter expressed general support for requiring platforms and 
clearing agencies to become participants of the registered SDRs to 
which they report.\285\ A second commenter agreed that a clearing 
agency or platform must be a participant of a registered SDR to which 
it reports to ensure that reports are submitted in a format required by 
the registered SDR.\286\ The second commenter, however, also expressed 
its understanding ``that in this context, participant means a 
registered user of an SDR, submitting data in the format as requested 
by the SDR, rather than a `participant' as defined in Final SBSR.'' 
\287\ A third commenter agreed that platforms should be required to 
report transaction data to a registered SDR ``in a format required by 
that registered SDR''; however, the commenter ``does not believe that 
it should be required to become a member of an SDR.'' \288\ A fourth 
commenter stated that, although a clearing agency ``should execute an 
agreement outlining the requirements to report termination messages'' 
to the alpha SDR, the clearing agency should not become a full 
participant of the alpha SDR because it is not a counterparty to the 
alpha.\289\ This commenter also argued that the clearing agency 
``should not incur SDR fees to report alpha termination messages.'' 
\290\
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    \285\ See DTCC Letter at 5-6, 17 (stating that ``the clearing 
agency should become an onboarded participant of the SB SDR and 
adhere to the policy and procedures to report data in the format 
required by the SB SDR. In this regard, separate accommodations 
should not be made for clearing agencies, which should be required 
to comply with an SB SDR's policies and procedures to the same 
extent as other market participants'').
    \286\ See ISDA/SIFMA Letter at 24, 27.
    \287\ Id. at 24.
    \288\ WMBAA Letter at 4.
    \289\ ICE Letter at 6.
    \290\ Id.
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    After carefully considering the comments, the Commission is 
adopting the amendment to Rule 900(u) as proposed. Conferring 
``participant'' status on these additional entities subjects them to 
the requirement in Rule 906(c), as amended herein,\291\ for enumerated 
participants to establish, maintain, and enforce written policies and 
procedures that are reasonably designed to ensure that they comply with 
any obligations to report information to a registered SDR in a manner 
consistent with Regulation SBSR. The Commission believes that these 
policies and procedures will increase the accuracy and reliability of 
information reported to registered SDRs. Without written policies and 
procedures for carrying out their reporting obligations, clearing 
agencies and the other entities enumerated in Rule 906(c), as amended, 
might depend too heavily on key individuals or ad hoc and unreliable 
processes. Written policies and procedures, however, can be shared 
throughout an organization and generally should be independent of any 
specific individuals. Requiring clearing agencies, as well as the other 
participants enumerated in Rule 906(c), to adopt and maintain written 
policies and procedures relevant to their reporting responsibilities 
should help to improve the degree and quality of overall compliance 
with the reporting requirements of Regulation SBSR. Periodic review of 
these policies and procedures, as required by Rule 906(c), should help 
to ensure that these policies

[[Page 53577]]

and procedures remain well-functioning over time.
---------------------------------------------------------------------------

    \291\ See infra Section V(E).
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    A registered clearing agency that clears security-based swaps or a 
platform that executes security-based swaps that will be submitted to 
clearing incurs reporting duties under Regulation SBSR, which requires 
the platform or registered clearing agency, among other things, to 
submit transaction information to one or more registered SDRs. As a 
result of the amendment to Rule 900(u) being adopted today, the 
platform or registered clearing agency automatically becomes a 
``participant''--under Regulation SBSR--of any SDR to which it submits 
transaction information on a mandatory basis. The Commission notes, 
however, that ``participant'' status under Rule 900(u) does not require 
a platform or registered clearing agency to sign a formal participant 
agreement with a registered SDR or to establish connectivity sufficient 
to report all of the primary and secondary trade information of a 
security-based swap.\292\ A registered SDR may impose certain 
obligations on persons who utilize the SDR's services, regardless of 
whether such persons are deemed ``participants'' under Regulation SBSR. 
For example, an SDR may impose fees on such persons for submitting 
data.\293\
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    \292\ At the same time, nothing in Regulation SBSR prevents a 
platform or registered clearing agency from signing such a 
participation agreement.
    \293\ See supra note 191 and accompanying text. However, an SDR 
must offer fair, open, and not unreasonably discriminatory access to 
users of its services and ensure that any fees that it charges are 
fair and reasonable and not unreasonably discriminatory. See Rules 
13n-4(c)(1)(i) and 13n-4(c)(1)(iii) under the Exchange Act, 17 CFR 
240.13n-4(c)(1)(i) and 240.13n-4(c)(1)(iii).
---------------------------------------------------------------------------

B. Examples of Reporting Workflows Involving Platforms and Registered 
Clearing Agencies

    The following examples illustrate the reporting process for alpha, 
beta, and gamma security-based swaps, assuming an agency model of 
clearing under which a counterparty to an alpha security-based swap 
becomes a direct counterparty to a subsequent clearing transaction: 
\294\
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    \294\ Because clearing of security-based swaps in the United 
States is still evolving, other models of clearing might emerge 
where customers would not become direct counterparties of a 
registered clearing agency. See supra Section III(A)(1) (discussing 
the clearing process in the United States).
---------------------------------------------------------------------------

     Example 1. A registered security-based swap dealer enters 
into a security-based swap with a private fund. The transaction is not 
executed on a platform. The counterparties intend to clear the 
transaction (i.e., the transaction is an alpha). Neither side has a 
guarantor with respect to the alpha, and both direct counterparties are 
U.S. persons.
    [cir] The registered security-based swap dealer is the reporting 
side under existing Rule 901(a)(2)(ii) and must report this alpha 
transaction to a registered SDR (and may choose the registered SDR).
    [cir] New Rule 901(a)(3) requires the registered security-based 
swap dealer, as the reporting side of the alpha transaction, to 
promptly provide to the registered clearing agency the transaction ID 
of the alpha and the identity of the alpha SDR.
    [cir] If the registered clearing agency accepts the alpha for 
clearing and terminates the alpha, two clearing transactions--a beta 
(between the registered security-based swap dealer and the registered 
clearing agency) and a gamma (between the registered clearing agency 
and the private fund)--take its place.
    [cir] New Rule 901(e)(1)(ii) requires the registered clearing 
agency to report to the alpha SDR that it accepted the transaction for 
clearing.
    [cir] Under new Rule 901(a)(2)(i), the registered clearing agency 
is the reporting side for each of the beta and the gamma. Therefore, 
the registered clearing agency must report the beta and gamma to a 
registered SDR (and the clearing agency may select the registered SDR). 
The report for each of the beta and the gamma must include the 
transaction ID of the alpha, as required by existing Rule 901(d)(10).
     Example 2. Same facts as Example 1, except that the 
private fund and the registered security-based swap dealer transact on 
an SB SEF.
    [cir] New Rule 901(a)(1) requires the SB SEF to report the alpha 
transaction (and allows the SB SEF to choose the registered SDR).
    [cir] After the alpha has been submitted to clearing, new Rule 
901(a)(3) requires the SB SEF to promptly report to the registered 
clearing agency the transaction ID of the alpha and the identity of the 
alpha SDR.
    [cir] Once the alpha is submitted to clearing, the reporting 
workflows are the same as in Example 1.

C. Amendments to Rule 905(a)

    Existing Rule 905(a) provides a mechanism for reporting corrections 
of previously submitted security-based swap transaction 
information.\295\ Rule 905(a)(1) requires a non-reporting side that 
discovers an error in a previously submitted security-based swap to 
promptly notify ``the reporting side'' of the error.\296\ Under 
existing Rule 905(a)(2), once ``the reporting side'' receives 
notification of an error from the non-reporting side or discovers an 
error on its own, ``the reporting side'' is required to promptly submit 
an amended report containing the corrected information to the 
registered SDR that received the erroneous transaction report.
---------------------------------------------------------------------------

    \295\ See Regulation SBSR Adopting Release, 80 FR at 14641-42.
    \296\ See Regulation SBSR Adopting Release, 80 FR at 14681.
---------------------------------------------------------------------------

    In the Regulation SBSR Proposed Amendments Release, the Commission 
proposed--and today is adopting--amendments to Rule 901(a) that require 
platforms and registered clearing agencies to report certain 
transaction information. To preserve the principle in existing Rule 
905(a) that the person responsible for reporting information also 
should have responsibilities for correcting errors, the Commission 
proposed to replace the term ``reporting side'' in existing Rules 
905(a)(1) and 905(a)(2) with the phrase ``person having a duty to 
report.'' This amendment was necessitated by the fact that a platform--
and a registered clearing agency, when it has the duty to report 
whether or not it has accepted a security-based swap for clearing--is 
not a side to the transaction, and thus is not covered by existing Rule 
905(a).
    Under the proposed amendment to Rule 905(a)(1), a person that is 
not the reporting side who discovers an error in a previously submitted 
security-based swap would be required to promptly notify ``the person 
having the duty to report'' of the error. Under the proposed amendment 
to Rule 905(a)(2), ``the person having the duty to report'' a security-
based swap would be required to correct previously reported erroneous 
information with respect to that security-based swap if it discovers an 
error or if it receives notification of an error from a counterparty. 
Four commenters expressed general support for the proposed amendments 
to Rule 905(a).\297\
---------------------------------------------------------------------------

    \297\ See DTCC Letter at 18; LCH.Clearnet Letter at 11; ISDA/
SIFMA Letter at 29; WMBAA Letter at 5. Another commenter 
acknowledged that the proposed amendments are ``technical changes to 
the rules to incorporate these new reporting participants,'' but 
made no further commentary on the proposed amendments to Rule 
905(a). See Better Markets Letter at 3-4.
---------------------------------------------------------------------------

    After carefully considering the comments received, the Commission 
is adopting the amendments to Rule 905(a) as proposed. The Commission 
believes that, in light of the amendments to Rule 901(a) that also are 
being adopted today,\298\ Rule 905(a) is necessary to account for the 
possibility that a person who is not a counterparty and is thus

[[Page 53578]]

not on either side of the transaction could have a duty to report. 
Thus, a platform or registered clearing agency (when the clearing 
agency is reporting whether or not it has accepted an alpha for 
clearing and thus is not the reporting side of the alpha) can incur a 
duty to report a correction, because it also can incur the initial duty 
to report the relevant information.
---------------------------------------------------------------------------

    \298\ See supra Section II(B).
---------------------------------------------------------------------------

    One commenter, discussing general difficulties in making non-
reporting sides become ``onboarded users'' of registered SDRs, stated 
that only reporting sides--who presumably would be onboarded users--
should be responsible for amending errors and omissions associated with 
previously submitted security-based swaps.\299\ The Commission agrees 
that the person having the duty to report the initial transaction 
should be responsible for amending errors and omissions. There is no 
scenario under Rule 905(a), as amended, in which a non-reporting side 
must report anything to a registered SDR. If a non-reporting side 
discovers an error, Rule 905(a)(1) requires the non-reporting side to 
inform the person who had a duty to report the initial transaction--
which could be a platform, a registered clearing agency, or the 
reporting side--not the registered SDR.
---------------------------------------------------------------------------

    \299\ See DTCC/ICE/CME Letter at 2 (also stating that requiring 
reporting sides to amend errors and omissions would support 
``current operational workflows since the reporting side is the only 
party with a contractual relationship with the non-reporting side as 
it relates to the trade details'').
---------------------------------------------------------------------------

    A second commenter expressed the view that ``[w]hen a correction is 
made to a trade which has already been accepted by a registered 
clearing agency or prime broker, then that party must also notify the 
registered clearing agency or prime broker of the correction.'' \300\ 
Nothing in Regulation SBSR requires a person to notify the registered 
clearing agency or prime broker of a correction after the person 
reports the correction to a registered SDR. Rule 905(a) is concerned 
with maintaining accurate information in registered SDRs. The 
acceptance of a security-based swap by a registered clearing agency or 
a prime broker (in the case of a three-legged prime brokerage 
structure) terminates the initial transaction and results in the 
creation of new security-based swaps pursuant to the rules of the 
relevant registered clearing agency or the terms of the prime brokerage 
arrangement, respectively.\301\ Rule 905(a) requires that, if the 
person having the duty to report the original transaction becomes aware 
of erroneous information in the report of the transaction, that person 
must submit a correction to the registered SDR. If the sides of the 
security-based swap also provided incorrect information about the 
initial transaction to the registered clearing agency or prime broker, 
the sides presumably would follow the procedures required by the 
registered clearing agency or the prime brokerage arrangement to 
correct the error--but nothing in Regulation SBSR compels that result.
---------------------------------------------------------------------------

    \300\ LCH.Clearnet Letter at 11.
    \301\ See supra Section III(E) (discussing clearing process in 
the agency model of clearing); infra Section VII(B) (discussing 
prime brokerage workflows).
---------------------------------------------------------------------------

D. Requirements Related to Participant Providing Ultimate Parent and 
Affiliate Information to Registered SDR

    As described in Section V(A), supra, the Commission is adopting, as 
proposed, an amendment to the definition of ``participant'' in Rule 
900(u) to include platforms that are required to report platform-
executed security-based swaps that will be submitted to clearing and 
registered clearing agencies that are required to report whether or not 
an alpha is accepted for clearing. Existing Rule 906(b) requires each 
participant--as defined by Rule 900(u)--of a registered SDR to provide 
the SDR with information sufficient to identify any affiliate(s) of the 
participant that also are participants of the SDR and any ultimate 
parent(s) of the participant.\302\ By amending Rule 900(u) to make 
platforms and registered clearing agencies participants, these entities 
would become subject to Rule 906(b). In the Regulation SBSR Proposed 
Amendments Release, however, the Commission proposed to amend Rule 
906(b) to exclude platforms or registered clearing agencies from the 
requirement to provide information about affiliates and ultimate 
parents to an SDR.
---------------------------------------------------------------------------

    \302\ See Regulation SBSR Adopting Release, 80 FR at 14645.
---------------------------------------------------------------------------

    Three commenters expressed support for the Commission's proposal to 
exempt platforms and registered clearing agencies from the obligations 
of Rule 906(b).\303\ The Commission continues to believe that platforms 
and registered clearing agencies should be exempt from the obligations 
of Rule 906(b) and is adopting the amendment to Rule 906(b) as 
proposed.
---------------------------------------------------------------------------

    \303\ See LCH.Clearnet Letter at 11; ISDA/SIFMA Letter at 29; 
WMBAA Letter at 5.
---------------------------------------------------------------------------

    The Commission also proposed to make a similar amendment to 
existing Rule 907(a)(6), which requires a registered SDR to have 
policies and procedures ``[f]or periodically obtaining from each 
participant information that identifies the participant's ultimate 
parent(s) and any participant(s) with which the participant is 
affiliated, using ultimate parent IDs and counterparty IDs.'' The 
Commission proposed to amend Rule 907(a)(6) to require registered SDRs 
to have policies and procedures to obtain this information from each 
participant ``other than a platform or a registered clearing agency.'' 
One commenter supported the Commission's proposal.\304\ The Commission 
continues to believe that this amendment to Rule 907(a)(6) is 
appropriate and is adopting the amendment as proposed.
---------------------------------------------------------------------------

    \304\ ISDA/SIFMA Letter at 29 (``as we support the assignment of 
reporting duties to platforms and clearing agencies, [we] also agree 
with the conforming changes to . . . Rule 907(a)(6)'').
---------------------------------------------------------------------------

    One commenter asked the Commission to exclude from Rule 906(b) 
transactions that include an execution agent ID.\305\ The commenter 
stated: ``Aggregation across affiliated entities under a common parent 
makes the most sense from a regulatory or systemic risk perspective 
where there is coordinated trading activity and/or the risk of such 
swap positions is borne by the parent under an explicit or implicit 
guarantee. In the context of asset management, neither is typically 
present. For separate account clients, virtually all the asset 
management assignments undertaken by our members are on a discretionary 
basis . . . As a result, the separate account client (let alone its 
affiliates or parent) would not be responsible under its trading 
contracts for trading losses incurred by a manager acting on its behalf 
beyond the assets it has provided to that manager.'' \306\
---------------------------------------------------------------------------

    \305\ See SIFMA-AMG II at 3-4. The commenter appears to be of 
the view that ultimate parent IDs and affiliate IDs are fields that 
must be included in reports of individual transactions. See id. at 3 
(``AMG requests clarification that the parent and affiliate fields 
are not applicable (or `N/A') for a trade if the trade report 
includes an execution agent's ID''). The Commission notes, however, 
that a participant's ultimate parent and affiliate information must 
be disclosed to the registered SDR of which it is a participant in a 
separate report, not in individual transaction reports.
    \306\ Id. at 3-4. See also id. at 4 (``There is even less reason 
to require identification of the affiliates or parent of a 
collective investment vehicle. While funds in the same complex could 
be viewed as affiliated for certain purposes, aggregating swap 
positions across funds where recourse is legally and contractually 
limited would be misleading from a systemic risk and regulatory 
oversight perspective'').
---------------------------------------------------------------------------

    Rule 906(b) is designed to facilitate the Commission's ability to 
measure security-based swap exposure within the same ownership group. 
The Commission believes that requiring the funds and accounts described 
in the commenter's letter to report parent and

[[Page 53579]]

affiliate information would not serve this goal. Accordingly, the 
Commission is amending Rule 906(b) to exclude externally managed 
investment vehicles from the requirement to provide ultimate parent and 
affiliate information to any registered SDR of which it is a 
participant.\307\ The Commission is not acting upon the commenter's 
specific suggestion to base an exclusion on the fact that the 
transaction reports submitted by a fund includes an ID of an execution 
agent. There could be situations where a corporate entity within a 
group that Rule 906(b) is designed to cover might use an execution 
agent and thus would be required to report an execution agent ID. 
Therefore, basing an exclusion from Rule 906(b) on the use of an 
execution agent ID would be broader than necessary. The Commission 
believes instead that an exclusion for externally managed investment 
vehicles is well tailored to satisfy the concerns raised by the 
commenter while minimizing the risk of unduly broadening the exclusion. 
In light of this amendment to Rule 906(b), the Commission is making a 
conforming change to Rule 907(a)(6). Under Rule 907(a)(6), as amended, 
a registered SDR need not include in its policies and procedures for 
obtaining ultimate parent and affiliate information a mechanism for 
obtaining such information from externally managed investment vehicles.
---------------------------------------------------------------------------

    \307\ In the Cross-Border Adopting Release, the Commission added 
an express reference to ``investment vehicle'' in the non-exclusive 
list of legal persons that could fall within the final definition of 
``U.S. person'' in Rule 3a71-3(a)(4) under the Exchange Act, 17 CFR 
240.3a71-3(a)(4). The Commission observed that investment vehicles 
are commonly established as partnerships, trusts, or limited 
liability entities and required that an investment vehicle will be 
treated as a U.S. person for purposes of Title VII if it is 
organized, incorporated, or established under the laws of the United 
States or has its principal place of business in the United States. 
See Cross-Border Adopting Release, 79 FR at 47307. Thus, an 
investment vehicle--despite being incorporated, organized, or 
established under the laws of a foreign jurisdiction--would be a 
U.S. person if it is externally managed from the United States, 
i.e., its operations ``are primarily directed, controlled, and 
coordinated from a location within the United States.'' Id. at 
47310.
---------------------------------------------------------------------------

    The Commission declines to grant the commenter's request to exclude 
accounts from Rule 906(b). Although, as the commenter indicates, the 
parent(s) or affiliate(s) of a separate account client may not be 
responsible for losses incurred in the account, the security-based swap 
exposure in multiple accounts of a parent would be relevant to 
understanding the total exposure within the same ownership group. Thus, 
an account's reporting of its parent and affiliate information will 
serve the purposes of Rule 906(b) by assisting the Commission in 
monitoring enterprise-wide risks related to security-based swaps.

E. Additional Entities Must Have Policies and Procedures for Supporting 
Their Reporting Duties

    Existing Rule 906(c) requires each participant of a registered SDR 
that is a registered security-based swap dealer or registered major 
security-based swap participant to establish, maintain, and enforce 
written policies and procedures that are reasonably designed to ensure 
that the participant complies with any obligations to report 
information to a registered SDR in a manner consistent with Regulation 
SBSR. Rule 906(c) also requires each registered security-based swap 
dealer and registered major security-based swap participant to review 
and update its policies and procedures at least annually.
    In the Regulation SBSR Proposed Amendments Release, the Commission 
proposed to extend the requirements of Rule 906(c) to registered 
clearing agencies and platforms that are participants of a registered 
SDR.\308\ Four commenters generally supported this amendment.\309\
---------------------------------------------------------------------------

    \308\ See 80 FR at 14759.
    \309\ See Better Markets Letter at 6; DTCC Letter at 18; ISDA/
SIFMA Letter at 29; LCH.Clearnet Letter at 11.
---------------------------------------------------------------------------

    In the U.S. Activity Proposal, the Commission proposed to extend 
the requirements of Rule 906(c) to any registered broker-dealer that 
incurs reporting obligations solely because it effects transactions 
between two unregistered non-U.S. persons that do not fall within 
proposed Rule 908(b)(5). The Commission received no comments regarding 
the proposed amendment to Rule 906(c) for registered broker-dealers. 
The Commission continues to believe that this amendment is appropriate 
and is adopting the amendment as proposed.\310\
---------------------------------------------------------------------------

    \310\ Existing Rule 906(c) is titled: ``Policies and procedures 
of registered security-based swap dealers and registered major 
security-based swap participants.'' As the Commission has proposed 
to subject various other types of persons to Rule 906(c), the 
Commission also proposed to revise the title to ``Policies and 
procedures to support reporting compliance.'' The Commission is 
adopting the amended title.
---------------------------------------------------------------------------

    One commenter stated that the Commission should expand Rule 906(c) 
``to include all parties with reporting obligations under Regulation 
SBSR, including platforms and registered clearing agencies.'' \311\ 
While the Commission is expanding Rule 906(c) to include platforms and 
registered clearing agencies, the Commission did not propose and is not 
adopting any amendment to expand Rule 906(c) to include ``all parties'' 
with reporting obligations under Regulation SBSR, which would include 
unregistered persons. Regulation SBSR was designed to minimize, to the 
extent feasible, instances where unregistered persons have the primary 
duty to report security-based swaps; an unregistered person that is a 
participant of a registered SDR in most cases will have only limited 
duties under Regulation SBSR, such as the duty to report UIC 
information pursuant to Rule 906(a).\312\ The Commission does not 
believe that it is appropriate to require unregistered persons to 
establish policies and procedures to support this limited reporting 
function.
---------------------------------------------------------------------------

    \311\ LCH.Clearnet Letter at 11.
    \312\ Existing Rule 906(a) applies to all participants of a 
registered SDR, including a participant that is the non-reporting 
side of a security-based swap reported to the registered SDR on a 
mandatory basis. Rule 906(a), in relevant part, requires a 
participant of a registered SDR, with respect to a transaction to 
which it is a direct counterparty, to provide the SDR with any UICs 
that the SDR lacks, including a counterparty ID ``or (if 
applicable), the broker ID, branch ID, execution agent ID, desk ID, 
and trader ID.'' In the Regulation SBSR Adopting Release, the 
Commission explained why it adopted the term ``trading desk'' and 
``trading desk ID'' rather than, as in earlier proposed versions, 
``desk'' and ``desk ID.'' See 80 FR at 14583-84. However, in one 
place in Rule 906(a), the Commission failed to revise the term 
``desk ID'' to ``trading desk ID'' even though it had done so in 
another place in Rule 906(a). Therefore, the Commission in this 
release is adopting a technical correction to Rule 906(a) to utilize 
the term ``trading desk ID'' in both places. In addition, one 
commenter requested clarification ``that trading desk ID and trader 
ID fields are not applicable (or `N/A') for trades entered into by 
an execution agent.'' SIFMA-AMG II at 2. Based on the rule text, the 
Commission believes that this is a reasonable interpretation of Rule 
906(a).
---------------------------------------------------------------------------

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

A. Background

    The Regulation SBSR Adopting Release provides guidance for the 
reporting of certain security-based swaps executed by an asset manager 
on behalf of multiple clients--transactions involving what are 
sometimes referred to as ``bunched orders.'' \313\ That release

[[Page 53580]]

explained how Regulation SBSR applies to executed bunched orders that 
are subject to the reporting hierarchy in existing Rule 901(a)(2)(ii), 
including bunched order alphas that are not executed on a platform and 
platform-executed bunched orders that will not be submitted to 
clearing. That release also explained how Regulation SBSR applies to 
the security-based swaps that result from allocation of an executed 
bunched order, if the resulting security-based swaps are uncleared.
---------------------------------------------------------------------------

    \313\ See Regulation SBSR Adopting Release, 80 FR at 14625-27. 
The Commission recognizes that market participants may use a variety 
of other terms to refer to such transactions, including ``blocks,'' 
``parent/child'' transactions, and ``splits.'' The Commission has 
determined to use a single term, ``bunched orders,'' for purposes of 
this release, as this appears to be a widely accepted term. See, 
e.g., ``Bunched orders challenge SEFs,'' MarketsMedia (March 25, 
2014), available at http://marketsmedia.com/bunched-orders-challenge-sefs/ (last visited May 25, 2016); ``Cleared bunched 
trades could become mandatory rule,'' Futures and Options World 
(October 31, 2013), available at http://www.fow.com/3273356/Cleared-bunched-trades-could-become-mandatory-rule.html (last visited May 
25, 2016).
---------------------------------------------------------------------------

    As described in the Regulation SBSR Adopting Release, to execute a 
bunched order, an asset manager negotiates and executes a security-
based swap with a counterparty, typically a security-based swap dealer, 
on behalf of multiple clients. The bunched order can be executed on- or 
off-platform. After execution of the bunched order, the asset manager 
allocates a fractional amount of the aggregate notional amount of the 
transaction to each of several clients, thereby creating several new 
security-based swaps and terminating the bunched order execution.\314\ 
By executing a bunched order, the asset manager avoids having to 
negotiate the client-level transactions individually, and obtains 
exposure for each client on the same terms (except, perhaps, for size).
---------------------------------------------------------------------------

    \314\ In aggregate, the notional amount of the security-based 
swaps that result from the allocation is the same as the notional 
amount of the executed bunched order. However, as one commenter 
noted, ``due to cross-border considerations the aggregate notional 
of a bunched order will not always tie out completely in reported 
SBSR data to the sum of the notional of its related allocations.'' 
See ISDA/SIFMA Letter at 28.
---------------------------------------------------------------------------

    In the Regulation SBSR Adopting Release, the Commission explained 
that Rule 901 requires a bunched order execution and the security-based 
swaps resulting from the allocation of the bunched order execution, if 
they are not cleared, to be reported like other security-based 
swaps.\315\ The Commission further explained that Rule 902(a) requires 
the registered SDR that receives the report required by Rule 901 to 
disseminate the information enumerated in Rule 901(c) for the bunched 
order execution, including the full notional amount of the transaction. 
The Commission observed that publicly disseminating bunched order 
executions in this manner would allow the public to ``know the full 
size of the bunched order execution and that this size was negotiated 
at a single price.'' \316\ Existing Rule 902(c)(7) provides that a 
registered SDR shall not publicly disseminate any information regarding 
the allocation of a bunched order execution, which would include 
information about the security-based swaps resulting from the 
allocation of the initial transaction as well as the fact that the 
bunched order execution is terminated following this allocation.
---------------------------------------------------------------------------

    \315\ See 80 FR at 14625.
    \316\ Id. at 14626.
---------------------------------------------------------------------------

B. Guidance on How Regulation SBSR Applies to Bunched Order Executions

    In the Regulation SBSR Proposed Amendments Release, the Commission 
provided guidance explaining how Regulation SBSR would apply to a 
bunched order that is executed on a platform and will be submitted to 
clearing, and-- if the bunched order execution is accepted for 
clearing--the security-based swaps that result.\317\ Consistent with 
the principles laid out in the Regulation SBSR Adopting Release with 
respect to the reporting of bunched order executions that will not be 
submitted to clearing, the reporting hierarchy in existing Rule 
901(a)(2)(ii) will apply to the reporting of original bunched order 
executions that will be submitted to clearing. However, the reporting 
of the security-based swaps resulting from the allocation of the 
original bunched order execution is different if a registered clearing 
agency is involved. Because the Commission proposed a new approach for 
the reporting of all clearing transactions, the Commission could not 
offer guidance on how Regulation SBSR applies to bunched order 
executions that are allocated through the clearing process until the 
Commission adopted final rules for the reporting of clearing 
transactions. Today, the Commission is adopting amendments to Rule 901 
that will govern how clearing transactions must be reported, and also 
now is providing guidance for how bunched order executions and related 
allocations are to be reported when they are cleared.
---------------------------------------------------------------------------

    \317\ See 80 FR at 14753-55.
---------------------------------------------------------------------------

1. Example 1: Off-Platform Cleared Transaction
    Assume that an asset manager, acting on behalf of several advised 
accounts, executes a bunched order alpha with a registered security-
based swap dealer. The execution does not occur on a platform, and 
there are no indirect counterparties on either side of the bunched 
order alpha. The transaction is submitted to a registered clearing 
agency.
a. Reporting the Bunched Order Alpha
    The reporting hierarchy of existing Rule 901(a)(2)(ii) applies to 
the bunched order alpha because the execution does not occur on a 
platform and the bunched order alpha is not a clearing transaction. 
Under existing Rule 901(a)(2)(ii)(B), the registered security-based 
swap dealer is the reporting side for the bunched order alpha because 
its side includes the only registered security-based swap dealer. As 
the reporting side, the registered security-based swap dealer must 
report the primary and secondary trade information for the bunched 
order alpha to a registered SDR (the ``alpha SDR'') of its choice 
within 24 hours after the time of execution. Rule 902(a) requires the 
alpha SDR to publicly disseminate a transaction report of the bunched 
order alpha immediately upon receiving the report from the registered 
security-based swap dealer.\318\
---------------------------------------------------------------------------

    \318\ Pursuant to Rule 906(a), the registered SDR also would be 
required to obtain any missing UICs from the counterparties.
---------------------------------------------------------------------------

    When the registered security-based swap dealer submits the bunched 
order alpha to a registered clearing agency for clearing, Rule 
901(a)(3), as adopted today, requires the registered security-based 
swap dealer promptly to provide the registered clearing agency with the 
transaction ID of the bunched order alpha and the identity of the alpha 
SDR. This requirement facilitates the registered clearing agency's 
ability to report whether or not it has accepted the bunched order 
alpha for clearing, as required by Rule 901(e)(1)(ii), which also is 
being adopted today.
b. Reporting the Security-Based Swaps Resulting From Allocation
    New Rule 901(a)(2)(i) requires the registered clearing agency to 
report all clearing transactions that arise as a result of clearing the 
bunched order alpha, regardless of the workflows used to clear the 
bunched order alpha.\319\
---------------------------------------------------------------------------

    \319\ Like other clearing transactions that arise from the 
acceptance of a security-based swap for clearing, these security-
based swaps are not subject to public dissemination. See Rule 
902(c)(6). See also Rule 902(c)(7) (exempting from public 
dissemination any ``information regarding the allocation of a 
security-based swap'').
---------------------------------------------------------------------------

    If the asset manager provides allocation instructions prior to or 
contemporaneous with the clearing of the bunched order alpha, clearing 
could result in the creation of a beta (i.e., the clearing transaction 
between the registered clearing agency and the security-based swap 
dealer) and a ``gamma series'' (i.e., the gammas between the registered 
clearing agency and each of the client accounts selected by the asset 
manager to receive a portion of the initial notional amount). The beta 
and each security-based swap that comprises the gamma series would not

[[Page 53581]]

be treated differently under Regulation SBSR than any other clearing 
transactions.
    If the asset manager does not provide allocation instructions until 
after the bunched order alpha is cleared, clearing could result in the 
creation of a beta (i.e., the clearing transaction between the 
registered clearing agency and the security-based swap dealer) and an 
``intermediate gamma'' (i.e., the clearing transaction between the 
clearing agency and the side representing the clients of the asset 
manager). The beta would be the same--and would be treated the same--as 
any other clearing transaction, while the intermediate gamma would 
continue to exist until the registered clearing agency receives the 
allocation information, which could come from the asset manager or its 
clearing member and would allow for the creation of the gamma series. 
The registered clearing agency would report the intermediate gamma to a 
registered SDR of its choice. As the registered clearing agency 
receives the allocation information, it would terminate the 
intermediate gamma and create new security-based swaps as part of the 
gamma series. The partial terminations of the intermediate gamma would 
be life cycle events of the intermediate gamma that the registered 
clearing agency must report under existing Rule 901(e)(1)(i). Existing 
Rule 901(e)(2) requires the registered clearing agency to report these 
life cycle events to the same registered SDR to which it reported the 
intermediate gamma. Under new Rule 901(a)(2)(i), as adopted today, the 
registered clearing agency also is required to report to a registered 
SDR each new security-based swap comprising part of the gamma series. 
Because these security-based swaps arise from the termination (or 
partial termination) of an existing security-based swap (i.e., the 
intermediate gamma series), existing Rule 901(d)(10) requires the 
registered clearing agency to link each new transaction in the gamma 
series to the intermediate gamma by including the transaction ID of the 
intermediate gamma as part of the report of each new security-based 
swap in the gamma series.
2. Example 2: Cleared Platform Transaction
    Assume the same facts as Example 1, except that the registered 
security-based swap dealer and asset manager execute the bunched order 
alpha on a SB SEF.
a. Reporting the Bunched Order Alpha
    Because the initial transaction is executed on a platform and will 
be submitted to clearing, the platform would have the duty under Rule 
901(a)(1), as adopted today, to report the bunched order alpha to a 
registered SDR. To satisfy this reporting obligation, the platform must 
provide the information required by Rule 901(a)(1). Even if the 
platform does not know and thus cannot report the counterparty IDs of 
each account that will receive an allocation, the platform would know 
the identity of the execution agent who executed the bunched order 
alpha on behalf of its advised accounts. The platform, therefore, would 
report the execution agent ID of the execution agent, even though it 
might not know the intended counterparties of the security-based swaps 
that will result from the allocation.\320\ Existing Rule 902(a) 
requires the registered SDR that receives the report of the bunched 
order alpha from the platform to publicly disseminate a report of the 
bunched order alpha. Then, pursuant to existing Rule 906(a), the 
registered SDR would be required to obtain any missing UICs from its 
participants.\321\
---------------------------------------------------------------------------

    \320\ See Rule 901(d)(1) (requiring reporting of the 
counterparty ID ``or the execution agent ID of each counterparty, if 
applicable''). If the counterparties--i.e., the specific accounts 
who will receive allocations--are not yet known, the requirement to 
report the execution agent ID instead of the counterparty ID would 
apply. Similarly, if the asset manager uses an execution agent to 
access the platform, the platform would report the identity of the 
asset manager's execution agent.
    \321\ One commenter stated that a registered SDRs will be unable 
to compel non-reporting sides to become ``onboarded users'' of the 
SDR; the commenter recommended, therefore, that the Commission 
require any reports, such as those required by Rule 906(a), ``to 
only be provided to onboarded users.'' DTCC/ICE/CME Letter at 2. In 
the Regulation SBSR Adopting Release, the Commission resolved the 
issue of whether a non-reporting side becomes a participant of a 
registered SDR: It does, if the non-reporting side falls within Rule 
908(b) and the transaction was reported to the registered SDR on a 
mandatory basis. See Regulation SBSR Adopting Release, 80 FR at 
14645 (``The Commission recognizes that some non-reporting sides may 
not wish to connect directly to a registered SDR because they may 
not want to incur the costs of establishing a direct connection. 
Rule 906(a) does not prescribe the means registered SDRs must use to 
obtain information from non-reporting sides'').
---------------------------------------------------------------------------

b. Reporting the Security-Based Swaps Resulting From Allocation
    If the asset manager provides allocation instructions prior to or 
contemporaneous with the clearing of the bunched order alpha, clearing 
would (under the agency model of clearing) result in the creation of a 
beta (i.e., the clearing transaction between the registered clearing 
agency and the registered security-based swap dealer) and a ``gamma 
series'' (i.e., the gammas between the clearing agency and each of the 
asset manager's clients). The beta and each security-based swap that 
comprises the gamma series would be no different--and would not be 
treated differently under Regulation SBSR--from other clearing 
transactions.
    If the asset manager does not provide allocation instructions until 
after the bunched order alpha is cleared, clearing (under the agency 
model) would result in the creation of a beta (between the registered 
clearing agency and the security-based swap dealer) and an intermediate 
gamma (between the registered clearing agency and the side representing 
the clients of the asset manager). The registered clearing agency would 
then be required to report the termination of the bunched order alpha 
and the creation of the beta and intermediate gamma, pursuant to Rules 
901(e)(1)(ii) and 901(a)(2)(i), as adopted today. From this point on, 
the beta would be treated the same as any other clearing transaction, 
while the intermediate gamma would be decremented and replaced by the 
gamma series, as described in Example 1.

C. Comments Received

    The Commission received two comments that generally supported the 
guidance on the proposed rules for the reporting and public 
dissemination of a bunched order execution that is executed on a 
platform and will be submitted to clearing, and the security-based swap 
clearing transactions that result from the allocation.\322\
---------------------------------------------------------------------------

    \322\ See ISDA/SIFMA Letter at 28 (supporting ``the requirement 
for a reporting side to report a bunched order executed off-
platform, proposed rule 901(a)(1) that would require a platform to 
report a bunched order alpha executed on its facility, and proposed 
rule 901(a)(2)(i) that would require a registered clearing agency to 
report a cleared bunched order, if applicable, and the allocations 
that result from the cleared bunched order'' and stating that ``a 
bunched order should be subject to public dissemination instead of 
the related allocations''); ICE Trade Vault Letter at 7 (supporting 
inclusion of the transaction ID of the bunched order execution on 
each security-based swap resulting from its allocation as a 
``critical data element necessary to improve data quality'').
---------------------------------------------------------------------------

    One of these commenters raised concerns, however, about the 
application of the guidance to cross-border situations where the 
identity of the asset manager's clients (i.e., the direct 
counterparties to the security-based swaps that result from the 
allocation) is not known at the time of bunched order execution, 
particularly if the Commission requires compliance with Regulation SBSR 
before security-based swap dealers have had the opportunity to register 
with the Commission as such.\323\ The commenter stated that ``the 
Commission should be aware that in advance of dealer registration 
determining whether a

[[Page 53582]]

bunched order is subject to reporting under SBSR can only be based on 
the reporting side's understanding of the execution agent's status as a 
U.S. person. The U.S. person status of the funds to which the bunched 
order will be allocated will determine whether the allocations are 
subject to reporting and will have no bearing on whether the bunched 
order is reported.'' \324\ The Commission shares the commenter's 
concern that there be clear and workable solutions for reporting 
transactions under Regulation SBSR even under complex cross-border 
scenarios. The Commission also notes that, as discussed below,\325\ 
compliance with Regulation SBSR will be required independent of when 
security-based swap dealers register as such with the Commission.
---------------------------------------------------------------------------

    \323\ See ISDA/SIFMA Letter at 28.
    \324\ Id.
    \325\ See infra Section X(C).
---------------------------------------------------------------------------

    In the U.S. Activity Proposal, the Commission proposed a new 
paragraph (a)(1)(v) to existing Rule 908(a)(1) that would subject to 
regulatory reporting and public dissemination any transaction in 
connection with a non-U.S. person's security-based swap dealing 
activity that is arranged, negotiated, or executed by personnel of such 
non-U.S. person located in a U.S. branch or office, or by personnel of 
an agent of such non-U.S. person located in a U.S. branch or office (an 
``ANE transaction''). New Rule 908(a)(1)(v)--which is being adopted 
today \326\--coupled with the existing provisions of Rule 908(a)(1), 
will further clarify how the guidance discussed above applies to 
various cross-border scenarios, as illustrated in the following 
examples:
---------------------------------------------------------------------------

    \326\ See infra Section IX(C).
---------------------------------------------------------------------------

     If the dealing entity who executes the bunched order with 
the asset manager/execution agent is a U.S. person, whether registered 
or unregistered, the bunched order execution is subject to both 
regulatory reporting and public dissemination because of the U.S.-
person status of the dealing entity, regardless of the U.S.-person 
status of the asset manager/execution agent or of the funds/accounts 
that later receive allocations.
     If the dealing entity who executes the bunched order with 
the asset manager is a non-U.S. person but the bunched order execution 
is an ANE transaction, the bunched order execution is again subject to 
both regulatory reporting and public dissemination, regardless of the 
U.S.-person status of the asset manager/execution agent or of the 
funds/accounts that later receive allocations.
     If all of the funds/accounts that could be eligible to 
receive allocations are U.S. persons, the bunched order execution is 
subject to both regulatory reporting and public dissemination because 
of the U.S.-person status of the funds/accounts, regardless of the 
U.S.-person status of the dealing entity or the location of the 
personnel (or agent) of the dealing entity. In other words, however the 
asset manager/execution agent allocates the bunched order execution in 
this example, there is no scenario where any part of the bunched order 
execution could be viewed as involving a non-U.S. person. Therefore, 
the initial bunched order execution involving the dealing entity on one 
side necessarily has a U.S. person on the other side, and the initial 
bunched order execution is subject to both regulatory reporting and 
public dissemination.
    The Commission acknowledges that a more complex situation arises if 
the bunched order execution is between an unregistered non-U.S. person 
who is not engaging in ANE activity and an asset manager/execution 
agent acting on behalf of funds/accounts at least some of which are 
non-U.S. persons. In some cases, the status of the initial bunched 
order execution would be resolved if the asset manager/execution agent 
ultimately makes allocations only to funds/accounts that are U.S. 
persons.\327\ In other cases, however, the asset manager/execution 
agent \328\ might make allocations to some funds/accounts that are non-
U.S. persons or might not, in unusual cases, make any allocations until 
more than 24 hours after the time of execution of the initial bunched 
order. Ordinarily, the U.S.-person status of the asset manager/
execution agent is not determinative of whether the bunched order 
execution is subject to regulatory reporting and public dissemination 
under Rule 908(a)(1)(i) or any other provision of Rule 908(a).\329\ In 
this limited situation, however, the Commission believes that it would 
be reasonable for the sides to look to the U.S.-person status of the 
asset manager/execution agent to resolve whether or not the bunched 
order execution should be subject to regulatory reporting and public 
dissemination. Given that the true counterparties might be unknown or 
unknowable when the transaction report for the bunched order execution 
is due, the U.S.-person status of the asset manager/execution agent can 
serve as a reasonable proxy. Even if some or all of the allocation is 
subsequently made to funds/accounts that are not U.S. persons, it would 
not be inconsistent with Regulation SBSR if a regulatory report and 
public dissemination of the initial bunched order execution, including 
the full notional size, is made. Furthermore, if the asset manager/
execution agent is not a U.S. person and the counterparties determine 
not to report the transaction on that basis, and if allocations are 
made to one or more funds/accounts that are U.S. persons, those 
security-based swaps resulting from the allocation would have to be 
reported, and the Commission would still have at least partial 
understanding of the overall transaction.\330\ The Commission staff 
intends to evaluate this issue after required reporting commences.
---------------------------------------------------------------------------

    \327\ The Commission understands from discussions with market 
participants that allocation determinations are generally made 
within 24 hours after execution. In such cases, the asset manager/
execution agent would know that all of the security-based swaps 
resulting from allocation--as well as the initial bunched order 
execution--are subject to regulatory reporting and public 
dissemination, because of the U.S.-person status of all of fund/
account counterparties, before a transaction report for the initial 
bunched order execution is due, at least during the first interim 
phase of security-based swap reporting.
    \328\ The Commission notes that some transactions could involve 
more than one execution agent, and that the execution agent IDs of 
all execution agents of each direct counterparty would be required 
to be reported. See Regulation SBSR Adopting Release, 80 FR at 14583 
(``The Commission notes that some security-based transactions may 
involve multiple agents'').
    \329\ Existing Rule 908(a)(1)(i) provides that a security-based 
swap shall be subject to regulatory reporting and public 
dissemination if there ``is a direct or indirect counterparty that 
is a U.S. person on either or both sides of the transaction.'' The 
execution agent/asset manager would not be a counterparty to the 
executed bunched order unless it was the primary obligor or a 
guarantor for the bunched order execution. See Rule 900(i) (defining 
``counterparty'' for purposes of Regulation SBSR). If the asset 
manager/execution agent is the primary obligor or a guarantor of the 
security-based swap, it would be a counterparty and the outcome of 
the reporting hierarchy would have to reflect this fact.
    \330\ The commenter observed that, ``due to cross-border 
considerations the aggregate notional of a bunched order will not 
always tie out completely in reported SBSR data to the sum of the 
notional of its related allocations.'' ISDA/SIFMA Letter 28. This 
could occur if, for example, the initial bunched order execution 
were reported to a registered SDR, but certain security-based swaps 
resulting from the allocation were not, because they did not fall 
within any of the prongs of Rule 908(a)(1). The Commission 
recognizes this possibility. However, it does not appear that this 
would happen to such an extent as to compromise the Commission's 
ability to oversee the security-based swap market.
---------------------------------------------------------------------------

D. Conforming Amendment to Rule 901(d)(4)

    Existing Rule 901(d)(4) requires the reporting side to report, as 
applicable, the branch ID, broker ID, execution agent ID, trader ID, 
and trading desk ID of the direct counterparty on the reporting side. 
One commenter requested that, for bunched order executions, the 
reporting side be

[[Page 53583]]

excused from this requirement because the relevant information ``can 
only be determined upon allocation as any reported values would refer 
to applicable agreements with each party to an allocation and not the 
execution agent. SBSR should explicitly absolve platforms, clearing 
agencies and reporting sides from the obligation to report the 
information required by Sec.  242.901(d)(4) for bunched orders.'' \331\
---------------------------------------------------------------------------

    \331\ ISDA/SIFMA Letter at 28-29. The commenter noted that the 
Commission had not proposed to require a platform to report the 
title and date of agreements incorporated by reference for a bunched 
order alpha that will be submitted to clearing. See id. at 28.
---------------------------------------------------------------------------

    The Commission agrees and has decided to amend Rule 901(d)(4) so 
that it does not apply to the initial bunched order execution, and 
instead applies only to the security-based swaps that result from the 
allocation of that bunched order execution. The relevant agreements 
that are to be reported pursuant to Rule 901(d)(4) are between the 
clients of the execution agent--i.e., the funds that receive 
allocations--and the security-based swap dealer. The Commission 
believes that it is unnecessary to require these agreements to be 
reported twice, once with the report of the bunched order execution and 
once with the report of each security-based swap resulting from the 
allocation of the original bunched order execution. Requiring the 
reporting of agreement information for the bunched order execution 
could be challenging in instances when the clients that will receive 
the allocated security-based swaps are not known at the time of 
execution of the bunched order. Furthermore, the title and date of the 
relevant agreements will be included in the reports of the security-
based swaps resulting from the allocation. Therefore, the Commission 
does not believe it is necessary to require the names and dates of the 
agreements to be reported with the initial bunched order execution.

VII. Reporting and Public Dissemination of Prime Brokerage Transactions

A. Background

    In the Regulation SBSR Proposed Amendments Release, the Commission 
discussed how Regulation SBSR would apply to security-based swap 
transactions arising out of prime brokerage arrangements.\332\ The 
Commission understands that, under a typical prime brokerage 
arrangement, a prime broker and a client enter into an agreement 
whereby the prime broker facilitates the client's participation in the 
security-based swap market by providing credit intermediation services. 
The prime brokerage arrangement permits the client to negotiate and 
agree to the terms of security-based swaps with one or more third-party 
``executing dealers,'' subject to limits and parameters specified in 
the prime brokerage agreement. An executing dealer would negotiate a 
security-based swap with the client expecting that it would face the 
prime broker, rather than the client, for the duration of the security-
based swap. The executing dealer and/or the client would submit the 
transaction that they have negotiated to the prime broker. In the 
Regulation SBSR Proposed Amendments Release, the Commission set forth 
its understanding that a typical prime brokerage transaction involved 
three security-based swap transactions or ``legs'': \333\
---------------------------------------------------------------------------

    \332\ See Regulation SBSR Proposed Amendments Release, 80 FR at 
14755-57.
    \333\ See id. at 14755.
---------------------------------------------------------------------------

     Transaction 1. The client and the executing dealer 
negotiate and agree to the terms of a security-based swap transaction 
(the ``client/executing dealer transaction'') and notify the prime 
broker of these terms. Transaction 1 is terminated upon the creation of 
Transaction 2 and 3, as described below.
     Transaction 2. If the terms of Transaction 1 are within 
the parameters established by the prime brokerage arrangement, the 
prime broker accepts the transaction and faces the executing dealer in 
a new security-based swap (the ``prime broker/executing dealer 
transaction'') having the same economic terms agreed to by the 
executing dealer and the client in Transaction 1.
     Transaction 3. Upon executing Transaction 2 with the 
executing dealer, the prime broker will enter into an offsetting 
security-based swap with the client (the ``prime broker/client 
transaction'').
    The Commission received three comments regarding this proposed 
interpretation. One commenter disagreed with the Commission's view that 
a typical prime brokerage transaction comprises three legs, arguing 
that the negotiation of terms between the executing dealer and the 
client does not result in a transaction between the executing dealer 
and the client.\334\ The commenter also stated that, if the prime 
broker did not accept the transaction, there would be no security-based 
swap to report (i.e., there would not be a client/executing dealer 
transaction in the absence of acceptance by the prime broker).\335\ 
Accordingly, the commenter requested that the Commission limit all 
reporting requirements arising from a prime brokerage arrangement to 
Transactions 2 and 3.\336\ Another commenter concurred that a typical 
prime brokerage arrangement would result in only two legs, one between 
the prime broker and the executing dealer and one between the client 
and the prime broker.\337\ The commenter expressed the view that there 
is not a transaction between the executing dealer and the client,\338\ 
and that the initial negotiation between the executing dealer and the 
client results in a security-based swap between the executing dealer 
and the prime broker, with the client acting as the prime broker's 
agent.\339\
---------------------------------------------------------------------------

    \334\ See ISDA/SIFMA Letter at 20.
    \335\ See id.
    \336\ See id. at 21.
    \337\ See Memorandum from the Division of Trading and Markets 
regarding a November 13, 2015, meeting with representatives of SIFMA 
and Cleary Gottlieb Steen & Hamilton LLP (November 20, 2015), at 
slide 5.
    \338\ See id. at slide 11.
    \339\ See id. at slide 5.
---------------------------------------------------------------------------

    After considering these comments, the Commission is supplementing 
its views regarding the application of Regulation SBSR to prime 
brokerage arrangements. The Commission understands that the 
documentation used to structure a prime brokerage arrangement may vary. 
As described more fully below, the documentation may provide that the 
client acts as agent for the prime broker when negotiating the first 
leg with the executing dealer, resulting in a prime brokerage structure 
comprised of two legs (the prime broker/executing dealer transaction 
and the prime broker/client transaction). Alternatively, the 
documentation could provide that the negotiation between the client and 
the executing dealer results in a transaction between those two 
parties,\340\ resulting in a prime brokerage structure comprised of 
three legs (the client/executing dealer transaction, the prime broker/
executing dealer transaction, and the prime broker/client transaction). 
In cases where the client is acting as agent for the prime broker, the 
arrangement would result in the following two legs:
---------------------------------------------------------------------------

    \340\ For example, the client and executing dealer could agree 
in advance that, in the event of rejection by the prime broker, they 
would preserve their contract without the involvement of the prime 
broker. See ISDA, 2005 ISDA Compensation Agreement (``ISDA 
Compensation Agreement'') at Section 2.
---------------------------------------------------------------------------

     Transaction A. The client, acting as agent for the prime 
broker, and the executing dealer negotiate a security-based swap 
transaction and notify the prime broker of its terms. If the 
transaction does not satisfy the parameters in the prime brokerage 
agreement, the prime broker may reject

[[Page 53584]]

the transaction. If the prime broker accepts the transaction, the prime 
broker and the executing dealer are counterparties to the security-
based swap.
     Transaction B. If the prime broker accepts Transaction A, 
the prime broker also will enter into an offsetting security-based swap 
with the client.
    In cases where the documentation provides for a three-legged 
structure, the Commission is making a minor modification to Rule 902(c) 
to account for the situation where a registered SDR receives notice 
that the prime broker has rejected the transaction before the SDR has 
received the initial transaction report.\341\ The Commission discusses 
below the application of the reporting and dissemination requirements 
as they apply to the two-legged structure and provides additional 
clarification in response to comments.
---------------------------------------------------------------------------

    \341\ See infra Section VII(D).
---------------------------------------------------------------------------

B. Reporting of Security-Based Swaps Resulting From Prime Brokerage 
Arrangements

    In the Regulation SBSR Proposed Amendments Release, the Commission 
stated its understanding that prime brokerage arrangements involve 
credit intermediation offered by the prime broker, rather than a 
registered clearing agency; thus, prime brokerage transactions are not 
cleared.\342\ Therefore, the application of Regulation SBSR's reporting 
and dissemination requirements to a prime brokerage arrangement 
detailed below assumes none of the security-based swaps resulting from 
a prime brokerage arrangement is a clearing transaction, and that none 
is intended to be cleared.
---------------------------------------------------------------------------

    \342\ See 80 FR at 14755.
---------------------------------------------------------------------------

1. If There Are Three Legs
    In the Regulation SBSR Proposed Amendments Release, the Commission 
set forth its proposed interpretation of the application of Regulation 
SBSR to the three-legged prime brokerage structure.\343\ The Commission 
is finalizing this interpretation substantially as proposed.
---------------------------------------------------------------------------

    \343\ See id. at 14755-57.
---------------------------------------------------------------------------

    Because Transaction 1 (i.e., the client/executing dealer 
transaction) is not a clearing transaction and it is not intended to be 
cleared, the reporting hierarchy in existing Rule 901(a)(2)(ii) assigns 
the reporting duty for Transaction 1. If the prime broker accepts the 
transaction, the prime broker would initiate Transactions 2 and 3, 
which would have the effect of terminating Transaction 1. The 
termination would be a life cycle event of Transaction 1, and existing 
Rule 901(e)(2) requires the reporting side for Transaction 1 (likely 
the executing dealer) to report this life cycle event to the same 
registered SDR to which it reported Transaction 1.\344\
---------------------------------------------------------------------------

    \344\ One commenter agreed with this approach, stating that the 
reporting obligation should remain with the original reporting side. 
See LCH.Clearnet Letter at 11.
---------------------------------------------------------------------------

    Transactions 2 and 3 (i.e., the prime broker/executing dealer 
transaction and the prime broker/client transaction, respectively) also 
are security-based swaps that must be reported pursuant to Rule 
901(a)(2)(ii). Because each of these transactions is a security-based 
swap that arises from the termination of another security-based swap 
(i.e., Transaction 1), existing Rule 901(d)(10) requires the reporting 
of Transaction 1's transaction ID as part of the secondary trade 
information for each of Transaction 2 and Transaction 3.
2. If There Are Two Legs
    The Commission is providing the following interpretation of the 
application of the reporting requirements of Regulation SBSR in cases 
where the documentation provides for a two-legged structure.
    Existing Rule 901(a)(2)(ii) assigns the reporting duty for 
Transaction A (i.e., the prime broker/executing dealer transaction), 
because Transaction A is not a clearing transaction and it is not 
intended to be cleared. When the client, acting as agent for the prime 
broker, executes Transaction A with the executing dealer, the sides 
(i.e., the executing dealer and the prime broker) would determine the 
reporting side pursuant to the hierarchy set forth in existing Rule 
901(a)(2)(ii). The reporting side would have up to 24 hours after the 
time of execution to report the applicable primary and secondary trade 
information of Transaction A. The client would be disclosed as the 
execution agent of the prime broker pursuant to Rule 901(d)(2) (if the 
prime broker is the reporting side) or Rule 906(a) (if the prime broker 
is not the reporting side).
    If the prime broker accepts the transaction, the prime broker would 
initiate Transaction B between itself and the client. The reporting 
side for Transaction B also would be determined pursuant to Rule 
901(a)(2)(ii). The reporting side would have up to 24 hours after the 
time of execution to report the applicable primary and secondary trade 
information of Transaction B.

C. Public Dissemination of Prime Brokerage Transactions

    Existing Rule 902(a) requires public dissemination of each 
security-based swap, unless it falls within a category enumerated in 
Rule 902(c). If the documentation of the prime brokerage agreement is 
such that there are three security-based swaps, then each of the three 
is subject to public dissemination; if the documentation of the prime 
brokerage agreement is such that there are only two security-based 
swaps, both are subject to public dissemination.
    If a prime broker rejects either Transaction 1 or Transaction A, 
the registered SDR would handle dissemination of information regarding 
the termination of the first transaction in the same manner as an alpha 
that has been rejected from clearing.\345\
---------------------------------------------------------------------------

    \345\ See infra Section VII(D) (discussing the effect of 
rejection by the prime broker). See also supra Section III(J).
---------------------------------------------------------------------------

    One commenter reiterated an earlier request that the Commission 
exempt the prime broker/client leg of a prime broker transaction from 
public dissemination, arguing that dissemination of this transaction 
would provide misleading price data without providing any further 
transparency on costs related to prime brokerage.\346\ The commenter 
argued that the prime broker's service fee is not relevant to security-
based swap pricing.\347\ In the Regulation SBSR Proposed Amendments 
Release, the Commission stated its preliminary belief that publicly 
disseminating reports of each leg of a prime brokerage transaction 
could provide market observers with useful information about the cost 
of the prime broker's credit intermediation services, because prime 
brokers may charge for these services by pricing the executing dealer/
prime broker transaction differently than the prime broker/client 
transaction.\348\ The Commission also noted that, with prime brokerage 
transactions, the only mechanism for ascertaining the charge for the 
credit intermediation service offered by the prime broker would be to 
compare the prices of Transaction 1 with the prices of any subsequent 
transaction.\349\
---------------------------------------------------------------------------

    \346\ See ISDA/SIFMA Letter at 21.
    \347\ See id.
    \348\ See 80 FR at 14756.
    \349\ See id.
---------------------------------------------------------------------------

    In response, the commenter noted that prime brokers might not in 
all cases include their fees in transaction prices and stated that, if 
the fees charged for prime brokerage services were useful to market 
observers, then such information could be more ``reliably and 
accurately

[[Page 53585]]

obtained by requesting it from a [prime broker].'' \350\ The 
Commission, however, continues to believe that disseminating each leg 
of a prime brokerage arrangement will enhance price discovery by 
helping market observers to distinguish between the price of a 
security-based swap and the cost of credit intermediation. Market 
participants should not have to request information from a prime broker 
regarding the manner in which the cost of a prime broker's credit 
intermediation service might affect the price of a security-based swap 
when the mandate of Section 13(m)(1)(C) provides all market observers 
with the ability to observe the prices directly. Even if the fees 
charged for prime brokerage services are not always reflected in 
transaction prices, at least some transaction prices will include the 
cost of credit intermediation. Therefore, the Commission believes that 
none of the legs of a prime brokerage transaction should be excluded 
from public dissemination.
---------------------------------------------------------------------------

    \350\ ISDA/SIFMA Letter at 21.
---------------------------------------------------------------------------

    In this regard, the Commission notes that Rule 907(a)(4) requires 
the policies and procedures of a registered SDR, in relevant part, to 
identify characteristics of a security-based swap that could, in the 
fair and reasonable estimation of the registered SDR, cause a person 
without knowledge of those characteristics to receive a distorted view 
of the market. The Commission believes that it would be difficult to 
comply with that requirements of the rule if a registered SDR did not 
identify whether individual security-based swaps are related legs of a 
prime brokerage transaction. If market observers are not given the 
ability to identify the two or three legs of a prime brokerage 
transaction as related, it would be difficult for market observers to 
avoid developing a distorted view of the market.\351\
---------------------------------------------------------------------------

    \351\ See supra note 223.
---------------------------------------------------------------------------

    One commenter acknowledged that a prime brokerage flag had 
``potential value'' for regulatory reporting but strongly disagreed 
with the Commission's view that a prime brokerage flag should be 
publicly disseminated.\352\ The commenter argued that the market for 
security-based swap prime brokerage services is limited, so a prime 
brokerage flag would have a ``high probability of compromising the 
anonymity'' of executing dealers and prime brokers.\353\ The Commission 
considered similar issues in the Regulation SBSR Adopting Release 
relating to thinly traded security-based swaps.\354\ There, the 
Commission declined to provide any exception to public dissemination 
based on the fact that only a small number of market makers were active 
in particular segments of the market. Here, the Commission declines to 
make any exception to its approach to public dissemination of prime 
brokerage transactions. Absent a prime brokerage flag, market observers 
would have no ability to know that the separate legs of a single prime 
brokerage transaction are related, and would incorrectly conclude that 
there was more market activity than in fact occurred.
---------------------------------------------------------------------------

    \352\ See ISDA/SIFMA Letter at 22.
    \353\ Id.
    \354\ See 80 FR at 14612.
---------------------------------------------------------------------------

    Finally, one commenter noted that a prime broker/client leg might 
be a bunched order execution where the allocations ``are provided 
upfront,'' and argued that the dissemination of these multiple 
transactions would not enhance price discovery.\355\ In the Regulation 
SBSR Adopting Release, the Commission provided guidance regarding how a 
bunched order execution must be reported and publicly disseminated 
(assuming that the bunched order execution is not cleared): The initial 
bunched order execution and any security-based swaps that result from 
allocating the bunched order execution are subject to regulatory 
reporting, while only the bunched order execution is subject to public 
dissemination.\356\ Thus, the Commission agrees with the commenter that 
the security-based swaps resulting from the allocation of a prime 
broker/client transaction should not be publicly disseminated. However, 
the initial bunched order execution between the prime broker and the 
client is subject to public dissemination.
---------------------------------------------------------------------------

    \355\ ISDA/SIFMA Letter at 21.
    \356\ See 80 FR at 14625-27. See also Rule 902(c)(7) (requiring 
a registered SDR to refrain from disseminating any information 
regarding the allocation of a security-based swap).
---------------------------------------------------------------------------

D. If the Prime Broker Rejects the Initial Security-Based Swap

    Under either the two-leg or three-leg prime brokerage arrangements 
described above, the prime broker could reject the initial transaction 
negotiated between the client and the executing dealer. The Commission 
is providing guidance regarding how Regulation SBSR applies to this 
possibility.
    The effect of the rejection by the prime broker would depend on 
what, if any, contractual agreement exists between the executing dealer 
and its client. In some cases, the client and the executing dealer 
could have a pre-existing agreement that would allow them to revise the 
security-based swap with new terms if the prime broker rejects a 
transaction that they have negotiated.\357\ If there is such an 
agreement and the client and executing dealer elect to preserve a 
security-based swap between them, the result would have to be reported 
in one of two ways. If the governing documentation provides that there 
are only two security-based swaps that could result from the prime 
brokerage arrangement (i.e., the initial leg is between the prime 
broker and the executing dealer, with the client acting as agent for 
the prime broker), the rejection by the prime broker would have the 
effect of terminating this leg, and the termination would have to be 
reported by the reporting side of the initial leg. The security-based 
swap arising between the client and the executing dealer would, because 
there are new counterparties, be a new security-based swap, and the 
reporting side for this security-based swap would be determined by the 
reporting hierarchy. On the other hand, if the governing documentation 
provides that three security-swaps would result from the prime 
brokerage arrangement and the client and executing dealer intend to 
preserve the security-based swap with different terms, the rejection by 
the prime broker and the amendment with the new terms would have to be 
reported as a life cycle event of the initial leg (presumably by 
executing dealer). If there is no pre-existing agreement between the 
client and the executing dealer that would allow for an amendment to 
the initially negotiated leg or such an agreement exists but the client 
and executing dealer elect not to keep the security-based swap in 
existence, the prime broker's rejection would terminate the initial leg 
and the reporting side of the initial leg would have to report the 
termination.
---------------------------------------------------------------------------

    \357\ See, e.g., ISDA Compensation Agreement, at Section 2.
---------------------------------------------------------------------------

    If rejection by the prime broker results in a termination, one of 
two things must occur next. If the registered SDR that received the 
report of the initial leg has already disseminated it, the SDR must 
then disseminate a follow-up report indicating that the initial 
security-based swap has been terminated.\358\ However, situations could 
arise where the registered SDR had not yet disseminated a report of the 
initial leg when it

[[Page 53586]]

receives notice of the termination.\359\ As noted in Section III(J), 
supra, the Commission is adopting a new paragraph (c)(8) to existing 
Rule 902(c) providing that a registered SDR shall not publicly 
disseminate ``[a]ny information regarding a security-based swap that 
has been rejected from clearing or rejected by a prime broker if the 
original transaction report has not yet been publicly disseminated.'' 
Therefore, if the registered SDR had not disseminated the transaction 
report for Transaction 1/Transaction A at the time that it receives the 
report of the termination of that transaction, the registered SDR would 
not disseminate any information regarding Transaction 1/Transaction A. 
Conversely, if the registered SDR had disseminated a transaction report 
of Transaction 1/Transaction A before receiving the termination report 
for that transaction, the registered SDR would disseminate a report of 
the termination of Transaction 1/Transaction A.
---------------------------------------------------------------------------

    \358\ See Rule 902(a) (requiring, in relevant part, 
dissemination of life cycle events when there are changes to 
information provided under Rule 901(c)); Rule 907(a)(3) (requiring a 
registered SDR, in relevant part, to have written policies and 
procedures for flagging transaction reports involving life cycle 
events).
    \359\ For example, assume that the prime brokerage agreement 
provides for a three-legged structure and the executing dealer is 
the reporting side for the initial leg between itself and the 
client. However, there is no pre-existing agreement between the 
client and executing dealer that would allow for the terms of the 
initial leg to be renegotiated if the prime broker rejects the 
transaction. Assume further that the executing dealer does not 
immediately report the initial leg. See Rule 901(j) (generally 
allowing up to 24 hours after the time of execution to report a 
security-based swap). When the client and the executing dealer 
convey the results of their negotiation to the prime broker, the 
prime broker rejects the transaction. The executing dealer may 
simultaneously report to a registered SDR the terms of the initial 
leg and the fact that it has been rejected by the prime broker and 
terminated.
---------------------------------------------------------------------------

VIII. Prohibition on Registered SDRs From Charging Fees for or Imposing 
Usage Restrictions on Publicly Disseminated Data

A. Background

    Existing Rule 902(a) requires a registered SDR to publicly 
disseminate a transaction report of a security-based swap, or a life 
cycle event or adjustment due to a life cycle event, immediately upon 
receipt of information about the security-based swap, with certain 
exceptions noted in existing Rule 902(c). Existing Rule 900(cc) defines 
``publicly disseminate'' to mean ``to make available through the 
Internet or other electronic data feed that is widely accessible and in 
machine-readable electronic format.'' In the Regulation SBSR Proposed 
Amendments Release, the Commission stated its preliminary belief that a 
registered SDR should not be permitted to charge fees for the security-
based swap transaction data that it is required to publicly disseminate 
pursuant to Regulation SBSR.\360\ Accordingly, the Commission proposed 
new Rule 900(tt), which would define the term ``widely accessible''--as 
used in the definition of ``publicly disseminate'' in existing Rule 
900(cc)--to mean ``widely available to users of the information on a 
non-fee basis.'' As discussed in the SBSR Proposed Amendments Release, 
this proposed definition of ``widely accessible'' would have the effect 
of prohibiting a registered SDR from charging fees for, or imposing 
usage restrictions on, the security-based swap transaction data that it 
is required to publicly disseminate under Regulation SBSR.\361\
---------------------------------------------------------------------------

    \360\ See 80 FR at 14760.
    \361\ See id.
---------------------------------------------------------------------------

    In proposing this requirement, the Commission considered the 
statutory requirements to establish post-trade transparency in the 
security-based swap market, the CFTC's rules for public dissemination, 
and comments received in response to Regulation SBSR, as originally 
proposed and as re-proposed. Title VII contains numerous provisions 
directing the Commission to establish a regime for post-trade 
transparency in the security-based swap market, which are designed to 
give the public pricing, volume, and other relevant information about 
all executed security-based swap transactions.\362\ In the Regulation 
SBSR Proposed Amendments Release, the Commission expressed the 
preliminary view that the statutory requirement to make this 
transaction information publicly available would be frustrated if 
registered SDRs could charge members of the public for the right to 
access the disseminated data.\363\
---------------------------------------------------------------------------

    \362\ See id. at 14759-60.
    \363\ See id. at 14760.
---------------------------------------------------------------------------

