[Federal Register Volume 86, Number 155 (Monday, August 16, 2021)]
[Notices]
[Pages 45770-45792]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-17424]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92632; File No. S7-07-21]


Notice of Substituted Compliance Application Submitted by UBS AG 
and Credit Suisse AG in Connection With Certain Requirements Applicable 
to Non-U.S. Security-Based Swap Dealers Subject to Regulation in the 
Swiss Confederation; Proposed Order

August 10, 2021.
AGENCY: Securities and Exchange Commission.

ACTION: Notice of application for substituted compliance determination; 
proposed order.

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SUMMARY: The Securities and Exchange Commission (``Commission'') is 
soliciting public comment on an application by UBS AG and Credit Suisse 
AG (the ``Swiss Firms'') requesting that, pursuant to rule 3a71-6 under 
the Securities Exchange Act of 1934 (``Exchange Act''), the Commission 
determine that registered security-based swap dealers (``SBSDs'') that 
are not U.S. persons and that are subject to certain regulation in the 
Swiss Confederation (``Switzerland'') may comply with certain 
requirements under the Exchange Act via compliance with corresponding 
requirements of Switzerland. The Commission also is soliciting comment 
on a proposed Order providing for conditional substituted compliance in 
connection with the application.

DATES: Submit comments on or before September 10, 2021.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/submitcomments.htm); or
     Send an email to [email protected]. Please include 
File Number S7-07-21 on the subject line.

Paper Comments

     Send paper comments to Vanessa A. Countryman, Secretary, 
Securities and Exchange Commission, 100 F Street NE, Washington, DC 
20549-1090.

All submissions should refer to File Number S7-07-21. This file number 
should be included on the subject line if email is used. To help the 
Commission process and review your comments more efficiently, please 
use only one method. The Commission will post all comments on the 
Commission's internet website (http://www.sec.gov/

[[Page 45771]]

rules/proposed.shtml). Typically, comments are also available for 
viewing and printing in the Commission's Public Reference Room, 100 F 
Street NE, Washington, DC 20549, on official business days between the 
hours of 10 a.m. and 3 p.m. Due to pandemic conditions, however, access 
to the Commission's Public Reference Room is not permitted at this 
time. All comments received will be posted without change. Persons 
submitting comments are cautioned that the Commission does not redact 
or edit personal identifying information from comment submissions. You 
should submit only information that you wish to make publicly 
available.

FOR FURTHER INFORMATION CONTACT: Carol M. McGee, Assistant Director or 
James R. Curley, Special Counsel, at 202-551-5870, Office of 
Derivatives Policy, Division of Trading and Markets, Securities and 
Exchange Commission, 100 F Street NE, Washington, DC 20549-7010.

SUPPLEMENTARY INFORMATION: The Commission is soliciting public comment 
on an application by the Swiss Firms requesting that the Commission 
determine that SBSDs that are not U.S. persons and that are subject to 
certain regulation in Switzerland may satisfy certain requirements 
under the Exchange Act by complying with comparable requirements in 
Switzerland. The Commission also is soliciting comment on a proposed 
Order, set forth in Attachment A, providing for conditional substituted 
compliance in connection with the application.

I. Background

    On August 6, 2021, market participants will begin to count 
security-based swap transactions toward the thresholds for registration 
with the Commission as SBSDs.\1\ Exchange Act rule 3a71-6 \2\ 
conditionally provides that non-U.S. SBSDs and major security-based 
swap participants (``SBS Entities'') may satisfy certain requirements 
under Exchange Act section 15F \3\ by complying with comparable 
regulatory requirements of a foreign jurisdiction.\4\ Substituted 
compliance potentially is available in connection with requirements 
regarding business conduct and supervision, chief compliance officers, 
trade acknowledgment and verification, non-prudentially regulated 
capital and margin, recordkeeping and reporting, portfolio 
reconciliation and dispute reporting, portfolio compression and trading 
relationship documentation.\5\
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    \1\ See Exchange Act Release No. 86175 (June 21, 2019), 84 FR 
43872, 43954 (Aug. 22, 2019) (``Capital and Margin Adopting 
Release''); see also Exchange Act Release No. 87780 (Dec. 18, 2019), 
85 FR 6270, 6345-49 (Feb. 4, 2020).
    \2\ 17 CFR 240.3a71-6.
    \3\ 15 U.S.C. 78o-10.
    \4\ The Commission also has discussed the parameters of 
substituted compliance in connection with substituted compliance 
requests regarding the Federal Republic of Germany (``Germany''), 
the French Republic (``France''), and the United Kingdom (``UK''). 
See Exchange Act Release No. 90378 (Nov. 9, 2020), 85 FR 72726 (Nov. 
13, 2020) (``German Notice and Proposed Order''); Exchange Act 
Release No. 90765 (Dec. 22, 2020), 85 FR 85686 (Dec. 29, 2020) 
(``German Substituted Compliance Order''); Exchange Act Release No. 
90766 (Dec. 22, 2020), 85 FR 85720 (Dec. 29, 2020) (``French Notice 
and Proposed Order''); Exchange Act Release No. 91477 (Apr. 5, 
2021), 86 FR 18341 (Apr. 8, 2021) (``French Reopening Release''); 
Exchange Act Release No. 92484 (July 23, 2021), 86 FR 41612 (Aug. 2, 
2021) (``French Substituted Compliance Order''); Exchange Act 
Release No. 91476 (Apr. 5, 2021), 65 FR 18378 (Apr. 8, 2021) (``UK 
Notice and Proposed Order''); Exchange Act Release No. 92529 (July 
30, 2021), 86 FR 43318 (Aug. 6, 2021) (``UK Substituted Compliance 
Order'').
    \5\ See Exchange Act rule 3a71-6(d). Substituted compliance is 
not available for antifraud prohibitions and information-related 
requirements under section 15F. See Exchange Act rule 3a71-6(d)(1) 
(specifying that substituted compliance is not available in 
connection with the antifraud provisions of Exchange Act section 
15F(h)(4)(A) and Exchange Act rule 15Fh-4(a), 17 CFR 240.15Fh-4(a), 
and the information-related provisions of Exchange Act sections 
15F(j)(3) and 15F(j)(4)(B)). Substituted compliance under rule 3a71-
6 also does not extend to certain other provisions of the federal 
securities laws that apply to security-based swaps, such as: (1) 
Additional antifraud prohibitions (see Exchange Act section 10(b), 
15 U.S.C. 78j(b), Exchange Act rule 10b-5, 17 CFR 240.10b-5, and 
Securities Act of 1933 section 17(a), 15 U.S.C. 77q(a)); (2) 
requirements related to transactions with counterparties that are 
not eligible contract participants (``ECPs'') (see Exchange Act 
section 6(l), 15 U.S.C. 78f(l); Securities Act of 1933 section 5(e), 
15 U.S.C. 77e(e)); (3) segregation of customer assets (see Exchange 
Act section 3E, 15 U.S.C. 78c-5; Exchange Act rule 18a-4, 17 CFR 
240.18a-4); (4) required clearing upon counterparty election (see 
Exchange Act section 3C(g)(5), 15 U.S.C. 78c-3(g)(5)); (5) 
regulatory reporting and public dissemination (see generally 
Regulation SBSR, 17 CFR 242.900 et seq.); (6) SBS Entity 
registration (see Exchange Act section 15F(a) and (b)); and (7) 
registration of offerings (see Securities Act of 1933 section 5, 15 
U.S.C. 77e).
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    Substituted compliance in part is predicated on the Commission 
determining the analogous foreign requirements are ``comparable'' to 
the applicable requirements under the Exchange Act, after accounting 
for factors such as the ``scope and objectives'' of the relevant 
foreign regulatory requirements and the effectiveness of the relevant 
foreign authority's or authorities' supervisory and enforcement 
frameworks.\6\ Substituted compliance further requires that the 
Commission and the relevant foreign financial regulatory authorities 
have entered into an effective supervisory and enforcement memorandum 
of understanding and/or other arrangement addressing cooperation and 
other matters related to substituted compliance.\7\
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    \6\ See Exchange Act rule 3a71-6(a)(2)(i).
    \7\ See Exchange Act rule 3a71-6(a)(2)(ii). The Commission and 
FINMA are in the process of negotiating a memorandum of 
understanding to address cooperation matters related to substituted 
compliance. The memorandum of understanding or other arrangement 
will need to be in place before the Commission may make a final 
determination allowing Covered Entities (as defined herein) to use 
substituted compliance to satisfy obligations under the Exchange 
Act. The Commission expects to publish any such memorandum of 
understanding or arrangement on its website at www.sec.gov under the 
``Substituted Compliance'' tab, which is located on the ``Security-
Based Swap Markets'' page in the Division of Trading and Markets 
section of the site.
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    A party or group of parties that may potentially rely on a 
substituted compliance order may submit a substituted compliance 
application only if each such party provides a certification and 
opinion of counsel that the entity can, ``as a matter of law, provide 
the Commission with prompt access to its books and records, and can, as 
a matter of law, submit to onsite inspection and examination by the 
Commission.'' \8\ Commission rule 0-13 \9\ addresses procedures for 
filing substituted compliance applications. The rule provides that the 
Commission will publish a notice when a completed application has been 
submitted and that any person may submit to the Commission ``any 
information that relates to the Commission action requested in the 
application.'' \10\
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    \8\ See 17 CFR 240.15Fb2-4(c)(1); Exchange Act rule 3a71-
6(c)(1)(ii). In the Commission;s view the Swiss Firms have satisfied 
this prerequisite. See Letter from Colin Lloyd of Cleary Gottlieb 
Steen & Hamilton LLP on behalf of UBS AG and Credit Suisse AG to 
Vanessa Countryman, Secretary, Commission, dated August 10, 2021 
(``Swiss Application''). The Swiss Firms' Application is available 
on the Commission's website at: https://www.sec.gov/page/exchange-act-substituted-compliance-and-listed-jurisdiction-applications-security-based-swap.
    \9\ 17 CFR 240.0-13.
    \10\ See Commission rule 0-13(h). The Commission may take final 
action on a substituted compliance application no earlier than 25 
days following publication of the notice in the Federal Register. 
See id.
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II. The Swiss Firms' Substituted Compliance Request

    The Swiss Firms have submitted a complete substituted compliance 
application to the Commission (``Swiss Application'').\11\ Pursuant to 
rule 0-13, the Commission is publishing notice of the Swiss Application 
together with a proposed Order to conditionally grant substituted 
compliance to an entity that (1) is a security-based swap dealer 
registered with the Commission; (2) is not a ``U.S. person,'' as that 
term is defined in rule 3a71-3(a)(4) under the

[[Page 45772]]

Exchange Act; \12\ (3) is a systemically important bank authorized by 
the Swiss Financial Market Supervisory Authority (``FINMA'') to conduct 
banking activities in Switzerland; and (4) is supervised by FINMA under 
the intensive and continual supervision model as a Category 1 firm as 
that term is defined in BO Annex 3. In making its substituted 
compliance determination, the Commission will consider public comments 
on the Swiss Application and the proposed Order.
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    \11\ See Swiss Application sections I-IV.
    \12\ 17 CFR 240.3a71-3(a)(4).
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    The Swiss Firms seek substituted compliance for Swiss market 
participants in connection with a number of requirements under Exchange 
Act section 15F, including:

A. Relevant Market Participants

    The Commission will consider whether to allow substituted 
compliance to be used by any Covered Entity.\13\
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    \13\ See para. (d)(1) of the proposed Order.
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B. Relevant Section 15F Requirements

    The Swiss Firms request that the Commission issue an order 
determining that--for substituted compliance purposes--applicable 
requirements in Switzerland are comparable with the following 
requirements under Exchange Act section 15F:
     Risk control requirements--Requirements related to 
internal risk management, trade acknowledgment and verification, 
portfolio reconciliation and dispute reporting, portfolio compression 
and trading relationship documentation.\14\
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    \14\ See part V, infra.
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     Internal supervision, chief compliance officer and 
additional Exchange Act section 15F(j) requirements--Requirements 
related to diligent supervision, conflicts of interest, information 
gathering under Exchange Act section 15F(j) and chief compliance 
officers.\15\
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    \15\ See part VI, infra.
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     Recordkeeping, reporting, and notification requirements--
Requirements related to making and keeping current certain prescribed 
records, the preservation of records, reporting, and notification.\16\
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    \16\See part VII, infra.
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C. Comparability Considerations and Proposed Order

    In the view of the Swiss Firms, Swiss requirements taken as a whole 
produce regulatory outcomes that are comparable to those of the 
relevant requirements under the Exchange Act.\17\ In the Commission's 
preliminary view, requirements under the Exchange Act and Swiss 
requirements maintain similar approaches with respect to achieving 
regulatory goals in several respects, but follow differing approaches 
or incorporate disparate elements in certain other respects. The 
Commission has considered those similarities and differences when 
analyzing comparability and developing preliminary views, while 
recognizing that differences in approach do not necessarily preclude 
substituted compliance in light of the Commission's holistic, outcomes-
oriented framework for assessing comparability.\18\
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    \17\ See Swiss Application section II at 3.
    \18\ In this context, the Commission recognizes that other 
regulatory regimes will have exclusions, exceptions and exemptions 
that may not align perfectly with the corresponding requirements 
under the Exchange Act. Where the Commission preliminarily has found 
that the Swiss regime produces comparable outcomes notwithstanding 
those particular differences, the Commission proposes to make a 
positive determination on substituted compliance. Where the 
Commission preliminarily has found that those exclusions, exemptions 
and exceptions lead to outcomes that are not comparable, however, 
the proposed Order would not provide for substituted compliance.
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    Based on the Commission's analysis of the Swiss Application and 
review of relevant Swiss requirements, the Commission is proposing an 
Order, located at Attachment A, granting substituted compliance subject 
to specific conditions and limitations. When Covered Entities seek to 
rely on substituted compliance to satisfy particular requirements under 
the Exchange Act, non-compliance with the applicable Swiss requirements 
would lead to a violation of those requirements under the Exchange Act 
and potential enforcement action by the Commission (as opposed to 
automatic revocation of the substituted compliance order).

III. Scope of Substituted Compliance

    The Swiss Application relates solely to entity-level requirements 
and for entity-level Exchange Act requirements a Covered Entity must 
choose either to apply substituted compliance pursuant to the Order 
with respect to all security-based swap business subject to the 
relevant Swiss requirements or to comply directly with the Exchange Act 
with respect to all such business; a Covered Entity may not choose to 
apply substituted compliance for some of the business subject to the 
relevant Swiss requirements and comply directly with the Exchange Act 
for another part of the business that is subject to the relevant Swiss 
requirements. Additionally, for entity-level Exchange Act requirements, 
if the Covered Entity also has security-based swap business that is not 
subject to the relevant Swiss requirements, the Covered Entity must 
either comply directly with the Exchange Act for that business or 
comply with the terms of another applicable substituted compliance 
order.

IV. Applicable Entities and General Conditions

A. Covered Entities for Which the Commission is Proposing a Positive 
Conditional Substituted Compliance Determination

    Under the proposed Order, substituted compliance would be available 
to ``Covered Entities''--a term that would limit the scope of the 
substituted compliance determination to SBSDs that are subject to 
applicable Swiss requirements and oversight. Consistent with the 
parameters of substituted compliance under Exchange Act rule 3a71-6, 
the proposed ``Covered Entity'' definition provides that the relevant 
entity must be a security-based swap dealer registered with the 
Commission, and that the entity cannot be a U.S. person.\19\ The 
proposed ``Covered Entity'' definition further would provide that the 
entity must be a systemically important bank authorized by FINMA to 
conduct banking activities in Switzerland.\20\ Each entity also must be 
supervised by FINMA under the intensive and continual supervision model 
as a Category 1 firm as that term is defined in BO Annex 3.\21\ These 
prongs of the definition are intended to help ensure that Covered 
Entities are subject to relevant Swiss requirements and oversight.
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    \19\ See para. (e)(1)(i) and (ii) of the proposed Order.
    \20\ See para. (e)(1)(iii) of the proposed Order.
    \21\ See para. (e)(1)(iv) of the proposed Order.
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B. General Conditions and Prerequisites

    Substituted compliance under the proposed Order would be subject to 
a number of conditions and other prerequisites, to help ensure that the 
relevant Swiss requirements that form the basis for substituted 
compliance in practice will apply to the SBSD's security-based swap 
business and activities, and to promote the Commission's oversight over 
entities that avail themselves of substituted compliance.
1. ``Subject to and complies with'' Applicable Provisions
    Each relevant section of the proposed Order would be subject to the 
condition that the Covered Entity ``is subject to and complies with'' 
the applicable Swiss requirements that are needed to establish 
comparability. Accordingly,

