Process for Submissions for Review of Security-Based Swaps for Mandatory Clearing and Notice Filing Requirements for Clearing Agencies; Technical Amendments to Rule 19b-4 and Form 19b-4 Applicable to All Self-Regulatory Organizations, 82490-82533 [2010-32085]
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Federal Register / Vol. 75, No. 250 / Thursday, December 30, 2010 / Proposed Rules
SECURITIES AND EXCHANGE
COMMISSION
17 CFR Parts 240 and 249
[Release No. 34–63557; File No. S7–44–10]
RIN 3235–AK87
Process for Submissions for Review of
Security-Based Swaps for Mandatory
Clearing and Notice Filing
Requirements for Clearing Agencies;
Technical Amendments to Rule 19b–4
and Form 19b–4 Applicable to All SelfRegulatory Organizations
Securities and Exchange
Commission.
ACTION: Proposed rule.
AGENCY:
In accordance with Section
763(a) of the Dodd-Frank Wall Street
Reform and Consumer Protection Act of
2010 (‘‘Dodd-Frank Act’’), the Securities
and Exchange Commission
(‘‘Commission’’) is proposing rules
under the Securities Exchange Act of
1934 (‘‘Exchange Act’’) to specify the
process for a registered clearing agency’s
submission for review of any securitybased swap, or any group, category, type
or class of security-based swaps, that the
clearing agency plans to accept for
clearing, the manner of notice the
clearing agency must provide to its
members of such submission and the
procedure by which the Commission
may stay the requirement that a
security-based swap is subject to
mandatory clearing while the clearing of
the security-based swap is reviewed.
The Commission also is proposing to
specify that when a security-based swap
is required to be cleared, the submission
of the security-based swap for clearing
must be for central clearing to a clearing
agency that functions as a central
counterparty. In addition, the
Commission is proposing rules to define
and describe when notices of proposed
changes to rules, procedures or
operations are required to be filed by
designated financial market utilities in
accordance with Section 806(e) of Title
VIII of the Dodd-Frank Act and to set
forth the process for filing such notices
with the Commission. Furthermore, the
Commission is proposing rules to make
conforming changes as required by the
amendments to Section 19(b) of the
Exchange Act contained in Section 916
of the Dodd-Frank Act.
DATES: Comments should be received on
or before February 14, 2011.
ADDRESSES: Comments may be
submitted by any of the following
methods:
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SUMMARY:
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Electronic Comments
• Use the Commission’s Internet
comment form(https://www.sec.gov/
rules/proposed.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number S7–44–10 on the subject line;
or
• Use the Federal eRulemaking Portal
(https://www.regulations.gov). Follow the
instructions for submitting comments.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Securities and
Exchange Commission, 100 F Street,
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number S7–44–10. This file number
should be included on the subject line
if e-mail is used. To help us process and
review your comments more efficiently,
please use only one method. The
Commission will post all comments on
the Commission’s Internet Web site
(https://www.sec.gov/rules/
proposed.shtml). Comments also are
available for Web site 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. All comments received
will be posted without change; we do
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly.
FOR FURTHER INFORMATION CONTACT: Kim
Allen, Attorney Fellow, Catherine
Moore, Senior Special Counsel, Kenneth
Riitho, Special Counsel or Andrew
Bernstein, Attorney-Advisor, at (202)
551–5710; Office of Clearance and
Settlement, Division of Trading and
Markets, Securities and Exchange
Commission, 100 F Street, NE.,
Washington, DC 20549–7010.
SUPPLEMENTARY INFORMATION: The DoddFrank Act seeks to ensure that, wherever
possible and appropriate, derivatives
contracts formerly traded exclusively in
the over-the-counter (‘‘OTC’’) market be
cleared.1 One key way in which the
Dodd-Frank Act promotes clearing of
such contracts is by setting forth a
process by which the Commission
would determine whether a security1 See, e.g., Report of the Senate Committee on
Banking, Housing, and Urban Affairs regarding The
Restoring American Financial Stability Act of 2010,
S. Rep. No. 111–176 at 34 (stating that ‘‘[s]ome parts
of the OTC market may not be suitable for clearing
and exchange trading due to individual business
needs of certain users. Those users should retain
the ability to engage in customized, uncleared
contracts while bringing in as much of the OTC
market under the centrally cleared and exchangetraded framework as possible.’’).
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based swap is required to be cleared; if
the Commission makes a determination
that a security-based swap is required to
be cleared, then parties may not engage
in such security-based swap without
submitting it for clearing unless an
exception applies.
The Commission may determine that
a security-based swap is required to be
cleared based on a review of a clearing
agency’s submission regarding a
security-based swap, or any group,
category, type or class of security-based
swaps, that the clearing agency plans to
accept for clearing (i.e., a Security-Based
Swap Submission (as defined below)).2
If the Commission determines that a
security-based swap is not required to
be cleared, such security-based swap
may still be cleared on a non-mandatory
basis by the clearing agency if the
clearing agency has rules that permit it
to clear such security-based swap.3 In
addition, paragraph (b)(1) of new
Section 3C of the Exchange Act, as
added by Section 763(a) of the DoddFrank Act (‘‘Exchange Act Section 3C’’)
provides that ‘‘[t]he Commission on an
ongoing basis shall review each
security-based swap, or any group,
category, type, or class of security-based
swaps to make a determination that
such security-based swap, or group,
category, type, or class of security-based
swaps should be required to be cleared’’
(‘‘Commission-initiated Review’’).4
Consistent with the policy objective of
the Dodd-Frank Act to bring securitybased swaps into a central clearing
environment where appropriate, the
Commission is proposing to amend Rule
19b–4 under the Exchange Act to
incorporate two new requirements
applicable to clearing agencies under
Exchange Act Section 3C, and under
Section 806(e) of the Dodd-Frank Act
(‘‘Section 806(e)’’). The proposed
amendments to Rule 19b–4 would
mandate that submissions required
under Exchange Act Section 3C for a
security-based swap, or any group,
category, type or class of security-based
swaps, that a clearing agency plans to
accept for clearing (‘‘Security-Based
Swap Submissions’’) and advance
notices required under Section 806(e) of
proposed changes to rules, procedures
2 See Public Law 111–203, section 763(a) (adding
Exchange Act Section 3C(b)(2)(C)) (‘‘[t]he
Commission shall * * * review each submission
made under subparagraphs (A) and (B), and
determine whether the security-based swap, or
group, category, type, or class of security-based
swaps, described in the submission is required to
be cleared.’’).
3 See 15 U.S.C. 78s(b) and 12 U.S.C. 5465(e).
4 See Public Law 111–203, section 763(a) (adding
Exchange Act Section 3C(b)(1)). The Dodd-Frank
Act does not require rulemaking with respect to
Commission-initiated Reviews.
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Federal Register / Vol. 75, No. 250 / Thursday, December 30, 2010 / Proposed Rules
or operations of financial market
utilities (‘‘Advance Notices’’) be filed
with the Commission on Form 19b–4.
The proposed amendments to Rule 19b–
4 also would specify the manner of
notice the clearing agency must provide
to its members of Security-Based Swap
Submissions.
Additionally, the Commission is
proposing two related rules under
Exchange Act Section 3C. Proposed
Rule 3Ca–1 would establish the
procedure by which the Commission, at
the request of a counterparty or on its
own initiative, may stay the requirement
that a security-based swap is subject to
mandatory clearing. Proposed Rule 3Ca–
2 is intended to prevent evasions of the
clearing requirement by specifying that
security-based swaps required to be
cleared must be submitted for central
clearing to a clearing agency that
functions as a central counterparty.
Finally, the Commission is proposing
technical, conforming and clarifying
amendments to Rule 19b–4 and Form
19b–4 to conform the rule and form
with new deadlines and approval,
disapproval and temporary suspension
standards with respect to proposed rule
changes filed under Section 19(b) of the
Exchange Act, as modified by Section
916 of the Dodd-Frank Act (‘‘Exchange
Act Section 19(b)’’).
I. Introduction
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On July 21, 2010, the President signed
the Dodd-Frank Act into law.5 The
Dodd-Frank Act was enacted to, among
other purposes, promote the financial
stability of the United States by
improving accountability and
transparency in the financial system and
by providing for enhanced regulation
and oversight of institutions designated
as systemically important.6 Title VII and
Title VIII of the Dodd-Frank Act are
intended to further these goals and to
mitigate systemic risk in part by
imposing new requirements with
respect to clearance and settlement
systems.
Title VII of the Dodd-Frank Act (‘‘Title
VII’’) provides the Commission and the
Commodity Futures Trading
Commission (‘‘CFTC’’) with enhanced
authority to regulate OTC derivatives
following the recent financial crisis.7
5 The Dodd-Frank Wall Street Reform and
Consumer Protection Act (Pub. L. 111–203, H.R.
4173).
6 See Public Law 111–203, Preamble.
7 See, e.g, Report of the Senate Committee on
Banking, Housing, and Urban Affairs regarding The
Restoring American Financial Stability Act of 2010,
S. Rep. No. 111–176 at 29 (2010) (stating that
‘‘[m]any factors led to the unraveling of this
country’s financial sector and the government
intervention to correct it, but a major contributor to
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The Dodd-Frank Act is intended to
bolster the existing regulatory structure
and provide regulatory tools to oversee
the OTC derivatives market, which has
grown exponentially in recent years and
is capable of affecting significant sectors
of the U.S. economy. Title VII provides
that the CFTC will regulate ‘‘swaps,’’ the
Commission will regulate ‘‘securitybased swaps,’’ and the CFTC and the
Commission will jointly regulate ‘‘mixed
swaps.’’ 8
The OTC derivatives markets
traditionally have been characterized by
privately negotiated transactions
entered into by two counterparties, in
which each assumes the credit risk of
the other counterparty.9 Clearing of
swaps and security-based swaps was at
the heart of Congressional reform of the
derivatives markets in Title VII of the
Dodd Frank Act.10 Clearing agencies are
the financial crisis was the unregulated [OTC]
derivatives market.’’)
8 Section 712(d) of the Dodd-Frank Act provides
that the Commission and the CFTC, in consultation
with the Board of Governors of the Federal Reserve
System, shall jointly further define the terms
‘‘swap,’’ ‘‘security-based swap,’’ ‘‘swap dealer,’’
‘‘security-based swap dealer,’’ ‘‘major swap
participant,’’ ‘‘major security-based swap
participant,’’ ‘‘eligible contract participant,’’ and
‘‘security-based swap agreement.’’ These terms are
defined in Sections 721 and 761 of the Dodd-Frank
Act and, with respect to the term ‘‘eligible contract
participant,’’ in Section 1a(18) of the Commodity
Exchange Act, 7 U.S.C. 1a(18), as re-designated and
amended by Section 721 of the Dodd-Frank Act.
Further, Section 721(c) of the Dodd-Frank Act
requires the CFTC to adopt a rule to further define
the terms ‘‘swap,’’ ‘‘swap dealer,’’ ‘‘major swap
participant,’’ and ‘‘eligible contract participant,’’ and
Section 761(b) of the Dodd-Frank Act permits the
Commission to adopt a rule to further define the
terms ‘‘security-based swap,’’ ‘‘security-based swap
dealer,’’ ‘‘major security-based swap participant,’’
and ‘‘eligible contract participant,’’ with regard to
security-based swaps, for the purpose of including
transactions and entities that have been structured
to evade Title VII of the Dodd-Frank Act. Finally,
Section 712(a) of the Dodd-Frank Act provides that
the Commission and CFTC, after consultation with
the Board, shall jointly prescribe regulations
regarding ‘‘mixed swaps’’ as may be necessary to
carry out the purposes of Title VII. To assist the
Commission and CFTC in further defining the terms
specified above, and to prescribe regulations
regarding ‘‘mixed swaps’’ as may be necessary to
carry out the purposes of Title VII, the Commission
and the CFTC have requested comment from
interested parties. See Securities Exchange Act
Release No. 62717 (Aug. 13, 2010), 75 FR 51429
(Aug. 20, 2010) (Advance Joint Notice of Proposed
Rulemaking Regarding Definitions Contained in
Title VII of the Dodd-Frank Act).
9 See, e.g., Financial Stability Board,
Implementing OTC Derivatives Market Reforms
(Oct. 25, 2010) available at https://
www.financialstabilityboard.org/publications/
r_101025.pdf.
10 As previously noted, the Dodd-Frank Act seeks
to ensure that, wherever possible and appropriate,
derivatives contracts formerly traded exclusively in
the OTC market be cleared. See Letter from
Christopher Dodd, Chairman, Committee on
Banking, Housing and Urban Affairs, United States
Senate and Blanche Lincoln, Chairman, Committee
on Agriculture, Nutrition, and Forestry, United
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82491
broadly defined under the Exchange Act
and undertake a variety of functions.11
One such function is to act as a central
counterparty (‘‘CCP’’), which is an entity
that interposes itself between the
counterparties to a trade.12 For example,
when an OTC derivatives contract
between two counterparties that are
members of a CCP is executed and
submitted for clearing, it is typically
replaced by two new contracts—
separate contracts between the CCP and
each of the two original counterparties.
At that point, the original counterparties
are no longer counterparties to each
other. Instead, each acquires the CCP as
its counterparty, and the CCP assumes
the counterparty credit risk of each of
the original counterparties that are
members of the CCP.13 Structured and
operated appropriately, CCPs may
improve the management of
counterparty risk and may provide
additional benefits such as multilateral
netting of trades.
Exchange Act Section 3C sets forth a
mandatory clearing requirement for
security-based swaps. This section
requires the Commission to adopt rules
for submissions for review of securitybased swaps that a clearing agency
plans to accept for clearing for a
determination by the Commission of
whether the security-based swap (or
group, category, type or class of
security-based swaps) is required to be
cleared, i.e., is subject to mandatory
States Senate, to Barney Frank, Chairman, Financial
Services Committee, United States House of
Representatives and Colin Peterson, Chairman,
Committee on Agriculture, United States House of
Representatives (June 30, 2010) (on file with the
United States Senate).
11 The term ‘‘clearing agency’’ means any person
who acts as an intermediary in making payments
or deliveries or both in connection with
transactions in securities or who provides facilities
for the comparison of data regarding the terms of
settlement of securities transactions, to reduce the
number of settlements of securities transactions, or
the allocation of securities settlement
responsibilities. Such term also means any person,
such as a securities depository, who (i) acts as a
custodian of securities in connection with a system
for the central handling of securities whereby all
securities of a particular class or series of any issuer
deposited within the system are treated as fungible
and may be transferred, loaned, or pledged by
bookkeeping entry without physical delivery of
securities certificates, or (ii) otherwise permits or
facilitates the settlement of securities transactions
or the hypothecation or lending of securities
without physical delivery of securities certificates.
15 U.S.C. 78c(a)(23)(A).
12 See id. An entity that acts as a CCP for
securities transactions is a clearing agency as
defined in the Exchange Act and is required to
register with the Commission.
13 See Cecchetti, Gyntelberg and Hollanders,
Central counterparties for over-the-counter
derivatives, BIS Quarterly Review, September 2009,
available at https://www.bis.org/publ/qtrpdf/
r_qt0909f.pdf.
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Federal Register / Vol. 75, No. 250 / Thursday, December 30, 2010 / Proposed Rules
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clearing.14 The Commission is
proposing amendments to Rule 19b–4
under the Exchange Act to implement
the requirement in Exchange Act
Section 3C that a clearing agency submit
for Commission review each securitybased swap, or any group, category, type
or class of security-based swaps, that the
clearing agency plans to accept for
clearing and provide notice to its
members of such Security-Based Swap
Submission. The Commission also is
proposing new Rules 3Ca–1 and 3Ca–2
under the Exchange Act. Proposed Rule
3Ca–1 specifies the procedure for
staying the clearing requirement
applicable to a security-based swap,
based either on an application of a
counterparty to a security-based swap or
on the Commission’s own initiative,
until the Commission completes a
review of the terms of the security-based
swap and the clearing arrangement.
Proposed Rule 3Ca–2 establishes a rule
designed to prevent evasions of the
clearing requirement by specifying that
security-based swaps required to be
cleared must be submitted for central
clearing to a clearing agency that
functions as a central counterparty.
The Commission also is proposing
rules to implement a filing requirement
applicable to certain clearing agencies
under Title VIII of the Dodd-Frank Act
(‘‘Title VIII’’). Title VIII provides for
enhanced regulation of financial market
utilities, which include clearing
agencies, that manage or operate a
multilateral system for the purpose of
transferring, clearing or settling
payments, securities or other financial
transactions among financial
institutions or between financial
institutions and the financial market
utility.15 The regulatory regime in Title
VIII will only apply, however, to
financial market utilities that the
Financial Stability Oversight Council
(‘‘Council’’) designates as systemically
important.16
14 Public Law 111–203, section 763(a) (adding
Exchange Act Section 3C(b)(2)(C)).
15 The definition of ‘‘financial market utility’’ in
Section 803(6) of the Dodd-Frank Act contains a
number of exclusions including but not limited to
certain designated contract markets, registered
futures associations, swap data repositories, swap
execution facilities, national securities exchanges,
national securities associations, alternative trading
systems, security-based swap data repositories,
security-based swap execution facilities, brokers,
dealers, transfer agents, investment companies and
futures commission merchants. 12 U.S.C.
5462(6)(B).
16 Pursuant to Section 803(9) of the Dodd-Frank
Act, a financial market utility is systemically
important if the failure of or a disruption to the
functioning of such financial market utility could
create, or increase, the risk of significant liquidity
or credit problems spreading among financial
institutions or markets and thereby threaten the
stability of the financial system of the United States.
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Section 806(e)(1)(A) of Title VIII
requires any financial market utility
designated by the Council under Section
804 of the Dodd-Frank Act as
systemically important to file 60 days
advance notice of changes to its rules,
procedures or operations that could
materially affect the nature or level of
risk presented by the financial market
utility.17 In addition, Section
806(e)(1)(B) requires each Supervisory
Agency 18 to adopt rules, in consultation
with the Board of Governors of the
Federal Reserve System (‘‘Board’’), that
define and describe when designated
financial market utilities are required to
file Advance Notices with their
Supervisory Agency.19
Clearing agencies registered with the
Commission are financial market
utilities, as defined in Section 803(6) of
Title VIII; 20 thus, the Commission may
be the Supervisory Agency of a clearing
agency that is designated as
systemically important by the Council
(‘‘designated clearing agency’’).21 A
clearing agency must begin filing
Advance Notices pursuant to Section
806(e) once the Council designates the
clearing agency as systemically
important.22 The Commission is
12 U.S.C. 5462(9). Under Section 804 of the DoddFrank Act, the Council has the authority, on a nondelegable basis and by a vote of not fewer than twothirds of the members then serving, including the
affirmative vote of its chairperson, to designate
those financial market utilities that the Council
determines are, or are likely to become,
systemically important. The Council may, using the
same procedures as discussed above, rescind such
designation if it determines that the financial
market utility no longer meets the standards for
systemic importance. Before making either
determination, the Council is required to consult
with the Board and the relevant Supervisory
Agency (as determined in accordance with Section
803(8) of the Dodd-Frank Act). Finally, Section 804
of the Dodd-Frank Act sets forth the procedures for
giving entities a 30-day notice and the opportunity
for a hearing prior to a designation or rescission of
the designation of systemic importance. 12 U.S.C.
5463.
17 12 U.S.C. 5465(e)(1)(A).
18 Section 803(8) of the Dodd-Frank Act defines
the term ‘‘Supervisory Agency’’ in reference to the
primary regulatory authority for the financial
market utility. For example, Section 803(8) of the
Dodd-Frank Act provides that the Commission is
the Supervisory Agency for any financial market
utility that is a Commission-registered clearing
agency. See 12 U.S.C. 5462(8). To the extent that
an entity is both a Commission-registered clearing
agency and registered with another agency, such as
a CFTC-registered derivatives clearing organization,
the statute requires the two agencies to agree on one
agency to act as the Supervisory Agency, and if the
agencies cannot agree on which agency has primary
jurisdiction, the Council shall decide which agency
is the Supervisory Agency for purposes of the
Dodd-Frank Act. 12 U.S.C. 5462(8).
19 12 U.S.C. 5465(e)(1)(B).
20 12 U.S.C. 5462(6).
21 See supra note 18 discussing the definition of
‘‘Supervisory Agency’’ under the Dodd-Frank Act.
22 Pursuant to Section 814 of the Dodd Frank Act,
Title VIII took effect on the date of enactment.
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proposing to implement the Section
806(e) filing requirement by amending
Rule 19b–4 to define and determine
when Advance Notices must be filed by
designated clearing agencies and to
require that Advance Notices be filed on
Form 19b–4.
The Commission is proposing that
Security-Based Swap Submissions and
Advance Notices be filed with the
Commission on Form 19b–4 using the
existing Electronic Form 19b–4 Filing
System (‘‘EFFS’’). Currently, EFFS is
used by self-regulatory organizations
(‘‘SROs’’), which include registered
clearing agencies,23 to file proposed rule
changes electronically with the
Commission pursuant to Exchange Act
Section 19(b).24 The Commission is
proposing to require clearing agencies to
use EFFS for the filing of Security-Based
Swap Submissions and Advance
Notices because registered clearing
agencies already use EFFS for Exchange
Act Section 19(b) filings and because
there are similarities between the
requirement to file proposed rule
changes under Exchange Act Section
19(b) and the new requirements under
the Dodd-Frank Act to file SecurityBased Swap Submissions and Advance
Notices. For example, a proposed rule
change under Exchange Act Section
19(b) includes a change in a ‘‘stated
policy, practice, or interpretation’’ of an
SRO rule. A ‘‘stated policy, practice, or
interpretation’’ is defined in Exchange
Act Section 19(b) as ‘‘any material
aspect of the operation of the facilities
of the SRO; or any statement made
generally available to the membership
of, to all participants in, or to persons
having or seeking access * * * to
facilities of, the self-regulatory
organization (‘‘specified persons’’), or to
a group or category of specified persons,
that establishes or changes any
standard, limit, or guideline with
respect to (1) the rights, obligations, or
privileges of specified persons * * *; or
(2) the meaning, administration, or
enforcement of an existing rule.’’ 25 In
cases where accepting a security-based
swap (or group, category, type or class
of security-based swaps) for clearing
constitutes a change in a ‘‘stated policy,
practice, or interpretation’’ of the
clearing agency, the clearing agency also
23 The definition of SRO in Section 3(a)(26) of the
Exchange Act includes any registered clearing
agency. 15 U.S.C. 78c(a)(26). All SROs are required
to file proposed rule changes with the Commission
under Exchange Act Section 19(b). 15 U.S.C. 78s(b).
24 SROs are required to file with the Commission,
in accordance with rules prescribed by the
Commission, copies of any proposed rule or any
proposed change in, addition to, or deletion from
the rules of the SRO (collectively referred to as a
‘‘proposed rule change’’). 15 U.S.C. 78s(b)(1).
25 17 CFR 240.19b–4(c).
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Federal Register / Vol. 75, No. 250 / Thursday, December 30, 2010 / Proposed Rules
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would be required to file a proposed
rule change. Similarly, if a change that
a designated clearing agency proposes to
make that would require an Advance
Notice would also constitute a change in
a ‘‘stated policy, practice, or
interpretation’’ of the clearing agency,
the clearing agency would be required
to file a proposed rule change in
addition to the Advance Notice.
The Commission also is proposing to
amend Rule 19b–4 and Form 19b–4 to
conform to the requirements specified
in Exchange Act Section 19(b), as
amended by Section 916 of the Dodd
Frank Act.26 Section 916 provides new
deadlines by which the Commission
must publish and act upon proposed
rule changes submitted by SROs and
new standards for approval, disapproval
and temporary suspension of proposed
rule changes.27 In addition, the
Commission is proposing a number of
technical and clarifying amendments to
Rule 19b–4 and Form 19b–4.
In proposing these rules, the
Commission is mindful that there are
differences between the security-based
swap market and the other securities
markets that the Commission regulates.
The Commission also is mindful that
over time and as a result of Commission
proposals to implement the Dodd-Frank
Act, further development of the
security-based swap market may alter
the policy objectives and considerations
relating to the clearing of security-based
swaps. During the process of
implementing the Dodd-Frank Act and
beyond, the Commission therefore will
closely monitor developments in the
security-based swap market, including
how the Security-Based Swap
Submission and clearing processes
interact with the evolving business and
practices of security-based swap
clearing agencies and other entities.
II. Discussion of the Proposed Rules
The Commission is proposing to
adopt rules to implement the new
requirements imposed by Title VII and
Title VIII discussed above. In
accordance with the requirements set
forth in Exchange Act Section 3C (found
in Title VII), the Commission is
proposing amendments to Rule 19b–4
and Form 19b–4 and new Rule 3Ca–1
under the Exchange Act to establish
processes for (i) clearing agencies
registered with the Commission to
submit for review each security-based
swap, or any group, category, type or
class of security-based swaps, that the
clearing agency plans to accept for
26 Public Law 111–203, section 916 (amending
Exchange Act Section 19(b)(2)).
27 Id.
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clearing for a determination by the
Commission of whether the securitybased swap (or group, category, type or
class of security-based swaps) is
required to be cleared, and to determine
the manner of notice the clearing agency
must provide to its members of such
submission and (ii) how the
Commission may stay the requirement
that a security-based swap is subject to
mandatory clearing. The Commission
also is proposing new Rule 3Ca–2 to
prevent evasions of the clearing
requirement. In addition, the
Commission is proposing amendments
to Rule 19b–4 and Form 19b–4 to
implement the requirement, pursuant to
Section 806(e), that any designated
clearing agency for which the
Commission is the Supervisory Agency
will be required to provide advance
notice to the Commission of changes to
its rules, procedures or operations that
could materially affect the nature or
level of risks presented by the
designated clearing agency. This release
also discusses the filing requirements in
Exchange Act Section 19(b), Exchange
Act Section 3C, and Section 806(e) and
a clearing agency’s obligation to fully
comply with and seek a determination
pursuant to each separate statutory
requirement, when applicable.
A. Security-Based Swap Submissions
Exchange Act Section 3C creates,
among other things, a clearing
requirement with respect to securitybased swaps. Specifically, the section
provides that ‘‘[i]t shall be unlawful for
any person to engage in a security-based
swap unless that person submits such
security-based swap for clearing to a
clearing agency that is registered under
this Act or a clearing agency that is
exempt from registration under this Act
if the security-based swap is required to
be cleared.’’ 28
28 See Public Law 111–203, section 763(a) (adding
Exchange Act Section 3C(a)(1)). The requirement
that a security-based swap be cleared stems from a
determination by the Commission. Such
determination may be made in connection with the
review of a clearing agency’s submission regarding
a security-based swap, or any group, category, type
or class of security-based swaps, that the clearing
agency plans to accept for clearing (i.e., a SecurityBased Swap Submission). See Public Law 111–203,
section 763(a) (adding Exchange Act Section
3C(b)(2)(C)) (‘‘[t]he Commission shall * * * review
each submission made under subparagraphs (A)
and (B), and determine whether the security-based
swap, or group, category, type, or class of securitybased swaps, described in the submission is
required to be cleared.’’). In addition, Exchange Act
Section 3C(b)(1) provides that ‘‘[t]he Commission on
an ongoing basis shall review each security-based
swap, or any group, category, type, or class of
security-based swaps to make a determination that
such security-based swap, or group, category, type,
or class of security-based swaps should be required
to be cleared.’’
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Exchange Act Section 3C requires the
Commission, not later than one year
after the date of the enactment of the
Dodd-Frank Act, to adopt rules for a
clearing agency’s Security-Based Swap
Submissions and to determine the
manner of notice the clearing agency
must provide to its members of such
Security-Based Swap Submission.29 In
connection with rulemaking related to
Security-Based Swap Submissions, the
Commission is proposing rules related
to (i) the process for making SecurityBased Swap Submissions to the
Commission, (ii) the substance of
Security-Based Swap Submissions and
(iii) the timing related to Security-Based
Swap Submissions. The Commission
also is proposing a process and timing
for clearing agencies to provide notice to
their members of Security-Based Swap
Submissions.
1. Process for Making Security-Based
Swap Submissions to the Commission
A clearing agency that plans to accept
a security-based swap for clearing must
file a Security-Based Swap Submission
with the Commission for a
determination by the Commission of
whether a security-based swap, or a
group, category, type or class of
security-based swaps, is required to be
cleared. As discussed in Section I, in
cases where accepting a security-based
swap (or group, category, type or class
of security-based swaps) for clearing
constitutes a change in a ‘‘stated policy,
practice, or interpretation’’ of the
clearing agency, the clearing agency also
would be required to file a proposed
rule change. In such cases, the
Commission must determine (i) whether
to approve the clearing agency’s
proposed rule change to clear the
applicable security-based swap and (ii)
whether the security-based swap would
be subject to the mandatory clearing
requirement.
The Commission is proposing to
require clearing agencies to use EFFS
and Form 19b–4 for Security-Based
Swap Submissions. Clearing agencies,
as SROs, are already required to file
proposed rule changes on Form 19b–4
on EFFS. Using the same filing process
for Security-Based Swap Submissions
would leverage existing technology and
reduce the resources clearing agencies
would have to expend on meeting
Commission filing requirements. In
addition, the Commission anticipates
that a submission to clear a securitybased swap, or any group, category, type
or class of security-based swaps, may be
required to be filed under both
29 See Public Law 111–203, section 763(a) (adding
Exchange Act Section 3C(b)(2)(A)).
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Exchange Act Section 19(b) and
Exchange Act Section 3C. This is
because a submission that must be filed
with the Commission for a
determination under new Exchange Act
Section 3C also may qualify as a
proposed rule change that must be filed
with the Commission under Exchange
Act Section 19(b).30 In other words, the
two filing requirements are not mutually
exclusive. Because a clearing agency
may be required to file the same
proposal under Exchange Act Section
3C and Exchange Act Section 19(b), the
Commission preliminarily believes that
the most efficient use of the
Commission’s and clearing agencies’
resources would be to require clearing
agencies to use the existing Form 19b–
4 filing process for both types of filings.
Accordingly, the proposed rules related
to the Security-Based Swap Submission
process would be added to existing Rule
19b–4, which currently governs the
process for filing proposed rule changes.
The Commission’s proposed approach
would eliminate the need for multiple
submissions to the Commission and
could be accomplished by adding a box
to Form 19b–4 that clearing agencies
would check to indicate that they are
making a Security-Based Swap
Submission. As a practical matter, the
Commission believes that when a
security-based swap is submitted for
review under Exchange Act Section 3C
and concurrently filed under Exchange
Act Section 19(b) as a proposed rule
change, the two reviews will be carried
out in tandem. In circumstances where
no proposed rule change filing would be
required, such as a case where a clearing
agency’s rules already permit it to clear
the security-based swap in question,
EFFS and Form 19b–4 still would be
used for the Security-Based Swap
Submission.
hsrobinson on DSK69SOYB1PROD with PROPOSALS2
a. Substance of Security-Based Swap
Submissions: Consistency With
Exchange Act Section 17A
In reviewing a Security-Based Swap
Submission, the Commission is required
to review whether the submission is
consistent with Exchange Act Section
17A.31 Accordingly, the Commission is
proposing that each Security-Based
Swap Submission contain a statement
30 A clearing agency rule is defined broadly in the
Exchange Act to include the constitution, articles of
incorporation, by-laws, and rules, or instruments
corresponding to the foregoing. 15 U.S.C. 78c(a)(27).
The Commission anticipates that a proposal to clear
a new type, category or class of security-based swap
will in many cases also be a change to the rules of
a registered clearing agency that must be filed with
the Commission for approval pursuant to Exchange
Act Section 19(b).
31 See Public Law 111–203, section 763(a) (adding
Exchange Act Section 3C(b)(4)(A)).
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regarding how the submission is
consistent with Exchange Act Section
17A.32 Exchange Act Section 17A
specifies, among other things, that the
Commission is directed, having due
regard for the public interest, the
protection of investors, the safeguarding
of securities and funds and maintenance
of fair competition among brokers and
dealers, clearing agencies, and transfer
agents, to use its authority to facilitate
the establishment of a national system
for the prompt and accurate clearance
and settlement of transactions in
securities.33
The Commission must review
whether a proposed rule change filed by
an SRO pursuant to Exchange Act
Section 19(b) is consistent with
Exchange Act Section 17A.34 In
connection with proposed rule changes,
an SRO is required to ‘‘explain why the
proposed rule change is consistent with
the requirements of the [Exchange] Act
and the rules and regulations
thereunder applicable to the [SRO]. A
mere assertion that the proposed rule
change is consistent with those
requirements is not sufficient.’’ 35
Presently, in complying with this
requirement, registered clearing
agencies, among other things, specify
how the proposed rule change is
consistent with the requirements under
Exchange Act Section 17A(b)(3). All
registered clearing agencies must
comply with the standards in Exchange
Act Section 17A, which include
requirements under Exchange Act
Section 17A(b)(3) to maintain rules for
promoting the prompt and accurate
clearance and settlement of securities
transactions, assuring the safeguarding
of securities and funds which are in the
custody or control of the clearing agency
or for which it is responsible, fostering
cooperation and coordination with
persons engaged in the clearance and
settlement of securities transactions,
removing impediments to and
perfecting the mechanism of a national
system for the prompt and accurate
clearance and settlement of securities
transactions, and, in general, protecting
32 Proposed
Rule 19b–4(o)(3)(i).
U.S.C. 78q–1.
34 See 15 U.S.C. 78s(b)(2)(C)(i), which provides
that the Commission shall approve a proposed rule
change of an SRO if it finds that such proposed rule
change is consistent with the requirements of the
Exchange Act and the rules and regulations issued
thereunder that are applicable to such organization.
35 Item 3(b) of Form 19b–4. 17 CFR 240.819.
Exchange Act Section 19(b) has a similar but not
identical requirement. It requires that an SRO
provide a statement of the basis of the proposed
rule change and provides that the Commission shall
only approve a proposed rule change if it finds that
it is consistent with the requirements of the
Exchange Act and the rules and regulations
thereunder. 15 U.S.C. 78s(b).
33 15
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investors and the public interest.36 A
registered clearing agency is also
required under Exchange Act Section
17A(b)(3) to provide fair access to
clearing and to have the capacity to
facilitate the prompt and accurate
clearance and settlement of securities
transactions and derivative agreements,
contracts, and transactions for which it
is responsible, as well as to safeguard
securities and funds in its custody or
control or for which it is responsible.37
Under the proposed amendments to
Rule 19b–4, a clearing agency would be
required to specify how the SecurityBased Swap Submission is consistent
with Exchange Act Section 17A and
specifically the requirements applicable
under subsection 17A(b)(3).
b. Substance of Security-Based Swap
Submissions: Quantitative and
Qualitative Factors
The Dodd-Frank Act requires the
Commission to take into account several
factors in addition to consistency with
Exchange Act Section 17A in reviewing
a clearing agency’s Security-Based Swap
Submission.38 The Commission is
proposing to require clearing agencies to
provide information relevant to these
factors through the proposed
amendments to Rule 19b–4 and Form
19b–4. Specifically, clearing agencies
would be required to submit
quantitative and qualitative information
to assist the Commission in the
consideration of the five factors
Exchange Act Section 3C requires the
Commission to take into account in
reviewing a Security-Based Swap
Submission, which include:
(i) The existence of significant
outstanding notional exposures, trading
liquidity and adequate pricing data.
(ii) The availability of a rule
framework, capacity, operational
expertise and resources, and credit
support infrastructure to clear the
contract on terms that are consistent
with the material terms and trading
conventions on which the contact is
then traded.
(iii) The effect on the mitigation of
systemic risk, taking into account the
size of the market for such contract and
the resources of the clearing agency
available to clear the contract.
(iv) The effect on competition,
including appropriate fees and charges
applied to clearing.
(v) The existence of reasonable legal
certainty in the event of the insolvency
of the relevant clearing agency or one or
36 See
15 U.S.C. 78q–1(b)(3)(F).
U.S.C. 78q–1(b)(3)(A), (B) and (F).
38 See Public Law 111–203, section 763(a) (adding
Exchange Act Section 3C(b)(4)(B)(i)–(v)).
37 15
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more of its clearing members with
regard to the treatment of customer and
security-based swap counterparty
positions, funds, and property.39
Each Security-Based Swap
Submission would be required to
address the factors listed above to the
extent they are applicable to the
security-based swap, the clearing agency
and the market.
For example, in connection with the
discussion responsive to factor (i) above,
the clearing agency could address
pricing sources, models and procedures
demonstrating an ability to obtain price
data to measure credit exposures in a
timely and accurate manner, as well as
measures of historical market liquidity
and trading activity, and expected
market liquidity and trading activity if
the security-based swap is required to
be cleared (including information on the
sources of such measures). With respect
to the discussion of factor (ii) above, the
statement describing the availability of
a rule framework could include a
discussion of the rules, policies or
procedures applicable to the clearing of
the relevant security-based swap.
Additionally, the discussion of credit
support infrastructure could include the
methods to address and communicate
requests for, and posting of, collateral.
With respect to factor (iii) above, the
discussion of systemic risk could
include a statement on the clearing
agency’s risk management procedures,
including among other things the
measurement and monitoring of credit
exposures, initial and variation margin
methodology, methodologies for stress
testing and back testing, settlement
procedures and default management
procedures. With respect to factor (iv)
above, the discussion of fees and
charges could address any volume
incentive programs that may apply or
impact the fees and charges. With
respect to factor (v) above, the
discussion could address segregation of
accounts and all other customer
protection measures under insolvency.
In describing the security-based swap,
or any group, category, type or class of
security-based swaps, that a clearing
agency plans to accept for clearing, the
clearing agency could include the
relevant product specifications,
including copies of any standardized
legal documentation, generally accepted
contract terms,40 standard practices for
managing and communicating any life
cycle events associated with the
39 Proposed
Rule 19b–4(o)(3)(ii).
example, for some security-based swaps,
industry standard documentation would include
the applicable International Swaps and Derivatives
Association, Inc. Master Agreement and any related
asset-class-specific definitions.
