Registration of Security-Based Swap Dealers and Major Security-Based Swap Participants, 65784-65884 [2011-26889]
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Federal Register / Vol. 76, No. 205 / Monday, October 24, 2011 / Proposed Rules
SECURITIES AND EXCHANGE
COMMISSION
17 CFR Parts 240 and 249
[Release No. 34–65543; File No. S7–40–11]
RIN 3235–AL05
Registration of Security-Based Swap
Dealers and Major Security-Based
Swap Participants
Securities and Exchange
Commission.
ACTION: Proposed rule.
AGENCY:
Section 764(a) of Title VII of
the Dodd-Frank Wall Street Reform and
Consumer Protection Act (‘‘Dodd-Frank
Act’’) requires the Securities and
Exchange Commission (‘‘Commission’’)
to issue rules to provide for the
registration of security-based swap
dealers (‘‘SBS Dealers’’) and major
security-based swap participants
(collectively, ‘‘SBS Entities’’). Pursuant
to this requirement, the Commission is
proposing new Rules 15Fb1–1 through
15Fb6–1 under the Securities Exchange
Act of 1934, as amended (the ‘‘Exchange
Act’’), to provide for the registration of
SBS Entities. The Commission is also
proposing forms to facilitate registration
(and withdrawal from registration) of
these entities.
DATES: Comments should be received on
or before December 19, 2011.
ADDRESSES: Comments may be
submitted by any of the following
methods:
SUMMARY:
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 S7–40–11 on the subject line;
or
• Use the Federal eRulemaking Portal
(https://www.regulations.gov). Follow the
instructions for submitting comments.
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Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number S7–40–11. 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/proposed.shtml). Comments will
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also 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. 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.
FOR FURTHER INFORMATION CONTACT:
David W. Blass, Chief Counsel; Joseph
Furey, Assistant Chief Counsel; or
Bonnie Gauch, Special Counsel,
Division of Trading and Markets,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–7010.
SUPPLEMENTARY INFORMATION:
Table of Contents:
I. Introduction
A. Background
B. General Approach to the SBS Entity
Registration Process
1. Conditional Registration
i. Implementation Plan and the Last
Compliance Date
ii. Major Security-Based Swap Participant
Applicants Registering After the Last
Compliance Date
2. Ongoing Registration
3. Solicitation of Comments on the General
Approach to the SBS Entity Registration
Process
II. Proposed Exchange Act Rules and Forms
A. Registration Application and
Amendment
1. Proposed Rule 15Fb2–1
i. Form of Application
ii. Senior Officer Certification
iii. Electronic Filing
iv. Standards for Granting or Denying
Applications
v. Request for Comment on Additional
Registration Considerations
2. Amendments to Application Forms:
Proposed Rule 15Fb2–3
B. Associated Persons
1. Certification
2. Alternative Process
C. Termination of Registration
1. Expiration: Proposed Rule 15Fb3–1
2. Withdrawal: Proposed Rule 15Fb3–2
3. Cancellation and Revocation: Proposed
Rule 15Fb3–3
D. Special Requirements for Nonresident
SBS Entities
1. United States Agent for Service of
Process
2. Access to Books and Records of
Nonresident SBS Entity
E. Special Situations
1. Succession: Proposed Rule 15Fb2–5
2. Insolvency: Proposed Rule 15Fb2–6
F. Technical Rules
1. Electronic Signatures
2. Temporary Rule To Facilitate Paper
Filing of Forms
G. Forms
1. Form SBSE
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2. Form SBSE–A
3. Form SBSE–BD
4. Form SBSE–C
5. Form SBSE–W
6. Tagged Data Formats
H. Alternative Approaches Considered
III. Request for Comment
IV. Paperwork Reduction Act
A. Summary of Collection of Information
B. Proposed Use of Information
C. Respondents
D. Total Initial and Annual Reporting and
Recordkeeping Burdens
1. Burden Associated With Filing
Application Forms
2. Burden Associated With Amending
Application Forms
3. Burden Associated With Certification
4. Burdens Relating to Associated Persons
5. Burdens on Nonresident SBS Entities
6. Burden Related to Retention of Manually
Signed Signature Pages
7. Burden Associated With Filing
Withdrawal Form
8. Burden Associated With Proposed
Temporary Rule 15Fb2–2T
9. Request for Comment on Burden
Estimates
E. Retention Period of Recordkeeping
Requirements
F. Collection of Information Is Mandatory
G. Confidentiality
H. Request for Comment
V. Economic Analysis
A. Benefits
B. Costs
1. Costs Attributable to Filing the Forms
2. Costs of Certification
3. Costs Relating to Associated Persons
4. Costs to Nonresident SBS Entities
5. Cost of Retaining Manually Signed
Signature Pages
6. Costs Associated With Proposed
Temporary Rule 15Fb2–2T
C. Request for Comment
VI. Consideration of Impact on the Economy
VII. Regulatory Flexibility Act Certification
VIII. Statutory Basis and Text of Proposed
Rules
I. Introduction
A. Background
On July 21, 2010, the President signed
the Dodd-Frank Act into law.1 The
Dodd-Frank Act was designed to
promote, among other things, the
financial stability of the United States
by improving accountability and
transparency in the financial system.2
Among other measures, the Dodd-Frank
Act provides the Commission and the
Commodity Futures Trading
Commission (‘‘CFTC’’) with authority to
regulate certain aspects of the over-thecounter (‘‘OTC’’) derivatives market,
where the recent financial crisis
demonstrated a need for enhanced
regulation. The Dodd-Frank Act is
intended to provide the Commission
1 The Dodd-Frank Wall Street Reform and
Consumer Protection Act, Public Law 111–203, 124
Stat. 1376 (2010).
2 See id., at Preamble.
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and the CFTC with effective new
regulatory tools to oversee that market,
which has grown exponentially in
recent years and is capable of affecting
significant sectors of the U.S. economy.
Title VII of the Dodd-Frank Act
broadly categorizes covered products as
‘‘swaps,’’ 3 regulated primarily by the
CFTC, ‘‘security-based swaps,’’ 4
regulated primarily by the Commission,
or ‘‘mixed swaps,’’ jointly regulated by
the Commission and the CFTC.5 Among
other things, the Dodd-Frank Act
prohibits any person from acting as a
‘‘security-based swap dealer’’ 6 or
‘‘major security-based swap
participant’’ 7 without being registered
3 Defined in Section 1a of the Commodity
Exchange Act (‘‘CEA’’).
4 Defined in Section 3(a)(68) of the Exchange Act.
All references to the Exchange Act contained in this
release refer to the Securities Exchange Act of 1934,
as modified by the Dodd-Frank Act.
5 In addition, Section 712(d)(1) of the Dodd-Frank
Act directs the Commission and the CFTC, in
consultation with the Board of Governors of the
Federal Reserve System, to propose rules and
interpretative guidance to further define, among
other things, the terms ‘‘security-based swap,’’
‘‘swap dealer,’’ ‘‘security-based swap dealer,’’
‘‘major swap participant,’’ and ‘‘major securitybased swap participant.’’ The Commission and
CFTC jointly proposed further rules and guidance
with respect to the dealer and participant
definitions on December 7, 2010. Further Definition
of ‘‘Swap Dealer,’’ ‘‘Security-Based Swap Dealer,’’
‘‘Major Swap Participant,’’ ‘‘Major Security-Based
Swap Participant’’ and ‘‘Eligible Contract
Participant,’’ Exchange Act Release No. 63452 (Dec.
7, 2010), 75 FR 80174 (Dec. 10, 2010) (the
‘‘Intermediary Definitions Release’’). The
Commission and CFTC jointly proposed further
rules and guidance with respect to the definitions
of ‘‘swap’’, ‘‘security-based swap’’, and other terms
on April 29, 2011. Further Definition of ‘‘Swap, ’’
‘‘Security-Based Swap, ’’ and ‘‘Security-Based Swap
Agreement’’; Mixed Swaps; Security-Based Swap
Agreement Recordkeeping, Exchange Act Release
No. 64372 (Apr. 29, 2011), 76 FR 29818 (May 23,
2011)).
6 Subject to certain exceptions, Exchange Act
Section 3(a)(71)(A) defines ‘‘security-based swap
dealer’’ to mean any person who: (i) Holds themself
out as a dealer in security-based swaps; (ii) makes
a market in security-based swaps; (iii) regularly
enters into security-based swaps with
counterparties as an ordinary course of business for
its own account; or (iv) engages in any activity
causing it to be commonly known in the trade as
a dealer or market maker in security-based swaps.
See also supra note 5.
7 Exchange Act Section 3(a)(67)(A) defines ‘‘major
security-based swap participant’’ to mean ‘‘any
person: (i) who is not a security-based swap dealer;
and (ii)(I) who maintains a substantial position in
security-based swaps for any of the major securitybased swap categories, as such categories are
determined by the Commission, excluding both
positions held for hedging or mitigating commercial
risk and positions maintained by any employee
benefit plan (or any contract held by such a plan)
as defined in paragraphs (3) and (32) of Section 3
of the Employee Retirement Income Security Act of
1974 (29 U.S.C. 1002) for the primary purpose of
hedging or mitigating any risk directly associated
with the operation of the plan; (II) whose
outstanding security-based swaps create substantial
counterparty exposure that could have serious
adverse effects on the financial stability of the
United States banking system or financial markets;
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with the Commission, and requires that
the Commission issue rules to provide
for registration of these SBS Entities.8
The Commission is proposing Rules
15Fb1–1 to 15Fb6–1 under the
Exchange Act to establish procedures
for an SBS Entity to register with the
Commission and additional provisions
related to such registration, including:
(1) A requirement to amend an
inaccurate application for registration;
(2) procedures for succession to, or
withdrawal from, registration; and (3)
procedures for the Commission to
cancel or revoke registration.9 The
proposed rules would also establish a
requirement for an SBS Entity to certify
that none of its associated persons that
effect, or are involved in effecting,
security-based swaps on the SBS
Entity’s behalf is subject to statutory
disqualification. The Commission is
proposing forms to facilitate SBS
Entities’ registration and withdrawal
from registration.
The proposed rules and forms would
address additional registration
requirements applicable to nonresident
SBS Entities, including requirements to
appoint a U.S. agent for service of
process, and to provide an opinion of
counsel regarding the entity’s ability to
(1) Provide the Commission with
prompt access to books and records, and
(2) be subject to onsite examinations
and inspections by the Commission.
or (III) that is a financial entity that (aa) is highly
leveraged relative to the amount of capital such
entity holds and that is not subject to capital
requirements established by an appropriate Federal
banking regulator; and (bb) maintains a substantial
position in outstanding security-based swaps in any
major security-based swap category, as such
categories are determined by the Commission.’’ See
also supra note 5.
8 The Commission has concluded that SBS
Entities that were not registered with the
Commission as of the July 16, 2011, effective date
of Section 15F of the Exchange Act are permitted
to lawfully continue their business absent
Commission action with respect to the SBS Entity
registration regime. See Temporary Exemptions and
Other Temporary Relief, Together With Information
on Compliance Dates for New Provisions of the
Securities Exchange Act of 1934 Applicable to
Security-Based Swaps, Exchange Act Release No.
64678 (Jun. 15, 2011), 76 FR 36287, 36299–300 (Jun.
22, 2011) (the ‘‘Effective Date Release’’).
9 The Exchange Act gives the Commission broad
authority to craft a registration regime for SBS
Entities that helps the Commission accomplish its
missions of protecting investors, maintaining fair,
orderly, and efficient markets, and facilitating
capital formation. For example, Section 15F(b)(2) of
the Exchange Act states that an application for
registration ‘‘shall be made in such form and
manner as prescribed by the Commission, and shall
contain such information as the Commission
considers necessary concerning the business in
which the applicant is or will be engaged.’’ In
addition, Section 15F(d)(1) of the Exchange Act
directs the Commission to ‘‘adopt rules for persons
that are registered as [SBS Entities] under [Section
15F].’’
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In proposing these rules and forms,
the Commission is mindful that there
are similarities and differences among
SBS Entities that hold substantial
positions in security-based swaps and
dealers and participants that hold
substantial positions in other financial
products. The Commission also
understands that there are similarities
and differences between the securitybased swap market and the markets for
other financial products. The
Commission believes that, both over
time and as a result of Commission
proposals to implement the Dodd-Frank
Act, further information concerning the
application of existing registration and
regulatory regimes to SBS Entities and
the development of the security-based
swap market may alter certain
considerations relating to the
registration of SBS Entities. During the
process of implementing the DoddFrank Act and beyond, the Commission
intends to closely monitor
developments relating to SBS Entities
and the security-based swap markets. In
particular, the Commission intends to
evaluate further information concerning
the range of market participants that
may register as SBS Entities, the
activities of and services provided by
such market participants, whether these
activities and services are identical or
similar to activities and services already
regulated by the federal securities laws
or other laws, and how applicable
existing registration and regulatory
regimes interact with one another and
apply to SBS Entities.
B. General Approach to the SBS Entity
Registration Process
The Commission’s proposed
registration requirements for SBS
Entities largely are modeled after the
registration regime applicable to brokerdealers,10 while also taking into account
the CFTC’s registration requirements for
intermediaries.11 We preliminarily
believe that because the proposed
requirements would closely align with
current requirements for our other
registrants, and would be similar to the
registration regime for CFTC registrants,
this approach would provide the
Commission and the staff with key
information about registrants while
leveraging Commission staff experience
and standing procedures to facilitate a
10 This includes rules promulgated under
Sections 15(b) and 17(a) of the Exchange Act.
11 17 CFR 3.1 et seq. Futures commission
merchants (‘‘FCMs’’) and introducing brokers
presently register with the CFTC by filing Form 7–
R with the National Futures Association. The CFTC
has proposed to register swap dealers and major
swap participants through this same process. See 75
FR 71379, at 71382 (Nov. 23, 2010).
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substantive review of applications for
registration and inspections of
registrants. In addition, the brokerdealer registration regime should be
familiar to, and understood by, many
SBS Entities. In particular, SBS Dealers
may already be registered and regulated
as broker-dealers or may be affiliated
with a broker-dealer. Moreover, if an
SBS Dealer enters into security-based
swap transactions with persons that are
not eligible contract participants, it
must register as a broker-dealer unless
an exemption or exception applies.12
The proposed approach would seek to
ensure that a market participant
registered as both an SBS Entity and a
broker-dealer is subject to a similar and
complementary registration regime. It
could therefore both ease the regulatory
burden on such entities and help to
establish a consistent regime for
regulating SBS Dealers and dealers of
other securities.
As explained below, our proposed
approach to the application process
would build on our existing brokerdealer registration forms—most notably,
Form BD—but also is designed to avoid
unnecessary duplication by permitting
SBS Entities that are otherwise
registered or registering as
intermediaries with either the
Commission or the CFTC to complete
simplified application forms. Under this
process, SBS Entities registered or
registering with the Commission as
broker-dealers or with the CFTC as swap
dealers or major swap participants
would submit a shorter SBS Entity
registration form along with a copy of
their existing registration form.
An SBS Entity would be permitted to
file an application for registration as
soon as final registration rules and
forms are adopted. Further, each SBS
Entity would need to be registered (at
least conditionally) by the compliance
date set forth in the final registration
rules. In certain circumstances, SBS
Entities would be required to apply for
conditional registration, which they
could convert to ongoing registration by
fulfilling the applicable requirements
set forth in the proposed rules. As
discussed in more detail below, those
requirements would differ depending on
whether: (1) The application was filed
with the Commission before or after the
compliance dates for certain new rules
to be adopted pursuant to Section 15F
of the Exchange Act; and (2) the
applicant is an SBS Dealer or instead is
a major security-based swap participant.
Conditional registration would expire
after a specified time, and a
conditionally registered SBS Entity
12 See
15 U.S.C. 78c(a)(5) and 78o(a).
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would be required to cease its securitybased swap business if it had not
satisfied the applicable conditions to
convert its registration to an ongoing
registration. The Commission could,
however, extend any conditional
registration for good cause.
Although the Commission may be
familiar with SBS Entities that are
already registered with the Commission
(e.g., broker-dealers or investment
advisers), the Commission is mindful
that SBS Entities will nonetheless
constitute a new class of registrants that
may present business models and
practices with which the Commission
will need to gain experience.
Accordingly, the Commission expects
that its careful review of each
application for registration and each
certification on Form SBSE–C (the
‘‘Senior Officer Certification’’ described
further below) will not only facilitate
the Commission’s decision to grant or
deny registration to an SBS Entity, but
also help to develop this experience and
aid in the identification of areas for
further inquiry, including, as may be
appropriate, examinations of particular
firms or business units by the
Commission’s Office of Compliance
Inspections and Examinations (‘‘OCIE’’),
in order to establish an effective ongoing
examination program for such entities.13
OCIE currently uses risk-based
methodologies to focus Commission
examination resources on firms and
13 In addition to SBS Entities, the Dodd-Frank Act
requires the Commission to register for the first time
security-based swap execution facilities, securitybased swap data repositories, municipal advisors,
and certain private fund advisers. In light of these
new categories of registrants, the Commission is
presently reviewing the various standards and
processes it uses to facilitate registration of the
many types of entities required to register with it—
including broker-dealers, investment advisers,
nationally recognized statistical rating
organizations, transfer agents, clearing agencies,
exchanges, national securities associations, and
others. In this regard, the Commission plans to
issue a concept release designed to collect
information and evaluate different aspects of these
registration standards and processes. In particular,
the Commission intends to consider the policy
objectives of registration, how best to achieve those
policy objectives through registration and other
means, and the relative benefits and costs of the
various means available. Through such a concept
release, the Commission would hope to gain insight
into how evolving market practices, technology,
and other considerations could affect or be affected
by the Commission’s approach to the registration
processes for various types of entities. Recognizing
that the Commission has finite resources to allocate
to registration, examination, and enforcement
functions, the Commission intends to use the
concept release to seek comment as to how it can
most effectively and efficiently utilize these
registration and other functions to help ensure that
entities registered by the Commission to perform
important financial intermediary and other
functions in the securities markets have the
capability to carry out those functions and to fully
comply with all applicable regulatory requirements.
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activities that could pose the greatest
risk to investors and the integrity of the
markets. Consistent with that general
approach, OCIE and the Division of
Trading and Markets intend jointly to
perform a substantive review of
applications and Senior Officer
Certifications received for registration of
SBS Entities to determine whether
additional Commission action is
appropriate and to evaluate potential
registrants’ risk for purposes of
prioritizing examinations.
1. Conditional Registration
Under the proposed rules, an SBS
Entity seeking Commission registration
generally would be required to apply for
conditional registration by submitting a
complete application to the
Commission. The Commission would
then grant conditional registration if it
finds that the SBS Entity’s application is
complete, except that the Commission
may institute proceedings to determine
whether the Commission should deny
conditional registration if the applicant
is subject to a statutory disqualification
or the Commission is aware of
inaccurate statements in the
application.14 The Commission would
notify the entity electronically when
conditional registration is granted, and
would make information regarding
registration status publicly available.
For an SBS Entity to convert its
conditional registration to ongoing
registration, it would be required to
submit a Senior Officer Certification
signed by one of its knowledgeable
senior officers. The contents of the
Senior Officer Certification and the time
frame within which it must be
submitted to the Commission are
described more fully below and
specified in the rule. Generally,
however, the Senior Officer Certification
would state that, after due inquiry, the
senior officer has reasonably determined
that the SBS Entity has the operational,
financial, and compliance capabilities to
act as an SBS Dealer or a major securitybased swap participant, as applicable,
and has documented the process by
which he or she reached such
determination. We preliminarily believe
that this certification requirement
would help to protect both investors
and markets from potential problems
arising from SBS Entities that may lack
the capabilities necessary to operate
their businesses in compliance with
their regulatory obligations.
14 Such proceedings would include notice of the
grounds for denial under consideration and
opportunity for hearing, and that at the conclusion
of such proceedings, the Commission would grant
or deny such registration. See proposed Rule
15Fb2–1(d)(1).
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i. Implementation Plan and the Last
Compliance Date
After proposing all of the key rules
under Title VII, the Commission intends
to seek public comment on a detailed
implementation plan that will permit a
roll-out of the new securities-based
swap requirements in a logical,
progressive, and efficient manner, while
minimizing unnecessary disruption and
costs to the markets. Among other
things, the implementation plan would
inform the timing of the requirement for
SBS Entities to register with the
Commission, including whether such
registration requirement would exist
prior to the latest date, designated by
the Commission, by which SBS Dealers
and major security-based swap
participants must begin complying with
all of the initial rules promulgated
under Section 15F of the Exchange Act
(‘‘Last Compliance Date’’).15
The Commission believes it is
possible that SBS Entities may be
required to register before the Last
Compliance Date.16 For these
‘‘transitional’’ applicants, whether SBS
Dealer or major security-based swap
participant, there would be a period of
time before the Last Compliance Date
when the Senior Officer Certification
would be either unduly burdensome for
registrants (e.g., a rule has been
promulgated by the Commission under
Section 15F of the Exchange Act, but
compliance with that rule is not yet
required) or inappropriate for meeting
the goals of the certification (e.g., the
Commission has not yet adopted a
significant rule under Section 15F of the
Exchange Act, so the certification would
not cover compliance in an important
regulatory area).
To address this potential transition
issue, we preliminarily believe it is
appropriate to propose a conditional
registration process that would permit
registration without a Senior Officer
Certification prior to the Last
Compliance Date. This process would
be available to all applicants (whether
SBS Dealer or major security-based
swap participant) and would, among
other things, facilitate the identification
of existing SBS Entities in advance of
the compliance date of certain
15 The term ‘‘Last Compliance Date’’ is defined in
proposed Rule 15Fb2–1(e). The Commission
anticipates that the Last Compliance Date would be
clearly stated in the relevant adopting release and
prominently announced on the Commission’s Web
site.
16 The Commission notes that, regardless of the
timing of the Last Compliance Date, a registered
SBS Entity would be required to comply with
certain self-operative provisions in Exchange Act
Section 15F upon registration (conditional or
otherwise), absent further Commission action. See
Effective Date Release, supra note 8.
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substantive requirements. Conditional
registration would be effective once the
Commission grants such conditional
registration and would expire on the
Last Compliance Date (unless
conditional registration was extended
pursuant to paragraphs (b) or (c) of
proposed Rule 15Fb3–1). Ongoing
registration of these conditionally
registered SBS Entities would be
conditioned on, among other things, the
registrant providing the Senior Officer
Certification to the Commission on or
before the Last Compliance Date. As
described above, fulfillment of this
requirement by an SBS Entity would
provide the Commission with some
assurance that the SBS Entity
understands and has the ability to
undertake its business in compliance
with the applicable requirements. Once
a registrant submits its Senior Officer
Certification, the Commission would
consider converting its conditional
registration to an ongoing registration.17
However, whether or not a conditional
registrant provides the Senior Officer
Certification on or before the Last
Compliance Date, the Commission
would retain the flexibility to extend
conditional registration for good cause.
Once the Last Compliance Date has
occurred, the conditional registration
process for SBS Dealers would
effectively collapse into the ongoing
registration process and any SBS Dealer
would need to submit its Senior Officer
Certification with its application (i.e.,
after the Last Compliance Date, SBS
Dealers could only apply for ongoing
registration). Major securities-based
swap participants could still
conditionally register (as described
below) because of challenges separate
and apart from implementation of
Section 15F of the Exchange Act.
ii. Major Security-Based Swap
Participant Applicants Registering After
the Last Compliance Date
As noted in the proposed definition of
major security-based swap participant,18
an entity whose security-based swap
portfolio crosses established thresholds
in a fiscal quarter would have a twomonth grace period following the end of
that quarter to submit a complete
application for registration as a major
security-based swap participant. The
Commission preliminarily believes that,
while there is likely to be some advance
17 Submission of a Senior Officer Certification
also would toll expiration of the SBS Entity’s
conditional registration for thirty days, if necessary
to facilitate the Commission’s review, or such
longer period as the Commission finds for good
cause (see proposed Rule 15Fb3–1).
18 See Intermediary Definitions Release, supra
note 5, at 103.
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notice of an impending status change
due to ongoing monitoring of portfolios
in the ordinary course of business, an
entity that would likely fall within the
definition of a ‘‘major security-based
swap participant’’ because of activities
in a given fiscal quarter may not have
adequate compliance systems in place
within two months after the end of the
triggering quarter to allow the entity to
provide the Commission with a Senior
Officer Certification. Therefore, the
Commission proposes to conditionally
register such new participants based on
their filing of a complete application
before the expiration of the two-month
grace period, subject to a requirement
that they provide a Senior Officer
Certification to the Commission within
four months of the submission of their
complete application (i.e., within six
months after the end of the triggering
quarter). This proposal is intended to
balance the additional time a new major
security-based swap participant may
require to build out its compliance
structure with the Commission’s strong
interest in having new registrants
promptly comply with applicable
federal securities laws. Such conditional
registration would be effective once the
Commission grants conditional
registration and would expire four
months after receipt of that application
unless the firm files a Senior Officer
Certification with the Commission
within that time frame.
As with conditional registrations
granted prior to the Last Compliance
Date, once a major security-based swap
participant that applies for registration
after the Last Compliance Date submits
its Senior Officer Certification, the
Commission could consider converting
its conditional registration to an ongoing
registration, as described below. In
addition, whether or not a conditionally
registered major security-based swap
participant provides the Senior Officer
Certification within four months after
submitting its application, the
Commission retains the flexibility to
extend the conditional registration for
good cause.
The Commission notes that the
conditional registration mechanism for
major security-based swap participants
would remain in place even after the
Last Compliance Date (i.e., major
security-based swap participants could
always avail themselves of a conditional
registration period).
2. Ongoing Registration
The proposed rules would provide for
the ongoing registration of all
conditionally registered SBS Entities
following their fulfillment of the
applicable requirements, as well as SBS
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Dealers registering with the Commission
after the Last Compliance Date (and,
therefore would not be required to
conditionally register). As described
above, an SBS Entity would need to
submit both a completed application
and a Senior Officer Certification to
obtain ongoing registration. An SBS
Entity that was conditionally registered
would not be required to submit a new
application. At the time it applies for
ongoing registration, however, the SBS
Entity would be required to amend its
application to correct any information
that has become inaccurate for any
reason.
The Commission would grant ongoing
registration if it finds that the
requirements of Section 15F(b) of the
Exchange Act are satisfied, but the
Commission would institute
proceedings to determine whether the
Commission should deny ongoing
registration if the Commission does not
make such a finding, if it finds that the
applicant is subject to a statutory
disqualification, or if it is aware of
inaccurate statements in the application
or certification.19 The Commission
would notify the entity electronically
when ongoing registration is granted,
and would make information regarding
registration status publicly available.
Pursuant to proposed Rule 15Fb3–1(a),
ongoing registration would be effective
until any cancellation, revocation or
withdrawal of the registration or on any
other event the Commission determines
should trigger expiration.
tkelley on DSK3SPTVN1PROD with PROPOSALS2
3. Solicitation of Comments on the
General Approach to the SBS Entity
Registration Process
We request comment on this approach
to the SBS Entity registration process.
Q–1. Should the Commission model
the registration regime applicable to
SBS Entities more closely after one or
more other registration regimes
regulated by the Commission (e.g.,
securities exchanges or associations,20
clearing agencies,21 or investment
advisers 22), self regulatory
organizations (‘‘SROs’’),23 or other
regulators? 24 If so, please describe
19 Such proceedings would include notice of the
grounds for denial under consideration and
opportunity for hearing, and that at the conclusion
of such proceedings, the Commission would grant
or deny such registration. See proposed Rule
15Fb2–1(d)(2).
20 15 U.S.C. 78f(b)(1) and 15 U.S.C. 78o–3(b)(1)–
(2).
21 15 U.S.C. 78q–1(b)(3)(A).
22 15 U.S.C. 80b–3(c).
23 See, e.g., National Association of Securities
Dealers Rules 1013 and 1014; Chicago Board
Options Exchange Rules 3.5(c)(ii), 8.83(b), and
44.12(b); and NYSE Arca Rule 7.22(a).
24 See, e.g., National Futures Association
Registration Rules (which can be found at https://
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which model should be followed and
why.
Q–2. Does the conditional process for
SBS Entity registration outlined above
provide a practicable solution to the
potential timing issues raised by the
implementation of Section 15F of the
Exchange Act? Are there additional or
alternative conditions or mechanisms
that would be appropriate for
addressing those issues?
Q–3. Does the conditional process for
major security-based swap participant
registration outlined above provide a
practicable solution to the potential
timing issues raised by the look-back
features in the proposed definition of
‘‘major security-based swap participant’’
definition? Are there additional or
alternative conditions or mechanisms
that would be appropriate for
addressing those issues?
Q–4. Should the Commission delay
all registrations until the Last
Compliance Date instead of adopting a
conditional registration process? Why or
why not?
Q–5. Should the Commission
consider granting conditional
registration automatically based on the
receipt of a completed application or
some other or additional documents? If
so, why?
Q–6. Should the Commission notify
the SBS Entity that it has granted
conditional or ongoing registration prior
to making the SBS Entity’s registration
status publicly available? If so, why and
what should be the timing difference?
Q–7. Should the Commission provide
additional guidance regarding the
process for institution of proceedings?
For instance, should the Commission
include timeframes within which
proceedings would be instituted and/or
a decision to grant or deny registration
based on those proceedings should be
provided (e.g., Exchange Act Section
15(b)(1))? If so, what timeframes or other
guidance would be appropriate and
why?
Q–8. Is it appropriate to seek to
minimize duplication by permitting
registered intermediaries to follow a
registration process that uses simplified
forms? Why or why not?
Q–9. Should these intermediaries be
required to file their existing registration
forms with the Commission as part of
this process, or should they be required
to authorize the Commission to obtain
access to those forms at the relevant
repository (e.g., the Financial Industry
Regulatory Authority (‘‘FINRA’’) or the
National Futures Association (‘‘NFA’’))?
www.nfa.futures.org/nfamanual/NFAManualTOC.
aspx?Section=8).
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Q–10. Should SBS Entities be
afforded more time (beyond the Last
Compliance Date) to prepare and
provide their Senior Officer
Certification? Why or why not? If so,
how much additional time would be
appropriate?
Q–11. Should major security-based
swap participants that file applications
after the Last Compliance Date be
afforded more or less than four months
to prepare and provide their Senior
Officer Certification? Why or why not?
Q–12. What would be the advantages
and disadvantages and costs and
benefits of the Commission adopting an
approach to SBS Entity registration that
encompasses a more substantive inquiry
concerning the business of an applicant?
What would be the impact on market
participants, including investors?
Q–13. Are there additional or
alternative mechanisms that the
Commission could employ to better
protect markets and market participants
and minimize the burden on registrants
while meeting the regulatory objectives
of a registration scheme for SBS
Entities?
Commenters are encouraged to identify
other possible solutions that would
allow the Commission to promptly
review and consider SBS Entity
registration applications so they would
not experience undue interruptions in
business while also providing the
Commission reasonable assurance that
they have the ability to carry out their
business and are able to comply with
applicable federal securities laws.
II. Proposed Exchange Act Rules and
Forms
A. Registration Application and
Amendment
1. Proposed Rule 15Fb2–1
Proposed Rule 15Fb2–1 would set
forth the method through which SBS
Entities could apply for registration
with the Commission. Essentially, the
forms and process for filing applications
and other documents electronically with
the Commission would be identical for
SBS Dealers and major security-based
swap participants. This proposed rule
also would describe the timing of such
filings and the standard of review
applied by the Commission in
determining whether to grant or deny
registration, which may differ slightly
for SBS Dealers and major securitybased swap participants, depending on
the type of registration the firm is
seeking. While it may be appropriate for
certain rules applicable to SBS Dealers
to differ from those applicable to major
security-based swap participants, the
Commission preliminarily believes that
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the registration rules and forms need not
differ significantly because the
information the Commission would
need to determine whether registration
is appropriate is similar for both types
of entities.
tkelley on DSK3SPTVN1PROD with PROPOSALS2
i. Form of Application
Paragraph (a) of proposed Rule
15Fb2–1 would provide that an SBS
Entity would apply for registration
electronically on Form SBSE, Form
SBSE–A, or Form SBSE–BD, as
appropriate, in accordance with the
instructions to the form. In general:
• SBS Entities registered or
registering with the Commission as
broker-dealers would apply for
registration using Form SBSE–BD;
• SBS Entities registered or
registering with the CFTC as swap
dealers or major swap participants (and
not also registered or registering with
the Commission as broker-dealers)
would apply for registration using Form
SBSE–A; and
• SBS Entities that do not fit either of
the above categories would apply for
registration using Form SBSE.
Specifics regarding each of these forms
and their differences and uses are
discussed in more detail below. These
forms would be used to register with the
Commission regardless of whether an
SBS Entity was applying for conditional
or ongoing registration.
The Commission solicits comment on
the use of forms to register with the
Commission.
Q–14. Would an alternative
mechanism be more appropriate for
registering SBS Entities? If so, which
one and why?
Q–15. Should the registration forms
differ based on whether the entity is
registering as an SBS Dealer or major
security-based swap participant? If so,
how?
ii. Senior Officer Certification
Paragraph (b) of proposed Rule
15Fb2–1 would require that each SBS
Entity provide the Commission with a
certification on Form SBSE–C to
facilitate the Commission’s review of
each firm’s application for ongoing
registration. A knowledgeable senior
officer of the SBS Entity would be
required to sign the certification,25
which is designed to provide the
Commission with the applicant’s
assurance that the applicant has the
capabilities necessary to operate as an
SBS Entity and, therefore, that the
25 In accordance with Proposed Rule 15Fb1–1(b),
the SBS Entity will need to maintain a manually
signed copy of this certification as part of its books
and records until at least three years after the
certification was filed with the Commission.
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applicant should qualify for registration
under Exchange Act Section 15F(b).
Accordingly, the certification would
assist the Commission in determining
whether to grant the SBS Entity ongoing
registration. Such an informed
determination, based in part on the
certification, will help the Commission
maintain orderly and efficient markets
and protect investors by helping to
ensure that the Commission only grants
registration to SBS Entities that can
attest that they possess the operational,
financial, and compliance capabilities to
conduct business as an SBS Entity.
Specifically, under the proposal, each
SBS Entity must have a senior officer
certify that, after due inquiry, he or she
has reasonably determined that the SBS
Entity has the operational,26 financial,27
and compliance 28 capabilities to act as
26 The concept of ‘‘operational capability’’ can be
an important regulatory consideration because an
SBS Entity with insufficient infrastructure,
technology, and human resources presents
operational risks that may adversely impact its
counterparties and the broader market—e.g., if
transactions are inaccurately documented, not
documented at all, or if insufficient margin is
collected. See Trade Acknowledgment and
Verification of Security-Based Swap Transactions,
Exchange Act Release No. 63727 (Jan. 14, 2011), 76
FR 3859, at 3860 (Jan. 21, 2011) (proposing release)
(discussing the recognition by various parties of the
importance of operational infrastructure in the overthe-counter derivatives market) (the ‘‘Trade
Acknowledgement Proposing Release’’). The
Commission expects that a key foundation for the
Senior Officer Certification would be the capability
of an SBS Entity to comply with the obligations that
would be imposed by the Trade Acknowledgment
Proposing Release, if adopted, other legal
obligations applicable to the operations of an SBS
Entity, and the capability of the SBS Entity to
conduct its business as represented in the SBS
Entity’s application for ongoing registration.
27 The concept of ‘‘financial capability’’ can be an
important regulatory consideration because of,
among other things, the role adequate financing
plays in protecting an SBS Entity’s counterparties
and the broader market by ensuring that the SBS
Entity has sufficient working capital and liquidity
for its security-based swap business consistent with
regulatory requirements and as needed to respond
to market conditions. The Commission will
separately propose capital rules for SBS Entities, as
required by the Dodd Frank Act. 15 U.S.C. 78o–
10(e). The Commission expects that the capability
of an SBS Entity to comply with these obligations,
if adopted, would form a key foundation for the
Senior Officer Certification.
28 The concept of ‘‘compliance capability’’ can be
an important regulatory consideration because of,
among other things, the wholesale creation of a new
regulatory regime for security-based swaps under
the Dodd-Frank Act. For example, in proposing
business conduct rules for SBS Entities, the
Commission proposed to require that each SBS
Entity ‘‘[establish, maintain, and enforce] written
policies and procedures addressing the supervision
of the types of security-based swap business in
which the [SBS Entity] is engaged that are
reasonably designed to achieve compliance with
applicable securities laws and the rules and
regulations thereunder.’’ Business Conduct
Standards for Security-Based Swap Dealers and
Major Security-Based Swap Participants, Exchange
Act Release No. 64766 (Jun. 29, 2011), 76 FR 42396,
(Jul. 18, 2011), as corrected by Exchange Act
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65789
an SBS Entity. In addition, the proposal
would require that the senior officer
certify that he or she has documented
the process by which he or she reached
that determination. While the
Commission has required regulated
entities to provide a certification in
other contexts,29 a requirement that an
applicant or regulated entity certify as to
its ability to engage in the business it
would be registered to do is relatively
new.30
The Commission preliminarily
believes that receipt of a Senior Officer
Certification would provide assurances
to the Commission that each SBS Entity
has the requisite capabilities to operate
in the capacity for which it seeks
registration. The Senior Officer
Certification is designed to require a
deliberate and thoughtful selfassessment by each SBS Entity of its
capabilities and thus should provide
assurances to potential investors,
customers of, and counterparties to an
SBS Entity that the SBS Entity has the
requisite capabilities to act in that
capacity. Further, this Senior Officer
Certification requirement could help
prevent disorderly and unstable markets
that could result from the failure of a
registered SBS Entity that lacks the
requisite capabilities to operate its
business in a registered capacity. The
Senior Officer Certification also may
enhance market participants’ ability to
assess the counterparty credit risk
associated with a particular SBS Entity
counterparty. In this way, the Senior
Officer Certification should help to
protect investors and other market
participants from SBS Entities that are
not competent to engage in that
business, lack the financial resources to
do so, or are unable or unwilling to
comply with applicable law. The
Commission thus preliminarily believes
that the Senior Officer Certification
could help the efficient functioning of
the market and enhance the confidence
of investors and other market
participants.
The Senior Officer Certification
requirement, in other words, is meant to
address many of the same
considerations that arise during the indepth review by the Commission and its
staff, or, in some cases, SROs, prior to
Release No. 64766, 76 FR 46668 (Aug. 3, 2011)
(proposing release). The Commission expects that
development and implementation of such a
compliance regime, if adopted, would serve as a key
foundation for the Senior Officer Certification.
29 See, e.g., 17 CFR 240.15c3–5, 17 CFR 240.13a–
14, and 17 CFR 270.30a–2.
30 See, e.g., Registration of Municipal Advisors,
Exchange Act Release No. 63576 (Dec. 20, 2010), 76
FR 824, (Jan. 6, 2011) (proposing release) (the
‘‘Registration of Municipal Advisors Proposing
Release’’).