    The Commission also expressed the preliminary belief that it is 
necessary to prohibit a registered SDR from charging users of 
regulatorily mandated security-based swap transaction data for public 
dissemination of the data to reinforce existing Rule 903(b).\364\ Rule 
903(b) provides that a registered SDR may disseminate information using 
UICs (such as product IDs or other codes, such as reference entity 
identifiers, that are embedded within the product IDs) or permit UICs 
to be used for reporting by its participants only if the information 
necessary to interpret such UICs is widely available on a non-fee 
basis. The Commission continues to be concerned that a registered SDR 
that wished to charge (or allow others to charge) users for the 
information necessary to understand these UICs--but could not, because 
of Rule 903(b)--might seek to do so indirectly by recharacterizing the 
charge as being for public dissemination. Under these circumstances, 
the economic benefit to the registered SDR would be the same, but the 
manner in which the registered SDR characterizes the fee--i.e., whether 
as a charge to users for public dissemination or as a charge of 
accessing the UICs within the publicly disseminated data--would be the 
difference between the fee being permissible or impermissible under 
Rule 903(b). Accordingly, the Commission took the preliminary view that 
permitting a registered SDR to charge users for receiving the publicly 
disseminated transaction data could undermine the purposes of Rule 
903(b).
---------------------------------------------------------------------------

    \364\ See id. at 14761.
---------------------------------------------------------------------------

    The CFTC, in adopting its own rules for public dissemination of 
swap transactions, addressed the issue of whether a swap data 
repository could be allowed to charge for its publicly disseminated 
data. In Section 43.2 of its rules,\365\ the CFTC defined ``public 
dissemination'' and ``publicly disseminate'' to mean ``to publish and 
make available swap transaction and pricing data in a non-
discriminatory manner, through the Internet or other electronic data 
feed that is widely published and in machine-readable electronic 
format.'' The CFTC also defined ``widely published'' to mean ``to 
publish and make available through electronic means and in a manner 
that is freely available and readily accessible to the public.'' \366\ 
Section 43.3(d)(2) of the CFTC rules provides: ``Data that is publicly 
disseminated . . . shall be available from an Internet Web site in a 
format that is freely available and readily accessible to the public.'' 
The CFTC stated that ``implicit in this mandate [of public 
dissemination] is the requirement that the data be made available to 
the public at no cost,'' \367\ and that ``Section 43.3(d)(2) reflects 
the [CFTC]'s belief that data must be made freely available to market 
participants and the public, on a nondiscriminatory basis.'' \368\ 
Although prohibiting fees on the data that swap data repositories are 
required to publicly disseminate, the CFTC's rules permit a swap data 
repository to offer, for a fee, value-added data products derived from 
the freely available regulatorily mandated public data and to charge 
fair and reasonable

[[Page 53587]]

fees to providers of swap transaction and pricing data.\369\
---------------------------------------------------------------------------

    \365\ 17 CFR 43.2.
    \366\ Id. (emphasis added).
    \367\ Real-Time Public Reporting of Swap Transaction Data (Final 
Rule), 77 FR 1182, 1207 (January 9, 2012).
    \368\ Id. at 1202 (emphasis added).
    \369\ See id. at 1207.
---------------------------------------------------------------------------

B. Comments Received and Final Rule

    The Commission received six comments on whether registered SDRs 
should be permitted to charge fees or impose usage restrictions on 
publicly disseminated data.\370\ Several commenters generally agreed 
with prohibiting an SDR from charging fees or imposing usage 
restrictions on the transaction data that it is required to publicly 
disseminate.\371\ However, one commenter argued against imposing a 
prohibition against usage restrictions \372\ and another requested that 
the Commission clarify the applicability of the prohibition.\373\ After 
carefully considering all of the comments received, the Commission is 
adopting Rule 900(tt) as proposed and provides clarification, below, 
regarding application of the rule.
---------------------------------------------------------------------------

    \370\ See Barnard I at 2; Better Markets Letter at 5; DTCC 
Letter at 14-15, 18-19; ICE Letter at 7; ISDA/SIFMA Letter at 29; 
Markit Letter at 15.
    \371\ See Barnard I at 2; ISDA/SIFMA Letter at 29; Markit Letter 
at 15. One commenter noted that providing data on a non-fee basis is 
``critical,'' but that the Commission's rules should also ensure 
equal access. See Better Markets Letter at 5.
    \372\ See DTCC Letter at 14-15, 18-19.
    \373\ See Markit Letter at 15.
---------------------------------------------------------------------------

    The Commission stated in the Regulation SBSR Proposed Amendments 
Release that the requirement that information be ``widely available to 
users of the information on a non-fee basis'' necessarily implies that 
a registered SDR would not be permitted to impose--or allow to be 
imposed--any usage restrictions on the security-based swap transaction 
information that it is required to publicly disseminate, including 
restrictions on access to or further distribution of the regulatorily 
mandated public security-based swap data.\374\ One commenter agreed 
with this view \375\ and another disagreed, the latter stating that a 
registered SDR should be able to manage redistribution of data it 
disseminates.\376\ The commenter noted that a limitation on usage 
restrictions for publicly disseminated data would prevent a registered 
SDR from monetizing a potential revenue stream.\377\ In addition, the 
commenter was concerned about claims related to data redistributed by 
others.\378\ The commenter argued that a registered SDR should be 
permitted to impose various usage restrictions on its publicly 
disseminated data, such as a requirement to attribute the SDR as the 
source of the data, a restriction of the data to internal use, and a 
prohibition on redistribution of the data ``without first engaging the 
SB SDR and agreeing on licensing terms.'' \379\
---------------------------------------------------------------------------

    \374\ See Regulation SBSR Adopting Release, 80 FR at 14761.
    \375\ See ISDA/SIFMA Letter at 29.
    \376\ See DTCC Letter at 15, 19.
    \377\ See id. at 15.
    \378\ See id.
    \379\ Id. at 19. See also id. at 15 (``Typical restrictions on 
the use of data obtained from the trade repository's public 
dissemination might include restricting data to internal use without 
a license and limiting publishing, redistributing, databasing, 
archiving, creating derivative works, or using the data to compete 
with the trade repository or in a manner otherwise adverse to the 
trade repository. These are relatively standard clauses in data 
licenses''). Even if these restrictions are ``standard clauses in 
data licenses,'' the Commission notes that they are not permitted 
under Regulation SBSR, in light of the amendments being adopted 
today.
---------------------------------------------------------------------------

    The Commission continues to believe that public dissemination would 
not satisfy the ``widely available'' standard in Rule 900(tt) if a 
registered SDR could deny access to users who do not agree to limit 
their use of the data in a manner directed by the registered SDR. Here, 
the Commission notes the asymmetric bargaining strength of the parties: 
A registered SDR has a monopoly position over the security-based swap 
transaction data that it is required to publicly disseminate, because 
the public has no access to that information until it is publicly 
disseminated. If a registered SDR could impose usage restrictions with 
which a user does not wish to comply, there would be no other source 
from which the user could freely obtain this transaction information.
    The prohibition on usage restrictions would also prohibit an SDR-
imposed restriction on bulk redistribution by third parties of the 
regulatorily mandated transaction data that the registered SDR publicly 
disseminates. Despite the objections of one commenter,\380\ the 
Commission continues to believe that it could prove useful to the 
public for intermediaries to collect, consolidate, and redistribute the 
regulatorily mandated transaction data to the public. Users of the data 
might, instead of obtaining data directly from each of several SDRs, 
find it preferable to obtain the data from a single person who itself 
obtains the data directly from the multiple registered SDRs and 
consolidates it. The Commission continues to believe that allowing 
unencumbered redistribution best serves the policy goals of wide 
availability of the data and minimization of information asymmetries in 
the security-based swap market. Because the Commission is prohibiting 
registered SDRs from imposing a restriction on bulk redistribution, 
third parties (as well as registered SDRs themselves, as discussed 
below) will be able to take in the full data set and scrub, 
reconfigure, aggregate, analyze, repurpose, or otherwise add value to 
those data, and potentially sell that value-added product to others.
---------------------------------------------------------------------------

    \380\ See id. (``there should be no limitations on a registered 
trade repository's ability to manage the redistribution of data it 
has previously disseminated'').
---------------------------------------------------------------------------

    The Commission acknowledges the concern of the commenter who stated 
that ``SB SDRs must be able to protect themselves from claims related 
to data sourced or scraped from the trade repository and redistributed 
by others where there are quality issues with respect to data 
redistributed.'' \381\ However, a registered SDR may not, consistent 
with its duty to publicly disseminate under Rule 902(a) when read in 
connection with Rule 900(tt), require a user of the data to ``agree'' 
to any terms purporting to disclaim the SDR's responsibility for 
incorrect data before the user may access the regulatorily mandated 
public security-based swap data, as this would constitute a usage 
restriction. The Commission declines to make an exception for usage 
restrictions that are designed to limit a registered SDR's potential 
liability to third parties. The Commission believes that unencumbered 
access best serves the policy goals of wide availability of the data 
and minimization of information asymmetries in the security-based swap 
market, and that the speculative risk of SDR liability does not justify 
foregoing the public benefits of promoting free and unrestricted access 
to the security-based swap transaction data that registered SDRs are 
required to disseminate.
---------------------------------------------------------------------------

    \381\ Id. at 15.
---------------------------------------------------------------------------

    The Commission recognizes that establishing and operating a 
registered SDR entails various costs. The Commission does not believe, 
however, that prohibiting a registered SDR from charging for data that 
it is required to publicly disseminate will impede its ability to carry 
out these functions because other viable sources of revenue are 
available to registered SDRs. One such source may be fees imposed on 
persons who are required to report transactions to the SDR. Thus, the 
Commission believes that, with the adopted definition of ``widely 
accessible,'' a registered SDR will have adequate sources of funding 
even if it is prohibited from charging users fees for receiving the 
security-based swap

[[Page 53588]]

transaction data that the SDR is required to publicly disseminate.\382\
---------------------------------------------------------------------------

    \382\ One commenter, responding to the Commission's request for 
comment on what means exist for registered SDRs to recoup their 
operating costs, stated: ``Non-reporting sides should be charged a 
minimum monthly fee for system access. This minimum charge reflects 
the fact that non-reporting and small volume participants tend to 
require equal levels of support and other resources relative to 
moderate and high volume participants.'' ICE Letter at 7. This issue 
is beyond the scope of this rulemaking, although the Commission 
notes that existing Rule 13n-4(c)(1)(i) under the Exchange Act 
requires an SDR to ensure that any dues, fees, or other charges 
imposed by the SDR are fair and reasonable and not unreasonably 
discriminatory.
---------------------------------------------------------------------------

C. Other Interpretive Issues

    Two commenters advocated that a registered SDR be permitted to 
offer value-added services related to publicly disseminated data.\383\ 
One of these commenters stated, for example, that a registered SDR 
``should be permitted to commercialize aggregated SB swap data and 
charge fees for value-added data products that incorporate the 
regulatorily mandated transaction data.'' \384\ As the Commission 
stated in the Regulation SBSR Proposed Amendments Release,\385\ 
existing Rule 902(a) does not prohibit a registered SDR from creating 
and charging fees for a value-added data product that incorporates the 
regulatorily mandated transaction data, provided that the registered 
SDR has first satisfied its duty under Rule 902(a) to publicly 
disseminate the regulatorily mandated transaction data in accordance 
with the definition of ``widely accessible.'' To comply with Rule 
902(a), a registered SDR must publicly disseminate a transaction report 
of a security-based swap (assuming that the transaction does not fall 
within Rule 902(c)) immediately upon receipt of information about the 
security-based swap. Thus, a registered SDR would not be permitted to 
make its value-added product available before it publicly disseminated 
the regulatorily mandated transaction report because such dissemination 
would not comply with the requirement in Rule 902(a) that a registered 
SDR publicly disseminate a transaction report of a security-based swap 
immediately upon receipt of information about the security-based swap.
---------------------------------------------------------------------------

    \383\ See DTCC Letter at 14-15, 18-19; ISDA/SIFMA Letter at 29.
    \384\ DTCC Letter at 14-15 (also stating that ``[a]n SB SDR that 
is permitted to do so would likely be better equipped to bear the 
costs associated with operating a Commission-registered SB SDR. In 
turn, to the extent that such commercialization offsets the costs of 
operating the SDR, the costs of reporting for reporting 
counterparties would likely be reduced'').
    \385\ See 80 FR at 14762.
---------------------------------------------------------------------------

    This approach is consistent with parallel CFTC rules that require 
regulatorily mandated data to be freely available to the public but do 
not prohibit a CFTC-registered swap data repository from making 
commercial use of such data subsequent to its public 
dissemination.\386\ This approach also allows potential competitors in 
the market for value-added security-based swap data products to obtain 
the regulatorily mandated transaction information from registered SDRs 
that have a monopoly on this information until it is publicly 
disseminated.\387\ Potential competitors to the registered SDR could be 
at a disadvantage if, needing the raw data for their own services, they 
had to purchase a value-added data product from the registered SDR or 
could obtain the regulatorily mandated transaction data only on a 
delayed basis. The Commission notes, finally, that any value-added data 
product offered by an SDR may be subject to certain SDR rules.\388\
---------------------------------------------------------------------------

    \386\ See ``Real-Time Public Reporting of Swap Transaction 
Data'' (December 20, 2011), 77 FR 1182, 1207 (January 9, 2012) 
(adopting rules for the public dissemination of swaps).
    \387\ See infra Section XIII(F).
    \388\ See, e.g., Rule 13n-4(c)(1)(i) (requiring that any dues, 
fees, or other charges imposed by an SDR are fair and reasonable and 
not unreasonably discriminatory); Rule 13n-4(c)(1)(ii) (requiring an 
SDR to permit market participants to access specific services 
offered by the SDR separately); Rule 13n-4(c)(1)(iii) (requiring an 
SDR to establish, monitor on an ongoing basis, and enforce clearly 
stated objective criteria that would permit fair, open, and not 
unreasonably discriminatory access to services offered and data 
maintained by the SDR).
---------------------------------------------------------------------------

    A final commenter ``ask[ed] the Commission to clarify that the 
restrictions on user fees and usage in Proposed Rule 900(tt) extends 
only to data that is disseminated by SDRs in a post-trade context.'' 
\389\ The commenter further stated: ``We note and ask the Commission to 
confirm that certain information contained in publicly-disseminated SBS 
transaction records may be proprietary and therefore subject to usage 
restrictions in pre-trade contexts . . . We believe this clarification 
is needed because in its absence, we have reason to expect some market 
participants to infer that because SDRs may not impose usage 
restrictions on information contained in a publicly-disseminated SBS 
record, that all such limitations on user fees and usage restrictions, 
i.e., in pre-trade contexts, are similarly prohibited. However, we do 
not believe that it is the Commission's intention . . . to eliminate 
all user fees and usage restrictions on information contained in 
publicly disseminated SBS data.'' \390\ The commenter further stated 
that there would not be any significant benefit to post-trade 
transparency from restrictions on user fees and usage in pre-trade 
contexts.\391\
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    \389\ Markit Letter at 15.
    \390\ Id. (stating that eliminating all user fees and usage 
restrictions in the pre-trade context ``would erase much of the 
value of virtually all proprietary reference rates, underlier codes, 
prices, or indexes used in SBS transactions'').
    \391\ See id.
---------------------------------------------------------------------------

    The Commission declines to make the clarification requested by the 
commenter. In fact, it is the Commission's intention to eliminate all 
fees and usage restrictions on the information that a registered SDR is 
required to publicly disseminate. In the Commission's view, the 
commenter's distinction between ``post-trade contexts''--where fees and 
usage restrictions could not be imposed--and ``pre-trade contexts''--
where, according to the commenter, they could be imposed--would be 
unworkable. The Commission intends for market observers to be able to 
take in the security-based swap transaction data that are publicly 
disseminated by registered SDRs on a mandatory basis and scrub, 
reconfigure, aggregate, analyze, repurpose, or otherwise add value to 
that publicly disseminated data in any manner that they see fit, 
without fear that doing so might subject them to liability to a third 
party for violating a license agreement.\392\ It would be difficult if 
not impossible for a market observer to explain that its use of 
particular codes derives only from the ``post-trade context'' when 
utilization of the same codes ``in the pre-trade context'' might render 
the market observer liable to the third party who claims to own 
intellectual property in the code. When proposing the requirement that 
the information mandatorily disseminated by a registered SDR be 
``widely available on a non-fee basis,'' the Commission stated that the 
requirement ``necessarily implies that a registered SDR would not be 
permitted to impose--or allow to be imposed--any usage restrictions on 
the security-based swap transaction data that it is required to 
publicly disseminate.'' \393\ Thus, if a registered SDR requires or 
permits the use of any code or other data element where there is a 
reasonable threat that a third-party holder of rights in that code or 
in other data elements might attempt to enforce those rights against 
market observers,

[[Page 53589]]

the registered SDR would not be acting consistent with Rule 903 by 
requiring or permitting use of that code for reporting or publicly 
disseminating security-based swap transaction information pursuant to 
Regulation SBSR. If license restrictions or any other contractual 
restrictions in the ``pre-trade context'' could in any way impede usage 
of the data in a ``post-trade context,'' then any codes or other data 
elements that have license restrictions may not be used under Rule 903.
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    \392\ For example, a third party could take in data that are 
publicly disseminated by one or more registered SDRs and develop its 
own value-added product. The third party would be entitled to 
include in its own value-added product any UICs that are included in 
the information publicly disseminated by any registered SDR pursuant 
to Rule 902.
    \393\ Regulation SBSR Proposed Amendments Release, 80 FR at 
14761 (emphasis added).
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IX. Cross-Border Matters

A. Introduction

    In November 2010,\394\ the Commission proposed Rule 908(a) to 
define the scope of cross-border transactions that would be subject to 
Regulation SBSR's regulatory reporting and public dissemination 
requirements, and proposed Rule 901(a) to establish a reporting 
hierarchy for identifying the person that would have the duty to report 
the security-based swap in a variety of contexts, including cross-
border contexts. In May 2013, the Commission re-proposed Rules 901 and 
908 with substantial revisions as part of the Cross-Border Proposing 
Release.\395\ The Commission adopted modified versions of re-proposed 
Rules 901 and 908 as part of Regulation SBSR.\396\ When doing so, the 
Commission identified certain transactions involving non-U.S. persons 
that would not be addressed by Rules 901(a) and 908, as adopted in the 
Regulation SBSR Adopting Release, and stated its intention to seek 
additional comment regarding how Regulation SBSR should apply to those 
transactions. In April 2015, the Commission addressed those 
transactions in the U.S. Activity Proposal, which included proposed 
amendments to Rules 901(a), 908, and related rules in Regulation SBSR. 
These amendments would, among other things, apply Regulation SBSR's 
regulatory reporting and public dissemination requirements to security-
based swap transactions of a non-U.S. dealing entity that are arranged, 
negotiated, or executed by personnel of the non-U.S. person located in 
a U.S. branch or office, or by the personnel of its agent located in a 
U.S. branch or office.\397\ In addition, the Commission solicited 
comment on whether certain transactions of non-U.S. persons whose 
obligations under a security-based swap are guaranteed by a U.S. person 
should be exempt from the public dissemination requirement.\398\
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    \394\ See Regulation SBSR Proposing Release, supra note 5.
    \395\ See supra note 5. Rule 908(a), as initially proposed, 
would have required regulatory reporting of any security-based swap 
that is ``executed in the United States or through any means of 
interstate commerce.'' See Regulation SBSR Proposing Release, 75 FR 
at 75287. When the Commission re-proposed Rule 908(a)(1)(i) in the 
Cross-Border Proposing Release, the Commission expressed concern 
that the language in the Regulation SBSR Proposing Release could 
have unduly required a security-based swap to be reported if it had 
only the slightest connection with the United States. See Cross-
Border Proposing Release, 78 FR at 31061.
    \396\ See Regulation SBSR Adopting Release, 80 FR at14596-604, 
14649-68.
    \397\ See supra note 87.
    \398\ See U.S. Activity Proposal, 80 FR at 27478.
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    The Commission received 16 comments regarding the U.S. Activity 
Proposal, of which seven discussed the proposed amendments to 
Regulation SBSR. In February 2016, the Commission adopted rules that 
require a foreign dealing entity to count against its de minimis 
threshold transactions with non-U.S. persons where the foreign dealing 
entity is engaging in ANE activity.\399\ For the reasons discussed 
below, the Commission is adopting substantially as proposed the 
amendments to Regulation SBSR proposed in the U.S. Activity Proposal.
---------------------------------------------------------------------------

    \399\ See supra note 16.
---------------------------------------------------------------------------

B. Existing Rules 901 and 908

    Existing Rule 908(a)(1) requires regulatory reporting and public 
dissemination of any security-based swap transaction that (1) has a 
direct or indirect counterparty that is a U.S. person on either or both 
sides of the transaction, or (2) is accepted for clearing by a clearing 
agency having its principal place of business in the United States. 
Existing Rule 908(a)(2) requires regulatory reporting but not public 
dissemination of a transaction that has a direct or indirect 
counterparty that is a registered security-based swap dealer or 
registered major security-based swap participant on either or both 
sides of the transaction but does not otherwise fall within Rule 
908(a)(1). In other words, Rule 908(a)(2) applies to uncleared 
security-based swaps of registered non-U.S. persons when there is no 
U.S. person on the other side.
    Rule 908(b) is designed to specify the types of persons that will 
incur duties under Regulation SBSR. If a person does not come within 
any of the categories enumerated by Rule 908(b), it does not incur any 
duties under Regulation SBSR.\400\
---------------------------------------------------------------------------

    \400\ See Regulation SBSR Adopting Release, 80 FR at 14656.
---------------------------------------------------------------------------

    Under Rule 908(a), as re-proposed in the Cross-Border Proposing 
Release, security-based swaps that would have fallen within the 
proposed definition of ``transaction conducted within the United 
States'' would have been among the security-based swaps subjected to 
both regulatory reporting and public dissemination.\401\ In adopting 
Regulation SBSR, the Commission did not include in Rule 908(a)(1) a 
prong for ``transactions conducted within the United States,'' noting 
that commenters had expressed divergent views on this particular 
element of the re-proposed rule.\402\ Similarly, the Commission, in the 
Cross-Border Proposing Release, proposed to expand Rule 908(b) to 
include any counterparty to a transaction conducted in the United 
States. However, Rule 908(b), as adopted in the Regulation SBSR 
Adopting Release, included only U.S. persons, registered security-based 
swap dealers, and registered major security-based swap participants. 
Thus, under the rules adopted in the Regulation SBSR Adopting Release, 
a non-U.S.-person security-based swap dealer or major security-based 
swap participant would incur an obligation under Regulation SBSR only 
if it were registered. The Commission noted that it anticipated 
soliciting additional public comment on whether regulatory reporting 
and/or public dissemination requirements should be extended to 
transactions occurring within the United States between non-U.S. 
persons and, if so, which non-U.S. persons should incur reporting 
duties under Regulation SBSR.\403\ The Commission solicited comment on 
these questions in the U.S. Activity Proposal.\404\
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    \401\ Rule 900(ii), as re-proposed in the Cross-Border Proposing 
Release, would have defined ``transaction conducted within the 
United States'' to have the same meaning as in Exchange Act Rule 
3a71-3(a)(5)(i), as proposed in the Cross-Border Proposing Release.
    \402\ See Regulation SBSR Adopting Release, 80 FR at 14656.
    \403\ See id.
    \404\ See 80 FR at 27489-90.
---------------------------------------------------------------------------

    While Rule 908(a) specifies what types of security-based swap 
transactions are subject to regulatory reporting and/or public 
dissemination and Rule 908(b) specifies the types of persons that will 
incur duties under Regulation SBSR, Rule 901(a) assigns the duty to 
report each individual transaction. Rule 901(a), as adopted in the 
Regulation SBSR Adopting Release, did not address the reporting of many 
types of cross-border transactions, and the Commission noted that it 
anticipated soliciting additional comment about how to apply Regulation 
SBSR, including which side should incur the reporting duty, in a 
security-based swap transaction between two unregistered non-U.S. 
persons and in a transaction between an unregistered

[[Page 53590]]

U.S. person and an unregistered non-U.S. person.\405\ The U.S. Activity 
Proposal, among other things, proposed amendments to Rules 900, 901(a), 
906, 907, and 908 of Regulation SBSR to address the regulatory 
reporting and public dissemination of transactions involving non-U.S. 
persons that were not addressed in the Regulation SBSR Adopting 
Release. The proposed amendments, the comments received, and final 
rules are discussed below.
---------------------------------------------------------------------------

    \405\ See Regulation SBSR Adopting Release, 80 FR at 14598.
---------------------------------------------------------------------------

C. Extending Regulation SBSR to All ANE Transactions

1. Description of Proposed Rule
    In the U.S. Activity Proposal, the Commission proposed to add a new 
paragraph (a)(1)(v) to Rule 908(a)(1). Proposed Rule 908(a)(1)(v) would 
require any security-based swap transaction connected with a non-U.S. 
person's security-based swap dealing activity that is arranged, 
negotiated, or executed by personnel of such non-U.S. person located in 
a U.S. branch or office--or by personnel of its agent located in a U.S. 
branch or office--to be reported and publicly disseminated. This 
amendment would expand the scope of Regulation SBSR in two ways. First, 
it would require that a transaction of a foreign dealing entity be 
subject to both regulatory reporting and public dissemination if the 
non-U.S. person would be required to include the transaction in its de 
minimis threshold calculation under Rule 3a71-3(b)(1)(iii)(C) under the 
Exchange Act.\406\ Second, the proposed rule would require public 
dissemination of any ANE transaction of a foreign dealing entity, even 
if there is no U.S. person on the other side and the transaction is not 
accepted for clearing by a clearing agency having its principal place 
of business in the United States. Under existing Rule 908(a), a 
transaction of a registered foreign security-based swap dealer--even if 
it is an ANE transaction--would be subject to regulatory reporting but 
not public dissemination if there is no U.S. person on the other side 
and the transaction is not accepted for clearing by a clearing agency 
having its principal place of business in the United States.\407\
---------------------------------------------------------------------------

    \406\ 17 CFR 240.3a71-3(b)(1)(iii)(C).
    \407\ Under Exchange Act Rule 3a71-1(c), 17 CFR 240. 3a71-1(c), 
absent a limitation by the Commission, a security-based swap dealer 
is deemed to be a security-based swap dealer with respect to each 
security-based swap that 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. Accordingly, 
for purposes of this rule, any transaction that a registered 
security-based swap dealer arranged, negotiated, or executed using 
personnel located in a U.S. branch or office would be ``in 
connection with its dealing activity'' and subject to both 
regulatory reporting and public dissemination.
---------------------------------------------------------------------------

    As discussed in more detail in Section X, infra, the Commission in 
the Regulation SBSR Proposed Amendments Release did not propose to 
align Regulation SBSR compliance with security-based swap dealer 
registration. Thus, as proposed, there could have been a period of 
indefinite length when compliance with Regulation SBSR--including the 
cross-border reporting provisions thereof--could have been required 
when no security-based swap dealers had yet registered with the 
Commission. During such a period, the only way a foreign dealing entity 
could have been subject to duties under Regulation SBSR would have been 
if the foreign dealing entity were using U.S. personnel to engage in 
ANE activity, and the only way that a transaction involving only 
foreign persons would have been subject to reporting and public 
dissemination under Regulation SBSR would be if at least one side 
included a foreign dealing entity that was using U.S. personnel to 
engage in ANE activity with respect to that specific transaction. After 
security-based swap dealers register as such with the Commission, most 
foreign dealing entities will become subject to Regulation SBSR and 
assume the highest rung in the reporting hierarchy because of their 
registration status.

2. Discussion of Comments and Final Rule

    Several commenters opposed extending Regulation SBSR's regulatory 
reporting and public dissemination requirements to ANE 
transactions.\408\ One of these commenters stated, for example, that 
transactions between non-U.S. persons, where there is no guarantee by a 
U.S. person on either side, should not be required to be reported or 
publicly disseminated in the United States because they ``lack the 
requisite nexus to the United States regardless of the location of 
conduct of the counterparties.'' \409\ A second commenter stated that 
transactions that have no U.S.-person counterparty should not be 
publicly disseminated because they ``have minimal, if any, impact on or 
relevance for the U.S. SBS markets even if they are arranged, 
negotiated or executed in the United States.'' \410\ A third commenter 
argued that ``[r]equiring non-registrants to publicly disseminate and 
report ANE transactions seems unnecessary in light of the fact that 
only small numbers of ANE transactions do not involve a registered SBSD 
or registered MSBSP and would also be unduly burdensome for non-
registrants that are only engaged in de minimis SBS activities.'' \411\ 
Two other commenters expressed concern about the costs that the 
proposed rule could impose on unregistered foreign dealing entities to 
report ANE transactions.\412\ One of these commenters stated that there 
would be significant costs associated with reporting ANE transactions 
because market participants that have already designed and implemented 
reporting systems based on the CFTC's ``status-based'' approach to the 
scope of reporting requirements and the rules of other jurisdictions 
would need to modify their systems to comply with the Commission's 
rules.\413\
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    \408\ See IIB Letter at 14-17; ISDA I at 3 (arguing generally 
that any security-based swap between two non-U.S. persons that is 
cleared outside the United States should not be subject to 
Regulation SBSR); SIFMA-AMG I at 5-7; SIFMA/FSR Letter at 11-14; UBS 
Letter at 3.
    \409\ SIFMA/FSR Letter at 12. In the commenter's view, public 
dissemination of transactions between non-U.S. persons based on 
U.S.-located conduct could result in the dissemination of 
information that is not informative or that gives a distorted view 
of prevailing market prices, while the regulatory reporting of these 
transactions would not be useful because of the minimal U.S. nexus. 
See id.
    \410\ See ISDA I at 13.
    \411\ UBS Letter at 3.
    \412\ See IIB Letter at 16; SIFMA/FSR Letter at 13 (``It is 
generally not possible to directly determine the location of 
counterparty conduct without substantial effort, expense and 
operational changes to systematically capture and process this 
data--burdens on market participants that will certainly outweigh 
the perceived regulatory benefits of obtaining transaction data for 
security-based swaps required to be reported as a result of U.S.-
located conduct. These burdens will also fall on unregistered 
entities that have no reporting infrastructure and that are not 
well-equipped to ascertain whether they have a reporting obligation, 
as long as there are trades between non-U.S. persons, neither of 
which is a dealer'').
    \413\ See IIB Letter at 16 (stating that, to modify its systems 
in connection with the Commission's requirements, a foreign dealing 
entity, including one operating below the de minimis threshold, 
``would need to install or modify a trade capture system capable of 
tracking, on a dynamic, trade-by-trade basis, the location of front-
office personnel. The non-U.S. SBSD would then need to feed that 
data into its reporting system and re-code that system to account 
for the different rules that apply to non-U.S. SBS depending on 
whether they are arranged, negotiated or executed by U.S. personnel. 
The non-U.S. SBSD would also need to train its front office 
personnel in the use of this new trade capture system and develop 
policies, procedures, and controls to require, track, and test the 
proper use of that system. In addition, the non-U.S. SBSD would need 
to seek and obtain waivers from non-U.S. counterparties--to the 
extent such waivers are even permitted--with respect to privacy, 
blocking and secrecy laws in local jurisdictions'').
---------------------------------------------------------------------------

    After carefully considering these comments, the Commission is 
adopting Rule 908(a)(1)(v) as proposed. Consistent with its territorial

[[Page 53591]]

application of Title VII requirements,\414\ the Commission believes 
that, when a foreign dealing entity uses U.S. personnel to arrange, 
negotiate, or execute a transaction in a dealing capacity, that 
transaction occurs at least in part within the United States and is 
relevant to the U.S. security-based swap market. The Commission has 
previously determined that ANE activity carried out by U.S. personnel 
warrants application of the security-based swap dealer registration 
requirements.\415\ The Commission believes that there is sufficient 
``nexus'' to apply Title VII's regulatory reporting and public 
dissemination requirements to security-based swap transactions 
involving a foreign dealing entity that is using U.S. personnel to 
engage in ANE activity with respect to a particular transaction. As the 
Commission has stated previously, declining to apply Title VII 
requirements to security-based swaps of foreign dealing entities that 
use U.S. personnel to engage in ANE activity would have the effect of 
allowing such entities ``to exit the Title VII regulatory regime 
without exiting the U.S. market.'' \416\ Further, as discussed in 
Section X, infra, reporting under Regulation SBSR will commence 
following security-based swap dealer registration. Thus, for the vast 
majority of transactions of foreign dealing entities falling within the 
scope of Rule 908(a), the reporting obligation under Regulation SBSR 
will arise from an entity's status as a registered security-based swap 
dealer, and entities that are registered as security-based swap dealers 
will not be required to assess whether they have engaged in ANE 
activity with respect to a transaction. The costs associated with the 
reporting of ANE transactions are discussed more fully below.
---------------------------------------------------------------------------

    \414\ See, e.g., U.S. Activity Adopting Release, 81 FR at 8613-
17; Regulation SBSR Adopting Release, 80 FR at 14649-50; Cross-
Border Adopting Release, 79 FR at 47287-88.
    \415\ See U.S. Activity Adopting Release, 81 FR at 8614 (``we do 
not believe that security-based swap dealing activity must create 
counterparty credit risk in the United States for there to be a 
`nexus' sufficient to warrant security-based swap dealer 
registration'').
    \416\ U.S. Activity Adopting Release, 81 FR at 8616. See also 
Cross-Border Adopting Release, 79 FR at 47288 (``Our territorial 
approach applying Title VII to dealing activity similarly looks to 
whether [relevant activities] occur with the United States, and not 
simply to the location of the risk'').
---------------------------------------------------------------------------

a. Impact on Regulatory Reporting
    The Commission notes that all security-based swaps of registered 
security-based swap dealers, whether U.S. or foreign, are subject to 
regulatory reporting under existing Rule 908(a)(2). For transactions 
involving foreign dealing entities that register with the Commission as 
security-based swap dealers, the regulatory reporting requirement stems 
from the involvement of the registered person, not from the presence of 
any ANE activity. Therefore, new Rule 908(a)(1)(v) does not subject any 
additional transactions involving registered security-based swap 
dealers to Regulation SBSR's regulatory reporting requirements.\417\
---------------------------------------------------------------------------

    \417\ But see infra Section IX(C)(2)(b) (explaining that new 
Rule 908(a)(1)(v) subjects additional transactions involving 
registered security-based swap dealers to Regulation SBSR's public 
dissemination requirements).
---------------------------------------------------------------------------

    New Rule 908(a)(1)(v) extends the regulatory reporting requirements 
only to transactions involving an unregistered foreign dealing entity 
(when it engages in ANE activity) when no other condition is present 
that would trigger regulatory reporting (e.g., there is a U.S. person 
or registered security-based swap dealer on the other side). Thus, Rule 
908(a)(1)(v) imposes regulatory reporting requirements only to 
transactions in which an unregistered foreign dealing entity enters 
into a transaction with another unregistered foreign person.
    As noted in Section II(A)(4)(d), supra, the Commission believes 
that foreign dealing entities that will register with the Commission as 
security-based swap dealers will be counterparties to the vast majority 
of security-based swaps involving foreign dealing entities engaging in 
U.S. activity. The Commission estimates that only a few foreign dealing 
entities will remain below the de minimis threshold and utilize U.S. 
personnel to engage in ANE transactions with other unregistered foreign 
persons. Therefore, new Rule 908(a)(1)(v) will extend Regulation SBSR's 
regulatory reporting requirements to only a small number of additional 
transactions in which an unregistered foreign dealing entity engaged in 
ANE activity transacts with another unregistered foreign person. In 
this release, the Commission estimates that only four foreign dealing 
entities likely will engage in ANE transactions and remain below the de 
minimis threshold, and thus be counterparties to security-based swaps 
that fall within Rule 908(a)(1)(v).\418\
---------------------------------------------------------------------------

    \418\ See infra note 885 and accompanying text.
---------------------------------------------------------------------------

    As noted above,\419\ some commenters expressed concern about the 
costs associated with requiring ANE transactions of unregistered 
foreign dealing entities to be reported, which will require an 
assessment of whether ANE activity is present in a particular 
transaction.\420\ One commenter argued, for example, that regulatory 
reporting of these transactions ``seems unnecessary in light of the 
fact that only small numbers of ANE transactions'' would be captured by 
Rule 908(a)(1)(v).\421\ The Commission agrees that only a small number 
of additional transactions will become subject to regulatory reporting 
because of Rule 908(a)(1)(v). However, because all ANE transactions 
occur at least in part within the United States, reporting these 
transactions to a registered SDR will enhance the Commission's ability 
to oversee relevant security-based swap activity within the United 
States as well as to evaluate market participants for compliance with 
specific Title VII requirements (including the requirement that a 
person register with the Commission as a security-based swap dealer if 
it exceeds the de minimis threshold).\422\ The reporting of these 
additional ANE transactions also will enhance the Commission's ability 
to monitor for manipulative and abusive practices involving security-
based swaps or transactions in related assets, such as corporate 
bonds.\423\
---------------------------------------------------------------------------

    \419\ See supra notes 412-413 and accompanying text.
    \420\ Other comments also discussed the costs of assessing 
whether ANE activity is present in a transaction involving only 
unregistered foreign persons, but under the assumption that the 
Commission would require reporting compliance before requiring 
security-based swap dealers to register as such. See ISDA I at 11-
13; ISDA II at 3-10; ISDA III, passim; ISDA/SIFMA Letter at 9-12; 
SIFMA-AMG I at 6-7. These comments are addressed by Section X, 
infra, where the Commission revises the proposed compliance schedule 
and adopts a final compliance schedule that aligns Regulation SBSR 
compliance with security-based swap dealer registration.
    \421\ UBS Letter at 3.
    \422\ See U.S. Activity Proposal, 80 FR at 27483.
    \423\ See id.
---------------------------------------------------------------------------

    The Commission believes that certain unregistered foreign dealing 
entities generally will already be assessing whether they utilize U.S. 
personnel and, if so, whether such personnel are involved in arranging, 
negotiating, or executing particular security-based swaps, so that they 
can count such transactions against their de minimis thresholds. Thus, 
the Commission believes that new Rule 908(a)(1)(v) will impose only 
limited assessment costs beyond those already being incurred by 
unregistered foreign dealing entities.\424\
---------------------------------------------------------------------------

    \424\ See infra Section XII(B)(1).
---------------------------------------------------------------------------

    The Commission acknowledges that subjecting ANE transactions 
between unregistered non-U.S. persons to regulatory reporting 
requirements under new Rule 908(a)(1)(v) also will result in

[[Page 53592]]

certain programmatic costs.\425\ The Commission assesses those costs 
against the benefits of the rule to the Commission, other relevant 
authorities, and the market in general.\426\ The Commission continues 
to believe that reporting of these ANE transactions to a registered SDR 
will enhance the Commission's ability to monitor relevant activity 
related to security-based swap dealing occurring within the United 
States as well as to monitor market participants for compliance with 
specific Title VII requirements (including the requirement that a 
person register with the Commission as a security-based swap dealer if 
it exceeds the de minimis threshold).
---------------------------------------------------------------------------

    \425\ See infra notes 929 to 933 and accompanying text 
(discussing the programmatic costs associated with the reporting and 
public dissemination of ANE transactions). See also infra Section 
XIII(H) (discussing the possibility of foreign dealing entities 
restructuring their operations to avoid triggering reporting 
requirements).
    \426\ See infra Section XII(A)(4)(a) (discussing the estimated 
costs and benefits of new Rule 908(a)(1)(v)).
---------------------------------------------------------------------------

b. Impact on Public Dissemination
    While Rule 908(a)(1)(v) will extend Regulation SBSR's regulatory 
reporting requirements to additional cross-border security-based 
swaps--those involving unregistered foreign dealing entities when they 
engage in ANE transactions with other unregistered foreign persons--
Rule 908(a)(1)(v) will extend Regulation SBSR's public dissemination 
requirements to a potentially larger number of cross-border 
transactions that are, under existing Regulation SBSR, subject to 
regulatory reporting but not public dissemination. Under existing Rule 
908(a)(2), a security-based swap that does not otherwise fall within 
Rule 908(a)(1) shall be subject to regulatory reporting but not public 
dissemination if there is a registered security-based swap dealer or 
registered major security-based swap participant on either or both 
sides of the transaction. Under existing Rule 908(a)(1), a security-
based swap is subject to both regulatory reporting and public 
dissemination only if there is a direct or indirect counterparty that 
is a U.S. person on either or both sides of the transaction or if the 
security-based swap is accepted for clearing by a clearing agency 
having its principal place of business in the United States. Nothing in 
existing Rule 908(a)(1) extends the public dissemination requirements 
to transactions of registered security-based swap dealers and 
registered major security-based swap participants based on the location 
of personnel who engage in relevant conduct. Thus, under existing Rule 
908(a), a transaction involving only non-U.S. persons on both sides, 
even if one or both sides include a registered foreign security-based 
swap dealer, would not be subject to public dissemination. Under new 
Rule 908(a)(1)(v), however, the location of the personnel who engage in 
relevant activity on behalf of a foreign dealing entity becomes a 
dispositive factor for determining whether the transaction is subject 
to public dissemination. The Commission anticipates that a significant 
number of transactions between foreign registered security-based swap 
dealers will be with other non-U.S. persons (including other foreign 
registered security-based swap dealers). Under existing Rule 908(a), 
the overwhelming majority of these transactions would have been subject 
only to regulatory reporting. However, with the adoption of Rule 
908(a)(1)(v), many of these transactions also will be subject to public 
dissemination, if there is a foreign dealing entity on either side that 
is engaging in ANE activity.
    The Commission believes that it is appropriate to apply the public 
dissemination requirements to all ANE transactions, even those between 
two foreign counterparties where only one side is engaging in ANE 
activity. Transactions that are arranged, negotiated, or executed by 
U.S. personnel of a foreign dealing entity exist at least in part 
within the United States. Subjecting such transactions to public 
dissemination is consistent with the Commission's territorial 
application of Title VII requirements.\427\ The Commission believes 
that the public dissemination of ANE transactions will increase price 
competition and price efficiency in the security-based swap market 
generally, and enable all market participants to have more 
comprehensive information with which to make trading and valuation 
determinations for security-based swaps and related and underlying 
assets.\428\
---------------------------------------------------------------------------

    \427\ See, e.g., U.S. Activity Adopting Release, 81 FR at 8613-
17; Regulation SBSR Adopting Release, 80 FR at 14649-50; Cross-
Border Adopting Release, 79 FR at 47287-88.
    \428\ See infra Section XIII(H)(2).
---------------------------------------------------------------------------

    Thus, the Commission disagrees with the commenter who did ``not 
believe the public dissemination of SBS between non-US Persons 
increases transparency to the public'' \429\ and another commenter who 
asserted that publicly disseminating such transactions between non-U.S. 
persons could result in the dissemination of information that is not 
informative or that gives a distorted view of prevailing market 
prices.\430\ The Commission believes, to the contrary, that public 
dissemination of transactions between non-U.S. persons, where one or 
both sides are engaging in ANE activity, will be informative and will 
provide useful information about prevailing market prices in the U.S. 
security-based swap market. The fact that a foreign dealing entity uses 
U.S. personnel to arrange, negotiate, or execute a transaction suggests 
that these personnel were selected because they have familiarity with 
the U.S. security-based swap market, and that the instruments involved 
in such transactions between non-U.S. persons are typically the same or 
similar to instruments traded between foreign dealing entities and U.S. 
persons.\431\ The Commission believes, therefore, that public 
dissemination of all ANE transactions will contribute to price 
discovery and price competition in the U.S. security-based swap market. 
The Commission further believes that--rather than providing a distorted 
view of prevailing market prices, as these commenters suggest--the 
dissemination of ANE transactions will provide a more comprehensive 
view of activity in the U.S. market.
---------------------------------------------------------------------------

    \429\ ISDA III at 11.
    \430\ See SIFMA/FSR Letter at 12.
    \431\ Various commenters noted, for example, that foreign 
dealing entities typically utilize U.S. personnel because such 
personnel have familiarity with instruments traded in the U.S. 
market. See ISDA I at 5 (``The prudent risk management of global 
market participants therefore requires sales and trading experts in 
SBS transactions to typically be located in the region of the 
underlying asset. Accordingly, experts in SBS products that are 
linked to U.S.-based underliers will usually tend to be located in 
the United States''); IIB Letter at 2 (``we believe that it would be 
desirable to foster the continued use of U.S. personnel by non-U.S. 
SBSDs to engage in market-facing activities. These activities are 
important to effective risk management by non-U.S. SBSDs in 
connection with SBS involving U.S. reference entities. This is 
because the traders with the greatest expertise and familiarity with 
those types of SBS are best-positioned to risk manage those 
positions and are typically located in the United States. . . . 
Centralization of pricing, hedging and risk management functions and 
workable integration of these functions with sales activity by non-
U.S. SBSDs also helps to promote U.S. market liquidity by 
integrating trading interest from non-U.S. counterparties into the 
U.S. market''); SIFMA/FSR Letter at 6 (``For U.S.-listed products 
and security-based swaps based on those products, many non-U.S. 
dealing entities concentrate that expertise in the United States to 
better serve client demands'').
---------------------------------------------------------------------------

    Another commenter questioned the transparency benefits of publicly 
disseminating uncleared bilateral trades that may include bespoke 
terms.\432\ However, as the Commission previously discussed in the 
Regulation SBSR Adopting Release, even bespoke transactions have price 
discovery value and thus should be publicly

[[Page 53593]]

disseminated.\433\ Requiring the public dissemination of all ANE 
transactions, whether cleared or uncleared, will increase price 
competition and price efficiency in the security-based swap market 
generally, and enable all market participants to have more 
comprehensive information with which to make trading and valuation 
determinations for security-based swaps and related and underlying 
assets.\434\
---------------------------------------------------------------------------

    \432\ See IIB Letter at 15.
    \433\ See Regulation SBSR Adopting Release, 80 FR at 14611 
(``The disseminated price [of a bespoke transaction] could, for 
example, still have an anchoring effect on price expectations for 
future negotiations in similar or related products, even in thinly-
traded markets. Furthermore, even if it is difficult to compare 
price data across customized transactions, by disseminating reports 
of all bespoke transactions market observers can understand the 
relative number and aggregate notional amounts of transactions in 
bespoke products versus standardized products'').
    \434\ See infra Section XIII(H)(2).
---------------------------------------------------------------------------

    Another commenter expressed concerns about the market possibly 
front-running the hedges of a foreign dealing entity if all ANE 
transactions were subject to public dissemination. The Commission does 
not find this a persuasive argument against imposing the public 
dissemination requirements on all ANE transactions. The concern about 
public dissemination triggering adverse market impact, such as higher 
prices to hedge, is common to all security-based swap transactions, 
regardless of whether a transaction is subject to public dissemination 
because it involves a U.S. counterparty or because it is an ANE 
transaction. Therefore, as the Commission decided in the Regulation 
SBSR Adopting Release, all transactions will during the first phase of 
Regulation SBSR have up to 24 hours from the time of execution to be 
reported (and then immediately disseminated by a registered SDR).\435\
---------------------------------------------------------------------------

    \435\ See Rule 901(j); Appendix to Rule 901 (Reports Regarding 
the Establishment of Block Thresholds and Reporting Delays for 
Regulatory Reporting of Security-Based Swap Data); Regulation SBSR 
Adopting Release, 80 FR at 14616-25.
---------------------------------------------------------------------------

    One commenter argued that the proposed rule would not enhance 
transparency in the U.S. security-based swap market because it would 
create incentives for non-U.S. counterparties to avoid interactions 
with U.S. personnel.\436\ The commenter believed that the Commission's 
analysis of the trade-off between transparency and liquidity did not 
fully address the costs and benefits of applying a U.S.-personnel test 
to the public dissemination requirement.\437\ Such fragmentation, in 
the commenter's view, would lead to adverse effects on effective risk 
management, market liquidity, and U.S. jobs. The commenter also 
expressed concern that the costs associated with reporting ANE 
transactions could lead some non-U.S. security-based swap dealers to 
prevent their U.S. personnel from interacting with non-U.S. 
counterparties, and some non-U.S. counterparties to avoid interactions 
with U.S. personnel.\438\
---------------------------------------------------------------------------

    \436\ See IIB Letter at 14. According to this commenter, a non-
U.S. counterparty whose transaction was subject to public 
dissemination would receive a worse execution price because a dealer 
might widen its quotes for the transaction to counteract the risk 
that other market participants would front-run the dealer's hedges. 
The commenter suggested that, although a U.S. counterparty would 
have a similar incentive to avoid public dissemination of its 
trades, U.S. counterparties would not be in the same position as 
non-U.S. counterparties to avoid the application of U.S. public 
dissemination requirements. See id. at 14-15.
    \437\ See id. at 15.
    \438\ See id. at 15-16.
---------------------------------------------------------------------------

    The Commission acknowledges, as this commenter suggests, that to 
avoid public dissemination some foreign dealing entities might prevent 
their U.S. personnel from interacting with non-U.S. counterparties, and 
some non-U.S. counterparties might avoid interactions with U.S. 
personnel. The Commission believes, nevertheless, that public 
dissemination of all ANE transactions is necessary to advance the Title 
VII objectives of enhancing transparency in the security-based swap 
market. The Commission notes that new Rule 908(a)(1)(v) extends the 
public dissemination requirements only to ANE transactions of foreign 
dealing entities with non-U.S. persons; transactions of foreign dealing 
entities with U.S. persons--regardless of whether they are arranged, 
negotiated, or executed by U.S. personnel--are already subject to 
existing Rule 908(a)(1)(i) by virtue of a U.S. person's involvement in 
the transaction. The Commission believes, therefore, that extending the 
public dissemination requirements to ANE transactions involving non-
U.S. persons will promote a level playing field. Without Rule 
908(a)(1)(v), the U.S. personnel of a foreign dealing entity might be 
able to offer liquidity to non-U.S. persons at lower prices than to 
U.S. persons, because the foreign dealing entity would not have to 
embed the potential costs of public dissemination into the prices 
offered to non-U.S. persons. By contrast, the prices offered by the 
foreign dealing entity to U.S. persons would likely reflect any such 
additional costs, to the extent that public dissemination of a 
particular transaction imposes costs on the counterparties.\439\ While 
the benefit of lower prices obtained by non-U.S. persons would depend 
on the magnitude of the perceived costs of public dissemination, the 
Commission believes that it is appropriate to place the transactions of 
U.S. persons and non-U.S. persons on a more equal footing, so that non-
U.S. persons do not have a competitive advantage over U.S. persons when 
engaging in security-based swap transactions that, due to the 
involvement of U.S. personnel of the foreign dealing entity, exist at 
least in part within the United States.
---------------------------------------------------------------------------

    \439\ However, to the extent that transactions of foreign 
dealing entities are subject to public dissemination requirements 
under the rules of a foreign jurisdiction, the costs of public 
dissemination should already be factored into the prices offered to 
their non-U.S. counterparties, and Rule 908(a)(1)(v) should not 
affect the prices that foreign dealing entities that engage in ANE 
transactions offer to their non-U.S. counterparties.
---------------------------------------------------------------------------

    The commenter also argued that it would be problematic for foreign 
dealing entities to assess for ANE activity, which would trigger the 
public dissemination requirement.\440\ However, such an assessment is 
not required unless a foreign dealing entity wishes to exclude the 
transaction from public dissemination because relevant activity does 
not occur within the United States (and there is no other basis for 
public dissemination under Rule 908(a)(1)). For any transaction report, 
the default assumption is that it is subject to public dissemination, 
unless the person submitting the report has appropriately flagged it as 
``do not disseminate.'' \441\ A registered foreign security-based swap 
dealer that does not wish to assess a transaction for ANE activity 
could simply refrain from applying the flag and the transaction would 
be publicly disseminated.\442\
---------------------------------------------------------------------------

    \440\ See ISDA III at 11 (noting that, even if the Commission 
were to defer Regulation SBSR compliance until after security-based 
swap dealer registration, ``there would still be a need to exchange 
ANE on transactions between Non-U.S. Persons engaged in SBS dealing 
activity (including between non-U.S. registered SBSD) only so the 
reporting side will know that it needs to send a separate message or 
otherwise indicate to the SDR . . . that a SBS is subject to public 
reporting'').
    \441\ See Regulation SBSR Adopting Release, 80 FR at 14610 (``A 
registered SDR would not be liable for a violation of Rule 902(c) if 
it disseminated a report of a transaction that fell within Rule 
902(c) if the reporting side for that transaction failed to 
appropriately flag the transaction as required by Rule 907(a)(4)'').
    \442\ Cf. U.S. Activity Adopting Release, 81 FR at 8628 (``a 
dealer may choose to count all transactions with other non-U.S. 
persons towards its de minimis threshold, regardless of whether 
counting them is required, to avoid the cost of assessing the 
locations of personnel involved with each transaction'').
---------------------------------------------------------------------------

c. Impact of Substituted Compliance
    Commenters also stated that the proposed rule could result in 
duplicative reporting because transactions covered by the proposed rule 
also would likely be reported in

[[Page 53594]]

another jurisdiction.\443\ These commenters recommended that the 
Commission obtain information about these transactions through 
information-sharing arrangements with foreign regulatory authorities, 
rather than establishing duplicative reporting requirements.\444\ One 
of these commenters expressed concern that the potential for 
duplicative reporting could overstate trading volumes in the security-
based swap market, which would not advance the G20's goal of improving 
transparency for derivatives.\445\ Two commenters argued that foreign 
regulators would have a greater interest than the Commission in 
establishing transparency requirements for security-based swaps 
involving non-U.S. counterparties.\446\
---------------------------------------------------------------------------

    \443\ See SIFMA/FSR Letter at 12; SIFMA-AMG I at 6.
    \444\ See id.
    \445\ See SIFMA-AMG I at 2, 6. The commenter also stated that 
reporting the same transaction to trade repositories in the United 
States and the European Union could undermine the quality of 
publicly disseminated information because of errors caused by 
reporting the same transaction in multiple jurisdictions. See id. at 
6.
    \446\ See IIB Letter at 15; SIFMA/FSR Letter at 12.
---------------------------------------------------------------------------

    The Commission acknowledges that some ANE transactions of foreign 
dealing entities could be subject to reporting and/or public 
dissemination requirements in other jurisdictions. Substituted 
compliance could mitigate the concerns of these commenters if the 
Commission issues a substituted compliance order for regulatory 
reporting and public dissemination of security-based swaps with respect 
to a particular foreign jurisdiction. In such case, a cross-border 
transaction involving that jurisdiction would not be subject to any 
direct reporting and public dissemination requirements under Regulation 
SBSR. A substituted compliance order would eliminate duplication with 
the comparable reporting and public dissemination requirements of the 
other jurisdiction, and concerns regarding overstated trading volumes 
and distortions of the market would thus not arise.\447\ A person 
relying on substituted compliance in this manner would remain subject 
to the applicable Exchange Act requirements but would be complying with 
those requirements in an alternative fashion.
---------------------------------------------------------------------------

    \447\ The Commission further notes that, to the extent that ANE 
transactions involving foreign dealing entities are subject to 
comparable requirements for reporting and public dissemination in 
another foreign jurisdiction--a necessary but not sufficient 
condition for the Commission to issue a substituted compliance 
order--a foreign dealing entity would not have an incentive to avoid 
Regulation SBSR's public dissemination requirements by, for example, 
relocating its personnel, because the transaction would in any case 
be subject to the public dissemination requirements of the other 
jurisdiction. Relocating personnel or curtailing the activities of 
personnel who remain in the United States would be effective in 
avoiding public dissemination only if public dissemination 
requirements applied to the transaction pursuant only to Regulation 
SBSR.
---------------------------------------------------------------------------

    The Commission recognizes that, in practice, there will be limits 
to the availability of substituted compliance. For example, if the 
Commission were unable to make a favorable comparability determination 
with respect to one or more foreign jurisdiction's security-based swap 
reporting and dissemination requirements because they do not achieve a 
comparable regulatory outcome, or because the foreign trade repository 
or foreign authority that receives and maintains transaction reports is 
not subject to requirements comparable to those imposed on SDRs, the 
Commission would not issue a substituted compliance order with respect 
to that jurisdiction. The availability of substituted compliance also 
will depend upon the availability of supervisory and enforcement 
arrangements among the Commission and relevant foreign financial 
regulatory authorities. Although comparability assessments will focus 
on regulatory outcomes rather than rule-by-rule comparisons, the 
assessments will require inquiry regarding whether foreign regulatory 
requirements adequately reflect the interests and protections 
associated with the particular Title VII requirement. Further, only 
transactions in which at least one of the direct counterparties to the 
security-based swap is a non-U.S. person or a foreign branch are 
eligible for substituted compliance.
    Finally, one commenter asserted that, ``[w]ith respect to Non-U.S. 
SBS cleared outside the United States, foreign regulators have a 
relatively greater interest than the Commission in establishing 
applicable transparency requirements.'' \448\ The Commission 
acknowledges that foreign regulatory authorities have a regulatory 
interest in security-based swaps that are cleared in their 
jurisdictions. However, for the reasons discussed above, the Commission 
also has a regulatory interest when a transaction involves ANE activity 
conducted by U.S. personnel of one or both sides of the transaction--
even if the transaction is subsequently cleared outside the United 
States. Public dissemination of all ANE transactions should increase 
transparency and facilitate price discovery and price competition in 
the U.S. security-based swap market; regulatory reporting of all ANE 
transactions will enhance the Commission's ability to oversee the U.S. 
security-based swap market and the activities of U.S. personnel who are 
involved in arranging, negotiating, or executing such transactions. The 
Commission believes, therefore, that it has a compelling interest in 
establishing regulatory reporting and public dissemination requirements 
for all ANE transactions.
---------------------------------------------------------------------------

    \448\ See IIB Letter at 15.
---------------------------------------------------------------------------

D. Extending Regulation SBSR to All Transactions Executed on a U.S. 
Platform Effected By or Through a Registered Broker-Dealer

    In the U.S. Activity Proposal, the Commission proposed a new 
paragraph (a)(1)(iii) to Rule 908(a)(1) that would have subjected any 
security-based swap transaction that is executed on a platform having 
its principal place of business in the United States to regulatory 
reporting and public dissemination. The Commission also proposed a new 
paragraph (a)(1)(iv) to Rule 908(a)(1) that would subject any security-
based swap transaction that is effected by or through a registered 
broker-dealer (including a registered SB SEF) to regulatory reporting 
and public dissemination. The Commission notes that many types of 
security-based swap transactions that are executed on a platform or 
effected by or through a registered broker-dealer are already subject 
to Regulation SBSR--for example, if either side includes a U.S. person 
\449\ or a registered person,\450\ or if the transaction is accepted 
for clearing at a clearing agency having its principal place of 
business in the United States.\451\ Thus, proposed Rules 908(a)(1)(iii) 
and (iv) would have had the effect of extending regulatory reporting 
and public dissemination requirements to transactions occurring on a 
platform having its principal place of business in the United States or 
executed by or through a registered broker-dealer only when the 
counterparties consist exclusively of unregistered non-U.S. persons. In 
addition, proposed Rules 908(a)(1)(iii) and (iv) would have extended 
the public dissemination requirement to transactions involving a 
registered foreign security-based swap dealer that are executed on a 
platform or through a registered broker-dealer and not otherwise 
subject to public

[[Page 53595]]

dissemination (e.g., because there is a U.S. person on the other 
side).\452\
---------------------------------------------------------------------------

    \449\ See Rule 908(a)(1)(i).
    \450\ See Rule 908(a)(2).
    \451\ See Rule 908(a)(1)(ii).
    \452\ Under existing Rule 908(a)(2), transactions involving a 
registered foreign security-based swap dealer or registered foreign 
security-based swap market participant that do not otherwise fall 
within existing Rule 908(a)(1) are subject to regulatory reporting 
but not public dissemination.
---------------------------------------------------------------------------

    Two commenters generally opposed these amendments.\453\ One of 
these commenters stated that transactions between non-U.S. persons that 
have no U.S.-person guarantor--which would include transactions covered 
by proposed Rules 908(a)(1)(iii), (iv), and (v)--should not be subject 
to regulatory reporting or public dissemination in the United States 
because they lack the requisite nexus to the United States.\454\ The 
other commenter expressed the view that these requirements should not 
apply to the security-based swaps of non-U.S. persons unless they 
involve a registered security-based swap dealer.\455\ The commenter 
added that proposed Rule 908(a)(1)(iv) could provide incentives for 
non-U.S. counterparties to avoid transacting through registered broker-
dealers, resulting in market fragmentation that would lead to adverse 
effects on risk management, market liquidity, and U.S. jobs.\456\
---------------------------------------------------------------------------

    \453\ See IIB Letter at 15, 17; SIFMA/FSR Letter at 12-14.
    \454\ See SIFMA/FSR Letter at 12.
    \455\ See IIB Letter at 15-17.
    \456\ See id. at 16-17. As discussed in the subsection 
immediately above, the commenter also raised these concerns with 
respect to ANE transactions.
---------------------------------------------------------------------------

    The Commission continues to believe that any transaction executed 
on a platform that has its principal place of business in the United 
States should be subject to regulatory reporting and public 
dissemination, even when the transaction involves two non-U.S. persons 
that are not engaged in dealing activity in connection with the 
transaction.\457\ Transactions executed on a platform having its 
principal place of business in the United States are consummated within 
the United States and therefore exist, at least in part, in the United 
States.\458\ Requiring these security-based swaps to be reported will 
permit the Commission and other relevant authorities to observe, in a 
registered SDR, all transactions executed on U.S. platforms and to 
carry out oversight of such transactions. With respect to public 
dissemination of platform-executed security-based swaps, the Commission 
notes that it would be inconsistent if a subset of the transactions 
executed on U.S. platforms--those involving unregistered non-U.S. 
counterparties--were not subject to public dissemination, while all 
other transactions executed on U.S. platforms were subject to public 
dissemination. Furthermore, the Commission understands that platforms 
typically engage in the practice of disseminating information about 
completed transactions to their own participants. Accordingly, the 
Commission believes that it would be anomalous for a platform to 
broadcast information about a transaction involving two non-U.S. 
counterparties to its participants if such transaction were not also 
included within Regulation SBSR's public dissemination requirements.
---------------------------------------------------------------------------

    \457\ See U.S. Activity Proposal, 80 FR at 27484.
    \458\ See id.
---------------------------------------------------------------------------

    As the Commission previously noted in the U.S. Activity 
Proposal,\459\ registered broker-dealers play a key role as 
intermediaries in the U.S. financial markets. To improve the integrity 
and transparency of those markets, the Commission believes that the 
Commission and other relevant authorities should have ready access to 
detailed information about the security-based swap transactions that 
such persons intermediate. Furthermore, the Commission believes that 
public dissemination of security-based swap transactions intermediated 
by a registered broker-dealer will provide useful information about 
prevailing market prices in the U.S. security-based swap market, and 
that regulatory reporting of such transactions will assist the 
Commission and other relevant authorities in overseeing the U.S. 
security-based swap market. Such reporting also will assist the 
Commission in overseeing the activities of market intermediaries that 
it registers.
---------------------------------------------------------------------------

    \459\ See 80 FR at 27485.
---------------------------------------------------------------------------

    The Commission agrees that there is some possibility that requiring 
the regulatory reporting and public dissemination of security-based 
swaps between unregistered non-U.S. persons that are intermediated by 
registered broker-dealers could create an incentive for those non-U.S. 
persons to avoid transacting through a registered broker-dealer. 
However, a rule that failed to capture these transactions could provide 
unregistered non-U.S. persons a competitive advantage over unregistered 
U.S. persons. The security-based swap transactions of U.S. persons 
effected by or through a registered broker-dealer are subject to 
Regulation SBSR, while the transactions between unregistered non-U.S. 
persons effected by or through a registered broker-dealer would not be 
subject to Regulation SBSR. Absent Rules 908(a)(1)(iii) and (iv), a 
registered broker-dealer (or platform) might be able offer its services 
at a lower price to non-U.S. persons than to U.S. persons, because the 
platform or registered broker-dealer would not have to embed the 
potential costs of regulatory reporting and public dissemination when 
pricing services offered to non-U.S. persons. By contrast, the price 
offered by the platform or registered broker-dealer to U.S. persons 
would likely reflect these additional costs. The Commission does not 
see a basis for permitting non-U.S. persons to enjoy this competitive 
advantage over U.S. persons when engaging in security-based swap 
transactions that, due to the involvement of a U.S. platform or 
registered broker-dealer, exist at least in part within the United 
States. Accordingly, the Commission declines to adopt the commenters' 
recommendation that the Commission exclude from Regulation SBSR the 
transactions of unregistered non-U.S. persons that are effected by or 
through a registered broker-dealer.