40 For
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security-based swap and related
adjustments,41 and the manner in which
the information contained in the
confirmation of the security-based swap
trade is transmitted. The clearing agency
also could discuss its financial and
operational capacity to provide clearing
services to all customers subject to the
clearing requirements as applicable to
the particular security-based swap.
Finally, the clearing agency could
include an analysis of the effect of a
clearing requirement on the market for
the group, category, type, or class of
security-based swaps, both domestically
and globally, including the potential
effect on market liquidity, trading
activity, use of security-based swaps by
direct and indirect market participants
and any potential market disruption or
benefits. This analysis could include
whether the members of the clearing
agency are operationally and financially
capable of absorbing clearing business
(including indirect access market
participants) that may result from a
determination that the security-based
swap (or group, category, type or class
of security-based swaps) is required to
be cleared.
c. Substance of Security-Based Swap
Submissions: Open Access
New Exchange Act Section 3C also
requires that the rules of a clearing
agency that clears security-based swaps
subject to the clearing requirement
provide for open access.42 In the course
of reviewing a Security-Based Swap
Submission, the Commission may assess
whether a clearing agency’s rules
provide for open access, particularly
with respect to the relevant SecurityBased Swap Submission. Accordingly,
the proposed rule provides that the
Security-Based Swap Submission must
include a statement regarding how a
clearing agency’s rules:
(i) Prescribe that all security-based
swaps submitted to the clearing agency
with the same terms and conditions are
economically equivalent within the
41 The Commission has proposed Regulation
SBSR, which contains a definition of ‘‘life cycle
event.’’ See Exchange Act Release No. 63346 (Nov.
19, 2010), 75 FR 75208 (Dec. 2, 2010) (‘‘Regulation
SBSR—Reporting and Dissemination of SecurityBased Swap Information’’).
42 See Public Law 111–203, section 763(a) (adding
Exchange Act Section 3C(a)(2) (‘‘[t]he rules of a
clearing agency described in paragraph (1) shall—
(A) prescribe that all security-based swaps
submitted to the clearing agency with the same
terms and conditions are economically equivalent
within the clearing agency and may be offset with
each other within the clearing agency; and (B)
provide for non-discriminatory clearing of a
security-based swap executed bilaterally or on or
through the rules of an unaffiliated national
securities exchange or security-based swap
execution facility.’’).
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clearing agency and may be offset with
each other within the clearing agency;
and
(ii) Provide for non-discriminatory
clearing of a security-based swap
executed bilaterally or on or through the
rules of an unaffiliated national
securities exchange or security-based
swap execution facility.43
In making a determination, the
Commission proposes to take into
account the factors specified in
Exchange Act Section 3C and any
additional information the Commission
determines to be appropriate. The
proposed rule also requires a clearing
agency to provide any additional
information requested by the
Commission as necessary to make a
determination.44 The Commission
believes that such a requirement would
provide appropriate flexibility to
facilitate our regulatory responsibilities.
In making a determination of whether or
not the clearing requirement would
apply to the security-based swap, or any
group, category, type, or class of
security-based swaps, described in the
submission, the Commission may
require such terms and conditions as the
Commission determines to be
appropriate in the public interest.45
d. Timing Related to Security-Based
Swap Submissions
Under Exchange Act Section 3C, as
added by Section 763(a) of the DoddFrank Act, the Commission is required
to make its determination of whether a
security-based swap described in a
clearing agency’s Security-Based Swap
Submission is required to be cleared not
later than 90 days after receiving such
Security-Based Swap Submission.46 The
90-day determination period may be
extended with the consent of the
clearing agency making such SecurityBased Swap Submission.47 The
Commission is required to make
available to the public any SecurityBased Swap Submission it receives and
to provide at least a 30-day public
comment period ‘‘regarding its
43 Proposed
Rule 19b–4(o)(3)(ii).
Rule 19b–4(o)(6)(i).
45 See Public Law 111–203, section 763(a) (adding
Exchange Act Section 3C(b)(4)(C)) and Proposed
Rule 19b–4(o)(6)(ii).
46 See Public Law 111–203, section 763(a) (adding
Exchange Act Section 3C(b)(3)). Further, pursuant
to proposed Rule 19b–4(o)(2), if any information
submitted to the Commission by a clearing agency
on Form 19b–4 were not complete or otherwise in
compliance with Rule 19b–4 and Form 19b–4, such
information would not be considered a SecurityBased Swap Submission and the Commission
would be required to inform the clearing agency
within twenty-one business days of such
submission.
47 See Public Law 111–203, section 763(a) (adding
Exchange Act Section 3C(b)(3)).
44 Proposed
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determination whether the clearing
requirement shall apply to the
submission.’’ 48 This 30-day comment
period enables the public to have an
opportunity to comment on the
Security-Based Swap Submission and to
provide information for the Commission
to consider as part of making its
determination whether the clearing
requirement should apply to the
submission. Accordingly, the
Commission proposes to make the
Security-Based Swap Submission
available for a 30-day public comment
period within the 90-day determination
period. The Commission would publish
notice of the Security-Based Swap
Submission in the Federal Register and
publish notice on the Commission’s
publicly-available Web site at https://
www.sec.gov. Such notice would
include the solicitation of public
comment. This proposed publication
process would be consistent with the
current process that is in place for
proposed rule changes under Exchange
Act Section 19(b)(2) and Rule 19b–4.
hsrobinson on DSK69SOYB1PROD with PROPOSALS2
e. Notice to Clearing Agency Members
New Exchange Act Section 3C
requires that a clearing agency provide
notice to its members, in a manner
determined by the Commission, of its
Security-Based Swap Submissions.49 To
meet the requirement of providing
notice of Security-Based Swap
Submissions to members, the
Commission is proposing amendments
to Rule 19b–4 that would require
clearing agencies to post on their Web
sites such submissions to the
Commission, and any amendments
thereto.50 This public posting would be
required to be completed within two
business days following the SecurityBased Swap Submission to the
Commission. This timeframe is
consistent with the notice requirement
that currently applies to proposed rule
changes,51 and the Commission believes
48 See Public Law 111–203, section 763(a) (adding
Exchange Act Section 3C(b)(2)(C)).
49 See Public Law 111–203, section 763(a) (adding
Exchange Act Section 3C(b)(2)(A)).
50 Proposed Rule 19b–4(o)(5).
51 Commission rules currently require SROs to
post on their Web sites a copy of any proposed rule
change the SRO filed with the Commission, and any
amendments thereto. Such posting is required
within two business days after filing the proposed
rule change with the Commission. See 17 CFR
240.19b–4(l). In adopting this rule, the Commission
stated that all market participants, investors and
other interested parties should have access to
proposed rule changes filed with the Commission,
and any amendments, as soon as practicable, and
that it did not believe that a two-business-day
timeframe would be impractical or unduly
burdensome on SROs. See Securities Exchange Act
Release No. 50486 (Oct. 4, 2004), 69 FR 60287 (Oct.
8, 2004) (Final Rules Regarding Proposed Rule
Changes of Self-Regulatory Organizations).
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that such timeframe would provide
members of the clearing agency and the
public with timely notice of the
submission. The clearing agency would
be required to maintain such material
on its Web site until the Commission
makes a determination regarding the
Security-Based Swap Submission, the
clearing agency withdraws the SecurityBased Swap Submission or the clearing
agency is notified that the SecurityBased Swap Submission is not properly
filed.52 These requirements should help
ensure that submissions that are being
actively considered by the Commission
are readily available to the members of
the clearing agency and the public and
help provide for a more transparent
process.
The Commission notes that the
current instructions for Form 19b–4
require an SRO to file with the
Commission copies of notices issued by
the SRO soliciting comment on the
proposed rule change and copies of all
written comments on the proposed rule
change received by the SRO (whether or
not comments were solicited) from its
members or participants. Any
correspondence the SRO receives after it
files a proposed rule change, but before
the Commission takes final action on
the proposed rule change, also is
required to be filed with the
Commission.53 The SRO is required to
summarize the substance of all such
comments received and respond in
detail to any significant issues raised in
the comments about the proposed rule
change.54 The Commission is proposing
that in connection with Security-Based
Swap Submissions, clearing agencies
would be subject to these same
requirements. The Commission
preliminarily believes that its proposal
to apply such requirements in the
instructions to Form 19b–4 to SecurityBased Swap Submissions would
provide the Commission with an
opportunity to consider the various
viewpoints expressed by commenters by
making sure relevant comments are
included in the materials provided to
the Commission.
f. Submissions of a Group, Category,
Type or Class of Security-Based Swaps
The proposed amendments to Rule
19b–4 and Form 19b–4 would require
that clearing agencies submit securitybased swaps for review by group,
category, type, or class to the extent it
is practicable and reasonable to do so.55
52 Proposed
Rule 19b–4(o)(5).
Items 5 and 9 (Exhibit 2) of Form 19b–4.
17 CFR 240.819.
54 Item 5 of Form 19b–4. 17 CFR 240.819.
55 Proposed Rule 19b–4(o)(4). In its release
proposing rules to implement Section 723 of the
53 See
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Any aggregation would be required to be
clearly described in a Security-Based
Swap Submission so that market
participants and the public know which
security-based swaps may be subject to
a clearing requirement. The Commission
preliminarily believes that including
multiple security-based swaps in each
submission—to the extent that such
groupings are practicable and
reasonable (e.g., by taking into
consideration appropriate risk
management issues applicable to the
aggregation)—would streamline the
submission process for Commission
staff and the clearing agencies. This in
turn would allow more security-based
swaps to be reviewed in a timely
manner.
Request for Comments
The Commission generally requests
comments on all aspects of the proposed
amendments to Rule 19b–4 that would
incorporate the process for making
Security-Based Swap Submissions. In
addition, the Commission requests
comments on the following specific
issues:
• Are there specific considerations
that the Commission should weigh more
heavily in reviewing whether a
Security-Based Swap Submission is
consistent with Exchange Act Section
17A? If so, what are such
considerations?
• Should the information included in
this release as examples of the kinds of
information the clearing agency should
include in its Security-Based Swap
Submission be required in all cases and
incorporated into the rules?
• To describe the security-based
swap, or any group, category, type or
class of security-based swaps, that a
clearing agency plans to accept for
clearing, should a clearing agency be
required to include in its Security-Based
Swap Submissions specific product
specifications, including copies of any
standardized legal documentation,
generally accepted contract terms,
standard practices for managing and
communicating any life cycle events
associated with the security-based swap
and related adjustments, and the
manner in which the information
contained in the confirmation of the
security-based swap trade is
transmitted? If not, why not? Is there
other information relating to the
description of the security-based swaps
that clearing agencies should be
required to provide? If so, what
information and why? Should this
Dodd-Frank Act, the CFTC has proposed a similar
rule. 75 FR 67277 (November 2, 2010).
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information be required in all cases and
incorporated into the rules?
• What specific information should a
clearing agency be required to include
in its Security-Based Swap Submissions
regarding pricing sources, models and
procedures demonstrating an ability to
obtain price data to measure credit
exposures in a timely and accurate
manner, as well as measures of
historical market liquidity and trading
activity, and expected market liquidity
and trading activity if the security-based
swap is required to be cleared
(including information on the sources of
such measures)? Is there other
information relating to pricing that
clearing agencies should be required to
provide? If so, what information and
why? Should this information be
required in all cases and incorporated
into the rules?
• What specific information should a
clearing agency be required to include
in its Security-Based Swap Submissions
pertaining to the rules, policies or
procedures applicable to the clearing of
the relevant security-based swap? Is
there other information relating to rule
framework, capacity, operational
expertise and resources the clearing
agency should be required to provide? If
so, what information and why? Should
this information be required in all cases
and incorporated into the rules?
• Is there specific information a
clearing agency should be required to
include in its Security-Based Swap
Submissions regarding the methods to
address and communicate requests for,
and posting of, collateral? Is there other
information relating to collateral that
the clearing agency should be required
to provide? If so, what information and
why? Should this information be
required in all cases and incorporated
into the rules?
• What specific information should a
clearing agency be required to include
in its Security-Based Swap Submissions
regarding the clearing agency’s risk
management procedures, pertaining to
among other things the measurement
and monitoring of credit exposures,
initial and variation margin
methodology, methodologies for stress
testing and back testing, settlement
procedures and default management
procedures? Is there other information
relating to risk management that the
clearing agency should be required to
provide? If so, what information and
why? Should this information be
required in all cases and incorporated
into the rules?
• Should a clearing agency, in
connection with each submission or in
some circumstances, be required to
include an independent validation of its
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margin methodology and its ability to
maintain sufficient financial resources?
Why or why not, or in which
circumstances? If independent
validation is required, how should the
Commission assess the independence
and technical expertise of the party
providing the independent validation?
What are the critical techniques, risk
factors and components that should be
covered by the model validation and
why? If the clearing of the securitybased swap described in the SecurityBased Swap Submission would not
require a change in the clearing agency’s
margin methodology, do commenters
believe it would be sufficient for the
Commission to permit the clearing
agency to refer to an applicable
independent validation of the clearing
agency’s margin methodology
previously provided to the Commission
with a statement explaining why the
existing methodology does not require a
change in connection with clearing the
new security-based swap and how the
current validation is still applicable in
the context of the security-based swap
the clearing agency plans to clear? If
not, why not?
• What information should a clearing
agency be required to include in its
Security-Based Swap Submissions
regarding fees and charges and address
any volume incentive programs that
may apply or impact the fees and
charges? Is there other information
relating to fees and charges that the
clearing agency should be required to
provide? If so, what information and
why? Should this information be
required in all cases and incorporated
into the rules?
• Should a clearing agency be
required to include in its Security-Based
Swap Submission information regarding
segregation of accounts and all other
customer protection measures under
insolvency? If not, why not? Is there
other information relating to insolvency
of the clearing agencies’ members the
clearing agency should be required to
provide? If so, what information and
why? Should this information be
required in all cases and incorporated
into the rules?
• Should a clearing agency be
required to include in its Security-Based
Swap Submission information on
whether cross-margining is available to
the clearing agency’s members with
respect to their positions at other
clearing agencies? If not, why not? What
types of effects on competition are such
cross-margining arrangements likely to
have? Is there any specific information
regarding cross-margining arrangements
that the Commission should collect? If
not, why not? If so, what information
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and why? Should this information be
required in all cases and incorporated
into the rules?
• What information should a clearing
agency be required to include in its
Security-Based Swap Submission
regarding its financial and operational
capacity to provide clearing services to
all customers subject to the clearing
requirements as applicable to the
particular security-based swap? Should
this information be required to include
an analysis of the effect of a clearing
requirement on the market for the
group, category, type, or class of
security-based swaps, both domestically
and globally, including the potential
effect on market liquidity, trading
activity, use of security-based swaps by
direct and indirect market participants
and any potential market disruption or
benefits? Should it be required to
include an analysis of whether the
members of the clearing agency are
operationally and financially capable of
absorbing clearing business (including
indirect access market participants) that
may result from a determination that the
security-based swap (or group, category,
type or class of security-based swaps) is
required to be cleared? If not, why not?
Is there other information relating to
capacity that the clearing agency should
be required to provide? If so, what
information and why? Should this
information be required in all cases and
incorporated into the rules?
• Is the process for notice to clearing
agency members by posting on the
clearing agency Web site, as proposed
by the Commission, adequate as a notice
mechanism for members? If not, what
should change? Is the two-day posting
requirement appropriate to provide
timely notice to members? Would a
shorter or longer period be appropriate?
• What other method of notice to
clearing agency members could or
should be required rather than Web site
posting?
• Should the Commission utilize the
proposed rule change filing system for
Security-Based Swap Submissions?
What other methods of submitting
Security-Based Swap Submissions to
the Commission should the Commission
consider and why?
• What alternatives should the
Commission consider to requiring
clearing agencies to submit securitybased swaps for review by group,
category, type, or class, to the extent it
is practicable and reasonable to do so?
• Should the Commission consider
consolidating multiple Security-Based
Swap Submissions from one clearing
agency into a group, category, type, or
class of Security-Based Swap
Submissions, or subdividing a clearing
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hsrobinson on DSK69SOYB1PROD with PROPOSALS2
agency’s submission of a group,
category, type, or class of security-based
swaps, as appropriate, for review?
• What information should the
clearing agency include in its SecurityBased Swaps Submissions to identify
the scope of the group, category, type or
class of security-based swaps it plans to
clear that will provide sufficient
parameters to put people on notice that
a security-based swap may be required
to be cleared?
• What characteristics of securitybased swaps should be common among
security-based swaps in order to
aggregate them by group, category, type
or class? Would these characteristics be
the same across asset classes such as
security-based equities derivatives,
credit derivatives and loan-based
swaps? Should the Commission specify
those attributes in the rule?
• Are there any factors that would
make aggregation more difficult? Would
these be the same or different across
asset classes?
• Are there factors that may be
clearing-agency specific with respect to
aggregation? If so, what are those
factors?
As discussed above, Exchange Act
Section 3C provides, among other
things, for a determination by the
Commission of whether security-based
swaps are required to be cleared.56 The
Commission may determine that a
security-based swap is required to be
cleared based on a review of a clearing
agency’s submission regarding a
security-based swap, or any group,
category, type or class of security-based
swaps, that the clearing agency plans to
accept for clearing (i.e., a Security-Based
Swap Submission).57 Consistent with
proposal, if the Commission determines
that a security-based swap is not
required to be cleared, such securitybased swap may still be cleared on a
non-mandatory basis by the clearing
agency if the clearing agency has rules
that permit it to clear such securitybased swap.58 In addition, Exchange Act
Section 3C(b)(1) provides that ‘‘[t]he
Commission on an ongoing basis shall
review each security-based swap, or any
group, category, type, or class of
security-based swaps to make a
determination that such security-based
56 See Public Law 111–203, section 763(a) (adding
Exchange Act Section 3C(a)(1)).
57 See Public Law 111–203, section 763(a) (adding
Exchange Act Section 3C(b)(2)(C)) (‘‘[t]he
Commission shall * * * review each submission
made under subparagraphs (A) and (B), and
determine whether the security-based swap, or
group, category, type, or class of security-based
swaps, described in the submission is required to
be cleared.’’).
58 See 15 U.S.C. 78s(b) (proposed rule changes)
and 12 U.S.C. 5465(e) (Advance Notices).
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swap, or group, category, type, or class
of security-based swaps should be
required to be cleared’’ (i.e., a
Commission-initiated Review).59
The proposed addition of paragraph
(o) to Rule 19b–4 and related
amendments to Form 19b–4 are
intended to provide a process for
Security-Based Swap Submissions. The
Commission is required under the
Dodd-Frank Act to adopt rules
specifying the process for SecurityBased Swap Submissions. As part of the
process of review of each SecurityBased Swap Submission (and in each
Commission-initiated Review), the
Commission must take into account the
five factors specified in Exchange Act
Section 3C(b)(4)(B):
(i) The existence of significant
outstanding notional exposures, trading
liquidity and adequate pricing data.
(ii) The availability of a rule
framework, capacity, operational
expertise and resources, and credit
support infrastructure to clear the
contract on terms that are consistent
with the material terms and trading
conventions on which the contract is
then traded.
(iii) The effect on the mitigation of
systemic risk, taking into account the
size of the market for such contract and
the resources of the clearing agency
available to clear the contract.
(iv) The effect on competition,
including appropriate fees and charges
applied to clearing.
(v) The existence of reasonable legal
certainty in the event of the insolvency
of the relevant clearing agency or one or
more of its clearing members with
regard to the treatment of customer and
security-based swap counterparty
positions, funds, and property.60
Proposed Rule 19b–4(o) and related
amendments for Form 19b–4 would
require clearing agencies to include in
their Security-Based Swap Submissions
information that will assist the
Commission in the quantitative and
qualitative assessment of the statutory
factors listed above. The proposal also
set forth examples of the information
clearing agencies should include in
addressing these five factors.61
Promoting clearing is a critical
component of the reform mandated by
the Dodd-Frank Act, which seeks to
bring transactions and counterparties
into a robust, conservative and
59 See Public Law 111–203, section 763(a) (adding
Exchange Act Section 3C(b)(1)). The Dodd-Frank
Act does not require rulemaking with respect to
Commission-initiated Reviews.
60 Proposed Rule 19b–4(o)(3)(ii).
61 See Section II.A.1.b for a discussion of the
types of information that should be included in a
Security-Based Swap Submission.
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transparent risk management
framework.62 Exchange Act Section
3C(b)(4)(B) 63 sets forth the factors the
Commission is required to take into
account in determining whether a
security-based swap is required to be
cleared or should be required to be
cleared in connection with a SecurityBased Swap Submission or
Commission-initiated Review,
respectively. The Commission
recognizes that in interpreting and
applying these factors, it should be
guided by the general principles
underlying the Dodd-Frank Act,
including in particular the goal of
promoting clearing where appropriate.
At the same time, the Commission is
mindful that its application of these
factors may have a significant effect on
the market for individual security-based
swaps. In addition, an overly broad or
narrow application of the mandatory
clearing requirement could undermine
the policy objectives of the Dodd-Frank
Act. For example, a premature
determination that a security-based
swap is subject to mandatory clearing
may, in certain circumstances, limit the
ability of certain market participants to
utilize that product (including for risk
management purposes) which in turn
could ultimately result in less clearing
and more limited use of the securitybased swap than might otherwise have
been the case if it had been permitted
to trade without being subject to a
mandatory clearing requirement for a
longer period of time.
On the other hand, an overly narrow
application of the mandatory clearing
requirement would undermine the
potential benefits of centralized clearing
for counterparties and the marketplace
generally that Exchange Act Section 3C
62 See Letter from Christopher Dodd, Chairman,
Committee on Banking, Housing, and Urban Affairs,
United States Senate and Blanche Lincoln,
Chairman, Committee on Agriculture, Nutrition,
and Forestry, United States Senate, to Barney Frank,
Chairman, Financial Services Committee, United
States House of Representatives and Collin
Peterson, Chairman, Committee on Agriculture,
United States House of Representatives (June 30,
2010) (on file with the United States Senate)
(‘‘Congress determined that clearing is at the heart
of reform—bringing transactions and counterparties
into a robust, conservative and transparent risk
management framework. Congress also
acknowledged that clearing may not be suitable for
every transaction or every counterparty. End users
who hedge their risks may find it challenging to use
a standard derivative contract to exactly match up
their risks with counterparties willing to purchase
their specific exposures. Standardized derivative
contracts may not be suitable for every
transaction.’’). Additionally, and as discussed
herein in Section II.A.1.a, Exchange Act Section
3C(b)(4)(A) requires the Commission to review
whether a Security-Based Swap Submission is
consistent with Exchange Act Section 17A.
63 See Public Law 111–203, section 763(a) (adding
Exchange Act Section 3C(b)(4)(B)).
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was intended to provide. Moreover,
because security-based swaps that are
subject to the clearing requirement also
are required to be executed on a
national securities exchange or a swap
execution facility if such an exchange or
facility makes the security-based swap
available to trade, imposing a clearing
requirement could have a substantial
impact generally on the trading
environment of the relevant
instruments, which in turn could affect
the relative transparency and liquidity
of those instruments in ways that may
promote, or detract from, the overall
goals of the Dodd-Frank Act.
In short, the Commission recognizes,
as did Congress, that a determination
that clearing is required could have
ancillary consequences. The DoddFrank Act includes an exception from
the mandatory clearing requirement to
help address concerns regarding
circumstances when clearing may not be
appropriate.64
However, because the Commission
must still apply the statutory factors, in
light of the policy goals of the DoddFrank Act, to determine whether
clearing is required, the Commission is
seeking comment generally on how the
factors identified in the statute should
be applied in making determinations as
to whether particular security-based
swaps are or should be required to be
cleared.
hsrobinson on DSK69SOYB1PROD with PROPOSALS2
Request for Comments
• Are there specific considerations
that the Commission should weigh more
heavily in making a determination that
a security-based swap is, or should be,
required to be cleared? If so, what are
such considerations and why should
they be given greater weight?
• In a Commission-initiated review,
should the Commission consider
information that is different from the
information the Commission has
proposed for a clearing agency to
provide in a Security-Based Swap
Submission to enable the Commission
to make a determination regarding a
64 See S. Rep. No. 111–176 at 34 (stating that
‘‘[s]ome parts of the OTC market may not be suitable
for clearing and exchange trading due to individual
business needs of certain users. Those users should
retain the ability to engage in customized,
uncleared contracts while bringing in as much of
the OTC market under the centrally cleared and
exchange-traded framework as possible. Also, OTC
(contracts not cleared centrally) should still be
subject to reporting, capital, and margin
requirements so that regulators have the tools to
monitor and discourage potentially risky activities,
except in very narrow circumstances. These
exceptions should be crafted very narrowly with an
understanding that every company, regardless of
the type of business they are engaged in, has a
strong commercial incentive to evade regulatory
requirements.’’).
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clearing requirement? If so, what
information should be considered and
why?
• How should the Commission
measure ‘‘significant outstanding
notional exposures’’? Should the
Commission consider a threshold or a
range for what qualifies as ‘‘significant
outstanding notional exposures’’? If so,
should this threshold or range vary
depending on the asset class?
• How should the Commission
analyze whether pricing data is
adequate?
• In taking into account the effect of
requiring a security-based swap (or
group, category, type or class of
security-based swaps) to be cleared on
the mitigation of systemic risk, how
should the Commission evaluate the
resources of the clearing agency
available to clear the security-based
swaps?
• In considering the existence of legal
certainty in the event of the insolvency
of the relevant clearing agency or one or
more of its clearing members, are there
specific factors that the Commission
should take into account? Would
seeking information from third-party
sources such as legal opinions be
appropriate? Are there any cross-border
considerations that should be
considered?
• How should the Commission
analyze the pool of potential
counterparties to a security-based swap
(or group, category, type or class of
security-based swaps) subject to the
clearing requirement?
• How should the Commission
analyze the potential effect, including
the potential effect on liquidity, trading
activity, use of security-based swaps by
direct and indirect market participants
and any potential disruption or benefit
to the market for a security-based swap
(or group, category, type, or class of
security-based swaps) required to be
cleared?
• Is there information reported to the
swap data repository that is otherwise
not available to the public that a
clearing agency would require to
prepare its Security-Based Swap
Submission? If so, what information
would be required, and why?
2. Prevention of Evasion of the Clearing
Requirement.
Exchange Act Section 3C directs the
Commission to prescribe rules (and
interpretations of rules) the Commission
determines to be necessary to prevent
evasions of the clearing requirements.65
65 See Public Law 111–203, section 763(a) (adding
Exchange Act Section 3C(d)(1), which states that
‘‘[t]he Commission shall prescribe rules under this
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The term ‘‘clearing agency’’ is defined
broadly under the Exchange Act,66 and
clearing agencies may offer a spectrum
of clearing services. Specifically, the
Commission has identified the
following entities and activities as
falling within the definition of clearing
agency: (i) Clearing corporations; (ii)
securities depositories; and (iii)
matching services.67 As a result, there
may be entities that operate as registered
clearing agencies for security-based
swaps that do not provide central
clearing and act as a CCP. The
Commission preliminarily believes that
the broad definition of the term
‘‘clearing agency’’ could be used by
market participants to evade the
clearing requirement of Exchange Act
Section 3C(a)(1), which states that ‘‘[i]t
shall be unlawful for any person to
engage in a security-based swap unless
that person submits such security-based
swap for clearing to a clearing agency
that is registered under this Act or a
clearing agency that is exempt from
registration under this Act if the
security-based swap is required to be
cleared.’’ 68 For example, market
participants seeking to evade the
requirement to clear a security-based
swap set forth in Exchange Act Section
3C(a)(1) could submit the security-based
swap for matching services (rather than
for central clearing) to a clearing agency
that is either registered with the
Commission or exempt from registration
under the Exchange Act.
The Commission preliminarily
believes that other types of clearing
functions and services offered by
clearing agencies would not achieve the
goal of central clearing contemplated
under the Dodd-Frank Act—improving
the management of counterparty risk.69
The Commission preliminarily believes
section (and issue interpretations of rules
prescribed under this section), as determined by the
Commission to be necessary to prevent evasions of
the mandatory clearing requirements under this
Act.’’).
66 See supra note 11 discussing the definition of
‘‘clearing agency’’ pursuant to Exchange Act Section
3(a)(23)).
67 See Securities Exchange Act Release Nos. No.
20221 (Sept. 23, 1983), 48 FR 45167 (October 3,
1983), (Order Approving the Clearing Agency
Registration of Four Depositories and Four Clearing
Corporations) and 39829 (April 6, 1998), 63 FR
17943 (April 13, 1998) (Confirmation and
Affirmation of Securities Trades; Matching).
68 See Public Law 111–203, section 763(a) (adding
Exchange Act Section 3C(a)(1)).
69 The Commission has identified the following
entities and activities as falling within the
definition of clearing agency: (i) Clearing
corporations; (ii) securities depositories; and (iii)
matching services. Structured and operated
appropriately, CCPs may improve the management
of counterparty risk and may provide additional
benefits such as multilateral netting of trades. See
supra note 67 and Section I.A.
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that proposed Rule 3Ca–2 would
prevent potential evasions of the
clearing requirement by requiring
market participants to submit securitybased swaps to a clearing agency for
central clearing as opposed to other
clearing functions or services.
Accordingly, proposed Rule 3Ca–2
would clarify the reference to ‘‘submits
such security-based swap for clearing to
a clearing agency’’ in Exchange Act
Section 3C(a)(1) to mean that the
security-based swap must be submitted
for central clearing to a clearing agency
that functions as a CCP.70 Submission to
a clearing agency for clearing services
other than central clearing as a CCP
would not meet the clearing
requirement.
hsrobinson on DSK69SOYB1PROD with PROPOSALS2
Request for Comments
The Commission generally requests
comments on all aspects of proposed
Rule 3Ca–2. In addition, the
Commission requests comments on the
following specific issues:
• Should the Commission require
security-based swaps to be submitted for
central clearing to a clearing agency that
acts as a CCP to meet the clearing
requirement?
• Are there clearing agency functions
or services that are not CCP functions
performed by a clearing agency but that
may provide comparable benefits to
those of a CCP? If so, please identify
such functions or services and the
benefits they provide.
B. Stay of the Clearing Requirement and
Review by the Commission
Exchange Act Section 3C states that,
after making a determination that a
security-based swap (or group, category,
type or class of security-based swaps) is
required to be cleared, the Commission,
on application of a counterparty to a
security-based swap or on the
Commission’s own initiative, may stay
the clearing requirement until the
Commission completes a review of the
terms of the security-based swap and
the clearing arrangement.71 In
connection with a stay of the clearing
requirement and subsequent review of
the terms of the security-based swap
and the clearing arrangement, the
Commission is required to adopt rules
for reviewing a clearing agency’s
clearing of a security-based swap, or any
group, category, type or class of
70 Proposed Rule 3Ca–2. The definitional section
of the Exchange Act provides that defined terms
may have different meanings in different contexts.
See Exchange Act Section 3(a) (‘‘When used in this
title, unless the context otherwise requires
* * * .’’). 15 U.S.C. 78c(a).
71 See Public Law 111–203, section 763(a) (adding
Exchange Act Section 3C(c)(1)).
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security-based swaps, that the clearing
agency has accepted for clearing.72
Proposed Rule 3Ca–1 would establish a
procedure for staying the clearing
requirement and the Commission’s
subsequent review of the terms of the
security-based swap and the clearing
arrangement.
Under proposed Rule 3Ca–1, a
counterparty to a security-based swap
subject to the clearing requirement
wishing to apply for a stay of the
clearing requirement would be required
to submit a written statement to the
Commission that includes (i) a request
for a stay of the clearing requirement,
(ii) the identity of the counterparties to
the security-based swap and a contact at
the counterparty requesting the stay,
(iii) the identity of the clearing agency
clearing the security-based swap, (iv)
the terms of the security-based swap
subject to the clearing requirement and
a description of the clearing
arrangement and (v) the reasons a stay
should be granted and the securitybased swap should not be subject to a
clearing requirement, specifically
addressing the same factors a clearing
agency must address in its SecurityBased-Swap Submission pursuant to
proposed Rule 19b–4(o).73 The
Commission preliminarily believes that
such information would assist the
Commission in determining whether to
grant the stay. Under proposed Rule
3Ca–1, the counterparty’s statement to
the Commission requesting the stay of
the clearing requirement would be made
available to the public on the
Commission’s Web site in order to
provide the public with notice of the
submission of the stay. A stay of the
clearing requirement may be applicable
to the counterparty requesting the stay
or more broadly, to the security-based
swap, or any group, category, type or
class of security-based swaps, subject to
the clearing requirement. The
Commission would provide notice to
the public regarding a stay of the
clearing requirement that is generally
applicable.
Pursuant to Exchange Act Section 3C,
in undertaking its review of the clearing
requirement subsequent to granting a
stay, the Commission would consider
the clearing agency’s clearing of the
security-based swap (or group, category,
type of class of security-based swaps)
for consistency with the determination
criteria under Exchange Act Section
3C(b)(4).74 The Commission also may
72 See Public Law 111–203, section 763(a) (adding
Exchange Act Section 3C(c)(4)).
73 Proposed Rule 3Ca–1(b).
74 See Public Law 111–203, section 763(a) (adding
Exchange Act Section 3C(c)(3)(A)).
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take into consideration the clearing
agency’s rules for open access as related
to the security-based swap (or group,
category, type or class of security-based
swaps) subject to review.75 The
Commission may determine that it
requires additional information in the
possession of the clearing agency (as
distinguished from the information it
received from the counterparty).
Accordingly, proposed Rule 3Ca–1
requires the application for the stay to
identify the clearing agency that is
clearing the security-based swap 76 and
also requires that any clearing agency
that has accepted for clearing the
security-based swap, or any group,
category, type or class of security-based
swaps, subject to the stay, provide
information requested by the
Commission in the course of its review
during the stay.77 Exchange Act Section
3C also requires the Commission to
complete such clearing review not later
than 90 days after issuance of the stay,
unless the clearing agency that clears
the security-based swap agrees to an
extension of the time limit.78
Proposed Rule 3Ca–1 provides that,
upon completion of its review, the
Commission may determine
unconditionally, or subject to such
terms and conditions as the Commission
determines to be appropriate in the
public interest, that the security-based
swap (or group, category, type or class
of security-based swaps) must be
cleared.79 Alternatively, the
Commission may determine that the
clearing requirement does not apply to
the security-based swap (or group,
category, type or class of security-based
swaps).80 If the Commission were to
make a determination that the clearing
requirement does not apply to a
security-based swap (or group, category,
type or class of security-based swaps),
the proposed rule makes clear that
clearing may continue on a nonmandatory basis.81 As previously noted,
moving security-based swaps into
clearing in a gradual manner through
non-mandatory clearing may in certain
circumstances be appropriate. For
example, a premature determination
that a product is subject to mandatory
clearing may, in certain circumstances,
75 See Public Law 111–203, section 763(a) (adding
Exchange Act Section 3C(a)(2)).
76 Proposed Rule 3Ca–1(b)(3).
77 Proposed Rule 3Ca–1(d).
78 See Public Law 111–203, section 763(a) (adding
Exchange Act Section 3C(c)(2)).
79 Proposed Rule 3Ca–1(e)(1) and Public Law
111–203, section 763(a) (adding Exchange Act
Section 3C(c)(3)(A)).
80 Proposed Rule 3Ca–1(e)(2) and Public Law
111–203, section 763(a) (adding Exchange Act
Section 3C(c)(3)(B)).
81 See proposed Rule 3Ca–1(e)(2).
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limit the ability of certain market
participants to utilize that product
(including for risk management
purposes) which in turn could
ultimately result in less clearing and
more limited use of the product than
might otherwise have been the case if it
had been permitted to trade without
being subject to a mandatory clearing
requirement for a longer period of time.
hsrobinson on DSK69SOYB1PROD with PROPOSALS2
Request for Comments
The Commission generally requests
comments on all aspects of proposed
Rule 3Ca–1. In addition, the
Commission requests comments on the
following specific issues:
• Does the proposal provide sufficient
guidance regarding the process for a
stay? Are there any alternative
approaches the Commission should
consider?
• Should the Commission require a
counterparty applying for a stay to
provide information that is broader or in
addition to the information the
Commission has proposed? If so, what
information should be added to the
requirement?
• Should the informational
requirement imposed on a counterparty
applying for a stay be narrower than that
which the Commission has proposed? If
so, what information should be
eliminated from the requirement?
• Are there any terms or conditions
that the Commission should generally
consider imposing as part of a stay?
• Under what circumstances would it
be reasonable for the Commission to
determine that clearing is not required
after making an initial determination
that clearing is required?
• Should a Commission
determination to allow clearing of a
securities-based swap on a nonmandatory basis be subject to ongoing
review or limited by a certain
timeframe? What type of timeframe may
be appropriate?
C. Title VIII Notice Filing Requirements
for Designated Clearing Agencies
The Commission is proposing to add
a new paragraph (n) to Rule 19b–4 to
implement the filing requirement in
Section 806(e). New paragraph (n)
would require that an Advance Notice
be submitted to the Commission
electronically on Form 19b–4. In
addition, new paragraph (n) would
define when a proposed change to a
clearing agency’s rules, procedures or
operations could materially affect the
nature or level of risks presented by the
designated financial market utility. This
definition would determine when an
Advance Notice under Section 806(e)
must be filed with the Commission. The
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Commission also is proposing
corresponding amendments to Form
19b–4 as discussed in more detail in
Section II.D.
