Security-Based Swap Execution and Registration and Regulation of Security-Based Swap Execution Facilities, 87156-87328 [2023-24587]
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Federal Register / Vol. 88, No. 240 / Friday, December 15, 2023 / Rules and Regulations
SECURITIES AND EXCHANGE
COMMISSION
17 CFR Parts 200, 201, 232, 240, 242,
and 249
[Release No. 34–98845; File No. S7–14–22]
RIN 3235–AK93
Security-Based Swap Execution and
Registration and Regulation of
Security-Based Swap Execution
Facilities
Securities and Exchange
Commission.
ACTION: Final rule.
AGENCY:
The Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
is adopting a set of rules and forms
under the Securities Exchange Act of
1934 (‘‘SEA’’) that would create a
regime for the registration and
regulation of security-based swap
execution facilities (‘‘SBSEFs’’) and
address other issues relating to securitybased swap (‘‘SBS’’) execution
generally. One of the rules being
adopted implements an element of the
Dodd-Frank Act that is intended to
mitigate conflicts of interest at SBSEFs
and national securities exchanges that
trade SBS (‘‘SBS exchanges’’). Other
rules being adopted address the crossborder application of the SEA’s trading
venue registration requirements and the
trade execution requirement for SBS. In
addition, the Commission is amending
an existing rule to exempt, from the SEA
definition of ‘‘exchange,’’ certain
registered clearing agencies, as well as
registered SBSEFs that provide a market
place only for SBS. The Commission is
also adopting a new rule that, while
affirming that an SBSEF would be a
broker under the SEA, exempts a
registered SBSEF from certain broker
requirements. Further, the Commission
is adopting certain new rules and
amendments to its Rules of Practice to
allow persons who are aggrieved by
certain actions by an SBSEF to apply for
review by the Commission. Finally, the
Commission is delegating new authority
to the Director of the Division of
Trading and Markets and to the General
Counsel to take actions necessary to
carry out the rules being adopted.
DATES:
Effective date: February 13, 2024.
Compliance dates: See section XVI
(Compliance Schedule).
FOR FURTHER INFORMATION CONTACT:
Michael E. Coe, Assistant Director;
David Liu, Special Counsel; Leah
Mesfin, Special Counsel; Michou
Nguyen, Special Counsel; or Geoffrey
Pemble, Special Counsel, at (202) 551–
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SUMMARY:
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5000, Office of Market Supervision,
Division of Trading and Markets,
Securities and Exchange Commission,
100 F Street NE, Washington, DC 20549.
SUPPLEMENTARY INFORMATION: The
Commission is adopting new 17 CFR
242.800 through 242.835 (‘‘Regulation
SE’’) to create a regime for the
registration and regulation of SBSEFs
and to address other issues relating to
SBS execution generally. Regulation SE
consists of 17 CFR 242.800 through
242.835 (Rules 800 through 835). Key
rules within Regulation SE include Rule
803, which establishes a process for
SBSEF registration; Rules 804 to 810,
which establish procedures for rule and
product filings by SBSEFs; Rule 815,
which establishes permissible execution
methods for SBS that are subject to the
SEA’s trade execution requirement; Rule
816, which sets out a procedure for
SBSEFs to make an SBS available to
trade and establish certain exemptions
from the trade execution requirement;
Rules 818 to 831, which implement the
14 Core Principles for SBSEFs set forth
in section 3D(d) of the SEA; Rules 832
to 833, which address cross-border
matters; and Rule 834, which imposes
requirements addressing conflicts of
interest involving SBSEFs and SBS
exchanges, as required by section 765 of
the Dodd-Frank Act.
In addition to the rules described
above, the Commission is also adopting
17 CFR 249.1701 (Form SBSEF), which
is the form that an entity will use to
register with the Commission as an
SBSEF; 17 CFR 249.1702 (a submission
cover sheet), which will be required to
accompany filings with the Commission
made by SBSEFs for rule and rule
amendments and for product listings;
adopting amendments to 17 CFR
232.405 (Rule 405 of Regulation S–T) to
require various SBSEF filings to be
provided in Inline eXtensible Business
Reporting Language (‘‘Inline XBRL’’), a
structured data language; adopting
amendments to 17 CFR 240.3a1–1 (Rule
3a1–1) to exempt from the SEA
definition of ‘‘exchange’’ certain
registered clearing agencies, as well as
registered SBSEFs that provide a market
place only for SBS; adopting 17 CFR
240.15a–12 (Rule 15a–12), which, while
affirming that an SBSEF would also be
a broker under the SEA, exempts a
registered SBSEF from certain broker
requirements; providing for the sunset
of existing temporary exemptions from
the requirement to register as a clearing
agency that, among other things, applies
to an entity performing the functions of
an SBSEF but that is not yet registered
as such, and from the requirement to
register as an SBSEF or a national
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securities exchange for entities that
meet the statutory definition of SBSEF;
adopting certain new rules and
amendments to 17 CFR part 201 (Rules
of Practice) to allow persons who are
aggrieved by certain actions by an
SBSEF to apply for review by the
Commission; and adopting amendments
to 17 CFR 200.30–3 and 17 CFR 200.30–
14 regarding delegations of authority to
the Director of the Division of Trading
and Markets and to the General Counsel.
Table of Contents
I. Background
II. Introductory Provisions of Regulation SE
A. Rule 800—Scope
B. Rule 801—Applicable Provisions
C. Rule 802—Definitions
III. Registration of SBSEFs
A. Rule 803—Requirements and
Procedures for Registration
B. Form SBSEF
IV. Rule and Product Filings by SBSEFs
A. Rule 804—Listing Products for Trading
by Certification
B. Rule 805—Voluntary Submission of
New Products for Commission Review
and Approval
C. Rule 806—Voluntary Submission of
Rules for Commission Review and
Approval
D. Rule 807—Self-Certification of Rules
E. Submission Cover Sheet and
Instructions
F. Rule 808—Availability of Public
Information
G. Rule 809—Staying of Certification and
Tolling of Review Period Pending
Jurisdictional Determination
H. Rule 810—Product Filings by SBSEFs
That Are Not Yet Registered and by
Dormant SBSEFs
V. Miscellaneous Requirements
A. Rule 811—Information Relating to
SBSEF Compliance
B. Rule 812—Enforceability
C. Rule 813—Prohibited Use of Data
Collected for Regulatory Purposes
D. Rule 814—Entity Operating Both a
National Securities Exchange and an
SBSEF
E. Rule 815—Methods of Execution for
Required and Permitted Transactions
F. Rule 816—Trade Execution Requirement
and Exemptions Therefrom
G. Rule 817—Trade Execution Compliance
Schedule
VI. Implementation of Core Principles
A. Rule 818—Core Principle 1—
Compliance With Core Principles
B. Rule 819—Core Principle 2—
Compliance With Rules
C. Rule 820—Core Principle 3—SBS Not
Readily Susceptible to Manipulation
D. Rule 821—Core Principle 4—Monitoring
of Trading and Trade Processing
E. Rule 822—Core Principle 5—Ability To
Obtain Information
F. Rule 823—Core Principle 6—Financial
Integrity of Transactions
G. Rule 824—Core Principle 7—Emergency
Authority
H. Rule 825—Core Principle 8—Timely
Publication of Trading Information
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I. Rule 826—Core Principle 9—
Recordkeeping and Reporting
J. Rule 827—Core Principle 10—Antitrust
Considerations
K. Rule 828—Core Principle 11—Conflicts
of Interest
L. Rule 829—Core Principle 12—Financial
Resources
M. Rule 830—Core Principle 13—System
Safeguards
N. Rule 831—Core Principle 14—
Designation of Chief Compliance Officer
VII. Cross-Border Rules
A. Rule 832—Cross-Border Mandatory
Trade Execution
B. Rule 833—Cross-Border Exemptions for
Foreign Trading Venues and Relating to
the Trade Execution Requirement
VIII. Rule 834—Implementation of Section
765 of the Dodd-Frank Act and
Governance of SBSEFs and SBS
Exchanges
A. Rule 834(a)
B. Rule 834(b)
C. Rule 834(c)
D. Rule 834(d)
E. Rule 834(e)
F. Rule 834(f)
G. Rule 834(g)
H. Rule 834(h)
IX. Rule 835—Notice to Commission by
SBSEF of Final Disciplinary Action,
Denial or Conditioning of Membership,
or Denial or Limitation of Access
X. Amendments to Existing Rule 3a1–1
Under the SEA-Exemptions From the
Definition of ‘‘Exchange’’
XI. Rule 15a–12—SBSEFs as Registered
Brokers; Relief From Certain Broker
Requirements
XII. Termination of Temporary Exemptions
XIII. Electronic Filings Under Regulation SE
A. Use of Electronic Filing Systems and
Structured Data
B. Use of Identifiers
XIV. Amendments to Commission’s Rules of
Practice for Appeals of SBSEF Actions
A. Amendment to Rule 101
B. Amendment to Rule 202
C. Amendment to Rule 210
D. Amendment to Rule 401
E. Rule 442—Right To Appeal
F. Rule 443—Sua sponte Review by
Commission
G. Amendment to Rule 450
H. Amendment to Rule 460
XV. Amendments to Delegations of Authority
in Rule 30–3 and Rule 30–14
A. Delegated Authority Related to SBSEF
Registration and Form SBSEF
B. Delegated Authority Related to New
Products Proposed by an SBSEF
C. Delegated Authority Related to New
Rules or Rule Amendments Proposed by
an SBSEF
D. Delegated Authority Related To Request
for Joint Interpretation
E. Delegated Authority Related to SBSEF
Submissions Contemplated by Rule 811
F. Delegated Authority Related to
Information Sharing
G. Delegated Authority Related to
Commission Review Proceedings
XVI. Compliance Schedule
XVII. Economic Analysis
A. Introduction
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B. Economic Baseline
C. Benefits and Costs
D. Effects on Efficiency, Competition, and
Capital Formation
E. Reasonable Alternatives
XVIII. Paperwork Reduction Act
A. Summary of Collection of Information
B. Proposed Use of Information
C. Respondents
D. Total Annual Reporting and
Recordkeeping Burden
E. Collection of Information is Mandatory
F. Responses To Collection of Information
Will Not Be Confidential
G. Retention Period of Recordkeeping
Requirements
XIX. Regulatory Flexibility Certification
A. SBSEFs
B. Persons Requesting an Exemption Order
Pursuant to Rule 833
C. SBS Exchanges
D. Certification
XX. Other Matters
I. Background
The Commission is adopting
Regulation SE,1 which governs the
registration and regulation of SBSEFs, as
required by section 3D of the SEA.2
Section 3D was enacted as part of Title
VII of the Dodd-Frank Wall Street
Reform and Consumer Protection Act
(‘‘Dodd-Frank Act’’).3 The Dodd-Frank
Act was enacted, among other reasons,
to promote the financial stability of the
United States by improving
accountability and transparency in the
financial system.4 The 2008 financial
crisis highlighted significant issues in
the over-the-counter (‘‘OTC’’)
derivatives markets, which experienced
dramatic growth in the years leading up
to the financial crisis and are capable of
affecting significant sectors of the U.S.
economy.
Section 3D(a)(1) of the SEA provides
that no person may operate a facility for
the trading or processing of SBS unless
the facility is registered as an SBSEF or
as a national securities exchange.
Section 3D(d) enumerates 14 Core
Principles with which SBSEFs must
comply.5 And section 3D(f) requires the
Commission to prescribe rules
governing the regulation of SBSEFs. In
addition, section 765 of the Dodd-Frank
Act directs the Commission to adopt
rules to mitigate conflicts of interest
with respect to clearing agencies that
1 The Commission proposed Regulation SE on
Apr. 6, 2022. See Rules Relating to Security-Based
Swap Execution and Registration and Regulation of
Security-Based Swap Execution Facilities (Proposed
Rule), SEA Release No. 94615 (Apr. 6, 2022), 87 FR
28872 (May 11, 2022) (‘‘Proposing Release’’).
2 15 U.S.C. 78c–4. In this release, the Commission
is defining the Securities Exchange Act as the
‘‘SEA’’ to distinguish it from the Commodity
Exchange Act (‘‘CEA’’).