E. Public Dissemination of Covered Cross-Border Transactions

    Existing Rule 908(a)(1)(i) requires regulatory reporting and public 
dissemination of a security-based swap if there is a direct or indirect 
counterparty that is a U.S. person on either or both sides of the 
transaction. This would include, for example, a security-based swap 
having, on one side, a direct counterparty who is not a U.S. person but 
has a U.S. guarantor, and the other side includes no counterparty that 
is a U.S. person, registered security-based swap dealer, or registered 
major security-based swap participant (a ``covered cross-border 
transaction'').\460\ As discussed in the U.S. Activity Proposal, this 
treatment of covered cross-border transactions represented a departure 
from the re-proposed approach described in the Cross-Border Proposing 
Release, which would have excepted covered cross-border transactions 
from the public dissemination requirement.\461\ The Commission noted, 
however, that it had determined to continue considering whether to 
except covered cross-border transactions from the public dissemination 
requirement and that it would solicit additional comment

[[Page 53596]]

regarding whether such an exception would be appropriate.\462\
---------------------------------------------------------------------------

    \460\ As in the Regulation SBSR Adopting Release, a ``covered 
cross-border transaction'' refers to a transaction that meets the 
description above and will not be submitted to clearing at a 
registered clearing agency having its principal place of business in 
the United States. See Regulation SBSR Adopting Release, 80 FR at 
14653, n. 827.
    \461\ See U.S. Activity Proposal, 80 FR at 27485 (citing Cross-
Border Proposing Release, 78 FR at 31062).
    \462\ See U.S. Activity Proposal, 80 FR at 27485.
---------------------------------------------------------------------------

    In the U.S. Activity Proposal, the Commission expressed its 
preliminary view that--in light of its determination to require all 
security-based swap transactions of U.S. persons, including all 
transactions conducted through a foreign branch, to be publicly 
disseminated--it did not think that it would be appropriate to exempt 
covered cross-border transactions from the public dissemination 
requirement.\463\ As the Commission had previously noted in the 
Regulation SBSR Adopting Release,\464\ a security-based swap 
transaction involving a U.S. person that guarantees a non-U.S. person 
exists, at least in part, within the United States, and the economic 
reality of these transactions is substantially identical to 
transactions entered into directly by a U.S. person (including through 
a foreign branch). Subjecting transactions through a foreign branch to 
public dissemination but excluding transactions involving a U.S.-person 
guarantor would treat these economically substantially identical 
transactions differently, and could create competitive disparities 
among U.S. persons, depending on how they structured their businesses. 
Thus, a U.S. person that engages in security-based swap transactions 
through a guaranteed foreign subsidiary could carry out an unlimited 
volume of covered cross-border transactions without being subject to 
the public dissemination requirement, while another U.S. person that 
engaged in similar transactions through a foreign branch would be 
subject to the public dissemination requirement.\465\
---------------------------------------------------------------------------

    \463\ See id.
    \464\ See Regulation SBSR Adopting Release, 80 FR at 14653.
    \465\ See U.S. Activity Proposal, 80 FR at 27485. The Commission 
notes that, if the transactions of the U.S. guarantor and its 
foreign subsidiary are subject to regulatory reporting and public 
dissemination requirements in a foreign jurisdiction, such 
transactions could be eligible for substituted compliance if the 
Commission determines that the foreign requirements are comparable 
to those imposed by Regulation SBSR and other necessary conditions 
are met. See Rule 908(c).
---------------------------------------------------------------------------

    Two commenters disagreed with the Commission's proposed treatment 
of covered cross-border transactions.\466\ One of these commenters 
argued that the financial risks of such transactions lie outside the 
United States, and that the presence of a U.S.-person guarantor would 
not make the pricing information relating to the transaction relevant 
to the U.S. market.\467\ The other commenter argued not only that 
covered cross-border transactions should be exempt from public 
dissemination, but that the Commission should expand this exemption to 
include transactions in which both sides include a U.S.-person 
guarantor but neither side includes a registered security-based swap 
dealer or major security-based swap participant, or a U.S. person as a 
direct counterparty.\468\ The commenter argued that, because these 
transactions take place outside the United States and are between two 
unregistered non-U.S. persons, ``there is insufficient U.S. 
jurisdictional nexus to justify the public dissemination of the 
security-based swap data in the United States.'' \469\
---------------------------------------------------------------------------

    \466\ See ISDA I at 13-14; SIFMA/FSR Letter at 14.
    \467\ See ISDA I at 14.
    \468\ See id.
    \469\ Id. However, the commenter did not object to subjecting 
these transactions to regulatory reporting to a registered SDR. See 
id.
---------------------------------------------------------------------------

    The Commission disagrees with the commenter's assertions that the 
financial risks of covered cross-border transactions lie outside the 
United States and that there is insufficient U.S. jurisdictional nexus 
to justify the public dissemination of these transactions in the United 
States. As the Commission noted in the Regulation SBSR Adopting 
Release, a security-based swap having an indirect counterparty that is 
a U.S. person is economically equivalent to a security-based swap with 
a U.S.-person direct counterparty, and both kinds of security-based 
swaps exist, at least in part, within the United States.\470\ The 
presence of a U.S. guarantor facilitates the activity of the non-U.S. 
person who is guaranteed and, as a result, the security-based swap 
activity of the non-U.S. person cannot reasonably be isolated from the 
U.S. person's activity in providing the guarantee.\471\ The financial 
resources of the U.S. guarantor could be called upon to satisfy the 
contract if the direct counterparty fails to meet its obligations; 
thus, the extension of a guarantee is economically equivalent to a 
transaction entered into directly by the U.S. guarantor.\472\ Because a 
U.S. guarantor might be obligated to perform under the guarantee, the 
Commission disagrees with the commenter's assertion that the financial 
risks of covered cross-border transactions lie outside the United 
States.
---------------------------------------------------------------------------

    \470\ See 80 FR at14653.
    \471\ See id. (citing Cross-Border Adopting Release, 79 FR at 
47289).
    \472\ See id.
---------------------------------------------------------------------------

    With respect to the commenter's view that covered cross-border 
transactions lack sufficient jurisdictional nexus to justify their 
public dissemination in the United States, the Commission takes the 
position that, under the territorial approach to Title VII described in 
the Regulation SBSR Adopting Release,\473\ any security-based swap 
guaranteed by a U.S. person exists at least in part within the United 
States, which triggers the application of Title VII requirement for 
public dissemination.\474\ In the Regulation SBSR Adopting Release, the 
Commission noted that the transparency benefits of requiring public 
dissemination of security-based swaps involving at least one U.S.-
person direct counterparty would inure to other U.S. persons and the 
U.S. market generally, as other participants in the U.S. market are 
likely to transact in the same or related instruments.\475\ In 
addition, the economic reality of covered cross-border transactions is 
substantially identical to transactions entered into directly by a U.S. 
person (including through a foreign branch).\476\ Excluding covered 
cross-border transactions from public dissemination would treat these 
economically similar transactions differently, potentially creating 
competitive disparities among U.S. persons, depending on how they have 
structured their business.\477\ To avoid such competitive disparities 
and to further the transparency goals of Title VII, the Commission 
believes that it is necessary and appropriate to require the public 
dissemination of covered cross-border transactions.
---------------------------------------------------------------------------

    \473\ See 80 FR at 14649-50.
    \474\ See id. at 14653. See also Cross-Border Adopting Release, 
79 FR at 47289-90 (``the economic reality of the non-U.S. person's 
dealing activity, where the resulting transactions are guaranteed by 
a U.S. person, is identical, in relevant respects, to a transaction 
entered into directly by the U.S. guarantor'').
    \475\ See 80 FR at 14651.
    \476\ See U.S. Activity Proposal, 80 FR at 27485.
    \477\ See id. However, if the transactions of a guaranteed non-
U.S. person are subject to regulatory reporting and public 
dissemination requirements in a foreign jurisdiction and the 
Commission finds that the foreign requirements are comparable to 
those imposed by Regulation SBSR and other conditions set forth in 
Rule 908(c) are met, such transactions could be eligible for 
substituted compliance.
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F. Expanding Rule 908(b)

    Existing Rule 908(b) provides that, notwithstanding any other 
provision of Regulation SBSR, a person shall not incur any obligation 
under Regulation SBSR unless it is a U.S. person, a registered 
security-based swap dealer, or a registered major security-based swap 
participant. Rule 908(b) is designed to clarify the cross-border 
application of Regulation SBSR by specifying the types of 
counterparties that would and would not be subject to any duties under 
Regulation SBSR; if a person does not fall within any of the categories 
enumerated by Rule 908(b), it would not incur any duties under 
Regulation

[[Page 53597]]

SBSR.\478\ Rule 908(b) was designed to reduce regulatory assessment 
costs and provide greater legal certainty to counterparties engaging in 
cross-border security-based swaps.
---------------------------------------------------------------------------

    \478\ See Regulation SBSR Adopting Release, 80 FR at 14656.
---------------------------------------------------------------------------

1. Expanding Rule 908(b) To Include All Platforms and Registered 
Clearing Agencies
    In the Regulation SBSR Proposed Amendments Release, the Commission 
expressed the preliminary view that all platforms and registered 
clearing agencies should incur the reporting duties specified in the 
proposed amendments to Rule 901(a),\479\ even if they are not U.S. 
persons. Consistent with this view, the Commission proposed to expand 
Rule 908(b) to include any platform or registered clearing agency as 
among the persons that may incur duties under Regulation SBSR.\480\ To 
the extent that a platform or registered clearing agency is a U.S. 
person, such entity falls within existing Rule 908(b)(1). Thus, the 
effect of this proposed amendment to Rule 908(b) would be to include 
within the rule any platform or registered clearing agency that is not 
a U.S. person.
---------------------------------------------------------------------------

    \479\ See Regulation SBSR Proposed Amendments Release, 80 FR at 
14759.
    \480\ See id.
---------------------------------------------------------------------------

    Three commenters generally supported expanding Rule 908(b) to 
include all platforms and registered clearing agencies.\481\
---------------------------------------------------------------------------

    \481\ See DTCC Letter at 18; LCH.Clearnet Letter at 11; ISDA/
SIFMA Letter at 29 (``a registered platform or clearing agency 
should be responsible for reporting [security-based swaps] as 
specified in Proposed SBSR regardless of its U.S. person status'').
---------------------------------------------------------------------------

    The Commission is adopting the amendments to Rule 908(b) as 
proposed. For the reasons explained above, the Commission continues to 
believe that all platforms and registered clearing agencies should 
incur the duties specified in the amendments to Rule 901(a), even if 
they are not U.S. persons. Without this amendment, U.S.-person 
platforms and registered clearing agencies would be subject to 
regulatory obligations from which non-U.S.-person platforms and 
registered clearing agencies would be free.
2. Expanding Rule 908(b) To Include Non-U.S. Persons Engaging in ANE 
Transactions
    In the U.S. Activity Proposal, the Commission proposed to add a new 
paragraph (b)(5) to Rule 908(b) to include any non-U.S. person that, in 
connection with such person's security-based swap dealing activity, 
arranges, negotiates, or executes a security-based swap using its 
personnel located in a U.S. branch or office, or using personnel of its 
agent located in a U.S. branch or office. Consistent with the proposed 
amendments to Rule 901(a)(2)(ii)(E) that would bring foreign dealing 
entities engaging in ANE transactions into the reporting 
hierarchy,\482\ the Commission also proposed to add all non-U.S. 
persons engaging in ANE transactions into Rule 908(b). Because existing 
Rule 908(b)(2) already covers a non-U.S. person that is registered as a 
security-based swap dealer, the effect of proposed Rule 908(b)(5) would 
be to cover a non-U.S. person that engages in dealing activity in the 
United States but that does not meet the de minimis threshold and thus 
would not be required to register as a security-based swap dealer.\483\
---------------------------------------------------------------------------

    \482\ See supra Section IX(C).
    \483\ See U.S. Activity Proposal, 80 FR at 27486.
---------------------------------------------------------------------------

    The Commission received no comments that specifically addressed 
this proposed amendment \484\ and, for the reasons discussed in the 
U.S. Activity Proposal, is adopting Rule 908(b)(5) as proposed. 
Accordingly, Rule 908(b)(5) provides that a non-U.S. person that, in 
connection with such person's security-based swap dealing activity, 
arranged, negotiated, or executed the security-based swap using its 
personnel \485\ located in a U.S. branch or office, or using personnel 
of an agent located in a U.S. branch or office, may incur reporting 
duties under Regulation SBSR.
---------------------------------------------------------------------------

    \484\ However, two commenters noted that requiring the reporting 
of ANE transactions would place burdens on unregistered entities 
that do not have reporting infrastructure in place and would be 
compelled to engage third-party providers to report transactions. 
See ISDA I at 11; SIFMA/FSR Letter at 13. In addition, as discussed 
in Section IX(C)(2), supra, one commenter urged the Commission to 
eliminate the application of the U.S. Activity Proposal to 
Regulation SBSR. See ISDA I at 2; ISDA II at 3. These comments are 
addressed in Sections X(C)(7) and XII(A)(1)(d), infra.
    \485\ The Commission intends the final rule to indicate the same 
type of activity by personnel located in the United States as 
described in Section IV(C)(3) of the U.S. Activity Adopting Release, 
81 FR at 8624. Moreover, for purposes of Rule 908(b)(5), the 
Commission interprets the term ``personnel'' in a manner consistent 
with the definition of ``associated person of a security-based swap 
dealer'' contained in Section 3(a)(70) of the Exchange Act, 15 
U.S.C. 78c(a)(70), regardless of whether such non-U.S. person or 
such non-U.S. person's agent is itself a security-based swap dealer. 
See U.S. Activity Adopting Release, 81 FR at 8624 (discussing the 
Commission's interpretation of the term ``personnel'' for purposes 
of Rule 3a71-3(b)(1)(iii)(C)).
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G. Reporting Duties of Unregistered Persons

1. Description of Proposed Rules
    Existing Rule 901(a)(2)(ii) sets forth a reporting hierarchy that 
specifies the side that has the duty to report a security-based swap, 
taking into account the types of entities present on each side. 
Existing Rule 901(a)(2)(ii) does not assign reporting obligations for 
transactions involving unregistered non-U.S. persons. In the Regulation 
SBSR Adopting Release, the Commission stated that it anticipated 
soliciting further comment regarding the duty to report a security-
based swap where neither side includes a registered security-based swap 
dealer or a registered major security-based swap participant and 
neither side includes a U.S. person or only one side includes a U.S. 
person.\486\ In the U.S. Activity Proposal, the Commission proposed 
amendments to Rule 901(a)(2)(ii)(E) that would assign the duty to 
report such transactions.
---------------------------------------------------------------------------

    \486\ See 80 FR at 14600, 14655.
---------------------------------------------------------------------------

    As discussed in the U.S. Activity Proposal and in the Regulation 
SBSR Adopting Release, one commenter raised concerns about burdens that 
the previously re-proposed reporting hierarchy might place on U.S. 
persons in transactions with certain non-U.S.-person 
counterparties.\487\ Under the previous proposal, in a transaction 
between a non-U.S. person and a U.S. person where neither side included 
a security-based swap dealer or major security-based swap participant, 
the U.S. person would have had the duty to report. The commenter noted 
that in such transactions the non-U.S.-person counterparty might be 
engaged in dealing activity but at levels below the security-based swap 
dealer de minimis threshold and the U.S. person might not be acting in 
a dealing capacity in any of its security-based swap transactions. The 
commenter argued that, in such cases, the non-U.S. person may be better 
equipped to report the transaction and, accordingly, that when two 
unregistered persons enter into a security-based swap, the 
counterparties should be permitted to select which counterparty would 
report, even if one counterparty is a U.S. person.\488\
---------------------------------------------------------------------------

    \487\ See IIB Letter, passim; Letter from Institute of 
International Bankers to the Commission, dated August 21, 2013.
    \488\ See U.S. Activity Proposal, 80 FR at 27486.
---------------------------------------------------------------------------

    The U.S. Activity Proposal included proposed Rule 
901(a)(2)(ii)(E)(2), which the Commission proposed to address concerns 
arising when a non-U.S. person is engaged in ANE transactions. Under 
the proposed rule, in a transaction between an unregistered U.S. person 
and an unregistered non-U.S. person who is engaging in ANE activity, 
the sides would be required to select which side is the reporting side.

[[Page 53598]]

Also under proposed Rule 901(a)(2)(ii)(E)(2), if both sides are 
unregistered non-U.S. persons and both are engaging in ANE activity, 
the sides would be required to select the reporting side.
    Proposed Rule 901(a)(2)(ii)(E)(3) was designed to address the 
scenario where one side is subject to Rule 908(b) and the other side is 
not--i.e., one side includes only unregistered non-U.S. persons and 
that side does not engage in any ANE activity. When the other side 
includes an unregistered U.S. person or an unregistered non-U.S. person 
that is engaging in ANE activity, the side with the unregistered U.S. 
person or the unregistered non-U.S. person engaging in ANE activity 
would be the reporting side. The Commission preliminarily believed that 
the U.S. person or the non-U.S. person engaged in ANE activity 
generally would be more likely than the other side to have the ability 
to report the transaction given that it has operations in the United 
States.\489\ The Commission also noted that, in a transaction where 
neither side includes a registered person, placing the duty on the side 
that has a presence in the United States should better enable the 
Commission to monitor and enforce compliance with the reporting 
requirement.\490\
---------------------------------------------------------------------------

    \489\ See id.
    \490\ See id.
---------------------------------------------------------------------------

    Proposed Rule 901(a)(2)(ii)(E)(4) was designed to address the 
scenario where neither side includes a counterparty that falls within 
Rule 908(b)--i.e., neither side includes a registered person, a U.S. 
person, or a non-U.S. person engaging in ANE activity--but the 
transaction is effected by or through a registered broker-dealer 
(including a registered SB SEF). In such case, the proposed rule would 
require the registered broker-dealer to report the transaction. The 
Commission preliminarily believed that the registered broker-dealer 
generally would be more likely than the unregistered non-U.S. 
counterparties (none of which are engaging in ANE activity with respect 
to that particular transaction) to have the ability to report the 
transaction given its presence in the United States and its familiarity 
with the Commission's regulatory requirements.\491\
---------------------------------------------------------------------------

    \491\ See id.
---------------------------------------------------------------------------

2. Discussion of Comments and Final Rules
a. Transactions Where One or Both Sides Consist Only of Unregistered 
Persons
    After careful consideration of all the comments, to which the 
Commission responds below, the Commission is adopting Rules 
901(a)(2)(ii)(E)(2) and (3) as proposed. Rule 901(a)(2)(ii)(E)(2) 
contemplates that both sides of a security-based swap include only 
unregistered persons yet both sides include a person who is subject to 
Rule 908(b). In such case, the sides generally will have equal capacity 
to carry out the reporting duty; therefore, the Commission believes 
that it is appropriate to require them to select the reporting side. 
Rule 901(a)(2)(ii)(E)(3) contemplates that both sides include only 
unregistered persons and only one side includes a person who is subject 
to Rule 908(b). In such case, Rule 901(a)(2)(ii)(E)(3) assigns the 
reporting duty to the side that includes the person who is subject to 
Rule 908(b). The Commission believes that this result will help to 
ensure compliance with the reporting requirements of Regulation SBSR.
    Two commenters expressed concerns about the expense and difficulty 
of determining which of these two rules to apply when one side is an 
unregistered foreign dealing entity who might or might not be utilizing 
U.S. personnel in a particular transaction.\492\ These commenters 
warned that the burdens associated with determining whether a 
transaction was arranged, negotiated, or executed using U.S. personnel 
would unduly fall on unregistered entities that are not well-equipped 
to carry out a reporting obligation.\493\ In raising these concerns, 
the commenters assumed that the Commission would require compliance 
with Regulation SBSR before security-based swap dealers register as 
such with the Commission. Requiring compliance with Regulation SBSR 
prior to security-based swap dealer registration would have resulted in 
a large number of foreign dealing entities becoming subject to 
reporting requirements with respect to individual transactions in which 
they are engaging in ANE activity before security-based swap dealer 
registration was required. Because these foreign dealing entities would 
not yet have been required to be registered as security-based swap 
dealers, U.S. non-dealing entities could have been required to assume 
greater duties in reporting such transactions and to assess on a 
transaction-by-transaction basis whether the other side was engaging in 
ANE activity.\494\
---------------------------------------------------------------------------

    \492\ See ISDA I at 11-12; SIFMA/FSR Letter at 12-13.
    \493\ See id.
    \494\ See ISDA II at 6 (``The burden of exchanging and using 
this data is much greater in advance of SBSD registration since 
instead of relying on party level static data (such as for 
registration status) to apply the reporting hierarchy in SBSR in 
most cases, the parties may instead need to obtain and rely on 
transaction level party data for the U.S. Person status of the 
indirect counterparty or an indication of whether a non-U.S. Person 
with dealing activity has used U.S. personnel for ANE on each SBS'') 
(emphasis added). The other commenter also argued that there would 
be significant costs and problems associated with the Commission's 
proposed rule. See SIFMA/FSR Letter at 12. The commenter 
recommended, however, that, ``[i]f the Commission does expand the 
application of Regulation SBSR's regulatory reporting requirements 
to include transactions between two non-U.S. persons, reporting 
obligations triggered by U.S.-located conduct should only be 
triggered for registered security-based swap dealers,'' and 
acknowledged that requiring compliance after security-based swap 
dealers were registered ``would lessen the burden imposed by the 
expansion of reporting requirements on unregistered entities and 
those parties not acting in a dealing capacity.'' Id. at 13.
---------------------------------------------------------------------------

    As discussed in Section X, infra, the Commission is adopting a 
revised compliance schedule that aligns Regulation SBSR compliance with 
the registration of security-based swap dealers. The Commission 
believes that foreign dealing entities that will register with the 
Commission as security-based swap dealers will be counterparties to the 
vast majority of security-based swaps involving foreign dealing 
entities engaging in U.S. activity.\495\ Such entities will thus occupy 
the highest rung of the reporting hierarchy. U.S. non-dealing entities 
that transact with registered foreign security-based swap dealers will 
not have to engage in any assessment of or negotiation with the other 
side, because reporting duties associated with these transactions will 
arise from the foreign security-based swap dealers' registration status 
rather than any ANE activity in which they might engage.
---------------------------------------------------------------------------

    \495\ See supra Section II(A)(5), where the Commission notes 
that ISDA-recognized dealers (both U.S. and foreign) are involved in 
74% of North American corporate single-name CDS transactions. The 
Commission believes that all ISDA-recognized dealers will be 
registered as security-based swap dealers.
---------------------------------------------------------------------------

    The Commission recognizes that, even after security-based swap 
dealer registration occurs, there likely will be a small number of 
foreign dealing entities that remain below the de minimis threshold and 
thus will not have to register as security-based swap dealers. Such an 
unregistered foreign dealing entity--when utilizing U.S. personnel to 
arrange, negotiate, or execute a security-based swap--would be subject 
to Rule 901(a)(2)(ii)(E)(2) if it transacts with a U.S. person or 
another unregistered foreign dealing entity that is engaging in ANE 
activity with respect to that transaction. In such case, the sides 
generally will have equal capacity to carry out the reporting duty; 
therefore, Rule 901(a)(2)(ii)(E)(2) requires the sides to select the 
reporting

[[Page 53599]]

side. An unregistered foreign dealing entity would be subject to Rule 
901(a)(2)(ii)(E)(3) if it transacts with any unregistered foreign 
entity (including a foreign non-dealing entity or a foreign dealing 
entity that is not engaging in ANE activity with respect to that 
transaction). This approach places the duty to report directly on the 
only side that includes a person that is subject to Rule 908(b). The 
Commission estimates that only four foreign dealing entities will incur 
reporting obligations under new Rules 901(a)(2)(ii)(E)(2) and (3).\496\
---------------------------------------------------------------------------

    \496\ See infra Section XII(B).
---------------------------------------------------------------------------

    Requiring additional ANE transactions of these foreign dealing 
entities to be reported--and requiring the foreign dealing entity and 
the other side to select the reporting side in a tie situation under 
Rule 901(a)(2)(ii)(E)(2) or requiring the foreign dealing entity to 
become the reporting side directly when it falls under Rule 
901(a)(2)(ii)(E)(3)--will enhance the Commission's ability to oversee 
security-based swap dealing activity occurring with the United States 
and to monitor for compliance with specific Title VII requirements, 
including the requirement that a person register with the Commission as 
a security-based swap dealer if it exceeds the de minimis threshold. 
The Commission recognizes that unregistered foreign dealing entities 
(and other unregistered persons when they transact with unregistered 
foreign dealing entities) may incur costs in assessing whether these 
rules apply to their transactions.\497\ However, requiring these ANE 
transactions to be publicly disseminated will further enhance the level 
of transparency in the U.S. security-based swap market, potentially 
promoting greater price efficiency by reducing implicit transaction 
costs.
---------------------------------------------------------------------------

    \497\ See U.S. Activity Adopting Release, 81 FR at 8626-29 
(estimating assessment costs of foreign dealing entities to count 
transactions toward the de minimis thresholds under Exchange Act 
Rules 3a71-3(b)(1)(iii)(C) and 3a71-5(c), even if some of them do 
not cross the thresholds and thus are not required to register as 
security-based swap dealers).
---------------------------------------------------------------------------

    One commenter recommended that, in a transaction between an 
unregistered U.S. person and an unregistered non-U.S. person engaged in 
ANE activity, the Commission should not require the sides to select the 
reporting side, but should instead place the reporting obligation on 
the non-U.S. person, because it is engaged in dealing activity.\498\ 
The side engaged in dealing activity would, in the commenter's view, 
have a greater capacity to fulfill the reporting obligation and would 
likely face minimal incremental costs, because many dealing entities 
already have in place arrangements to report derivatives 
transactions.\499\ The commenter expressed concern that U.S. funds 
``may not have the economic leverage to require their non-U.S. dealers 
to report'' and, if an unregistered non-U.S. person did have to report, 
it would incur ``considerable expense.'' \500\
---------------------------------------------------------------------------

    \498\ See ICI Global Letter at 7.
    \499\ See id.
    \500\ Id.
---------------------------------------------------------------------------

    The Commission does not believe that it is appropriate to modify 
Rule 901(a)(2)(ii)(E)(2) to assign the reporting duty for this 
transaction pair to the unregistered non-U.S. person who is engaging in 
ANE activity. While the Commission acknowledges the commenter's concern 
about the potential expense that an unregistered U.S. person could 
incur if it were required to report a security-based swap transaction 
with an unregistered foreign dealing entity, the Commission believes 
that it is unlikely that U.S. non-dealing entities will incur costs 
associated with reporting transactions themselves or costs of assessing 
whether an unregistered foreign dealing entity is utilizing U.S. 
personnel to engage in ANE activity. The foreign dealing entity's 
willingness to clearly indicate whether it is using U.S. personnel and 
to assume the reporting obligation should be a factor that a U.S. non-
dealing entity likely would consider when selecting a non-U.S. person 
with whom to transact. If an unregistered foreign dealing entity were 
unable or unwilling to be selected as the reporting side (or to agree 
to be the reporting side only at a cost that is prohibitive to the U.S. 
person), the U.S. person could elect to trade with one of several 
registered security-based swap dealers, both U.S. and foreign, for whom 
reporting obligations would attach by operation of Rule 
901(a)(2)(ii)(B),\501\ and negotiation about which side would incur the 
reporting duty would not be necessary.
---------------------------------------------------------------------------

    \501\ Rule 901(a)(2)(ii)(B) provides that, if only one side of a 
security-based swap includes a registered security-based swap 
dealer, that side shall be the reporting side.
---------------------------------------------------------------------------

b. Transactions Involving a Registered Broker-Dealer
    Two commenters disagreed with proposed Rule 
901(a)(2)(ii)(E)(4),\502\ which would require a registered broker-
dealer (including a registered SB SEF) to report a security-based swap 
that it effects between two unregistered non-U.S. persons who are not 
engaged in ANE activity. One commenter stated that the rule would 
require registered broker-dealers to implement costly and robust data 
capturing mechanisms and requirements regarding the status of direct 
and indirect counterparties or the use of U.S. personnel to determine 
whether one side of a security-based swap is obligated to report the 
transaction, or whether the registered broker-dealer would have the 
reporting obligation.\503\ Another commenter stated that the proposed 
rule would create a disproportionate burden on registered broker-
dealers relative to the small percentage of the market represented by 
the transactions between non-U.S. persons that would be covered by the 
proposed rule.\504\ Both commenters asserted that the registered 
broker-dealer that reports the transaction would be unable to report 
life cycle events for the transaction.\505\ Thus, in the view of one 
commenter, the Commission would be unable to rely on the reported 
information as current and accurate.\506\
---------------------------------------------------------------------------

    \502\ See ISDA I at 14; SIFMA/FSR Letter at 14.
    \503\ See ISDA I at 14.
    \504\ See SIFMA/FSR Letter at 14.
    \505\ See ISDA I at 14; SIFMA/FSR Letter at 14.
    \506\ See ISDA I at 14.
---------------------------------------------------------------------------

    The Commission continues to believe that, to improve the integrity 
and transparency of the U.S. financial markets, the Commission and 
other relevant authorities should have ready access to transaction 
reports of security-based swap transactions that registered broker-
dealers intermediate.\507\ The Commission further believes that public 
dissemination of these transactions will have value to participants in 
the U.S. security-based swap market, who are likely to trade the same 
or similar products.\508\ The Commission acknowledges that registered 
broker-dealers are required to implement policies and procedures to 
comply with the reporting obligation under Rule 901(a)(2)(ii)(E)(4), 
including procedures for determining the status of direct and indirect 
counterparties and the use of U.S. personnel to arrange, negotiate, or 
execute a transaction.\509\ However, the Commission is not mandating 
specific policies and procedures, and registered broker-dealers will 
have flexibility in developing the appropriate processes.
---------------------------------------------------------------------------

    \507\ See U.S. Activity Proposal, 80 FR at 27485.
    \508\ See id.
    \509\ See Rule 906(c).
---------------------------------------------------------------------------

    The Commission further acknowledges that life cycle events for the 
transactions covered by Rule 901(a)(2)(ii)(E)(4) will not be reported. 
Under Rule 901(e), the reporting side for a security-based swap 
transaction is obligated to report life cycle event information for the 
transaction. Security-based swaps covered by Rule 901(a)(2)(ii)(E)(4) 
must be reported by a registered broker-dealer (including a

[[Page 53600]]

registered SB SEF), not one of the sides. Thus, security-based swaps 
covered by Rule 901(a)(2)(ii)(E)(4) do not have a reporting side, and 
neither side will have an obligation to report life cycle event 
information for the transaction. The Commission believes, however, that 
the reports of these transactions, even without subsequent life cycle 
event reporting, will provide important information to the Commission 
and to market participants at the time of execution. In any event, the 
Commission expects that relatively few transactions will fall within 
Rule 901(a)(2)(ii)(E)(4).\510\
---------------------------------------------------------------------------

    \510\ See infra note 663 (estimating that only 540 of 3,000,000 
reportable events under Regulation SBSR will result from broker-
dealers having to report transactions pursuant to new Rule 
901(a)(2)(ii)(E)(4)).
---------------------------------------------------------------------------

    Finally, the Commission is modifying Rule 901(a)(2)(ii)(E)(4) so 
that the reporting requirement for a registered broker-dealer under 
Rule 901(a)(2)(ii)(E)(4) parallels the reporting requirement for a 
platform under final Rule 901(a)(1). The Commission believes that this 
change is appropriate because a registered broker-dealer, like a 
platform, is unlikely to know and could not without undue difficulty 
obtain many of the data elements contemplated by Rule 901(d). 
Furthermore, in many cases, a registered broker-dealer that falls 
within Rule 901(a)(2)(ii)(E)(4) also will be an SB SEF. Rule 
901(a)(2)(ii)(E)(4), as proposed, would have required a registered 
broker-dealer (including a registered SB SEF) to report the information 
required under Rules 901(c) and (d). In contrast, final Rule 
901(a)(2)(ii)(E)(4) requires a registered broker-dealer (including a 
registered SB SEF) to report only the information set forth in Rules 
901(c) (except that, with respect to Rule 901(c)(5), the registered 
broker-dealer (including a registered SB SEF) will be required to 
indicate only if both direct counterparties are registered security-
based swap dealers), 901(d)(9), and 901(d)(10)--in other words, the 
same information that a platform is required to report when it incurs a 
reporting duty under new Rule 901(a)(1). By eliminating the need for a 
registered broker-dealer to report certain data elements under Rule 
901(d) that the registered broker-dealer is unlikely to know and could 
not learn without undue difficulty,\511\ the Commission believes that 
the revision will help to avoid placing undue reporting burdens on 
registered broker-dealers (including registered SB SEFs) that incur 
duties as a result of new Rule 901(a)(2)(ii)(E)(4).
---------------------------------------------------------------------------

    \511\ While the registered broker-dealer would presumably know 
the primary economic terms of a transaction that it is effecting, it 
might not know or be in a position to easily learn about the 
bilateral documentation that exists between the counterparties to 
support transactions between those counterparties. Thus, the 
registered broker-dealer might not be in a position to report the 
title and date of any master agreement, collateral agreement, margin 
agreement, or other agreement incorporated by reference into a 
security-based swap, as contemplated by Rule 901(d)(4).
---------------------------------------------------------------------------

H. Conforming Amendments

1. Expanding Definition of ``Participant''
    Rule 900(u), as adopted in the Regulation SBSR Adopting Release, 
defined a ``participant'' of a registered SDR as ``a counterparty, that 
meets the criteria of [Rule 908(b) of Regulation SBSR], of a security-
based swap that is reported to that [registered SDR] to satisfy an 
obligation under [Rule 901(a) of Regulation SBSR].'' In the Regulation 
SBSR Proposed Amendments Release, the Commission proposed an amendment 
to expand the definition of ``participant'' to include registered 
clearing agencies and platforms \512\ and, as described above, has 
adopted that amendment as proposed. In the U.S. Activity Proposal, the 
Commission proposed to further amend the definition of ``participant'' 
to include a registered broker-dealer that is required by Rule 901(a) 
to report a security-based swap if it effects a transaction between 
unregistered non-U.S. persons that do not fall within proposed Rule 
908(b)(5).\513\
---------------------------------------------------------------------------

    \512\ See supra Section V(A).
    \513\ See 80 FR at 27487. As in Section IX(G), supra, Rule 
901(a)(2)(ii)(E)(4), as adopted herein, requires a registered 
broker-dealer (including a registered SB SEF) to report a security-
based swap in cases where the registered broker-dealer effects a 
transaction between unregistered non-U.S. persons that do not fall 
within Rule 908(b)(5).
---------------------------------------------------------------------------

    The Commission received no comments regarding the proposed 
amendment to Rule 900(u) to include these registered broker-dealers and 
is adopting this amendment as proposed. The Commission continues to 
believe, as it stated in the U.S. Activity Proposal, that these 
registered broker-dealers should be participants of any registered SDR 
to which they are required to report security-based swap transaction 
information because, as SDR participants, they become subject to the 
requirement in Rule 901(h) to report security-based swap transaction 
information to a registered SDR in a format required by the registered 
SDR.
2. Rule 901(d)(9)
    Existing Rule 901(d)(9) requires the reporting, if applicable, of 
the platform ID of the platform on which a security-based swap is 
executed. In the Regulation SBSR Adopting Release, the Commission 
recognized the importance of identifying the venue on which a security-
based swap is executed because this information should enhance the 
ability of relevant authorities to conduct surveillance in the 
security-based swap market and understand developments in the security-
based swap market generally.\514\ In the U.S. Activity Proposal, the 
Commission proposed to amend Rule 901(d)(9) also to require the 
reporting, if applicable, of the broker ID of a registered broker-
dealer (including a registered SB SEF) that is required by Rule 
901(a)(2)(ii)(E)(4) to report a security-based swap effected by or 
through the registered broker-dealer.
---------------------------------------------------------------------------

    \514\ See Regulation SBSR Adopting Release, 80 FR at 14589.
---------------------------------------------------------------------------

    The Commission received no comments regarding the proposed 
amendment to Rule 901(d)(9) and is adopting this amendment as proposed. 
The Commission continues to believe, as discussed in the U.S. Activity 
Proposal,\515\ that being able to identify the registered broker-dealer 
that effects a security-based swap transaction in the manner described 
in Rule 901(a)(2)(ii)(E)(4) will enhance the Commission's understanding 
of the security-based swap market and improve the ability of the 
Commission and other relevant authorities to conduct surveillance of 
security-based swap market activities.
---------------------------------------------------------------------------

    \515\ See 80 FR at 27487.
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3. Limitation of Duty To Report Ultimate Parent and Affiliate 
Information
    As discussed above, Rule 900(u), as amended herein, expands the 
definition of ``participant'' to include a registered broker-dealer 
that incurs the reporting obligation if it effects a transaction 
between two unregistered non-U.S. persons that do not fall within Rule 
908(b)(5). Existing Rule 906(b) generally requires a participant of a 
registered SDR to provide the identity of any ultimate parent and any 
of its affiliates that also are participants of that registered SDR. In 
the Regulation SBSR Proposed Amendments Release, the Commission 
proposed to except platforms and registered clearing agencies from Rule 
906(b) \516\ and, as described above, is adopting that amendment 
today.\517\ In the U.S. Activity Proposal, the Commission proposed to 
further amend Rule 906(b) to except from the duty to provide ultimate 
parent and affiliate information a registered broker-dealer that 
becomes a participant solely as a result of making

[[Page 53601]]

a report to satisfy an obligation under Rule 901(a)(2)(ii)(E)(4).\518\
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    \516\ See Regulation SBSR Proposed Amendments Release, 80 FR at 
14645.
    \517\ See supra Section V(D).
    \518\ However, a registered broker-dealer would have to comply 
with Rule 906(b) if it became a participant of a registered SDR for 
another reason--e.g., the broker-dealer is a U.S. person and is a 
counterparty to a security-based swap that is reported to the 
registered SDR on a mandatory basis.
---------------------------------------------------------------------------

    The Commission received no comments regarding the amendment to Rule 
906(b) proposed in the U.S. Activity Proposal and is adopting this 
amendment as proposed. The Commission continues to believe, as it 
stated in the U.S. Activity Proposal,\519\ that the purposes of Rule 
906(b)--namely, facilitating the Commission's ability to measure 
derivatives exposure within the same ownership group--would not be 
advanced by applying the requirement to a registered broker-dealer that 
incurs reporting obligations solely because it effects a transaction 
between two unregistered non-U.S. persons that do not fall within Rule 
908(b)(5). A registered broker-dealer acting solely as a broker with 
respect to a security-based swap is not taking a principal position in 
the security-based swap. To the extent that such a registered broker-
dealer has an affiliate that transacts in security-based swaps, such 
positions could be derived from other transaction reports indicating 
that affiliate as a counterparty.
---------------------------------------------------------------------------

    \519\ See 80 FR at 27488.
---------------------------------------------------------------------------

    The Commission proposed to make a conforming amendment to Rule 
907(a)(6). In the Regulation SBSR Proposed Amendments Release, the 
Commission proposed, and today is adopting,\520\ an amendment to Rule 
907(a)(6) that will require a registered SDR to have policies and 
procedures ``[f]or periodically obtaining from each participant other 
than a platform or a registered clearing agency information that 
identifies the participant's ultimate parent(s) and any participant(s) 
with which the participant is affiliated, using ultimate parent IDs and 
counterparty IDs.'' \521\ In the U.S. Activity Proposal, the Commission 
proposed to further amend Rule 907(a)(6) to except a registered broker-
dealer that incurs reporting obligations solely because it effects a 
transaction between two unregistered non-U.S. persons that do not fall 
within Rule 908(b)(5). \522\ The Commission received no comments 
regarding the proposed amendment to Rule 907(a)(6) and is adopting the 
amendment as proposed. Because such a broker-dealer has no duty under 
Rule 906(b), as amended, to provide such information to a registered 
SDR, no purpose would be served by requiring the registered SDR to have 
policies and procedures for obtaining this information from the broker-
dealer.
---------------------------------------------------------------------------

    \520\ See supra Section V(D).
    \521\ Once a participant reports parent and affiliate 
information to a registered SDR, Rule 906(b) requires the 
participant to ``promptly notify the registered [SDR] of any 
changes'' to its parent and affiliate information.
    \522\ See U.S. Activity Proposal, 80 FR at 27488.
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I. Availability of Substituted Compliance

    Existing Rule 908(c)(1) describes the possibility of substituted 
compliance with respect to regulatory reporting and public 
dissemination of security-based swap transactions. Substituted 
compliance could be available for transactions that will become subject 
to Regulation SBSR because of the amendments to Rule 908 being adopted 
today. Under Rule 908(c)(1), a security-based swap is eligible for 
substituted compliance with respect to regulatory reporting and public 
dissemination if at least one of the direct counterparties to the 
security-based swap is either a non-U.S. person or a foreign branch. As 
discussed in the U.S. Activity Proposal, existing Rule 908(c) does not 
condition substituted compliance eligibility on where a particular 
transaction was arranged, negotiated, or executed.\523\ Thus, Rule 
908(c) permits a security-based swap between a U.S. person and the New 
York branch of a foreign bank (i.e., a non-U.S. person utilizing U.S.-
located personnel) potentially to be eligible for substituted 
compliance, if the transaction is also subject to the rules of a 
foreign jurisdiction that is the subject of a Commission substituted 
compliance order.
---------------------------------------------------------------------------

    \523\ See id.
---------------------------------------------------------------------------

    The rules adopted today, among other things, subject to regulatory 
reporting and public dissemination both ANE transactions and security-
based swaps executed on a U.S. platform or effected by a registered 
broker-dealer. The Commission did not propose, and is not adopting, any 
amendment to Rule 908(c) that would limit the availability of 
substituted compliance for such transactions based on the location of 
the relevant activity. Thus, a transaction that is required to be 
reported and publicly disseminated because it is an ANE transaction, or 
because it is executed on a U.S. platform or effected by or through a 
registered broker-dealer, could be eligible for substituted compliance 
if the Commission issues a substituted compliance order with respect to 
regulatory reporting and public dissemination of security-based swaps 
applying to that jurisdiction. This approach is consistent with the 
Commission's decision when adopting Rule 908(c) that certain 
transactions involving U.S.-person counterparties could be eligible for 
substituted compliance (i.e., when the transaction is through the 
foreign branch of the U.S. person) even if the non-U.S.-person 
counterparty has engaged in dealing activity in connection with the 
transaction in the United States. One commenter who generally opposed 
the regulatory reporting and public dissemination requirements proposed 
in the U.S. Activity Proposal specifically supported the Commission's 
approach to substituted compliance.\524\
---------------------------------------------------------------------------

    \524\ See IIB Letter at 15, 17.
---------------------------------------------------------------------------

    Finally, several commenters expressed the view that reporting 
pursuant to Regulation SBSR should not begin until the Commission has 
made substituted compliance determinations.\525\ As discussed in 
Section X(C)(5), infra, the Commission does not believe that it is 
necessary or appropriate to defer compliance with Regulation SBSR until 
after the Commission makes one or more substituted compliance 
determinations.\526\
---------------------------------------------------------------------------

    \525\ See ISDA I at 15 (stating that the reporting of security-
based swap transactions of non-U.S. registered persons with other 
non-U.S. persons should not be required until a cross-border 
analysis has been understand and substituted compliance 
determinations have been made); ISDA/SIFMA Letter at 19 (stating 
that the security-based swap transactions of non-U.S. registered 
security-based swap dealers should not be required until the 
Commission has analyzed reporting regimes in other jurisdictions and 
made relevant substituted compliance determinations, consistent with 
the CFTC's determination to provide time-limited exemptive relief 
for swaps between non-U.S. swap dealers and non-U.S. persons while 
the CFTC analyzes the cross-border implications of reporting); 
SIFMA/FSR Letter at 15 (asking the Commission to defer compliance 
with Regulation SBSR ``until [the Commission] has the opportunity to 
make comparability determinations for key non-U.S. jurisdictions, 
including Australia, Canada, the European Union, Japan and 
Switzerland,'' and stating that ``Requiring the changes to systems, 
personnel and trade flows necessary to comply with [the U.S. 
Activity Proposal] only to later be granted substituted compliance 
would impose significant and unnecessary burdens for negligible 
short-term benefits'').
    \526\ See also infra Section XII(A)(7).
---------------------------------------------------------------------------

X. Compliance Schedule for Regulation SBSR

    In the Regulation SBSR Adopting Release, the Commission established 
a compliance date only for Rules 900, 907, and 909 of Regulation 
SBSR.\527\ In the Regulation SBSR Proposed Amendments Release, the 
Commission proposed a new compliance schedule for Rules 901, 902, 903, 
904, 905, 906, and 908 of Regulation SBSR.\528\ The

[[Page 53602]]

Commission believed that proposing a new compliance schedule was 
necessary in light of the fact that industry infrastructure and 
capabilities had changed since the initial proposal,\529\ particularly 
because the CFTC regime for swap data reporting and dissemination had 
become operational. The Commission received 13 comments that discuss 
the proposed compliance schedule. After careful consideration of these 
comments, the Commission is adopting a revised compliance schedule, as 
described in detail below.
---------------------------------------------------------------------------

    \527\ See 80 FR at 14564. The compliance date for Rules 900, 
907, and 909 was also the effective date of Regulation SBSR: May 18, 
2015.
    \528\ See 80 FR at 14762-70.
    \529\ See 80 FR at 14762. See also Regulation SBSR Proposing 
Release, 75 FR at 75242-45 (proposing Rules 910 and 911 to explain 
compliance dates and related implementation requirements).
---------------------------------------------------------------------------

A. Proposed Compliance Schedule

    The Commission proposed the following phased-in compliance schedule 
for Rules 901, 902, 903, 904, 905, 906, and 908 of Regulation 
SBSR.\530\ First, the Commission proposed a Compliance Date 1 to be the 
date six months after the first registered SDR that can accept reports 
of security-based swaps in a particular asset class commences 
operations as a registered SDR. On proposed Compliance Date 1, persons 
with a duty to report security-based swaps under Regulation SBSR would 
have been required to report all newly executed security-based swaps in 
that asset class to a registered SDR. After proposed Compliance Date 1, 
persons with a duty to report security-based swaps also would have a 
duty to report any life cycle events of any security-based swaps that 
previously had been required to be reported. In addition, under the 
proposed compliance schedule, transitional and pre-enactment security-
based swaps would also have been reported, to the extent information 
was available, to a registered SDR that accepts reports of security-
based swap transactions in the relevant asset class by proposed 
Compliance Date 1.\531\ The Commission also proposed a Compliance Date 
2, which would have been nine months after the first registered SDR 
that can accept security-based swaps in a particular asset class 
commences operations as a registered SDR (i.e., three months after 
proposed Compliance Date 1). On proposed Compliance Date 2, each 
registered SDR in that asset class would have had to comply with Rules 
902 (regarding public dissemination), 904(d) (requiring dissemination 
of transaction reports held in queue during normal or special closing 
hours), and 905 (with respect to public dissemination of corrected 
transaction reports) for all security-based swaps in that asset class--
except for covered cross-border transactions.\532\
---------------------------------------------------------------------------

    \530\ See Regulation SBSR Proposed Amendments Release, 80 FR at 
14762-70.
    \531\ A transitional security-based swap is ``a security-based 
swap executed on or after July 21, 2010, and before the first date 
on which trade-by-trade reporting of security-based swaps in that 
asset class to a registered security-based swap data repository is 
required pursuant to Sec. Sec.  242.900 through 242.909.'' See Rule 
900(nn). A pre-enactment security-based swap is ``any security-based 
swap executed before July 21, 2010 (the date of enactment of the 
Dodd-Frank Act (Pub. L. 111-203, H.R. 4173)), the terms of which had 
not expired as of that date.'' See Rule 900(y).
    \532\ A covered cross-border transaction is a security-based 
swap that has, on one side, a direct counterparty who is not a U.S. 
person but has a U.S. guarantor, and on the other side has no 
counterparty that is a U.S. person, registered security-based swap 
dealer, or registered major security-based swap participant. Such a 
transaction will not be submitted to clearing at a registered 
clearing agency having its principal place of business in the United 
States. See Regulation SBSR Adopting Release, 80 FR at 14653, n. 
827.
---------------------------------------------------------------------------

    The proposed compliance schedule with respect to security-based 
swaps in a particular asset class was tied to the commencement of 
operations of a registered SDR that can accept reports of security-
based swaps in that asset class. In the Regulation SBSR Proposed 
Amendments Release, the Commission noted that both registered SDRs and 
persons with a duty to report would need time to make preparations 
related to the reporting of security-based swaps.\533\ The proposed 
compliance schedule was not, however, linked to security-based swap 
dealer registration.
---------------------------------------------------------------------------

    \533\ See 80 FR at 14763.
---------------------------------------------------------------------------

B. General Summary of Comments Received

    Commenters expressed a variety of concerns with the proposed 
compliance schedule. Most of the comments that addressed the proposed 
compliance schedule urged the Commission to delay implementation of 
Regulation SBSR until after security-based swap dealers are registered 
as such with the Commission.\534\ Commenters generally expressed 
concerns with the costs and burdens of implementing Regulation SBSR 
ahead of the SBS entities registration compliance date, particularly 
the costs for buy-side U.S. persons. Commenters also expressed concerns 
that allowing the SBS entities registration compliance date to follow 
the implementation of Regulation SBSR would complicate reporting in the 
interim period between the two dates. Many of these commenters also 
expressed concerns that the reporting of historical security-based 
swaps would be significantly more difficult if compliance for reporting 
were required before the SBS entities registration compliance 
date.\535\
---------------------------------------------------------------------------

    \534\ See IIB Letter at 17; ISDA I at 4, 11-13; ISDA II at 1-14; 
ISDA III at 1-12; SIFMA-AMG II at 6-7; UBS Letter at 2; WMBAA Letter 
at 5-6.
    \535\ See ISDA/SIFMA Letter at 16-17; ISDA II at 10; ISDA III at 
2, 4.
---------------------------------------------------------------------------

    Some commenters expressed concerns about basing the compliance 
schedule for an asset class on the registration of the first SDR that 
can accept security-based swaps in that asset class, which, they 
argued, could confer an unfair ``first mover'' advantage.\536\ One of 
these commenters recommended that the Commission consider a compliance 
schedule that would base the first compliance date on the registration 
of a ``critical mass'' of SDRs.\537\
---------------------------------------------------------------------------

    \536\ See WMBAA Letter at 6; DTCC Letter at 12; SIFMA Letter at 
17; DTCC/ICE/CME Letter at 4-5; ISDA/SIFMA Letter at 18.
    \537\ WMBAA Letter at 5.
---------------------------------------------------------------------------

    Other commenters expressed concern about how the reporting 
requirements contained in Regulation SBSR could be implemented before 
the Commission finalizes its rules regarding SB SEFs.\538\ Some 
commenters urged the Commission to defer compliance with Regulation 
SBSR until the Commission makes one or more substituted compliance 
determinations with respect to regulatory reporting and public 
dissemination of security-based swap transactions in foreign 
jurisdictions.\539\ Still others suggested that the Commission defer 
compliance with the requirement to report certain UICs until 
international standards for UICs are developed.\540\ Several commenters 
expressed concerns that differences between Regulation SBSR and the 
parallel CFTC rules would present significant implementation challenges 
for SDRs and market participants that seek to operate in both the swap 
and security-based swap markets.\541\ Various commenters generally 
urged the Commission to provide adequate time for the development and 
implementation of the required compliance systems and procedures.\542\
---------------------------------------------------------------------------

    \538\ See WMBAA Letter at 5-6; ISDA/SIFMA Letter at 3.
    \539\ See ISDA/SIFMA Letter at 19-20; SIFMA/FSR Letter at 15; 
IIB Letter at 19.
    \540\ See ISDA/SIFMA Letter at 3, 12; DTCC/ICE/CME Letter at 3-
4; Financial InterGroup Letter at 4; DTCC Letter at 2-3.
    \541\ See DTCC Letter at 21 (``SB SDR applicants would be forced 
to expand their operations considerably, particularly to address the 
confirmation functions and code issuance responsibilities''); ICE 
Letter at 8; ISDA/SIFMA Letter at 8 (``reporting sides and market 
infrastructure providers will need to engage in significant builds 
and development of new industry standards in order to comply''); 
WMBAA Letter at 5.
    \542\ See Financial InterGroup Letter at 1; WMBAA Letter at 5-6; 
ISDA/SIFMA Letter at 8-18.

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[[Page 53603]]

    These comments and the Commission's responses thereto are discussed 
in more detail below. The Commission is adopting the primary features 
of the proposed compliance schedule but is making several revisions in 
response to comments. Most notably, as described below, the Commission 
had decided to align the compliance dates for Regulation SBSR with the 
SBS entities registration compliance date.

C. Compliance Date 1

    Under the compliance schedule adopted today, with respect to newly 
executed security-based swaps in a particular asset class, Compliance 
Date 1 for Rule 901 of Regulation SBSR is the first Monday that is the 
later of: (1) Six months after the date on which the first SDR that can 
accept transaction reports in that asset class registers with the 
Commission; or (2) one month after the SBS entities registration 
compliance date. Every security-based swap in that asset class that is 
executed on or after Compliance Date 1 must be reported in accordance 
with Rule 901.\543\
---------------------------------------------------------------------------

    \543\ Every security-based swap in that asset class that is 
executed on or after July 21, 2010, and up and including to the day 
immediately before Compliance Date 1 is a transitional security-
based swap. As discussed in Section X(E), infra, the Commission's 
final compliance schedule establishes a separate Compliance Date 3 
for pre-enactment and transitional security-based swaps.
---------------------------------------------------------------------------

    Furthermore, Rule 901--which imposes reporting duties on specified 
persons beginning on Compliance Date 1--must be read in connection with 
Rules 908(a) and 908(b) on Compliance Date 1. Thus, for example, a non-
U.S. person who falls within one of the categories set forth in Rule 
908(b) could, under Rule 901(a), be required on Compliance Date 1 to 
report a cross-border security-based swap if the security-based swap 
falls within one of the categories set forth in Rule 908(a). Also, when 
persons with reporting duties begin mandatory reporting on Compliance 
Date 1, they must do so in a manner consistent with Rule 903, which 
addresses the use of coded information in the reporting of security-
based swaps.
    Beginning on Compliance Date 1, registered SDRs must comply with 
Rule 904, which addresses the operating hours of registered SDRs, 
except for Rule 904(d).\544\
---------------------------------------------------------------------------

    \544\ Rule 904(d) addresses how a registered SDR must publicly 
disseminate information about security-based swap transaction 
reports that were submitted during its closing hours. As discussed 
in Section X(D), infra, public dissemination will commence on 
Compliance Date 2.
---------------------------------------------------------------------------

    Also beginning on Compliance Date 1, counterparties and registered 
SDRs must comply with Rule 905 regarding the correction of errors in 
previously reported information about security-based swaps in that 
asset class, except that the registered SDR will not yet be subject to 
the requirement in Rule 905(b)(2) to publicly disseminate any corrected 
transaction reports (because it will not yet be required to publicly 
disseminate a report of the initial transaction). Furthermore, 
beginning on Compliance Date 1, each registered SDR must comply with 
the requirement in Rule 906(a) to provide to each participant of that 
SDR a report of any missing UICs, and any participant receiving such a 
report must comply with the requirement in Rule 906(a) to provide the 
missing UICs to the registered SDR. By Compliance Date 1, participants 
enumerated in Rule 906(c) must establish the policies and procedures 
required by Rule 906(c).
1. Compliance With Regulation SBSR Follows Security-Based Swap Dealer 
Registration
    Several commenters strongly urged the Commission to defer 
Compliance Date 1 until security-based swap dealers must register with 
the Commission.\545\ These commenters correctly observed that, during 
any interim period beginning on the date that the Commission requires 
reporting of newly executed security-based swaps in a particular asset 
class but before the SBS entities registration compliance date (the 
``Interim Period''), there would be no registered security-based swap 
dealers or registered major security-based swap participants to occupy 
the highest rungs of the reporting hierarchy in Rule 901(a)(2)(ii). 
Therefore, during any such Interim Period, any security-based swap 
covered by the reporting hierarchy would either be a ``tie''--because 
both sides are unregistered persons who fall within Rule 908(b)--or one 
side would become the reporting side because only that side includes a 
person that falls within Rule 908(b).\546\ The commenters argued 
generally that the absence of registered security-based swap dealers at 
the top of the reporting hierarchy during the Interim Period would 
create a number of difficulties in negotiating and carrying out 
reporting duties.\547\ Commenters pointed out particular difficulties 
with ascertaining reporting duties for cross-border transactions under 
Rule 901(a)(2)(ii) during the Interim Period \548\ and emphasized that 
buy-side U.S. persons that transact with foreign dealing entities 
during the Interim Period would find it particularly difficult to make 
assessments of whether their non-U.S. counterparties were engaged in 
ANE activity. Furthermore, according to the commenters, attempts to 
address difficulties arising during the Interim Period would be costly, 
complicated, and inefficient,\549\ and such interim solutions would not 
be useful for the period after the SBS entities registration compliance 
date.\550\
---------------------------------------------------------------------------

    \545\ One commenter submitted several comments regarding this 
issue. See ISDA I at 4, 11-13; ISDA II at 1-14; ISDA III at 1-2, 9-
12; ISDA/SIFMA Letter at 6-9. Other commenters raised similar 
issues. See IIB Letter at 17; SIFMA-AMG II at 6-7; SIFMA/FSR Letter 
at 15.
    \546\ If one side of a security-based swap includes no person 
that falls within Rule 908(b), that side does not incur any 
reporting duties under Regulation SBSR.
    \547\ See, e.g., ISDA I at 11-13; ISDA II at 1-12; ISDA III at 
1-2; ISDA/SIFMA at 6-7.
    \548\ See ISDA II at 1-10; ISDA III at 2-11; SIFMA/FSR Letter at 
13-14; SIFMA-AMG II at 6-7. One commenter expressed the general view 
that costs to buy-side U.S. persons of negotiating with 
counterparties regarding reporting responsibilities, constructing 
reporting mechanisms, or engaging third parties to aid in their 
reporting are substantial and outweigh the benefits of beginning 
reporting prior to the SBS entities registration compliance date. 
See ISDA II at 4.
    \549\ One commenter, for example, presented a complex set of 
possible options for facilitating industry compliance with 
Regulation SBSR during the Interim Period. See ISDA III, passim. 
These suggestions included the Commission adopting an ``interim 
reporting side hierarchy'' as well as ``a publicly available 
industry declaration for entities willing to assume the role of a 
SBS dealing entity in such hierarchy,'' regardless of whether or not 
they were engaging in ANE activity in a particular transaction. See 
id. at 9-10. The commenter also provided a detailed discussion of 
potential costs associated with these suggested interim solutions. 
See id. at 6-9.
    \550\ See, e.g., ISDA II at 7; UBS Letter at 2; ISDA/SIFMA 
Letter at 9 (arguing that requiring compliance with the reporting 
duties before the SBS entities registration compliance date 
``creates unjustified additional costs to implement interim 
solutions'' and that ``[t]he cost and effort of such implementation 
will be wasted once dealer registration is required''). This 
commenter presented several potential alternatives for addressing 
concerns about implementing Regulation SBSR before the SBS entities 
registration compliance date, while stressing that its first choice 
was for the Commission to delay Compliance Date 1 until after the 
SBS entities registration compliance date. See ISDA III at 3-5, 9-
10.
---------------------------------------------------------------------------

    The Commission acknowledges the commenters' concerns that requiring 
compliance with Regulation SBSR before the SBS entities registration 
compliance date would have raised numerous challenges, and that 
addressing these challenges would have necessitated time and investment 
to create interim solutions that might not be useful after the SBS 
entities registration compliance date. Therefore, the Commission has 
determined that market participants will not be required to comply with 
Regulation SBSR until after the SBS entities registration compliance 
date. As noted above, the second prong of Compliance Date 1 is one 
month after the SBS entities

[[Page 53604]]

registration compliance date. This one-month period is designed to 
allow all security-based swap market participants to become familiar 
with which firms have registered as security-based swap dealers, and 
for registered security-based swap dealers to ensure that they have the 
systems, policies, and procedures in place to commence their primary 
reporting duties under Regulation SBSR. Without providing an additional 
period between the SBS entities registration compliance date and 
Compliance Date 1, unnecessary confusion could result if market 
participants were forced to readjust their reporting hierarchies within 
a very short period, particularly if several firms were to register 
only days before or actually on the SBS entities registration 
compliance date.
    One commenter who urged that the Commission defer compliance with 
Regulation SBSR until after security-based swap dealers register also 
recommended that, ``[i]f the Commission decides to require regulatory 
reporting of ANE transactions despite [comments] to the contrary, 
reporting should be required only with respect to those ANE 
transactions that are relevant for SBSD registration (i.e., executed 
from the later of (a) February 21, 2017 or (ii) two months before the 
SBS registration compliance date).'' \551\ In light of the Commission's 
final Compliance Date 1 schedule, this comment is now moot because 
dealing entities will not be required to report any security-based swap 
transactions before the SBS entities registration compliance date.
---------------------------------------------------------------------------

    \551\ UBS Letter at 3.
---------------------------------------------------------------------------

2. At Least Six Months Between First SDR To Register and Compliance 
Date 1
    Final Compliance Date 1 retains a prong that generally follows the 
principle in proposed Compliance Date 1 of allowing six months between 
the registration of the first SDR that can accept transaction reports 
of security-based swaps in an asset class. The Commission continues to 
believe that it is appropriate to give market participants at least six 
months after the registration of the first SDR that can accept 
transaction reports of security-based swaps in an asset class before 
they are required to report transactions in that asset class. This 
period will enable market participants to prepare their systems for 
reporting to that SDR and to fully familiarize themselves with the 
SDR's policies and procedures. However, as discussed below, final 
Compliance Date 1 eliminates the proposed reference to the date on 
which such SDR ``commences operations'' as a registered SDR.
    One commenter expressed the view that the proposed compliance 
timeline would give reporting sides and SDRs adequate time to implement 
Regulation SBSR.\552\ A second commenter, however, argued that 
Compliance Date 1 should be extended to 12 months after the 
registration of the first SDR in an asset class.\553\ A third commenter 
recommended that Compliance Date 1 be nine months after the later of 
(1) the date by which security-based swap dealers and major security-
based swap participants are required to register with the Commission; 
and (2) the date on which the Commission announces SDR readiness in an 
asset class.\554\
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    \552\ See ICE Letter at 7.
    \553\ See LCH.Clearnet Letter at 4, 12-13. The commenter 
believed that the proposed timeframe would not provide enough time 
to connect to all registered SDRs. See id. at 4.
    \554\ See ISDA/SIFMA Letter at 17; UBS Letter at 2.
---------------------------------------------------------------------------

    The Commission believes that six months is an appropriate minimum 
period between registration of the first SDR in an asset class and 
Compliance Date 1 with respect to that asset class, particularly in 
view of the Commission's decision not to require compliance with 
Regulation SBSR until after the SBS entities registration compliance 
date. The Commission further notes that, before the Commission grants 
registration to any SDR, the application would be published for 
comment.\555\ The minimum six-month period between the Commission's 
grant of an SDR's registration and Compliance Date 1 should allow 
prospective participants sufficient time to analyze the final form of 
the SDR's policies and procedures under Regulation SBSR, make inquiries 
to the SDR about technological and procedural matters for connecting to 
the SDR to report the necessary data, build or adapt existing 
connections as necessary, and conduct systems testing.\556\ The 
Commission staff intends to monitor participant readiness during the 
period between the granting of the first SDR registration and 
Compliance Date 1.
---------------------------------------------------------------------------

    \555\ See SDR Adopting Release, 80 FR at 14465.
    \556\ See WMBAA Letter at 6 (``Platforms' compliance with the 
Proposed Rules will depend on the permissibility of functionality of 
services provided by third-party vendors and SDRs. These vital 
infrastructure components will determine how quickly platforms and 
market participants can comply with the Proposed Rules'').
---------------------------------------------------------------------------

    Certain commenters suggested establishing dates certain for 
compliance with Regulation SBSR.\557\ While the Commission appreciates 
commenters' desire to have certainty about when their duties under 
Regulation SBSR will commence, the Commission notes that there are not 
yet any registered SDRs and the Commission cannot predict when one or 
more SDRs will be granted registration. Furthermore, the SBS entities 
registration compliance date is contingent on the completion of several 
other rulemakings. The Commission believes, therefore, that the more 
practical approach is to base Compliance Date 1 on the later of these 
two events, rather than to establish dates certain.
---------------------------------------------------------------------------

    \557\ See DTCC Letter at 3; DTCC/ICE/CME Letter at 4.
---------------------------------------------------------------------------

    Finally, two commenters noted that, although proposed Compliance 
Date 1 would have been tied to the commencement of operations of a 
registered SDR in an asset class, ``commencement of operations'' is not 
defined and it was not clear to the commenters how this date would be 
determined or how market participants would be made aware of that 
date.\558\ The Commission has determined to eliminate the 
``commencement of operations'' as one of the triggering events in 
Compliance Date 1. The Commission acknowledges that this change from 
``commencement of operations'' to the date of SDR registration in this 
prong could reduce the number of days between the issuance of this 
release and Compliance Date 1, if there is in fact a lag between 
registration and the ``commencement of operations'' for that registered 
SDR. However, the Commission believes that market participants will 
benefit from eliminating uncertainty about precisely when an SDR 
``commences operations'' and how the fact of such commencement would be 
conveyed.
---------------------------------------------------------------------------

    \558\ See DTCC Letter at 12; ISDA/SIFMA Letter at 17.
---------------------------------------------------------------------------

    Finally, the Commission notes that it is setting Compliance Date 1 
as the first Monday following the later of the two stipulated events. 
Beginning mandatory transaction reporting on a Monday will give 
registered SDRs and their participants at least one final weekend to 
conduct any final systems changes or testing.
3. There May Be Separate Compliance Dates for Separate Asset Classes
    The Commission is adopting the proposed approach that the 
compliance dates are specific to a security-based swap asset class. One 
commenter expressed concern that the potential for varying compliance 
dates for different asset classes ``would inject unnecessary complexity 
into the implementation process and potentially cause confusion

[[Page 53605]]

among market participants.'' \559\ The Commission notes, however, that 
there is no requirement that a person that seeks registration as an SDR 
must accept security-based swaps in both the credit and equity asset 
classes. Thus, a person might submit an application to register as an 
SDR only with respect to a single asset class.\560\ If the Commission 
were to grant registration of an SDR applicant that could receive 
transactions in only a single asset class and assuming that the other 
prong of Compliance Date 1 were met, it would be impossible for market 
participants to report transactions in other asset classes to that SDR. 
Delaying Compliance Date 1 until an SDR has been registered in all 
security-based swap asset classes would prevent reporting from 
beginning in the asset class or classes that the first registered SDR 
is ready to accept. Therefore, the Commission believes that it is 
appropriate to make the compliance dates specific to each asset class.
---------------------------------------------------------------------------

    \559\ DTCC Letter at 12, n. 25.
    \560\ See Securities Exchange Act Release No. 77699, Notice of 
Filing of Application for Registration as a Security-Based Swap Data 
Repository by ICE Trade Vault, LLC (April 22, 2016) (SBSDR-2016-01) 
(requesting registration with the Commission as an SDR only for the 
credit asset class).
---------------------------------------------------------------------------

4. ``First-Mover'' Concerns
    Several commenters expressed concerns about triggering compliance 
based on the first SDR in an asset class to register with the 
Commission.\561\ One commenter recommended that, to minimize these 
concerns, the Commission should ``coordinate its processing of SDR 
applications received within a reasonable window and time its 
announcement of SDR registration and readiness to include all SDRs for 
an asset class that will be approved ahead of Compliance Date 1.'' 
\562\ Likewise, a second commenter urged the Commission ``to uniformly 
review and approve SDR applicants that are acting in good faith to 
complete the application process in order to minimize `first mover' 
advantages.'' \563\
---------------------------------------------------------------------------

    \561\ See DTCC Letter at 12 (noting that market participants 
will likely be compelled to begin the onboarding process with the 
first registered SDR); DTCC/ICE/CME Letter at 4 (noting that market 
participants would have no choice but to join the first registered 
SDR to guarantee that they meet any compliance date tied to the 
first SDR); ICE Letter at 8; ISDA/SIFMA Letter at 18 (stating that a 
reporting side may not be able to freely select the SDR of its 
choice if another SDR is first to register and the desired SDR 
cannot complete the registration process before participants would 
be compelled to report to the first SDR).
    \562\ ISDA/SIFMA Letter at 18.
    \563\ ICE Letter at 8. This commenter also urged the Commission 
to ``focus equally on each application,'' ``provide applicants equal 
opportunities to address the Commission's comments and amend their 
applications,'' and ``make best efforts to approve SDR applicants at 
the same time.'' Id.
---------------------------------------------------------------------------

    With respect to commenters' concerns about multiple SDR 
applications for registration, the Commission previously stated in the 
SDR Adopting Release that it ``intends to process such applications . . 
. within the same period of time so as to address competition concerns 
that could arise if such SDRs were granted registration at different 
times.'' \564\ However, if an SDR application meets the criteria of 
Rule 13n-1(c)(3) under the Exchange Act,\565\ the Commission does not 
believe that it should be necessary to delay granting the registration 
because of the status of other pending applications. As the Commission 
also noted in the SDR Adopting Release: ``Certain unexpected events 
that raise compliance concerns with respect to one applicant but not 
another, such as deficiencies identified in connection with the 
Commission's consideration of whether an applicant meets the criteria 
of Rule 13n-1(c), may interfere with the Commission's ability to 
process initial applications for registration within the same period of 
time.'' \566\
---------------------------------------------------------------------------

    \564\ 80 FR at 14467.
    \565\ 17 CFR 240.13n-1(c)(3) (enumerating the criteria that the 
Commission must assess in granting the registration of an SDR).
    \566\ 80 FR at 14467, n. 340.
---------------------------------------------------------------------------

    The Commission acknowledges that, by requiring compliance based on 
the first SDR in an asset class to register with the Commission, a 
participant might not be able to report security-based swaps to its 
preferred SDR. However, this situation implies that the participant's 
preferred SDR for reporting security-based swap transactions has not 
yet met the criteria for registration under Rule 13n-1(c)(3). The 
Commission believes that commencing reporting with only a single 
registered SDR in an asset class, should this prove necessary, would be 
preferable to any alternative. When the Commission grants the first SDR 
registration, delaying compliance with Regulation SBSR until additional 
registrations are granted would not further the objectives of Title 
VII.\567\ The opposite approach, whereby the Commission would not 
require compliance with Regulation SBSR until two or more SDRs had 
registered with the Commission, could have the effect of giving an 
applicant that has not met the criteria for registration the power to 
delay the reporting regime contemplated by Title VII. The Commission 
believes that this outcome would unfairly retard the ability of a 
successful applicant to begin providing SDR services.
---------------------------------------------------------------------------

    \567\ See, e.g., S. Comm. on Banking, Hous., & Urban Affairs, 
The Restoring American Financial Stability Act of 2010, S. Rep. No. 
111-176, at 32 (``As a key element of reducing systemic risk and 
protecting taxpayers in the future, protections must include 
comprehensive regulation and rules for how the OTC derivatives 
market operates. Increasing the use of central clearinghouses, 
exchanges, appropriate margining, capital requirements, and 
reporting will provide safeguards for American taxpayers and the 
financial system as a whole'').
---------------------------------------------------------------------------

    Finally, the Commission notes that, even if there is only one 
registered SDR for some period of time, other Commission rules are 
designed to minimize any undue advantage that the first SDR might 
otherwise enjoy. For example, every SDR, even the first and only 
registered SDR in a particular asset class, must offer fair, open, and 
not unreasonably discriminatory access to users of its services.\568\ 
Furthermore, any fees that it charges would have to be fair and 
reasonable and not unreasonably discriminatory.\569\
---------------------------------------------------------------------------

    \568\ See Rule 13n-4(c)(1)(iii) under the Exchange Act, 17 CFR 
240.13n-4(c)(1)(iii).
    \569\ See Rule 13n-4(c)(1)(i) under the Exchange Act, 17 CFR 
240.13n-4(c)(1)(i).
---------------------------------------------------------------------------

5. No Delay for Substituted Compliance Determinations
    Three commenters urged the Commission to defer compliance with 
Regulation SBSR until the Commission has made substituted compliance 
determinations with respect to regulatory reporting and public 
dissemination of security-based swap transactions for certain foreign 
jurisdictions.\570\ In the view of one of these commenters, this 
approach could ``save reporting sides the effort and cost of building 
to the SBSR requirements if their current builds will suffice.'' \571\ 
Another commenter stated that ``[r]equiring the changes to systems, 
personnel and trade flows necessary to comply with the Commission's 
Proposal only to later be granted substituted compliance would impose 
significant and unnecessary burdens for negligible short-term 
benefits.'' \572\
---------------------------------------------------------------------------

    \570\ See ISDA/SIFMA Letter at 19-20; SIFMA/FSR Letter at 12-13, 
15 (recommending deferring compliance until the Commission makes 
comparability determinations for ``key'' foreign jurisdictions 
including Australia, Canada, the European Union, Japan, and 
Switzerland); IIB Letter at 19.
    \571\ ISDA/SIFMA Letter at 20.
    \572\ SIFMA/FSR Letter at 15.
---------------------------------------------------------------------------

    The Commission declines to accept this suggestion and does not 
believe that compliance with Title VII's regulatory reporting and 
public dissemination requirements, as implemented by Regulation SBSR, 
should be delayed until the Commission has made any substituted 
compliance determinations. The Commission has not yet received any 
substituted compliance applications