[[Page 45773]]

the proposed Order would not provide substituted compliance when a 
Covered Entity is excused from compliance with relevant foreign 
provisions, such as, for example, if relevant Swiss requirements do not 
apply to the security-based swap activities of a branch of a Swiss SBSD 
located outside of Switzerland. In that event, the Covered Entity would 
not be ``subject to'' those requirements, and the Covered Entity could 
not rely on substituted compliance in connection with those 
activities.\22\
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    \22\ An SBSD's ``voluntary'' compliance with the relevant Swiss 
requirements would not suffice for these purposes. Substituted 
compliance reflects an alternative means by which an SBSD may comply 
with applicable requirements under the Exchange Act, and thus 
mandates that the SBSD be subject to the requirements needed to 
establish comparability and face consequences arising from any 
failure to comply with those requirements. Moreover, the 
comparability assessment takes into account the effectiveness of the 
supervisory compliance program administered and the enforcement 
authority exercised by FINMA, which would not be expected to promote 
comparable outcomes when compliance merely is ``voluntary.''
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2. Additional General Conditions
    Substituted compliance under the proposed Order would be subject to 
the following general conditions intended to help ensure the 
applicability of relevant Swiss requirements. In particular:
     Security-based swaps and transactions as ``derivatives'' 
or ``derivative transactions''--For each condition in paragraphs (b) 
through (d) of this Order that requires the application of, and the 
Covered Entity's compliance with, provisions of FinMIA and FMIO, the 
relevant security-based swaps and security-based swap transactions are 
``derivatives'' and/or ``derivative transactions'' for purposes of 
FinMIA article 2(c), or otherwise are described by the relevant 
language of that provision.\23\
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    \23\ See para. (a)(1) of the proposed Order.
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     ``Counterparty'' status--For each condition in paragraph 
(b) through (d) of this Order that requires the application of, and the 
Covered Entity's compliance with, the provisions of FinMIA and FMIO, 
the Covered Entity complies with the applicable conditions of the Order 
regardless of whether the Covered Entity's counterparty is a 
``counterparty'' for purposes of FinMIA article 93, or otherwise is 
described by the relevant language of that provision.\24\
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    \24\ See para. (a)(2) of the proposed Order.
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     Counterparty status as ``company''--For each condition in 
paragraph (b) through (d) of this Order that requires the application 
of, and the Covered Entity's compliance with, the provisions of FMIO, 
the Covered Entity complies with the applicable conditions of the Order 
regardless of whether a Covered Entity's counterparty is a ``company'' 
for purposes of FMIO article 77, or otherwise is described by the 
relevant language of that provision.\25\
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    \25\ See para. (a)(3) of the proposed Order.
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     Covered Entity as ``bank''--For each condition in 
paragraph (b) through (d) of this Order that requires the application 
of, and the Covered Entity's compliance with, the provisions of the BA 
and BO and/or other Swiss requirements adopted pursuant to those 
provisions, the Covered Entity is a ``bank'' for purposes of BA article 
1a, or otherwise is described by the relevant language of that 
provision.\26\
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    \26\ See para. (a)(4) of the proposed Order.
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     Covered Entity as ``systemically important''--For each 
condition in paragraph (b) through (d) of this Order that requires the 
application of, and the Covered Entity's compliance with, the 
provisions of the FINMA Circular 2017/1, the Covered Entity is 
``systemically important'' for purposes of BA article 8(3), or 
otherwise is described by the relevant language of that provision.\27\
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    \27\ See para. (a)(5) of the proposed Order.
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     Covered Entity as ``category 1''--For each condition in 
paragraph (b) through (d) of this Order that requires the application 
of, and the Covered Entity's compliance with, the provisions of FINMA 
Circular 2017/1, the Covered Entity is supervised as ``category 1,'' as 
defined in BO articles 2(2) and 2(3) and BO Annex 3, or otherwise is 
described by the relevant language of those provisions.\28\
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    \28\ See para. (a)(6) of the proposed Order.
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     ``Institution-specific approach'' to operational risk 
quantification--For each condition in paragraphs (b) through (d) of 
this Order that requires the application of, and the Covered Entity's 
compliance with, the provisions of FINMA Circular 2008/21 margins 45-
107, the Covered Entity applies the ``institution-specific approach'' 
to quantifying capital requirements for operational risk, as defined in 
CAO article 94, or otherwise is described by the relevant language of 
those provisions, and as approved by FINMA.\29\
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    \29\ See para. (a)(7) of the proposed Order.
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     Memorandum of understanding--The Commission has an 
applicable memorandum of understanding or other arrangement with FINMA 
addressing cooperation with respect of the proposed Order at the time 
the Covered Entity makes use of substituted compliance.\30\
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    \30\ See para. (a)(8) of the proposed Order.
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     Notice of reliance on substituted compliance--A Covered 
Entity must provide notice of its intent to rely on the proposed Order 
by notifying the Commission in the manner specified on the Commission's 
website.\31\ In the notice, the Covered Entity would need to identify 
each specific substituted compliance determination in the proposed 
Order for which the Covered Entity intends to apply substituted 
compliance.\32\ If a Covered Entity elects not to apply substituted 
compliance with respect to a specific substituted compliance 
determination in the proposed Order, it must comply with the Exchange 
Act requirements subject to that determination. Finally, a Covered 
Entity must promptly update its notice to the Commission if it intends 
to modify its reliance on the positive substituted compliance 
determinations in the proposed Order.\33\
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    \31\ See para. (a)(9) of the proposed Order.
    \32\ If the Covered Entity intends to rely on all the 
substituted compliance determinations in a given paragraph of the 
proposed Order, it can cite that paragraph in the notice. For 
example, if the Covered Entity intends to rely on the risk control 
determinations in paragraph (b) of the proposed Order, it would 
indicate in the notice that it is relying on the determinations in 
paragraph (b). However, if the Covered Entity intends to rely on the 
internal risk management, trade acknowledgement and verification, 
and portfolio reconciliation determinations but not the portfolio 
compression determination, it would need to indicate in the notice 
that it is relying on paragraphs (b)(1)-(3) of the proposed Order. 
In this case, paragraph (b)(4) of the proposed Order (the portfolio 
compression determination) would be excluded from the notice and the 
Covered Entity would need to comply with the Exchange Act portfolio 
compression requirements. Further, as discussed below in section 
VII.B of this notice, the recordkeeping and reporting determinations 
in the proposed Order have been structured to provide Covered 
Entities with a high level of flexibility in selecting specific 
requirements within those rules for which they want to rely on 
substituted compliance. For example, paragraph (d)(1)(i) of the 
proposed Order sets forth the Commission's preliminary substituted 
compliance determinations with respect to the requirements of 
Exchange Act rule 18a-5, 17 CFR 240.18a-5. These proposed 
determinations are set forth in paragraphs (d)(1)(i)(A) through (O). 
If a Covered Entity intends to rely on some but not all of the 
determinations, it would need to identify in the notice the specific 
determinations in this paragraph it intends to rely on (e.g., 
paragraphs (d)(1)(i)(A), (B), (C), (D), (G), (H), (I), and (O)). For 
any determinations excluded from the notice, the Covered Entity 
would need to comply with the Exchange Act rule 18a-5 requirement.
    \33\ A Covered Entity would modify its reliance on the positive 
substituted compliance determinations in the proposed Order, and 
thereby trigger the requirement to update its notice, if it adds or 
subtracts determinations for which it is applying substituted 
compliance or completely discontinues its reliance on the proposed 
Order.
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     Notification related to changes in capital category--
Covered Entities with a prudential regulator would need to apply 
substituted compliance with respect to the requirements of Exchange

[[Page 45774]]

Act rule 18a-8(c) and the requirements of Exchange Act rule 18a-8(h) as 
applied to Exchange Act rule (c).\34\ Exchange Act rule 18a-8(c) 
generally requires every security-based swap dealer with a prudential 
regulator that files a notice of adjustment of its reported capital 
category with the Federal Reserve Board, the Office of the Comptroller 
of the Currency, or the Federal Deposit Insurance Corporation to give 
notice of this fact to the that same day by transmitting a copy to the 
Commission of the notice of adjustment of reported capital category in 
accordance with Exchange Act rule 18a-8(h).\35\ Exchange Act rule 18a-
8(h) sets forth the manner in which every notice or report required to 
be given or transmitted pursuant to Exchange Act rule 18a-8 must be 
made. While Exchange Act rule 18a-8(c) is not linked to an Exchange Act 
capital requirement, it is linked to capital requirements in the U.S. 
promulgated by the prudential regulators. In its application, the Swiss 
Firms cited various Swiss provisions as providing similar outcomes to 
the notifications requirements of Exchange Act Rule 18a-8.\36\ This 
general condition would be designed to clarify that a prudentially 
regulated Covered Entity must provide the Commission with copies of any 
notifications regarding changes in the Covered Entity's capital 
situation required by Swiss law. The intent is to align the 
notification requirement with the Swiss capital requirements applicable 
to the Covered Entity.
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    \34\ See para. (a)(10) of the proposed Order.
    \35\ 17 CFR 240.18a-8(c).
    \36\ See FINMASA article 29(2); CAO articles 14, 42(3), 101, and 
130(4); and Liquidity Ordinance articles 17b, and 26(2).
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V. Substituted Compliance for Risk Control Requirements

A. Swiss Firms' Request and Associated Analytic Considerations

    The Swiss Application in part requests substituted compliance in 
connection with risk control requirements under the Exchange Act 
relating to:
     Internal risk management--Internal risk management system 
requirements pursuant to Exchange Act section 15F(j)(2) and relevant 
aspects of Exchange Act rule 15Fh-3(h)(2)(iii)(I).\37\ Those provisions 
address the obligation of SBSDs to follow policies and procedures 
reasonably designed to help manage the risks associated with their 
business activities.\38\
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    \37\ 17 CFR 240.15Fh-3(h)(2)(iii)(I).
    \38\ See Exchange Act Release No. 68071 (Oct. 18, 2012), 77 FR 
70214, 70250 (Nov. 23, 2012). The Swiss Application discusses Swiss 
requirements that address Covered Entities' obligations related to 
internal risk management. See Swiss Application section II.1.a at 5-
8.
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     Trade acknowledgment and verification--Trade 
acknowledgment and verification requirements pursuant to Exchange Act 
section 15F(i) and Exchange Act rule 15Fi-2.\39\ Those provisions help 
avoid legal and operational risks by requiring definitive written 
records of transactions and for procedures to avoid disagreements 
regarding the meaning of transaction terms.\40\
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    \39\ 17 CFR 240.15Fi-2.
    \40\ See Exchange Act Release No. 78011 (June 8, 2016), 81 FR 
39808, 39809 & 39820 (June 17, 2016) (``Trade Acknowledgment and 
Verification Adopting Release''). The Swiss Application discusses 
Swiss requirements that address Covered Entities' obligations 
related to confirmations. See Swiss Application section II.1.b at 9-
16.
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     Portfolio reconciliation and dispute reporting--Portfolio 
reconciliation requirements pursuant to Exchange Act section 15F(i) and 
Exchange Act rule 15Fi-3.\41\ Those provisions require that 
counterparties engage in portfolio reconciliation and resolve 
discrepancies in connection with uncleared security-based swaps and 
promptly notify the Commission and applicable prudential regulators 
regarding certain valuation disputes.\42\
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    \41\ 17 CFR 240.15Fi-3.
    \42\ See Exchange Act Release No. 87782 (Dec. 18, 2019), 85 FR 
6359, 6360-61 (Feb. 4, 2020) (``Risk Mitigation Adopting Release''). 
The Swiss Application discusses Swiss requirements that address 
portfolio reconciliation and dispute resolution and reporting. See 
Swiss Application section II.1.c at 17-23.
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     Portfolio compression--Portfolio compression requirements 
pursuant to Exchange Act section 15F(i) and Exchange Act rule 15Fi-
4.\43\ Those provisions require that SBSDs have procedures addressing 
bilateral offset, bilateral compression and multilateral compression in 
connection with uncleared security-based swaps.\44\
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    \43\ 17 CFR 240.15Fi-4.
    \44\ See Risk Mitigation Adopting Release, 85 FR at 6361. The 
Swiss Application discusses Swiss portfolio compression 
requirements. See Swiss Application section II.1.c at 17-19, 23-24.
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     Trading relationship documentation--Trading relationship 
documentation requirements pursuant to Exchange Act section 15F(i) and 
Exchange Act rule 15Fi-5.\45\ Those provisions require that SBSDs have 
procedures to execute written security-based swap trading relationship 
documentation with their counterparties prior to, or contemporaneously 
with, executing certain security-based swaps.\46\
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    \45\ 17 CFR 240.15Fi-5.
    \46\ See Risk Mitigation Adopting Release, 85 FR at 6361. The 
Swiss Application discusses Swiss requirements regarding records of 
agreements with counterparties. See Swiss Application section II.1.c 
at 17-19, 24-31.
---------------------------------------------------------------------------

    Taken as a whole, these risk control requirements help to promote 
market stability by mandating that SBSDs follow practices that are 
appropriate to manage the market, credit, counterparty, operational and 
legal risks associated with their security-based swap businesses. The 
Commission's comparability assessment accordingly focuses on whether 
the analogous foreign requirements--taken as a whole--produce 
comparable outcomes with regard to providing that Covered Entities 
follow risk mitigation and documentation practices that are appropriate 
to the risks associated with their security-based swap businesses.

B. Preliminary Views and Proposed Order

1. General considerations
    In the Commission's preliminary view based on the Swiss Application 
and the Commission's review of applicable provisions, relevant Swiss 
requirements would produce regulatory outcomes that are comparable to 
those associated with the internal risk management, trade 
acknowledgement and verification, portfolio reconciliation, and 
portfolio compression risk control requirements, by subjecting Covered 
Entities to risk mitigation and documentation practices that are 
appropriate to the risks associated with those elements of their 
security-based swap businesses. Substituted compliance for those risk 
control requirements accordingly would be conditioned on Covered 
Entities being subject to and complying with the Swiss provisions that 
in the aggregate establish a framework that produces outcomes 
comparable to those associated with the analogous risk control 
requirements under the Exchange Act.\47\
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    \47\ See para. (b)(1) of the proposed Order (listing the 
requirements a Covered Entity must be subject to and comply with in 
connection with internal risk management); para. (b)(2) (listing the 
requirements a Covered Entity must be subject to and comply with in 
connection with trade acknowledgement and verification); para. 
(b)(3) (listing the requirements a Covered Entity must be subject to 
and comply with in connection with portfolio reconciliation); and 
para. (b)(4) (listing the requirements a Covered Entity must be 
subject to and comply with in connection with portfolio 
compression).
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    In connection with dispute reporting, the Commission preliminarily 
believes that Swiss requirements are not comparable to Exchange Act 
requirements.\48\ Paragraph (c) of

[[Page 45775]]

Exchange Act rule 15Fi-3 requires SBSDs to promptly report to the 
Commission valuation disputes in excess of $20 million that have been 
outstanding for three or five business days (depending on counterparty 
types).\49\ However, Swiss law lacks a specific requirement for 
reporting security-based swap valuation disputes in excess of $20 
million.\50\ Therefore, substituted compliance in connection with 
dispute reporting requirements is preliminarily determined to not be 
available. To fulfill the requirements of Exchange Act section 15F(i) 
and Exchange rule 15Fi-3, a Swiss Covered Entity would be required to 
comply with the dispute reporting requirements of Exchange Act rule 
15Fi-3(c) directly.
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    \48\ See para. (b)(3) of the proposed Order (excluding Exchange 
Act rule 15Fi-3(c) covering reporting of security-based swap 
valuation disputes from the risk control provisions covered by the 
proposed Order).
    \49\ See 17 CFR 240.15Fi-3(c).
    \50\ See Swiss Application section II.1.c at 17, 22-23 (noting 
that [t]he key difference between [Swiss and US portfolio 
reconciliation] requirements is the reporting of valuation disputes, 
which Swiss law does not require to be reported to the Commission . 
. . the Commission may consider granting the requested substituted 
compliance determination on the condition that a Swiss bank would 
comply with the Commission's reporting requirement for disputes with 
respect to more than USD $20 million pursuant to Exchange Act rule 
15Fi-3(c) with respect to U.S. person counterparties'').
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    In connection with portfolio reconciliation requirements, the 
Commission preliminarily believes that Swiss requirements are 
comparable to Exchange Act requirements when part of one of the 
applicable Swiss requirements is not applied. The proposed Order 
includes the requirement that a Covered Entity be subject to and comply 
with FinMIA 108(b). However, the proposed Order also requires that 
Covered Entities not apply FinMIA article 108(b)'s exception for 
``small non-financial counterparties'' as defined in FinMIA article 98. 
Requiring that Covered Entities not apply this exception helps ensures 
that the Swiss requirements for portfolio reconciliation are applied to 
Covered Entities in a manner comparable to the applicable Exchange Act 
requirements.
    In connection with portfolio compression requirements, the 
Commission preliminarily believes that Swiss requirements are 
comparable to Exchange Act requirements but only when one of the 
applicable Swiss exclusions is not applied. The proposed Order includes 
the requirement that a Covered Entity be subject to and comply with 
FinMIA article 108(d).\51\ However, the proposed Order also requires 
that Covered Entities not apply the portion of FinMIA article 108(d) 
that excludes application of its requirements when there are fewer than 
500 non-centrally cleared OTC derivatives transactions outstanding.\52\ 
Requiring that Covered Entities not apply this exclusion helps ensure 
that the Swiss requirements for portfolio compression are applied to 
Covered Entities in a manner comparable to the applicable Exchange Act 
requirements.
---------------------------------------------------------------------------

    \51\ See para. (b)(4)(i) of the proposed Order.
    \52\ See para. (b)(4)(ii) of the proposed Order.
---------------------------------------------------------------------------

    In connection with trading relationship documentation requirements, 
the Commission preliminarily believes that Swiss requirements are not 
comparable to Exchange Act requirements. Under Swiss law, there is no 
explicit requirement to agree in writing to all terms governing the 
trading relationship.\53\ By comparison, Exchange Act rule 15Fi-5 
requires that ``[t]he security-based swap trading relationship 
documentation shall be in writing and shall include all terms governing 
the trading relationship between the security-based swap dealer . . . 
and its counterparty.'' \54\ The Swiss Application's statement that 
``[e]ven if OTC derivative transactions were to be initially traded on 
the basis of a purely verbal agreement, they would still be subject to 
the statutory requirements to have the key contractual terms confirmed 
and reconciled'' \55\ is insufficient to produce a comparable 
regulatory outcome to Exchange Act rule 15Fi-5, which specifically 
requires that ``the security-based swap trading relationship 
documentation shall be executed prior to, or contemporaneously with, 
executing a security-based swap with any counterparty.'' \56\ Swiss law 
also does not require particularized disclosures regarding the status 
of a Swiss bank or its counterparty as an insured financial institution 
or financial company,\57\ as required by Exchange Act rule 15Fi-
5(b)(5). Additionally, Swiss law does not require SBSDs to provide 
information regarding security-based swaps that have been accepted for 
clearing,\58\ as required by Exchange Act rule 15Fi-5(b)(6). Given 
these discrepancies between the Swiss and U.S. trading relationship 
documentation requirements, the Commission preliminarily believes that 
the analogous Swiss requirements--taken as a whole--cannot be 
determined to produce comparable outcomes. Therefore the Commission is 
not proposing to make a positive substituted compliance determination 
for trading relationship documentation requirements. To fulfill the 
requirements of Exchange Act section 15F(i) and Exchange rule 15Fi-5, a 
Swiss Covered Entity would be required to comply with the trading 
relationship documentation requirements of Exchange Act rule 15Fi-5 
directly.
---------------------------------------------------------------------------

    \53\ The voluntary ``standard Swiss market practice to document 
OTC derivatives transactions through written agreements'' described 
in the Swiss Application does not establish the requisite 
supervisory framework or enforcement authority to establish 
comparability with the specific regulatory requirements of Exchange 
Act section 15Fi-5. See Swiss Application section II.1.c at 24.
    \54\ 17 CFR 240.15Fi-5(b)(1).
    \55\ See Swiss Application section II.1.c at 24.
    \56\ 17 CFR 240.15Fi-5(a)(2).
    \57\ See Swiss Application section II.1.c at 18, 28-29.
    \58\ See id. at 30.
---------------------------------------------------------------------------

    While the Commission recognizes these and certain other differences 
between Swiss requirements and the applicable risk control requirements 
under the Exchange Act, in the Commission's preliminary view those 
differences on balance would not preclude substituted compliance for 
internal risk management, trade acknowledgement and verification, 
portfolio reconciliation, and portfolio compression, particularly as 
requirement-by-requirement similarity is not needed for substituted 
compliance.

