[Federal Register Volume 84, Number 77 (Monday, April 22, 2019)]
[Notices]
[Pages 16751-16753]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-08037]


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SECURITIES AND EXCHANGE COMMISSION


Proposed Collection; Comment Request

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

Extension:
    Business Conduct Standards for Security-Based Swap Dealers and 
Major Security-Based Swap Participants, SEC File No. 270-792; OMB 
Control No. 3235-0739.

    Notice is hereby given that pursuant to the Paperwork Reduction Act 
of 1995 (``PRA'') (44 U.S.C. 3501 et seq.), the Securities and Exchange 
Commission (``Commission'') is soliciting comments on the collection of 
information provided for in Business Conduct Standards for Security-
Based Swap Dealers and Major Security-Based Swap Participants.\1\ (17 
CFR 240.3a67-10, 240.3a71-3,240.3a71-6, 240.15Fh-1 through 15Fh-6 and 
240.15Fk-1), under the Securities Exchange Act of 1934 (15 U.S.C. 78a 
et seq.). The Commission plans to submit this existing collection of 
information to the Office of Management and Budget (``OMB'') for 
extension and approval.
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    \1\ Business Conduct Standards for Security-Based Swap Dealers 
and Major Security-Based Swap Participants, Exchange Act Release 
77617 (Apr. 14, 2016), 81 FR 29959 (May 13, 2016). See also Business 
Conduct Standards for Security-Based Swap Dealers and Major 
Security-Based Swap Participants; Correction, Exchange Act Release 
77617A (May 19, 2016), 81 FR 32643 (May 24, 2016). (together, `the 
Business Conduct Rules for SBSDs and MSBSPs'' or ``BCS Rules'')
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    In 2010, Congress passed the Dodd-Frank Act, establishing a 
comprehensive framework for regulating the over-the-counter swaps 
markets. As required by Title VII of the Dodd-Frank Act, new section 
15F(h) of the Exchange Act established business conduct standards for 
security-based swap (``SBS'') Dealers and Major SBS Participants 
(``collectively ``SBS Entities'') in their dealings with 
counterparties, including special entities. In 2016, in order to 
implement the Dodd-Frank Act, the Commission adopted the BCS Rules for 
SBS Dealers and Major SBS Participants,\2\ a comprehensive set of 
business conduct standards and chief compliance officer requirements 
applicable to SBS Entities, that are designed to enhance transparency, 
facilitate informed customer decision-making, and heighten standards of 
professional conduct to better protect investors.\3\
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    \2\ Id.
    \3\ Commission staff has prepared separate supporting statements 
pursuant to the Paperwork Reduction Act (``PRA'') regarding final 
Rule 3a71-3(c) and Rule 3a71-6, which address the cross-border 
application of the business conduct standards and the availability 
of substituted compliance. The Office of Management and Budget 
(``OMB'') has assigned control number 3235-0717 to Final Rule 3a71-
3(c) and 3235-0715 to Final Rule 3a71-6. Final Rule 3a67-10(d) is a 
definitional rule and does not have a PRA burden associated with it. 
Rules 3a71-3(a), Rule 15Fh-1 and Rules 15Fh-2(b) and (c) address 
scope of the rules and definitions and so do not have PRA burdens 
associated with them.
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    Rules 15Fh-1 through 15Fh-6 and 15Fk-1 require SBS Entities to:
     Verify whether a counterparty is an eligible contract 
participant and whether it is a special entity;
     Disclose to the counterparty material information about 
the SBS, including material risks, characteristics, incentives and 
conflicts of interest;
     Provide the counterparty with information concerning the 
daily mark of the SBS;
     Provide the counterparty with information regarding the 
ability to require clearing of the SBS;
     Communicate with counterparties in a fair and balanced 
manner based on principles of fair dealing and good faith;
     Establish a supervisory and compliance infrastructure; and
     Designate a chief compliance officer that is required to 
fulfill the described duties and provide an annual compliance report.
    The rules also require SBS Dealers to:
     Determine that recommendations they make regarding SBS are 
suitable for their counterparties.
     Establish, maintain and enforce written policies and 
procedures reasonably designed to obtain and retain

[[Page 16752]]