[[Page 53606]]

and, therefore, does not yet have sufficient information regarding any 
foreign jurisdiction to make the findings necessary to issue a 
substituted compliance order. In addition, because many other 
jurisdictions are, like the Commission, still in the process of 
establishing and implementing their regulatory requirements, the 
Commission cannot predict when--or even if--any jurisdictions 
ultimately will have regulatory systems that are comparable to 
Regulation SBSR. If the Commission were to accept the commenters' 
suggestion, the Commission might have to defer compliance for a lengthy 
period, which would unnecessarily delay the implementation of the 
reporting and public dissemination regime.
6. No Delay for Adoption of SB SEF Rules
    Two commenters urged the Commission to delay Compliance Date 1 
until the Commission adopts final rules relating to SB SEFs and 
provides sufficient time for entities to register with the Commission 
as SB SEFs.\573\ One of these commenters argued, for example, that 
``the Commission should prepare alternative compliance regimes in the 
chance that all of the SB swap trading rules are not in place (and, as 
a result, market participants cannot meet the reporting obligations of 
Rule 901) by Compliance Date 1.'' \574\
---------------------------------------------------------------------------

    \573\ See WMBAA Letter at 5-6; ISDA/SIFMA Letter at 3.
    \574\ WMBAA Letter at 6.
---------------------------------------------------------------------------

    The Commission declines to act on the commenters' suggestion. 
Delaying compliance with Regulation SBSR until final rules relating to 
SB SEFs are adopted would result in the Commission and other relevant 
authorities continuing to lack complete records of all security-based 
swap transactions, which will facilitate market and systemic risk 
oversight. The Commission believes that Regulation SBSR can be 
successfully implemented even before the adoption of final SB SEF rules 
and the registration of SB SEFs with the Commission. The Commission 
understands that, currently, many security-based swaps trade off-
platform and it is likely that a sizeable portion of the security-based 
swap market will continue to trade off-platform, even after SB SEFs 
have the opportunity to register with the Commission. The Commission 
believes that delaying Compliance Date 1 until SB SEFs have registered 
would unnecessarily delay the reporting of security-based swaps that 
trade off-platform.
    The Commission understands that there are a small number of 
existing entities that likely meet the definition of ``security-based 
swap execution facility'' at present but are not yet registered with 
the Commission as such. However, Rule 901(a)(1) applies to all 
platforms, including unregistered SB SEF. Moreover, the Commission does 
not believe that the finalization of its SB SEF rules would affect 
their capability to report such transactions to a registered SDR 
because the Commission understands that such entities are likely to be 
swap execution facilities that already have incurred swap reporting 
duties under CFTC rules.\575\ Thus, these entities already have 
substantial reporting infrastructure that can likely be used to support 
security-based swap reporting duties.\576\ For transactions that occur 
on exempt SB SEFs, the Commission considered an alternative of 
requiring a side to report each transaction effected on the SB SEF that 
will be submitted to clearing until SB SEFs have an opportunity to 
register with the Commission. However, this alternative is unworkable 
because platform transactions that will be submitted to clearing may be 
anonymous, and the sides cannot be expected to ascertain the reporting 
side or report the necessary counterparty information if they are 
anonymous to each other.\577\
---------------------------------------------------------------------------

    \575\ See Swap Data Recordkeeping and Reporting Requirements, 77 
FR 2136 (January 13, 2012) (discussing reporting under the CFTC 
rules and swap execution facilities roles in that reporting); see 
also ``The Role of Swap Execution Facilities (SEFs) in Derivatives 
Trade Execution, Clearing and Reporting: Part 2'' at https://riskfocus.com/the-role-of-swap-execution-facilities-sefs-in-derivatives-trade-execution-clearing-and-reporting-part-2/ (last 
visited on May 25, 2016) for a summary of such reporting.
    \576\ See supra Section IV(H).
    \577\ See supra Section IV(B).
---------------------------------------------------------------------------

7. Compliance With UIC Requirements
    Several commenters urged the Commission to defer compliance with 
Regulation SBSR's UIC requirements until international standards for 
these UICs are developed and can be used across multiple SDRs and 
multiple jurisdictions.\578\ Two of these commenters expressed concern 
that requiring each registered SDR to establish its own UIC system 
ahead of an internationally recognized standard would generate 
significant complexities and costs and would frustrate data aggregation 
efforts.\579\ One commenter argued that the Commission generally should 
``consider a separate compliance schedule for UIC fields to allow 
sufficient time for SB SDRs to work collaboratively with market 
participants, including prospective UIC issuers, to develop an industry 
standard or, at minimum, an SB SDR-specific methodology.'' \580\
---------------------------------------------------------------------------

    \578\ See DTCC Letter at 2-3; ISDA/SIFMA Letter at 3, 12; DTCC/
ICE/CME Letter at 3-4; Financial InterGroup Letter at 4.
    \579\ DTCC Letter at 10; DTCC/ICE/CME Letter at 3.
    \580\ DTCC Letter at 11. See also DTCC/ICE/CME Letter at 3 
(stating that the Commission should allow ``sufficient time for the 
IDs to be developed in collaboration with the industry'').
---------------------------------------------------------------------------

    After carefully considering the issues raised by commenters, the 
Commission believes, for the reasons described below, that use of the 
various UICs must commence on Compliance Date 1:
a. UICs for Legal Entities
    For any UIC that can be represented with a Legal Entity Identifier 
(``LEI''), compliance is required on Compliance Date 1. In the 
Regulation SBSR Adopting Release, the Commission recognized the Global 
Legal Entity Identifier System (``GLEIS'') as an internationally 
recognized standards-setting system (``IRSS'') that satisfies the 
requirements of Rule 903.\581\ Under Rule 903(a), if an IRSS recognized 
by the Commission has assigned a UIC to a person, unit of a person, or 
product, each registered SDR must employ that UIC for reporting 
purposes under Regulation SBSR, and SDR participants must obtain such 
UICs for use under Regulation SBSR. Counterparties, ultimate parents, 
brokers, execution agents, platforms, registered clearing agencies, and 
registered broker-dealers typically are legal entities and typically 
already have or will be able to obtain an LEI. Accordingly, compliance 
with the LEI requirements under Regulation SBSR is required on 
Compliance Date 1.
---------------------------------------------------------------------------

    \581\ See 80 FR at 14631-32.
---------------------------------------------------------------------------

b. Branch ID, Trading Desk ID, and Trader ID
    Regulation SBSR also requires UICs for three types of ``sub-legal 
entities'': Branches, trading desks, and individual traders. As 
commenters note, neither the GLEIS nor any other potential IRSS assigns 
identifiers to any sub-legal entities at this time.\582\ Although the 
GLEIS has begun exploring the possibility of assigning identifiers to 
branches and certain natural persons,\583\ it is unclear when any final 
decision to do so might be taken. Given the

[[Page 53607]]

uncertainty about when or even if an IRSS will eventually be able to 
issue identifiers for all branches, trading desks, and traders, the 
Commission does not believe that it would be appropriate to delay 
compliance with these UIC requirements until an IRSS can provide them.
---------------------------------------------------------------------------

    \582\ See DTCC Letter at 9-10; Financial InterGroup Letter at 3-
4.
    \583\ See, e.g., LEI Regulatory Oversight Committee, 
``Consultation document on including data on branches in the Global 
LEI System,'' available at http://www.leiroc.org/publications/gls/lou_20151019-1.pdf (last visited on May 25, 2016); and ``Statement 
on Individuals Acting in a Business Capacity,'' available at http://www.leiroc.org/publications/gls/lou_20150930-1.pdf (last visited on 
May 25, 2016).
---------------------------------------------------------------------------

    The Commission recognizes that this approach raises the possibility 
that different SDRs could, in theory, assign different UICs to the same 
person, unit of a person, or product. If this were to occur, the 
Commission could have to map the UICs assigned by one registered SDR to 
the corresponding UICs assigned by one or more other SDRs to maintain a 
complete picture of the market activity pertaining to a particular 
person or sub-legal entity. The Commission specifically addressed this 
issue in the Regulation SBSR Adopting Release.\584\ However, the 
Commission previously noted a mechanism whereby a participant could use 
the same UICs at multiple SDRs.\585\ Regulation SBSR does not prohibit 
a participant from making suggestions to a registered SDR regarding the 
UICs that the SDR is required to assign, particularly for sub-legal 
entities.\586\ Through this mechanism for assignment, a person who is a 
participant of two or more registered SDRs could--with the concurrence 
of these SDRs--utilize the same UICs across multiple SDRs.\587\
---------------------------------------------------------------------------

    \584\ See 80 FR at 14632 (``UICs, even if SDR-specific, will 
provide a streamlined way of reporting, disseminating, and 
interpreting security-based swap information. The Commission 
believes that requiring registered SDRs to develop their own UICs--
but only for UICs that are not assigned by or through an IRSS that 
has been recognized by the Commission--will result in less confusion 
than the currently available alternatives, such as allowing each 
reporting side to utilize its own nomenclature conventions, which 
would subsequently have to be normalized by registered SDRs or by 
the Commission'').
    \585\ See Regulation SBSR Adopting Release, 80 FR at 14723, n. 
1371 (``assume that a person becomes a participant of a registered 
SDR and obtains UICs for its trading desks and individual traders 
from that SDR. Later, that person becomes a participant at a second 
registered SDR. The second SDR could issue its own set of UICs for 
this person's trading desks and individual traders, or it could 
recognize and permit use of the same UICs that had been assigned by 
the first registered SDR'').
    \586\ This could also be true for identifying counterparties 
that do not fall within Rule 908(b) and do not otherwise have an LEI 
that could be used for the counterparty ID.
    \587\ In connection with its comments regarding how Regulation 
SBSR's compliance dates should address UIC issues, one commenter 
recommended that the Commission ``consult and agree with market 
participants'' on how to assign various UICs, including branch ID, 
trading desk ID, trader ID, and product IDs. See DTCC Letter at 10-
11. The commenter then recommended compliance dates of different 
lengths after a standard for each type of UIC had been agreed upon. 
See id. The Commission already has established a mechanism for how 
these UICs must be assigned: Rule 903(a), as adopted in the 
Regulation SBSR Adopting Release, provides that, in the absence of a 
Commission-recognized IRSS that can supply the UIC, a registered SDR 
must assign the UIC using its own methodology. Furthermore, in light 
of the guidance above regarding how a registered SDR may confer with 
a participant to assign a mutually agreeable set of UICs--and how, 
through this process, the same UICs could be used for a particular 
participant across multiple SDRs--the Commission does not believe 
that it is necessary or appropriate to establish different 
compliance dates for each type of UIC in the manner recommended by 
the commenter.
---------------------------------------------------------------------------

c. Transaction ID
    Also beginning on Compliance Date 1, each registered SDR must 
comply with Rule 901(g), which requires the SDR to assign a transaction 
ID to each security-based swap, or establish or endorse a methodology 
for transaction IDs to be assigned by third parties. Because of the 
potential importance of identifying individual transactions for 
systemic risk and market oversight purposes, the Commission believes 
that it is essential for registered SDRs to comply with Rule 901(g) 
from the moment that they begin receiving mandatory transaction 
reports.\588\
---------------------------------------------------------------------------

    \588\ Also beginning on Compliance Date 1, each registered SDR 
must comply with the companion requirement in Rule 901(f) that a 
registered SDR time-stamp all incoming transaction reports.
---------------------------------------------------------------------------

    One commenter expressed the belief that SDRs will be able to assign 
transaction IDs to pre-enactment and transitional security-based swaps 
by the date that the Commission had proposed in the Regulation SBSR 
Proposed Amendments Release.\589\ Since the proposed compliance 
schedule would have required historical security-based swaps to be 
reported by or before proposed Compliance Date 1, the comment implies 
that registered SDRs also should be able to assign transaction IDs to 
newly executed transactions beginning on Compliance Date 1.
---------------------------------------------------------------------------

    \589\ See ICE Letter at 8.
---------------------------------------------------------------------------

    A second commenter urged the Commission to ``recognize the `first 
touch principle' as an acceptable standard for SB SDRs to meet their 
901(g) obligations.'' \590\ The commenter explained that, under the 
existing CFTC swap data reporting rules, an SDR is not required to 
issue a transaction ID and can rely on the reporting side to submit its 
internal transaction ID.\591\ As provided in existing Rule 901(g), a 
registered SDR may endorse a methodology for third parties to assign a 
transaction ID to an individual security-based swap. If an SDR wishes 
to allow third parties (such as platforms or counterparties) to assign 
transaction IDs, the SDR must explain in its policies and procedures 
under Rule 907(a)(5) \592\ any form or content requirements imposed by 
the SDR that the third party would be required to follow.
---------------------------------------------------------------------------

    \590\ DTCC Letter at 20.
    \591\ See id. The Commission notes, however, that, under CFTC 
Rule Sec.  45.5(c), 17 CFR 45.5(c), a swap data repository must 
create and transmit a unique swap identifier for an off-facility 
swap if the reporting counterparty for that swap is a non-swap 
dealer/major swap participant.
    \592\ Rule 907(a)(5) requires a registered SDR to establish and 
maintain written policies and procedures for assigning UICs, 
including but not limited to transaction IDs, in a manner consistent 
with Rule 903.
---------------------------------------------------------------------------

d. Product ID
    One commenter argued that, before requiring compliance with the 
product ID requirement, the Commission should ``consult and agree with 
market participants on a standard to be applied. An agreed upon public 
standard would provide greater certainty to reporting sides and SB SDRs 
to build to one uniform standard as opposed to bespoke models for each 
SDR.'' \593\ After careful consideration of this comment, the 
Commission has determined not to delay compliance with the product ID 
requirement. At the present time, it is unclear if or when market 
participants could agree upon and implement standards for a product ID. 
Therefore, in the absence of an IRSS that can assign product IDs, 
registered SDRs must by Compliance Date 1 begin assigning product IDs, 
and persons with a duty to report transactions must use these SDR-
assigned product IDs in their mandatory reports. To enable their 
participants to report transactions using the appropriate product IDs 
on Compliance Date 1, registered SDRs must set out in their written 
policies and procedures how they will assign product IDs (and all other 
UICs other than those available through an IRSS recognized by the 
Commission) in a manner consistent with Rule 903. A registered SDR 
should consider publishing as far in advance of Compliance Date 1 as 
possible the product IDs of the products most likely to be traded on or 
shortly after Compliance Date 1. The Commission recognizes, however, 
that it is not practical for a registered SDR to publish a list of all 
possible products with their product IDs, as many products have not yet 
been created (or certain types of contracts have not yet become 
sufficiently standardized as to become products, as that term is 
defined in Rule 900(aa), and thus require a product ID). Therefore, as 
a practical matter, the Commission does not believe that a registered 
SDR could comply with Rule 907(a) unless its policies and procedures 
include a mechanism or process for the registered SDR to assign a 
product ID to a new product before or

[[Page 53608]]

simultaneously with the initial transaction in that product, and to 
make available the product ID so that reports of transactions in that 
new product can include the correct product ID.
---------------------------------------------------------------------------

    \593\ DTCC Letter at 10.
---------------------------------------------------------------------------

8. Switching of Reporting Side Designation
    One commenter's analysis of the problems that could result from a 
Commission determination to require reporting compliance ahead of the 
SBS entities registration compliance date was premised on the 
assumption that a U.S. non-dealing entity that was the reporting side 
for a security-based swap executed during the Interim Period would 
remain the reporting side for the life of the security-based swap.\594\ 
The commenter argued that Regulation SBSR should not permit the 
reporting side designation to ``switch'' from one side to the other 
over life of a security-based swap contract.\595\ The Commission 
disagrees with this comment.
---------------------------------------------------------------------------

    \594\ See ISDA I at 13; ISDA II at 7.
    \595\ See ISDA I at 8 (``Switching the reporting side during the 
term of a trade is in every respect an enormous challenge . . . 
[and] will likely have a significant impact on the completeness, 
integrity and correctness of reported SBS data'').
---------------------------------------------------------------------------

    Rule 901(a)(2)(ii) sets forth a reporting hierarchy that has two 
possible outcomes for any transaction pair: (1) One side occupies a 
higher rung in the hierarchy than the other side, in which case the 
side that occupies the higher rung ``shall be the reporting side''; or 
(2) the outcome is a tie, and ``the sides shall select the reporting 
side.'' Sides in a tie situation, after having made an initial 
selection of the reporting side, can select a new reporting side later 
in the life of the contract.\596\
---------------------------------------------------------------------------

    \596\ If the sides insisted on selecting a new reporting side 
but Rule 901(a)(2)(ii) did not permit them to do so, they could 
accomplish the new selection by tearing up the existing security-
based swap and immediately replacing it with a new security-based 
swap having exactly the same terms, except that they select a 
different reporting side for the new transaction.
---------------------------------------------------------------------------

    Over the life of a security-based swap, a registered SDR needs to 
know the reporting side of a security-based swap so that it knows 
whether it is receiving a report of a life cycle event or an error 
report from the entity that is obligated to report that information. A 
registered SDR should consider incorporating into its policies and 
procedures how it would accommodate any change to the reporting side 
designation. A registered SDR may, for example, seek to obtain, in the 
case of an elective switch, information from one or both sides that 
confirms the switch.

D. Compliance Date 2

    Compliance Date 2 is the date on which all registered SDRs that can 
accept security-based swaps in a particular asset class must begin 
public dissemination, pursuant to Rule 902, of transactions in that 
asset class. On Compliance Date 2, each such SDR will be required to 
comply with Rules 902 (regarding public dissemination generally), 
904(d) (requiring dissemination of transaction reports held in queue 
during normal or special closing hours), and 905(b)(2) (with respect to 
public dissemination of corrected transaction reports) for all 
security-based swaps in that asset class, except as provided by Rule 
902(c). As discussed further below, Compliance Date 2 is the first 
Monday that is three months after Compliance Date 1.
    One commenter expressed the view that commencing the requirement 
for public dissemination nine months after SDR registration would be 
sufficient, provided that other compliance issues arising earlier in 
the compliance schedule are resolved.\597\ Likewise, a second commenter 
believed that Compliance Date 2 should be three months after Compliance 
Date 1, but only after stating its belief that Compliance Date 1 should 
be 12 months rather than six months after the first registered SDR 
commences operations.\598\ A third commenter believed that three months 
after Compliance Date 1 was not sufficient time for SDRs to comply with 
the data dissemination requirements in Regulation SBSR and recommended 
six months instead.\599\ A fourth commenter recommended that Compliance 
Date 2 be three months after the later of Compliance Date 1 and the 
date on which the Commission has determined appropriate exceptions, 
delays, and/or notional caps to preserve the identity, business 
transactions, and market positions of any person.\600\ The fourth 
commenter asserted that the longer time was necessary for Compliance 
Date 2 because ``concerns regarding the compromise of market anonymity 
for illiquid and large notional trades have not adequately been 
addressed during the interim period.'' \601\
---------------------------------------------------------------------------

    \597\ See DTCC Letter at 21.
    \598\ See LCH.Clearnet Letter at 12.
    \599\ See ICE Letter at 8.
    \600\ See ISDA/SIFMA Letter at 17.
    \601\ ISDA/SIFMA Letter at 3.
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    The Commission has revised its proposed approach to Compliance Date 
2 as it relates to the handling of covered cross-border transactions. 
In the Regulation SBSR Proposed Amendments Release, the Commission 
proposed that the public dissemination requirements associated with 
Compliance Date 2 would not have applied to covered cross-border 
transactions.\602\ However, as discussed in Section IX(E), supra, the 
Commission in the U.S. Activity Proposal sought additional comment on 
whether public dissemination of covered cross-border transactions 
should be made effective \603\ and, in this release, the Commission has 
determined that all transactions described in Rule 908(a)(1), including 
covered cross-border transactions, shall be subject to public 
dissemination, except as otherwise provided by Rule 902(c). Therefore, 
compliance with the public dissemination requirements shall commence on 
Compliance Date 2 for covered cross-border transactions along with 
other security-based swaps, and there is no longer any reason to 
consider an effective or compliance date for covered cross-border 
transactions separate from all other transactions that are subject to 
public dissemination.
---------------------------------------------------------------------------

    \602\ See supra note 460 (explaining that term). One commenter 
supported excluding covered cross-border transactions from public 
dissemination on Compliance Date 2, as well as the Commission's 
decision to seek public comment before determining if and when to 
include them in the scope of transactions subject to public 
dissemination. See ISDA/SIFMA Letter at 18. The Commission addressed 
this comment in Section IX(E), supra.
    \603\ See 80 FR at 27485.
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    The Commission proposed and is now adopting a three-month period 
between Compliance Date 1 and Compliance Date 2. This three-month 
period is designed to give registered SDRs and persons having a duty to 
report an opportunity to identify and resolve any issues related to 
trade-by-trade reporting by participants and further test their data 
dissemination systems. The Commission staff intends to monitor the 
implementation of Regulation SBSR between Compliance Dates 1 and 2.
    Also, similar to the approach taken for Compliance Date 1, the 
Commission believes that it will be helpful to the industry to begin 
public dissemination on a Monday, which ensures that registered SDRs 
have at least the immediately preceding weekend to conduct any final 
systems changes or testing before public dissemination begins. 
Therefore, Compliance Date 2 is the first Monday that is three months 
after Compliance Date 1.
    Finally, Compliance Date 2 is the date by which participants of 
registered SDRs that are subject to Rule 906(b) must comply with that 
rule.\604\ This

[[Page 53609]]

represents a change from the proposed compliance schedule, under which 
covered participants would have been required to comply with Rule 
906(b) on Compliance Date 1.\605\ A person does not become subject to 
Rule 906(b) until it becomes a participant of a registered SDR. A 
counterparty to a security-based swap becomes a participant of a 
registered SDR only when a security-based swap to which it is a 
counterparty is reported to that SDR on a mandatory basis.\606\ Thus, a 
security-based swap counterparty cannot become a participant until 
Compliance Date 1 at the earliest, because transactions will not be 
reported to a registered SDR on a mandatory basis until Compliance Date 
1. A large number of security-based swap counterparties will become 
participants on Compliance Date 1 or the first days and weeks following 
Compliance Date 1. This could, in the Commission's view, cause 
unnecessary difficulties for registered SDRs and their new participants 
if participants were required to comply with Rule 906(b) on Compliance 
Date 1.\607\
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    \604\ Rule 906(b) requires each participant of a registered SDR 
to provide to the SDR information sufficient to identify the 
participant's ultimate parent(s) and any affiliate(s) of the 
participant that also are participants of that registered SDR. Rule 
906(b) further provides that a participant must ``promptly'' notify 
the registered SDR of any changes to that information. Rule 
907(a)(6) requires each registered SDR to establish and maintain 
written policies and procedures for periodically obtaining from each 
participant information that identifies the participant's ultimate 
parent(s) and any participant(s) with which the participant is 
affiliated.
    \605\ See Regulation SBSR Proposed Amendments Release, 80 FR at 
14765.
    \606\ See Rule 900(u).
    \607\ For example, assume that S, T, and U are affiliated and 
all have a single ultimate parent (P) and the Commission had 
required compliance with Rule 906(b) on Compliance Date 1. At 
09:30:02 UTC on Compliance Date 1, a security-based swap involving S 
as a counterparty is reported to SDR A on a mandatory basis. This is 
the first time that S is a counterparty to a transaction reported to 
SDR A on a mandatory basis, and no affiliates of S are 
counterparties to security-based swaps that have been reported to 
SDR A. Upon becoming a participant of SDR A, S must report to SDR A 
that it has an ultimate parent (P) and no affiliates that are also 
participants. At 10:30:57 UTC, a security-based swap involving T as 
a counterparty is reported to SDR A on a mandatory basis. T also 
becomes a participant of SDR A and must report to SDR A that it has 
an ultimate parent (P) and one affiliate (S) that also is a 
participant of SDR A. Because Rule 906(b) also requires S to 
promptly notify SDR A of any changes to its ultimate parent and 
affiliate information, S must amend its submission to SDR A to 
reflect that its affiliate T has just become a participant. At 
11:30:33 UTC, a security-based swap involving U as a counterparty is 
reported to SDR A on a mandatory basis. U must report to SDR A that 
it has an ultimate parent (P) and two affiliates that are 
participants (S and T). U's becoming a participant also triggers 
revisions to S and T's reports to reflect that their affiliate U has 
just become a participant. Thus, the creation of new participants in 
the first hours and days after Compliance Date 1 could trigger the 
requirement to file a large number of amended reports under Rule 
906(b).
---------------------------------------------------------------------------

    In light of this concern, the Commission now believes that it is 
appropriate to delay compliance with Rule 906(b) for an additional 
three months to avoid triggering a large number of new filings and 
amendments that likely would have been required if the Commission had 
required compliance with Rule 906(b) on Compliance Date 1. Accordingly, 
the Commission is not requiring compliance with Rule 906(b) until 
Compliance Date 2. This will allow for a number of security-based swaps 
to be reported over the three-month period between Compliance Dates 1 
and 2 that will create a critical mass of participants, thereby 
permitting the filing of initial reports under Rule 906(b) that are 
less likely to require repeated updating because of the addition of new 
participants that are affiliated with existing participants.\608\
---------------------------------------------------------------------------

    \608\ The Commission recognizes, however, that several Rule 
906(b) reports could have to be amended to reflect the addition of a 
new participant, even after Compliance Date 2. For example, assume 
that ultimate parent P has 20 subsidiaries, each of which is a 
participant of SDR A. Rule 906(b) requires a report from each 
subsidiary showing P as the ultimate parent and each of the other 19 
subsidiaries as affiliates. Now assume that a new 21st subsidiary of 
P is a counterparty to a transaction reported to SDR A on a 
mandatory basis. This would trigger amendments to the existing 20 
reports to reflect the addition of a new affiliate participant. 
Because these reports would be unnecessarily duplicative, the 
Commission interprets Rule 906(b) as being satisfied if one member 
of a financial group provides all of the required ultimate parent 
and affiliate information on behalf of each group member that is a 
participant of that registered SDR. While the registered SDR could 
seek to obtain a separate report from each group member that is a 
participant, the Commission encourages registered SDRs to consider 
establishing policies and procedures under Rule 907(a)(6) that would 
allow for abbreviated reporting for the entire group. Such 
abbreviated group reporting would still be subject to the 
requirement that any changes be reported to the registered SDR 
``promptly.'' Furthermore, a participant in the group would still be 
subject to a requirement to separately disclose any ultimate parent 
or affiliate information that differs from that of other members of 
the group. In the example above, assume that the 17th subsidiary of 
P is a 50-50 joint venture with Q. Under the approach suggested 
here, one member of the P group could file an abbreviated Rule 
906(b) report on behalf of all members of the P group (that would 
identify all 20 subsidiaries, including the 17th). However, the 17th 
subsidiary would be subject to a separate requirement to notify the 
registered SDR that, unlike all of the other P group affiliates, it 
has two ultimate parents (P and Q) and would have to identify any 
additional participant affiliates that it might have through its Q 
parent.
---------------------------------------------------------------------------

E. New Compliance Date 3 for Historical Security-Based Swaps

    In the Regulation SBSR Proposed Amendments Release, the Commission 
proposed that persons with a duty to report historical security-based 
swaps in the relevant asset class would have been required to report 
these transactions to a registered SDR that accepts transactions in 
that asset class, in accordance with Rule 901(i), by Compliance Date 1. 
As discussed further below, the Commission is adopting a new Compliance 
Date 3 for the reporting of historical security-based swaps. Compliance 
Date 3 is two months after Compliance Date 2.
    One commenter expressed the view that requiring reporting of 
historical security-based swaps in advance of the SBS entities 
registration compliance date would place the bulk of the reporting 
burden on U.S. persons, including buy-side U.S. persons, because U.S. 
persons would be the reporting side for all historical security-based 
swaps entered into with a foreign dealing entity that did not involve 
ANE activity.\609\ Furthermore, this commenter expressed concern that 
it could not be reliably determined whether U.S. personnel were used to 
engage in ANE activity for historical security-based swaps because 
parties were not required to capture or exchange such information at 
the time the transactions were executed.\610\ The commenter concluded 
that it would be significantly easier to ascertain the reporting side 
for historical transactions after the SBS entities registration 
compliance date, because most would involve a counterparty that will 
register as a security-based swap dealer.\611\ This commenter, in a 
joint letter with another association, also expressed the view that the 
volume of non-live historic security-based swaps ``will be enormous'' 
and that ``reporting over five years of security-based swap transaction 
data will require tremendous effort and coordination between reporting 
sides and their SDR.'' \612\ These comments recommended an extended 
period for reporting non-live historical security-based swaps after the 
SBS entities registration compliance date, and argued that the 
commencement of reporting under Regulation SBSR would be more effective 
if the reporting of non-live historic security-based swaps were done 
separately and after security-based swap dealer registration.\613\
---------------------------------------------------------------------------

    \609\ See ISDA II at 10; ISDA III at 2, 4.
    \610\ See ISDA II at 10.
    \611\ See id.
    \612\ ISDA/SIFMA Letter at 16.
    \613\ See id. at 16-17.
---------------------------------------------------------------------------

    These commenters also argued that ``[d]ealer registration will 
greatly expand the scope of SBS subject to reporting at a later date, 
essentially creating additional individual compliance dates for 
registrants and their counterparties to report additional SBS activity 
and historic SBS,'' which ``will also trigger the question as to who 
has the reporting obligation for

[[Page 53610]]

historical SBS.'' \614\ This comment is premised on the correct 
observation that a historical security-based swap between two 
unregistered non-U.S. persons, neither of whom engaged in ANE activity, 
would fall within Rule 908(a) only after one side or the other 
registers with the Commission as a security-based swap dealer. One of 
these commenters also expressed the view that ``existing TIW 
functionality cannot be leveraged to accomplish reporting [of 
historical security-based swaps] in advance of registration.'' \615\ 
Therefore, in the commenter's view, to satisfy obligations to report 
historical transactions before the SBS entities registration compliance 
date, market participants would need to expend ``significant effort and 
cost to develop appropriate new industry agreements, conduct 
significant outreach to U.S. Persons and build interim reporting 
logic.'' \616\
---------------------------------------------------------------------------

    \614\ Id. at 7.
    \615\ ISDA II at 11.
    \616\ Id.
---------------------------------------------------------------------------

    In light of these considerations, the Commission is adopting a new 
Compliance Date 3, which is designed to minimize the concerns raised by 
the commenters. Persons with a duty to report historical security-based 
swaps in an asset class must do so by the date that is two months after 
Compliance Date 2. To the extent that historical transactions involve a 
non-U.S. counterparty that is likely to register as a security-based 
swap dealer, deferring compliance with the requirement to report 
historical transactions until security-based swap dealers are 
registered will significantly reduce undue burdens on non-dealing 
persons who are their counterparties. After the SBS entities 
registration compliance date, registered security-based swap dealers 
will be clearly identifiable as such and will bear the responsibility 
for reporting any historical transactions with unregistered persons to 
the extent that information about such transactions is available. The 
two-month gap between Compliance Date 2 and Compliance Date 3 is 
designed to avoid problems that could arise if registered SDRs and 
their participants had been required to achieve major compliance 
milestones on the same day or in close proximity.
    The Commission notes that the relevant transactions need not be 
reported on Compliance Date 3, but rather by Compliance Date 3. The 
Commission encourages reporting sides to report historical security-
based swaps as far in advance of Compliance Date 3 as possible, to 
avoid difficulties that might arise if reporting sides attempt to 
report a large number of historical transactions in the last few days 
or hours before Compliance Date 3.
    The Commission believes that a new Compliance Date 3, occurring 
after the SBS entities registration compliance date, for reporting of 
historical transactions represents an appropriate consideration of the 
benefits of mandatory reporting in light of the likely costs. Before 
security-based swap dealers register as such with the Commission, the 
only way a foreign dealing entity could incur any duty under Regulation 
SBSR is if it were engaging in ANE activity with respect to a 
particular transaction. The Commission is persuaded by commenters who 
argued that it could be difficult or impossible to ascertain whether 
historical transactions of foreign dealing entities involved ANE 
activity, as information about the involvement of U.S. personnel in 
particular transactions might not exist or might be difficult to 
reconstruct for transactions that were executed, in some cases, many 
years ago.\617\ Because the Commission anticipates that foreign dealing 
entities that account for the vast majority of cross-border 
transactions will register as security-based swap dealers, the issues 
associated with identifying whether a foreign dealing entity has 
engaged in ANE activity will not arise for the vast majority of 
historical cross-border transactions. After the SBS entities 
registration compliance date, the reporting hierarchy can easily be 
applied because at least one side will likely include a registered 
security-based swap dealer. This approach will minimize instances where 
unregistered U.S. persons could become the reporting side when they are 
counterparties with foreign dealing entities.
---------------------------------------------------------------------------

    \617\ See ISDA II at 10; ISDA/SIFMA Letter at 16-17.
---------------------------------------------------------------------------

    A registered SDR that accepts reports of transactions in the 
relevant asset class may allow persons with a duty to report historical 
transactions in that asset class on a rolling basis at any time after 
Compliance Date 1. When it begins accepting reports of historical 
security-based swaps submitted on a mandatory basis, a registered SDR 
must comply with Rule 901(f) and time-stamp, to the second, any 
security-based swap data that it receives pursuant to Rule 901(i). The 
registered SDR also must comply with Rule 901(g) with respect to 
transaction IDs for each historical security-based swap that it 
receives.
    As participants begin reporting historical security-based swaps to 
a registered SDR, participants and registered SDRs also must comply 
with Rules 901(e) and 905 regarding any historical security-based swaps 
that are so reported. A report of a life cycle event of a historical 
transaction that relates to information required by Rule 901(c) would 
trigger public dissemination of the life cycle event if the report is 
submitted on or after Compliance Date 2.\618\
---------------------------------------------------------------------------

    \618\ See Regulation SBSR Adopting Release, 80 FR at 14609 
(``life cycle events relating to the primary trade information of 
historical security-based swaps must, after the public dissemination 
requirement goes into effect, be publicly disseminated''). However, 
an error correction of a historical security-based swap involving 
Rule 901(c) information would not trigger public dissemination, even 
after Compliance Date 2. See id.
---------------------------------------------------------------------------

    The Commission notes that registered SDRs and their participants 
need not comply with Rule 906(a) with respect to historical security-
based swaps. Rule 906(a) requires a registered SDR to identify 
security-based swaps for which the SDR lacks counterparty ID and (if 
applicable) broker ID, branch ID, execution agent ID, trading desk ID, 
and trader ID. Regulation SBSR requires reporting of historical 
security-based swaps only ``to the extent that information about such 
transactions is available''--including information pertaining to the 
remaining UICs. Because broker IDs, branch IDs, execution agent IDs, 
trading desk IDs, and trader IDs will not be assigned by registered 
SDRs until they become operational, these UICs likely will not have 
existed or been recorded in connection with any historical security-
based swaps. Therefore, because these UICs are not applicable to 
historical security-based swaps, a registered SDR is not required by 
Rule 906(a) to query non-reporting sides for those UICs with respect to 
any historical transactions, and non-reporting sides are not required 
by Rule 906(a) to provide any UICs with respect to historical 
transactions.

F. No Separate Compliance Dates for Cross-Border Transactions

    Compliance Dates 1, 2, and 3 apply equally to all security-based 
swaps that fall within Rule 908(a), as amended herein, and all 
security-based swap counterparties that fall within Rule 908(b), as 
amended herein. Compliance Dates 1, 2, and 3 apply to all transactions 
contemplated by the reporting hierarchy in Rule 901(a)(2), as amended 
herein, including the cross-border provisions of new Rule 
901(a)(2)(ii)(E). Thus, U.S.-to-U.S. transactions do not have different 
compliance dates than the cross-border transactions that fall within 
Rule 908(a).

[[Page 53611]]

    One commenter, responding to the proposed compliance schedule in 
the Regulation SBSR Proposed Amendments Release, warned that, if the 
Commission required regulatory reporting before security-based swap 
dealer registration, U.S. non-dealing entities would incur the 
reporting duty when they traded against large foreign dealing entities 
\619\ and that U.S.-to-U.S. transactions would be subject to public 
dissemination before U.S.-to-non-U.S. transactions.\620\ As a result, 
the commenter argued, ``U.S. person end-users may avoid trading with 
other U.S. persons until after dealer registration to avoid their data 
being publicly disseminated.'' \621\ The commenter concluded that U.S. 
non-dealing entities' avoidance of other U.S. counterparties would 
disadvantage U.S. dealing entities and result in less liquidity for 
U.S. non-dealing entities.\622\ The commenter also cautioned that 
``[w]ith a limited list of counterparties and an even narrower list of 
dealers to such transactions, public dissemination of this smaller 
segment of SBS data bears the risk that counterparty identity could be 
disclosed to the public.'' \623\
---------------------------------------------------------------------------

    \619\ See ISDA/SIFMA at 7.
    \620\ See id. at 7-8.
    \621\ Id. at 7.
    \622\ See id. at 7.
    \623\ Id. at 7-8.
---------------------------------------------------------------------------

    As noted in Section IX, supra, the Commission is adopting 
amendments to Rules 901(a) and 908 substantially as proposed to cover 
additional types of cross-border transactions, and Compliance Dates 1, 
2, and 3 will apply equally to all counterparties that fall within Rule 
908(b) and all security-based swaps that fall within Rule 908(a). Thus, 
because Regulation SBSR's compliance dates for U.S.-to-U.S. 
transactions are the same as for U.S.-to-non-U.S. transactions, there 
is no incentive for U.S. counterparties to trade only with non-U.S. 
persons to avoid any Regulation SBSR requirements.\624\
---------------------------------------------------------------------------

    \624\ The Commission believes that this result is generally 
consistent with the commenter's statement that ``SBS data will be 
more comprehensive and useful if upon the first day that reporting 
is required under SBSR, broadly all participants that will be a 
reporting side will have those obligations and such obligation is 
evident to all other participants in covered SBS.'' Id. at 6.
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G. Exemptions Related to the Compliance Schedule

    In June 2011, the Commission exercised its authority under Section 
36 of the Exchange Act \625\ to exempt any person from having to report 
any pre-enactment security-based swaps, as required by Section 3C(e)(1) 
of the Exchange Act,\626\ until six months after an SDR that is capable 
of receiving security-based swaps in that asset class is registered by 
the Commission.\627\ In the Regulation SBSR Proposed Amendments 
Release, the Commission proposed to extend the exemption from the 
requirement to report pre-enactment security-based swaps to ensure 
consistency between the proposed compliance schedule and the 
exemption.\628\ Because Compliance Date 1, as proposed in the 
Regulation SBSR Proposed Amendments Release, would have required the 
reporting of pre-enactment security-based swaps within six months after 
the commencement of operations of the first registered SDR in that 
asset class rather than six months after the date of the registration 
of the first SDR, the Commission also proposed to extend the exemption 
from Section 3C(e)(1) exemption to synchronize it with proposed 
Compliance Date 1.
---------------------------------------------------------------------------

    \625\ 15 U.S.C. 78mm.
    \626\ 15 U.S.C. 78c-3(e)(1).
    \627\ See Effective Date Release, 76 FR at 36291.
    \628\ See 80 FR at 14765-66.
---------------------------------------------------------------------------

    The Commission received one comment on this aspect of its proposed 
exemption. The commenter agreed that the exemption for the reporting of 
pre-enactment security-based swaps should be extended to and terminate 
on Compliance Date 1.\629\
---------------------------------------------------------------------------

    \629\ See LCH.Clearnet Letter at 13.
---------------------------------------------------------------------------

    As discussed above, the Commission is adopting new Compliance Date 
3 relating to the reporting of historical security-based swaps, which 
includes pre-enactment security-based swaps. To harmonize the existing 
exemption with the compliance date for reporting of pre-enactment 
security-based swaps, the Commission is exercising its authority under 
Section 36 of the Exchange Act to exempt any person from having to 
report any pre-enactment security-based swaps, as required by Section 
3C(e)(1) of the Exchange Act, in a particular asset class until 
Compliance Date 3. The Commission finds that such exemption is 
necessary or appropriate in the public interest, and is consistent with 
the protection of investors, because such action prevents the existing 
exemption from expiring before persons with a duty to report pre-
enactment security-based swaps are able and are required to report them 
to a registered SDR.
    In conjunction with the proposed extension of the Section 3C(e)(1) 
exemption included in the Regulation SBSR Proposed Amendments Release, 
the Commission also proposed that, with respect to security-based swaps 
in a particular asset class, the exemption from Section 29(b) of the 
Exchange Act,\630\ in connection with Section 3C(e)(1), would terminate 
on proposed Compliance Date 1. One commenter agreed with this proposed 
extension of the Section 29(b) exemption in connection with Section 
3C(e)(1).\631\ In addition, one commenter asked that the Commission 
clarify how Section 3C(e)(1) of the Exchange Act relates to the Section 
29(b) exemption.\632\ The commenter noted that the Commission's Section 
29(b) exemption applies to security-based swap entered into on or after 
July 16, 2011, and that Section 3C(e)(1) applies only to pre-enactment 
security-based swaps, i.e., those entered into before July 21, 
2010.\633\
---------------------------------------------------------------------------

    \630\ 15 U.S.C. 78cc(b). In the Effective Date Release, the 
Commission exercised its authority under Section 36 of the Exchange 
Act to temporarily exempt any security-based swap contract entered 
into on or after July 16, 2011, from being void or considered 
voidable by reason of Section 29(b) of the Exchange Act, because any 
person that is a party to the security-based swap contract violated 
a provision of the Exchange Act that was amended or added by 
Subtitle B of Title VII of the Dodd Frank Act and for which the 
Commission has taken the view that compliance will be triggered by 
registration of a person or by adoption of final rules by the 
Commission, or for which the Commission has provided an exception or 
exemptive relief, until such date as the Commission specifies. See 
Effective Date Release, 76 FR at 36305. Section 29(b) of the 
Exchange Act provides, in relevant part: ``Every contract made in 
violation of any provision of this title or of any rule or 
regulation thereunder, and every contract . . . heretofore or 
hereafter made, the performance of which involves the violation of, 
or the continuance of any relationship or practice in violation of, 
any provision of this title or any rule or regulation thereunder, 
shall be void (1) as regards the rights of any person who, in 
violation of any such provision, rule, or regulation, shall have 
made or engaged in the performance of any such contract, and (2) as 
regards the rights of any person who, not being a party to such 
contract, shall have acquired any right thereunder with actual 
knowledge of the facts by reason of much the making or performance 
of such contract was in violation of any such provision rule or 
regulation . . .''
    \631\ See LCH.Clearnet Letter at 13.
    \632\ See ISDA/SIFMA Letter at 18.
    \633\ See id.
---------------------------------------------------------------------------

    The Commission confirms that the existing exemption from Section 
29(b) set forth in the Effective Date Release applies only to security-
based swaps entered into on or after July 16, 2011.\634\ Section 
3C(e)(1) applies only to pre-enactment security-based swaps.\635\ As a 
result, an extension of the Section 29(b) exemption in connection with 
Section 3C(e)(1) would have had no effect. Therefore, there is no need 
for the Commission to revise or extend the exemption from Section 29(b) 
in connection with Section 3C(e)(1).\636\
---------------------------------------------------------------------------

    \634\ See Effective Date Release, 76 FR at 36305-306.
    \635\ See 15 U.S.C. 78c-3(e)(1).
    \636\ The same commenter also asked for confirmation that the 
Commission provided the Section 29(b) exemption solely to promote 
legal certainty and to avoid doubt as to the applicability of 
Section 29(b) to other Exchange Act provisions and that the 
Commission has ``not taken any view as to whether, when, or under 
what circumstances Section 29(b) might apply to any provision of 
Title VII of Dodd-Frank or rule or regulation thereunder, including 
SBSR.'' ISDA/SIFMA Letter at 18. Because the Commission is not today 
providing any relief related to the Section 29(b) exemption, the 
Commission is not modifying the view set forth in the Effective Date 
Release. See Effective Date Release, 76 FR at 36305-306.

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[[Page 53612]]

H. Substituted Compliance Requests

    Rule 908(c) permits a person that potentially would become subject 
to Regulation SBSR or a foreign financial regulatory authority to 
submit a substituted compliance request with respect to the rules of a 
foreign jurisdiction pertaining to regulatory reporting and public 
dissemination of security-based swap transactions. The submission of a 
substituted compliance request is elective; therefore, the Commission 
is not establishing a ``compliance date'' for Rule 908(c). 
Nevertheless, such persons may begin submitting substituted compliance 
requests pursuant to the requirements of Rule 908(c) upon the effective 
date of this release.

XI. Paperwork Reduction Act

    Certain amendments to Regulation SBSR that the Commission is 
adopting today contain ``collection of information requirements'' 
within the meaning of the Paperwork Reduction Act of 1995 
(``PRA'').\637\ The Commission published notices requesting comment on 
the collection of information requirements relating to Regulation SBSR 
in the Regulation SBSR Proposed Amendments Release \638\ and the U.S. 
Activity Proposal \639\ and submitted relevant information to the 
Office of Management and Budget (``OMB'') for review in accordance with 
the PRA.\640\ In addition, the Commission adopted portions of 
Regulation SBSR that contain collections of information requirements in 
the Regulation SBSR Adopting Release.\641\ The titles of the 
collections for Regulation SBSR are: (1) Rule 901--Reporting 
Obligations--For Reporting Sides; (2) Rule 901--Reporting Obligations--
For Registered SDRs; (3) Rule 901--Reporting Obligations--For 
Platforms; (4) Rule 901--Reporting Obligations--For Registered Clearing 
Agencies; (5) Rule 901--Reporting Obligations--For New Broker-Dealer 
Respondents; (6) Rule 902--Public Dissemination of Transaction Reports; 
(7) Rule 903--Coded Information; (8) Rule 904--Operating Hours of 
Registered Security-Based Swap Data Repositories; (9) Rule 905--
Correction of Errors in Security-Based Swap Information--For Reporting 
Sides; (10) Rule 905--Correction of Errors in Security-Based Swap 
Information--For Non-Reporting Sides; (11) Rule 905--Correction of 
Errors in Security-Based Swap Information--For Registered SDRs; (12) 
Rule 905--Correction of Errors in Security-Based Swap Information--For 
Platforms; (13) Rule 905--Correction of Errors in Security-Based Swap 
Information--For Registered Clearing Agencies; (14) Rule 905--
Correction of Errors in Security-Based Swap Information--For New 
Broker-Dealer Respondents; (15) Rule 906(a)--Other Duties of All 
Participants--For Registered SDRs; (16) Rule 906(a)--Other Duties of 
All Participants--For Non-Reporting Sides; (17) Rule 906(b)--Other 
Duties of All Participants--For All Participants; (18) Rule 906(c)--
Other Duties of All Participants--For Covered Participants; (19) Rule 
906(c)--Other Duties of All Participants--For Platforms; (20) Rule 
906(c)--Other Duties of All Participants--For Registered Clearing 
Agencies; (21) Rule 906(c)--Other Duties of All Participants--For New 
Broker-Dealer Respondents; (22) Rule 907--Policies and Procedures of 
Registered Security-Based Swap Data Repositories; and (23) Rule 
908(c)--Substituted Compliance (OMB Control No. 3235-0718). Compliance 
with these collections of information requirements is mandatory. An 
agency may not conduct or sponsor, and a person is not required to 
respond to, a collection of information unless the agency displays a 
currently valid control number.
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    \637\ 44 U.S.C. 3501 et seq.
    \638\ See Regulation SBSR Proposed Amendments Release, 80 FR at 
14742-43.
    \639\ See U.S. Activity Proposal, 80 FR at 27503.
    \640\ 44 U.S.C. 3507; 5 CFR 1320.11.
    \641\ See Regulation SBSR Adopting Release, 80 FR at 14787.
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    The Commission is adopting the amendments to Regulation SBSR 
largely as proposed, with certain revisions. These amendments impact 
Rules 900, 901, 902, 905, 906, 907, and 908 of Regulation SBSR.
    The hours and costs associated with complying with Regulation SBSR 
constitute reporting and cost burdens imposed by each collection of 
information. Certain estimates (e.g., the number of reporting sides, 
the number of non-reporting sides, the number of participants, and the 
number of reportable events \642\ pertaining to security-based swap 
transactions) contained in the Commission's earlier PRA assessments 
have been revised to reflect the amendments to Regulation SBSR being 
adopted today, as well as additional information and data now available 
to the Commission. The revised paperwork burdens estimated by the 
Commission herein are consistent with those made in the Regulation SBSR 
Proposed Amendments Release and the U.S. Activity Proposal. However, as 
described in more detail below, certain estimates have been modified, 
as necessary, to reflect the most recent data available to the 
Commission.
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    \642\ Reportable events include initial security-based swap 
transactions, life cycle events, and corrections of errors in 
previously reported information.
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    The Commission requested comment on the collection of information 
requirements associated with the amendments to Regulation SBSR proposed 
in the Regulation SBSR Proposed Amendments Release and the U.S. 
Activity Proposal. As noted above, the Commission received 25 comment 
letters on the Regulation SBSR Proposed Amendments Release and the U.S. 
Activity Proposal that specifically address Regulation SBSR. Any 
comments related to the collection of information burdens potentially 
arising from the proposed amendments are addressed below.

A. Definitions--Rule 900

    Rule 900 sets forth definitions of various terms used in Regulation 
SBSR. In this release, the Commission is adopting certain amendments to 
Rule 900, including amendments to the definition of ``participant'' in 
existing Rule 900(u) \643\ and a new defined term ``widely accessible'' 
in Rule 900(tt).\644\ These changes, in themselves, will not result in 
any new ``collection of information'' requirements within the meaning 
of the PRA. Changes in definitions that might impact a collection of 
information requirement are considered with the respective rule that 
imposes the requirement.\645\
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    \643\ Rule 900(u) has been amended such that the definition of 
``participant'' now includes platforms, registered clearing agencies 
that are required to report alpha dispositions pursuant to new Rule 
901(e)(1)(ii), and registered broker-dealers that incur the duty to 
report security-based swap transactions to a registered SDR pursuant 
to new Rule 901(a)(2)(ii)(E)(4). See supra Section V(A).
    \644\ The adopted definition of ``widely accessible'' has the 
effect of prohibiting a registered SDR from charging fees for or 
imposing usage restrictions on the security-based swap transaction 
data that it is required to publicly disseminate under Regulation 
SBSR. See supra Section VIII(A).
    \645\ For example, as a result of the expanded definition of 
``participant,'' additional entities now are subject to the 
requirement in Rule 906(c) to establish, maintain, and enforce 
written policies and procedures that are reasonably designed to 
ensure compliance with any obligations to report information to a 
registered SDR in a manner consistent with Regulation SBSR. See 
infra Section XI(D)(2)(c). The new defined term ``widely 
accessible,'' however, will not create a new collection of 
information requirement or affect an existing collection of 
information requirement.

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[[Page 53613]]

B. Reporting Obligations--Rule 901

1. Existing Rule 901
    Existing Rule 901 specifies, with respect to initial security-based 
swap transactions and life cycle events (and adjustments due to life 
cycle events), who is required to report, what data must be reported, 
when it must be reported, where it must be reported, and how it must be 
reported. Existing Rule 901(a) sets forth a ``reporting hierarchy'' 
that specifies the side that has the duty to report a security-based 
swap. Existing Rule 901(b) states that if there is no registered SDR 
that will accept the report required by Rule 901(a), the person 
required to make the report must report the transaction to the 
Commission. Existing Rule 901(c) sets forth the primary trade 
information and Rule 901(d) sets forth the secondary trade information 
that must be reported. Existing Rule 901(e) requires the reporting of 
life cycle events and adjustments due to life cycle events. Existing 
Rule 901(f) requires a registered SDR to timestamp, to the second, any 
information submitted to it pursuant to Rule 901, and existing Rule 
901(g) requires a registered SDR to assign a transaction ID to each 
security-based swap, or establish or endorse a methodology for 
transaction IDs to be assigned by third parties. Existing Rule 901(h) 
requires reporting sides to electronically transmit the information 
required by Rule 901 in a format required by the registered SDR. 
Existing Rule 901(i) requires reporting of pre-enactment security-based 
swaps and transitional security-based swaps to the extent that 
information about such transactions is available. Existing Rule 901(j) 
generally provides the person with the duty to report 24 hours from the 
time of execution to report the required information.
    For Reporting Sides. In the Regulation SBSR Adopting Release, the 
Commission estimated that existing Rule 901 will impose an estimated 
total first-year burden of approximately 1,394 hours \646\ per 
reporting side for a total first-year burden of 418,200 hours for all 
reporting sides.\647\ The Commission further estimated that existing 
Rule 901 will impose ongoing annualized aggregate burdens of 
approximately 687 hours \648\ per reporting side for a total aggregate 
annualized cost of 206,100 hours for all reporting sides.\649\ The 
Commission further estimated that existing Rule 901 will impose initial 
and ongoing annualized dollar cost burdens of $201,000 per reporting 
side, for total aggregate initial and ongoing annualized dollar cost 
burdens of $60,300,000.\650\
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    \646\ See 80 FR at 14676. The Commission derived its estimate 
from the following: (355 hours (one-time hourly burden for 
establishing an OMS) + 172 hours (one-time hourly burden for 
establishing security-based swap reporting mechanisms) + 180 hours 
(one-time hourly burden for compliance and ongoing support) = 707 
hours (one-time total hourly burden). See Regulation SBSR Adopting 
Release, 80 FR at 14676, n. 1074 (436 hours (annual-ongoing hourly 
burden for internal order management) + 33.3 hours (revised annual-
ongoing hourly burden for security-based swap reporting mechanisms) 
+ 218 hours (annual-ongoing hourly burden for compliance and ongoing 
support) = 687.3 hours (one-time total hourly burden). See id. (707 
one-time hourly burden + 687 revised annual ongoing hourly burden = 
1,394 total first-year hourly burden).
    \647\ See Regulation SBSR Adopting Release, 80 FR at 14676. The 
Commission derived its estimate from the following: (1,394 hours per 
reporting side x 300 reporting sides) = 418,200 hours.
    \648\ See id.
    \649\ See id. The Commission derived its estimate from the 
following: (687 hours per reporting side x 300 reporting sides) = 
206,100 hours.
    \650\ See id. The Commission derived its estimate from the 
following: ($201,000 per reporting side x 300 reporting sides) = 
$60,300,000. See Cross-Border Proposing Release, 78 FR at 31113-15.
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    For Registered SDRs. In the Regulation SBSR Adopting Release, the 
Commission estimated that the first-year aggregate annualized burden on 
registered SDRs associated with existing Rules 901(f) and (g) will be 
2,720 burden hours, which corresponds to 272 burden hours per 
registered SDR.\651\ The Commission also estimated that the ongoing 
aggregate annualized burden associated with existing Rules 901(f) and 
(g) will be 1,520 burden hours, which corresponds to 152 burden hours 
per registered SDR.\652\
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    \651\ See Regulation SBSR Adopting Release, 80 FR at 14676. See 
Regulation SBSR Proposing Release, 75 FR at 75250. This figure is 
based on the following: [(1,200) + (1,520)] = 2,720 burden hours, 
which corresponds to 272 burden hours per registered SDR.
    \652\ See Regulation SBSR Adopting Release, 80 FR at 14676-77.
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2. Rule 901--Amendment
    The amendments to Rule 901, as adopted herein, establish certain 
additional requirements relating to the reporting of security-based 
swap transactions. These amendments contain additional ``collection of 
information requirements'' within the meaning of the PRA. The 
amendments to Rule 901 are contained in three collections: (a) ``Rule 
901--Reporting Obligations--For New Broker-Dealer Respondents''; (b) 
``Rule 901--Reporting Obligations--For Platforms''; and (c) ``Rule 
901--Reporting Obligations--For Registered Clearing Agencies.'' The 
following discussion sets forth the additional burdens resulting from 
the amendments to Rule 901 adopted in this release.
a. Rule 901--Reporting Obligations Resulting From Amendments to Rule 
901(a)(2)(ii)(E)
i. Summary of Collection of Information
    In the U.S. Activity Proposal, the Commission proposed certain 
amendments to Rule 901 to assign the duty to report security-based 
swaps in certain cross-border situations. In this release, the 
Commission is adopting those amendments as proposed. Under new Rule 
901(a)(2)(ii)(E)(2), in a transaction between an unregistered U.S. 
person and an unregistered non-U.S. person who is engaging in ANE 
activity, the sides are required to select the reporting side. In 
addition, if both sides are unregistered non-U.S. persons and both are 
engaging in ANE activity, the sides are required to select the 
reporting side. New Rule 901(a)(2)(ii)(E)(3) addresses the scenario 
where one side is subject to Rule 908(b) and the other side is not--
i.e., one side includes only unregistered non-U.S. persons and that 
side does not engage in any ANE activity, and the other side includes 
an unregistered U.S. person or an unregistered non-U.S. person that is 
engaging in ANE activity. Under Rule 901(a)(2)(ii)(E)(3), the side with 
the unregistered U.S. person or the unregistered non-U.S. person 
engaging in ANE activity is the reporting side. New Rule 
901(a)(2)(ii)(E)(4) addresses the scenario where neither side includes 
a counterparty that falls within Rule 908(b)--i.e., neither side 
includes a registered person, a U.S. person, or a non-U.S. person 
engaging in ANE activity--but the transaction is effected by or through 
a registered broker-dealer (including a registered SB SEF). Under Rule 
901(a)(2)(ii)(E)(4), the registered broker-dealer is required to report 
the transaction.\653\
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    \653\ In this release, the Commission also is adopting an 
amendment to Rule 901(d)(9) that requires a registered broker-
dealer, if it is required to report a security-based swap under Rule 
902(a)(2)(ii)(E)(4), to include in the transaction report its broker 
ID. As discussed in Section XII(A)(6), infra, the requirement to 
identify itself in such a transaction report is considered part of 
the overall burden of establishing and operating the broker-dealer's 
reporting infrastructure. As a result, the burdens associated with 
identifying itself in the transaction report are included in the 
burdens discussed below. See infra notes 916-917 and accompanying 
discussion.
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ii. Respondents
    In the Regulation SBSR Proposed Amendments Release, the Commission 
estimated that there will be 300 reporting side respondents and that, 
among the 300 reporting sides,

[[Page 53614]]

approximately 50 will likely have to register with the Commission as 
security-based swap dealers and approximately five will likely have to 
register as major security-based swap participants, restating an 
estimate contained in the Regulation SBSR Adopting Release.\654\ The 
Commission noted that these 55 reporting sides likely will account for 
the vast majority of security-based swap transactions and transaction 
reports, and that only a limited number of security-based swap 
transactions would not include at least one of these larger 
counterparties on either side.\655\
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    \654\ See Regulation SBSR Proposed Amendments Release, 80 FR at 
14788.
    \655\ See id.
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    One commenter to the U.S. Activity Proposal recommended that the 
Commission collect a more complete set of data to more precisely 
estimate the number of non-U.S. persons that would be affected by the 
proposed rules.\656\ In the U.S. Activity Adopting Release, the 
Commission stated that, in the absence of comprehensive reporting 
requirements for security-based swap transactions, and the fact that 
the location of personnel that arrange, negotiate, or execute a 
security-based swap transaction is not currently recorded by 
participants, a more precise estimate of the number of non-U.S. persons 
affected by the rule is not currently feasible. However, because the 
Commission assumes that all transactions by foreign dealing entities 
with other non-U.S. persons on U.S. reference entities are arranged, 
negotiated, or executed by personnel located in the United States, the 
analysis contained in the U.S. Activity Adopting Release results in an 
estimate of the upper bound of the number of firms that would likely 
assess the location of their dealing activity. The results of such an 
assessment, already accounted for in the U.S. Activity Adopting 
Release, determines the number of new respondents impacted by the 
amendments to Rule 901.
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    \656\ See ISDA I at 7. See also id. at 3 (arguing that ``the SEC 
currently lacks the data necessary to precisely estimate . . . the 
number of registered broker-dealers that intermediate SBS 
transactions; and the number of additional non-U.S. persons that 
might incur reporting obligations under the Proposal'').
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    The Commission believes that the amendments to Rule 
901(a)(2)(ii)(E), as adopted herein, will result in an additional 20 
respondents that will be required to report transactions under the 
amendments to Regulation SBSR.\657\ The Commission estimates that these 
20 new respondents will consist solely of registered broker-dealers 
that are required to report one or more security-based swaps by new 
Rule 901(a)(2)(ii)(E)(4). The Commission acknowledges that amendments 
to Rule 901(a)(2)(ii)(E) adopted in this release place reporting 
obligations, in certain circumstances, on unregistered foreign dealing 
entities, as explained in Section IX(G), supra, which may suggest that 
a larger number of additional respondents is appropriate. However, the 
Commission notes that, based on observed transaction data in TIW that 
provided the basis for its estimate of the number of respondents used 
in the Cross-Border Adopting Release and Regulation SBSR Adopting 
Release, unregistered foreign dealing entities were already included in 
the subset of 245 unregistered person respondents that will not be 
registered security-based swap dealers or major security-based swap 
participants.\658\
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    \657\ The Commission is unable to determine, at this time, how 
many of the non-U.S. persons performing the assessments discussed in 
the U.S. Activity Adopting Release will result in those entities 
being required to report transactions under Regulation SBSR. The 
Commission is therefore basing these burdens on the assumption that 
all entities performing the assessment will be required to report 
under Regulation SBSR. Further, the 20 respondents here reflect the 
30 registered-broker dealers discussed in the U.S. Activity 
Proposal, reduced by ten to account for registered broker-dealers 
that are likely also to register as SB SEFs.
    \658\ The 245 respondents that are unregistered persons are 
calculated as follows: (300 reporting sides -50 registered security-
based swap dealers -5 registered major security-based swap 
participants) = 245 unregistered persons that are reporting sides.
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iii. Total Initial and Annual Reporting Burdens
    Pursuant to Rule 901, all security-based swap transactions must be 
reported to a registered SDR or to the Commission. Together, paragraphs 
(a), (b), (c), (d), (e), (h), and (j) of Rule 901 set forth the 
parameters that govern how covered transactions are reported. These 
reporting requirements impose initial and ongoing burdens on 
respondents. The Commission believes that these burdens will be a 
function of, among other things, the number of reportable events and 
the data elements required to be reported for each such event.
    Respondents that fall under the reporting hierarchy in Rule 
901(a)(2)(ii) incur certain burdens as a result thereof with respect to 
their reporting of covered transactions. As stated above, the 
Commission believes that an estimate of 20 additional respondents will 
incur the duty to report under Regulation SBSR. This estimate includes 
all persons that will incur a reporting duty under the amendments to 
Regulation SBSR that are not already subject to burdens under existing 
Rule 901, as adopted in the Regulation SBSR Adopting Release.
    In the Regulation SBSR Adopting Release, the Commission estimated 
that there will likely be approximately 3 million reportable events per 
year under Rule 901.\659\ The Commission further estimated that 
approximately 2 million of these reportable events will consist of 
uncleared transactions. The Commission estimated that 2 million of the 
3 million total reportable events will consist of the initial reporting 
of security-based swaps as well as the reporting of any life cycle 
events. The Commission also estimated that of the 2 million reportable 
events, approximately 900,000 will involve the reporting of new 
security-based swap transactions, and approximately 1,100,000 will 
involve the reporting of life cycle events under Rule 901(e).\660\
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    \659\ See Regulation SBSR Adopting Release, 80 FR at 14675.
    \660\ The Commission notes that it is adopting an amendment to 
Rule 901(e)(2). Existing Rule 901(e)(2) states in relevant part that 
a life cycle event must be reported ``to the entity to which the 
original security-based swap transaction was reported'' (emphasis 
added). As amended, Rule 901(e)(2) now states that a life cycle 
event would have to be reported ``to the entity to which the 
original security-based swap transaction will be reported or has 
been reported'' (emphasis added). This amendment accounts for the 
possibility that persons with a duty to report a transaction 
generally may do so up to 24 hours after the time of execution, a 
registered clearing agency might submit a report of a termination of 
an alpha to the alpha SDR before the alpha SDR has received the 
transaction report of the alpha transaction itself. See supra 
Section III(I). The Commission does not believe that this amendment 
to Rule 901(e)(2) gives rise to any PRA burdens not already 
accounted for in its analysis of burdens under Rule 901. See infra 
Section XI(B)(2)(b).
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    Based on the Commission's assessment of the effect of the 
amendments to Rule 901(a)(2)(ii)(E) adopted herein, the Commission 
believes that there will be approximately 2,700 additional reportable 
events per year under Rule 901.\661\ Using a similar approach to the 
Regulation SBSR Adopting Release,\662\ while also accounting for 
security-based swaps that will be reported by a registered broker-
dealer, the Commission estimates that, of the 2,700 new reportable 
events, 1,512 will involve the reporting of new security-based swap 
transactions, and approximately 1,188 will involve the

[[Page 53615]]

reporting of life cycle events under Rule 901(e).\663\
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    \661\ See U.S. Activity Proposal, 80 FR at 27504.
    \662\ See 80 FR at 14676. The Commission notes that, while the 
approach for determining the burdens is similar to that used in the 
Regulation SBSR Adopting Release, the aggregate burden hours for all 
aspects of Rule 901differ slightly as a result of these new 
respondents having to report a different number of reportable 
events.
    \663\ See U.S. Activity Proposal, 80 FR at 27504. The Commission 
expects 540 reportable events (2,700 x 0.2) to be new security-based 
swap transactions reported by registered broker-dealers, and 972 
reportable events to be other new security-based swap transactions 
that would be required to be reported under the rule ((2,700 -540) x 
0.45), for a total of 1,512 reportable events that are new security-
based swap transactions. The remaining 1,188 reportable events 
((2,700 -540) x 0.55) are estimated to be life cycle events 
reportable under Rule 901(e).
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    Based on these estimates, the Commission believes that Rule 901(a) 
will result in the additional new respondents resulting from amendments 
to Rule 901(a)(2)(ii)(E), having a total burden of 7.6 hours 
attributable to the initial reporting of security-based swaps by 
respondents to registered SDRs under Rules 901(c) and 901(d) over the 
course of a year.\664\ The Commission further estimates that these 
respondents will have a total burden of 5.9 hours attributable to the 
reporting of life cycle events under Rule 901(e) over the course of a 
year.\665\ Therefore, the Commission believes that the amendments to 
Rule 901(a)(2)(ii)(E), as adopted herein, will result in a total 
reporting burden for respondents under Rules 901(c) and (d) along with 
the reporting of life cycle events under Rule 901(e) of 14 burden hours 
per year. The Commission believes that many reportable events will be 
reported through electronic means and that the ratio of electronic 
reporting to manual reporting is likely to increase over time. The 
Commission believes that the bulk of the burden hours will be 
attributable to manually reported transactions.\666\ Thus, respondents 
that capture and report transactions electronically will likely incur 
fewer burden hours than those respondents that capture and report 
transactions manually.
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    \664\ The Commission calculated the following: ((1,512 x 0.005)/
(20 respondents)) = 0.38 burden hours per respondent or 7.6 total 
burden hours attributable to the initial reporting of security-based 
swaps. See U.S. Activity Proposal, 80 FR at 27505 (adjusted to 
reflect revised number of respondents). In the Regulation SBSR 
Adopting Release, the Commission estimated that it would take 
approximately 0.005 hours for each security-based swap transaction 
to be reported. See 80 FR at 14676, n. 1073. See also Regulation 
SBSR Proposing Release, 75 FR at 75249, n. 195.
    \665\ The Commission calculated the following: ((1,188 x 0.005)/
(20 respondents)) = 0.30 burden hours per reporting side or 5.9 
total burden hours attributable to the reporting of life cycle 
events under Rule 901(e). See U.S. Activity Proposal, 80 FR at 27505 
(adjusted to reflect revised number of respondents). In the 
Regulation SBSR Adopting Release, the Commission estimated that it 
would take approximately 0.005 hours for each security-based swap 
transaction to be reported. See 80 FR 14676, n. 1073. See also 
Regulation SBSR Proposing Release, 75 FR at 75249, n. 195.
    \666\ See Regulation SBSR Adopting Release, 80 FR at 14676.
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    Based on the foregoing and applying the same calculation methods 
used in the Regulation SBSR Adopting Release, the Commission estimates 
that the amendments to Rule 901 proposed in the U.S. Activity Proposal 
and adopted herein will impose an estimated total first-year burden of 
approximately 1,362 hours per respondent \667\ for a total first-year 
burden of 27,240 hours for all additional respondents that will incur 
the duty to report under the adopted amendments to Rule 
901(a)(2)(ii)(E)(1)-(4).\668\ The Commission estimates that the 
amendments to Rule 901 will impose ongoing annualized aggregate burdens 
of approximately 655 hours \669\ per respondent for a total aggregate 
annualized burden of 13,100 hours for those respondents.\670\ The 
Commission further estimates that the amendments to Rule 901 will 
impose initial and ongoing annualized dollar cost burdens of $201,000 
per respondent, for total aggregate initial and ongoing annualized 
dollar cost burdens of $4,020,000.\671\
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    \667\ The Commission derived its estimate from the following: 
(355 hours (one-time hourly burden for establishing an OMS) + 172 
hours (one-time hourly burden for establishing security-based swap 
reporting mechanisms) + 180 hours (one-time hourly burden for 
compliance and ongoing support) = 707 hours (one-time total hourly 
burden). See U.S. Activity Proposal, 80 FR at 27505, n. 454 (436 
hours (annual ongoing hourly burden for internal order management) + 
0.68 hours (revised annual ongoing hourly burden for security-based 
swap reporting mechanisms as a result of reduced estimate of number 
of respondents) + 218 hours (annual-ongoing hourly burden for 
compliance and ongoing support) = 654.7 hours (one-time total hourly 
burden). See U.S. Activity Proposal, 80 FR at 27505, n. 454 (revised 
to take into account reduced estimate of number of respondents) (707 
one-time hourly burden + 654.7 revised annual-ongoing hourly burden 
= 1,362 total first-year hourly burden).
    \668\ The Commission derived its estimate from the following: 
(1,362 hours per respondent x 20 respondents) = 27,240 hours.
    \669\ See supra note 667.
    \670\ The Commission derived its estimate from the following: 
(655 hours per respondent x 20 respondents) = 13,100 hours.
    \671\ The Commission derived its estimate from the following: 
($201,000 per respondent x 20 respondents) = $4,020,000. See U.S. 
Activity Release, 80 FR at 27505 (providing preliminary estimates 
based on a higher number of respondents). See also Regulation SBSR 
Adopting Release, 80 FR at 14676, nn. 1066 and 1078.
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b. Rule 901--Reporting Obligations for Platforms and Clearing Agencies 
Resulting From Amendments to Rules 901(a)(1) and (2) and Platforms and 
Reporting Sides Resulting From Amendments to Rule 901(a)(3)

i. Summary of Collection of Information

    In addition to amendments to Rule 901 to assign the duty to report 
security-based swaps in certain cross-border situations proposed in the 
U.S. Activity Proposal, in this release the Commission also is 
assigning the duty to report security-based swaps that are clearing 
transactions or are executed on a platform and will be submitted to 
clearing. To facilitate such reporting, the Commission is adopting 
amendments to Rules 901(a)(1), (a)(2)(i), and (a)(3). Specifically, 
under new Rule 901(a)(1), if a security-based swap is executed on a 
platform and will be submitted to clearing, the platform on which the 
transaction was executed shall have the duty to report the transaction 
to a registered SDR. New Rule 901(a)(2)(i) assigns the reporting duty 
for a clearing transaction to the registered clearing agency that is a 
counterparty to the security-based swap. New Rule 901(a)(3) requires 
any person that has a duty to report a security-based swap that is 
submitted to clearing--which would be a platform or a reporting side--
to provide the registered clearing agency with the transaction ID of 
the alpha and the identity of the registered SDR to which the alpha 
will be reported or has been reported.
ii. Respondents
    The amendments to Rules 901(a)(1) and (a)(2)(i) adopted herein 
assign reporting duties for security-based swap transactions, in 
certain enumerated cases set forth in these rules, to platforms and 
registered clearing agencies, respectively. The Commission estimates 
that these amendments to Rule 901(a) will result in 14 additional 
respondents incurring the duty to report under Regulation SBSR: Ten 
platforms and four registered clearing agencies.\672\ Amended Rule 
901(a)(3) will require a person--either the platform upon which the 
security-based swap was executed or the reporting side for those 
security-based swaps other than clearing transactions--to report, for 
those security-bases swaps submitted to a registered clearing agency, 
the transaction ID of the submitted security-based swap and the 
identity of the registered SDR to which the transaction will be or has 
been reported. The Commission believes that new Rule 901(a)(3), as 
amended, will place