VI. Substituted Compliance for Internal Supervision, Chief Compliance 
Officer and Additional Exchange Act Section 15F(j) Requirements

A. The Swiss Firms' Request and Associated Analytic Considerations

    The Swiss Firms also request substituted compliance in connection 
with requirements under the Exchange Act relating to:
     Internal supervision--Diligent supervision is required 
pursuant to Exchange Act rule 15Fh-3(h),\59\ and Exchange Act section 
15F(j)(5) requires conflict of interest systems and procedures. These 
provisions generally require that SBSDs establish, maintain and enforce 
supervisory policies and procedures that reasonably are designed to 
prevent violations of applicable law, and implement certain systems and 
procedures related to conflicts of interest.\60\
---------------------------------------------------------------------------

    \59\ 17 CFR 240.15Fh-3(h).
    \60 \ The Swiss Application addresses Swiss provisions that 
address firms' supervisory systems, responsible individuals and 
qualification requirements for supervisors, supervisory system 
policies and procedures; the chief compliance officer and the chief 
compliance officer's reporting authority and job security, chief 
compliance officer policies and procedures, and chief compliance 
officer reports. See Swiss Application section II.3 at 67-109.
---------------------------------------------------------------------------

     Chief compliance officers--Chief compliance officer 
requirements are set out in Exchange Act section 15F(k) and

[[Page 45776]]

Exchange Act rule 15Fk-1.\61\ These provisions in general require that 
SBSDs designate individuals with the responsibility and authority to 
establish, administer and review compliance policies and procedures, to 
resolve conflicts of interest, and to prepare and certify an annual 
compliance report to the Commission.\62\
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    \61\ 17 CFR 240.15Fk-1.
    \62\ The Swiss Application discusses Swiss requirements that 
address compliance officers and their responsibilities, compliance 
officer appointment, removal and compensation, related conflict of 
interest provisions and compliance-related reports. See Swiss 
Application section II.3.c at 90-109.
---------------------------------------------------------------------------

     Additional Exchange Act section 15F(j) requirements--
Additional requirements related to information-gathering pursuant to 
Exchange Act section 15F(j)(4)(A), and certain antitrust prohibitions 
specified by Exchange Act section 15F(j)(6).\63\
---------------------------------------------------------------------------

    \63\ Section 15F(j)(4)(A) particularly requires firms to have 
systems and procedures to obtain necessary information to perform 
functions required under section 15F. The Swiss Application in turn 
discusses Swiss provisions generally addressing information 
gathering and disclosure. See Swiss Application Section II.2 at 33. 
Section 15F(j)(6) prohibits firms from adopting any process or 
taking any action that results in any unreasonable restraint of 
trade, or to impose any material anticompetitive burden on trading 
or clearing. The Swiss Application addresses Swiss antitrust 
requirements. See Swiss Application section II.3.b at 78.
---------------------------------------------------------------------------

    Taken as a whole, these internal supervision, chief compliance 
officer and additional Exchange Act section 15F(j) requirements help to 
promote SBSDs' use of structures, processes and responsible personnel 
reasonably designed to promote compliance with applicable law, to 
identify and cure instances of non-compliance and to manage conflicts 
of interest. The comparability assessment accordingly may focus on 
whether the analogous foreign requirements--taken as a whole--produce 
comparable outcomes with regard to providing that Covered Entities have 
structures and processes reasonably designed to promote compliance with 
applicable law, identify and cure instances of non-compliance and to 
manage conflicts of interest, in part through the designation of an 
individual with responsibility and authority over compliance matters.

B. Preliminary Views and Proposed Order

1. General considerations
    Based on the Swiss Application and the Commission's review of 
applicable provisions, in the Commission's preliminary view the 
relevant Swiss requirements would produce regulatory outcomes that are 
comparable to those associated with the above-described internal 
supervision, chief compliance officer, conflict of interest and 
information-related requirements by providing that Covered Entities 
have structures and processes that reasonably are designed to promote 
compliance with applicable law and to identify and cure instances of 
non-compliance and manage conflicts of interest.\64\ As elsewhere, this 
part of the proposed Order conditions substituted compliance on Covered 
Entities being subject to and complying with specified Swiss 
requirements that are necessary to establish comparability.\65\
---------------------------------------------------------------------------

    \64\ This portion of the proposed Order accordingly would extend 
generally to the internal supervision provisions of Exchange Act 
rule 15Fh-3(h), the requirement in Exchange Act section 15F(j)(4)(A) 
to have systems and procedures to obtain necessary information to 
perform functions required under Exchange Act section 15F and the 
conflict of interest provisions of Exchange Act section 15F(j)(5). 
See para. (c)(1) of the proposed Order. This portion of the proposed 
Order does not extend to the portions of rule 15Fh-3(h) that mandate 
supervisory policies and procedures in connection with: The risk 
management system provisions of Exchange Act section 15F(j)(2) 
(which are addressed by paragraph (b)(1) of the proposed Order in 
connection with internal risk management); the information-related 
provisions of Exchange Act sections 15F(j)(3) and (j)(4)(B) (for 
which substituted compliance is not available); or the antitrust 
provisions of Exchange Act section 15F(j)(6) (for which the 
Commission is not proposing to provide substituted compliance). See 
para. (c)(1)(ii) of the proposed Order.
    \65\ See para. (c)(3) of the proposed Order.
---------------------------------------------------------------------------

    The Commission recognizes that certain differences are present 
between those Swiss requirements and the applicable requirements under 
the Exchange Act. In the Commission's preliminary view, on balance, 
however, those differences would not preclude substituted compliance 
within the relevant outcomes-oriented context.
2. Additional Conditions
    Substituted compliance in connection with these requirements would 
be subject to certain additional conditions to help ensure the 
comparability of outcomes:
a. Application of Swiss Supervisory and Compliance Requirements to 
Residual U.S. Requirements and Order Conditions
    Under the proposed Order, substituted compliance for the relevant 
internal supervision requirements would be conditioned on Covered 
Entities complying with applicable Swiss supervisory and compliance 
provisions as if those provisions also require the Covered Entity to 
comply with applicable requirements under the Exchange Act and the 
other applicable conditions to the Order.\66\
---------------------------------------------------------------------------

    \66\ See para. (c)(4) of the proposed Order.
---------------------------------------------------------------------------

    Even with substituted compliance, Covered Entities still would be 
subject directly to a number of requirements under the Exchange Act and 
to the conditions to the Order. In some cases, particular requirements 
under the Exchange Act are outside the ambit of substituted 
compliance.\67\ In other cases, certain requirements under the Exchange 
Act may not have comparable Swiss requirements or may be outside the 
scope of the Swiss Application,\68\ or the Covered Entity may decide 
not to use substituted compliance for certain requirements under the 
Exchange Act.\69\ While the Swiss regulatory framework in general 
reasonably appears to promote Covered Entities' compliance with 
applicable Swiss laws, those requirements do not appear to promote 
Covered Entities' compliance with requirements under the Exchange Act 
that are not subject to substituted compliance,\70\ or promote Covered 
Entities' compliance with the applicable conditions to substituted 
compliance. This condition would address this issue, while still 
allowing Covered Entities to use their existing internal supervision 
and compliance frameworks to comply with the relevant Exchange Act 
requirements and Order conditions, rather than having to establish 
separate special-purpose supervision and compliance frameworks.
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    \67\ As noted, substituted compliance does not extend to 
antifraud prohibitions or to certain other requirements under the 
Exchange Act ( e.g., segregation requirements and requirements 
related to transactions with counterparties that are not ECPs). See 
note 5, supra.
    \68\ The Swiss Firms are not requesting substituted compliance 
in connection with: (1) Capital requirements: Exchange Act Rules 
18a-1; (2) margin requirements: Exchange Act Rule 18a-3; (3) 
recordkeeping requirements not applicable to non-bank SBSEs in 
Exchange Act Rules 18a-5 and 18a-6; (4) reporting requirements 
applicable to non-bank SBSEs in Exchange Act Rule 18a-7; (5) 
notification requirements applicable to non-bank SBSEs in Exchange 
Act rule 18a-8; and (6) securities count requirements in Exchange 
Act rule 18a-9.
    \69\ See part III, supra.
    \70\ See note 5, supra.
---------------------------------------------------------------------------

b. Compliance Reports
    Under the proposed Order, substituted compliance in connection with 
the compliance report requirements under Exchange Act section 15F(k)(3) 
and Exchange Act rule 15Fk-1(c) also would be subject to the condition 
that the compliance reports required pursuant to FINMA Circular 2017/1 
margins 78-81 must: (1) Be provided to the Commission at least annually 
and in the English language; (2) include a certification signed by the 
chief compliance officer or senior

[[Page 45777]]

officer \71\ of the Covered Entity that, to the best of the certifier's 
knowledge and reasonable belief and under penalty of law, the report is 
accurate and complete in all material respects; (3) address the Covered 
Entity's compliance with applicable requirements under the Exchange Act 
and other applicable conditions of the proposed Order in connection 
with requirements for which the Covered Entity is relying on the 
proposed Order; (4) be provided to the Commission no later than 15 days 
following the earlier of the submission of the report to the Covered 
Entity's management body or the time the report is required to be 
submitted to the management body; and (5) together cover the entire 
period that the Covered Entity's annual compliance report referenced in 
Exchange Act section 15F(k)(3) and Exchange Act rule 15Fk-1(c) would be 
required to cover.\72\
---------------------------------------------------------------------------

    \71\ See Exchange Act rule 15Fk-1(e)(2) (defining ``senior 
officer'' as ``the chief executive officer or other equivalent 
officer'').
    \72\ See para. (c)(2) of the proposed Order. FINMA Circular 
2017/1 margins 78-81 require that a Covered Entity's compliance 
function ``annually report to the executive board its assessment of 
compliance risks and report on the activities of the compliance 
function. A copy of these reports shall be provided to Internal 
Audit as well as the audit firm.'' Under the proposed condition, 
those reports, as submitted to the Commission and the Covered 
Entity's management body, also would address the Covered Entity's 
compliance with the other conditions of the proposed Order (in 
addition to addressing the Covered Entity's compliance with 
applicable Swiss provisions).
---------------------------------------------------------------------------

    Although certain Swiss requirements address a Covered Entity's use 
of internal compliance reports, those provisions do not require it to 
submit compliance reports to the Commission. Under this condition, a 
Covered Entity could leverage the compliance reports that it otherwise 
must produce, by extending those reports to address compliance with the 
conditions of the proposed Order.\73\
---------------------------------------------------------------------------

    \73\ In practice, a Covered Entity may satisfy this condition by 
identifying relevant Order conditions and reporting on the 
implementation and effectiveness of its controls with regard to 
compliance with those Order conditions.
---------------------------------------------------------------------------

c. Antitrust Considerations
    Under the proposed Order, substituted compliance would not extend 
to Exchange Act section 15F(j)(6) (and related internal supervision 
requirements of Exchange Act rule 15Fh-3(h)(2)(iii)(I)). Allowing an 
alternative means of compliance would not lead to outcomes comparable 
to that statutory prohibition.\74\
---------------------------------------------------------------------------

    \74\ See also German Substituted Compliance Order, 85 FR at 
85691-92; French Substituted Compliance Order, 86 FR at 41643; UK 
Substituted Compliance Order, 86 FR at 43353. The Commission is not 
taking any position regarding the applicability of the section 
15F(j)(6) antitrust prohibitions in the cross-border context. Non-
U.S. SBSDs should assess the applicability of those prohibitions to 
their security-based swap businesses.
---------------------------------------------------------------------------

VII. Substituted Compliance for Recordkeeping, Reporting and 
Notification Requirements

A. Swiss Firms' Request and Associated Analytic Considerations

    The Swiss Application in part requests substituted compliance for 
requirements applicable to SBS Entities with a prudential regulator 
under the Exchange Act relating to:
     Record Making--Exchange Act rule 18a-5 requires prescribed 
records to be made and kept current.\75\
---------------------------------------------------------------------------

    \75\ 17 CFR 240.18a-5. The Swiss Application discusses Swiss 
record making requirements. See Swiss Application section II.2.a. at 
33-47.
---------------------------------------------------------------------------

     Record Preservation--Exchange Act rule 18a-6 requires 
preservation of records.\76\
---------------------------------------------------------------------------

    \76\ 17 CFR 240.18a-6. The Swiss Application discusses Swiss 
record preservation requirements. See Swiss Application section 
II.2.b. at 48-61.
---------------------------------------------------------------------------

     Reporting--Exchange Act rule 18a-7 requires certain 
reports.\77\
---------------------------------------------------------------------------

    \77\ 17 CFR 240.18a-7. The Swiss Application discusses Swiss 
requirements that address firms' obligations to make certain 
reports. See Swiss Application section II.2.c. at 62-64.
---------------------------------------------------------------------------

     Notification--Exchange Act rule 18a-8 requires 
notification to the Commission when certain financial or operational 
problems occur.\78\
---------------------------------------------------------------------------

    \78 \ 17 CFR 240.18a-8. The Swiss Application discusses Swiss 
requirements that address firms' obligations to make certain 
notifications. See Swiss Application section II.2.c. at 64-66.
---------------------------------------------------------------------------

     Daily Trading Records--Exchange Act section 15F(g) 
requires SBS Entities to maintain daily trading records.\79\
---------------------------------------------------------------------------

    \79\ The Swiss Application discusses Swiss requirements that 
address firms' record preservation obligations related to records 
that firms are required to create, as well as additional records 
such as records of communications. See Swiss Application section 
II.2.b. at 50-52.
---------------------------------------------------------------------------

    Taken as a whole, the recordkeeping, reporting, and notification 
requirements that apply to SBS Entities with a prudential regulator are 
designed to promote the prudent operation of the firm's security-based 
swap activities, assist the Commission in conducting compliance 
examinations of those activities, and alert the Commission to potential 
financial or operational problems that could impact the firm and its 
customers. The comparability assessment accordingly may focus on 
whether the analogous foreign requirements--taken as a whole--produce 
comparable outcomes with regard to recordkeeping, reporting, 
notification, and related practices that support the Commission's 
oversight of these registrants. A foreign jurisdiction need not have 
analogues to every requirement under Commission rules to receive a 
positive substituted compliance determination.

B. Preliminary Views and Proposed Order

1. General Considerations
    Based on the Swiss Application and the Commission's review of 
applicable provisions, in the Commission's preliminary view, the 
relevant Swiss requirements, subject to the conditions and limitations 
of the proposed Order, would produce regulatory outcomes that are 
comparable to the outcomes associated with the vast majority of the 
recordkeeping, reporting, and notification requirements under the 
Exchange Act applicable to SBS Entities with a prudential regulator 
pursuant to Exchange Act section 15F(g) and Exchange Act rules 18a-5, 
18a-6, 18a-7, and 18a-8.
    In reaching this preliminary conclusion, the Commission recognizes 
that there are certain differences between Swiss requirements and the 
Exchange Act requirements. In the Commission's preliminary view, on 
balance, those differences generally would not be inconsistent with 
substituted compliance for these requirements. Requirement-by-
requirement similarity is not needed for substituted compliance.
    However, the Commission is structuring its preliminary substituted 
compliance determinations in the proposed Order to provide Covered 
Entities with greater flexibility to select which distinct requirements 
within the broader rule for which they would apply substituted 
compliance. This would not preclude a Covered Entity from applying 
substituted compliance for the entire rule (subject to conditions and 
limitations). However, it would permit the Covered Entity to apply 
substituted compliance with respect to certain requirements of a given 
rule and to comply directly with the remaining requirements. This 
granular approach to making substituted compliance determinations with 
respect to discrete requirements within Exchange Act rules 18a-5, 18a-
6, 18a-7, and 18a-8 (collectively, the ``recordkeeping, reporting, and 
notification rules'') is intended to permit Covered Entities to 
leverage existing recordkeeping and reporting systems that are designed 
to comply with the broker-dealer recordkeeping and reporting 
requirements on which the recordkeeping and reporting requirements 
applicable to SBS Entities are based. For example, it may be more 
efficient for a Covered Entity to comply with certain Exchange Act 
requirements

[[Page 45778]]

within a given recordkeeping, reporting, or notification rule (rather 
than apply substituted compliance) because it can utilize systems that 
its affiliated broker-dealer has implemented to comply with them. This 
proposed approach is consistent with the approach taken by the 
Commission in the French and UK Substituted Compliance Orders.\80\
---------------------------------------------------------------------------

    \80\ See French Substituted Compliance Order, 86 FR at 41649; UK 
Substituted Compliance Order, 86 FR at 43360.
---------------------------------------------------------------------------

    As applied to Exchange Act rules 18a-5 and 18a-6, this approach of 
providing greater flexibility results in preliminary substituted 
compliance determinations with respect to the different categories of 
records these rules require SBS Entities with a prudential regulator to 
make, keep current, and/or preserve. The objective of these rules--
taken as a whole--is to assist the Commission in monitoring and 
examining for compliance with substantive Exchange Act requirements 
applicable to SBS Entities with a prudential regulator (e.g., business 
conduct requirements) as well as to promote the prudent operation of 
these firms.\81\ The Commission preliminarily believes the comparable 
Swiss recordkeeping rules achieve these outcomes with respect to 
compliance with substantive Swiss requirements for which preliminary 
positive substituted compliance determinations are being made in this 
proposed Order (e.g., the preliminary positive substituted compliance 
determinations with respect to the majority of the Exchange Act 
business conduct requirements). At the same time, the recordkeeping 
rules address different categories of records through distinct 
requirements within the rules. Each requirement with respect to a 
specific category of records (e.g., paragraph (b)(1) of Exchange Act 
rule 18a-5 addressing trade blotters) can be viewed in isolation as a 
distinct recordkeeping rule. Therefore, it may be appropriate to make 
substituted compliance determinations at this level of Exchange Act 
rules 18a-5 and 18a-6.
---------------------------------------------------------------------------