3 Public Law 111–203, H.R. 4173, sec. 763(c).
4 See Public Law 111–203 Preamble.
5 See infra section VI (listing the Core Principles).
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clear SBS (‘‘SBS clearing agencies’’),
SBSEFs, and national securities
exchanges that post or make available
for trading SBS (‘‘SBS exchanges’’).
On April 6, 2022, the Commission
proposed Regulation SE, relating to the
registration and regulation of SBSEFs
and to SBS execution generally.6 As
discussed in the Proposing Release, the
proposed rules superseded previous
Commission proposals on these
subjects.7
The SBS market is closely related to
the swaps market, which is regulated by
the Commodity Futures Trading
Commission (‘‘CFTC’’).8 In June 2013,
the CFTC adopted rules (in 17 CFR
chapter I) under Title VII of the DoddFrank Act for swap execution facilities
(‘‘SEFs’’).9 The swaps market has grown
and matured within the framework
established by the CFTC’s rules.10 As
6 See Proposing Release, supra note 1. In 2011,
the Commission published for comment proposed
Regulation SBSEF relating to, among other things,
the registration and regulation of SBSEFs.
Registration and Regulation of Security-Based Swap
Execution Facilities, SEA Release No. 63825 (Feb.
2, 2011), 76 FR 10948 (Feb. 28, 2011) (‘‘2011 SBSEF
Proposal’’). The Proposing Release, which contains
a more detailed discussion of that and related
proposals, withdrew the 2011 SBSEF Proposal. See
Proposing Release, 87 FR at 28874.
7 See Proposing Release, supra note 1, 87 FR at
28874. However, Rule 834 of proposed Regulation
SE would implement section 765 only with respect
to SBSEFs and SBS exchanges. See infra section
VIII.
8 In adopting Regulation SE, the Commission has
consulted and coordinated with the CFTC and the
prudential regulators, in accordance with the
consultation mandate of the Dodd-Frank Act.
Section 712(a)(2) of the Dodd-Frank Act provides in
relevant part that the Commission shall ‘‘consult
and coordinate to the extent possible with the
Commodity Futures Trading Commission and the
prudential regulators for the purposes of assuring
regulatory consistency and comparability, to the
extent possible.’’ In addition, section 752(a) of the
Dodd-Frank Act provides in relevant part that ‘‘[i]n
order to promote effective and consistent global
regulation of swaps and security-based swaps, the
Commodity Futures Trading Commission, the
Securities and Exchange Commission, and the
prudential regulators . . . as appropriate, shall
consult and coordinate with foreign regulatory
authorities on the establishment of consistent
international standards with respect to the
regulation (including fees) of swaps.’’ The term
‘‘prudential regulator’’ is defined in section 1a(39)
of the CEA, 7 U.S.C. 1a(39), and that definition is
incorporated by reference in section 3(a)(74) of the
SEA, 15 U.S.C. 78c(a)(74).
9 See CFTC, Core Principles and Other
Requirements for Swap Execution Facilities, 78 FR
33476 (June 4, 2013) (‘‘2013 CFTC Final SEF Rules
Release’’); CFTC, Process for a Designated Contract
Market or Swap Execution Facility To Make a Swap
Available to Trade, Swap Transaction Compliance
and Implementation Schedule, and Trade Execution
Requirement Under the Commodity Exchange Act,
78 FR 33606 (June 4, 2013) (‘‘2013 CFTC Final MAT
Rules Release’’).
10 In 2018, the CFTC proposed to make
fundamental changes to the SEF regulatory
structure. See CFTC, Swap Execution Facilities and
Trade Execution Requirement, 83 FR 61946 (Nov.
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discussed in the Proposing Release, the
SBS market is a small fraction of the
overall swaps market, and the swaps
market provides greater opportunities
for revenue capture from swap
execution as compared to SBS
execution.11 For example, as of
November 25, 2022, the gross notional
amount outstanding in the SBS market
was approximately $8.5 trillion across
the credit, equity, and interest rate asset
classes,12 while the gross notional
amount outstanding in the swaps
market was approximately $352 trillion
across the interest rate, credit, and
foreign-exchange asset classes.13 The
Commission was sensitive in the
Proposing Release to the economic
impact its proposed SBSEF rules could
have.14
In addition, the Commission
recognized that the entities that are most
likely to register with the Commission
as SBSEFs are existing, CFTC-registered
SEFs, which have already made
substantial investments in systems,
policies, and procedures to comply with
and adapt to the regulatory system
developed by the CFTC. Harmonization
between the Commission’s SBSEF rules
and the CFTC’s SEF rules could
facilitate the ability of entities to dually
register and minimize costs by allowing
incumbent SEFs to use their existing
systems, policies, and procedures to
comply with the Commission’s SBSEF
rules.15
Thus, in proposing Regulation SE, the
Commission took the general approach
of harmonizing closely with analogous
CFTC SEF rules, except where
differences in the SEC’s statutory
authority relative to the CFTC’s
statutory authority, or differences in the
SBS market relative to the swaps
market, necessitated differences
30, 2018) (‘‘2018 SEF Proposal’’). In 2021, the CFTC
ultimately declined to finalize the 2018 SEF
Proposal and elected instead ‘‘to improve the SEF
framework through targeted rulemakings that
address distinct issues.’’ Accordingly, the CFTC
withdrew the unadopted portions of its 2018
proposal. See CFTC, Swap Execution Facilities and
Trade Execution Requirement—Proposed rule;
partial withdrawal, 86 FR 9304, 9304 (Feb. 12,
2021).
11 See Proposing Release, supra note 1, 87 FR at
28874–76.
12 See Report on Security-Based Swaps (Mar. 20,
2023), available at https://www.sec.gov/files/reportsecurity-based-swaps-032023.pdf. See also infra
note 815 and accompanying text (discussing
security-based swap transactions data in the credit,
equity, and interest rate derivatives asset classes
reported by registered SBSDRs).
13 See CFTC Swaps Report, available at https://
www.cftc.gov/MarketReports/SwapsReports/
L3Grossexp.html (accessed on Sept. 27, 2023).
14 See Proposing Release, supra note 1, 87 FR at
28875.
15 See Proposing Release, supra note 1, 87 FR at
28875.
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between the Commission’s rules and the
CFTC’s, or where the benefits of
deviating from the CFTC’s rules would
otherwise justify the burdens and costs
associated with imposing different or
additional requirements than the
corresponding CFTC rule. And the
Commission sought public comment on
this approach.16
One commenter opposes this
harmonization approach, and argues
that it does not make sense to
harmonize with the ‘‘looser’’ rules of
SEFs, which he believes would allow
‘‘more fraud and false narratives to
creep into the market,’’ and instead
advocates that the Commission start
from scratch with new rules.17 Many
other commenters, however, generally
support this harmonization approach.18
16 The comment letters are available at https://
www.sec.gov/comments/s7-14-22/s71422.htm. The
Commission also received comments on topics
outside the scope of the proposal that are not
addressed in this release. See, e.g., Letter from
Anonymous (Apr. 27, 2022) (discussing CFTC
oversight and transparency); Letter from
Anonymous (Apr. 20, 2022) (discussing securities
financial transactions).
17 See Letter from Robert McLaughlin (Apr. 7,
2022).
18 See, e.g., Letter from Robert Laorno, General
Counsel, ICE Swap Trade, LLC, to Vanessa A.
Countryman, Secretary, Commission, at 1–2 (June
20, 2022) (‘‘ICE Letter’’); Letter from Stephen W.
Hall, Legal Director and Securities Specialist, and
Jason Grimes, Senior Counsel, Better Markets, Inc.,
to Vanessa A. Countryman, Secretary, Commission,
at 9–11 (June 10, 2022) (‘‘Better Markets Letter’’);
Letter from Derek J. Kleinbauer, Vice-President,
Bloomberg SEF LLC, and Benjamin MacDonald,
Global Head Enterprise Products, Bloomberg L.P., to
Vanessa A. Countryman, Secretary, Commission, at
1–2 (June 10, 2022) (‘‘Bloomberg Letter’’); Letter
from Bella Rosenberg, Senior Counsel and Head of
Legal and Regulatory Practice Group, International
Swaps and Derivatives Association, Inc., and Kyla
Brandon, Managing Director, Head of Derivatives
Policy, Securities Industry and Financial Markets
Association, to Vanessa Countryman, Secretary,
Commission, at 1–2 (June 10, 2022) (‘‘ISDA–SIFMA
Letter’’); Letter from Sarah A. Bessin Associate
General Counsel, and Nicholas Valderrama,
Counsel, Investment Company Institute, at 1–2
(June 10, 2022) (‘‘ICI Letter’’); Letter from Elizabeth
Kirby, Head of U.S. Market Structure, Tradeweb
Markets Inc., to Vanessa A. Countryman, Secretary,
Commission, at 1–2 (June 10, 2022) (‘‘Tradeweb
Letter’’); Letter from Williams Shields, Chairman,
Wholesale Markets Brokers’ Association, Americas,
to Vanessa A. Countryman, Secretary, Commission,
at 1–2 (June 10, 2022) (‘‘WMBAA Letter’’); Letter
from Lindsey Weber Keljo, Head of SIFMA Asset
Management Group, and William Thun, Associate
General Counsel, SIFMA Asset Management Group,
to Vanessa A. Countryman, Secretary, Commission,
at 1–2 (June 10, 2022) (‘‘SIFMA AMG Letter’’);
Letter from Jennifer W. Han, Chief Counsel & Head
of Regulatory Affairs, Managed Funds Association,
at 1–2 (June 10, 2022) (‘‘MFA Letter’’); Letter from
Stephen John Berger, Global Head of Government
& Regulatory Policy, Citadel and Citadel Securities
(June 10, 2022) (‘‘Citadel Letter’’). While these
commenters support the Commission’s general
harmonization approach, they also provide specific
recommendations on changes to the Commission’s
Regulation SE proposal that they believe would
improve the rules, as described in detail below in
the sections discussing these individual rules. See
infra sections II through XVII.
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Many of these commenters echo the
Commission’s rationale for harmonizing
with the CFTC’s SEF rules, and state
that such harmonization would
minimize the compliance burden for
dually registered entities.19 Two of these
commenters also state that the CFTC’s
regulatory framework has been in place
for almost a decade and has functioned
well.20 One commenter also supports
the Commission’s decision and rationale
in withdrawing proposed Regulation
MC 21 and the Commission’s 2011
SBSEF Proposal.22
The Commission disagrees with the
comment that harmonizing with the
CFTC approach would allow for more
fraud and false narratives in the SBS
markets. Standing up a formal
regulatory framework for SBSEFs where
none yet exists will provide greater
accountability and oversight for the SBS
market and should, contrary to this
commenter’s views, serve to detect and
deter abusive and manipulative trading
practices by providing for a set of
Commission rules that SBSEFs must
adhere to in operating their platforms
and by requiring SBSEFs to make filings
with the Commission regarding the
operation of their platforms and to make
their rules publicly available, as
described in detail in sections II through
XVII below.
Given the relative size of the SBS
market as compared to the swaps
market, the fact that the CFTC’s SEF
regulation has been in place for many
years now, and the cost efficiencies and
reduced burdens that would result from
harmonized rules for dually registered
SEFs/SBSEFs, it is appropriate to
generally harmonize the Commission’s
SBSEF regulatory framework with the
CFTC’s SEF regulatory framework. At
the same time, where appropriate,
adopted Regulation SE differs in certain
targeted respects from the CFTC’s
regulatory framework for SEFs. This
includes areas where differences in the
Commission’s statutory authority
relative to the CFTC’s statutory
authority or differences in the SBS
market relative to the swaps market
necessitate differences between the
19 See, e.g., ICE Letter, supra note 18, at 1–2;
ISDA–SIFMA Letter, supra note 18, at 1–2; ICI
Letter, supra note 18, at 1–2; Tradeweb Letter,
supra note 18, at 1–2; WMBAA Letter, supra note
18, at 1–2; MFA Letter, supra note 18, at 1.
20 See, e.g., ISDA–SIFMA Letter, supra note 18, at
1–2; SIFMA AMG Letter, supra note 18, at 1–2.