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tkelley on DSK3SPTVN1PROD with PROPOSALS2
granting registration to certain
applicants.31 For example, under
31 See, e.g., 15 U.S.C. 78f(b)(1) (regarding
registration of national securities exchanges), and
15 U.S.C. 78q–1(b)(3)(A) (regarding registration of
clearing agencies). See also 15 U.S.C. 78o–3(b)(1)
and (2) (regarding registration of national securities
associations). In addition, the Commission recently
proposed rules governing the registration of
security-based swap data repositories (‘‘SDRs’’),
security-based swap execution facilities (‘‘SB
SEFs’’), security-based swap clearing agencies
(‘‘SBS CAs’’), and municipal advisors that relate to
potential registrants’ operational, financial, and
compliance capabilities. For example, the proposed
registration rules for security-based swap data
repositories are intended to, among other things,
assure the Commission that ‘‘an SDR is so
organized, and has the capacity, to be able to assure
the prompt, accurate, and reliable performance of
its functions as an SDR, comply with any applicable
provision of the Federal securities laws and the
rules and regulations thereunder, and carry out its
functions in a manner consistent with the purposes
of Exchange Act.’’ These proposed rules may also
require an SDR to file with the Commission, as a
condition of registration or continued registration,
a review relating to the SDR’s operational capacity
and ability to meet its regulatory obligations. Such
review could be in the form of a report conducted
by the SDR, an independent third party, or both.
Security-Based Swap Data Repository Registration,
Duties, and Core Principles, Exchange Act Release
No. 63347 (Nov. 19, 2010), 75 FR 77306 (Dec. 10,
2010) (proposing release). Similarly, the proposed
registration rules for security-based swap execution
facilities are designed to assure the Commission
that a registrant ‘‘has adequate financial,
operational, and managerial resources to discharge
each responsibility of the SB SEF, as determined by
the Commission.’’ Registration and Regulation of
Security-Based Swap Execution Facilities, Exchange
Act Release No. 63825 (Feb. 2, 2011), 76 FR 10948
(Feb. 28, 2011) (proposing release). Among other
things, these rules state in part that ‘‘the financial
resources of a SB SEF shall be considered to be
adequate if the value of the financial resources
exceeds the total amount that would enable the SB
SEF to cover its operating costs for a one year
period.’’ The Commission also proposed
registration rules for security-based swap clearing
agencies that require, among other things,
registrants to establish, maintain, and enforce
written policies and procedures reasonably
designed to ensure that their systems provide
adequate levels of capacity, resiliency, and security.
Such policies and procedures shall, at a minimum:
(i) Establish reasonable current and future capacity
estimates; (ii) conduct periodic capacity stress tests
of critical systems to determine such systems’
ability to process transactions in an accurate,
timely, and efficient manner; (iii) develop and
implement reasonable procedures to review and
keep current its system development and testing
methodology; (iv) review the vulnerability of its
systems and data center computer operations to
internal and external threats, physical hazards, and
natural disasters; and (v) establish adequate
contingency and disaster recovery plans. These
rules further require that clearing agencies that
provide central counterparty (‘‘CCP’’) services need
to have a qualified person conduct a review of
models that are used to set margin levels, along
with related parameters and assumptions, in order
to assure that the models perform in a manner that
facilitates prompt and accurate clearance and
settlement of transactions. In determining whether
a person is qualified to conduct the model
validation, clearing agencies providing CCP services
could consider several factors, including the
person’s experience in validating margin models,
expertise in risk management generally, and
understanding of the clearing agency’s operations
and procedures. Clearing Agency Standards for
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Sections 6(b) and 19(a) of the Exchange
Act, an exchange may not be registered
unless the Commission finds that the
exchange ‘‘is so organized and has the
capacity to be able to carry out the
purposes of the Exchange Act and to
comply, and [* * *] to enforce
compliance by its members and persons
associated with its members, with the
provisions of [the Exchange Act], the
rules and regulations thereunder, and
the rules of the exchange.’’ 32 Similarly,
under Section 17A of the Exchange Act,
a clearing agency may not be registered
unless the Commission finds that the
agency ‘‘has the capacity to be able to
facilitate the prompt and accurate
clearance and settlement of securities
transactions and derivative agreements,
contracts and transactions for which it
is responsible, to safeguard securities
and funds in its custody or control or for
which it is responsible, to comply with
the provisions of [the Exchange Act] and
the rules and regulations thereunder,
[and] to enforce [* * *] compliance by
its participants with the rules of the
clearing agency, and to carry out the
purposes of this section.’’ 33 To this end,
the Commission has published a series
of standards ‘‘that the [staff] will use in
reviewing the organizations, capacities
and rules of clearing agencies that
currently are registered temporarily
with the Commission and of clearing
agencies that may apply for registration
* * *.’’ 34 Broker-dealers that register
with the Commission under Section
15(b) also must become a member of an
SRO, and SRO rules generally
incorporate membership application
procedures that include, among other
things, assessments by the SRO of the
Operation and Governance, Exchange Act Release
No. 64017 (Mar. 3, 2011), 76 FR 14472 (Mar. 16,
2011) (proposing release) (the ‘‘Clearing Agency
Standards Proposing Release’’). Finally, the
proposed registration rules for municipal advisors
would require municipal advisors to certify that
they have: ‘‘1) sufficient qualifications, training,
experience, and competence to effectively carry out
their designated functions; 2) met, or within any
applicable timeframe will meet, such standards of
training experience, and competence, and such
other qualifications, including testing, for a
municipal advisor, required by the Commission, the
MSRB or any other relevant self-regulatory
organization; and 3) the necessary understanding of,
and ability to comply with, all applicable regulatory
obligations.’’ Registration of Municipal Advisors
Proposing Release, supra note 30.
32 15 U.S.C. 78f(b)(1).
33 15 U.S.C. 78q–1(b)(3)(A).
34 The Commission has established a series of
standards ‘‘that the [staff] will use in reviewing the
organizations, capacities and rules of clearing
agencies that currently are registered temporarily
with the Commission and of clearing agencies that
may apply for registration * * *.’’ Regulation of
Clearing Agencies, Exchange Act Release No. 16900
(Jun. 17. 1980), 45 FR 41920 (June 23, 1980)
(emphasis added). See also the Clearing Agency
Standards Proposing Release, supra note 30.
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broker-dealer’s operational, financial,
and compliance capabilities.35
At this time, although we provide
guidance above regarding the factors a
senior officer would use to serve as a
foundation for the Senior Officer
Certification,36 we are not proposing a
specific definition of the term
‘‘operational, financial and compliance
capabilities.’’ Instead, we request
comment regarding whether and how
that phrase should be further defined or
interpreted. The Commission recognizes
that whether an SBS Entity has the
operational, financial and compliance
capabilities to act as an SBS Entity
likely will depend on its particular facts
and circumstances, including, among
other things: the scope and nature of its
security-based swap business; its other
related financial and business activities;
the extent to which it is subject to other
registration and regulatory requirements
or other supervisory oversight with
respect to its activities; its relationships
with, and reliance on, affiliates, service
providers, and other parties; and the
extent and nature of its historical
involvement in security-based swap
transactions. Moreover, it may be
appropriate to consider the capabilities
required for this certification by
reference to regulatory standards. For
example, attesting to capabilities might
include a self-assessment of whether the
SBS Entity is capable of communicating
in a manner that is based on principles
of fair dealing and good faith; 37 whether
the SBS Entity has established all
contractual or other arrangements and
business relationships necessary to
conduct its security-based swap
business; 38 whether the SBS Entity has
or has adequate plans to obtain facilities
35 See, e.g., NASD Rules 1013 and 1014
(membership application review requires a new
broker-dealer to, among other things, file a detailed
business plan, explain its sources of funding,
describe the educational background and
experience of its personnel, and undergo a
membership interview). Existing FINRA members
that wish to enter into a materially new business,
such as dealing in security-based swaps, must also
file an application to do so, and those applications
are similarly reviewed to determine whether the
broker-dealer has the requisite capabilities to
conduct the new business. NASD Rule 1017.
Exchange Act Rule 15b2–2 requires that a new
broker-dealer be examined within six months to
evaluate whether the broker-dealer is operating in
conformity with applicable financial responsibility
rules and again within twelve months to evaluate
whether it is also operating in conformity with all
other applicable provisions of the Exchange Act and
rules thereunder. 17 CFR 240.15b2–2(b) & (c).
36 See supra notes 26–28.
37 See Section 15F(h)(3)(C) (providing that
business conduct requirements adopted by the
Commission shall establish a duty to communicate
in a manner ‘‘based on principles of fair dealing and
good faith’’).
38 See NASD Rule 1014(a)(4).
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that are sufficient for its operations; 39
and whether the SBS Entity is capable
of maintaining a level of capital that is
adequate to support the SBS Entity’s
intended business operations on a
continuing basis.40
The proposed rules would require
that a senior officer of an SBS Entity
certify that he or she has reasonably
determined that, after ‘‘due inquiry,’’
the security-based swap dealer or major
security-based swap participant has the
operational, financial, and compliance
capabilities to act as an SBS Entity.41
We believe it is important to make
explicit that the senior officer is
obligated under the rule to conduct
some inquiry to form his or her
reasonable determination. However, the
Commission does not propose to
prescribe any single method a senior
officer must use to gain an appropriate
level of comfort and information before
signing the Senior Officer Certification.
In other words, different SBS Entities
may utilize different processes to
provide a basis for a senior officer’s
reasonable determination that the SBS
Entity has the requisite capabilities.42
As described in Part I above, the
proposed registration process would
include conditional and ongoing
registration. Pursuant to subparagraph
(b)(1)(i) and (ii), respectively, of
proposed Rule 15Fb2–1, SBS Entities
that register conditionally during the
transitional period would need to
submit the Senior Officer Certification
on or before the Last Compliance Date
and major security-based swap
participants that file an application after
the Last Compliance Date would need to
submit the certification within four
months after filing an application. The
Commission preliminarily believes that
these timeframes would provide senior
officers of conditionally registered SBS
Entities sufficient time to determine that
they are able to provide the relevant
certification. Pursuant to subparagraph
(b)(2), an SBS Dealer that files an
application after the Last Compliance
Date would need to submit the Senior
39 See
NASD Rule 1014(a)(5).
NASD Rule 1014(a)(7).
41 This certification must be accurate as of the
date the certification is filed with the Commission.
An SBS Entity would not be required to have a
senior officer update the certification after the SBS
Entity has been approved for ongoing registration.
42 For example, in satisfying other certification
requirements some SBS Entities may use a subcertification process whereby the senior officer will
not certify a firm-wide statement unless and until
other persons responsible for certain activities in
turn certify to the senior officer that the standard
has been met, while other SBS Entities may use an
internal or external audit-type process whereby a
senior officer may choose to employ a third party
to review an area subject to a firm-wide certification
before submitting the certification.
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40 See
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Officer Certification with its
application.
The Commission requests comment
on all aspects of the proposed
requirement for SBS Entities to provide
the Commission with a Senior Officer
Certification on Form SBSE–C as
specified in proposed Rule 15Fb2–1(b),
and on the registration process
generally. With respect to this
certification, the Commission is
interested in commenters responses to
the following questions, and also to
questions Q–54. through Q–61. relating
to Additional Registration
Considerations.
Q–16. Would the Senior Officer
Certification requirement provide
sufficient assurance that each SBS
Entity has the necessary capabilities to
act as a registered SBS Entity? Why or
why not? Would it provide sufficient
assurance that SBS Entities have
established controls to ensure
compliance with all applicable
securities law requirements? Why or
why not?
Q–17. Would the Senior Officer
Certification provide sufficient
assurance to customers of and
counterparties to SBS Entities,
investors, eligible contract participants
and other market participants that new
SBS Entities have the requisite
capabilities to act as SBS Entities? Why
or why not?
Q–18. Should the Commission only
require SBS Dealers, and not major
security-based swap participants, to
provide a Senior Officer Certification?
Why or why not? What would be the
comparative advantages, disadvantages,
costs and/or benefits of such an
approach?
Q–19. Alternatively, should the form
of Senior Officer Certification an SBS
Entity must file be driven by whether
the entity is an SBS Dealer or major
security-based swap participant? For
instance, should an SBS Dealer be
required to certify to its capabilities and
a major security-based swap participant
be required to certify to its policies and
procedures? If so, what form of Senior
Officer Certification should SBS Dealers
be required to file and which form of
Senior Officer Certification should
major security-based swap participants
be required to file? What would be the
comparative advantages, disadvantages,
costs and/or benefits of requiring
dealers and participants to certify using
different certification language?
Q–20. What alternative forms of
Senior Officer Certification should be
considered, if any? For example, should
the proposed Senior Officer
Certification use the language that the
Commission proposed with respect to
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the certification to be made by
municipal advisors? 43 Why or why not?
What would be the comparative
advantages, disadvantages, costs and/or
benefits of using the same certification
language the Commission has proposed
for use by municipal advisors as
opposed to the language proposed?
Q–21. The concept of developing and
implementing written policies and
procedures has often been used by the
Commission to further its regulatory
objectives. Should the Senior Officer
Certification instead require that a
senior officer certify that ‘‘to the best of
his or her knowledge, after due inquiry,
the security-based swap dealer or major
security-based swap participant has
developed and implemented written
policies and procedures reasonably
designed to prevent violation of federal
securities laws, the rules thereunder,
and applicable self-regulatory
organization rules?’’ 44 Why or why not?
What would be the impact of the Senior
Officer Certification if it did not
specifically address operational
capability? What would be the
comparative advantages, disadvantages,
costs and/or benefits of using this
language as opposed to the language
proposed?
Q–22. Should the Commission more
specifically define the term
‘‘operational, financial, and compliance
capabilities’’? If so, how should this
term be defined to, among other things,
provide greater certainty to market
participants about the basis for
providing the Senior Officer
Certification?
Q–23. Should the Commission
specifically define the term
‘‘capability?’’ Should the Commission,
for example, define the term
‘‘capability,’’ as it relates to the
financial, operational, and compliance
functions of an SBS Entity, as ‘‘having
the necessary ability or qualities’’? Why
or why not? Should the Commission
define the term capability in some other
way? If so, how and why?
Q–24. Alternatively, should the
Commission simply adopt the Webster’s
New World Dictionary definition which
43 See supra note 31, regarding the certification
the Commission proposed for use by municipal
advisors in the Registration of Municipal Advisors
Proposing Release.
44 See, e.g., Section 15(g) of the Exchange Act
(requiring that broker-dealers establish, maintain
and enforce written policies and procedures
reasonably designed to prevent the misuse of
material, non-public information). 15 U.S.C. 78o(g).
See also Rule 206(4)–7 of the Investment Advisers
Act of 1940 (the ‘‘Advisers Act’’) (requiring that
investment advisers must adopt and implement
written policies and procedures reasonably
designed to prevent violations of the Advisers Act
and the rules thereunder). 17 CFR 275.206(4)–7.
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defines the term ‘‘capability’’ to mean
‘‘the quality of being capable; practical
ability,’’ and defines the term ‘‘capable’’
to mean, among other things, ‘‘having
ability; able; skilled; competent
—capable of; having the ability or
qualities necessary for; able or ready
to?’’ 45 Why or why not? Should the
Commission instead adopt some other
dictionary definition? If so, what other
dictionary definition should be used
and why? Alternatively, should the
Commission define the term capability
in some other way? If so, how and why?
Q–25. Should the Commission
determine that a firm may rely on the
establishment, maintenance and
enforcement of written policies and
procedures by an SBS Entity that are
reasonably designed to prevent violation
of federal securities laws, the rules
thereunder, and applicable selfregulatory organization rules as a basis
for a senior officer to certify that an SBS
Entity has the appropriate ‘‘compliance
capability?’’ Why or why not?
Q–26. Should the Commission
determine that a firm may rely on the
establishment, maintenance and
enforcement of written policies and
procedures by an SBS Entity that are
reasonably designed to assure that the
SBS Entity complies with applicable
capital and margin requirements as a
basis for a senior officer to certify that
an SBS Entity has the appropriate
‘‘financial capability?’’ Why or why not?
Q–27. If the Commission does not
specifically define what would
constitute operational, financial, and
compliance capabilities, will there still
be a sufficient basis for SBS Entities
and/or their senior officers to provide
the Commission with a Senior Officer
Certification? Why or why not? Would
any potential uncertainty arising from
the decision not to define at this time
the terms ‘‘operational, financial, and
compliance capabilities’’ and
‘‘capabilities’’ cause difficulties for SBS
Entities seeking to register on an
ongoing basis? If so, please describe.
Q–28. Should SBS Entities be
required to provide a Senior Officer
Certification as to any capabilities in
addition to the three specified? If so,
what other capabilities and why?
Alternatively, should any of the
capabilities be eliminated from the
Senior Officer Certification? If so, which
one(s) and why? For example, should
the certification relating to an SBS
Entity’s capabilities be confined to
operational capability given the
regulatory imperative to comply with
applicable regulations (including capital
45 Websters New World Dictionary 110 (2nd
concise ed. 1975).
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rules)? What would be the comparative
advantages, disadvantages, costs and/or
benefits of adding or eliminating such
capabilities?
Q–29. In addition to, or in lieu of the
Senior Officer Certification requirement,
should the Commission utilize an
approach to demonstration of
capabilities similar to the one we use to
register national securities exchanges
under Exchange Act Section 6(b)(1) 46
(which requires that an exchange have
the ‘‘capacity to be able to carry out the
purposes of [the Exchange Act * * *],
the rules and regulations thereunder’’)?
Would such a standard provide
additional clarity as to the capabilities
to be required of registrants? What
would be the advantages and
disadvantages and the costs and benefits
of such an alternative process?
Q–30. Should the Commission instead
utilize an approach to demonstration of
capabilities similar to the one we use to
register clearing agencies under
Exchange Act Section 17A(b)(3)(A) 47
(which requires that an exchange have
the ‘‘capacity to be able to facilitate the
prompt and accurate clearance and
settlement of securities transactions and
derivative agreements, contracts and
transactions for which it is responsible,
to safeguard securities and funds in its
custody or control or for which it is
responsible, to comply with the
provisions of [the Exchange Act] and the
rules and regulations thereunder, [and]
to enforce [* * *] compliance by its
participants with the rules of the
clearing agency, and to carry out the
purposes of this section’’)? Would such
a standard provide additional clarity as
to the capabilities to be required of
registrants? What would be the
advantages and disadvantages and the
costs and benefits of such an alternative
process?
Q–31. Should the form of Senior
Officer Certification an SBS Entity must
file be driven by whether the entity is,
or is not, already registered with the
Commission as a broker-dealer or with
the CFTC as a swap dealer or major
swap participant? Why or why not? If
so, what forms of certification would be
appropriate for use by SBS Entities that
are already registered with one of the
Commission or the CFTC? What would
be the comparative advantages,
disadvantages, costs and/or benefits of
this approach?
Q–32. Should SBS Entities already
registered with the Commission as a
broker-dealer or with the CFTC as a
swap dealer or major swap participant
be excepted from the requirement to file
46 See
47 See
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supra note 33.
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a Senior Officer Certification? Why or
why not? What would be the
comparative advantages, disadvantages,
costs and/or benefits of this approach?
Q–33. If an SBS Entity were also
registered with the Commission as a
broker-dealer and an SRO were to
conduct a ‘‘material change in business
review’’ of the SBS Entity’s securitybased swap business, should the SBS
Entity be permitted to rely on the SRO’s
review and approval of that new
business as a basis for its Senior Officer
Certification? Would the form of Senior
Officer Certification affect the SBS
Entity’s ability to rely on such a review
and approval? If so, how and why?
Given that SBS Entities that are also
registered as broker-dealers would be
required by existing SRO rules to
undergo a material change in business
review, are there any advantages and
disadvantages or costs and benefits
associated with reliance on an SRO
‘‘material change in business review’’
and approval as a basis for its Senior
Officer Certification?
Q–34. Similarly, if an SBS Entity were
also involved in swap activity, could
that entity use any CFTC, NFA or
prudential regulatory agency’s review of
its swap business to inform its Senior
Officer Certification to the Commission?
Would the form of Senior Officer
Certification affect the SBS Entity’s
ability to rely on such a review and
approval? If so, how and why? Are there
any advantages and disadvantages or
costs and benefits associated with
reliance on a CFTC, NFA or prudential
regulatory agency’s review of its swap
business as a basis for its Senior Officer
Certification?
Q–35. Would the Senior Officer
Certification requirement effectively
require an SBS Entity to employ a third
party’s services to examine or confirm
conclusions required for the
certification? Why or why not? If third
party services were effectively required,
what would be the advantages and
disadvantages and costs and benefits of
such third party services?
Q–36. Should we include the due
inquiry requirement in the rule? Should
we instead specify particular steps a
senior officer must take to determine
whether the SBS Entity has the requisite
capabilities?
Q–37. Should the senior officer of an
SBS Entity be required to disclose on
Form SBSE–C or elsewhere, the nature
of the ‘‘due inquiry’’ he or she
performed before signing Form SBSE–C
and his or her resulting findings and
conclusions? Why or why not?
Q–38. Should the Commission define
its expectations with respect to the ‘‘due
inquiry’’ a senior officer should perform
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before signing Form SBSE–C? If so, what
should be included as part of a senior
officer’s ‘‘due inquiry?’’ Should ‘‘due
inquiry’’ differ depending on whether
the SBS Entity is an SBS Dealer or a
major security-based swap participant?
Please explain.
Q–39. Is the timeframe within which
the proposed Senior Officer
Certification would need to be filed
appropriate? If not, should the
timeframe be shorter or longer and why?
Q–40. Should the Commission
eliminate the requirement that a senior
officer certify that he or she has
documented the process by which he or
she reached his or her determination
regarding the SBS Entity’s capacity?
Why or why not? Should the
Commission instead simply require that
a senior officer document this process
and require that the SBS Entity maintain
those documents as part of its books and
records? Would a senior officer believe
that he or she may be second-guessed if,
among other circumstances, the senior
officer certifies as to an SBS Entity’s
capabilities but does not retain
documentation demonstrating how he
or she reached this determination?
tkelley on DSK3SPTVN1PROD with PROPOSALS2
iii. Electronic Filing
Paragraph (c) of proposed Rule
15Fb2–1 would address the manner in
which the application, certification, and
any additional registration documents
would be filed with the Commission.
Proposed paragraph (c)(1) would require
applications, certifications, and any
additional documents to be filed
electronically. The Commission
anticipates that the EDGAR system will
be expanded to facilitate registration of
SBS Entities because it likely would
provide the most cost-effective
solution.48
Proposed paragraph (c)(2) of proposed
Rule 15Fb2–1 would specify the
effective date of filing of applications
and certifications submitted pursuant to
the paragraphs (a) and (b). Subparagraph
(c)(2)(i) would provide that an SBS
Entity’s application submitted pursuant
to paragraph (a) would be considered
filed only when a complete Form SBSE,
Form SBSE–A, or Form SBSE–BD, as
appropriate, and all required additional
48 To the extent the Commission utilizes the
EDGAR system to facilitate registration of SBS
Entities, applicants would need to utilize the
EDGAR Filer Manual (as defined in 17 CFR 232.11)
to facilitate their filing of applications
electronically. The EDGAR Filer Manual contains
all the technical specifications for filers to submit
filings using the EDGAR system. Generally, entities
filing documents in electronic format through the
EDGAR system must comply with the applicable
provisions of the EDGAR Filer Manual in order to
assure the timely acceptance and processing of
those filings.
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documents are filed with the
Commission or its designee.
Subparagraph (c)(2)(ii) would provide
that an SBS Entity’s certification
submitted pursuant to paragraph (b)
would be considered filed when a
complete Form SBSE–C is filed
electronically with the Commission or
its designee.
If a technological means to facilitate
receipt and retention of applications is
not functional by the time final rules are
adopted, proposed temporary Rule
15Fb2–2T, described more fully below,
would require SBS Entities to file
applications and additional documents
in paper form.
The Commission requests comment
on the proposed method for receiving
applications.
Q–41. Should the Commission not
require electronic submission of
applications? If not, why?
Q–41. Instead of expanding the
EDGAR system to receive SBS Entity
applications for registration, should the
Commission utilize some other system?
Please explain. What would be the
comparative advantages and
disadvantages and costs and benefits of
utilizing a system other than EDGAR?
Q–43. What would be the advantages
and disadvantages and costs and
benefits to prospective applicants of
expansion of the EDGAR system to
receive SBS Entity applications for
registration, especially with respect to
the varying levels of familiarity that
they may have with this system?
Q–44. Should the Commission
designate another entity to facilitate the
electronic receipt of applications? Why
or why not? If so, what types of entities
should we consider?
Q–45. What other issues, if any,
should the Commission consider in
connection with electronic filing?
iv. Standards for Granting or Denying
Applications
Paragraph (d) of proposed Rule
15Fb2–1 would provide that the
Commission may grant or deny an
application for registration, and would
set forth the standards the Commission
would use to make that determination.
The grant or denial of a conditional
registration would depend principally
on the completeness of an application,
whether the applicant is subject to a
statutory disqualification, and whether
the Commission is aware of inaccurate
statements in the application. The grant
or denial of an ongoing registration
would also require that the Commission
find that the requirements of Exchange
Act Section 15F(b) are satisfied. As
noted in Part I above, conditionally
registered SBS Entities would need to
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obtain ongoing registration to continue
doing a security-based swap business
once their conditional registration
expires.49
When considering an application for
conditional registration, proposed
paragraph 15Fb2–1(d)(1) provides that
the Commission would grant such
registration if it finds that the firm’s
application is complete, except that the
Commission may institute proceedings
to determine whether to deny
conditional registration if it finds that
the applicant is subject to a statutory
disqualification or the Commission is
aware of inaccurate statements in the
application. Such proceedings would
include notice of the grounds for denial
under consideration and opportunity for
hearing. At the conclusion of such
proceedings, the Commission would
grant or deny such registration.
Paragraph (d)(2) would allow the
Commission to grant ongoing
registration to an SBS Entity. It is
contemplated that ongoing registration
would be sought by firms that have been
conditionally registered with the
Commission, as well as by new firms
entering the marketplace that have not
been conditionally registered (e.g., an
SBS Dealer seeking registration after the
Last Compliance Date). Paragraph (d)(2)
would specify that the Commission
would grant ongoing registration based
on a firm’s application and certification.
Proposed paragraph (d)(2) would
provide that if the Commission granted
conditional registration to an SBS
Entity, the Commission could grant or
deny ongoing registration based on the
original application submitted by the
SBS Entity, as amended,50 and the
certification submitted to the
Commission by the SBS Entity pursuant
to paragraph (b). When considering any
49 Proposed Rule 15Fb3–1(b)(1) would provide
that conditional registrations granted pursuant to
paragraph (d)(1) of Proposed Rule 15Fb2–1 would
expire on the Last Compliance Date for SBS Entities
that filed a complete application before the Last
Compliance Date, unless the SBS Entity files with
the Commission a certification on Form SBSE–C or
the Commission extends conditional registration for
good cause. Proposed Rule 15Fb3–1(b)(2) would
provide that conditional registrations granted
pursuant to paragraph (d)(1) of Proposed Rule
15Fb2–1 would expire four months after a major
security-based swap participant files a complete
application, if it filed such application after the Last
Compliance Date, unless the major security-based
swap participant files with the Commission a
certification on Form SBSE–C. In both cases, if the
Senior Officer Certification is filed within the given
timeframe, conditional registration is extended by
30 days to allow the Commission time to determine
whether to grant or deny ongoing registration.
50 The SBS Entity may have amended its
application to address changes that may have
occurred in the intervening period between the date
the application was originally filed and the date the
Commission evaluates whether ongoing registration
should be granted.
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application for ongoing registration,
Rule 15Fb2–1(d)(2) would provide that
the Commission would grant
registration if it finds that the
requirements of Exchange Act Section
15F(b) are satisfied, except that the
Commission may institute proceedings
to determine whether ongoing
registration should be denied if it does
not make such finding or if it finds that
the applicant is subject to a statutory
disqualification or the Commission is
aware of inaccurate statements in the
application or certification. Such
proceedings would include notice of the
grounds for denial under consideration
and opportunity for hearing, and that at
the conclusion of such proceedings, the
Commission would grant or deny such
registration.
As discussed above, the Commission
would notify the entity electronically
when conditional or ongoing
registration is granted, and would make
information regarding registration status
publicly available.
The Commission requests comment
on these proposed standards of review
for granting or denying registration in
proposed Rule 15Fb2–1(d).
Q–46. Should the Commission
consider using different standards of
review to grant conditional registration
to SBS Entities who apply before the
Last Compliance Date than it uses for
major security-based swap participants
that apply for conditional registration
after the Last Compliance Date?
Q–47. Would the standard requiring
denial of an application if the applicant
is subject to statutory disqualification
cause undue hardship for any possible
applicants? If so, how many applicants
are likely to be affected? Should this
standard be refined or eliminated? If
applicants subject to statutory
disqualification should be allowed to
register, should they be subject to any
additional requirements? Please explain.
Q–48. Should the Commission
consider broader or more limited
standards for granting or denying
conditional registration? If so, please
describe the standard that should be
used and the reasons why it would be
more appropriate than the standard
proposed.
Q–49. Should the Commission
consider using a different standard of
review to grant ongoing registration?
Q–50. Should the Commission
consider broader or more limited
standards for granting or denying
ongoing registration? If so, please
describe the standard that should be
used for granting or denying ongoing
registration and the reasons why it
would be more appropriate than the
standard proposed.
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Q–51. Should the Commission staff
base its decision only on a review of a
firm’s application (including any
additional documents) and certification
or should an on-site examination or
some other type of review be
considered? If so, what would be the
appropriate scope and timing of such a
review?
Q–52. Is there a need to lengthen or
shorten the proposed timeframes
provided for the effectiveness of
conditional registration in paragraph
(d)(1)? If so, how long should they be?
Q–53. Should the Commission
provide additional guidance regarding
the process for institution of
proceedings? For instance, should the
Commission include timeframes within
which proceedings would be instituted
and/or a decision to grant or deny
registration based on those proceedings
should be provided (e.g., Exchange Act
Section 15(b)(1))? If so, what timeframes
or other guidance and why?
v. Request for Comment on Additional
Registration Considerations
The Commission requests comment
on what, if any, alternative approaches
should be considered to meet the
Commission’s regulatory objectives in
the registration process for SBS Entities
and how any such alternative
approaches would compare to the
current proposal.51 Any such
comparison should describe the relative
advantages and disadvantages of each
alternative, as well as their relative costs
and benefits.
Q–54. Should the Commission not
adopt a Senior Officer Certification
requirement, and instead seek to satisfy
itself during the registration process,
based on documents the SBS Entity may
be able to provide to the Commission,
that the SBS Entity has the operational,
financial, and/or compliance
capabilities to act as an SBS Dealer or
major security-based swap participant,
as applicable? What would be the
advantages and disadvantages and the
costs and benefits of such an alternative
process?
Q–55. If the Commission determines
to satisfy itself during the registration
process, based on documents the SBS
Entity may be able to provide to the
Commission, that the SBS Entity has the
operational, financial, and/or
compliance capabilities to act as an SBS
Dealer or major security-based swap
participant, as applicable, should the
51 As described in footnote 12 above, the
Commission is presently reviewing the various
standards and processes it uses to facilitate
registration, and we would expect that any
alternative processes suggested by commenters here
would inform that review.
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Commission identify which documents
or categories of documents should be
submitted in order to facilitate its
review and/or decision? If so, what
types of documents (e.g., business plan,
written procedures, or annual audit
statements) should the Commission
identify to facilitate this review and
what would be the costs of obtaining or
providing such documents?
Q–56. Should the Commission not
adopt a Senior Officer Certification
requirement, and instead require that an
SBS Entity obtain and submit to the
Commission an independent third-party
review of its operational, financial, and
compliance capabilities or its written
policies and procedures before granting
ongoing registration? What practical
considerations—e.g., identifying an
appropriate independent third party,
measuring the time, cost, and reliability
of any such review, addressing the types
of information to be shared with a third
party and the factors to be considered in
its review—would inform whether such
a review would be appropriate? What
would be the advantages and
disadvantages and costs and benefits of
requiring a third-party review instead of
the Senior Officer Certification?
Q–57. Should the Commission adopt
a Senior Officer Certification
requirement, and also require that an
SBS Entity employ a third party to
independently review its capabilities to
provide a basis for that Senior Officer
Certification? What would be the
advantages and disadvantages and costs
and benefits of having an SBS Entity’s
capabilities independently reviewed? If
such a review were required, who could
perform such a review, what would
such review entail, and should the
review be submitted to the Commission
along with the certification? What
would be the comparative advantages,
disadvantages, costs and/or benefits of
requiring dealers and participants to
have their capabilities independently
reviewed?
Q–58. If the Commission required that
SBS Entities obtain and submit an
independent third-party review, what
types of entities could perform such a
review (e.g., accountants, law firms,
consulting firms) and what
independence standards should apply
for purposes of conducting the review?
Could a review or examination by
another governmental agency (e.g., the
Federal Reserve Board, the CFTC, the
Office of the Comptroller of the
Currency) or an SRO constitute an
independent third party review for these
purposes? If not, why? Are there any
practical or legal impediments to
obtaining or providing to the
Commission a review from a third party
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or a governmental agency or an SRO? If
so, could these be addressed by contract
or otherwise?
Q–59. Are there any other forms of
oversight that could or should reinforce
or replace the proposed Senior Officer
Certification? What would be the
comparative advantages, disadvantages,
costs and/or benefits of such an
approach?
Q–60. Are there other approaches to
registration the Commission should
consider that, in a cost-effective manner,
would both fulfill the statutory mandate
to protect investors, maintain fair,
orderly, and efficient markets, facilitate
capital formation, and ensure that the
security-based swap market smoothly
transitions from a generally unregulated
marketplace to one that is regulated and
subject to appropriate oversight? If so,
please explain which ones and why.
Q–61. If the Commission were to
consider an approach to registration that
required something other than a Senior
Officer Certification, would SBS Entities
need more time to gather, obtain, or
submit any documents, third party
review, or other items than we have
proposed for submission of the Senior
Officer Certification (i.e., on or before
the Last Compliance Date or, for
participants that apply after the Last
Compliance Date, within four months
after it files its completed application)?
If so why or why not?
In the Intermediary Definitions
Release,52 the Commission
acknowledged that the statutory
definitions include a provision stating
that a person may be designated as a
dealer for one or more types, classes or
categories of security-based swaps, or
activities. Further, that release indicated
that one commenter stated that the
Commissions should allow a person to
register as a swap dealer or SBS Dealer
for only a limited set of types, classes
or categories of swaps or security-based
swaps.
Q–62. Should the registration process
be expanded in any way to allow firms
to choose whether they register in a
‘‘full’’ or ‘‘limited’’ capacity? If so, how?
Q–63. What additional information
should be elicited by the proposed
forms to provide the Commission with
sufficient information to determine
whether limited (as opposed to full)
registration is appropriate? Should there
be separate forms for firms to apply for
limited, as opposed to full, registration?
Should there instead be a separate
schedule to the forms as proposed?
Should the timing differ and, if so, how
and why?
52 Intermediary Definitions Release, supra note 5,
at 80182.
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Q–64. Should an applicant for limited
registration be required to provide the
Commission with a different senior
officer or other certification? If so, how
should the certification differ?
Q–65. Should the Commission apply
a different standard of review when
considering whether to grant or deny
limited registration to an applicant? If
so, which one and why?
Q–66. If the Commission were to grant
an SBS Entity’s application for limited
registration and the SBS Entity later
determined that it would prefer to be
fully registered, how should this
transition be effected?
Please provide as much detail as
possible in commenting on which of the
above referenced courses of action
should be pursued. Please also provide
information regarding possible costs or
benefits of each of these alternatives.
2. Amendments to Application Forms:
Proposed Rule 15Fb2–3
Proposed Rule 15Fb2–3 would require
an SBS Entity to promptly 53 amend its
Form SBSE, Form SBSE–A, Form SBSE–
BD, as applicable, to correct any
information it determines is, or has
become, inaccurate for any reason.54
The Commission preliminarily believes
this proposed Rule is necessary in order
for it to have access to accurate
information as part of its ongoing
oversight of SBS Entities.
The Commission requests comment
on all aspects of proposed Rule 15Fb2–
3.
Q–67. Should the Commission only
require SBS Entities to promptly update
their Forms SBSE, SBSE–A, and SBSE–
BD when they become ‘‘materially’’
inaccurate?
Q–68. Should SBS Entities instead be
required to periodically update these
forms and, if so, what would be an
appropriate timeframe for updating (e.g.,
monthly, quarterly, annually)? What
may be the comparative costs and
benefits of periodic updating vs.
‘‘prompt’’ updating?
Q–69. If the Commission requires SBS
Entities to promptly update their Forms
53 For purposes of Rule 15b3–1, the Commission
has interpreted the term ‘‘promptly’’ to mean within
30 days. (In the Matter of First Guarantor Securities,
Inc., Exchange Act Release No. 32725, 51 S.E.C. 612
(Aug. 6, 1993), which states, ‘‘Absent extraordinary
circumstances, an amendment to Form BD filed
beyond thirty days from the change in information
cannot be considered ‘promptly’ filed in accordance
with Rule 15b3–1.’’) We preliminarily believe this
standard is also appropriate with respect to the use
of this term in proposed Rule 15Fb2–3.
54 This proposed rule is based on Exchange Act
Rule 15b3–1, which is applicable to registered
brokers and dealers and has worked well to assure
that broker-dealers promptly amend their
applications.
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SBSE, SBSE–A, and SBSE–BD when
they become materially inaccurate,
should it also require that all
information on the forms be updated
periodically?
Q–70. Would it be appropriate for the
Commission to require that certain
information be updated more frequently
than other information? If so, please
describe what information should be
subject to more frequent updates and
why, and the frequency with which
each such item should be updated.
B. Associated Persons
1. Certification
Paragraph (b)(6) of Exchange Act
Section 15F generally prohibits SBS
Entities from permitting any of their
associated persons 55 who are subject to
a ‘‘statutory disqualification’’ (as
defined in Exchange Act Section
3(a)(39)) to effect or be involved in
effecting 56 security-based swaps on
behalf of the SBS Entity if the SBS
Entity knew, or in the exercise of
reasonable care should have known, of
the statutory disqualification. To
provide SBS Entities with a mechanism
to assess their compliance with this
provision, paragraph (a) of proposed
Rule 15Fb6–1 would require that an
SBS Entity certify, on Schedule G of
Form SBSE, Form SBSE–A, or Form
SBSE–BD, as appropriate, that no
person associated with it who effects or
is involved in effecting security-based
swaps on its behalf is subject to
statutory disqualification, as defined in
Section 3(a)(39) of the Exchange Act.57
If an associated person later becomes
55 15 U.S.C. 78c(a)(70) generally defines the term
‘‘person associated with’’ an SBS Entity to include:
(i) Any partner, officer, director, or branch manager
of an SBS Entity (or any person occupying a similar
status or performing similar functions); (ii) any
person directly or indirectly controlling, controlled
by, or under common control with an SBS Entity;
or (iii) any employee of an SBS Entity. However, it
generally excludes persons whose functions are
solely clerical or ministerial.
56 The Commission believes that associated
persons ‘‘involved in effecting’’ security-based
swaps would include, but not be limited to, persons
involved in drafting and negotiating master
agreements and confirmations, persons
recommending security-based swap transactions to
counterparties, persons on a trading desk actively
involved in effecting security-based swap
transactions, persons pricing security-based swap
positions and managing collateral for the SBS
Entity, and persons assuring that the SBS Entity’s
security-based swap business operates in
compliance with applicable regulations. In short,
the term would encompass persons engaged in
functions necessary to facilitate the SBS Entity’s
security-based swap business.
57 Proposed Rule 15Fb1–1(b), described below,
would require each SBS Entity to maintain a
manually signed copy of this certification as part of
its books and records until at least three years after
the certification has been replaced or is no longer
effective.
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statutorily disqualified, the SBS Entity
would need to ensure that the
associated person does not continue to
effect or be involved in effecting
security-based swaps on the SBS
Entity’s behalf and/or promptly amend
its Schedule G in accordance with
proposed Rule 15Fb2–3.