As with Security-Based Swap
Submissions filed pursuant to Exchange
Act Section 3C, the Commission
anticipates that in many cases a
proposed change may be required to be
filed as an Advance Notice under
Section 806(e) and as a proposed rule
change under Exchange Act Section
19(b).82 This is because a proposal that
qualifies as a proposed change to a rule,
procedure or operation that materially
affects the nature or level of risk
presented by the designated clearing
agency under Section 806(e) may also
qualify as a proposed rule change under
Exchange Act Section 19(b). As a result,
a designated clearing agency may be
required to file a proposal as an
Advance Notice and as a proposed rule
change. Designated clearing agencies, as
SROs, will already be required to file
proposed rule changes on Form 19b–4
using EFFS.83 Accordingly, and similar
to the proposal for Security-Based Swap
Submissions, the Commission is
proposing to require clearing agencies to
use the existing filing system, EFFS, and
Form 19b–4 for the filing of Advance
Notices under Section 806(e). This
would allow designated clearing
agencies to comply with the notice
requirement in Section 806(e) using the
same system they use for submitting
proposed rule changes under Exchange
Act Section 19(b) and, as applicable,
Security-Based Swap Submissions
under Exchange Act Section 3C.
Leveraging the existing filing system,
EFFS, for the submission of Advance
Notices is intended to utilize efficiently
Commission and designated clearing
agency resources.
1. Standards for Determining When
Advance Notice Is Required
Section 806(e)(1)(A) requires a
designated financial market utility to
provide 60 days advance notice to its
82 If the proposed change is related to clearing a
type, group, class, or category of security-based
swap, it may also be required to be filed as a
Security-Based Swap Submission under Exchange
Act Section 3C.
83 As discussed below in Section I.F., the
processes under Exchange Act Section 19(b) and
Section 806(e) may not always overlap. For
example, certain changes to the operations of a
designated clearing agency may not require a rule
filing under Exchange Act Section 19(b), which
does not specifically apply to changes in
operations. Such changes may, however, trigger a
requirement to file an Advance Notice if they would
materially affect the nature or level of risks
presented by the designated clearing agency.
Nevertheless, the two processes are sufficiently
similar as to warrant using the same method for
filing.
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Supervisory Agency of any proposed
change to its rules, procedures or
operations that could materially affect
the nature or level of risks presented by
the designated financial market
utility.84 The Commission is proposing
that for purposes of this requirement,
the phrase ‘‘materially affect the nature
or level of risks presented’’ 85 would be
defined to mean the existence of a
reasonable possibility that the change
could affect the performance of essential
clearing and settlement functions or the
overall nature or level of risk presented
by the designated clearing agency.86 The
proposed definition is designed to
include all changes that would affect the
risk management functions performed
by the clearing agency that are related
to systemic risk, as well as changes that
could affect the clearing agency’s ability
to continue to perform its core clearance
and settlement functions.87
In order to help designated clearing
agencies determine whether an Advance
Notice is required, the Commission is
proposing to include in the rule a list of
categories of changes to rules,
procedures or operations that the
Commission preliminarily believes
could materially affect the nature or
level of risks presented by a designated
clearing agency. The proposed list of
such changes may include, but are not
limited to, changes that materially affect
participant and product eligibility, daily
or intraday settlement procedures,
default procedures, system safeguards,
governance or financial resources of the
designated clearing agency, or otherwise
generally affect risk management
processes or capabilities.88 The
Commission preliminarily believes that
changes in these areas pertain to core
functions of a clearing agency and, as a
result, may affect the ability of a
designated clearing agency to manage its
risks appropriately and to continue to
conduct systemically important
clearance and settlement services. For
example, participant and product
eligibility requirements of a designated
clearing agency are designed to ensure
that the clearing agency’s members have
sufficient financial resources and
operational capacity to meet obligations
arising from participation in the clearing
agency, and to ensure that the products
cleared by the clearing agency are
84 12
U.S.C. 5465(e)(1)(A).
85 Id.
86 Proposed
Rule 19b–4(n)(2)(i).
clearance and settlement functions may
include, but are not limited to, the processing,
comparison, netting, or guaranteeing of securities
transactions as well as any processes or procedures,
such as internal risk management controls, that
support these functions.
88 Proposed Rule 19b–4(n)(2)(ii).
87 Core
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sufficiently liquid and adequate pricing
data is available. In addition, a
designated clearing agency’s default
procedures exist to ensure that, should
a default occur, the clearing agency has
the financial resources, liquidity and
operational abilities to continue to make
payments to non-defaulting participants
on time. Additional examples of the
types of matters that would fall within
the categories listed above include
changes to the methods for making
margin calculations, liquidity
arrangements and significant new
services of the clearing agency.
Moreover, while a broad
interpretation of the materiality
threshold is consistent with the
underlying principles of Title VIII and
desirable to permit a review of all
matters that impact the risks presented
by clearing agencies, not every change
to a designated clearing agency’s rules,
procedures or operations will be
material. Accordingly, the Commission
has included two broad categories of
examples in the proposed rule of
changes to rules, procedures or
operations that the Commission
preliminarily believes would not
materially affect the nature or level or
risks presented by a designated clearing
agency and therefore, would not require
the filing of an Advance Notice. The
first category includes, but is not limited
to, changes to an existing procedure,
control, or service that do not modify
the rights or obligations of the
designated financial market utility or
persons using its payment, clearing, or
settlement services and that do not
adversely affect the safeguarding of
securities, collateral, or funds in the
custody or control of the designated
financial market utility or for which it
is responsible. The second category
includes, but is not limited to, changes
concerned solely with the
administration of the designated
clearing agency or related to the routine,
daily administration, direction and
control of employees.89
The Commission preliminarily
believes that the proposed definition of
‘‘materially affect the nature or level of
risks presented’’ provides sufficient
information for designated clearing
agencies to know when advance notice
under Section 806(e) is required while
allowing flexibility to capture all
relevant proposed changes as specific
circumstances warrant. However, as this
would be a new requirement, the
Commission expects that designated
clearing agencies may discuss, at least
initially, proposed changes with
Commission staff prior to determining if
89 Proposed
Rule 19b–4(n)(2)(iii).
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advance notice under Section 806(e) is
required to be filed with respect to a
proposed change to the clearing
agency’s rules, procedures or
operations.
2. Providing Notice of the Matters
Included in an Advance Notice to the
Board and Interested Persons
Given the role of clearing agencies in
supporting financial markets, the
Commission recognizes that members of
the public may have an interest in
proposed changes to the rules,
procedures or operations of systemically
important clearing agencies.
Accordingly, new paragraph (n) of Rule
19b–4 would provide that, upon the
filing of any Advance Notice by a
designated clearing agency, the
Commission would publish notice
thereof in the Federal Register, together
with the terms of the substance of the
proposed change to the rules,
procedures, or operations of the
designated clearing agency and a
description of the subjects and issues
involved.90 This requirement is
consistent with the existing procedures
for proposed rule changes under
Exchange Act Section 19(b) and the
proposed procedures for Security-Based
Swap Submissions under Exchange Act
Section 3C. In addition, the Commission
is proposing that designated clearing
agencies post Advance Notices and any
amendments thereto on their Web sites
within two business days of filing the
notice or amendments in order to ensure
that interested parties have timely and
transparent access to the matters
discussed therein, particularly in
circumstances where a proposed change
is not required to be filed under
Exchange Act Section 19(b) and, as a
result, would not otherwise be
published for comment.91 Consistent
with the use and proposed use of Form
19b–4, the purpose of this proposed rule
would be to allow the Commission to
give interested persons an opportunity
to review and to submit written data,
views and arguments concerning the
matters referred to in the Advance
Notice.92 Comments and other
information received would be
considered by the Commission in
determining whether to object to an
Advance Notice.
Section 806(e)(3) requires that the
Commission provide the Board with a
90 Proposed
Rule 19b–4(n)(1).
Rule 19b–4(n)(3).
92 Under the Commission’s current practice with
respect to Exchange Act Section 19(b), proposed
rule changes are generally published with a twentyone day comment period. The Commission expects
that Advance Notices will be published for the
same comment period.
91 Proposed
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complete copy of any information it
receives in connection with the
Advance Notice.93 To satisfy this
requirement, new paragraph (n) would
require a designated clearing agency to
provide to the Board copies of all
materials submitted to the Commission
relating to an Advance Notice
contemporaneously with such
submission to the Commission.94 Such
copies would be provided to the Board
in triplicate and in hard copy format,
pursuant to proposed changes to the
instructions of Form 19b–4.
The Commission also is proposing
that a designated clearing agency be
required to post a notice on its Web site
that the proposed change described in
an Advance Notice has been permitted
to take effect within two business days
of such date as determined in
accordance with the timeframe set forth
in Section 806(e).95 The purpose of this
proposed rule is to provide a means for
public notice when a proposed change
under Title VIII is permitted to become
effective, since the Commission will not
affirmatively approve an Advance
Notice under Section 806(e)—i.e., it will
not issue a public order granting
approval as it does with proposed rule
changes under Exchange Act Section
19(b). As a result, there will not be a
Commission action to indicate when an
Advance Notice has been permitted to
take effect. Moreover, the designated
clearing agency also would be required
to post notice on its Web site of the time
at which the proposed change becomes
effective if that date is different from the
date on which the proposed change is
permitted to become effective. To be
consistent with the notice requirements
applicable to proposed rule changes
under Exchange Act Section 19(b) and
to give interested parties timely notice
of the change, this notice would be
required to be posted within two
business days of the effective date.96
Once the notice of the effectiveness of
the proposed change has been posted,
the designated clearing agency would be
permitted to remove its original posting
of the Advance Notice and any
amendments thereto from its Web site.
A designated clearing agency also could
remove the Advance Notice from its
Web site if it withdrew the notice or if
it was notified that such notice was not
properly filed.97
93 12 U.S.C. 5465(e)(3). In addition, the
Commission is required to provide the Board with
any information it issues or submits in connection
therewith.
94 Proposed Rule 19b–4(n)(5).
95 Proposed Rule 19b–4(n)(4)(i).
96 Proposed Rule 19b–4(n)(4)(ii).
97 Proposed Rule 19b–4(n)(3).
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3. Timing and Determination of
Advance Notices Pursuant to Section
806(e)
Section 806(e) does not require the
Commission to approve affirmatively a
proposed change referred to in the
Advance Notice; however, Section
806(e) requires that the Commission
notify the designated clearing agency of
any objection to the proposed change.
Section 806(e)(1)(E) provides that an
objection must be made within 60 days
of the Commission’s receipt of the
Advance Notice, unless the Commission
requests additional information in
consideration of the notice, in which
case the 60-day period will recommence
on the date such information is received
by the Commission.98 Additionally,
pursuant to Section 806(e)(1)(H), the
Commission may extend the review
period for an additional 60 days for
proposed changes that raise novel or
complex issues, subject to the
Commission providing the designated
clearing agency with prompt written
notice of the extension.99 Finally,
Section 806(e)(4) requires that the
Commission consult with the Board
before taking any action on, or
completing its review of, the change
referred to in the Advance Notice.100
The timeframes set forth in Section
806(e) determine when a proposed
change to a designated clearing agency’s
rules, procedures or operations will
become effective, and the Commission
is not proposing any rules related to
these timeframes.
4. Implementation of Proposed Changes
and Emergency Changes Pursuant to
Section 806(e)
Section 806(e)(1)(F) provides
generally that a designated clearing
agency may not implement a proposed
change filed as an Advance Notice if the
Commission notifies it of an objection
during the applicable review period.101
Section 806(e), however, provides two
exceptions to this prohibition. First,
Section 806(e)(1)(I) permits the
designated clearing agency to
implement a change before the 60-day
review period (or such longer period as
extended in accordance with the statute)
expires if the Commission notifies the
designated clearing agency in writing
that it does not object to the proposed
change to the designated clearing
agency’s rules, procedures or operations
and authorizes the designated clearing
agency to implement the change on an
earlier date, subject to any conditions
98 12
U.S.C. 5465(e)(1)(E).
U.S.C. 5465(e)(1)(H).
100 12 U.S.C. 5465(e)(4).
101 12 U.S.C. 5465(e)(1)(F).
99 12
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imposed by the Commission.102 As
noted above, however, before taking any
action on, or completing its review of,
a change proposed by a designated
clearing agency in an Advance Notice,
the Commission is required to consult
with the Board.103
Second, Section 806(e)(2) allows a
designated clearing agency to
implement a change that would
otherwise require providing an Advance
Notice if it determines that (i) an
emergency exists and (ii) immediate
implementation of the change is
necessary for the designated clearing
agency to continue to provide its
services in a safe and sound manner.104
If a designated clearing agency
determines to implement an emergency
change, it must provide notice to the
Commission as soon as practicable, and
in no event later than 24 hours after
implementation of the relevant
change.105 Such emergency notice must
contain all of the information otherwise
required to be in an Advance Notice as
well as a description of (i) the nature of
the emergency and (ii) the reason the
change was necessary in order for the
designated clearing agency to continue
to provide its services in a safe and
sound manner.106 In reviewing the
emergency notice, the Commission may
require modification or rescission of the
relevant change if it determines that the
change is not consistent with the
purposes of Title VIII, including all
applicable rules, orders, or the risk
management standards prescribed under
Section 805(a) of Title VIII.107 The
procedures for implementing a
proposed change to a designated
clearing agency’s rules, procedures or
operations before the expiration of the
standard review period or on an
emergency basis are set forth in Section
806(e). The Commission is not
proposing any rules related to these
implementation procedures.
Request for Comments
The Commission generally requests
comments on all aspects of the proposed
amendments to Rule 19b–4 to
incorporate the process for designated
clearing agencies to file Advance
Notices with the Commission pursuant
102 12
U.S.C. 5465(e)(1)(I).
U.S.C. 5465(e)(4).
104 12 U.S.C. 5465(e)(2)(A).
105 12 U.S.C. 5465(e)(2)(B).
106 12 U.S.C. 5465(e)(2)(C).
107 12 U.S.C. 5465(e)(2)(D). Pursuant to Section
806(e)(3), the Commission is required to provide the
Board concurrently with a complete copy of any
notice, request or other information it receives.
However, the Commission is proposing that the
designated clearing agency file copies of any such
notice, requests or other information with the Board
in order to help meet this requirement.
103 12
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82503
to Section 806(e). In addition, the
Commission requests comments on the
following specific issues:
• Do the proposed rules sufficiently
define and describe when advance
notice of proposed changes to rules,
procedures or operations are required to
be filed by designated financial market
utilities in accordance with Section
806(e)?
• Is the proposed definition for the
term ‘‘materially affect the nature or
level of risks presented’’ by a designated
clearing agency broad enough to capture
all types of changes that could
materially affect the nature or level of
risks presented by a designated clearing
agency? Alternatively, should the
definition include a greater degree of
specificity regarding the proposed
changes that must be filed as Advance
Notices with the Commission?
• Should additional examples be
provided regarding the categories of
changes that may materially affect the
nature or level of risks presented by a
designated clearing agency and, as a
result, would be required to be filed
with the Commission under Section
806(e)? Should additional examples be
provided regarding the categories of
changes that may not materially affect
the nature or level of risks presented by
a designated clearing agency and, as a
result, would not be required to be filed
with the Commission under Section
806(e)? If so, what additional examples
should be provided?
• Should the Commission utilize the
proposed rule change filing system
under Rule 19b–4 for Advance Notices
required to be filed by designated
clearing agencies under Section 806(e)?
Do commenters have suggestions for
other methods of filing Advance Notices
with the Commission?
• Should the Commission specify any
additional requirements to those already
in Section 806(e) with respect to
Advance Notices implemented on an
emergency basis? If so, please specify
such requirements. Is the proposed
rule’s requirement for proposed changes
implemented on an emergency basis too
onerous? If so, please specify changes
that should be made.
• Is there any specific additional
information that should be included in
the Advance Notice filing requirement
regarding the nature or level of risks
presented by the designated clearing
agency?
D. Amendments to Form 19b–4
In conjunction with the proposed
Rule 19b–4 amendments, the
Commission is proposing to amend
Form 19b–4 to include Security-Based
Swap Submissions and Advance
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Notices. Specifically, the Commission is
proposing to amend the cover page of
Form 19b–4 to add additional
checkboxes so that a clearing agency
may indicate that the filing is being
submitted as a Security-Based Swap
Submission or an Advance Notice (in
the case of a designated clearing agency)
as well as a proposed rule change under
Exchange Act Section 19(b). A clearing
agency would be able to select more
than one filing type, check the
appropriate box or boxes to indicate the
filing type and submit all related
information as a single filing. In other
words, in cases where a proposed
change must be filed pursuant to more
than one filing requirement, the clearing
agency would be able to meet all
applicable filing requirements by
submitting a single Form 19b–4
electronically on the existing filing
system, EFFS, to the Commission.
The Commission also is proposing to
amend the General Instructions for
Form 19b–4 regarding the filing
requirements for Security-Based Swap
Submissions and Advance Notices. The
Commission is proposing to amend the
instructions to include specific
information that is required to be filed
as part of a Security-Based Swap
Submission or an Advance Notice.
With respect to Security-Based Swap
Submissions, the proposed amendments
to the Form 19b–4 General Instructions
would require clearing agencies to
include a statement that includes, but is
not limited to: (i) How the submission
is consistent with Exchange Act Section
17A; (ii) information that will assist the
Commission in the quantitative and
qualitative assessment of the factors
specified in Exchange Act Section 3C;
and (iii) how the rules of the clearing
agency meet the criteria for open access.
Additionally, in order to facilitate the
Commission’s review of a SecurityBased Swap Submission, the proposed
instructions provide examples of the
types of information the clearing agency
should provide relating to product
specifications; pricing sources, models
and procedures; risk management
procedures; measures of market
liquidity and trading activity; credit
support; the effect of a clearing
requirement on the market for the swap;
applicable rules, policies, or procedures;
terms and trading conventions on which
the swap is currently traded; and
financial and operational capacity.
With respect to Advance Notices, the
proposed amendments to the Form 19b–
4 General Instructions would require the
designated clearing agency to provide a
description of the nature of the
proposed change and the expected
effects on risks to the designated
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clearing agency, its participants, or the
market and it must provide a
description of how the designated
clearing agency will manage any
identified risks. A designated clearing
agency also would be instructed to
provide any additional information
requested by the Commission necessary
to assess the effect the proposed change
would have on the nature or level of
risks associated with the designated
clearing agency’s payment, clearing or
settlement activities and the sufficiency
of any proposed risk management
techniques.
The Commission is proposing to
provide a new Exhibit 1A to the General
Instructions for the Federal Register
notice template used by clearing
agencies as an exhibit to the Form 19b–
4 filing. New Exhibit 1A would be used
only by clearing agencies. All other
SROs would continue to use the current
Exhibit 1 to prepare the Federal
Register notice for proposed rule
changes. The Commission is proposing
a separate exhibit for clearing agencies
because the proposed rule to require
notice of Security-Based Swap
Submissions and Advance Notices to be
published in the Federal Register would
apply only to clearing agencies.
Instructions on preparing a Federal
Register notice for Security-Based Swap
Submissions and Advance Notices
would be unnecessary for all other
SROs. In order to avoid any confusion,
the Commission is proposing to provide
clearing agencies with Exhibit 1A to use
to prepare a Federal Register notice for
a proposed rule change, Security-Based
Swap Submission, or Advance Notice,
or any combination of the three. The
proposed amendments to the General
Instructions for Form 19b–4 also would
incorporate the statutory timeframes
and other procedural requirements that
are in Exchange Act Section 3C and
Section 806(e).
Moreover, pursuant to existing Rule
19b–4(j), SROs are required to sign Form
19b–4 electronically in connection with
filing a proposed rule change and to
retain a copy of the signature page in
accordance with Rule 17a–1. Under the
proposed rules, Rule 19b–4(j) would be
modified such that it would apply also
to Security-Based Swap Submissions
filed in accordance with Exchange Act
Section 3C and Advance Notices filed in
accordance with Section 806(e).
In addition, the proposed changes to
the General Instructions for Form 19b–
4 would reflect the new deadlines by
which the Commission must publish
and act upon proposed rule changes
submitted by SROs and the new
standards for approval, disapproval or
suspension of proposed rule changes
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pursuant to the amendments to
Exchange Act Section 19(b) contained in
Section 916 of the Dodd-Frank Act. The
Commission is proposing a number of
technical and clarifying amendments to
Rule 19b–4 and Form 19b–4 to make the
instructions consistent with the new
requirements in Section 916 of the
Dodd-Frank Act and with current
practices of SRO filers.108
Section 916 of the Dodd-Frank Act
also modified Exchange Act Section
19(b)(3)(A), which permits certain types
of proposed rule changes to take effect
immediately upon filing with the
Commission and without the notice and
approval procedures required by
Exchange Act Section 19(b)(2), to make
clear that any rule establishing or
changing a fee, due or other charge
imposed by the SRO qualifies for this
designation, regardless of whether the
fee, due or other charge is applicable
only to a member.109 The General
Instructions for Form 19b–4 have been
modified to reflect this clarification.
The Commission requests comment
on all aspects of the proposed
amendments to Form 19b–4. In
addition, the Commission requests
comments on the following specific
issues:
• Do the proposed amendments to
Form 19b–4 adequately capture the
filing requirements in Exchange Act
Section 3C and Section 806(e) while
allowing clearing agencies to meet the
requirements for filing notice of
proposed rule changes under Exchange
Act Section 19(b)? If not, why not?
• Would additional changes to Rule
19b–4 or Form 19b–4 be useful in order
to accommodate the filing of Advance
Notices under Section 806(e)? If so,
what specific changes should the
Commission consider?
E. Amendments to Rule 19b–4 Relating
to Section 916 of the Dodd-Frank Act
Under Exchange Act Section
19(b)(2)(E),110 as amended by the DoddFrank Act, the Commission is required
to send the SRO notice to the Federal
Register for publication thereof within
15 days of the date on which the SRO’s
Web site publication is made. The
Commission is proposing to amend Rule
19b–4 to provide that if a SRO does not
post a proposed rule change on its Web
site on the same day that it files the
proposal with the Commission, then the
SRO shall inform the Commission of the
date on which it posted such proposal
on its Web site. The purpose of this
108 See proposed amendments to the General
Instructions for Form 19b–4.
109 15 U.S.C. 78s(b)(3)(A).
110 15 U.S.C. 78s(b)(2)(E).
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change is to advise the Commission of
the date the SRO posted the proposed
rule change filing to its Web site, as
such posting initiates the timing for the
requirement of the Commission to send
notice of the proposed rule change to
the Federal Register.
The Commission requests comment
on all aspects of the proposed
amendments to Rule 19b–4 relating to
Section 916 of the Dodd-Frank Act. In
addition, the Commission requests
comments on the following specific
issues:
• Should the Commission specify the
manner and form by which the SRO
should inform the Commission of the
date on which it posted the proposed
rule change on its Web site? If so, what
manner and form should the
notification take?
hsrobinson on DSK69SOYB1PROD with PROPOSALS2
F. New Requirements Under Exchange
Act Section 3C and Section 806(e) and
the Existing Filing Requirement in
Exchange Act Section 19(b)
The proposed amendments to Rule
19b–4 and Form 19b–4 incorporate two
new requirements under the DoddFrank Act that are similar to the existing
filing requirement for proposed rule
changes under Exchange Act Section
19(b). The first is the requirement to file
Security-Based Swap Submissions
under new Exchange Act Section 3C.
The second is the requirement to file
Advance Notices under new Section
806(e). As discussed previously, the
Commission anticipates that in many
cases a clearing agency may take an
action that would trigger more than one
of these filing requirements 111 and it
seeks to streamline the filing processes
for Exchange Act Section 3C, Section
806(e) and Exchange Act Section 19(b)
by proposing that all such filings be
made electronically on Form 19b–4.
The amendments to Rule 19b–4 and
to Form 19b–4 are being proposed to
111 Title VII contains a clause, which provides in
pertinent part, that ‘‘[u]nless otherwise provided by
its terms, [Subtitle B] does not divest * * * the
Securities and Exchange Commission * * * of any
authority derived from any other provision of
applicable law.’’ See Section 771 of the Dodd-Frank
Act. Similarly, Section 811 of the Dodd-Frank Act
provides that ‘‘[u]nless otherwise provided by its
terms, this title does not divest any appropriate
financial regulator, any Supervisory Agency, or any
other Federal or State agency, of any authority
derived from any other applicable law, except that
any [risk management] standards prescribed by the
[Board] under section 805 shall supersede any less
stringent requirements established under other
authority to the extent of any conflict.’’ Accordingly
the new requirements under Titles VII and VIII do
not supersede the existing requirements under the
Exchange Act that would require clearing agencies
(which are all SROs) to file a proposed rule change
when the change proposed in a Security-Based
Swap Submission or Advance Notice also meets the
criteria for a proposed rule change.
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avoid duplicative filings and to
streamline the process and burden on
clearing agencies and the Commission.
However, the filing requirements of
Exchange Act Section 3C, Section 806(e)
and Exchange Act Section 19(b) are
distinct from each other and subject to
different statutory standards for
Commission review. As a result, a
clearing agency that files a proposal
pursuant to more than one of these
sections must meet the requirements of
each applicable regulatory scheme
before the applicable change may
become effective.
Accordingly, it is likely that many
proposals made by clearing agencies
may be filed and require review under
more than one of the three Commission
review procedures discussed herein. For
example, a designated clearing agency
may be required to submit an Advance
Notice in connection with its SecurityBased Swap Submission if the
requirement to clear the security-based
swap described in the submission
would materially affect the nature or
level of risks presented by the
designated clearing agency. Moreover, if
the designated clearing agency did not
have existing authority under its rules to
clear the relevant security-based swap,
such action likely also would require a
proposed rule change filing under
Exchange Act Section 19(b).
In other cases, only one of the three
Commission-review procedures may
apply because the scope of proposals
requiring review under each of Section
806(e) and Exchange Act Section 3C is
in some ways broader and in other ways
narrower in comparison to Exchange
Act Section 19(b). There is, for example,
the potential that certain changes to the
operations of a designated clearing
agency may not require a proposed rule
change filing under Exchange Act
Section 19(b) or a Security-Based Swap
Submission under Exchange Act Section
3C, but may trigger a requirement to file
an Advance Notice under Section
806(e). By contrast, because the notice
requirement under Section 806(e)
applies only to matters that materially
affect the nature or level of risk
presented by a designated clearing
agency, it is also possible that a rule
change filing would be required under
Exchange Act Section 19(b) but not
trigger the advance notice requirement
under Section 806(e).
When a clearing agency submits a
filing for more than one purpose (i.e.,
proposed rule change, Security-Based
Swap Submission and/or Advance
Notice), the Commission will endeavor
to evaluate such filings in tandem as
part of a parallel process. Although the
timing for review under each of
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82505
Exchange Act Section 3C, Section 806(e)
and Exchange Act Section 19(b) is
different,112 all three processes contain
some degree of flexibility, and the
Commission will attempt to streamline
the review processes to avoid any
unnecessary delays or duplicative
requests for information.
However, each of the three processes
would remain distinct from the other
processes. Each proposed rule change
filing, Security-Based Swap Submission
and Advance Notice would be reviewed
and evaluated independently by the
Commission in accordance with the
applicable statute and regulatory
authority. Moreover, the proposed
imposition of new requirements to file
Advance Notices with the Commission
and to make Security-Based Swap
Submissions would not replace
Exchange Act Section 19(b) notice
process provision, nor will a filing made
under one of the two new requirements
eliminate the need to satisfy the
requirements of the other process to the
extent they are applicable. The
Commission review required by
Exchange Act Section 3C is different
from the review required under Section
806(e), which in turn is different from
the review required under Exchange Act
Section 19(b).
Section 806(e) requires an analysis of
the risk management issues that may
impact the clearing agency, its
participants, or the market. Exchange
Act Section 19(b), by contrast, requires
a broader evaluation and an analysis as
to whether the proposed rule change
meets the requirements of the Exchange
Act and the rules thereunder. Finally,
Exchange Act Section 3C only applies
when a clearing agency plans to accept
for clearing a security-based swap (or a
group, category, type or class of
security-based swaps), and the standard
112 Assuming the Commission utilizes its
maximum allotment of time under Exchange Act
Section 19(b)(2), including with respect to any
extensions of time requiring the consent of the SRO,
the Commission must either approve, disapprove or
institute proceedings with respect to a proposed
rule change filing within approximately 105 days
after receipt. See Public Law 111–203, section 916
(amending Exchange Act Section 19(b)(2)). 15
U.S.C. 78s(b)(2). Similarly, the Commission must
make its determination on a Security-Based Swap
Submission within 90 days after receipt, unless the
clearing agency agrees to an extension of this time
limitation. See Public Law 111–203, section 763(a)
(adding Exchange Act Section 3C(b)(3)). The
Commission is not required to approve
affirmatively a proposed change filed as an
Advance Notice under Section 806(e), but it must
notify the designated clearing agency of any
objection to the proposed change within 60 days
after receiving the notice filing, unless the
Commission requests additional information in
consideration of the notice, in which case the 60day period will recommence on the date such
information is received by the Commission. 12
U.S.C. 5465(e)(1)(G).
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III. General Request for Comment
The Commission seeks comment
generally on all aspects of the proposed
amendments to Rule 19b–4 and Form
19b–4 and proposed Rules 3Ca–1 and
3Ca–2. Commenters are encouraged to
provide empirical data or economic
studies to support their views and
arguments related to the proposed rules.
In addition to the questions above,
commenters are welcome to offer their
views on any other matter raised by the
proposed rules. With respect to any
comments, we note that they are of
greatest assistance to the Commission if
accompanied by supporting data and
analysis of the issues addressed in those
comments and if accompanied by
alternative suggestions to our proposal
where appropriate.
In addition, Title VII requires that the
Commission consult and coordinate to
the extent possible with the CFTC for
the purposes of assuring regulatory
consistency and comparability, to the
extent possible,114 and states that in
adopting rules, the CFTC and
Commission shall treat functionally or
economically similar products or
entities in a similar manner.115
The CFTC is required to adopt rules
related to the process for review of
swaps for mandatory clearing as
required under Section 723 of the DoddFrank Act.116 Understanding that the
Commission and the CFTC regulate
different products and markets, and as
such, appropriately may be proposing
alternative regulatory requirements, we
request comments on the impact of any
differences between the Commission
and CFTC approaches to the process for
submissions for review of security-based
swaps and swaps for mandatory
clearing. Specifically, do the regulatory
approaches under the Commission’s
proposed rulemaking pursuant to
Exchange Act Section 3C and the
CFTC’s proposed rulemaking pursuant
to Section 723 of the Dodd-Frank Act
result in duplicative or inconsistent
efforts on the part of market participants
subject to both regulatory regimes or
result in gaps between those regimes? If
so, in what ways do commenters believe
that such duplication, inconsistencies,
or gaps should be minimized? Do
commenters believe the approaches
proposed by the Commission and the
CFTC to regulate the process for review
of security-based swaps and swaps for
mandatory clearing are comparable? If
not, why not? Do commenters believe
there are approaches that would make
the regulation of the process for review
of security-based swaps for mandatory
clearing more comparable? If so, what
are they? Do commenters believe that it
would be appropriate for us to adopt an
approach proposed by the CFTC that
differs from our proposal? Is so, which
one? We request commenters to provide
data, to the extent possible, supporting
any such suggested approaches.
Similarly, the CFTC is required to
adopt rules related to the process,
pursuant to Section 806(e), by which
any financial market utility designated
by the Council as systemically
important (and for which the CFTC is
the Supervisory Agency) will be
required to provide advance notice to
the CFTC of changes to its rules,
procedures or operations that could
materially affect the nature or level of
risks presented by such financial market
utility.117 The Commission requests
comments on the impact of any
differences between the Commission
and CFTC approaches to the process for
submitting proposed changes to rules,
procedures or operations for review
pursuant to Section 806(e). Specifically,
do the regulatory approaches under the
Commission’s proposed rulemaking and
the CFTC’s proposed rulemaking
113 For example, a rule proposal may provide for
sound risk management practices but have an
anticompetitive aspect that would not satisfy the
requirements of the Exchange Act.
114 Public Law 111–203, section 712(a)(7).
115 Id.
116 See Public Law 111–203, section 723
(amending Section 2 of the Commodity Exchange
Act). See also supra note 55 discussing the CFTC’s
proposed rules pursuant to Section 723 of the
Dodd-Frank Act.
117 75 FR 67282 (November 2, 2010).
hsrobinson on DSK69SOYB1PROD with PROPOSALS2
for review is based on a number of
specified factors, including but not
limited to: (i) How the submission is
consistent with Exchange Act Section
17A and (ii) the factors specified in
Exchange Act Section 3C relating to the
security-based swap, the market for the
security-based swaps, and the clearing
agency.
The Commission preliminarily
believes that these distinct reviews
make it possible for a submission made
on Form 19b–4 to be acceptable under
the standards for review for one of the
three purposes but not under the
others.113 Accordingly, under the
proposal, where a proposed change is
required to be filed pursuant to more
than one filing requirement, the change
would not become effective until
determinations are obtained under each
of the other applicable statutory
provisions. In cases where only the
requirements of one of Exchange Act
Section 19(b), Exchange Act Section 3C
or Section 806(e) are implicated, only
the applicable process would need to be
completed before the proposal could
become effective.
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pursuant to Section 806(e) result in
duplicative or inconsistent efforts on the
part of market participants subject to
both regulatory regimes or result in gaps
between those regimes? If so, in what
ways do commenters believe that such
duplication, inconsistencies, or gaps
should be minimized? Do commenters
believe the approaches proposed by the
Commission and the CFTC with respect
to the process for submitting advance
notice of proposed changes to rules,
procedures or operations for review
pursuant to Section 806(e) are
comparable? If not, why not? Do
commenters believe there are
approaches that would make the
regulation of the process for submitting
for advance review notices of proposed
changes to rules, procedures or
operations pursuant to Section 806(e)
more comparable? If so, what are they?
Do commenters believe that it would be
appropriate for us to adopt an approach
proposed by the CFTC that differs from
our proposal? Is so, which one? We
request commenters to provide data, to
the extent possible, supporting any such
suggested approaches.
IV. Paperwork Reduction Act
Rule 19b–4, Form 19b–4 and Rule
3Ca–1 contain ‘‘collection of information
requirements’’ within the meaning of the
Paperwork Reduction Act of 1995
(‘‘PRA’’).118 Accordingly, the
Commission has submitted the
information to the Office of
Management and Budget (‘‘OMB’’) for
review in accordance with 44 U.S.C.
3507 and 5 CFR 1320.11. The
Commission is proposing to submit the
current collection of information titled
‘‘Rule 19b–4 Filings with Respect to
Proposed Rule Changes by SelfRegulatory Organizations’’ (OMB
Control No. 3235–0045). The
Commission is proposing to submit the
current collection of information titled
‘‘Form 19b–4 under the Securities
Exchange Act of 1934’’ (OMB Control
No. 3235–0045). The Commission also
is proposing to submit a new collection
of information titled ‘‘Rule 3Ca–1 Stay of
Clearing Requirement and Review by
the Commission under the Securities
Exchange Act of 1934’’. An agency may
not conduct or sponsor, and a person is
not required to respond to, a collection
of information unless it displays a
currently valid control number. Any
information submitted to the
Commission will be made publicly
available.
118 44
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hsrobinson on DSK69SOYB1PROD with PROPOSALS2
A. Summary of Collection of
Information
1. Proposed Amendments to Rule 19b–
4 and Form 19b–4
Rule 19b–4 currently requires an SRO
seeking Commission approval for a
proposed rule change to provide the
information stipulated in Form 19b–4.
Form 19b–4 currently requires a
description of the terms of a proposed
rule change, the proposed rule change’s
impact on various market segments and
the relationship between the proposed
rule change and the SRO’s existing
rules. Form 19b–4 also requires an
accurate statement of the authority and
statutory basis for, and purpose of, the
proposed rule change, the proposal’s
impact on competition and a summary
of any written comments received by
the SRO from SRO members. An SRO
also is required to submit Form 19b–4
to the Commission electronically, post a
proposed rule change on its Web site
within two business days of its filing,
and to post and maintain a current and
complete set of its rules on its Web site.
The Commission is proposing to
require two new collections of
information on Form 19b–4 related to
new filing requirements applicable to
clearing agencies under the Dodd-Frank
Act. The proposed amendments would
not otherwise change the collection of
information requirements currently in
Rule 19b–4 and Form 19b–4. These new
reporting requirements are in addition
to the information currently required by
Rule 19b–4 and Form 19b–4.
The proposed rule would require
clearing agencies to file information
with the Commission under Exchange
Act Section 3C and Section 806(e) on
Form 19b–4. Exchange Act Section 3C
requires clearing agencies to submit for
a Commission determination of whether
mandatory clearing applies, any
security-based swap, or any group,
category, type or class of security-based
swaps, that the clearing agency plans to
accept for clearing and provide notice to
its members of such submission. Section
806(e) requires that a clearing agency
designated as systemically important by
the Council file with the Commission
advance notice of proposed changes to
its rules, procedures or operations that
could materially affect the nature or
level of risk presented by the designated
clearing agency.
The Commission anticipates that in
many cases, a clearing agency would be
required to file a proposal under
Exchange Act Section 3C or Section
806(e) when it is already required to file
a proposed rule change under Exchange
Act Section 19(b). Accordingly, clearing
agencies would be able to submit on a
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Form 19b–4, proposals under Exchange
Act Section 3C or Section 806(e) that
they are already required to submit
under Exchange Act Section 19(b). In
some cases, however, a clearing agency
would be required to file a proposal
under Exchange Act Section 3C or
Section 806(e) and not under Exchange
Act Section 19(b), for example where a
proposal materially affects the nature or
level of risks presented by the clearing
agency but does not change the rules of
the clearing agency.