    \81\ See, e.g., Exchange Act Release No. 71958 (Apr. 17, 2014), 
79 FR 25194, 25199-200 (May 2, 2014).
---------------------------------------------------------------------------

    As discussed in more detail below, the Commission's preliminary 
view is that substituted compliance is appropriate for most of the 
requirements applicable to SBS Entities with a prudential regulator 
within the recordkeeping, reporting, and notification rules. However, 
certain of the discrete requirements in these rules are fully or 
partially linked to substantive Exchange Act requirements for which 
substituted compliance is not available or for which a positive 
substituted compliance determination would not be made under the 
proposed Order. In these cases, a preliminary positive substituted 
compliance determination is not be made for the requirement that is 
fully linked to the substantive requirement or to the part of the 
requirement that is linked to the substantive requirement. In 
particular, a preliminary positive substituted compliance determination 
is not being made, in full or in part, for recordkeeping, reporting, or 
notification requirements linked to the following Exchange Act rules 
for which substituted compliance is not available or a preliminary 
positive substituted compliance determination is not being made: (1) 
Exchange Act rule 15Fh-4 (``Rule 15Fh-4 Exclusion''); (2) Exchange Act 
rule 15Fh-5 (``Rule 15Fh-5 Exclusion''); (3) Exchange Act rule 15Fh-6 
(``Rule 15Fh-6 Exclusion''); (4) Exchange Act rule 18a-4 (``Rule 18a-4 
Exclusion''); (5) Regulation SBSR (``Regulation SBSR Exclusion''); (6) 
Form SBSE and its variations (``Form SBSE Exclusion''); (7) Exchange 
Act rule 15Fh-1 Exclusion (``Rule 15Fh-1 Exclusion''), (8) Exchange Act 
rule 15Fh-2 (``Rule 15Fh-2 Exclusion''); and (9) Exchange Act rule 
15Fi-5 (``Rule 15Fi-5 Exclusion''). This proposed approach is 
consistent with the approach taken by the Commission in the French and 
UK Substituted Compliance Orders.\82\
---------------------------------------------------------------------------

    \82\ See French Substituted Compliance Order, 86 FR at 41650; UK 
Substituted Compliance Order, 86 FR at 43361.
---------------------------------------------------------------------------

    In addition, certain of the requirements in the recordkeeping, 
reporting, and notification rules are expressly linked to substantive 
Exchange Act requirements where a preliminary positive substituted 
compliance determination is being made under the proposed Order. In 
these cases, substituted compliance with the linked requirement in the 
recordkeeping, reporting, or notification rule is conditioned on the 
Covered Entity applying substituted compliance to the linked 
substantive Exchange Act requirement. This is the case regardless of 
whether the requirement is fully or partially linked to the substantive 
Exchange Act requirement. The recordkeeping, reporting, and 
notification requirements that are linked to a substantive Exchange Act 
requirement are designed and tailored to assist the Commission in 
monitoring and examining an SBS Entity's compliance with the 
substantive Exchange Act requirement. Swiss recordkeeping, reporting, 
and notification requirements are designed to perform a similar role 
with respect to the substantive Swiss requirements to which they are 
linked. Consequently, this condition is designed to ensure that the 
records, reports, and notifications of a Covered Entity align with the 
substantive Exchange Act or Swiss requirement to which they are linked. 
For these reasons, under the proposed Order, substituted compliance for 
recordkeeping, reporting, and notification requirements linked to the 
following Exchange Act rules would be conditioned on the Covered Entity 
applying substituted compliance to the linked substantive Exchange Act 
rule: (1) Exchange Act rule 15Fh-3(h) (``Rule 15Fh-3 Condition''); (2) 
Exchange Act rule 15Fi-2 (``Rule 15Fi-2 Condition''); (3) Exchange Act 
rule 15Fi-3 (``Rule 15Fi-3 Condition''); (4) Exchange Act rule 15Fi-4 
(``Rule 15Fi-4 Condition''); and (5) Exchange Act rule 15Fk-1 (``Rule 
15Fk-1 Condition''). This proposed approach is consistent with the 
approach taken by the Commission in the French and UK Substituted 
Compliance Orders.\83\
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    \83\ See French Substituted Compliance Order, 86 FR at 41650; UK 
Substituted Compliance Order, 86 FR at 43361.
---------------------------------------------------------------------------

2. Exchange Act Rule 18a-5
    Exchange Act rule 18a-5 requires SBS Entities to make and keep 
current various types of records. The requirements for SBS Entities 
without a prudential regulator are set forth in paragraph (a) of the 
rule.\84\ The requirements for SBS Entities with a prudential regulator 
are set forth in paragraph (b) of the rule.\85\ The Commission is 
making a preliminary positive substituted compliance determination for 
many of the requirements of paragraph (b) of Exchange Act rule 18a-5 in 
the granular manner discussed above.\86\
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    \84\ See paras. (a)(1) through (18) of Exchange Act rule 18a-5.
    \85\ See paras. (b)(1) through (14) of Exchange Act rule 18a-6.
    \86\ See para. (d)(1) of the proposed Order.
---------------------------------------------------------------------------

    However, certain of the requirements in these paragraphs are linked 
to substantive Exchange Act requirements for which substituted 
compliance is not available or a preliminary positive substituted 
compliance determination would not be made under the proposed Order. In 
these cases, a positive substituted compliance determination would not 
be made for the linked requirement in Exchange Act rule 18a-5 or the 
portion of the requirement in Exchange Act rule 18a-5 that is linked

[[Page 45779]]

to the substantive Exchange Act requirement.\87\
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    \87\ A positive preliminary substituted compliance determination 
would not be made for the following requirements of Exchange Act 
rule 18a-5 because they are linked to a substantive Exchange Act 
requirement for which the proposed Order would not provide 
substituted compliance: (1) Exchange Act rules 18a-5(b)(9) and (10) 
are fully linked to Exchange Act rule 18a-4 and, therefore, would be 
subject to the Rule 18a-4 Exclusion; (2) Exchange Act rule 18a-
5(b)(12) is fully linked to Exchange Act rule 15Fh-6 and, therefore, 
would be subject to the Rule 15Fh-6 Exclusion; (3) the portions of 
Exchange Act rule 18a-5(b)(13) that relates to Exchange Act rule 
15Fh-4 would be subject to the Rule 15Fh-4 Exclusion; (4) the 
portion of Exchange Act rule 18a-5(b)(13) that relates to Exchange 
Act rule 15Fh-5 would be subject to the 15Fh-5 Exclusion; (5) the 
portion of Exchange Act rule 18a-5(b)(13) that relates to Exchange 
Act rule 15Fh-1 would be subject to the 15Fh-1 Exclusion; and (6) 
the portion of Exchange Act rule 18a--5(b)(13) that relates to 
Exchange Act rule 15Fh-2 would be subject to the 15Fh-2 Exclusion.
---------------------------------------------------------------------------

    In addition, certain of the requirements in Exchange Act rule 18a-5 
are fully or partially linked to substantive Exchange Act requirements 
where a preliminary positive substituted compliance determination would 
be made under the proposed Order. In these cases, substituted 
compliance with the requirement in Exchange Act rule 18a-5 would be 
conditioned on the Covered Entity applying substituted compliance to 
the linked substantive Exchange Act requirement.\88\
---------------------------------------------------------------------------

    \88\ Substituted compliance with the following requirements of 
Exchange Act rule 18a-5 would be conditioned on the Covered Entity 
applying substituted compliance to the linked substantive Exchange 
Act requirement: (1) Exchange Act rules 18a-5(b)(6) and (b)(11) are 
linked to Exchange Act rule 15Fi-2 and, therefore, would be subject 
to the Rule 15Fi-2 Condition; (2) Exchange Act rule 18a-5(b)(13) is 
linked to Exchange Act rule 15Fh-3 and, therefore, would be subject 
to the Rule 15Fh-3(h) Condition; (3) Exchange Act rule 18a-5(b)(13) 
is linked to Exchange Act rule 15Fk-1, and therefore, would be 
subject to the Rule 15Fk-1 Condition; (4) Exchange Act rules 18a-
5(b)(14)(i) and (ii) are linked to Exchange Act rule 15Fi-3 and, 
therefore, would be subject to the Rule 15Fi-3 Condition; and (5) 
Exchange Act rule 18a-5(b)(14)(iii) is linked to Exchange Act rule 
15Fi-4 and, therefore, would be subject to the Rule 15Fi-4 
Condition.
---------------------------------------------------------------------------

    In addition, the proposed Order would allow a Covered Entity to 
apply substituted compliance on a transaction-by-transaction basis for 
the Commission's recordkeeping requirements that are linked with the 
counterparty protection requirements in Exchange Act rule 15Fh-
3(h).\89\ This approach is intended to be consistent with the 
Commission preliminarily allowing Covered Entities to apply substituted 
compliance on a transaction-by-transaction basis for the Commission's 
counterparty protection requirements.
---------------------------------------------------------------------------

    \89\ See para. (d)(1)(ii)(B) of the proposed Order.
---------------------------------------------------------------------------

    Under the proposed Order, substituted compliance in connection with 
the record making requirements of Exchange Act rule 18a-5 would be 
subject to the condition that the Covered Entity: (1) Preserves all of 
the data elements necessary to create the records required by Exchange 
Act rules 18a-5(b)(1), (2), (3), and (7); and (2) upon request 
furnishes promptly to representatives of the Commission the records 
required by those rules (``SEC Format Condition'').\90\ This proposed 
condition is modeled on the alternative compliance mechanism in 
paragraph (c) of Exchange Act rule 18a-5. In effect, a Covered Entity 
applying substituted compliance with respect to these requirements of 
Exchange Act rule 18a-5 would need to comply with the comparable Swiss 
requirements. However, under the SEC Format Condition, the Covered 
Entity would need to produce a record that is formatted in accordance 
with the requirements of Exchange Act rule 18a-5 at the request of 
Commission staff. The objective is to require--on a very limited 
basis--the production of a record that consolidates the information 
required by Exchange Act rules 18a-5(b)(1), (2), (3), and (7) in a 
single record and, as applicable, in a blotter or ledger format. This 
will assist the Commission staff in reviewing the information on the 
record.
---------------------------------------------------------------------------

    \90\ See para. (d)(1)(ii)(A) of the proposed Order.
---------------------------------------------------------------------------

    The following table summarizes the Commission's preliminary 
positive substituted compliance determinations with respect to 
requirements of Exchange Act rule 18a-5 by listing in each row: (1) The 
paragraph of the proposed Order that sets forth the preliminary 
determination; (2) the paragraph(s) of Exchange Act rule 18a-5 to which 
the preliminary determination applies; (3) a brief description of the 
records required by the paragraph(s); and (4) a brief description of 
any additional conditions to applying substituted compliance to the 
requirements, including any partial exclusions because portions of the 
requirements are linked to substantive Exchange Act requirements for 
which the proposed Order would not provide substituted compliance.\91\
---------------------------------------------------------------------------

    \91\ The chart below does not include the proposed conditions 
for applying substituted compliance to Exchange Act rule 18a-5; 
namely that the Covered Entity: (1) Must be subject to and comply 
with specified requirements of foreign law; and (2) as discussed 
below, must promptly furnish to a representative of the Commission 
upon request an English translation of a record. See para. (d)(7) of 
the proposed Order (setting forth the English translation 
requirement).

                                             Exchange Act Rule 18a-5
                                                 [Record making]
----------------------------------------------------------------------------------------------------------------
                                                                                       Additional conditions and
         Order  paragraph              Rule  paragraph          Rule description           partial exclusions
----------------------------------------------------------------------------------------------------------------
(d)(1)(i)(A)......................  (b)(1)...............  Trade blotters............  SEC Format Condition.
(d)(1)(i)(B)......................  (b)(2)...............  Account ledgers...........  SEC Format Condition.
(d)(1)(i)(C)......................  (b)(3)...............  Stock record..............  SEC Format Condition.
(d)(1)(i)(D)......................  (b)(4)...............  Memoranda of brokerage      N/A.
                                                            orders.
(d)(1)(i)(E)......................  (b)(5)...............  Memoranda of proprietary    N/A.
                                                            orders.
(d)(1)(i)(F)......................  (b)(6)...............  Confirmations, trade        Rule 15Fi-2 Condition.
                                    (b)(11)..............   verification.
(d)(1)(i)(G)......................  (b)(7)...............  Accountholder information.  SEC Format Condition.
(d)(1)(i)(H)......................  (b)(8)...............  Associated person's         N/A.
                                                            employment application.
(d)(1)(i)(I)......................  (b)(13)..............  Compliance with business    (1) Rule 15Fh-3(h)
                                                            conduct requirements.       Condition.
                                                                                       (2) Rule 15Fk-1
                                                                                        Condition.
                                                                                       (3) Rule 15Fh-1
                                                                                        Exclusion.
                                                                                       (4) Rule 15Fh-2
                                                                                        Exclusion.
                                                                                       (5) Rule 15Fh-4
                                                                                        Exclusion.
                                                                                       (6) Rule 15Fh-5
                                                                                        Exclusion.
(d)(1)(i)(J)......................  (b)(14)(i)...........  Portfolio reconciliation..  Rule 15Fi-3 Condition.
                                    (b)(14)(ii)..........

[[Page 45780]]

 
(d)(1)(i)(K)......................  (b)(14)(iii).........  Portfolio compression.....  Rule 15Fi-4 Condition.
----------------------------------------------------------------------------------------------------------------

    The following table summarizes the Commission's preliminary 
determinations with respect to requirements of Exchange Act rule 18a-5 
for which a positive substituted compliance determination would not be 
made because they are fully linked to substantive Exchange Act 
requirements for which the proposed Order would not provide substituted 
compliance by listing in each row: (1) The paragraph of the proposed 
Order that sets forth the determination; (2) the paragraph of Exchange 
Act rule 18a-5 to which the determination applies; (3) a brief 
description of the records required by the paragraph; and (4) a brief 
description of why the requirement is excluded from substituted 
compliance.

                                             Exchange Act Rule 18a-5
                                                 [Record making]
----------------------------------------------------------------------------------------------------------------
          Order paragraph               Rule paragraph          Rule description               Exclusion
----------------------------------------------------------------------------------------------------------------
(d)(1)(ii)(C).....................  (b)(9)...............  Possession or control       Rule 18a-4 Exclusion.
                                                            records.
(d)(1)(ii)(C).....................  (b)(10)..............  Reserve computations......  Rule 18a-4 Exclusion.
(d)(1)(ii)(C).....................  (b)(12)..............  Political contribution      Rule 15Fh-6 Exclusion.
                                                            records.
----------------------------------------------------------------------------------------------------------------

3. Exchange Act Rule 18a-6
    Exchange Act rule 18a-6 requires an SBS Entity to preserve certain 
types of records if it makes or receives them (in addition to the 
records the SBS Entity is required to make and keep current pursuant to 
Exchange Act rule 18a-5).\92\ Exchange Act rule 18a-6 also prescribes 
the time period that these additional records and the records required 
to be made and kept current pursuant to Exchange Act rule 18a-5 must be 
preserved and the manner in which they must be preserved.
---------------------------------------------------------------------------

    \92\ See 17 CFR 240.18a-6.
---------------------------------------------------------------------------

    Paragraphs (a) through (d) of Exchange Act rule 18a-6 identify the 
records that an SBS Entity must retain if it makes or receives them and 
prescribes the retention periods for these records as well as for the 
records that must be made and kept current pursuant to Exchange Act 
rule 18a-5. Certain of these paragraphs prescribe requirements 
separately for SBS Entities without a prudential regulator and SBS 
Entities with a prudential regulator.\93\ The proposed Order would make 
substituted compliance available for the requirements of these 
paragraphs applicable to SBS Entities with a prudential regulator. As 
discussed below, the Commission is making a preliminary positive 
substituted compliance determination for many of the requirements of 
these paragraphs applicable to SBS Entities with a prudential 
regulator.
---------------------------------------------------------------------------

    \93\ Paras. (a)(1), (b)(1), (d)(2)(i), and (d)(3)(i) of Exchange 
Act rule 18a-6 apply to SBS Entities without a prudential regulator. 
Paras. (a)(2), (b)(2), (d)(2)(ii), and (d)(3)(ii) of Exchange Act 
rule 18a-6 apply to SBS Entities with a prudential regulator. Paras. 
(c), (d)(1), (d)(4), and (d)(5) of Exchange Act rule 18a-6 apply to 
SBS Entities irrespective of whether they have a prudential 
regulator.
---------------------------------------------------------------------------

    However, certain of these requirements are fully or partially 
linked to substantive Exchange Act requirements for which a preliminary 
positive substituted compliance determination would not be made under 
the proposed Order. In these cases, a positive substituted compliance 
determination would not be made for the linked requirement in Exchange 
Act rule 18a-6.\94\
---------------------------------------------------------------------------

    \94\ A positive substituted compliance determination would not 
be made for the following requirements of Exchange Act rule 18a-6 
because they are linked to a substantive Exchange Act requirement 
for which the proposed Order would not provide substituted 
compliance: (1) Exchange Act rule 18a-6(b)(2)(vi) is fully linked to 
Regulation SBSR and, therefore, would be subject to the Regulation 
SBSR Exclusion; (2) Exchange Act rule 18a-6(b)(2)(viii) is fully 
linked to Exchange Act rule 15Fh-4 and, therefore, would be subject 
to the Rule 15Fh-4 Exclusion; (3) Exchange Act rule 18a-
6(b)(2)(viii) is fully linked to Exchange Act rule 15Fh-5 and, 
therefore, would be subject to the Rule 15Fh-5 Exclusion; (4) 
Exchange Act rule 18a-6(b)(2)(v) is fully linked to Exchange Act 
rule 18a-4 and, therefore, would be subject to the Rule 18a-4 
Exclusion; (5) the portion of Exchange Act rule 18a-6(c) relating to 
Form SBSE and its variations would be subject to the Form SBSE 
Exclusion; (6) the portion of Exchange Act rule 18a-6(b)(2)(vii) 
that relates to Exchange Act rule 15Fh-1 would be subject to the 
15Fh-1 Exclusion; (7) the portion of Exchange Act rule 18a-
6(b)(2)(vii) that relates to Exchange Act rule 15Fh-2 would be 
subject to the 15Fh-2 Exclusion; (8) the portion of Exchange Act 
rule 18a-6(b)(2)(vii) that relates to Exchange Act rule 15Fh-4 would 
be subject to the 15Fh-4 Exclusion; (9) the portion of Exchange Act 
rule 18a-6(b)(2)(vii) that relates to Exchange Act rule 15Fh-5 would 
be subject to the 15Fh-5 Exclusion; (10) the portion of Exchange Act 
rule 18a-6(b)(2)(vii) that relates to Exchange Act rule 15Fh-6 would 
be subject to the 15Fh-6 Exclusion; and (11) the portion of Exchange 
Act rules 18a-6(d)(4) and (d)(5) that relates to Exchange Act rule 
15Fi-5 would be subject to the Rule 15Fi-5 Exclusion.
---------------------------------------------------------------------------