To support this certification
requirement, paragraph (b) of proposed
Rule 15Fb6–1 would require SBS
Entities to obtain a questionnaire or
application for employment executed by
each of its associated persons that effect
or are involved in effecting securitybased swaps on its behalf; such
questionnaire or application would
serve as a basis for a background check
of the associated person to determine
whether the associated person is
statutorily disqualified. The
questionnaires or applications would be
required to contain, at a minimum, the
following information: (1) The
associated person’s name, address,
social security number, Central
Registration Depository (‘‘CRD’’)
number (if any), Investment Adviser
Registration Depository (‘‘IARD’’)
number (if any), and the starting date of
the associated person’s employment or
other association with the SBS Entity;
(2) the associated person’s date of birth;
(3) a complete, consecutive statement of
all the associated person’s business
connections for at least the preceding
ten years, including whether the
employment was part-time or full-time;
(4) a record of any denial of membership
or registration, and of any disciplinary
action taken, or sanction imposed, upon
the associated person by any federal or
state agency, by any national securities
exchange or national securities
association, or by a foreign financial
regulatory authority including any
finding that the associated person was a
cause of any disciplinary action or had
violated any law; (5) a record of any
denial, suspension, expulsion or
revocation of membership or
registration of any broker, dealer, SBS
Dealer, or major security-based swap
participant with which the associated
person was associated in any capacity
when such action was taken; (6) a
record of any permanent or temporary
injunction entered against the
associated person or any broker, dealer,
SBS Dealer, or major security-based
swap participant with which the
associated person was associated in any
capacity at the time such injunction was
entered; (7) a record of any arrest or
indictment for any felony, or any
misdemeanor pertaining to securities
(including security-based swaps),
futures or commodities (including
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swaps), banking, insurance or real estate
(including, but not limited to, acting or
being associated with a broker-dealer,
investment company, investment
adviser, futures sponsor, bank, or
savings and loan association), fraud,
false statements or omissions, wrongful
taking of property or bribery, forgery,
counterfeiting or extortion, and the
disposition of the foregoing; and (8) a
record of any other name or names by
which the associated person has been
known or which the associated person
has used.
The Commission believes that it is
standard in the financial services
industry for firms to request this
information on employment
questionnaires. This information is
similar to the information identified in
Exchange Act Rule 17a–3(a)(12)(i) and
required to be collected by brokerdealers with respect to their associated
persons. Additionally, Form U–4
contains all the information needed
pursuant to Exchange Act Rule 17a–
3(a)(12)(i) and would fulfill the
requirement to obtain a questionnaire or
application specified in Rule 15Fb6–
1(b). Rule 17a–3(a)(12)(i) and Form U–
4 provide broker-dealers with
information through which they can
perform background checks on
associated persons necessary to assure
that those associated persons are not
subject to statutory disqualification.
Moreover, the NFA collects similar data
on associated persons of its members
through the Form 8–R. Consequently,
we preliminarily believe it would be
appropriate for SBS Entities to collect
this information on associated persons
to allow them to conduct background
checks so that they can comply with the
prohibition in Section 15F(b)(6) of the
Exchange Act from allowing statutorily
disqualified individuals to effect or be
involved in effecting SBS transactions
on their behalf.
In addition, paragraph (b) of proposed
Rule 15Fb6–1 would require that the
SBS Entity’s chief compliance officer
(‘‘CCO’’) (appointed in accordance with
Exchange Act Section 15F(k)), or his or
her designee, review and sign each
questionnaire or application.58 This
provision is designed to help ensure
that due regard is being paid to this
requirement to collect information on
employees and to help ensure that none
58 Applicants may already have this information
on their employees, but may not have a CCO, as
required pursuant to new Section 15F(k) of the Act,
until the effective date of rules the Commission may
promulgate under Section 15F(k). Security-based
swap dealers and major security-based swap
participants could be conditionally registered even
if a CCO has not signed each associated person’s
questionnaire or application.
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of the SBS Entity’s employees who
effect or are involved in effecting
security-based swaps on the SBS
Entity’s behalf is subject to statutory
disqualification. Moreover, to the extent
the SBS Entity’s CCO, or his or her
designee, must sign the certification,
this requirement helps ensure that the
CCO is aware of this statutory
prohibition and is familiar with the SBS
Entity’s procedures to comply with it.
Finally, paragraph (c) of proposed
paragraph 15Fb6–1 would require that
each SBS Entity maintain the
questionnaires and applications for
employment obtained pursuant to
paragraph (b) as part of its books and
records for at least three years after the
associated person has terminated his or
her association with the SBS Entity. It
is likely that SBS Entities would retain
these records for business purposes;
however, this requirement will assure
that the questionnaires and applications
are available to the Commission during
inspections and examinations.
The Commission requests comment
on proposed Rule 15Fb6–1.
Q–71. Would the information
regarding associated persons in
paragraph (b) of the proposed rule be
sufficient for a CCO to make the
required certification? Why or why not?
Q–72. Should the information
requirements in paragraph (b) be
modified in any way?
Q–73. Should applicants be required
to obtain any additional information not
specified in proposed paragraph (b)?
Q–74. Should the Commission require
that SBS Entities perform background
checks on their employees (e.g., to
confirm that their associated persons do
not have a criminal history) in addition
to obtaining questionnaires or
applications? Why or why not?
Q–75. If not, what other process could
the Commission use to help ensure that
an applicant is not violating Exchange
Act Section 15F(b)(6)?
Q–76. Should the Commission require
applicants to require credit checks on
associated persons? Why or why not?
Q–77. What, if any, practical or legal
limitations or barriers exist that would
hinder an applicant from obtaining
background or credit checks?
Q–78. Should the Commission require
applicants to obtain and process
fingerprints of their associated persons
that will be effecting or involved in
effecting security-based swaps on the
applicant’s behalf? Why or why not?
Q–79. What, if any, practical or legal
limitations or barriers exist that would
hinder an applicant from obtaining or
running fingerprints of associated
persons?
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Q–80. Should the Commission instead
treat the provisions of Section 15F(b)(6)
as essentially self-executing and permit
SBS Entities to determine how best to
screen associated persons to ensure they
are not subject to a statutory
disqualification (provided that they
exercise reasonable care in so doing)
and require that an SBS Entity create
and maintain reasonable policies and
procedures for determining whether an
associated person is subject to a
statutory disqualification? Why or why
not?
Q–81. What would be the benefits and
risks of this approach?
Q–82. Would this approach be more
or less burdensome for SBS Entities to
administer?
Q–83. Would SBS Entities
nevertheless implement an approach
similar to that required under the
proposed rule?
Q–84. How might an SBS Entity
comply with Section 15F(b)(6) in ways
that differ from what is set forth in the
proposed rule?
Q–85. Would this alternative policies
and procedures approach provide SBS
Entities sufficient legal certainty about
whether they have properly complied
with Section 15F(b)(6)?
Q–86. Should the Commission require
that associated persons of SBS Entities
that effect or are involved in effecting
security-based swaps on behalf of the
SBS Entity register directly with it?
What would be the costs or benefits
involved with registration of such SBS
Entity associated persons? What, if any,
practical or legal limitations or barriers
exist to this approach?
Q–87. Are there other approaches to
implementing Section 15F(b)(6) that the
Commission should consider? Please
explain.
Q–88. Should the Commission take a
different view regarding which
associated persons should be considered
to be ‘‘involved in effecting’’ securitybased swaps on behalf of the SBS Entity
(see footnote 34)? If so, should
additional categories of associated
persons be included or should certain
identified categories of associated
persons be excluded? For what
reason(s)?
2. Alternative Process
Section 15F(b)(6) expressly authorizes
the Commission to establish exceptions
to this prohibition by rule, regulation, or
order.59 This authority is similar to
authority provided to the Commission
with respect to the ‘‘traditional’’
securities industry, i.e., the industry
regulated under the Exchange Act prior
59 15
U.S.C. 78o–10(b)(6).
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to the Dodd-Frank Act amendments.
This existing Exchange Act authority
permits SROs, subject to Commission
review, to allow, among other things, a
person subject to a statutory
disqualification to associate with a
broker-dealer.60
Similarly, Commission Rule 193
(Applications by Barred Individuals for
Consent to Associate) provides a process
by which persons that are not regulated
by a SRO (e.g., employees of an
investment adviser, an investment
company, or a transfer agent) can seek
to reenter the traditional securities
industry despite previously being barred
by the Commission.61
The Commission requests comment
on whether it should develop an
alternative process to allow associated
persons of SBS Entities who are subject
to a statutory disqualification to effect or
be involved in effecting security-based
swaps on their behalf.
Q–89. How many SBS Entities and
associated persons thereof are likely to
be affected if the Commission does not
provide an exemptive process?
Q–90. Is it possible that an associated
person that is an entity (i.e., not a
natural person) that effects or is
involved in effecting security-based
swaps on behalf of an SBS Entity would
be subject to a statutory
disqualification? If so, should the
Commission consider excepting any
such persons from the prohibition in
Section 15F(b)(6)? Under what
circumstances and why?
Q–91. Should the Commission except
such persons globally (e.g., by a blanket
rule) or on an individual basis (e.g., via
a Rule 193-type process)? What would
be the possible costs or benefits of each?
Q–92. Are there certain statutorily
disqualified persons who should not be
permitted to remain associated with an
SBS Dealer or major security-based
swap participant based upon the nature
of the disqualification?
Q–93. Should there be any
differentiation in relief based upon the
nature of the person, e.g. a natural
60 When such a person seeks admission to or
continuance in membership or association, the
Commission and the SRO have the opportunity to
give special review to such person and to restrict
or prevent entry into, or continuance in, the
business where appropriate in the public interest
and for the protection of investors. See Senate
Comm. on Banking, Housing, and Urban Affairs,
The Securities Act Amendments of 1989, S. Rep.
No. 101–105, at 39 (1989); Provision for Notices by
Self-Regulatory Organizations of Stays of Such
Actions; Appeals; and Admissions to Membership
or Association of Disqualified Persons, 42 FR 36409
(Jul. 14, 1977) (adopting rule 19h–1 under the
Exchange Act, 17 CFR 240.19h–1, and providing
rules for process of filing notices, content of notices,
and Commission determination).
61 17 CFR 201.193.
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person or an entity? If so, what type of
differentiation and why?
C. Termination of Registration
1. Expiration: Proposed Rule 15Fb3–1
Exchange Act Section 15F(b)(3)
provides that ‘‘each registration under
this section shall expire at such time as
the Commission may prescribe by rule
or regulation.’’ Although there is no
Exchange Act parallel, this provision is
similar to Commodity Exchange Act
Section 6f(a)(1), which provides that
‘‘each registration shall expire on
December 31 of the year for which
issued or at such other time, not less
than one year from the date of issuance,
as the Commission may by rule,
regulation, or order prescribe. * * *’’
CFTC Rule 3.10(b) provides, among
other things, that persons registered
with the CFTC pursuant to CFTC Rule
3.10 ‘‘will continue to be so registered
until the effective date of any revocation
or withdrawal of such registration.’’
Paragraph (a) of proposed Rule 15Fb3–
1 would establish the same continuous
registration as is set forth in CFTC Rule
3.10(b), and would provide that
registered SBS Entities would ‘‘continue
to be so registered until the effective
date of any cancellation, revocation or
withdrawal of such registration or any
other event the Commission determines
should trigger expiration.’’
Q–94. Does CFTC Rule 3.10(b)
provide an appropriate model to
implement Exchange Act Section
15F(b)(3)? Why or why not?
Q–95. Should the Commission instead
allow initial SBS Entity registrations to
expire and require SBS Entities to reregister to become an ongoing registrant
(while providing a grace period for this
re-registration to occur)? If so, what
would be an appropriate amount of time
before expiration (e.g., one year, two
years, five years, or some other time
period)?
Q–96. Alternatively, should the
Commission allow SBS Entity
registrations to expire periodically and
require SBS Entities to re-register
periodically (i.e., requiring registrants to
‘‘re-up’’ indefinitely on a regular basis)?
If so, what would be an appropriate
amount of time before expiration (e.g.,
annually, every two years, every five
years, or some other time period)? What
would be the advantages, disadvantages,
costs and benefits of such an approach?
Q–97. Via what mechanism should
any such re-registration be facilitated?
For instance, should an SBS Entity be
required to re-apply by filing a new
application? Alternatively, should an
SBS Entity be required to re-certify by
filing a new Senior Officer Certification?
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Would some other mechanism be more
appropriate? How should any such
mechanism take into account the initial
application and registration of an SBS
Entity? How should any such
mechanism take into account the SBS
Entity’s compliance with applicable
rules during the period prior to the reregistration? Would any type of noncompliance during such period justify
denial of re-registration, or should the
nature of the non-compliance and any
remedial actions be taken into account?
Q–98. If re-registration is facilitated
by re-certification, would the proposed
form of Senior Officer Certification on
Form SBSE–C be the appropriate or
would some other form or language be
more appropriate? For instance, should
any re-certification for SBS Entities be
drafted to more closely follow the
certification requirement proposed for
municipal advisors (wherein each
municipal advisor certifies annually
that it has met its regulatory obligations
over the prior period)?
Q–99. If periodic re-registration were
required, should re-registration be based
on an SBS Entity’s original registration
date or should it be triggered by a
calendar date (e.g., on December 31)?
Q–100. Should the same standard of
review that applies to ongoing
registration apply in the context of reregistration (see proposed rule 15Fb2–
1(d)(2))? If not, what alternative
standard of review would be more
appropriate and why?
Q–101. Would any such expiration
and re-registration requirement provide
the Commission with a greater ability to
enforce compliance with applicable
regulations? Why or why not?
As discussed in Part I above, under
paragraph (b)(1) of proposed Rule
15Fb3–1, conditional registrations
granted by the Commission to an SBS
Entity that applies for registration
during the transitional period in
accordance with Rule 15Fb2–1(b) would
expire on the Last Compliance Date,
unless the SBS Entity files a Senior
Officer Certification with the
Commission or its designee on or before
the Last Compliance Date; in which case
its conditional registration would be
extended for an additional thirty days
(which should allow the Commission
staff sufficient time to review the SBS
Entity’s application and certification
and determine whether to grant or deny
ongoing registration). Paragraph (b)(2) of
proposed Rule 15Fb3–1 would provide
that conditional registrations granted by
the Commission to major security-based
swap participants that file applications
for registration after the Last
Compliance Date would expire four
months after the major security-based
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swap participant files its completed
application with the Commission unless
the major security-based swap
participant files a Senior Officer
Certification with the Commission or its
designee within that four month period;
in which case its conditional
registration would be extended for an
additional thirty days. Pursuant to
paragraph (c) of proposed Rule 15Fb3–
1, the Commission could extend
conditional registration for good cause.
Q–102. Would these timeframes be
sufficient to allow conditional
registrants to complete—and the
Commission to grant or deny—ongoing
registration? Why or why not?
Q–103. What circumstances should
the Commission consider in
determining whether good cause exists
to extend an SBS Entity’s conditional
registration? Why? Should these
circumstances include situations in
which the Commission may need
additional time to review an SBS
Entity’s application and certification?
Why or why not?
Q–104. Should the Commission
require that an SBS Entity follow a
particular process to request an
extension of the SBS Entity’s
conditional registration? For instance,
should an SBS Entity be required to
submit a letter requesting an extension
and setting forth the reasons why an
extension is necessary? If so, what
process would be appropriate and why?
2. Withdrawal: Proposed Rule 15Fb3–2
Proposed Rule 15Fb3–2 would
provide a process by which an SBS
Entity could withdraw from registration
with the Commission.62 The proposed
rule would require an SBS Entity to file
a notice of withdrawal from registration
electronically on Form SBSE–W
(described in more detail below) in
accordance with the instructions to the
Form. It also would require that an SBS
Entity amend its Form SBSE, Form
SBSE–A, or Form SBSE–BD, as
appropriate, in accordance with
proposed Rule 15Fb2–3 to update any
inaccurate information prior to filing its
notice of withdrawal from registration.
Paragraph (b) of proposed Rule
15Fb3–2 would provide that a notice of
withdrawal from registration filed by an
SBS Entity would generally become
effective on the 60th day after the SBS
Entity files Form SBSE–W. However,
based on its experience with registered
broker-dealers, the Commission
recognizes that there may be
circumstances in which it would be
62 This provision is similar to Exchange Act Rule
15b6–1, which has historically worked well to
facilitate broker-dealer withdrawals.
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advisable to provide flexibility in
scheduling the termination of business
operations to registered entities seeking
to withdraw from registration. Further,
the Commission may determine that it
would be appropriate for a registered
entity that is under investigation by the
Commission to maintain its registered
status in order to allow the Commission
to conclude a pending investigation
without prematurely instituting a
proceeding to impose conditions on the
registered entity’s withdrawal. In such
instances, it may better serve the
interests of all parties to have the
registered entity consent to an extension
of the effective date of the registered
entity’s withdrawal from registration
beyond the general 60-day period
provided for in the proposed rule. It also
may be appropriate to permit the
Commission to extend the effective date
for a period if it determines, by order,
that it is necessary or appropriate in the
public interest or for the protection of
investors.
Thus, paragraph (b) of proposed Rule
15Fb3–2 would identify specific
situations in which notices of
withdrawal from registration will not
become effective on the 60th day. These
would include situations where (1) The
Commission determines that a shorter
period is appropriate, (2) the SBS Entity
consents to a longer period, (3) the
Commission, by order, determines that
a longer period is necessary or
appropriate in the public interest or for
the protection of investors, and (4) the
Form SBSE–W is filed subsequent to the
date of the issuance of a Commission
order instituting proceedings to censure,
place limitations on the activities,
functions or operations of, or suspend or
revoke the registration of the SBS Entity.
Finally, paragraph (b) of proposed Rule
15Fb3–2 would provide that if the
Commission institutes proceedings prior
to the effective date of Form SBSE–W
(1) To censure, place limitations on the
activities, functions or operations of, or
suspend or revoke the registration of the
SBS Entity, or (2) to impose terms or
conditions upon the SBS Entity’s
withdrawal, the notice of withdrawal
shall not become effective except at
such time and upon such terms and
conditions as the Commission deems
necessary or appropriate in the public
interest or for the protection of
investors.
The Commission requests comment
on all aspects of proposed Rule 15Fb3–
2.
Q–105. Would the proposed
withdrawal process be workable for SBS
Entities? Are the proposed timeframes
reasonable for these entities? Why or
why not?
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procedures could be added to provide
additional safeguards?
Q–106. Under what other
circumstances, if any, should the
Commission shorten or lengthen the
timeframe for withdrawal?
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3. Cancellation and Revocation:
Proposed Rule 15Fb3–3
Proposed Rule 15Fb3–3 would
provide the Commission with the ability
to either cancel or revoke a registered
SBS Entity’s registration. More
specifically, paragraph (a) of proposed
Rule 15Fb3–3 would allow the
Commission to cancel an SBS Entity’s
registration if the Commission finds that
it is no longer in existence or has ceased
to do business as an SBS Entity.63 The
cancellation process outlined in
paragraph (a) is intended to be
ministerial in nature, and not a means
to revoke without due process the
registration of an SBS Entity that may
have violated federal securities laws.
This provision is designed to help the
Commission allocate its examination
and other resources to entities that are
actively engaged in business regulated
by the Commission.
Paragraph (b) of proposed Rule
15Fb3–3 cross-references the Exchange
Act to clarify that the Commission shall
censure, place limitations on the
activities, functions, or operations of, or
revoke (on a permanent or temporary
basis) the registration of any SBS Dealer
or major security-based swap
participant that has registered with the
Commission if it makes a finding as
specified in Section 15F(l)(2) of the
Exchange Act.64
Q–107. Is the proposed provision for
cancellation of registration appropriate
in the context of SBS Entities? Why or
why not?
Q–108. Would there be occasion for
SBS Entities to have an extended pause
in their businesses such that they might
appear to have ceased to do business? If
so, should the Commission provide that
such entities could notify the
Commission of their intent to stay in
business, notwithstanding their lack of
current activities? Should such entities
later inform the Commission when they
become active?
Q–109. Should there be a time limit
on how long such an SBS Entity could
retain its registration with the
Commission while it is in a ‘‘dormant’’
state?
Q–110. Does the proposed provision
for revocation in paragraph (b) provide
sufficient procedural safeguards for
registered SBS Entities? If not, what
63 This provision is similar to Exchange Act
Section 15(b)(5).
64 15 U.S.C. 78o–10(l).
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D. Special Requirements for
Nonresident SBS Entities
Proposed Rule 15Fb2–4 would
require, among other things, that
nonresident SBS Entities that are
required to register with the
Commission 65 (1) Appoint an agent for
service of process in the United States
(other than the Commission or a
Commission member, official or
employee) upon whom may be served
any process, pleadings, or other papers
in any action brought against the
nonresident SBS Entity, (2) furnish the
Commission with the identity and
address of its agent for services of
process, (3) certify that the firm can, as
a matter of law, provide the Commission
with prompt access to its books and
records and can, as a matter of law,
submit to onsite inspection and
examination by the Commission, and (4)
provide the Commission with an
opinion of counsel concurring that the
firm can, as a matter of law, provide the
Commission with prompt access to its
books and records and can, as a matter
of law, submit to onsite inspection and
examination by the Commission.
Paragraph (a) of proposed Rule
15Fb2–4 would define the term
‘‘nonresident security-based swap
dealer’’ and ‘‘nonresident major
65 The Commission has received questions as to
how the registration requirements for SBS Entities
would apply to non-U.S. persons. The Commission
is continuing to consider the application of Title VII
of the Dodd-Frank Act to non-U.S. persons and
intends to address these issues in a separate release,
and notes that the proposals described herein with
respect to nonresident SBS Entities will be
informed by the considerations and comments
raised in connection with that release. See, e.g.,
Letter from Barclays Bank PLC, BNP Paribas S.A.,
Deutsche Bank AG, Royal Bank of Canada, The
´ ´
Royal Bank of Scotland Group PLC, Societe
´ ´
Generale, and UBS AG to David A. Stawick,
Secretary, CFTC, Elizabeth M. Murphy, Secretary,
SEC, and Jennifer J. Johnson, Secretary, Board of
Governors of the Federal Reserve System (Jan. 11,
2011); Letter from Sarah A. Miller, Chief Executive
Officer, Institute of International Bankers, to
Elizabeth M. Murphy, Secretary, SEC, and David A.
Stawick, Secretary, CFTC (Jan. 10, 2011); Letter
from Barclays Bank PLC, BNP Paribas S.A., Credit
Suisse AG, Deutsche Bank AG, HSBC, Nomura
Securities International, Inc., Rabobank Nederland,
Royal Bank of Canada, The Royal Bank of Scotland
´ ´ ´ ´
Group PLC, Societe Generale, The TorontoDominion Bank, and UBS AG to David A. Stawick,
Secretary, CFTC, Elizabeth M. Murphy, Secretary,
SEC, and Jennifer J. Johnson, Secretary, Board of
Governors of the Federal Reserve System (Feb. 17,
2011); and Letter from Laura J. Schisgall, Managing
´ ´ ´ ´
Director and Senior Counsel, Societe Generale, to
Elizabeth M. Murphy, Secretary, SEC, and David A.
Stawick, Secretary, CFTC (Feb. 18, 2011). The
Commission is also considering the approach
outlined in the letter from Katsunori Mikuniya,
Commissioner & Chief Executive, Financial
Services Agency, Government of Japan, to Gary
Gensler, Chairman, U.S. Commodity Futures
Trading Commission (Apr. 1, 2011).
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security-based swap participant,’’ for
purposes of Rule 15Fb2–4. Under this
definition, an SBS Entity that is
incorporated any place that is not in the
United States would be considered to be
a nonresident. In addition, an SBS
Entity that has its principal place of
business in any place not in the United
States would be considered to be a
nonresident.
Q–111. Should the terms
‘‘nonresident security-based swap
dealer’’ and ‘‘nonresident major
security-based swap participant’’ be
defined differently and, if so, how
should the definitions be amended and
why?
1. United States Agent for Service of
Process
Paragraphs (b)(1) and (2) of proposed
Rule 15Fb2–4 would require that each
nonresident SBS Entity registered or
registering with the Commission obtain
a written irrevocable consent and power
of attorney appointing an agent for
service of process in the United States
(other than the Commission or a
Commission member, official or
employee) upon whom may be served
any process, pleadings, or other papers
in any action brought against the
nonresident SBS Entity and furnish the
Commission with the identity and
address of its agent for services of
process on Schedule F 66 to Form SBSE,
Form SBSE–A, or Form SBSE–BD, as
applicable.67 These requirements are
important to facilitate the Commission
and others (for example, the U.S.
Department of Justice and any other
agency with the power to enforce the
Exchange Act) to serve process on a
nonresident SBS Entity to enforce the
Exchange Act. Paragraph (b)(4) of the
proposed rule also would require that
registered nonresident SBS Entities
must promptly appoint a successor
agent if it discharges its identified agent
for service of process or if its agent for
service of process is unwilling or unable
to accept service on its behalf.68 Further,
proposed paragraph (b)(3) would require
that registered SBS Entities promptly
inform the Commission, through an
amendment of the Schedule F of Form
SBSE, Form SBSE–A, or Form SBSE–
BD, as appropriate, of any change to
either its agent for service of process or
the name or address of its existing agent
for service of process. Finally, paragraph
(b)(5) of proposed Rule 15Fb2–4 would
require that the registered nonresident
66 The Schedule F is discussed more fully below
as part of the discussion of the Forms.
67 Paragraphs (b)(1) and (b)(2) of proposed Rule
15Fb2–4, respectively.
68 Paragraph (b)(3) of proposed Rule 15Fb2–4.
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SBS Entity maintain, as part of its books
and records, the agreement identified in
paragraph (b)(1) for at least three years
after the agreement is terminated.
The Commission requests comment
on all aspects of the requirement for
nonresident SBS Entities to appoint an
agent in the United States to receive
service of process, pleadings or papers
in any action brought against the
nonresident SBS Entity.
Q–112. Should only certain types of
entities (such as law firms) be allowed
to act as U.S. agent for service of
process?
Q–113. Should these requirements be
expanded to require nonresident SBS
Entities to appoint a U.S. agent for
purposes of all potential legal
proceedings, including those from nongovernmental entities, or is this already
adequately addressed by contract?
Q–114. Should the Commission
require nonresident SBS Entities to
provide the Commission with additional
information not required of U.S. SBS
Entities, such as verification of any nonU.S. registrations?
Q–115. Is the three year time frame for
which an SBS Entity would be required
to maintain, as part of its books and
records, the agreement appointing its
agent for service of process appropriate?
Would a longer or shorter time period
be more appropriate?
2. Access to Books and Records of
Nonresident SBS Entity
Proposed Rule 15Fb2–4(c)(1),
regarding access to books and records,
would require that each nonresident
SBS Entity registering with the
Commission 69 provide an opinion of
counsel and certify on Schedule F of
Form SBSE, Form SBSE–A, or Form
SBSE–BD, as appropriate, that it can, as
a matter of law, provide the Commission
with prompt access to its books and
records and can, as a matter of law,
submit to onsite inspection and
examination by the Commission.70 The
Commission preliminarily believes that
the nonresident SBS Entity certification
and supporting opinion of counsel is
important to confirm that each
nonresident SBS Entity located overseas
has taken the necessary steps to be in
the position to provide the Commission
with prompt access to its books and
records and to be subject to inspection
and examination by the Commission. To
effectively fulfill its regulatory oversight
69 See
supra note 65.
accordance with Proposed Rule 15Fb1–1(b),
the SBS Entity will need to maintain a manually
signed copy of this certification as part of its books
and records until at least three years after the
certification has been replaced or is no longer
effective.
70 In
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responsibilities with respect to
nonresident SBS Entities registered with
it, the Commission must have access to
those entities’ records and the ability to
examine them; however, certain foreign
jurisdictions may have laws that
complicate the ability of financial
institutions such as nonresident SBS
Entities located in their jurisdictions
from sharing and/or transferring certain
information including personal
financial data of individuals that the
financial institutions come to possess
from third persons (e.g., personal data
relating to the identity of market
participants or their customers). The
required certification and opinion of
counsel regarding the nonresident SBS
Entity’s ability to provide prompt access
to books and records and to be subject
to inspection and examination will
allow the Commission to better evaluate
a nonresident SBS Entity’s ability to
meet the requirements of registration
and ongoing supervision. Failure to
make this certification or provide an
opinion of counsel may be a basis for
the Commission to deny an application
for registration.
Paragraph (c)(2) of proposed Rule
15Fb2–4 would require that registered
nonresident SBS Entities re-certify, on
Schedule F to Form SBSE, Form SBSE–
A, or Form SBSE–BD, as applicable,
within 90 days after any changes in the
legal or regulatory framework that
would impact the nonresident SBS
Entity’s ability to provide, or the
manner in which it provides, the
Commission prompt access to its books
and records or impacts the
Commission’s ability to inspect and
examine the nonresident SBS Entity.
The re-certification would be required
to include a revised opinion of counsel
describing how, as a matter of law, the
entity will continue to meet its
obligations to provide the Commission
with prompt access to its books and
records and to be subject to Commission
inspection and examination under the
new regulatory regime. If a registered
nonresident SBS Entity becomes unable
to comply with this certification
because of such changes, or otherwise,
then this may be a basis for the
Commission to revoke the nonresident
SBS Entity’s registration.
The Commission requests comment
on all aspects of the certification and
opinion of counsel requirements
contained in paragraph (c) of proposed
Rule 15Fb2–4.
Q–116. Will this certification
requirement provide the Commission
with adequate assurance that
nonresident SBS Entities will be able to
provide the Commission with access to
records?
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Q–117. Should the Commission
specify that the opinion of counsel
contain any additional information? For
instance, should the requirement clarify
that the opinion of counsel reference the
applicable local law or, in the case of an
amendment, the manner in which the
local law was amended?
Q–118. As described above, certain
foreign jurisdictions may have laws that
complicate the ability of financial
institutions such as nonresident SBS
Entities located in their jurisdictions
from sharing and/or transferring certain
information. What impact may the
requirement that a nonresident SBS
Entity obtain and submit the described
opinion of counsel have on a
nonresident SBS Entity’s ability to
register in the United States in such
circumstances or otherwise? Are there
circumstances where it would be
impossible or impractical for the
nonresident SBS Entity to obtain the
opinion of counsel? Would a
nonresident SBS Entity need to cease
doing business in the United States or
with U.S. persons solely because of this
requirement? Why or why not?
Q–119. If the described opinion of
counsel were not required, what
alternatives would the Commission
have to assure that it is able to access
a registered nonresident SBS Entity’s
books and records and examine the
registered nonresident SBS Entity in
order to effectively fulfill its oversight
responsibilities? What are the relative
advantages or disadvantages of any such
alternatives?
Q–120. Should the requirement that
an SBS Entity obtain an amended
opinion of counsel and re-certify its
ability to provide the Commission with
access to records be limited in any way?
Q–121. The Commission has received
three comment letters containing
alternative suggestions as to how the
Commission should accommodate a
foreign bank with a U.S. affiliate that
organizes its business so that it could
engage in security-based swap
transactions with U.S. investors while
being subject to a more limited
regulatory regime under the Exchange
Act in recognition that it is subject to
regulation in its home country.71 The
71 See letter to Mr. David A. Stawick, Secretary,
CFTC, Ms. Elizabeth M. Murphy, Secretary,
Commission, and Ms. Jennifer J. Johnson, Secretary,
Board of Governors of the Federal Reserve System
from Davis Polk & Wardwell LLP, on behalf of
Barclays Bank PLC, BNP Paribas S.A., Deutsche
Bank AG, Royal Bank of Canada, The Royal Bank
´ ´ ´ ´
of Scotland Group plc, Societe Generale and UBS
AG, dated January 11, 2011 (https://www.sec.gov/
comments/s7-39-10/s73910-9.pdf); letter to
Elizabeth M. Murphy, Secretary, Commission, and
David A. Stawick, Secretary, CFTC, dated January
10, 2011 (https://www.sec.gov/comments/s7-39-10/
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Commission requests comment
regarding whether the requirement that
an applicant provide an opinion of
counsel should be amended to recognize
or facilitate such arrangements. If so,
why and in what way should the
requirement be modified? If not, why?
Would an amended requirement
provide the Commission with adequate
assurance that nonresident SBS Entities
will be able to provide the Commission
with sufficient access to records?
E. Special Situations
1. Succession: Proposed Rule 15Fb2–5
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Proposed Rule 15Fb2–5 would
provide a process through which an SBS
Entity could succeed to the business of
another SBS Entity.72 Consistent with
the use of the term in connection with
broker-dealer registration, we propose to
consider a ‘‘succession’’ to mean that a
successor firm acquires or assumes
substantially all of the assets and
liabilities of the predecessor firm.73
Proposed Rule 15Fb2–5 would
provide that, if an SBS Entity succeeds
to and continues the business of another
SBS Entity, the registration of the
predecessor SBS Entity will remain
effective as the registration of the
successor if the successor files an
application for registration in
accordance with Rule 15Fb2–1 within
30 days after such succession, and the
predecessor files a notice of withdrawal
from registration on Form SBSE–W.
Paragraph (b) of Proposed Rule
15Fb2–5 would allow a successor firm
that succeeds to the business of another
for minor reasons, where the ownership
or control of the SBS Entity does not
change (e.g., solely because it is
changing its date or state of
incorporation, form of organization, or
the composition of a partnership), to
simply amend the registration of the
predecessor SBS Entity on Form SBSE,
Form SBSE–A, or Form SBSE–BD, as
appropriate, within 30 days after the
change.
Q–122. Are these proposed successor
rules appropriate for SBS Entities?
s73910-8.pdf); and letter to Ananda Radhakrishnan,
Director, Division of Clearing and Intermediary
Oversight, CFTC, John M. Ramsay, Deputy Director,
Division of Trading and Markets, Commission, and
Mark E. Van Der Weide, Senior Associate Director,
Division of Supervision and Regulation, Board of
Governors of the Federal Reserve System, dated
November 23, 2010 (https://www.sec.gov/comments/
s7-34-10/s73410-3.pdf).
72 This proposed rule is based on Exchange Act
Rule 15b1–3, which is applicable to registered
brokers and dealers and has worked well to
facilitate succession of registrants.
73 Registration of Successors to Broker-Dealers
and Investment Advisers, Exchange Act Release No.
31661 (Dec. 28, 1992) (58 FR 7 (Jan. 4, 1993)).
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Q–123. Should the concept of
succession be the same as used in the
context of broker-dealer registration?
Commenters should explain why any
differences would be appropriate.
Q–124. Are the timeframes provided,
which seem to work well in the brokerdealer context, appropriate with respect
to SBS Entity succession?
2. Insolvency: Proposed Rule 15Fb2–6
Proposed Rule 15Fb2–6 would
provide a process through which an
executor, administrator, guardian,
conservator, assignee for the benefit of
creditors, receiver, trustee in insolvency
or bankruptcy or other fiduciary
appointed or qualified by order,
judgment or decree of a court of
competent jurisdiction could continue
the business of an SBS Entity.74 This is
important to allow a fiduciary time to
close-out positions and/or wind down
an SBS Entity’s business. Under the
proposed rule, the fiduciary would be
required to file with the Commission,
within 30 days after entering upon the
performance of his or her duties, an
amended Form SBSE, Form SBSE–A, or
Form SBSE–BD, as appropriate,
indicating the fiduciary’s position with
respect to management of the SBS
Entity, along with a copy of the order,
judgment, decree, or other document
appointing the fiduciary.
Q–125. Is proposed Rule 15Fb2–6
appropriate for SBS Entities? If another
process would be more appropriate,
please describe it.
Q–126. Should fiduciaries be able to
continue the business of an SBS Entity
to facilitate an orderly liquidation? If
not, why?
Q–127. Is the proposed 30-day
timeframe, which is consistent with the
Rule 15b1–4 requirement for brokerdealer fiduciaries, sufficient for an SBS
Entity fiduciary to make the required
filing with the Commission?
Q–128. Do the close-out provisions in
the agreements between the parties
provide sufficient ability for
counterparties to close-out open
positions in the event of an SBS Entity
default so that a fiduciary would not be
needed? Please explain.
F. Technical Rules
1. Electronic Signatures
Proposed Rule 15Fb1–1 would specify
the format required for signatures to, or
within, electronic submissions
74 The proposed rule is based on Exchange Act
Rule 15b1–4, which applies to broker-dealer
registrations. We believe this rule has worked well
to allow fiduciaries to wind-up broker-dealer
businesses without the need to separately register
as a broker-dealer.
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(including signatories within the forms
and certifications required by
§§ 240.15Fb2–1, 240.15Fb2–4 and
240.15Fb6–1, discussed below). In
addition, paragraph (b) of proposed Rule
15Fb1–1 would require that each
signatory to such an electronic filing
manually sign a signature page or other
document authenticating,
acknowledging or otherwise adopting
his or her signature that appears in
typed form within the electronic filing
either before or at the time the
electronic filing is made. Paragraph (b)
would also require that the SBS Entity
create the manually signed document
when the electronic form is submitted,
and furnish a copy of such document to
the Commission upon request.
Paragraph (c) of proposed Rule 15Fb1–
1 would prohibit a person required to
provide a signature on an electronic
submission from having another person
sign the form or certification on his or
her behalf pursuant to a power of
attorney or other form of confirming
authority. Finally, paragraph (d) would
require that the SBS Entity retain the
manually signed document associated
with Schedules F and G of Forms SBSE,
SBSE–A, or SBSE–BD, as appropriate,
until at least three years after the form
or certification has been replaced or is
no longer effective, and the manually
signed document associated with Form
SBSE–C until at least three years after
the Form was submitted to the
Commission.
This proposed rule is based on
Section 302 of Regulation S–T,75 and is
designed to require standard formatting
of electronic signatures and provide the
Commission with the ability to obtain
additional documents to verify those
signatures. In addition, paragraph (c) of
proposed Rule 15Fb1–1 is based on
paragraph (d) of Exchange Act Rule
15d–14. The Commission believes that
this paragraph is necessary to assure
that persons signing certifications can
be held responsible for their statements.
The Commission requests comment
on all aspects of Rule 15b1–1.
Q–129. Is it adequate to require an
SBS Entity to maintain a signed copy of
each certification as part of its books
and records so that it is available for
examiners to review?
Q–130. Should the Commission
require SBS Entities to file the original
certifications with the Commission?
Q–131. Are the timeframes for
retention of manually signed documents
appropriate? Why or why not? If not,
what timeframe or timeframes may be
more appropriate and why?
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2. Temporary Rule To Facilitate Paper
Filing of Forms
G. Forms
If a technological means to facilitate
receipt and retention of applications
required to be filed in accordance with
Rule 15Fb2–1 is not functional by the
time final rules are adopted, proposed
temporary Rule 15Fb2–2T would
require an SBS Entity to file its
application on Form SBSE, Form SBSE–
A, or Form SBSE–BD, as applicable, and
all additional documents in paper form
by sending it to the Securities and
Exchange Commission, 100 F Street,
NE., Washington, DC 20549–1090,
notwithstanding paragraph (c)(1) of Rule
15Fb2–1. In addition, if proposed
temporary Rule 15Fb2–2T is adopted,
paragraph (b) would require that each
applicant must resubmit its Form SBSE,
Form SBSE–A, and Form SBSE–BD, as
applicable and all additional documents
to the Commission electronically within
three months of the date such
technological means to facilitate receipt
and retention of applications becomes
functional. Depending on the timing,
SBS Entities may also need to file their
Forms SBSE–C in paper format and later
resubmit those Forms electronically.