a record of the essential facts concerning each known counterparty that 
are necessary to conduct business with such counterparty; and
     Comply with rules designed to prevent ``pay-to-play.''
    The rules also define what it means to ``act as an advisor'' to a 
special entity, and require an SBS Dealer who acts as an advisor to a 
special entity to:
     Make a reasonable determination that any security-based 
swap or trading strategy involving a security-based swap recommended by 
the SBS Dealer is in the best interests of the special entity whose 
identity is known at a reasonably sufficient time prior to the 
execution of the transaction to permit the SBS Dealer to comply with 
this obligation; and
     Make reasonable efforts to obtain such information that 
the SBS Dealer considers necessary to make a reasonable determination 
that a security-based swap or trading strategy involving a security-
based swap is in the best interests of the known special entity.
    In addition, the rules require SBS Entities acting as 
counterparties to special entities to reasonably believe that the 
counterparty has an independent representative who meets the following 
requirements:
     Has sufficient knowledge to evaluate the transaction and 
risks;
     Is not subject to a statutory disqualification;
     Undertakes a duty to act in the best interests of the 
special entity;
     Makes appropriate and timely disclosures to the special 
entity of material information concerning the security-based swap;
     Evaluates, consistent with any guidelines provided by the 
special entity, the fair pricing and the appropriateness of the 
security-based swap;
     Is independent of the security-based swap dealer or major 
security-based swap participant that is the counterparty to a proposed 
security-based swap.
    Under the rules, the special entity's independent representative 
must also be subject to pay-to-play regulations, and if the special 
entity is an ERISA plan, the independent representative must be an 
ERISA fiduciary.
    The information that must be collected pursuant to the BCS Rules is 
intended to increase accountability and transparency in the market. The 
information will therefore help establish a framework that protects 
investors and promotes efficiency, competition and capital formation.
    Based on a review of recent data, as of 2018, the Commission 
estimates the number of respondents to be as follows: 50 SBS Dealers, 5 
Major SBS Participants, for a total of 55 ``SBS Entities''.\4\ Further, 
we estimate that approximately 46 of these 55 SBS Entities will be 
dually registered with the CFTC as Swap Entities. We also estimate that 
there are currently 13,137 security-based swap market participants of 
which 8,802 are also swap market participants. In 2018, there were 
approximately 593,364 security-based swap transactions between an SBS 
Dealer and counterparty that is not an SBS Dealer of which 233,595 were 
new or amended trades. The Commission estimates there are 370 
independent, third-party representatives and 20 in-house independent 
representatives.\5\ We estimate that there are approximately 13,706 
unique SBS Dealer and non-SBS-Dealer pairs. We have used these 
estimates in calculating the hour and cost burdens for the rule 
provisions that we anticipate have a ``collection of information'' 
burden within the meaning of the PRA.
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    \4\ Unless otherwise noted, estimates were derived from the 
DTCC-TIW data set (February 2019).
    \5\ See, Exchange Act Rule 15Fh-5.
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    The Commission estimates that the aggregate burden of the ongoing 
reporting and disclosures required by the BCS Rules, as described 
above, is approximately 554,823 hours and $2,138,000 calculated as 
follows:

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                                                                                                                           Industry-wide   Industry-wide
                  Section                          Type of burden           Respondents   Ongoing annual  Ongoing annual   annual burden   annual burden
                                                                                          burden (hours)   burden (cost)      (hours)         (cost)
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15Fh-3(b), (c), (d)--Disclosures--SBS       Reporting...................              55           4,120              $0         226,600              $0
 Entities.
15Fh-3(b), (c), (d)--Disclosures--SBS       Reporting...................         233,595               1               0         233,595               0
 Transactions Between SBS Dealer and Non-
 SBSD Counterparty.
15Fh-3(e), (f)--Know Your Counterparty and  Reporting...................              50             137               0           6,853               0
 Recommendations (SBS Dealers).
15Fh-3(g)--Fair and Balanced                Reporting...................              55               2           3,600             110         198,000
 Communications.
15Fh-3(h)--Supervision....................  Reporting...................              55             540           4,800          29,700         264,000
15Fh-5--SBS Entities Acting as              Reporting...................              55             390               0          21,450               0
 Counterparties to Special Entities.
15Fh-5--SBS Entities Acting as              Third-Party Disclosure......              55             390               0          21,450               0
 Counterparties to Special Entities.
15Fh-6--Political Contributions...........  Reporting...................              50               1          25,600              50       1,280,000
15Fk-1--Chief Compliance Officer..........  Reporting...................              55             273           7,200          15,015      396,000.00
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    Total.................................  ............................  ..............  ..............  ..............         554,823      $2,138,000
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    Written comments are invited on: (a) Whether the proposed 
collection of information is necessary for the proper performance of 
the functions of the agency, including whether the information shall 
have practical utility; (b) the accuracy of the Commission's estimate 
of the burden of the proposed collection of information; (c) ways to 
enhance the quality, utility, and clarity of the information to be 
collected; and (d) ways to minimize the burden of the collection of 
information on respondents, including through the use of automated 
collection techniques or

[[Page 16753]]

other forms of information technology. Consideration will be given to 
comments and suggestions submitted in writing within 60 days of this 
publication.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information under the PRA unless it 
displays a currently valid OMB control number.
    Please direct your written comments to: Charles Riddle, Acting 
Director/Chief Information Officer, Securities and Exchange Commission, 
c/o Candace Kenner, 100 F Street NE, Washington, DC 20549, or send an 
email to: [email protected].

     Dated: April 17, 2019.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-08037 Filed 4-19-19; 8:45 am]
 BILLING CODE 8011-01-P