[[Page 53616]]

reporting obligations on 300 reporting sides \673\ and ten 
platforms.\674\
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    \672\ The Commission made the same preliminary estimate of the 
number of respondents resulting from these proposed amendments in 
the Regulation SBSR Proposed Amendments Release. See 80 FR at 14788.
    \673\ As stated above, the Commission has estimated that there 
would be 300 reporting sides plus the 20 new broker-dealer 
respondents discussed in Section XI(B)(2)(a), supra. See also supra 
note 657.
    \674\ Although new Rule 901(a)(2)(ii)(E)(4) requires a 
registered broker-dealer to report security-based swaps in some 
circumstances, the Commission believes that registered broker-
dealers will not incur duties under Rule 901(a)(3). A registered 
broker-dealer would incur the reporting duty only if it effects a 
transaction for unregistered non-U.S. counterparties, neither of 
which is engaging in ANE activity. If the unregistered non-U.S. 
direct counterparties have guarantors that would clear the 
transaction on their behalf, it is likely that one or both of these 
guarantors would occupy a higher rung on the reporting hierarchy 
such that the duty would not fall to the registered broker-dealer 
under Rule 901(a)(2)(ii)(E)(4). Therefore, it is unlikely that a 
broker-dealer that effects such a transaction would incur the duty 
under Rule 901(a)(3) to provide the transaction ID and the identity 
of the alpha SDR to the registered clearing agency.
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iii. Total Initial and Annual Reporting Burdens
(a) Platforms and Registered Clearing Agencies
    Pursuant to Rule 901, all security-based swap transactions must be 
reported to a registered SDR or to the Commission. Together, paragraphs 
(a), (b), (c), (d), (e), (h), and (j) of Rule 901 set forth the 
parameters that reporting entities must follow to report security-based 
swap transactions. Because platforms and registered clearing agencies 
now have the duty to report, initial and ongoing burdens will be placed 
on these entities. The Commission continues to believe that these 
burdens will be a function of, among other things, the number of 
reportable events and the data elements required to be reported for 
each such event.
    In the Regulation SBSR Adopting Release, the Commission estimated 
that respondents will face three categories of burdens to comply with 
Rule 901.\675\ The Commission believes that platforms and registered 
clearing agencies will face the same categories of burdens as those 
identified in the Regulation SBSR Adopting Release for other types of 
respondents. First, each platform and registered clearing agency will 
likely have to develop the ability to capture the relevant transaction 
information.\676\ Second, each platform and registered clearing agency 
will have to implement a reporting mechanism. Third, each platform and 
registered clearing agency will have to establish an appropriate 
compliance program and support for the operation of any system related 
to the capture and reporting of transaction information. The Commission 
continues to believe that platforms and registered clearing agencies 
will need to develop capabilities similar to those highlighted in the 
Regulation SBSR Adopting Release in order to be able to capture and 
report security-based swap transactions. The Commission also continues 
to believe that, once a platform or registered clearing agency's 
reporting infrastructure and compliance systems are in place, the 
burden of reporting each individual reportable event will be small when 
compared to the burdens of establishing the reporting infrastructure 
and compliance systems.\677\ The Commission continues to believe that 
all of the reportable events, for which platforms and registered 
clearing agencies will be responsible for reporting, will be reported 
through electronic means.\678\
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    \675\ See Regulation SBSR Adopting Release, 80 FR at 14675-77.
    \676\ In the Regulation SBSR Adopting Release, the Commission 
discussed the development, by reporting sides, of an internal order 
and trade management system. See 80 FR at 14675-76. The Commission 
continues to believe that the costs of developing a transaction 
processing system are comparable to the costs discussed therein. 
Although the actual reporting infrastructure needed by platforms and 
registered clearing agencies could have some attributes that differ 
from the attributes of an internal order and trade management 
system, the Commission nonetheless believes that the cost of 
implementing a transaction processing system, and establishing an 
appropriate compliance program and support for the operation of the 
system, will be similar to the costs for reporting sides discussed 
in the Regulation SBSR Adopting Release.
    \677\ In the Regulation SBSR Adopting Release, the Commission 
reiterated its belief that reporting specific security-based swap 
transactions to a registered SDR--separate from the establishing of 
infrastructure and compliance systems that support reporting--will 
impose an annual aggregate cost of approximately $5,400,000. See 80 
FR at 14675-77.
    \678\ As a result of the amendment to Rule 901(h) adopted 
herein, which replaces ``reporting side'' with ``person having the 
duty to report,'' all persons who have a duty to report under 
Regulation SBSR must electronically transmit the information 
required by Rule 901 in a format required by the registered SDR. The 
Commission believes that the infrastructure build described above 
will necessarily include the ability to electronically transmit to a 
registered SDR the information required by Rule 901, such that any 
burdens resulting from the amendment to Rule 901(h) are included 
within the Rule 901 burdens for persons with the duty to report that 
are not reporting sides.
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    In the Regulation SBSR Adopting Release, the Commission estimated 
that the total burden placed upon reporting sides as a result of 
existing Rule 901 will be approximately 1,361 hours \679\ per reporting 
side during the first year,\680\ before taking into account the 
reporting of individual reportable events. The Commission believes that 
the per-entity cost will be comparable for platforms and registered 
clearing agencies, resulting in a total first-year burden of 1,361 
hours and an annual burden of 654 hours for each platform and 
registered clearing agency, before taking into account the reporting of 
individual reportable events, under new Rules 901(a)(1) and (a)(2)(i), 
as adopted herein.
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    \679\ The Commission derived its estimate from the following: 
(355 hours (one-time hourly burden for establishing an OMS) + 172 
hours (one-time hourly burden for establishing security-based swap 
reporting mechanisms) + 180 hours (one-time hourly burden for 
compliance and ongoing support) = 707 hours (one-time total hourly 
burden). See Regulation SBSR Proposed Amendments Release, 80 FR at 
14789, n. 298 (436 hours (annual ongoing hourly burden for internal 
order management) + 218 hours (annual-ongoing hourly burden for 
compliance and ongoing support) = 654 hours (one-time total hourly 
burden. See id. (707 one-time hourly burden + 654 revised annual-
ongoing hourly burden = 1,361 total first-year hourly burden).
    \680\ See Regulation SBSR Adopting Release, 80 FR at 14675-77.
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    In the Regulation SBSR Adopting Release, the Commission estimated 
that there will be approximately 3 million reportable events per year 
under Rule 901, of which approximately 2 million will consist of 
uncleared transactions (i.e., those transactions that will be reported 
by a reporting side).\681\ In the Regulation SBSR Adopting Release, the 
Commission did not assign reporting duties for the remaining 1 million 
annual reportable events, which consist of platform-executed alphas, 
clearing transactions, and any life cycle events pertaining to these 
two types of transactions.
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    \681\ See id.
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    In this release, the Commission is adopting amendments to Rule 901 
that assign the reporting duty for these 1 million reportable events to 
platforms and registered clearing agencies. The Commission estimates 
that, of the 1 million reportable events, approximately 370,000 will be 
new security-based swap transactions.\682\ Of these 370,000 new 
transactions, the Commission estimates that platforms will be 
responsible for reporting approximately one-third, or 120,000, of 
them.\683\ The Commission estimates that the amendments to Rule 901(a) 
will result in platforms having a total burden of 600 hours 
attributable to the reporting of security-based swaps under Rule 901 
over the course of a year, or 60 hours per platform.\684\
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    \682\ See Regulation SBSR Amendments Proposing Release, 80 FR at 
14777, n. 235.
    \683\ Since only platform-executed security-based swaps that 
will be submitted to a registered clearing agency for clearing are 
subject to this release, platforms are not responsible for any life 
cycle event reporting under Rule 901(e). See Regulation SBSR 
Amendments Proposing Release, 80 FR at 14777.
    \684\ The Commission calculates the following: ((120,000 x 
0.005)/(10 platforms)) = 60 burden hours per platform or 600 total 
burden hours attributable to the reporting of security-based swaps. 
See Regulation SBSR Proposed Amendments Release, 80 FR at 14789-90. 
In the Regulation SBSR Proposing Release, the Commission estimated 
that it would take approximately 0.005 hours for each security-based 
swap transaction to be reported. See 75 FR at 75249, n. 195.

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[[Page 53617]]

    The Commission estimates that registered clearing agencies will be 
responsible for reporting 880,000 reportable events.\685\ These 
reportable events consist of 250,000 initial security-based swaps along 
with 630,000 life cycle events. The Commission estimates that the 
amendments to Rule 901(a) will result in registered clearing agencies 
having a total burden of 1,250 hours attributable to the reporting of 
new security-based swaps to registered SDRs over the course of a year, 
or 312.5 hours per registered clearing agency.\686\ The Commission 
estimates that the amendments to Rule 901(a) will result in registered 
clearing agencies having a total burden of 3,150 hours attributable to 
the reporting of life cycle events to registered SDRs under Rule 901(e) 
over the course of a year, or 787.5 hours per registered clearing 
agency.\687\ The Commission continues to believe that the amendments 
will result in a total reporting burden for registered clearing 
agencies under Rules 901(c) and 901(d) along with the reporting of life 
cycle events under Rule 901(e) of 4,400 burden hours, or 1,100 hours 
per registered clearing agency.\688\ The Commission believes that all 
reportable events that will be reported by platforms and registered 
clearing agencies pursuant to these amendments will be reported through 
electronic means.
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    \685\ As is discussed above, the Commission estimates that 
platforms will be responsible for reporting only approximately 
120,000 of the 1 million new reportable events and registered 
clearing agencies will be responsible for reporting the remainder.
    \686\ The Commission calculates the following: ((250,000 
security-based swaps x 0.005 hours per security-based swap)/(4 
registered clearing agencies)) = 312.5 burden hours per registered 
clearing agency or 1,250 total burden hours attributable to the 
reporting of such security-based swaps. See Regulation SBSR Proposed 
Amendments Release, 80 FR at 14789-90. In the Regulation SBSR 
Proposing Release, the Commission estimated that it would take 
approximately 0.005 hours for each security-based swap to be 
reported. See 75 FR at 75249, n. 195.
    \687\ The Commission calculates the following: ((630,000 
security-based swaps x 0.005 hours per security-based swap)/(4 
registered clearing agencies)) = 787.5 burden hours per registered 
clearing agency or 3,150 total burden hours attributable to the 
reporting of life cycle events under Rule 901(e). See Regulation 
SBSR Proposed Amendments Release, 80 FR at 14789-90. In the 
Regulation SBSR Proposing Release, the Commission estimated that it 
would take approximately 0.005 hours for each security-based swap to 
be reported. See 75 FR at 75249, n. 195.
    \688\ As is discussed immediately above, the Commission believes 
that registered clearing agencies would incur a burden of 1,250 
hours attributable to the reporting of security-based swaps pursuant 
to Rule 901(a)(2)(i) along with a burden of 3,150 hours attributable 
to the reporting of life cycle events under Rule 901(e). As 
discussed in note 683, supra, a platform is not responsible for the 
reporting of any life cycle events of any platform-executed 
security-based swap that will be submitted to clearing.
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    The Commission estimates that the amendments to Rule 901 will 
impose ongoing annualized aggregate burdens of approximately 714 hours 
per platform \689\ for a total aggregate annualized burden of 7,140 
hours for all platforms.\690\ The Commission further believes that the 
first year burden on platforms will be 1,421 burden hours per platform 
\691\ for a total first year burden of 14,210 burden hours for all 
platforms.\692\ The Commission further estimates that the amendments to 
Rule 901 will impose initial and ongoing annualized dollar cost burdens 
of $201,000 per platform,\693\ for total aggregate initial and ongoing 
annualized dollar cost burden of $2,010,000.\694\
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    \689\ As discussed above, the Commission believes that platforms 
will incur a burden of 654 hours per year (before taking into 
account individual transaction reporting) plus a transaction 
reporting burden of 60 hours per year resulting in a total annual 
burden per platform of 714 burden hours.
    \690\ The Commission derived its estimate from the following: 
(714 hours per platform x 10 platforms) = 7,140 hours.
    \691\ As discussed above, the Commission believes that platforms 
will incur an initial burden of 707 hours plus an annual burden of 
714 hours for a total burden of 1,421 per platform.
    \692\ The Commission derived its estimate from the following: 
(1,421 hours per platform x 10 platforms) = 14,210 hours.
    \693\ See Regulation SBSR Proposed Amendments Release, 80 FR at 
14789, n. 303 (these burdens reflect the dollar costs of hardware 
and software related expenses, including necessary back-up and 
redundancy, per SDR connection, for two SDR connections, along with 
cost of storage capacity, reduced to account only for platforms).
    \694\ The Commission derived its estimate from the following: 
($201,000 per reporting person x 10 platforms) = $2,010,000.
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    The Commission estimates that the amendments to Rule 901 will 
impose ongoing annualized aggregate burdens of approximately 1,754 
hours per registered clearing agency \695\ for a total aggregate 
annualized burden of 7,016 hours for all registered clearing 
agencies.\696\ The Commission further believes that the first year 
burden on registered clearing agencies will be 2,461 burden hours per 
registered clearing agency \697\ for a total first year burden of 9,844 
burden hours for all registered clearing agencies.\698\ The Commission 
further estimates that the amendments to Rule 901 will impose initial 
and ongoing annualized dollar cost burdens of $401,000 per registered 
clearing agency,\699\ for total aggregate initial and ongoing 
annualized dollar cost burden of $1,604,000.\700\
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    \695\ As discussed above, the Commission believes that 
registered clearing agencies will incur a burden of 654 hours per 
year (before taking into account individual transaction reporting) 
plus a transaction reporting burden of 1,100 hours per year 
resulting in a total annual burden of 1,754 burden hours.
    \696\ The Commission derived its estimate from the following: 
(1,754 hours per registered clearing agency x 4 registered clearing 
agencies) = 7,016 hours.
    \697\ As discussed above, the Commission believes that platforms 
will incur an initial burden of 707 hours plus an annual burden of 
1,754 hours for a total burden of 2,461 per registered clearing 
agency.
    \698\ The Commission derived its estimate from the following: 
(2,461 hours per registered clearing agency x 4 registered clearing 
agencies) = 9,844 hours.
    \699\ See Regulation SBSR Proposed Amendments Release, 80 FR at 
14789, n. 303 (reduced to account only for registered clearing 
agencies). The Commission estimates that a registered clearing 
agency, as a result of newly adopted Rule 901(e)(1)(ii), might have 
to establish connectivity to an alpha SDR, to which it might not 
otherwise establish connectivity. Accordingly, the Commission 
estimates that each registered clearing agency will connect to four 
registered SDRs. The Commission derived the total estimated expense 
for registered clearing agencies as (($100,000 hardware- and 
software-related expenses, including necessary backup and 
redundancy, per SDR connection) x (4 SDR connections per registered 
clearing agency)) + ($1,000 cost of storage capacity) = $401,000 per 
registered clearing agency. See Regulation SBSR Proposed Amendments 
Release, 80 FR at 14776 (estimating the hardware- and software-
related expenses per SDR connection at $100,000). This estimate 
assumes that the systems required to establish connectivity to a 
registered SDR to meet requirements under Rule 901(e)(1)(ii) are 
similar to those required by reporting sides to meet regulatory 
reporting requirements. To the extent that a registered clearing 
agency is able to utilize a limited purpose connection to report 
only the information required by Rule 901(e)(1)(ii), the cost of 
establishing such a connection could be less.
    \700\ The Commission derived its estimate from the following: 
($401,000 per registered clearing agency x 4 registered clearing 
agencies) = $1,604,000.
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    The Commission recognizes that some entities that will qualify as 
platforms or registered clearing agencies may have already spent time 
and resources building the infrastructure that will support their 
eventual reporting of security-based swaps. The Commission notes that, 
as a result, the burdens and costs estimated herein could be greater 
than those actually incurred by affected parties as a result of 
compliance with the amendments to Rule 901(a). Nonetheless, the 
Commission believes that its estimates represent a reasonable approach 
to estimating the paperwork burdens associated with the amendments to 
Rule 901(a).
(b) Rule 901(a)(3) Burdens
    Rule 901(a)(3), as adopted herein, requires a person who has the 
duty to report an alpha security-based swap to promptly provide the 
registered clearing agency to which the alpha has been submitted the 
transaction ID of the submitted security-based swap and the identity of 
the registered SDR to which the transaction will be or has been

[[Page 53618]]

reported. Entities that report alphas to registered SDRs also will 
already have established the infrastructure needed to submit security-
based swaps to a registered clearing agency that acts as a central 
counterparty; this connectivity to a registered clearing agency is not 
required by Regulation SBSR. Rule 901(a)(3) will require the person who 
reports the alpha to a registered SDR to provide the registered 
clearing agency two additional data elements--the transaction ID of the 
alpha and the identity of the alpha SDR--along with all of the other 
transaction information that must be submitted to clear the 
transaction. The Commission estimates that the additional one-time 
burden related to the development of the ability to capture and submit 
these two additional data elements will be 10 burden hours per 
respondent and the additional one-time burden related to the 
implementation of a reporting mechanism will be 6 burden hours per 
respondent.\701\ The Commission estimates that the additional ongoing 
burden related to the ability to capture the additional specific data 
elements required by amended Rule 901(a)(3) will be 10 burden hours and 
the additional ongoing burden related to the maintenance of the 
reporting mechanism will be 2 burden hours, per platform and reporting 
side.\702\
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    \701\ The Commission estimates that the additional burdens 
related to programming systems to allow for the reporting of the 
additional data fields will be: [(Sr. Programmer (5 hours) + Sr. 
Systems Analyst (5 hours)) = 10 burden hours (development of the 
ability to capture transaction information); (Sr. Programmer (3 
hours) + Sr. Systems Analyst (3 hours)) = 6 burden hours 
(implementation of reporting mechanism)]. The total one-time burden 
associated with Rule 901(a)(3) will be 16 burden hours per 
respondent for a total one-time burden of 4,960 hours (16 x 310 
(i.e., 300 reporting sides + 10 platforms)). See Regulation SBSR 
Proposed Amendments Release, 80 FR at 14790, n. 315.
    \702\ The Commission estimates that the additional burdens 
related to the reporting of these additional data fields will be: 
[(Sr. Programmer (5 hours) + Sr. Systems Analyst (5 hours)) = 10 
burden hours (maintenance of transaction capture system); (Sr. 
Programmer (1 hour) + Sr. Systems Analyst (1 hour)) = 2 burden hours 
(maintenance of reporting mechanism)]. The total ongoing burden 
associated with amended Rule 901(a) will be 12 burden hours per 
platform and reporting side for a total ongoing burden of 3,720 
hours (12 x 310 (i.e., 300 reporting sides + 10 platforms)). For the 
Commission's preliminary estimate of the burdens associated with 
Rule 901(a)(3), see Regulation SBSR Proposed Amendments Release, 80 
FR at 14790, n. 316.
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(c) Bunched Order Executions and Allocations
    Bunched order executions and the security-based swaps that result 
from their allocation are types of security-based swaps that must be 
reported pursuant to Rule 901(a). In the Regulation SBSR Adopting 
Release, the Commission provided guidance regarding how Regulation SBSR 
applies to uncleared bunched order executions and the security-based 
swaps that result from their allocation.\703\ In Section VI, supra, the 
Commission provides guidance regarding how Regulation SBSR applies to 
bunched order executions that will be submitted to clearing and the 
security-based swaps that result from the allocation of any bunched 
order execution, if the resulting security-based swaps are cleared.
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    \703\ See 80 FR at 14626-27.
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    This guidance does not increase the number of respondents under 
Regulation SBSR or increase the burdens for any respondent.\704\ The 
estimates of the number of reportable events provided by the Commission 
in the Regulation SBSR Adopting Release included bunched order 
executions and the security-based swaps that result from their 
allocation. Thus, there are no burdens associated with this guidance 
that the Commission has not already taken into account.
---------------------------------------------------------------------------

    \704\ For the Commission's preliminary estimate of the burdens 
associated with this guidance, see Regulation SBSR Proposed 
Amendments Release, 80 FR at 14790.
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(d) Prime Brokerage Transactions
    In the Regulation SBSR Proposed Amendments Release, the Commission 
set forth the application of Regulation SBSR to a prime brokerage 
transaction involving three security-based swap legs. In Section 
VII(B)(2), supra, the Commission supplements its views to account for 
cases where the documentation among the relevant market participants 
provides for a two-legged structure rather than a three-legged 
structure. Since the Commission's initial estimates of the number of 
reportable events provided for the reporting of all legs of a prime 
brokerage transaction,\705\ those estimates assumed that prime 
brokerage transactions involved a three-legged structure. In light of 
the possibility that some prime brokerage transactions may involve only 
two legs, the Commission may have overestimated the total number of 
reportable events arising from prime brokerage transactions. However, 
because prime brokerage transactions are unlikely to represent a 
significant percentage of reportable events, the Commission continues 
to believe that its previous estimate of reportable events is 
reasonable.\706\
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    \705\ See Regulation SBSR Proposed Amendments Release, 80 FR at 
14785, n. 276.
    \706\ Combining the Commission's estimates in the Regulation 
SBSR Adopting Release and this release, the Commission believes that 
there will be approximately 3 million reportable events per year 
under Rules 901 and 905. Two million of those reportable events were 
required to be reported pursuant to provisions adopted in the 
Regulation SBSR Adopting Release, and 1 million are required to be 
reported by amendments adopted herein. See supra Section 
XI(B)(2)(a)(iv).
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3. Rule 901--Aggregate Total PRA Burdens and Costs
    Based on the foregoing, the Commission estimates the following 
aggregate total PRA burdens and costs, by category of entity, resulting 
from Rule 901, as contained in the Regulation SBSR Adopting Release and 
as amended in this release.
a. For Platforms
    As discussed in Section XI(B)(2)(b)(iii)(a), supra, the Commission 
estimates that the hourly burden resulting from the amendments to Rule 
901(a)(1) on platforms would be 1,421 hours in the first year and 714 
hours annually thereafter, per platform. The Commission further 
estimates that the annual dollar cost of the amendments will be 
$201,000. The Commission also estimates that the hourly burden 
resulting from the amendments to Rule 901(a)(3) on platforms will be 28 
hours in the first year and 12 hours annually thereafter, per platform. 
In aggregate, the Commission estimates that the amendments to Rule 901 
will result in a first year burden 1,449 hours per platform for a total 
first year hourly burden of 14,490 hours. The Commission further 
estimates that the annual aggregate burden resulting from the 
amendments to Rule 901 will be 726 hours per platform, for a total 
annual hourly burden of 7,260 hours. Finally, the Commission estimates 
that the annual dollar cost of the amendments will be $201,000 per 
platform, for a total annual dollar cost of $2,010,000.
b. For Registered Clearing Agencies
    As discussed in Section XI(B)(2)(b)(iii)(a), supra, the Commission 
estimates that the hourly burden resulting from the amendments to Rule 
901(a)(2) on registered clearing agencies will be 2,461 hours in the 
first year and 1,754 hours annually thereafter, per registered clearing 
agency. The Commission estimates that the total hourly burden on all 
registered clearing agencies will be 9,844 in the first year and 7,016 
annually thereafter. The Commission further estimates that the annual 
dollar cost of the amendments will be $401,000 per registered clearing 
agency, or $1,604,000 for all registered clearing agencies.

[[Page 53619]]

c. For New Broker-Dealer Respondents
    The Commission believes that, as a result of amendments to Rule 
901(a)(2)(ii)(E) adopted herein, there will be 20 new broker-dealer 
respondents who will incur reporting responsibilities, and that they 
will incur first-year burdens of 1,362 hours. The Commission further 
believes that these new respondents will incur annual burdens of 655 
hours each year thereafter. In addition, the Commission believes that 
these new respondents will incur annual costs of $201,000.
d. For Reporting Sides
    In the Regulation SBSR Adopting Release, the Commission estimated 
that reporting sides will incur a first-year burden of 1,394 hours per 
reporting side and an hourly burden of 687 hours annually 
thereafter.\707\ As a result of the amendments to Rule 901(a)(3) 
adopted herein, the Commission believes that these burdens will 
increase. The Commission believes that reporting sides will have a new 
first-year burden of 1,422 hours per reporting side,\708\ or 426,600 
hours for all reporting sides.\709\ The Commission further estimates 
that reporting sides will have a new annual burden after the first year 
of 699 hours per reporting side,\710\ or 209,700 hours for all 
reporting sides.\711\ The Commission also believes that the annual 
dollar cost of Rule 901 to reporting sides will remain unchanged at 
$201,000 per reporting side, or $60,300,000 for all reporting sides.
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    \707\ See Regulation SBSR Adopting Release, 80 FR at 14676.
    \708\ The Commission estimates the new first year burden as 
follows: (1,394 hours (original burden resulting from previously 
adopted rules) + 28 hours (burden resulting from amendments to Rule 
901(a)(3))) = 1,422 hours.
    \709\ The Commission estimates the new aggregate burden as 
follows: (1,422 hours x 300 reporting sides) = 426,600 hours.
    \710\ The Commission estimates the new annual burden as follows: 
(687 hours (original burden resulting from previously adopted rules) 
+ 12 hours (burden resulting from amendments to Rule 901(a)(3))) = 
699 hours.
    \711\ The Commission estimates the new aggregate burden as 
follows: (699 hours x 300 reporting sides) = 209,700 hours.
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C. Correction of Errors in Security-Based Swap Information--Rule 905

1. Existing Rule 905
    Existing Rule 905 sets out a process for correcting errors in 
reported and disseminated security-based swap information. Under Rule 
905(a)(1), where a counterparty that was not on the reporting side for 
a security-based swap transaction discovers an error in the information 
reported with respect to such security-based swap, that counterparty 
must promptly notify the reporting side of the error. Under existing 
Rule 905(a)(2), where a reporting side for a security-based swap 
transaction discovers an error in the information reported with respect 
to a security-based swap, or receives notification from its 
counterparty of an error, the reporting side must promptly submit to 
the entity to which the security-based swap was originally reported an 
amended report pertaining to the original transaction. An amended 
report must be submitted to a registered SDR in a manner consistent 
with the policies and procedures of the registered SDR required 
pursuant to Rule 907(a)(3).
    Existing Rule 905(b) sets forth the duties of a registered SDR 
relating to corrections. If the registered SDR either discovers an 
error in a transaction on its system or receives notice of an error 
from a reporting side, the registered SDR must verify the accuracy of 
the terms of the security-based swap and, following such verification, 
promptly correct the erroneous information contained in its system. 
Rule 905(b)(2) further requires that, if such erroneous information 
relates to a security-based swap that the registered SDR previously 
disseminated and falls into any of the categories of information 
enumerated in Rule 901(c), the registered SDR must publicly disseminate 
a corrected transaction report of the security-based swap promptly 
following verification of the trade by the counterparties, with an 
indication that the report relates to a previously disseminated 
transaction.
    In the Regulation SBSR Adopting Release, the Commission estimated 
that Rule 905(a) will impose an initial, one-time burden associated 
with designing and building a reporting side's reporting system to be 
capable of submitting amended security-based swap transactions to a 
registered SDR. The Commission further estimated that Rule 905(a) will 
impose on all reporting sides an initial (first-year) aggregate burden 
of 15,015 hours, which is 50.0 burden hours per reporting side,\712\ 
and an ongoing aggregate annualized burden of 7,035 hours, which is 
23.5 burden hours per reporting side.\713\
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    \712\ See Regulation SBSR Adopting Release, 80 FR at 14681-83.
    \713\ See id.
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    With regard to non-reporting-side participants, the Commission 
estimated in the Regulation SBSR Adopting Release that Rule 905(a) will 
impose an initial and ongoing burden associated with promptly notifying 
the reporting side after discovery of an error as required under Rule 
905(a)(1).\714\ The Commission estimated that the annual burden will be 
998,640 hours, which corresponds to 208.05 burden hours per non-
reporting-side participant.\715\
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    \714\ See id.
    \715\ This figure was based on the Commission's estimate of (1) 
4,800 non-reporting-side participants; and (2) one transaction per 
day per non-reporting-side participant. The Commission noted that 
the burdens of Rule 905 on reporting sides and non-reporting-side 
participants will be reduced to the extent that complete and 
accurate information is reported to registered SDRs in the first 
instance pursuant to Rule 901. See id.
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    Existing Rule 905(b) requires a registered SDR to develop protocols 
regarding the reporting and correction of erroneous information. In the 
Regulation SBSR Adopting Release, the Commission noted that the rules 
adopted in the SDR Adopting Release generally require a registered SDR 
to have the ability to collect and maintain security-based swap 
transaction reports and update relevant records and, in light of these 
broader duties, that the burdens imposed by Rule 905(b) on a registered 
SDR will represent only a minor extension of these main duties.\716\ 
The Commission also stated that a registered SDR must have the capacity 
to disseminate additional, corrected security-based swap transaction 
reports pursuant to Rule 902. The Commission concluded that the burdens 
on registered SDRs associated with Rule 905--including systems 
development, support, and maintenance--are addressed in the 
Commission's analysis of those other rules and, thus, that Rule 905(b) 
imposes only an incremental additional burden on registered SDRs.\717\
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    \716\ See id.
    \717\ The Commission estimated that developing and publicly 
providing the necessary procedures will impose on each registered 
SDR an initial one-time burden of approximately 730 burden hours, 
and that to review and update such procedures on an ongoing basis 
will impose an annual burden on each registered SDR of approximately 
1,460 burden hours. See id.
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    The Commission estimated in the Regulation SBSR Adopting Release 
that the initial (first-year) aggregate annualized burden on registered 
SDRs under Rule 905 will be 21,900 burden hours, which corresponds to 
2,190 burden hours for each registered SDR.\718\ The Commission further 
estimated that the ongoing aggregate annualized burden on registered 
SDRs under Rule 905 will be 14,600 burden hours, which corresponds to 
1,460 burden hours for each registered SDR.\719\
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    \718\ See id. at 14682, n. 1130-32.
    \719\ See id., nn. 1131, 1133.

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[[Page 53620]]

2. Amendments to Rule 905
    In this release, the Commission is adopting amendments to Rule 905 
that broaden the scope and increase the number of respondents that will 
incur duties under the rule. These amendments will not increase the 
number of registered SDRs that are respondents to the rule or increase 
the burdens on SDRs.
    Certain provisions of Rule 905 of Regulation SBSR contain 
``collection of information requirements'' within the meaning of the 
PRA. The title of these collections are: (a) ``Rule 905--Correction of 
Errors in Security-Based Swap Information--For New Broker-Dealer 
Respondents''; (b) ``Rule 901-- Correction of Errors in Security-Based 
Swap Information--For Platforms''; and (c) ``Rule 901-- Correction of 
Errors in Security-Based Swap Information--For Registered Clearing 
Agencies.''
a. Summary of Collection of Information
    Rule 905, as adopted in the Regulation SBSR Adopting Release, 
imposes duties on: (1) Non-reporting sides, to inform the reporting 
side if the non-reporting side discovers an error; (2) reporting sides, 
to correct the original transaction report if the reporting side 
discovers an error or is notified of an error by the non-reporting 
side; and (3) registered SDRs, upon discovery of an error or receipt of 
a notice of an error, to verify the accuracy of the terms of the 
security-based swap and, following such verification, correcting the 
record and, if necessary, publicly disseminating a corrected 
transaction report. The amendments to Rule 905, as adopted herein, do 
not alter the basic duties under Rule 905 but instead are designed to 
account for the fact that a person other than a side might, under other 
amendments adopted herein, have the duty to report the initial 
transaction. Thus, Rule 905, as amended herein, requires non-reporting 
sides to notify ``the person having the duty to report the security-
based swap'' of the error (not ``the reporting side''), and ``the 
person having the duty to report the security-based swap'' (not ``the 
reporting side'') must correct the original transaction report if such 
person discovers an error or is notified of an error by a non-reporting 
side.
    The amendments to Rule 905 adopted herein do not alter the nature 
of the duties incurred by registered SDRs. However, amendments to other 
parts of Regulation SBSR adopted herein will increase the number of 
security-based swap transactions that must be reported to a registered 
SDR. Because the Commission assumes that some number of those 
transactions will be reported with errors and will have to be corrected 
pursuant to Rule 905, these other amendments will indirectly increase 
the burdens imposed on registered SDRs by Rule 905(b), because 
registered SDRs will have to correct the records for more transactions 
(and, in appropriate cases, disseminate more corrected transaction 
reports). These amendments also will increase the number of non-
reporting sides and ``persons having the duty to report the security-
based swap'' who will incur duties under Rule 905(a).
b. Respondents
    The Commission previously estimated that Rule 905, as adopted in 
the Regulation SBSR Adopting Release, will have the following 
respondents: 300 reporting sides that incur the duty to report 
security-based swap transactions pursuant to existing Rule 901 and thus 
might incur duties to submit error corrections to registered SDRs under 
Rule 905(a)(2); up to 4,800 participants of one or more SDRs (or non-
reporting sides) that might incur duties under Rule 905(a)(1); and ten 
registered SDRs that might incur duties under Rule 905(b).\720\
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    \720\ See 80 FR at 14681.
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    As a result of various amendments being adopted today, the 
Commission estimates that ten platforms, four registered clearing 
agencies, and 20 new broker-dealers respondents (exclusive of SB SEFs) 
also will incur duties under Rule 905(a)(2), because these entities 
will incur the duty to report initial transactions and thus will likely 
have to report some error corrections. The Commission's estimates of 
the number of reporting sides (300), non-reporting sides (4,800), and 
registered SDRs (10) that will be respondents of Rule 905 remain 
unchanged. However, the Commission now believes that four registered 
clearing agencies, ten platforms, and 20 new broker-dealer respondents 
will also like have to report some error corrections.
c. Total Initial and Annual Reporting Burdens
i. New Broker-Dealer Respondents
    In the U.S. Activity Proposal, the Commission preliminarily 
estimated that the incremental burden imposed on registered broker-
dealers to comply with the error reporting requirements of Rule 905 
would be equal to 5% of the one-time and annual burdens associated with 
designing and building the reporting infrastructure necessary for 
reporting transactions under Rule 901, plus 10% of the corresponding 
one-time and annual burdens associated with developing the reporting 
side's overall compliance program required under Rule 901.\721\ The 
Commission preliminarily estimated that the new broker-dealer 
respondents would incur, as a result of Rule 905(a), an initial (first-
year) burden of 48.4 burden hours per respondent, and an ongoing annual 
burden of 21.8 burden hours. Based on additional information available 
to the Commission, the Commission now estimates that, as a result of 
amendments to Rule 901(a)(2)(ii)(E), there will be only 20 new broker-
dealer respondents who will be required to report transactions and 
other reportable events. These new broker-dealer respondents will have 
error correction duties similar to reporting sides; the Commission 
believes, therefore, that respondent broker-dealers will incur burdens 
similar to reporting sides under Rule 905(a). The Commission estimates 
that these 20 new broker-dealer respondents will each incur an initial 
(first-year) 48.4 burden hours per respondent,\722\ and an annualized 
burden of 21.8 burden hours per respondent,\723\ which remain unchanged 
from the Commission's preliminary estimates in the Regulation SBSR 
Proposed Amendments Release.
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    \721\ See 80 FR at 27506.
    \722\ This figure is calculated as follows: [(((172 burden hours 
for one-time development of reporting system) x (0.05)) + ((0.68 
burden hours annual maintenance of reporting system) x (0.05)) + 
((180 burden hours one-time compliance program development) x (0.1)) 
+ ((218 burden hours annual support of compliance program) x (0.1))) 
x (20 respondents)] = 48.4 burden hours per new broker-dealer 
respondent. See supra nn. 667 and 668 for the discussion of 
estimates of the burden hours for annual maintenance of the 
reporting system for these new broker-dealer respondents.
    \723\ This figure is calculated as follows: [((0.68 burden hours 
annual maintenance of reporting system) x (0.05)) + ((218 burden 
hours annual support of compliance program) x (0.1))] = 21.8 burden 
hours per new broker-dealer respondent. See supra nn. 667 and 668 
for the discussion of estimates of the burden hours for annual 
maintenance of the reporting system for these new broker-dealer 
respondents.
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ii. For Platforms and Registered Clearing Agencies
    The Commission is applying the same methodology for calculating the 
burdens of error reporting by reporting sides to calculating the 
burdens of error reporting by platforms, under the amendments to Rule 
905(a). However, the Commission believes that, on average, a platform 
will be reporting a greater number of reportable events than, on 
average, a reporting side. As a result, the Commission believes that a 
platform will likely be required to report more error corrections than 
an average reporting side, so the burdens imposed

[[Page 53621]]

by Rule 905(a) on a platform will likely be greater than the average 
burden imposed by Rule 905(a) on a reporting side. Thus, for platforms, 
the Commission estimates that the amendments to Rule 905(a) will impose 
an initial (first-year) burden of 51.4 hours per platform,\724\ and an 
ongoing annualized burden of 24.8 hours per platform.\725\
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    \724\ See Regulation SBSR Proposed Amendments Release, 80 FR at 
14794. This figure is calculated as follows: [((172 burden hours for 
one-time development of reporting system) x (0.05)) + ((60 burden 
hours annual maintenance of reporting system) x (0.05)) + ((180 
burden hours one-time compliance program development) x (0.1)) + 
((218 burden hours annual support of compliance program) x (0.1))] = 
51.4 burden hours per platform. See supra note 679 for the 
discussion of estimates of the burden hours for annual maintenance 
of the reporting system for platforms. The Commission notes that the 
Regulation SBSR Proposed Amendments Release inadvertently used 33 
burden hours to represent annual maintenance of the reporting 
system. The correct figure should have been 60 burden hours for the 
annual maintenance of the reporting system. As a result, the 
Commission preliminarily estimated a first-year burden, as a result 
of proposed amendments to Rule 905(a), of 50 hours instead of the 
correct first-year burden of 51.4 hours. See supra note 684 
(calculating the annual reporting burden used to determine the 
annual maintenance burden of the reporting system).
    \725\ See Regulation SBSR Proposed Amendments Release, 80 FR at 
14794. This figure is calculated as follows: [((60 burden hours 
annual maintenance of reporting system) x (0.05)) + ((218 burden 
hours annual support of compliance program) x (0.1))] = 24.8 hours 
per platform. See supra note 679 for the discussion of estimates of 
the burden hours for annual maintenance of the reporting system for 
platforms. The Commission notes that the Regulation SBSR Proposed 
Amendments Release inadvertently used 33 burden hours to represent 
annual maintenance of the reporting system. The correct figure 
should have been 60 burden hours for the annual maintenance of the 
reporting system. As a result, the Commission originally estimated 
an annual ongoing burden, as a result of amendments to Rule 905(a), 
of 23.5 hours instead of the correct first-year burden of 24.8 
hours.
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    The Commission also believes that this methodology is applicable to 
the error reporting that will be done by registered clearing agencies 
as a result of the amendments to Rule 905(a).\726\ However, because 
registered clearing agencies will be responsible for a large number of 
reportable events, they will likely be required to report more error 
corrections. As a result, the burdens imposed by Rule 905(a) on 
registered clearing agencies will be greater. Thus, for registered 
clearing agencies, the Commission estimates that the amendments to Rule 
905(a) will impose an initial (first-year) burden of 153.4 hours per 
registered clearing agency,\727\ and an ongoing annualized burden of 
76.8 hours per registered clearing agency.\728\
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    \726\ In the Regulation SBSR Proposed Amendments Release, the 
Commission did not include estimates for the burdens that would be 
imposed on registered clearing agencies for the reporting of errors 
under Rule 905(a). Upon further review, the Commission recognizes 
that registered clearing agencies will be required to report error 
corrections under Rule 905(a). As a result, the Commission has 
provided estimates of such burdens herein.
    \727\ This figure is calculated as follows: [((172 burden hours 
for one-time development of reporting system) x (0.05)) + ((1100 
burden hours annual maintenance of reporting system) x (0.05)) + 
((180 burden hours one-time compliance program development) x (0.1)) 
+ ((218 burden hours annual support of compliance program) x (0.1))] 
= 153.4 burden hours per registered clearing agency. See also 
Regulation SBSR Adopting Release, 80 FR at 14681-83 (describing the 
manner in which similar burdens were calculated for reporting 
sides). See supra note 679 (discussing estimates of the burden hours 
for annual maintenance of the reporting system for registered 
clearing agencies).
    \728\ This figure is calculated as follows: [((1100 burden hours 
annual maintenance of reporting system) x (0.05)) + ((218 burden 
hours annual support of compliance program) x (0.1))] = 76.8 hours 
per registered clearing agency. See also Regulation SBSR Adopting 
Release, 80 FR at 14681-83 (describing the manner in which similar 
burdens were calculated for reporting sides). See supra note 679 for 
the discussion of estimates of the burden hours for annual 
maintenance of the reporting system for platforms.
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iii. For Non-Reporting Sides
    For non-reporting sides, the Commission estimated in the Regulation 
SBSR Adopting Release that the annual burden (first-year and each 
subsequent year) will be 998,640 hours, which corresponds to 208.05 
burden hours per non-reporting-side participant.\729\ As a result of 
the amendments adopted herein, there will be more transactions reported 
to registered SDRs (i.e., clearing transactions and platform-executed 
transactions that will be submitted to clearing) and thus more 
transactions that in theory could have errors. If a non-reporting side 
were to discover any such error, it would incur an obligation under 
Rule 905(a)(1) to notify the person with the initial duty to report 
(i.e., the platform or registered clearing agency, as applicable) of 
the error. The Commission believes, however, that the expansion of 
Regulation SBSR to include clearing transactions and platform-executed 
transactions that will be submitted to clearing will not impact non-
reporting sides under Rule 905(a)(1). Such transactions will likely be 
in standardized security-based swap products that occur electronically 
pursuant to the rules of such entities. Errors, when they occur, will 
mostly likely be observed and corrected by the platforms or registered 
clearing agencies themselves. Therefore, the Commission believes that 
the amendments adopted herein will not increase the burdens per non-
reporting side or change the number of non-reporting sides that are 
required to comply with Rule 905(a)(1). Consequently, the Commission 
continues to estimate that the annual burden on non-reporting sides 
pursuant to Rule 905(a)(1) will be 998,640 hours, which corresponds to 
208.05 burden hours per non-reporting-side participant.\730\
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    \729\ This figure is based on the following: [(1 error 
notifications per non-reporting-side participant per day) x (365 
days/year) x (Compliance Clerk at 0.5 hours/report) x (4,800 non-
reporting-side participants)] = 998,640 burden hours, which 
corresponds to 208.05 burden hours per non-reporting-side 
participant. See Regulation SBSR Adopting Release, 80 FR at 14681-
83.
    \730\ This figure is based on the following: [(1 error 
notifications per non-reporting-side participant per day) x (365 
days/year) x (Compliance Clerk at 0.5 hours/report) x (4,800 non-
reporting-side participants)] = 998,640 burden hours, which 
corresponds to 208.05 burden hours per non-reporting-side 
participant. See Regulation SBSR Adopting Release, 80 FR at 14681-
83.
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iv. For Registered SDRs
    Rule 905(b) requires a registered SDR to undertake certain actions 
if it discovers or receives notice of an error in a transaction report. 
The Commission stated in the Regulation SBSR Adopting Release that it 
believes that this duty will represent only a minor extension of other 
duties of registered SDRs for which the Commission is estimating 
burdens.\731\ A registered SDR is required to have the ability to 
collect and maintain security-based swap transaction reports and update 
relevant records under the rules adopted in the SDR Adopting 
Release.\732\ Likewise, a registered SDR must have the capacity to 
disseminate additional, corrected security-based swap transaction 
reports under Rule 902, the burdens for which were calculated in the 
Regulation SBSR Adopting Release.\733\ Thus, the burdens associated 
with Rule 905--including systems development, support, and 
maintenance--are addressed in the Commission's analysis of those other 
rules.
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    \731\ See id. at 14682.
    \732\ See Rules 13n-4(b)(4) and 13n-5 under the Exchange Act, 17 
CFR 240.13n-4(b)(4) and 240.13n-5.
    \733\ See 80 FR at 14678.
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    As discussed above, the Commission estimated in the Regulation SBSR 
Adopting Release that the initial (first-year) aggregate annualized 
burden on registered SDRs under Rule 905 will be 21,900 burden hours, 
which corresponds to 2,190 burden hours for each registered SDR.\734\ 
The Commission further estimated that the ongoing aggregate annualized 
burden on registered SDRs under Rule 905 will be 14,600 burden hours, 
which corresponds to 1,460 burden hours for

[[Page 53622]]

each registered SDR.\735\ With respect to Rule 905(a)(2), the 
Commission stated that the submission of amended transaction reports 
required under Rule 905(a)(2) likely will not result in a material 
burden because this will be done electronically though the reporting 
system that the reporting side must develop and maintain to comply with 
Rule 901. The overall burdens associated with such a reporting system 
were addressed in the Commission's analysis of Rule 901.\736\
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    \734\ See id. at 14682, n. 1130-32.
    \735\ See id., nn. 1131, 1133.
    \736\ See id. at 14675-77.
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    The amendments adopted herein do not increase the number of 
registered SDRs that are respondents to Rule 905(b), but they do 
increase the number of error reports that will have to be processed by 
each registered SDR. The Commission notes, however, consistent with its 
analysis in the Regulation SBSR Adopting Release, that any burdens 
associated with Rule 905 for registered SDRs are a result of systems 
development, support, and maintenance and are not dependent on the 
number of error reports received or processed. Consequently, for 
registered SDRs, the Commission estimates that the initial (first-year) 
aggregate annualized burden on registered SDRs under Rule 905, as 
previously adopted and as amended herein, will be 21,900 burden hours, 
which corresponds to 2,190 burden hours for each registered SDR.\737\ 
The Commission further estimates that the ongoing aggregate annualized 
burden on registered SDRs under Rule 905, as previously adopted and as 
amended herein, will be 14,600 burden hours, which corresponds to 1,460 
burden hours for each registered SDR.\738\
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    \737\ This figure is based on the following: [(730 burden hours 
to develop protocols) + (1,460 burden hours annual support)) x (10 
registered SDRs)] = 21,900 burden hours, which corresponds to 2,190 
burden hours per registered SDR. See id. at 14681-83.
    \738\ This figure is based on the following: [(1,460 burden 
hours annual support) x (10 registered SDRs)] = 14,600 burden hours, 
which corresponds to 1,460 burden hours per registered SDR. See SBSR 
Adopting Release, 80 FR at 14681-83.
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v. Aggregate Reporting Burdens Under Rule 905
    As discussed above, the Commission estimates that Rule 905(a) will 
impose an initial (first-year) burden on each reporting side of 50 
hours for a total aggregate first-year burden on all reporting sides of 
15,000 hours \739\ and an ongoing annualized burden on each reporting 
side of 23.5 hours, for a total aggregate annual burden on all 
reporting sides of 7,050 hours.\740\ The Commission estimates that the 
20 new broker-dealer respondents will each incur an initial (first-
year) 48.4 burden hours per respondent, for a total aggregate first-
year burden on all new broker-dealer respondents of 968 hours,\741\ and 
an ongoing annualized burden of 21.8 burden hours per respondent, for a 
total aggregate annual burden on all new broker-dealer respondents of 
436 hours.\742\
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    \739\ This figure is calculated as follows: (50.0 burden hours 
per reporting side x 300 reporting sides) = 15,000 burden hours.
    \740\ This figure is calculated as follows: (23.5 burden hours 
per reporting side x 300 reporting sides) = 7,050 burden hours.
    \741\ This figure is calculated as follows: (48.4 burden hours 
per new broker-dealer respondent x 20 new respondents) = 968 burden 
hours.
    \742\ This figure is calculated as follows: (21.8 burden hours 
per new broker-dealer respondent x 20 new respondents) = 436 burden 
hours.
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    Furthermore, for platforms, the Commission estimates that the 
amendments to Rule 905(a) will impose an initial (first-year) burden of 
51.4 hours per platform for a total aggregate first-year burden on all 
platforms of 514 hours,\743\ and an ongoing annualized burden of 22.1 
hours per platform for a total aggregate annual burden on all platforms 
of 221 hours.\744\ The Commission estimates that the amendments to Rule 
905(a) will impose an initial (first-year) burden of 153.4 hours per 
registered clearing agency for a total aggregate first-year burden of 
612.6 hours,\745\ and an ongoing annualized burden of 76.8 hours per 
registered clearing agency for a total aggregate annual burden of 307.2 
hours.\746\
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    \743\ This figure is calculated as follows: (51.4 burden hours 
per platform x 10 platforms) = 514 burden hours.
    \744\ This figure is calculated as follows: (22.1 burden hours 
per platform x 10 platforms) = 221 burden hours.
    \745\ This figure is calculated as follows: (153.4 burden hours 
per registered clearing agency x 4 registered clearing agencies) = 
612.6 burden hours.
    \746\ This figure is calculated as follows: (76.8 burden hours 
per registered clearing agency x 4 registered clearing agencies) = 
307.2 burden hours.
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    The Commission estimates that the annual burden on non-reporting 
sides will remain unchanged at 208.1 burden hours per non-reporting-
side participant, for a total aggregate annual burden (first-year and 
each subsequent year) of 998,640 hours for all non-reporting-side 
participants.\747\
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    \747\ This figure is calculated as follows: (208.05 burden hours 
per non-reporting-side participant x 4,800 non-reporting-side 
participants) = 998,640 burden hours.
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    The Commission estimates that the initial (first-year) aggregate 
annualized burden on registered SDRs will be 2,190 burden hours for 
each registered SDR, for a total aggregate first-year burden of 21,900 
hours on all registered SDRs.\748\ The Commission estimates that the 
ongoing aggregate annualized burden on registered SDRs will be 1,460 
burden hours for each registered SDR, which equals a total aggregate 
annual burden of 14,600 burden hours for all registered SDRs.\749\
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    \748\ This figure is calculated as follows: (2,190 burden hours 
per registered SDR x 10 registered SDRs) = 21,900 burden hours.
    \749\ This figure is calculated as follows: (2,190 burden hours 
per registered SDR x 10 registered SDRs) = 21,900 burden hours.
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    In summary, the Commission estimates that the aggregate first-year 
burden of Rule 905 for all entities will be 1,037,635 hours.\750\ The 
Commission estimates that the annual burden (after the first year) of 
Rule 905 for all entities will be 1,021,254 hours.\751\
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    \750\ This figure is calculated as follows: (15,000 burden hours 
for reporting sides) + (968 burden hours for new broker-dealer 
respondents) + (514 burden hours for platforms) + (612.6 burden 
hours for registered clearing agencies) + (998,640 burden hours for 
non-reporting-side participants) + (21,900 burden hours for 
registered SDRs) = 1,037,634.6 burden hours during the first year.
    \751\ This figure is calculated as follows: (7,050 burden hours 
for reporting sides) + (436 burden hours for new broker-dealer 
respondents) + (221 burden hours for platforms) + (307.2 burden 
hours for registered clearing agencies) + (998,640 burden hours for 
non-reporting-side participants) + (14,600 burden hours for 
registered SDRs) = 1,021,254.2 burden hours during each year 
following the first year.
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D. Other Duties of Participants--Rule 906

1. Existing Rule 906
    Existing Rule 906(a) sets forth a procedure designed to ensure that 
a registered SDR obtains relevant UICs for both sides of a security-
based swap, not just of the reporting side. Rule 906(a) requires a 
registered SDR to identify any security-based swap reported to it for 
which the registered SDR does not have a counterparty ID and (if 
applicable) broker ID, trading desk ID, and trader ID of each direct 
counterparty. Rule 906(a) further requires the registered SDR, once a 
day, to send a report to each participant identifying, for each 
security-based swap to which that participant is a counterparty, the 
security-based swap(s) for which the registered SDR lacks counterparty 
ID and (if applicable) broker ID, trading desk ID, and trader ID. 
Finally, Rule 906(a) requires a participant that receives such a report 
to provide the missing ID information to the registered SDR within 24 
hours.
    Existing Rule 906(b) requires each participant of a registered SDR 
to provide the registered SDR with information sufficient to identify 
the participant's ultimate parent(s) and any

[[Page 53623]]

affiliate(s) of the participant that also are participants of the 
registered SDR.
    Existing Rule 906(c) requires each participant that is a registered 
security-based swap dealer or registered major security-based swap 
participant to establish, maintain, and enforce written policies and 
procedures that are reasonably designed to ensure compliance with any 
security-based swap transaction reporting obligations in a manner 
consistent with Regulation SBSR. In addition, Rule 906(c) requires each 
such participant to review and update its policies and procedures at 
least annually.
    For Registered SDRs. Rule 906(a) requires a registered SDR, once a 
day, to send a report to each of its participants identifying, for each 
security-based swap to which that participant is a counterparty, any 
security-based swap(s) for which the registered SDR lacks counterparty 
ID and (if applicable) broker ID, trading desk ID, and trader ID. In 
the Regulation SBSR Adopting Release, the Commission estimated that 
there will be a one-time, initial burden of 112 burden hours for a 
registered SDR to create a report template and develop the necessary 
systems and processes to produce a daily report required by Rule 
906(a).\752\ The Commission estimated that there will be an ongoing 
annualized burden of 308 burden hours for a registered SDR to generate 
and issue the daily reports, and to enter into its systems the UIC 
information supplied by participants in response to the daily 
reports.\753\
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    \752\ See 80 FR at 14683-85.
    \753\ See id.
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    Accordingly, in the Regulation SBSR Adopting Release, the 
Commission estimated that the initial aggregate annualized burden for 
registered SDRs under Rule 906(a) will be 4,200 burden hours for all 
SDR respondents, which corresponds to 420 burden hours per registered 
SDR.\754\ The Commission estimated that the ongoing aggregate 
annualized burden for registered SDRs under Rule 906(a) will be 3,080 
burden hours, which corresponds to 308 burden hours per registered 
SDR.\755\
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    \754\ See id.
    \755\ See id.
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    For Participants. Existing Rule 906(a) requires any participant of 
a registered SDR that receives a report from that registered SDR to 
provide the missing UICs to the registered SDR within 24 hours. All SDR 
participants will likely be the non-reporting side for at least some 
transactions to which they are counterparties; therefore, all 
participants will be impacted by Rule 906(a). In the Regulation SBSR 
Adopting Release, the Commission estimated that the initial and ongoing 
annualized burden under Rule 906(a) for all participants will be 
199,728 burden hours, which corresponds to 41.6 burden hours per 
participant.\756\
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    \756\ This figure is based on the Commission's estimates of 
4,800 participants and approximately 1.14 transactions per day per 
participant. See id.
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    Existing Rule 906(b) requires every participant of a registered SDR 
to provide that SDR an initial ultimate parent/affiliate report and 
updates as needed. In the Regulation SBSR Adopting Release, the 
Commission estimated that there will be 4,800 participants, that each 
participant will connect to two registered SDRs on average, and that 
each participant will submit two Rule 906(b) reports each year.\757\ 
Accordingly, the Commission estimated that the initial and ongoing 
aggregate annualized burden associated with Rule 906(b) will be 9,600 
burden hours, which corresponds to 2 burden hours per participant.\758\
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    \757\ See id. The Commission estimated that, during the first 
year, each participant will submit an initial report and one update 
report and, in subsequent years, will submit two update reports.
    \758\ See id. This estimated aggregate burden represents an 
upper estimate for all participants; the actual burden could be 
reduced to the extent that the registered SDR permits one member of 
the group to report the ultimate parent(s) and affiliates on behalf 
of each participant member of the group. See supra note 608.
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    Existing Rule 906(c) requires each participant that is a registered 
security-based swap dealer or registered major security-based swap 
participant to establish, maintain, and enforce written policies and 
procedures that are reasonably designed to ensure compliance with 
applicable security-based swap reporting obligations, and to review and 
update such policies and procedures at least annually. In the 
Regulation SBSR Adopting Release, the Commission estimated that the 
one-time, initial burden for each covered participant \759\ to create 
these written policies and procedures will be approximately 216 burden 
hours.\760\ The Commission also estimated the burden of maintaining 
such policies and procedures, including a full review at least 
annually, will be approximately 120 burden hours for each covered 
participant.\761\ Accordingly, the Commission estimated the initial 
aggregate annualized burden associated with Rule 906(c) to be 18,480 
burden hours, which corresponds to 336 burden hours per covered 
participant.\762\ The Commission estimated the ongoing aggregate 
annualized burden associated with Rule 906(c) to be 6,600 burden hours, 
which corresponds to 120 burden hours per covered participant.\763\
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    \759\ Only some participants of registered SDRs are subject to 
the requirements of Rule 906(c). As used in this release, any 
participant that is ``covered'' by Rule 906(c) is deemed a ``covered 
participant.''
    \760\ This figure is based on the estimated number of hours to 
develop a set of written policies and procedures, program systems, 
implement internal controls and oversight, train relevant employees, 
and perform necessary testing. See 80 FR at 14684.
    \761\ This figure includes an estimate of hours related to 
reviewing existing policies and procedures, making necessary 
updates, conducting ongoing training, maintaining internal controls 
systems, and performing necessary testing. See id.
    \762\ See id.
    \763\ See id.
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    In sum, the Commission in the Regulation SBSR Adopting Release 
estimated that the total initial aggregate annualized burden associated 
with Rule 906 will be 230,370 burden hours, and that the total ongoing 
aggregate annualized burden will be 217,370 burden hours for all 
participants.\764\
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    \764\ See id.
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2. Amendments to Rule 906
a. Rule 906(a)
    In this release, the Commission is making only a minor amendment to 
Rule 906(a) \765\ which does not affect the estimated number of 
respondents or the estimated burdens for existing respondents to the 
rule.
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    \765\ See supra note 312.
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    However, because of the amendments to Rule 901(a) adopted herein, 
the scope of transactions covered by Regulation SBSR is increasing. As 
a result, a registered SDR will have to review a larger number of 
transactions to assess whether there is missing UIC information. The 
Commission believes that the process whereby a registered SDR reviews 
transactions and generates the associated reports will be automated, 
and that the costs of performing this automated review will be 
approximately the same even if the review covers a larger set of 
transactions. Furthermore, although Rule 906(a) notices sent by a 
registered SDR could in some cases be longer because they cover more 
transactions, the amendments to Rule 901(a) will not increase the 
number of participants (4,800) to which the registered SDR will likely 
have to send such notices. Therefore, the Commission does not believe 
that the larger number of transactions will result in any burdens on 
registered SDRs under Rule 906(a) that were not already accounted for 
in the Regulation SBSR Adopting Release.\766\ Thus, the Commission

[[Page 53624]]

believes that its original burden estimates for registered SDRs to 
comply with Rule 906(a) remain appropriate.
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    \766\ The Commission estimated that a registered SDR will incur 
an initial, one-time burden of 112 hours to create a report template 
and develop the necessary systems and processes to produce a daily 
report required by Rule 906(a). The Commission also estimated that a 
registered SDR will incur an ongoing annualized burden of 308 hours 
to generate and issue the daily reports, and to enter into its 
systems the ID information supplied by participants in response to 
the daily reports. See Regulation SBSR Adopting Release, 80 FR at 
14684.
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    With respect to the 4,800 participants that will likely be required 
to provide missing UIC information to a registered SDR for at least 
some transactions, the Commission is revising its original estimate of 
the burdens imposed by Rule 906(a) because participants will have to 
provide missing UIC information for a larger number of transactions. 
Although a registered SDR's process for generating a Rule 906(a) notice 
is likely to be automated, at least some participants might rely on 
manual procedures to reply. In the Regulation SBSR Adopting Release, 
the Commission estimated that the initial and ongoing annualized burden 
under Rule 906(a) for all participants will be 199,728 burden hours, 
which corresponds to 41.6 burden hours per participant.\767\
---------------------------------------------------------------------------

    \767\ This figure is based on the Commission's estimates of (1) 
4,800 participants; and (2) approximately 1.14 transactions per day 
per participant. See id.
---------------------------------------------------------------------------

    The Commission continues to believe that there will be 
approximately one million additional reportable events under Regulation 
SBSR.\768\ Of these one million reportable events, the Commission 
estimates that approximately 120,000 platform-executed alphas reflected 
in estimates in the Regulation SBSR Adopting Release could have missing 
UIC information. Both sides of a platform-executed alpha might have to 
report missing UIC information since neither side is the reporting side 
and thus both sides are non-reporting sides. Therefore, the Commission 
believes that each participant, on average, will now be required to 
provide missing UIC information for 1.27 transactions each day.\769\ As 
a result, the Commission believes that the burden placed on each 
participant by Rule 906(a) will be 46.4 hours annually,\770\ for a 
total burden of 222,504 hours for all participants.
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    \768\ See Regulation SBSR Adopting Release, 80 FR at 14675-76.
    \769\ The Commission originally estimated that participants 
could have to provide missing UIC information for up to two million 
security-based swap transactions annually. This results in each 
participant, on average, having to provide missing information for 
1.14 transactions each day. As a result, the Commission originally 
estimated the total burden to be 199,728 hours, or 41.6 hours 
annually for each participant. See 80 FR at 14684. The Commission 
now believes that these same participants will be responsible for 
providing missing UIC information for a greater number of security-
based swap transactions. The Commission estimates: [(((2,000,000 
original estimate of annual security-based swap transactions for 
which mission UIC information would need to be provided to the SDR) 
+ ((120,000 additional security-based swap transactions for which 
UIC information is required) x (2 since both sides could be required 
to provide missing UIC information)))/4,800 participants)/(365 days/
year)] = 1.27 average security-based swap transactions per day for 
which each participant will need to provide missing UIC information.
    \770\ The Commission estimates that the total burden for all 
participants will be 222,504 calculated as follows: (1.27 missing 
information reports per day) x (365 days per year) x (Compliance 
Clerk at 0.1 hours/report) x (4,800 participants) = 222,504 hours/
year or 46.4 hours for each participant.
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b. Rule 906(b)--Amendments
    Existing Rule 906(b) requires each participant of a registered SDR 
to provide the registered SDR information sufficient to identify its 
ultimate parent(s) and any affiliate(s) of the participant that also 
are participants of the registered SDR, using ultimate parent IDs and 
participant IDs. In this release, the Commission is adopting amendments 
to Rule 906(b) to exclude from this reporting requirement participants 
that are platforms, registered clearing agencies, externally managed 
investment vehicles, and registered broker-dealers (including SB SEFs) 
that become participants of a registered SDR solely as a result of 
making a report to satisfy an obligation under Rule 
901(a)(2)(ii)(E)(4). Therefore, this amendment does not create any new 
respondents that have burdens under the rule or increase burdens for 
any existing respondents.
    Platforms and registered clearing agencies were not covered 
respondents to Rule 906(b) when the Commission estimated the burdens of 
Rule 906(b), as adopted in the Regulation SBSR Adopting Release. 
Therefore, the amendment to Rule 906(b) adopted today that specifically 
excludes them does not affect the Commission's estimate in the 
Regulation SBSR Adopting Release of the burdens associated with Rule 
906(b).
    However, externally managed investment vehicles were considered 
respondents of Rule 906(b), as adopted in the Regulation SBSR Adopting 
Release, and the estimated burdens on all participant respondents in 
that adopting release included burdens imposed on externally managed 
investment vehicles.\771\ Therefore, the amendment to Rule 906(b) 
adopted herein that excludes externally managed investment vehicles has 
the effect of reducing the number of respondents and the associated 
burdens of Rule 906(b) that the Commission estimated in the Regulation 
SBSR Adopting Release. Based on an analysis of TIW transaction data, 
the Commission believes that, of the 4,800 estimated participants, 
approximately 1,920 are externally managed investment vehicles.\772\ 
Therefore, the Commission now estimates that there are only 2,880 
participant respondents to Rule 906(b), as amended herein. In the 
Regulation SBSR Adopting Release, the Commission further estimated that 
each respondent to Rule 906(b) will submit two reports per year and 
that each report will result in one burden hour.\773\ The Commission 
continues to believe that each respondent will incur two burden hours 
per year in connection with Rule 906(b), but is reducing its estimate 
of total burden hours for all participants from 9,600 (estimated in the 
Regulation SBSR Adopting Release) to 5,760 (2,880 respondents x 2 
hours/respondent = 5,760 hours).
---------------------------------------------------------------------------

    \771\ See 80 FR at 14684.
    \772\ Roughly 40% of TIW accounts on average have been 
identified by staff as private funds or registered investment 
companies, 4,800 x 0.4 = 1,920.
    \773\ See id.
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c. Rule 906(c)--Amendments
i. Summary of Collection of Information
    Persons that are subject to Rule 906(c) must establish, maintain, 
and enforce written policies and procedures that are reasonably 
designed to ensure compliance with applicable security-based swap 
transaction reporting obligations. Respondents also must review and 
update their policies and procedures at least annually.
ii. Respondents
    The amendments to Rule 906(c) adopted today will extend the 
requirements of existing Rule 906(c) to registered clearing agencies, 
platforms, and registered broker-dealers that incur duties to report 
security-based swaps pursuant to Rule 901(a)(2)(ii)(E)(4). The 
Commission estimates that there will be 4 registered clearing agencies, 
10 platforms, and 20 registered broker-dealers that will become subject 
to Rule 906(c).
iii. Total Initial and Annual Reporting and Recordkeeping Burdens
    For Registered Clearing Agencies and Platforms. In the Regulation 
SBSR Proposed Amendments Release, the Commission preliminarily 
estimated that the one-time, initial burden for each registered 
clearing agency or platform to adopt written policies and procedures as 
required under the amendment to Rule 906(c) would be similar to the 
Rule 906(c) burdens for other covered