    In addition, certain of the requirements in Exchange Act rule 18a-6 
are fully or partially linked to substantive Exchange Act requirements 
where a positive substituted compliance determination would be made 
under the proposed Order. In these cases, substituted compliance with 
the requirement in Exchange Act rule 18a-6 would be conditioned on the 
Covered Entity applying substituted compliance to the linked 
substantive Exchange Act requirement.\95\
---------------------------------------------------------------------------

    \95\ Substituted compliance with the following requirements of 
Exchange Act rule 18a-6 would be conditioned on the Covered Entity 
applying substituted compliance to the linked substantive Exchange 
Act requirement: (1) Exchange Act rule 18a-6(b)(2)(vii) is linked to 
Exchange Act rule 15Fh-3 and, therefore, would be subject to the 
Rule 15Fh-3(h) Condition; (2) Exchange Act rule 18a-6(b)(2)(vii) is 
linked to Exchange Act rule 15Fk-1 and, therefore, would be subject 
to the Rule 15Fk-1 Condition; (3) Exchange Act rules 18a-6(d)(4) and 
(d)(5) are linked to Exchange Act rule 15Fi-3 and, therefore, would 
be subject to the Rule 15Fi-3 Condition; and (4) Exchange Act rules 
18a-6(d)(4) and (d)(5) are linked to Exchange Act rule 15Fi-4 and, 
therefore, would be subject to the Rule 15Fi-4 Condition.
---------------------------------------------------------------------------

    Paragraph (e) of Exchange Act rule 18a-6 sets forth the 
requirements for preserving records electronically. Paragraph (f) sets 
forth requirements for when records are prepared or maintained by a 
third party. The Order would make substituted compliance available for 
the requirements of paragraphs (e) and (f) of Exchange Act

[[Page 45781]]

rule 18a-6 with respect to Covered Entities with a prudential 
regulator.\96\
---------------------------------------------------------------------------

    \96\ See paras. (d)(2)(i)(L) and (M) of the proposed Order.
---------------------------------------------------------------------------

    Paragraph (g) of Exchange Act rule 18a-6 requires an SBS Entity to 
furnish promptly to a representative of the Commission legible, true, 
complete, and current copies of those records of the SBS Entity that 
are required to be preserved under Exchange Act rule 18a-6, or any 
other records of the SBS Entity that are subject to examination or 
required to be made or maintained pursuant to section 15F of the 
Exchange Act that are requested by a representative of the Commission. 
The proposed Order would not make substituted compliance available for 
the requirements of paragraph (g) of Exchange Act rule 18a-6 because 
there is no comparable requirement in Switzerland to produce these 
records to a representative of the Commission.
    The following table summarizes the Commission's preliminary 
positive substituted compliance determinations with respect to 
requirements of Exchange Act rule 18a-6 by listing in each row: (1) The 
paragraph of the proposed Order that sets forth the determination; (2) 
the paragraph(s) of Exchange Act rule 18a-6 to which the determination 
applies; (3) a brief description of the records required by the 
paragraph(s); and (4) a brief description of any additional conditions 
to applying substituted compliance to the requirements, including any 
partial exclusions because portions of the requirements are linked to 
substantive Exchange Act requirements for which the proposed Order 
would not provide substituted compliance.\97\
---------------------------------------------------------------------------

    \97\ The chart below does not include the proposed conditions 
for applying substituted compliance to Exchange Act rule 18a-6; 
namely that the Covered Entity: (1) must be subject to and complies 
with the requirements of foreign law; and (2) must promptly furnish 
to a representative of the Commission upon request an English 
translation of a record. See para. (d)(7) of the proposed Order 
(setting forth the English translation requirement).

                                             Exchange Act Rule 18a-6
                                              [Record preservation]
----------------------------------------------------------------------------------------------------------------
                                                                                         Conditions and partial
          Order paragraph               Rule paragraph          Rule description               exclusions
----------------------------------------------------------------------------------------------------------------
(d)(2)(i)(A)......................  (a)(2)...............  6 year record preservation  N/A.
(d)(2)(i)(B)......................  (b)(2)(i)............  3 year record preservation  N/A.
(d)(2)(i)(C)......................  (b)(2)(ii)...........  Communications............  N/A.
(d)(2)(i)(D)......................  (b)(2)(iii)..........  Account documents.........  N/A.
(d)(2)(i)(E)......................  (b)(2)(iv)...........  Written agreements........  N/A.
(d)(2)(i)(F)......................  (b)(2)(vii)..........  Business conduct standard   (1) Rule 15Fh-3(h)
                                                            records.                    Condition.
                                                                                       (2) Rule 15Fk-1
                                                                                        Condition.
                                                                                       (3) Rule 15Fh-1
                                                                                        Exclusion.
                                                                                       (4) Rule 15Fh-2
                                                                                        Exclusion.
                                                                                       (5) Rule 15Fh-4
                                                                                        Exclusion.
                                                                                       (6) Rule 15Fh-5
                                                                                        Exclusion.
                                                                                       (7) Rule 15Fh-6
                                                                                        Exclusion.
(d)(2)(i)(G)......................  (c)..................  Corporate documents.......  Form SBSE Exclusion.
(d)(2)(i)(H)......................  (d)(1)...............  Associated person's         N/A.
                                                            employment application.
(d)(2)(i)(I)......................  (d)(2)(ii)...........  Regulatory authority        N/A.
                                                            reports.
(d)(2)(i)(J)......................  (d)(3)(ii)...........  Compliance, supervisory,    N/A.
                                                            and procedures manuals.
(d)(2)(i)(K)......................  (d)(4)...............  Portfolio reconciliation..  (1) Rule 15Fi-3
                                    (d)(5)...............                               Condition.
                                                                                       (2) Rule 15Fi-4
                                                                                        Condition.
                                                                                       (3) Rule 15Fi-5
                                                                                        Exclusion.
(d)(2)(i)(L)......................  (e)..................  Electronic storage system.  N/A.
(d)(2)(i)(M)......................  (f)..................  Third-party recordkeeper..  N/A.
----------------------------------------------------------------------------------------------------------------

    The following table summarizes the Commission's preliminary 
determinations with respect to requirements of Exchange Act rule 18a-6 
for which a positive substituted compliance determination would not be 
made because they are fully linked to substantive Exchange Act 
requirements for which the proposed Order would not provide substituted 
compliance by listing in each row: (1) The paragraph of the proposed 
Order that sets forth the determination; (2) the paragraph of Exchange 
Act rule 18a-6 to which the determination applies; (3) a brief 
description of the records required by those paragraph; and (4) a brief 
description of why the requirement is excluded from substituted 
compliance.

                                             Exchange Act Rule 18a-6
                                                 [Preservation]
----------------------------------------------------------------------------------------------------------------
          Order paragraph               Rule paragraph          Rule description               Exclusion
----------------------------------------------------------------------------------------------------------------
(d)(2)(ii)........................  (b)(2)(v)............  Information supporting      Rule 18a-4 Exclusion.
                                                            financial reports.
(d)(2)(ii)........................  (b)(2)(vi)...........  Regulation SBSR             Regulation SBSR
                                                            information.                Exclusion.
(d)(2)(ii)........................  (b)(2)(viii).........  Special entity documents..  (1) Rule 15Fh-4
                                                                                        Exclusion.
                                                                                       (2) Rule 15Fh-5
                                                                                        Exclusion.
----------------------------------------------------------------------------------------------------------------

4. Exchange Act Rule 18a-7
    Exchange Act rule 18a-7 requires SBS Entities, on a monthly basis 
(if not prudentially regulated) or on a quarterly basis (if 
prudentially regulated), to file an unaudited financial and operational 
report on the FOCUS Report Part II (if not prudentially regulated) or 
Part IIC (if prudentially regulated). The

[[Page 45782]]

Commission will use the FOCUS Reports filed by the SBS Entities to both 
monitor the financial and operational condition of individual SBS 
Entities and to perform comparisons across SBS Entities. The FOCUS 
Report Part IIC elicits less information than the FOCUS Report Part II 
because the Commission does not have responsibility for overseeing the 
capital and margin requirements applicable to these entities.
    The FOCUS Report Parts II and IIC are standardized forms that 
elicit specific information through numbered line items. This 
facilitates cross-firm analysis and comprehensive monitoring of all SBS 
Entities registered with the Commission. Further, the Commission has 
designated the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') to receive the FOCUS Reports from SBS Entities.\98\ Broker-
dealers registered with the Commission currently file their FOCUS 
Reports with FINRA through the eFOCUS system it administers. Using 
FINRA's eFOCUS system will enable broker-dealers, security-based swap 
dealers, and major security-based swap participants to file FOCUS 
Reports on the same platform using the same preexisting templates, 
software, and procedures.
---------------------------------------------------------------------------

    \98\ See Order Designating Financial Industry Regulatory 
Authority, Inc., to Receive Form X-17A-5 (FOCUS Report) from Certain 
Security-Based Swap Dealers and Major Security-Based Swap 
Participants, Exchange Release No. 88866 (May 14, 2020).
---------------------------------------------------------------------------

    Paragraph (a)(2) of Exchange Act rule 18a-7 requires SBS Entities 
with a prudential regulator to file the FOCUS Report Part IIC on a 
quarterly basis. The proposed Order would provide substituted 
compliance for this requirement subject to the condition that the 
Covered Entity file with the Commission periodic unaudited financial 
and operational information in the manner and format specified by the 
Commission by order or rule (``Manner and Format Condition'') and 
present the financial information in accordance with generally accepted 
accounting principles (``GAAP'') that the firms use to prepare general 
purpose publicly available or available to be issued financial 
statements in Switzerland (``Swiss GAAP Condition'').\99\ The 
Commission believes that it would be appropriate to condition 
substituted compliance with respect to Exchange Act rule 18a-7 on the 
Covered Entity filing unaudited financial and operational information 
in a manner and format that facilitates cross-firm analysis and 
comprehensive monitoring of all SBS Entities registered with the 
Commission.\100\ For example, the Commission could by order or rule 
require Covered Entities with a prudential regulator to file the 
financial and operational information with FINRA using the FOCUS Report 
Part IIC but permit the information input into the form to be the same 
information the SBS Entity reports to FINMA.
---------------------------------------------------------------------------

    \99\ Under the proposed Order, Covered Entities with a 
prudential regulator would need to present the information reported 
in the FOCUS Report in accordance with GAAP that the firm uses to 
prepare publicly available or available to be issued general purpose 
financial statements in its home jurisdiction instead of U.S. GAAP 
if other GAAP, such as International Financial Reporting Standards 
(IFRS) as issued by the International Accounting Standards Board 
(IASB), is used by the Covered Entity in preparing publicly 
available or available to be issued general purpose financial 
statements in Switzerland.
    \100\ The Manner and Format condition is included in the French 
and UK Substituted Compliance Orders. See French Substituted 
Compliance Order, 86 FR at 41651; UK Substituted Compliance Order, 
86 FR at 43361-62.
---------------------------------------------------------------------------

    The following table summarizes the Commission's proposed 
preliminary positive substituted compliance determinations with respect 
to requirements of Exchange Act rule 18a-7 by listing in each row: (1) 
The paragraph of the proposed Order that sets forth the determination; 
(2) the paragraph of Exchange Act rule 18a-7 to which the determination 
applies; (3) a brief description of the report required by the 
paragraph; and (4) a brief description of any additional conditions to 
applying substituted compliance to the requirements.\101\
---------------------------------------------------------------------------

    \101\ The chart below does not include the proposed conditions 
for applying substituted compliance to Exchange Act rule 18a-7; 
namely that the Covered Entity: (1) Must be subject to and comply 
with specified requirements of foreign law; and (2) must promptly 
furnish to a representative of the Commission upon request an 
English translation of a report. See para. (d)(7) of the proposed 
Order (setting forth the English translation requirement).

                                             Exchange Act Rule 18a-7
                                                   [Reporting]
----------------------------------------------------------------------------------------------------------------
          Order paragraph               Rule paragraph          Rule description               Conditions
----------------------------------------------------------------------------------------------------------------
(d)(3)(i).........................  (a)(2)...............  File FOCUS Reports........  (1) Manner and Format
                                                                                        Condition.
                                                                                       (2) Swiss GAAP Condition.
----------------------------------------------------------------------------------------------------------------

5. Exchange Act Rule 18a-8
    Exchange Act rule 18a-8 requires SBS Entities to send notifications 
to the Commission if certain adverse events occur.\102\ The proposed 
Order would provide substituted compliance for the requirements of 
Exchange Act rule 18a-8 applicable to SBS Entities with a prudential 
regulator (subject to conditions and limitations). In particular, the 
requirements of: (1) Paragraph (c) of Exchange Act Rule 18a-8 that an 
SBS Entity that is a security-based swap dealer and that files a notice 
of adjustment to its reported capital category with a U.S. prudential 
regulator must transmit a copy of the notice to the Commission; (2) 
paragraph (d) of the rule that an SBS Entity provide notification to 
the Commission if it fails to make and keep current books and records 
under Exchange Act rule 18a-5 and to transmit a subsequent report on 
steps being taken to correct the situation; and (3) paragraph (h) of 
the rule setting forth how to make the notifications required by 
Exchange Act 18a-8.
---------------------------------------------------------------------------

    \102\ See 17 CFR 240.18a-8.
---------------------------------------------------------------------------

    Under the proposed Order, substituted compliance in connection with 
the notification requirements of Exchange Act rule 18a-8 would be 
subject to the condition that the Covered Entity: (1) Simultaneously 
sends a copy of any notice required to be sent by Swiss notification 
laws to the Commission in the manner specified on the Commission's 
website (i.e., the ``SEC Filing Condition''); and (2) includes with the 
transmission the contact information of an individual who can provide 
further information about the matter that is the subject of the notice 
(i.e., the ``Contact Information Condition''). The purpose of this 
condition is to alert the Commission to financial or operational 
problems that could adversely affect the firm--the objective of 
Exchange Act rule 18a-8.
    In addition, the Order does not provide substituted compliance for 
paragraph (g) of Exchange Act rule 18a-8 that an SBS Entity that is a 
security-based swap dealer provide notification if it fails to make a 
required deposit into its special reserve account for the

[[Page 45783]]

exclusive benefit of security-based swap customers under Exchange Act 
rule 18a-4. Substituted compliance is not available for Exchange Act 
rule 18a-4.
    In addition, the proposed Order would not provide substituted 
compliance for paragraph (g) of Exchange Act rule 18a-8 that an SBS 
Entity that is a security-based swap dealer provide notification if it 
fails to make a required deposit into its special reserve account for 
the exclusive benefit of security-based swap customers under Exchange 
Act rule 18a-4. Substituted compliance is not available for Exchange 
Act rule 18a-4.
    The following table summarizes the Commission's proposed 
preliminary positive substituted compliance determinations with respect 
to requirements of Exchange Act rule 18a-8 by listing in each row: (1) 
The paragraph of the proposed Order that sets forth the determination; 
(2) the paragraph of Exchange Act rule 18a-8 to which the determination 
applies; (3) a brief description of the notification required by the 
paragraph; and (4) a brief description of any additional conditions to 
applying substituted compliance to the requirements.\103\
---------------------------------------------------------------------------

    \103\ The chart below does not include the proposed conditions 
for applying substituted compliance to Exchange Act rule 18a-8; 
namely that the Covered Entity: (1) Must be subject to and comply 
with specified requirements of foreign law; and (2) must promptly 
furnish to a representative of the Commission upon request an 
English translation of a notification. See para. (d)(7) of the 
proposed Order (setting forth the English translation requirement).

                                             Exchange Act Rule 18a-8
                                                 [Notification]
----------------------------------------------------------------------------------------------------------------
          Order paragraph               Rule paragraph          Rule description               Conditions
----------------------------------------------------------------------------------------------------------------
(d)(4)(i)(B)......................  (c)..................  Prudential regulator        (1) SEC Filing Condition.
                                                            capital category           (2) Contact Information
                                                            adjustment notices.         Condition.
(d)(4)(i)(C)......................  (d)..................  Books and records notices.  (1) SEC Filing Condition.
                                                                                       (2) Contact Information
                                                                                        Condition.
----------------------------------------------------------------------------------------------------------------

    The following table summarizes the Commission's preliminary 
determinations with respect to requirements of Exchange Act rule 18a-8 
for which a positive substituted compliance determination would not be 
made because they are fully linked to substantive Exchange Act 
requirements for which the proposed Order would not provide substituted 
compliance by listing in each row: (1) The paragraph of the proposed 
Order that sets forth the determination; (2) the paragraph of Exchange 
Act rule 18a-8 to which the determination applies; (3) a brief 
description of the notification required by the paragraph; and (4) the 
exclusion from substituted compliance.