21 Ownership Limitations and Governance
Requirements for Security-Based Swap Clearing
Agencies, Security-Based Swap Execution
Facilities, and National Securities Exchanges With
Respect to Security-Based Swaps Under Regulation
MC, SEA Release No. 63107 (Oct. 14, 2010), 75 FR
65882 (Oct. 26, 2010) (‘‘Regulation MC Proposal’’).
22 See Bloomberg Letter, supra note 18, at 2.
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Commission’s rules and the CFTC’s, or
where the benefits of deviating from the
CFTC’s rules would otherwise justify
the burdens and costs associated with
imposing different or additional
requirements than the corresponding
CFTC rule. The specific approach to
harmonization that the Commission has
pursued, along with differences from
CFTC’s regime for SEFs, are described
in detail in sections II through XVII
below.
As discussed below, the Commission
is modifying the proposed provisions of
Regulation SE regarding the definition
of ‘‘block trade,’’ 23 the treatment of
package transactions,24 the treatment of
SBS transactions that are intended to be
cleared but are not accepted for clearing
by a registered clearing agency,25
permitting SBSEFs to contract with
designated contract markets (‘‘DCMs’’)
to provide services to assist in
complying with the SEA and
Commission rules thereunder,26 the
content and timing of the Daily Market
Data Report,27 an exception to
ownership and voting restrictions for
SBSEFs,28 the application of deadlines
and standard of review for Commission
review of SBSEF actions,29 and the
applicability of electronic filing and
structured-data requirements with
respect to specific SBSEF filings.30
Otherwise, the rules of Regulation SE
are generally being adopted as
proposed, in some instances with minor
or technical modifications, which are
described in more detail below.31
II. Introductory Provisions of
Regulation SE
A. Rule 800—Scope
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Proposed Rule 800 is based on 17 CFR
37.1, which provides that part 37 of the
CFTC’s regulations applies to every SEF
that is registered or applying to become
registered as a SEF under section 5h of
the CEA. Proposed Rule 800 would
provide that the provisions of
Regulation SE apply to every SBSEF
that is registered or is applying to
become registered as an SBSEF under
section 3D of the SEA.
The Commission received no
comments on Proposed Rule 800 and is
adopting Rule 800 as proposed, with
23 See
infra section V.E.1(c).
infra section V.E.4.
25 See infra section V.E.7.
26 See infra section VI.B.5.
27 See infra section VI.H.
28 See infra section VIII.B.
29 See infra section XIV.E.
30 See infra section XIII.
31 See infra note 32.
24 See
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minor technical modifications,32 for the
reasons stated in the Proposing Release.
B. Rule 801—Applicable Provisions
Proposed Rule 801 is based on § 37.2
of the CFTC’s rules, which provides that
a SEF shall comply with the
requirements of part 37 and all other
applicable CFTC regulations, including
17 CFR 1.60 and part 9, and including
any related definitions and crossreferenced sections. Proposed Rule 801
would require an SBSEF to comply with
the requirements of Regulation SE and
all other applicable Commission rules,
including any related definitions and
cross-referenced sections.
The Commission did not receive any
comments on Proposed Rule 801 and is
adopting Rule 801 as proposed, with
minor technical modifications.33
C. Rule 802—Definitions
Proposed Rule 802 would set forth the
definitions of terms that are used in
multiple rules in proposed Regulation
SE. The majority of these terms were
adapted from the CFTC’s swaps rules.
Other terms were taken from section 3
of the SEA 34 or from a Commission rule
under the SEA. In particular, Proposed
Rule 802 would define the term
‘‘security-based swap execution facility’’
by cross-referencing the definition of
that term provided in section 3(a)(77) of
the SEA,35 but with one carve-out. An
entity that is registered with the
Commission as a clearing agency
pursuant to section 17A of the SEA 36
and limits its SBSEF functions to
operation of a trading session that is
designed to further the accuracy of endof-day valuations—i.e., a ‘‘forced trading
session’’—would be exempt from the
definition of ‘‘security-based swap
execution facility.’’ 37
32 In several instances, here and as noted below,
the Commission has made technical modifications
to the proposed regulatory text to conform crossreferences in the regulatory text to the CFR to the
required style, as well as to correct simple
typographical errors. Here, the Commission has
modified Rule 800 to change a reference from ‘‘[t]he
provisions of this section’’ to ‘‘[t]he provisions of
§§ 242.800 through 242.835.’’ In other instances, the
Commission has added the words ‘‘of this section’’
to a CFR cross-reference to conform to the required
form of citation. Other types of technical
modifications, and any substantive modifications,
are described below with respect to specific
instances.
33 See id.
34 15 U.S.C. 78c.
35 15 U.S.C. 78c(a)(77).
36 15 U.S.C. 78q–1.
37 See Proposing Release, supra note 1, 87 FR at
28878. This provision codifies a series of
exemptions granted by the Commission to SBS
clearing agencies that operate ‘‘forced trading’’
sessions. See, e.g., Order Granting Temporary
Exemptions Under the Securities Exchange Act of
1934 in Connection With Request on Behalf of ICE
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87159
Although the Commission received
comments regarding the proper
application of the proposed definitions
with respect to registration
requirements, discussed below in
section III.A.2, and the proposed
amendments to Rule 3a1–1, discussed
below in section X, the Commission did
not receive comments suggesting a
modification of the definitions
themselves. The term ‘‘security-based
swap execution facility’’ is defined
directly in section 3(a)(77) of the SEA as
‘‘a trading system or platform in which
multiple participants have the ability to
execute or trade security-based swaps
by accepting bids and offers made by
multiple participants in the facility or
system. . . ,’’ 38 and it is appropriate to
adopt the same definition in Rule 802,
with a narrow exception to address
certain activities of registered clearing
agencies in furthering the accuracy of
end-of-day valuations.39
Specifically, it is necessary or
appropriate in the public interest, and is
consistent with the protection of
investors, to exempt a registered
clearing agency that utilizes a forced
trading functionality for SBS from the
definition of ‘‘security-based swap
execution facility.’’ Such an entity will
continue to be registered as a clearing
agency and subject to the requirements
of section 17A of the SEA. Furthermore,
a registered clearing agency is a selfregulatory organization (‘‘SRO’’);
therefore, all of its rules—including
U.S. Trust LLC Related to Central Clearing of Credit
Default Swaps, and Request for Comments, SEA
Release No. 59527 (Mar. 6, 2009), 74 FR 10791,
10796 (Mar. 12, 2009) (providing, among other
things, an exemption from sections 5 and 6 of the
SEA because ‘‘ICE Trust will periodically require
ICE Trust Participants to execute certain CDS trades
at the applicable end-of-day settlement price.
Requiring ICE Trust Participants to trade CDS
periodically in this manner is designed to help
ensure that such submitted prices reflect each ICE
Trust Participant’s best assessment of the value of
each of its open positions in Cleared CDS on a daily
basis, thereby reducing risk by allowing ICE Trust
to impose appropriate margin requirements’’);
Order Extending and Modifying Temporary
Exemptions Under the Securities Exchange Act of
1934 in Connection With Request of Chicago
Mercantile Exchange Inc. Related to Central
Clearing of Credit Default Swaps, and Request for
Comments, SEA Release No. 61164 (Dec. 14, 2009),
74 FR 67258, 67262 (Dec. 18, 2009) (providing,
among other things, an exemption from sections 5
and 6 of the SEA because, ‘‘[a]s part of the CDS
clearing process, CME will periodically require CDS
clearing members to trade at prices generated by
their indicative settlement prices where those
indicative settlement prices generate crossed bids
and offers, pursuant to CME’s price quality auction
methodology’’).
38 15 U.S.C. 78c(a)(77).
39 Because this exception for certain clearing
agencies specifies ‘‘an entity that is registered with
the Commission as a clearing agency pursuant to
section 17A of the [SEA]’’ and meets other specified
conditions, the exception would not be available to
any exempt clearing agency.
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those governing the forced trading
session—have to be submitted to the
Commission pursuant to section 19 of
the SEA. Therefore, codification of the
exemption from the definitions of
‘‘exchange’’ and ‘‘security-based swap
execution facility’’ preserves the status
quo and eliminates a largely duplicative
and unnecessary set of regulatory
requirements. This exemption covers
only the forced-trading functionality of
an SBS clearing agency; any other
exchange or SBSEF activity in which a
clearing agency might engage could
subject the clearing agency to the SEA
provisions and the Commission’s rules
thereunder applying to exchanges or
SBSEFs.
Proposed Rule 802 would have
defined the term ‘‘block trade’’ to be an
SBS transaction that, among other
requirements, is an SBS based on a
single credit instrument (or issuer of
credit instruments) or a narrow-based
index of credit instruments (or issuers of
credit instruments) having a notional
size of $5 million or greater.40 The
Commission received a number of
comments on the proposed definition of
‘‘block trade.’’ These comments are
discussed below in section V.E.1(c)
relating to Rule 815(a), which specifies
mandatory methods of execution for a
Required Transaction that is not a block
trade. As discussed in detail below in
section V.E.1(c), the Commission is not
adopting the proposed definition of
‘‘block trade.41
Therefore, the Commission is
adopting Rule 802 as proposed, except
for the definition of ‘‘block trade,’’
which it is reserving, and minor
technical modifications.42
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III. Registration of SBSEFS
Section 3D(a)(1) of the SEA 43
provides that no person may operate a
facility for the trading or processing of
SBS 44 unless the facility is registered as
40 See Proposing Release, supra note 1, 87 FR at
28896, 28975.
41 Additionally, as discussed below, the
Commission is removing the term ‘‘block trade’’
from the text of certain rules other than Rule 815(a),
see infra sections VI.B.1 (Rule 819(a)(3)), V.B (Rule
812(b)), VI.B.4 (Rule 819(d)(1)), VI.H (Rule
825(c)(1)(i) and (ii)), and is adding language
regarding future definition of ‘‘block trade’’ in Rule
825(c)(1)(iii). See infra section VI.H.
42 See supra note 32. The Commission has also
replaced the term ‘‘SBSEF’’ with ‘‘security-based
swap execution facility,’’ defined ‘‘SBS exchange’’
when the term is first used, added the words ‘‘of
this definition of trading facility’’ to paragraph
(2)(C)(ii) of the definition of ‘‘trading facility,’’ and
moved the definition of ‘‘dormant security-based
swap execution facility’’ so that it appears in
alphabetical order.
43 15 U.S.C. 78c–4(a)(1).
44 The term ‘‘security-based swap’’ is defined in
section 3(a)(68) of the SEA, 15 U.S.C. 78c(a)(68), to
include, among other things, a swap that is based
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an SBSEF or as a national securities
exchange. After issuing the 2011 SBSEF
Proposal, the Commission granted
temporary exemptions pursuant to
section 36(a)(1) of the SEA 45 to entities
that meet the definition of ‘‘securitybased swap execution facility’’ from
having to register with the Commission
as an SBSEF or national securities
exchange (‘‘Temporary SBSEF
Exemptions’’).46 According to their
terms, the Temporary SBSEF
Exemptions expire upon the earliest
compliance date for the Commission’s
final rules regarding SBSEF
registration.47
A. Rule 803—Requirements and
Procedures for Registration
1. Summary of Proposed Rule 803
Proposed Rule 803 of Regulation SE is
closely modeled on § 37.3 of the CFTC’s
rules and would set forth a process for
registration with the Commission as an
SBSEF.
Paragraph (a)(1) of Proposed Rule 803
would track the language of § 37.3(a)(1)
on a single security or loan, including any interest
therein or on the value thereof. A single security
could include, for example, a cash equity, a crypto/
digital asset security, or a security option.
45 15 U.S.C. 78mm(a)(1).