[[Page 53625]]

participants.\774\ In the Regulation SBSR Adopting Release, the 
Commission estimated that Rule 906(c) will impose a burden of 
approximately 216 hours on each registered security-based swap dealer 
or registered major security-based swap participant (together, 
``covered participants'').\775\ In addition, the Commission estimated 
that the burden of maintaining such policies and procedures, including 
a full review at least annually, will be approximately 120 burden hours 
for each covered participant.\776\ The Commission continues to believe 
that, by amending Rule 906(c) to apply the policies and procedures 
requirement to registered clearing agencies and platforms, these 
entities will face burdens similar to those of the existing covered 
participants. Accordingly, the Commission estimates that the initial 
aggregate annualized burden associated with the amendments to Rule 
906(c) will be 4,704 burden hours, which corresponds to 336 burden 
hours per registered clearing agency or platform.\777\ The Commission 
estimates that the ongoing aggregate annualized burden associated with 
the amendments to Rule 906(c) will be 1,680 burden hours, which 
corresponds to 120 burden hours per registered clearing agency or 
platform.\778\
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    \774\ See 80 FR at 14797.
    \775\ See id. This figure is based on the following: [(Sr. 
Programmer at 40 hours) + (Compliance Manager at 40 hours) + 
(Compliance Attorney at 40 hours) + (Compliance Clerk at 40 hours) + 
(Sr. Systems Analyst at 32 hours) + (Director of Compliance at 24 
hours)] = 216 burden hours per registered clearing agency or 
platform. This figure is based on the estimated number of hours to 
develop a set of written policies and procedures, program systems, 
implement internal controls and oversight, train relevant employees, 
and perform necessary testing.
    \776\ See id. This figure is based on the following: [(Sr. 
Programmer at 8 hours) + (Compliance Manager at 24 hours) + 
(Compliance Attorney at 24 hours) + (Compliance Clerk at 24 hours) + 
(Sr. Systems Analyst at 16 hours) + (Director of Compliance at 24 
hours)] = 120 burden hours per registered clearing agency or 
platform. This figure includes an estimate of hours related to 
reviewing existing policies and procedures, making necessary 
updates, conducting ongoing training, maintaining internal controls 
systems, and performing necessary testing.
    \777\ This figure is based on the following: [(216 + 120 burden 
hours) x (14 registered clearing agencies and platforms)] = 4,704 
burden hours.
    \778\ This figure is based on the following: [(120 burden hours) 
x (14 registered clearing agencies and platforms)] = 1,680 burden 
hours.
---------------------------------------------------------------------------

    For Registered Broker-Dealers. The amendments to Rule 906(c) will 
require each registered broker-dealer that becomes a participant solely 
as a result of incurring a reporting duty under Rule 
901(a)(2)(ii)(E)(4) (a ``respondent broker-dealer'') to establish, 
maintain, and enforce written policies and procedures that are 
reasonably designed to ensure compliance with applicable security-based 
swap transaction reporting obligations. The amendments to Rule 906(c) 
also will require each respondent broker-dealer to review and update 
such policies and procedures at least annually.
    In the U.S. Activity Proposal, the Commission preliminarily 
estimated that the one-time, initial burden for each respondent broker-
dealer to adopt written policies and procedures as required under the 
amendment to Rule 906(c) would be similar to the Rule 906(c) burdens 
for existing covered participants.\779\ In the Regulation SBSR Adopting 
Release, the Commission estimated that Rule 906(c) will impose a burden 
of approximately 216 hours on each covered participant.\780\ In 
addition, the Commission estimated that the burden of maintaining such 
policies and procedures, including a full review at least annually, 
will be approximately 120 burden hours for each covered 
participant.\781\ The Commission continues to believe that, by amending 
Rule 906(c) to impose the policies and procedures requirement on 
respondent broker-dealers, these entities will face burdens similar to 
those of other covered participants. Accordingly, the Commission 
estimates that the initial aggregate annualized burdens on respondent 
broker-dealers associated with the amendment to Rule 906(c) will be 
6,720 burden hours, which corresponds to 336 burden hours per 
respondent broker-dealer.\782\ The Commission estimates that the 
ongoing aggregate annualized burdens on all respondent broker-dealers 
associated with the amendments to Rule 906(c) will be 2,400 burden 
hours, which corresponds to 120 burden hours per respondent broker-
dealer.\783\
---------------------------------------------------------------------------

    \779\ See U.S. Activity Proposal, 80 FR at 27506.
    \780\ See supra note 775.
    \781\ See supra note 776.
    \782\ This figure is based on the following: (216 + 120 burden 
hours) x (20 respondent broker-dealers = 6,720 burden hours.
    \783\ This figure is based on the following: (120 burden hours) 
x (20 respondent broker-dealers) = 2,400 burden hours.
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3. Rule 906--Aggregate Total PRA Burdens and Costs
    Based on the foregoing, the Commission estimates the following 
aggregate total PRA burdens and costs, by category of entity, resulting 
from Rule 906. These figures add the burdens and costs estimated in the 
Regulation SBSR Adopting Release for the existing covered participants 
with the burdens and costs estimated for the additional covered 
participants resulting from the amendments to Rule 906(c) adopted 
herein.
a. For Platforms and Registered Clearing Agencies
    The Commission estimates that the one-time, initial burden for each 
registered clearing agency or platform to adopt written policies and 
procedures as required under the amendments to Rule 906(c) will be 
similar to the Rule 906(c) burdens discussed in the Regulation SBSR 
Adopting Release for covered participants, and will be approximately 
216 burden hours per registered clearing agency or platform.\784\ This 
figure is based on the estimated number of hours to develop a set of 
written policies and procedures, program systems, implement internal 
controls and oversight, train relevant employees, and perform necessary 
testing. In addition, the Commission estimates the burden of 
maintaining such policies and procedures, including a full review at 
least annually, as required by Rule 906(c), will be approximately 120 
burden hours for each registered clearing agency or platform.\785\ This 
figure includes an estimate of hours related to reviewing existing 
policies and procedures, making necessary updates, conducting ongoing 
training, maintaining internal controls systems, and performing 
necessary testing. Accordingly, the Commission estimates that the 
initial, or first year, aggregate annualized burden associated with the 
amendments to Rule 906(c) will be 4,704 burden hours, which corresponds 
to 336 burden hours per registered clearing agency or platform.\786\ 
The Commission estimates that the ongoing aggregate annualized burden 
associated with the amendments to Rule 906(c) will be 1,680 burden 
hours, which corresponds to 120 burden hours per registered clearing 
agency or platform.\787\
---------------------------------------------------------------------------

    \784\ See supra note 775.
    \785\ See supra note 776.
    \786\ See supra note 777.
    \787\ See supra note 778.
---------------------------------------------------------------------------

b. For Registered SDRs
    As a result of changes in other rules, registered SDRs will have to 
identify missing UIC information from a larger number of transactions 
and send more requests to non-reporting sides seeking such missing UIC 
information.
    In the Regulation SBSR Adopting Release, the Commission estimated 
that there will be a one-time, initial burden of 112 burden hours for 
each registered SDR to create a report template and develop the 
necessary systems and processes to produce a daily report

[[Page 53626]]

required by Rule 906(a), or 1,120 burden hours for all SDRs.\788\ The 
Commission believes that this estimate continues to be valid, as an 
SDR's initial investment in the infrastructure necessary to carry out 
its duties under Rule 906(a) should be unaffected by the precise number 
of transactions covered by Regulation SBSR.
---------------------------------------------------------------------------

    \788\ See 80 FR at 14683-85.
---------------------------------------------------------------------------

    In the Regulation SBSR Adopting Release, the Commission estimated 
that there will be an ongoing annualized burden of 308 burden hours for 
each registered SDR to generate and issue the daily reports, and to 
enter into its systems the UIC information supplied by participants in 
response to the daily reports, or 3,308 burden hours for all SDRs.\789\ 
Although the scope of security-based swap transactions covered by 
Regulation SBSR has increased, the Commission continues to believe that 
there will be an ongoing annualized burden of 308 burden hours for a 
registered SDR to generate and issue the daily reports, and to enter 
into its systems the UIC information supplied by participants in 
response to the daily reports.
---------------------------------------------------------------------------

    \789\ See id.
---------------------------------------------------------------------------

c. For Participants
    The Commission estimates that, as a result of the amendments 
adopted herein, the initial and ongoing annualized burden under Rule 
906(a) for all participants will be 222,504 burden hours, which 
corresponds to 46.4 burden hours per participant.\790\ The Commission 
notes that each participant will, on average, have to provide missing 
UIC information for more security-based swap transactions than it would 
have prior to the amendments adopted in this release. The revised 
estimates account for these additional transactions.
---------------------------------------------------------------------------

    \790\ See supra note 770 and accompanying text.
---------------------------------------------------------------------------

    In the Regulation SBSR Adopting Release, the Commission estimated 
that the initial and ongoing aggregate annualized burden associated 
with Rule 906(b) will be 9,600 burden hours, which corresponds to 2 
burden hours per participant.\791\ The amendment to Rule 906(b) does 
not create any new respondents or impose any new burdens on existing 
respondents, as the amendment excludes platforms, registered clearing 
agencies, registered broker-dealers, and externally managed investment 
vehicles from having to report ultimate parent and affiliate 
information to registered SDRs of which they are participants. 
Therefore, the Commission's estimate of the burdens imposed by Rule 
906(b) on individual participants remains unchanged. However, because 
of the exclusions discussed above, only 2,880 participants will be 
subject to the requirement of Rule 906(b). As a result, the aggregate 
annualized burden associated with Rule 906(b) will fall from 9,600 
hours (estimated in the Regulation SBSR Adopting Release) to 5,760 
hours.
---------------------------------------------------------------------------

    \791\ See Regulation SBSR Adopting Release, 80 FR at 14683-85. 
This figure is based on the following: [(Compliance Clerk at 0.5 
hours per report) x (2 reports/year/SDR connection) x (2 SDR 
connections/participant) x (4,800 participants)] = 9,600 burden 
hours, which corresponds to 2 burden hours per covered participant.
---------------------------------------------------------------------------

d. For New Broker-Dealer Respondents
    In this release, the Commission is adopting an amendment to Rule 
906(c) that extends the requirement to establish policies and 
procedures for carrying out reporting duties under Regulation SBSR to 
platforms, registered clearing agencies, and registered broker-dealers 
that incur a duty to report security-based swaps under new Rule 
901(a)(2)(ii)(E)(4). The Commission estimates 20 registered broker-
dealers will become subject to Rule 906(c). The Commission discussed 
the burdens placed upon platforms and registered clearing agencies as a 
result of the amendments to Rule 906(c) in Section XI(D)(3)(a), supra. 
The Commission believes that the per-respondent costs of establishing 
and updating the required policies will be the same for new broker-
dealer respondents identified in this release as well as the 
respondents identified in the Regulation SBSR Adopting Release, as 
discussed in Section XI(D)(1), supra. Therefore, the Commission 
estimates that the new broker-dealer respondents will incur a one-time, 
initial burden of 216 burden hours per new broker-dealer respondent, or 
6,480 hours for all new broker-dealer respondents, and an ongoing 
annual burden of 120 hours per new broker-dealer respondent, or 2,400 
hours for all new broker-dealer respondents.
e. Aggregate Rule 906 Burdens
    In sum, Rule 906(a) will place a total first-year burden on 
registered SDRs of 1,120 hours.\792\ Rule 906(a) will place a total 
annual burden on registered SDRs and covered participants of 269,384 
hours.\793\ Rule 906(b) will place a total annual burden on covered 
participants of 5,760 hours.\794\ Rule 906(c) will place a total first-
year burden on covered participants of 19,224 hours.\795\ Rule 906(c) 
will place a total annual burden on covered participants of 10,680 
hours.\796\ These figures combine the burdens associated with Rule 906 
estimated in the Regulation SBSR Adopting Release with the revisions to 
these burdens associated with the amendments to Rule 906 adopted 
herein.
---------------------------------------------------------------------------

    \792\ The Commission calculated this estimate as follows: (112 
hours (first year burden on SDRs as a result of Rule 906(a)) x 10 
SDRs) = 1,120 hours.
    \793\ The Commission calculated this estimate as follows: ((308 
hours (annual burden on SDRs as a result of Rule 906(a)) x 10 SDRs)) 
+ ((55.5 hours (annual burden on participants as a result of Rule 
906(a)) x 4,800 participants) = 269,384 hours.
    \794\ The Commission calculated this estimate as follows: (2 
hours (annual burden on participants as a result of Rule 906(b)) x 
2,880 revised number of participants impacted by Rule 906(b)) = 
5,760 hours.
    \795\ The Commission calculated this estimate as follows: (216 
hours (first-year burden on each respondent) x 89 respondents (i.e., 
55 registered security-based swap dealers + registered major 
security-based swap participants + 20 new broker-dealer respondents 
+ 14 platforms and registered clearing agencies) = 19,224 hours.
    \796\ The Commission calculated this estimate as follows: (120 
hours (annual burden per covered participants) x 89 covered 
participants) = 10,680 hours.
---------------------------------------------------------------------------

E. Policies and Procedures of Registered SDRs--Rule 907

1. Existing Rule 907
    Existing Rule 907(a) requires a registered SDR to establish and 
maintain written policies and procedures with respect to the receipt, 
reporting, and public dissemination of security-based swap transaction 
information. Existing Rule 907(c) requires a registered SDR to make its 
policies and procedures available on its Web site. Existing Rule 907(d) 
requires a registered SDR to review, and update as necessary, the 
policies and procedures that it is required to have by Regulation SBSR 
at least annually. Existing Rule 907(e) requires a registered SDR to 
provide to the Commission, upon request, information or reports related 
to the timeliness, accuracy, and completeness of data reported to it 
pursuant to Regulation SBSR and the registered SDR's policies and 
procedures established thereunder.
2. Rule 907--Amendments
    In this release, the Commission is making only one amendment to 
Rule 907: The Commission is revising Rule 907(a)(6) to carve out 
platforms, registered clearing agencies, externally managed investment 
vehicles, and registered broker-dealers (including SB SEFs) that become 
a participant of a registered SDR solely as a result of making a report 
to satisfy an obligation under Rule 901(a)(2)(ii)(E)(4) from the 
requirement in Rule 907(a)(6) that a registered SDR have policies and 
procedures for obtaining ultimate parent

[[Page 53627]]

and affiliate information from its participants, as contemplated by an 
amendment to Rule 906(b) adopted herein. The amendment to Rule 
907(a)(6) has the effect of preventing existing respondent SDRs from 
incurring additional burdens because they will not have to obtain 
ultimate parent and affiliate information from additional types of 
participants.
    However, amendments to other rules in Regulation SBSR will have the 
effect of requiring a registered SDR to expand its policies and 
procedures to cover additional types of reporting persons and 
additional types of reporting scenarios. For example, platforms and 
registered broker-dealers may now incur duties to report certain 
security-based swaps and are required to become participants of 
registered SDRs to which they report. In addition, a registered 
clearing agency also incurs the duty to report to the alpha SDR whether 
the clearing agency has accepted an alpha for clearing. Registered SDRs 
that record alpha transactions will have to expand their policies and 
procedures to be able to link the report of the original alpha 
transaction (which would be reported either by a reporting side or, if 
the alpha was platform-executed and will be submitted to clearing, by 
the platform) to the report of the clearing disposition, which would be 
submitted by the registered clearing agency.
3. Rule 907--Aggregate Total PRA Burdens and Costs
    In the Regulation SBSR Adopting Release, the Commission estimated 
that the one-time, initial burden for a registered SDR to adopt written 
policies and procedures as required under existing Rule 907 will be 
approximately 15,000 hours. In addition, the Commission estimated the 
annual burden of maintaining such policies and procedures, including a 
full review at least annually, making available its policies and 
procedures on the registered SDR's Web site, and information or reports 
on non-compliance (as required under Rule 907(e)) will be approximately 
30,000 hours for each registered SDR. The Commission estimated that the 
total initial annualized burden associated with Rule 907 will be 
approximately 45,000 hours per registered SDR, which corresponds to an 
initial annualized aggregate burden of approximately 450,000 
hours.\797\ The Commission further estimated that the ongoing 
annualized burden associated with Rule 907 will be approximately 30,000 
hours per registered SDR,\798\ which corresponds to an ongoing 
annualized aggregate burden of approximately 300,000 hours.\799\
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    \797\ This figure is based on the following: [((15,000 burden 
hours per registered SDR) + (30,000 burden hours per registered 
SDR)) x (10 registered SDRs)] = 450,000 initial annualized aggregate 
burden hours during the first year.
    \798\ See Regulation SBSR Adopting Release, 80 FR at 14685. This 
figure is based on the following: [(Sr. Programmer at 3,333 hours) + 
(Compliance Manager at 6,667 hours) + (Compliance Attorney at 10,000 
hours) + (Compliance Clerk at 5,000 hours) + (Sr. System Analyst at 
3,333 hours) + (Director of Compliance at 1,667 hours)] = 30,000 
burden hours per registered SDR.
    \799\ See Regulation SBSR Adopting Release, 80 FR at 14685-86. 
This figure is based on the following: [(30,000 burden hours per 
registered SDR) x (10 registered SDRs)] = 300,000 ongoing, 
annualized aggregate burden hours.
---------------------------------------------------------------------------

    As a result of amendments made to various provisions of Regulation 
SBSR in this release, registered SDRs will need to broaden the scope of 
the written policies and procedures that Rule 907 requires them to 
have.\800\ The Commission believes that a registered SDR's expansion of 
its policies and procedures in response to the amendments to Regulation 
SBSR adopted in this release represents an ``add-on'' to the burdens 
already calculated with respect to the SDR policies and procedures 
under existing Rule 907. The Commission estimates the incremental 
burden to be an additional 10% of the one-time and annual burdens 
estimated to result from existing Rule 907.
---------------------------------------------------------------------------

    \800\ For example, new Rule 901(e)(1)(ii) requires a registered 
clearing agency to report to the alpha SDR whether or not it has 
accepted the alpha for clearing. The alpha SDR must revise its 
policies and procedures to allow for the information from the 
registered clearing agency to be connected to the initial report of 
the alpha. See supra Section III(G). In addition, new Rule 902(c)(8) 
requires a registered SDR to avoid public dissemination of a 
security-based swap that has been rejected from clearing or rejected 
by a prime broker if the original transaction report has not yet 
been publicly disseminated. See supra Section III(J). A registered 
SDR must adjust its policies and procedures for public dissemination 
to comply with new Rule 902(c)(8).
---------------------------------------------------------------------------

    Accordingly, the Commission believes that the one-time, initial 
burden for a registered SDR to adopt written policies and procedures as 
required under Rule 907 will be approximately 16,500 hours.\801\ In 
addition, the Commission estimates the annual burden of maintaining 
such policies and procedures, including a full review at least 
annually, making available its policies and procedures on the 
registered SDR's Web site, and information or reports on non-
compliance, as required under Rule 907(e), will be approximately 33,000 
hours for each registered SDR.\802\ The Commission therefore estimates 
that the initial annualized burden associated with Rule 907 will be 
approximately 45,000 hours per registered SDR, which corresponds to an 
initial annualized aggregate burden of approximately 495,000 
hours.\803\ The Commission further estimates that the ongoing 
annualized burden associated with Rule 907 will be approximately 33,000 
hours per registered SDR, which corresponds to an ongoing annualized 
aggregate burden of approximately 330,000 hours.\804\
---------------------------------------------------------------------------

    \801\ This figure is calculated as follows: [15,000 one-time 
written policies and procedures development x (1.1)] = 16,500.
    \802\ This figure is calculated as follows: [(30,000 one-time 
written policies and procedures development x (1.1)] = 33,000.
    \803\ This figure is based on the following: [((16,500 burden 
hours per registered SDR) + (33,000 burden hours per registered 
SDR)) x (10 registered SDRs)] = 495,000 initial annualized aggregate 
burden hours during the first year.
    \804\ This figure is based on the following: [(33,000 burden 
hours per registered SDR) x (10 registered SDRs)] = 330,000 ongoing, 
annualized aggregate burden hours.
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F. Cross-Border Matters--Rule 908

1. Existing Rule 908
    Rule 908(a) defines when certain cross-border security-based swap 
transactions are subject to regulatory reporting and/or public 
dissemination. Rule 908(a), as adopted in the Regulation SBSR Adopting 
Release, covered security-based swaps consisting of only certain 
counterparty pairs. Existing Rule 908(a)(1)(i) provides that a 
security-based swap shall be subject to regulatory reporting and public 
dissemination if ``[t]here is a direct or indirect counterparty that is 
a U.S. person on either or both sides of the transaction,'' and 
existing Rule 908(a)(1)(ii) provides that a security-based swap shall 
be subject to regulatory reporting and public dissemination if ``[t]he 
security-based swap is submitted to a clearing agency having its 
principal place of business in the United States.'' Existing Rule 
908(a)(2) provides that a security-based swap not included within Rule 
908(a)(1) would be subject to regulatory reporting but not public 
dissemination ``if there is a direct or indirect counterparty on either 
or both sides of the transaction that is a registered security-based 
swap dealer or a registered major security-based swap participant.'' 
Rule 908(a), as adopted in the Regulation SBSR Adopting Release, did 
not otherwise address when an uncleared security-based swap involving 
only unregistered non-U.S. persons would be subject to regulatory 
reporting and/or public dissemination.

[[Page 53628]]

    Rule 908(b) defines when a person might incur obligations under 
Regulation SBSR. Existing Rule 908(b) provides that, notwithstanding 
any other provision of Regulation SBSR, a person shall not incur any 
obligation under Regulation SBSR unless it is a U.S. person, a 
registered security-based swap dealer, or a registered major security-
based swap participant.
    The Commission stated in the Regulation SBSR Adopting Release that 
Rules 908(a) and 908(b) do not impose any collection of information 
requirements and that, to the extent that a security-based swap 
transaction or a person is subject to Rule 908(a) or (b), respectively, 
the collection of information burdens are calculated as part of the 
underlying rule (e.g., Rule 901, which imposes the basic duty to report 
security-based swap transaction information).\805\
---------------------------------------------------------------------------

    \805\ See 80 FR at 14686.
---------------------------------------------------------------------------

    Existing Rule 908(c) sets forth the requirements for a substituted 
compliance request relating to regulatory reporting and public 
dissemination of security-based swaps in a particular foreign 
jurisdiction, and is the only part of Rule 908 to impose paperwork 
burdens. Rule 908(c) is not being amended by this release. In the 
Regulation SBSR Adopting Release, the Commission estimated that it will 
receive approximately ten substituted compliance requests in the first 
year and two requests each subsequent year.\806\ The total paperwork 
burden associated with submitting a request for a substituted 
compliance determination with respect to regulatory reporting and 
public dissemination will be approximately 1,120 hours, plus $1,120,000 
for 14 estimated requests.\807\ In the Regulation SBSR Adopting 
Release, the Commission estimated that it would receive ten requests in 
the first year resulting in an aggregated burden for the first year of 
800 hours, plus $800,000 for the services of outside 
professionals.\808\ The Commission further estimates that it would 
receive two requests in each subsequent year resulting in an aggregate 
annual burden, after the first year, of up to 160 hours of company time 
and $160,000 for the services of outside professionals.\809\
---------------------------------------------------------------------------

    \806\ See id.
    \807\ See id. at 14687.
    \808\ See id.
    \809\ See id.
---------------------------------------------------------------------------

2. Rule 908--Amendments
    The Commission today is adopting amendments to Rule 908(a) to 
subject additional types of security-based swap transactions to 
regulatory reporting and public dissemination under Regulation SBSR, 
and amendments to Rule 908(b) to clarify that additional types of 
persons may incur duties under Regulation SBSR. However, these 
amendments do not themselves impose any paperwork burdens. Additional 
paperwork burdens caused by increasing the number of respondents or by 
increasing the burdens imposed on respondents are considered under the 
rule that imposes the substantive duties. The Commission is not 
amending Rule 908(c) herein.
3. Rule 908--Aggregate Total Burdens and Costs
    Because the only part of Rule 908 that imposes any paperwork 
burdens is paragraph (c), the Commission's estimate from the Regulation 
SBSR Adopting Release of the total paperwork burden associated with 
Rule 908(c) remains approximately 1,120 hours, plus $1,120,000 for 14 
substituted compliance requests.\810\ The Commission continues to 
believe that the first-year aggregated burden will be 800 hours, plus 
$800,000 for the services of outside professionals, and that the 
aggregate burden for each year following the first year will be up to 
160 hours of company time and $160,000 for the services of outside 
professionals.\811\
---------------------------------------------------------------------------

    \810\ See id.
    \811\ See id.
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G. Additional PRA Discussion

1. Use of Information
    The security-based swap transaction information that is required by 
the amendments to Regulation SBSR adopted herein will be used by 
registered SDRs, market participants, the Commission, and other 
relevant authorities. The information reported by respondents pursuant 
to the amendments to Regulation SBSR adopted herein will be used by 
registered SDRs to publicly disseminate reports of security-based swap 
transactions, as well as to offer a resource for the Commission and 
other relevant authorities to obtain detailed information about the 
security-based swap market. Market participants also will use the 
information about these transactions that is publicly disseminated, 
among other things, to assess the current market for security-based 
swaps and any underlying and related securities, and to assist in the 
valuation of their own positions. The Commission and other relevant 
authorities will use information about security-based swap transactions 
reported to and held by registered SDRs to monitor and assess systemic 
risks, as well as to examine for and consider whether to take 
enforcement action against potentially abusive trading behavior, as 
appropriate.
    The policies and procedures required under the amendments to 
Regulation SBSR will be used by participants to aid in their compliance 
with Regulation SBSR, and also used by the Commission as part of its 
ongoing efforts to monitor and enforce compliance with the federal 
securities laws, including Regulation SBSR, through, among other 
things, examinations and inspections.
2. Recordkeeping Requirements
    Apart from the duty to report certain transaction information, 
Regulation SBSR does not impose any recordkeeping requirement on 
reporting sides.
    Security-based swap transaction information received by a 
registered SDR pursuant to Regulation SBSR is subject to Rule 13n-
5(b)(4) under the Exchange Act,\812\ which requires an SDR to maintain 
such information for not less than five years after the applicable 
security-based swap expires and historical positions for not less than 
five years. Rule 13n-7(b) under the Exchange Act \813\ requires the SDR 
to keep and preserve at least one copy of all documents, including all 
documents and policies and procedures required by the Exchange Act and 
the rules or regulations thereunder, for a period of not less than five 
years, the first two years in a place that is immediately available to 
representatives of the Commission for inspection and examination. The 
Commission does not believe that the amendments to Regulation SBSR 
adopted herein will have any impact on the PRA burdens of registered 
SDRs related to recordkeeping as they were already accounted for in the 
SDR Adopting Release.\814\
---------------------------------------------------------------------------

    \812\ 17 CFR 240.13n-5(b)(4).
    \813\ 17 CFR 240.13n-7(b).
    \814\ See 80 FR at 14523-24 (discussing the burdens associated 
with the recordkeeping requirements of Rules 13n-5(b)(4) and 13n-
7(b)).
---------------------------------------------------------------------------

    The Commission has proposed recordkeeping requirements for 
registered clearing agencies \815\ and SB SEFs.\816\ The amendments to 
Regulation SBSR adopted herein do not impose any recordkeeping 
requirements on registered clearing agencies or platforms.
---------------------------------------------------------------------------

    \815\ See Securities Exchange Act Release No. 64017 (March 3, 
2011), 76 FR 14472 (March 16, 2011) (``Clearing Agency Standards for 
Operation and Governance Proposing Release'').
    \816\ See Securities Exchange Act Release No. 63825 (February 2, 
2011), 76 FR 10948 (February 29, 2011) (``SB SEF Proposing 
Release'').

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[[Page 53629]]

3. Collection of Information Is Mandatory
    Each collection of information discussed above is mandatory.
4. Confidentiality of Responses to Collection of Information
    An SDR, pursuant to Section 13(n)(5)(F) of the Exchange Act \817\ 
and Rules 13n-4(b)(8) and 13n-9 thereunder,\818\ is required to 
maintain the privacy of the security-based swap transaction information 
that it receives. For the majority of security-based swap transactions, 
the information collected pursuant to Rule 901(c) by a registered SDR 
will be publicly disseminated. Furthermore, to the extent that 
information previously reported and publicly disseminated is corrected, 
such information also will be widely available. However, certain 
security-based swaps are not subject to Rule 902's public dissemination 
requirement; therefore, information about these transactions will not 
be publicly available. For all security-based swaps, the information 
collected pursuant to Rule 901(d) is for regulatory purposes and will 
not generally be available to the public, although the Commission or 
Commission staff may make available statistics or aggregated data 
derived from these transaction reports. To the extent that the 
Commission receives confidential information pursuant to this 
collection of information, such information would be kept confidential, 
subject to the provisions of applicable law.
---------------------------------------------------------------------------

    \817\ 15 U.S.C. 78m(n)(5)(F).
    \818\ 17 CFR 240.13n-4(b)(8) and 240.13n-9.
---------------------------------------------------------------------------

XII. Economic Analysis

    The Dodd-Frank Act amended the Exchange Act, among other things, to 
require regulatory reporting and public dissemination of security-based 
swap transactions. Regulation SBSR, which the Commission adopted in 
February 2015, implements this mandate. At the same time that it 
adopted Regulation SBSR, the Commission proposed additional rules and 
guidance to address issues that were not resolved in the Regulation 
SBSR Adopting Release.\819\ Later, in April 2015, the Commission issued 
the U.S. Activity Proposal, which (among other things) proposed further 
amendments to Regulation SBSR to address the reporting and public 
dissemination of additional types of cross-border security-based 
swaps.\820\ In this release, the Commission is adopting, with certain 
revisions, the amendments to Regulation SBSR contained in the 
Regulation SBSR Proposed Amendments Release and the U.S. Activity 
Proposal.
---------------------------------------------------------------------------

    \819\ See supra note 6.
    \820\ See supra note 7.
---------------------------------------------------------------------------

    The Commission is sensitive to the economic consequences and 
effects, including costs and benefits, of its rules. Some of these 
costs and benefits stem from statutory mandates, while others are 
affected by the discretion exercised in implementing these mandates. 
The following economic analysis identifies and considers the benefits 
and costs that could result from the amendments adopted herein. The 
Commission also discusses the potential economic effects of certain 
alternatives to the approach taken by these amendments. To the extent 
applicable, the views of commenters relevant to the Commission's 
analysis of the economic effects, costs, and benefits of these 
amendments are included in the discussion below.

A. Programmatic Costs of Amendments to Regulation SBSR

    In this section, the Commission discusses the programmatic costs 
and benefits associated with the amendments to Regulation SBSR adopted 
in this release. This discussion includes a summary of and response to 
comments relating to the Commission's initial analysis of the costs and 
benefits associated with these amendments.
1. Programmatic Costs of Newly Adopted Requirements
    New Rule 901(a)(2)(i) provides that the reporting side for a 
clearing transaction is the registered clearing agency that is a direct 
counterparty to the clearing transaction, and allows the registered 
clearing agency to select the SDR. New Rule 901(a)(3) requires any 
person that has a duty to report a security-based swap that has been 
submitted to clearing at a registered clearing agency to promptly 
provide that registered clearing agency with the transaction ID of the 
submitted security-based swap and the identity of the registered SDR to 
which the transaction will be reported or has been reported. These 
amendments to Rule 901 will impose initial and ongoing costs on 
platforms, registered clearing agencies, and reporting entities. These 
costs will be a function of the number of additional events reportable 
as a result of these amendments and the number of data elements 
required to be submitted for each additional reportable event.\821\
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    \821\ This release considers only the events that must be 
reported as a result of the amendments to Rule 901 being adopted 
today. In the Regulation SBSR Adopting Release, the Commission 
estimated the number of reportable events that will result from the 
rules adopted in that release and the associated costs. See 
generally 80 FR at 14700-704.
---------------------------------------------------------------------------

a. For Platforms and Registered Clearing Agencies
    The Commission believes that platforms and registered clearing 
agencies, when carrying out duties to report security-based swaps, will 
generally incur the same infrastructure costs that reporting sides 
face. Like a reporting side, a platform or registered clearing agency 
must: (1) Develop a transaction processing system; (2) implement a 
reporting mechanism; and (3) establish an appropriate compliance 
program and support for the operation of the transaction processing 
system.\822\ Once platforms and registered clearing agencies have 
established the infrastructure to report security-based swap 
transactions, reportable events will be reported through electronic 
means and the marginal cost of reporting an additional transaction once 
the infrastructure to support the reporting function has been 
established should be de minimis. The Commission continues to estimate 
that there will be ten platforms and four registered clearing agencies 
that will incur duties to report security-based swap transactions under 
the amendments to Rule 901 adopted herein.
---------------------------------------------------------------------------

    \822\ See id. at 14701.
---------------------------------------------------------------------------

    For platforms, the costs of reporting infrastructure consist of 
start-up costs in the first year and ongoing costs each year 
thereafter. For each platform, the estimated start-up costs include: 
(1) $102,000 for the initial set-up of the reporting infrastructure to 
carry out duties under Rule 901; \823\ (2) $200,000 for establishing 
connectivity to a registered SDR; \824\ (3) $49,000 for developing, 
testing, and supporting a reporting mechanism for security-based swap 
transactions; \825\ (4) $77,000 for

[[Page 53630]]

order management costs; \826\ (5) $1,000 for data storage costs; \827\ 
(6) $54,000 for designing and implementing an appropriate compliance 
and support program; \828\ and (7) $38,500 for maintaining the 
compliance and support program.\829\ Therefore, the Commission 
estimates total start-up costs of $521,500 per platform and $5,215,000 
for all platforms.\830\
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    \823\ This estimate is based on the following: [((Sr. Programmer 
(160 hours) at $303 per hour) + (Sr. Systems Analyst (160 hours) at 
$260 per hour) + (Compliance Manager (10 hours) at $283 per hour) + 
(Director of Compliance (5 hours) at $446 per hour) + (Compliance 
Attorney (20 hours) at $334 per hour))] = approximately $102,000 per 
platform. All hourly cost figures are based upon data from SIFMA's 
Management & Professional Earnings in the Securities Industry 2013 
(modified by Commission staff to account for an 1,800-hour work-year 
and multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead). See also Regulation SBSR Proposed 
Amendments Release, 80 FR at 14775-76.
    \824\ The Commission derived the total estimated expense from 
the following: ($100,000 hardware- and software related expenses, 
including necessary backup and redundancy, per SDR connection) x (2 
SDR connections per platform) = $200,000 per platform. See also 
Regulation SBSR Proposed Amendments Release, 80 FR at 14776.
    \825\ This figure is calculated as follows: [((Sr. Programmer 
(80 hours) at $303 per hour) + (Sr. Systems Analyst (80 hours) at 
$260 per hour) + (Compliance Manager (5 hours) at $283 per hour) + 
(Director of Compliance (2 hours) at $446 per hour) + (Compliance 
Attorney (5 hours) at $334 per hour))] = approximately $49,000 per 
platform. See also Regulation SBSR Proposed Amendments Release, 80 
FR at 14776.
    \826\ This estimate is based on the following: [((Sr. Programmer 
(32 hours) at $303 per hour) + (Sr. Systems Analyst (32 hours) at 
$260 per hour) + (Compliance Manager (60 hours) at $283 per hour) + 
(Compliance Clerk (240 hours) at $64 per hour) + (Director of 
Compliance (24 hours) at $446 per hour) + (Compliance Attorney (48 
hours) at $334 per hour)))] = approximately $77,000 per platform. 
See also Regulation SBSR Proposed Amendments Release, 80 FR at 
14776.
    \827\ This estimate is calculated as follows: [$250/gigabyte of 
storage capacity x (4 gigabytes of storage)] = $1,000 per platform. 
See also Regulation SBSR Proposed Amendments Release, 80 FR at 
14776.
    \828\ This figure is calculated as follows: [((Sr. Programmer 
(100 hours) at $303 per hour) + (Sr. Systems Analyst (40 hours) at 
$260 per hour) + (Compliance Manager (20 hours) at $283 per hour) + 
(Director of Compliance (10 hours) at $446 per hour) + (Compliance 
Attorney (10 hours) at $334 per hour)] = approximately $54,000 per 
platform. See also Regulation SBSR Proposed Amendments Release, 80 
FR at 14776.
    \829\ This figure is calculated as follows: [((Sr. Programmer 
(16 hours) at $303 per hour) + (Sr. Systems Analyst (16 hours) at 
$260 per hour) + (Compliance Manager (30 hours) at $283 per hour) + 
(Compliance Clerk (120 hours) at $64 per hour) + (Director of 
Compliance (12 hours) at $446 per hour) + (Compliance Attorney (24 
hours) at $334 per hour)] = approximately $38,500 per platform. See 
also Regulation SBSR Proposed Amendments Release, 80 FR at 14776.
    \830\ For each platform, the start-up cost is obtained by 
summing up its components = $102,000 + $200,000 + $49,000 + $77,000 
+ $1,000 + $54,000 + $38,500 = $521,500. The start-up cost for all 
platforms = 10 platforms x $521,500 = $5,215,000.
---------------------------------------------------------------------------

    The Commission estimates that the amendments to Rule 901 being 
adopted today also will require each platform to incur the following 
ongoing costs: (1) $200,000 for maintaining connectivity to a 
registered SDR; \831\ (2) $77,000 for order management costs; (3) 
$1,000 for data storage costs; and (4) $38,500 for maintaining its 
compliance and support program. Therefore, the total estimated ongoing 
cost per year is $316,500 per platform, and $3,165,000 for all 
platforms.\832\
---------------------------------------------------------------------------

    \831\ For each platform, the Commission estimates the cost of 
maintaining connectivity to an SDR to be the same as the cost of 
establishing connectivity to a registered SDR.
    \832\ For each platform, the on-going cost per year is obtained 
by summing up its components = $200,000 + $77,000 + $1,000 + $38,500 
= $316,500. The ongoing cost per year for all platforms = 10 
platforms x $316,500 = $3,165,000.
---------------------------------------------------------------------------

    The Commission estimates that a registered clearing agency will 
have the same reporting infrastructure cost components as a platform, 
except that the costs to a registered clearing agency will be 
marginally higher because Rule 901(e)(1)(ii), as adopted herein, 
imposes a burden on registered clearing agencies that does not apply to 
platforms.\833\ Although a registered clearing agency might not 
otherwise establish connectivity to an alpha SDR, the registered 
clearing agency will have to establish connectivity to alpha SDRs to 
comply with new Rule 901(e)(1)(ii). Accordingly, the Commission 
estimates that each registered clearing agency will connect to four 
registered SDRs.\834\
---------------------------------------------------------------------------

    \833\ Rule 901(e)(1)(ii) requires a registered clearing agency 
to report whether or not it has accepted an alpha for clearing to 
the alpha SDR. See supra Section III(G).
    \834\ Cf. supra Section XII(A)(1)(a) (estimating that each 
platform will connect to only two registered SDRs).
---------------------------------------------------------------------------

    For each registered clearing agency, the estimated start-up costs 
consist of: (1) $102,000 for the initial setting-up of the reporting 
infrastructure to carry out duties under Rule 901; (2) $400,000 for 
establishing connectivity to a registered SDR; \835\ (3) $49,000 for 
developing, testing, and supporting a reporting mechanism for security-
based swap transactions; (4) $77,000 for order management costs; (5) 
$1,000 for data storage costs; (6) $54,000 for designing and 
implementing an appropriate compliance and support program; and (7) 
$38,500 for maintaining its compliance and support program. Therefore, 
the total estimated start-up cost is $721,500 per registered clearing 
agency and $2,886,000 in aggregate for all registered clearing 
agencies.\836\
---------------------------------------------------------------------------

    \835\ The Commission derived the total estimated expense for 
registered clearing agencies as ($100,000 hardware- and software-
related expenses, including necessary backup and redundancy, per SDR 
connection) x (4 SDR connections per registered clearing agency) = 
$400,000 per registered clearing agency. See Regulation SBSR 
Proposed Amendments Release, 80 FR at 14776 (estimating the 
hardware- and software-related expenses per SDR connection at 
$100,000).
    \836\ For each registered clearing agency, the start-up cost is 
obtained by summing up its components = $102,000 + $400,000 + 
$49,000 + $77,000 + $1,000 + $54,000 + $38,500 = $683,000. The 
start-up cost for all registered clearing agencies = 4 registered 
clearing agencies x $721,500 = $2,886,000. These figures represent 
an estimate of the costs to a registered clearing agency to be fully 
onboarded with a registered SDR to allow reporting of all of the 
primary and secondary trade information associated with security-
based swaps, as reporting sides are required to report. To the 
extent that a registered clearing agency must report to a registered 
SDR only alpha clearing dispositions and not entire transaction 
reports, the cost incurred by the clearing agency to carry out such 
reporting could be less. Regulation SBSR does not require full 
onboarding with an alpha SDR to report the limited number of data 
elements necessary to convey whether or not the clearing agency has 
accepted a particular alpha for clearing.
---------------------------------------------------------------------------

    For each registered clearing agency, the ongoing estimated annual 
costs consist of: (1) $400,000 for maintaining connectivity to a 
registered SDR; \837\ (2) $77,000 for order management costs; (3) 
$1,000 for data storage costs; and (4) $38,500 for maintaining its 
compliance and support program. Therefore, the Commission estimates the 
ongoing cost per year as $516,500 per registered clearing agency and 
$2,066,000 for all registered clearing agencies.\838\
---------------------------------------------------------------------------

    \837\ The Commission estimates that a registered clearing 
agency's cost of maintaining connectivity to an SDR is the same as 
the registered clearing agency's cost of establishing connectivity 
to an SDR.
    \838\ The ongoing cost per year is obtained by summing up its 
components = $400,000 + $77,000 + $1,000 + $38,500 = $516,500. The 
ongoing cost per year for all registered clearing agencies = 4 
registered clearing agencies x $516,500 = $2,066,000.
---------------------------------------------------------------------------

    The Commission previously estimated, using available transaction 
data from TIW, that there will be approximately 3 million transaction 
events per year related to security-based swaps, including the 
execution of new transactions and various types of life cycle 
events.\839\ The Commission also estimated that Rule 901(a), as adopted 
in the Regulation SBSR Adopting Release, will require approximately 2 
million of those events to be reported under Regulation SBSR.\840\ In 
the Regulation SBSR Proposed Amendments Release, the Commission further 
estimated that the proposed amendments to Rule 901 would subject 
another 1 million events to a reporting requirement. This estimate of 1 
million reportable events included platform-executed security-based 
swaps that will be submitted to clearing, all clearing transactions, 
and all life cycle events associated with such transactions. 
Specifically, the Commission estimates that platforms will be 
responsible for the reporting of approximately 120,000 of the 1 million 
additional reportable events per year.\841\ Since a platform must 
report only the security-based swaps executed on the platform that will 
be submitted to clearing, the Commission estimates that essentially all 
120,000 platform-executed alphas will be terminated. The Commission 
estimates that there will be approximately 760,000 reportable events 
per year that are clearing transactions or life cycle events associated 
with clearing transactions.\842\
---------------------------------------------------------------------------

    \839\ See Regulation SBSR Proposed Amendments Release, 80 FR at 
14776.
    \840\ See id.
    \841\ See supra Section XI(B)(2)(b)(iv).
    \842\ See id.

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[[Page 53631]]

    The Commission estimates that platforms will be responsible for 
reporting approximately 120,000 security-based swaps per year, at an 
annual cost of approximately $45,300 or $4,530 per platform,\843\ and 
that registered clearing agencies will be responsible for reporting 
approximately 760,000 reportable events at an annual cost of 
approximately $286,900 or $71,725 per registered clearing agency.\844\ 
The Commission believes that all reportable events that will be 
reported by platforms and registered clearing agencies pursuant to the 
amendments to Rule 901(a) will be reported through electronic means.
---------------------------------------------------------------------------

    \843\ The Commission estimates: ((120,000 x 0.005 hours per 
transaction)/(10 platforms)) = 60 hours per platform, or 600 total 
hours. The Commission further estimates the total cost to be: 
[((Compliance Clerk (30 hours) at $64 per hour) + (Sr. Computer 
Operator (30 hours) at $87 per hour)) x (10 platforms)] = 
approximately $45,300, or $4,530 per platform. See also Regulation 
SBSR Proposed Amendments Release, 80 FR at 14777.
    \844\ The Commission estimates: ((760,000 x 0.005 hours per 
transaction)/(4 registered clearing agencies)) = 950 hours per 
registered clearing agency, or 3,800 total hours. The Commission 
further estimates the total cost to be: [((Compliance Clerk (475 
hours) at $64 per hour) + (Sr. Computer Operator (475 hours) at $87 
per hour)) x (4 registered clearing agencies)] = $286,900, or 
$71,725 per registered clearing agency. See also Regulation SBSR 
Proposed Amendments Release, 80 FR at 14777, which estimates the 
time taken to process a transaction at 0.005 hours, the hourly rate 
of a Compliance Clerk at $64 per hour, and the hourly rate of a Sr. 
Computer Operator at $87 per hour.
---------------------------------------------------------------------------

    In the Regulation SBSR Adopting Release, the Commission stated 
that, to the extent that security-based swaps become more standardized 
and trade more frequently on electronic platforms (rather than 
manually), the act of reporting transactions to a registered SDR should 
become less costly.\845\ Together, these trends are likely to reduce 
the number of transactions that necessitate the manual capture of 
bespoke data elements, which is likely to take more time and be more 
expensive than electronic capture of standardized transactions. New 
Rules 901(a)(1) and (a)(2)(i), respectively, assign reporting duties to 
clearing transactions and platform-executed security-based swaps that 
will be submitted to clearing. To the extent that registered clearing 
agencies make standardized security-based swaps available for clearing 
and platforms make standardized security-based swaps available for 
trading, the reporting of transactions covered by Rules 901(a)(1) and 
(a)(2)(i) should be less costly on average than the reporting of 
bespoke security-based swaps.
---------------------------------------------------------------------------

    \845\ See 80 FR at 14703.
---------------------------------------------------------------------------

    One commenter argued that the incremental costs of assigning the 
reporting obligation to the alpha reporting side would be small 
compared to the costs associated with registered clearing agencies 
incurring the reporting duty and having to establish connectivity to 
alpha SDRs.\846\ The Commission estimates that a registered clearing 
agency will connect to four registered SDRs as a result of Rule 
901(e)(1)(ii),\847\ but that, in the absence of this rule, a registered 
clearing agency, like a platform, would connect to only two registered 
SDRs.\848\ Thus, the Commission estimates that a registered clearing 
agency has to connect to two additional alpha SDRs as a result of new 
Rule 901(e)(1)(ii). The estimated cost of establishing connectivity to 
two SDRs is $200,000, and the estimated annual cost of maintaining 
connectivity to two SDRs is $200,000.\849\ The estimated aggregate cost 
of establishing connectivity to alpha SDRs is $800,000, and the 
estimated aggregate annual cost of maintaining connectivity to alpha 
SDRs is $800,000. The Commission estimates that the costs to the alpha 
reporting side of reporting the initial alpha transaction are an upper 
bound estimate of the costs of assigning the duty to report clearing 
dispositions of alphas to the alpha reporting side.\850\ To estimate 
the costs to the alpha reporting side of reporting the initial alpha 
transaction, the Commission assumes that the total annual number of 
platform-executed alpha transactions that will be submitted for 
clearing is 120,000.\851\ The Commission estimates the costs to the 
alpha reporting sides of reporting the initial alpha transactions to be 
the same as the platforms' costs of reporting the 120,000 platform-
executed alpha transactions. Thus, the aggregate reporting costs are 
approximately $45,300 per year,\852\ which represent an upper bound 
estimate of the costs of assigning the reporting obligation to the 
alpha reporting side.
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    \846\ See supra Section III(G).
    \847\ See supra Section XII(A)(1)(a).
    \848\ See id.
    \849\ The cost of establishing SDR connectivity is estimated as 
($100,000 hardware- and software-related expenses, including 
necessary backup and redundancy, per SDR connection) x (2 SDR 
connections per registered clearing agency) = $200,000 per 
registered clearing agency. See also Regulation SBSR Adopting 
Release, 80 FR at 14701. The Commission estimates that a registered 
clearing agency's cost of maintaining connectivity to two alpha SDRs 
is the same as the registered clearing agency's cost of establishing 
connectivity to two alpha SDRs. These costs do not represent new 
compliance costs. They are part of the start-up and ongoing costs 
incurred by a registered clearing agency to comply with the 
amendments to Rule 901 adopted today and discussed in Section 
XII(A)(1)(a), supra. The estimated aggregate cost of establishing 
connectivity to alpha SDRs is ($200,000 alpha SDR connectivity cost 
per registered clearing agency) x (4 registered clearing agencies) = 
$800,000. The estimated aggregate annual cost of maintaining 
connectivity to alpha SDRs is ($200,000 alpha SDR connectivity 
maintenance cost per registered clearing agency) x (4 registered 
clearing agencies) = $800,000.
    \850\ The costs of reporting the initial alpha trade form an 
upper bound estimate because the initial alpha trade report likely 
requires more data elements to be captured and transmitted than 
would a report of whether the alpha trade has been accepted for 
clearing.
    \851\ See supra Section XII(A)(1)(a).
    \852\ See id.
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    The Commission recognizes that its estimate of the costs that an 
alpha reporting side would incur to report whether a security-based 
swap was accepted for clearing are lower than its estimate of the cost 
that a registered clearing agency would incur in order to establish 
connectivity to alpha SDRs to meet the same regulatory obligation under 
Rule 901(e)(1)(ii). Nevertheless, the Commission is adopting Rule 
901(e)(1)(ii) as proposed because, as explained above, this approach is 
likely to efficiently support data quality at registered SDRs. 
Accordingly, the Commission believes that the approach reflected in 
newly adopted Rule 901(e)(1)(ii) is appropriate even in light of the 
costs. The Commission notes that existing Rule 901(c)(6) requires 
reporting of an indication whether the direct counterparties intend 
that a security-based swap will be submitted to clearing so that this 
information will appear in the transaction records of the alpha SDR. 
The Commission believes that requiring reporting to the alpha SDR of 
whether or not a registered clearing agency accepts the alpha for 
clearing will facilitate the Commission's ability to measure 
outstanding bilateral exposures, including exposures to registered 
clearing agencies.
    Moreover, the Commission's determination that the clearing agency 
to which the security-based swap is submitted for clearing should be 
required to report the disposition of the alpha rather than the alpha 
reporting side (or a platform, in the case of a platform-executed 
alpha) is designed to improve the integrity of information about 
cleared security-based swaps. The Commission believes that centralizing 
responsibility for reporting this information in a small number of 
registered clearing agencies rather than a larger number of alpha 
reporting sides and platforms minimizes the likelihood of orphan 
alphas. The adopted approach should facilitate the ability of alpha 
SDRs to match clearing disposition reports with the original alpha 
transaction reports and help the Commission to obtain a more accurate 
view of the exposures of counterparties that intended to clear 
transactions. A

[[Page 53632]]

more accurate view of the exposures of counterparties will enable the 
Commission to conduct robust monitoring of the security-based swap 
market for potential risks to financial markets and financial market 
participants.\853\
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    \853\ See Regulation SBSR Adopting Release 80 FR at 14700.
---------------------------------------------------------------------------

    Furthermore, Rule 901(e)(1)(ii) is consistent with the Commission's 
approach of assigning the reporting obligation for a transaction to the 
person with the most complete and efficient access to the required 
information at the point of creation. The registered clearing agency 
determines whether to accept an alpha for clearing and controls the 
precise moment when the transaction is cleared; the Commission 
believes, therefore, that the clearing agency is best placed to report 
the result of its decision. If the alpha reporting side were required 
to report whether or not the alpha has been accepted for clearing, it 
would first need to learn this information from the registered clearing 
agency.\854\ As the Commission noted in Section III(B), supra, a rule 
that required reporting by a person who lacks direct access, at the 
time of creation, to the information that must be reported would 
increase the risks of data discrepancies, errors, or delays. 
Accordingly, for the same reasons that the Commission is assigning to 
registered clearing agencies the duty to report all clearing 
transactions, the Commission also believes that it is more efficient to 
require a registered clearing agency to report to the alpha SDR whether 
or not the clearing agency has accepted the alpha for clearing.
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    \854\ The commenter who advocated that the duty to report 
whether or not the transaction has been accepted for clearing should 
be given to the reporting side of the alpha acknowledged that the 
alpha reporting side must rely on the clearing agency to provide 
information about the disposition of any transaction submitted to 
clearing. See LCH.Clearnet Letter at 9-10.
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b. For Platforms and Reporting Sides of Alphas
    Under new Rule 901(a)(3), a person who has a duty to report an 
alpha transaction also is required to promptly provide the registered 
clearing agency with the transaction ID of the alpha transaction and 
the identity of the registered SDR to which the transaction will be or 
has been reported.
    Reporting sides and platforms are likely already to have in place 
the infrastructure needed to report security-based swaps to a 
registered clearing agency, as voluntary clearing of standardized 
single-name CDS has become a significant feature of the existing 
security-based swap market in the United States. Furthermore, as 
additional platforms enter the security-based swap market, it is likely 
that they also will seek to establish connectivity to one or more 
registered clearing agencies, as there are market incentives to clear 
platform-executed security-based swaps and platforms will likely seek 
to offer their participants the ability to transmit information about 
platform-executed transactions directly to a clearing agency. Thus, the 
Commission does not believe that new Rule 901(a)(3) will require 
additional infrastructure or connectivity that otherwise would not 
exist.
    However, Rule 901(a)(3) will require persons with the duty to 
report alphas to provide two additional data elements--the transaction 
ID of the alpha and the name of the alpha SDR--to the registered 
clearing agency. The Commission believes that persons who submit 
security-based swap transactions to registered clearing agencies will 
comply with Rule 901(a)(3) by including these two data elements along 
with all of the other transaction data submitted to the clearing 
agency. The Commission estimates that the one-time cost for developing 
the ability to report these two data elements will be $2,815 per 
reporting person, and the additional one-time burden related to the 
implementation of a reporting mechanism for these two data elements 
will be $1,689 per reporting person.\855\ The Commission believes that 
the additional ongoing cost related to the development of the ability 
to capture the relevant transaction information will be $2,815 per 
reporting person and the additional ongoing burden related to the 
maintenance of the reporting mechanism will be $563 per reporting 
person.\856\
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    \855\ The Commission estimates the cost of developing the 
ability to capture the alpha's transaction ID and the alpha SDR as: 
[(Sr. Programmer (5 hours at $303 per hour) + Sr. Systems Analyst (5 
hours) at $260 per hour) = $2,815 per platform or reporting side. 
The Commission estimates the cost of implementing the reporting 
mechanism as: (Sr. Programmer (3 hours) at $303 per hour + Sr. 
Systems Analyst (3 hours) at $260 per hour) = $1,689 per platform or 
reporting side.
    \856\ The Commission estimates the additional ongoing 
development cost as (Sr. Programmer (5 hours at $303 per hour) + Sr. 
Systems Analyst (5 hours at $260 per hour)) = $2,815 per platform or 
reporting side. The Commission estimates the ongoing maintenance 
cost as (Sr. Programmer (1 hour at $303 per hour) + Sr. Systems 
Analyst (1 hour at $260 per hour)) = $563 per platform or reporting 
side.
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c. Total Costs of Platforms, Registered Clearing Agencies, and 
Reporting Sides Relating to Amendments to Rule 901
    Summing these costs,\857\ the Commission estimates that the 
initial, first-year costs of complying with the amendments to Rule 901 
(including the initial reporting and the reporting of any life cycle 
events) will be $5,260,300, which corresponds to $526,030 per 
platform.\858\ The Commission estimates that the ongoing aggregate 
annual costs, after the first year, of complying with the amendments to 
Rule 901 (including the initial reporting and the reporting of any life 
cycle events) will be $3,210,300, which corresponds to $321,030 per 
platform.\859\
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    \857\ In the Regulation SBSR Proposed Amendments Release, 
platforms' initial, first-year costs and ongoing aggregate annual 
costs included costs incurred under Rule 901(a)(3). In this release, 
platforms' initial, first-year costs and ongoing aggregate annual 
costs do not include costs incurred under Rule 901(a)(3). Instead, 
platforms' Rule 901(a)(3) costs have been added to the Rule 
901(a)(3) costs of the 300 reporting sides to estimate the initial, 
first-year and ongoing aggregate annual costs of Rule 901(a)(3) for 
300 reporting sides and 10 platforms.
    \858\ This estimate is based on the following: (($102,000 + 
$200,000 + $49,000 + $77,000 + $54,000 + $1,000 + $38,500 + $4,530) 
x (10 platforms)) = $5,260,300 which corresponds to $526,030 per 
platform.
    \859\ This estimate is based on the following: (($200,000 + 
$77,000 + $1,000 + $38,500 + $4,530) x (10 platforms)) = $3,210,300, 
or $321,030 per platform.
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    For registered clearing agencies, the Commission estimates that the 
initial, first-year costs of complying with the amendments to Rule 901 
(including the initial reporting and the reporting of any life cycle 
events) will be $3,172,900, which corresponds to $793,225 per 
registered clearing agency.\860\ The Commission estimates that the 
ongoing aggregate annual costs, after the first year, of complying with 
the amendments to Rule 901 (including the initial reporting and the 
reporting of any life cycle events) will be $2,352,900, which 
corresponds to $588,225 per registered clearing agency.\861\
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    \860\ This estimate is based on the following: (($102,000 + 
$400,000 + $49,000 + $77,000 + $54,000 + $1,000 + $38,500 + $71,725) 
x (4 registered clearing agencies)) = $3,172,900, which corresponds 
to $793,225 per registered clearing agency.
    \861\ This estimate is based on the following: (($400,000 + 
$77,000 + $1,000 + $38,500 + $71,725) x (4 registered clearing 
agencies)) = $2,352,900, or $588,225 per registered clearing agency.
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    For compliance with new Rule 901(a)(3), the Commission estimates 
that the initial, first-year costs of complying will be $1,396,240, 
which corresponds to $4,504 per respondent.\862\ The

[[Page 53633]]

Commission estimates that the ongoing aggregate annual costs, after the 
first year, of complying with Rule 901(a)(3) will be $1,047,180, which 
corresponds to $3,378 per respondent.\863\
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    \862\ This estimate is based on the following: ($2,815 + $1,689) 
x 310 (300 reporting sides + 10 platforms)) = $1,396,240, which 
corresponds to $4,504 per respondent. In the Regulation SBSR 
Proposed Amendments Release, the estimate only included the one-time 
cost related to the development of the ability to capture the 
relevant transaction information ($2,815). The estimation has been 
revised to also include the one-time cost of implementing a 
reporting mechanism for the transaction information ($1,689).
    \863\ This estimate is based on the following: (($2,815 + $563) 
x 310 (300 reporting sides + 10 platforms)) = $1,047,180, or $3,378 
per respondent. In the Regulation SBSR Proposed Amendments Release, 
the estimate only included the ongoing cost related to the 
development of the ability to capture the relevant transaction 
information ($2,815). The estimation has been revised to also 
include the ongoing cost of implementing a reporting mechanism for 
the transaction information ($563).
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d. Reporting by Unregistered Persons
    As noted in Section IX(G), supra, the amendments to existing Rule 
901(a)(2)(ii)(E) that are being adopted today expand the reporting 
hierarchy to assign the duty to report additional cross-border 
transactions when there is no registered person on either side. As 
under existing Rule 901, the reporting side, as determined by the 
reporting hierarchy, is required to submit the information required by 
Rule 901.
    Under newly adopted Rule 901(a)(2)(ii)(E)(2), in a transaction 
between an unregistered U.S. person and an unregistered foreign dealing 
entity that is engaging in ANE activity, the sides are required to 
select which side is the reporting side. Also under Rule 
901(a)(2)(ii)(E)(2), if both sides are unregistered non-U.S. persons 
and both are engaging in ANE activity, the sides would be required to 
select the reporting side. In both scenarios, both sides would be 
subject to Rule 908(b) and thus the Commission could impose reporting 
duties on either side.
    Newly adopted Rule 901(a)(2)(ii)(E)(3) addresses the scenario where 
one side is subject to Rule 908(b) and the other side is not--i.e., one 
side includes only unregistered non-U.S. persons that do not engage in 
any ANE activity. When the other side includes an unregistered U.S. 
person or an unregistered foreign dealer that is engaging in ANE 
activity, the side with the unregistered U.S. person or the 
unregistered foreign dealing entity would be the reporting side.\864\
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    \864\ While Rules 901(a)(2)(ii)(E)(2)-(3) admit the possibility 
that some of these unregistered persons are U.S. persons, the 
Commission does not expect unregistered U.S. persons to be 
responsible for reporting a significant amount of additional 
transaction under Rules 901(a)(2)(ii)(E)(2)-(3). In current market 
practice, larger, more sophisticated participants assume reporting 
duties. As a result, in cases where an unregistered U.S. person and 
a non-U.S. person engaged in dealing activity in the United States 
select the reporting side, the reporting duty is likely to be 
assigned to the non-U.S. person. See supra Section IX(G)(2)(a).
---------------------------------------------------------------------------

    In the Regulation SBSR Adopting Release,\865\ the Commission 
estimated that 300 respondents will incur reporting duties under 
Regulation SBSR, of which 50 are likely to register as security-based 
swap dealers and five are likely to register as major security-based 
swap market participants. Unregistered persons covered by new Rules 
901(a)(2)(ii)(E)(2) and (3) are already included in the remaining 
subset of 245 respondents that are not likely to register as security-
based swap dealers or major security-based swap participants. Because 
the Commission had already accounted for the programmatic costs of 
building reporting infrastructure and reporting security-based swap 
transactions incurred by these 300 respondents in the Regulation SBSR 
Adopting Release,\866\ Rules 901(a)(2)(ii)(E)(2) and (3) will not 
result in additional programmatic costs associated with reporting 
infrastructure or transaction reporting. Two commenters noted that 
requiring the reporting of ANE transactions would place burdens on 
unregistered entities that do not have reporting infrastructure in 
place and would be compelled to engage third-party providers to report 
transactions.\867\ The Commission acknowledges that the reporting of 
ANE transactions will place burdens on unregistered entities, but in 
only a limited number of cases. The Commission estimates that the 
initial aggregate annual costs associated with Rule 901 will be 
approximately $2,096,000, which corresponds to approximately $524,000 
per unregistered entity.\868\ The Commission estimates that the ongoing 
aggregate annual costs associated with Rule 901 will be approximately 
$1,276,000, which corresponds to approximately $319,000 per 
unregistered entity.\869\ As discussed earlier, these programmatic 
costs are part of the programmatic costs associated with Rule 901 that 
were accounted for in the Regulation SBSR Adopting Release. 
Unregistered foreign dealing entities could fulfil their reporting 
obligations by incurring the programmatic costs of building reporting 
infrastructure and reporting security-based swap transactions. 
Alternatively, these entities could engage with third-party service 
providers to carry out any reporting duties incurred under Regulation 
SBSR.\870\ The Commission disagrees with the commenters that 
unregistered entities would use third-party service providers without 
considering alternatives. Though the Commission does not have specific 
information on the pricing of third-party reporting services on which 
to base estimates of the cost of engaging third-parties to provide 
reporting services, the Commission notes that unregistered entities 
will likely choose the method of compliance that they deem to be most 
cost efficient. Thus, the Commission assumes that unregistered entities 
would engage third-party service providers only if they provide 
services at costs less than the programmatic costs of Rule 901 
estimated above.
---------------------------------------------------------------------------

    \865\ See 80 FR at 14674.
    \866\ See id. at 14701-702.
    \867\ See ISDA I at 11; SIFMA/FSR Letter at 13.
    \868\ The initial cost estimates are based on the following: 
$524,000 x 4 unregistered entities = $2,096,000, which corresponds 
to $524,000 per unregistered entity. See Regulation SBSR Adopting 
Release, 80 FR at 14702. The four unregistered entities are the 
estimated number of unregistered foreign dealing entities that will 
engage in ANE activity. See supra Section II(A)(4)(d). The 
Commission assumes that unregistered U.S. persons that fall under 
Rules 901(a)(2)(ii)(E)(2) and (3) will not assume reporting duties. 
See supra Section IX(G)(2)(a).
    \869\ The ongoing cost estimates are based on the following: 
$319,000 x 4 unregistered entities = $1,276,000, which corresponds 
to $319,000 per unregistered entity. See id. for a discussion of the 
assumptions underlying the calculations.
    \870\ The Commission does not have data with which to estimate 
the costs of using third-party service providers to carry out 
reporting duties incurred under Regulation SBSR. The two commenters 
did not provide such cost estimates in their letters. See ISDA I at 
11; SIFMA/FSR Letter at 13).
---------------------------------------------------------------------------

    Under new Rule 901(a)(2)(ii)(E)(4), a registered broker-dealer 
would incur the duty to report a security-based swap that is effected 
by or through that broker-dealer only when neither side includes a 
person that falls within Rule 908(b)(5). The Commission estimates that 
a maximum of 20 registered broker-dealers, excluding registered SB 
SEFs, will incur this reporting duty and will report 540 security-based 
swap transactions per year. Unlike the unregistered counterparties 
covered by Rules 901(a)(2)(ii)(E)(2) and (3), these 20 registered 
broker-dealers were not part of the 300 respondents the Commission 
estimated in the Regulation SBSR Adopting Release. Therefore, by 
subjecting the 20 registered broker-dealers to Regulation SBSR, new 
Rule 901(a)(2)(ii)(E)(4) adds new programmatic costs associated with 
reporting infrastructure.
    The Commission estimated the costs of reporting on a per-entity 
basis in the Regulation SBSR Adopting Release and has no reason to 
believe that these per-entity costs are substantially different

[[Page 53634]]

for different types of entities.\871\ Therefore, the Commission is 
applying these per-entity costs to estimate the Rule 901 programmatic 
costs for the 20 registered broker-dealers.\872\
---------------------------------------------------------------------------

    \871\ See id.
    \872\ One commenter argued that Rule 901(a)(2)(ii)(E)(4) ``would 
create a disproportionate burden on registered broker-dealers 
relative to the small percentage of the market that these 
transactions compromise.'' SIFMA/FSR Letter at 14. The Commission 
notes that many registered broker-dealers may already have order 
management systems in place to facilitate voluntary reporting of 
security-based swap transactions or clearing activity. As a result, 
any additional costs related to systems and infrastructure will be 
limited to those broker-dealers that either invest in new systems or 
must upgrade existing systems to meet minimum requirements for 
reporting. To the extent that the cost estimates discussed here do 
not take this cost limiting fact into account, they are an upper 
bound for the estimated costs. See Regulation SBSR Adopting Release, 
80 FR at 14701.
---------------------------------------------------------------------------

    For a registered broker-dealer, the cost of reporting 
infrastructure consists of start-up cost in the first year and, 
thereafter, ongoing annual costs. For each registered broker-dealer, 
the start-up cost is broken down into: (1) $102,000 for the initial 
set-up of the reporting infrastructure to carry out duties under Rule 
901; (2) $200,000 for establishing connectivity to a registered SDR; 
(3) $49,000 for developing, testing, and supporting a reporting 
mechanism for security-based swap transactions; (4) $77,000 for order 
management costs; (5) $1,000 for data storage costs; (6) $54,000 for 
designing and implementing an appropriate compliance and support 
program; and (7) $38,500 for maintaining the compliance and support 
program.\873\ Therefore, the total start-up cost is $521,500 per 
registered broker-dealer and $10,430,000 in aggregate, across all 
registered broker-dealers.\874\
---------------------------------------------------------------------------

    \873\ See supra Section XII(A)(1)(a).
    \874\ For each registered broker-dealer, the start-up cost is 
obtained by summing up its components = $102,000 + $200,000 + 
$49,000 + $77,000 + $1,000 + $54,000 + $38,500 = $521,500. The 
start-up cost for all registered broker-dealers = 20 registered 
broker-dealers x $521,500 = $10,430,000.
---------------------------------------------------------------------------

    For each registered broker-dealer, the ongoing annual cost consists 
of: (1) $200,000 for maintaining connectivity to a registered SDR; 
\875\ (2) $77,000 for order management costs; (3) $1,000 for data 
storage costs; and (4) $38,500 for maintaining its compliance and 
support program. Therefore, the ongoing cost per year is $316,500 per 
registered broker-dealer, and $6,330,000 for all registered broker-
dealers.\876\ In the Regulation SBSR Adopting Release,\877\ the 
Commission estimated that there will be 3 million reportable events per 
year under Rule 901. Of the 3 million events, 2 million are not 
clearing transactions. The transactions that will be reported by 
registered broker-dealers as a result of new Rule 901(a)(2)(ii)(E)(4) 
were assessed by the Commission as part of the 2 million non-clearing 
transactions. The Commission already accounted for the cost of 
reporting the 2 million non-clearing transactions in the Regulation 
SBSR Adopting Release.
---------------------------------------------------------------------------