                                             Exchange Act rule 18a-8
                                                 [Notification]
----------------------------------------------------------------------------------------------------------------
          Order paragraph               Rule paragraph          Rule description               Exclusion
----------------------------------------------------------------------------------------------------------------
(d)(4)(ii)(C).....................  (g)..................  Reserve account notices...  Rule 18a-4 Exclusion.
----------------------------------------------------------------------------------------------------------------

6. Exchange Act Section 15F(g)
    Exchange Act Section 15F(g) requires SBS Entities, including SBS 
Entities with a prudential regulator, to maintain daily trading 
records.\104\ The Commission preliminarily believes Swiss laws produce 
a comparable result in terms of its daily trading recordkeeping 
requirements.\105\ Accordingly, the Commission preliminarily is making 
a positive substituted compliance determination for the self-executing 
requirements in this paragraph.\106\
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    \104\ See 15 U.S.C. 78o-10(g).
    \105\ See CO article 958f; FMIO article 36; FMIO-FINMA article 
1; FinMIA articles 38, 104, and 106; FINMA Circular 2013/8 marg. 60 
and marg. 61.
    \106\ See para. (d)(5) of the proposed Order.
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7. Examination and Production of Records
    The proposed Order would not extend to, and Covered Entities would 
remain subject to, the requirement of Exchange Act section 15F(f) to 
keep books and records open to inspection by any representative of the 
Commission and the requirement of Exchange Act rule 18a-6(g) to furnish 
promptly to a representative of the Commission legible, true, complete, 
and current copies of those records of the Covered Entity that are 
required to be preserved under Exchange Act rule 18a-6, or any other 
records of the Covered Entity that are subject to examination or 
required to be made or maintained pursuant to Exchange Act section 15F 
that are requested by a representative of the Commission.\107\
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    \107\ See Exchange Act section 15F(f); Exchange Act rule 18a-
6(g). French and UK Substituted Compliance Orders do not extend 
substituted compliance to these requirements. See French Substituted 
Compliance Order, 86 FR at 41650; UK Substituted Compliance Order, 
86 FR at 43361.
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    Consequently, every Covered Entity registered with the Commission, 
whether complying directly with Exchange Act requirements or relying on 
substituted compliance as a means of complying with the Exchange Act, 
would be required to satisfy the inspection and production requirements 
imposed on such entities under the Exchange Act. Covered Entities would 
be able to make, keep, and preserve records, subject to the proposed 
conditions described above, in a manner prescribed by applicable Swiss 
requirements. As an element of its substituted compliance application, 
the Swiss Firms have provided the Commission with adequate assurances 
that no law or policy would impede the ability of any entity that is 
directly supervised by the authority and that may register with the 
Commission to provide prompt access to the Commission to such entity's 
books and records or to submit to onsite inspection or examination by 
the Commission. Consistent with those assurances and the requirements 
that apply to all Covered Entities under the Exchange Act, Covered 
Entities operating under the proposed Order would need to keep books 
and records open to inspection by any representative of the Commission 
and to furnish promptly to a

[[Page 45784]]

representative of the Commission legible, true, complete, and current 
copies of those records of the firm that these entities are required to 
preserve under Exchange Act rule 18a-6 (which would include records for 
which a positive substituted compliance determination is being made 
with respect to Exchange Act rule 18a-6 under the Order), or any other 
records of the firm that are subject to examination or required to be 
made or maintained pursuant to Exchange Act section 15F that are 
requested by a representative of the Commission.
8. English Translations
    The proposed Order provides that to the extent documents are not 
prepared in the English language, Covered Entities would need to 
furnish to a representative of the Commission upon request an English 
translation of any record, report, or notification of the Covered 
Entity that is required to be made, preserved, filed, or subject to 
examination pursuant to Exchange Act section 15F or the proposed 
Order.\108\ This condition would be designed to addresses difficulties 
that Commission examinations staff would have examining Covered 
Entities that furnish documents in a foreign language. The English 
translations would need to be provided promptly. This condition is 
included in the French and UK Substituted Compliance Orders.\109\
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    \108\ See para. (d)(7) of the proposed Order.
    \109\ See French Substituted Compliance Order, 86 FR at 41651; 
UK Substituted Compliance Order, 86 FR at 43361.
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VIII. Additional Considerations Regarding Supervisory and Enforcement 
Effectiveness in Switzerland

A. General Considerations

    As noted above, Exchange Act rule 3a71-6 provides that the 
Commission's assessment of the comparability of the requirements of the 
foreign financial regulatory system must account for ``the 
effectiveness of the supervisory program administered, and the 
enforcement authority exercised'' by the foreign financial regulatory 
authority. This prerequisite accounts for the understanding that 
substituted compliance determinations should reflect the reality of the 
foreign regulatory framework, in that rules that appear high-quality on 
paper nonetheless should not form the basis for substituted compliance 
if--in practice--market participants are permitted to fall short of 
their regulatory obligations. This prerequisite, however, also 
recognizes that differences among the supervisory and enforcement 
regimes should not be assumed to reflect flaws in one regime or 
another.\110\
---------------------------------------------------------------------------

    \110\ See generally Business Conduct Adopting Release, 81 FR at 
30079.
---------------------------------------------------------------------------

    In connection with these considerations, the Swiss Application 
includes information regarding the Swiss supervisory and enforcement 
framework applicable to derivatives markets and market participants. 
This includes information regarding the supervisory and enforcement 
authority afforded to FINMA to promote compliance with applicable 
requirements, applicable supervisory and enforcement tools and 
capabilities, consequences of non-compliance, and the application of 
FINMA's supervisory and enforcement practices in the cross-border 
context.\111\ After review of this information, the Commission 
preliminarily believes that the framework is reasonably designed to 
promote compliance with the laws where substituted compliance has been 
requested.
---------------------------------------------------------------------------

    \111\ Staff also spoke with FINMA supervisors and reviewed 
information on FINMA's website.
---------------------------------------------------------------------------

    In preliminarily concluding that the relevant supervisory and 
enforcement considerations are consistent with substituted compliance, 
the Commission particularly has considered the following factors:

B. Supervisory Framework in Switzerland

    FINMA is the supervisor for the Swiss Firms, and all Covered 
Entities that will register as security-based swap dealers in the 
United States. FINMA has the ability to request records needed for 
supervision from firms through the supervisory process. Every four 
years, FINMA's Board of Directors publishes strategic goals that serve 
as guidelines for FINMA's operational management. Each year, FINMA's 
Board of Directors uses the strategic goals to define the annual 
supervisory priorities, which are incorporated into the annual 
objectives for individual organizational units and employees.
    FINMA assigns prudentially supervised banks to five supervisory 
categories. Category 1 firms receive the most supervisory attention and 
the staff has been told that the Swiss Firms are Category 1 firms. 
FINMA has multiple supervisors dedicated to each Category 1 firm who 
are in constant dialogue with the firms, including weekly contact 
(phone calls, emails) and quarterly meetings with senior management. 
Supervisors review the various reports filed by the firms, including 
monthly reports related to AML and risk as well as daily liquidity 
reports. The supervisors also work with cross-divisional teams, who add 
expertise to the supervision team covering specific aspects of the 
Covered Entity such as risk management, AML, and compliance/conduct.
    Audit firms play an important role in FINMA's supervisory 
activities, primarily by conducting regulatory audits to assess firms' 
compliance with supervisory requirements, and whether they can continue 
to adhere to these requirements in the future. For Category 1 firms, 
FINMA defines the audit strategy for each firm and audit firms are 
engaged by the bank to conduct the regulatory audit annually in line 
with FINMA's specifications. The audit reports are submitted directly 
to FINMA, and include a risk analysis of each firm. FINMA can also 
appoint mandataries (mandated auditors appointed to assist in ongoing 
supervision by conducting audits at supervised institutions) to assist 
it in performing its supervisory duties. Mandataries, which may be 
deployed for urgent matters, focus on a specific situation or 
circumstances at an individual firm.
    On an annual basis, FINMA conducts a formal assessment of the Swiss 
Firms (including assigning a risk rating) taking into account internal 
audit reports, external audit reports, annual reports, and FINMA's view 
of regulatory, economic, and business developments. FINMA sends the 
firms an annual assessment letter detailing the risk rating, any 
weaknesses that have been identified (with actions for the firms to 
take), and the supervisory priorities for the year. Firms are typically 
required to submit regular progress reports of corrective action for 
any issues identified and provide evidence of closure.
    FINMA conducts multiple onsite reviews of Category 1 firms each 
year, some of which relate to the derivatives business. FINMA conducts 
two types of reviews: (1) Supervisory reviews during which FINMA 
obtains information on conceptual issues but also reviews and assesses 
implementation; and (2) deep dives, which are narrower in scope. When 
FINMA identifies findings during an onsite examination, FINMA provides 
the firm a summary report or feedback letter that contains key 
findings. FINMA may direct the firm to develop a mitigation plan, 
reviews the plan for adequacy, and tracks the progress of the plan 
until FINMA is satisfied with the corrective action taken. In general, 
firms are given a certain period of time within which they have to 
mitigate the

[[Page 45785]]

identified issues and restore compliance with the law. FINRA's review 
and evaluation of corrective action undertaken by the firms is 
performed on a case-by-case basis, depending on the severity of the 
deficiency and the risks to be addressed. While minor issues may be 
addressed through correspondence, material issues are reviewed and 
evaluated through interviews or desk reviews of the appropriate 
material. FINMA can also appoint an audit mandatary to confirm that 
corrective action has been taken. For more significant issues, FINMA 
supervisory staff can refer the matter to FINMA enforcement staff.

C. Enforcement Authority in Switzerland

    As the financial market supervisory authority, FINMA is empowered 
to enforce all financial law requirements relevant to the Swiss 
Application. Informal investigations may be launched whenever FINMA 
receives information about potential regulatory irregularities or 
violations of law. Sources of information include, among others, 
referrals from FINMA's supervisory staff, reports by other domestic or 
foreign authorities, or complaints from investors and clients. Absent a 
legal obligation to disclose, FINMA treats complaints confidentially. 
However, there are no incentives provided for whistleblowers, and they 
receive no specific statutory protection. At the conclusion of an 
informal investigation, a determination is made whether the initial 
indications of violations have been confirmed and are sufficiently 
important, and if other relevant factors support opening a formal 
investigation. If a formal investigation is launched, the 
Administrative Procedure Act (``APA'') is implicated and provides for 
certain rights and obligations of the involved parties.
    FINMA has a broad range of investigative tools at its disposal, and 
is empowered with unrestricted access to certain books, records and 
recordings. In particular, Article 29 of FINMASA stipulates that 
supervised persons and certain associates (including their auditors and 
audit firms) must provide FINMA with all information and documents 
FINMA requires to carry out its tasks. In addition, other provisions of 
FINMASA and the APA empower FINMA to compel witnesses, subject to 
certain statutory prerequisites, and hire experts to assist in 
conducting investigations. FINMA is also permitted to inspect documents 
and premises, and may investigate trading records from securities 
dealers and trade reports from trade venues and repositories. In 
general however, FINMA does not have jurisdiction over third parties 
and cannot obtain electronic communications held by third parties 
absent a contractual obligation to do so between the Covered Firm and 
the third party provider. As needed to fulfill its supervisory duties, 
FINMA may seek to obtain the information from public prosecutors who 
are authorized to obtain electronic communications.
    After evidence has been gathered, it is summarized in a statement 
of facts regarding which the parties are permitted to comment. 
Ultimately, the matter is concluded with an order by FINMA. The span of 
time from the commencement of an informal investigation through the 
issuance of an order varies. As an example, FINMA noted that the 
average length for 2019 was 14.4 months. FINMASA provides a statute of 
limitations of seven years for confiscation and the criminal 
prosecution of minor offenses; there is no general statute of 
limitations applicable to the rules related to the application for 
substituted compliance.
    FINMA may order a variety of sanctions to enforce the law. The 
primary goal of Swiss financial market supervision relevant to the 
application is to maintain and, if necessary, restore compliance with 
the law by Covered Entities. In that regard, FINMA is not empowered to 
issue penalties. FINMA does have authority to: Issue declaratory 
rulings, order substitution of performance by FINMA, publish 
supervisory rulings, impose cease-and-desist orders, require 
disgorgement of illegal profits, issue activity bans against 
individuals, impose industry bans, order liquidation or bankruptcy 
procedures, or revoke the license of a Covered Firm, among other 
sanctions. FINMA does not return confiscated ill-gotten gains to harmed 
investors; however, it takes into account remedial payments to 
investors made by the Covered Firm when establishing the amount to be 
confiscated. Additionally, FINMA has the right and obligation to refer 
conduct to prosecuting authorities if it suspects a criminal act by a 
Covered Firm. For example, insider trading and price manipulation fall 
within the remit of the public prosecutor. Swiss public prosecutors are 
empowered to take coercive measures, such as an asset freeze, and seek 
imposition of fines and other criminal law sanctions from competent 
criminal courts. FINMA is not empowered to take coercive measures.
    FINMA annually publishes its enforcement results in the aggregate. 
As a general principle, it does not publish individual proceedings 
unless necessary (i) for the protection of the market participants or 
the supervised persons and entities, (ii) to correct false or 
misleading information, or (iii) to safeguard the reputation of the 
Swiss financial market. Article 34 of FINMASA permits FINMA to publish 
the supervisory ruling in an individual matter in the case of a serious 
violation of supervisory law. FINMA also maintains and publishes on its 
website a warning list of companies and individuals who may be carrying 
out unauthorized services and are not supervised by FINMA.

IX. Request for Comment

A. General Aspects of the Comparability Assessments and Proposed Order

    The Commission requests comment regarding the preliminary views and 
proposed Order in connection with each of the general ``regulatory 
outcome'' categories addressed above. Commenters particularly are 
invited to address, among other issues, whether the relevant Swiss 
provisions generally are sufficient to produce regulatory outcomes that 
are comparable to the outcomes associated with requirements under the 
Exchange Act, and whether the conditions and limitations of the 
proposed Order would adequately address potential gaps in the relevant 
regulatory outcomes or would otherwise result in any implementation or 
other practical issues. The Commission also requests comment upon 
whether there are additional conditions that should be added to those 
in the proposed Order to produce comparable regulatory outcomes.
    Further, the Commission requests comment regarding whether the 
proposed conditions and limitations guard against comparability gaps 
arising from the cross-border application of Swiss requirements 
(including when SBSDs conduct security-based swap business through 
branches located in the United States or in third countries).
    With respect to the proposed conditions and limitations, commenters 
also are invited to address any differences between Swiss regulatory 
requirements and frameworks and either the German, French or UK 
requirements and frameworks that formed the basis for the Commission's 
conditional and proposed conditional grants of substituted compliance 
in those countries.\112\ Would the responses to

[[Page 45786]]

any of the questions that the Commission asked in connection with the 
German Notice and Proposed Order,\113\ the French Notice and Proposed 
Order,\114\ the French Reopening Order,\115\ or the UK Notice and 
Proposed Order \116\ differ if those questions applied to Swiss 
regulatory requirements and frameworks?
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    \112\ See generally German Substituted Compliance Order, 85 FR 
85686; French Substituted Compliance Order, 86 FR 41612; UK 
Substituted Compliance Order, 86 FR 43318. See also German Notice 
and Proposed Order, 85 FR 72726; French Notice and Proposed Order, 
85 FR 85720; UK Notice and Proposed Order, 86 FR 18378.
    \113\ German Notice and Proposed Order, 85 FR at 72740.
    \114\ French Notice and Proposed Order, 85 FR 85720 at 85734.
    \115\ French Reopening Release, 86 FR 18341.
    \116\ UK Notice and Proposed Order, 86 FR at 18406.
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B. Risk Control Requirements

    The Commission requests comment regarding the proposed grant of 
substituted compliance in connection with requirements under the 
Exchange Act related to internal risk management systems, trade 
acknowledgement and verification, portfolio reconciliation, and 
portfolio compression. Commenters particularly are invited to address 
the basis for substituted compliance in connection with those risk 
control requirements, and the proposed conditions and limitations 
connected to substituted compliance for those requirements.
    The Commission further requests comment regarding the initial 
determination to not grant substituted compliance in connection with 
dispute reporting and trading relationship documentation. Commenters 
particularly are invited to address the basis for not providing a grant 
of substituted compliance in connection with those risk control 
requirements.
    With respect to all risk control requirements, commenters also are 
invited to address any differences between Swiss regulatory 
requirements and frameworks and either the German or French 
requirements and frameworks that formed the basis for the Commission's 
conditional grants of substituted compliance for those countries, or 
the UK requirements and frameworks that formed the basis for the 
Commission's proposed conditional grant of substituted compliance for 
the UK.\117\ Would the responses to any of the questions about risk 
control requirements that the Commission asked in connection with the 
German Notice and Proposed Order,\118\ the French Notice and Proposed 
Order,\119\ the French Reopener,\120\ or the UK Notice and Proposed 
Order \121\ differ if those questions applied to Swiss regulatory 
requirements and frameworks?
---------------------------------------------------------------------------

    \117\ See German Substituted Compliance Order, 85 FR at 85689-
91; French Substituted Compliance Order, 86 FR at 41622-29; UK 
Substituted Compliance Order, 86 FR at 43331-37. See also German 
Notice and Proposed Order, 85 FR at 72730-32; French Notice and 
Proposed Order, 85 FR at 85724-25; UK Notice and Proposed Order, 85 
FR at 18383-85.
    \118\ German Notice and Proposed Order, 85 FR at 72740.
    \119\ French Notice and Proposed Order, 85 FR at 85734.
    \120\ French Reopening Release, 86 FR 18341.
    \121\ UK Notice and Proposed Order, 86 FR at 18406.
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C. Internal Supervision, Chief Compliance Officer and Additional 
Exchange Act Section 15F(j) Requirements

    The Commission requests comment regarding the proposed grant of 
substituted compliance in connection with requirements under the 
Exchange Act related to internal supervision and chief compliance 
officers, as well as additional Exchange Act section 15F(j) 
requirements. Commenters particularly are invited to address the basis 
for substituted compliance in connection with those risk control 
requirements, and the proposed conditions and limitations connected to 
substituted compliance for those requirements.
    With respect to internal supervision and chief compliance officer 
requirements, as well as additional Exchange Act section 15F(j) 
requirements, commenters also are invited to address any differences 
between Swiss regulatory requirements and frameworks and either the 
German or French requirements and frameworks that formed the basis for 
the Commission's conditional grants of substituted compliance for those 
countries, or the UK requirements and frameworks that formed the basis 
for the Commission's proposed conditional grant of substituted 
compliance for the UK.\122\ In addition, would the responses to any of 
the questions about internal supervision or chief compliance officer 
requirements, or the additional Exchange Act section 15F(j) 
requirements, that the Commission asked in connection with the German 
Notice and Proposed Order,\123\ the French Notice and Proposed 
Order,\124\ the French Reopener,\125\ or the UK Notice and Proposed 
Order \126\ differ if those questions applied to Swiss regulatory 
requirements and frameworks?
---------------------------------------------------------------------------

    \122\ See German Substituted Compliance Order, 85 FR at 85691-
92; French Substituted Compliance Order, 86 FR at 41639-43; UK 
Substituted Compliance Order, 86 FR at 43347-43353. See also German 
Notice and Proposed Order, 85 FR at 72732-34; French Notice and 
Proposed Order, 85 FR at 85726-28; UK Notice and Proposed Order, 85 
FR at 18389-90.
    \123\ German Notice and Proposed Order, 85 FR at 72740.
    \124\ French Notice and Proposed Order, 85 FR at 85734.
    \125\ French Reopening Release, 86 FR 18341.
    \126\ UK Notice and Proposed Order, 86 FR at 18406.
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D. Recordkeeping, Reporting, and Notification