Proposed temporary Rule 15Fb2–2T
would provide a process for the
Commission to receive applications in
paper format if a technological means to
facilitate receipt and retention of
applications cannot be completed before
final SBS Entity registration rules are
adopted. Further, Proposed temporary
Rule 15Fb2–2T would facilitate the
transition of data to an electronic format
once such a system becomes functional.
The benefits of an electronic system
outweigh additional costs relating to the
need for SBS Entities to file their
applications in both paper and
electronic form. In addition, requiring
that each SBS Entity file its application
electronically would assure that each
firm can confirm that the data entered
into the electronic system is accurate
and complete.
The Commission requests comment
on proposed temporary rule 15Fb2–2T.
Q–132. Is this paper process
practicable?
Q–133. Should the Commission
instead allow applicants to submit their
applications in PDF form via e-mail?
Q–134. Instead of the process
contemplated by paragraph (b) of
proposed Rule 15Fb2–2T, should the
Commission reduce the paper filings to
electronic form instead of the
applicants?
Proposed Form SBSE is generally
based on Form BD—the consolidated
Form used by broker-dealers to register
with the Commission, states and SROs.
Form BD has been used to gather and
organize certain information concerning
applicants’ business operations to
facilitate Commission, state and SRO
initial registration decisions, as well as
ongoing examination and monitoring of
registrations. Because SBS Entities will
be subject to many requirements similar
to those that affect broker-dealers (e.g.,
minimum capital, leverage, and
business conduct rules and statutory
disqualification prohibitions), the
Commission believes using Form BD as
a template for the registration of SBS
Entities is logical and efficient. Key
differences from Form BD are outlined
below:
• The phrase ‘‘broker or dealer’’ was
changed to ‘‘security-based swap dealer
or major security-based swap
participant’’ because Form SBSE will be
used by firms to register as SBS Entities
and not as broker-dealers;
• References to SROs and
jurisdictions were removed except
where they arose in the context of a
contractual relationship or disciplinary
proceeding because SBS Entities will
generally not be required to register
with SROs or states;
• References to branch offices were
removed because the SBS business is
generally conducted on a more
centralized basis and is not effected
through branch offices;
• The General Instructions eliminate
the instructions for filing the form in
paper format because we intend to
require that the forms be filed
electronically; 76
• The Explanation of Terms section is
substantially the same; 77 however the
term ‘‘jurisdiction’’ was replaced with
the term ‘‘state’’ to eliminate potential
confusion regarding questions in Item
11 that relate to actions brought in
either domestic or foreign jurisdictions
and the term ‘‘foreign financial
regulatory authority’’ was removed
because it is now defined in Exchange
Act Section 3(a)(52);
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1. Form SBSE
76 If a technological means to facilitate the receipt
and retention of applications is not finalized by the
time final rules are adopted and the Commission
must adopt proposed Rule 15Fb2–2T, instructions
regarding paper filing would be re-inserted.
77 The Explanation of Terms section includes
definitions of the terms applicant, control, state,
person, self-regulatory organization, successor,
charged, control affiliate, enjoined, felony, found,
investment or investment-related, involved, minor
rule violation, misdemeanor, order, and proceeding.
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• Item 1–J of Form SBSE would elicit
the name and contact information for
the Chief Compliance Officer designated
by the applicant in accordance with
Exchange Act Section 15F(k) (brokerdealers are not now required to provide
this information on Form BD);
• Item 2b of Form SBSE would elicit
information, if a firm is registering as a
major security-based swap participant,
regarding whether the firm is registering
because it maintains a substantial
position, has substantial counterparty
exposure, or is highly leveraged relative
to its capital position, which will assist
the staff in evaluating its application;
• Item 3 of Form SBSE would elicit
whether the SBS Entity intends to use
mathematical models to calculate any
applicable capital or margin or to price
customer or proprietary positions
(whether or not for regulatory purposes),
which will assist the staff in considering
what types of examinations may be
required;
• Item 4 of Form SBSE would elicit
whether the applicant is subject to
regulation by a prudential regulator 78
because the extent of the Commission’s
regulatory responsibilities for entities
subject to regulation by a prudential
regulator differ;
• In addition to eliciting information
regarding recordkeeping arrangements,
Item 8 would also query whether the
applicant has any arrangement under
which any other person, firm or
organization executes, trades, custodies,
clears or settles on behalf of the
applicant (including any SRO or swap
execution facility in which the
applicant is a member). This
information is designed to provide the
Commission with an understanding of
the SBS Entity’s business relationships.
• References to the Securities Investor
Protection Corporation in the
‘‘Execution’’ section have been
eliminated because SBS Entities are not
required to become members of SIPC 79
and references to surety bonding and
service of process in each state has also
been eliminated because Form SBSE
does not facilitate registration with
states (as the Form BD does);
• Form SBSE would require
disclosure of whether the applicant is
registering as an SBS dealer or major
security-based swap participant, the
applicant’s legal status, whether the
applicant is succeeding to the business
78 The term ‘‘prudential regulator’’ is now defined
at 15 U.S.C. 78c(a)(74).
79 Only SBS Entities that are also registered as a
broker-dealer would be SIPC members. SBS Entities
that are also registered as a broker-dealer will be
required to file Form SBSE–BD and not Form SBSE.
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of another SBS Entity, and the
applicant’s control relationships; 80 and
• Form SBSE would elicit a
description of the applicant’s business
in a text box rather than through the use
of a list of possible types of business.
Proposed Form SBSE, like Form BD,
would elicit information regarding
criminal disclosures, regulatory action
disclosures, civil judicial disclosures,
and financial disclosures. As with Form
BD, ‘‘yes’’ answers to these questions
would require that the applicant file
additional information on disclosure
reporting pages (or ‘‘DRPs’’) as a
supplement to the Form. As with Form
BD, Form SBSE would also elicit
information on whether the applicant is
registered with the Commission as an
investment adviser, registered with the
CFTC as an FCM, or whether it is
engaged in any other investmentrelated, non-securities business.
Schedules A and B, which elicit
information regarding direct and
indirect owners and executive officers,
would be largely unchanged (with the
exception of the header, the elimination
of a request for social security numbers
in the tables): however, the table in
Schedule A has been expanded to elicit
information regarding prior investmentrelated experience of individual owners
who are not otherwise registered
through CRD or IARD to provide the
Commission an understanding of each
owner’s background and qualifications
in light of the fact that they will not be
individually registered as is the case
with owners of broker-dealers. Schedule
C would be eliminated because
electronic filing of the forms would
make it unnecessary. Schedule D would
be amended slightly to address
differences between the security-based
swap business and the broker-dealer
business (e.g., there are no ‘‘introducing
and clearing arrangements’’). In
addition, Section IV in Item D has been
expanded to elicit additional
information regarding the nature of the
execution, trading, custody, clearing or
settlement arrangement, as well as
information regarding any prior
investment-related experience of
individual control persons who are not
otherwise registered through CRD or
IARD. This information is designed to
provide the Commission with an
understanding of the SBS Entity’s
business relationships and each control
person’s respective background and
qualifications in light of the fact that
they will not be individually registered
as is the case with owners of brokerdealers. The staff understands that SBS
80 These questions are similar to questions that
appear on pages 2 and 3 of the Form BD.
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Entities may conduct security-based
swap business from multiple locations;
however, those that would register with
the Commission using Form SBSE likely
would not refer to those locations as
‘‘branches.’’ Consequently, Schedule E
of Form SBSE 81 would solicit
information regarding locations rather
than branches.
The proposed form would also
include two additional schedules to be
used by SBS Entities—Schedules F and
G. Schedule F must be submitted by
nonresident SBS Entities pursuant to
proposed Rule 15Fb2–4 to provide the
Commission with information regarding
its appointed U.S. agent for service of
process and to certify that it is able to
provide the Commission with prompt
access to its books and records.82
Schedule G would be required to be
submitted by all SBS Entities pursuant
to proposed Rule 15Fb6–1(a). Schedule
G would provide each SBS Entity with
a method to certify that none of its
associated persons that are effecting or
involved in effecting security-based
swaps on its behalf is subject to
statutory disqualification. This
Schedule is designed to provide the
Commission with assurance that the
SBS Entity is compliant with Section
15F(b)(6) of the Exchange Act. The Form
would require that the firm’s Chief
Compliance Officer sign Schedule G.
The Commission intends to use the
information disclosed by applicants in
Form SBSE (including the Schedules
and DRPs) to determine whether the
applicant meets the standards for
registration, and to fulfill its oversight
responsibilities.
The Commission requests comment
on all aspects of Form SBSE.
81 Schedule E of Form BD has been replaced by
Form BR, which is designed to enable brokerdealers to register their branch office locations
electronically with SROs and states. See, SelfRegulatory Organizations; New York Stock
Exchange, Inc.; Order Approving Proposed Rule
Change Relating to the Proposed Uniform Branch
Office Registration Form (‘‘Form BR’’), Exchange
Act Release No. 52543 (Sep. 30, 2005), 70 FR 58771
(Oct. 7, 2005); and Self-Regulatory Organizations;
National Association of Securities Dealers, Inc.;
Order Approving Proposed Rule Change and
Amendment No. 1 Thereto and Notice of Filing and
Order Granting Accelerated Approval to
Amendment No. 2 to the Proposed Rule Change
Relating to the Proposed Uniform Branch Office
Registration Form (‘‘Form BR’’) and Amendments to
the Uniform Application for Securities Industry
Registration or Transfer (‘‘Form U4’’) and the
Uniform Termination Notice for Securities Industry
Registration (‘‘Form U5’’), Exchange Act Release
No. 52544 (Sep. 30, 2005), 70 FR 58764 (Oct. 7,
2005).
82 Nonresident broker-dealers must presently file
one of four similar forms (Form 7–M, Form 8–M,
Form 9–M or Form 10–M, depending on the brokerdealer’s form or organization) to appoint an agent
for service of process.
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Q–135. Should the registration form
for SBS Entities be based on Form BD,
CFTC Form 7–R, or some other form?
Please describe the reasons for choosing
a particular form over another.
Q–136. How many firms may apply
for registration as SBS Entities?
Q–137. Should any of the instructions
or questions on Form SBSE be amended
to recognize particular characteristics of
the business of SBS Entities?
Q–138. Are any of the proposed
questions on Form SBSE inapplicable to
the SBS business?
Q–139. Should any questions be
added to Form SBSE to elicit
information that is unique to the SBS
business or to the SBS Entities that
engage in that business?
Q–140. Is proposed new Schedule F
the best method to collect information
regarding a nonresident SBS Entity’s
agent for service of process? If not, what
other method could the Commission
utilize?
Q–141. Is the requirement that an SBS
Entity certify on new Schedule F that it
can, as a matter of law, provide the
Commission with access to its books
and records and allow the Commission
to conduct onsite inspections the best
method to assure the Commission is
able to have such access? If not, what
other method could the Commission
utilize?
Q–142. Is it appropriate to require a
nonresident SBS Entities to also submit
an opinion of counsel opining on this
issue?
Q–143. Is proposed new Schedule G
the best method to assure that an SBS
Entity is complying with Section
15F(b)(6) of the Exchange Act? If not,
what other method could the
Commission utilize?
Q–144. Would the Form SBSE
disclosure requirements present any
unique issues for financial institutions
not previously subject to similar
disclosure requirements? If so, please
describe.
Q–145. Should Form SBSE include
additional Schedules in which the
applicant could provide more detailed
information regarding its business (e.g.,
a business plan, descriptions of the
types of products the applicant will
offer, the types of counterparties it will
have, information regarding the
applicant’s operational, supervisory and
compliance infrastructure, its major
vendors, its clearing arrangements),
similar to what the Commission
typically requires of other types of
applicants (e.g., clearing agencies and
national securities exchanges)? If so,
what specific types of information
should be required?
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Q–146. If there are changes in this
type of information over time, how
frequently should the registrant be
required to update the relevant
schedules?
tkelley on DSK3SPTVN1PROD with PROPOSALS2
2. Form SBSE–A
CEA Section 4s(c) and Exchange Act
Section 15F(c) require that persons that
engage in both swap business and
security-based swap business must
separately register with each agency.
However, the staff is proposing that
applicants that are not registered with
the Commission as broker-dealers, but
that are registered or registering with the
CFTC as either a swap dealer or major
swap participant, file their application
for registration on an alternative to Form
SBSE, or Form SBSE–A. Form SBSE–A
is a shorter form and is intended to
make it easier for dual applicants to file
with both agencies. As part of its
application, a firm filing with the
Commission on Form SBSE–A would
need to provide the Commission with a
copy of the form it files with the CFTC
to register as a swap dealer or major
swap participant. Form SBSE–A is
designed to provide the Commission
with data, not included on the form the
applicant must file with the CFTC, that
the Commission believes it will need to
adequately review an application for
registration.83 While some information
elicited via Form SBSE–A also may be
elicited by the CFTC’s form, it will be
helpful for the Commission to receive
this information directly to allow the
Commission to match the Form SBSE–
A with the CFTC Form and to
coordinate the information elicited
through Form SBSE–A with other
information the Commission may have
on the applicant. The Commission
believes that requiring that these
applicants use Form SBSE–A would
reduce the costs and burdens associated
with filing distinctly different forms to
register with both the Commission and
CFTC.
Proposed Form SBSE–A is loosely
based on Form SBSE, which, as
described above is based on Form BD
(the Form used by broker-dealers to
register with the Commission). As
discussed more fully above, the
Commission has used Form BD to gather
83 The CFTC has proposed that swap dealers and
major swap participants file their applications on
Form 7–R and accompanying Form 8–R. Also, see
supra note 10. Consequently, the Commission’s
assessment of what information applicants should
be required to provide on Form SBSE–A was based
on Form 7–R. If the CFTC’s application form for
swap dealers or major swap participants deviates
substantially from Form 7–R, the Commission will
need to re-assess the information it would need to
collect through Form SBSE–A. Form 8–R is the
Form used for registration of individuals.
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information necessary for it and the
SROs to determine whether to grant
broker-dealer registration to an
applicant. Key differences from Form
SBSE are outlined below:
• The General Instructions have been
modified to identify the Form and
Schedules to be used to register as an
SBS Entity and to eliminate the
instructions for filing in paper format
because we intend to require that the
forms be filed electronically; 84 and
• To reduce potential confusion
regarding the use of two forms,85 the
initial instruction in the Explanation of
Terms section states that terms used in
Form SBSE–A that are defined in CFTC
Form 7–R shall have the same meaning
as set forth in that form, and terms not
otherwise defined in CFTC Form 7–R
have the same meaning as in Form
SBSE.
Item 1.C. on Form SBSE–A would
elicit the firm’s NFA number. Items 2
through 13 of proposed Form SBSE–A
would require that the applicant
identify the capacity in which it is
seeking to register with the Commission,
the capacity in which it is registered
with or seeking to register with the
CFTC, certain control and business
relationships, succession and other
basic information regarding the firm’s
business. These questions are similar to
information elicited via Form SBSE,
which elicit information not otherwise
elicited through Form 7–R but which
the Commission believes is useful to
facilitate its oversight of regulated
entities.
Item 2b of Form SBSE–A would elicit
information, if a firm is requesting
registration as a major security-based
swap participant, regarding whether the
firm is registering because it maintains
a substantial position, has substantial
counterparty exposure, or is highly
leveraged relative to its capital position,
which will assist the staff in evaluating
its application. Item 3 of Form SBSE–A
would elicit whether the SBS Entity
intended to use mathematical models to
calculate capital or margin or to price
customer or proprietary positions
because this would highlight for staff
the need for a more extensive review.
Item 5 of Form SBSE would elicit
whether the applicant is subject to
regulation by a prudential regulator
because the extent of the Commission’s
regulatory responsibilities for entities
subject to regulation by a prudential
regulator differ.86
84 See
paragraph (c) of proposed Rule 15Fb2–1.
to register with the CFTC as a swap dealer
or major swap participant and one to register with
the Commission as an SBS Entity.
86 See, e.g., 15 U.S.C. 78o–10(e).
85 One
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Items fourteen and fifteen on Form
SBSE–A would elicit information
regarding ‘‘principals.’’ The definition
of ‘‘principal’’ in CFTC Form 7–R is
similar to the definition of control
affiliate in Form BD. Form BD requires
that an applicant file substantial
information on its control affiliates. We
understand that the CFTC presently
requires that individual principals of
entities registered with the CFTC file
separate registrations with the CFTC.
Consequently, the CFTC would have
information on those individuals
regarding any situations that would
cause those individuals to be statutorily
disqualified without requiring that the
applicant include that information in its
application. In recognition of this
method and to decrease duplication,
item thirteen would require that an
applicant identify how many individual
principals it has. Further, the applicant
would need to list those principals on
proposed new Schedule A to Form
SBSE–A and provide information
regarding those individual principals
similar to the information provided on
Schedule A of Form SBSE. Item fifteen
asks whether any principals of the
applicant that are entities effect or are
involved in effecting security-based
swaps on behalf of the applicant. If the
question is answered in the affirmative,
the applicant would need to provide
additional information on Schedule B
with respect to those entities. This
information is designed help the
Commission better understand the
relationship between the applicant and
its principals in order to assure
compliance with Section 15F(b)(6) of
the Exchange Act and to police for
manipulation and fraud.
As discussed above, Schedule A of
Form SBSE–A would require that an
applicant list all principals that are
individuals and provide some basic
information regarding each (e.g., the
person’s title, NFA number, and prior
investment-related experience). Much of
this information is provided to the
Commission via Form BD for brokerdealers, and the CFTC would already
have this information on control
persons but, without new Schedule A to
Form SBSE–A, the Commission would
not otherwise have this information.
This information is designed to help the
Commission better understand the
relationship between the applicant and
its principals and a basic background of
those principals in order to assure
compliance with Section 15F(b)(6) of
the Exchange Act and to police for
manipulation and fraud.
Schedule B would elicit information
regarding other business in which the
applicant is engaged, business
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arrangements, successions, and
principals that are not identified in
Schedule A, and is based loosely on
Schedule D to Form BD. Schedule C
would elicit information regarding
principals that are identified in
Schedule B that would cause those
persons to be statutorily disqualified,
and is based on Item 11 in Form BD.87
The applicant would need to file a DRP
for every ‘‘yes’’ answer in Schedule C.
The Schedules F and G to Form SBSE–
A are the same Schedules as described
above in the section regarding Form
SBSE.
The Commission intends to use the
information disclosed in Form SBSE–A
to determine whether applicants meet
the standards for registration and to
fulfill its oversight responsibilities.
Q–147. Is Form SBSE–A properly
tailored to decrease costs for dual
registration while still providing the
Commission with information necessary
on which to base its decision to grant or
deny registration?
Q–148. What are the comparative
costs or benefits with respect to filing
Form SBSE versus filing Form SBSE–A
for entities filing as both swap entities
with the CFTC and SBS Entities with
the Commission?
Q–149. How many firms expect to
apply for registration as SBS Entities
and what is the likelihood that those
entities will also register with the CFTC
as swap dealers or major swap
participants?
Q–150. Will the benefit of being able
to file the same form with the
Commission as filed with the CFTC be
outweighed by the requirement to file
those forms, as well as additional
schedules and documents, with more
than one agency or entity or through
more than one electronic system?
Q–151. Should FCMs registered with
the CFTC that are not registered or
registering with the CFTC as either a
swap dealer or a major swap participant
be allowed to register with the
Commission using Form SBSE–A?
Q–152. Are any such FCMs likely to
register with the Commission as an SBS
Entity?
Q–153. Would it be more cost
effective for the Commission to obtain
the data applicants file with the CFTC
electronically from the CFTC or its
designee rather than having the
applicant file a copy of that form with
the Commission?
87 Any differences between Schedule B to Form
SBSE–A and Schedule D to Form SBSE and
between Schedule C of Form SBSE–A and Item 11
in Form SBSE recognize the fact that Form SBSE–
A has been tailored to collect information not
otherwise elicited via Form 7–R which the
Commission has found to be helpful to facilitate its
oversight of the entities it regulates.
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Q–154. Should any of the instructions
or questions on Form SBSE–A be
amended to recognize particular
characteristics of the business of SBS
Entities?
Q–155. Are any of the proposed
questions inapplicable to the SBS
business?
Q–156. Should any questions be
added to elicit information that is
unique to the SBS business or to the
SBS Entities that engage in that
business?
3. Form SBSE–BD
Similar to the Form SBSE–A, the staff
is proposing that applicants that are also
registered or registering with the
Commission as broker-dealers file their
application for registration on an
alternative to Form SBSE, or Form
SBSE–BD.88 In addition, any entity that
is registered or registering with the
Commission as a broker-dealer and that
is also registered or registering with the
CFTC as a swap dealer or major swap
participant would be required to use the
Form SBSE–BD. Form SBSE–BD is
based on Form BD, but is designed to
provide the Commission with data not
included on the Form BD (to which the
Commission has access). The
Commission believes that requiring that
these applicants use Form SBSE–BD
would reduce the costs and burdens on
applicants that are already registered or
registering with the Commission as
broker-dealers.
The proposed Form SBSE–BD would
consist of a single page that would elicit
information not included on Form BD,
such as the capacity in which the
applicant is registering, whether the
entity also is registering with the CFTC
and, if so, in what capacity the firm is
registering with the CFTC, if a firm is
requesting registration as a major
security-based swap participant—
whether the firm is registering because
it maintains a substantial position, has
substantial counterparty exposure, or is
highly leveraged relative to its capital
position, whether the SBS Entity
intends to use mathematical models to
calculate capital or margin or to price
customer or proprietary positions,
whether the firm is subject to oversight
by a prudential regulator and
information regarding the applicant’s
chief compliance officer. Form SBSE–
BD would also require that applicants
submit Schedules F and G, described
more fully above.
The Commission intends to use the
information disclosed in Form SBSE–
88 Over-the-counter derivatives dealers, a limited
form of broker-dealer established by the
Commission in 1998, could also file on Form SBSE–
BD.
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65805
BD to determine whether applicants
meet the standards for registration, and
to fulfill its oversight responsibilities.
Q–157. What will the comparative
costs or benefits be with respect to filing
Form SBSE versus filing Form SBSE–BD
for registered broker-dealers filing as
SBS Entities with the Commission?
Q–158. How many firms expect to
apply for registration as SBS Entities
and whether those entities are already
registered with the Commission as
broker-dealers?
Q–159. Should any of the instructions
or questions be amended to recognize
particular characteristics of the business
of SBS Entities?
Q–160. Are any of the proposed
questions inapplicable to the SBS
business?
Q–161. Should any questions be
added to elicit information that is
unique to the SBS business or to the
SBS Entities that engage in that
business?
4. Form SBSE–C
Proposed Form SBSE–C is designed to
provide SBS Entities with a standard
format and process through which to
file the Senior Officer Certification
required pursuant to proposed Rule
15Fb2–1(b). Form SBSE–C would need
to be filed by all SBS Entities. As
described above, SBS Entities that
submitted their applications during the
transitional period would need to file
this certification either before the Last
Compliance Date or their conditional
registration would expire. Major
securities-based swap participants that
submitted their applications after the
Last Compliance Date would need to file
this certification within four months
after filing a completed application or
their conditional registration would
expire. SBS Dealers that file
applications after the Last Compliance
Date would need to file both an
application and a certification
simultaneously to be considered for
ongoing registration.
Form SBSE–C includes instructions
both requiring electronic submission
and explaining how the form should be
filed electronically.
Form SBSE–C would elicit the
applicant’s name, date, and SEC
number, along with the signature, name
and title of the senior officer signing the
certification. The Commission intends
to use the certification provided by
Form SBSE–C in determining whether
applicants meet the standards for
ongoing registration.
The Commission requests comment
on the Form SBSE–C.
Q–162. Should Form SBSE–C require
that SBS Entities provide any additional
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information? If so, how should the form
be amended?
Q–163. Should the instructions to
Form SBSE–C be amended?
tkelley on DSK3SPTVN1PROD with PROPOSALS2
5. Form SBSE–W
Proposed Form SBSE–W is loosely
based on Form BDW (the Form used by
broker-dealers to withdraw from
registration with the Commission). The
Commission has found Form BDW to be
an effective vehicle for gathering
information necessary for it and the
SROs to determine whether it is
appropriate to allow a registered brokerdealer to withdraw from registration.
Because SBS Entities will be subject to
many requirements similar to those that
affect broker-dealers (e.g., minimum
capital, leverage, and business conduct
rules and statutory disqualification
prohibitions), the Commission believes
using Form BDW as a template for the
request for withdrawal from registration
of SBS Entities is logical and efficient.
Key differences from Form BDW are
outlined below:
• The distinction regarding full and
partial withdrawal was eliminated from
the Form SBSE–W as it is not relevant
to the SBS business; and
• Item 4 was added to elicit
information regarding the entity’s
reason for withdrawal from registration
because we believe this information
would be useful when considering a
registered SBS Entity’s request to
withdraw from registration.
The purpose of proposed Form SBSE–
W is to allow the Commission to
determine whether it is in the public
interest to permit a registered SBS
Entity to withdraw from registration.
The Commission requests comment
on the Form SBSE–W.
Q–164. Given that the Commission
has proposed to use different forms for
registration of certain types of
applicants, should different types of
forms also be provided for withdrawals
from registration? If so, how should the
form or forms be amended?
Q–165. Should the instructions to
Form SBSE–W be amended? If so, how?
6. Tagged Data Formats
As part of the Commission’s
longstanding efforts to (1) Improve the
accuracy of financial and other filed
information, (2) increase the
transparency and usefulness of
information, and (3) facilitate analysis of
information provided to the
Commission via reports, we have begun
requiring that entities data-tag
information contained in electronic
filings.89 Data becomes machine
89 See Regulation S–T, 17 CFR 232. See also
Electronic Filing and Revision of Form D, Securities
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readable when it is labeled, or ‘‘tagged,’’
using a computer markup language that
can be processed by software programs
for analysis. Such computer markup
languages (such as eXtensible Markup
Language (XML) and eXtensible
Business Reporting Language (XBRL))
use standard sets of definitions, or
‘‘taxonomies,’’ that translate text-based
information in Commission filings into
structured data that can be retrieved,
searched, and analyzed through
automated means.
In addition to using the data provided
via proposed Forms SBSE, SBSE–A, and
SBSE–BD to determine whether to grant
or deny registration, the Commission
will make this data public. The fact that
counterparties of SBS Entities would
have access to additional, standardized
information could improve competition
amongst SBS Entities and would enable
counterparties and the marketplace to
expend less time and money to
independently obtain and compile
information on SBS Entities to use in
making such choices. Thus, the
Commission intends to tag the
information in a machine readable
format using a data standard that is
freely available, and that is consistent
and compatible with the tagged data
formats already in use for SEC filings, to
enable users of that data to retrieve,
search, and analyze the data through
automated means.
Q–166. What tagged data language
(e.g., XML, XBRL) would be most
appropriate to be used for the required
data to be provided via proposed Forms
SBSE, SBSE–A, SBSE–BD, SBSE–C, and
SBSE–W?
H. Alternative Approaches Considered
The Commission considered
alternative approaches to registration of
SBS Entities. One possibility would be
to adopt joint registration forms with the
CFTC, so that SBS Entities could
register with both agencies using the
same forms. While there could be
benefits to this approach, we believe
that the Commission’s streamlined
approach will achieve many of the same
benefits.
Another possibility would be for the
CFTC to require swap dealers and major
Act Release No. 8891 (Feb. 6, 2008) (73 FR 10592
(Feb. 27, 2008)); Interactive Data To Improve
Financial Reporting, Securities Act Release No.
9002 (Jan. 30, 2009) (74 FR 6776 (Feb 10, 2009));
and Interactive Data for Mutual Fund Risk/Return
Summary, Securities Act Release No. 9006 (Feb. 11,
2009) (74 FR 7748 (Feb 19, 2009)); Amendments to
Rules for Nationally Recognized Statistical Rating
Organizations, Exchange Act Release No. 61050
(Nov. 23, 2009) (74 FR 63832 (Dec. 4, 2009)); and
Money Market Fund Reform, Investment Company
Release No. 29132 (Feb. 23, 2010 (75 FR 10060
(Mar. 4, 2010)).
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swap participants to register using the
Commission’s forms, or for the
Commission to require SBS Entities to
register using the CFTC’s forms. While
this approach might streamline the
registration process for regulated
entities, particularly those that intend to
engage in both swaps and SBS business,
it would be more difficult for the
agencies to implement given the
Commissions’ finite resources. Further,
differences between the Commodity
Exchange Act and the Exchange Act and
the means to facilitate registration may
justify differences in the forms.
III. Request for Comment
In addition to the questions described
above, we are requesting comments on
all aspects of proposed rules 15Fb1–1
through 15Fb6–1 and Forms SBSE,
SBSE–A, SBSE–BD, SBSE–C and SBSE–
W, including with respect to the
following questions:
Q–167. Should the Commissions
continue to consider whether to develop
a joint registration form?
In addition, Title VII of the DoddFrank Act requires that the SEC consult
and coordinate to the extent possible
with the CFTC for the purposes of
assuring regulatory consistency and
comparability, to the extent possible,
and states that in adopting rules, the
CFTC and SEC shall treat functionally
or economically similar products or
entities in a similar manner.
The CFTC is adopting rules related to
registration of swap dealers and major
swap participants as required under
Section 731 of the Dodd-Frank Act.
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’s approach to the
registration process for SBS Entities and
CFTC’s approach to the registration of
swap dealers and major swap
participants. Specifically:
Q–168. Do the regulatory approaches
under the Commission’s proposed
rulemaking pursuant to Section 764 of
the Dodd-Frank Act and the CFTC’s
proposed rulemaking pursuant to
Section 731 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?
Q–169. If so, in what ways do
commenters believe that such
duplication, inconsistencies, or gaps
should be minimized?
Q–170. Do commenters believe the
approaches proposed by the
Commission and the CFTC to register
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SBS Entities and swap dealers and
major swap participants are
comparable? If not, why?
Q–171. Do commenters believe there
are approaches that would make the
registration of SBS Entities and swap
dealers and major swap participants
more comparable? If so, what?
Q–172. Do commenters believe that it
would be appropriate for the
Commission to adopt an approach
proposed by the CFTC that differs from
our proposal? Is so, which one and
why?
We request commenters to provide
data, to the extent possible, supporting
any such suggested approaches.
The Commission is cognizant that the
proposed rules discussed herein, as well
as other proposals that the Commission
may consider in the coming months to
implement the Dodd-Frank Act, if
adopted, could significantly affect—and
be significantly affected by—the nature
and scope of the security-based swaps
market in a number of ways. For
example, the Commission recognizes
that if the measures proposed in this
release are adopted and are too onerous
for new entrants, they could hinder the
further development of a market for
security-based swaps by unduly
discouraging competition and the
formation of new SBS Dealers and major
security-based swap participants. On
the other hand, if the Commission
adopts rules that are too permissive, the
Commission may grant registration to
firms that may have insufficient
capacity, policies, procedures, or risk
management systems. The Commission
is also mindful that the further
development of the security-based
swaps market may alter the calculus for
future regulation of SBS Dealers and
major security-based swap participants.
As commenters review this release, they
are urged to consider generally the role
that regulation may play in fostering or
limiting the development of the market
for security-based swaps (or, vice versa,
the role that market developments may
play in changing the nature and
implications of regulation) and
specifically to focus on this issue with
respect to the proposals to register SBS
Dealers and major security-based swap
participants.
IV. Paperwork Reduction Act
Certain provisions of proposed Rules
15Fb1–1 through 15Fb6–1 and Forms
SBSE, SBSE–A, SBSE–BD, SBSE–C and
SBSE–W contain ‘‘collection of
information requirements’’ within the
meaning of the Paperwork Reduction
Act of 1995 (‘‘PRA’’). The Commission
has submitted the information to the
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(‘‘OMB’’) for review in accordance with
44 U.S.C. 3507 and 5 CFR 1320.11. 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. The title of this collection is
‘‘Registration Rules for Security-Based
Swap Entities.’’ We are applying for a
new OMB Control Number for this
collection in accordance with 44 U.S.C.
3507(j) and 5 CFR 1320.13.
A. Summary of Collection of
Information
As required by Exchange Act Section
15F, the Commission is proposing Rules
15Fb1–1 through 15Fb6–1 and Forms
SBSE, SBSE–A, SBSE–BD, SBSE–C and
SBSE–W to facilitate registration of,
certification by, and withdrawal of SBS
Entities.
Pursuant to paragraph (a) of proposed
Rule 15Fb2–1, each SBS Entity would
be required to file an application to
register with the Commission. The
Commission has sought to reduce
burdens and costs associated with the
application process by providing
alternate registration forms for SBS
Entities that are registered or registering
either with the CFTC as swap dealers or
major swap participants or with the
Commission as broker-dealers. The
alternative forms (Form SBSE–A, and
Form SBSE–BD) are both shorter and
should require that an SBS Entity
expend less effort to research, complete,
and file. It is anticipated that each SBS
Entity would only need to research,
complete, and file one of the proposed
Forms.
Proposed Rule 15Fb2–3 would require
that SBS Entities promptly amend their
applications if they find that the
information contained therein has
become inaccurate. While SBS Entities
may need to update their Forms
periodically, each firm will only need to
amend that aspect of the Form that has
become inaccurate.
Paragraph (b) of proposed Rule
15Fb2–1 would require that each SBS
Entity have a knowledgeable senior
officer, after due inquiry, make an
attestation on Form SBSE–C. As
discussed more fully above, the
Commission is proposing to require that
a senior officer certify that, after due
inquiry, he or she has reasonably
determined that the SBS Entity has the
operational, financial, and compliance
capabilities to act as an SBS Dealer or
major security-based swap participant,
as applicable, and has documented the
process by which he or she reached
such determination. This certification
process is designed to allow SBS
Entities to register with the Commission
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quickly so that they are not required to
suspend their security-based swap
business, while providing the
Commission with a basis to take final
action on SBS Entity registration.
Proposed Rule 15Fb6–1 would require
that SBS Entities obtain a questionnaire
or application for employment executed
by each of its associated persons who is
involved in effecting security-based
swaps on behalf of the SBS Entity that
contains certain, specified
information.90 The proposed rule
further would provide that the
questionnaire or application shall serve
as a basis for a background check of the
associated person and be signed by the
SBS Dealer’s or major security-based
swap participant’s Chief Compliance
Officer (or his or her designee).
Proposed Rule 15Fb6–1 would require
that each SBS Entity retain these
employment questionnaires or
applications until at least three years
after the associated person has
terminated his or her association with
the SBS Entity. Finally, the CCO would
need to certify (on Schedule G to Form
SBSE, Form SBSE–A, or Form SBSE–
BD, as applicable) that no associated
person that effects or is involved in
effecting security-based swaps on behalf
of the SBS Entity is subject to a statutory
disqualification. SBS Entities would
only need to fulfill these obligations for
associated persons that effect or are
involved in effecting security-based
swaps on behalf of the SBS Entity.
Proposed Rule 15Fb2–4 would require
that each nonresident SBS Entity must
have in place at all times an agreement
with a United States person appointing
that person as the firm’s U.S. agent for
service of process. In addition, Proposed
Rule 15Fb2–4 would require that each
nonresident SBS Entity obtain an
opinion of counsel stating that it can, as
a matter of law, provide the Commission
with access to records and the ability to
conduct onsite examinations. These
entities also must file an additional
schedule (Schedule F) with their Form
SBSE, Form SBSE–A, or Form SBSE–
BD, as appropriate, to identify the firm’s
U.S. agent for service of process and to
certify that the firm can, as a matter of
law, provide the Commission with
access to its books and records. In
addition, each nonresident SBS Entity
would be required to maintain its
written agreement appointing a U.S.
agent for service of process until at least
three years after the agreement is
terminated.
Pursuant to proposed Rule 15Fb1–1,
each signatory to an electronic filing
would be required to, when the
90 See
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electronic filing is made, manually sign
a signature page or other document
adopting his or her signature that
appears in typed form within the
electronic filing. The SBS Entity would
need to retain the manually-signed page
until at least three years after the form
or certification has been replaced or is
no longer effective.
Proposed Rule 15Fb3–2 would require
that an SBS Entity seeking to withdraw
from Commission registration must file
Form SBSE–W. Given that the cost and
effort to register as an SBS Entity likely
will be significant, the Commission
believes that entities will not enter and
exit this business regularly. Further, the
Commission believes it is unlikely that
any SBS Entity will seek to withdraw
from registration within the first year.
Proposed temporary Rule 15Fb2–2T
would only be adopted if a
technological means to facilitate receipt
and retention of applications is not
functional by the time final rules are
adopted. Pursuant to proposed
temporary Rule 15Fb2–2T, each SBS
Entity would need to file its application
and certification in paper form.
Proposed temporary Rule 15Fb2–2T also
would require that each SBS Entity
resubmit its application and
certification in electronic form once a
technological means to receive such
documents becomes functional.
B. Proposed Use of Information
Information collected pursuant to
proposed Rules 15Fb1–1 through
15Fb6–1 and through Forms SBSE,
SBSE–A, SBSE–BD, and SBSE–C would
allow the Commission to determine
whether applicants meet the standards
for registration, and to fulfill its
oversight responsibilities. Further, Rule
15Fb3–2 and Form SBSE–W would
allow the Commission to determine
whether it is appropriate to allow an
SBS Entity to withdraw from
registration and to facilitate that
withdrawal.
In addition, information collected
pursuant to proposed Forms SBSE,
SBSE–A, SBSE–BD, and SBSE–C would
be made publicly available.
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C. Respondents
Proposed Rule 15Fb1–1 through
15Fb6–1 would set forth rules to
facilitate registration with the
Commission of entities that fit the
definition of SBS Dealer or major
security-based swap participant.91
Forms SBSE, SBSE–A, and SBSE–BD, as
applicable, are applications through
91 See
supra notes 5–7.
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which SBS Entities would register with
the Commission.
The Commission preliminarily
believes, based on data obtained from
DTCC and conversations with market
participants, that approximately fifty
entities may fit within the definition of
SBS Dealer and up to five entities may
fit within the definition of major
security-based swap participant.92
Further, the staff estimates, based on its
experience and understanding of the
unregulated swaps and security-based
swaps markets, that the majority of
firms that may register as SBS Entities
(thirty-five) also will be engaged in the
swaps business and will register with
the CFTC as swap dealers or major swap
participants.93 In addition, persons
holding securities positions may find it
beneficial to hedge those positions with
security-based swaps, so it may be
beneficial for a broker-dealer to become
an SBS Entity so that it can provide this
option to its customers. Thus,
Commission staff estimates that
approximately sixteen broker-dealers
will seek to register as SBS Entities.94
Finally, given the costs of being a
registered entity it may be less likely for
an entity that is not otherwise registered
with the CFTC or the Commission to
register as an SBS Entity. Consequently,
92 In the Intermediary Definitions Release, the
Commission and the CFTC proposed rules to define
a number of terms used in Title VII, including,
among others, ‘‘security-based swap dealer’’ and
‘‘major security-based swap participant.’’ See supra
note 5. As part of that proposal, the Commission
preliminarily estimated that approximately 50
entities may be required to register as securitybased swap dealers under the proposed rules. See
Intermediary Definitions Release, n. 188 (75 FR
80174, at 80209 (Dec. 10, 2010)). We further
estimated that no more than ten entities would have
security-based swap positions large enough that
they would have to monitor whether they meet the
thresholds defining a major security-based swap
participant. See Intermediary Definitions Release,
(75 FR 80174, at 80207–8 (Dec. 10, 2010)). For
purposes of these proposed rules, we conservatively
estimate that, of the ten entities that would need to
monitor their positions to determine whether they
cross any of the definitional thresholds, five may
actually meet the definition of ‘‘major securitybased swap participant.’’ Depending on capital and
other requirements for SBS Dealers and how
businesses choose to respond to such requirements,
the actual number of SBS Dealers may be
significantly fewer. See also Trade
Acknowledgment and Verification of SecurityBased Swap Transactions, Exchange Act Release
No. 63727 (Jan. 14, 2011), 76 FR 3859, at 3868 (Jan.