    \875\ See supra Section XII(A)(1)(a).
    \876\ For each registered broker-dealer, the on-going cost per 
year is obtained by summing up its components = $200,000 + $77,000 + 
$1,000 + $38,500 = $316,500. The on-going cost per year for all 
registered broker-dealers is estimated to be (20 registered broker-
dealers x $316,500) = $6,330,000.
    \877\ See Regulation SBSR Adopting Release, 80 FR at 14676.
---------------------------------------------------------------------------

2. Amendments to Rule 905(a)
    The amendments to Rule 905(a) adopted herein provide that any 
counterparty or other person having a duty to report a security-based 
swap that discovers an error in information previously reported 
pursuant to Regulation SBSR must correct such error in accordance with 
the procedures laid out in Rule 905(a). As the Commission noted in the 
Regulation SBSR Adopting Release, requiring participants to promptly 
correct erroneous transaction information should help ensure that the 
Commission and other relevant authorities have an accurate view of the 
risks in the security-based swap market.
    In the Regulation SBSR Adopting Release, the Commission estimated 
that Rule 905(a) will impose an initial, one-time burden associated 
with designing and building a reporting side's reporting system to be 
capable of submitting amended security-based swap transaction 
information to a registered SDR.\878\ The Commission stated its belief 
that designing and building appropriate reporting system functionality 
to comply with Rule 905(a)(2) will be a component of, and represent an 
incremental ``add-on'' to, the cost to build a reporting system and 
develop a compliance function as required under Rule 901.\879\ 
Specifically, the Commission estimated that, based on discussions with 
industry participants, the incremental burden will be equal to 5% of 
the one-time and annual burdens associated with designing and building 
a reporting system that is in compliance with Rule 901, plus 10% of the 
corresponding one-time and annual burdens associated with developing 
the reporting side's overall compliance program required under Rule 
901.\880\ This estimate was based on similar calculations contained in 
the Regulation SBSR Proposing Release,\881\ updated to reflect new 
estimates relating to the number of reportable events and the number of 
reporting sides.\882\
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    \878\ See 80 FR at 14714.
    \879\ See id.
    \880\ See id.
    \881\ See 75 FR at 75254.
    \882\ See Regulation SBSR Adopting Release, 80 FR at 14701-702.
---------------------------------------------------------------------------

    The Commission continues to believe that the above methodology is 
applicable to error reporting by platforms and registered clearing 
agencies under the amendment to Rule 905(a). Thus, for these new 
respondents, the Commission estimates that Rule 905(a) will impose an 
initial (first-year) aggregate cost of $165,550, or $11,825 per 
respondent,\883\ and an ongoing aggregate annualized cost of $55,650, 
which is $3,975 per respondent.\884\
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    \883\ See Regulation SBSR Proposing Release, 75 FR at 75254-55. 
This figure is calculated as follows: [((($49,000 for one-time 
development of reporting system) x (0.05)) + (($2,500 annual 
maintenance of reporting system) x (0.05)) + (($54,000 one-time 
compliance program development) x (0.1)) + (($38,500 annual support 
of compliance program) x (0.1))) x 14 reporting entities (10 
platforms + 4 registered clearing agencies)] = $165,550, which is 
$11,825 per platform or registered clearing agency.
    \884\ See Regulation SBSR Proposing Release, 75 FR at 75254-55. 
This figure is calculated as follows: [(($2,500 annual maintenance 
of reporting system) x (0.05)) + (($38,500 annual support of 
compliance program) x (0.1))) x 14 reporting entities (10 platforms 
+ 4 registered clearing agencies)] = $55,650, which is $3,975 per 
platform or registered clearing agency.
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    The Commission estimates that four unregistered foreign dealing 
entities will engage in ANE activity and incur a duty to report as a 
result of new Rules 901(a)(2)(ii)(E)(2) and (3).\885\ These 
unregistered persons also will incur costs associated with error 
reporting under Rule 905. As noted in Section XII(A)(1)(d), supra, 
these unregistered persons are part of the subset of 300 respondents 
that were identified in the Regulation SBSR Adopting Release as not 
likely to register as security-based swap dealers or major security-
based swap participants. Because the Commission already accounted for 
the programmatic costs of building and maintaining error reporting 
capabilities incurred by these 300 respondents in the Regulation SBSR 
Adopting Release,\886\ the amendments to Rule 905(a) will not result in 
additional programmatic costs for the four unregistered persons.
---------------------------------------------------------------------------

    \885\ See supra Section II(A)(4)(d) for a discussion of how 
these dealing entities are identified in the TIW data.
    \886\ See 80 FR at 14714.
---------------------------------------------------------------------------

    The Commission estimates that 20 registered broker-dealers, 
excluding SB SEFs, will incur a duty to report security-based swap 
transactions because of new Rule

[[Page 53635]]

901(a)(2)(ii)(E)(4).\887\ Thus, these registered broker-dealers are 
subject to the amendment to Rule 905(a) adopted herein and will incur 
costs associated with error reporting.
---------------------------------------------------------------------------

    \887\ See supra Section XII(A)(1)(d).
---------------------------------------------------------------------------

    The Commission continues to believe that the cost estimation 
methodology previously applied in the Regulation SBSR Adopting Release 
is applicable to error reporting by registered broker-dealers.\888\ 
Thus, for registered broker-dealers, the Commission estimates that the 
amendment to Rule 905(a) will impose an initial (first-year) aggregate 
cost of $236,500, or $11,825 per respondent,\889\ and an ongoing 
aggregate annualized cost of $79,500, or $3,975 per respondent.\890\
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    \888\ See 80 FR at 14714.
    \889\ See Regulation SBSR Proposing Release, 75 FR at 75254-55. 
This figure is calculated as follows: [((($49,000 for one-time 
development of reporting system) x (0.05)) + (($2,500 annual 
maintenance of reporting system) x (0.05)) + (($54,000 one-time 
compliance program development) x (0.1)) + (($38,500 annual support 
of compliance program) x (0.1))) x 20 registered broker-dealers] = 
$236,500, which is $11,825 per registered broker-dealer.
    \890\ See Regulation SBSR Proposing Release, 75 FR at 75254-55. 
This figure is calculated as follows: [(($2,500 annual maintenance 
of reporting system) x (0.05)) + (($38,500 annual support of 
compliance program) x (0.1))) x 20 registered broker-dealers] = 
$79,500, which is $3,975 per registered broker-dealer.
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    Rule 905(a)(1) as amended herein states that, if a person that was 
not the reporting side for a security-based swap transaction discovers 
an error in the information reported with respect to such security-
based swap, that person shall promptly notify the person having the 
duty to report the security-based swap of the error. Clients of 
registered broker-dealers likely will incur costs, because Rule 
905(a)(1) requires them to notify registered broker-dealers of errors 
in transaction reports made by the registered broker-dealers pursuant 
to Rule 901(a)(2)(ii)(E)(4). As stated in Section XII(A)(1)(d), supra, 
the Commission estimates that registered broker-dealers will incur the 
duty to report 540 security-based swap transactions per year under Rule 
901(a)(2)(ii)(E)(4). Assuming that each of the 540 transactions is 
reported in error, the upper bound estimate of the annual cost 
associated with this obligation is approximately $17,280, which 
corresponds to roughly $576 per respondent.\891\
---------------------------------------------------------------------------

    \891\ These figures are based on the assumption that 
approximately 540 additional security-based swap transactions per 
year will have to be reported by registered broker-dealers pursuant 
to Rule 901(a)(2)(ii)(E)(4), and that these trades involve 30 
entities with reporting duties. Using cost estimated provided in the 
Regulation SBSR Adopting Release, if each trade is reported in 
error, then the aggregate annual cost of error notification is 540 
errors x Compliance Clerk at $64 per hour x 0.5 hours per report = 
$17,280, or $576 per participant. See Regulation SBSR Adopting 
Release, 80 FR at 14714. Salary figures are taken from SIFMA's 
Management & Professional Earnings in the Securities Industry 2013, 
modified to account for a 1,800-hour work-week and multiplied by 
5.35 to account for bonuses, firm size, employee benefits, and 
overhead.
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3. Amendments to Rule 906(c)
    Existing Rule 906(c) requires each participant of a registered SDR 
that is a registered security-based swap dealer or registered major 
security-based swap participant to establish, maintain, and enforce 
written policies and procedures that are reasonably designed to ensure 
compliance with any security-based swap transaction reporting 
obligations in a manner consistent with Regulation SBSR. Rule 906(c) 
also requires each such participant to review and update the required 
policies and procedures at least annually. The amendment to Rule 906(c) 
adopted herein extends these same requirements to participants of a 
registered SDR that are platforms, registered clearing agencies, and 
registered broker-dealers.
    The Commission continues to believe that the cost estimation 
methodology previously applied in the Regulation SBSR Adopting Release 
is applicable to the adoption and maintenance of policies and 
procedures.\892\ Thus, for registered clearing agencies and platforms, 
the Commission estimates that the amendments to Rule 906(c) will impose 
an initial (first-year) aggregate cost of $1,288,000, or $92,000 per 
registered clearing agency or platform,\893\ and an ongoing aggregate 
annualized cost of $476,000, or $34,000 per registered clearing agency 
or platform.\894\ In addition, for registered broker-dealers likely to 
become participants solely as a result of making a report to satisfy an 
obligation under Rule 901(a)(2)(ii)(E)(4) (a ``respondent broker-
dealer''), the Commission estimates that the amendments to Rule 906(c) 
will impose an initial (first-year) aggregate cost of $1,840,000, or 
$92,000 per respondent broker-dealer,\895\ and an ongoing aggregate 
annualized cost of $680,000, or $34,000 per respondent broker-
dealer.\896\ The Commission does not believe that the amendments to 
Rule 906(c) will impose any economic costs beyond the paperwork burdens 
described herein and in Section XI(D)(2)(c), supra.
---------------------------------------------------------------------------

    \892\ See Regulation SBSR Adopting Release, 80 FR at 14716.
    \893\ See id. This figure is based on the following: [(($58,000 
for one time developing of written policies and procedures) + 
($34,000 for annual updates to policies and procedures)) x 14 
registered clearing agencies and platforms] = $1,288,000, which is 
$92,000 per registered clearing agency or platform.
    \894\ See Regulation SBSR Adopting Release, 80 FR at 14716. This 
figure is based on the following: [($34,000 for annual updates to 
policies and procedures) x 14 registered clearing agencies and 
platforms] = $476,000, which is $34,000 per registered clearing 
agency or platform.
    \895\ See Regulation SBSR Adopting Release, 80 FR at 14716. This 
figure is based on the following: [(($58,000 for one time developing 
of written policies and procedures) + ($34,000 for annual updates to 
policies and procedures)) x 20 respondent broker-dealers] = 
$1,840,000, which is $92,000 per respondent broker-dealer.
    \896\ See Regulation SBSR Adopting Release, 80 FR at 14716. This 
figure is based on the following: [($34,000 for annual updates to 
policies and procedures) x 20 respondent broker-dealers] = $680,000, 
which is $34,000 per respondent broker-dealer.
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4. Amendments That Subject Additional Cross-Border Security-Based Swaps 
to Regulation SBSR
a. ANE Transactions Involving Unregistered Entities
    New Rule 908(a)(1)(v) provides that any security-based swap 
transaction connected with a non-U.S. person's security-based swap 
dealing activity that is arranged, negotiated, or executed by U.S. 
personnel is subject to regulatory reporting and public dissemination 
under Regulation SBSR.
    Several commenters expressed concern about the complexities and 
expense of implementing the adopted rules.\897\ One commenter stated 
there would be significant costs associated with reporting because 
market participants that have already designed and implemented 
reporting systems based on the CFTC's cross-border guidance and the 
rules of other jurisdictions would need to modify their systems to 
comply with the Commission's proposed rules.\898\
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    \897\ See IIB Letter at 16 (stating that regulatory reporting of 
transactions where neither reporting side includes a U.S. person, 
guaranteed affiliate, or registered security-based swap dealer would 
come with significant cost); ISDA I at 11 (stating that expanding 
the reporting requirements to non-U.S. trades would be burdensome 
and costly); SIFMA-AMG I at 2 (stating that requiring the reporting 
of transactions that were arranged, negotiated or executed in the 
United States would increase the transactional burdens on ``an 
already taxed system''); SIFMA/FSR Letter at 12 (taking the view 
that monitoring for conduct in the United States and building the 
infrastructure needed for reporting based purely on conduct will be 
an unnecessary expense for security-based swap market participants 
since the information being added to the public dissemination stream 
would not be informative or could give a distorted view of market 
prices and would result in data at SDRs that has minimal U.S. 
nexus).
    \898\ See IIB Letter at 16. The commenter stated that, to modify 
its systems in connection with the U.S. personnel test, a non-U.S. 
dealing entity (including one operating below the de minimis 
threshold) ``would need to install or modify a trade capture system 
capable of tracking, on a dynamic, trade-by-trade basis, the 
location of front-office personnel. The non-U.S. SBSD would then 
need to feed that data into its reporting system and re-code that 
system to account for the different rules that apply to non-U.S. SBS 
depending on whether they are arranged, negotiated or executed by 
U.S. personnel. The non-U.S. SBSD would also need to train its front 
office personnel in the use of this new trade capture system and 
develop policies, procedures, and controls to require, track, and 
test the proper use of that system. In addition, the non-U.S. SBSD 
would need to seek and obtain waivers from non-U.S. counterparties--
to the extent such waivers are even permitted--with respect to 
privacy, blocking and secrecy laws in local jurisdictions.'' Id. In 
the U.S. Activity Adopting Release, the Commission addressed 
generally the costs that firms would incur as a result of firms 
having to register as security-based swap dealers. See 81 FR at 
8629-31.

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[[Page 53636]]

    The Commission agrees that market participants will incur costs to 
comply with the reporting requirements of Rule 908(a)(1)(v). However, 
the Commission notes that all ANE transactions where a U.S. person is 
on one side as either a direct or indirect counterparty are already 
subject to regulatory reporting under the rules adopted in the 
Regulation SBSR Adopting Release. Thus, only a small number of ANE 
transactions--which the Commission estimates will result in at most 
1,080 reportable events per year--will be subject to regulatory 
reporting as a result of new Rule 908(a)(1)(v); accordingly, the 
attendant costs of complying with Rule 908(a)(1)(v) will also be 
relatively small. The Commission understands that market participants 
may have to incur costs to modify their existing reporting systems to 
comply with the Commission's rules.\899\ However, to the extent that 
these rules and rules in other jurisdictions require the collection of 
the same or similar information, the system modification costs will be 
minimized.\900\
---------------------------------------------------------------------------

    \899\ See IIB Letter at 16.
    \900\ See supra Section II(A)(6).
---------------------------------------------------------------------------

    The Commission believes that the reporting and public dissemination 
of all ANE transactions will provide benefits to the Commission and 
relevant authorities and to market participants. The Commission also 
believes that requiring the public dissemination of these transactions 
could help to increase price competition and price efficiency in the 
security-based swap market and enable all market participants to have 
more comprehensive information with which to make trading and valuation 
determinations. Publicly disseminating these transactions also could 
reduce implicit transaction costs.\901\ In addition, the amendments 
being adopted today reflect the Commission's assessment of the impact 
that the scope of security-based swap transactions subject to 
regulatory reporting may have on the ability of the Commission and 
other relevant authorities to detect emerging risks and abusive trading 
in the security-based swap market. Regulatory reporting of these 
transactions to a registered SDR should enhance the Commission's 
ability to oversee relevant activity related to security-based swap 
dealing occurring within the United States as well as to monitor market 
participants for compliance with specific Title VII requirements 
(including the requirement that a person register with the Commission 
as a security-based swap dealer if it exceeds the de minimis 
threshold).\902\ The reporting of these transactions also will enhance 
the Commission's ability to monitor manipulative and abusive practices 
involving security-based swap transactions or transactions in related 
underlying assets, such as corporate bonds or other securities 
transactions that result from dealing activity, or other relevant 
activity, in the U.S. market.\903\
---------------------------------------------------------------------------

    \901\ See U.S. Activity Proposal, 80 FR at 27483-84.
    \902\ See id. at 27483.
    \903\ See id.
---------------------------------------------------------------------------

b. Transactions Executed on a Platform or By or Through a Registered 
Broker-Dealer
    New Rule 908(a)(1)(iii) requires any security-based swap 
transaction that is executed on a platform having its principal place 
of business in the United States both to be reported to a registered 
SDR and to be publicly disseminated pursuant to Regulation SBSR. New 
Rule 908(a)(1)(iv) requires the reporting and public dissemination of 
any security-based swap transaction that is effected by or through a 
registered broker-dealer (including a registered SB SEF). The 
Commission notes that many security-based swaps that are executed on 
platforms or by or through a registered broker-dealer are already 
subject to Regulation SBSR because they meet one or both prongs of 
existing Rule 908(a)(1)--i.e., there is a direct or indirect 
counterparty that is a U.S. person on either or both sides of the 
transaction or the security-based swap is accepted for clearing by a 
clearing agency having its principal place of business in the United 
States.\904\ Thus, new Rules 908(a)(1)(iii) and (iv) extend regulatory 
reporting and public dissemination to an additional number of uncleared 
security-based swaps: Those involving only non-U.S. persons. The costs 
of reporting these additional cross-border security-based swaps are 
considered in the Commission's analysis of the amendments to Rule 
901(a)(2)(ii)(E), which assigns the duty to report those cross-border 
security-based swaps.\905\ Thus, new Rules 908(a)(1)(iii) and (iv) do 
not independently impose any additional reporting costs.
---------------------------------------------------------------------------

    \904\ See Rule 908(a)(2) (stating that a security-based swap 
that is not included within Rule 908(a)(1) shall be subject to 
regulatory reporting but not public dissemination if there is a 
direct or indirect counterparty on either or both sides of the 
transaction that is a registered security-based swap dealer or a 
registered major security-based swap participant).
    \905\ See supra Section XII(A)(1).
---------------------------------------------------------------------------

    One commenter suggested that new Rule 908(a)(1)(iv) could provide 
incentives for non-U.S. counterparties to avoid transacting through 
registered broker-dealers, resulting in market fragmentation that would 
lead to adverse effects on risk management, market liquidity, and U.S. 
jobs.\906\ The Commission acknowledges that market fragmentation could 
result if non-U.S. counterparties avoid transacting through registered 
broker-dealers. However, as discussed above, because of the small 
number of security-based swaps that are subject to Rule 908(a)(1)(iv), 
any market fragmentation due to the avoidance of registered broker-
dealers by non-U.S. counterparties would be limited. To the extent that 
adverse effects on risk management, market liquidity, and U.S. jobs 
flow from market fragmentation, the Commission does not believe these 
effects should be significant, given the limited fragmentation that 
will likely arise as a result of the rule.
---------------------------------------------------------------------------

    \906\ See IIB Letter at 16-17.
---------------------------------------------------------------------------

5. Amendments to Rule 908(b)
    Rule 908(b) clarifies the types of persons that can incur duties 
under Regulation SBSR. In the Regulation SBSR Proposed Amendments 
Release, the Commission proposed to amend Rule 908(b) by adding 
platforms and registered clearing agencies to the list of persons that 
might incur obligations under Regulation SBSR.\907\ The Commission has 
adopted these changes to Rule 908(b), as discussed in Section IX(F)(1), 
supra.
---------------------------------------------------------------------------

    \907\ See 80 FR at 14759.
---------------------------------------------------------------------------

    The Commission also is adopting new Rule 908(b)(5) to include a 
non-U.S. person that, in connection with such person's security-based 
swap dealing activity, arranged, negotiated, or executed a security-
based swap using U.S. personnel. Because existing Rule 908(b)(2) covers 
a non-U.S. person that is registered as a security-based swap dealer, 
the effect of new Rule 908(b)(5) is to cover a foreign dealing entity 
that engages in ANE activity but that does not meet the de minimis 
threshold and thus would not have to register as a security-based swap 
dealer.

[[Page 53637]]

    The costs incurred by an unregistered non-U.S. person that falls 
under Rule 908(b)(5) include the costs of setting up reporting 
infrastructure and compliance systems, which have been discussed in 
connection with the adoption of new Rules 901(a)(2)(ii)(E)(2) and 
(3).\908\ Once an unregistered non-U.S. person's reporting 
infrastructure and compliance systems are in place, the marginal cost 
of reporting an individual transaction would be minimal \909\ when 
compared to the costs of putting those systems in place and maintaining 
them over time.\910\
---------------------------------------------------------------------------

    \908\ See supra Section XII(A)(1)(d).
    \909\ See infra Section XII(B)(1) (discussing the costs incurred 
by unregistered non-U.S. persons to assess whether they engage in 
ANE transactions and thus could incur reporting duties under Rule 
901(a)(2)(ii)(E)).
    \910\ See Regulation SBSR Adopting Release, 80 FR at 14702.
---------------------------------------------------------------------------

6. Other Conforming Amendments
    As discussed in Section V(A), supra, the Commission today is 
adopting amendments to Rule 900(u) to expand the definition of 
``participant'' to include platforms, registered clearing agencies that 
are required to report alpha dispositions pursuant to new Rule 
901(e)(1)(ii), and registered broker-dealers that incur the duty to 
report security-based swap transactions pursuant to new Rule 
901(a)(2)(ii)(E)(4).
    Existing Rule 906(b) generally requires a participant of a 
registered SDR to provide the identity of its ultimate parent and any 
affiliates that also are participants of that registered SDR. In the 
Regulation SBSR Proposed Amendments Release, the Commission proposed to 
amend Rule 906(b) to except platforms and registered clearing agencies 
from this requirement. In the U.S. Activity Proposal, the Commission 
further proposed to amend Rule 906(b) to except from this requirement a 
registered broker-dealer that becomes a participant solely as a result 
of making a report to satisfy an obligation under Rule 
901(a)(2)(ii)(E)(4). The Commission also proposed similar amendments to 
existing Rule 907(a)(6), which requires a registered SDR to have 
policies and procedures for periodically obtaining from each 
participant information that identifies the participant's ultimate 
parent(s) and any participant(s) with which the participant is 
affiliated, to avoid extending these policies and procedures to cover 
platforms, registered clearing agencies, and registered broker-dealers 
(assuming that they are not counterparties to security-based swap 
transactions). For the reasons discussed above,\911\ the Commission is 
adopting these amendments. Accordingly, platforms, registered clearing 
agencies, and registered broker-dealers (assuming they are not 
counterparties to security-based swap transactions) will not incur 
costs to report ultimate parent and affiliate information and, 
registered SDRs will not incur costs to extend the scope of their 
policies and procedures.
---------------------------------------------------------------------------

    \911\ See supra Sections V (excepting platforms and registered 
clearing agencies from Rule 906(b)) and IX (excepting registered 
broker-dealers from Rule 906(b) if they become participants solely 
as a result of making a report to satisfy an obligation under Rule 
901(a)(2)(ii)(E)(4)).
---------------------------------------------------------------------------

    Existing Rule 906(c) requires certain participants of a registered 
SDR to establish, maintain, and enforce written policies and procedures 
that are reasonably designed to ensure that the participant complies 
with any obligations to report information to a registered SDR in a 
manner consistent with Regulation SBSR. Rule 906(c) also requires 
participants covered by the rule to review and update their policies 
and procedures at least annually. In the Regulation SBSR Proposed 
Amendments Release, the Commission proposed to amend Rule 906(c) by 
extending this requirement to platforms and registered clearing 
agencies. In the U.S. Activity Proposal, the Commission proposed to 
amend Rule 906(c) by extending this requirement to a registered broker-
dealer that incurs reporting obligations solely because it effects 
transactions between two unregistered non-U.S. persons that do not fall 
within proposed Rule 908(b)(5). In this release, the Commission is 
adopting the amendments to Rule 906(c) as proposed.
    The Commission continues to estimate that the cost associated with 
establishing such policies and procedures, for each covered 
participant, will be approximately $58,000 and the cost associated with 
annual updates will be approximately $34,000.\912\ Accordingly, the 
Commission estimates that the initial aggregate annual cost associated 
with the amendments to Rule 906(c) will be approximately $3,128,000, 
which corresponds to $92,000 per covered participant.\913\ The 
Commission further estimates that the ongoing aggregate annual cost 
associated with the amendment Rule 906(c) will be approximately 
$1,156,000,\914\ which corresponds to $34,000 per covered participant. 
The Commission believes that the costs imposed on participants by these 
amendments are necessary because written policies and procedures that 
are reasonably designed to ensure that covered participants comply with 
any obligations to report information to a registered SDR in a manner 
consistent with Regulation SBSR will enhance the overall reliability of 
security-based swap transaction data reported to registered SDRs.
---------------------------------------------------------------------------

    \912\ See Regulation SBSR Adopting Release, 80 FR at 14716.
    \913\ The Commission derived its estimate from the following: 
[($58,000 + $34,000) x 34 covered participants (10 platforms + 4 
registered clearing agencies + 20 registered broker-dealers)] = 
$3,128,000, or approximately $92,000 per covered participant.
    \914\ The Commission derived its estimate from the following: 
[$34,000 x 34 covered participants (10 platforms + 4 registered 
clearing agencies + 20 registered broker-dealers)] = $1,156,000, or 
approximately $34,000 per covered participant.
---------------------------------------------------------------------------

    Finally, existing Rule 901(d)(9) requires the reporting, if 
applicable, of the platform ID for a platform on which a security-based 
swap was executed. In the U.S. Activity Proposal, the Commission 
proposed to amend Rule 901(d)(9) to require the reporting, if 
applicable, of the broker ID of a registered broker-dealer (including a 
registered SB SEF) that is required by Rule 901(a)(2)(ii)(E)(4) to 
report a security-based swap effected by or through the registered 
broker-dealer.\915\ As discussed above, the Commission has adopted the 
requirements that the registered broker-dealer effecting the 
transaction report the transaction.
---------------------------------------------------------------------------

    \915\ As described above, final Rule 901(a)(2)(ii)(E)(4) 
requires a registered broker-dealer to report the information in 
Rules 901(c) and 901(d) for any transaction between two unregistered 
non-U.S. persons that do not fall within Rule 908(b)(5) where the 
transaction is effected by or through the registered broker-dealer.
---------------------------------------------------------------------------

    As discussed in Section XII(A)(1)(d), supra, the Commission 
estimates that a maximum of 20 registered broker-dealers, excluding 
registered SB SEFs, will incur a reporting duty and together will 
report 540 security-based swaps per year. These 20 registered broker-
dealers are subject to the amendment to Rule 901(d)(9) adopted herein. 
To comply with the amendment, a registered broker-dealer likely will 
build and maintain its reporting infrastructure to include the 
functionality to capture and incorporate its broker ID into transaction 
reports. The Commission believes that the cost of creating this 
functionality is part of the start-up cost of building the broker-
dealer's reporting infrastructure,\916\ while the cost of maintaining 
this functionality is part of

[[Page 53638]]

the annual ongoing cost of the broker-dealer's reporting 
infrastructure.\917\
---------------------------------------------------------------------------

    \916\ See supra Section XII(A)(1)(d), where the Commission 
estimates the total start-up cost to be $521,500 per registered 
broker-dealer and $10,430,000 in aggregate, across all registered 
broker-dealers.
    \917\ See supra Section XII(A)(1)(d), where the Commission 
estimates the ongoing cost per year to be $316,500 per registered 
broker-dealer, and $6,330,000 for all registered broker-dealers.
---------------------------------------------------------------------------

7. Discussion of Comments Received
    The Commission received a number of comments relating to its 
analysis of the programmatic costs and benefits associated with the 
amendments described above.
    One commenter stated that the Commission lacks complete data to 
estimate the number of non-U.S. persons that engage in ANE transactions 
or the number of registered broker-dealers that intermediate security-
based swap transactions, and recommended that the Commission collect a 
more complete set of data to more precisely estimate the number of non-
U.S. persons that would be affected by the proposed rules. The 
commenter further argued that the lack of complete data made it 
difficult for the Commission to estimate the market impact, costs, and 
benefits associated with amendments that apply Regulation SBSR to ANE 
transactions and transactions intermediated by registered broker-
dealers.\918\
---------------------------------------------------------------------------

    \918\ See ISDA I at 3, 7. This commenter also argued that the 
data available to the Commission at the time of the proposal would 
not have allowed the Commission to precisely estimate, among other 
things, the number of non-U.S. persons that carry out dealing 
activity using personnel in the United States. See id. at 7.
---------------------------------------------------------------------------

    The Commission acknowledges that there are limitations in the TIW 
data but believes that the data do allow the Commission to arrive at a 
reasonable estimate of the number of non-U.S. persons affected by the 
newly adopted rules. In Section II(A)(4)(d), supra, the Commission 
notes that it identified four foreign dealing entities that likely 
engaged in ANE activity in 2015 but, based on the level of relevant 
activity, would be unlikely to register as security-based swap dealers. 
Based on the analysis, the Commission estimates that four unregistered 
foreign dealing entities will engage in ANE activity and thus be 
affected by the newly adopted rules.\919\ In Section XII(A)(1)(d), 
supra, the Commission estimates the compliance costs associated with 
Rule 901 for these four unregistered foreign dealing entities.\920\ As 
discussed earlier, these programmatic costs are part of the 
programmatic costs associated with Rule 901 that were accounted for in 
the Regulation SBSR Adopting Release. While data limitations do not 
allow the quantification of the benefits associated with the amendments 
that apply Regulation SBSR to ANE transactions and transactions 
intermediated by registered broker-dealers, the Commission discusses 
these benefits qualitatively in Section XIII(H), infra.
---------------------------------------------------------------------------

    \919\ Because of the relatively low volume of transaction 
activity of these four entities during 2015 and the existence of 
affiliations with other entities expected to register as security-
based swap dealers, the Commission believes, even after accounting 
for growth in the security-based swap market and acknowledging the 
limitations of the transaction data available for analysis, four is 
a reasonable estimate of the number of unregistered dealing entities 
likely to incur assessment costs as a result of new Rule 908(b)(5).
    \920\ The initial aggregate annual costs associated with Rule 
901 will be approximately $3,668,000, which corresponds to 
approximately $524,000 per unregistered entity. The Commission 
estimates that the ongoing aggregate annual costs on an unregistered 
entity associated with Rule 901 will be approximately $2,233,000, 
which corresponds to approximately $319,000 per unregistered entity.
---------------------------------------------------------------------------

B. Assessment Costs of Unregistered Entities Related to ANE 
Transactions

1. Assessment Costs of Foreign Dealing Entities Engaging in ANE 
Transactions
    New Rule 908(b)(5) provides that an unregistered foreign dealing 
entity that engages in ANE transactions may incur reporting duties 
under Regulation SBSR, and the amendments to Rule 901(a)(2)(ii)(E) 
adopted herein provide that such foreign dealing entities will be the 
reporting side in certain cases. Thus, unregistered foreign dealing 
entities will incur costs to assess whether they engage in ANE 
transactions and, if so, whether they will incur reporting duties under 
Rule 901(a)(2)(ii)(E). The Commission estimates that four unregistered 
foreign dealing entities will incur such assessment costs. The four 
unregistered foreign dealing entities are in addition to the 20 
additional non-U.S. persons that the Commission estimated would incur 
assessment costs as a result of the rules finalized in the U.S. 
Activity Adopting Release.\921\ In what follows, the Commission 
discusses costs that these four unregistered foreign dealing entities 
might incur to assess whether they engage in ANE transactions.
---------------------------------------------------------------------------

    \921\ See U.S. Activity Adopting Release, 81 FR at 8627. This is 
calculated as 134 non-U.S. persons likely to incur assessment costs 
to determine the level of ANE activity, less the 114 persons that 
are likely to incur assessment costs associated with the dealer de 
minimis rules adopted in the Cross-Border Adopting Release.
---------------------------------------------------------------------------

    In the U.S. Activity Adopting Release, the Commission discussed the 
approaches that market participants may use to determine which 
transactions involve relevant activity involving U.S. personnel and 
thus would apply toward dealer de minimis thresholds. The Commission 
notes that, as an initial matter, a foreign dealing entity likely will 
review its current dealing operations to ascertain whether it has U.S. 
personnel that could be used to arrange, negotiate, or execute 
security-based swaps. The Commission believes that such a determination 
will not result in significant costs because it requires only that the 
foreign dealing entity check for the existence of U.S. personnel. If 
the foreign dealing entity does not have U.S. personnel that could be 
used to arrange, negotiate, or execute security-based swaps, then the 
foreign dealing entity's assessment of whether it has engaged in ANE 
activity ends.
    If, based on the review described above, the foreign dealing entity 
determines that it has U.S. personnel that could be used to arrange, 
negotiate, or execute security-based swaps, then the foreign dealing 
entity could choose between a number of alternative means of 
compliance.\922\ One alternative would be for the entity to implement 
systems to check the location of personnel used in arranging, 
negotiating, or executing individual security-based swap transactions. 
The Commission believes that the cost of developing and modifying 
systems to track the location of persons with dealing activity will be 
substantially similar to the costs of such systems discussed in the 
U.S. Activity Adopting Release, or $410,000 for the average foreign 
dealing entity. To the extent that non-U.S. persons already employ 
systems that track the location of persons with dealing activity, the 
costs of modifying such IT systems may be lower than the Commission's 
estimate.\923\ In addition to the development or modification of such 
systems, the Commission estimates that entities would incur the cost of 
$6,500 per location per year on an ongoing basis for training, 
compliance, and verification costs.\924\ Second, the foreign dealing 
entity could choose to restrict personnel located in a U.S. branch or 
office from engaging in ANE activity in connection with the entity's 
dealing activity with non-U.S. counterparties. Such a restriction on 
communication and staffing for purposes of avoiding certain Title VII 
requirements would reduce the costs of assessing the location of 
personnel involved in ANE activity and could remove entirely the need 
to implement systems to track the activities of U.S. personnel on a 
per-transaction basis. The Commission estimates that the costs of 
establishing

[[Page 53639]]

policies and procedures to restrict communication between personnel 
located in the United States employed by non-U.S. persons (or their 
agents) and other personnel involved in dealing activity would be 
approximately $28,300 for each entity that chooses this approach.\925\
---------------------------------------------------------------------------

    \922\ See U.S. Activity Adopting Release, 81 FR at 8627-28.
    \923\ See id. at 8627.
    \924\ This cost is calculated as (internal cost, 90 hours x $50 
per hour = $4,500) + (consulting costs, 10 hours x $200 per hour = 
$2,000) = a total cost of $6,500 per location per year. See also 
U.S. Activity Adopting Release, 81 FR at 8627.
    \925\ See id. at 8628.
---------------------------------------------------------------------------

    Finally, a foreign dealing entity could avoid assessing 
transactions on a per-transaction basis by choosing to report all 
transactions to a registered SDR, regardless of the location of 
personnel engaged in ANE activity. Such an alternative may be 
reasonable for foreign dealing entities that expect few transactions 
involving foreign counterparties to be arranged, negotiated, or 
executed by personnel located outside the United States, such as 
foreign dealing entities that primarily transact in security-based 
swaps on U.S. reference entities or securities, and generally rely on 
personnel located in the United States to perform market-facing 
activities.\926\
---------------------------------------------------------------------------

    \926\ See id.
---------------------------------------------------------------------------

    The Commission believes that the same principles apply to foreign 
dealing entities that rely on agents to arrange, negotiate, or execute 
security-based swaps on their behalf. The Commission anticipates that 
foreign dealing entities may employ any of the strategies above to 
comply with the final rules through the choice of their agents. For 
example, a foreign dealing entity may choose an agent that does not use 
U.S.-based personnel for arranging, negotiating, or executing security-
based swap transactions with non-U.S. counterparties to avoid 
assessment costs. The Commission also anticipates that a foreign 
dealing entity might rely on representations from its agents about 
whether transactions conducted on its behalf involved relevant dealing 
activity by personnel from a location in the United States. This could 
occur on a transaction-by-transaction basis, or, if the agent uses 
personnel located in the United States in all or none of its 
transactions, it could choose to make a representation about the 
entirety of the agent's business.
    As in the U.S. Activity Adopting Release, the Commission believes 
that a foreign dealing entity will inform its choice between the 
alternative compliance strategies with a one-time review of its 
security-based swap business lines. This review likely will encompass 
both employees of the foreign dealing entity as well as employees of 
agents used by the foreign dealing entity, and identify whether these 
personnel are involved in arranging, negotiating, or executing 
security-based swaps. The information gathered as a result of this 
review will allow the foreign dealing entity to assess the revenues 
that it expects to flow from transaction activity performed by U.S. 
personnel. This information also will help these market participants 
form preliminary estimates about the costs associated with various 
alternative compliance strategies, including the trade-by-trade 
analysis outlined above. This initial review may be followed with 
reassessment at regular intervals or subsequent to major changes in the 
market participant's security-based swap business, such as acquisition 
or divestiture of business units. The Commission estimates that the 
per-entity initial costs of a review of business lines will be 
approximately $104,000. Further, the Commission believes that periodic 
reassessment of business lines will cost, on average, $52,000 per year, 
per entity.\927\
---------------------------------------------------------------------------

    \927\ See id. at n. 283.
---------------------------------------------------------------------------

2. Assessment Costs of Unregistered U.S. Persons Engaging in Security-
Based Swaps Against Foreign Entities
    New Rules 901(a)(2)(ii)(E)(2) and 901(3) create reporting duties 
for unregistered U.S. persons that transact security-based swaps with 
unregistered entities. Under Rule 901(a)(2)(ii)(E)(2), in a transaction 
between an unregistered U.S. person and an unregistered foreign dealing 
entity that is engaging in ANE activity, the sides would be required to 
select the reporting side. Under Rule 901(a)(2)(ii)(E)(3), in a 
transaction between an unregistered U.S. person and an unregistered 
non-U.S. person that is not engaging in ANE activity, the unregistered 
U.S. person is the reporting side. Because of these reporting duties, 
an unregistered U.S. person could incur costs to assess whether its 
foreign counterparty in a security-based swap transaction is an 
unregistered foreign dealing entity engaging in ANE activity.
    The Commission believes that unregistered U.S. persons likely will 
seek to avoid the costs of assessing whether a foreign counterparty is 
engaging in ANE activity by choosing to transact only with registered 
entities for which assessment is not required.\928\ The incentive of 
unregistered U.S. persons to avoid transacting with unregistered 
foreign counterparties is strengthened by the fact that there will be 
very few unregistered foreign dealing entities that might engage in ANE 
activities, and that they likely will participate in a relatively small 
number of security-based swap transactions in the U.S. market. As noted 
earlier,\929\ the Commission estimates that only four foreign dealing 
entities will remain below the de minimis threshold and thus not have 
to register as security-based swap dealers.\930\ Furthermore, to the 
extent that the usage of U.S. personnel by such a foreign dealing 
entity to engage in ANE activity is a question for a unregistered U.S. 
person who is a potential counterparty, the foreign dealing entity has 
an incentive to readily provide this information to the unregistered 
U.S. person--thereby obviating the need for the U.S. person to conduct 
an assessment--and to agree to be the reporting side. If the foreign 
dealing entity did not agree to be the reporting side, the unregistered 
U.S. person would have the option of transacting with one of several 
registered security-based swap dealers, both U.S. and foreign, for 
which the U.S. counterparty would not have to assess for ANE activity 
or negotiate with the other side about the reporting duty, because the 
duty would fall to the registered security-based swap dealer pursuant 
to existing Rule 901(a)(2)(ii)(B). Therefore, the Commission believes 
that any assessment costs incurred by unregistered U.S. persons will be 
limited.
---------------------------------------------------------------------------

    \928\ See infra Section XIII(H)(1) (discussing the potential 
competitive effects associated with assessments for ANE activity by 
unregistered U.S. persons).
    \929\ See supra note 885 and accompanying text.
    \930\ For foreign dealing entities that register with the 
Commission as security-based swap dealers, reporting duties stem 
from their registration status, not from the presence of any ANE 
activity. Therefore, for these entities, no assessment will be 
needed to know whether a reporting duty arises from a particular 
transaction.
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3. Assessment Costs Associated With Rule 901(a)(2)(ii)(E)(4)
    Under new Rule 901(a)(2)(ii)(E)(4), respondent broker-dealers 
(including SB SEFs) will be required to report security-based swap 
transactions that they intermediate if neither side incurs the duty to 
report (i.e., neither side includes a U.S. person, a registered 
security-based swap dealer, a registered major security-based swap 
participant, or a non-U.S. person engaging in an ANE transaction). As a 
result, respondent broker-dealers will incur certain costs to assess 
the circumstances in which they incur the duty to report transactions 
because neither side incurs the duty. Any such assessment costs are 
reflected in the cost estimates for the policies and procedures that 
respondent broker-dealers are required to establish, maintain, and 
enforce under Rule

[[Page 53640]]

906(c).\931\ The programmatic costs estimated by the Commission for the 
amendment to Rule 906(c) already incorporate the cost incurred by 
respondent broker-dealers when assessing whether they have a duty to 
report security-based swap transactions. Therefore, respondent broker-
dealers will not incur any additional costs beyond the programmatic 
cost for the amendment to Rule 906(c) adopted herein.\932\
---------------------------------------------------------------------------

    \931\ See supra Section XII(A)(3) (discussing the costs of 
amended Rule 906(c)).
    \932\ See id.
---------------------------------------------------------------------------

4. Discussion of Comments Received
    The Commission received a number of comments relating to its 
analysis of the assessment costs associated with the proposed 
amendments to Rules 901 and 908 included in the U.S. Activity Proposal. 
One commenter pointed out that the Commission's analysis of assessment 
costs was incomplete because the analysis did not account for the 
additional work that market participants might undertake to meet 
reporting requirements during the Interim Period (i.e., the period 
beginning on Compliance Date 1 but before the SBS entities registration 
compliance date).\933\ According to the commenter, this additional work 
and the associated cost could be avoided if the Commission scheduled 
Compliance Date 1 after the SBS entities registration compliance 
date.\934\ The same commenter also suggested that the Commission's cost 
analysis failed to account for the possibility that some of the 
documentation and processes developed by market participants for 
Interim Period reporting would become obsolete after security-based 
swap dealers register with the Commission.\935\
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    \933\ See ISDA II at 11 (stating that the additional work 
involves efforts to ``exchange transaction level party data, develop 
a new approach to use the tie-breaker logic, enter into reporting 
side agreements and delegation agreements, and build dual sets of 
reporting side logic to develop an organized industry approach to 
comply with SBSR''); ISDA III at 9 (stating that the Commission did 
not consider the cost and effort that market participants would 
spend to develop and implement interim reporting side agreements, 
and the ``cost that market infrastructure providers would incur to 
duplicate efforts in order to support both pre- and post-
registration reporting side approaches'').
    \934\ See ISDA II at 12; ISDA III at 9, 12.
    \935\ See ISDA I at 13.
---------------------------------------------------------------------------

    As discussed in Section X(C), supra, the Commission acknowledges 
the commenters' concerns that requiring compliance with Regulation SBSR 
before the SBS entities registration compliance date would have raised 
numerous challenges, and that addressing these challenges would have 
necessitated time and investment to create interim solutions that might 
not have been useful after the SBS entities registration compliance 
date. Therefore, the Commission has determined that market participants 
will not be required to comply with Regulation SBSR until after the SBS 
entities registration compliance date.

XIII. Economic Effects and Effects on Efficiency, Competition, and 
Capital Formation

    Section 3(f) of the Exchange Act \936\ requires the Commission, 
whenever it engages in rulemaking and is required to consider or 
determine whether an action is necessary or appropriate in the public 
interest, to consider, in addition to the protection of investors, 
whether the action will promote efficiency, competition, and capital 
formation. In addition, Section 23(a)(2) of the Exchange Act \937\ 
requires the Commission, when making rules under the Exchange Act, to 
consider the impact of such rules on competition. Section 23(a)(2) also 
prohibits the Commission from adopting any rule that would impose a 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Exchange Act.
---------------------------------------------------------------------------

    \936\ 15 U.S.C. 78c(f).
    \937\ 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

    The Commission believes that the amendments to Regulation SBSR 
adopted herein will result in further progress towards providing a 
means for the Commission and other relevant authorities to gain a 
better understanding of the aggregate risk exposures and trading 
behaviors of participants in the security-based swap market; facilitate 
public dissemination of security-based swap transaction information, 
thus promoting price discovery and competition by improving the level 
of information to all market participants; and improve risk management 
by security-based swap counterparties.\938\
---------------------------------------------------------------------------

    \938\ See 80 FR at 14779.
---------------------------------------------------------------------------

    The economic effects of these amendments on firms that provide 
infrastructure services to security-based swap counterparties and the 
security-based swap market generally are discussed in detail below. The 
Commission also considered the effects that these amendments might have 
on efficiency, competition, and capital formation. The Commission 
believes that its action today is likely to affect competition among 
firms that provide security-based swap infrastructure services to 
market participants and affect efficiency as a result of the way that 
these amendments allocate regulatory burdens. The effects of these 
amendments on capital formation are likely to be indirect and will 
result from the way in which these amendments affect the behavior of 
registered clearing agencies, counterparties to security-based swaps, 
and registered SDRs. To the extent that these amendments promote more 
efficient provision of security-based swap market infrastructure 
services, there would be lower transactions costs,\939\ which would 
free resources for investment and capital formation.
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    \939\ These transactions costs would include both implicit and 
explicit costs. Implicit transactions costs are the spread between 
transaction prices and the fundamental value of the assets being 
traded. Explicit transactions costs, by contrast, are commissions 
and other fees paid by counterparties for effecting transactions in 
the market.
---------------------------------------------------------------------------

    This analysis has been informed by the relationships among 
regulation, competition, and market power discussed in Section II(B), 
supra. An environment in which there is limited competition in SDR 
services could impose costs on the security-based swap market, 
including higher prices or lower quality services from SDRs. For 
example, a registered SDR that faces few or no competitors could seek 
to impose higher prices, because persons with a duty to report 
security-based swaps under Regulation SBSR might not be able to 
identify a competing SDR that offers prices close enough to marginal 
cost to make changing service providers efficient. Further, if 
consumers of SDR services have few alternative suppliers from which to 
choose, SDRs would have fewer incentives to produce more efficient SDR 
processes and services. This combination of higher prices for SDR 
services and/or less efficient SDR services could reduce security-based 
swap transaction activity undertaken by market participants to hedge 
assets that have cash flows that are related to the cash flows of 
security-based swaps. A reduction in hedging activity through security-
based swaps could reduce the values of assets held by market 
participants and in turn result in welfare losses for these market 
participants.
    However, there could be some offsetting benefit to limited 
competition in the market for SDR services for both regulatory 
authorities and the public. A small set of registered SDRs could make 
it simpler for the Commission and other relevant authorities to build a 
complete picture of transaction activity and outstanding risk exposures 
in the security-based swap market, and could limit the need for market 
observers to aggregate the security-based swap transaction data 
disseminated by

[[Page 53641]]

multiple SDRs before using it as an input to economic decisions.
    The Commission also considered the effects on efficiency, 
competition, and capital formation stemming from the amendments to 
Rules 901 and 908 that will subject additional cross-border security-
based swaps to regulatory reporting and public dissemination, and 
assign the duty to report those cross-border transactions. The adopted 
amendments might affect the security-based swap market in a number of 
ways, many of which are difficult to quantify. In particular, a number 
of the potential effects that the Commission discusses below are 
related to price efficiency, liquidity, and risk sharing. These effects 
are difficult to quantity for a number of reasons. First, in many cases 
the effects are contingent upon strategic responses of market 
participants. For instance, the Commission notes in Section XIII(H)(2), 
infra, that under the adopted approach non-U.S. persons may choose to 
relocate personnel, making it difficult for U.S. counterparties to 
access liquidity in security-based swaps. The magnitude of these 
effects on liquidity and on risk sharing depend upon a number of 
factors that the Commission cannot estimate, including the likelihood 
of relocation, the availability of substitute liquidity suppliers, and 
the availability of substitute hedging assets. Therefore, much of the 
discussion below is qualitative in nature, although the Commission 
tries to describe, where possible, the direction of these effects.
    Not only can some of these effects be difficult to quantify, but 
there are many cases where a rule could have two opposing effects, 
making it difficult to estimate a net impact on efficiency, 
competition, or capital formation. For example, in the discussion of 
the net effect of certain amendments to Regulation SBSR on efficiency, 
the Commission expects that post-trade transparency may have a positive 
effect on price efficiency, while it could negatively affect liquidity 
by providing incentives for non-U.S. persons to avoid contact with U.S. 
persons. The magnitude of these two opposing effects will depend on 
factors such as the sensitivity of traders to information about order 
flow, the impact of public dissemination of transaction information on 
the execution costs of large orders, and the ease with which non-U.S. 
persons can find substitutes that avoid contact with U.S. personnel. 
Each of these factors is difficult to quantify individually, which 
makes the net impact on efficiency equally difficult to quantify.

A. Reporting of Clearing Transactions

    New Rule 901(a)(2)(i) assigns the duty to report a security-based 
swap that has a registered clearing agency as a direct counterparty to 
that registered clearing agency. Existing Rule 901(a) does not assign 
reporting obligations for any clearing transactions; thus, in the 
absence of Rule 901(a)(2)(i), clearing transactions would not be 
subject to any regulatory reporting requirement. Without a requirement 
for clearing transactions to be reported to a registered SDR, the 
Commission and other relevant authorities would have only limited 
ability to carry out market oversight functions. For example, while the 
Commission could access transaction reports of alphas and uncleared 
transactions, the Commission would not be able to obtain from 
registered SDRs information about the open security-based swap 
positions of the relevant counterparties after alpha transactions are 
cleared. Requiring that clearing transactions be reported to registered 
SDRs and delineating reporting responsibilities for these transactions 
are particularly important given the level of voluntary clearing 
activity in the market as well as the mandatory clearing determinations 
that will be required under Title VII.\940\
---------------------------------------------------------------------------

    \940\ See General Policy on Sequencing, 77 FR at 35636.
---------------------------------------------------------------------------

    The Commission believes that, because a registered clearing agency 
creates the clearing transactions to which it is a counterparty, the 
registered clearing agency is in the best position to provide complete 
and accurate information for the clearing transactions resulting from 
the security-based swaps that it clears.\941\ If the Commission 
assigned the reporting obligation for clearing transactions to a person 
who lacked direct access to the information required to be reported, 
that person would be obligated to obtain the required information from 
the clearing agency or another party who had access to the information 
to discharge its reporting obligation. Thus, assigning reporting 
obligations to the non-clearing-agency side could increase the number 
of reporting steps, thereby increasing the possibility of discrepancy, 
error, or delay in the reporting process. Placing the reporting duty on 
the non-clearing-agency side could also reduce data reliability if the 
data has to be reconfigured to be acceptable by the SDR.\942\ 
Inaccurate or delayed reporting of clearing transactions would 
negatively impact the ability of the Commission and other relevant 
authorities to understand, aggregate, and act on the transaction 
information.
---------------------------------------------------------------------------

    \941\ Although registered clearing agencies might pass on the 
costs associated with reporting clearing transactions, at least in 
part, to their non-reporting counterparties, the costs that are 
passed on to non-reporting parties are likely to be lower than the 
costs that the non-reporting parties would face if they had direct 
responsibility to report these transactions.
    \942\ See supra Section III(B).
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    New Rule 901(a)(2)(i) also allows the registered clearing agency 
that is required to report all clearing transactions to which it is a 
counterparty to select the registered SDR to which to report. As noted 
in Section II(B), supra, because many of the infrastructure 
requirements for entrant SDRs are shared by registered clearing 
agencies, registered clearing agencies might pursue vertical 
integration into the market for SDR services at a lower cost relative 
to potential entrants from unrelated markets. If the costs of reporting 
to affiliated SDRs are lower than the costs of reporting to 
unaffiliated SDRs, registered clearing agencies will likely choose to 
report clearing transactions to an affiliated SDR. Because a registered 
clearing agency is likely to be involved in developing an affiliated 
SDR's systems, the clearing agency will likely avoid costs related to 
translating or reformatting data due to incompatibilities between data 
reporting by the registered clearing agency and data intake by the SDR. 
To the extent that a clearing agency incurs a lower cost when 
connecting to an affiliated SDR, the cost of reporting clearing 
transactions to an affiliated SDR is likely to be lower than the cost 
of reporting to an independent SDR. While both a clearing-agency-
affiliated SDR and an independent SDR could lower their average costs 
by adding clearing transactions to their existing volume of reported 
transactions, only the clearing agency can reduce the cost of 
connecting to its affiliated SDR.
    Vertical integration of security-based swap clearing and SDR 
services could be beneficial to other market participants if they 
ultimately share in these efficiency gains. For example, efficiency 
gains due to straight-through processing from execution to reporting 
could lower transactions costs for market participants and reduce the 
likelihood of data discrepancies and delays. Even if registered 
clearing agencies do not enter the market for SDR services, the 
potential for them to pursue a vertical integration strategy could 
motivate independent SDRs to offer more competitive service models.
    The Commission is aware of the potential costs of allowing 
registered

[[Page 53642]]

clearing agencies to select the SDR to which they report. If Rule 
901(a)(2)(i) encourages the formation of clearing-agency-affiliated 
SDRs that would not otherwise emerge, the aggregate number of 
registered SDRs might reflect an inefficient level of service 
provision. Once an entity has established the functionality to offer 
clearing and central counterparty services for security-based swaps, 
only marginal additional investments would likely be needed to offer 
SDR services. The ease with which registered clearing agencies set up 
affiliated SDRs could affect how well all SDRs exploit economies of 
scale. As noted in Section II(B)(2), supra, in the market for SDR 
services, economies of scale arise from the ability to amortize the 
fixed costs associated with infrastructure over a large volume of 
transactions. With a fixed volume of reportable transactions, 
exploitation of economies of scale by each SDR becomes more limited as 
the number of SDRs increases. Thus, the entry of clearing-agency-
affiliated SDRs could indicate that each SDR benefits from an 
affiliation with a clearing agency and might not, in aggregate, result 
in the provision of transaction reporting services at a lower per-
transaction cost than if there were fewer SDRs. Inefficiencies could 
result if the Commission and the public had to receive and process 
security-based swap transaction data from a larger number of registered 
SDRs. Connecting to a larger number of SDRs and merging transaction 
data with potentially different data formats could be costly and 
difficult.
    The potential for efficiency gains through vertical integration of 
clearing agencies and SDRs could foreclose entry into the market for 
SDR services except by firms that are already present in the market for 
clearing agency services. Registered clearing agencies are more likely 
to benefit from efficiencies in shared infrastructure than independent 
SDRs, given that it is more difficult for an SDR to enter the market 
for clearing services than for a clearing agency to enter the market 
for SDR services.\943\ Moreover, to the extent that an affiliated SDR 
is not as cost-effective as a competing independent SDR, a registered 
clearing agency could subsidize the operation of its affiliate SDR to 
provide a competitive advantage in its cost structure over independent 
SDRs. Hence, providing a registered clearing agency with the discretion 
to select the registered SDR could provide a competitive advantage for 
clearing-agency-affiliated SDRs relative to independent SDRs. If a 
registered clearing agency subsidizes its affiliated SDR using revenue 
generated from its clearing business, the clearing agency's members 
would indirectly bear some of the costs of operating the affiliated 
SDR. Such an allocation of SDR cost to clearing members could be 
inefficient because the benefits of reporting transactions to an SDR 
(i.e., the benefits of regulatory reporting and public dissemination) 
accrue to market participants generally, and not just to clearing 
members.
---------------------------------------------------------------------------

    \943\ A registered clearing agency, particularly one that acts 
as a central counterparty for security-based swaps, needs 
significant financial resources to ensure that it can absorb losses 
from clearing member defaults, while SDRs do not. Similarly, a 
registered clearing agency requires significant risk management 
expertise that an SDR does not. Thus, the barriers to entry into the 
clearing agency market are higher than the barriers to entry into 
the SDR market.
---------------------------------------------------------------------------

    As a result of new Rule 901(a)(2)(i), clearing members might find 
that the records of their security-based swap transactions are 
fragmented across multiple registered SDRs (i.e., alpha SDRs and, in 
addition, clearing-agency-affiliated SDRs to which registered clearing 
agencies report clearing transactions). The Commission does not 
believe, however, that fragmentation in the storage of transaction 
reports would create significant difficulties or inefficiencies for a 
clearing member that wishes to consolidate all its security-based swap 
transaction reports at a chosen SDR to facilitate activities such as 
risk management. Such a clearing member might contract with a 
registered clearing agency, for a fee, to transmit data for its 
clearing transactions to an SDR of the clearing member's choice as a 
duplicate report. This would allow the registered clearing agency to 
satisfy its obligations while permitting the clearing member to 
establish and maintain access to a consolidated record of all of its 
security-based swap transactions in a single SDR. However, in this 
case, the registered clearing agency could choose a fee schedule that 
encourages the clearing member to report its uncleared bilateral 
transactions to the affiliated SDR. Such a fee schedule might involve 
the clearing agency offering to terminate alpha transactions reported 
to its affiliate SDR for a lower price than alpha transactions to an 
independent SDR.
    As discussed in Section XII(B)(1)(a), supra, the Commission has 
estimated the annual and on-going costs associated with requiring 
registered clearing agencies to establish connections to registered 
SDRs. The Commission believes that, for a given registered clearing 
agency, these costs are likely to be lower for a connection to an 
affiliated SDR than to an independent SDR. Because the registered 
clearing agency is likely to have been involved in developing its 
affiliated SDR's systems, the clearing agency can likely avoid costs 
related to translating or reformatting data due to incompatibilities 
between the clearing agency's data format and the data format required 
by the SDR. The reporting of clearing transactions by registered 
clearing agencies to their affiliated SDRs could promote efficiency in 
two ways. First, a registered clearing agency would incur lower 
connection costs when reporting to an affiliated SDR. Second, the 
quality of transaction data available to the Commission could be 
improved to the extent that the Commission gains access to marginally 
more reliable transaction data because reporting by a registered 
clearing agency to an affiliated SDR avoids introducing errors or other 
data discrepancies that otherwise could occur when translating or 
reformatting transaction data for submission to an independent SDR.

B. Alternative Approaches to Reporting Clearing Transactions

    As part of the economic analysis of the amendments adopted herein, 
the Commission has considered the market power that providers of 
security-based swap market infrastructure might be able to exercise in 
pricing the services that they offer and the possibility that these 
infrastructures could shift the costs created by regulatory burdens 
onto their customers. The Commission included these economic 
considerations in its evaluation of alternative approaches to assigning 
reporting obligations for clearing transactions. As outlined above, the 
Commission considered four alternatives for assigning these reporting 
obligations as well as comments received related to these alternatives. 
The following section discusses the likely economic effects of these 
alternatives, including their likely impacts on efficiency, 
competition, and, indirectly, capital formation.
1. Alternative 1
    The first alternative would be to apply the reporting hierarchy in 
existing Rule 901(a)(2)(ii) to clearing transactions. Under Alternative 
1, a counterparty to a clearing transaction other than the clearing 
agency, such as a registered security-based swap dealer, would have the 
duty to report the clearing transaction. As discussed above, assigning 
reporting obligations to the non-clearing-agency side could increase 
the number of reporting steps, thereby increasing the possibility of

[[Page 53643]]

discrepancy, error, or delay in the reporting process. Placing the 
reporting duty on the non-clearing-agency side also could reduce data 
reliability if the data has to be reconfigured to be acceptable by the 
SDR.\944\
---------------------------------------------------------------------------

    \944\ See supra Section III(B).
---------------------------------------------------------------------------

    The Commission continues to believe that it is unlikely that non-
clearing-agency counterparties would be subject to significant 
additional costs associated with building infrastructure to support 
regulatory reporting for clearing transactions under this alternative, 
for two reasons.\945\ First, to the extent that market participants 
that submit security-based swaps to clearing also engage in uncleared 
transactions and sit atop the reporting hierarchy, they likely already 
have the required infrastructure in place to support regulatory 
reporting of alphas and uncleared transactions. The Commission 
anticipates that, as a result, there might be only marginal additional 
costs for reporting sides to report clearing transactions, if the 
Commission selected Alternative 1. Moreover, the Commission anticipates 
that, once infrastructure is built, the per-transaction cost of data 
transmission would not vary substantially between registered clearing 
agencies, who are required to report under new Rule 901(a)(2)(i), and 
reporting sides, who would be required to report under Alternative 1.
---------------------------------------------------------------------------

    \945\ See Regulation SBSR Proposed Amendments Release, 80 FR at 
14781.
---------------------------------------------------------------------------

    Second, non-clearing agency counterparties, particularly those who 
engage solely in cleared trades or who are not high in the reporting 
hierarchy, could enter into an agreement under which the registered 
clearing agency would submit the information to a registered SDR on 
their behalf. This service could be bundled as part of the other 
clearing services purchased, and would result in an outcome 
substantially similar to giving the registered clearing agency the duty 
to report. One difference, however, is that the customer of the 
registered clearing agency could, under this alternative, request that 
the information be submitted to a registered SDR unaffiliated with the 
registered clearing agency, a choice that, under the adopted approach, 
is at the discretion of the registered clearing agency. Nevertheless, 
the Commission believes that, to the extent that it is economically 
efficient for the registered clearing agency to report the details of 
cleared transactions on behalf of its counterparties, Alternative 1 
would likely result in ongoing costs of data transmission for market 
participants and infrastructure providers that are, in the aggregate, 
similar to the Commission's approach in Rule 901(a)(2)(i).
    If registered clearing agencies reporting to registered SDRs on 
behalf of counterparties is not available under Alternative 1, then 
some counterparties would be required to build infrastructure to 
support regulatory reporting for clearing transactions. Analysis of 
single-name CDS transactions in 2015 in which a clearing agency was a 
direct counterparty shows approximately 54 market participants that are 
not likely to register as security-based swap dealers or major 
security-based swap participants, and therefore might be required to 
build infrastructure to support regulatory reporting for clearing 
transactions in order to maintain current trading practices in the 
security-based swap market.\946\ One commenter asserted that the 
Commission did not adequately address the role of third parties that 
could perform reporting duties on behalf of reporting parties.\947\ As 
noted in Section III(B), supra, Regulation SBSR permits the use of 
agents to carry out reporting duties and the Commission expects that a 
market participant that would be assigned the reporting obligation for 
clearing transactions under Alternative 1 would contract with an agent 
if it expects use of an agent to be less costly than carrying out the 
reporting obligation itself. As a result, the ability to use agents 
could further reduce costs to market participants under Alternative 1.
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    \946\ See Regulation SBSR Proposed Amendments Release, 80 FR at 
14781-82. To arrive at this estimate, the Commission staff used 
single-name CDS transaction data for 2015 to produce a list of all 
direct counterparties to a clearing agency and removed those persons 
likely to register as security-based swap dealers or major security-
based swap participants. The list of likely registrants was 
constructed using the methodology described in the Cross-Border 
Adopting Release. See 79 FR at 47296, n. 150 (describing the 
methodology employed by the Commission to estimate the number of 
potential security-based swap dealers); id. at 47297, n. 153 
(describing the methodology employed by the Commission to estimate 
the number of potential major security-based swap participants).
    \947\ See Markit Letter at 8.
---------------------------------------------------------------------------

    Under Alternative 1, non-clearing-agency counterparties would have 
the ability to choose which registered SDR receives their reports. 
Because non-clearing-agency counterparties would have this choice, 
registered SDRs under the alternative approach might have additional 
incentive to provide high levels of service to attract this reporting 
business by, for example, providing such counterparties with convenient 
access to reports submitted to the registered SDR or by supporting the 
counterparties' efforts at data validation and error correction. 
Additionally, ensuring that these counterparties have discretion over 
which registered SDR receives the transaction data could allow these 
counterparties to consolidate their security-based swap transactions 
into a single SDR for record-keeping purposes or for operational 
reasons, though only to the extent that they can identify a registered 
SDR that accepts reports for all relevant asset classes.
    In assessing Alternative 1, the Commission recognizes that 
registered clearing agencies have a comparative advantage in processing 
and preparing data for reporting cleared transactions to a registered 
SDR. Registered clearing agencies terminate alpha transactions, as well 
as create beta and gamma transactions and all subsequent netting 
transactions, and so already possess all of the relevant information to 
report these transaction events to a registered SDR. Moreover, the 
volume of transactions at registered clearing agencies means that they 
can amortize the fixed costs of establishing and maintaining 
connections to a registered SDR over a large quantity of reportable 
activity, potentially allowing them to report transactions at a lower 
average cost per transaction than many other market participants, 
particularly non-registered persons.
    The Commission believes that, given this comparative advantage, 
applying to clearing transactions the same reporting hierarchy that it 
has adopted for uncleared transactions would result in a registered 
clearing agency reporting the transaction data to a registered SDR of a 
non-clearing-agency counterparty's choice as a service to the non-
clearing-agency counterparties to its clearing transactions. In this 
respect, the entity that performs the actual reporting of clearing 
transactions would likely be the same as with adopted Rule 
901(a)(2)(i), which would assign this duty to the registered clearing 
agency. The key difference under Alternative 1 is that the non-
clearing-agency counterparty would generate this responsibility through 
private contract and could terminate the agreement and assume the 
reporting responsibility, should it perceive the fee or service terms 
as unreasonable. Such an agreement also could specify the registered 
SDR to which the clearing agency should send transaction data on behalf 
of the non-clearing-agency counterparty. The ability to terminate such 
an agreement could diminish the potential bargaining power that the 
registered clearing agency would otherwise have if the registered 
clearing agency were assigned the duty to report. Further, by allowing

[[Page 53644]]

the non-clearing-agency counterparty to choose between registered SDRs, 
such an agreement could promote competition between SDRs.
    However, because the non-clearing-agency counterparty might still 
have to rely on assistance from the clearing agency to satisfy the 
reporting obligations--particularly for any subsequent clearing 
transactions resulting from netting and compression of multiple betas 
and gammas--the reduction in clearing agency bargaining power might not 
be substantial. A registered clearing agency that supplies this 
information and converts it into the format prescribed by a non-
clearing-agency counterparty's chosen SDR so that the counterparty can 
fulfill its reporting duty by submitting transaction data to a 
registered SDR of its choice could still have significant bargaining 
power with respect to providing that information.
    The Commission believes that the adopted rules are generally 
consistent with the outcome under Alternative 1 in a number of key 
respects. First, under both approaches to reporting--one in which the 
Commission assigns the reporting responsibility for clearing 
transactions to registered clearing agencies, and the other in which 
the market allocates the reporting responsibility in the same way--it 
is likely that registered clearing agencies will report clearing 
transactions to their affiliated SDRs.\948\ Under an approach in which 
the Commission does not assign any reporting duties to registered 
clearing agencies, counterparties would likely be assessed an explicit 
fee by registered clearing agencies for submitting reports on the 
counterparties' behalf. Under Rule 901(a)(2)(i), the fees associated 
with these services will likely be part of the total fees associated 
with clearing security-based swaps.
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    \948\ Unless it preferred a particular registered SDR for 
operational reasons discussed above, a non-clearing-agency 
counterparty to a clearing transaction would likely contract with 
the clearing agency to report clearing transactions to the 
registered SDR that offers the lowest price, most likely the 
clearing agency affiliate. As discussed in Section II(B)(1), supra, 
a registered clearing agency and its affiliated SDR have greater 
control over the reporting process relative to sending transaction 
data to an independent SDR. This greater control lowers the cost of 
transmitting transaction data from the clearing agency to its 
affiliated SDR relative to transmitting the same data to an 
independent SDR. The lower cost potentially allows the affiliated 
SDR to charge the lowest price among competing SDRs.
---------------------------------------------------------------------------

    In light of comments received on its proposal, the Commission 
acknowledges caveats to this analysis.\949\ Under Alternative 1, a non-
clearing agency counterparty may alter the disposition of its clearing 
transaction data as a result of having the right to select the 
registered SDR to which this information is submitted. In particular, a 
non-clearing agency counterparty with the duty to report clearing 
transactions would compare the costs and benefits of contracting with 
the clearing agency to fulfil reporting obligations on its behalf by 
reporting to an affiliated SDR,\950\ with the costs and benefits of 
alternative arrangements that would place the same data at an 
independent SDR of its choice.
---------------------------------------------------------------------------

    \949\ See Markit Letter at 12. Although the commenter asserts 
the benefits of allowing non-clearing agency counterparties 
discretion over which registered SDR receives their data in its 
assessment of Alternative 3, the Commission believes that this 
analysis applies equally to the assessment of Alternative 1.
    \950\ See supra note 948.
---------------------------------------------------------------------------

    Second, under Alternative 1 and under the adopted approach, 
efficiency gains stemming from consolidation of the reporting function 
within registered clearing agencies would be split between such 
clearing agencies and security-based swap counterparties. The 
difference between these two regulatory approaches turn on how these 
gains are split.
    The Commission believes that Alternative 1 would not necessarily 
restrict the ability of registered clearing agencies to exercise market 
power in ways that may allow them to capture the bulk of any efficiency 
gains.\951\ First, while a counterparty to a registered clearing agency 
could contract with the clearing agency to receive the information 
about netting and compression transactions that would enable re-
transmission of the cleared transaction data to a registered SDR, 
depending on the policies and procedures of the registered clearing 
agency, these data might not be in the format that is required for 
submission to the counterparty's SDR of choice. As a result, 
counterparties to registered clearing agencies would bear the costs 
associated with restructuring the data that they receive from 
registered clearing agencies before submitting transaction reports to a 
registered SDR. Such costs could limit the feasibility of assuming the 
reporting responsibility rather than contracting to have the registered 
clearing agency perform the duty. However, the Commission acknowledges, 
in line with comments received on its proposal,\952\ that the use of 
agents to carry out reporting duties could mitigate these costs, if 
agents are able to restructure data more efficiently than 
counterparties.
---------------------------------------------------------------------------

    \951\ See Regulation SBSR Proposed Amendments Release, 80 FR at 
14782.
    \952\ See Markit Letter at 8.
---------------------------------------------------------------------------

    Second, in an environment where reporting obligations for clearing 
transactions rest with counterparties and there is limited competition 
among registered clearing agencies, registered clearing agencies might 
be able to charge high fees to counterparties who must rely on them to 
provide information necessary to make required reports to registered 
SDRs. A registered clearing agency could otherwise impair the ability 
of its counterparties to perform their own reporting if the clearing 
agency does not provide sufficient support or access to clearing 
transaction data. In particular, the clearing agency might have 
incentives to underinvest in the infrastructure necessary to provide 
clearing transaction data to its counterparties unless the Commission, 
by rule, were to establish minimum standards for communication of 
clearing transaction data from registered clearing agencies to their 
counterparties. As a result, counterparties could face greater 
difficulties in reporting data and an increased likelihood of 
incomplete, inaccurate, or untimely data being submitted to registered 
SDRs.
    Third, under this alternative the registered clearing agency that 
is party to the transaction potentially has weaker incentives to 
provide high-quality regulatory data to the counterparty with a duty to 
report, which could reduce the quality of regulatory data collected by 
registered SDRs. The person with the duty to report a transaction has 
strong incentives to ensure that the transaction details are 
transmitted in a well-structured format with data fields clearly 
defined, and that contain data elements that are validated and free of 
errors because, pursuant to Regulation SBSR, this person is responsible 
for making accurate reports and, if necessary, making corrections to 
previously submitted data. Not only would the registered clearing 
agency have no duty under Regulation SBSR to provide information to its 
counterparty, but additionally, market forces might not provide 
sufficient motivation to the registered clearing agency to provide data 
to the counterparty in a manner that would minimize the counterparty's 
reporting burden. If registered clearing agencies exercise their market 
power against counterparties, the counterparties might have limited 
ability to demand high-quality data reporting services from registered 
clearing agencies and may require the services of agents that clean and 
validate transaction data that they receive.