    The Commission requests comment regarding the proposed grants of 
substituted compliance in connection with requirements under the 
Exchange Act related to recordkeeping, reporting, and notification, as 
well as the requirement of Exchange Act section 15F(g). Commenters 
particularly are invited to address the basis for substituted 
compliance in connection with those requirements, and the proposed 
conditions and limitations connected to substituted compliance for 
those requirements. Does Swiss law taken as a whole produce regulatory 
outcomes that are comparable to those of Exchange Act section 15F(g) 
and Exchange Act rules 18a-5, 18a-6, 18a-7, and 18a-8? In this regard, 
commenters are invited to address Swiss laws cited for each substituted 
compliance determination with respect to the distinct requirements 
within the recordkeeping, reporting, and notification rules (i.e., the 
rules for which a more granular approach to substituted compliance is 
being taken). With respect to each substituted compliance 
determination, the Commission seeks comment on the following matters: 
(1) Will the Swiss laws cited for the determination result in a 
comparable regulatory outcome; (2) are there additional or alternative 
Swiss laws that should be cited to achieve a comparable regulatory 
outcome; and (3) are any of the Swiss laws cited for the determination 
unnecessary to achieve a comparable regulatory outcome?
    Commenters particularly are invited to address the proposed 
condition with respect to Exchange Act rule 18a-5 that the Covered 
Entity: (1) Preserve all of the data elements necessary to create the 
records required by Exchange Act rules 18a-5(b)(1), (2), (3), and (7); 
and (2) upon request furnish promptly to representatives of the 
Commission the records required by those rules. Do the relevant Swiss 
laws require Covered Entities to retain the data elements necessary to 
create the records required by these rules? If not, please identify 
which data elements are not preserved pursuant to the relevant Swiss 
laws. Further, how burdensome would it be for a Covered Entity to 
format the data

[[Page 45787]]

elements into the records required by these rules (e.g., a blotter, 
ledger, or securities record, as applicable) if the firm was requested 
to do so? In what formats do Covered Entities in Switzerland produce 
this information to FINMA or other Swiss authorities? How do those 
formats differ from the formats required by Exchange Act rules 18a-
5(b)(1), (2), (3), and (7)?
    Is it appropriate to structure the Commission's substituted 
compliance determinations in the proposed Order to provide Covered 
Entities with greater flexibility to select which distinct requirements 
within the broader recordkeeping, reporting, and notification rules for 
which they want to apply substituted compliance? Explain why or why 
not. For example, would it be more efficient for a Covered Entity to 
comply with certain Exchange Act requirements within a given rule 
(rather than apply substituted compliance) because it can utilize 
systems that its affiliated broker-dealer has implemented to comply 
with them? If so, explain why. If not, explain why not. Is it 
appropriate to permit Covered Entities to take a more granular approach 
to the requirements within the recordkeeping rules? For example, would 
this approach make it more difficult for the Commission to get a 
comprehensive understanding of the Covered Entity's security-based swap 
activities and financial condition? Explain why or why not. Would it be 
overly complex for the Covered Entity to administer a firm-wide 
recordkeeping system under this approach? Explain why or why not.
    Certain of the Commission's recordkeeping and notification 
requirements are fully or partially linked to substantive Exchange Act 
requirements for which a positive substituted compliance determination 
preliminarily would not be made under the proposed Order. In these 
cases, should the Commission not make a positive substituted compliance 
determination for the fully linked requirement in the recordkeeping or 
notification rules or to the portion of the requirement that is linked 
to a substantive Exchange Act requirement? In particular, should the 
Commission not make a positive substituted compliance determination for 
recordkeeping or notification requirements linked to the following 
Exchange Act rules for which a positive substituted compliance 
determination is preliminarily not being made: (1) Exchange Act rule 
15Fh-4; (2) Exchange Act rule 15Fh-5; (3) Exchange Act rule 15Fh-6; (4) 
Exchange Act rule 18a-4; (5) Regulation SBSR; (6) Form SBSE and its 
variations; (7) Exchange Act rule 15Fh-1; (8) Exchange Act rule 15Fh-2; 
and (9) Exchange Act rule 15Fi-5? If not, explain why.
    Certain of the requirements in the Commission's recordkeeping rules 
are linked to substantive Exchange Act requirements where a positive 
substituted compliance determination is being made under the proposed 
Order. In these cases, should a positive substituted compliance 
determination for the linked requirement in the recordkeeping rule be 
conditioned on the Covered Entity applying substituted compliance to 
the linked substantive Exchange Act requirement? If not, explain why. 
Should this be the case regardless of whether the requirement is fully 
or partially linked to the substantive Exchange Act requirement? If 
not, explain why. In particular, should substituted compliance for 
recordkeeping, reporting, and notification requirements linked to the 
following Exchange Act rules be conditioned on the Covered Entity 
applying substituted compliance to the linked substantive Exchange Act 
rule: (1) Exchange Act rule 15Fh-3(h); (2) Exchange Act rule 15Fi-2; 
(3) Exchange Act rule 15Fi-3; (4) Exchange Act rule 15Fi-4; and (5) 
Exchange Act rule 15Fk-1? If not, explain why.
    Commenters also are invited to address the preliminary positive 
substituted compliance determination with respect to Exchange Act rule 
18a-7, which would be conditioned on the Covered Entity filing 
financial and operational information with the Commission in the manner 
and format specified by the Commission by order or rule. Should the 
Commission require Covered Entities with a prudential regulator to file 
the financial and operational information using the FOCUS Report Part 
IIC? Are there line items on the FOCUS Report Part IIC that elicit 
information that is not included in the reports Covered Entities with a 
prudential regulator file with FINMA or other Swiss authorities? If so, 
do Covered Entities with a prudential regulator record that information 
in their required books and records? Please identify any information 
that is elicited in the FOCUS Report Part IIC that is not: (1) Included 
in the financial reports filed by Covered Entities with a prudential 
regulator with FINMA or other Swiss authorities; or (2) recorded in the 
books and records required of Covered Entities with a prudential 
regulator. Would the answer to these questions change if references to 
FFIEC Form 031 were not included in the FOCUS Report Part IIC? If so, 
how? As a preliminary matter, as a condition of substituted compliance 
should Covered Entities with a prudential regulator file a limited 
amount of financial and operational information on the FOCUS Report 
Part IIC for a period of two years to further evaluate the burden of 
requiring all applicable line items to be filled out? If so, which line 
items should be required? To the extent that Covered Entities with a 
prudential regulator otherwise report or record information that is 
responsive to the FOCUS Report Part IIC, how could the information on 
this report be integrated into a database of filings the Commission or 
its designee will maintain for filers of the FOCUS Report Parts IIC 
(e.g., the eFOCUS system) to achieve the objective of being able to 
perform cross-form analysis of information entered into the uniquely 
numbered line items on the forms?
    Commenters further are invited to address any differences between 
Swiss regulatory requirements and frameworks and the German, French, 
and/or UK requirements and frameworks that formed the basis for the 
Commission's conditional grants of substituted compliance for 
recordkeeping, reporting, and notification requirements in those 
countries.\127\ Would the responses to any of the questions about those 
requirements that the Commission asked in connection with the German, 
French, and/or UK notices and proposed orders differ if those questions 
applied to Swiss regulatory requirements and frameworks?
---------------------------------------------------------------------------

    127\\ See German Substituted Compliance Order, 85 FR at 85695-
97; French Substituted Compliance Order, 86 FR at 41648-57; UK 
Substituted Compliance Order, 86 FR at 43359-69.
---------------------------------------------------------------------------

E. Supervisory and Enforcement Issues

    The Commission further requests comment regarding how to weigh 
considerations regarding supervisory and enforcement effectiveness in 
Switzerland as part of the comparability assessments. Commenters 
particularly are invited to address relevant issues regarding the 
effectiveness of Swiss supervision and enforcement over firms that may 
register with the Commission as SBSDs, including but not limited to 
issues regarding:
     Swiss supervisory and enforcement authority, supervisory 
inspection practices and the use of alternative supervisory tools, and 
enforcement tools and practices;
     Swiss supervisory and enforcement effectiveness with 
respect to derivatives such as security-based swaps; and
     Swiss supervision and enforcement in the cross-border 
context (e.g., any differences between the oversight of firms' 
businesses within Switzerland

[[Page 45788]]

and the oversight of activities and branches outside of Switzerland, 
including within the United States).
    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\128\
---------------------------------------------------------------------------

    \128\ 17 CFR 200.30-3(a)(89).

J. Matthew DeLesDernier,
Assistant Secretary.

Attachment A

    It is hereby determined and ordered, pursuant to rule 3a71-6 under 
the Exchange Act, that a Covered Entity (as defined in paragraph (e)(1) 
of this Order) may satisfy the requirements under the Exchange Act that 
are addressed in paragraphs (b) through (d) of this Order so long as 
the Covered Entity is subject to and complies with relevant 
requirements of the Swiss Confederation and with the conditions to this 
Order, as amended or superseded from time to time.

(a) General conditions.

    This Order is subject to the following general conditions, in 
addition to the conditions specified in paragraphs (b) through (d):
    (1) Security-based swaps and transactions as ``derivatives'' or 
``derivative transactions.'' For each condition in paragraphs (b) 
through (d) of this Order that requires the application of, and the 
Covered Entity's compliance with, provisions of FinMIA and FMIO, the 
relevant security-based swaps and security-based swap transactions are 
``derivatives'' and/or ``derivative transactions'' for purposes of 
FinMIA article 2(c), or otherwise are described by the relevant 
language of that provision.
    (2) ``Counterparty'' status. For each condition in paragraph (b) 
through (d) of this Order that requires the application of, and the 
Covered Entity's compliance with, the provisions of FinMIA and FMIO, 
the Covered Entity complies with the applicable conditions of the Order 
regardless of the Covered Entity's counterparty is a ``counterparty'' 
for purposes of FinMIA article 93, or otherwise is described by the 
relevant language of that provision.
    (3) Counterparty's status as ``company.'' For each condition in 
paragraph (b) through (d) of this Order that requires the application 
of, and the Covered Entity's compliance with, the provisions of FMIO, 
the Covered Entity complies with the applicable conditions of the Order 
regardless of whether a Covered Entity's counterparty is a ``company'' 
for purposes of FMIO article 77, or otherwise is described by the 
relevant language of that provision.
    (4) Covered Entity as ``bank.'' For each condition in paragraph (b) 
through (d) of this Order that requires the application of, and the 
Covered Entity's compliance with, the provisions of the BA and BO and/
or other Swiss requirements adopted pursuant to those provisions, the 
Covered Entity is a ``bank'' for purposes of BA article 1a, or 
otherwise is described by the relevant language of that provision.
    (5) Covered Entity as ``systemically important.'' For each 
condition in paragraph (b) through (d) of this Order that requires the 
application of, and the Covered Entity's compliance with, the 
provisions of the FINMA Circular 2017/1, the Covered Entity is 
``systemically important'' for purposes of BA article 8(3) and article 
9, or otherwise are described by the relevant language of that 
provision.
    (6) Covered Entity as ``category 1.'' For each condition in 
paragraph (b) through (d) of this Order that requires the application 
of, and the Covered Entity's compliance with, the provisions of FINMA 
Circular 2017/1, the Covered Entity is supervised as ``category 1,'' as 
defined in BO articles 2(2) and 2(3) and BO Annex 3, or otherwise are 
described by the relevant language of those provisions.
    (7) ``Institution-specific approach'' to operational risk 
quantification. For each condition in paragraphs (b) through (d) of 
this Order that requires the application of, and the Covered Entity's 
compliance with, the provisions of FINMA Circular 2008/21 margins 45-
107, the Covered Entity applies the institution-specific approach, as 
defined in CAO article 94, to quantifying capital requirements for 
operational risk, as approved by FINMA.
    (8) Memorandum of Understanding with FINMA. The Commission and 
FINMA have a supervisory and enforcement memorandum of understanding 
and/or other arrangement addressing cooperation with respect to this 
Order at the time the Covered Entity complies with the relevant 
requirements under the Exchange Act via compliance with one or more 
provisions of this Order.
    (9) Notice to Commission. A Covered Entity relying on this Order 
must provide notice of its intent to rely on this Order by notifying 
the Commission in writing. Such notice must be sent to an email address 
provided on the Commission's website. The notice must include the 
contact information of an individual who can provide further 
information about the matter that is the subject of the notice. The 
notice must identify each specific substituted compliance determination 
within paragraphs (b) through (d) of the Order for which the Covered 
Entity intends to apply substituted compliance. A Covered Entity must 
promptly provide an amended notice if it modifies its reliance on the 
substituted compliance determinations in this Order.
    (10) Notification Requirements Related to Changes in Capital. A 
Covered Entity that is prudentially regulated relying on this Order 
must apply substituted compliance with respect to the requirements of 
Exchange Act rule 18a-8(c) and the requirements of Exchange Act rule 
18a-8(h) as applied to Exchange Act rule 18a-8(c).

(b) Substituted compliance in connection with risk control 
requirements.

    This Order extends to the following provisions related to risk 
control:
    (1) Internal risk management. The requirements of Exchange Act 
section 15F(j)(2) and relevant aspects of Exchange Act rule 15Fh-
3(h)(2)(iii)(I), provided that the Covered Entity is subject to and 
complies with the requirements of: BO article 12; FINMA Circular 2017/1 
margins 9-14, 31-49, 52-76, 82-97; and FINMA Circular 2008/21 margins 
45, 54-63, 65-68, 117-138.
    (2) Trade acknowledgement and verification. The requirements of 
Exchange Act rule 15Fi-2, provided that the Covered Entity is subject 
to and complies with the requirements of FinMIA articles 108(a) and 
(c); and FMIO articles 95, 97, and 113(1).
    (3) Portfolio reconciliation. The requirements of Exchange Act rule 
15Fi-3, other than paragraph (c) to that rule, provided that:
    (i) The Covered Entity is subject to and complies with the 
requirements of FINMASA article 29; FinMIA article 108(b) and (c); and 
FMIO articles 96, 97 and 113(1)(d);
    (ii) The Covered Entity does not apply FinMIA article 108(b)'s 
exception for ``small non-financial counterparties'' as defined in 
FinMIA article 98.
    (4) Portfolio compression. The requirements of Exchange Act rule 
15Fi-4, provided that:
    (i) The Covered Entity is subject to and complies with the 
requirements of FinMIA article 108(d); and FMIO articles 98 and 
113(1)(d); and
    (ii) The Covered Entity does not apply the portion of FinMIA 
article 108(d) that excludes application of the requirement when there 
are fewer than 500 non-centrally cleared OTC derivatives transactions 
outstanding.

(c) Substituted compliance in connection with internal supervision and 
compliance requirements and

[[Page 45789]]

certain Exchange Act section 15F(j) requirements.

    This Order extends to the following provisions related to internal 
supervision and compliance and Exchange Act section 15F(j) 
requirements:
    (1) Internal supervision. The requirements of Exchange Act rule 
15Fh-3(h) and Exchange Act sections 15F(j)(4)(A) and (j)(5), provided 
that:
    (i) The Covered Entity is subject to and complies with the 
requirements identified in paragraph (c)(3) of this Order; and
    (ii) This paragraph (c) does not extend to the requirements of 
paragraph (h)(2)(iii)(I) to rule 15Fh-3 to the extent those 
requirements pertain to compliance with Exchange Act sections 
15F(j)(2), (j)(3), (j)(4)(B) and (j)(6), or to the general and 
supporting provisions of paragraph (h) to rule 15Fh-3 in connection 
with those Exchange Act sections.
    (2) Chief compliance officers. The requirements of Exchange Act 
section 15F(k) and Exchange Act rule 15Fk-1, provided that:
    (i) The Covered Entity complies with the requirements identified in 
paragraph (c)(3) of this Order;
    (ii) All reports required pursuant to FINMA Circular 2017/1 margins 
78-81 must also:
    (A) Be provided to the Commission at least annually, and in the 
English language;
    (B) Include a certification signed by the chief compliance officer 
or senior officer (as defined in Exchange Act rule 15Fk-1(e)(2)) of the 
Covered Entity that, to the best of the certifier's knowledge and 
reasonable belief and under penalty of law, the report is accurate and 
complete in all material respects;
    (C) Address the firm's compliance with:
    (i) Applicable requirements under the Exchange Act; and
    (ii) The other applicable conditions to this Order in connection 
with requirements for which the Covered Entity is relying on this 
Order;
    (D) Be provided to the Commission no later than 15 days following 
the earlier of:
    (i) The submission of the report to the Covered Entity's management 
body; or
    (ii) The time the report is required to be submitted to the 
management body; and
    (E) Together cover the entire period that the Covered Entity's 
annual compliance report referenced in Exchange Act section 15F(k)(3) 
and Exchange Act rule 15Fk-1(c) would be required to cover.
    (3) Applicable supervisory and compliance requirements. Paragraphs 
(c)(1) and (c)(2) are conditioned on the Covered Entity being subject 
to and complying with the following requirements: BA articles 3(2)(c), 
and 3f; BO articles 12, 14e, and 14g; FINMA Circular 2017/1 articles 9-
97; FINMA Circular 2008/21 margins 54-62, 65-68, 121-122, and 128-
136.5; FINMA Circular 2013/8 margins 45-61, 64; FINMA Circular 2010/1 
margins 16-74; and FINMA Circular 2018/3 margins 14-35.
    (4) Additional condition to paragraph (c)(1). Paragraph (c)(1) 
further is conditioned on the requirement that the Covered Entity 
complies with the provisions specified in paragraph (c)(3) as if those 
provisions also require compliance with:
    (i) Applicable requirements under the Exchange Act; and
    (ii) The other applicable conditions to this Order in connection 
with requirements for which the Covered Entity is relying on this 
Order.

(d) Substituted compliance in connection with recordkeeping, reporting, 
and notification requirements.