21, 2011); and Business Conduct Standards for
Security-Based Swap Dealers and Major SecurityBased Swap Participants, Exchange Act Release No.
64766 (Jun. 29, 2011), 76 FR 42396, (Jul. 18, 2011),
as corrected by Exchange Act Release No. 64766, 76
FR 46668 (Aug. 3, 2011).
93 See Business Conduct Standards for SecurityBased Swap Dealers and Major Security-Based
Swap Participants, Exchange Act Release No. 64766
(Jun. 29, 2011), 76 FR 42396, (Jul. 18, 2011), as
corrected by Exchange Act Release No. 64766, 76
FR 46668 (Aug. 3, 2011).
94 Id.
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the Commission staff estimates that only
four firms not otherwise registered with
the CFTC or the Commission will seek
to become an SBS Entity.
The Commission seeks comment on
the reasonableness and accuracy of its
estimates as to the number of
participants in the security-based swap
market that will be required to register
with the Commission pursuant to
proposed Rules 15Fb1–1 through
15Fb6–1 and Forms SBSE, SBSE–A, and
SBSE–BD, as applicable.
D. Total Initial and Annual Reporting
and Recordkeeping Burdens
1. Burden Associated With Filing
Application Forms
Proposed Rule 15Fb2–1 would require
that each SBS Entity register with the
Commission by filing an application.
The Commission has attempted to
reduce the burden associated with the
application process by providing
multiple forms for SBS Entities to use to
register (Form SBSE, Form SBSE–A, or
Form SBSE–BD). It is anticipated that
each SBS Entity will only need to
research, complete, and file one form.
While it is likely that the time
necessary to complete these forms
would vary depending on the nature
and complexity of the entity’s business,
the Commission staff estimates (based
on its experience relative to Form BD)
that the average time necessary for an
SBS Entity to research the questions,
and complete and file a Form SBSE
(including the Schedules 95 and DRPs)
would be approximately one work week
or forty hours.96 As discussed above, the
Commission estimates that
approximately four firms would need to
register using Form SBSE.
Consequently, the total burden
associated with filing Forms SBSE
would be approximately 160 hours.97
The Commission staff believes that, as
Form SBSE–A is shorter than the Form
SBSE, it should take an SBS Entity
approximately 80% of the time that it
would take to research, complete, and
file a Form SBSE (including the
Schedules 98 and DRPs), or thirty two
95 Except Schedules F and G, which are dealt
with separately below.
96 The staff has previously estimated that the
average time necessary for a broker-dealer to
complete and file Form BD, the Form upon which
Form SBSE was based, would be approximately
three hours (and that estimate has been subject to
notice and comment. Broker-Dealer Registration
and Reporting, Exchange Act Release No. 41594
(July 2, 1999), 64 FR 37586.) However, some SBS
Entities may not previously have been subject to
regulation and thus may need more time to research
the answers to complete Form SBSE and its
schedules and DRPs.
97 (40 hours × 4 SBS Entities) = 160 hours total.
98 See supra note 95.
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hours. As discussed above, the
Commission estimates that
approximately thirty-five firms would
also be registered with the CFTC and
therefore would need to register using
Form SBSE–A. Consequently, the total
burden associated with filing Forms
SBSE would be approximately 1,120
hours.
The Commission staff believes that, as
Form SBSE–BD is shorter than either
Form SBSE or Form SBSE–A and
broker-dealers who would be filing
Form SBSE–BD are familiar with
Commission terminology and forms,
researching, completing, and filing a
Form SBSE–BD should take an SBS
Entity approximately 25% of the time
that it would take to research, complete,
and file a Form SBSE (including the
Schedules 99), or ten hours. As
discussed above, the Commission
estimates that approximately sixteen
SBS Entities would need to register
using Form SBSE–BD. Consequently,
the total burden associated with filing
Forms SBSE–BD would be
approximately 160 hours.100
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2. Burden Associated With Amending
Application Forms
Proposed Rule 15Fb2–3 would require
that SBS Entities amend their
applications if they find that the
information contained therein has
become inaccurate. While SBS Entities
may need to update their Forms
periodically, each firm will only need to
amend that aspect of the Form that has
become inaccurate. Further, it likely
will not cost a significant amount to
make such changes because each firm
will have already completed Form
SBSE, Form SBSE–A, or Form SBSE–
BD, as applicable, and will only need to
amend that aspect of the Form that has
become inaccurate. Based on the
number of amendments the Commission
receives annually on Form BD,101 the
Commission estimates that each SBS
Entity will file approximately three
amendments annually. While it is likely
that the time necessary to file an
amendment to Form SBSE, Form SBSE–
A, or Form SBSE–BD, as applicable,
may vary depending on the nature and
complexity of the information to be
amended, the staff estimates, based on
experience relative to Form BD, that it
99 Id.
hours × 16 SBS Entities) = 160 hours total.
March 1, 2010 there were 5,163 brokerdealers registered with the Commission (based on
Form BD data). The Commission received 20,666,
17,839, 16,702, 16,365, and 17,247 amended Forms
BD during the fiscal years ending 9/30/2005, 9/30/
2006, 9/30/2007, 9/30/2008 and 9/30/2009,
respectively. ((20,666 + 17,839 + 16,702 + 16,365
+ 17,247)/5 years)/5,163 broker-dealers = 3.44
amendments per broker-dealer per year.
100 (10
101 On
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likely would take an SBS Entity, on
average, approximately one hour to
amend its application each time it files
an amendment. Consequently, the total
burden associated with amending Forms
SBSE, SBSE–A, and SBSE–BD, as
applicable, would be approximately 165
hours.102
3. Burden Associated With Certification
Paragraph (b) of proposed Rule
15Fb2–1 would require that each SBS
Entity have a knowledgeable senior
officer certify that, after due inquiry, he
or she has reasonably determined that
the SBS Entity has the operational,
financial, and compliance capabilities to
act as an SBS Dealer or major securitybased swap participant, as applicable,
and has documented the process by
which he or she has reached such
determination. Each SBS Entity would
need to provide this certification on
Form SBSE–C only once. The
Commission believes that the majority
of the cost associated with this
certification would arise from the
review the senior officer conducts, or
has others conduct, prior to certifying
that the SBS Entity has the requisite
operational, financial, and compliance
capabilities. The senior officer would
also need to certify that he or she has
documented this process.
The Commission understands (based
on the staff’s experience with brokerdealers and other regulated entities)
that, in satisfying other certification
requirements, SBS Entities may use
different processes, depending on the
facts and circumstances of their
business. Some SBS Entities may
develop more or less robust process
than others and, as a result, may incur
higher or lower than average costs.
Some SBS Entities may use a subcertification process whereby the senior
officer will not certify a firm-wide
statement unless and until other persons
responsible for certain activities in turn
certify to the senior officer that the
standard has been met, while other
firms may use an internal or external
audit-type process whereby a senior
officer may choose to employ a third
party to review an area subject to a firmwide certification before submitting the
certification. There may be other
processes an SBS Entity could use to
provide a basis for a senior officer’s
reasonable determination that the SBS
Entity has the requisite capabilities that
we have not specifically identified here.
Many factors outside of the
102 1 hour × three per year × 55 SBS Entities =
165 hours.
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Commission’s control 103 may determine
whether an SBS Entity might choose to
utilize an internal process, as opposed
to an external process, to serve as a basis
for the Senior Officer Certification. For
purposes of this PRA, we will estimate
that approximately half, or twenty-eight
of the SBS Entities, may use an internal
process and the other half, or twentyseven of the SBS Entities, will use an
external process.
The Commission believes that,
regardless of whether an SBS Entity may
choose to utilize an internal process, as
opposed to an external process, to serve
as a basis for the Senior Officer
Certification, the burden associated with
having a senior officer sign a
certification likely would be
approximately five hours.104 The
Commission has previously estimated
that it would take a senior officer
approximately twenty hours to review,
document, and update compliance
procedures,105 which the staff believes
would be analogous to reviewing
documents provided either by
subordinates or a third party to gain
comfort necessary to sign the Senior
Officer Certification.
Commission staff estimates, based on
its experience relative to the securities
and over-the-counter derivatives
industries, that if a senior officer opted
to conduct an internal review of the SBS
Entity’s operational, financial, and
compliance capabilities, it would take
approximately one hundred and seventy
five additional hours for other SBS
Entity employees to assess the SBS
Entity’s operational, financial, and
compliance capabilities and provide the
senior officer with sub-certifications or
other documents he or she may request
to obtain the necessary comfort before
signing the Senior Officer Certification.
Consequently, the Commission
estimates that the one-time burden for
the twenty-eight SBS Entities that
utilize an internal review process would
be approximately 5,600 hours for other
SBS Entity employees to assess the SBS
Entity’s operational, financial, and
compliance capabilities and provide the
senior officer with documents, and for
the senior officer to review those
103 For instance, such factors could include: costs;
how comfortable the senior officer may be with his
or her subordinates within the SBS Entity’s control
structure; and how knowledgeable a senior officer
may be regarding the SBS Entity’s capabilities.
104 See, e.g., Risk Management Controls for
Brokers or Dealers With Market Access, Exchange
Act Release No. 63241 (Nov. 3, 2010), 75 FR 69792,
at 69816 (Nov. 15, 2010).
105 Id.
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documents and sign the Senior Officer
Certification.106
The Commission has previously
estimated that the burden associated
with obtaining an internal control report
from a third party would cost, on
average, approximately $250,000.107
The staff believes that an internal
control report would be roughly
analogous to a third party review of
each SBS Entity capability included in
the Senior Officer Certification;
however, the staff believes the cost of a
third party review of an SBS Entity’s
capabilities likely would be less than
the cost of three separate internal
control reviews because the third party
review of capabilities would not require
an accountant’s opinion and because
some economies of scale likely could be
achieved when a third party reviews
three capabilities for a single SBS
Entity. Consequently, the staff estimates
that the cost for an SBS Entity to obtain
a third party review to provide its senior
officer with the necessary comfort to
sign the Senior Officer Certification
would be approximately $600,000.
Thus, the Commission estimates that the
one-time burden for the twenty-seven
SBS Entities that utilize an external
review process would be approximately
675 hours 108 for the senior officer to
review documents provided by the third
party to gain the necessary comfort and
to sign the Senior Officer Certification,
and $16,200,000 to have a third party
review the SBS Entity’s operational,
financial, and compliance capabilities
and provide the SBS Entity with
evidence sufficient to make the senior
officer sufficiently comfortable to sign
the Senior Officer Certification.
Thus, the total burden for all SBS
Entities associated with the Senior
Officer Certification would be
approximately 6,275 hours and
$16,200,000.
4. Burdens Relating to Associated
Persons
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Proposed Rule 15Fb6–1 would require
an SBS Entity to obtain a questionnaire
or application for employment executed
by each of its associated persons who is
106 (5 hours + 20 hours + 175 hours) × 28 SBS
Entities = 5,600 hours.
107 See, e.g., Custody of Funds or Securities of
Clients by Investment Advisers, Advisers Act
Release No. 2968 (Dec. 30, 2009), 75 FR 1456, at
1473 (Jan. 11, 2010). Depending on the facts and
circumstances relating to an SBS Entity’s business,
third party service providers may use different
methods to assess each of an SBS Entity’s
capabilities and report their findings to the SBS
Entity, which may affect the cost of the review and
the amount a third party charges an SBS Entity for
this review.
108 (5 hours + 20 hours) × 27 SBS Entities = 675
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involved in effecting security-based
swaps on behalf of the SBS Entity that
contains certain, specified information.
The proposed rule further would
provide that the questionnaire or
application must be reviewed and
signed by the SBS Dealer’s or major
security-based swap participant’s Chief
Compliance Officer. Finally, the CCO
would need to certify (on Schedule G of
its Form SBSE, Form SBSE–A, or Form
SBSE–BD, as applicable) that no
associated person that effects or is
involved in effecting security-based
swaps on behalf of the SBS Entity is
subject to a statutory disqualification.
SBS Entities would only need to fulfill
these obligations for associated persons
that effect or are involved in effecting
security-based swaps on behalf of the
SBS Entity.109 The Commission
estimates (based on the staff’s
experience relative to the securities and
OTC derivatives industries) that SBS
Entities each have, on average, twentyfive associated persons that effect or are
involved in effecting security-based
swaps on behalf of the SBS Entity. The
Commission believes that the
information SBS Entities would need to
obtain through these questionnaires is
standard in the financial services
industry, and is already collected by
firms registered with the CFTC and the
SEC. In addition, SBS Entities that are
registered with the Commission or the
CFTC must already perform background
checks on their employees because of
the prohibitions from employment of
statutorily disqualified persons in the
CEA and the Exchange Act.
The Commission staff estimates,
based on its experience relative to the
securities industry, that the average time
necessary for an SBS Entity to review its
employment questionnaire or
application to verify that it contains all
of the required information and to
update the questionnaire would be
approximately three hours. As SBS
Entities that are already registered with
the Commission or the CFTC already
collect this information, the
Commission estimates that the cost to
all SBS Entities to review employment
questionnaires or applications, verify
that they contain all of the required
information and update the
questionnaires or applications, as
necessary, would be approximately 12
hours.110
As discussed above, the Commission
staff believes that most financial
services firms already collect all or most
of the information proposed Rule
109 See
supra notes 55 and 56.
hours × 4 SBS Entities that are not registered
with the Commission or CFTC = 12 hours.
110 3
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15Fb6–1 would require that they collect.
Consequently, the Commission
estimates that the burden to require an
SBS Entity’s existing associated persons
that effect or are involved in effecting
security-based swaps on behalf of the
SBS Entity to provide those few
categories of information that they did
not originally provide on their
employment questionnaires or
applications would be approximately
one hour each.111 As SBS Entities that
are already registered with the
Commission and the CFTC already
collect this information from employees,
the Commission estimates that the
burden to all SBS Entities to obtain
additional information from relevant
associated persons, would be
approximately 100 hours.112
The Commission staff estimates,
based on the staff’s experience relative
to the securities industry, that it would
take a CCO approximately one hour to
review and sign a relevant employee’s
employment record. Consequently, the
Commission estimates that the total
burden to all SBS Entities to have their
CCOs review and sign each associated
person’s employment record would be
approximately 1,375 hours.113
On an ongoing basis, if employee
turnover at an SBS Entity averages
12%,114 each SBS Entity would need to
perform background checks and have
their CCO review and approve in
writing three new associated persons’
employment records per year. As stated
111 Commission staff believes that, as most firms
already collect all or most of the information
already, it likely would not take employees more
than an hour each, on average, to provide any
additional information. The staff believes the pay
scales for broker-dealers and SBS Entities would
likely be similar. As the categories of employees
that could be required to provide additional
information is diverse (see supra notes 55 and 56)
the weighted-average cost of 46 of the positions
included in Securities Industry and Financial
Markets Association’s (‘‘SIFMA’’) publication titled
Management & Professional Earnings in the
Securities Industry 2009, as modified by
Commission staff to account for an 1,800-hour
work-year and multiplied by 5.35 to account for
bonuses, firm size, employee benefits and overhead,
the hourly cost of an Attorney is approximately
$260/hour. 1 hour × 25 associated persons × $260
= $6,500.
112 One hour × 4 SBS Entities that are not
registered with the Commission or CFTC × 25
associated persons effecting or involved in effecting
security-based swaps on behalf of the SBS Entity =
100 hours.
113 One hour × 25 associated persons × 55 SBS
Entities = 1,375 hours.
114 The staff notes that the Bureau of Labor
Statistics Labor Turnover Survey indicates that
turnover is presently in the range of 3.2%, however
the staff believes that the present economic
situation has likely driven turnover to a historically
low level and that this broad statistic likely does
not adequately represent actual turnover in the
financial services sector. Consequently, the staff
believes, based on its experience, that a higher
number may be more appropriate.
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above, the Commission estimates that
the burden to have an SBS Entity’s CCO
review and sign each associated
person’s employment record would be
approximately one hour. Thus, the
ongoing annual burden to each SBS
Entity would be approximately three
hours 115 and the total cost to all SBS
Entities to comply with Rule 15Fb6–1
on an ongoing basis would be
approximately 165 hours annually.116
The Commission believes that as the
CCO would already have reviewed and
signed each employee’s employment
record, signing the required certification
will not take a significant amount of
time. Thus, Commission staff estimates,
based on its experience relative to the
securities industry, that it would take a
CCO approximately one hour to certify
on Schedule G that no associated person
that effects or is involved in effecting
security-based swaps on behalf of the
SBS Entity is subject to a statutory
disqualification. Consequently, the
Commission staff estimates that the total
burden to all SBS Entities to complete
this certification on Schedule G would
be approximately 55 hours.117
5. Burdens on Nonresident SBS Entities
The Commission estimates, based on
conversations with industry
participants, that approximately 40
percent or 22 SBS Entities will be
nonresident SBS Entities. Proposed Rule
15Fb2–4 would require that each
nonresident SBS Entity file an
additional schedule (Schedule F) with
their Form SBSE, Form SBSE–A, or
Form SBSE–BD, as appropriate, to
identify its U.S. agent for service of
process and to certify that the firm can,
as a matter of law, provide the
Commission with access to its books
and records and can, as a matter of law,
submit to onsite inspection and
examination by the Commission.
Commission staff conservatively
estimates, based on its experience
relative to the securities industry and
Form BD, that the average time
necessary for a nonresident SBS Entity
to complete and file Schedule F would
be approximately one hour. Thus, the
Commission estimates that the total
burden for all nonresident SBS Entities
approximately to complete and file
Schedule F would be approximately 22
hours.118
In addition, nonresident SBS Entities
would incur outside legal costs
associated with obtaining an opinion of
115 One hour × three associated persons = three
hours.
116 Three hours × 55 SBS Entities = 165 hours.
117 One hour × 55 SBS Entities = 55 hours.
118 1 hour × 22 nonresident SBS Entities = 22
hours.
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counsel. In previous releases, the
Commission estimated that firms with a
similar requirement would incur, on
average, approximately $900 in outside
legal costs to obtain an opinion of
counsel.119 This estimate originally
related to the cost a foreign bank issuer
would incur to obtain a legal opinion to
provide to the Commission when
seeking an exemption from the
requirement to make certain additional
disclosures.120 Although the legal
opinion for foreign bank issuers also
would address privacy laws in the
issuer’s home jurisdiction that may
preclude certain disclosures, upon
further reflection, we believe that the
legal opinion required for nonresident
SBS Entities pursuant to the proposed
rule would likely require additional
research and analysis to prepare. Based
on staff experience, the Commission
estimates that each nonresident SBS
Entity would incur, on average,
approximately $25,000 in outside legal
costs to obtain the necessary opinion of
counsel, and that the total cost for all
nonresident SBS Entities to obtain this
opinion of counsel would be
approximately $550,000.121
6. Burden Related to Retention of
Manually Signed Signature Pages
Pursuant to proposed Rule 15Fb1–1,
each signatory to an electronic filing
must, when the electronic filing is
made, manually sign a signature page or
other document adopting his or her
signature that appears in typed form
within the electronic filing. This
manually signed page must be retained
by the SBS Entity until at least three
years after the form or certification has
been replaced or is no longer effective.
It is likely that each SBS Entity would
need to maintain at least three pages
with manually signed signatures (the
execution page of Form SBSE, SBSE–A,
or SBSE–BD, as applicable, Schedule G,
and the Form SBSE–C certification). In
addition, nonresident SBS Entities also
would need to retain a manually signed
copy of Schedule F. As so few pages
would need to be retained, the staff
119 Registration and Regulation of Security-Based
Swap Execution Facilities, Exchange Act Release
No. 63825 (Feb. 2, 2011), 76 FR 10948 (Feb. 28,
2011); Security-Based Swap Data Repository
Registration, Duties, and Core Principles, Exchange
Act Release No. 63347 (Nov. 19, 2010), 75 FR 77306
(Dec. 10, 2010); Foreign Bank Exemption from the
Insider Lending Prohibition of Exchange Act
Section 13(k), Exchange Act Release No. 49616
(Apr. 26, 2004), 69 FR 24016 (Apr. 30, 2004). The
$900 figure is based on an estimate of $400 an hour
for legal services.
120 Foreign Bank Exemption from the Insider
Lending Prohibition of Exchange Act Section 13(k),
Exchange Act Release No. 49616 (Apr. 26, 2004); 69
FR 24016 (Apr. 30, 2004).
121 $25,000 × 22 SBS Entities = $550,000.
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65811
believes the burden associated with
retaining them would not be significant.
Thus, the Commission estimates that it
would take each SBS Entity
approximately 10 minutes annually to
assure that these pages are retained, or
a total of approximately 9 hours
annually for all SBS Entities.122
7. Burden Associated With Filing
Withdrawal Form
Given that the cost and effort to
register as an SBS Entity will be
significant, the Commission believes
that entities will not enter and exit this
business regularly. As the Form SBSE–
W is only one page and consists of
information readily available to SBS
Entities, the staff estimates (based on
experience relative to Form BD–W) that
it likely would take an SBS Entity, on
average, approximately one hour to
complete and file a Form SBSE–W.
While the Commission believes it is
unlikely that any SBS Entity will
withdraw from registration often or
within the first year, solely for purposes
of this PRA the Commission estimates
that one SBS Entity may file Form
SBSE–W to withdraw from registration
annually and the total burden associated
with completing and filing Form SBSE–
W would be approximately one hour
each year.
8. Burden Associated With Proposed
Temporary Rule 15Fb2–2T
Proposed temporary Rule 15Fb2–2T
would only be adopted if a
technological means to facilitate receipt
and retention of applications is not
functional by the time final rules are
adopted. Pursuant to proposed
temporary Rule 15Fb2–2T, each SBS
Entity would need to file its application
and certification in paper form, and
then resubmit its application and
certification in electronic form once a
technological means to receive such
documents becomes functional.
The burden associated with
completing and filing the forms once are
discussed above. Thus, the additional
burden associated with proposed
temporary Rule 15Fb2–2T relate to
electronic resubmission of the form.
The staff estimates that the costs
associated with resubmitting each of the
forms would be minimal, but would be
contingent on the length of the form.
Further, the additional time to file the
certification (which consists of a single
page) would not vary relative to the
form required to be filed, and would not
add significantly to the times required
to file the registration forms. The
122 (10 minutes × 55 SBS Entities)/60 minutes =
9.17 hours.
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Commission staff preliminarily
estimates, based on the staff’s
experience relative to the securities
industry and Form BD, that the average
time necessary for an SBS Entity to
resubmit a Form SBSE would be
approximately four hours. As Forms
SBSE–A and SBSE–BD are shorter than
Form SBSE, the Commission staff
preliminarily estimates that
resubmitting Form SBSE–A would take
approximately two hours, and that
resubmitting Form SBSE–BD would take
approximately one hour. Thus, the
Commission estimates that the total
burden to all SBS Entities to resubmit
their Forms SBSE, SBSE–A, or SBSE–
BD, as applicable, would be
approximately 102 hours.123
9. Request for Comment on Burden
Estimates
The Commission seeks comment on
the recordkeeping and reporting
collection of information burdens
associated with proposed Rule 15Fb1–1
through 15Fb6–1 and Forms SBSE,
SBSE–A, and SBSE–BD, as applicable.
Q–173. What burdens, if any, would
respondents incur with respect to
system design, programming, expanding
systems capacity, and establishing
compliance programs to comply with
proposed Rules 15Fb1–1 through
15Fb6–1 and Forms SBSE, SBSE–A,
SBSE–BD, SBSE–C and SBSE–W, as
applicable?
Q–174. Is it likely that SBS Entities
will complete Forms SBSE, SBSE–A,
SBSE–BD, SBSE–C and SBSE–W, as
applicable, themselves or is it more
likely that they would obtain assistance
in completing these forms from some
outside entity (e.g., outside counsel)? If
an SBS Entity obtains assistance in
completing the forms from an outside
entity, what type of entity may be
utilized and what may the relative costs
to employ such an entity for this
purpose be?
Q–175. Would there be different or
additional burdens associated with the
collection of information under Rules
15Fb1–1 through 15Fb6–1 and Forms
SBSE, SBSE–A, SBSE–BD, SBSE–C and
SBSE–W, as applicable, that a
respondent does not currently
undertake in the ordinary course of
business that the Commission has failed
to identify? If so, please both describe
and quantify any additional burden(s).
Q–176. Are the burden and cost
estimates regarding the review
necessary to support the Senior Officer
123 (2 hours × 35 SBS Entities already registered
with the CFTC) + (1 hour × 16 SBS Entities already
registered with the Commission) + (4 hours × 4 SBS
Entities not otherwise registered with either the
Commission or the CFTC) = 102 hours.
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Certification appropriate? Are there
other processes a senior officer may
utilize to gain the necessary comfort to
sign the Senior Officer Certification? If
so, what other processes might be used
and what are the advantages, burdens
and/or costs of those other processes?
Also, is the Commission’s estimate
accurate regarding how many SBS
Entities may utilize an external, as
opposed to an internal, review process?
Q–177. Would nonresident SBS
Entities incur greater or lesser costs for
the opinion of counsel? Would the cost
more likely be closer to $900, as
previously estimated? Are the costs
likely to exceed $25,000?
E. Retention Period of Recordkeeping
Requirements
Proposed Rules 15Fb1–1 through
15Fb6–1 and Forms SBSE, SBSE–A,
SBSE–BD, SBSE–C and SBSE–W would
require that each respondent retain
certain records and information for
three years.
F. Collection of Information Is
Mandatory
Any collections of information
required pursuant to proposed Rules
15Fb1–1 through 15Fb6–1 and Forms
SBSE, SBSE–A, SBSE–BD, SBSE–C
would be mandatory to permit the
Commission to determine whether
applicants meet the standards for
registration, and to fulfill its oversight
responsibilities.
The collections of information
required pursuant to proposed Rule
15Fb3–2 and Form SBSE–W would be
mandatory to allow the Commission to
determine whether it is in the public
interest to allow an SBS Entity to
withdraw from registration.
The collections of information
required pursuant to proposed Rule
15Fb2–2T would be mandatory to
provide a process for the Commission to
facilitate registration of SBS Entities if
an electronic system to facilitate
registration is not functional by the time
final registration rules are adopted.
G. Confidentiality
The Commission intends to make the
information collected pursuant to
proposed Rule 15Fb1–1 through 15Fb6–
1 and Forms SBSE, SBSE–A, SBSE–BD,
SBSE–C and SBSE–W public.
H. Request for Comment
Pursuant to 44 U.S.C. 3505(c)(2)(B),
the Commission solicits comment to:
1. Evaluate whether the proposed
collection of information is necessary
for the proper performance of our
functions, including whether the
information shall have practical utility;
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2. Evaluate the accuracy of our
estimate of the burden of the proposed
collection of information;
3. Determine whether there are ways
to enhance the quality, utility, and
clarity of the information to be
collected; and
4. Evaluate whether there are ways to
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 submitting comments on the
collection of information requirements
should direct them to the Office of
Management and Budget, Attention:
Desk Officer for the Securities and
Exchange Commission, Office of
Information and Regulatory Affairs,
Washington, DC 20503, and should also
send a copy of their comments to
Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090, with reference to File No.
S7–40–11. Requests for materials
submitted to OMB by the Commission
with regard to this collection of
information should be in writing, with
reference to File No. S7–40–11, and be
submitted to the Securities and
Exchange Commission, Records
Management, Office of Filings and
Information Services, 100 F Street, NE.,
Washington, DC 20549–1090. As OMB
is required to make a decision
concerning the collections of
information between 30 and 60 days
after publication, a comment to OMB is
best assured of having its full effect if
OMB receives it within 30 days of
publication.
V. Economic Analysis
In response to the recent financial
crisis, Congress passed the Dodd-Frank
Act in July of 2010. Among other things,
the Dodd-Frank Act is designed to
strengthen oversight, improve consumer
protections, and reduce systemic risks
throughout the financial system. Title
VII of the Dodd-Frank Act specifically
addresses the OTC derivatives markets,
including the market for security-based
swaps, and requires the Commission to
undertake a number of rulemakings to
establish a regulatory framework for
SBS Entities.
In promulgating the provisions of
Section 764 of the Dodd-Frank Act,
Congress established a mandatory
registration regime for SBS Entities but
left the form and manner of such
registration within the discretion of the
Commission. In determining the form
and manner of such registration, the
Commission may require ‘‘such
information, as the Commission
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considers necessary concerning the
business in which the applicant is or
will be engaged.’’ 124 The Dodd-Frank
Act also requires that SBS Entities
‘‘continue to submit to the Commission
reports that contain such information
pertaining to the business of the person
as the Commission may require.’’ 125
Section 764 also provides that
registrations ‘‘shall expire at such time
as the Commission may prescribe by
rule,’’ 126 and prohibits SBS Entities
from allowing persons associated with it
that are ‘‘subject to a statutory
disqualification to effect or be involved
in effecting security-based swaps on
behalf of the [SBS Entity if the entity]
knew, or in the exercise of reasonable
care should have known, of the
statutory disqualification.’’ 127 Finally,
the Dodd-Frank Act provides the
Commission with additional broad
authority to effect registration and
regulation of SBS Entities.128
Today, the Commission is proposing
new rules and forms that provide a
process for registration of SBS Entities.
This process would require that SBS
Entities apply for registration by
submitting a Form SBSE, Form SBSE–A,
or Form SBSE–BD, as applicable.
Further, this process would allow SBS
Entities to register conditionally or on
an ongoing basis, as necessary. In
addition, each SBS Entity seeking
ongoing registration would need to
submit to the Commission a certification
on Form SBSE–C, signed by a
knowledgeable senior officer.
In drafting these rules the
Commission sought to design a
registration process that is similar to
other registration processes
administered by the Commission. To the
extent market participants are familiar
with these existing registration
processes, we believe that using similar
processes to register SBS Entities would
create efficiencies for market
participants. Many of the proposed rules
were drafted based on rules applicable
to broker-dealers. Similarly, the draft
forms were based on Forms BD and
BDW. However, the Commission also
has sought to assure that the staff has
information sufficient to make a
determination as to whether registration
should be granted or denied. Thus, the
Form SBSE differs from Form BD in that
it requests information specific to the
SBS business and does not request
information specific to the broker-dealer
business. The Commission also sought
124 15
U.S.C. 78o–10(b)(2)(A).
U.S.C. 78o–10(b)(2)(B).
126 15 U.S.C. 78o–10(b)(3).
127 15 U.S.C. 78o–10(b)(6).
128 15 U.S.C. 78o–10(b)(4) and (d).
125 15
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to assure that the proposed rules, the
forms, and the process generally are as
clear as possible so as to minimize
confusion. The Commission has sought
to minimize, to the extent possible,
duplication and costs that the rules may
impose on firms. Finally, burdens and
costs that have been estimated for PRA
purposes are included in the broader
costs and benefits discussion that
follows because we believe, as the
registration process would largely be
forms-based, it is appropriate to include
them. The Commission is sensitive to
the costs and benefits imposed by its
rules.
A. Benefits
The proposed rules and forms
described in this section would be
issued pursuant to a specific grant of
rulemaking authority in the Dodd-Frank
Act. As indicated above, the forms were
based on Forms BD and BDW, which
broker-dealers are familiar with and
which are similar to the Form 7–R that
futures and commodities firms use to
register with the CFTC. Significantly,
the Commission is proposing the use of
multiple registration forms to limit the
amount of duplication and costs
imposed on firms already registered
with the Commission as a broker-dealer
or with the CFTC as a swap dealer or
major swap participant. The
Commission considered using only one
form to facilitate registration, but we
believe using multiple forms would
provide a benefit to firms because it
would reduce the costs to register.
In addition the proposed use of
multiple forms is designed to allow
firms already registered with the SEC as
broker-dealers or registered or
registering with the CFTC as swap
dealers or swap participants to submit
or utilize forms they have already
completed to facilitate registration with
the Commission. This use of existing
forms would allow the Commission to
obtain the information it needs to
determine whether to grant registration
without requiring the applicant to
duplicate substantially the same
information that they have already
provided to regulators for another
purpose.
The proposed rules and forms would
require that SBS Entities provide certain
standardized data (including
disciplinary information) to the
Commission. The Commission would
then make this information public. This
would provide SBS counterparties and
the marketplace with additional,
comparable information on all SBS
Entities (for instance, by highlighting
previously unrecognized comparative
strengths and weaknesses) which would
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65813
allow them to make more informed
choices with respect to counterparties
and collateral. The Commission also
believes that this may promote
competition by leveling the playing
field for market participants who may
have disparate access to information
regarding each SBS Entity. In addition,
making such standardized information
on SBS Entities public would enable
counterparties and the marketplace to
expend less time and money to
independently obtain and compile
information on SBS Entities to use in
making such choices.
Requiring the reporting of
standardized information through these
forms also will allow the Commission to
identify the risk characteristics of each
SBS Entity, which should help the
Commission focus examinations and
other oversight resources more
efficiently and effectively.
Once SBS Entities are registered, they
will be subject to standardized
requirements that set a baseline level of,
among other things, internal controls,
capital and margin levels for all SBS
Entities. The registration and regulation
of SBS Entities also may promote capital
formation by providing market
participants with certain, uniform
information regarding registered SBS
Entities (as described above) and
assuring market participants that
registered SBS Entities meet established
standards. By facilitating oversight of
SBS Entities, registration and regulation
of these entities also could increase
counterparty trust, and may encourage
more counterparties and eligible
contract participants to enter the SBS
marketplace. It also may be beneficial if
SBS entities that are not capable of
meeting, or are unwilling to meet, their
regulatory obligations exit the market.
B. Costs
Although the Commission believes
that registration and regulation of SBS
Entities would result in significant
benefits to customers of and
counterparties to SBS Entities,
investors, eligible contract participants
and the market for SBS, the Commission
recognizes that the proposed registration
rules and forms would also entail costs.
The Commission preliminarily
estimates that SBS Entities would incur
costs associated with: (i) Researching,
completing, and filing the forms, (ii)
reviewing, completing and submitting
the required certification, and
documenting the review process, (iii)
obtaining or compiling the required
questionnaires or employment
applications, having the CCO review the
questionnaires and certify that no
relevant associated person is subject to
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statutory disqualification, (iv) the
requirements that nonresident SBS
Entities obtain an agreement for U.S.
service of process and an opinion of
counsel stating that they can provide the
Commission with access to records, (v)
the requirement to retain manually
signed signature pages, and (vi) the
requirements associated with filing
forms in paper format and resubmitting
those forms electronically if the
Commission does not have a
technological means to receive
applications electronically by the time
final registration rules are adopted.
The Commission preliminarily
believes that the proposed amendments
may impose a burden on competition
for smaller SBS Entities to the extent
that they impose relatively fixed costs,
which could represent a higher
percentage of net income for smaller
SBS Entities. Registration costs may also
impact those SBS Entities that are not
already registered under another area of
their business model to a greater degree
than they would impact SBS Entities
that have previously registered under
another regulatory regime. The SBS
Entity registration requirement may
cause some market participants that are
not capable of meeting their operational,
financial and/or regulatory obligations
to exit the market. However, the
Commission believes that any reduction
in competition resulting from an exit
from the market by SBS Entities that are
not capable of meeting, or that are
unwilling to meet, their regulatory
obligations is a necessary and
appropriate burden on competition.
1. Costs Attributable to Filing the Forms
Proposed Rule 15Fb2–1 would require
that each SBS Entity register with the
Commission by filing Form SBSE, Form
SBSE–A, or Form SBSE–BD, as
applicable. Firms must file these forms
electronically, which also should reduce
the associated costs because SBS
Entities will not incur costs associated
with copying or postage. The
Commission preliminarily believes that
it would cost each SBS Entity
approximately $11,800 to complete and
file the Form SBSE (including the
Schedules 129 and DRPs).130 As stated
129 See
supra note 95.
staff has previously estimated that the
average time necessary for a broker-dealer to
complete and file Form BD, the Form upon which
Form SBSE was based, would be approximately
three hours (and that estimate was been subject to
notice and comment. Broker-Dealer Registration
and Reporting, Exchange Act Release No. 41594
(July 2, 1999), 64 FR 37586.) However, SBS Entities
have not previously been subject to regulation and
may need significantly more time to research the
answers to complete Form SBSE and its schedules
and DRPs. Thus, while it is likely that the time
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previously, the Commission has
attempted to reduce costs associated
with the application process by
providing multiple forms for SBS
Entities to use to register. The
alternative forms (Form SBSE–A, and
Form SBSE–BD) are both shorter and
should require that an SBS Entity
expend less effort to research, complete,
and file. Consequently, the Commission
preliminarily believes that it would cost
each firm approximately $9,440 to
complete Form SBSE–A 131 (including
the Schedules 132 and DRPs) and
approximately $2,950 to complete Form
SBSE–BD (including the Schedules).133
It is anticipated that each SBS Entity
will only need to research, complete,
and file one Form, and that it will
update that Form, as necessary, as
described below.
The Commission preliminarily
believes, based on its understanding of
necessary to complete Form SBSE would vary
depending on the nature and complexity of the
entity’s business, Commission staff estimates that
the average time necessary for an SBS Entity to
research the questions, and complete and file a
Form SBSE would be approximately one work week
or forty hours. The staff believes that an SBS Entity
would have a Compliance Manager complete and
file the form’s application on Form SBSE, and that
the pay scales for broker-dealers and SBS Entities
would likely be similar. According to the SIFMA
publication titled Management & Professional
Earnings in the Securities Industry 2009, as
modified by Commission staff to account for an
1,800-hour work-year and multiplied by 5.35 to
account for bonuses, firm size, employee benefits
and overhead, the hourly cost of a Compliance
Manager is approximately $295/hour. 40 hours ×
$295 = $11,800.
131 The Commission staff believes that, as Form
SBSE–A is shorter than the Form SBSE, it should
take an SBS Entity less time to research the
questions, and complete and file a Form SBSE–A.
Thus, while it is likely that the time necessary to
complete Form SBSE–A would vary depending on
the nature and complexity of the entity’s business,
the staff estimates that researching, completing, and
filing Form SBSE–A would take approximately 80%
of the time that it would take to research, complete,
and file a Form SBSE, or thirty two hours. The staff
believes that an SBS Entity would have a
Compliance Manager complete and file the form’s
application on Form SBSE–A, and that the pay
scales for broker-dealers and SBS Entities would
likely be similar. See supra note 130. 32 hours ×
$295 = $9,440.
132 See supra note 95.
133 See supra note 95. The Commission staff
believes that, as Form SBSE–BD is shorter than
either Form SBSE or Form SBSE–A, it should take
an SBS Entity less time to research the questions,
and complete and file a Form SBSE–BD. In
addition, broker-dealers who would be filing Form
SBSE–BD are familiar with Commission
terminology and Forms. Thus, while it is likely that
the time necessary to complete Form SBSE–BD
would vary depending on the nature and
complexity of the entity’s business, the staff
estimates that researching, completing, and filing
Form SBSE–BD would take approximately 25% of
the time that it would take to research, complete,
and file a Form SBSE, or ten hours. The staff
believes that an SBS Entity would have a
Compliance Manager complete and file the form’s
application on Form SBSE–BD. See supra note 130.