46 See SEA Release No. 64678 (June 15, 2011), 76
FR 36287 (June 22, 2011) (temporarily exempting
entities that meet the definition of ‘‘security-based
swap execution facility’’ from the requirement to
register with the Commission as an SBSEF) (‘‘June
2011 Exemptive Order’’); SEA Release No. 64795
(July 1, 2011), 76 FR 39927 (July 7, 2011)
(temporarily exempting entities that meet the
definition of ‘‘security-based swap execution
facility’’ from the restrictions and requirements of
sections 5 and 6 of the SEA) (‘‘July 2011 Exemptive
Order’’). An entity that meets the definition of
‘‘security-based swap execution facility’’ is required
to register as an SBSEF under section 3D of the SEA
or as an exchange under section 6 of the SEA. But
because the Commission has not previously
adopted final rules relating to SBSEFs, such entities
have been unable to register with the Commission
as SBSEFs. The Temporary SBSEF Exemptions have
allowed such entities to continue trading SBS
without needing to register either as SBSEFs or
national securities exchanges before the compliance
date of the SBSEF registration rules.
47 See June 2011 Exemptive Order, supra note 46,
76 FR at 36293, 36306; July 2011 Exemptive Order,
supra note 46, 76 FR at 39934, 39939. The July 2011
Exemptive Order also provided an exemption from
the broker registration requirements of section
15(a)(1) of the SEA, 15 U.S.C. 78o(a)(1), and other
requirements of the SEA and the Commission’s
rules thereunder that apply to a broker, solely in
connection with broker activities involving SBS
(‘‘Broker Exemptions’’). The Broker Exemptions
generally expired on Oct. 6, 2021; however, because
an entity that meets the definition of ‘‘securitybased swap execution facility’’ also would also
meet the definition of ‘‘broker’’ in section 3(a)(4) of
the SEA, 15 U.S.C. 78c(a)(4), the Commission
extended the Broker Exemptions solely for persons
acting as an SBSEF until the expiration of the
Temporary SBSEF Exemptions (i.e., the earliest
compliance date set forth in any of the
Commission’s final rules regarding registration of
SBSEFs). See SEA Release No. 87005 (Sept. 19,
2019), 84 FR 68550, 68602 (Dec. 16, 2019).
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closely, and would provide that any
person operating a facility that offers a
trading system or platform in which
more than one market participant has
the ability to execute or trade securitybased swaps with more than one other
market participant on the system or
platform shall register the facility as a
security-based swap execution facility
under this section or as a national
securities exchange pursuant to section
6 of the SEA.48
Paragraph (a)(2) of Rule 803, like
§ 37.3(a)(2), would require an SBSEF, at
a minimum, to offer an order book,
which would be defined in Rule 802 to
mean an electronic trading facility, a
trading facility, or a trading system or
platform in which all market
participants in the trading system or
platform have the ability to enter
multiple bids and offers, observe or
receive bids and offers entered by other
market participants, and transact on
such bids and offers.49
Paragraph (a)(3) of Rule 803 is closely
modeled on § 37.3(a)(4) and would
provide a narrow exception to the
requirement to provide an order book
for a Required Transaction 50 to allow an
SBSEF not to offer an order book for the
SBS component(s) of a package
transaction that contains a mix of
products, with some parts of the
48 A person that registers with the Commission as
a national securities exchange pursuant to section
6 of the SEA does not fall within the statutory
definition of ‘‘security-based swap execution
facility,’’ see sec. 3(a)(77) of the SEA, 15 U.S.C.
78c(a)(77), and thus does not need to register as an
SBSEF under Rule 803. Furthermore, as discussed
below, see infra section X (discussing proposed
paragraph (a)(4) of SEA Rule 3a1–1), a person that
registers as an SBSEF under Rule 803 and provides
a market place for no securities other than SBS is
exempt from the definition of ‘‘exchange’’ and does
not need to register as such pursuant to section 6
of the SEA. 15 U.S.C. 78c(a)(1) (defining
‘‘exchange’’ as ‘‘any organization, association, or
group of persons, whether incorporated or
unincorporated, which constitutes, maintains, or
provides a market place or facilities for bringing
together purchasers and sellers of securities or for
otherwise performing with respect to securities the
functions commonly performed by a stock exchange
as that term is generally understood, and includes
the market place and the market facilities
maintained by such exchange’’).
49 Section 37.3(a)(3) defines ‘‘trading facility’’ and
‘‘electronic trading facility’’ by cross-referencing
definitions of those terms in the CEA. Rather than
cross-referencing the CEA, the Commission adapted
the CEA definitions of those terms directly into
Rule 802. See Proposed Rule 802 (defining ‘‘trading
facility’’ and ‘‘electronic trading facility’’).
50 As discussed below in section V.E.1(a), the
Commission is incorporating into Regulation SE the
concepts of ‘‘Required Transaction’’ and ‘‘Permitted
Transaction’’ in a manner closely modeled on the
CFTC’s use of those terms. A Required Transaction
would be a transaction involving an SBS that is
subject to the trade execution requirement. Section
37.3 of the CFTC’s rules requires an order book as
a minimum trading functionality for all SEFs and
is not limited to provision of an order book only
for Required Transactions.
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package being subject to a trade
execution requirement and some not.
Paragraph (b) of Proposed Rule 803 is
closely modeled on § 37.3(b) and would
set out procedures for full registration of
an SBSEF. Paragraph (b)(1), like
§ 37.3(b)(1), would provide that an
applicant requesting registration must
file electronically a complete Form
SBSEF or any successor forms, and all
information and documentation
described in such forms with the
Commission using the Electronic Data
Gathering, Analysis, and Retrieval
(‘‘EDGAR’’) system as an Interactive
Data File in accordance with Rule 405
of Regulation S–T, and must provide to
the Commission, upon the
Commission’s request, any additional
information and documentation
necessary to review an application.
Paragraph (b)(2) of Proposed Rule 803,
like § 37.3(b)(2), would provide that an
applicant requesting registration as an
SBSEF must identify with particularity
any information in the application that
will be subject to a request for
confidential treatment pursuant to Rule
24b–2 under the SEA.51 Paragraph (b)(2)
would also provide that, as set forth in
Rule 808, certain information provided
in an application shall be made publicly
available.
Paragraph (b)(3) of Proposed Rule 803
would address amendments to the
SBSEF registration application. Like
§ 37.3(b)(3), Rule 803(b)(3) would
provide that an applicant amending a
pending application or requesting an
amendment to an order of registration
shall file an amended application
electronically with the Commission
using the EDGAR system as an
Interactive Data File in accordance with
Rule 405 of Regulation S–T. Subsequent
to being registered, an SBSEF would be
required to submit rule and product
filings under Rule 806 or Rule 807, as
well as provide other updates as may be
required pursuant to other rules for
SBSEFs.
Paragraph (b)(4) of Proposed Rule 803
would address the effect of an
incomplete application. Like
§ 37.3(b)(4), Proposed Rule 803(b)(4)
would provide that, if an application is
incomplete, the Commission shall notify
the applicant that its application will
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51 See
17 CFR 240.24b–2 (setting forth the
procedures for identifying and redacting the portion
of a submission under the SEA for which
confidential treatment is requested). As the
Commission stated in the Proposing Release, it is
not necessary or appropriate to establish and utilize
one set of procedures to handle confidential
treatment requests made by SBSEFs while utilizing
a different set of procedures for other persons who
request confidential treatment from the Commission
under the SEA. See Proposing Release, supra note
1, 87 FR at 28880 n.50.
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not be deemed to have been submitted
for purposes of the Commission’s
review.
Paragraph (b)(5) of Proposed Rule 803
would establish the Commission review
period for an application to register as
an SBSEF. Proposed Rule 803(b)(5) is
closely modeled on § 37.3(b)(5) and
would require the Commission to
approve or deny an application for
registration as an SBSEF within 180
days of the filing of the application.
Proposed Rule 803(b)(5) would further
provide that, if the Commission notifies
the person that its application is
materially incomplete and specifies the
deficiencies in the application, the
running of the 180-day period would be
stayed from the time of that notification
until the application is resubmitted in
completed form. In such a case, the
Commission would have not less than
60 days to approve or deny the
application from the time the
application is resubmitted in completed
form.
Paragraph (b)(6)(i) of Proposed Rule
803, like § 37.3(b)(6)(i), would provide
that the Commission shall issue an
order granting registration upon a
Commission determination, in its
discretion, that the applicant has
demonstrated compliance with the SEA
and the Commission’s rules applicable
to SBSEFs. Paragraph (b)(6)(i) would
allow the Commission to issue an order
granting registration, subject to
conditions. Paragraph (b)(6)(ii) of
Proposed Rule 803, modeled on
§ 37.3(b)(6)(ii), would provide that the
Commission may issue an order denying
registration upon a Commission
determination, in its own discretion,
that the applicant has not demonstrated
compliance with the SEA and the
Commission’s rules applicable to
SBSEFs. If the Commission denies an
application under Rule 803(b)(6)(ii), it
would be required to specify the
grounds for the denial.
Paragraph (c) of Proposed Rule 803,
like § 37.3(d), would address
reinstatement of a dormant registration.
Proposed Rule 803(c) would provide
that a dormant SBSEF 52 may reinstate
its registration under the procedures of
Rule 803(b). Proposed Rule 803(c)
52 See Proposed Rule 802 (defining ‘‘dormant
security-based swap execution facility’’ to mean ‘‘a
security-based swap execution facility on which no
trading has occurred for the previous 12
consecutive calendar months; provided, however,
that no security-based swap execution facility shall
be considered to be a dormant security-based swap
execution facility if its initial and original
Commission order of registration was issued within
the preceding 36 consecutive calendar months’’).
This definition is modeled on the definition of
‘‘dormant swap execution facility’’ found in
§ 40.1(f).
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87161
would further provide that the applicant
may rely upon previously submitted
materials if such materials accurately
describe the dormant SBSEF’s
conditions at the time that it applies for
reinstatement of its registration.
Paragraph (d) of Proposed Rule 803,
like § 37.3(e), would set out procedures
for an SBSEF to request a transfer of
registration. Paragraph (d)(1), which is
closely modeled on § 37.3(e)(1), would
provide that an SBSEF seeking to
transfer its registration from its current
legal entity to a new legal entity as a
result of a corporate change shall file a
request for approval to transfer such
registration with the Commission in the
form and manner specified by the
Commission. Paragraph (d)(2), modeled
on § 37.3(e)(2), would provide that a
request for transfer of registration shall
be filed no later than three months prior
to the anticipated corporate change; or
in the event that the SBSEF could not
have known of the anticipated change
three months prior to the anticipated
change, as soon as it knows of that
change.
Paragraph (d)(3) of Proposed Rule
803, like § 37.3(e)(3), would require an
SBSEF’s request for a transfer of
registration to include the underlying
agreement governing the corporate
change, a description of the corporate
change, a discussion of the transferee’s
ability to comply with the SEA, the
governing documents of the transferee,
the transferee’s rules marked to show
changes from the rules of the SBSEF,
and specified representations by the
transferee.53
Paragraph (d)(4) of Proposed Rule
803, modeled on § 37.3(e)(4), would
provide that, upon review of a request
for transfer of registration, the
Commission, as soon as practicable,
shall issue an order either approving or
denying the request.
Paragraph (e) of Proposed Rule 803,
like § 37.3(f), would provide that an
applicant for registration as an SBSEF
may withdraw its application by filing
a withdrawal request electronically with
the Commission using the EDGAR
system as an Interactive Data File in
accordance with Rule 405 of Regulation
S–T.54 Proposed Rule 803(e) would
further provide that withdrawal of an
application for registration shall not
affect any action taken or to be taken by
53 See Proposing Release, supra note 1, 87 FR at
28880–81.
54 17 CFR 232.405. The proposed electronic filing
requirement discussed above does not appear in the
CFTC version of this provision. The Commission is
adding this specification to implement the Inline
XBRL and EDGAR electronic filing requirements for
certain documents required by Regulation SE. See
infra section XIII.A.
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the Commission based upon actions,
activities, or events occurring during the
time that the application was pending
with the Commission.
Paragraph (f) of Proposed Rule 803,
like § 37.3(g), would provide that an
SBSEF may request that its registration
be vacated by filing a vacation request
electronically with the Commission
using the EDGAR system and must be
provided as an Interactive Data File in
accordance with Rule 405 of Regulation
S–T at least 90 days prior to the date
that the vacation is requested to take
effect.