In addition, Exchange Act Section 3C
and Section 806(e) each require
information to be provided as part of the
filing that is in addition to the
information required to be filed with a
proposed rule change under Exchange
Act Section 19(b). A clearing agency
would be required to include as part of
the Security-Based Swap Submission a
statement that includes, but is not
limited to: (i) How the submission is
consistent with Exchange Act Section
17A; (ii) information that will assist the
Commission in the quantitative and
qualitative assessment of the factors
specified in Exchange Act Section 3C;
and (iii) how the rules of the clearing
agency meet the criteria for open access.
Section 806(e) provides that the
Advance Notice include a description of
the nature of the proposed change and
the expected effects on risks to the
designated clearing agency, its
participants, or the market and it must
provide a description of how the
designated clearing agency will manage
any identified risks. A designated
clearing agency also would be required
to provide any additional information
requested by the Commission necessary
to assess the effect the proposed change
would have on the nature or level of
risks associated with the designated
clearing agency’s payment, clearing or
settlement activities and the sufficiency
of any proposed risk management
techniques.
The proposed amendments to Rule
19b–4 also would require a clearing
agency to post certain information on its
Web site, and require a SRO that does
not post a proposed rule change on its
Web site on the same day that it filed
the proposal with the Commission to
inform the Commission of the date on
which it posted such proposal on its
Web site.119 Security-Based Swap
Submissions and Advance Notices, and
any amendments thereto, would be
required to be posted on the clearing
agency’s Web site within two business
days of filing the information with the
Commission. The information generally
shall remain posted on the clearing
119 Proposed
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82507
agency’s Web site until a determination
is made with respect to the SecurityBased Swap Submission or the Advance
Notice becomes effective. A clearing
agency also would be required to post
notice on its Web site of the
effectiveness of any change to its rules,
procedures, or operations referred to in
an Advance Notice within two business
days of the effective date determined in
accordance with Section 806(e).
2. Stay of Clearing Requirement
Proposed Rule 3Ca–1 provides that
the Commission, on application of a
counterparty to a security-based swap,
or on the Commission’s own initiative,
may stay the clearing requirement until
the Commission completes a review of
the terms of the security-based swap (or
group, category, type, or class of
security-based swaps) and the clearing
of the security-based swap (or group,
category, type, or class of security-based
swaps) that the clearing agency has
accepted for clearing. A counterparty to
a security-based swap that applies for a
stay of the clearing requirement for a
security-based swap, or any group,
category, type, or class of security-based
swaps, would be required to submit to
the Commission the information set
forth in proposed Rule 3Ca–1(b).
Any clearing agency that has accepted
for clearing a security-based swap, or
any group, category, type or class of
security-based swaps, that is subject to
the stay of the clearing requirement
would be required to provide
information requested by the
Commission as it determines to be
necessary and appropriate to assess any
of the factors in the course of the
Commission’s review. The Commission
preliminarily believes such information
would likely include updates to the
information the clearing agency
provided in the Security-Based Swap
Submission relating to the securitybased swap then subject to the stay
under review.
B. Proposed Use of Information
1. Proposed Amendments to Rule 19b–
4 and Form 19b–4
The information currently required
under Rule 19b–4 and reported on Form
19b–4 is used by the Commission to
review rule change proposals filed by
SROs pursuant to Exchange Act Section
19(b)(1) 120 and to provide notice of the
proposals to the general public. The
Commission relies upon the information
received in SRO filings, as well as
public comment regarding the
information, in reviewing and reaching
120 15
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decisions about whether to approve a
proposed rule change.
The information to be provided by
clearing agencies pursuant to the
proposed amendments to Rule 19b–4
and Form 19b–4 would be used by the
Commission to evaluate Security-Based
Swap Submissions and Advance
Notices. The Commission would use the
information filed on Form 19b–4 related
to Security-Based Swap Submissions to
determine whether the security-based
swap, or any group, category, type or
class of security-based swaps, described
in the Security-Based Swap Submission
is required to be cleared pursuant to
Exchange Act Section 3C(1).
The Commission would use the
information on Form 19b–4 related to
Advance Notices filed under Section
806(e) to determine the effect on the
nature or level of risks that would be
presented by a designated clearing
agency based on a proposed change to
its rules, procedures or operations, and
the expected effects on risk to the
designated clearing agency, its
participants and the market and to
determine whether the Commission
should make an objection to the
proposed change. In addition, the
information on the form would be
provided to the Board because the
Commission is required to provide
copies of all Advance Notices and any
additional information provided by the
designated clearing agency relating to
the Advance Notice and to consult with
the Board before taking any action on or
completing its review of the Advance
Notice.121 In some instances, the
Commission also may use the
information on the form to determine
whether to allow a proposed change to
take effect in less than 60 days following
the receipt of the Advance Notice and
to determine whether a change made on
an emergency basis is warranted or
whether it should be modified or
rescinded.
The information proposed to be filed
on Form 19b–4 relating to Exchange Act
Section 3C and Section 806(e) also
would be used by participants of the
clearing agency, market participants,
other clearing agencies, or the general
public to comment on the proposal, as
the Commission is proposing to require
that a clearing agency post the
information on its Web site. In addition,
pursuant to Exchange Act Section 3C, a
clearing agency would be required to
provide its members with notice of the
Security-Based Swap Submission. As
with proposed rule changes under
Exchange Act Section 19(b), the
Commission would solicit comment
121 12
U.S.C. 5465(e)(3) and (4).
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from interested parties on proposals
filed under Exchange Act Section 3C
and Section 806(e). Interested parties
could use the information to comment
on the proposed change and to provide
feedback on the development of the
clearing agency’s service offerings and
the rules, procedures and operations of
the clearing agency.
The information collected by the
Commission with respect to the date on
which the SRO posted a proposed rule
change on its Web site (if such posting
date is not the same as the filing date)
would be used to inform the
Commission of the date by which the
Commission must send the SRO notice
to the Federal Register for publication.
2. Stay of Clearing Requirement
The information provided as required
by proposed Rule 3Ca–1 would be used
by the Commission to determine
whether to grant the stay of the clearing
requirement sought by a counterparty
and to review whether the clearing
requirement would continue to apply to
such security-based swap, or any group,
category, type, or class of security-based
swaps.
C. Respondents
1. Proposed Amendments to Rule 19b–
4 and Form 19b–4
There are currently 25 SROs subject to
the collection of information under Rule
19b–4 and Form 19b–4, although that
number may vary owing to the
consolidation of SROs or the
introduction of new entities. In fiscal
year 2009, these SRO respondents filed
1,405 rule change proposals subject to
the current collection of information, of
which 1,071 proposed rule changes
ultimately became effective.
Although Rule 19b–4 and Form 19b–
4 apply to all SROs, the new collection
of information requirements in the
proposed rules would apply to clearing
agencies and, in certain limited
circumstances, to other SROs. The
proposed amendments relating to
Exchange Act Section 3C would apply
to clearing agencies that clear securitybased swaps. Currently, four clearing
agencies are authorized to clear credit
default swaps, which include securitybased swaps,122 pursuant to temporary
122 The Commission authorized five entities to
clear credit default swaps. See Securities Exchange
Act Release Nos. 60372 (July 23, 2009), 74 FR 37748
(July 29, 2009) and 61973 (April 23, 2010), 75 FR
22656 (April 29, 2010) (CDS clearing by ICE Clear
Europe Limited); 60373 (July 23, 2009), 74 FR
37740 (July 29, 2009) and 61975 (April 23, 2010),
75 FR 22641 (April 29, 2010) (CDS clearing by
Eurex Clearing AG); 59578 (March 13, 2009), 74 FR
11781 (March 19, 2009), 61164 (December 14,
2009), 74 FR 67258 (December 18, 2009) and 61803
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conditional exemptions under Exchange
Act Section 36.123 The obligation to
centrally clear security-based swap
transactions is a new requirement under
Title VII, and it is anticipated that
clearing agencies operating under
temporary conditional exemptions will
register or will become registered
security-based swap clearing
agencies.124 Based on the fact that there
are currently four clearing agencies
authorized to clear security-based swaps
and that there could conceivably be a
few more in the foreseeable future,125
the Commission preliminarily estimates
that four to six clearing agencies may
plan to centrally clear security-based
swaps and be subject to the information
collection requirements in the proposed
rules relating to Exchange Act Section
3C. The Commission is using the higher
estimate (six) for the PRA analysis.
The amendments to Rule 19b–4 and
Form 19b–4 relating to the Section
806(e) advance notice requirement of
changes to rules, procedures or
operations would only apply to clearing
agencies that are registered with the
Commission, designated by the Council
as systemically important, and for
which the Commission is the
Supervisory Agency. There are currently
six clearing agencies registered with the
Commission; however, only four of
these clearing agencies are currently
clearing securities transactions. In
addition, it is anticipated that several
more clearing agencies will be registered
with the Commission following the
effectiveness of Title VII to clear
security-based swaps. For purposes of
the PRA analysis, the Commission
estimates that the four registered
securities clearing agencies that are
currently clearing securities and the six
estimated clearing agencies that may
clear security-based swaps would be
subject to the applicable collection of
information requirements.
(March 30, 2010), 75 FR 17181 (April 5, 2010) (CDS
clearing by Chicago Mercantile Exchange Inc.);
59527 (March 6, 2009), 74 FR 10791 (March 12,
2009), 61119 (December 4, 2009), 74 FR 65554
(December 10, 2009) and 61662 (March 5, 2010), 75
FR 11589 (March 11, 2010) (CDS clearing by ICE
Trust US LLC); 59164 (December 24, 2008), 74 FR
139 (January 2, 2009) (temporary CDS clearing by
LIFFE A&M and LCH.Clearnet Ltd.) (collectively,
‘‘CDS Clearing Exemption Orders’’). LIFFE A&M and
LCH.Clearnet Ltd. allowed their order to lapse
without seeking renewal.
123 15 U.S.C. 78mm. Of the four clearing agencies
granted temporary exemptions from registration,
only three have cleared products that likely are
classified as security-based swaps under Title VII.
124 See Public Law 111–203, section 763(b).
125 The Commission does not expect there to be
a large number of clearing agencies that clear
security-based swaps, based on the significant level
of capital and other financial resources necessary
for the formation of a clearing agency.
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2. Stay of Clearing Requirement
The Commission preliminarily
estimates that six security-based swap
clearing agencies’ activities associated
with security-based swap clearing
requirements would potentially be
subject to the collection of information
under proposed Rule 3Ca–1 in
connection with any counterparty
requesting a stay of clearing
requirement.
D. Total Annual Reporting and
Recordkeeping Burden
hsrobinson on DSK69SOYB1PROD with PROPOSALS2
1. Background
The proposed amendments to Rule
19b–4 and Form 19b–4 are designed to
facilitate the processes for providing the
Commission with Security-Based Swap
Submissions and Advance Notices and
to make these processes efficient by
utilizing the existing infrastructure for
proposed rule changes, thereby
conserving both clearing agency and
Commission resources. When amended,
Form 19b–4 would enable clearing
agencies to submit Security-Based Swap
Submissions and Advance Notices
electronically with the Commission.
The proposed amendments to Rule 19b–
4 also would require a clearing agency
to post on its Web site any SecurityBased Swap Submissions and any
Advance Notices, and any amendments
thereto, submitted to the Commission
within two business days of submission.
A further amendment to Rule 19b–4
would require an SRO that filed a
proposed rule change with the
Commission to inform the Commission
of the date on which it posted such
proposal on its Web site if the posting
did not occur on the same day that the
SRO filed the proposal with the
Commission. Finally, proposed Rule
3Ca–1 would specify the process for a
security-based swap counterparty to
apply to the Commission for a stay of
the clearing requirement.
2. Rule 19b–4 and Form 19b–4
In order to estimate the collection of
information, the Commission received
informal comments from a few clearing
agencies that would be subject to the
new requirements in the proposed
amendments to Rule 19b–4 and Form
19b–4. Clearing agencies would have to
train personnel and develop policies
and procedures to implement the
proposed new filing requirements under
Rule 19b–4 and Form 19b–4 in
connection with Security-Based Swap
Submissions and Advance Notices. In
addition, clearing agencies indicated
they would have to submit additional
information to the Commission, either
as separate filings or as part of filings
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also submitted as proposed rule changes
under Exchange Act Section 19(b).
The clearing agencies emphasized
that the estimated burdens would
depend in large part on the rules
ultimately adopted by the Commission
to define and determine how frequently
Security-Based Swap Submissions and
Advance Notices would be required to
be filed and the nature and extent of
information that would be required with
each filing. In addition, the clearing
agencies stated that the burden per
filing could vary widely, depending on
the complexity of each individual filing.
For example, some clearing agency
proposals may require more information
or analysis to be submitted as part of the
filing. The clearing agencies also stated
that the annual burden also could vary
widely from year to year depending on
the number of new proposals the
clearing agency makes in a particular
year. As a result, the estimates provided
as part of the survey are preliminary and
may change after clearing agencies have
the opportunity to review and closely
evaluate the proposed rules.
The estimates varied among clearing
agencies, which may reflect the different
internal processes, training programs,
and review procedures for new projects
currently in place at the different
clearing agencies. In addition, some
clearing agencies are currently
registered with the Commission while
others are not. Clearing agencies
registered with the Commission already
file proposed rule changes under
Exchange Act Section 19(b) and have
more familiarity with the collection of
information requirements related to
Rule 19b–4 and Form 19b–4, while
clearing agencies that are not registered
with the Commission are not as familiar
with these requirements and may incur
a greater burden in connection with
learning EFFS and training personnel.
The Commission heard from staff of
eight clearing agencies. The estimates
varied among clearing agencies, and
therefore the Commission is using
conservative numbers in developing its
estimates for the PRA. In addition, in
order to provide a conservative estimate,
the Commission has calculated the
burden for the requirements related to
Advance Notices assuming that they
would apply to all ten clearing agencies
and the burden for the requirements
related to Security-Based Swap
Submissions assuming they would
apply to six clearing agencies.
Finally, the Commission recognizes
that there would likely to be some
substantive and procedural overlap with
respect to the processes for preparing
and submitting Security-Based Swap
Submissions, Advance Notices and
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proposed rule changes that relate to the
same subject matter. For example, in
connection with a decision to clear a
new type of security-based swap that
was not previously permitted under the
clearing agency’s rules, a clearing
agency could be required to make a
filing as a Security-Based Swap
Submission, an Advance Notice and a
proposed rule change. In this case,
because these submissions all relate to
the same underlying issue, the amount
of time required to prepare a single
Form 19b–4 for all three purposes is
likely to be less than the aggregate
amount of time ordinarily required to
prepare and submit an unrelated
Security-Based Swap Submission,
Advance Notice and proposed rule
change. Nevertheless, the Commission
is calculating the PRA burden for each
process individually without accounting
for any reduction due to the anticipated
overlap. The Commission has decided
to calculate the burdens in this manner
in order to provide the most
conservative estimates possible.
Additionally, the estimates of each of
the following burdens are derived from
discussions between the Commission’s
staff and personnel of the clearing
agencies, as described above.
a. Internal Policies and Procedures
The Commission preliminarily
believes that newly-registered clearing
agencies could incur some one-time
costs associated with training their
personnel about the procedures for
submitting Security-Based Swap
Submissions and/or Advance Notices in
electronic format through EFFS. Based
on staff discussions with the clearing
agencies, the Commission preliminarily
estimates that each newly registered
clearing agency will spend
approximately 20 hours training all staff
members who will use EFFS to submit
Security-Based Swap Submissions,
Advance Notices and/or proposed rule
changes electronically. Accordingly, the
Commission estimates that the total onetime burden of training staff members of
newly-registered clearing agencies to
use EFFS will be 120 hours (six clearing
agencies × 20 hours).
Going forward, the Commission
preliminarily estimates that each
existing SRO (including currentlyregistered clearing agencies) will spend
approximately 10 hours annually
training new staff members and
updating the training of existing staff
members to use EFFS, resulting in a
total annual burden of 310 hours ((six
newly-registered clearing agencies × 10
hours) + (25 SROs × 10 hours)). The
Commission preliminarily believes that
only a minimal amount of EFFS training
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will be submission-specific and that
training a person to submit either a
proposed rules change, Security-Based
Swap Submission or Advance Notice
will generally be sufficient to allow
such person to make one or more of the
other types of submissions.
Based on staff discussions with the
clearing agencies, the Commission
preliminarily estimates that there would
be a one-time paperwork burden of 130
hours for each newly-registered clearing
agency to draft and implement internal
policies and procedures relating to
using EFFS to submit Security-Based
Swap Submissions, Advance Notices
and proposed rule changes with the
Commission, for a total of 780 hours
(130 hours × six newly-registered
clearing agencies). In addition, the
Commission preliminarily estimates
that there will be a one-time paperwork
burden of 30 hours for each currentlyregistered clearing agency to draft and
implement modifications to existing
internal policies and procedures for
using EFFS in order to update them for
submitting Security-Based Swap
Submissions and/or Advance Notices
with the Commission for a total of 120
hours (30 hours × four currentlyregistered clearing agencies).
b. Proposed Rule Changes
An SRO rule change proposal is
generally filed with the Commission
after an SRO’s staff has obtained
approval of its board of directors. The
time required to complete a filing varies
significantly and is difficult to separate
from the time an SRO spends in
developing internally the proposed rule
change. In a PRA analysis conducted in
2004 in connection with amendments to
Rule 19b–4 and Form 19b–4, the
Commission estimated that 34 hours is
the amount of time that would be
required to complete an average
proposed rule change filing and 129
hours is the amount of time required to
complete a novel or complex proposed
rule change filing.126 Based on the
filings it currently receives from SROs,
the Commission preliminarily believes
that these estimates remain valid and
has relied on these figures to prepare the
analysis discussed below.127
hsrobinson on DSK69SOYB1PROD with PROPOSALS2
126 See
Exchange Act Release No. 50486, 69 FR
60287, supra note 51.
127 In 2008, the Commission submitted to OMB a
request for approval of an extension of the existing
collection of information provided for in Rule 19b–
4 and Form 19b–4. 73 FR 5245 (January 29, 2008)
(Submission for OMB review; comment request).
The PRA analysis conducted in 2008 estimated that
the average time to complete a proposed rule
change filing was 23.22 hours, without
differentiating between average and complex rule
filings. In light of the changes made to Exchange
Act Section 19(b) pursuant to Section 916 of Dodd-
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In fiscal year 2009, 25 SRO
respondents filed 1,405 rule change
proposals subject to the current
collection of information. Of this total,
the Commission estimates that 60
proposed rule changes could be
characterized as novel or complex and
1,345 proposed rule changes could be
characterized as average. The
Commission preliminarily estimates
that the total annual reporting burden
for filing proposed rule changes with
the Commission under the proposed
amendments to Rule 19b–4 and Form
19b–4 will be 66,303 hours (((1,345/25)
× 31128 average rule change proposals ×
34 hours) + ((60/25) × 31 complex rule
change proposals × 129 hours)). Thus,
on average, the reporting burden for
filing proposed rule changes is 38.06
hours (66,303 hours/(1668 average rule
change proposals + 74 complex rule
change proposals)).
c. Security-Based Swap Submissions
The time required by clearing
agencies to prepare, review and submit
Security-Based Swap Submissions to
comply with proposed Rule 19b–4(o)(1)
likely will vary significantly based on
the unique characteristics of each
Security-Based Swap Submission and
the submitting clearing agency. Based
on staff discussions with the clearing
agencies, the Commission preliminarily
estimates that the amount of time that
a clearing agency would require to
internally prepare, review and submit a
Security-Based Swap Submission is 140
hours. The Commission also estimates
that each clearing agency will submit 20
Security-Based Swap Submissions
annually. Accordingly, the Commission
estimates that the total annual reporting
burden for clearing agencies submitting
Security-Based Swap Submissions
electronically with the Commission
under the proposed amendments to
Rule 19b–4 and Form 19b–4 will be
16,800 hours (20 Security-Based Swap
Submissions × 140 hours × six
respondents).
The Commission also preliminarily
estimates that a clearing agency would
require 60 hours of outside legal work
to prepare, review and submit a
Frank, which provides for new deadlines by which
the Commission must publish and act upon
proposed rule changes, the Commission has
decided to revert to the figures contained in the
PRA analysis conducted in 2004. Specifically, the
shortened time period by which proposed rule
changes will be reviewed by the Commission is
likely to cause the SROs to spend additional time
preparing and checking the filing, as there will be
less time for them to correct a filing after it has been
made, justifying the use of the more conservative
estimates.
128 The number of projected SROs is equal to 31
(25 currently registered SROs + six newly-registered
clearing agencies).
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Security-Based Swap Submission, based
on staff discussions with the clearing
agencies. Assuming an hourly cost of
$354 for an outside attorney,129 the total
annual cost in the aggregate for the six
respondent clearing agencies to meet
these requirements would be $2,548,800
(60 hours × $354 per hour for an outside
attorney × 20 Security-Based Swap
Submissions × six respondent clearing
agencies).
d. Advance Notices
With respect to Advance Notices, the
Commission preliminarily estimates
that the amount of time that designated
clearing agency representatives will
require to internally prepare, review and
electronically file each Advance Notice
with the Commission to comply with
proposed Rule 19b–4(n)(1) is 90 hours.
This figure is based on the staff’s
discussions with the clearing agencies.
The Commission also estimates that two
hours should be added to the time
required to prepare each Advance
Notice to comply with the requirement
contained in proposed Rule 19b–4(n)(5)
to provide to the Board copies of all
materials submitted to the Commission
relating to an Advance Notice
contemporaneously with such
submission to the Commission. The
Commission preliminarily estimates
that each designated clearing agency
will submit 35 Advance Notices to the
Commission annually. Accordingly, the
Commission estimates that the total
annual reporting burden on designated
clearing agencies submitting Advance
Notices electronically with the
Commission under the proposed
amendments to Rule 19b–4 and Form
19b–4 will be 32,200 hours (35 Advance
Notices × 92 hours × ten respondents).
Based on staff discussions with the
clearing agencies, the Commission also
preliminarily estimates that a
designated clearing agency will require
40 hours of outside legal work to
prepare, review and electronically file
each Advance Notice with the
Commission. Assuming an hourly cost
of $354 for an outside attorney,130 the
total annual cost in the aggregate for the
ten respondent clearing agencies to meet
these requirements would be $4,956,000
(40 hours × $354 per hour for an outside
attorney × 35 Advance Notices × ten
respondents).
129 The hourly rate for an attorney is from
SIFMA’s Management & Professional Earnings in
the Securities Industry 2010, modified by the
Commission’s staff to account for an 1,800-hour
work-year and multiplied by 5.35 to account for
bonuses, firm size, employee benefits and overhead.
130 See id.
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e. Summary
The Commission preliminarily
estimates that the total annual reporting
burden for clearing agencies to
internally prepare, file and submit
Security-Based Swap Submissions,
proposed rule changes and Advance
Notices electronically with the
Commission under the Rule 19b–4 and
Form 19b–4 will be 115,303 hours
(16,800 hours for Security-Based Swap
Submissions + 32,200 hours for
Advance Notices + 66,303 hours for
proposed rule changes). The
Commission also preliminarily
estimates that the total annual cost in
the aggregate for the respondent clearing
agencies to internally prepare, file and
submit Security-Based Swap
Submissions, proposed rule changes
and Advance Notices electronically
with the Commission under the Rule
19b–4 and Form 19b–4 will be
$7,504,800 ($2,548,800 for SecurityBased Swap Submissions + $4,956,000
for Advance Notices).
hsrobinson on DSK69SOYB1PROD with PROPOSALS2
3. Posting of Security-Based Swap
Submissions, Advance Notices and
Proposed Rule Changes on Clearing
Agency Web Sites
The Commission preliminarily
believes that newly-registered clearing
agencies could incur some one-time
costs associated with posting SecurityBased Swap Submissions, Advance
Notices and proposed rule changes on
their Web sites. The Commission
preliminarily estimates that each newlyregistered clearing agency will spend
approximately 15 hours creating or
updating its existing Web site in order
to provide the capability to post these
submissions online resulting in a total
one-time burden of 90 hours (six
clearing agencies × 15 hours).
With respect to annual burdens, the
Commission preliminarily estimates
that four hours would be required by a
clearing agency to post a Security-Based
Swap Submission on its Web site to
comply with proposed Rule 19b–4(o)(5).
This figure is based on the staff’s
discussions with the clearing agencies.
The Commission estimates that the total
annual reporting burden for clearing
agencies to post Security-Based Swap
Submissions on their Web sites will be
480 hours (20 Security-Based Swap
Submissions × four hours × six
respondents).
The Commission preliminarily
estimates that four hours would be
required by a designated clearing agency
to post an Advance Notice on its Web
site to comply with proposed Rule 19b–
4(n)(3). The Commission preliminarily
estimates that the total annual reporting
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burden for designated clearing agencies
to post Advance Notices on their Web
sites will be 1,400 hours (35 Advance
Notices × four hours × 10 respondents).
To comply with proposed Rule 19b–
4(n)(4), the Commission estimates that
four hours would be required by a
designated clearing agency to post
notice on its Web site of any change to
its rules, procedures or operations
referred to in an Advance Notice once
it has been permitted to take effect. The
Commission therefore estimates that the
total annual reporting burden for
designated clearing agencies to post
notice on their Web sites of any changes
to their rules, procedures or operations
referred to in Advance Notices would be
1,400 hours (35 Advance Notices × four
hours × 10 respondents).
The Commission previously estimated
that an SRO would take four hours to
post proposed rule change proposals
under Exchange Act Section 19(b) and
amendments on its Web site and four
hours to update the posted SRO rules on
its Web site once the proposed rules
become effective.131 The Commission
preliminarily believes that these
estimates remain valid. In addition, of
the 1,405 proposed rule changes filed in
fiscal year 2009, 1,071 were approved or
non-abrogated. Accordingly, the total
annual reporting burden for SROs to
post proposed rule change proposals on
their Web sites and to update their
posted rules on their Web sites once the
proposed rules become effective will be
12,280 hours ((1,071/25) × 31 SRO
respondents) approved or non-abrogated
rules × four hours) + ((1,405/25) × 31
SRO respondents) rule change proposals
× four hours)).
In summary, the Commission
preliminarily estimates that the total
annual reporting burden for all clearing
agencies to post submitted SecurityBased Swap Submissions, Advance
Notices, notices of changes to rules,
procedures or operations referred to in
Advance Notices once they take effect
and proposed rule changes on their Web
sites under Rule 19b–4 and Form 19b–
4 will be 15,560 hours (480 hours for
Security-Based Swap Submissions +
1,400 hours for Advance Notices + 1,400
hours for posting notices of changes to
rules, procedures or operations referred
to in Advance Notices + 12,280 hours
for proposed rule changes). The
Commission requests comment on all of
the above estimates.
4. Rule 3Ca–1
Commission staff communicated with
certain clearing agencies that likely
would be subject to a stay of the clearing
131 See
PO 00000
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Frm 00023
Fmt 4701
requirement and related review under
proposed Rule3Ca–1 in order to
estimate the collection of information.
The clearing agencies emphasized that
the estimated burdens would depend in
large part on the number of stays
requested annually and the scope of the
information requested by the
Commission in the course of the related
review.
The Commission staff communicated
with staff of three entities, representing
four clearing agencies total, as two
clearing agencies are subsidiaries of the
same holding company. As the
responses varied among clearing
agencies, the Commission has generally
used conservative responses in
developing its estimates for the PRA.
Based on staff discussions with the
clearing agencies, the Commission
preliminarily estimates that a clearing
agency will spend approximately 18
hours to retrieve, review and submit the
information associated with the stay of
the clearing requirement. The
Commission preliminarily estimates
that each clearing agency will be
required to provide information
requested by the Commission in the
course of its reviews of five requests for
a stay of the clearing requirement,
resulting in a total annual reporting
burden of 540 hours (five stay
applications × 18 hours to retrieve,
review and submit the information × six
clearing agencies). The Commission also
preliminarily estimates that a clearing
agency will require seven hours of
outside legal work to retrieve, review
and submit the information associated
with the stay of the clearing
requirement. This figure is based on the
staff’s discussions with the clearing
agencies. Assuming an hourly cost of
$354 for an outside attorney,132 the total
estimated annual cost in the aggregate
for the six respondent clearing agencies
to meet these requirements would be
$74,340 (seven hours × $354 per hour
for an outside attorney × five stay of
clearing applications × six respondents).
The Commission requests comment on
these estimates.
Finally, based on its estimates with
respect to the preparation SecurityBased Swap Submissions, the
Commission preliminarily estimates
that 100 hours would be required by a
counterparty to a security-based swap to
prepare and submit an application
requesting a stay of the clearing
requirement. The Commission
preliminarily estimates that
counterparties to security-based swaps
transactions will submit 30 applications
requesting stays of the clearing
132 See
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hsrobinson on DSK69SOYB1PROD with PROPOSALS2
requirement. Assuming an hourly cost
of $354 for an outside attorney,133 the
total annual cost in the aggregate for the
respondent counterparties to meet these
requirements would be $1,062,000 (100
hours × $354 per hour for an outside
attorney × 30 stay of clearing
applications).
The Commission requests comment
on all of the above estimates.
4. Amendment To Conform to Section
916 of the Dodd-Frank Act
The Commission preliminarily
estimates that the requirement that an
SRO inform the Commission of the date
on which it posted a proposed rule
change on its Web site (if the posting
did not occur on the same day that the
SRO filed the proposal with the
Commission) will impose only a
minimal burden, if any, on an SRO. The
Commission preliminarily believes that
SROs currently post their proposed rule
changes on their Web site on the same
day on which they file them with the
Commission. Further, it is in the interest
of an SRO to continue to do so, since
prompt Web site posting triggers the
requirement on the Commission to
publish notice of the proposal. The new
notice requirement would only be
applicable in a situation where the SRO
is unable to post its proposed rule
change on the same day that it files with
the Commission, which the Commission
expects would be an unlikely
occurrence. However, because the
deadline applicable to Commission
publication is tied to SRO Web site
posting, and the Commission has no
means of ascertaining when Web site
posting was made other than receiving
that information from the SRO itself, the
Commission is proposing this
requirement to capture necessary
information to allow it to comply with
Exchange Act Section 19, as amended
by Section 916 of the Dodd-Frank Act.
Based on its experience receiving and
reviewing proposed rule changes filed
by SROs, the Commission preliminarily
estimates that SROs will fail to post
proposed rule changes on their Web
sites on the same day as the filing was
made with the Commission in 1% of all
cases, or 14 times each year. Further, the
Commission preliminarily estimates
that each SRO will spend approximately
one hour preparing and submitting
notice to the Commission of the date on
which it posted the proposed rule
change on its Web site, resulting in a
total annual burden of 14 hours.
Thus, the Commission preliminarily
estimates that the total annual reporting
burden under Rule 19b–4 and Form
133 See
supra note 129.
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19b–4 will be 131,987 hours in the
initial year and 131,187 hours
thereafter.134 Additionally, the
Commission preliminarily estimates
that the total annual reporting burden
under proposed Rule 3Ca–1 will be 540
hours. The Commission requests
comment on all of the above estimates.
E. Retention Period of Recordkeeping
Requirements
Clearing agencies will be required to
retain records of the collection of
information (the manually signed
signature page of the Form 19b–4, a file
available to interested persons for
public inspection and copying, of all
Security-Based Swap Submissions,
Advance Notices and proposed rule
changes made pursuant to Rule 19b–4)
and all correspondence and other
communications reduced to writing
(including comment letters) to and from
such SROs concerning any SecurityBased Swap Submissions, Advance
Notices and proposed rule changes, for
a period of not less than five years, the
first two years in an easily accessible
place, according to the current
134 In the initial year, the paperwork burden is
calculated as follows: 120 Hours (one-time
paperwork burden to train newly-registered clearing
agency staff members to use EFFS) + 780 hours
(one-time paperwork burden for each newlyregistered clearing agency to draft and implement
policies and procedures relating to using EFFS to
submit proposed rule changes, Security-Based
Swap Submissions and Advance Notices) + 120
hours (one-time paperwork burden for each
currently-registered clearing agency to draft and
implement policies and procedures relating to using
EFFS to submit Security-Based Swap Submissions
and/or Advance Notices) + 90 hours (one-time
paperwork burden for each newly-registered
clearing agency to create or update their existing
Web sites in order to provide the capability to post
proposed rule changes, Security-Based Swap
Submissions and Advance Notices online) +
115,303 hours (the total annual reporting burden for
all SROs to prepare, review and submit SecurityBased Swap Submissions, proposed rule changes
and Advance Notices with the Commission) +
15,560 hours (the total annual burden for all SROs
to post Security-Based Swap Submissions, Advance
Notices, notices of changes to rules, procedures or
operations referred to in Advance Notices and
proposed rule changes (including updates to the
posted SRO rules) on their Web sites + 14 hours for
SROs to notify the Commission of the date on
which it posted a proposed rule change on its Web
site = 131,987 hours. After the initial year, the
paperwork burden is calculated as follows: 115,303
Hours (the total annual reporting burden for all
SROs to prepare, review and submit Security-Based
Swap Submissions, proposed rule changes and
Advance Notices with the Commission) + 15,560
hours (the total annual burden for all SROs to post
Security-Based Swap Submissions, Advance
Notices, notices of changes to rules, procedures or
operations referred to in Advance Notices and on
their Web sites) + 310 hours (the total annual
burden of training new staff members and updating
the training of existing staff members to use EFFS)
+ 14 hours for SROs to notify the Commission of
the date on which it posted a proposed rule change
on its Web site = 131,187 hours.
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Sfmt 4702
recordkeeping requirements set forth in
Exchange Act Rule 17a–1.135
The Commission preliminarily
believes that maintaining the physical
signature page, Security-Based Swap
Submissions, Advance Notices,
proposed rule changes and all related
correspondence and other
communications would enable
interested parties, including the
Commission, to access a record of the
authority under which a particular
Security-Based Swap Submission,
Advance Notice or proposed rule
change was made. The Commission
notes that the retention of the physical
signature page is an existing
maintenance requirement for SROs.136
The Commission further notes that a
similar manual signature retention
requirement exists for EDGAR filers.137
F. Collection of Information Is
Mandatory
Any collection of information
pursuant to Rule 19b–4 and Form 19b–
4 to require electronic submission of
security-based swaps, Advance Notices
and proposed rule changes with the
Commission is a mandatory collection
of information. Any collection of
information pursuant to Rule 19b–4 to
require Web site posting by clearing
agencies of their Security-Based Swap
Submissions, Advance Notices and
proposed rules changes also is a
mandatory collection of information.
Any collection of information pursuant
to the proposed Rule 3Ca–1 in
connection with the application for the
stay of the clearing requirement is a
mandatory collection of information.
Any collection of information pursuant
to Rule 19b–4 to require SROs to inform
the Commission of the date on which it
posted a proposed rule change on its
Web site (if such date is not the same
day that it filed the proposal with the
Commission) also is a mandatory
collection of information.
G. Responses to Collection of
Information Will Not Be Kept
Confidential
The collection of information
pursuant to Rule 19b–4, Form 19b–4
and proposed Rule 3Ca–1 would not be
135 SROs may also destroy or otherwise dispose
of such records at the end of five years according
to Rule 17a–6 of the Act. 17 CFR 240.17a–6.
136 Rule 19b–4(j) currently requires SROs to sign
Form 19b–4 electronically in connection with filing
a proposed rule change and to retain a copy of the
signature page in accordance with Rule 17a–1.
Under the proposed rules, Rule 19b–4(j) would be
modified such that it would apply also to SecurityBased Swap Submissions and Advance Notices.
137 17 CFR 232.302(b).
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kept confidential.138 The posting of
Security-Based Swap Submissions,
Advance Notices and proposed rule
changes would be publicly available on
the SRO’s Web site.
hsrobinson on DSK69SOYB1PROD with PROPOSALS2
H. Request for Comment
Pursuant to 44 U.S.C. 3506(c)(2)(B),
the Commission solicits comments to:
(1) Evaluate whether the proposed
collection of information is necessary
for the performance of the functions of
the agency, including whether the
information shall have practical utility;
(2) Evaluate the accuracy of the
agency’s estimate of the burden of the
proposed collection of information;
(3) Enhance the quality, utility and
clarity of the information to be
collected; and
(4) Minimize the burden of collection
of information on those who are to
respond, including through the use of
automated collection techniques or
other forms of information technology.
Persons wishing to submit comments
on the collection of information
requirements should direct them to the
following persons: (1) Desk Officer for
the Securities and Exchange
Commission, Office of Information and
Regulatory Affairs, Office of
Management and Budget, Room 3208,
New Executive Office Building,
Washington, DC 20503; and (2)
Elizabeth Murphy, Secretary, Securities
and Exchange Commission, Station
Place, 100 F Street, NE., Washington,
DC 20549–1090 with reference to File
No. S7–44–10. OMB is required to make
a decision concerning the collection of
information between 30 and 60 days
after publication, so a comment to OMB
is best assured of having its full effect
if OMB receives it within 30 days of
publication. The Commission has
submitted the proposed collection of
information to OMB for approval.
Requests for the materials submitted to
OMB by the Commission with regard to
this collection of information should be
in writing, refer to File No. S7–44–10,
and be submitted to the Securities and
Exchange Commission, Records
Management, Office of Investor
Education and Advocacy, Station Place,
100 F Street, NE., Washington, DC
20549–0213.
138 While there is a general requirement that
information be made publicly available, SROs may
request confidential treatment of certain
information in accordance with the provisions of
the Freedom of Information Act. 5 U.S.C. 552.