10 hours × $295 = $2,950.
PO 00000
Frm 00032
Fmt 4701
Sfmt 4702
the security-based swap market and
conversations with industry
participants, that approximately fifty
firms will fit the definition of SBS
dealer and approximately five firms will
fit the definition of major security-based
swap participant. Further, based on its
understanding of the securities-based
swap market, the Commission believes
that the majority of firms that may
register as SBS Entities also will be
engaged in the swaps business and will
register with the CFTC as swap dealers
or major swap participants. In addition,
persons holding securities positions
may find it beneficial to hedge those
positions with security-based swaps, so
it may be beneficial for a broker-dealer
to become an SBS Entity so that it can
provide this option to its customers.
However, given the costs of being a
registered entity, it may be less likely for
an entity that is not otherwise registered
to register as an SBS Entity.
Consequently, the Commission believes
that thirty-five SBS Entities will register
with the Commission using Form SBSE–
A, twelve SBS Entities will register with
the Commission using Form SBSE–BD,
and eight SBS Entities will register with
the Commission using Form SBSE.
Thus, the total estimated cost to all
entities to research, complete, and file
Forms to register as SBS Entities would
be approximately $424,800.134
Proposed Rule 15Fb2–3 would require
that SBS Entities amend their
applications if they find that the
information contained therein has
become inaccurate. While SBS Entities
may need to update their Forms
periodically, it likely would not cost a
significant amount to make such
changes because each firm will have
already completed Form SBSE, Form
SBSE–A, or Form SBSE–BD, as
applicable, and would only need to
amend that aspect of the Form that has
become inaccurate. Based on the
number of amendments the Commission
receives annually on Form BD,135 the
Commission estimates that each SBS
Entity would file approximately three
amendments annually. Consequently,
the Commission estimates that the cost
for each SBS Entity to complete and file
amendments to its forms is
134 $424,800 = (35 × $9,440) + (16 × $2,950) + (4
× $11,800).
135 On March 1, 2010 there were 5,163 brokerdealers registered with the Commission (based on
Form BD data). The Commission received 20,666,
17,839, 16,702, 16,365, and 17,247 amended Forms
BD during the fiscal years ending 9/30/2005, 9/30/
2006, 9/30/2007, 9/30/2008 and 9/30/2009,
respectively. ((20,666 + 17,839 + 16,702 + 16,365
+ 17,247)/5 years)/5,163 broker-dealers = 3.44
amendments per broker-dealer per year.
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approximately $885.136 Thus, the
Commission estimates that it would cost
all SBS Entities approximately $48,675
annually to complete and file these
amendments.137
Proposed Rule 15Fb3–1 would require
an SBS Entity seeking to withdraw from
Commission registration to file Form
SBSE–W. Given that the cost and effort
to register as an SBS Entity will be
significant, the Commission believes
that entities will not enter and exit this
business regularly. Further, the
Commission believes it is unlikely that
any SBS Entity will withdraw from
registration within the first year.
However, there will be a cost associated
with withdrawing from registration as
an SBS Entity must file a Form SBSE–
W to do so. As the Form SBSE–W is
only one page and consists of
information readily available to SBS
Entities, the Commission estimates that
the cost for an SBS Entity to complete
and file a Form SBSE–W would be
approximately $295.138
The Dodd-Frank Act clearly requires
registration of SBS Entities. All other
entities that register with the
Commission do so by filing some type
of application, which may be a
standardized form (e.g., Form TA–1,
Form ADV and Form BD). The
Commission generally requires that
registered entities amend these forms to
correct inaccurate information either as
necessary or periodically. Further, all
other entities that with to withdraw
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136 While
it is likely that the time necessary to file
an amendment to Form SBSE, Form SBSE–A, or
Form SBSE–BD, as applicable may vary depending
on the nature and complexity of the information to
be amended, the staff estimates, based on
experience, that it likely would take an SBS Entity,
on average, approximately one hour to amend its
application each time it files an amendment. The
staff believes that an SBS Entity would have a
Compliance Manager complete and file
amendments to the SBS Entity’s forms, and that the
pay scales for broker-dealers and SBS Entities
would likely be similar. According to the SIFMA
publication titled Management & Professional
Earnings in the Securities Industry 2009, as
modified by Commission staff to account for an
1,800-hour work-year and multiplied by 5.35 to
account for bonuses, firm size, employee benefits
and overhead, the hourly cost of a Compliance
Manager is approximately $295/hour. 1 hours ×
$295 × three per year = $885.
137 $885 × 55 SBS Entities = $48,675.
138 The staff estimates, based on experience, that
it likely would take an SBS Entity, on average,
approximately one hour to complete and file a Form
SBSE–W. The staff believes that an SBS Entity
would have a Compliance Manager complete and
file Form SBSE–W, and that the pay scales for
broker-dealers and SBS Entities would likely be
similar. According to the SIFMA publication titled
Management & Professional Earnings in the
Securities Industry 2009, as modified by
Commission staff to account for an 1,800-hour
work-year and multiplied by 5.35 to account for
bonuses, firm size, employee benefits and overhead,
the hourly cost of a Compliance Manager is
approximately $295/hour. 1 hour × $295 = $295.
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15:43 Oct 21, 2011
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from Commission registration must file
some type of notice with the
Commission, which may be a
standardized form (see, e.g., Form TA–
W, Form ADVW, and Form BDW). Thus,
it is likely that Congress contemplated
or intended that the Commission
establish this type of registration regime.
The Commission believes the use of
conditional registration and the
certification process using Form SBSE–
C is a reasonable and relatively low cost
method to assure that firms have
operational, financial and compliance
capabilities to act as SBS Entities and
implement adequate procedures to
comply with federal securities laws and
provide the Commission with a basis to
take final action on SBS Entity
registration.
2. Costs of Certification
Paragraph (b) of proposed Rule
15Fb2–1 would require that each SBS
Entity have a knowledgeable senior
officer certify that, after due inquiry, he
or she has reasonably determined that
the SBS Entity has the operational,
financial, and compliance capabilities to
act as an SBS Dealer or major securitybased swap participant, as applicable,
and has documented the process by
which he or she has reached such
determination. Each SBS Entity would
need to provide this certification on
Form SBSE–C only once. The
Commission believes that the majority
of the cost associated with this
certification would arise from the
review the senior officer conducts, or
has others conduct, prior to certifying
that the SBS Entity has the requisite
operational, financial, and compliance
capabilities.139 The senior officer would
also need to certify that he or she has
documented this process.
The Commission understands (based
on the staff’s experience with brokerdealers and other regulated entities)
that, in satisfying other certification
requirements, SBS Entities may use
different processes, depending on the
facts and circumstances of their
business. Some SBS Entities may
develop more or less robust process
than others and, as a result, may incur
higher or lower than average costs.
Some SBS Entities may use a subcertification process whereby the senior
officer will not certify a firm-wide
statement unless and until other persons
responsible for certain activities in turn
certify to the senior officer that the
standard has been met, while other
firms may use an internal or external
audit-type process whereby a senior
officer may choose to employ a third
139 See
PO 00000
party to review an area subject to a firmwide certification before submitting the
certification. There may be other
processes an SBS Entity could use to
provide a basis for a senior officer’s
reasonable determination that the SBS
Entity has the requisite capabilities that
we have not specifically identified here.
Many factors outside of the
Commission’s control 140 may determine
whether an SBS Entity might choose to
utilize an internal process, as opposed
to an external process, to serve as a basis
for the Senior Officer Certification. For
purposes of this economic analysis, we
will estimate that approximately half, or
twenty-eight of the SBS Entities, may
use an internal process and the other
half, or twenty-seven of the SBS
Entities, will use an external process.
The Commission believes that,
regardless of whether an SBS Entity may
choose to utilize an internal process, as
opposed to an external process, to serve
as a basis for the Senior Officer
Certification, it will cost approximately
$10,450 on average for a senior officer
to review documents provided either by
subordinates or by a third party to gain
the comfort necessary to sign and to sign
the Senior Officer Certification.141 The
Commission estimates that, if an SBS
Entity opted to conduct an internal
review of the SBS Entity’s operational,
financial and compliance capabilities, it
will cost each SBS Entity approximately
an additional $73,150 142 for other SBS
140 See
supra note 103.
Commission has previously estimated that
the burden associated with having a senior officer
sign a certification likely would be approximately
five hours. See supra note 104. The Commission
has also estimated that it would take a senior officer
approximately twenty hours to review, document,
and update compliance procedures, (Id.) which the
staff believes would be analogous to reviewing
documents provided either by subordinates or a
third party to gain comfort necessary to sign the
Senior Officer Certification, and to document this
review. The staff believes the pay scales for brokerdealers and SBS Entities would likely be similar,
and that the pay of a Chief Compliance Officer
likely would be similar to the amount paid to other
senior officers. According to the SIFMA’s
publication titled Management & Professional
Earnings in the Securities Industry 2009, as
modified by Commission staff to account for an
1,800-hour work-year and multiplied by 5.35 to
account for bonuses, firm size, employee benefits
and overhead, the hourly cost of a Chief
Compliance Officer is approximately $418/hour. 25
hours × $418 = $10,450.
142 Commission staff estimates, based on its
experience relative to the securities and OTC
derivatives industries, that if a senior officer opted
to conduct an internal review of the SBS Entity’s
operational, financial, and compliance capabilities,
it would take approximately one hundred and
seventy five additional hours for other SBS Entity
employees to assess the SBS Entity’s operational,
financial, and compliance capabilities and provide
the senior officer with whatever sub-certifications
or other documents he or she may request to obtain
the necessary comfort before signing the Senior
141 The
supra note 42.
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Entity employees to assess the SBS
Entity’s operational, financial, and
compliance capabilities and provide the
senior officer with whatever subcertifications or other documents he or
she may request to obtain the necessary
comfort before signing the Senior
Officer Certification. Alternatively, if an
SBS Entity opted to conduct an external
review of the SBS Entity’s operational,
financial and compliance capabilities,
the Commission estimates that it will
cost each SBS Entity approximately an
additional $600,000.143 Thus, the
Commission estimates that this
certification requirement will cost all
SBS Entities a total of approximately
$18,822,950.144
In addition to these costs, there may
be additional costs and benefits relating
to certification that are more difficult to
quantify. For instance, the requirement
to certify as to capabilities may impose
costs on SBS Entities relating to the
legal uncertainty and potential liability
that arises from the possibility that a
regulator may find that the certification
Officer Certification. The staff believes the pay
scales for broker-dealers and SBS Entities would
likely be similar, and that the pay of a Chief
Compliance Officer likely would be similar to the
amount paid to other senior officers. According to
the SIFMA’s publication titled Management &
Professional Earnings in the Securities Industry
2009, as modified by Commission staff to account
for an 1,800-hour work-year and multiplied by 5.35
to account for bonuses, firm size, employee benefits
and overhead, the hourly cost of a Chief
Compliance Officer is approximately $418/hour.
For purposes of this estimate, we will assume that
those a senior officer may consult with are paid at
approximately the same level. 175 hours × $418 =
$73,150.
143 The Commission has previously estimated that
the burden associated with obtaining an internal
control report from a third party would cost
approximately $250,000. See supra note 107. The
staff believes that an internal control report would
be roughly analogous to a third party review of each
SBS Entity capability included in the Senior Officer
Certification; however, the staff believes the cost of
a third party review of an SBS Entity’s capabilities
likely would be less than the cost of three separate
internal control reviews because the third party
review of capabilities would not require an
accountant’s opinion and because some economies
of scale likely could be achieved when a third party
reviews three capabilities for a single SBS Entity.
Depending on the facts and circumstances of an
SBS Entity’s business, third party service providers
may use different methods to assess each of an SBS
Entity’s capabilities and report their findings to the
SBS Entity, which may affect the cost of the review
and the amount a third party charges an SBS Entity
for this review. Consequently, the staff estimates
that the cost for an SBS Entity to obtain a third
party review to provide its senior officer with the
necessary comfort to sign the Senior Officer
Certification would be approximately $600,000 to
have a third party review the SBS Entity’s
operational, financial, and compliance capabilities
and provide the SBS Entity with evidence sufficient
to make the senior officer sufficiently comfortable
to sign the Senior Officer Certification.
144 ($10,450 × 55 SBS Entities) + ($73,150 × 28
SBS Entities) + ($600,000 × 27 SBS Entities) =
$574,750 + $2,048,200 + $16,200,000 =
$18,822,950.
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15:43 Oct 21, 2011
Jkt 226001
was inaccurate or false. However, a
potential benefit would be to focus
senior officers’ attention to assuring that
an SBS Entity conducts its business in
accordance with the certification
language. In addition, the more robust
the process and meaningful the review
of an SBS Entity’s capabilities, the more
likely that review will fulfill the
Commission’s goals in proposing the
Senior Officer Certification requirement,
and the more likely the process will
help the SBS Entity to strengthen its
capabilities, processes and controls
which could serve to decrease
operational, financial, and compliance
risks.
In addition, the Senior Officer
Certification is designed to help assure
the Commission, potential investors in,
customers of, and counterparties to an
SBS Entity that the SBS Entity has the
requisite capabilities to act in that
capacity. By providing this assurance
after a senior officer has performed due
inquiry, the Senior Officer Certification
requirement also could prevent entities
who may be more likely to fail because
they do not have the requisite
capabilities from registering with the
Commission, which could help prevent
disorderly and unstable markets.
Further, the Senior Officer Certification
may enhance market participants’
ability to assess the counterparty credit
risk associated with a particular SBS
Entity counterparty. In this way, the
Senior Officer Certification should help
to protect market participants from SBS
Entities that are not competent to engage
in that business, lack the financial
resources to do so, or are unable or
unwilling to comply with applicable
law.
3. Costs Relating to Associated Persons
The Dodd-Frank Act makes it
unlawful for SBS Entities to permit any
associated person subject to a statutory
disqualification to effect or be involved
in effecting security-based swaps on its
behalf if it knew or, in the exercise of
reasonable care should have known, of
the statutory disqualification. Proposed
Rule 15Fb6–1 would require that SBS
Entities obtain a questionnaire or
application for employment executed by
each of its associated persons who is
involved in effecting security based
swaps on behalf of the SBS Entity that
contains certain, specified information.
The proposed rule further would
provide that the questionnaire or
application must be reviewed and
signed by the SBS Dealer’s or major
security-based swap participant’s Chief
Compliance Officer. Finally, the CCO
would need to certify that no associated
person that effects or is involved in
PO 00000
Frm 00034
Fmt 4701
Sfmt 4702
effecting security-based swaps on behalf
of the SBS Entity is subject to a statutory
disqualification. SBS Entities would
only need to fulfill these obligations for
associated persons that effect or are
involved in effecting security based
swaps on behalf of the SBS Entity.145
The Commission estimates, based on the
staff’s experience in dealing with
entities that likely will need to register
as SBS Entities, that SBS Entities each
have, on average, 25 associated persons
that effect or are involved in effecting
security-based swaps on behalf of the
SBS Entity. The Commission believes
that the information SBS Entities would
need to obtain through these
questionnaires is fairly standard in the
financial services industry, and is
already collected by firms registered
with the CFTC and the SEC. In addition,
SBS Entities that are registered with the
Commission or the CFTC must already
perform background checks on their
employees because of the prohibitions
from employment of statutorily
disqualified persons in the CEA and the
Exchange Act.
The Commission estimates that the
cost for each SBS Entity to review its
employment questionnaire or
application to verify that it contains all
of the required information and to
update the questionnaire, as necessary,
to obtain any information not presently
included on that questionnaire would
be approximately $950.146 As SBS
Entities that are already registered with
the Commission and the CFTC already
collect this information, the
Commission estimates that the cost to
all SBS Entities to review employment
questionnaire or application forms,
verify that they contain all of the
required information and update the
questionnaire or application forms, as
necessary, would be approximately
$3,800.147
The Commission estimates that the
cost to require an SBS Entity’s existing
associated persons that effect or are
145 See
supra notes 55 and 56.
staff estimates, based on its
experience, that the average time necessary for an
SBS Entity to review its employment questionnaire
or application to verify that it contains all of the
required information and to update the
questionnaire would be approximately three hours.
The staff believes that an SBS Entity would have
an Attorney perform this review and update, and
that the pay scales for broker-dealers and SBS
Entities would likely be similar. According to the
SIFMA’s publication titled Management &
Professional Earnings in the Securities Industry
2009, as modified by Commission staff to account
for an 1,800-hour work-year and multiplied by 5.35
to account for bonuses, firm size, employee benefits
and overhead, the hourly cost of an Attorney is
approximately $316/hour. 3 hours × $316 = $948.
147 $950 × 4 SBS Entities that are not registered
with the Commission or CFTC = $3,800.
146 Commission
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tkelley on DSK3SPTVN1PROD with PROPOSALS2
involved in effecting security-based
swaps on behalf of the SBS Entity to
provide those few categories of
information that they did not originally
provide on their employment
questionnaires or applications would be
approximately $6,500.148 As SBS
Entities that are already registered with
the Commission and the CFTC already
collect this information from employees,
the Commission estimates that the cost
to all SBS Entities to obtain additional
information from relevant associated
persons, would be approximately
$52,000.149
The Commission estimates that the
cost to have an SBS Entity’s CCO review
and sign each associated person’s
employment record would be
approximately $418.150 The
Commission estimates that the cost to
all SBS Entities to have their CCOs
review and sign each associated
person’s employment record would be
approximately $574,750.151
On an ongoing basis, if employee
turnover at an SBS Entity averages 12%,
each SBS Entity would need to perform
background checks and have its CCO
review and sign three new associated
persons’ employment records per year.
As stated above, the Commission
estimates that the cost to have an SBS
Entity’s CCO review and sign each
associated person’s employment record
would be approximately $418. Thus, the
cost of each new associated person
would be approximately $418, the
148 Commission staff believes that, as most firms
already collect all or most of the information
already, it likely would not take employees more
than an hour each, on average, to provide any
additional information. The staff believes the pay
scales for broker-dealers and SBS Entities would
likely be similar. As the categories of employees
that could be required to provide additional
information is diverse (see supra notes 55 and 56)
the weighted-average cost of 46 of the positions
included in SIFMA’s publication titled
Management & Professional Earnings in the
Securities Industry 2009, as modified by
Commission staff to account for an 1,800-hour
work-year and multiplied by 5.35 to account for
bonuses, firm size, employee benefits and overhead,
the hourly cost of an Attorney is approximately
$260/hour. 1 hour × 25 associated persons × $260
= $6,500.
149 $6,500 × 4 SBS Entities that are not registered
with the Commission or CFTC = $26,000.
150 Commission staff estimates, based on staff
experience, that it would take a CCO approximately
one hour to review and approve a relevant
employee’s employment record. The staff believes
the pay scales for broker-dealers and SBS Entities
would likely be similar. According to the SIFMA’s
publication titled Management & Professional
Earnings in the Securities Industry 2009, as
modified by Commission staff to account for an
1,800-hour work-year and multiplied by 5.35 to
account for bonuses, firm size, employee benefits
and overhead, the hourly cost of a Chief
Compliance Officer is approximately $418/hour. 1
hour × $418 = $418.
151 $418 × 25 associated persons × 55 SBS Entities
= $574,750.
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15:43 Oct 21, 2011
Jkt 226001
ongoing annual cost to each SBS Entity
would be approximately $1,254 152 and
the total cost to all SBS Entities to
comply with Rule 15Fb6–1 on an
ongoing basis would be approximately
$68,970.153
The Commission believes that as the
CCO would already have reviewed and
signed each employee’s employment
record, signing the certification on
Schedule G will not take a significant
amount of time. Thus, the Commission
estimates that the cost for each SBS
Entity to have its CCO certify on
Schedule G that no associated person
that effects or is involved in effecting
security-based swaps on behalf of the
SBS Entity is subject to a statutory
disqualification would be
approximately $418.154 Consequently,
the total cost for all SBS Entities to have
their CCO sign this certification on
Schedule G would be approximately
$22,990.155
The Commission believes that, in
order to comply with the prohibition in
the Dodd-Frank Act from having
statutorily disqualified associated
persons that effect or are involved in
effecting security-based swaps, SBS
Entities would need to at least obtain
the information required by proposed
Rule 15Fb6–1 and perform a
background check. Having the CCO
approve the employment applications
and provide the Commission with a
certification would provide the
Commission with a degree of comfort
that the SBS Entity is complying with
the prohibition in the Act and aid it in
its oversight of SBS Entities.
4. Costs to Nonresident SBS Entities
The Commission estimates, based on
conversations with industry
participants, that approximately 40
percent or twenty-two SBS Entities will
be nonresident SBS Entities. Proposed
Rule 15Fb2–4 would require that each
nonresident SBS Entity must obtain an
agreement with a United States person
appointing that person as the firm’s U.S.
agent for service of process. In addition,
× 3 associated persons = $1,254.
× 55 SBS Entities = $68,970.
154 Commission staff conservatively estimates that
it would take a CCO approximately one hour to
certify that no associated person that effects or is
involved in effecting security-based swaps on
behalf of the SBS Entity is subject to a statutory
disqualification. The staff believes the pay scales for
broker-dealers and SBS Entities would likely be
similar. According to the SIFMA’s publication titled
Management & Professional Earnings in the
Securities Industry 2009, as modified by
Commission staff to account for an 1,800-hour
work-year and multiplied by 5.35 to account for
bonuses, firm size, employee benefits and overhead,
the hourly cost of a Chief Compliance Officer is
approximately $418/hour. 1 hour × $418 = $418.
155 $418 × 55 SBS Entities = $22,990.
152 $418
153 $1,254
PO 00000
Frm 00035
Fmt 4701
Sfmt 4702
65817
Proposed Rule 15Fb2–4 would require
that each nonresident SBS Entity obtain
an opinion of counsel stating that it can
provide the Commission with access to
records. These entities also must file an
additional schedule (Schedule F) with
their Form SBSE, Form SBSE–A, or
Form SBSE–BD, as appropriate, to
identify the firm’s U.S. agent for service
of process and to certify that the firm
can, as a matter of law, provide the
Commission with access to its books
and records.
The Commission estimates, based on
internet research,156 that it would cost
each nonresident SBS Entity
approximately $125 annually to appoint
and maintain a relationship with a U.S.
agent for service of process.
Consequently, the total cost for all
nonresident SBS Entities to appoint and
maintain relationships with U.S. agents
for service of process is approximately
$2,750 per year.157
In addition, nonresident SBS Entities
would incur outside legal costs
associated with obtaining an opinion of
counsel. In previous releases, the
Commission estimated that firms with a
similar requirement would incur, on
average, approximately $900 in outside
legal costs to obtain an opinion of
counsel.158 This estimate originally
related to the cost a foreign bank issuer
would incur to obtain a legal opinion to
provide to the Commission when
seeking an exemption from the
requirement to make certain additional
disclosures.159 Although the legal
opinion for foreign bank issuers also
would address privacy laws in the
issuer’s home jurisdiction that may
preclude certain disclosures, upon
further reflection, we believe that the
legal opinion required for nonresident
SBS Entities pursuant to the proposed
rule would likely require additional
research and analysis to prepare. Based
on staff experience, the Commission
estimates that each nonresident SBS
Entity would incur, on average,
156 See, e.g., https://www.incnow.com/registered_
agent.shtml, and https://www.ailcorp.com/
registeredagent.htm. The staff sought Web sites that
provided pricing information and a comprehensive
description of their registered agent services.
157 $125 per nonresident SBS Entity × 22
nonresident SBS Entities = $2,750.
158 Security-Based Swap Data Repository
Registration, Duties, and Core Principles, Exchange
Act Release No. 63347 (Nov. 19, 2010); 75 FR 77306
(Dec. 10, 2010); Foreign Bank Exemption from the
Insider Lending Prohibition of Exchange Act
Section 13(k), Exchange Act Release No. 49616
(Apr. 26, 2004); 69 FR 24016 (Apr. 30, 2004). The
$900 figure is based on an estimate of $400 an hour
for legal services.
159 Foreign Bank Exemption from the Insider
Lending Prohibition of Exchange Act Section 13(k),
Exchange Act Release No. 49616 (Apr. 26, 2004); 69
FR 24016 (Apr. 30, 2004).
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approximately $25,000 in outside legal
costs to obtain the necessary opinion of
counsel, and that the total cost for all
nonresident SBS Entities to obtain this
opinion of counsel would be
approximately $550,000.160
The Commission estimates that it
would cost each nonresident SBS Entity
approximately $295 to complete
Schedule F.161 Thus, the Commission
estimates that the total cost for all
nonresident SBS Entities approximately
$6,490.162
While the Dodd-Frank Act does not
distinguish between resident and
nonresident SBS Entities, it clearly
contemplates Commission oversight of
registered SBS Entities. The
Commission’s experience with other
nonresident registrants has led the staff
to believe that these requirements are
necessary and appropriate to allow the
Commission to adequately oversee
nonresident SBS Entities.
associated with retaining them would be
significant. Thus, the Commission
estimates that it would cost each SBS
Entity approximately $49.17 annually
assure that it is complying with the
requirement to retain these manually
signed signature pages,163 or a total of
approximately $2,704 annually for all
SBS Entities.164
Pursuant to proposed Rule 15Fb1–1,
each signatory to an electronic filing
would be required to, when the
electronic filing is made, manually sign
a signature page or other document
adopting his or her signature that
appears in typed form within the
electronic filing. Each SBS Entity must
retain these manually signed pages until
at least three years after the form or
certification has been replaced or is no
longer effective. It is likely that each
SBS Entity would need to maintain at
least three pages with manually signed
signatures (the execution page of Form
SBSE, SBSE–A, or SBSE–BD, as
applicable, Schedule G, and the Form
SBSE–C certification). In addition,
nonresident SBS Entities also will need
to retain a manually signed copy of
Schedule F. As so few pages would
need to be maintained pursuant to
proposed Rule 15Fb1–1, Commission
staff does not believe the costs
6. Costs Associated With Proposed
Temporary Rule 15Fb2–2T
Proposed temporary Rule 15Fb2–2T
would only be adopted if a
technological means to facilitate receipt
and retention of applications is not
functional by the time final rules are
adopted. Pursuant to proposed
temporary Rule 15Fb2–2T, each SBS
Entity would need to file its application
and certification in paper form.
Proposed temporary Rule 15Fb2–2T also
would require that each SBS Entity
resubmit its application and
certification in electronic form once a
technological means to receive such
documents becomes functional.
The costs associated with completing
the forms are discussed above. Thus, the
additional costs associated with
proposed temporary Rule 15Fb2–2T
would include the postage cost to send
a paper form and the personnel costs
associated with later resubmitting the
form electronically.
The postage costs likely would be
driven by the number of pages each SBS
Entity would need to send, which could
vary significantly depending on the
number of DRPs each firm must include
with its Form. The staff conservatively
estimates that each SBS Entity may
incur, on average, approximately $5 to
send its form to the Commission. As the
certification consists of a one page Form
SBSE–C, the staff estimates that it likely
would cost an SBS Entity approximately
$.50 to send its certification to the
Commission. The Commission hopes
that it will have a technological means
to receive these forms functional
relatively quickly; however each SBS
× 22 SBS Entities = $550,000.
staff conservatively estimates,
based on staff experience, that the average time
necessary for an SBS Entity to complete and file
Schedule F would be approximately one hour. The
staff believes that an SBS Entity would have a
Compliance Manager complete and file Schedule F
with its Form SBSE, Form SBSE–A, or form SBSE–
BD, as appropriate, and that the pay scales for
broker-dealers and SBS Entities would likely be
similar. According to the SIFMA publication titled
Management & Professional Earnings in the
Securities Industry 2009, as modified by
Commission staff to account for an 1,800-hour
work-year and multiplied by 5.35 to account for
bonuses, firm size, employee benefits and overhead,
the hourly cost of a Compliance Manager is
approximately $295/hour. 1 hour × $295 = $295.
162 $295 per nonresident SBS Entity × 22
nonresident SBS Entities = $6,490.
163 Commission staff conservatively estimates,
based on staff experience, that the average time
necessary for an SBS Entity to assure that it is
complying with the requirement to retain these
pages would be approximately ten minutes. The
staff believes that an SBS Entity would have a
Compliance Manager to assure that it is complying
with the requirement to retain these pages, and that
the pay scales for broker-dealers and SBS Entities
would likely be similar. According to the SIFMA
publication titled Management & Professional
Earnings in the Securities Industry 2009, as
modified by Commission staff to account for an
1,800-hour work-year and multiplied by 5.35 to
account for bonuses, firm size, employee benefits
and overhead, the hourly cost of a Compliance
Manager is approximately $295/hour. 10 minutes ×
$295 = $49.17.
164 $49.17 per SBS Entity × 55 SBS Entities =
$2,704.17.
5. Costs of Retaining Manually Signed
Signature Pages
160 $25,000
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161 Commission
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Entity may also need to file an
amendment before that occurs. As any
amendment would likely include few
pages because the SBS Entity only
would need to provide updates to those
items which become inaccurate, the
staff estimates that it would cost each
SBS Entity approximately $.50 to send
an amendment to the Commission.
Consequently, the total postage cost to
each SBS Entity associated with
proposed temporary Rule 15Fb2–2T
would be approximately $6, and the
total postage costs associated with
proposed temporary Rule 15Fb2–2T
would be approximately $330.
The staff estimates that the costs
associated with filing each of the forms
would be minimal, but would be
contingent on the length of the form.
The Commission preliminarily believes
that it would cost each SBS Entity
approximately $1,180 to resubmit the
Form SBSE.165 As Forms SBSE–A and
SBSE–BD are shorter than Form SBSE,
the Commission preliminarily believes
that it would cost each SBS Entity
approximately $590 to resubmit the
Form SBSE–A,166 and $295 to resubmit
the Form SBSE–BD.167 Thus, the
Commission estimates that the total cost
to all SBS Entities to resubmit their
Form SBSE, SBSE–A, or SBSE–BD, as
applicable, would be approximately
$33,630.168
C. Request for Comment
The Commission requests data to
quantify and estimates of the costs and
the value of the benefits of the proposed
rules described above. The Commission
specifically requests the following data
or estimates with respect to the number
165 Commission staff estimates, based on staff
experience, that the average time necessary for an
SBS Entity to file a Form SBSE would be
approximately four hours. The staff believes that an
SBS Entity would have a Compliance Manager file
the firm’s application on Form SBSE, and that the
pay scales for broker-dealers and SBS Entities
would likely be similar. According to the SIFMA
publication titled Management & Professional
Earnings in the Securities Industry 2009, as
modified by Commission staff to account for a
1,800-hour work-year and multiplied by 5.35 to
account for bonuses, firm size, employee benefits
and overhead, the hourly cost of a Compliance
Manager is approximately $295/hour. 4 hours ×
$295 = $1,180.
166 Commission staff estimates that filing Form
SBSE–A would take approximately two hours. The
staff believes that an SBS Entity would have a
Compliance Manager file the form’s application on
Form SBSE–A, and that the pay scales for brokerdealers and SBS Entities would likely be similar.
2 hours × $295 = $590.
167 Commission staff estimates that filing Form
SBSE–BD would take approximately one hour. The
staff believes that an SBS Entity would have a
Compliance Manager complete and file the form’s
application on Form SBSE–BD. 1 hour × $295 =
$295.
168 ($590 × 35) + ($295 × 16) + ($1,180 × 4) =
$30,090.
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Federal Register / Vol. 76, No. 205 / Monday, October 24, 2011 / Proposed Rules
of persons that act as SBS Dealers and
major security-based swap participants.
The Commission specifically requests
comment on the following:
Q–178. Are the estimates of the
number of registrants that would be
required to submit each form and the
estimates of the costs associated with
completing the forms and amendments
are reasonable? If not, why not?
Q–179. Should the Commission
require different and/or additional
information to be provided on the
proposed forms?
Q–180. Would additional benefits
accrue if the Commission required
different or additional information and,
if so, what would these requirements
entail?
Q–181. What other processes might an
SBS Entity use to provide a basis for a
senior officer’s reasonable
determination that the SBS Entity has
the requisite capabilities that we may
not have considered, and what would be
the advantages, disadvantages, costs and
benefits of those other processes?
Q–182. Are there additional costs or
benefits related to registration
information that the Commission should
consider?
The Commission solicits comments
on the costs and benefits related to the
limited recordkeeping requirements of
these proposed registration rules. The
Commission specifically requests
comment on the following:
Q–183. Should the Commission
require different and/or additional
information to be maintained by SBS
Entities?
Q–184. Would additional benefits
accrue if the Commission imposed
different or additional recordkeeping
requirements and, if so, what would
these requirements entail?
Q–185. Are there additional costs or
benefits related to recordkeeping that
the Commission should consider?
We request comment on all aspects of
the costs and benefits of the proposed
rules and forms, particularly any effect
our proposed rules may have on
efficiency, competition, and capital
formation. Commentators should
provide analysis and empirical data to
support their views on the costs and
benefits associated with the proposed
rule.
Q–186. What would be the
competitive or anticompetitive effects of
the proposed rules and forms on any
market participants if the proposals are
adopted as proposed?
Q–187. Would proposed Rules
15Fb1–1 through 15Fb6–1 and the
proposed forms place a burden on
competition?
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65819
Q–188. What may be the effect of the
proposal on efficiency, competition, and
capital formation?
Section 605(b) of the RFA states that
this requirement shall not apply to any
proposed rule or proposed rule
amendment, which if adopted, would
VI. Consideration of Impact on the
not have a significant economic impact
Economy
on a substantial number of small
For purposes of the Small Business
entities.174
Regulatory Enforcement Fairness Act of
For purposes of Commission
1996 (‘‘SBREFA’’) 169 the Commission
rulemaking in connection with the RFA,
must advise the Office of Management
a small entity includes: (i) When used
and Budget as to whether the proposed
with reference to an ‘‘issuer’’ or a
regulation constitutes a ‘‘major’’ rule.
‘‘person,’’ other than an investment
Under SBREFA, a rule is considered
company, an ‘‘issuer’’ or ‘‘person’’ that,
‘‘major’’ where, if adopted, it results or
on the last day of its most recent fiscal
is likely to result in:
• An annual effect on the economy of year, had total assets of $5 million or
$100 million or more (either in the form less; 175 or (ii) a broker-dealer with total
of an increase or a decrease);
capital (net worth plus subordinated
• A major increase in costs or prices
liabilities) of less than $500,000 on the
for consumers or individual industries;
date in the prior fiscal year as of which
or
its audited financial statements were
• Significant adverse effect on
prepared pursuant to Rule 17a–5(d)
competition, investment or innovation.
under the Exchange Act,176 or, if not
If a rule is ‘‘major,’’ its effectiveness will required to file such statements, a
generally be delayed for 60 days
broker-dealer with total capital (net
pending Congressional review.
worth plus subordinated liabilities) of
Q–189. What may be the potential
less than $500,000 on the last day of the
impact of these proposed registration
preceding fiscal year (or in the time that
rules and forms for SBS Entities? Please it has been in business, if shorter); and
include empirical data on (a) The
is not affiliated with any person (other
potential annual effect of the proposed
than a natural person) that is not a small
registration rules and forms on the
business or small organization.177 Under
economy; (b) any increase in costs or
the standards adopted by the Small
prices for consumers or individual
industries associated with the proposed Business Administration, small entities
registration rules and forms; and (c) any in the finance and insurance industry
potential effect the proposed registration include the following: (i) for entities in
credit intermediation and related
rules and forms may have on
activities,178 entities with $175 million
competition, investment or innovation.
or less in assets or, (ii) for nonVII. Regulatory Flexibility Act
depository credit intermediation and
Certification
certain other activities,179 $7 million or
The Regulatory Flexibility Act
less in annual receipts; (iii) for entities
(‘‘RFA’’) 170 requires Federal agencies, in in financial investments and related
promulgating rules, to consider the
activities,180 entities with $7 million or
impact of those rules on small entities.
less in annual receipts; (iv) for
Section 603(a) 171 of the Administrative
insurance carriers and entities in related
Procedure Act,172 as amended by the
RFA, generally requires the Commission
174 See 5 U.S.C. 605(b).
to undertake a regulatory flexibility
175 See 17 CFR 240.0–10(a).
176 See 17 CFR 240.17a–5(d).
analysis of all proposed rules, or
177 See 17 CFR 240.0–10(c).
proposed rule amendments, to
178 Including commercial banks, savings
determine the impact of such
institutions, credit unions, firms involved in other
rulemaking on ‘‘small entities.’’ 173
169 Public
Law 104–121, Tit. II, 110 Stat. 857
(1996).
170 5 U.S.C. 601 et seq.
171 5 U.S.C. 603(a).
172 5 U.S.C. 551 et seq.
173 Although Section 601(b) of the RFA defines
the term ‘‘small entity,’’ the statute permits agencies
to formulate their own definitions. The Commission
has adopted definitions for the term small entity for
the purposes of Commission rulemaking in
accordance with the RFA. Those definitions, as
relevant to this proposed rulemaking, are set forth
in Rule 0–10, 17 CFR 240.0–10. See Statement of
Management on Internal Control, Exchange Act
Release No. 18451 (January 28, 1982), 47 FR 5215
(February 4, 1982).
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depository credit intermediation, credit card
issuing, sales financing, consumer lending, real
estate credit, and international trade financing.
Subsector 522.
179 Including firms involved in secondary market
financing, all other non-depository credit
intermediation, mortgage and nonmortgage loan
brokers, financial transactions processing, reserve,
and clearinghouse activities, and other activities
related to credit intermediation. Subsector 522.
180 Including firms involved in investment
banking and securities dealing, securities brokerage,
commodity contracts dealing, commodity contracts
brokerage, securities and commodity exchanges,
miscellaneous intermediation, portfolio
management, providing investment advice, trust,
fiduciary and custody activities, and miscellaneous
financial investment activities. Subsector 523.
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activities,181 entities with $7 million or
less in annual receipts; and (v) for
funds, trusts, and other financial
vehicles,182 entities with $7 million or
less in annual receipts.183
Based on the Commission’s existing
information about the security-based
swap market, the Commission
preliminarily believes that the market,
while broad in scope, is largely
dominated by entities such as those that
would be covered by the ‘‘securitybased swap dealer’’ and ‘‘major securitybased swap market participant’’
definitions. Subject to certain
exceptions, Exchange Act Section
3(a)(71)(A) defines ‘‘security-based swap
dealer’’ to mean any person who: (i)
Holds itself out as a dealer in securitybased swaps; (ii) makes a market in
security-based swaps; (iii) regularly
enters into security-based swaps with
counterparties as an ordinary course of
business for its own account; or (iv)
engages in any activity causing it to be
commonly known in the trade as a
dealer or market maker in securitybased swaps.184 Exchange Act Section
3(a)(67)(A) defines ‘‘major securitybased swap participant’’ to be as any
person: (i) Who is not an SBS Dealer;
and (ii)(I) who maintains a substantial
position in security-based swaps for any
of the major security-based swap
categories, as such categories are
determined by the Commission,
excluding both positions held for
hedging or mitigating commercial risk
and positions maintained by any
employee benefit plan (or any contract
held by such a plan) as defined in
paragraphs (3) and (32) of Section 3 of
the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1002) for
the primary purpose of hedging or
mitigating any risk directly associated
with the operation of the plan; (II)
whose outstanding security-based swaps
create substantial counterparty exposure
that could have serious adverse effects
on the financial stability of the United
States banking system or financial
markets; or (III) that is a financial entity
that (aa) is highly leveraged relative to
181 Including direct life insurance carriers, direct
health and medical insurance carriers, direct
property and casualty insurance carriers, direct title
insurance carriers, other direct insurance (except
life, health and medical) carriers, reinsurance
carriers, insurance agencies and brokerages, claims
adjusting, third party administration of insurance
and pension funds, and all other insurance related
activities. Subsector 524.