2. Comments and Analysis
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(a) Registration Requirements, Generally
Two commenters support the
proposed SBSEF registration
requirements under Rule 803 being
modeled on the CFTC’s rules and state
that, as market participants are familiar
with CFTC’s requirements, they
appreciate the Commission’s attempts to
minimize registration burdens and
expedite the establishment of the SBSEF
regime.55
One commenter states that the
Commission should ensure that all
multilateral trading venues for SBS are
required to register as an SBSEF,
regardless of the specific trading
protocol used.56 Another commenter
argues that section 3D(a)(1) of the SEA
requires the registration of any ‘‘facility
for the trading or processing of SBS,’’
not just those that meet the statutory
definition of SBSEF, which includes
multiple-to-multiple trading.57
Accordingly, this commenter states that
single-dealer platforms should be
required to register as SBSEFs and to
change their operations to offer
multiple-to-multiple trading, consistent
with the definition of SBSEF.58
One commenter asks the Commission
to ‘‘make clear that the SBSEF
registration requirement applies only to
these types of platforms that are within
the statutory and proposed regulatory
55 See SIFMA AMG Letter, supra note 18, at 5; see
also Bloomberg Letter, supra note 18, at 11.
56 See Citadel Letter, supra note 18, at 9 (‘‘[A]
security-based swap transaction executed via a fully
electronic multilateral RFQ protocol should be
subject to the same regulations as one executed by
voice with the assistance of a voice broker (who
may or may not be employed by the SBSEF)’’).
57 As discussed above, see supra note 38 and
accompanying text, the statutory definition of
SBSEF provides in relevant part that an SBSEF is
‘‘a trading system platform in which multiple
participants have the ability to execute or trade
security-based swaps by accepting bids and offers
made by multiple participants. . . .’’ SEA section
3(a)(77), 15 U.S.C. 78c(a)(77) (emphasis added).
This is sometimes referred to as ‘‘multiple-tomultiple trading.’’
58 See Better Markets Letter, supra note 18, at 11–
13.
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definition and does not include any
broader CFTC staff interpretations
purporting to expand the SEF
definition.’’ 59 This commenter states
that CFTC Staff Letter 21–19 60
maintains that platforms can be required
to register as SEFs ‘‘(i) even where
multiple participants cannot
simultaneously request, make, or accept
bids and offers from market
participants; or (ii) where multiple
participants can initiate a one-to-many
communication.’’ 61 The commenter
states that extending the definition of
SBSEF to include ‘‘facilities offering
one-to-many or bilateral
communications if more than one
participant is able to submit an RFQ on
the platform’’ would ‘‘contradict
Congress’ express intent’’ to limit the
scope of SBSEF registration
requirements to multiple-to-multiple
platforms; that the Commission should
make clear that the CFTC staff guidance
is inapplicable to SBSEFs; and that the
Commission should confirm that it is
not adopting or incorporating, explicitly
or implicitly, similar guidance.62
The Commission agrees with the
comment that the definition of SBSEF
applies to multilateral trading facilities
regardless of the specific trading
protocol used. As the statutory
definition of SBSEF makes clear, a
trading facility would fall under the
definition of SBSEF if it offers ‘‘multiple
participants the ability to execute or
trade security-based swaps by accepting
bids and offers made by multiple
participants in the facility or system,
through any means of interstate
commerce. . . .’’ 63 Whether a specific
instance or practice of brokering in fact
offers multiple participants the ability to
accept the bids or offers made by
multiple participants, though, will
depend on the attendant facts and
circumstances of that instance or
practice. The Commission does not,
however, agree with the comment that
the language of SEA section 3D(a)(1)
means that single-dealer platforms for
trading SBS must register as SBSEFs
and, consistent with the statutory
definition of SBSEF, change their
operations to provide multiple-tomultiple trading. SEA section 3D is
titled ‘‘Security-based swap execution
59 See
MFA Letter, supra note 18, at 3.
CFTC Staff Advisory on Swap Execution
Facility Registration Requirement, Letter No. 21–19
(Sept. 29, 2021), available at https://www.cftc.gov/
node/238336.
61 See MFA Letter, supra note 18, at 3 (quoting
CFTC Staff Letter No. 21–19, supra note 60
(emphasis in original)).
62 MFA Letter, supra note 18, at 3–4 (internal
quotations omitted).
63 SEA section 3(a)(77), 15 U.S.C. 78c(a)(77)
(emphasis added).
60 See
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facilities,’’ and section 3D(a)(1) states, in
full, ‘‘No person may operate a facility
for the trading or processing of securitybased swaps, unless the facility is
registered as a security-based swap
execution facility or as a national
securities exchange under this
section.’’ 64 The Commission is not
persuaded that the phrase ‘‘facility for
the trading or processing of securitybased swaps’’ in this context can
reasonably be read to apply more
broadly to encompass anything other
than an SBSEF or an SBS exchange.
Since the definitions of both SBSEF and
exchange include the concept of
multiple-to-multiple trading,65 singledealer ‘‘one-to-many’’ trading platforms
that do not offer multiple-to-multiple
trading are outside the scope of the
provisions of section 3D(a)(1).
It is not necessary to incorporate the
guidance in CFTC Staff Letter 21–19
into this release, because the CFTC staff
letter in large part refers to fact-specific
circumstances that the Commission has
yet to encounter since Reg SE is not yet
effective and the application of the
SBSEF definition depends on the
particular facts and circumstances of a
platform’s structure and operations. For
the same reason, it would be premature
to reject the possibility of taking a
position similar to that of the CFTC
guidance with regard to SBSEFs, as one
commenter suggested.66 Moreover,
because the statutory definition of
SBSEF does not include the word
‘‘simultaneous,’’ the Commission
declines to issue its own guidance to
reflect a requirement for simultaneity
here. Where operators of SBS trading
platforms have questions about the facts
and circumstances particular to their
situations, they can discuss their
particular circumstances with
Commission staff.
(b) Abbreviated Registration Procedures
for CFTC-Registered SEFs
Several commenters state that the
Commission should use its exemptive
authority to provide a streamlined
registration process for SBSEFs that are
already registered with the CFTC as
64 SEA
section 3D(a)(1), 15 U.S.C. 78c–4(a)(1).
SEA section 3(a)(77), 15 U.S.C. 78c(a)(77)
(defining SBSEF in relevant part as ‘‘a trading
system or platform in which multiple participants
have the ability to execute or trade security-based
swaps by accepting bids and offers made by
multiple participants in the facility or system
. . .’’); SEA section 3(a)(1), 15 U.S.C. 78c(a)(1)
(defining an exchange in relevant part as ‘‘any
organization, association, or group of persons,
whether incorporated or unincorporated, which
constitutes, maintains, or provides a market place
or facilities for bringing together purchasers and
sellers of securities’’) (emphasis added).
66 See supra notes 59–62 and accompanying text.
65 See
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SEFs.67 One commenter states that,
because many entities will likely be
registering with both the Commission
and the CFTC, a streamlined SBSEF
registration process will ease the burden
of new requirements imposed on
potential dual-registrants.68 This
commenter further states that allowing
currently registered CFTC SEFs to
become SEC-registered SBSEFs would
be more efficient and would more
quickly kick-start the Commission’s SBS
regime. This commenter thus supports
the use of exemptive authority for SEFs
that are currently registered, provided
that the Commission’s approach to
exemptive authority does not disrupt
the existing market structure and the
relationships between venues and
participants. Another commenter states
that a streamlined registration process
for SEFs currently registered and in
good standing with the CFTC would
have the potential to lower the costs of
registration and encourage the entry of
market participants.69
One commenter that supports a
streamlined SBSEF registration process
for SEFs states that a prolonged
registration process, particularly for
venues already registered with the
CFTC, only further delays the
introduction of regulated price
discovery, liquidity formation, and trade
execution for SBS.70 This commenter
also states that SBSEF registration also
further expedites SBS data reporting to
the extent SBSEFs will report trades to
an SBS swap data repository under the
Commission’s Regulation SBSR, as this
service cannot be provided until
SBSEFs are registered and operational.
If the Commission were not to retain the
exemptive authority within Rule 803,
this commenter supports a process that
gives deference to existing CFTC SEFs
and provides a more streamlined
process for such registrants. The
commenter states that, as the
Commission observed in the proposing
release, most of the SBS liquidity will
likely be centralized around a few
facilities, with most (if not all) of them
already operating CFTC-regulated
SEFs.71
Another commenter states that SEFs
that are currently registered and in good
standing with the CFTC should be
permitted to register with the
Commission utilizing their current
documentation filed pursuant to the
67 See SIFMA AMG Letter, supra note 18, at 5;
Bloomberg Letter, supra note 18, at 11; WMBAA
Letter, supra note 18, at 3; ICE Letter, supra note
18, at 5.
68 See SIFMA AMG Letter, supra note 18, at 5.
69 See Bloomberg Letter, supra note 18, at 11.
70 See WMBAA Letter, supra note 18, at 3.
71 See WMBAA Letter, supra note 18, at 3–4.
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requirements of Form SEF.72 This
commenter states that CFTC registered
SEFs are required to keep their Form
SEF and its exhibits current through
post-registration amendments and that,
as the Commission is modeling
proposed Form SBSEF on the CFTC’s
Form SEF, substituting the forms should
not be problematic for the Commission
to review. The commenter states that the
Commission should permit registered
SEFs seeking to register as an SBSEF to
submit their Form SEF and exhibits,
with an accompanying addendum
reflecting only those changes necessary
to fulfill the specific requirements of
proposed Regulation SE, in lieu of filing
a new Form SBSEF.
One commenter, however, stated that
‘‘relaxing or eliminating any registration
requirements would be highly
inappropriate,’’ and argued that the
Commission must be ‘‘rigorous in
reviewing and approving SBSEFs
applicants while upholding complete
impartiality.’’ 73 This commenter further
states that both active SEFs and nonSEFs seeking to register SBSEFs ‘‘must
be held under the same standard to
avoid any conflict of interests.’’ 74
Therefore, this commenter states that
the Commission should not use
exemptive authority under SEA section
36(a)(1) to adopt an abbreviated
procedure for SEFs seeking to register as
SBSEFs, because doing so would rely on
the ‘‘CFTC’s biased judgment’’ and
would not permit an ‘‘unprejudiced
determination’’ by the Commission.75
In the Proposing Release, the
Commission stated that it was
considering that, after adopting final
rules establishing a registration process
for SBSEFs, it could exercise its
exemptive authority under section
36(a)(1) of the SEA 76 to relax or
eliminate entirely certain of the
registration requirements for entities
that are already registered as SEFs with
the CFTC.77 The Commission recognizes
that many of the entities that will seek
registration with the Commission as
SBSEFs are already registered with the
CFTC as SEFs. Entities that seek dual
registration presumably see efficiencies
in utilizing the same systems, policies,
and procedures to trade both swaps and
SBS. As noted throughout this release,
the Commission has sought to
harmonize the SBSEF regulatory regime
as closely as practicable with the
72 See
ICE Letter, supra note 18, at 5.
from J. T. at 1 (May 26, 2022).
73 Letter
74 Id.
75 Id.
76 15
U.S.C. 78mm(a)(1).
Proposing Release, supra note 1, 87 FR at
77 See
28882.
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87163
CFTC’s SEF regulatory regime,
achieving similar regulatory benefits as
the CFTC regime while minimizing
costs so as to impose only marginal
costs on dually registered SEF/SBSEFs
and their members. As a result of these
harmonized regimes, SEFs that seek
dual registration with the SEC would
likely need to make only minor
adjustments to their rules and trading
procedures to support trading of SBS in
addition to the trading of swaps.
While one commenter states that it
would be inappropriate to relax or
eliminate any SBSEF registration
requirements for CFTC-registered
SEFs,78 an entity’s status as a registered
SEF in good standing with the CFTC is
relevant when considering its
application to register as an SBSEF and
that reducing the registration burden for
CFTC-registered SEFs, where possible,
is appropriate. However, granting
exemptive relief under section 36(a)(1),
which this commenter opposes, or
providing for a formally abbreviated
SBSEF registration regime for CFTCregistered SEFs is not necessary to
accomplish expedited registration and
reduced registration burdens.79
Requiring all applicants to submit Form
SBSEF will support consistency in the
review by the Commission and its staff
of applications for registration of
SBSEFs, which will include a review of
the proposed rules for the SBSEFs. The
Commission expects that prospective
SBSEFs will be able to use the
information in their SEF applications to
complete their SBSEF applications, as
discussed below.