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V. Consideration of Costs and Benefits
A. Processes for Security-Based Swap
Submissions for Review and Staying a
Clearing Requirement While the
Clearing of the Security-Based Swap Is
Reviewed
Under Exchange Act Section 3C,
Congress mandated that the
Commission adopt rules: (i) For a
clearing agency’s submission for review
of any security-based swap, or a group,
category, type or class of security-based
swaps, that the clearing agency seeks to
accept for clearing, and the manner of
notice the clearing agency must provide
to its members of such submission; and
(ii) for the procedure by which the
Commission may stay a clearing
requirement while the clearing of a
security-based swap is reviewed. The
proposed rule relating to Security-Based
Swap Submissions specifies the content
of Security-Based Swap Submissions,
how such Security-Based Swap
Submissions shall be submitted, and the
manner of notice the clearing agency
must provide to its members regarding
such submissions. The Commission also
is proposing a rule to specify the
procedure for staying the clearing
requirement applicable to a securitybased swap, based either on an
application of a counterparty to a
security-based swap or on the
Commission’s own initiative, until the
Commission completes a review of the
terms of the security-based swap and
the clearing arrangement. The
Commission is sensitive to the costs and
benefits that would result from the
proposed rules and has identified
certain costs and benefits of the
proposal, which are discussed more
fully below.
1. Processes for Security-Based Swap
Submissions for Review
Pursuant to Exchange Act Section 3C,
a clearing agency must submit to the
Commission each security-based swap,
or any group, category, type or class of
security-based swaps, that the clearing
agency plans to accept for clearing. The
Commission is required to review each
Security-Based Swap Submission and
determine whether the security-based
swap, or any group, category, type or
class of security-based swaps, described
in the submission is required to be
cleared. In reviewing a Security-Based
Swap Submission, the Commission is
required to review whether the SecurityBased Swap Submission is consistent
with Exchange Act Section 17A, and
must take into account the following
factors:
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(i) The existence of significant
outstanding notional exposures, trading
liquidity and adequate pricing data.
(ii) The availability of a rule
framework, capacity, operational
expertise and resources, and credit
support infrastructure to clear the
contract on terms that are consistent
with the material terms and trading
conventions on which the contact is
then traded.
(iii) The effect on the mitigation of
systemic risk, taking into account the
size of the market for such contract and
the resources of the clearing agency
available to clear the contract.
(iv) The effect on competition,
including appropriate fees and charges
applied to clearing.
(v) The existence of reasonable legal
certainty in the event of the insolvency
of the relevant clearing agency or one or
more of its clearing members with
regard to the treatment of customer and
security-based swap counterparty
positions, funds, and property.
Additionally, Exchange Act Section
3C requires, in general, that the rules of
a clearing agency provide for open
access, specifically requiring that the
rules:
(a) Prescribe that all security-based
swaps submitted to the clearing agency
with the same terms and conditions are
economically equivalent within the
clearing agency and may be offset with
each other within the clearing agency;
and
(b) Provide for non-discriminatory
clearing of a security-based swap
executed bilaterally or on or through the
rules of an unaffiliated national
securities exchange or security-based
swap execution facility.
Pursuant to Exchange Act Section 3C,
the Commission is required to make
available to the public any SecurityBased Swap Submission and provide at
least a 30-day public comment period.
The Commission is required to make its
determination not later than 90 days
after receiving the Security-Based Swap
Submission, unless the submitting
clearing agency agrees to an extension.
The proposed rule would require that
the clearing agency include in each
Security-Based Swap Submission
information that will assist the
Commission in reviewing the SecurityBased Swap Submission for consistency
with Section 17A and meeting the
statutory requirements set forth above in
items (i)–(v). Additionally, the proposed
rule would require that the clearing
agency specify how the clearing
agency’s rules for open access (set forth
in items (a) and (b) above) are applicable
to the security-based swap described in
the Security-Based Swap Submission.
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The proposed rule would specify that a
clearing agency submit security-based
swaps to the Commission for review by
group, category, type or class to the
extent reasonable and practicable to do
so.
In addition, the Commission is
proposing how Security-Based Swap
Submissions shall be submitted by
clearing agencies. Because the
Commission preliminarily believes that
there likely will be significant overlap
between filings under Exchange Act
Section 19(b) and Rule 19b–4 regarding
proposed rule changes and SecurityBased Swap Submissions, the
Commission is proposing that SecurityBased Swap Submissions be filed on
Form 19b–4. In many cases, a SecurityBased Swap Submission also will be a
proposed rule change for purposes of
Exchange Act Section 19(b).139
The proposed rule provides that a
clearing agency must provide notice to
its members of a Security-Based Swap
Submission and any amendments
thereto, by posting the submission on its
Web site within two business days. The
proposed rule further requires the
clearing agency to maintain this
information on its Web site until the
Commission makes a determination
regarding the Security-Based Swap
Submission, the clearing agency
withdraws the submission, or the
clearing agency is notified that the
submission was not properly filed.
hsrobinson on DSK69SOYB1PROD with PROPOSALS2
a. Benefits
The proposed rule is designed to
implement the submission and notice
139 As discussed in section II.A.1 of this release,
the Commission anticipates that registered clearing
agencies, as SROs, often will be required to file a
proposed rule change pursuant to Exchange Act
Section 19(b) in connection with clearing a
security-based swap, or any group, type, category or
class of security-based swaps, and, at the same time,
will be required to make a related Security-Based
Swap Submission for a determination by the
Commission of whether such security-based swap
(or group, category, type or class of security-based
swaps) is required to be cleared. A proposed rule
change constitutes a change in a ‘‘stated policy,
practice, or interpretation’’ of an SRO rule. The
definition of a ‘‘stated policy, practice, or
interpretation’’ in Exchange Act Section 19(b)
includes, among other things, ‘‘any material aspect
of the operation of the facilities of the SRO; or any
statement made generally available to the
membership of, to all participants in, or to persons
having or seeking access * * * to facilities of, the
self-regulatory organization (‘‘specified persons’’), or
to a group or category of specified persons, that
establishes or changes any standard, limit, or
guideline with respect to (1) the rights, obligations,
or privileges of specified persons * * *; or (2) the
meaning, administration, or enforcement of an
existing rule.’’ 17 CFR 240.19b–4(b). In cases where
accepting a security-based swap (or group, category,
type or class of security-based swaps) for clearing
constitutes a change in a ‘‘stated policy, practice, or
interpretation’’ of the clearing agency, the clearing
agency also would be required to file a proposed
rule change.
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requirements in Exchange Act Section
3C. The Commission anticipates that the
proposed rule would further the
purposes of Exchange Act Section 3C by
facilitating the filing and regulatory
review of Security-Based Swap
Submissions and reduce costs to filers
by utilizing a format that clearing
agencies may be familiar with or, as
they become registered clearing
agencies, that they will be required to
use for all proposed rule changes, Form
19b–4. In addition, the proposed rule
would further reduce costs to filers by
avoiding a duplication of efforts in
providing notice to members of the
clearing agency, as well as other
interested persons, such as
counterparties to security-based swaps,
through requiring posting of the
Security-Based Swap Submission on the
clearing agency’s Web site within two
business days of filing with the
Commission. The Commission
anticipates this prompt notice would
provide the clearing agency members
and other interested persons with the
opportunity to comment on the
submission with the potential for
providing new information about the
suitability of the security-based swap for
clearing.
The Commission anticipates the
proposed rule requiring the clearing
agency to provide information the
Commission requires to review
Security-Based Swap Submissions
would reduce the cost of acquiring
necessary information. Requiring the
clearing agency to provide necessary
information would ensure that the
information used by the Commission to
evaluate the security-based swap for
mandatory clearing is correct and
complete, reducing the likelihood that
further information requests will be
required.
Proposed Rule 19b–4(o)(4) requires a
clearing agency to submit security-based
swaps to the Commission for review by
group, category, type or class of
security-based swaps, to the extent
reasonable and practicable to do so. The
Commission preliminarily believes a
broad interpretation of what constitutes
a group, category, type or class of
security-based swaps is likely to provide
benefits to clearing agencies and the
Commission. Specifically, it would
likely lower the costs associated with
the Security-Based Swap Submission
process since clearing agencies would
be burdened with preparing fewer
Security-Based Swap Submissions, and
the Commission would be required to
process and review fewer submissions.
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b. Costs
Form 19b–4 is currently used by
registered clearing agencies to file notice
of proposed rule changes under
Exchange Act Section 19(b) and any
clearing agency that becomes registered
will be required to use Form 19b–4 for
all proposed rule changes. Accordingly,
clearing agencies would be familiar with
the electronic filing process in place for
Form 19b–4 and their staffs would not
be required to learn a new filing system.
In addition, clearing agencies would be
able to submit a change that is both a
proposed rule change under Exchange
Act Section 19(b) and a Security-Based
Swap Submission in the same filing.
Although there are additional
information requirements for a SecurityBased Swap Submission, clearing
agencies would be able to provide the
required information as part of the Form
19b–4 submission.
More importantly, the Commission
preliminarily believes much of the
information the clearing agency
provides in a Security-based Swap
Submission would be the same as
information the clearing agency
collected and analyzed in making its
business decision to plan to accept the
security-based swap, or any group,
category, type, or class of security-based
swaps, for clearing. The Commission
preliminarily believes that the clearing
agency may incur costs in presenting
this information in a clear and coherent
manner in the format as required under
the proposed rule.
As previously discussed in the PRA
analysis in Section IV, the proposed
amendments to Rule 19b–4 and Form
19b–4 will require a clearing agency to
submit for a Commission determination,
any security-based swap, or any group,
category, type or class of security-based
swaps that the clearing agency plans to
accept for clearing. The Commission
preliminarily estimates that the total
annual reporting burden for clearing
agencies to internally prepare, review
and submit Security-Based Swap
Submissions electronically with the
Commission under the proposed
amendments to Rule 19b–4 and Form
19b–4 will be 24,000 hours; this figure
includes 7,200 hours of outside legal
work. Assuming an hourly cost of $320
for an in-house compliance attorney,140
and an hourly cost of $354 for an
outside attorney,141 these requirements
140 The hourly rate for a compliance attorney is
from SIFMA’s Management & Professional Earnings
in the Securities Industry 2010, modified by the
Commission’s staff to account for an 1800-hour
work-year and multiplied by 5.35 to account for
bonuses, firm size, employee benefits and overhead.
141 See supra note 129.
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would result in a total annual cost of
$7,924,800 in the aggregate for the six
respondent clearing agencies (16,800
hours × $320 per hour for a compliance
attorney) + (7,200 hours × $354 per hour
for an outside attorney).
The Commission preliminarily
estimates that there would be a one-time
burden of 780 hours for all newlyregistered clearing agencies to draft and
implement internal policies and
procedures related to using EFFS to
submit Security-Based Swap
Submissions, Advance Notices and
proposed rule changes with the
Commission. Assuming an hourly cost
of $320 for an in-house compliance
attorney,142 these requirements would
result in a total one-time cost of
$249,600 in the aggregate for the six
respondent clearing agencies (780 hours
× $320 per hour for an in-house
compliance attorney).
The Commission also preliminarily
estimates that there would be a one-time
burden of 120 hours for all currentlyregistered clearing agencies to draft and
implement modifications to existing
internal policies and procedures for
using EFFS in order to update them for
the submission of Security-Based Swap
Submissions and/or Advance Notices
with the Commission. Assuming an
hourly cost of $320 for an in-house
compliance attorney,143 these
requirements would result in a one-time
cost of $38,400 in the aggregate for the
four respondent clearing agencies (120
hours × $320 per hour for an in-house
compliance attorney).
The Commission preliminarily
believes that newly-registered clearing
agencies could incur some one-time
costs associated with training their
personnel about the procedures for
submitting Security-Based Swap
Submissions and/or Advance Notices in
electronic format through EFFS. The
Commission preliminarily estimates
that six newly-registered clearing
agencies would incur a one-time upfront
burden of 120 hours to train clearing
agency staff members to use EFFS to
submit Security-Based Swap
Submissions, Advance Notices and/or
proposed rule changes electronically.
The Commission preliminarily
estimates that after the initial year,
existing SROs (including currentlyregistered clearing agencies) would
spend approximately 290 hours
annually training new staff members
and updating the training of existing
staff members to use EFFS. Assuming an
hourly cost of $259 for a senior systems
142 See
supra note 140.
143 See supra note 140.
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analyst,144 these requirements would
result in an overall estimated initial
annual cost of $31,080 in the aggregate
for the six newly-registered clearing
agencies (120 hours × $259 per hour for
a senior systems analyst) and an annual
cost after the initial year of $75,110
thereafter in the aggregate for all SROs
(290 hours × $259 per hour for a senior
systems analyst).
Pursuant to existing Rule 19b–4(l),
each SRO is required to post on its Web
site a copy of any proposed rule change
the SRO filed with the Commission and
any amendments thereto. The proposed
rule to implement the submission and
notice requirements in Exchange Act
Section 3C includes a similar posting
requirement for Security-Based Swap
Submissions. The Commission
preliminary estimates that the total
annual reporting burden for clearing
agencies to post Security-Based Swap
Submissions on their Web sites would
be 480 hours. Assuming an hourly cost
of $225 for a Webmaster,145 these
requirements would result in a total
estimated annual cost of $108,000 in the
aggregate for the six respondent clearing
agencies (480 hours × $225 per hour for
a Webmaster).
Some Security-Based Swap
Submissions would be required to be
filed only as Security-Based Swap
Submissions under Exchange Act
Section 3C and not as proposed rule
changes under Exchange Act Section
19(b), for example where a clearing
agency’s rules already permit it to clear
the security-based swap in question. As
a result, clearing agencies would incur
additional costs by filing a greater
number of forms than they do currently
under Exchange Act Section 19(b).
terms of the security-based swap and
the clearing arrangement.146 In
connection with a stay of the clearing
requirement, the Commission is
required to adopt rules for reviewing a
clearing agency’s clearing of a securitybased swap, or any group, category, type
or class of security-based swaps, that the
clearing agency has accepted for
clearing.
Under proposed Rule 3Ca–1, a
counterparty to a security-based swap
subject to the clearing requirement who
applies for a stay of the clearing
requirement would be required to
submit a written statement to the
Commission that includes a request for
a stay of the clearing requirement; the
identity of the counterparties to the
security-based swap and a contact at the
counterparty requesting the stay; the
identity of the clearing agency clearing
the security-based swap; the terms of
the security-based swap subject to the
clearing requirement and a description
of the clearing arrangement; and the
reasons why a stay should be granted
and why the security-based swap
should not be subject to a clearing
requirement, specifically addressing the
same factors a clearing agency must
address in its Security-Based-Swap
Submission pursuant to proposed Rule
19b–4(o).147 The proposed rule also
provides that any clearing agency that
has accepted for clearing a securitybased swap that is subject to the stay
shall provide information requested by
the Commission necessary to assess any
of the factors it determines to be
appropriate in the course of its review.
2. Staying a Clearing Requirement While
the Clearing of the Security-Based Swap
Is Reviewed
Under Exchange Act Section 3C, after
making a determination that a securitybased swap (or group, category, type or
class of security-based swaps) is
required to be cleared, the Commission,
on application of a counterparty to a
security-based swap or on the
Commission’s own initiative, may stay
the clearing requirement until the
Commission completes a review of the
The Commission preliminarily
believes that the proposed rule provides
benefits in creating an efficient
mechanism for collecting information to
be used in the Commission’s
determination to grant the requested
stay and subsequent review of the
clearing requirement. Specifically, the
counterparty will provide information
specifically within its possession—
reasons why the stay should be granted
and why the security-based swap
should not be subject to a clearing
requirement. Additionally, any
information requested from the clearing
agency likely will include information
unique to the clearing agency and will
facilitate the Commission’s review of
the clearing requirement subject to the
stay.
144 The hourly rate for a senior systems analyst is
from SIFMA’s Management & Professional Earnings
in the Securities Industry 2010, modified by the
Commission’s staff to account for an 1800-hour
work-year and multiplied by 5.35 to account for
bonuses, firm size, employee benefits and overhead.
145 The hourly rate for a Webmaster is from
SIFMA’s Management & Professional Earnings in
the Securities Industry 2010, modified by the
Commission’s staff to account for an 1800-hour
work-year and multiplied by 5.35 to account for
bonuses, firm size, employee benefits and overhead.
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a. Benefits
146 See Public Law 111–203, section 763(a)
(adding Exchange Act Section 3C(c)(1)).
147 Proposed Rule 3Ca–1(b).
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b. Costs
hsrobinson on DSK69SOYB1PROD with PROPOSALS2
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proposed rules relating to SecurityBased Swap submissions and stay of the
clearing requirement and related review.
The Commission seeks estimates of
these costs and benefits, as well as any
costs and benefits not already identified.
The Commission also requests comment
on whether other provisions of the
Dodd-Frank Act for which Commission
rulemaking is required are likely to have
an effect on the costs and benefits of the
proposed rules.
The proposed rule requires a
counterparty requesting a stay provide
basic identifying information and
information supporting its request for a
stay and its position that the securitybased swap should not be subject to a
clearing requirement. With respect to
the proposed rule’s requirement that a
clearing agency shall provide
information requested by the
Commission necessary to assess any of
the factors it determines to be
appropriate in the course of its review,
the Commission preliminarily believes
this information will likely be
information the clearing agency has in
its possession, including updates of
information provided in the related
Security-Based Swap Submission. The
Commission preliminarily estimates
that each clearing agency would receive
five applications per annum to stay the
clearing requirement. The Commission
also preliminarily estimates that the
total annual reporting burden for the six
respondent clearing agencies to compile
and provide the information requested
by the Commission in connection with
the review of the stay of clearing
applications would be 750 hours; this
figure includes 210 hours of outside
legal work. Assuming an hourly cost of
$320 for an in-house compliance
attorney,148 and an hourly cost of $354
for an outside attorney,149 these
requirements would result in a total
estimated annual cost of $247,140 in the
aggregate for the six respondent clearing
agencies (540 hours × $320 per hour for
a compliance attorney) + (210 hours ×
$354 per hour for an attorney).
Finally, the Commission preliminarily
estimates that 100 hours would be
required by a counterparty to a securitybased swap to prepare and submit an
application requesting a stay of the
clearing requirement. The Commission
also preliminarily estimates that
counterparties to security-based swaps
transactions would submit 30
applications requesting stays of the
clearing requirement. Assuming an
hourly cost of $354 for an outside
attorney, the total annual cost in the
aggregate for the respondent
counterparties to meet these
requirements would be $1,062,000 (100
hours × $354 per hour for an outside
attorney × 30 stay of clearing
applications).
The Commission requests that
commenters provide views and
supporting information regarding the
costs and benefits associated with the
148 See
149 See
supra note 140.
supra note 129.
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B. Advance Notices Required Under
Section 806(e)
Congress has mandated that the
Commission adopt rules to define when
proposed changes to a designated
clearing agency’s rules, procedures or
operations could materially affect the
nature or level of risks presented by the
clearing agency. The proposed rule
would determine when notice of such
changes must be filed with the
Commission and would prescribe how
such notices shall be filed. The
Commission is sensitive to the costs and
benefits that would result from the
proposed rule and has identified certain
costs and benefits of the proposal,
which are discussed more fully below.
1. Benefits
Pursuant to Section 806(e), any
registered clearing agency designated as
a systemically important financial
market utility and for which the
Commission is the Supervisory Agency
will be required to file with the
Commission advance notice of proposed
changes to its rules, procedures or
operations that could materially affect
the nature or level of risks presented by
the clearing agency. The proposed rule
would reduce regulatory uncertainty
pertaining to the filing requirement in
Section 806(e) by defining the term
‘‘materially affect the nature or level of
risks presented’’ with respect to a
change to rules, procedures, or
operations. The term would be defined
as a matter as to which there is a
reasonable possibility that the change
could affect the performance of essential
clearing and settlement functions or the
overall nature or level of risk presented
by the designated clearing agency. Such
changes would include, but are not
limited to, changes that materially affect
participant and product eligibility, risk
management, daily or intraday
settlement procedures, default
procedures, system safeguards,
governance or financial resources of the
designated financial market utility.
However, such changes generally would
exclude changes to an existing
procedure, control, or service that do
not modify the rights or obligations of
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the designated financial market utility
or persons using its payment, clearing,
or settlement services and that do not
adversely affect the safeguarding of
securities, collateral, or funds in the
custody or control of the designated
financial market utility or for which it
is responsible, or changes concerned
solely with the administration of the
designated financial market utility or
related to the routine, daily
administration, direction, and control of
employees.150
The Commission also is proposing to
facilitate the compliance with the filing
requirement in Section 806(e) by
prescribing how Advance Notices of
proposed changes to rules, procedures
or operations shall be filed by
designated clearing agencies. Because
the requirement to file notice under
Section 806(e) is similar to the filing
requirement for proposed rule changes
under Exchange Act Section 19(b), the
Commission is proposing that Advance
Notices be filed on Form 19b–4. In
many cases, it is likely that a proposed
change for purposes of Section 806(e)
will also be a proposed rule change for
purposes of Exchange Act Section 19(b),
reducing costs associated with multiple
filings.
The proposed rule is designed to
implement the filing requirement in
Section 806(e) and to establish criteria
for designated clearing agencies
regarding when notices shall be filed
and the method for filing such notices.
The Commission preliminarily believes
that the proposed rule would lower the
costs of filing and regulatory review of
proposed changes that could materially
affect the nature or level of risks
presented by systemically important
clearing institutions. In addition, the
proposed rule is intended to provide the
public with the opportunity to comment
on such proposals by designated
clearing agencies. The Commission
preliminarily believes the proposed rule
would help to assure that the additional
information required under Section
806(e) is provided through amendments
to the existing Form 19b–4. However, a
filing submitted under both Section
806(e) and Exchange Act Section 19(b)
would be required to satisfy the
standards under both sections in order
to become effective.
2. Costs
The Commission preliminarily
believes the costs associated with the
proposed rule should not be significant
for designated clearing agencies. Form
19b–4 is currently used by registered
clearing agencies to file notice of
150 Proposed
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proposed rule changes under Exchange
Act Section 19(b). Accordingly,
designated clearing agencies would be
familiar with the filing process in Form
19b–4, and staffs would not be required
to learn a new filing system. In addition,
clearing agencies would be able to
submit a change that is both a proposed
rule change under Exchange Act Section
19(b) and a proposed change under
Section 806(e) in the same filing.
Although there are additional
information requirements for a Section
806(e) filing, designated clearing
agencies would be able to provide the
required information as part of the Form
19b–4 submission.
Some proposed changes may be
required to be filed only as Advance
Notices under Section 806(e) and not as
proposed rule changes under Exchange
Act Section 19(b). As a result, the
Commission preliminarily believes
clearing agencies will incur additional
costs by filing a greater number of forms
than they do currently under Exchange
Act Section 19(b). Based on informal
comments from clearing agencies, the
Commission preliminarily estimates
that each designated clearing agency
will file 35 Advance Notices with the
Commission annually at a cost of $3,200
per submission (10 hours × compliance
attorney at $320 per hour) or $1,120,000
($3200 × 35 Advance Notices × 10
respondent clearing agencies) in the
aggregate for the ten respondent clearing
agencies.
Proposed Rule 19b–4(n)(3) requires
designated clearing agencies to post
copies of Advance Notices filed with the
Commission on their Web sites. The
Commission estimates that the total
annual reporting burden for designated
clearing agencies to post Advance
Notices on their Web sites would be
1400 hours. Assuming an hourly cost of
$225 for a Webmaster,151 these
requirements would result in an
estimated annual cost of $315,000 in the
aggregate for the ten respondent clearing
agencies (1400 hours × $225 per hour
for a Webmaster).
Proposed Rule 19b–4(n)(4) requires a
designated clearing agency to post
notice on its Web site of any change to
its rules, procedures or operations
referred to in an Advance Notice once
it has been permitted to take effect. The
Commission estimates that the total
annual reporting burden for designated
clearing agencies to post notice on their
Web sites of any change to their rules,
procedures or operations referred to in
Advance Notices once they take effect
would be 1400 hours. Assuming an
hourly cost of $225 for a Webmaster,152
these requirements would result in an
estimated annual cost of $315,000 in the
aggregate for the ten respondent clearing
agencies (1400 hours × $225 per hour
for a Webmaster).
C. Amendment To Conform to Section
916 of the Dodd-Frank Act
The Commission preliminarily
estimates that the requirement that an
SRO inform the Commission of the date
on which it posted a proposed rule
change on its Web site (if the posting
did not occur on the same day that the
SRO filed the proposal with the
Commission) will impose only a
minimal burden, if any, on an SRO. As
discussed in Section IV.B.4., the
Commission preliminarily believes that
SROs currently post their proposed rule
changes on their Web site on the same
day on which they file them with the
Commission. It would be an unlikely
occurrence for an SRO to fail to post its
proposed rule change on the same day
that it files with the Commission, since
prompt Web site posting triggers the
requirement on the Commission to
publish notice of the proposed rule
change.
The Commission preliminarily
estimates that SROs will fail to post
proposed rule changes on their Web
sites on the same day as the filing was
made with the Commission in 1% of all
cases, or 14 times each year, and that
each SRO will spend approximately one
hour preparing and submitting notice to
the Commission of the date on which it
posted the proposed rule change on its
Web site, resulting in a total annual
burden of 14 hours. Assuming an hourly
cost of $320 for an in-house compliance
attorney,153 this requirement would
result in a total estimated annual cost of
$4,480 in the aggregate for all SROs (14
hours × $320 per hour for a compliance
attorney) in the aggregate for all SROs.
The Commission requests that
commenters provide views and
supporting information regarding the
costs and benefits associated with the
proposals. The Commission seeks
estimates of these costs and benefits, as
well as any costs and benefits not
already identified. The Commission also
requests comment on whether other
provisions of the Dodd-Frank Act for
which Commission rulemaking is
required are likely to have an effect on
the costs and benefits of the proposed
rules.
151 See
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A. Proposed Amendments to Rule
19b–4 and Form 19b–4
The proposed amendments to Rule
19b–4 and Form 19b–4 are designed to
facilitate the statutorily mandated
processes for submitting Security-Based
Swap Submissions and Advance
Notices to the Commission, and to make
each process efficient by utilizing the
existing process and EFFS infrastructure
for proposed rule changes. Using an
existing process to accomplish an
additional legislative requirement
would conserve both clearing agency
and Commission resources. If amended,
Form 19b–4 would enable clearing
agencies to submit Security-Based Swap
Submissions, and any amendments
thereto, and any Advance Notices
electronically to the Commission.
Submitting Security-Based Swap
Submissions and Advance Notices in
this manner would impose fewer costs
on clearing agencies and the
Commission when compared to
requiring clearing agencies to use new
infrastructure or business processes to
U.S.C. 78w(a).
U.S.C. 77b(b).
156 15 U.S.C. 78c(f).
supra note 145.
153 See supra note 140.
supra note 145.
VI. Consideration of Burden on
Competition and Promotion of
Efficiency, Competition and Capital
Formation
Exchange Act Section 23(a) 154
requires the Commission, when making
rules and regulations under the
Exchange Act, to consider the impact a
new rule would have on competition.
Exchange Act Section 23(a)(2) prohibits
the Commission from adopting any rule
that would impose a burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Exchange Act. Section
2(b) of the Securities Act of 1933 155 and
Exchange Act Section 3(f) 156 require the
Commission, when engaging in
rulemaking that requires it to consider
whether an action is necessary or
appropriate in the public interest, to
consider, in addition to the protection of
investors, whether the action would
promote efficiency, competition, and
capital formation. Below, the
Commission addresses these issues for
the amendments to Rule 19b–4 and
Form 19b–4 to reflect the use of these
forms for filing Security-Based Swap
Submissions and Advance Notices, and
proposed Rule 3Ca–1 to facilitate the
process for staying the clearing
requirement applicable to a securitybased swap until the Commission
completes a review of the terms of the
security-based swap and the clearing
arrangement.
154 15
152 See
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make Security-Based Swap Submissions
or Advance Notices.
The proposed requirement that the
clearing agency aggregate security-based
swaps into groups, categories, types or
classes to the extent reasonable and
practicable to do so, in each SecurityBased Swap Submission likely would
appropriately streamline the submission
process for Commission staff and
clearing agencies (i.e., such aggregations
would decrease the number of SecurityBased Swap Submissions each clearing
agency would prepare and submit, and
accordingly, the Commission would
review). This requirement is intended to
make the Security-Based Swap
Submission process more efficient.
The proposed amendments to Rule
19b–4 and Form 19b–4 also are
intended to improve the transparency of
security-based swaps transactions. The
proposed amendments to Rule 19b–4
would require a clearing agency to post
on its Web site any Security-Based
Swap Submissions and any
amendments thereto, it submitted to the
Commission within two business days
of submission to the Commission, to
fulfill the statutory requirement that
clearing agencies provide notice to their
members of such submissions. The
Commission preliminarily believes that
public Web site posting of SecurityBased Swap Submissions may promote
competition among security-based swap
clearing agencies because it will make it
easier (and more timely) for clearing
agencies to be able to determine the
security-based swaps their competitors
intend to clear and analyze whether
they too wish to clear such securitybased swap.
Similarly, the proposed amendments
to Rule 19b–4 would require a
designated clearing agency to post on its
Web site proposed changes to its rules,
procedures, or operations that trigger
the Section 806(e) advance notice
requirement and a description of the
subjects and issues involved within two
business days of the submission of an
Advance Notice to the Commission. A
designated clearing agency also will be
required to post a notice on its Web site
of the effectiveness of any change to its
rules, procedures, or operations referred
to in an Advance Notice within two
business days of the effective date, as
monitored by the designated clearing
agency and determined in accordance
with Section 806(e). The Commission
preliminarily believes that public Web
site posting of this information may
promote competition and transparency
among clearing agencies by giving
interested persons an opportunity to
submit written data, views, and
arguments concerning proposed changes
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that could materially affect the nature or
level of risks presented by a designated
clearing agency.
The proposed amendments to Rule
19b–4 and Form 19b–4 with respect to
the information that clearing agencies
are required to provide are intended to
facilitate the Commission’s review
process for Security-Based Swap
Submissions and Advance Notices and
to make the process efficient by
requiring information the clearing
agency is uniquely qualified to provide
and likely may already have available.
The Commission preliminarily
believes none of the proposed
amendments to Rule 19b–4 and Form
19b–4 would have an adverse impact on
competition or capital formation, but
instead should increase confidence in
the robustness of the security-based
swap market, encouraging participation
and allowing better risk management
practices. To the extent that securitybased swaps mitigate the risk associated
with capital raising activities, increased
investor confidence and use of securitybased swaps should foster more efficient
capital formation and thereby benefit
issuers and investors.
Proposed Rule 3Ca–1 is designed to
facilitate the statutorily mandated
process for staying the clearing
requirement applicable to a securitybased swap until the Commission
completes a review of the terms of the
security-based swap and the clearing
arrangement. The proposed rule is
designed to create an efficient
mechanism for collecting information to
be used in the Commission’s
determination to grant the requested
stay and subsequent review of the
clearing requirement.
The Commission has not identified
any effects on competition or capital
formation of the process specified in
proposed Rule 3Ca–1. The Commission
preliminarily believes proposed Rule
3Ca–1 would not have an adverse
impact on competition or capital
formation.
The Commission generally requests
comment on the competitive or
anticompetitive effects of the proposed
amendments to Rule 19b–4 and Form
19b–4 on any market participants if
adopted as proposed. The Commission
also requests comment on what impact
the amendments, if adopted, would
have on efficiency and capital
formation. The Commission requests
that commenters provide analysis and
empirical data, if available, to support
their views regarding any such effects.
The Commission notes that such effects
may be difficult to quantify. The
Commission also requests comment
regarding the competitive effects of
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pursuing alternative regulatory
approaches that are consistent with
Exchange Act Section 3C, as added by
Section 763(a) of the Dodd-Frank Act. In
addition, the Commission requests
comment on how the other provisions of
the Dodd-Frank Act for which
Commission rulemaking is required,
will interact with and influence the
competitive effects of the proposed
amendments to Rule 19b–4 and Form
19b–4.
VII. Consideration of Impact on the
Economy
For purposes of the Small Business
Regulatory Enforcement Fairness Act of
1996 (‘‘SBREFA’’),157 the Commission
must advise the OMB as to whether the
proposed rule constitutes a ‘‘major’’ rule.
Under SBREFA, a rule is considered
‘‘major’’ where, if adopted, it results or
is likely to result in: (i) An annual effect
on the economy of $100 million or more
(either in the form of an increase or a
decrease); (ii) a major increase in costs
or prices for consumers or individual
industries; or (iii) significant adverse
effect on competition, investment or
innovation. If a rule is ‘‘major,’’ its
effectiveness will generally be delayed
for sixty days pending Congressional
review.
The Commission requests comment
on the potential impact of the
amendments to Rule 19b–4 and Form
19b–4 and new Rules 3Ca–1 and 3Ca–
2 on the economy on an annual basis,
any potential increase in costs or prices
for consumers or individual industries,
and any potential effect on competition,
investment or innovation. Commenters
are requested to provide empirical data
and other factual support for their view
to the extent possible.
VIII. Regulatory Flexibility
Certification
The Regulatory Flexibility Act
(‘‘RFA’’) 158 requires the Commission, in
promulgating rules, to consider the
impact of those rules on small entities.
Section 603(a) 159 of the Administrative
Procedure Act,160 as amended by the
RFA, generally requires the Commission
to undertake a regulatory flexibility
analysis of all proposed rules to
determine the impact of such
rulemaking on ‘‘small entities.’’ 161
157 Public Law 104–121, Title II, 110 Stat. 857
(1996) (codified in various sections of 5 U.S.C., 15
U.S.C. and as a note to 5 U.S.C. 601).
158 5 U.S.C. 601 et seq.
159 5 U.S.C. 603(a).
160 5 U.S.C. 551 et seq.
161 Section 601(b) of the RFA permits agencies to
formulate their own definitions of ‘‘small entities.’’
The Commission has adopted definitions for the
term ‘‘small entity’’ for the purposes of rulemaking
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Section 605(b) of the RFA states that
this requirement shall not apply to any
proposed rule which, if adopted, would
not have a significant economic impact
on a substantial number of small
entities.162
A. Clearing Agencies
The amendments to Rule 19b–4
would apply to (i) all clearing agencies
that clear security-based swaps and (ii)
all designated clearing agencies.
Proposed Rules 3Ca–1 and 3Ca–2 would
apply to all security-based swap
clearing agencies. Four entities are
currently exempt from registration as a
clearing agency under Exchange Act
Section 17A to provide central clearing
services for CDS, a class of securitybased swaps.163 The Commission
preliminarily believes, based on its
understanding of the market, that likely
no more than six security-based swap
clearing agencies could be subject to the
requirements of the proposed
amendments to Rule 19b–4 and
proposed Rules 3Ca–1 and 3Ca–2. In
addition, the Commission preliminarily
believes that approximately ten
registered clearing agencies could be
designated by the Council as
systemically important (and for which
the Commission will be the Supervisory
Agency), which includes the four
existing securities clearing agencies and
the six estimated clearing agencies that
may clear security-based swaps.
For the purposes of Commission
rulemaking in connection with the RFA,
a small entity includes, when used with
reference to a clearing agency, a clearing
agency that: (i) Compared, cleared and
settled less than $500 million in
securities transactions during the
preceding fiscal year; (ii) had less than
$200 million of funds and securities in
its custody or control at all times during
the preceding fiscal year (or at any time
that it has been in business, if shorter);
and (iii) is not affiliated with any person
(other than a natural person) that is not
a small business or small
organization.164 Under the standards
adopted by the Small Business
Administration, small entities in the
finance industry include the following:
(i) For entities engaged in investment
banking, securities dealing and
securities brokerage activities, entities
with $6.5 million or less in annual
receipts; (ii) for entities engaged in trust,
fiduciary and custody activities, entities
in accordance with the RFA. These definitions, as
relevant to this proposed rulemaking, are set forth
in Rule 0–10, 17 CFR 240.0–10.
162 See 5 U.S.C. 605(b).
163 See CDS Clearing Exemption Orders, supra
note 122.
164 17 CFR 240.0–10(d).
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with $6.5 million or less in annual
receipts; and (iii) funds, trusts and other
financial vehicles with $6.5 million or
less in annual receipts.165
Based on the Commission’s existing
information about the entities likely to
register to clear security-based swaps,
the Commission preliminarily believes
that such entities will not be small
entities, but rather part of large business
entities that exceed the thresholds
defining ‘‘small entities’’ set out above.
Additionally, while other clearing
agencies may become eligible to operate
as central counterparties for securitybased swaps, the Commission
preliminarily does not believe that any
such entities would be ‘‘small entities’’
as defined in Exchange Act Rule 0–
10.166 Furthermore, we believe it is
unlikely that clearing agencies acting as
central counterparties for security-based
swaps would have annual receipts of
less than $6.5 million. Accordingly, the
Commission believes that any clearing
agencies clearing security-based swaps
by acting as central counterparties for
such transactions will exceed the
thresholds for ‘‘small entities’’ set forth
in Exchange Act Rule 0–12.
B. Security-Based Swap Counterparties
Proposed Rule 3Ca–1 would apply to
any counterparty to a security-based
swap subject to the clearing requirement
that applies for a stay of the clearing
requirement. For the purposes of
Commission rulemaking and as
applicable to this proposed Rule 3Ca–1,
a small entity includes: (i) When used
with reference to a clearing agency, a
clearing agency that (a) compared,
cleared and settled less than $500
million in securities transactions during
the preceding fiscal year, (b) had less
than $200 million of funds and
securities in its custody or control at all
times during the preceding fiscal year
(or at any time that it has been in
business, if shorter) and (c) is not
affiliated with any person (other than a
natural person) that is not a small
business or small organization; 167 (ii)
when used as reference to an ‘‘issuer’’ or
a ‘‘person,’’ other than an investment
company, an ‘‘issuer’’ or a ‘‘person’’ that,
on the last day of its most recent fiscal
year, had total assets of $5 million or
less; 168 or (iii) when used as reference
to broker-dealer, a broker-dealer (a) with
total capital (net worth plus
subordinated liabilities) of less than
$500,000 on the date in the prior fiscal
year as of which its audited financial
165 13
CFR 121.201, Sector 52.