182 Including pension funds, health and welfare
funds, other insurance funds, open-end investment
funds, trusts, estates, and agency accounts, real
estate investment trusts and other financial
vehicles. Subsector 525.
183 See 13 CFR 121.201 (Jan. 1, 2010).
184 See supra note 6.
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the amount of capital such entity holds
and that is not subject to capital
requirements established by an
appropriate Federal banking regulator;
and (bb) maintains a substantial
position in outstanding security-based
swaps in any major security-based swap
category, as such categories are
determined by the Commission.185
Based on feedback from industry
participants about the security-based
swap markets, the Commission
preliminarily believes that entities that
will qualify as SBS Dealers and major
security-based swap market
participants, whether registered brokerdealers or not, exceed the thresholds
defining ‘‘small entities’’ set out above.
Thus, the Commission believes it is
unlikely that the proposed SBS Entity
registration rules and forms would have
a significant economic impact any small
entity.
For the foregoing reasons, the
Commission certifies that the proposed
SBS Entity registration rules and forms
would not have a significant economic
impact on any small entity for 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 and provide
empirical data to illustrate the extent of
the impact.
78g, 78i, 78j, 78j–1, 78k, 78k–1, 78l, 78m,
78n, 78n–1, 78o, 78o–4, 78o–10, 78p, 78q,
78s, 78u–5, 78w, 78x, 78dd, 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
Pub. L. 111–203, § 939A, 124 Stat. 1376
(2010), unless otherwise noted.
VIII. Statutory Basis and Text of
Proposed Rules
§ 240.15Fb1–1
The Commission is proposing Rule
15Fb1–1 through 15Fb6–1 pursuant to
Sections 15F(a) through (d), 17(a), 23(a)
and 30 of the Securities Exchange Act
of 1934, as amended.
List of Subjects in 17 CFR Parts 240 and
249
Registration, Reporting and
recordkeeping requirements, Securities,
Security-based swaps, Security-based
swap dealers, Security-based swap
participants, Forms.
In accordance with the foregoing, the
Securities and Exchange Commission is
proposing to amend Title 17, Chapter II
of the Code of Federal Regulations 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: 12 U.S.C. 5221(e)(3); 15 U.S.C.
77c, 77d, 77g, 77j, 77s, 77z–2, 77z–3, 77eee,
77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f,
185 See
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*
*
*
*
*
2. Add an undesignated center
heading and §§ 240.15Fb1–1 through
240.15Fb6–1 to read as follows:
Registration of Security-Based Swap
Dealers and Major Security-Based
Swap Participants
Sec.
240.15Fb1–1 Signatures.
240.15Fb2–1 Registration of security-based
swap dealers and major security-based
swap participants.
240.15Fb2–2T Temporary filing
requirement.
240.15Fb2–3 Amendments to application
for registration.
240.15Fb2–4 Nonresident security-based
swap dealers and major security-based
swap participants.
240.15Fb2–5 Registration of successor to
registered security-based swap dealer or
major security-based swap participant.
240.15Fb2–6 Registration of fiduciaries.
240.15Fb3–1 Duration of registration.
240.15Fb3–2 Withdrawal from registration.
240.15Fb3–3 Cancellation and revocation of
registration.
240.15Fb6–1 Reports regarding associated
persons.
*
*
*
*
*
Signatures.
(a) Required signatures to, or within,
any electronic submission (including,
without limitation, signatories within
the forms and certifications required by
§§ 240.15Fb2–1, 240.15Fb2–4 and
240.15Fb6–1) must be in typed form
rather than manual format. Signatures in
an HTML, XML or XBRL document that
are not required may, but are not
required to, be presented in a graphic or
image file within the electronic filing.
When used in connection with an
electronic filing, the term ‘‘signature’’
means an electronic entry in the form of
a magnetic impulse or other form of
computer data compilation of any letters
or series of letters of characters
comprising a name, executed, adopted
or authorized as a signature.
(b) Each signatory to an electronic
filing (including, without limitation,
each signatory to the forms and
certifications required by §§ 240.15Fb2–
1, 240.15Fb2–4 and 240.15Fb6–1) shall
manually sign a signature page or other
document authenticating,
acknowledging or otherwise adopting
his or her signature that appears in
typed form within the electronic filing.
Such document shall be executed before
or at the time the electronic filing is
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made. Upon request, the security-based
swap dealer or major security-based
swap participant shall furnish to the
Commission or its staff a copy of any or
all documents retained pursuant to this
paragraph (b).
(c) A person required to provide a
signature on an electronic submission
(including, without limitation, each
signatory to the forms and certifications
required by §§ 240.15Fb2–1, 240.15Fb2–
4 and 240.15Fb6–1) may not have the
form or certification signed on his or her
behalf pursuant to a power of attorney
or other form of confirming authority.
(d) Each manually signed signature
page or other document authenticating,
acknowledging or otherwise adopting
his or her signature that appears in
typed form within the electronic filing—
(1) On Schedules F and G to Form
SBSE (§ 249.1600 of this chapter),
SBSE–A (§ 249.1600a. of this chapter),
or SBSE–BD (§ 249.1600b of this
chapter), as appropriate, shall be
retained by the filer until at least three
years after the form or certification has
been replaced or is no longer effective;
(2) On Form SBSE–C (§ 249.1600c of
this chapter) shall be retained by the
filer until at least three years after the
Form was filed with the Commission.
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§ 240.15Fb2–1 Registration of securitybased swap dealers and major securitybased swap participants.
(a) Application. An application for
registration of a security-based swap
dealer or a major security-based swap
participant that is filed pursuant to
Section 15F(b) of the Securities
Exchange Act of 1934 (15 U.S.C. 78o–
10(b)) shall be filed on Form SBSE
(§ 249.1600 of this chapter) or Form
SBSE–A (§ 249.1600a of this chapter) or
Form SBSE–BD (§ 249.1600b of this
chapter), as appropriate, in accordance
with this section and the instructions to
the forms.
(b) Certification.
(1) Form of certification. A
knowledgeable senior officer shall
certify on Form SBSE–C (§ 249.1600c of
this chapter) that, after due inquiry, he
or she has reasonably determined that
the security-based swap dealer or major
security-based swap participant has the
operational, financial, and compliance
capabilities to act as a security-based
swap dealer or major security-based
swap participant, as applicable, and has
documented the process by which he or
she reached such determination.
(2) Timing of filing of certification.
(i) Conditional registration.
(A) Prior to the last compliance date.
Each security-based swap dealer or
major security-based swap participant
that files a completed application in
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accordance with paragraph (a) of this
section before the last compliance date
(as defined in paragraph (e) of this
section) must file the certification
described in paragraph (b)(1) of this
section on or before such last
compliance date.
(B) Major security-based swap
participants. Each major security-based
swap participant that files a completed
application in accordance with
paragraph (a) of this section after the
last compliance date must file the
certification described in paragraph
(b)(1) of this section within four months
after it files its completed application.
(ii) Ongoing registration. Each
security-based swap dealer that files a
completed application in accordance
with paragraph (a) of this section after
the last compliance date must file the
certification described in paragraph
(b)(1) of this section at the time it files
its application.
(c) Filing.
(1) Electronic filing. Every application
for registration and certification of a
security-based swap dealer or major
security-based swap participant and any
additional registration documents shall
be filed electronically with the
Commission or its designee.
(2) Effective date of filing.
(i) Application. An application of a
security-based swap dealer or a major
security-based swap participant
submitted pursuant to paragraph (a) of
this section shall be considered filed
when a complete Form SBSE
(§ 249.1600 of this chapter), Form
SBSE–A (§ 249.1600a of this chapter), or
Form SBSE–BD (§ 249.1600b of this
chapter), as appropriate, and all
required additional documents are
submitted electronically with the
Commission or its designee;
(ii) Certification. A certification of a
security-based swap dealer or a major
security-based swap participant
submitted pursuant to paragraph (b) of
this section shall be considered filed
when a complete Form SBSE–C
(§ 249.1600c of this chapter) is
submitted electronically with the
Commission or its designee.
(d) Commission decision.
(1) Conditional registration. The
Commission may deny or grant
registration to a security-based swap
dealer or major security-based swap
participant on a conditional basis. The
Commission will grant conditional
registration if it finds that the securitybased swap dealer’s or major securitybased swap participant’s application is
complete; Except that, the Commission
may institute proceedings to determine
whether conditional registration should
be denied if the applicant is subject to
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65821
a statutory disqualification (as defined
in 15 U.S.C. 78c(a)(39)) or if the
Commission is aware of inaccurate
statements in the application. Such
proceedings shall include notice of the
grounds for denial under consideration
and opportunity for hearing. At the
conclusion of such proceedings, the
Commission shall grant or deny such
registration.
(2) Ongoing registration. The
Commission may grant or deny ongoing
registration based on a security-based
swap dealer’s or major security-based
swap participant’s application (filed
pursuant to paragraph (a) of this section)
and certification (filed pursuant to
paragraph (b) of this section). A
conditionally registered security-based
swap dealer or major security-based
swap participant need not submit a new
application to apply for ongoing
registration, but must amend its
application, as required pursuant to
§ 240.15Fb2–3. The Commission will
grant ongoing registration if it finds that
the requirements of Section 15F(b) of
the Securities Exchange Act of 1934 (15
U.S.C. 78o–10(b)) are satisfied; Except
that, the Commission may institute
proceedings to determine whether
ongoing registration should be denied if
it does not make such finding or if the
applicant is subject to a statutory
disqualification (as defined in 15 U.S.C.
78c(a)(39)) or the Commission is aware
of inaccurate statements in the
application or certification. Such
proceedings shall include notice of the
grounds for denial under consideration
and opportunity for hearing. At the
conclusion of such proceedings, the
Commission shall grant or deny such
registration.
(e) Definition. For purposes of this
section, the term last compliance date
shall mean the latest date, designated by
the Commission, by which securitybased swap dealers and major securitybased swap participant must comply
with any of the initial rules promulgated
under Section 15F of the Securities
Exchange Act of 1934 (15 U.S.C. 78o–
10).
§ 240.15Fb2–2T
requirement.
Temporary filing
(a) Paper filing. If a technological
means to facilitate receipt and retention
of applications required to be filed in
accordance with § 240.15Fb2–1 is not
functional on or before [date to be
determined], each applicant for
registration as a security-based swap
dealer or major security-based swap
participant must, notwithstanding
§ 240.15Fb2–1(c)(1), file its application
on Form SBSE (§ 249.1600 of this
chapter), Form SBSE–A (§ 249.1600a of
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this chapter), or Form SBSE–BD
(§ 249.1600b of this chapter), as
applicable, any additional documents,
and Form SBSE–C (§ 249.1600c of this
chapter) in paper form by sending it to
the Securities and Exchange
Commission, 100 F Street, NE.,
Washington, DC 20549–1090.
(b) Transitional resubmission
requirement. Each applicant must
resubmit its Form SBSE (§ 249.1600 of
this chapter), Form SBSE–A
(§ 249.1600a of this chapter), and Form
SBSE–BD (§ 249.1600b of this chapter),
as applicable, any additional
documents, and Form SBSE–C
(§ 249.1600c of this chapter) to the
Commission electronically within three
months of the date such technological
means to facilitate receipt and retention
of applications becomes functional.
§ 240.15Fb2–3 Amendments to application
for registration.
If a security-based swap dealer or a
major security-based swap participant
finds that the information contained in
its application for registration (as
described in § 240.15Fb2–1(a)), or in
any amendment thereto, is or has
become inaccurate for any reason, the
security-based swap dealer or a major
security-based swap participant shall
promptly file an amendment
electronically with the Commission/its
designee on Form SBSE (§ 249.1600 of
this chapter), Form SBSE–A
(§ 249.1600a of this chapter), or Form
SBSE–BD (§ 249.1600b of this chapter),
as appropriate, to correct such
information.
tkelley on DSK3SPTVN1PROD with PROPOSALS2
§ 240.15Fb2–4 Nonresident security-based
swap dealers and major security-based
swap participants.
(a) Definition. For purposes of this
section, the terms nonresident securitybased swap dealer and nonresident
major security-based swap participant
shall mean:
(1) In the case of an individual, one
who resides, or has his or her principal
place of business, in any place not in
the United States;
(2) In the case of a corporation, one
incorporated in or having its principal
place of business in any place not in the
United States; or
(3) In the case of a partnership or
other unincorporated organization or
association, one having its principal
place of business outside the United
States.
(b) Power of attorney.
(1) Each nonresident security-based
swap dealer and nonresident major
security-based swap participant
registered or applying for registration
pursuant to Section 15F(b) of the
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Securities Exchange Act of 1934 (15
U.S.C. 78o–10(b)) shall obtain a written
irrevocable consent and power of
attorney appointing an agent in the
United States, other than the
Commission or a Commission member,
official or employee, upon whom may
be served any process, pleadings, or
other papers in any action brought
against the nonresident security-based
swap dealer or nonresident major
security-based swap participant to
enforce the Securities Exchange Act of
1934 (15 U.S.C. 78a et seq.). This
consent and power of attorney must be
signed by the nonresident securitybased swap dealer or nonresident major
security-based swap participant and the
named agent(s) for service of process.
(2) Each nonresident security-based
swap dealer and nonresident major
security-based swap participant
registered or applying for registration
pursuant to section 15F(b) of the
Securities Exchange Act of 1934 (15
U.S.C. 78o–10(b)) shall, at the time of
filing its application on Form SBSE
(§ 249.1600 of this chapter), Form
SBSE–A (§ 249.1600a of this chapter), or
Form SBSE–BD (§ 249.1600b of this
chapter), as appropriate, furnish to the
Commission the name and address of its
United States agent for service of
process on Schedule F to the
appropriate form.
(3) Any change of a nonresident
security-based swap dealer’s and
nonresident major security-based swap
participant’s agent for service of process
and any change of name or address of
a nonresident security-based swap
dealer’s and nonresident major securitybased swap participant’s existing agent
for service of process shall be
communicated promptly to the
Commission through amendment of the
Schedule F of Form SBSE (§ 249.1600 of
this chapter), Form SBSE–A
(§ 249.1600a of this chapter), or Form
SBSE–BD (§ 249.1600b of this chapter),
as appropriate.
(4) Each nonresident security-based
swap dealer and nonresident major
security-based swap participant must
promptly appoint a successor agent for
service of process if the nonresident
security-based swap dealer and
nonresident major security-based swap
participant discharges its identified
agent for service of process or if its agent
for service of process is unwilling or
unable to accept service on behalf of the
nonresident security-based swap dealer
or nonresident major security-based
swap participant.
(5) Each nonresident security-based
swap dealer and nonresident major
security-based swap participant must
maintain, as part of its books and
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records, the agreement identified in
paragraph (b)(1) of this section for at
least three years after the agreement is
terminated.
(c) Access to books and records.
(1) Certification and opinion of
counsel. Any nonresident securitybased swap dealer and nonresident
major security-based swap participant
applying for registration pursuant to
Section 15F(b) of the Securities
Exchange Act of 1934 (15 U.S.C. 78o–
10(b) shall certify on Schedule F of
Form SBSE (§ 249.1600 of this chapter),
Form SBSE–A (§ 249.1600a of this
chapter), or Form SBSE–BD
(§ 249.1600b of this chapter), as
appropriate, and provide an opinion of
counsel that the nonresident securitybased swap dealer and nonresident
major security-based swap participant
can, as a matter of law, provide the
Commission with prompt access to the
books and records of such nonresident
security-based swap dealer and
nonresident major security-based swap
participant, and can, as a matter of law,
submit to onsite inspection and
examination by the Commission.
(2) Amendments. The nonresident
security-based swap dealer and
nonresident major security-based swap
participant shall re-certify, on Schedule
F to Form SBSE (§ 249.1600 of this
chapter), Form SBSE–A (§ 249.1600a of
this chapter), or Form SBSE–BD
(§ 249.1600b of this chapter), as
applicable, within 90 days after any
changes in the legal or regulatory
framework that would impact the
nonresident security-based swap
dealer’s or nonresident major securitybased swap participant’s ability to, or
the manner in which it provides the
Commission with prompt access to its
books and records, or impacts the
Commission’s ability to inspect and
examine the nonresident security-based
swap dealer or nonresident major
security-based swap participant. The recertification shall be accompanied by a
revised opinion of counsel describing
how, as a matter of law, the nonresident
security-based swap dealer or
nonresident major security-based swap
participant will continue to meet its
obligations to provide the Commission
with prompt access to its books and
records and to be subject to Commission
inspection and examination under the
new regulatory regime.
§ 240.15Fb2–5 Registration of successor
to registered security-based swap dealer or
a major security-based swap participant.
(a) In the event that a security-based
swap dealer or major security-based
swap participant succeeds to and
continues the business of a security-
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based swap dealer or major securitybased swap participant registered
pursuant to Section 15F(b) of the
Securities Exchange Act of 1934 (15
U.S.C. 78o–10(b)), the registration of the
predecessor shall be deemed to remain
effective as the registration of the
successor if the successor, within 30
days after such succession, files an
application for registration in
accordance with § 240.15Fb2–1, and the
predecessor files a notice of withdrawal
from registration on Form SBSE–W
(§ 249.1601 of this chapter).
(b) Notwithstanding paragraph (a) of
this section, if a security-based swap
dealer or major security-based swap
participant succeeds to and continues
the business of a registered predecessor
security-based swap dealer or major
security-based swap participant, and the
succession is based solely on a change
in the predecessor’s date or state of
incorporation, form of organization, or
composition of a partnership, the
successor may, within 30 days after the
succession, amend the registration of
the predecessor security-based swap
dealer or major security-based swap
participant on Form SBSE (§ 249.1600 of
this chapter), Form SBSE–A
(§ 249.1600a of this chapter), or Form
SBSE–BD (§ 249.1600b of this chapter),
as appropriate, to reflect these changes.
This amendment shall be deemed an
application for registration filed by the
predecessor and adopted by the
successor.
tkelley on DSK3SPTVN1PROD with PROPOSALS2
§ 240.15Fb2–6
Registration of fiduciaries.
The registration of a security-based
swap dealer or a major security-based
swap participant shall be deemed to be
the registration of any executor,
administrator, guardian, conservator,
assignee for the benefit of creditors,
receiver, trustee in insolvency or
bankruptcy, or other fiduciary,
appointed or qualified by order,
judgment, or decree of a court of
competent jurisdiction to continue the
business of such registered securitybased swap dealer or a major securitybased swap participant; Provided, that
such fiduciary files with the
Commission, within 30 days after
entering upon the performance of his or
her duties, an amended Form SBSE
(§ 249.1600 of this chapter), Form
SBSE–A (§ 249.1600a of this chapter), or
Form SBSE–BD (§ 249.1600b of this
chapter), as appropriate, indicating the
fiduciary’s position with respect to
management of the firm and, as an
additional document, a copy of the
order, judgment, decree, or other
document appointing the fiduciary.
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§ 240.15Fb3–1
Duration of registration.
(a) General. A person registered as a
security-based swap dealer or major
security-based swap participant in
accordance with § 240.15Fb2–1 will
continue to be so registered until the
effective date of any cancellation,
revocation or withdrawal of such
registration or any other event the
Commission determines should trigger
expiration.
(b) Conditional registration.
Notwithstanding paragraph (a) of this
section, conditional registration granted
by the Commission in accordance with
§ 240.15Fb2–1(d)(1) shall expire:
(1) During the transitional period—on
the last compliance date (as that term is
defined in § 240.15Fb2–1(e)) for
security-based swap dealers and major
security-based swap participants that
filed a completed application before the
last compliance date, unless the
security-based swap dealer or major
security-based swap participant files
with the Commission a certification in
accordance with § 240.15Fb2–1(b)(1)(i),
in which case conditional registration
shall extend an additional thirty days;
(2) Major security-based swap
participants—four months after the
major security-based swap participant
files its completed application, unless
the major security-based swap
participant files with the Commission a
certification in accordance with
§ 240.15Fb2–1(b)(1)(ii); in which case
the conditional registration shall extend
an additional thirty days.
(c) Extensions. The Commission may
extend conditional registration for good
cause.
§ 240.15Fb3–2
registration.
Withdrawal from
(a) Notice of withdrawal from
registration as a security-based swap
dealer or major security-based swap
participant pursuant to Section 15F(b)
of the Securities Exchange Act of 1934
(15 U.S.C. 78o–10(b)) shall be filed on
Form SBSE–W (§ 249.1601 of this
chapter) in accordance with the
instructions contained therein. Every
notice of withdrawal from registration
as a security-based swap dealer or major
security-based swap participant shall be
filed electronically with the
Commission or its designee in
accordance with applicable filing
requirements. Prior to filing a notice of
withdrawal from registration on Form
SBSE–W, a security-based swap dealer
or major security-based swap
participant shall amend its Form SBSE
(§ 249.1600 of this chapter), Form
SBSE–A (§ 249.1600a of this chapter) or
Form SBSE–BD (§ 249.1600b of this
chapter), as appropriate, in accordance
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65823
with § 240.15Fb2–3(a) to update any
inaccurate information.
(b) A notice of withdrawal from
registration filed by a security-based
swap dealer or major security-based
swap participant pursuant to Section
15F(b) of the Securities Exchange Act of
1934 (15 U.S.C. 78o–10(b)) shall become
effective for all matters (except as
provided in this paragraph (b)) on the
60th day after the filing thereof with the
Commission or its designee, within such
longer period of time as to which such
security-based swap dealer or major
security-based swap participant
consents or which the Commission by
order may determine as necessary or
appropriate in the public interest or for
the protection of investors, or within
such shorter period of time as the
Commission may determine. If a notice
of withdrawal from registration is filed
with the Commission at any time
subsequent to the date of the issuance
of a Commission order instituting
proceedings to censure, place
limitations on the activities, functions
or operations of, or suspend or revoke
the registration of, such security-based
swap dealer or major security-based
swap participant, or if prior to the
effective date of the notice of
withdrawal pursuant to this paragraph
(b), the Commission institutes such a
proceeding or a proceeding to impose
terms or conditions upon such
withdrawal, the notice of withdrawal
shall not become effective pursuant to
this paragraph (b) except at such time
and upon such terms and conditions as
the Commission deems necessary or
appropriate in the public interest or for
the protection of investors.
§ 240.15Fb3–3 Cancellation and revocation
of registration.
(a) Cancellation. If the Commission
finds that any person registered
pursuant to § 240.15Fb2–1 is no longer
in existence or has ceased to do
business as a security-based swap dealer
or major security-based swap
participant, the Commission shall by
order cancel the registration of such
person.
(b) Revocation. The Commission, by
order, shall censure, place limitations
on the activities, functions, or
operations of, or revoke the registration
of any security-based swap dealer or
major security-based swap participant
that has registered with the Commission
if it makes a finding as specified in
Section 15F(l)(2) of the Securities
Exchange Act of 1934 (15 U.S.C. 78o–
10(l)(2)).
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tkelley on DSK3SPTVN1PROD with PROPOSALS2
§ 240.15Fb6–1 Reports regarding
associated persons.
(a) Certification. No registered
security-based swap dealer or major
security-based swap participant shall
act as a security-based swap dealer or
major security-based swap participant
unless it has certified electronically on
Schedule G of Form SBSE (§ 249.1600 of
this chapter), Form SBSE–A
(§ 249.1600a of this chapter), or Form
SBSE–BD (§ 249.1600b of this chapter),
as appropriate, that no person
associated with such security-based
swap dealer or major security-based
swap participant who is effecting or
involved in effecting security-based
swaps on behalf of the security-based
swap dealer or major security-based
swap participant is subject to statutory
disqualification, as defined in Section
3(a)(39) of the Securities Exchange Act
of 1934 (15 U.S.C. 78c(a)(39)).
(b) To support the certification
required by paragraph (a) of this section,
each registered security-based swap
dealer and registered major securitybased swap participant shall obtain a
questionnaire or application for
employment executed by each of its
associated persons who effects or is
involved in effecting security based
swaps on behalf of the security-based
swap dealer or major security-based
swap participant which questionnaire or
application shall serve as a basis for a
background check of the associated
person and be reviewed and signed by
the security-based swap dealer’s or
major security-based swap participant’s
Chief Compliance Officer (designated as
required by Section 15F(k) of the
Securities Exchange Act of 1934 (15
U.S.C. 78o–10(k)) or his or her designee
and shall contain at least the following
information with respect to the
associated person:
(1) The associated person’s name,
address, social security number, and the
starting date of the associated person’s
employment or other association with
the security-based swap dealer and
major security-based swap participant;
(2) The associated person’s date of
birth;
(3) A complete, consecutive statement
of all the associated person’s business
connections for at least the preceding
ten years, including whether the
employment was part-time or full-time;
(4) A record of any denial of
membership or registration, and of any
disciplinary action taken, or sanction
imposed, upon the associated person by
any federal or state agency, by any
national securities exchange or national
securities association, or by any foreign
financial regulatory authority including
any finding that the associated person
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either aided or abetted or was a cause
of any disciplinary action or had
violated any law;
(5) A record of any denial,
suspension, expulsion or revocation of
membership or registration of any
broker, dealer, security-based swap
dealer, or major security-based swap
participant with which the associated
person was associated in any capacity
when such action was taken;
(6) A record of any permanent or
temporary injunction entered against
the associated person or any broker,
dealer, security-based swap dealer, or
major security-based swap participant
with which the associated person was
associated in any capacity at the time
such injunction was entered;
(7) A record of any arrest or
indictment for any felony, or any
misdemeanor pertaining to securities
(including security-based swaps),
futures or commodities (including
swaps), banking, insurance or real estate
(including, but not limited to, acting or
being associated with a broker-dealer,
investment company, investment
adviser, futures sponsor, bank, or
savings and loan association), fraud,
false statements or omissions, wrongful
taking of property or bribery, forgery,
counterfeiting or extortion, and the
disposition of the foregoing; and
(8) A record of any other name or
names by which the associated person
has been known or which the associated
person has used.
(c) Each registered security-based
swap dealer and registered major
security-based swap participant shall
maintain all questionnaires and
applications for employment obtained
pursuant to paragraph (b) of this section
as part of its books and records for at
least three years after the associated
person has terminated his or her
association with the registered securitybased swap dealer or registered major
security-based swap participant.
PART 249—FORMS, SECURITIES
EXCHANGE ACT OF 1934
3. The authority citation for Part 249
continues to read, in part, as follows:
Authority: 15 U.S.C. 78a et seq. and 7201
et seq.; and 18 U.S.C. 1350, unless otherwise
noted.
*
*
*
*
*
4. Add subpart Q to read as follows:
Subpart Q—Registration of SecurityBased Swap Dealers and Major
Security-Based Swap Participants
Sec.
249.1600 Form SBSE, for application for
registration as a security-based swap
dealer or major security-based swap
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participant or to amend such an
application for registration.
249.1600a Form SBSE–A, for application
for registration as a security-based swap
dealer or major security-based swap
participant or to amend such an
application for registration by firms
registered or registering with the
Commodity Futures Trading
Commission as a swap dealer or major
swap participant that are not also
registered or registering with the
Commission as a broker or dealer.
249.1600b Form SBSE–BD, for application
for registration as a security-based swap
dealer or major security-based swap
participant or to amend such an
application for registration by firms
registered or registering with the
Commission as a broker or dealer.
249.1600c Form SBSE–C, for certification
by security-based swap dealers and
major security-based swap participants.
249.1601 Form SBSE–W, for withdrawal
from registration as a security-based
swap dealer or major security-based
swap participant or to amend such an
application for registration.
§ 249.1600 Form SBSE, for application for
registration as a security-based swap
dealer or major security-based swap
participant or to amend such an application
for registration.
This form shall be used for
application for registration as a securitybased swap dealer or major securitybased swap participant by firms that are
not registered with the Commission as
a broker or dealer and that are not
registered or registering with the
Commodity Futures Trading
Commission as a swap dealer or major
swap participant, pursuant to Section
15F(b) of the Securities Exchange Act of
1934 (15 U.S.C. 78o–10(b)) and to
amend such an application for
registration.
§ 249.1600a Form SBSE–A, for application
for registration as a security-based swap
dealer or major security-based swap
participant or to amend such an application
for registration by firms registered or
registering with the Commodity Futures
Trading Commission as a swap dealer or
major swap participant that are not also
registered or registering with the
Commission as a broker or dealer.
This form shall be used instead of
Form SBSE (§ 249.1600) to apply for
registration as a security-based swap
dealer or major security-based swap
participant by firms that are not
registered or registering with the
Commission as a broker or dealer but
that are registered or registering with the
Commodity Futures Trading
Commission as a swap dealer or major
swap participant, pursuant to Section
15F(b) of the Securities Exchange Act of
1934 (15 U.S.C. 78o–10(b)) and to
amend such an application for
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registration. An entity that is registered
or registering with the Commission as a
broker or dealer and is also registered or
registering with the Commodity Futures
Trading Commission as a swap dealer or
major swap participant shall apply for
registration as a security-based swap
dealer or major security-based swap
participant on Form SBSE–BD
(§ 249.1600b) and not on this Form
SBSE–A.
§ 249.1600b Form SBSE–BD, for
application for registration as a securitybased swap dealer or major security-based
swap participant or to amend such an
application for registration by firms
registered or registering with the
Commission as a broker or dealer.
tkelley on DSK3SPTVN1PROD with PROPOSALS2
This form shall be used instead of
either Form SBSE (§ 249.1600) or SBSE–
A (§ 249.1600a) to apply for registration
as a security-based swap dealer or major
security-based swap participant solely
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65825
by firms registered or registering with
the Commission as a broker or dealer,
pursuant to Section 15F(b) of the
Securities Exchange Act of 1934 (15
U.S.C. 78o–10(b)) and to amend such an
application for registration. An entity
that is registered or registering with the
Commission as a broker or dealer and is
also registered or registering with the
Commodity Futures Trading
Commission as a swap dealer or major
swap participant, the entity shall apply
for registration as a security-based swap
dealer or major security-based swap
participant on this Form SBSE–BD and
not on Form SBSE–A.
§ 249.1601 Form SBSE–W, for withdrawal
from registration as a security-based swap
dealer or major security-based swap
participant or to amend such an application
for registration.
§ 249.1600c Form SBSE–C, for
certification by security-based swap dealers
and major security-based swap
participants.
Note: The following Forms will not appear
in the Code of Federal Regulations.
This form shall be used to withdraw
from registration as a security-based
swap dealer or major security-based
swap participant, pursuant to Section
15F(b) of the Securities Exchange Act of
1934 (15 U.S.C. 78o–10(b)).
By the Commission.
Dated: October 12, 2011.
Elizabeth M. Murphy,
Secretary.
BILLING CODE 8011–01–P
This form shall be used to file the
certification required pursuant to
§ 240.15Fb2–1(b) of this chapter.
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[FR Doc. 2011–26889 Filed 10–21–11; 8:45 am]
BILLING CODE 8011–01–C
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]]>Agencies
[Federal Register Volume 76, Number 205 (Monday, October 24, 2011)]
[Proposed Rules]
[Pages 65784-65884]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-26889]
[[Page 65783]]
Vol. 76
Monday,
No. 205
October 24, 2011
Part II
Securities and Exchange Commission
-----------------------------------------------------------------------
17 CFR Parts 240 and 249
Registration of Security-Based Swap Dealers and Major Security-Based
Swap Participants; Proposed Rule
Federal Register / Vol. 76 , No. 205 / Monday, October 24, 2011 /
Proposed Rules
[[Page 65784]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 240 and 249
[Release No. 34-65543; File No. S7-40-11]
RIN 3235-AL05
Registration of Security-Based Swap Dealers and Major Security-
Based Swap Participants
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: Section 764(a) of Title VII of the Dodd-Frank Wall Street
Reform and Consumer Protection Act (``Dodd-Frank Act'') requires the
Securities and Exchange Commission (``Commission'') to issue rules to
provide for the registration of security-based swap dealers (``SBS
Dealers'') and major security-based swap participants (collectively,
``SBS Entities''). Pursuant to this requirement, the Commission is
proposing new Rules 15Fb1-1 through 15Fb6-1 under the Securities
Exchange Act of 1934, as amended (the ``Exchange Act''), to provide for
the registration of SBS Entities. The Commission is also proposing
forms to facilitate registration (and withdrawal from registration) of
these entities.
DATES: Comments should be received on or before December 19, 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 S7-40-11 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,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number S7-40-11. 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/proposed.shtml). Comments will also 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. 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.
FOR FURTHER INFORMATION CONTACT: David W. Blass, Chief Counsel; Joseph
Furey, Assistant Chief Counsel; or Bonnie Gauch, Special Counsel,
Division of Trading and Markets, Securities and Exchange Commission,
100 F Street, NE., Washington, DC 20549-7010.
SUPPLEMENTARY INFORMATION:
Table of Contents:
I. Introduction
A. Background
B. General Approach to the SBS Entity Registration Process
1. Conditional Registration
i. Implementation Plan and the Last Compliance Date
ii. Major Security-Based Swap Participant Applicants Registering
After the Last Compliance Date
2. Ongoing Registration
3. Solicitation of Comments on the General Approach to the SBS
Entity Registration Process
II. Proposed Exchange Act Rules and Forms
A. Registration Application and Amendment
1. Proposed Rule 15Fb2-1
i. Form of Application
ii. Senior Officer Certification
iii. Electronic Filing
iv. Standards for Granting or Denying Applications
v. Request for Comment on Additional Registration Considerations
2. Amendments to Application Forms: Proposed Rule 15Fb2-3
B. Associated Persons
1. Certification
2. Alternative Process
C. Termination of Registration
1. Expiration: Proposed Rule 15Fb3-1
2. Withdrawal: Proposed Rule 15Fb3-2
3. Cancellation and Revocation: Proposed Rule 15Fb3-3
D. Special Requirements for Nonresident SBS Entities
1. United States Agent for Service of Process
2. Access to Books and Records of Nonresident SBS Entity
E. Special Situations
1. Succession: Proposed Rule 15Fb2-5
2. Insolvency: Proposed Rule 15Fb2-6
F. Technical Rules
1. Electronic Signatures
2. Temporary Rule To Facilitate Paper Filing of Forms
G. Forms
1. Form SBSE
2. Form SBSE-A
3. Form SBSE-BD
4. Form SBSE-C
5. Form SBSE-W
6. Tagged Data Formats
H. Alternative Approaches Considered
III. Request for Comment
IV. Paperwork Reduction Act
A. Summary of Collection of Information
B. Proposed Use of Information
C. Respondents
D. Total Initial and Annual Reporting and Recordkeeping Burdens
1. Burden Associated With Filing Application Forms
2. Burden Associated With Amending Application Forms
3. Burden Associated With Certification
4. Burdens Relating to Associated Persons
5. Burdens on Nonresident SBS Entities
6. Burden Related to Retention of Manually Signed Signature
Pages
7. Burden Associated With Filing Withdrawal Form
8. Burden Associated With Proposed Temporary Rule 15Fb2-2T
9. Request for Comment on Burden Estimates
E. Retention Period of Recordkeeping Requirements
F. Collection of Information Is Mandatory
G. Confidentiality
H. Request for Comment
V. Economic Analysis
A. Benefits
B. Costs
1. Costs Attributable to Filing the Forms
2. Costs of Certification
3. Costs Relating to Associated Persons
4. Costs to Nonresident SBS Entities
5. Cost of Retaining Manually Signed Signature Pages
6. Costs Associated With Proposed Temporary Rule 15Fb2-2T
C. Request for Comment
VI. Consideration of Impact on the Economy
VII. Regulatory Flexibility Act Certification
VIII. Statutory Basis and Text of Proposed Rules
I. Introduction
A. Background
On July 21, 2010, the President signed the Dodd-Frank Act into
law.\1\ The Dodd-Frank Act was designed to promote, among other things,
the financial stability of the United States by improving
accountability and transparency in the financial system.\2\ Among other
measures, the Dodd-Frank Act provides the Commission and the Commodity
Futures Trading Commission (``CFTC'') with authority to regulate
certain aspects of the over-the-counter (``OTC'') derivatives market,
where the recent financial crisis demonstrated a need for enhanced
regulation. The Dodd-Frank Act is intended to provide the Commission
[[Page 65785]]
and the CFTC with effective new regulatory tools to oversee that
market, which has grown exponentially in recent years and is capable of
affecting significant sectors of the U.S. economy.
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\1\ The Dodd-Frank Wall Street Reform and Consumer Protection
Act, Public Law 111-203, 124 Stat. 1376 (2010).
\2\ See id., at Preamble.
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Title VII of the Dodd-Frank Act broadly categorizes covered
products as ``swaps,'' \3\ regulated primarily by the CFTC, ``security-
based swaps,'' \4\ regulated primarily by the Commission, or ``mixed
swaps,'' jointly regulated by the Commission and the CFTC.\5\ Among
other things, the Dodd-Frank Act prohibits any person from acting as a
``security-based swap dealer'' \6\ or ``major security-based swap
participant'' \7\ without being registered with the Commission, and
requires that the Commission issue rules to provide for registration of
these SBS Entities.\8\
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\3\ Defined in Section 1a of the Commodity Exchange Act
(``CEA'').
\4\ Defined in Section 3(a)(68) of the Exchange Act. All
references to the Exchange Act contained in this release refer to
the Securities Exchange Act of 1934, as modified by the Dodd-Frank
Act.
\5\ In addition, Section 712(d)(1) of the Dodd-Frank Act directs
the Commission and the CFTC, in consultation with the Board of
Governors of the Federal Reserve System, to propose rules and
interpretative guidance to further define, among other things, the
terms ``security-based swap,'' ``swap dealer,'' ``security-based
swap dealer,'' ``major swap participant,'' and ``major security-
based swap participant.'' The Commission and CFTC jointly proposed
further rules and guidance with respect to the dealer and
participant definitions on December 7, 2010. Further Definition of
``Swap Dealer,'' ``Security-Based Swap Dealer,'' ``Major Swap
Participant,'' ``Major Security-Based Swap Participant'' and
``Eligible Contract Participant,'' Exchange Act Release No. 63452
(Dec. 7, 2010), 75 FR 80174 (Dec. 10, 2010) (the ``Intermediary
Definitions Release''). The Commission and CFTC jointly proposed
further rules and guidance with respect to the definitions of
``swap'', ``security-based swap'', and other terms on April 29,
2011. Further Definition of ``Swap, '' ``Security-Based Swap, '' and
``Security-Based Swap Agreement''; Mixed Swaps; Security-Based Swap
Agreement Recordkeeping, Exchange Act Release No. 64372 (Apr. 29,
2011), 76 FR 29818 (May 23, 2011)).
\6\ Subject to certain exceptions, Exchange Act Section
3(a)(71)(A) defines ``security-based swap dealer'' to mean any
person who: (i) Holds themself out as a dealer in security-based
swaps; (ii) makes a market in security-based swaps; (iii) regularly
enters into security-based swaps with counterparties as an ordinary
course of business for its own account; or (iv) engages in any
activity causing it to be commonly known in the trade as a dealer or
market maker in security-based swaps. See also supra note 5.