For the reasons discussed above, the
Commission is adopting Rule 803 as
proposed, with minor technical
modifications.80
B. Form SBSEF
The Commission proposed new
§ 249.2001 to require that entities use
Form SBSEF to register with the
Commission as an SBSEF. Form SBSEF
would also be used for submitting any
78 See
supra note 75 and accompanying text.
the Proposing Release, the Commission
stated that it was ‘‘preliminarily considering’’ that
it would exercise exemptive authority under section
36(a)(1) of the Act, 15 U.S.C. 78mm(a)(1), ‘‘to relax
or eliminate entirely certain of the registration
requirements for entities that are already registered
as SEFs with the CFTC.’’ Proposing Release, supra
note 1, 87 FR at 28882.
80 See supra note 32. The Commission is also
deleting the header text ‘‘Minimum trading
functionality’’ from paragraph (a)(3), and is adding
the header text ‘‘Request to register’’ to paragraph
(b)(1), in order to maintain consistency of style in
the regulatory text. Additionally, the Commission is
removing the requirement to use an Interactive Data
File for filing requests to withdraw or vacate an
application for registration pursuant to Rules 803(e)
and 803(f). See infra section XIII.A.
79 In
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updates, corrections, or supplemental
information to a pending application for
registration. Form SBSEF is closely
modeled on the CFTC’s Form SEF for
entities that seek to register with the
CFTC as SEFs, with only minor changes
to remove from the form the concept of
post-registration amendments, as the
proposed rule would not require any
amendments to Form SBSEF postregistration. The exhibits that were
proposed along with Form SBSEF are
very similar to the exhibits in Form SEF.
As with Form SEF, each applicant
submitting a Form SBSEF would be
required to provide the Commission
with documents and descriptions
pertaining to its business organization,
financial resources, and compliance
program, including various documents
describing the applicant’s legal and
financial status. An applicant would be
required to disclose any affiliates,
provide a brief description of the nature
of the affiliation, and submit copies of
any agreements between the SBSEF and
third parties that would assist the
applicant in complying with its duties
under the SEA. In addition, an applicant
would be required to demonstrate
operational capability through
documentation, including technical
manuals and third-party service
provider agreements.
Under Rule 803(b)(1), an applicant for
SBSEF registration would be required to
complete Form SBSEF and provide,
upon the Commission’s request, any
additional necessary information and
documentation in order review the
application. The determination as to
when an application submission is
complete would be at the sole discretion
of the Commission. The Commission
would review Form SBSEF and, at the
conclusion of its review, by order either:
(i) grant registration; (ii) deny the
application for registration; or (iii) grant
registration subject to certain
conditions. After an applicant is granted
registration, any updates or
amendments to the information
contained in its Form SBSEF by an
active SBSEF would be required to be
submitted as rules or rule amendments
under Rule 806 or Rule 807 or as may
be required by other rules in Regulation
SE.
One commenter states that the
Commission should closely harmonize
the rules for SBSEF registration with the
CFTC’s rules, with the exception of
Exhibits D and H of Form SBSEF, which
require: (a) a list of all affiliates and a
description of any material pending
legal proceedings of such affiliates, and
(b) the financial statements of the
affiliates. This commenter states that the
information required by these exhibits is
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‘‘burdensome and not fit for purpose’’
and should not be required unless the
affiliate provides support services to the
SBSEF or the legal proceedings are
expected to have a material effect on the
applicant or the operation of its
proposed SBSEF.81 As discussed above,
several commenters expressed support
for the Commission providing an
expedited process for CFTC-registered
SEFs that wish to register as SBSEFs.
The CFTC adopted rules for the
registration and regulation of SEFs in
2013,82 and the CFTC’s process for
registering SEFs appears to be well
understood by the industry and well
designed for being adapted to the SBS
market. Therefore, the Commission has
used the CFTC’s process as a basis for
its own process for registering SBSEFs,
and information about SBSEF affiliates
is relevant to the Commission’s
oversight of SBSEFs and, in particular,
oversight of SBSEF compliance with
Rule 828 (conflicts of interest).83 In
addition, we assume that most if not all
SBSEFs will be dually registered as
SEFs.
However, while the content and
exhibits of Form SBSEF closely match
the form and content of Form SEF,
exhibits to Form SEF are provided to the
CFTC as unstructured documents,
whereas most exhibits to Form SBSEF
will be provided to the Commission as
structured, machine-readable
documents. Permitting SBSEFs to
provide copies of Form SEF exhibits in
lieu of Form SBSEF exhibits, while
likely resulting in an expedited
registration process for most SBSEFs,
would also potentially result in a much
higher volume of unstructured data,
making the Form SBSEF disclosures
more difficult for market participants
and the Commission to analyze in an
efficient manner. Thus, notwithstanding
some commenters’ support for an
expedited registration process, the final
rules do not permit SBSEFs to provide
copies of Form SEF exhibits in lieu of
Form SBSEF exhibits. The Commission
is therefore adopting 17 CFR 249.2001
as proposed, but is renumbering it as 17
CFR 249.1701 under new subpart R
(‘‘Forms for Registration of, and Filings
by, Security-Based Swap Execution
Facilities’’) and is making a minor
technical correction.84
81 See
82 See
Bloomberg Letter, supra note 18, at 11.
2013 CFTC Final SEF Rules Release, supra
note 9.
83 See infra section VI.K.
84 The Commission is correcting the text in
Instruction 20 to Form SBSEF to read ‘‘a list with
the name(s) of the clearing agency(ies)’’ instead of
‘‘a list of the name of the clearing organization(s).’’
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IV. Rule and Product Filings by SBSEFs
Unlike section 19(b) of the SEA,85
which sets out a process whereby
national securities exchanges and other
SROs submit filings to the Commission
to add, delete, or amend rules
(including rules to list products),
section 3D of the SEA 86 does not set out
an equivalent process for SBSEFs,
which are not SROs. It can be expected,
however, that an SBSEF will seek to
change its rules over time in order, for
example, to implement new trading
methodologies and to expand its
product offerings to make its market
more attractive to participants, and
adopting rules for filings related to these
changes will promote public
transparency regarding the changes, as
well as consistent handling of those
filings by the Commission.
An appropriate review process is
necessary to assess whether changes to
an SBSEF’s rules and product offerings
are consistent with section 3D of the
SEA and the Commission’s rules
thereunder, and the CFTC’s filing
procedures are an appropriate model on
which to base the Commission’s own
filing procedures. Furthermore, because
of the likelihood that most if not all
SBSEFs will be dually registered with
the CFTC as SEFs, and that many rule
changes for a dual registrant will affect
both its SBS and swap trading
businesses, close harmonization with
the CFTC’s filing procedures would
allow a dual registrant to make a similar
filing to each agency, allowing each
agency to carry out its oversight
functions while minimizing the burdens
on dual registrants.
Parts 37 and 40 of the CFTC’s rules set
out processes whereby SEFs may
establish or amend rules and list
products. These processes allow a SEF
to voluntarily submit a rule, rule
amendment, or new product for CFTC
review and approval, or to ‘‘self-certify’’
that a rule, rule amendment, or new
product meets applicable standards
under the CEA and the CFTC’s rules
thereunder without obtaining CFTC
approval, although the CFTC retains the
ability, in certain circumstances, to stay
the self-certification for further review
before it may become effective. Using its
general authority to impose any
requirement on SBSEFs and to prescribe
rules governing the regulation of
SBSEFs,87 the Commission proposed to
85 15
U.S.C. 78s(b).
U.S.C. 78c–4.
87 See 15 U.S.C. 78c–4(d)(1)(A)(ii) (requiring an
SBSEF, in order to be registered and to maintain
registration, to comply with any requirement that
the Commission may impose by rule or regulation);
15 U.S.C. 78c–4(f) (directing the Commission to
prescribe rules governing the regulation of SBSEFs).
86 15
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establish similar filing processes for
registered SBSEFs in Rules 804 to 810
of Regulation SE.88
A. Rule 804—Listing Products for
Trading by Certification
1. Summary of the Proposed Rule
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Proposed Rule 804 is modeled on 17
CFR 40.2 of the CFTC’s rules and would
set forth procedures by which an SBSEF
may list a product via certification.
Paragraph (a)(1) of Proposed Rule 804
would require an SBSEF to file its
submission electronically with the
Commission using the EDGAR system as
an Interactive Data File in accordance
with Rule 405 of Regulation S–T.
Paragraph (a)(2) of Proposed Rule 804
would provide that the Commission
must receive the submission by the
open of business on the business day
that is 10 business days preceding the
product’s listing.89
Paragraph (a)(3) of Proposed Rule 804
would require a self-certification to
include a copy of the submission cover
sheet; 90 a copy of the product’s rules,
including all rules related to its terms
and conditions; the intended listing
date; a certification by the SBSEF that
the product to be listed complies with
the SEA and the Commission’s rules
thereunder; a concise explanation and
analysis of the product and its
compliance with applicable provisions
of the SEA, including the Core
Principles, and the Commission’s rules
thereunder; a certification that the
SBSEF posted a notice of pending
product certification with the
Commission and a copy of the
submission, concurrent with the filing
of a submission with the Commission,
on the SBSEF’s website; 91 and a request
88 The CFTC has proposed to amend the rules that
govern how CFTC-registered entities submit selfcertifications and requests for approval of their
rules, rule amendments, and new products for
trading and clearing, as well as the CFTC’s review
and processing of such submissions. See CFTC,
Provisions Common to Registered Entities (Notice
of Proposed Rulemaking), 88 FR 61432 (Sept. 9,
2023). The CFTC’s proposing release states that the
proposed amendments ‘‘are intended to clarify,
simplify and enhance the utility of those
regulations for market participants and the [CFTC].’’
Id. at 61432. The CFTC has not yet taken action on
this proposal.
89 By contrast, the parallel provision in § 40.2(a)
provides that a DCM or SEF must file the selfcertification only one business day before listing the
product. See § 40.2(a)(2) (one of the conditions for
a valid self-certification of a product is that the
CFTC has received the submission by the open of
business on the business day preceding the
product’s listing).
90 The Commission proposed, in new § 249.2002,
a submission cover sheet (with instructions) that is
closely modeled on the CFTC’s submission cover
sheet.
91 Under Rule 804(a)(3)(vi), information that the
SBSEF seeks to keep confidential can be redacted
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for confidential treatment, if
appropriate, as permitted pursuant to
SEA Rule 24b–2.92
Paragraph (b) of Proposed Rule 804,
modeled on § 40.2(b), would provide
that, if requested by Commission staff,
an SBSEF shall provide any additional
evidence, information, or data that
demonstrates that the SBS meets,
initially or on a continuing basis, the
requirements of the SEA or the
Commission’s rules or policies
thereunder.
Paragraph (c)(1) of Proposed Rule 804
would provide that the Commission
may stay the certification of a new
product by issuing a notification
informing the SBSEF that the
Commission is staying the certification
on the grounds that the product presents
novel or complex issues that require
additional time to analyze, is
accompanied by an inadequate
explanation, or is potentially
inconsistent with the SEA or the
Commission’s rules thereunder.93 Under
paragraph (c)(1), the Commission would
have an additional 90 days from the
date of the notification to conduct the
review.
Paragraph (c)(2) would require the
Commission to provide a 30-day
comment period during that 90-day
period, and to publish a notice of the
30-day comment period on the
Commission’s website. Comments from
the public could be submitted as
specified in that notice.
Paragraph (c)(3) would provide that
the product that had been stayed would
from the documents published on the SBSEF’s
website but would have to be republished
consistent with any determination made pursuant
to SEA Rule 24b–2.
92 Section 40.2(a)(3) instructs filers to make any
request for confidential treatment pursuant to § 40.8
of the CFTC’s rules, which in turn cross-references
17 CFR 145.9. The Commission proposed instead to
direct filers to make any request for confidential
treatment pursuant to existing SEA Rule 24b–2. See
supra note 51.
