[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
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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
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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