\7\ Exchange Act Section 3(a)(67)(A) defines ``major security-
based swap participant'' to mean ``any person: (i) who is not a
security-based swap dealer; and (ii)(I) who maintains a substantial
position in security-based swaps for any of the major security-based
swap categories, as such categories are determined by the
Commission, excluding both positions held for hedging or mitigating
commercial risk and positions maintained by any employee benefit
plan (or any contract held by such a plan) as defined in paragraphs
(3) and (32) of Section 3 of the Employee Retirement Income Security
Act of 1974 (29 U.S.C. 1002) for the primary purpose of hedging or
mitigating any risk directly associated with the operation of the
plan; (II) whose outstanding security-based swaps create substantial
counterparty exposure that could have serious adverse effects on the
financial stability of the United States banking system or financial
markets; or (III) that is a financial entity that (aa) is highly
leveraged relative to the amount of capital such entity holds and
that is not subject to capital requirements established by an
appropriate Federal banking regulator; and (bb) maintains a
substantial position in outstanding security-based swaps in any
major security-based swap category, as such categories are
determined by the Commission.'' See also supra note 5.
\8\ The Commission has concluded that SBS Entities that were not
registered with the Commission as of the July 16, 2011, effective
date of Section 15F of the Exchange Act are permitted to lawfully
continue their business absent Commission action with respect to the
SBS Entity registration regime. See Temporary Exemptions and Other
Temporary Relief, Together With Information on Compliance Dates for
New Provisions of the Securities Exchange Act of 1934 Applicable to
Security-Based Swaps, Exchange Act Release No. 64678 (Jun. 15,
2011), 76 FR 36287, 36299-300 (Jun. 22, 2011) (the ``Effective Date
Release'').
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The Commission is proposing Rules 15Fb1-1 to 15Fb6-1 under the
Exchange Act to establish procedures for an SBS Entity to register with
the Commission and additional provisions related to such registration,
including: (1) A requirement to amend an inaccurate application for
registration; (2) procedures for succession to, or withdrawal from,
registration; and (3) procedures for the Commission to cancel or revoke
registration.\9\ The proposed rules would also establish a requirement
for an SBS Entity to certify that none of its associated persons that
effect, or are involved in effecting, security-based swaps on the SBS
Entity's behalf is subject to statutory disqualification. The
Commission is proposing forms to facilitate SBS Entities' registration
and withdrawal from registration.
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\9\ The Exchange Act gives the Commission broad authority to
craft a registration regime for SBS Entities that helps the
Commission accomplish its missions of protecting investors,
maintaining fair, orderly, and efficient markets, and facilitating
capital formation. For example, Section 15F(b)(2) of the Exchange
Act states that an application for registration ``shall be made in
such form and manner as prescribed by the Commission, and shall
contain such information as the Commission considers necessary
concerning the business in which the applicant is or will be
engaged.'' In addition, Section 15F(d)(1) of the Exchange Act
directs the Commission to ``adopt rules for persons that are
registered as [SBS Entities] under [Section 15F].''
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The proposed rules and forms would address additional registration
requirements applicable to nonresident SBS Entities, including
requirements to appoint a U.S. agent for service of process, and to
provide an opinion of counsel regarding the entity's ability to (1)
Provide the Commission with prompt access to books and records, and (2)
be subject to onsite examinations and inspections by the Commission.
In proposing these rules and forms, the Commission is mindful that
there are similarities and differences among SBS Entities that hold
substantial positions in security-based swaps and dealers and
participants that hold substantial positions in other financial
products. The Commission also understands that there are similarities
and differences between the security-based swap market and the markets
for other financial products. The Commission believes that, both over
time and as a result of Commission proposals to implement the Dodd-
Frank Act, further information concerning the application of existing
registration and regulatory regimes to SBS Entities and the development
of the security-based swap market may alter certain considerations
relating to the registration of SBS Entities. During the process of
implementing the Dodd-Frank Act and beyond, the Commission intends to
closely monitor developments relating to SBS Entities and the security-
based swap markets. In particular, the Commission intends to evaluate
further information concerning the range of market participants that
may register as SBS Entities, the activities of and services provided
by such market participants, whether these activities and services are
identical or similar to activities and services already regulated by
the federal securities laws or other laws, and how applicable existing
registration and regulatory regimes interact with one another and apply
to SBS Entities.
B. General Approach to the SBS Entity Registration Process
The Commission's proposed registration requirements for SBS
Entities largely are modeled after the registration regime applicable
to broker-dealers,\10\ while also taking into account the CFTC's
registration requirements for intermediaries.\11\ We preliminarily
believe that because the proposed requirements would closely align with
current requirements for our other registrants, and would be similar to
the registration regime for CFTC registrants, this approach would
provide the Commission and the staff with key information about
registrants while leveraging Commission staff experience and standing
procedures to facilitate a
[[Page 65786]]
substantive review of applications for registration and inspections of
registrants. In addition, the broker-dealer registration regime should
be familiar to, and understood by, many SBS Entities. In particular,
SBS Dealers may already be registered and regulated as broker-dealers
or may be affiliated with a broker-dealer. Moreover, if an SBS Dealer
enters into security-based swap transactions with persons that are not
eligible contract participants, it must register as a broker-dealer
unless an exemption or exception applies.\12\ The proposed approach
would seek to ensure that a market participant registered as both an
SBS Entity and a broker-dealer is subject to a similar and
complementary registration regime. It could therefore both ease the
regulatory burden on such entities and help to establish a consistent
regime for regulating SBS Dealers and dealers of other securities.
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\10\ This includes rules promulgated under Sections 15(b) and
17(a) of the Exchange Act.
\11\ 17 CFR 3.1 et seq. Futures commission merchants (``FCMs'')
and introducing brokers presently register with the CFTC by filing
Form 7-R with the National Futures Association. The CFTC has
proposed to register swap dealers and major swap participants
through this same process. See 75 FR 71379, at 71382 (Nov. 23,
2010).
\12\ See 15 U.S.C. 78c(a)(5) and 78o(a).
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As explained below, our proposed approach to the application
process would build on our existing broker-dealer registration forms--
most notably, Form BD--but also is designed to avoid unnecessary
duplication by permitting SBS Entities that are otherwise registered or
registering as intermediaries with either the Commission or the CFTC to
complete simplified application forms. Under this process, SBS Entities
registered or registering with the Commission as broker-dealers or with
the CFTC as swap dealers or major swap participants would submit a
shorter SBS Entity registration form along with a copy of their
existing registration form.
An SBS Entity would be permitted to file an application for
registration as soon as final registration rules and forms are adopted.
Further, each SBS Entity would need to be registered (at least
conditionally) by the compliance date set forth in the final
registration rules. In certain circumstances, SBS Entities would be
required to apply for conditional registration, which they could
convert to ongoing registration by fulfilling the applicable
requirements set forth in the proposed rules. As discussed in more
detail below, those requirements would differ depending on whether: (1)
The application was filed with the Commission before or after the
compliance dates for certain new rules to be adopted pursuant to
Section 15F of the Exchange Act; and (2) the applicant is an SBS Dealer
or instead is a major security-based swap participant. Conditional
registration would expire after a specified time, and a conditionally
registered SBS Entity would be required to cease its security-based
swap business if it had not satisfied the applicable conditions to
convert its registration to an ongoing registration. The Commission
could, however, extend any conditional registration for good cause.
Although the Commission may be familiar with SBS Entities that are
already registered with the Commission (e.g., broker-dealers or
investment advisers), the Commission is mindful that SBS Entities will
nonetheless constitute a new class of registrants that may present
business models and practices with which the Commission will need to
gain experience. Accordingly, the Commission expects that its careful
review of each application for registration and each certification on
Form SBSE-C (the ``Senior Officer Certification'' described further
below) will not only facilitate the Commission's decision to grant or
deny registration to an SBS Entity, but also help to develop this
experience and aid in the identification of areas for further inquiry,
including, as may be appropriate, examinations of particular firms or
business units by the Commission's Office of Compliance Inspections and
Examinations (``OCIE''), in order to establish an effective ongoing
examination program for such entities.\13\
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\13\ In addition to SBS Entities, the Dodd-Frank Act requires
the Commission to register for the first time security-based swap
execution facilities, security-based swap data repositories,
municipal advisors, and certain private fund advisers. In light of
these new categories of registrants, the Commission is presently
reviewing the various standards and processes it uses to facilitate
registration of the many types of entities required to register with
it--including broker-dealers, investment advisers, nationally
recognized statistical rating organizations, transfer agents,
clearing agencies, exchanges, national securities associations, and
others. In this regard, the Commission plans to issue a concept
release designed to collect information and evaluate different
aspects of these registration standards and processes. In
particular, the Commission intends to consider the policy objectives
of registration, how best to achieve those policy objectives through
registration and other means, and the relative benefits and costs of
the various means available. Through such a concept release, the
Commission would hope to gain insight into how evolving market
practices, technology, and other considerations could affect or be
affected by the Commission's approach to the registration processes
for various types of entities. Recognizing that the Commission has
finite resources to allocate to registration, examination, and
enforcement functions, the Commission intends to use the concept
release to seek comment as to how it can most effectively and
efficiently utilize these registration and other functions to help
ensure that entities registered by the Commission to perform
important financial intermediary and other functions in the
securities markets have the capability to carry out those functions
and to fully comply with all applicable regulatory requirements.
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OCIE currently uses risk-based methodologies to focus Commission
examination resources on firms and activities that could pose the
greatest risk to investors and the integrity of the markets. Consistent
with that general approach, OCIE and the Division of Trading and
Markets intend jointly to perform a substantive review of applications
and Senior Officer Certifications received for registration of SBS
Entities to determine whether additional Commission action is
appropriate and to evaluate potential registrants' risk for purposes of
prioritizing examinations.
1. Conditional Registration
Under the proposed rules, an SBS Entity seeking Commission
registration generally would be required to apply for conditional
registration by submitting a complete application to the Commission.
The Commission would then grant conditional registration if it finds
that the SBS Entity's application is complete, except that the
Commission may institute proceedings to determine whether the
Commission should deny conditional registration if the applicant is
subject to a statutory disqualification or the Commission is aware of
inaccurate statements in the application.\14\ The Commission would
notify the entity electronically when conditional registration is
granted, and would make information regarding registration status
publicly available.
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\14\ Such proceedings would include notice of the grounds for
denial under consideration and opportunity for hearing, and that at
the conclusion of such proceedings, the Commission would grant or
deny such registration. See proposed Rule 15Fb2-1(d)(1).
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For an SBS Entity to convert its conditional registration to
ongoing registration, it would be required to submit a Senior Officer
Certification signed by one of its knowledgeable senior officers. The
contents of the Senior Officer Certification and the time frame within
which it must be submitted to the Commission are described more fully
below and specified in the rule. Generally, however, the Senior Officer
Certification would state that, after due inquiry, the senior officer
has reasonably determined that the SBS Entity has the operational,
financial, and compliance capabilities to act as an SBS Dealer or a
major security-based swap participant, as applicable, and has
documented the process by which he or she reached such determination.
We preliminarily believe that this certification requirement would help
to protect both investors and markets from potential problems arising
from SBS Entities that may lack the capabilities necessary to operate
their businesses in compliance with their regulatory obligations.
[[Page 65787]]
i. Implementation Plan and the Last Compliance Date
After proposing all of the key rules under Title VII, the
Commission intends to seek public comment on a detailed implementation
plan that will permit a roll-out of the new securities-based swap
requirements in a logical, progressive, and efficient manner, while
minimizing unnecessary disruption and costs to the markets. Among other
things, the implementation plan would inform the timing of the
requirement for SBS Entities to register with the Commission, including
whether such registration requirement would exist prior to the latest
date, designated by the Commission, by which SBS Dealers and major
security-based swap participants must begin complying with all of the
initial rules promulgated under Section 15F of the Exchange Act (``Last
Compliance Date'').\15\
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\15\ The term ``Last Compliance Date'' is defined in proposed
Rule 15Fb2-1(e). The Commission anticipates that the Last Compliance
Date would be clearly stated in the relevant adopting release and
prominently announced on the Commission's Web site.
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The Commission believes it is possible that SBS Entities may be
required to register before the Last Compliance Date.\16\ For these
``transitional'' applicants, whether SBS Dealer or major security-based
swap participant, there would be a period of time before the Last
Compliance Date when the Senior Officer Certification would be either
unduly burdensome for registrants (e.g., a rule has been promulgated by
the Commission under Section 15F of the Exchange Act, but compliance
with that rule is not yet required) or inappropriate for meeting the
goals of the certification (e.g., the Commission has not yet adopted a
significant rule under Section 15F of the Exchange Act, so the
certification would not cover compliance in an important regulatory
area).
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\16\ The Commission notes that, regardless of the timing of the
Last Compliance Date, a registered SBS Entity would be required to
comply with certain self-operative provisions in Exchange Act
Section 15F upon registration (conditional or otherwise), absent
further Commission action. See Effective Date Release, supra note 8.
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To address this potential transition issue, we preliminarily
believe it is appropriate to propose a conditional registration process
that would permit registration without a Senior Officer Certification
prior to the Last Compliance Date. This process would be available to
all applicants (whether SBS Dealer or major security-based swap
participant) and would, among other things, facilitate the
identification of existing SBS Entities in advance of the compliance
date of certain substantive requirements. Conditional registration
would be effective once the Commission grants such conditional
registration and would expire on the Last Compliance Date (unless
conditional registration was extended pursuant to paragraphs (b) or (c)
of proposed Rule 15Fb3-1). Ongoing registration of these conditionally
registered SBS Entities would be conditioned on, among other things,
the registrant providing the Senior Officer Certification to the
Commission on or before the Last Compliance Date. As described above,
fulfillment of this requirement by an SBS Entity would provide the
Commission with some assurance that the SBS Entity understands and has
the ability to undertake its business in compliance with the applicable
requirements. Once a registrant submits its Senior Officer
Certification, the Commission would consider converting its conditional
registration to an ongoing registration.\17\ However, whether or not a
conditional registrant provides the Senior Officer Certification on or
before the Last Compliance Date, the Commission would retain the
flexibility to extend conditional registration for good cause.
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\17\ Submission of a Senior Officer Certification also would
toll expiration of the SBS Entity's conditional registration for
thirty days, if necessary to facilitate the Commission's review, or
such longer period as the Commission finds for good cause (see
proposed Rule 15Fb3-1).
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Once the Last Compliance Date has occurred, the conditional
registration process for SBS Dealers would effectively collapse into
the ongoing registration process and any SBS Dealer would need to
submit its Senior Officer Certification with its application (i.e.,
after the Last Compliance Date, SBS Dealers could only apply for
ongoing registration). Major securities-based swap participants could
still conditionally register (as described below) because of challenges
separate and apart from implementation of Section 15F of the Exchange
Act.
ii. Major Security-Based Swap Participant Applicants Registering After
the Last Compliance Date
As noted in the proposed definition of major security-based swap
participant,\18\ an entity whose security-based swap portfolio crosses
established thresholds in a fiscal quarter would have a two-month grace
period following the end of that quarter to submit a complete
application for registration as a major security-based swap
participant. The Commission preliminarily believes that, while there is
likely to be some advance notice of an impending status change due to
ongoing monitoring of portfolios in the ordinary course of business, an
entity that would likely fall within the definition of a ``major
security-based swap participant'' because of activities in a given
fiscal quarter may not have adequate compliance systems in place within
two months after the end of the triggering quarter to allow the entity
to provide the Commission with a Senior Officer Certification.
Therefore, the Commission proposes to conditionally register such new
participants based on their filing of a complete application before the
expiration of the two-month grace period, subject to a requirement that
they provide a Senior Officer Certification to the Commission within
four months of the submission of their complete application (i.e.,
within six months after the end of the triggering quarter). This
proposal is intended to balance the additional time a new major
security-based swap participant may require to build out its compliance
structure with the Commission's strong interest in having new
registrants promptly comply with applicable federal securities laws.
Such conditional registration would be effective once the Commission
grants conditional registration and would expire four months after
receipt of that application unless the firm files a Senior Officer
Certification with the Commission within that time frame.
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\18\ See Intermediary Definitions Release, supra note 5, at 103.
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As with conditional registrations granted prior to the Last
Compliance Date, once a major security-based swap participant that
applies for registration after the Last Compliance Date submits its
Senior Officer Certification, the Commission could consider converting
its conditional registration to an ongoing registration, as described
below. In addition, whether or not a conditionally registered major
security-based swap participant provides the Senior Officer
Certification within four months after submitting its application, the
Commission retains the flexibility to extend the conditional
registration for good cause.
The Commission notes that the conditional registration mechanism
for major security-based swap participants would remain in place even
after the Last Compliance Date (i.e., major security-based swap
participants could always avail themselves of a conditional
registration period).
2. Ongoing Registration
The proposed rules would provide for the ongoing registration of
all conditionally registered SBS Entities following their fulfillment
of the applicable requirements, as well as SBS
[[Page 65788]]
Dealers registering with the Commission after the Last Compliance Date
(and, therefore would not be required to conditionally register). As
described above, an SBS Entity would need to submit both a completed
application and a Senior Officer Certification to obtain ongoing
registration. An SBS Entity that was conditionally registered would not
be required to submit a new application. At the time it applies for
ongoing registration, however, the SBS Entity would be required to
amend its application to correct any information that has become
inaccurate for any reason.
The Commission would grant ongoing registration if it finds that
the requirements of Section 15F(b) of the Exchange Act are satisfied,
but the Commission would institute proceedings to determine whether the
Commission should deny ongoing registration if the Commission does not
make such a finding, if it finds that the applicant is subject to a
statutory disqualification, or if it is aware of inaccurate statements
in the application or certification.\19\ The Commission would notify
the entity electronically when ongoing registration is granted, and
would make information regarding registration status publicly
available. Pursuant to proposed Rule 15Fb3-1(a), ongoing registration
would be effective until any cancellation, revocation or withdrawal of
the registration or on any other event the Commission determines should
trigger expiration.
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\19\ Such proceedings would include notice of the grounds for
denial under consideration and opportunity for hearing, and that at
the conclusion of such proceedings, the Commission would grant or
deny such registration. See proposed Rule 15Fb2-1(d)(2).
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3. Solicitation of Comments on the General Approach to the SBS Entity
Registration Process
We request comment on this approach to the SBS Entity registration
process.
Q-1. Should the Commission model the registration regime applicable
to SBS Entities more closely after one or more other registration
regimes regulated by the Commission (e.g., securities exchanges or
associations,\20\ clearing agencies,\21\ or investment advisers \22\),
self regulatory organizations (``SROs''),\23\ or other regulators? \24\
If so, please describe which model should be followed and why.
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\20\ 15 U.S.C. 78f(b)(1) and 15 U.S.C. 78o-3(b)(1)-(2).
\21\ 15 U.S.C. 78q-1(b)(3)(A).
\22\ 15 U.S.C. 80b-3(c).
\23\ See, e.g., National Association of Securities Dealers Rules
1013 and 1014; Chicago Board Options Exchange Rules 3.5(c)(ii),
8.83(b), and 44.12(b); and NYSE Arca Rule 7.22(a).
\24\ See, e.g., National Futures Association Registration Rules
(which can be found at https://www.nfa.futures.org/nfamanual/NFAManualTOC.aspx?Section=8).
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Q-2. Does the conditional process for SBS Entity registration
outlined above provide a practicable solution to the potential timing
issues raised by the implementation of Section 15F of the Exchange Act?
Are there additional or alternative conditions or mechanisms that would
be appropriate for addressing those issues?
Q-3. Does the conditional process for major security-based swap
participant registration outlined above provide a practicable solution
to the potential timing issues raised by the look-back features in the
proposed definition of ``major security-based swap participant''
definition? Are there additional or alternative conditions or
mechanisms that would be appropriate for addressing those issues?
Q-4. Should the Commission delay all registrations until the Last
Compliance Date instead of adopting a conditional registration process?
Why or why not?
Q-5. Should the Commission consider granting conditional
registration automatically based on the receipt of a completed
application or some other or additional documents? If so, why?
Q-6. Should the Commission notify the SBS Entity that it has
granted conditional or ongoing registration prior to making the SBS
Entity's registration status publicly available? If so, why and what
should be the timing difference?
Q-7. Should the Commission provide additional guidance regarding
the process for institution of proceedings? For instance, should the
Commission include timeframes within which proceedings would be
instituted and/or a decision to grant or deny registration based on
those proceedings should be provided (e.g., Exchange Act Section
15(b)(1))? If so, what timeframes or other guidance would be
appropriate and why?
Q-8. Is it appropriate to seek to minimize duplication by
permitting registered intermediaries to follow a registration process
that uses simplified forms? Why or why not?
Q-9. Should these intermediaries be required to file their existing
registration forms with the Commission as part of this process, or
should they be required to authorize the Commission to obtain access to
those forms at the relevant repository (e.g., the Financial Industry
Regulatory Authority (``FINRA'') or the National Futures Association
(``NFA''))?
Q-10. Should SBS Entities be afforded more time (beyond the Last
Compliance Date) to prepare and provide their Senior Officer
Certification? Why or why not? If so, how much additional time would be
appropriate?
Q-11. Should major security-based swap participants that file
applications after the Last Compliance Date be afforded more or less
than four months to prepare and provide their Senior Officer
Certification? Why or why not?
Q-12. What would be the advantages and disadvantages and costs and
benefits of the Commission adopting an approach to SBS Entity
registration that encompasses a more substantive inquiry concerning the
business of an applicant? What would be the impact on market
participants, including investors?
Q-13. Are there additional or alternative mechanisms that the
Commission could employ to better protect markets and market
participants and minimize the burden on registrants while meeting the
regulatory objectives of a registration scheme for SBS Entities?
Commenters are encouraged to identify other possible solutions that
would allow the Commission to promptly review and consider SBS Entity
registration applications so they would not experience undue
interruptions in business while also providing the Commission
reasonable assurance that they have the ability to carry out their
business and are able to comply with applicable federal securities
laws.
II. Proposed Exchange Act Rules and Forms
A. Registration Application and Amendment
1. Proposed Rule 15Fb2-1
Proposed Rule 15Fb2-1 would set forth the method through which SBS
Entities could apply for registration with the Commission. Essentially,
the forms and process for filing applications and other documents
electronically with the Commission would be identical for SBS Dealers
and major security-based swap participants. This proposed rule also
would describe the timing of such filings and the standard of review
applied by the Commission in determining whether to grant or deny
registration, which may differ slightly for SBS Dealers and major
security-based swap participants, depending on the type of registration
the firm is seeking. While it may be appropriate for certain rules
applicable to SBS Dealers to differ from those applicable to major
security-based swap participants, the Commission preliminarily believes
that
[[Page 65789]]
the registration rules and forms need not differ significantly because
the information the Commission would need to determine whether
registration is appropriate is similar for both types of entities.
i. Form of Application
Paragraph (a) of proposed Rule 15Fb2-1 would provide that an SBS
Entity would apply for registration electronically on Form SBSE, Form
SBSE-A, or Form SBSE-BD, as appropriate, in accordance with the
instructions to the form. In general:
SBS Entities registered or registering with the Commission
as broker-dealers would apply for registration using Form SBSE-BD;
SBS Entities registered or registering with the CFTC as
swap dealers or major swap participants (and not also registered or
registering with the Commission as broker-dealers) would apply for
registration using Form SBSE-A; and
SBS Entities that do not fit either of the above
categories would apply for registration using Form SBSE.
Specifics regarding each of these forms and their differences and uses
are discussed in more detail below. These forms would be used to
register with the Commission regardless of whether an SBS Entity was
applying for conditional or ongoing registration.
The Commission solicits comment on the use of forms to register
with the Commission.
Q-14. Would an alternative mechanism be more appropriate for
registering SBS Entities? If so, which one and why?
Q-15. Should the registration forms differ based on whether the
entity is registering as an SBS Dealer or major security-based swap
participant? If so, how?
ii. Senior Officer Certification
Paragraph (b) of proposed Rule 15Fb2-1 would require that each SBS
Entity provide the Commission with a certification on Form SBSE-C to
facilitate the Commission's review of each firm's application for
ongoing registration. A knowledgeable senior officer of the SBS Entity
would be required to sign the certification,\25\ which is designed to
provide the Commission with the applicant's assurance that the
applicant has the capabilities necessary to operate as an SBS Entity
and, therefore, that the applicant should qualify for registration
under Exchange Act Section 15F(b). Accordingly, the certification would
assist the Commission in determining whether to grant the SBS Entity
ongoing registration. Such an informed determination, based in part on
the certification, will help the Commission maintain orderly and
efficient markets and protect investors by helping to ensure that the
Commission only grants registration to SBS Entities that can attest
that they possess the operational, financial, and compliance
capabilities to conduct business as an SBS Entity. Specifically, under
the proposal, each SBS Entity must have a senior officer certify that,
after due inquiry, he or she has reasonably determined that the SBS
Entity has the operational,\26\ financial,\27\ and compliance \28\
capabilities to act as an SBS Entity. In addition, the proposal would
require that the senior officer certify that he or she has documented
the process by which he or she reached that determination. While the
Commission has required regulated entities to provide a certification
in other contexts,\29\ a requirement that an applicant or regulated
entity certify as to its ability to engage in the business it would be
registered to do is relatively new.\30\
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\25\ In accordance with Proposed Rule 15Fb1-1(b), the SBS Entity
will need to maintain a manually signed copy of this certification
as part of its books and records until at least three years after
the certification was filed with the Commission.
\26\ The concept of ``operational capability'' can be an
important regulatory consideration because an SBS Entity with
insufficient infrastructure, technology, and human resources
presents operational risks that may adversely impact its
counterparties and the broader market--e.g., if transactions are
inaccurately documented, not documented at all, or if insufficient
margin is collected. See Trade Acknowledgment and Verification of
Security-Based Swap Transactions, Exchange Act Release No. 63727
(Jan. 14, 2011), 76 FR 3859, at 3860 (Jan. 21, 2011) (proposing
release) (discussing the recognition by various parties of the
importance of operational infrastructure in the over-the-counter
derivatives market) (the ``Trade Acknowledgement Proposing
Release''). The Commission expects that a key foundation for the
Senior Officer Certification would be the capability of an SBS
Entity to comply with the obligations that would be imposed by the
Trade Acknowledgment Proposing Release, if adopted, other legal
obligations applicable to the operations of an SBS Entity, and the
capability of the SBS Entity to conduct its business as represented
in the SBS Entity's application for ongoing registration.
\27\ The concept of ``financial capability'' can be an important
regulatory consideration because of, among other things, the role
adequate financing plays in protecting an SBS Entity's
counterparties and the broader market by ensuring that the SBS
Entity has sufficient working capital and liquidity for its
security-based swap business consistent with regulatory requirements
and as needed to respond to market conditions. The Commission will
separately propose capital rules for SBS Entities, as required by
the Dodd Frank Act. 15 U.S.C. 78o-10(e). The Commission expects that
the capability of an SBS Entity to comply with these obligations, if
adopted, would form a key foundation for the Senior Officer
Certification.
\28\ The concept of ``compliance capability'' can be an
important regulatory consideration because of, among other things,
the wholesale creation of a new regulatory regime for security-based
swaps under the Dodd-Frank Act. For example, in proposing business
conduct rules for SBS Entities, the Commission proposed to require
that each SBS Entity ``[establish, maintain, and enforce] written
policies and procedures addressing the supervision of the types of
security-based swap business in which the [SBS Entity] is engaged
that are reasonably designed to achieve compliance with applicable
securities laws and the rules and regulations thereunder.'' Business
Conduct Standards for Security-Based Swap Dealers and Major
Security-Based Swap Participants, Exchange Act Release No. 64766
(Jun. 29, 2011), 76 FR 42396, (Jul. 18, 2011), as corrected by
Exchange Act Release No. 64766, 76 FR 46668 (Aug. 3, 2011)
(proposing release). The Commission expects that development and
implementation of such a compliance regime, if adopted, would serve
as a key foundation for the Senior Officer Certification.
\29\ See, e.g., 17 CFR 240.15c3-5, 17 CFR 240.13a-14, and 17 CFR
270.30a-2.
\30\ See, e.g., Registration of Municipal Advisors, Exchange Act
Release No. 63576 (Dec. 20, 2010), 76 FR 824, (Jan. 6, 2011)
(proposing release) (the ``Registration of Municipal Advisors
Proposing Release'').
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The Commission preliminarily believes that receipt of a Senior
Officer Certification would provide assurances to the Commission that
each SBS Entity has the requisite capabilities to operate in the
capacity for which it seeks registration. The Senior Officer
Certification is designed to require a deliberate and thoughtful self-
assessment by each SBS Entity of its capabilities and thus should
provide assurances to potential investors, customers of, and
counterparties to an SBS Entity that the SBS Entity has the requisite
capabilities to act in that capacity. Further, this Senior Officer
Certification requirement could help prevent disorderly and unstable
markets that could result from the failure of a registered SBS Entity
that lacks the requisite capabilities to operate its business in a
registered capacity. The Senior Officer Certification also may enhance
market participants' ability to assess the counterparty credit risk
associated with a particular SBS Entity counterparty. In this way, the
Senior Officer Certification should help to protect investors and other
market participants from SBS Entities that are not competent to engage
in that business, lack the financial resources to do so, or are unable
or unwilling to comply with applicable law. The Commission thus
preliminarily believes that the Senior Officer Certification could help
the efficient functioning of the market and enhance the confidence of
investors and other market participants.
The Senior Officer Certification requirement, in other words, is
meant to address many of the same considerations that arise during the
in-depth review by the Commission and its staff, or, in some cases,
SROs, prior to
[[Page 65790]]
granting registration to certain applicants.\31\ For example, under
Sections 6(b) and 19(a) of the Exchange Act, an exchange may not be
registered unless the Commission finds that the exchange ``is so
organized and has the capacity to be able to carry out the purposes of
the Exchange Act and to comply, and [* * *] to enforce compliance by
its members and persons associated with its members, with the
provisions of [the Exchange Act], the rules and regulations thereunder,
and the rules of the exchange.'' \32\ Similarly, under Section 17A of
the Exchange Act, a clearing agency may not be registered unless the
Commission finds that the agency ``has the capacity to be able to
facilitate the prompt and accurate clearance and settlement of
securities transactions and derivative agreements, contracts and
transactions for which it is responsible, to safeguard securities and
funds in its custody or control or for which it is responsible, to
comply with the provisions of [the Exchange Act] and the rules and
regulations thereunder, [and] to enforce [* * *] compliance by its
participants with the rules of the clearing agency, and to carry out
the purposes of this section.'' \33\ To this end, the Commission has
published a series of standards ``that the [staff] will use in
reviewing the organizations, capacities and rules of clearing agencies
that currently are registered temporarily with the Commission and of
clearing agencies that may apply for registration * * *.'' \34\ Broker-
dealers that register with the Commission under Section 15(b) also must
become a member of an SRO, and SRO rules generally incorporate
membership application procedures that include, among other things,
assessments by the SRO of the broker-dealer's operational, financial,
and compliance capabilities.\35\
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\31\ See, e.g., 15 U.S.C. 78f(b)(1) (regarding registration of
national securities exchanges), and 15 U.S.C. 78q-1(b)(3)(A)
(regarding registration of clearing agencies). See also 15 U.S.C.
78o-3(b)(1) and (2) (regarding registration of national securities
associations). In addition, the Commission recently proposed rules
governing the registration of security-based swap data repositories
(``SDRs''), security-based swap execution facilities (``SB SEFs''),
security-based swap clearing agencies (``SBS CAs''), and municipal
advisors that relate to potential registrants' operational,
financial, and compliance capabilities. For example, the proposed
registration rules for security-based swap data repositories are
intended to, among other things, assure the Commission that ``an SDR
is so organized, and has the capacity, to be able to assure the
prompt, accurate, and reliable performance of its functions as an
SDR, comply with any applicable provision of the Federal securities
laws and the rules and regulations thereunder, and carry out its
functions in a manner consistent with the purposes of Exchange
Act.'' These proposed rules may also require an SDR to file with the
Commission, as a condition of registration or continued
registration, a review relating to the SDR's operational capacity
and ability to meet its regulatory obligations. Such review could be
in the form of a report conducted by the SDR, an independent third
party, or both. Security-Based Swap Data Repository Registration,
Duties, and Core Principles, Exchange Act Release No. 63347 (Nov.
19, 2010), 75 FR 77306 (Dec. 10, 2010) (proposing release).
Similarly, the proposed registration rules for security-based swap
execution facilities are designed to assure the Commission that a
registrant ``has adequate financial, operational, and managerial
resources to discharge each responsibility of the SB SEF, as
determined by the Commission.'' Registration and Regulation of
Security-Based Swap Execution Facilities, Exchange Act Release No.
63825 (Feb. 2, 2011), 76 FR 10948 (Feb. 28, 2011) (proposing
release). Among other things, these rules state in part that ``the
financial resources of a SB SEF shall be considered to be adequate
if the value of the financial resources exceeds the total amount
that would enable the SB SEF to cover its operating costs for a one
year period.'' The Commission also proposed registration rules for
security-based swap clearing agencies that require, among other
things, registrants to establish, maintain, and enforce written
policies and procedures reasonably designed to ensure that their
systems provide adequate levels of capacity, resiliency, and
security. Such policies and procedures shall, at a minimum: (i)
Establish reasonable current and future capacity estimates; (ii)
conduct periodic capacity stress tests of critical systems to
determine such systems' ability to process transactions in an
accurate, timely, and efficient manner; (iii) develop and implement
reasonable procedures to review and keep current its system
development and testing methodology; (iv) review the vulnerability
of its systems and data center computer operations to internal and
external threats, physical hazards, and natural disasters; and (v)
establish adequate contingency and disaster recovery plans. These
rules further require that clearing agencies that provide central
counterparty (``CCP'') services need to have a qualified person
conduct a review of models that are used to set margin levels, along
with related parameters and assumptions, in order to assure that the
models perform in a manner that facilitates prompt and accurate
clearance and settlement of transactions. In determining whether a
person is qualified to conduct the model validation, clearing
agencies providing CCP services could consider several factors,
including the person's experience in validating margin models,
expertise in risk management generally, and understanding of the
clearing agency's operations and procedures. Clearing Agency
Standards for Operation and Governance, Exchange Act Release No.
64017 (Mar. 3, 2011), 76 FR 14472 (Mar. 16, 2011) (proposing
release) (the ``Clearing Agency Standards Proposing Release'').
Finally, the proposed registration rules for municipal advisors
would require municipal advisors to certify that they have: ``1)
sufficient qualifications, training, experience, and competence to
effectively carry out their designated functions; 2) met, or within
any applicable timeframe will meet, such standards of training
experience, and competence, and such other qualifications, including
testing, for a municipal advisor, required by the Commission, the
MSRB or any other relevant self-regulatory organization; and 3) the
necessary understanding of, and ability to comply with, all
applicable regulatory obligations.'' Registration of Municipal
Advisors Proposing Release, supra note 30.
\32\ 15 U.S.C. 78f(b)(1).
\33\ 15 U.S.C. 78q-1(b)(3)(A).
\34\ The Commission has established a series of standards ``that
the [staff] will use in reviewing the organizations, capacities and
rules of clearing agencies that currently are registered temporarily
with the Commission and of clearing agencies that may apply for
registration * * *.'' Regulation of Clearing Agencies, Exchange Act
Release No. 16900 (Jun. 17. 1980), 45 FR 41920 (June 23, 1980)
(emphasis added). See also the Clearing Agency Standards Proposing
Release, supra note 30.
\35\ See, e.g., NASD Rules 1013 and 1014 (membership application
review requires a new broker-dealer to, among other things, file a
detailed business plan, explain its sources of funding, describe the
educational background and experience of its personnel, and undergo
a membership interview). Existing FINRA members that wish to enter
into a materially new business, such as dealing in security-based
swaps, must also file an application to do so, and those
applications are similarly reviewed to determine whether the broker-
dealer has the requisite capabilities to conduct the new business.
NASD Rule 1017. Exchange Act Rule 15b2-2 requires that a new broker-
dealer be examined within six months to evaluate whether the broker-
dealer is operating in conformity with applicable financial
responsibility rules and again within twelve months to evaluate
whether it is also operating in conformity with all other applicable
provisions of the Exchange Act and rules thereunder. 17 CFR
240.15b2-2(b) & (c).
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At this time, although we provide guidance above regarding the
factors a senior officer would use to serve as a foundation for the
Senior Officer Certification,\36\ we are not proposing a specific
definition of the term ``operational, financial and compliance
capabilities.'' Instead, we request comment regarding whether and how
that phrase should be further defined or interpreted. The Commission
recognizes that whether an SBS Entity has the operational, financial
and compliance capabilities to act as an SBS Entity likely will depend
on its particular facts and circumstances, including, among other
things: the scope and nature of its security-based swap business; its
other related financial and business activities; the extent to which it
is subject to other registration and regulatory requirements or other
supervisory oversight with respect to its activities; its relationships
with, and reliance on, affiliates, service providers, and other
parties; and the extent and nature of its historical involvement in
security-based swap transactions. Moreover, it may be appropriate to
consider the capabilities required for this certification by reference
to regulatory standards. For example, attesting to capabilities might
include a self-assessment of whether the SBS Entity is capable of
communicating in a manner that is based on principles of fair dealing
and good faith; \37\ whether the SBS Entity has established all
contractual or other arrangements and business relationships necessary
to conduct its security-based swap business; \38\ whether the SBS
Entity has or has adequate plans to obtain facilities
[[Page 65791]]
that are sufficient for its operations; \39\ and whether the SBS Entity
is capable of maintaining a level of capital that is adequate to
support the SBS Entity's intended business operations on a continuing
basis.\40\
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\36\ See supra notes 26-28.
\37\ See Section 15F(h)(3)(C) (providing that business conduct
requirements adopted by the Commission shall establish a duty to
communicate in a manner ``based on principles of fair dealing and
good faith'').
\38\ See NASD Rule 1014(a)(4).
\39\ See NASD Rule 1014(a)(5).
\40\ See NASD Rule 1014(a)(7).
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The proposed rules would require that a senior officer of an SBS
Entity certify that he or she has reasonably determined that, after
``due inquiry,'' the security-based swap dealer or major security-based
swap participant has the operational, financial, and compliance
capabilities to act as an SBS Entity.\41\ We believe it is important to
make explicit that the senior officer is obligated under the rule to
conduct some inquiry to form his or her reasonable determination.
However, the Commission does not propose to prescribe any single method
a senior officer must use to gain an appropriate level of comfort and
information before signing the Senior Officer Certification. In other
words, different SBS Entities may utilize different processes to
provide a basis for a senior officer's reasonable determination that
the SBS Entity has the requisite capabilities.\42\
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\41\ This certification must be accurate as of the date the
certification is filed with the Commission. An SBS Entity would not
be required to have a senior officer update the certification after
the SBS Entity has been approved for ongoing registration.
\42\ For example, in satisfying other certification requirements
some SBS Entities may use a sub-certification process whereby the
senior officer will not certify a firm-wide statement unless and
until other persons responsible for certain activities in turn
certify to the senior officer that the standard has been met, while
other SBS Entities may use an internal or external audit-type
process whereby a senior officer may choose to employ a third party
to review an area subject to a firm-wide certification before
submitting the certification.
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As described in Part I above, the proposed registration process
would include conditional and ongoing registration. Pursuant to
subparagraph (b)(1)(i) and (ii), respectively, of proposed Rule 15Fb2-
1, SBS Entities that register conditionally during the transitional
period would need to submit the Senior Officer Certification on or
before the Last Compliance Date and major security-based swap
participants that file an application after the Last Compliance Date
would need to submit the certification within four months after filing
an application. The Commission preliminarily believes that these
timeframes would provide senior officers of conditionally registered
SBS Entities sufficient time to determine that they are able to provide
the relevant certification. Pursuant to subparagraph (b)(2), an SBS
Dealer that files an application after the Last Compliance Date would
need to submit