17 CFR 240.0–10(d).
167 17 CFR 240.0–10(d).
168 17 CFR 240.0–10(a).
statements were prepared pursuant to
Rule 17a–5(d) under the Exchange Act,
or, if not required to file such
statements, a broker-dealer that had
total capital (net worth plus
subordinated liabilities) of less than
$500,000 on the last business day of the
preceding fiscal year (or in that time
that it has been in business, if shorter)
and (b) is not affiliated with any person
(other than a natural person) that is not
a small business or small
organization.169 Under the standards
adopted by the Small Business
Administration, small entities in the
finance industry include the following:
(i) For entities engaged in investment
banking, securities dealing and
securities brokerage activities, entities
with $6.5 million or less in annual
receipts; (ii) for entities engaged in trust,
fiduciary and custody activities, entities
with $6.5 million or less in annual
receipts; and (iii) funds, trusts and other
financial vehicles with $6.5 million or
less in annual receipts.170
With regard to security-based swap
transactions that have counterparties
that may meet the definition of a ‘‘small
entity’’ under Exchange Act Rule 0–10
and, under proposed Rule 3Ca–1, apply
to the Commission for a stay of the
clearing requirement, the Commission
believes that it is unlikely that the stay
application process of proposed Rule
3Ca–1 would have a significant
economic impact upon such an entity.
Given that the proposed stay application
process entails the submission of a
written statement to the Commission
setting forth information about the
security-based swap transaction for
which the stay is sought, the
Commission believes the impact of the
application process on a counterparty
would be minimal. Furthermore, even if
the stay application process were to
have a significant economic impact
upon such non-clearing agency
counterparty, the Commission believes
that the number of entities so impacted
would be no more than 30, based on the
informal discussions between the staff
and the clearing agencies, in terms of
number of stay requests and number of
small entities making such requests.
Accordingly, in respect of non-clearing
agency counterparties to security-based
swap transactions, the Commission
preliminarily believes that proposed
Rule 3Ca–1 would not have a significant
economic impact on a substantial
number of small entities.
166 See
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169 17
170 13
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C. Certification
For the reasons stated above, the
Commission certifies that the proposed
amendments to Rule 19b–4 and
proposed Rules 3Ca–1 and 3Ca–2 would
not have a significant economic impact
on a substantial number of small entities
for the purposes of the RFA. The
Commission encourages written
comments regarding this certification.
The Commission requests that
commenters describe the nature of any
impact on small entities, including
clearing agencies eligible to clear
security-based swaps, designated
clearing agencies and counterparties to
security-based swap transactions, and
provide empirical data to support the
extent of the impact.
IX. Statutory Authority
Pursuant to the Exchange Act, and
particularly Sections 3C, 17A and 19(b)
thereof, 15 U.S.C. 78c–3, 78q–1 and
78s(b) and Section 806(e) of the DoddFrank Act, 12 U.S.C 5465(e), the
Commission proposes to amend Rule
19b–4 and Form 19b–4 and add new
Rules 3Ca–1 and 3Ca–2, as set forth
below.
List of Subjects in 17 CFR Parts 240 and
249
Brokers, Reporting and recordkeeping
requirements, Securities.
Text of the Proposed Rule
In accordance with the foregoing,
Title 17, chapter II of the Code of
Federal Regulations is proposed to be
amended as follows:
PART 240—GENERAL RULES AND
REGULATIONS, SECURITIES
EXCHANGE ACT OF 1934
1. The general authority citation for
part 240 is revised to read as follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j,
77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn,
77sss, 77ttt, 78c, 78c–3, 78d, 78e, 78f, 78g,
78i, 78j, 78j–1, 78k, 78k–1, 78l, 78m, 78n,
78o, 78o–4, 78p, 78q, 78s, 78u–5, 78w, 78x,
78ll, 78mm, 80a–20, 80a–23, 80a–29, 80a–37,
80b–3, 80b–4, 80b–11, and 7201 et seq.; 18
U.S.C. 1350 and 12 U.S.C. 5221(e)(3), unless
otherwise noted.
*
*
*
*
*
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Section 240.19b–4 is also issued under 12
U.S.C. 5465(e).
2. Sections 240.3ca–1 and 240.3ca–2
are added following § 240.3b–19 to read
as follows:
§ 240.3ca–1 Stay of clearing requirement
and review by the Commission.
(a) After making a determination
pursuant to a clearing agency’s securitybased swap submission that a securitybased swap, or any group, category, type
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or class of security-based swaps, is
required to be cleared, the Commission,
on application of a counterparty to a
security–based swap or on the
Commission’s own initiative, may stay
the clearing requirement until the
Commission completes a review of the
terms of the security-based swap (or
group, category, type, or class of
security-based swaps) and the clearing
of the security-based swap (or group,
category, type, or class of security-based
swaps) by the clearing agency that has
accepted it for clearing.
(b) A counterparty to a security-based
swap applying for a stay of the clearing
requirement for a security-based swap
(or group, category, type, or class of
security-based swaps) shall submit a
written statement to the Commission
that includes:
(1) A request for a stay of the clearing
requirement;
(2) The identity of the counterparties
to the security-based swap and a contact
at the counterparty requesting the stay;
(3) The identity of the clearing agency
clearing the security-based swap;
(4) The terms of the security-based
swap subject to the clearing requirement
and a description of the clearing
arrangement; and
(5) Reasons why such stay should be
granted and why the security-based
swap should not be subject to a clearing
requirement, specifically addressing the
same factors a clearing agency must
address in its security-based-swap
submission pursuant to § 240.19b–
4(o)(3) of this chapter.
(c) A stay of the clearing requirement
may be granted with respect to a
security-based swap, or the group,
category, type, or class of security-based
swaps, as determined by the
Commission.
(d) The Commission’s review shall
include, but need not be limited to, a
quantitative and qualitative assessment
of the factors specified in § 240.19b–
4(o)(3) of this chapter. Any clearing
agency that has accepted for clearing a
security-based swap, or any group,
category, type or class of security-based
swaps, that is subject to the stay of the
clearing requirement shall provide
information requested by the
Commission necessary to assess any of
the factors it determines to be
appropriate in the course of its review.
(e) Upon completion of its review, the
Commission may:
(1) Determine, subject to any terms
and conditions that the Commission
determines to be appropriate in the
public interest, that the security-based
swap, or group, category, type, or class
of security-based swaps must be cleared;
or
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(2) Determine that the clearing
requirement will not apply to the
security-based swap, or group, category,
type, or class of security-based swaps,
but clearing may continue on a nonmandatory basis.
§ 240.3ca–2 Submission of security-based
swaps for clearing.
Pursuant to section 3C(a)(1) of the Act
(15 U.S.C. 78c–3(a)(1)), it shall be
unlawful for any person to engage in a
security-based swap unless that person
submits such security-based swap for
clearing to a clearing agency that is
registered under this Act or a clearing
agency that is exempt from registration
under the Act if the security-based swap
is required to be cleared. The phrase
submits such security-based swap for
clearing to a clearing agency in the
clearing requirement of Section 3C(a)(1)
of the Act shall mean that the securitybased swap will be submitted for central
clearing to a clearing agency that
functions as a central counterparty.
3. § 240.19b–4 is amended by:
a. Removing paragraph (b);
b. Redesignating paragraph (a) as
paragraph (b);
c. Adding new paragraph (a);
d. In paragraph (i), by revising the
phrase ‘‘of all filings made pursuant to
this section’’ to read ‘‘of all filings,
notices and submissions made pursuant
to this section 240.19b–4’’;
e. In paragraph (i), adding the words
‘‘notice or submission,’’ after the phrase
‘‘any such filing,’’;
f. In paragraph (i), removing the
phrase ‘‘the filing of the proposed rule
change.’’ and adding in its place ‘‘the
filing, notice or submission of the
proposed rule change, advance notice or
security-based swap submission, as
applicable.’’;
g. In paragraph (j), first sentence,
removing the words ‘‘with respect to
proposed rule changes’’;
h. In paragraph (k) adding ‘‘240.19b–
4’’ after the words ‘‘this section’’;
i. Revising paragraph (l), introductory
paragraph;
j. In paragraph (l)(4), replacing the
phrase ‘‘website’’ to read ‘‘Web site’’;
k. In paragraph (m)(1), replacing the
phrase ‘‘website’’ to read ‘‘Web site’’;
l. In paragraph (m)(2), replacing the
phrase ‘‘website’’ to read ‘‘Web site’’;
m. In paragraph (m)(3), replacing the
phrase ‘‘website’’ to read ‘‘Web site’’;
n. Adding paragraph (n); and
o. Adding paragraph (o).
3. The additions and revisions read as
follows:
§ 240.19b–4 Filings with respect to
proposed rule changes by self-regulatory
organizations.
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(a) Definitions. As used in this
§ 240.19b–4:
(1) The term advance notice means a
notice required to be made by a
designated clearing agency pursuant to
Section 806(e) of the Payment, Clearing
and Settlement Supervision Act (12
U.S.C. 5465);
(2) The term designated clearing
agency means a clearing agency that is
registered with the Commission, and for
which the Commission is the
Supervisory Agency (as determined in
accordance with section 803(8) of the
Payment, Clearing and Settlement
Supervision Act), that has been
designated by the Financial Stability
Oversight Council pursuant to section
804 of the Payment, Clearing and
Settlement Supervision Act (12 U.S.C.
5463) as systemically important or
likely to become systemically important;
(3) The term Payment, Clearing and
Settlement Supervision Act means Title
VIII of the Dodd-Frank Wall Street
Reform and Consumer Protection Act
(124 Stat. 1802, 1803, 1807, 1809, 1811,
1814, 1816, 1818, 1820, 1821; 12 U.S.C.
5461 et seq.);
(4) The term proposed rule change
has the meaning set forth in Section
19(b)(1) of the Act (15 U.S.C. 78s(b)(1));
(5) The term security-based swap
submission means a submission
required to be made by a clearing
agency pursuant to section 3C(b)(2) of
the Act (15 U.S.C. 78c–3(b)(2)) for each
security-based swap, or any group,
category, type or class of security-based
swaps, that such clearing agency plans
to accept for clearing;
(6) The term stated policy, practice, or
interpretation means:
(i) Any material aspect of the
operation of the facilities of the selfregulatory organization; or
(ii) Any statement made generally
available to the membership of, to all
participants in, or to persons having or
seeking access (including, in the case of
national securities exchanges or
registered securities associations,
through a member) to facilities of, the
self-regulatory organization (‘‘specified
persons’’), or to a group or category of
specified persons, that establishes or
changes any standard, limit, or
guideline with respect to:
(A) The rights, obligations, or
privileges of specified persons or, in the
case of national securities exchanges or
registered securities associations,
persons associated with specified
persons; or
(B) The meaning, administration, or
enforcement of an existing rule.
*
*
*
*
*
(l) The self-regulatory organization
shall post each proposed rule change,
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and any amendments thereto, on its
Web site within two business days after
the filing of the proposed rule change,
and any amendments thereto, with the
Commission. If a self-regulatory
organization does not post a proposed
rule change on its Web site on the same
day that it filed the proposal with the
Commission, then the self-regulatory
organization shall inform the
Commission of the date on which it
posted such proposal on its Web site.
Such proposed rule change and
amendments shall be maintained on the
self-regulatory organization’s Web site
until:
*
*
*
*
*
(n)(1) A designated clearing agency
shall provide an advance notice to the
Commission of any proposed change to
its rules, procedures, or operations that
could materially affect the nature or
level of risks presented by such
designated clearing agency. Such
advance notice shall be submitted to the
Commission electronically on Form
19b–4 (referenced in 17 CFR 249.819).
The Commission shall, upon the filing
of any advance notice, provide for
prompt publication thereof.
(2)(i) For purposes of this paragraph
(n), the phrase materially affect the
nature or level of risks presented, when
used to qualify determinations on a
change to rules, procedures, or
operations at the designated clearing
agency, means matters as to which there
is a reasonable possibility that the
change could affect the performance of
essential clearing and settlement
functions or the overall nature or level
of risk presented by the designated
clearing agency.
(ii) Changes to rules, procedures or
operations that could materially affect
the nature or level or risks presented by
a designated clearing agency utility may
include, but are not limited to, changes
that materially affect participant and
product eligibility, risk management,
daily or intraday settlement procedures,
default procedures, system safeguards,
governance or financial resources of the
designated clearing agency.
(iii) Changes to rules, procedures or
operations that may not materially affect
the nature or level or risks presented by
a designated clearing agency include,
but are not limited to:
(A) Changes to an existing procedure,
control, or service that do not modify
the rights or obligations of the
designated financial market utility or
persons using its payment, clearing, or
settlement services and that do not
adversely affect the safeguarding of
securities, collateral, or funds in the
custody or control of the designated
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financial market utility or for which it
is responsible; or
(B) Changes concerned solely with the
administration of the designated
financial market utility or related to the
routine, daily administration, direction,
and control of employees;
(3) The designated clearing agency
shall post the advance notice, and any
amendments thereto, on its Web site
within two business days after the filing
of the advance notice, and any
amendments, thereto the Commission.
Such advance notice and amendments
shall be maintained on the designated
clearing agency’s Web site until the
earlier of:
(i) The date the designated clearing
agency withdraws the advance notice or
is notified that the advance notice is not
properly filed; or
(ii) The date the designated clearing
agency posts a notice of effectiveness as
required by paragraph (n)(4)(ii) of this
section.
(4)(i) The designated clearing agency
shall post a notice on its Web site
within two business days of the date
that any change to its rules, procedures,
or operations referred to in an advance
notice has been permitted to take effect
as such date is determined in
accordance with Section 806(e) of the
Payment, Clearing and Settlement
Supervision Act (12 U.S.C. 5465)
(ii) The designated clearing agency
shall post a notice on its Web site
within two business days of the
effectiveness of any change to its rules,
procedures, or operations referred to in
an advance notice.
(5) A designated clearing agency shall
provide copies of all materials
submitted to the Commission relating to
an advance notice with the Board of
Governors of the Federal Reserve
System contemporaneously with such
submission to the Commission.
(o)(1) A clearing agency shall submit
to the Commission a security-based
swap submission and provide notice to
its members of such security-based
swap submission.
(2) Every clearing agency that is
registered with the Commission that
plans to accept a security-based swap,
or any group, category, type or class of
security-based swaps for clearing shall
submit to the Commission electronically
on Form 19b–4 (referenced in CFR
249.819) the information required to be
submitted for a security-based swap
submission, as provided in § 240.19b–4
of this chapter and Form 19b–4. Any
information submitted to the
Commission electronically on Form
19b–4 that is not complete or otherwise
in compliance with § 240.19b–4 of this
chapter and Form 19b–4, shall not be
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considered a security-based swap
submission and the Commission shall
so inform the clearing agency within
twenty-one business days of the
submission on Form 19b–4.
(3) A security-based swap submission
submitted by a clearing agency to the
Commission shall include a statement
that includes, but is not limited to:
(i) How the security-based swap
submission is consistent with Section
17A of the Act (15 U.S.C. 78q–1); and
(ii) Information that will assist the
Commission in the quantitative and
qualitative assessment of the factors
specified in Section 3C of the Act (15
U.S.C. 78c–3), including, but not limited
to:
(A) The existence of significant
outstanding notional exposures, trading
liquidity and adequate pricing data;
(B) The availability of a rule
framework, capacity, operational
expertise and resources, and credit
support infrastructure to clear the
contract on terms that are consistent
with the material terms and trading
conventions on which the contract is
then traded;
(C) The effect on the mitigation of
systemic risk, taking into account the
size of the market for such contract and
the resources of the clearing agency
available to clear the contract;
(D) The effect on competition,
including appropriate fees and charges
applied to clearing;
(E) The existence of reasonable legal
certainty in the event of the insolvency
of the relevant clearing agency or one or
more of its clearing members with
regard to the treatment of customer and
security-based swap counterparty
positions, funds, and property;
(F) How the rules of the clearing
agency prescribe that all security-based
swaps submitted to the clearing agency
with the same terms and conditions are
economically equivalent within the
clearing agency and may be offset with
each other within the clearing agency,
as applicable to the security-based
swaps described in the security-based
swap submission.
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(G) How the rules of the clearing
agency provide for non-discriminatory
clearing of a security-based swap
executed bilaterally or on or through the
rules of an unaffiliated national
securities exchange or security-based
swap execution facility, as applicable to
the security-based swaps described in
the security-based swap submission.
(4) A clearing agency shall submit
security-based swaps to the Commission
for review by group, category, type or
class of security-based swaps, to the
extent reasonable and practicable to do
so.
(5) A clearing agency shall post each
security-based swap submission, and
any amendments thereto, on its Web site
within two business days after the
submission of the security-based swap
submission, and any amendments
thereto, with the Commission. Such
security-based swap submission and
amendments shall be maintained on the
clearing agency’s Web site until the
Commission makes a determination
regarding the security-based swap
submission or the clearing agency
withdraws the security-based swap
submission, or is notified that the
security-based swap submission is not
properly filed.
(6) Upon receipt of a security-based
swap submission pursuant to this
section, the Commission shall review
the security-based swap submission and
determine whether the security-based
swap, or group, category, type or class
of security-based swaps, described in
the submission is required to be cleared.
(i) When making a determination, the
Commission will take into account the
factors addressed in the security-based
swap submission and any additional
factors the Commission determines to be
appropriate. The clearing agency shall
provide any additional information
requested by the Commission as
necessary to assess any of the factors it
determines to be appropriate in order to
make the determination of whether the
clearing requirement applies.
(ii) In making a determination that the
clearing requirement shall apply, the
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Commission may include such terms
and conditions to the requirement as the
Commission determines to be
appropriate in the public interest.
(7) Notices of orders issued pursuant
to Section 3C of the Act (15 U.S.C. 78c–
3), regarding security-based swap
submissions will be given by prompt
publication thereof, together with a
statement of written reasons therefor.
PART 249—FORMS, SECURITIES
EXCHANGE ACT OF 1934
4. The general authority citation for
part 249 is revised to read as follows:
Authority: 15 U.S.C. 78a et seq. and 7201
et seq.; 12 U.S.C. 5461 et seq; and 18 U.S.C.
1350, unless otherwise noted.
*
*
*
*
*
Section 249.819 is also issued under 12
U.S.C. 5465(e).
5. Revise § 249.819 to read as follows:
§ 249.819 Form 19b–4, for electronic
filings with respect to proposed rule
changes, advance notices and securitybased swap submissions by all selfregulatory organizations.
This form shall be used by all selfregulatory organizations, as defined in
Section 3(a)(26) of the Securities
Exchange Act of 1934 (15 U.S.C.
78c(a)(26)), to file electronically
proposed rule changes with the
Commission pursuant to Section 19(b)
of the Act and § 240.19b–4 of this
chapter, advance notices with the
Commission pursuant to Section 806(e)
of the Payment, Clearing and Settlement
Supervision Act (12 U.S.C. 5465) and
§ 240.19b–4 of this chapter and securitybased swap submissions with the
Commission pursuant to Section
3C(b)(2) of the Act (15 U.S.C. 78c–
3(b)(2)) and § 240.19b–4 of this chapter.
6. Form 19b–4 (referenced in
§ 249.819) is revised to read as follows:
Note: The text of Form 19b–4 does not and
the amendments will not appear in the Code
of Federal Regulations.
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BILLING CODE C
hsrobinson on DSK69SOYB1PROD with PROPOSALS2
A. Use of the Form
All self-regulatory organization
proposed rule changes, except filings
with respect to proposed rule changes
by self-regulatory organizations
submitted pursuant to Section 19(b)(7)
of the Securities Exchange Act of 1934
(‘‘Act’’), security-based swap
submissions, and advance notices shall
be filed in an electronic format through
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the Electronic Form 19b–4 Filing
System (‘‘EFFS’’), a secure Web site
operated by the Commission. This form
shall be used for filings of proposed rule
changes by all self-regulatory
organizations pursuant to Section 19(b)
of the Act, except filings with respect to
proposed rule changes by self-regulatory
organizations submitted pursuant to
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Section 19(b)(7) of the Act.171 National
securities exchanges, registered
securities associations, registered
clearing agencies, and the Municipal
Securities Rulemaking Board are selfregulatory organizations for purposes of
171 Because Section 19(b)(7)(C) of the Act states
that filings abrogated pursuant to this Section
should be re-filed pursuant to paragraph (b)(1) of
Section 19 of the Act, SROs are required to file
electronically such proposed rule changes in
accordance with this form.
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General Instructions for Form 19b–4
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this form. This form shall be used for all
security-based swap submissions and
advance notices filed by registered
clearing agencies. A proposed change
that is required to be filed with the
Commission under more than one of
these three processes (a proposed rule
change, security-based swap
submission, or advance notice) shall be
submitted on the same Form 19b–4.
hsrobinson on DSK69SOYB1PROD with PROPOSALS2
B. Need for Careful Preparation of the
Completed Form, Including Exhibits
This form, including the exhibits, is
intended to elicit information necessary
for the public to provide meaningful
comment on the proposed rule change,
security-based swap submission, or
advance notice and for the Commission
to determine whether the proposed rule
change, security-based swap
submission, or advance notice is
consistent with the requirements of the
Act and the rules and regulations
thereunder or the Payment, Clearing and
Settlement Supervision Act and the
rules and regulations thereunder
applicable to the self-regulatory
organization. The self-regulatory
organization must provide all the
information called for by the form,
including the exhibits, and must present
the information in a clear and
comprehensible manner.
The proposed rule change, securitybased swap submission, or advance
notice shall be considered filed on the
date on which the Commission receives
the proposed rule change, securitybased swap submission, or advance
notice if the filing complies with all
requirements of this form. Any filing
that does not comply with the
requirements of this form may be
returned to the self-regulatory
organization. Any filing so returned
shall for all purposes be deemed not to
have been filed with the Commission.
See also Rule 0–3 under the Act (17 CFR
240.0–3).
C. Documents Comprising the
Completed Form
The completed form filed with the
Commission shall consist of the Form
19b–4 Page 1, numbers and captions for
all items, responses to all items, and
exhibits required in Item 11. In
responding to an item, the completed
form may omit the text of the item as
contained herein if the response is
prepared to indicate to the reader the
coverage of the item without the reader
having to refer to the text of the item or
its instructions. Each filing shall be
marked on the Form 19b–4 with the
initials of the self-regulatory
organization, the four-digit year, and the
number of the filing for the year (e.g.,
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SRO–YYYY–XX). If the SRO is filing
Exhibits 2 or 3 via paper, the exhibits
must be filed within 5 calendar days of
the electronic submission of all other
required documents.
D. Amendments
If information on this form is or
becomes inaccurate before the
Commission takes action on the
proposed rule change or the securitybased swap submission, or prior to the
expiration of the statutory review period
with respect to advance notices (as
determined in accordance with 806(e) of
the Payment, Clearing and Settlement
Supervision Act), the self-regulatory
organization shall correct any such
inaccuracy. Amendments shall be filed
as specified in Instruction F.
Amendments to a filing shall include
the Form 19b–4 Page 1 marked to
number consecutively the amendments,
numbers and captions for each amended
item, amended response to the item, and
required exhibits. The amended
response to Item 3 shall explain the
purpose of the amendment and, if the
amendment changes the purpose of or
basis for the proposed rule change,
security-based swap submission, or
advance notice, the amended response
shall also provide a revised purpose and
basis statement. Exhibit 1 or Exhibit 1A,
as applicable, shall be re-filed if there is
a material change from the immediately
preceding filing in the language of the
proposed rule change or in the
information provided relating to the
proposed rule change, security-based
swap submission, or advance notice.
If the amendment alters the text of an
existing rule, the amendment shall
include the text of the existing rule,
marked in the manner described in Item
1(a) using brackets to indicate words to
be deleted from the existing rule and
underscoring to indicate words to be
added. The purpose of this marking
requirement is to maintain a current
copy of how the text of the existing rule
is being changed.
If the amendment alters the text of the
proposed rule change as it appeared in
the immediately preceding filing (even
if the proposed rule change does not
alter the text of an existing rule), the
amendment shall include, as Exhibit 4,
the entire text of the rule as altered. This
full text shall be marked, in any
convenient manner, to indicate
additions to and deletions from the
immediately preceding filing. The
purpose of Exhibit 4 is to permit the
staff to identify immediately the
changes made from the text of the rule
with which it has been working.
If the self-regulatory organization is
amending only part of the text of a
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lengthy proposed rule change, it may,
with the Commission’s permission, file
only those portions of the text of the
proposed rule change in which changes
are being made if the filing (i.e., partial
amendment) is clearly understandable
on its face. Such partial amendment
shall be clearly identified and marked to
show deletions and additions.
If, after the Form 19b–4 is filed but
before the Commission takes final action
on it, the self-regulatory organization
receives or prepares any correspondence
or other communications reduced to
writing (including comment letters) to
and from such self-regulatory
organization concerning the proposed
rule change, security-based swap
submission, or advance notice, the
communications shall be filed as
Exhibit 2. If information in the
communication makes the filing
inaccurate, the filing shall be amended
to correct the inaccuracy. If such
communications cannot be filed
electronically in accordance with
Instruction F, the communications shall
be filed in accordance with Instruction
G.
E. Completion of Action by the SelfRegulatory Organization on the
Proposed Rule Change
The Commission will not approve a
proposed rule change or make a
determination regarding a securitybased swap submission or raise no
objection to an advance notice before
the self-regulatory organization has
completed all action required to be
taken under its constitution, articles of
incorporation, bylaws, rules, or
instruments corresponding thereto
(excluding action specified in any such
instrument with respect to (i)
compliance with the procedures of the
Act or (ii) the formal filing of
amendments pursuant to State law).
F. Signature and Filing of the
Completed Form
All proposed rule changes, securitybased swap submissions, advance
notices, amendments, extensions, and
withdrawals of proposed rule changes,
security-based swap submissions, and
advance notices shall be filed through
the EFFS. In order to file Form 19b–4
through EFFS, self-regulatory
organizations must request access to the
SEC’s External Application Server by
completing a request for an external
account user ID and password. Initial
requests will be received by contacting
the Trading and Markets Administrator
located on our Web site (https://
www.sec.gov). An e-mail will be sent to
the requestor that will provide a link to
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a secure Web site where basic profile
information will be requested.
A duly authorized officer of the selfregulatory organization shall
electronically sign the completed Form
19b–4 as indicated on Page 1 of the
Form. In addition, a duly authorized
officer of the self-regulatory
organization shall manually sign one
copy of the completed Form 19b–4, and
the manually signed signature page
shall be maintained pursuant to Section
17 of the Act. A registered clearing
agency for which the Commission is not
the appropriate regulatory agency also
shall file with its appropriate regulatory
agency three copies of the form, one of
which shall be manually signed,
including exhibits. A clearing agency
that also is a designated clearing agency
shall file with the Board of Governors of
the Federal Reserve System three copies
of the form, one of which shall be
manually signed, including exhibits.
The Municipal Securities Rulemaking
Board also shall file copies of the form,
including exhibits, with the Board of
Governors of the Federal Reserve
System, the Comptroller of the
Currency, and the Federal Deposit
Insurance Corporation.
G. Procedures for Submission of Paper
Documents for Exhibits 2 and 3
To the extent that Exhibits 2 and 3
cannot be filed electronically in
accordance with Instruction F, four
copies of Exhibits 2 and 3 shall be filed
with the Division of Trading and
Markets, Securities and Exchange
Commission, 100 F Street, NE.,
Washington, DC 20549. Page 1 of the
electronic Form 19b–4 shall accompany
paper submissions of Exhibits 2 and 3.
If the SRO is filing Exhibits 2 and 3 via
paper, they must be filed within five
calendar days of the electronic filing of
all other required documents.
hsrobinson on DSK69SOYB1PROD with PROPOSALS2
H. Withdrawals of Proposed Rule
Changes, Security-Based Swap
Submissions or Advance Notices
If a self-regulatory organization
determines to withdraw a proposed rule
change, security-based swap
submission, or advance notice, it must
complete Page 1 of the Form 19b–4 and
indicate by selecting the appropriate
check box to withdraw the filing.
I. Procedures for Granting an Extension
of Time for Commission Final Action
After the Commission publishes
notice of a proposed rule change or
security-based swap submission, if a
self-regulatory organization wishes to
grant the Commission an extension of
the time to take final action as specified
in Section 19(b)(2) or Section 3C, the
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self-regulatory organization shall
indicate on the Form 19b–4 Page 1 the
granting of said extension as well as the
date the extension expires.
Information To Be Included in the
Completed Form (‘‘Form 19b–4
Information’’)
1. Text of the Proposed Rule Change
(a) Include the text of the proposed
rule change, security-based swap
submission, or advance notice. Text of
the proposed rule change also should be
included either in Exhibit 5 or Exhibit
1 (or Exhibit 1A in the filing of a
clearing agency). Changes in, additions
to, or deletions from, any existing rule
shall be set forth with brackets used to
indicate words to be deleted and
underscoring used to indicate words to
be added.
If any form, report, or questionnaire is
(i) Proposed to be used in connection
with the implementation or operation of
the proposed rule change, securitybased swap submission, or advance
notice, or
(ii) Prescribed or referred to in the
proposed rule change, security-based
swap submission, or advance notice;
then the form, report, or questionnaire
must be attached to and shall be
considered as part of the proposed rule
change, security-based swap
submission, or advance notice. If
completion of the form, report, or
questionnaire is voluntary or is required
pursuant to an existing rule of the selfregulatory organization, then the form,
report, or questionnaire, together with a
statement identifying any existing rule
that requires completion of the form,
report, or questionnaire, shall be
attached as Exhibit 3. If the form, report,
or questionnaire cannot be filed
electronically in accordance with
Instruction F, the documents shall be
filed in accordance with Instruction G.
(b) If the self-regulatory organization
reasonably expects that the proposed
rule change, security-based swap
submission, or advance notice will have
any direct effect, or significant indirect
effect, on the application of any other
rule of the self-regulatory organization,
set forth the designation or title of any
such rule and describe the anticipated
effect of the proposed rule change,
security-based swap submission, or
advance notice on the application of
such other rule.
(c) Include the file numbers for prior
filings with respect to any existing rule
specified in response to Item 1(b).
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2. Procedures of the Self-Regulatory
Organization
Describe action on the proposed rule
change, security-based swap
submission, or advance notice taken by
the members or board of directors or
other governing body of the selfregulatory organization. See Instruction
E.
3. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
Provide a statement of the purpose of
the proposed rule change and its basis
under the Act and the rules and
regulations thereunder applicable to the
self-regulatory organization. With
respect to proposed rule changes filed
pursuant to Section 19(b)(1) of the Act,
except for proposed rule changes that
have been abrogated pursuant to Section
19(b)(7)(C) of the Act, the statement
should be sufficiently detailed and
specific to support a finding that the
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder
applicable to the self-regulatory
organization. With respect to proposed
rule changes filed pursuant to Section
19(b)(1) of the Act that have been
abrogated pursuant to Section
19(b)(7)(C) of the Act, the statement
should be sufficiently detailed and
specific to support a finding under
Section 19(b)(7)(D) of the Act that the
proposed rule change does not unduly
burden competition or efficiency, does
not conflict with the securities laws,
and is not inconsistent with the public
interest or the protection of investors. At
a minimum, the statement should:
(a) Describe the reasons for adopting
the proposed rule change, any problems
the proposed rule change is intended to
address, the manner in which the
proposed rule change will operate to
resolve those problems, the manner in
which the proposed rule change will
affect various persons (e.g., brokers,
dealers, issuers, and investors), and any
significant problems known to the selfregulatory organization that persons
affected are likely to have in complying
with the proposed rule change; and
(b) Explain why the proposed rule
change is consistent with the
requirements of the Act and the rules
and regulations thereunder applicable to
the self-regulatory organization. A mere
assertion that the proposed rule change
is consistent with those requirements is
not sufficient. With respect to a
proposed rule change filed pursuant to
Section 19(b)(1) of the Act that has been
abrogated pursuant to Section
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19(b)(7)(C) of the Act, explain why the
proposed rule change does not unduly
burden competition or efficiency, does
not conflict with the securities laws,
and is not inconsistent with the public
interest and the protection of investors,
in accordance with Section 19(b)(7)(D)
of the Act. A mere assertion that the
proposed rule change satisfies these
requirements is not sufficient. In the
case of a registered clearing agency, also
explain how the proposed rule change
will be implemented consistently with
the safeguarding of securities and funds
in its custody or control or for which it
is responsible. Certain limitations that
the Act imposes on self-regulatory
organizations are summarized in the
notes that follow.
Failure to describe and justify the
proposed rule change in the manner
described above may result in the
Commission not having sufficient
information to make an affirmative
finding that the proposed rule change is
consistent with the Act and the rules
and regulations issued thereunder that
are applicable to the self-regulatory
organization.
Note 1. National Securities Exchanges and
Registered Securities Associations. Under
Sections 6 and 15A of the Act, rules of a
national securities exchange or registered
securities association may not permit unfair
discrimination between customers, issuers,
brokers, or dealers, and may not regulate, by
virtue of any authority conferred by the Act,
matters not related to the purposes of the Act
or the administration of the self-regulatory
organization. Rules of a registered securities
association may not fix minimum profits or
impose any schedule of or fix rates of
commissions, allowances, discounts, or other
fees to be charged by its members.
Under Section 11A(c)(5) of the Act, a
national securities exchange or registered
securities association may not limit or
condition the participation of any member in
any registered clearing agency.
hsrobinson on DSK69SOYB1PROD with PROPOSALS2
Note 2. Registered Clearing Agencies.
Under Section 17A of the Act, rules of a
registered clearing agency may not permit
unfair discrimination in the admission of
participants or among participants in the use
of the clearing agency, may not regulate, by
virtue of any authority conferred by the Act,
matters not related to the purposes of Section
17A of the Act or the administration of the
clearing agency, and may not impose any
schedule of prices, or fix rates or other fees,
for services rendered by its participants.
Note 3. Municipal Securities Rulemaking
Board. Under Section 15B of the Act, rules
of the Municipal Securities Rulemaking
Board may not permit unfair discrimination
between customers, issuers, municipal
securities brokers, or municipal securities
dealers, may not fix minimum profits, or
impose any schedule or fix rates of
commissions, allowances, discounts, or other
fees to be charged by municipal securities
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brokers or municipal securities dealers, and
may not regulate, by virtue of any authority
conferred by the Act, matters not related to
the purposes of the Act with respect to
municipal securities or the administration of
the Board.
4. Self-Regulatory Organization’s
Statement on Burden on Competition
State whether the proposed rule
change will have an impact on
competition and, if so, (i) state whether
the proposed rule change will impose
any burden on competition or whether
it will relieve any burden on, or
otherwise promote, competition and (ii)
specify the particular categories of
persons and kinds of businesses on
which any burden will be imposed and
the ways in which the proposed rule
change will affect them. If the proposed
rule change amends an existing rule,
state whether that existing rule, as
amended by the proposed rule change,
will impose any burden on competition.
If any impact on competition is not
believed to be a significant burden on
competition, explain why. Explain why
any burden on competition is necessary
or appropriate in furtherance of the
purposes of the Act. In providing those
explanations, set forth and respond in
detail to written comments as to any
significant impact or burden on
competition perceived by any person
who has made comments on the
proposed rule change to the selfregulatory organization. A mere
assertion that the proposed rule change
satisfies these requirements is not
sufficient. The statement concerning
burdens on competition should be
sufficiently detailed and specific to
support a Commission finding that the
proposed rule change does not impose
any unnecessary or inappropriate
burden on competition. Failure to
describe and justify the proposed rule
change in the manner described above
may result in the Commission not
having sufficient information to make
an affirmative finding that the proposed
rule change is consistent with the Act
and the rules and regulations issued
thereunder that are applicable to the
self-regulatory organization.
5. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
If written comments were received
(whether or not comments were
solicited) from members of or
participants in the self-regulatory
organization or others, summarize the
substance of all such comments
received and respond in detail to any
significant issues that those comments
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raised about the proposed rule change.
If an issue is summarized and
responded to in detail under Item 3 or
Item 4, that response need not be
duplicated if appropriate cross-reference
is made to the place where the response
can be found. If comments were not or
are not to be solicited, so state.
6. Extension of Time Period for
Commission Action
State whether the self-regulatory
organization consents to an extension of
the time period specified in Section
19(b)(2) or Section 19(b)(7)(D) of the Act
and the duration of the extension, if
any, to which the self-regulatory
organization consents.
7. Basis for Summary Effectiveness
Pursuant to Section 19(b)(3) or for
Accelerated Effectiveness Pursuant to
Section 19(b)(2) or Section 19(b)(7)(D)
(a) If the proposed rule change is to
take, or to be put into, effect, pursuant
to Section 19(b)(3), state whether the
filing is made pursuant to paragraph (A)
or (B) thereof.
(b) In the case of paragraph (A) of
Section 19(b)(3), designate that the
proposed rule change:
(i) Is a stated policy, practice, or
interpretation with respect to the
meaning, administration, or
enforcement of an existing rule,
(ii) Establishes or changes a due, fee,
or other charge,
(iii) Is concerned solely with the
administration of the self-regulatory
organization,
(iv) Effects a change in an existing
service of a registered clearing agency
that (A) does not adversely affect the
safeguarding of securities or funds in
the custody or control of the clearing
agency or for which it is responsible and
(B) does not significantly affect the
respective rights or obligations of the
clearing agency or persons using the
service, and set forth the basis on which
such designation is made,
(v) Effects a change in an existing
order-entry or trading system of a selfregulatory organization that (A) does not
significantly affect the protection of
investors or the public interest; (B) does
not impose any significant burden on
competition; and (C) does not have the
effect of limiting the access to or
availability of the system, or
(vi) Effects a change that (A) does not
significantly affect the protection of
investors or the public interest; (B) does
not impose any significant burden on
competition; and (C) by its terms, does
not become operative for 30 days after
the date of the filing, or such shorter
time as the Commission may designate
if consistent with the protection of
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hsrobinson on DSK69SOYB1PROD with PROPOSALS2
investors and the public interest;
provided that the self-regulatory
organization has given the Commission
written notice of its intent to file the
proposed rule change, along with a brief
description and text of the proposed
rule change, at least five business days
prior to the date of filing of the
proposed rule change, or such shorter
time as designated by the Commission.