[[Page 53645]]

    The Commission believes, however, that despite a similarity in 
ultimate outcomes, and any benefits that might flow from enabling 
registered SDRs to compete for clearing transaction business, this 
alternative does not compare favorably to the adopted approach. As 
discussed above, assigning reporting obligations to the non-clearing-
agency side could increase the number of reporting steps, thereby 
increasing the possibility of discrepancy, error, or delay in the 
reporting process. Placing the reporting duty on the non-clearing-
agency side also could reduce data reliability if the data has to be 
reconfigured to be acceptable by the SDR. The Commission believes that 
discrepancies, errors, and delays are less likely to occur if the duty 
to report clearing transactions is assigned to registered clearing 
agencies directly, because there would be no additional or intermediate 
steps where data would have to be transferred or reconfigured.\953\
---------------------------------------------------------------------------

    \953\ See supra Section III(B).
---------------------------------------------------------------------------

2. Alternative 2
    A second, closely related alternative would involve placing 
registered clearing agencies within the Regulation SBSR reporting 
hierarchy, below registered security-based swap dealers and registered 
major security-based swap participants but above counterparties that 
are not registered with the Commission. Alternative 2 would assign the 
reporting obligation to a registered security-based swap dealer or 
registered major security-based swap participant when it is a 
counterparty to a registered clearing agency, while avoiding the need 
for non-registered persons to negotiate reporting obligations with 
registered clearing agencies.
    As with Alternative 1, Alternative 2 potentially results in 
additional reporting steps and could marginally reduce the quality of 
regulatory data relative to the adopted approach. A key difference, 
however, is that Alternative 2 would reduce the likelihood of reporting 
obligations falling on unregistered persons, who would likely have less 
market power in negotiations with registered clearing agencies over the 
terms of reporting to a registered SDR. Larger counterparties, i.e., 
those with greater transaction flow, would likely be better able to 
negotiate better terms by which clearing agencies report transactions 
on their behalf or provide the counterparties with access to the 
clearing data so that they can perform their own reporting.
    In its discussion of Alternative 1, the Commission noted three 
particular ways in which limited competition among registered clearing 
agencies could result in poorer outcomes for non-clearing-agency 
counterparties. First, when these counterparties obtain clearing data 
from a registered clearing agency, they would likely incur any costs 
related to reformatting the data for submission to a registered SDR, 
including the costs of outsourcing these activities to an agent. 
Second, registered clearing agencies might charge these counterparties 
high fees for access to regulatory data that counterparties are 
required to submit to registered SDRs. Third, registered clearing 
agencies might have weak incentives to ensure that the data that they 
supply to non-clearing-agency counterparties are of high quality, since 
the non-clearing-agency counterparties would bear the costs of error 
correction.
    Limiting the extent to which registered clearing agencies can 
exercise the market power resulting from limited competition over their 
counterparties could reduce some of the drawbacks to the Alternative 1. 
In particular, registered clearing agencies may be less likely to 
exercise market power in negotiations with larger market participants, 
particularly when these market participants are also clearing members. 
Clearing members play key roles in the governance and operation of 
registered clearing agencies, often contributing members of the board 
of directors. Moreover, clearing members contribute to risk management 
at registered clearing agencies by, for example, contributing to 
clearing funds that mutualize counterparty risk.\954\ Nevertheless, the 
Commission believes that Alternative 2 does not fully address frictions 
that arise from limited competition among registered clearing agencies, 
such as high clearing fees or low quality services. The Commission 
believes that Alternative 2 would be less efficient than requiring the 
registered clearing agency to report the transaction information 
directly to a registered SDR, because the registered clearing agency is 
the only person who has complete information about a clearing 
transaction immediately upon its creation.
---------------------------------------------------------------------------

    \954\ See Securities Exchange Act Release No. 68080 (October 22, 
2013), 77 FR 66220, 66267 (November 2, 2012) (``Clearing Agency 
Standards Adopting Release'') (discussing financial resources of 
clearing agencies).
---------------------------------------------------------------------------

3. Alternative 3
    The Commission considered a third alternative that would make the 
reporting side for the alpha responsible for reporting both the beta 
and gamma.\955\ Alternative 3 would require the reporting side for the 
alpha also to report information about a security-based swap to which 
it is not a counterparty, i.e., the clearing transaction between the 
registered clearing agency and the non-reporting side of the alpha. As 
discussed in Section III(B), supra, Alternative 3 would be 
operationally difficult to implement, could create confidentiality 
concerns, and could increase the likelihood of data discrepancy, error, 
and delay because Alternative 3 requires additional reporting steps. 
Alternative 3 also would require reporting sides to negotiate with 
registered clearing agencies to obtain transaction data and to bear the 
costs of correcting errors in these data, exposing them to the market 
power exercised by registered clearing agencies. Also, because the 
reporting side of the alpha would report the beta and gamma, 
Alternative 3 is premised on the view that the beta and gamma are life 
cycle events of the alpha. The Commission, however, considered and 
rejected this approach in the Regulation SBSR Adopting Release.
---------------------------------------------------------------------------

    \955\ The Commission considered and rejected this approach in 
the Regulation SBSR Adopting Release. See 80 FR at 14639 (``the new 
term `clearing transaction' makes clear that security-based swaps 
that result from clearing (e.g., betas and gammas in the agency 
model) are independent security-based swaps, not life cycle events 
of the security-based swap that is submitted to clearing (e.g., 
alpha security-based swaps)''). However, the Commission is 
discussing this alternative in response to a commenter that, in 
response to the Regulation SBSR Proposed Amendments Release, 
recommended that the Commission adopt this approach. See Markit 
Letter at 11-13.
---------------------------------------------------------------------------

    In addition, Alternative 3 could result in incomplete regulatory 
data because it could raise questions about who would report clearing 
transactions associated with the compression and netting of beta or 
gamma transactions. For example, suppose a non-dealer clears two 
standard contracts on the same reference entity using a single 
registered clearing agency, each contract having a different registered 
security-based swap dealer as counterparty. Under this alternative to 
the adopted approach, each dealer would be responsible for reporting a 
gamma security-based swap between the non-dealer and the registered 
clearing agency. However, this alternative does not specify which of 
four potential persons (the non-dealer, one or the two registered 
security-based swap dealers, or the clearing agency) would be required 
to report the contract that results from the netting of the two gamma 
security-based swaps between the non-dealer and the registered clearing 
agency.

[[Page 53646]]

4. Commenter Views
    One commenter proposed a fourth alternative to assigning reporting 
duties for cleared transactions.\956\ Under this alternative, ``the 
platform would remain the reporting side for all platform-executed 
trades while for bilateral or off platform cleared transactions, the 
reporting side would be the clearing agency. However, the clearing 
agency would be required to submit beta and gamma trade records to the 
alpha SDR (which would be determined by the alpha trade reporting side 
and not the clearing agency).'' \957\ For the reasons discussed above, 
the Commission considers this alternative less appropriate than the 
adopted approach.\958\ While the Commission concurs with the approach 
of requiring the registered clearing agency to report the resulting 
beta and gamma transactions, the Commission believes that the 
registered clearing agency, when it has the duty to report security-
based swaps, should be able to choose the registered SDR to which it 
reports.\959\
---------------------------------------------------------------------------

    \956\ See Markit Letter at 13.
    \957\ Id.
    \958\ See supra Section III(B).
    \959\ See supra Section III(C).
---------------------------------------------------------------------------

    The same commenter stated that requiring registered clearing 
agencies to report their clearing transactions ``is not supported by an 
adequate consideration of factors contained in Section 3(f) of [the 
Exchange Act]'' and provided comments that focused on the proposed 
rule's ``considerations of efficiency and competition.'' \960\ 
Specifically, this commenter believed that the proposed rule ``ignores 
the efficiency benefits and reduced costs introduced by middleware 
reporting agencies,'' and it ``needlessly and unjustifiably proposes an 
approach to cleared [security-based swap] reporting that imposes a 
burden on competition.'' \961\ Further, the commenter expressed the 
view that Rule 901(a)(2)(i) would deter competition based on service 
quality and cost in the market for SDR services, whereas the three 
alternatives would encourage such competition in the same market.\962\ 
The Commission believes that it has adequately considered the factors 
contained in Section 3(f) of the Exchange Act in this release and in 
the Regulation SBSR Proposing Release.\963\ Further, the Commission has 
evaluated four alternative allocations of reporting obligations, 
including their likely effects on efficiency and competition. The 
Commission appreciates the commenter's concern that competition in the 
market for SDR services could be hindered by Rule 901(a)(2)(i) with the 
possible result that clearing-agency-affiliated SDRs might charge 
higher fees and/or offer lower quality services to their users. 
However, the Commission notes that such effects on competition, should 
they occur, would be limited because Rule 13n-4(c)(1)(i) under the 
Exchange Act \964\ requires an SDR, including a clearing-agency-
affiliated SDR, to ensure that any dues, fees, or other charges imposed 
by, and any discounts or rebates offered by, the SDR are fair and 
reasonable and not unreasonably discriminatory. As noted in Section 
XIII, supra, an affiliated SDR might offer higher quality services and/
or lower fees to its participants to the extent that the affiliated SDR 
realizes efficiency gains from vertical integration and shares some of 
these gains with its participants. Further, other commenters expressed 
the view that requiring registered clearing agencies to report clearing 
transactions could enhance market efficiency and improve the accuracy 
of reported data. Two commenters observed that clearing agencies will 
be able to leverage existing reporting processes and the existing 
infrastructure that they have in place with market participants and 
vendors to report clearing transactions.\965\ Another commenter 
observed that requiring clearing agencies to report clearing 
transactions in security-based swaps would be ``efficient, cost 
effective and promote[ ] global data consistency,'' because ``clearing 
agencies have demonstrated their ability and preference to report data 
for cleared transactions'' under swap data reporting rules established 
by the CFTC and in non-U.S. jurisdictions, including the European Union 
and Canada.\966\ One commenter agreed with the Commission's preliminary 
view that proposed Rule 901(a)(2)(i) was superior to alternative 
reporting workflows that ``could require a person who does not have 
information about [a] clearing transaction at the time of its creation 
to report that transaction.'' \967\ As discussed above, the Commission 
acknowledges that Rule 901(a)(2)(i) could place a burden on competition 
in the market for clearing services and the market for security-based 
swap data reporting. However, the Commission rejects the commenter's 
view that the adopted approach needlessly and unjustifiably imposes a 
burden on competition. As discussed above, the Commission believes that 
the adopted approach is appropriate because it would eliminate 
additional steps in the reporting process that would be needed if 
another market participant were assigned the duty to report a clearing 
transaction or if the duty were to remain unassigned. By adopting a 
reporting methodology with as few steps as possible, the Commission 
intends to minimize potential delays, discrepancies, and errors in data 
transmission by assigning reporting duties to the person that holds the 
most complete and accurate information about clearing transactions at 
the moment of their creation.\968\
---------------------------------------------------------------------------

    \960\ See Markit Letter at 3.
    \961\ See id. at 3-4.
    \962\ See id. at 12 (stating that ``Proposed Rule 901(a)(2)(i) 
would deter competition for SDR and post-trade processing services 
and lower the utility of SDR services, since SDRs that are 
affiliated to clearing agencies and receive their reports for 
cleared SBS would no longer need to compete based on quality of 
service and cost, with no commensurate marginal benefit for market 
participants.'') and 13 (stating that ``these other alternatives, 
relative to the Proposal, encourage competition based on quality of 
service and cost and the rule of reporting agents and are more 
likely to result in outcomes whereby the same SDR will receive 
alpha, beta, and gamma trades'').
    \963\ See Regulation SBSR Proposed Amendments Release, 80 FR at 
14779-84.
    \964\ 17 CFR 240.13n-4(c)(1)(i).
    \965\ See ICE Letter at 5 (observing that, although the same 
systems could be used, they would need to be modified in certain 
respects); LCH.Clearnet Letter at 8.
    \966\ ISDA/SIFMA Letter at 24.
    \967\ Better Markets Letter at 4.
    \968\ See supra Section XII(A).
---------------------------------------------------------------------------

C. Reporting by Platforms

    Pursuant to new Rule 901(a)(1), a platform is required to report a 
security-based swap transaction executed on that platform that will be 
submitted to clearing.\969\ With the ability to clear security-based 
swap transactions, it is possible for two counterparties to trade 
anonymously on a platform. In an anonymous trade, because neither 
counterparty would be aware of the name or registration status of the 
other, it might not be possible for either counterparty to use the 
reporting hierarchy in existing Rule 901(a)(2)(i) to determine who 
would be required to report this alpha transaction.\970\ The Commission 
is requiring a platform to report all alpha transactions executed on 
the platform that will be submitted to clearing, even those that might 
not be anonymous; this approach avoids the need for the platform and 
the counterparties to ascertain whether the counterparties are in fact 
unknown to each other.
---------------------------------------------------------------------------

    \969\ See supra Section V.
    \970\ See Regulation SBSR Proposed Amendments Release, 80 FR at 
14748-49.
---------------------------------------------------------------------------

    Furthermore, the platform is the only entity at the time of 
execution--i.e., before the transaction is submitted for clearing--that 
knows the identity of both sides. Requiring the platform to

[[Page 53647]]

report information associated with transactions that will be submitted 
to clearing also reduces the number of data transmission steps between 
execution and reporting to a registered SDR. A platform that matches 
orders and executes transactions will possess or can readily obtain all 
of the primary trade information necessary to be reported to a 
registered SDR, and new Rule 901(a)(1) makes it unnecessary for 
counterparties to report these transactions. This approach is designed 
to result in a more efficient reporting process for platform-executed 
alphas. By reducing the number of steps between the creation of 
transaction data and reporting to a registered SDR, Rule 901(a)(1) 
reduces the possibility of data discrepancies and delays.
    While the level of security-based swap activity that currently 
takes place on platforms and is subsequently submitted for clearing is 
low, future rulemaking under Title VII could cause security-based swap 
trading volume on platforms to increase.\971\ Efficiencies resulting 
from requiring platforms to report platform-executed alphas will 
increase to the extent that security-based swap trading volumes on 
platforms increases.
---------------------------------------------------------------------------

    \971\ The Commission has proposed, but not adopted, rules 
governing the registration and operation of SB SEFs. See SB SEF 
Proposing Release, 76 FR at 10948.
---------------------------------------------------------------------------

    As discussed above in the context of reporting obligations for 
registered clearing agencies, the Commission believes that the 
reporting infrastructure costs associated with required reporting 
pursuant to the adopted amendments could represent a barrier to entry 
for new, smaller platforms that do not yet have the ability to report 
transactions to a registered SDR. To the extent that the adopted rules 
and amendments might deter new trading platforms from entering the 
security-based swap market, this could negatively impact competition.
1. Alternative Approaches to Reporting Platform-Executed Transactions
    For platform-executed transactions that are submitted to clearing 
but are not anonymous, an alternative would be to use the reporting 
hierarchy in existing Rule 901(a)(2)(ii) to assign the reporting duty. 
Under such an alternative, a platform would have to determine which of 
the trades that it executes are anonymous and which are not, which 
would impose additional costs on platforms.\972\ It is likely that 
platforms would seek to pass on these costs to its participants. The 
Commission believes that the due diligence that platforms would have to 
perform under this alternative would impose unnecessary costs without 
enhancing the benefits of regulatory reporting. Such costs can be 
avoided by requiring a platform to report all platform-executed alphas, 
which is what adopted Rule 901(a)(2)(i) requires.
---------------------------------------------------------------------------

    \972\ There could be situations where a market participant 
splits an order into two or more child orders and some child orders 
are anonymously executed while other child orders are not 
anonymously executed. This could further complicate separation of 
anonymous and non-anonymous executions.
---------------------------------------------------------------------------

    A second alternative would be to assign the reporting duty for all 
platform-executed alphas to the registered clearing agency to which the 
alphas are submitted. While the registered clearing agency would likely 
have the information necessary for reporting--because the clearing 
agency will need much of the same information about the alpha to clear 
it--the Commission believes that it would be more appropriate to assign 
the reporting duty to the platform. This approach creates a more direct 
flow of information from the point of execution on the platform to the 
registered SDR, thus minimizing opportunities for data discrepancies or 
delays. This approach also avoids the need for the registered clearing 
agency to invest resources in systems to receive data elements from 
platforms beyond what is already required for clearing, and to report 
transactions to which it is not a counterparty.

D. Reporting of Clearing Transactions Involving Allocation

    In the Regulation SBSR Adopting Release, the Commission explained 
the application of Regulation SBSR to bunched order executions that are 
not submitted to clearing.\973\ In the Regulation SBSR Proposed 
Amendments Release, the Commission discussed the application of 
Regulation SBSR to bunched order executions that are submitted to 
clearing, and the security-based swaps that result from the allocation 
of the bunched order if the resulting security-based swaps are cleared. 
In this release, the Commission discusses how the amendments to 
Regulation SBSR that the Commission is adopting today apply to bunched 
order executions that are cleared. The discussion is designed to 
accommodate the various workflows that market participants employ to 
execute and allocate bunched order alphas. This guidance does not 
create any new duties under Regulation SBSR but does explain the 
application of Regulation SBSR to events that occur as part of the 
allocation process.\974\ Additionally, because the guidance explains 
how Regulation SBSR applies to a platform-executed bunched order that 
will be submitted to clearing--and the security-based swaps that result 
from the allocation of any bunched order execution, if the resulting 
security-based swaps are cleared--the interpretation is not likely to 
have consequences for efficiency, competition, or capital formation 
beyond those stemming from imposing reporting obligations on registered 
clearing agencies and platforms, as discussed above in Sections II and 
III, respectively.
---------------------------------------------------------------------------

    \973\ See 80 FR at 14625-27.
    \974\ The Commission's estimates of events reportable under 
these amendments includes observable allocation by clearing agencies 
in the TIW data. Therefore, the costs associated with clearing 
transactions involving allocation are included in the Commission's 
estimate of the programmatic costs of Rules 901(a)(1) and (a)(2)(i).
---------------------------------------------------------------------------

E. Application of Regulation SBSR to Prime Brokerage Transactions

    In Section VII, supra, the Commission discussed how Regulation SBSR 
applies to security-based swaps arising out of prime brokerage 
arrangements. This guidance does not create any new duties; it merely 
explains how a series of security-based swaps arising from a prime 
brokerage arrangement should be reported and publicly disseminated 
under Regulation SBSR. Therefore, there are no additional costs or 
benefits beyond those already considered in the Regulation SBSR 
Adopting Release.\975\
---------------------------------------------------------------------------

    \975\ See 80 FR 14700-704. The Commission's estimates in that 
release of the total number of reportable events included all 
security-based swap legs arising out of prime brokerage 
arrangements.
---------------------------------------------------------------------------

    A prime brokerage arrangement involves a reallocation of 
counterparty risk, as the prime broker interposes itself between its 
client and a third-party executing dealer. Regulatory reporting of each 
security-based swap leg will allow the Commission and other relevant 
authorities to more accurately conduct market surveillance and monitor 
counterparty risk. As a result of public dissemination of all security-
based swaps arising from a prime brokerage arrangement, market 
observers will have access to information regarding each leg. This 
could help market observers infer from these disseminated reports the 
fees that the prime broker charges for its credit intermediation 
service and separate these fees from the transaction price of the 
security-based swap.

F. Prohibition of Fees and Usage Restrictions for Public Dissemination

    New Rule 900(tt), as adopted herein, defines the term ``widely 
accessible''--

[[Page 53648]]

which appears in the definition of ``publicly disseminate'' in existing 
Rule 900(cc)--to mean ``widely available to users of the information on 
a non-fee basis.'' This new definition has the effect of prohibiting a 
registered SDR from charging fees for or imposing usage restrictions on 
the security-based swap transaction data that it is required to 
publicly disseminate under Regulation SBSR.
    Allowing free and unrestricted access to the security-based swap 
data that registered SDRs are required to publicly disseminate is 
designed to reinforce the economic effects of public dissemination 
generally, because market observers will be able to enjoy the benefits 
of public dissemination without cost and without any restriction on how 
they use the disseminated data. Furthermore, new Rule 900(tt) 
reinforces the benefits of existing Rule 903(b), which provides that a 
registered SDR may utilize codes in the reported or disseminated data 
only if the information necessary to understand the codes is free and 
not subject to any usage restrictions. As the Commission pointed out in 
the Regulation SBSR Adopting Release, Rule 903(b) could improve the 
efficiency of data intake by registered SDRs and data analysis by 
relevant authorities and other users of security-based swap data; 
improve efficiency by minimizing operational risks arising from 
inconsistent identification of persons, units of persons, products, or 
transactions by counterparties; and promote competition by prohibiting 
fee-based licensing of reference information that could create barriers 
to entry into the security-based swap market.\976\ If the Commission 
did not prohibit fees and usage restrictions relating to the publicly 
disseminated data, a registered SDR that wished to charge (or allow 
others to charge) users for the information necessary to understand 
these UICs--but could not, because of Rule 903(b)--might seek to do so 
indirectly by recharacterizing the charge as being for public 
dissemination. Such potential action by a registered SDR could reduce 
the economic benefits of Rule 903(b) and public dissemination 
generally. New Rule 900(tt) is designed in part to reinforce the 
economic effects, and help prevent avoidance, of Rule 903(b).
---------------------------------------------------------------------------

    \976\ See 80 FR at 14723.
---------------------------------------------------------------------------

    The adopted prohibition on a registered SDR charging fees for 
public dissemination of the regulatorily mandated security-based swap 
transaction data also is consistent with the CFTC's current prohibition 
on CFTC-registered swap data repositories charging for public 
dissemination of regulatorily mandated swap transaction data. Such 
consistency lessens the incentives for swap data repositories 
registered with the CFTC to enter the security-based swap market and 
also register with the Commission as SDRs and charge for public 
dissemination of security-based swap market data.\977\ If the 
Commission did not take this approach, a CFTC-registered swap data 
repository could enter the security-based swap market and charge for 
public dissemination of security-based swap market data, and use 
revenues from this business to subsidize its operations in the swap 
market, where it is not permitted to charge for public dissemination of 
swap market data. If an SEC-registered SDR charges fees for security-
based swap data to subsidize its reporting activity in the CFTC regime, 
then security-based swap market participants reporting to this SDR 
could face higher costs than those it would face if the SDR 
participated only in the security-based swap market.
---------------------------------------------------------------------------

    \977\ Dual registration is likely to occur independent of the 
ability to charge for public dissemination of data in the security-
based swap market. However, the ability to charge for public 
dissemination would add an additional incentive to do so.
---------------------------------------------------------------------------

    The Commission recognizes that, because registered SDRs are 
prohibited from charging for the security-based swap data that 
Regulation SBSR requires them to publicly disseminate, they must obtain 
funds for their operating expenses through other means.\978\ A 
registered SDR could pass the costs of publicly disseminating security-
based swap data through to the persons who report transactions to the 
registered SDR. Direct fees imposed on market participants would likely 
be in proportion to the number of transactions they execute, with more 
active market participants, who contribute more to the production of 
transaction information, paying a larger share of the cost of 
disseminating that information. By contrast, it would be more difficult 
to equitably calibrate a fee based on the consumption of the publicly 
disseminated data, because it would be difficult to measure the 
intensity of a market observer's usage of the disseminated data. As the 
Commission discussed in the Regulation SBSR Adopting Release, the 
positive effects of public dissemination on efficiency, competition, 
and capital formation derive from the broad based use of disseminated 
data by a multitude of users.\979\ There are likely to be a large 
number of marginal users of the disseminated data who would not obtain 
the data if they were required to pay for it. Thus, many potential 
users of the data might never have the opportunity to develop new uses 
for the data. While a funding model relying on fees for transaction 
reporting could result in security-based swap market participants 
subsidizing other users of security-based swap market data, charging 
fees for the consumption of publicly disseminated data could 
drastically reduce the number of data users and the associated positive 
effects on efficiency, competition, and capital formation.
---------------------------------------------------------------------------

    \978\ It is unlikely, however, in the absence of Rule 900(tt) 
that registered SDRs would have relied on charges for public 
dissemination as the sole means of funding their operations.
    \979\ See 80 FR 14720-22 (explaining how efficiency, 
competition, and capital formation could be enhanced when market 
participants, market observers, debt issuers, lenders, and business 
owners and managers, among others, make use of publicly disseminated 
security-based swap data).
---------------------------------------------------------------------------

    The Commission notes that new Rule 900(tt) does not prohibit a 
registered SDR from offering value-added security-based swap market 
products for sale, provided that the SDR does not make transaction 
information available through the value-added product sooner than it 
publicly disseminates each individual transaction. This requirement is 
designed to prevent a registered SDR from obtaining an unfair 
competitive advantage over other firms that might wish to sell value-
added market data products. Any such products could allow market 
observers to enjoy the positive impacts of Regulation SBSR on 
efficiency, competition, and capital formation more directly, by making 
it easier for market observers to understand the publicly disseminated 
data. Even if the SDR does not make transaction information available 
through the value-added product sooner than it publicly disseminates 
each individual transaction, the SDR retains a time advantage over a 
competing provider of value-added data products. This time advantage is 
the time taken for the SDR to electronically disseminate transaction 
information to the public. While the SDR has such a time advantage, the 
competitive effect of this advantage depends in part on the nature of 
the value-added data product. For value-added data products whose 
usefulness is not highly sensitive to data transmission time, such as a 
summary of monthly security-based swap trading activity, the SDR's time 
advantage would not exert a significant negative effect on other 
competitors. On the other hand, for value-added products whose 
usefulness decreases with data

[[Page 53649]]

transmission time, such as a product that predicts security-based swap 
prices or volumes over the next minute, the SDR's time advantage could 
have a negative effect on other competitors. Even for such products, 
the SDR's time advantage would be limited if there are multiple 
competing SDRs accepting data in the same asset class and the SDR is 
offering a value-added product that requires not only the data that it 
accepts but also the data publicly disseminated by other competing 
SDRs. Any time advantage that the SDR might enjoy with respect to the 
data that it accepts could be offset by the absence of time advantage 
when receiving data publicly disseminated by other competing SDRs.

G. Compliance Schedule for Regulation SBSR

    The compliance schedule adopted in this release is designed to 
provide affected persons, especially registered SDRs and persons with a 
duty to report security-based swap transactions, with time to develop, 
test, and implement systems for carrying out their respective duties 
under Regulation SBSR. The new compliance schedule takes into 
consideration the fact that the CFTC's regulatory reporting and public 
dissemination rules are already in effect. As a result, several SDRs 
have provisionally registered and are operating in the swap market 
under CFTC rules, and swap market participants have developed 
substantial infrastructure to support swap transaction reporting. It is 
likely that participants in both the swap and security-based swap 
markets will seek to repurpose much of the infrastructure implemented 
in the swap market to support activities in the security-based swap 
market, which would enable more efficient implementation of the 
Commission's regime for security-based swap reporting.
    Also, as discussed in Section X(C), supra, the new compliance 
schedule aligns Regulation SBSR compliance with security-based swap 
dealer registration. Thus, with respect to newly executed security-
based swaps in a particular asset class, Compliance Date 1 for Rule 901 
of Regulation SBSR is the first Monday that is the later of: (1) Six 
months after the date on which the first SDR that can accept 
transaction reports in that asset class registers with the Commission; 
or (2) one month after the SBS entities registration compliance date. 
Every security-based swap in that asset class that is executed on or 
after Compliance Date 1 must be reported in accordance with Rule 901. 
Compliance Date 2, when public dissemination shall commence, is the 
first Monday that is three months after Compliance Date 1. Compliance 
Date 3, by which all historical security-based swaps in that asset 
class must be reported to a registered SDR (to the extent that 
information about such transactions is available), is two months after 
Compliance Date 2.\980\
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    \980\ Every security-based swap in that asset class that is 
executed on or after July 21, 2010, and up and including to the day 
immediately before Compliance Date 1 is a transitional security-
based swap. As discussed in Section X(E), infra, the Commission's 
final compliance schedule establishes a separate Compliance Date 3 
for the reporting of pre-enactment and transitional security-based 
swaps.
---------------------------------------------------------------------------

    The proposed compliance schedule would have required affected 
persons to begin complying with Regulation SBSR before security-based 
swap dealers register with the Commission. A number of comments urged 
the Commission to delay Regulation SBSR compliance until after 
security-based swap dealers register.\981\ One commenter provided 
extensive estimates of the costs that market participants could have 
incurred to develop reporting procedures for the Interim Period that 
likely would not have been applicable to the period after security-
based swap dealer registration.\982\ This commenter also pointed out 
that the Interim Period could create a competitive disadvantage for 
non-U.S. dealing entities because these entities could assume the 
responsibility but not the liability for reporting and thus might be 
less attractive to buy-side U.S. clients than U.S. dealing entities 
that could assume both the responsibility and liability for 
reporting.\983\
---------------------------------------------------------------------------

    \981\ See IIB Letter at 17; ISDA I at 4, 11-13; ISDA II at 1-14; 
ISDA III at 1-12; SIFMA-AMG II at 6-7; WMBAA Letter at 5-6; UBS 
Letter at 2.
    \982\ See ISDA III at 8-9.
    \983\ See id. at 3.
---------------------------------------------------------------------------

    The Commission agrees with commenters that it would be more 
efficient for affected persons to focus on developing compliance 
procedures only for the period after security-based swap dealer 
registration, rather than require affected persons to expend resources 
to develop procedures for both the period after registration as well as 
for the Interim Period, because Interim Period procedures might be 
inapplicable to the period after registration. The Commission believes 
that, by eliminating the Interim Period and thus the need to expend 
resources for developing interim procedures, the adopted compliance 
schedule will promote efficiency. The adopted compliance schedule 
should also promote capital formation to the extent that persons that 
would have incurred reporting obligations during the Interim Period 
could invest the resources that would otherwise be expended in 
developing Interim Period procedures into productive assets.
    Furthermore, the Commission acknowledges the commenters' concern 
that the Interim Period could create competitive disparities between 
U.S. and foreign dealing entities if buy-side U.S. persons were less 
willing to transact with foreign dealing entities if certain foreign 
dealing entities could not assume the liability for reporting. The 
adopted compliance schedule avoids the need for the Interim Period and 
thus eliminates any potential competitive disadvantage for foreign 
dealing entities described by the commenters. Thus, relative to the 
proposed compliance schedule, the adopted compliance schedule should 
promote competition among U.S. and foreign dealing entities that supply 
liquidity to the security-based swap market.
    In summary, the Commission now believes, in light of the comments 
received on its proposal, that it would better promote efficiency, 
competition, and capital formation to delay compliance with the 
reporting obligations of Regulation SBSR until after the SBS entities 
registration compliance date.
    The compliance schedule adopted herein also is based on the first 
SDR in an asset class to register with the Commission, which could 
confer a ``first-mover advantage.'' \984\ The first registered SDR 
could potentially capture a significant share of the SDR market because 
reporting parties, uncertain as to whether or when registration of 
other SDRs' applications might be granted, could feel compelled to 
onboard with the first registered SDR to secure sufficient time to 
prepare for Compliance Date 1.\985\ Furthermore, the first registered 
SDR could hold on to its share of the SDR market for long periods if 
reporting persons that are connected to it face high costs of switching 
to a different registered SDR. Thus, the first mover advantage could 
potentially limit competition by making it more difficult for new SDR 
entrants to sign on reporting clients.
---------------------------------------------------------------------------

    \984\ See WMBAA Letter at 6; DTCC Letter at 12; SIFMA Letter at 
17; DTCC/ICE/CME Letter at 4-5; ISDA/SIFMA Letter at 18.
    \985\ See DTCC Letter at 12; DTCC/ICE/CME Letter at 4-5; ISDA/
SIFMA Letter at 18.
---------------------------------------------------------------------------

    The Commission acknowledges that a first mover could emerge. 
Nevertheless, the Commission believes that, if one SDR application 
satisfies the criteria of Rule 13n-1(c)(3) under the Exchange Act 
before any others, it would not be appropriate for the Commission to 
delay

[[Page 53650]]

granting its registration because of the status of other SDR 
applications.\986\ The Commission continues to believe that most 
persons that have the desire and ability to operate as SEC-registered 
SDRs are already operational in the swaps market as swap data 
repositories provisionally registered with the CFTC, and each should 
have a strong incentive to submit applications to register with the 
Commission quickly.\987\ Thus, there is less likelihood of multiple 
applications arriving over an extended period of time, and 
consequently, a lower likelihood of a first mover emerging.
---------------------------------------------------------------------------

    \986\ See supra Section X(C)(4).
    \987\ See Regulation SBSR Proposed Amendments Release, 80 FR at 
14786.
---------------------------------------------------------------------------

    Even if a first mover emerges, other Commission rules are designed 
to minimize any potential of a monopoly advantage that the first SDR 
might otherwise enjoy. All SDRs, even the first or only registered SDR 
in a particular asset class, must offer fair, open, and not 
unreasonably discriminatory access to users of its services.\988\ 
Moreover, any fees charged by an SDR must be fair and reasonable and 
not unreasonably discriminatory.\989\
---------------------------------------------------------------------------

    \988\ See Rule 13n-4(c)(1)(iii) under the Exchange Act, 17 CFR 
240.13n-4(c)(1)(iii).
    \989\ See Rule 13n-4(c)(1)(i) under the Exchange Act, 17 CFR 
240.13n-4(c)(1)(i).
---------------------------------------------------------------------------

    The newly adopted compliance schedule could give added incentive to 
avoid delaying the submission of an application for registration as an 
SDR and to commence operation as an SEC-registered SDR as quickly as 
possible. This result would help the Commission and other relevant 
authorities obtain information about the security-based swap market for 
oversight purposes as quickly as possible, and also allow the public to 
obtain price, volume, and transaction information about all security-
based swaps as quickly as possible.
    As proposed in the Regulation SBSR Proposed Amendments Release, all 
historical security-based swaps in a particular asset class would have 
had to be reported to a registered SDR by proposed Compliance Date 1. 
As discussed in Section X(E), supra, the Commission has revised the 
compliance schedule to dissociate the requirement to report historical 
security-based swaps from Compliance Date 1. With respect to historical 
security-based swaps in a particular asset class, new Compliance Date 3 
for the reporting of historical transactions is two months after 
Compliance Date 2, the date on which public dissemination commences. 
The Commission believes that the additional compliance delay for 
reporting historical security-based swaps represents an appropriate 
balancing of the benefits of mandatory reporting against the likely 
costs. Mandatory reporting of historical security-based swaps is 
generally less urgent than the reporting of newly executed 
transactions, particularly in light of the fact that most security-
based swaps in the credit derivative asset class are already being 
reported on a voluntary basis to TIW. Because only available 
information about historical transactions must be reported, the 
Commission does not anticipate that reports of historical transactions 
made to registered SDRs will be significantly more informative than the 
reports already available through TIW.
    Several commenters were concerned that requiring reporting pursuant 
to Regulation SBSR to begin before the Commission has made substituted 
compliance determinations ``would impose significant and unnecessary 
burdens'' on non-U.S. registered persons. Changes made by non-U.S. 
persons to their reporting infrastructure to comply with Regulation 
SBSR may not be necessary, in the commenters' views, if the Commission 
subsequently grants substituted compliance to these non-U.S. 
persons.\990\ The Commission acknowledges the commenters' concern 
regarding burdens that may arise if compliance with Regulation SBSR 
precedes substituted compliance determinations. However, as discussed 
in Section X(C)(5), supra, the Commission does not believe that it is 
appropriate to defer compliance with Regulation SBSR until after the 
Commission makes one or more substituted compliance determinations. The 
Commission understands that changes made by non-U.S. persons to their 
reporting infrastructure to comply with Regulation SBSR might become 
unnecessary if substituted compliance is granted. However, these 
changes could be limited to the extent that the Commission and other 
jurisdictions require the collection and reporting of similar 
transaction information.
---------------------------------------------------------------------------

    \990\ See ISDA I at 15; ISDA/SIFMA Letter at 19; SIFMA/FSR 
Letter at 15.
---------------------------------------------------------------------------

H. Amendments Related to Cross-Border Transactions

    The amendments to Rules 901 and 908 adopted today will, among other 
things, apply Regulation SBSR's regulatory reporting and public 
dissemination requirements to all security-based swap transactions of a 
foreign dealing entity that are arranged, negotiated, or executed by 
U.S. personnel. Such ANE transactions are already subject to regulatory 
reporting and public dissemination if the other side includes a U.S. 
person. The amendments adopted today extend the regulatory reporting 
and public dissemination requirement to all ANE transactions, even if 
the other side is non-U.S. and not engaging in ANE activity. These 
amendments also for the first time assign the duty to report 
transactions between unregistered U.S. persons and unregistered non-
U.S. persons. These amendments will have several effects on efficiency, 
competition, and capital formation in the U.S. financial market.
1. Competition
    These amendments to Rules 901 and 908 will have implications for 
competition among market participants that intermediate transactions in 
security-based swaps as well as counterparties to security-based swaps. 
These amendments are designed to promote competition among liquidity 
providers in the security-based swap market by imposing consistent 
reporting and public dissemination requirements on both U.S. and 
foreign dealing entities, when the latter are engaging in ANE activity. 
If only U.S. dealing entities were subject to regulatory reporting and 
public dissemination requirements, the costs of these requirements 
would primarily affect U.S. dealing entities, their agents, and their 
counterparties. In contrast, foreign dealing entities and their agents, 
who might not be subject to comparable requirements in their home 
jurisdictions, could have a competitive advantage over U.S. dealing 
entities in serving unregistered non-U.S. counterparties using 
personnel located in a U.S. branch or office, were their activities not 
subject to the same requirements.\991\
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    \991\ See, e.g., Arnoud W.A. Boot, Silva Dezelan, and Todd T. 
Milbourn, ``Regulatory Distortions in a Competitive Financial 
Services Industry,'' Journal of Financial Services Research, Vol. 
17, No. 1 (2000) (showing that, in a simple industrial organization 
model of bank lending, a change in the cost of capital resulting 
from regulation results in a greater loss of profits when regulated 
banks face competition from unregulated banks than when regulations 
apply equally to all competitors).
---------------------------------------------------------------------------

    These amendments to Rules 901 and 908 also are designed to promote 
competition between U.S. persons and non-U.S. persons that trade with 
foreign dealing entities, when a foreign dealing entity is utilizing 
U.S. personnel. A transaction between an unregistered foreign dealing 
entity engaging in ANE activity and a U.S. counterparty already is 
subject to regulatory reporting and public dissemination under existing 
Rule 908(a)(1)(i). In the absence of

[[Page 53651]]

newly adopted Rules 901(a)(2)(ii)(E)(2) and (3), however, no one would 
be assigned to report such a transaction. Furthermore, in the absence 
of new Rule 908(b)(5), an unregistered foreign dealing entity engaged 
in an ANE transaction would not be subject to Regulation SBSR. This 
could create a competitive advantage for non-U.S. persons over 
similarly situated U.S. persons when they trade with foreign dealing 
entities. An unregistered foreign dealing entity might be able offer 
liquidity to a non-U.S. person at a lower price than to the U.S. person 
because the foreign dealing entity would not have to embed the 
potential costs of regulatory reporting and public dissemination into 
the price offered to the non-U.S. person. By contrast, the price 
offered by the unregistered foreign dealing entity to the U.S. person 
would likely reflect these additional costs, to the extent that public 
dissemination of a particular transaction imposes costs on the 
counterparties.\992\ While the benefit of lower prices obtained by non-
U.S. persons would depend on the magnitude of the perceived costs of 
public dissemination, the Commission believes that it is appropriate to 
place the transactions of U.S. persons and non-U.S. persons on a more 
equal footing, so that non-U.S. persons do not have a competitive 
advantage over U.S. persons when engaging in security-based swap 
transactions that, due to the involvement of U.S. personnel of the 
foreign dealing entity, exist at least in part within the United 
States.
---------------------------------------------------------------------------

    \992\ This effect would be diminished to the extent that a 
transaction of a foreign dealing entity is subject to public 
dissemination requirements under the rules of a foreign 
jurisdiction, and the costs of public dissemination are already 
factored into the prices offered to its counterparties.
---------------------------------------------------------------------------

    The amendments to Rules 901 and 908 adopted herein also apply 
consistent regulatory reporting and public dissemination requirements 
to transactions between unregistered non-U.S. persons that are 
platform-executed or effected by or through registered broker-dealers. 
Because there will be very few such transactions, the Commission 
believes that the application of regulatory requirements is unlikely to 
generate competitive frictions between these different types of 
providers of intermediation services.\993\
---------------------------------------------------------------------------

    \993\ See U.S. Activity Proposal, 80 FR at 27501.
---------------------------------------------------------------------------

    As discussed in Section XII(B)(1)(2), supra, unregistered U.S. 
persons likely will seek to avoid the costs of assessing whether a 
foreign counterparty is engaging in ANE activity by choosing to 
transact only with registered entities for which assessment is not 
required. To the extent that unregistered U.S. persons avoid 
transacting with unregistered foreign dealing entities engaging in ANE 
activity in favor of transacting with registered entities, these 
foreign dealing entities could be at a competitive disadvantage when 
competing with registered entities to provide liquidity to unregistered 
U.S. persons. However, this competitive disadvantage could be limited 
if unregistered foreign dealing entities readily provide information on 
their use of U.S. personnel to unregistered U.S. persons who are 
potential counterparties, thereby obviating the need for the U.S. 
persons to conduct an assessment. Further, the competitive disadvantage 
could be eliminated entirely if a foreign dealing entity registers with 
the Commission as a security-based swap dealer. An unregistered foreign 
dealing entity that remains below the de minimis threshold may seek to 
register as a security-based swap dealer if the benefits from providing 
liquidity to unregistered U.S. persons are sufficient to justify the 
costs associated with dealer registration.
2. Efficiency
    The Regulation SBSR Adopting Release did not address when an 
uncleared security-based swap involving only unregistered non-U.S. 
persons would be subject to regulatory reporting and/or public 
dissemination. The amendments to Rules 901 and 908 adopted herein, by 
requiring the public dissemination of ANE transactions, including those 
that are uncleared security-based swaps involving only unregistered 
non-U.S. persons, will increase price competition and price efficiency 
in the security-based swap market generally,\994\ and enable all market 
participants to have more comprehensive information with which to make 
trading and valuation determinations for security-based swaps and 
related and underlying assets. The reporting of all ANE transactions to 
a registered SDR should enhance the Commission's ability to oversee 
security-based swap activity occurring within the United States and to 
monitor for compliance with specific Title VII requirements (including 
the requirement that a person register with the Commission as a 
security-based swap dealer if it exceeds the de minimis threshold). The 
reporting of these transactions likely will enhance the Commission's 
ability to monitor for manipulative and abusive practices involving 
security-based swap transactions or transactions in related underlying 
assets, such as corporate bonds or other securities transactions that 
result from dealing activity, or other relevant activity, in the U.S. 
market. The knowledge that the Commission and other relevant 
authorities are able to conduct surveillance on the basis of regulatory 
reporting could encourage greater participation in the security-based 
swap market since surveillance and the resulting increased probability 
of detection may deter potential market abuse. This could result in 
improved efficiency, due to the availability of more risk-sharing 
opportunities between market participants.
---------------------------------------------------------------------------

    \994\ See Regulation SBSR Adopting Release, 80 FR at 14720-21.
---------------------------------------------------------------------------

    The Commission acknowledges the risk that, in response to the 
adopted amendments, foreign dealing entities, trading platforms, and/or 
registered broker-dealers could restructure their operations to avoid 
triggering requirements under Regulation SBSR. For example, a foreign 
dealing entity could restrict its U.S. personnel from intermediating 
transactions with non-U.S. persons, a trading platform might choose to 
move its principal place of business offshore, or a registered broker-
dealer might cease to effect transactions in security-based swaps 
between unregistered non-U.S. persons. Such restructurings, if they 
occurred, could have an adverse effect on the efficiency of the 
security-based swap market by fragmenting liquidity between a U.S. 
security-based swap market--occupied by U.S. persons and non-U.S. 
persons willing to participate within the Title VII regulatory 
framework, with intermediation services provided by registered broker-
dealers and U.S.-based trading platforms--and an offshore market in 
which participants seek to avoid any activity that could trigger 
application of Title VII to their security-based swap activity.\995\ 
Such market fragmentation could reduce the amount of liquidity 
available to market participants whose activity is regulated by Title 
VII, increase their search costs, or erode any gains in price 
efficiency and allocative efficiency that might otherwise result from 
regulatory reporting and public dissemination of all security-based 
swap transactions that exist at least in part within the United States. 
If foreign dealing entities use only agents who are located outside the 
United States, there could be reduced competition in the market for 
security-based swap intermediation services and this smaller pool of 
competitors could in turn charge higher prices for intermediation. The 
result would be higher costs of searching for suitable

[[Page 53652]]

counterparties. Higher search costs could in turn reduce the number of 
risk-sharing trades that foreign dealing entities execute and thus 
adversely affect risk-sharing efficiency in the security-based swap 
market broadly.
---------------------------------------------------------------------------

    \995\ See Cross-Border Adopting Release, 79 FR at 47364.
---------------------------------------------------------------------------

    The Commission has already considered the likelihood that foreign 
dealing entities will cease using U.S. personnel to avoid Title VII 
requirements (such as security-based swap dealer registration).\996\ 
The Commission continues to believe that market fragmentation that 
results from relocation of personnel is less likely because foreign 
dealing entities that elect to use such a strategy to avoid regulatory 
reporting requirements under Title VII also would bear the costs of 
restructuring their operations and potentially forgoing the benefits of 
access to local expertise in security-based swaps that are traded in 
the U.S. market.\997\ Furthermore, the Commission believes that the 
amendments adopted herein, by extending Regulation SBSR to a small set 
of ANE transactions involving only non-U.S. persons and assigning the 
duty for reporting them, will impose only marginal burdens on platforms 
and registered broker-dealers.
---------------------------------------------------------------------------

    \996\ See U.S. Activity Adopting Release, 81 FR at 8629-30.
    \997\ See id. at 8633.
---------------------------------------------------------------------------

3. Capital Formation
    The amendments adopted herein could affect capital formation by 
affecting the transparency, liquidity, and stability of the market in 
which issuers seek capital. In the Regulation SBSR Adopting Release, 
the Commission identified benefits associated with the regulatory 
reporting and public dissemination of security-based swaps, such as 
increased transparency, improved liquidity, and greater market 
stability.\998\ The Regulation SBSR Adopting Release did not impose any 
requirements on transactions between unregistered non-U.S. persons, 
even if one side was engaging in ANE activity. The amendments adopted 
in this release, by extending Regulation SBSR to all ANE transactions, 
should extend the benefits of regulatory reporting and public 
dissemination to all ANE transactions, which in turn could lead to more 
efficient allocation of capital by market participants and market 
observers.
---------------------------------------------------------------------------

    \998\ See 80 FR at 14719-22.
---------------------------------------------------------------------------

    The Commission recognizes that the amendments to Rules 901 and 908 
adopted herein could impede capital formation by fragmenting the 
security-based swap market. As discussed in Section XIII(H)(2), supra, 
fragmentation of the security-based swap market could occur if market 
participants restructure their business activities by moving their 
personnel and operations offshore or restrict the counterparties to 
whom such persons may provide services. Such actions could impede 
capital formation because resources that market participants expend to 
restructure would not be available for investing in productive assets. 
Furthermore, fragmentation could create two separate security-based 
swap markets: A U.S. security-based swap market and an off-shore 
security-based swap market.\999\ If fragmentation reduces the pool of 
market participants in the U.S. market, the market could experience 
lower trading activity and liquidity which in turn could reduce the 
ability of U.S. market participants to hedge financial and commercial 
risks and force them to put more resources into precautionary savings 
instead of investing those resources into productive assets.
---------------------------------------------------------------------------

    \999\ See id.
---------------------------------------------------------------------------

    However, as the Commission noted in Section XIII(H)(2), supra, the 
amendments adopted herein, by extending Regulation SBSR to all ANE 
transactions, will impose only marginal burdens on foreign dealing 
entities. The Commission does not believe that these limited burdens 
will cause foreign dealing entities to restructure their operations and 
fragment the security-based swap market such that capital formation 
would be adversely affected.

XIV. Regulatory Flexibility Act Certification

    The Regulatory Flexibility Act (``RFA'') requires federal agencies, 
in promulgating rules, to consider the impact of those rules on small 
entities. Section 603(a) of the Administrative Procedure Act,\1000\ as 
amended by the RFA, generally requires the Commission to undertake a 
regulatory flexibility analysis of all proposed rules, or proposed rule 
amendments, to determine the impact of such rulemaking on ``small 
entities.'' \1001\ Section 605(b) of the RFA \1002\ states that this 
requirement shall not apply to any proposed rule or proposed rule 
amendment which, if adopted, would not have a significant economic 
impact on a substantial number of small entities.
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    \1000\ 5 U.S.C. 603(a).
    \1001\ 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 of the term 
``small entity'' for the purposes of Commission rulemaking in 
accordance with the RFA. Those definitions, as relevant to this 
proposed rulemaking, are set forth in Rule 0-10 under the Exchange 
Act, 17 CFR 240.0-10. See Securities Exchange Act Release No. 18451 
(January 28, 1982), 47 FR 5215 (February 4, 1982) (File No. AS-305).
    \1002\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------

    In developing the final rules contained in Regulation SBSR, the 
Commission has considered their potential impact on small entities. For 
purposes of Commission rulemaking in connection with the RFA, a small 
entity includes: (1) When used with reference to an ``issuer'' or a 
``person,'' other than an investment company, an ``issuer'' or 
``person'' that, on the last day of its most recent fiscal year, had 
total assets of $5 million or less; \1003\ or (2) a broker-dealer with 
total capital (net worth plus subordinated liabilities) of less than 
$500,000 on the date in the prior fiscal year as of which its audited 
financial statements were prepared pursuant to Rule 17a-5(d) under the 
Exchange Act,\1004\ 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.\1005\ Under the 
standards adopted by the Small Business Administration, small entities 
in the finance and insurance industry include the following: (1) For 
entities engaged in credit intermediation and related activities,\1006\ 
entities with $550 million or less in assets; (2) for non-depository 
credit intermediation and certain other activities,\1007\ entities 
engaged in non-depository credit intermediation and related activities, 
$38.5 million or less in annual receipts; (3) for entities engaged in 
financial investments and related activities,\1008\ entities with $38.5 
million or less in annual receipts; (4) for

[[Page 53653]]

insurance carriers and entities engaged in related activities,\1009\ 
entities with $38.5 million or less in annual receipts, or 1,500 
employees for direct property and casualty insurance carriers; and (5) 
for funds, trusts, and other financial vehicles,\1010\ entities with 
$32.5 million or less in annual receipts.
---------------------------------------------------------------------------

    \1003\ See 17 CFR 240.0-10(a).
    \1004\ 17 CFR 240.17a-5(d).
    \1005\ See 17 CFR 240.0-10(c).
    \1006\ 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. See 13 CFR 121.201 at 
Subsector 522.
    \1007\ 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. See 13 CFR 121.201 at Subsector 522.
    \1008\ 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. See 
13 CFR 121.201 at Subsector 523.
    \1009\ 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. See 13 CFR 121.201 at Subsector 524.
    \1010\ 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. See 13 CFR 121.201 at Subsector 525.
---------------------------------------------------------------------------

    In the U.S. Activity Proposal, the Commission stated its belief 
that the majority of the amendments to Regulation SBSR proposed in that 
release would not have a significant economic impact on a substantial 
number of small entities for the purposes of the RFA.\1011\ However, 
the Commission acknowledged that the proposed amendments would require 
a registered broker-dealer (including a registered SB SEF) to report a 
security-based swap transaction that is effected by or through 
it.\1012\ The Commission further estimated that 30 registered broker-
dealers (including SB SEFs) could be required to report such 
transactions, although the Commission was not able to estimate the 
number of those registered broker-dealers that would be ``small 
entities.'' \1013\ As a result, the Commission stated its preliminary 
belief that it is unlikely that these registered broker-dealers would 
be small entities and requested comment on the number of registered 
broker-dealers that are small entities that would be impacted by the 
proposed amendments, including any available empirical data.\1014\
---------------------------------------------------------------------------

    \1011\ See 80 FR at 27509.
    \1012\ See id.
    \1013\ See id.
    \1014\ See id.
---------------------------------------------------------------------------

    In the Regulation SBSR Proposed Amendments Release, the Commission 
certified that the amendments proposed in that release would not have a 
significant economic impact on a substantial number of small entities 
for purposes of the RFA.\1015\ The Commission believes, based on input 
from security-based swap market participants and its own information, 
that the majority of security-based swap transactions have at least one 
counterparty that is either a security-based swap dealer or major 
security-based swap participant, and that these entities--whether 
registered broker-dealers or not--would exceed the thresholds defining 
``small entities'' set out above. The Commission continues to believe 
that the vast majority of, if not all, security-based swap transactions 
are between large entities for purposes of the RFA.
---------------------------------------------------------------------------

    \1015\ See 80 FR at 14801.
---------------------------------------------------------------------------

    In addition, the Commission believes that persons that are likely 
to register as SDRs would not be small entities. Based on input from 
security-based swap market participants and its own information, the 
Commission continues to believe that most if not all registered SDRs 
will be part of large business entities, and that all registered SDRs 
will have assets in excess of the thresholds discussed above. 
Therefore, the Commission continues to believe that no registered SDRs 
will be small entities.
    The Commission received no comments on the certification in the 
Regulation SBSR Proposed Amendments Release or, as indicated above, the 
Initial Regulatory Flexibility Analysis in the U.S. Activity Proposal. 
Accordingly, the Commission hereby certifies that the final rules 
adopted in this release will not have a significant impact on a 
substantial number of small entities for the purposes of the RFA.

XV. Statutory Basis

    Pursuant to the Exchange Act, 15 U.S.C. 78a et seq., and 
particularly Sections 3C(e), 11A(b), 13(m)(1), 13A(a), 23(a)(1), 30(c), 
and 36(a) thereof, 15 U.S.C. 78c-3(e), 78k-1(b), 78m(m)(1), 78m-1(a), 
78w(a)(1), 78dd(c), and 78mm(a), the Commission is amending Rules 900, 
901, 902, 905, 906, 907, and 908 of Regulation SBSR under the Exchange 
Act, 17 CFR 242.900, 242.901, 242.902, 242.905, 242.906, 242.907, and 
242.908.

List of Subjects in 17 CFR Part 242

    Brokers, Reporting and recordkeeping requirements, Securities.

Text of Amendments

    In accordance with the foregoing, the Commission amends 17 CFR part 
242 as follows:

PART 242--REGULATIONS M, SHO, ATS, AC, NMS, AND SBSR AND CUSTOMER 
MARGIN REQUIREMENTS FOR SECURITY FUTURES

0
1. The authority citation for part 242 continues to read as follows:

    Authority: 15 U.S.C. 77g, 77q(a), 77s(a), 78b, 78c, 78g(c)(2), 
78i(a), 78j, 78k-l(c), 78l, 78m, 78n, 78o(b), 78o(c), 78o(g), 
78q(a), 78q(b), 78q(h), 78w(a), 78dd-1, 78mm, 80a-23, 80a-29, and 
80a-37.

0
2. In Sec.  242.900, revise paragraph (u) and add paragraph (tt) to 
read as follows:


Sec.  242.900  Definitions.

* * * * *
    (u) Participant, with respect to a registered security-based swap 
data repository, means:
    (1) A counterparty, that meets the criteria of Sec.  242.908(b), of 
a security-based swap that is reported to that registered security-
based swap data repository to satisfy an obligation under Sec.  
242.901(a);
    (2) A platform that reports a security-based swap to that 
registered security-based swap data repository to satisfy an obligation 
under Sec.  242.901(a);
    (3) A registered clearing agency that is required to report to that 
registered security-based swap data repository whether or not it has 
accepted a security-based swap for clearing pursuant to Sec.  
242.901(e)(1)(ii); or
    (4) A registered broker-dealer (including a registered security-
based swap execution facility) that is required to report a security-
based swap to that registered security-based swap data repository by 
Sec.  242.901(a).
* * * * *
    (tt) Widely accessible, as used in paragraph (cc) of this section, 
means widely available to users of the information on a non-fee basis.

0
3. In Sec.  242.901 add paragraphs (a)(1), (a)(2)(i), (a)(2)(ii)(E)(2) 
through (4), (a)(3), and (e)(1)(ii) and revise paragraphs (d)(4), 
(d)(8), (d)(9), (e)(2), and (h) to read as follows:


Sec.  242.901  Reporting obligations.

    (a) * * *
    (1) Platform-executed security-based swaps that will be submitted 
to clearing. If a security-based swap is executed on a platform and 
will be submitted to clearing, the platform on which the transaction 
was executed shall report to a registered security-based swap data 
repository the counterparty ID or the execution agent ID of each direct 
counterparty, as applicable, and the information set forth in paragraph 
(c) of this section (except that, with respect to paragraph (c)(5) of 
this section, the platform need indicate only if both direct 
counterparties are registered security-based swap dealers) and 
paragraphs (d)(9) and (10) of this section.
    (2) * * *
    (i) Clearing transactions. For a clearing transaction, the 
reporting side is the registered clearing agency that is a counterparty 
to the transaction.
    (ii) * * *
    (E) * * *

[[Page 53654]]

    (2) If one side includes a non-U.S. person that falls within Sec.  
242.908(b)(5) or a U.S. person and the other side includes a non-U.S. 
person that falls within Sec.  242.908(b)(5), the sides shall select 
the reporting side.
    (3) If one side includes only non-U.S. persons that do not fall 
within Sec.  242.908(b)(5) and the other side includes a non-U.S. 
person that falls within Sec.  242.908(b)(5) or a U.S. person, the side 
including a non-U.S. person that falls within Sec.  242.908(b)(5) or a 
U.S. person shall be the reporting side.
    (4) If neither side includes a U.S. person and neither side 
includes a non-U.S. person that falls within Sec.  242.908(b)(5) but 
the security-based swap is effected by or through a registered broker-
dealer (including a registered security-based swap execution facility), 
the registered broker-dealer (including a registered security-based 
swap execution facility) shall report the counterparty ID or the 
execution agent ID of each direct counterparty, as applicable, and the 
information set forth in paragraph (c) of this section (except that, 
with respect to paragraph (c)(5) of this section, the registered 
broker-dealer (including a registered security-based swap execution 
facility) need indicate only if both direct counterparties are 
registered security-based swap dealers) and paragraphs (d)(9) and (10) 
of this section.
    (3) Notification to registered clearing agency. A person who, under 
paragraph (a)(1) or (a)(2)(ii) of this section, has a duty to report a 
security-based swap that has been submitted to clearing at a registered 
clearing agency shall promptly provide that registered clearing agency 
with the transaction ID of the submitted security-based swap and the 
identity of the registered security-based swap data repository to which 
the transaction will be reported or has been reported.
* * * * *
    (d) * * *
    (4) For a security-based swap that is not a clearing transaction 
and that will not be allocated after execution, the title and date of 
any master agreement, collateral agreement, margin agreement, or any 
other agreement incorporated by reference into the security-based swap 
contract;
* * * * *
    (8) To the extent not provided pursuant to the other provisions of 
this paragraph (d), if the direct counterparties do not submit the 
security-based swap to clearing, a description of the settlement terms, 
including whether the security-based swap is cash-settled or physically 
settled, and the method for determining the settlement value;
    (9) The platform ID, if applicable, or if a registered broker-
dealer (including a registered security-based swap execution facility) 
is required to report the security-based swap by Sec.  
242.901(a)(2)(ii)(E)(4), the broker ID of that registered broker-dealer 
(including a registered security-based swap execution facility); and
* * * * *
    (e) * * *
    (1) * * *
    (ii) Acceptance for clearing. A registered clearing agency shall 
report whether or not it has accepted a security-based swap for 
clearing.
    (2) All reports of life cycle events and adjustments due to life 
cycle events shall, within the timeframe specified in paragraph (j) of 
this section, be reported to the entity to which the original security-
based swap transaction will be reported or has been reported and shall 
include the transaction ID of the original transaction.
* * * * *
    (h) Format of reported information. A person having a duty to 
report shall electronically transmit the information required under 
this section in a format required by the registered security-based swap 
data repository to which it reports.
* * * * *

0
4. In Sec.  242.902, revise paragraphs (c)(6) and (7) and add paragraph 
(c)(8) to read as follows:


Sec.  242.902  Public dissemination of transaction reports.

* * * * *
    (c) * * *
    (6) Any information regarding a clearing transaction that arises 
from the acceptance of a security-based swap for clearing by a 
registered clearing agency or that results from netting other clearing 
transactions;
    (7) Any information regarding the allocation of a security-based 
swap; or
    (8) Any information regarding a security-based swap that has been 
rejected from clearing or rejected by a prime broker if the original 
transaction report has not yet been publicly disseminated.
* * * * *

0
5. In Sec.  242.905, revise paragraph (a) to read as follows:


Sec.  242.905  Correction of errors in security-based swap information.

    (a) Duty to correct. Any counterparty or other person having a duty 
to report a security-based swap that discovers an error in information 
previously reported pursuant to Sec. Sec.  242.900 through 242.909 
shall correct such error in accordance with the following procedures:
    (1) If a person that was not the reporting side for a security-
based swap transaction discovers an error in the information reported 
with respect to such security-based swap, that person shall promptly 
notify the person having the duty to report the security-based swap of 
the error; and
    (2) If the person having the duty to report a security-based swap 
transaction discovers an error in the information reported with respect 
to a security-based swap, or receives notification from a counterparty 
of an error, such person shall promptly submit to the entity to which 
the security-based swap was originally reported an amended report 
pertaining to the original transaction report. If the person having the 
duty to report reported the initial transaction to a registered 
security-based swap data repository, such person shall submit an 
amended report to the registered security-based swap data repository in 
a manner consistent with the policies and procedures contemplated by 
Sec.  242.907(a)(3).
* * * * *

0
6. Revise Sec.  242.906 to read as follows:


Sec.  242.906  Other duties of participants.

    (a) Identifying missing UIC information. A registered security-
based swap data repository shall identify any security-based swap 
reported to it for which the registered security-based swap data 
repository does not have the counterparty ID and (if applicable) the 
broker ID, branch ID, execution agent ID, trading desk ID, and trader 
ID of each direct counterparty. Once a day, the registered security-
based swap data repository shall send a report to each participant of 
the registered security-based swap data repository or, if applicable, 
an execution agent, identifying, for each security-based swap to which 
that participant is a counterparty, the security-based swap(s) for 
which the registered security-based swap data repository lacks 
counterparty ID and (if applicable) broker ID, branch ID, execution 
agent ID, trading desk ID, and trader ID. A participant of a registered 
security-based swap data repository that receives such a report shall 
provide the missing information with respect to its side of each 
security-based swap referenced in the report to the registered 
security-based swap data repository within 24 hours.
    (b) Duty to provide ultimate parent and affiliate information. Each 
participant of a registered security-based swap data repository that is 
not a

[[Page 53655]]

platform, a registered clearing agency, an externally managed 
investment vehicle, or a registered broker-dealer (including a 
registered security-based swap execution facility) that becomes a 
participant solely as a result of making a report to satisfy an 
obligation under Sec.  242.901(a)(2)(ii)(E)(4) shall provide to the 
registered security-based swap data repository information sufficient 
to identify its ultimate parent(s) and any affiliate(s) of the 
participant that also are participants of the registered security-based 
swap data repository, using ultimate parent IDs and counterparty IDs. 
Any such participant shall promptly notify the registered security-
based swap data repository of any changes to that information.
    (c) Policies and procedures to support reporting compliance. Each 
participant of a registered security-based swap data repository that is 
a registered security-based swap dealer, registered major security-
based swap participant, registered clearing agency, platform, or 
registered broker-dealer (including a registered security-based swap 
execution facility) that becomes a participant solely as a result of 
making a report to satisfy an obligation under Sec.  
242.901(a)(2)(ii)(E)(4) shall establish, maintain, and enforce written 
policies and procedures that are reasonably designed to ensure that it 
complies with any obligations to report information to a registered 
security-based swap data repository in a manner consistent with 
Sec. Sec.  242.900 through 242.909. Each such participant shall review 
and update its policies and procedures at least annually.

0
7. In Sec.  242.907, revise paragraph (a)(6) to read as follows:


Sec.  242.907  Policies and procedures of registered security-based 
swap data repositories.

    (a) * * *
    (6) For periodically obtaining from each participant other than a 
platform, registered clearing agency, externally managed investment 
vehicle, or registered broker-dealer (including a registered security-
based swap execution facility) that becomes a participant solely as a 
result of making a report to satisfy an obligation under Sec.  
242.901(a)(2)(ii)(E)(4) information that identifies the participant's 
ultimate parent(s) and any participant(s) with which the participant is 
affiliated, using ultimate parent IDs and counterparty IDs.
* * * * *
0
8. In Sec.  242.908:
0
a. Amend paragraph (a)(1)(i) by removing the ``or'' at the end of the 
paragraph;
0
b. Amend paragraph (a)(1)(ii) by removing the period at the end of the 
paragraph and adding in its place a semicolon;
0
c. Add paragraphs (a)(1)(iii) through (v);
0
d. Revise paragraphs (b)(1) and (2); and
0
e. Add paragraphs (b)(3) through (5).
    The revisions and additions read as follows:


Sec.  242.908  Cross-border matters.

    (a) * * *
    (1) * * *
    (iii) The security-based swap is executed on a platform having its 
principal place of business in the United States;
    (iv) The security-based swap is effected by or through a registered 
broker-dealer (including a registered security-based swap execution 
facility); or
    (v) The transaction is connected with a non-U.S. person's security-
based swap dealing activity and is arranged, negotiated, or executed by 
personnel of such non-U.S. person located in a U.S. branch or office, 
or by personnel of an agent of such non-U.S. person located in a U.S. 
branch or office.
* * * * *
    (b) * * *
    (1) A U.S. person;
    (2) A registered security-based swap dealer or registered major 
security-based swap participant;
    (3) A platform;
    (4) A registered clearing agency; or
    (5) A non-U.S. person that, in connection with such person's 
security-based swap dealing activity, arranged, negotiated, or executed 
the security-based swap using its personnel located in a U.S. branch or 
office, or using personnel of an agent located in a U.S. branch or 
office.
* * * * *

    By the Commission.

    Dated: July 14, 2016.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2016-17032 Filed 8-11-16; 8:45 am]
 BILLING CODE 8011-01-P