93 Rule 807(c) is based on § 40.2(c), which
provides that the CFTC may stay the listing of a
contract pursuant to paragraph (a) of this section
during the pendency of CFTC proceedings for filing
a false certification or during the pendency of a
petition to alter or amend the contract terms and
conditions pursuant to section 8a(7) of the CEA.
The SEA does not include the CEA’s provisions
regarding altering or amending the terms and
conditions of an SBS listed by an SBSEF like the
authority granted to the CFTC with respect to
products listed by SEFs, such that the Commission
would be able to stay the listing of an SBS that it
believes may be inconsistent with the SEA, pending
proceedings to exercise that authority. Nor are
proceedings for false certification of an SBS
contemplated by the SEA. For this reason, in lieu
of harmonizing with § 40.2(c), the Commission
proposed, in Rule 804(c), a provision that would
allow the Commission to stay the certification of a
new product in the same manner that Rule 807(c)
would allow the Commission to stay the selfcertification of a new rule or rule amendment.
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become effective, pursuant to the
certification, at the expiration of the 90day review period, unless the
Commission withdraws the stay prior to
that time, or the Commission notifies
the SBSEF during the 90-day time
period that it objects to the proposed
certification on the grounds that the
proposed product is inconsistent with
the SEA or the Commission’s rules.
2. Comments and Analysis
One commenter states that, while the
proposed self-certification process does
include improvements to the CFTC’s
self-certification process, including
extending the initial review period from
one business day to 10 business days
and expanding the scope of reasons for
staying the self-certification, it is still
fundamentally flawed. This commenter
states that the CFTC’s self-certification
process is mandated by statute and that,
in the absence of any statutory mandate
analogous to that applicable to the
CFTC, the Commission must, at the very
least, provide a coherent policy
justification for its proposed selfcertification process.94
This commenter states that it is not
clear why it is necessary or desirable for
SBSEFs to be able to bring new products
to the market ‘‘speedily’’ and that selfcertification turns the regulatory process
on its head, creating in effect a
presumption of regulatory compliance
and putting the onus on the agency,
under a predetermined timeline, to fully
evaluate a proposed product that may
threaten significant harm to investors
and market stability.95 This is especially
the case, the commenter states,
considering the context in which the
SEC was given comprehensive authority
to regulate and oversee the SBS market,
i.e., a financial crisis caused in large
part by SBS and other novel financial
products whose risks regulators and
market participants thought were well
understood, but in fact were not. Given
this context, the commenter states, it
‘‘makes little policy sense to establish a
regime whereby an SBSEF could
introduce a new potentially dangerous
product to the financial system without
an affirmative, independent SEC
94 See
Better Markets Letter, supra note 18, at 13.
Better Markets Letter, supra note 18, at 13–
14; see also Letter from Bryce Keeney (Apr. 27,
2022) (‘‘Keeney Letter’’) (stating that ‘‘[d]erivatives
are not the purpose of the market’’ and that the
Commission should ‘‘align rules to focus on the
primary purpose, not to support tertiary aspects that
result in systemic risk and systemic abuse’’); Letter
from Kevin (Apr. 20, 2023) (‘‘Kevin Letter’’) (stating
that the proposed rules do not protect retail
investors and that ‘‘[c]reating a self governing
regime, allowing easier swaps trading across
borders, exemption exchanges and registered
brokers . . . sound like a terrible recipe for disaster
in a multi-trillion marketplace’’).
95 See
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determination that such product not
only complies with the SBSEF Core
Principles and other requirements, but
also that it does not pose an
unwarranted danger to investors, the
financial system, and the broader
economy.’’ 96
For several reasons the Commission
does not agree with the objections raised
by this commenter. First, the
Commission does not agree that the selfcertification process of Rule 804 either
‘‘turns the regulatory process on its
head’’ or would deny the Commission
the opportunity to ‘‘fully evaluate a
proposed product that may threaten
significant harm to investors and market
stability.’’ 97 The ability of the
Commission to stay the effectiveness of
any product self-certification, to seek
public comment on that selfcertification, and to object to (i.e.,
effectively disapprove) the proposed
certification on the grounds that the
product is inconsistent with the SEA or
the Commission’s rules will provide the
Commission with sufficient opportunity
(including the opportunity to seek
public comment) to consider the selfcertified rules and take steps to protect
investors and maintain fair, orderly, and
efficient markets. Further, the selfcertification process does not create a
‘‘presumption of compliance,’’ because:
(a) Rule 804(b) requires an SBSEF to
provide, at Commission request, any
‘‘additional evidence, information, or
data that demonstrates that the SBS
meets, initially or on a continuing basis,
the requirements of the SEA or the
Commission’s rules or policies
thereunder’’; (b) Rule 804(c)(1) permits
the Commission to suspend a new
product certification because ‘‘the
product presents novel or complex
issues that require additional time to
analyze, is accompanied by an
inadequate explanation, or is potentially
inconsistent with the SEA or the
Commission’s rules thereunder’’
(emphasis added); and (c) Rule 804(c)(3)
does not create a presumption of
compliance but instead provides the
Commission a mechanism by which to
object to a proposed certification ‘‘on
the grounds that the proposed product
is inconsistent with the SEA or the
Commission’s rules.’’ 98
Second, given the relationship
between the swaps market and the SBS
market, as well as the likelihood that
96 Better
Markets Letter, supra note 18, at 13–14.
supra note 96 and accompanying text.
98 Section IV.D, infra, discusses the process for
self-certification of rule changes, including the
Commission’s ability to stay the effectiveness of
such a filing, which would lead to a public
comment period and the opportunity for the
Commission to object to the certification.
97 See
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most or all entities seeking to register as
SBSEFs will be CFTC-registered SEFs,
harmonization with the CFTC filing
procedures for new products should
facilitate the ability of entities to dually
register and minimize costs by allowing
incumbent SEFs to use their existing
systems, policies, and procedures to
comply with the Commission’s SBSEF
rules. The aim of the rule is, however,
not merely to allow SBSEFs to bring
products to market ‘‘speedily,’’ or at
minimal cost, and, as discussed below
in this section, it is appropriate for its
rules to provide for a longer review
period than the CFTC’s rules.
And third, the Commission disagrees
with this commenter’s view that the
self-certification process ‘‘would pose
an unwarranted danger to investors, the
financial system, and the broader
economy.’’ The new-product provisions
of Regulation SE must be read in the
context of the other relevant provisions
of Title VII of the Dodd-Frank Act and
the Commission’s rules thereunder,
which include, among other things,
rules governing the registration and
regulation of Security-Based Swap
Dealers (‘‘SBSDs’’) and Major SecurityBased Swap Participants (‘‘MSBSPs’’); 99
capital, margin, and segregation
requirements for SBSDs and
MSBSPs; 100 business conduct standards
and chief compliance officer
requirements for SBSDs and
MSBSPs; 101 and post-trade reporting
and public dissemination of SBS
transactions.102 Because of the
significant role these other rules play in
addressing potential risks posed by SBS,
the Commission’s ability to require
SBSEFs to provide any evidence,
information, or data demonstrating that
the SBS meets, initially or on a
continuing basis, the requirements of
the SEA or the Commission’s rules or
policies thereunder, and the
Commission’s ability to suspend and
ultimately object to SBSEF self99 See
Registration Process for Security-Based
Swap Dealers and Major Security-Based Swap
Participants, SEA Release No. 75611 (Aug. 5, 2015),
80 FR 48963 (Aug. 14, 2015) (‘‘SBSD and MSBSP
Registration Release’’).
100 See Capital, Margin, and Segregation
Requirements for Security-Based Swap Dealers and
Major Security-Based Swap Participants and Capital
and Segregation Requirements for Broker-Dealers,
SEA Release No. 86175 (June 21, 2019), 84 FR
43872 (Aug. 22, 2019) (‘‘Capital, Margin, and
Segregation Release’’).
101 See Business Conduct Standards for SecurityBased Swap Dealers and Major Security-Based
Swap Participants, SEA Release No. 77617 (Apr. 14,
2016), 81 FR 29959 (May 13, 2016) (‘‘Business
Conduct Standards Release’’).
102 See Regulation SBSR—Reporting and
Dissemination of Security-Based Swap Information,
SEA Release No, 78321 (July 14, 2016), 81 FR 53546
(Aug. 12, 2016) (‘‘Regulation SBSR Release’’).
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certifications, are appropriate to protect
investors, the financial system, and the
broader economy with respect to new
SBSEF products and rules.103 Thus, the
self-certification process in this context
is appropriate for the underlying aims of
the Dodd-Frank Act.
Two commenters state that the
relatively low volume of SBS products
expected to be self-certified supports a
shorter review period than the proposed
ten-business-day Commission review
period.104 Both commenters recommend
a shorter review period of one day to
harmonize with the CFTC’s
approach.105 Alternatively, one of the
commenters suggests a two-day review
period.106 This commenter suggests that
a shorter review period would be
beneficial to allow market operators to
meet participants’ demands to transact
on regulated platforms in a reasonable
period of time.107 The commenter also
states that a shorter review period
would accommodate participants’ needs
to hedge risk in a timely manner.108 The
other commenter states that a longer
review period would reduce the
competitive benefit to SBSEFs that
develop new products because a 10-day
review period would enable competitors
to list similar products.109 This
commenter also suggests varying from
the one-day review period in certain
limited circumstances, such as when an
SBSEF submits an SBS for a madeavailable-to-trade determination.110
While a ten-day review period differs
from the CFTC’s one-day review period,
one business day would not provide the
SEC staff sufficient time to review a new
product filing for error or
incompleteness, let alone review a new
product for compliance with the SEA or
Regulation SE. Further, if a product
does warrant a stay, the Commission
would also need sufficient time to go
through the administrative steps of
formally issuing the stay.111 The
103 The Commission’s rules for SBSEFs do not
directly affect retail investors. Only eligible contract
participants (‘‘ECPs’’) are eligible to trade on an
SBSEF, see section 6(l) of the SEA, 15 U.S.C. 78f(l),
and retail investors would have access to an SBS
only after an SBS exchange has filed a proposed
rule change with the Commission under Rule 19b–
4, 17 CFR 240.19b–4, to amend its rules to permit
the listing of a registered SBS, with that proposed
rule change being published for public comment.
104 See WMBAA Letter, supra note 18, at 4; ICE
Letter, supra note 18, at 2.
105 See WMBAA Letter, supra note 18, at 4; ICE
Letter, supra note 18, at 2.
106 See WMBAA Letter, supra note 18, at 4.
107 See id.
108 See id.
109 See ICE Letter, supra note 18, at 3.
110 See id.
111 See infra sections XV.D and XV.E (delegating
authority to the Director of the Division of Trading
and Markets to stay the effectiveness of a self-
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proposed ten-business-day review
period for self-certified products also
accords with the CFTC’s ten-businessday review period for self-certified
rules,112 which the Commission is
replicating in Rule 807(a)(3).113
Further, while a shorter review period
may allow SBS to trade on an SBSEF
more quickly, failing to provide the
Commission with a meaningful period
for review of a new product would
hamper the Commission’s ability to
protect market participants and
maintain fair, orderly, and efficient SBS
markets. A ten-day review period would
still permit market participants to trade
SBS on regulated platforms within a
‘‘reasonable period’’ and would provide
the Commission the time it needs to
review submissions. The Commission
also disagrees with the comment that a
shorter review period is necessary to
accommodate market participants’ need
to hedge risk in a timely manner. During
the relatively brief and time-limited
period for Commission review of an
SBSEF new-product filings, market
participants would remain able to hedge
that risk in other ways, such as in the
OTC SBS market or other related
securities markets, depending on the
risk to be managed. Finally, while the
10-day review period might reduce the
first-to-market competitive advantage of
an SBSEF that first lists a given SBS,114
the extent of such an advantage may
vary considerably based on other factors
in the SBSEF market, and that, in any
event, the need for the Commission to
have sufficient time to review a new
product before it is listed justifies the
potential competitive effect.