If it is requested that the proposed rule
change become operative in less than 30
days, provide a statement explaining
why the Commission should shorten
this time period.
(c) In the case of paragraph (B) of
Section 19(b)(3), set forth the basis upon
which the Commission should, in the
view of the self-regulatory organization,
determine that the protection of
investors, the maintenance of fair and
orderly markets, or the safeguarding of
securities and funds requires that the
proposed rule change should be put into
effect summarily by the Commission.
Note: The Commission has the power
under Section 19(b)(3)(C) of the Act to
summarily temporarily suspend within sixty
days of its filing any proposed rule change
which has taken effect upon filing pursuant
to Section 19(b)(3)(A) of the Act or was put
into effect summarily by the Commission
pursuant to Section 19(b)(3)(B) of the Act. In
exercising its summary power under Section
19(b)(3)(B), the Commission is required to
make one of the findings described above but
may not have a full opportunity to make a
determination that the proposed rule change
otherwise is consistent with the requirements
of the Act and the rules and regulations
thereunder. The Commission will generally
exercise its summary power under Section
19(b)(3)(B) on condition that the proposed
rule change to be declared effective
summarily shall also be subject to the
procedures of Section 19(b)(2) of the Act.
Accordingly, in most cases, a summary order
under Section 19(b)(3)(B) shall be effective
only until such time as the Commission shall
enter an order, pursuant to Section
19(b)(2)(A) of the Act, to approve such
proposed rule change or, depending on the
circumstances, until such time as the
Commission shall institute proceedings to
determine whether to disapprove such
proposed rule change or, alternatively, such
time as the Commission shall, at the
conclusion of such proceedings, enter an
order, pursuant to Section 19(b)(2)(B),
approving or disapproving such proposed
rule change.
(d) If accelerated effectiveness
pursuant to Section 19(b)(2) or Section
19(b)(7)(D) of the Act is requested,
provide a statement explaining why
there is good cause for the Commission
to accelerate effectiveness.
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8. Proposed Rule Change Based on
Rules of Another Self-Regulatory
Organization or of the Commission
State whether the proposed rule
change is based on a rule either of
another self-regulatory organization or
of the Commission, and, if so, identify
the rule and explain any differences
between the proposed rule change and
that rule, as the filing self-regulatory
organization understands it. In
explaining any such differences, give
particular attention to differences
between the conduct required to comply
with the proposed rule change and that
required to comply with the other rule.
9. Security-Based Swap Submissions
Filed Pursuant to Section 3C of the Act
(a) A clearing agency shall submit to
the Commission on this Form 19b–4, a
security-based swap submission for any
security-based swap, or any group,
category, type or class of security-based
swaps that the clearing agency plans to
accept for clearing.
(b) The clearing agency shall include
in the security-based swaps submission
a statement that includes, but is not
limited to:
(i) How the security-based swap
submission is consistent with Section
17A of the Act (15 U.S.C. 78q–1);
(ii) Information that will assist the
Commission in the quantitative and
qualitative assessment of the factors
specified in Section 3C of the Act (15
U.S.C. 78c–3), including, but not limited
to:
(A) The existence of significant
outstanding notional exposures, trading
liquidity and adequate pricing data;
(B) The availability of a rule
framework, capacity, operational
expertise and resources, and credit
support infrastructure to clear the
contract on terms that are consistent
with the material terms and trading
conventions on which the contract is
then traded;
(C) The effect on the mitigation of
systemic risk, taking into account the
size of the market for such contract and
the resources of the clearing agency
available to clear the contract;
(D) The effect on competition,
including appropriate fees and charges
applied to clearing;
(E) The existence of reasonable legal
certainty in the event of the insolvency
of the relevant clearing agency or one or
more of its clearing members with
regard to the treatment of customer and
security-based swap counterparty
positions, funds, and property;
(F) How the rules of the clearing
agency prescribe that all security-based
swaps submitted to the clearing agency
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with the same terms and conditions are
economically equivalent within the
clearing agency and may be offset with
each other within the clearing agency,
as applicable to the security-based
swaps described in the security-based
swap submission.
(G) How the rules of the clearing
agency provide for non-discriminatory
clearing of a security-based swap
executed bilaterally or on or through the
rules of an unaffiliated national
securities exchange or security-based
swap execution facility, as applicable to
the security-based swaps described in
the security-based swap submission.
Note: In connection with the factor
specified in Item 9(b)(ii)(A) above, the
clearing agency could address pricing
sources, models and procedures
demonstrating an ability to obtain price data
to measure credit exposures in a timely and
accurate manner, as well as measures of
historical market liquidity and trading
activity, and expected market liquidity and
trading activity if the security-based swap is
required to be cleared (including information
on the sources of such measures). With
respect to the discussion of the factor
specified in Item 9(b)(ii)(B) above, the
statement describing the availability of a rule
framework could include a discussion of the
rules, policies or procedures applicable to the
clearing of the relevant security-based swap.
Additionally, the discussion of credit support
infrastructure specified in Item 9(b)(ii)(B)
above could include the methods to address
and communicate requests for, and posting
of, collateral. With respect to the factor
specified in Item 9(b)(ii)(C) above, the
discussion of systemic risk could include a
statement on the clearing agency’s risk
management procedures, including among
other things the measurement and
monitoring of credit exposures, initial and
variation margin methodology,
methodologies for stress testing and back
testing, settlement procedures and default
management procedures. With respect to the
factor specified in Item 9(b)(ii)(D) above, the
discussion of fees and charges could address
any volume incentive programs that may
apply or impact the fees and charges. With
respect to the factor specified in Item
9(b)(ii)(E) above, the discussion could
address segregation of accounts and all other
customer protection measures under
insolvency.
In describing the security-based swap, or
any group, category, type or class of securitybased swaps, that a clearing agency plans to
accept for clearing, the clearing agency could
include the relevant product specifications,
including copies of any standardized legal
documentation, generally accepted contract
terms, standard practices for managing and
communicating any life cycle events
associated with the security-based swap and
related adjustments, and the manner in
which the information contained in the
confirmation of the security-based swap trade
is transmitted. The clearing agency also
could discuss its financial and operational
capacity to provide clearing services to all
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customers subject to the clearing
requirements as applicable to the particular
security-based swap. Finally, the clearing
agency could include an analysis of the effect
of a clearing requirement on the market for
the group, category, type, or class of securitybased swaps, both domestically and globally,
including the potential effect on market
liquidity, trading activity, use of securitybased swaps by direct and indirect market
participants and any potential market
disruption or benefits. This analysis could
include whether the members of the clearing
agency are operationally and financially
capable of absorbing clearing business
(including indirect access market
participants) that may result from a
determination that the security-based swap
(or group, category, type or class of securitybased swap) is required to be cleared.
(c) A clearing agency shall submit
security-based swaps to the Commission
for review by group, category, type or
class of security-based swaps, to the
extent reasonable and practicable to do
so.
(d) A clearing agency shall file as an
amendment to this Form 19b–4 any
additional information necessary to
assess any of the factors the Commission
determines to be appropriate in order to
make a determination regarding the
clearing requirement.
(e) A security-based swap submission
pursuant to Section 3C that also is
required to be filed as a proposed rule
change under Section 19(b) or an
advance notice under Section 806(e) of
the Payment, Clearing and Settlement
Supervision Act shall not take effect
until determinations are obtained under
each of the other applicable statutory
provisions.
hsrobinson on DSK69SOYB1PROD with PROPOSALS2
10. Advance Notices Filed Pursuant to
Section 806(e) of the Payment, Clearing
and Settlement Supervision Act
(a) A designated clearing agency shall
provide notice on this Form 19b–4 sixty
(60) days in advance of any proposed
change to its rules, procedures, or
operations that could, as defined in Rule
19b–4, materially affect the nature or
level of risks presented by the
designated clearing agency.
(b) A designated clearing agency shall
include in the notice a description of:
(i) The nature of the change and
expected effects on risks to the
designated clearing agency, its
participants, or the market; and
(ii) How the designated financial
market utility plans to manage any
identified risks.
(c) A designated clearing agency shall
file as amendment to this Form 19b–4
any additional information that is
required to be filed by the Commission
as necessary to assess the effect the
proposed change would have on the
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nature or level of risks associated with
the designated clearing agency’s
payment, clearing, or settlement
activities and the sufficiency of any
proposed risk management techniques.
(d) A designated clearing agency that
implements a proposed change on an
emergency basis must file notice with
the Commission on Form 19b–4 within
24 hours of implementing the change. In
addition to the information required for
advance notices, the notice of an
emergency change shall include a
description of the nature of the
emergency and the reason the change
was necessary for the designated
clearing agency to continue to operate in
a safe and sound manner. Any change
implemented by a designated clearing
agency on an emergency basis also must
comply with Section 19(b) and Section
3C of the Act to the extent those
sections are applicable.
(e) A proposed change filed pursuant
to Section 806(e) that is also required to
be filed as a proposed rule change under
Section 19(b) or a security-based swap
submission under Section 3C shall not
take effect until determinations are
obtained under each of the other
applicable statutory provisions.
11. Exhibits
List of exhibits to be filed, as specified
in Instructions C and D:
Exhibit 1. Completed Notice of
Proposed Rule Change for publication in
the Federal Register. Amendments to
Exhibit 1 should be filed in accordance
with Instructions D and F.
Exhibit 1A. Completed Notice of
Proposed Rule Change, Security-Based
Swap Submission, or Advance Notice
for publication in the Federal Register.
Amendments to Exhibit 1A should be
filed in accordance with Instructions D
and F.
Exhibit 2 (a) Copies of notices issued
by the self-regulatory organization
soliciting comment on the proposed rule
change, security-based swap
submission, or advance notice and
copies of all written comments on the
proposed rule change, security-based
swap submission, or advance notice
received by the self-regulatory
organization (whether or not comments
were solicited), presented in
alphabetical order, together with an
alphabetical listing of such comments. If
such notices and comments cannot be
filed electronically in accordance with
Instruction F, the notices and comments
shall be filed in accordance with
Instruction G.
(b) Copies of any transcript of
comments on the proposed rule change,
security-based swap submission, or
advance notice made at any public
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meeting or, if a transcript is not
available, a copy of the summary of
comments on the proposed rule change
made at such meeting. If such transcript
of comments or summary of comments
cannot be filed electronically in
accordance with Instruction F, the
transcript of comments or summary of
comments shall be filed in accordance
with Instruction G.
(c) If after the proposed rule change,
security-based swap submission, or
advance notice is filed but before the
Commission takes final action on it, the
self-regulatory organization prepares or
receives any correspondence or other
communications reduced to writing
(including comment letters) to and from
such self-regulatory organization
concerning the proposed rule change,
the communications shall be filed in
accordance with Instruction F. If such
communications cannot be filed
electronically in accordance with
Instruction F, the communications shall
be filed in accordance with Instruction
G.
Exhibit 3. Copies of any form, report,
or questionnaire covered by Item 1(a). If
such form, report, or questionnaire
cannot be filed electronically in
accordance with Instruction F, the form,
report, or questionnaire shall be filed in
accordance with Instruction G.
Exhibit 4. For amendments to a filing,
marked copies, if required by
Instruction D, of the text of the proposed
rule change as amended.
Exhibit 5. The SRO may choose to
attach as Exhibit 5 proposed changes to
rule text in place of providing it in Item
I and which may otherwise be more
easily readable if provided separately
from Form 19b–4. Exhibit 5 shall be
considered part of the proposed rule
change.
SPECIFIC INSTRUCTIONS FOR
EXHIBIT 1—NOTICE OF PROPOSED
RULE CHANGE
EXHIBIT 1
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–
; File No. SR
]
[Date]
Self-Regulatory Organizations; [Name of
Self-Regulatory Organization]; Notice of
Filing [and Immediate Effectiveness] of
a Proposed Rule Change Relating to
[brief description of subject matter of
proposed rule change]
General Instructions
A. Format Requirements
The notice must comply with the
guidelines for publication in the Federal
Register, as well as any requirements for
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electronic filing as published by the
Commission (if applicable). For
example, all references to the Federal
securities laws must include the
corresponding cite to the United States
Code in a footnote. All references to SEC
rules must include the corresponding
cite to the Code of Federal Regulations
in a footnote. All references to
Securities Exchange Act Releases must
include the release number, release
date, Federal Register cite, Federal
Register date, and corresponding file
number (e.g., SR–[SRO]–XX–XX). A
material failure to comply with these
guidelines will result in the proposed
rule change being deemed not properly
filed. See also Rule 0–3 under the Act
(17 CFR 240.0–3). Leave a 1-inch margin
at the top, bottom, and right hand side,
and a 11⁄2 inch margin at the left hand
side. Number all pages consecutively,
consistent with Rule 0–3 under the Act
(17 CFR 240.0–3). Double space all
primary text and single space lists of
items, quoted material when set apart
from primary text, footnotes, and notes
to tables.
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B. Need for Careful Preparation of the
Notice
The self-regulatory organization must
provide all information required in the
notice and present it in a clear and
comprehensible manner. It is the
responsibility of the self-regulatory
organization to prepare Items I, II and III
of the notice. The Commission cautions
self-regulatory organizations to pay
particular attention to assure that the
notice accurately reflects the
information provided in the Form 19b–
4 it accompanies. Any filing that does
not comply with the requirements of
Form 19b–4, including the requirements
applicable to the notice, may be
returned to the self-regulatory
organization. Any document so returned
shall for all purposes be deemed not to
have been filed with the Commission.
See Instruction B to Form 19b–4.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934, 15
U.S.C. 78s(b)(1), notice is hereby given
that on (date),* the (name of selfregulatory organization) filed with the
Securities and Exchange Commission
the proposed rule change as described
in Items I, II and III below, which Items
have been prepared by the selfregulatory organization. The
Commission is publishing this notice to
* To be completed by the Commission. This date
will be the date on which the Commission receives
the proposed rule change if the filing complies with
all requirements of this form. See Instruction B to
Form 19b–4.
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solicit comments on the proposed rule
change from interested persons.
Information To Be Included in the
Completed Notice
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
(Supply a brief statement of the terms
of substance of the proposed rule
change. If the proposed rule change is
relatively brief, a separate statement
need not be prepared, and the text of the
proposed rule change may be inserted in
lieu of the statement of the terms of
substance. If the proposed rule change
amends an existing rule, indicate
changes in the rule by brackets for
words to be deleted and underlined for
words to be added.)
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of
and basis for the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of these statements may be examined at
the places specified in Item IV below.
The self-regulatory organization has
prepared summaries, set forth in
sections A, B, and C below, of the most
significant aspects of such statements.
(Reproduce the headings, and
summarize briefly the most significant
aspects of the responses, to Items 3, 4,
and 5 of Form 19b–4, redesignating
them as A, B, and C, respectively.)
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
(If the proposed rule change is to be
considered by the Commission pursuant
to Section 19(b)(2) of the Act, the
following paragraph should be used.)
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
such proposed rule change, or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
(If the proposed rule change is to take,
or to be put into, effect pursuant to
Section 19(b)(3)(A) of the Act and
paragraph (f)(6) of Rule 19b–4
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thereunder, the following paragraph
should be used.)
Because the foregoing proposed rule
change does not:
(i) Significantly affect the protection
of investors or the public interest;
(ii) Impose any significant burden on
competition; and
(iii) Become operative for 30 days
from the date on which it was filed, or
such shorter time as the Commission
may designate, it has become effective
pursuant to Section 19(b)(3)(A) of the
Act and Rule 19b–4(f)(6) thereunder.
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
(If the proposed rule change is to take,
or to be put into, effect pursuant to
Section 19(b)(3)(A) of the Act and
subparagraphs (1)–(5) of paragraph (f) of
Rule 19b–4 thereunder, the following
paragraph should be used.)
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and paragraph (f) of Rule
19b–4 thereunder. At any time within
60 days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
(If the proposed rule change is to be
considered by the Commission pursuant
to Section 19(b)(7)(D) of the Act, the
following paragraph should be used.)
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve such proposed
rule change, or
(B) After consultation with the
Commodity Futures Trading
Commission, institute proceedings to
determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
E:\FR\FM\30DEP2.SGM
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Federal Register / Vol. 75, No. 250 / Thursday, December 30, 2010 / Proposed Rules
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number XX on the subject line.
Paper Comments
• Send paper comments in triplicate
to [Name of Secretary], Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549.
hsrobinson on DSK69SOYB1PROD with PROPOSALS2
All submissions should refer to File
Number XX. This file number should be
included on the subject line if e-mail 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 Web site
(https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site 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. Copies of the filing also
will be available for inspection and
copying at the principal office of the
[self-regulatory organization]. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number XX and should be submitted on
or before January 20, 2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.172
Secretary.
172 17
CFR 200.30–3(a)(12).
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18:14 Dec 29, 2010
Jkt 223001
SPECIFIC INSTRUCTIONS FOR
EXHIBIT 1A—NOTICE OF PROPOSED
RULE CHANGE, SECURITY-BASED
SWAP SUBMISSION, OR ADVANCE
NOTICE FILED BY CLEARING
AGENCIES
EXHIBIT 1A
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–
; File No. SR
]
[Date]
Self-Regulatory Organizations; [Name of
Clearing Agency]; Proposed Rule
Change, Security-Based Swap
Submission, or Advance Notice Relating
to [brief description of subject matter of
proposed rule change, security-based
swap submission, or advance notice]
General Instructions
A. Format Requirements
The notice must comply with the
guidelines for publication in the Federal
Register, as well as any requirements for
electronic filing as published by the
Commission (if applicable). For
example, all references to the Federal
securities laws must include the
corresponding cite to the United States
Code in a footnote. All references to SEC
rules must include the corresponding
cite to the Code of Federal Regulations
in a footnote. All references to
Securities Exchange Act Releases must
include the release number, release
date, Federal Register cite, Federal
Register date, and corresponding file
number (e.g., SR–[SRO]–XX–XX). A
material failure to comply with these
guidelines will result in the proposed
rule change being deemed not properly
filed. See also Rule 0–3 under the Act
(17 CFR 240.0–3). Leave a 1-inch margin
at the top, bottom, and right hand side,
and a 11⁄2 inch margin at the left hand
side. Number all pages consecutively,
consistent with Rule 0–3 under the Act
(17 CFR 240.0–3). Double space all
primary text and single space lists of
items, quoted material when set apart
from primary text, footnotes, and notes
to tables.
B. Need for Careful Preparation of the
Notice
The clearing agency must provide all
information required in the notice and
present it in a clear and comprehensible
manner. It is the responsibility of the
clearing agency to prepare Items I, II and
III of the notice. The Commission
cautions clearing agencies to pay
particular attention to assure that the
notice accurately reflects the
information provided in the Form 19b–
4 it accompanies. Any filing that does
PO 00000
Frm 00043
Fmt 4701
Sfmt 4702
82531
not comply with the requirements of
Form 19b–4, including the requirements
applicable to the notice, may be
returned to the clearing agency. Any
document so returned shall for all
purposes be deemed not to have been
filed with the Commission. See
Instruction B to Form 19b–4.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934, 15
U.S.C. 78s(b)(1) and Rule 19b–4, 17 CFR
240.19b–4, notice is hereby given that
on (date),* the (name of clearing agency)
filed with the Securities and Exchange
Commission the proposed rule change,
security-based swap submission, or
advance notice as described in Items I,
II and III below, which Items have been
prepared by the clearing agency. The
Commission is publishing this notice to
solicit comments on the proposed rule
change, security-based swap
submission, or advance notice from
interested persons.
Information To Be Included in the
Completed Notice
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change, Security-Based Swap
Submission, or Advance Notice
(Supply a brief statement of the terms
of substance of the proposed rule
change, security-based swap submission
or advance notice. If the proposed rule
change is relatively brief, a separate
statement need not be prepared, and the
text of the proposed rule change may be
inserted in lieu of the statement of the
terms of substance. If the proposed rule
change amends an existing rule,
indicate changes in the rule by brackets
for words to be deleted and underlined
for words to be added.)
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change, Security-Based
Swap Submission, or Advance Notice
In its filing with the Commission, the
clearing agency included statements
concerning the purpose of and basis for
the proposed rule change, securitybased swap submission and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
clearing agency has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements. (Reproduce
the headings, and summarize briefly the
* To be completed by the Commission. This date
will be the date on which the Commission receives
the proposed rule change, security-based swap
submission, or advance notice filing if the filing
complies with all requirements of this form. See
Instruction B to Form 19b–4.
E:\FR\FM\30DEP2.SGM
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82532
Federal Register / Vol. 75, No. 250 / Thursday, December 30, 2010 / Proposed Rules
hsrobinson on DSK69SOYB1PROD with PROPOSALS2
most significant aspects of the
responses, to Items 3, 4, and 5 of Form
19b–4, redesignating them as A, B, and
C, respectively.)
III. Date of Effectiveness of the
Proposed Rule Change, Security-Based
Swap Submission, and Advance Notice
and Timing for Commission Action
(If the proposed rule change is to be
considered by the Commission pursuant
to Section 19(b)(2) of the Act, the
following paragraph should be used.)
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
such proposed rule change, or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
(If the proposed rule change is to take,
or to be put into, effect pursuant to
Section 19(b)(3)(A) of the Act and
paragraph (f)(6) of Rule 19b–4
thereunder, the following paragraph
should be used.)
Because the foregoing proposed rule
change does not:
(i) Significantly affect the protection
of investors or the public interest;
(ii) Impose any significant burden on
competition; and
(iii) Become operative for 30 days
from the date on which it was filed, or
such shorter time as the Commission
may designate, it has become effective
pursuant to Section 19(b)(3)(A) of the
Act and Rule 19b–4(f)(6) thereunder.
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
(If the proposed rule change is to take,
or to be put into, effect pursuant to
Section 19(b)(3)(A) of the Act and
subparagraphs (1)–(5) of paragraph (f) of
Rule 19b–4 thereunder, the following
paragraph should be used.)
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and paragraph (f) of Rule
19b–4 thereunder. At any time within
60 days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
VerDate Mar<15>2010
18:14 Dec 29, 2010
Jkt 223001
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
(If the proposed rule change is to be
considered by the Commission pursuant
to Section 19(b)(7)(D) of the Act, the
following paragraph should be used.)
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve such proposed
rule change, or
(B) After consultation with the
Commodity Futures Trading
Commission institute proceedings to
determine whether the proposed rule
change should be disapproved.
(If the proposed change is filed as a
security-based swap submission
pursuant to Section 3C of the Act, the
following paragraph should be used.)
Within 90 days after receiving a
security-based swap submission, unless
the submitting clearing agency agrees to
an extension of time limitation, the
Commission shall by order make its
determination whether the securitybased swap, or group, category, type or
class of security-based swaps, described
in the security-based swap submission
is required to be cleared. In making its
determination that the clearing
requirement shall apply, the
Commission may include such terms
and conditions to the requirement as the
Commission determines to be
appropriate in the public interest.
The clearing agency shall post notice
on its Web site of any clearing
requirement that is implemented.
(If the proposed change is filed as an
advance notice pursuant to the
Payment, Clearing and Settlement
Supervision Act, the following
paragraph should be used.)
The proposed change may be
implemented if the Commission does
not object to the proposed change
within 60 days of the later of (i) the date
that the proposed change was filed with
the Commission or (ii) the date that any
additional information requested by the
Commission is received. The clearing
agency shall not implement the
proposed change if the Commission has
any objection to the proposed change.
The Commission may extend period
for review by an additional 60 days if
the proposed change raises novel or
complex issues, subject to the
Commission or the Board of Governors
of the Federal Reserve System providing
PO 00000
Frm 00044
Fmt 4701
Sfmt 4702
the clearing agency with prompt written
notice of the extension. A proposed
change may be implemented in less
than 60 days from the date the advance
notice is filed, or the date further
information requested by the
Commission is received, if the
Commission notifies the clearing agency
in writing that it does not object to the
proposed change and authorizes the
clearing agency to implement the
proposed change on an earlier date,
subject to any conditions imposed by
the Commission.
The clearing agency shall post notice
on its Web site of proposed changes that
are implemented.
(If the proposed change is filed
following the implementation of a
change on an emergency basis pursuant
to the Payment, Clearing and Settlement
Supervision Act, the following
paragraph should be used.)
The clearing agency implemented a
proposed change that otherwise would
be required to be filed as an advance
notice because the clearing agency
determined that (i) an emergency
existed and (ii) immediate
implementation was necessary for the
clearing agency to continue to provide
its services in a safe and sound manner.
The Commission may require
modification or recision of the proposed
change if it finds it is not consistent
with the purposes of the Payment,
Clearing and Settlement Supervision
Act or any applicable rules, orders, or
standards prescribed under Section
805(a).
(If the proposal is submitted pursuant
to more than one filing requirement, the
clearing agency shall add the following
language in addition to the language
above.)
The proposal shall not take effect
until all regulatory actions required
with respect to the proposal are
completed.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change, security-based swap
submission, or advance notice is
consistent with the Act. Comments may
be submitted by any of the following
methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number XX on the subject line.
E:\FR\FM\30DEP2.SGM
30DEP2
Federal Register / Vol. 75, No. 250 / Thursday, December 30, 2010 / Proposed Rules
Paper Comments
• Send paper comments in triplicate
to [Name of Secretary], Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549.
hsrobinson on DSK69SOYB1PROD with PROPOSALS2
All submissions should refer to File
Number XX. This file number should be
included on the subject line if e-mail 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 Web site
(https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change, security-based swap
VerDate Mar<15>2010
18:14 Dec 29, 2010
Jkt 223001
submission, or advance notice that are
filed with the Commission, and all
written communications relating to the
proposed rule change, security-based
swap submission, or advance notice
between the Commission and any
person, other than those that may be
withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will
be available for Web site 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. Copies of the filing also
will be available for inspection and
copying at the principal office of the
[clearing agency]. All comments
received will be posted without change;
PO 00000
Frm 00045
Fmt 4701
Sfmt 9990
82533
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number XX and
should be submitted on or before
January 20, 2011.
Dated: December 15, 2010.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.173
By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010–32085 Filed 12–29–10; 8:45 am]
BILLING CODE P
173 17
E:\FR\FM\30DEP2.SGM
CFR 200.30–3(a)(12).
30DEP2
]]>Agencies
[Federal Register Volume 75, Number 250 (Thursday, December 30, 2010)]
[Proposed Rules]
[Pages 82490-82533]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-32085]
[[Page 82489]]
-----------------------------------------------------------------------
Part IV
Securities and Exchange Commission
-----------------------------------------------------------------------
17 CFR Parts 240 and 249
Process for Submissions for Review of Security-Based Swaps for
Mandatory Clearing and Notice Filing Requirements for Clearing
Agencies; Technical Amendments to Rule 19b-4 and Form 19b-4 Applicable
to All Self-Regulatory Organizations; Proposed Rule
Federal Register / Vol. 75 , No. 250 / Thursday, December 30, 2010 /
Proposed Rules
[[Page 82490]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 240 and 249
[Release No. 34-63557; File No. S7-44-10]
RIN 3235-AK87
Process for Submissions for Review of Security-Based Swaps for
Mandatory Clearing and Notice Filing Requirements for Clearing
Agencies; Technical Amendments to Rule 19b-4 and Form 19b-4 Applicable
to All Self-Regulatory Organizations
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: In accordance with Section 763(a) of the Dodd-Frank Wall
Street Reform and Consumer Protection Act of 2010 (``Dodd-Frank Act''),
the Securities and Exchange Commission (``Commission'') is proposing
rules under the Securities Exchange Act of 1934 (``Exchange Act'') to
specify the process for a registered clearing agency's submission for
review of any security-based swap, or any group, category, type or
class of security-based swaps, that the clearing agency plans to accept
for clearing, the manner of notice the clearing agency must provide to
its members of such submission and the procedure by which the
Commission may stay the requirement that a security-based swap is
subject to mandatory clearing while the clearing of the security-based
swap is reviewed. The Commission also is proposing to specify that when
a security-based swap is required to be cleared, the submission of the
security-based swap for clearing must be for central clearing to a
clearing agency that functions as a central counterparty. In addition,
the Commission is proposing rules to define and describe when notices
of proposed changes to rules, procedures or operations are required to
be filed by designated financial market utilities in accordance with
Section 806(e) of Title VIII of the Dodd-Frank Act and to set forth the
process for filing such notices with the Commission. Furthermore, the
Commission is proposing rules to make conforming changes as required by
the amendments to Section 19(b) of the Exchange Act contained in
Section 916 of the Dodd-Frank Act.
DATES: Comments should be received on or before February 14, 2011.
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/proposed.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number S7-44-10 on the subject line; or
Use the Federal eRulemaking Portal (https://www.regulations.gov). Follow the instructions for submitting comments.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Securities and Exchange Commission, 100 F Street, NE., Washington, DC
20549-1090.
All submissions should refer to File Number S7-44-10. This file number
should be included on the subject line if e-mail is used. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
Internet Web site (https://www.sec.gov/rules/proposed.shtml). Comments
also are available for Web site 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.
All comments received will be posted without change; we do not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly.
FOR FURTHER INFORMATION CONTACT: Kim Allen, Attorney Fellow, Catherine
Moore, Senior Special Counsel, Kenneth Riitho, Special Counsel or
Andrew Bernstein, Attorney-Advisor, at (202) 551-5710; Office of
Clearance and Settlement, Division of Trading and Markets, Securities
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-7010.
SUPPLEMENTARY INFORMATION: The Dodd-Frank Act seeks to ensure that,
wherever possible and appropriate, derivatives contracts formerly
traded exclusively in the over-the-counter (``OTC'') market be
cleared.\1\ One key way in which the Dodd-Frank Act promotes clearing
of such contracts is by setting forth a process by which the Commission
would determine whether a security-based swap is required to be
cleared; if the Commission makes a determination that a security-based
swap is required to be cleared, then parties may not engage in such
security-based swap without submitting it for clearing unless an
exception applies.
---------------------------------------------------------------------------
\1\ See, e.g., Report of the Senate Committee on Banking,
Housing, and Urban Affairs regarding The Restoring American
Financial Stability Act of 2010, S. Rep. No. 111-176 at 34 (stating
that ``[s]ome parts of the OTC market may not be suitable for
clearing and exchange trading due to individual business needs of
certain users. Those users should retain the ability to engage in
customized, uncleared contracts while bringing in as much of the OTC
market under the centrally cleared and exchange-traded framework as
possible.'').
---------------------------------------------------------------------------
The Commission may determine that a security-based swap is required
to be cleared based on a review of a clearing agency's submission
regarding a security-based swap, or any group, category, type or class
of security-based swaps, that the clearing agency plans to accept for
clearing (i.e., a Security-Based Swap Submission (as defined
below)).\2\ If the Commission determines that a security-based swap is
not required to be cleared, such security-based swap may still be
cleared on a non-mandatory basis by the clearing agency if the clearing
agency has rules that permit it to clear such security-based swap.\3\
In addition, paragraph (b)(1) of new Section 3C of the Exchange Act, as
added by Section 763(a) of the Dodd-Frank Act (``Exchange Act Section
3C'') provides that ``[t]he Commission on an ongoing basis shall review
each security-based swap, or any group, category, type, or class of
security-based swaps to make a determination that such security-based
swap, or group, category, type, or class of security-based swaps should
be required to be cleared'' (``Commission-initiated Review'').\4\
---------------------------------------------------------------------------
\2\ See Public Law 111-203, section 763(a) (adding Exchange Act
Section 3C(b)(2)(C)) (``[t]he Commission shall * * * review each
submission made under subparagraphs (A) and (B), and determine
whether the security-based swap, or group, category, type, or class
of security-based swaps, described in the submission is required to
be cleared.'').
\3\ See 15 U.S.C. 78s(b) and 12 U.S.C. 5465(e).
\4\ See Public Law 111-203, section 763(a) (adding Exchange Act
Section 3C(b)(1)). The Dodd-Frank Act does not require rulemaking
with respect to Commission-initiated Reviews.
---------------------------------------------------------------------------
Consistent with the policy objective of the Dodd-Frank Act to bring
security-based swaps into a central clearing environment where
appropriate, the Commission is proposing to amend Rule 19b-4 under the
Exchange Act to incorporate two new requirements applicable to clearing
agencies under Exchange Act Section 3C, and under Section 806(e) of the
Dodd-Frank Act (``Section 806(e)''). The proposed amendments to Rule
19b-4 would mandate that submissions required under Exchange Act
Section 3C for a security-based swap, or any group, category, type or
class of security-based swaps, that a clearing agency plans to accept
for clearing (``Security-Based Swap Submissions'') and advance notices
required under Section 806(e) of proposed changes to rules, procedures
[[Page 82491]]
or operations of financial market utilities (``Advance Notices'') be
filed with the Commission on Form 19b-4. The proposed amendments to
Rule 19b-4 also would specify the manner of notice the clearing agency
must provide to its members of Security-Based Swap Submissions.
Additionally, the Commission is proposing two related rules under
Exchange Act Section 3C. Proposed Rule 3Ca-1 would establish the
procedure by which the Commission, at the request of a counterparty or
on its own initiative, may stay the requirement that a security-based
swap is subject to mandatory clearing. Proposed Rule 3Ca-2 is intended
to prevent evasions of the clearing requirement by specifying that
security-based swaps required to be cleared must be submitted for
central clearing to a clearing agency that functions as a central
counterparty. Finally, the Commission is proposing technical,
conforming and clarifying amendments to Rule 19b-4 and Form 19b-4 to
conform the rule and form with new deadlines and approval, disapproval
and temporary suspension standards with respect to proposed rule
changes filed under Section 19(b) of the Exchange Act, as modified by
Section 916 of the Dodd-Frank Act (``Exchange Act Section 19(b)'').
I. Introduction
On July 21, 2010, the President signed the Dodd-Frank Act into
law.\5\ The Dodd-Frank Act was enacted to, among other purposes,
promote the financial stability of the United States by improving
accountability and transparency in the financial system and by
providing for enhanced regulation and oversight of institutions
designated as systemically important.\6\ Title VII and Title VIII of
the Dodd-Frank Act are intended to further these goals and to mitigate
systemic risk in part by imposing new requirements with respect to
clearance and settlement systems.
---------------------------------------------------------------------------
\5\ The Dodd-Frank Wall Street Reform and Consumer Protection
Act (Pub. L. 111-203, H.R. 4173).
\6\ See Public Law 111-203, Preamble.
---------------------------------------------------------------------------
Title VII of the Dodd-Frank Act (``Title VII'') provides the
Commission and the Commodity Futures Trading Commission (``CFTC'') with
enhanced authority to regulate OTC derivatives following the recent
financial crisis.\7\ The Dodd-Frank Act is intended to bolster the
existing regulatory structure and provide regulatory tools to oversee
the OTC derivatives market, which has grown exponentially in recent
years and is capable of affecting significant sectors of the U.S.
economy. Title VII provides that the CFTC will regulate ``swaps,'' the
Commission will regulate ``security-based swaps,'' and the CFTC and the
Commission will jointly regulate ``mixed swaps.'' \8\
---------------------------------------------------------------------------
\7\ See, e.g, Report of the Senate Committee on Banking,
Housing, and Urban Affairs regarding The Restoring American
Financial Stability Act of 2010, S. Rep. No. 111-176 at 29 (2010)
(stating that ``[m]any factors led to the unraveling of this
country's financial sector and the government intervention to
correct it, but a major contributor to the financial crisis was the
unregulated [OTC] derivatives market.'')
\8\ Section 712(d) of the Dodd-Frank Act provides that the
Commission and the CFTC, in consultation with the Board of Governors
of the Federal Reserve System, shall jointly further define the
terms ``swap,'' ``security-based swap,'' ``swap dealer,''
``security-based swap dealer,'' ``major swap participant,'' ``major
security-based swap participant,'' ``eligible contract
participant,'' and ``security-based swap agreement.'' These terms
are defined in Sections 721 and 761 of the Dodd-Frank Act and, with
respect to the term ``eligible contract participant,'' in Section
1a(18) of the Commodity Exchange Act, 7 U.S.C. 1a(18), as re-
designated and amended by Section 721 of the Dodd-Frank Act.
Further, Section 721(c) of the Dodd-Frank Act requires the CFTC to
adopt a rule to further define the terms ``swap,'' ``swap dealer,''
``major swap participant,'' and ``eligible contract participant,''
and Section 761(b) of the Dodd-Frank Act permits the Commission to
adopt a rule to further define the terms ``security-based swap,''
``security-based swap dealer,'' ``major security-based swap
participant,'' and ``eligible contract participant,'' with regard to
security-based swaps, for the purpose of including transactions and
entities that have been structured to evade Title VII of the Dodd-
Frank Act. Finally, Section 712(a) of the Dodd-Frank Act provides
that the Commission and CFTC, after consultation with the Board,
shall jointly prescribe regulations regarding ``mixed swaps'' as may
be necessary to carry out the purposes of Title VII. To assist the
Commission and CFTC in further defining the terms specified above,
and to prescribe regulations regarding ``mixed swaps'' as may be
necessary to carry out the purposes of Title VII, the Commission and
the CFTC have requested comment from interested parties. See
Securities Exchange Act Release No. 62717 (Aug. 13, 2010), 75 FR
51429 (Aug. 20, 2010) (Advance Joint Notice of Proposed Rulemaking
Regarding Definitions Contained in Title VII of the Dodd-Frank Act).