    This Order extends to the following provisions that apply to a 
Covered Entity related to recordkeeping, reporting, and notification:
    (1)(i) Make and keep current certain records. The requirements of 
the following provisions of Exchange Act rule 18a-5, provided that the 
Covered Entity complies with the relevant conditions in this paragraph 
(d)(1)(i) and with the applicable conditions in paragraph (d)(1)(ii):
    (A) The requirements of Exchange Act rule 18a-5(b)(1), provided 
that the Covered Entity is subject to and complies with the 
requirements of FMIO-FINMA article 1; FinMIA articles 104 and 106; FMIO 
annex 2; CO article 958f;
    (B) The requirements of Exchange Act rule 18a-5(b)(2), provided 
that the Covered Entity is subject to and complies with the 
requirements of CO article 958f; AccO article 1; FinMIA article 106;
    (C) The requirements of Exchange Act rule 18a-5(b)(3), provided 
that the Covered Entity is subject to and complies with the 
requirements of CO article 958f; FinMIA articles 104 and 106; FMIO 
annex 2;
    (D) The requirements of Exchange Act rule 18a-5(b)(4), provided 
that the Covered Entity is subject to and complies with the 
requirements of FinMIA article 38; FMIO article 36; FinIA article 50; 
FMIO-FINMA article 1; CO article 958f;
    (E) The requirements of Exchange Act rule 18a-5(b)(5), provided 
that the Covered Entity is subject to and complies with the 
requirements of FMIO article 38; FinIA article 50; FMIO-FINMA article 
1; CO article 958f;
    (F) The requirements of Exchange Act rules 18a-5(b)(6) and (b)(11), 
provided that:
    (1) The Covered Entity is subject to and complies with the 
requirements of FinMIA articles 106 and 108(a); FMIO article 95; CO 
article 958f; and
    (2) The Covered Entity applies substituted compliance for the 
requirements of Exchange Act rule 15Fi-2 pursuant to this Order;
    (G) The requirements of Exchange Act rule 18a-5(b)(7), provided 
that the Covered Entity is subject to and complies with the 
requirements of FMIO article 38; FinIA article 50; FMIO-FINMA article 
1; FMIO annex 2; FinMIA articles 104 and 106; AMLA article 3; CO 
article 958f;
    (H) The requirements of Exchange Act rule 18a-5(b)(8), provided 
that the Covered Entity is subject to and complies with the 
requirements of CO article 958f; BA article 3; BO article 12; CO 
article 330a; FINMA Circular 2008/21, Annex 3, margins 30-33;
    (I) The requirements of Exchange Act rule 18a-5(b)(13), regarding 
one or more provisions of Exchange Act rules 15Fh-3 or 15Fk-1 for which 
substituted compliance is available under this Order, provided that:
    (1) The Covered Entity is subject to and complies with the 
requirements of FINMA Circular 2017/1; BA article 3; CO article 958f, 
in each case with respect to the relevant security-based swap or 
activity;
    (2) With respect to the portion of Exchange Act rule 18a-5(b)(13) 
that relates to one or more provisions of Exchange Act rule 15Fh-3 for 
which substituted compliance is available under this Order, the Covered 
Entity applies substituted compliance for such business conduct 
standard(s) of Exchange Act rule 15Fh-3 pursuant to this Order, as 
applicable, with respect to the relevant security-based swap or 
activity; and
    (3) With respect to the portion of Exchange Act rule 18a-5(b)(13) 
that relates to Exchange Act rule 15Fk-1, the Covered Entity applies 
substituted compliance for Exchange Act section 15F(k) and Exchange Act 
rule 15Fk-1 pursuant to this Order;
    (J) The requirements of Exchange Act rule 18a-5(b)(14)(i) and (ii), 
provided that:

[[Page 45790]]

    (1) The Covered Entity is subject to and complies with the 
requirements of FinMIA articles 104 and 106; CO article 958f; and
    (2) The Covered Entity applies substituted compliance for Exchange 
Act rule 15Fi-3 pursuant to this Order; and
    (K) The requirements of Exchange Act rule 18a-5(b)(14)(iii), 
provided that:
    (1) The Covered Entity is subject to and complies with the 
requirements of FinMIA articles 104 and 106; CO article 958f; and
    (2) The Covered Entity applies substituted compliance for Exchange 
Act rule 15Fi-4 pursuant to this Order.
    (ii) Paragraph (d)(1)(i) is subject to the following further 
conditions:
    (A) Paragraphs (d)(1)(i)(A) through (C) and (G) are subject to the 
condition that the Covered Entity preserves all of the data elements 
necessary to create the records required by the applicable Exchange Act 
rules cited in such paragraphs and upon request furnishes promptly to 
representatives of the Commission the records required by those rules;
    (B) A Covered Entity may apply the substituted compliance 
determination in paragraph (d)(1)(i)(I) to records of compliance with 
Exchange Act rule 15Fh-3(h) in respect of one or more security-based 
swaps or activities related to security-based swaps; and
    (C) This Order does not extend to the requirements of Exchange Act 
rule 18a-5(b)(9), (b)(10), or (b)(12).
    (2)(i) Preserve certain records. The requirements of the following 
provisions of Exchange Act rule 18a-6, provided that the Covered Entity 
complies with the relevant conditions in this paragraph (d)(2)(i) and 
with the applicable conditions in paragraph (d)(2)(ii):
    (A) The requirements of Exchange Act rule 18a-6(a)(2), provided 
that the Covered Entity is subject to and complies with the 
requirements of FinMIA article 106; CO article 958f; FMIO-FINMA article 
1(4); AccO article 3; FINMA Circular 2008/4 Marg. 16;
    (B) The requirements of Exchange Act rule 18a-6(b)(2)(i), provided 
that the Covered Entity is subject to and complies with the 
requirements of FinMIA article 106; CO article 958f; FMIO-FINMA article 
1(4); AccO article 3; FINMA Circular 2008/4 Marg. 16;
    (C) The requirements of Exchange Act rule 18a-6(b)(2)(ii), provided 
that the Covered Entity is subject to and complies with the 
requirements of CO article 958f; FINMA Circular 2013/8 Marg. 60 and 
Marg. 61;
    (D) The requirements of Exchange Act rule 18a-6(b)(2)(iii), 
provided that the Covered Entity is subject to and complies with the 
requirements of CO article 958f; AMLA article 7(3); AMLO-FINMA article 
5(1);
    (E) The requirements of Exchange Act rule 18a-6(b)(2)(iv), provided 
that the Covered Entity is subject to and complies with the 
requirements of CO article 958f; FINMA Circular 2013/8 Marg. 60 and 
Marg. 61;
    (F) The requirements of Exchange Act rule 18a-6(b)(2)(vii), 
regarding one or more provisions of Exchange Act rules 15Fh-3 or 15Fk-1 
for which substituted compliance is available under this Order, 
provided that:
    (1) The Covered Entity is subject to and complies with the 
requirements of FINMA Circular 2017/1; BA article 3; CO article 958f, 
in each case with respect to the relevant security-based swap or 
activity;
    (2) With respect to the portion of Exchange Act rule 18a-
6(b)(2)(vii) that relates to one or more provisions of Exchange Act 
rule 15Fh-3 for which substituted compliance is available under this 
Order, the Covered Entity applies substituted compliance for such 
business conduct standard(s) of Exchange Act rule 15Fh-3 pursuant to 
this Order, as applicable, with respect to the relevant security-based 
swap or activity; and
    (3) With respect to the portion of Exchange Act rule 18a-
6(b)(2)(vii) that relates to Exchange Act rule 15Fk-1, the Covered 
Entity applies substituted compliance for Exchange Act section 15F(k) 
and Exchange Act rule 15Fk-1 pursuant to this Order;
    (G) The requirements of Exchange Act rule 18a-6(c), provided that:
    (1) The Covered Entity is subject to and complies with the 
requirements of BA article 3; BO article 12; CO articles 686 and 958f; 
and
    (2) This Order does not extend to the requirements of Exchange act 
rule 18a-6(c) relating to Forms SBSE, SBSE-A, SBSE-C, SBSE-W, all 
amendments to these forms, and all other licenses or other 
documentation showing the registration of the Covered Entity with any 
securities regulatory authority or the U.S. Commodity Futures Trading 
Commission;
    (H) The requirements of Exchange Act rule 18a-6(d)(1), provided 
that the Covered Entity is subject to and complies with the 
requirements of CO article 958f; BA article 3; BO article 12; CO 
article 330a; FINMA Circular 2008/21, Annex 3, margins 30-33;
    (I) The requirements of Exchange Act rule 18a-6(d)(2)(ii), provided 
that the Covered Entity is subject to and complies with the 
requirements of BA article 3; BO article 12; CO article 958f; FINMA 
Circular 2008/21 margins 122, 128, 131, and Appendix 2;
    (J) The requirements of Exchange Act rule 18a-6(d)(3)(ii), provided 
that the Covered Entity is subject to and complies with the 
requirements of CO article 958f; BA article 3; BO article 12;
    (K) The requirements of Exchange Act rule 18a-6(d)(4) and (d)(5), 
regarding one or more provisions of Exchange Act rules 15Fi-3 or 15Fi-4 
for which substituted compliance is available under this Order, 
provided that:
    (1) The Covered Entity is subject to and complies with the 
requirements of CO article 958f; FinMIA article 106;
    (2) With respect to the portion of Exchange Act rule 18a-6(d)(4) 
and (d)(5) that relates to Exchange Act rules 15Fi-3 or 15Fi-4, the 
Covered Entity applies substituted compliance for Exchange Act rules 
15Fi-3 and 15Fi-4 pursuant to this Order; and
    (3) This Order does not extend to the requirements of Exchange Act 
rule 18a-6(d)(4) and (d)(5) relating to Exchange Act rule 15Fi-5;
    (L) The requirements of Exchange Act rule 18a-6(e), provided that 
the Covered Entity is subject to and complies with the requirements of 
AccO; and
    (M) The requirements of Exchange Act rule 18a-6(f), provided that 
the Covered Entity is subject to and complies with the requirements of 
FINMA Circular 2018/3.
    (ii) Paragraph (d)(2)(i) is subject to the following further 
conditions:
    (A) A Covered Entity may apply the substituted compliance 
determination in paragraph (d)(2)(i)(F) to records related to Exchange 
Act rule 15Fh-3(h) in respect of one or more security-based swaps or 
activities related to security-based swaps; and
    (B) This Order does not extend to the requirements of Exchange Act 
rule 18a-6(b)(2)(v), (b)(2)(vi), or (b)(2)(viii).
    (3) File Reports. The requirements of the following provisions of 
Exchange Act rule 18a-7, provided that the Covered Entity complies with 
the relevant conditions in this paragraph (d)(3):
    (i) The requirements of Exchange Act rule 18a-7(a)(2) and the 
requirements of Exchange Act rule 18a-7(j) as applied to the 
requirements of Exchange Act rule 18a-7(a)(2), provided that:
    (A) The Covered Entity is subject to and complies with the 
requirements of BA article 6a; BO article 32; CAO article 16; FINMA 
Circular 2020/1; and FINMA Circular 2016/1; and
    (B) The Covered Entity files periodic unaudited financial and 
operational information with the Commission or its designee in the 
manner and format required by Commission rule or order

[[Page 45791]]

and presents the financial information in the filing in accordance with 
generally accepted accounting principles that the Covered Entity uses 
to prepare general purpose publicly available or available to be issued 
financial statements in Switzerland.
    (4)(i) Provide Notification. The requirements of the following 
provisions of Exchange Act rule 18a-8, provided that the Covered Entity 
complies with the relevant conditions in this paragraph (d)(4)(i) and 
with the applicable conditions in paragraph (d)(4)(ii):
    (A) The requirements of Exchange Act rule 18a-8(c) and the 
requirements of Exchange Act rule 18a-8(h) as applied to the 
requirements of Exchange Act rule 18a-8(c), provided that the Covered 
Entity is subject to and complies with the requirements of FINMASA 
article 29(2); CAO articles 14, 42(3), 101, and 130(4); and Liquidity 
Ordinance articles 17b, and 26(2).
    (B) The requirements of Exchange Act rule 18a-8(d) and the 
requirements of Exchange Act rule 18a-8(h) as applied to the 
requirements of Exchange Act rule 18a-8(d), provided that:
    (1) The Covered Entity is subject to and complies with the 
requirements of FINMASA article 29(2); CAO articles 14, 42(3), 101, and 
130(4); and Liquidity Ordinance articles 17b, and 26(2); and
    (2) This Order does not extend to the requirements of Exchange Act 
rule 18a-8(d) to give notice with respect to books and records required 
by Exchange Act rule 18a-5 for which the Covered Entity does not apply 
substituted compliance pursuant to this Order;
    (ii) Paragraph (d)(4)(i) is subject to the following further 
conditions:
    (A) The Covered Entity:
    (1) Simultaneously sends a copy of any notice required to be sent 
by Swiss law cited in this paragraph of the Order to the Commission in 
the manner specified on the Commission's website; and
    (2) Includes with the transmission the contact information of an 
individual who can provide further information about the matter that is 
the subject of the notice; and
    (B) This Order does not extend to the requirements of paragraph (g) 
of rule 18a-8 or to the requirements of Exchange Act rule 18a-8(h) as 
applied to such requirements.
    (5) Daily Trading Records. The requirements of Exchange Act section 
15F(g), provided that the Covered Entity is subject to and complies 
with the requirements of CO article 958f; FMIO article 36; FMIO-FINMA 
article 1; FinMIA articles 38, 104, and 106; FINMA Circular 2013/8 
marg. 60 and marg. 61.
    (6) Examination and Production of Records. Notwithstanding the 
forgoing provisions of paragraph (d) of this Order, this Order does not 
extend to, and Covered Entities remain subject to, the requirement of 
Exchange Act section 15F(f) to keep books and records open to 
inspection by any representative of the Commission and the requirement 
of Exchange Act rule 18a-6(g) to furnish promptly to a representative 
of the Commission legible, true, complete, and current copies of those 
records of the Covered Entity that are required to be preserved under 
Exchange Act rule 18a-6, or any other records of the Covered Entity 
that are subject to examination or required to be made or maintained 
pursuant to Exchange Act section 15F that are requested by a 
representative of the Commission.
    (7) English Translations. Notwithstanding the forgoing provisions 
of paragraph (d) of this Order, to the extent documents are not 
prepared in the English language, Covered Entities must promptly 
furnish to a representative of the Commission upon request an English 
translation of any record, report, or notification of the Covered 
Entity that is required to be made, preserved, filed, or subject to 
examination pursuant to Exchange Act section 15F of this Order.

(e) Definitions.

    (1) ``Covered Entity'' means an entity that:
    (i) Is a security-based swap dealer registered with the Commission;
    (ii) Is not a ``U.S. person,'' as that term is defined in rule 
3a71-3(a)(4) under the Exchange Act;
    (iii) Is a systemically important bank authorized by FINMA to 
conduct banking activities in the Swiss Confederation; and
    (iv) Is supervised by FINMA under the intensive and continual 
supervision model as a Category 1 firm as that term is defined in BO 
Annex 3.
    (2) ``AccO'' means the Ordinance on the Maintenance and Retention 
of Accounts (Accounts Ordinance), CC 221.431, as amended from time to 
time.
    (3) ``AMLA'' means the Federal Act on Combating Money Laundering 
and Terrorist Financing (Anti-Money Laundering Act), CC 955, as amended 
from time to time.
    (4) ``AMLO-FINMA'' means the Ordinance of the Swiss Financial 
Market Supervisory Authority on the Prevention of Money Laundering and 
the Financing of Terrorist Activities (FINMA Anti-Money Laundering 
Ordinance), CC 955.033.0, as amended from time to time.
    (5) ``BA'' means the Federal Act on Banks and Savings Banks 
(Banking Act), CC 952, as amended from time to time.
    (6) ``BO'' means the Ordinance on Banks and Savings Banks (Banking 
Ordinance), CC 952.02, as amended from time to time.
    (7) ``CAO'' means the Ordinance concerning Capital Adequacy and 
Risk Diversification for Banks and Securities Dealers (Capital Adequacy 
Ordinance), CC 952.03, as amended from time to time.
    (8) ``CO'' means the Federal Act on the Amendment of the Swiss 
Civil Code (Part Five: The Code of Obligations, CC 220, as amended from 
time to time.
    (9) ``FinIA'' means Federal Act on Financial Institutions 
(Financial Institutions Act), CC 954.1, as amended from time to time.
    (10) ``FINMA'' means the Swiss Financial Market Supervisory 
Authority.
    (11) ``FINMA Circular 2008/4'' means the FINMA Circular 2008/4, 
Securities Journals.
    (12) ``FINMA Circular 2008/21'' means the FINMA Circular 2008/21, 
Operational Risk--Banks.
    (13) ``FINMA Circular 2010/1'' means the FINMA Circular 2010/1, 
Remuneration schemes.
    (14) ``FINMA Circular 2013/8'' means the FINMA Circular 2013/8, 
Market conduct rules, Supervisory rules on market conduct in securities 
trading.
    (15) ``FINMA Circular 2016/1'' means the FINMA Circular 2016/1, 
Disclosure--Banks.
    (16) ``FINMA Circular 2017/1'' means the FINMA Circular 2017/1, 
Corporate Governance--Banks.
    (17) ``FINMA Circular 2017/7'' means the FINMA Circular 2017/7, 
Credit Risk--Banks.
    (18) ``FINMA Circular 2018/3'' means the FINMA Circular 2018/3, 
Outsourcing--Banks and Insurers.
    (19) ``FINMA Circular 2020/1'' means the FINMA Circular 2020/1, 
Accounting--Banks.
    (20) ``FINMASA'' means the Federal Act on the Swiss Financial 
Market Supervisory Authority (Financial Market Supervision Act), CC 
956.1, as amended from time to time.
    (21) ``FinMIA'' means the Federal Act on Financial Market 
Infrastructures and Market Conduct in Securities and Derivatives 
Trading (Financial Market Infrastructure Act), CC 958.1, as amended 
from time to time.
    (22) ``FMIO'' means the Ordinance on Financial Market 
Infrastructures and Market Conduct in Securities and Derivatives 
Trading (Financial Market Infrastructure Ordinance), CC 958.11, as 
amended from time to time.

[[Page 45792]]

    (23) ``FMIO-FINMA'' means the Ordinance of the Swiss Financial 
Market Supervisory Authority on Financial Market Infrastructures and 
Market Conduct in Securities and Derivatives Trading (FINMA Financial 
Market Infrastructure Ordinance), CC 958.111, as amended from time to 
time.
    (24) ``Liquidity Ordinance'' means the Ordinance on the Liquidity 
of Banks.

[FR Doc. 2021-17424 Filed 8-13-21; 8:45 am]
BILLING CODE 8011-01-P