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The OTC derivatives markets traditionally have been characterized
by privately negotiated transactions entered into by two
counterparties, in which each assumes the credit risk of the other
counterparty.\9\ Clearing of swaps and security-based swaps was at the
heart of Congressional reform of the derivatives markets in Title VII
of the Dodd Frank Act.\10\ Clearing agencies are broadly defined under
the Exchange Act and undertake a variety of functions.\11\ One such
function is to act as a central counterparty (``CCP''), which is an
entity that interposes itself between the counterparties to a
trade.\12\ For example, when an OTC derivatives contract between two
counterparties that are members of a CCP is executed and submitted for
clearing, it is typically replaced by two new contracts--separate
contracts between the CCP and each of the two original counterparties.
At that point, the original counterparties are no longer counterparties
to each other. Instead, each acquires the CCP as its counterparty, and
the CCP assumes the counterparty credit risk of each of the original
counterparties that are members of the CCP.\13\ Structured and operated
appropriately, CCPs may improve the management of counterparty risk and
may provide additional benefits such as multilateral netting of trades.
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\9\ See, e.g., Financial Stability Board, Implementing OTC
Derivatives Market Reforms (Oct. 25, 2010) available at https://www.financialstabilityboard.org/publications/r_101025.pdf.
\10\ As previously noted, the Dodd-Frank Act seeks to ensure
that, wherever possible and appropriate, derivatives contracts
formerly traded exclusively in the OTC market be cleared. See Letter
from Christopher Dodd, Chairman, Committee on Banking, Housing and
Urban Affairs, United States Senate and Blanche Lincoln, Chairman,
Committee on Agriculture, Nutrition, and Forestry, United States
Senate, to Barney Frank, Chairman, Financial Services Committee,
United States House of Representatives and Colin Peterson, Chairman,
Committee on Agriculture, United States House of Representatives
(June 30, 2010) (on file with the United States Senate).
\11\ The term ``clearing agency'' means any person who acts as
an intermediary in making payments or deliveries or both in
connection with transactions in securities or who provides
facilities for the comparison of data regarding the terms of
settlement of securities transactions, to reduce the number of
settlements of securities transactions, or the allocation of
securities settlement responsibilities. Such term also means any
person, such as a securities depository, who (i) acts as a custodian
of securities in connection with a system for the central handling
of securities whereby all securities of a particular class or series
of any issuer deposited within the system are treated as fungible
and may be transferred, loaned, or pledged by bookkeeping entry
without physical delivery of securities certificates, or (ii)
otherwise permits or facilitates the settlement of securities
transactions or the hypothecation or lending of securities without
physical delivery of securities certificates. 15 U.S.C.
78c(a)(23)(A).
\12\ See id. An entity that acts as a CCP for securities
transactions is a clearing agency as defined in the Exchange Act and
is required to register with the Commission.
\13\ See Cecchetti, Gyntelberg and Hollanders, Central
counterparties for over-the-counter derivatives, BIS Quarterly
Review, September 2009, available at https://www.bis.org/publ/qtrpdf/r_qt0909f.pdf.
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Exchange Act Section 3C sets forth a mandatory clearing requirement
for security-based swaps. This section requires the Commission to adopt
rules for submissions for review of security-based swaps that a
clearing agency plans to accept for clearing for a determination by the
Commission of whether the security-based swap (or group, category, type
or class of security-based swaps) is required to be cleared, i.e., is
subject to mandatory
[[Page 82492]]
clearing.\14\ The Commission is proposing amendments to Rule 19b-4
under the Exchange Act to implement the requirement in Exchange Act
Section 3C that a clearing agency submit for Commission review each
security-based swap, or any group, category, type or class of security-
based swaps, that the clearing agency plans to accept for clearing and
provide notice to its members of such Security-Based Swap Submission.
The Commission also is proposing new Rules 3Ca-1 and 3Ca-2 under the
Exchange Act. Proposed Rule 3Ca-1 specifies the procedure for staying
the clearing requirement applicable to a security-based swap, based
either on an application of a counterparty to a security-based swap or
on the Commission's own initiative, until the Commission completes a
review of the terms of the security-based swap and the clearing
arrangement. Proposed Rule 3Ca-2 establishes a rule designed to prevent
evasions of the clearing requirement by specifying that security-based
swaps required to be cleared must be submitted for central clearing to
a clearing agency that functions as a central counterparty.
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\14\ Public Law 111-203, section 763(a) (adding Exchange Act
Section 3C(b)(2)(C)).
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The Commission also is proposing rules to implement a filing
requirement applicable to certain clearing agencies under Title VIII of
the Dodd-Frank Act (``Title VIII''). Title VIII provides for enhanced
regulation of financial market utilities, which include clearing
agencies, that manage or operate a multilateral system for the purpose
of transferring, clearing or settling payments, securities or other
financial transactions among financial institutions or between
financial institutions and the financial market utility.\15\ The
regulatory regime in Title VIII will only apply, however, to financial
market utilities that the Financial Stability Oversight Council
(``Council'') designates as systemically important.\16\
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\15\ The definition of ``financial market utility'' in Section
803(6) of the Dodd-Frank Act contains a number of exclusions
including but not limited to certain designated contract markets,
registered futures associations, swap data repositories, swap
execution facilities, national securities exchanges, national
securities associations, alternative trading systems, security-based
swap data repositories, security-based swap execution facilities,
brokers, dealers, transfer agents, investment companies and futures
commission merchants. 12 U.S.C. 5462(6)(B).
\16\ Pursuant to Section 803(9) of the Dodd-Frank Act, a
financial market utility is systemically important if the failure of
or a disruption to the functioning of such financial market utility
could create, or increase, the risk of significant liquidity or
credit problems spreading among financial institutions or markets
and thereby threaten the stability of the financial system of the
United States. 12 U.S.C. 5462(9). Under Section 804 of the Dodd-
Frank Act, the Council has the authority, on a non-delegable basis
and by a vote of not fewer than two-thirds of the members then
serving, including the affirmative vote of its chairperson, to
designate those financial market utilities that the Council
determines are, or are likely to become, systemically important. The
Council may, using the same procedures as discussed above, rescind
such designation if it determines that the financial market utility
no longer meets the standards for systemic importance. Before making
either determination, the Council is required to consult with the
Board and the relevant Supervisory Agency (as determined in
accordance with Section 803(8) of the Dodd-Frank Act). Finally,
Section 804 of the Dodd-Frank Act sets forth the procedures for
giving entities a 30-day notice and the opportunity for a hearing
prior to a designation or rescission of the designation of systemic
importance. 12 U.S.C. 5463.
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Section 806(e)(1)(A) of Title VIII requires any financial market
utility designated by the Council under Section 804 of the Dodd-Frank
Act as systemically important to file 60 days advance notice of changes
to its rules, procedures or operations that could materially affect the
nature or level of risk presented by the financial market utility.\17\
In addition, Section 806(e)(1)(B) requires each Supervisory Agency \18\
to adopt rules, in consultation with the Board of Governors of the
Federal Reserve System (``Board''), that define and describe when
designated financial market utilities are required to file Advance
Notices with their Supervisory Agency.\19\
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\17\ 12 U.S.C. 5465(e)(1)(A).
\18\ Section 803(8) of the Dodd-Frank Act defines the term
``Supervisory Agency'' in reference to the primary regulatory
authority for the financial market utility. For example, Section
803(8) of the Dodd-Frank Act provides that the Commission is the
Supervisory Agency for any financial market utility that is a
Commission-registered clearing agency. See 12 U.S.C. 5462(8). To the
extent that an entity is both a Commission-registered clearing
agency and registered with another agency, such as a CFTC-registered
derivatives clearing organization, the statute requires the two
agencies to agree on one agency to act as the Supervisory Agency,
and if the agencies cannot agree on which agency has primary
jurisdiction, the Council shall decide which agency is the
Supervisory Agency for purposes of the Dodd-Frank Act. 12 U.S.C.
5462(8).
\19\ 12 U.S.C. 5465(e)(1)(B).
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Clearing agencies registered with the Commission are financial
market utilities, as defined in Section 803(6) of Title VIII; \20\
thus, the Commission may be the Supervisory Agency of a clearing agency
that is designated as systemically important by the Council
(``designated clearing agency'').\21\ A clearing agency must begin
filing Advance Notices pursuant to Section 806(e) once the Council
designates the clearing agency as systemically important.\22\ The
Commission is proposing to implement the Section 806(e) filing
requirement by amending Rule 19b-4 to define and determine when Advance
Notices must be filed by designated clearing agencies and to require
that Advance Notices be filed on Form 19b-4.
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\20\ 12 U.S.C. 5462(6).
\21\ See supra note 18 discussing the definition of
``Supervisory Agency'' under the Dodd-Frank Act.
\22\ Pursuant to Section 814 of the Dodd Frank Act, Title VIII
took effect on the date of enactment.
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The Commission is proposing that Security-Based Swap Submissions
and Advance Notices be filed with the Commission on Form 19b-4 using
the existing Electronic Form 19b-4 Filing System (``EFFS''). Currently,
EFFS is used by self-regulatory organizations (``SROs''), which include
registered clearing agencies,\23\ to file proposed rule changes
electronically with the Commission pursuant to Exchange Act Section
19(b).\24\ The Commission is proposing to require clearing agencies to
use EFFS for the filing of Security-Based Swap Submissions and Advance
Notices because registered clearing agencies already use EFFS for
Exchange Act Section 19(b) filings and because there are similarities
between the requirement to file proposed rule changes under Exchange
Act Section 19(b) and the new requirements under the Dodd-Frank Act to
file Security-Based Swap Submissions and Advance Notices. For example,
a proposed rule change under Exchange Act Section 19(b) includes a
change in a ``stated policy, practice, or interpretation'' of an SRO
rule. A ``stated policy, practice, or interpretation'' is defined in
Exchange Act Section 19(b) as ``any material aspect of the operation of
the facilities of the SRO; or any statement made generally available to
the membership of, to all participants in, or to persons having or
seeking access * * * to facilities of, the self-regulatory organization
(``specified persons''), or to a group or category of specified
persons, that establishes or changes any standard, limit, or guideline
with respect to (1) the rights, obligations, or privileges of specified
persons * * *; or (2) the meaning, administration, or enforcement of an
existing rule.'' \25\ In cases where accepting a security-based swap
(or group, category, type or class of security-based swaps) for
clearing constitutes a change in a ``stated policy, practice, or
interpretation'' of the clearing agency, the clearing agency also
[[Page 82493]]
would be required to file a proposed rule change. Similarly, if a
change that a designated clearing agency proposes to make that would
require an Advance Notice would also constitute a change in a ``stated
policy, practice, or interpretation'' of the clearing agency, the
clearing agency would be required to file a proposed rule change in
addition to the Advance Notice.
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\23\ The definition of SRO in Section 3(a)(26) of the Exchange
Act includes any registered clearing agency. 15 U.S.C. 78c(a)(26).
All SROs are required to file proposed rule changes with the
Commission under Exchange Act Section 19(b). 15 U.S.C. 78s(b).
\24\ SROs are required to file with the Commission, in
accordance with rules prescribed by the Commission, copies of any
proposed rule or any proposed change in, addition to, or deletion
from the rules of the SRO (collectively referred to as a ``proposed
rule change''). 15 U.S.C. 78s(b)(1).
\25\ 17 CFR 240.19b-4(c).
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The Commission also is proposing to amend Rule 19b-4 and Form 19b-4
to conform to the requirements specified in Exchange Act Section 19(b),
as amended by Section 916 of the Dodd Frank Act.\26\ Section 916
provides new deadlines by which the Commission must publish and act
upon proposed rule changes submitted by SROs and new standards for
approval, disapproval and temporary suspension of proposed rule
changes.\27\ In addition, the Commission is proposing a number of
technical and clarifying amendments to Rule 19b-4 and Form 19b-4.
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\26\ Public Law 111-203, section 916 (amending Exchange Act
Section 19(b)(2)).
\27\ Id.
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In proposing these rules, the Commission is mindful that there are
differences between the security-based swap market and the other
securities markets that the Commission regulates. The Commission also
is mindful that over time and as a result of Commission proposals to
implement the Dodd-Frank Act, further development of the security-based
swap market may alter the policy objectives and considerations relating
to the clearing of security-based swaps. During the process of
implementing the Dodd-Frank Act and beyond, the Commission therefore
will closely monitor developments in the security-based swap market,
including how the Security-Based Swap Submission and clearing processes
interact with the evolving business and practices of security-based
swap clearing agencies and other entities.
II. Discussion of the Proposed Rules
The Commission is proposing to adopt rules to implement the new
requirements imposed by Title VII and Title VIII discussed above. In
accordance with the requirements set forth in Exchange Act Section 3C
(found in Title VII), the Commission is proposing amendments to Rule
19b-4 and Form 19b-4 and new Rule 3Ca-1 under the Exchange Act to
establish processes for (i) clearing agencies registered with the
Commission to submit for review each security-based swap, or any group,
category, type or class of security-based swaps, that the clearing
agency plans to accept for clearing for a determination by the
Commission of whether the security-based swap (or group, category, type
or class of security-based swaps) is required to be cleared, and to
determine the manner of notice the clearing agency must provide to its
members of such submission and (ii) how the Commission may stay the
requirement that a security-based swap is subject to mandatory
clearing. The Commission also is proposing new Rule 3Ca-2 to prevent
evasions of the clearing requirement. In addition, the Commission is
proposing amendments to Rule 19b-4 and Form 19b-4 to implement the
requirement, pursuant to Section 806(e), that any designated clearing
agency for which the Commission is the Supervisory Agency will be
required to provide advance notice to the Commission of changes to its
rules, procedures or operations that could materially affect the nature
or level of risks presented by the designated clearing agency. This
release also discusses the filing requirements in Exchange Act Section
19(b), Exchange Act Section 3C, and Section 806(e) and a clearing
agency's obligation to fully comply with and seek a determination
pursuant to each separate statutory requirement, when applicable.
A. Security-Based Swap Submissions
Exchange Act Section 3C creates, among other things, a clearing
requirement with respect to security-based swaps. Specifically, the
section provides that ``[i]t shall be unlawful for any person to engage
in a security-based swap unless that person submits such security-based
swap for clearing to a clearing agency that is registered under this
Act or a clearing agency that is exempt from registration under this
Act if the security-based swap is required to be cleared.'' \28\
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\28\ See Public Law 111-203, section 763(a) (adding Exchange Act
Section 3C(a)(1)). The requirement that a security-based swap be
cleared stems from a determination by the Commission. Such
determination may be made in connection with the review of a
clearing agency's submission regarding a security-based swap, or any
group, category, type or class of security-based swaps, that the
clearing agency plans to accept for clearing (i.e., a Security-Based
Swap Submission). See Public Law 111-203, section 763(a) (adding
Exchange Act Section 3C(b)(2)(C)) (``[t]he Commission shall * * *
review each submission made under subparagraphs (A) and (B), and
determine whether the security-based swap, or group, category, type,
or class of security-based swaps, described in the submission is
required to be cleared.''). In addition, Exchange Act Section
3C(b)(1) provides that ``[t]he Commission on an ongoing basis shall
review each security-based swap, or any group, category, type, or
class of security-based swaps to make a determination that such
security-based swap, or group, category, type, or class of security-
based swaps should be required to be cleared.''
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Exchange Act Section 3C requires the Commission, not later than one
year after the date of the enactment of the Dodd-Frank Act, to adopt
rules for a clearing agency's Security-Based Swap Submissions and to
determine the manner of notice the clearing agency must provide to its
members of such Security-Based Swap Submission.\29\ In connection with
rulemaking related to Security-Based Swap Submissions, the Commission
is proposing rules related to (i) the process for making Security-Based
Swap Submissions to the Commission, (ii) the substance of Security-
Based Swap Submissions and (iii) the timing related to Security-Based
Swap Submissions. The Commission also is proposing a process and timing
for clearing agencies to provide notice to their members of Security-
Based Swap Submissions.
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\29\ See Public Law 111-203, section 763(a) (adding Exchange Act
Section 3C(b)(2)(A)).
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1. Process for Making Security-Based Swap Submissions to the Commission
A clearing agency that plans to accept a security-based swap for
clearing must file a Security-Based Swap Submission with the Commission
for a determination by the Commission of whether a security-based swap,
or a group, category, type or class of security-based swaps, is
required to be cleared. As discussed in Section I, in cases where
accepting a security-based swap (or group, category, type or class of
security-based swaps) for clearing constitutes a change in a ``stated
policy, practice, or interpretation'' of the clearing agency, the
clearing agency also would be required to file a proposed rule change.
In such cases, the Commission must determine (i) whether to approve the
clearing agency's proposed rule change to clear the applicable
security-based swap and (ii) whether the security-based swap would be
subject to the mandatory clearing requirement.
The Commission is proposing to require clearing agencies to use
EFFS and Form 19b-4 for Security-Based Swap Submissions. Clearing
agencies, as SROs, are already required to file proposed rule changes
on Form 19b-4 on EFFS. Using the same filing process for Security-Based
Swap Submissions would leverage existing technology and reduce the
resources clearing agencies would have to expend on meeting Commission
filing requirements. In addition, the Commission anticipates that a
submission to clear a security-based swap, or any group, category, type
or class of security-based swaps, may be required to be filed under
both
[[Page 82494]]
Exchange Act Section 19(b) and Exchange Act Section 3C. This is because
a submission that must be filed with the Commission for a determination
under new Exchange Act Section 3C also may qualify as a proposed rule
change that must be filed with the Commission under Exchange Act
Section 19(b).\30\ In other words, the two filing requirements are not
mutually exclusive. Because a clearing agency may be required to file
the same proposal under Exchange Act Section 3C and Exchange Act
Section 19(b), the Commission preliminarily believes that the most
efficient use of the Commission's and clearing agencies' resources
would be to require clearing agencies to use the existing Form 19b-4
filing process for both types of filings. Accordingly, the proposed
rules related to the Security-Based Swap Submission process would be
added to existing Rule 19b-4, which currently governs the process for
filing proposed rule changes.
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\30\ A clearing agency rule is defined broadly in the Exchange
Act to include the constitution, articles of incorporation, by-laws,
and rules, or instruments corresponding to the foregoing. 15 U.S.C.
78c(a)(27). The Commission anticipates that a proposal to clear a
new type, category or class of security-based swap will in many
cases also be a change to the rules of a registered clearing agency
that must be filed with the Commission for approval pursuant to
Exchange Act Section 19(b).
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The Commission's proposed approach would eliminate the need for
multiple submissions to the Commission and could be accomplished by
adding a box to Form 19b-4 that clearing agencies would check to
indicate that they are making a Security-Based Swap Submission. As a
practical matter, the Commission believes that when a security-based
swap is submitted for review under Exchange Act Section 3C and
concurrently filed under Exchange Act Section 19(b) as a proposed rule
change, the two reviews will be carried out in tandem. In circumstances
where no proposed rule change filing would be required, such as a case
where a clearing agency's rules already permit it to clear the
security-based swap in question, EFFS and Form 19b-4 still would be
used for the Security-Based Swap Submission.
a. Substance of Security-Based Swap Submissions: Consistency With
Exchange Act Section 17A
In reviewing a Security-Based Swap Submission, the Commission is
required to review whether the submission is consistent with Exchange
Act Section 17A.\31\ Accordingly, the Commission is proposing that each
Security-Based Swap Submission contain a statement regarding how the
submission is consistent with Exchange Act Section 17A.\32\ Exchange
Act Section 17A specifies, among other things, that the Commission is
directed, having due regard for the public interest, the protection of
investors, the safeguarding of securities and funds and maintenance of
fair competition among brokers and dealers, clearing agencies, and
transfer agents, to use its authority to facilitate the establishment
of a national system for the prompt and accurate clearance and
settlement of transactions in securities.\33\
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\31\ See Public Law 111-203, section 763(a) (adding Exchange Act
Section 3C(b)(4)(A)).
\32\ Proposed Rule 19b-4(o)(3)(i).
\33\ 15 U.S.C. 78q-1.
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The Commission must review whether a proposed rule change filed by
an SRO pursuant to Exchange Act Section 19(b) is consistent with
Exchange Act Section 17A.\34\ In connection with proposed rule changes,
an SRO is required to ``explain why the proposed rule change is
consistent with the requirements of the [Exchange] Act and the rules
and regulations thereunder applicable to the [SRO]. A mere assertion
that the proposed rule change is consistent with those requirements is
not sufficient.'' \35\ Presently, in complying with this requirement,
registered clearing agencies, among other things, specify how the
proposed rule change is consistent with the requirements under Exchange
Act Section 17A(b)(3). All registered clearing agencies must comply
with the standards in Exchange Act Section 17A, which include
requirements under Exchange Act Section 17A(b)(3) to maintain rules for
promoting the prompt and accurate clearance and settlement of
securities transactions, assuring the safeguarding of securities and
funds which are in the custody or control of the clearing agency or for
which it is responsible, fostering cooperation and coordination with
persons engaged in the clearance and settlement of securities
transactions, removing impediments to and perfecting the mechanism of a
national system for the prompt and accurate clearance and settlement of
securities transactions, and, in general, protecting investors and the
public interest.\36\\\ A registered clearing agency is also required
under Exchange Act Section 17A(b)(3) to provide fair access to clearing
and to have the capacity to facilitate the prompt and accurate
clearance and settlement of securities transactions and derivative
agreements, contracts, and transactions for which it is responsible, as
well as to safeguard securities and funds in its custody or control or
for which it is responsible.\37\ Under the proposed amendments to Rule
19b-4, a clearing agency would be required to specify how the Security-
Based Swap Submission is consistent with Exchange Act Section 17A and
specifically the requirements applicable under subsection 17A(b)(3).
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\34\ See 15 U.S.C. 78s(b)(2)(C)(i), which provides that the
Commission shall approve a proposed rule change of an SRO if it
finds that such proposed rule change is consistent with the
requirements of the Exchange Act and the rules and regulations
issued thereunder that are applicable to such organization.
\35\ Item 3(b) of Form 19b-4. 17 CFR 240.819. Exchange Act
Section 19(b) has a similar but not identical requirement. It
requires that an SRO provide a statement of the basis of the
proposed rule change and provides that the Commission shall only
approve a proposed rule change if it finds that it is consistent
with the requirements of the Exchange Act and the rules and
regulations thereunder. 15 U.S.C. 78s(b).
\36\ See 15 U.S.C. 78q-1(b)(3)(F).
\37\ 15 U.S.C. 78q-1(b)(3)(A), (B) and (F).
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b. Substance of Security-Based Swap Submissions: Quantitative and
Qualitative Factors
The Dodd-Frank Act requires the Commission to take into account
several factors in addition to consistency with Exchange Act Section
17A in reviewing a clearing agency's Security-Based Swap
Submission.\38\ The Commission is proposing to require clearing
agencies to provide information relevant to these factors through the
proposed amendments to Rule 19b-4 and Form 19b-4. Specifically,
clearing agencies would be required to submit quantitative and
qualitative information to assist the Commission in the consideration
of the five factors Exchange Act Section 3C requires the Commission to
take into account in reviewing a Security-Based Swap Submission, which
include:
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\38\ See Public Law 111-203, section 763(a) (adding Exchange Act
Section 3C(b)(4)(B)(i)-(v)).
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(i) The existence of significant outstanding notional exposures,
trading liquidity and adequate pricing data.
(ii) The availability of a rule framework, capacity, operational
expertise and resources, and credit support infrastructure to clear the
contract on terms that are consistent with the material terms and
trading conventions on which the contact is then traded.
(iii) The effect on the mitigation of systemic risk, taking into
account the size of the market for such contract and the resources of
the clearing agency available to clear the contract.
(iv) The effect on competition, including appropriate fees and
charges applied to clearing.
(v) The existence of reasonable legal certainty in the event of the
insolvency of the relevant clearing agency or one or
[[Page 82495]]
more of its clearing members with regard to the treatment of customer
and security-based swap counterparty positions, funds, and
property.\39\
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\39\ Proposed Rule 19b-4(o)(3)(ii).
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Each Security-Based Swap Submission would be required to address
the factors listed above to the extent they are applicable to the
security-based swap, the clearing agency and the market.
For example, in connection with the discussion responsive to factor
(i) above, the clearing agency could address pricing sources, models
and procedures demonstrating an ability to obtain price data to measure
credit exposures in a timely and accurate manner, as well as measures
of historical market liquidity and trading activity, and expected
market liquidity and trading activity if the security-based swap is
required to be cleared (including information on the sources of such
measures). With respect to the discussion of factor (ii) above, the
statement describing the availability of a rule framework could include
a discussion of the rules, policies or procedures applicable to the
clearing of the relevant security-based swap. Additionally, the
discussion of credit support infrastructure could include the methods
to address and communicate requests for, and posting of, collateral.
With respect to factor (iii) above, the discussion of systemic risk
could include a statement on the clearing agency's risk management
procedures, including among other things the measurement and monitoring
of credit exposures, initial and variation margin methodology,
methodologies for stress testing and back testing, settlement
procedures and default management procedures. With respect to factor
(iv) above, the discussion of fees and charges could address any volume
incentive programs that may apply or impact the fees and charges. With
respect to factor (v) above, the discussion could address segregation
of accounts and all other customer protection measures under
insolvency.
In describing the security-based swap, or any group, category, type
or class of security-based swaps, that a clearing agency plans to
accept for clearing, the clearing agency could include the relevant
product specifications, including copies of any standardized legal
documentation, generally accepted contract terms,\40\ standard
practices for managing and communicating any life cycle events
associated with the security-based swap and related adjustments,\41\
and the manner in which the information contained in the confirmation
of the security-based swap trade is transmitted. The clearing agency
also could discuss its financial and operational capacity to provide
clearing services to all customers subject to the clearing requirements
as applicable to the particular security-based swap. Finally, the
clearing agency could include an analysis of the effect of a clearing
requirement on the market for the group, category, type, or class of
security-based swaps, both domestically and globally, including the
potential effect on market liquidity, trading activity, use of
security-based swaps by direct and indirect market participants and any
potential market disruption or benefits. This analysis could include
whether the members of the clearing agency are operationally and
financially capable of absorbing clearing business (including indirect
access market participants) that may result from a determination that
the security-based swap (or group, category, type or class of security-
based swaps) is required to be cleared.
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\40\ For example, for some security-based swaps, industry
standard documentation would include the applicable International
Swaps and Derivatives Association, Inc. Master Agreement and any
related asset-class-specific definitions.
\41\ The Commission has proposed Regulation SBSR, which contains
a definition of ``life cycle event.'' See Exchange Act Release No.
63346 (Nov. 19, 2010), 75 FR 75208 (Dec. 2, 2010) (``Regulation
SBSR--Reporting and Dissemination of Security-Based Swap
Information'').
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c. Substance of Security-Based Swap Submissions: Open Access
New Exchange Act Section 3C also requires that the rules of a
clearing agency that clears security-based swaps subject to the
clearing requirement provide for open access.\42\ In the course of
reviewing a Security-Based Swap Submission, the Commission may assess
whether a clearing agency's rules provide for open access, particularly
with respect to the relevant Security-Based Swap Submission.
Accordingly, the proposed rule provides that the Security-Based Swap
Submission must include a statement regarding how a clearing agency's
rules:
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\42\ See Public Law 111-203, section 763(a) (adding Exchange Act
Section 3C(a)(2) (``[t]he rules of a clearing agency described in
paragraph (1) shall--(A) prescribe that all security-based swaps
submitted to the clearing agency with the same terms and conditions
are economically equivalent within the clearing agency and may be
offset with each other within the clearing agency; and (B) provide
for non-discriminatory clearing of a security-based swap executed
bilaterally or on or through the rules of an unaffiliated national
securities exchange or security-based swap execution facility.'').
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(i) Prescribe that all security-based swaps submitted to the
clearing agency with the same terms and conditions are economically
equivalent within the clearing agency and may be offset with each other
within the clearing agency; and
(ii) Provide for non-discriminatory clearing of a security-based
swap executed bilaterally or on or through the rules of an unaffiliated
national securities exchange or security-based swap execution
facility.\43\
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\43\ Proposed Rule 19b-4(o)(3)(ii).
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In making a determination, the Commission proposes to take into
account the factors specified in Exchange Act Section 3C and any
additional information the Commission determines to be appropriate. The
proposed rule also requires a clearing agency to provide any additional
information requested by the Commission as necessary to make a
determination.\44\ The Commission believes that such a requirement
would provide appropriate flexibility to facilitate our regulatory
responsibilities. In making a determination of whether or not the
clearing requirement would apply to the security-based swap, or any
group, category, type, or class of security-based swaps, described in
the submission, the Commission may require such terms and conditions as
the Commission determines to be appropriate in the public interest.\45\
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\44\ Proposed Rule 19b-4(o)(6)(i).
\45\ See Public Law 111-203, section 763(a) (adding Exchange Act
Section 3C(b)(4)(C)) and Proposed Rule 19b-4(o)(6)(ii).
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d. Timing Related to Security-Based Swap Submissions
Under Exchange Act Section 3C, as added by Section 763(a) of the
Dodd-Frank Act, the Commission is required to make its determination of
whether a security-based swap described in a clearing agency's
Security-Based Swap Submission is required to be cleared not later than
90 days after receiving such Security-Based Swap Submission.\46\ The
90-day determination period may be extended with the consent of the
clearing agency making such Security-Based Swap Submission.\47\ The
Commission is required to make available to the public any Security-
Based Swap Submission it receives and to provide at least a 30-day
public comment period ``regarding its
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determination whether the clearing requirement shall apply to the
submission.'' \48\ This 30-day comment period enables the public to
have an opportunity to comment on the Security-Based Swap Submission
and to provide information for the Commission to consider as part of
making its determination whether the clearing requirement should apply
to the submission. Accordingly, the Commission proposes to make the
Security-Based Swap Submission available for a 30-day public comment
period within the 90-day determination period. The Commission would
publish notice of the Security-Based Swap Submission in the Federal
Register and publish notice on the Commission's publicly-available Web
site at https://www.sec.gov. Such notice would include the solicitation
of public comment. This proposed publication process would be
consistent with the current process that is in place for proposed rule
changes under Exchange Act Section 19(b)(2) and Rule 19b-4.
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\46\ See Public Law 111-203, section 763(a) (adding Exchange Act
Section 3C(b)(3)). Further, pursuant to proposed Rule 19b-4(o)(2),
if any information submitted to the Commission by a clearing agency
on Form 19b-4 were not complete or otherwise in compliance with Rule
19b-4 and Form 19b-4, such information would not be considered a
Security-Based Swap Submission and the Commission would be required
to inform the clearing agency within twenty-one business days of
such submission.
\47\ See Public Law 111-203, section 763(a) (adding Exchange Act
Section 3C(b)(3)).
\48\ See Public Law 111-203, section 763(a) (adding Exchange Act
Section 3C(b)(2)(C)).
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e. Notice to Clearing Agency Members
New Exchange Act Section 3C requires that a clearing agency provide
notice to its members, in a manner determined by the Commission, of its
Security-Based Swap Submissions.\49\ To meet the requirement of
providing notice of Security-Based Swap Submissions to members, the
Commission is proposing amendments to Rule 19b-4 that would require
clearing agencies to post on their Web sites such submissions to the
Commission, and any amendments thereto.\50\ This public posting would
be required to be completed within two business days following the
Security-Based Swap Submission to the Commission. This timeframe is
consistent with the notice requirement that currently applies to
proposed rule changes,\51\ and the Commission believes that such
timeframe would provide members of the clearing agency and the public
with timely notice of the submission. The clearing agency would be
required to maintain such material on its Web site until the Commission
makes a determination regarding the Security-Based Swap Submission, the
clearing agency withdraws the Security-Based Swap Submission or the
clearing agency is notified that the Security-Based Swap Submission is
not properly filed.\52\ These requirements should help ensure that
submissions that are being actively considered by the Commission are
readily available to the members of the clearing agency and the public
and help provide for a more transparent process.
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\49\ See Public Law 111-203, section 763(a) (adding Exchange Act
Section 3C(b)(2)(A)).
\50\ Proposed Rule 19b-4(o)(5).
\51\ Commission rules currently require SROs to post on their
Web sites a copy of any proposed rule change the SRO filed with the
Commission, and any amendments thereto. Such posting is required
within two business days after filing the proposed rule change with
the Commission. See 17 CFR 240.19b-4(l). In adopting this rule, the
Commission stated that all market participants, investors and other
interested parties should have access to proposed rule changes filed
with the Commission, and any amendments, as soon as practicable, and
that it did not believe that a two-business-day timeframe would be
impractical or unduly burdensome on SROs. See Securities Exchange
Act Release No. 50486 (Oct. 4, 2004), 69 FR 60287 (Oct. 8, 2004)
(Final Rules Regarding Proposed Rule Changes of Self-Regulatory
Organizations).
\52\ Proposed Rule 19b-4(o)(5).
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The Commission notes that the current instructions for Form 19b-4
require an SRO to file with the Commission copies of notices issued by
the SRO soliciting comment on the proposed rule change and copies of
all written comments on the proposed rule change received by the SRO
(whether or not comments were solicited) from its members or
participants. Any correspondence the SRO receives after it files a
proposed rule change, but before the Commission takes final action on
the proposed rule change, also is required to be filed with the
Commission.\53\ The SRO is required to summarize the substance of all
such comments received and respond in detail to any significant issues
raised in the comments about the proposed rule change.\54\ The
Commission is proposing that in connection with Security-Based Swap
Submissions, clearing agencies would be subject to these same
requirements. The Commission preliminarily believes that its proposal
to apply such requirements in the instructions to Form 19b-4 to
Security-Based Swap Submissions would provide the Commission with an
opportunity to consider the various viewpoints expressed by commenters
by making sure relevant comments are included in the materials provided
to the Commission.
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\53\ See Items 5 and 9 (Exhibit 2) of Form 19b-4. 17 CFR
240.819.
\54\ Item 5 of Form 19b-4. 17 CFR 240.819.
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f. Submissions of a Group, Category, Type or Class of Security-Based
Swaps
The proposed amendments to Rule 19b-4 and Form 19b-4 would require
that clearing agencies submit security-based swaps for review by group,
category, type, or class to the extent it is practicable and reasonable
to do so.\55\ Any aggregation would be required to be clearly described
in a Security-Based Swap Submission so that market participants and the
public know which security-based swaps may be subject to a clearing
requirement. The Commission preliminarily believes that including
multiple security-based swaps in each submission--to the extent that
such groupings are practicable and reasonable (e.g., by taking into
consideration appropriate risk management issues applicable to the
aggregation)--would streamline the submission process for Commission
staff and the clearing agencies. This in turn would allow more
security-based swaps to be reviewed in a timely manner.
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\55\ Proposed Rule 19b-4(o)(4). In its release proposing rules
to implement Section 723 of the Dodd-Frank Act, the CFTC has
proposed a similar rule. 75 FR 67277 (November 2, 2010).
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Request for Comments
The Commission generally requests comments on all aspects of the
proposed amendments to Rule 19b-4 that would incorporate the process
for making Security-Based Swap Submissions. In addition, the Commission
requests comments on the following specific issues:
Are there specific considerations that the Commission
should weigh more heavily in reviewing whether a Security-Based Swap
Submission is consistent with Exchange Act Section 17A? If so, what are
such considerations?
Should the information included in this release as
examples of the kinds of information the clearing agency should include
in its Security-Based Swap Submission be required in all cases and
incorporated into the rules?
To describe the security-based swap, or any group,
category, type or class of security-based swaps, that a clearing agency
plans to accept for clearing, should a clearing agency be required to
include in its Security-Based Swap Submissions specific product
specifications, including copies of any standardized legal
documentation, generally accepted contract terms, standard practices
for managing and communicating any life cycle events associated with
the security-based swap and related adjustments, and the manner in
which the information contained in the confirmation of the security-
based swap trade is transmitted? If not, why not? Is there other
information relating to the description of the security-based swaps
that clearing agencies should be required to provide? If so, what
information and why? Should this
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information be required in all cases and incorporated into the rules?
What specific information should a clearing agency be
required to include in its Security-Based Swap Submissions regarding
pricing sources, models and procedures demonstrating an ability to
obtain price data to measure credit exposures in a timely and accurate
manner, as well as measures of historical market liquidity and trading
activity, and expected market liquidity and trading activity if the
security-based swap is required to be cleared (including information on
the sources of such measures)? Is there other information relating to
pricing that clearing agencies should be required to provide? If so,
what information and why? Should this information be required in all
cases and incorporated into the rules?
What specific information should a clearing agency be
required to include in its Security-Based Swap Submissions pertaining
to the rules, policies or procedures applicable to the clearing of the
relevant security-based swap? Is there other information relating to
rule framework, capacity, operational expertise and resources the
clearing agency should be required to provide? If so, what information
and why? Should this information be required in all cases and
incorporated into the rules?
Is there specific information a clearing agency should be
required to include in its Security-Based Swap Submissions regarding
the methods to address and communicate requests for, and posting of,
collateral? Is there other information relating to collateral that the
clearing agency should be required to provide? If so, what information
and why? Should this information be required in all cases and
incorporated into the rules?
What specific information should a clearing agency be
required to include in its Security-Based Swap Submissions regarding
the clearing agency's risk management procedures, pertaining to among
other things the measurement and monitoring of credit exposures,
initial and variation margin methodology, methodologies for stress
testing and back testing, settlement procedures and default management
procedures? Is there other information relating to risk management that
the clearing agency should be required to provide? If so, what
information and why? Should this information be required in all cases
and incorporated into the rules?
Should a clearing agency, in connection with each
submission or in some circumstances, be required to include an
independent validation of its margin methodology and its ability to
maintai