Thus, a ten-business-day review
period strikes an appropriate balance
between allowing SBSEFs to list new
products quickly and affording
Commission staff a sufficient time
period in which to assess those products
prior to listing.
One commenter asks the Commission
to confirm that it does not expect
SBSEFs to self-certify for every security
for which there may exist a related
SBS.115 This commenter states that, for
example, while an SBSEF may publish
certification and to extend the period for
consideration of a new product).
112 See § 40.6(a)(3) (one of the conditions for a
valid self-certification of a rule or rule amendment
is that the CFTC has received the submission not
later than the open of business on the business day
that is 10 business days prior to the registered
entity’s implementation of the rule or rule
amendment).
113 See infra section IV.D.
114 Cf. ICI Letter, supra note 18, at 9 n.29
(discussing ‘‘first mover’’ advantage in the context
of an SBSEF that has made an SBS available to
trade).
115 See WMBAA Letter, supra note 18, at 4.
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‘‘terms and conditions’’ relevant for an
instrument (like a single-name total
return SBS) under Rule 804, the
Commission might receive thousands of
underlying national market system
equity stocks from each SBSEF,
exponentially increasing the number of
products the Commission would need to
review. The commenter also states that,
given the potential 10-day review period
(compared to the CFTC’s shorter
timeframe), SBSEFs will be forced to
proactively self-certify every potential
SBS in an attempt to meet all potential
participant demand without a two-week
delay, only increasing the volume of
self-certifications the Commission may
receive. This commenter states that
listing the instrument, and not each
equity that may be linked to the
instrument, is an appropriate approach
to balance the SBSEFs and the
Commission’s resources with respect to
product self-certification.
The Commission is conscious of the
large number of individual SBS that
may constitute a ‘‘class’’ of SBS, such as
single-name, total return SBS given as
an example by the commenter. While an
SBSEF should not necessarily be
required to make an individual filing for
each of the securities underlying a
single such class of SBS, a filing for a
simple class certification that merely
described the parameters of the SBS
covered by the certification would not
necessarily provide sufficient
information for the Commission to
determine whether all the potential
products covered by the class are
consistent with the SEA and the rules
thereunder, including Regulation SE.
Therefore, while the Commission is not
providing for ‘‘class certifications’’ of
SBS, the Commission will not
necessarily require separate submissions
for each underlying security.116 The
Commission will consider submissions
for an SBS that might overlie one or
more of a list of securities, provided that
those potential underlying securities are
specifically identified and that the
submission addresses, as part of the
requirement in Rule 804 to submit ‘‘a
concise explanation and analysis of the
product and its compliance with
applicable provisions of the Act,
including core principles, and the
Commission’s rules thereunder,’’ 117
why all included underlying securities
meet the applicable provisions of the
116 By contrast, paragraph (d) of § 40.2 provides
that a DCM or SEF may submit a class certification
of swaps based on an ‘‘excluded commodity,’’
subject to certain conditions. See section 1a(19) of
the CEA, 7 U.S.C. 1a(19) (defining ‘‘excluded
commodity’’).
117 Rule 804(a)(3)(v).
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87167
SEA and the Commission’s rules
thereunder.118
Accordingly, for the reasons
discussed above, the Commission is
adopting Rule 804 as proposed, with the
exception of the proposed Inline XBRL
and EDGAR filing requirements, and
with minor technical modifications.119
B. Rule 805—Voluntary Submission of
New Products for Commission Review
and Approval
Proposed Rule 805 is closely modeled
on § 40.3 of the CFTC’s rules and would
set forth procedures by which an SBSEF
may voluntarily submit new SBS
products for Commission review and
approval.
Paragraph (a) of Proposed Rule 805
would adapt these requirements for
SBSEFs.120 First, an SBSEF would be
required to file its submission
electronically with the Commission
using the EDGAR system as an
Interactive Data File in accordance with
Rule 405 of Regulation S–T. The filing
would also have to include a copy of the
submission cover sheet, a copy of the
rules that set forth the terms and
conditions of the SBS to be listed, and
an explanation and analysis of the
product and its compliance with
applicable provisions of the SEA,
including the Core Principles and the
Commission’s rules thereunder.121 The
submission would also have to describe
any agreements or contracts entered into
118 For example, a submission might cover a
single-name total return SBS on any of the
components of a given index, provided that the
submission explains why the minimum criteria for
inclusion in that index are sufficient to ensure that
the proposed SBS are consistent with the
requirements of the SEA and the rules thereunder,
including Regulation SE.
119 See supra note 32. As described in further
detail in the discussion of electronic filing systems
and structured data, the Commission will require
all rule and product filings required by Rules 804
through 807 and 816 to be filed in unstructured
format through EFFS, rather than in Inline XBRL
through EDGAR. See infra section XIII.A.
120 Paragraph (a) of Rule 805 omits two provisions
in § 40.3(a). First, § 40.3(a)(6) requires the
submitting entity to include the certifications
required in 17 CFR 41.22 for product approval of
a commodity that is a security future or a security
futures product, as defined in sections 1a(44) or
1a(45) of the CEA, respectively. The Commission
did not propose to adapt this provision into
proposed Regulation SE because it pertains to
security futures and security futures products, not
to swaps or SBS. Second, § 40.3(a)(8) requires the
submitting entity to include a filing fee. The
Commission is not proposing to charge SBSEFs
filing fees for submitting new product proposals.
121 This explanation and analysis would have to
either be accompanied by the documentation relied
upon to establish the basis for compliance with the
applicable law, or incorporate information
contained in such documentation, with appropriate
citations to data sources.
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with other parties that enable the SBSEF
to carry out its responsibilities.
Furthermore, paragraph (a) of
Proposed Rule 805, modeled on
§ 40.3(a), would require the SBSEF to
include, if requested by Commission
staff, additional evidence, information,
or data demonstrating that the SBS
meets, initially or on a continuing basis,
the requirements of the SEA, or other
requirement for registration under the
SEA, or the Commission’s rules or
policies thereunder. The SBSEF would
be required to submit the requested
information by the open of business on
the date that is two business days from
the date of request by Commission staff,
or at the conclusion of such extended
period agreed to by Commission staff
after timely receipt of a written request
from the SBSEF. Paragraph (a) of
Proposed Rule 805, like § 40.3(a), would
permit the submitting SBSEF to include
a request for confidential treatment.122
Finally, paragraph (a) of Proposed Rule
805, like § 40.3(a), would require the
SBSEF to certify that it posted a notice
of its request for Commission approval
of the new product and a copy of the
submission, concurrent with the filing
of a submission with the Commission,
on the SBSEF’s website.123
Paragraph (b) of Proposed Rule 805,
like § 40.3(b), would provide that the
Commission shall approve a new
product unless the terms and conditions
of the product violate the SEA or the
Commission’s rules thereunder.
Paragraph (c) of Proposed Rule 805,
modeled on § 40.3(c), would provide
that a product submitted for
Commission approval under Rule 805
shall be deemed approved by the
Commission 45 days after receipt by the
Commission, or at the conclusion of an
extended period as provided under Rule
805(d), unless notified otherwise within
the applicable period, if the submission
complies with the requirements of Rule
805(a) and the SBSEF does not amend
the terms or conditions of the product
or supplement the request for approval,
except as requested by the Commission
or for correction of typographical errors,
renumbering, or other non-substantive
revisions, during that period. Paragraph
(c) would also provide that any
voluntary, substantive amendment by
122 Section 40.3(a), like § 40.2(a)(3), instructs
filers to make any request for confidential treatment
pursuant to § 40.8 of the CFTC’s rules, which in
turn cross-references § 145.9. As noted previously,
the Commission proposes instead to direct filers to
make any request for confidential treatment
pursuant to SEA Rule 24b–2. See supra note 51.
123 Information that the SBSEF seeks to keep
confidential could be redacted from the documents
published on the SBSEF’s website but would have
to be republished consistent with any
determination made pursuant to SEA Rule 24b–2.
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the SBSEF would be treated as a new
submission under Rule 805.
Paragraph (d) of Proposed Rule 805,
modeled on § 40.3(d), would provide
that the Commission may extend the 45day review period in paragraph (c) for
an additional 45 days, if the product
raises novel or complex issues that
require additional time to analyze, in
which case the Commission shall notify
the SBSEF within the initial 45-day
review period and briefly describe the
nature of the specific issue(s) for which
additional time for review is required.
Paragraph (d) would also provide that
the Commission may extend the 45-day
review period for any length of time to
which the SBSEF agrees in writing.
Paragraph (e) of Proposed Rule 805
would provide that the Commission
may, at any time during its review,
notify the SBSEF that it will not, or is
unable to, approve the product. This
notification would have to briefly
specify the nature of the issues raised
and the specific provision of the SEA or
the Commission’s rules thereunder,
including the form or content
requirements of Rule 805(a), that the
product violates, appears to violate, or
potentially violates but which cannot be
ascertained from the submission.
Paragraph (f) of Proposed Rule 805,
like § 40.3(f), would provide that a
notification of the Commission’s
determination not to approve a product
does not prejudice the SBSEF from
subsequently submitting a revised
version of the product for Commission
approval, or from submitting the
product as initially proposed pursuant
to a supplemented submission.
Furthermore, the notification would be
presumptive evidence that the entity
may not truthfully certify under Rule
804 that the same, or substantially the
same, product does not violate the SEA
or the Commission’s rules thereunder.
The Commission did not receive any
comments on this proposed rule. It is
reasonable and appropriate to
supplement the product certification
procedures in Rule 804 by also
including in Regulation SE, as Rule 805,
procedures for voluntary submission of
new products for Commission review
and approval. Providing this approval
process, as the CFTC does, can be
valuable to an SBSEF seeking the
Commission’s concurrence that a new
product does not violate the SEA or the
Commission’s rules thereunder prior to
listing it. The CFTC’s procedures in this
regard are well articulated and well
understood by SEFs, and that closely
harmonizing with these procedures
would yield comparable regulatory
benefits while minimizing burdens on
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SBSEFs.124 Therefore, the Commission
is adopting Rule 805 as proposed, with
the exception of the proposed Inline
XBRL and EDGAR filing requirements,
and with minor technical
modifications.125
C. Rule 806—Voluntary Submission of
Rules for Commission Review and
Approval
Proposed Rule 806 is closely modeled
on § 40.5 of the CFTC’s rules and would
set forth procedures by which an SBSEF
may voluntarily submit rules, rule
amendments, or dormant rules for
Commission review and approval.
Paragraph (a) of Proposed Rule 806
would provide that an SBSEF may
request that the Commission approve a
new rule, rule amendment, or dormant
rule prior to implementation of the rule.
First, an SBSEF must file its submission
electronically with the Commission
using the EDGAR system as an
Interactive Data File in accordance with
Rule 405 of Regulation S–T. The filing
would be required to include a copy of
the submission cover sheet and to set
forth the text of the rule or rule
amendment (in the case of a rule
amendment, deletions and additions
must be indicated). Further, the SBSEF
would be required to describe the
proposed effective date of the rule or
rule amendment and any action taken or
anticipated to be taken to adopt the
proposed rule by the SBSEF or by its
governing board or by any committee
124 As stated in the Proposing Release, the
Commission does not discount the possibility that
an entity might elect to register as an SBSEF with
the SEC but not as a SEF with the CFTC. In such
case, the SEC-only registrant would not have any
familiarity with the CFTC’s rules and filing
procedures. Nevertheless, because most if not all
entities that will seek SBSEF registration with the
SEC are or will also be registered as SEFs with the
CFTC, such dual registrants would benefit from
harmonized rules. Furthermore, because the
Commission is adopting these procedures
substantially as proposed, is unnecessary to
establish and apply one set of procedures for dual
registrants and a different set for SEC-only SBSEFs.
See Proposing Release, supra note 1, 87 FR at 28956
(stating that if the Commission ‘‘establishe[d]
different or additive requirements, dually registered
entities and their market participants might need to
incur costs and burdens to modify their systems,
policies, and procedures to comply with the SECspecific rules’’). See also Bloomberg Letter, supra
note 18, at 10 (‘‘[A] harmonized framework has the
potential to lower compliance costs by allowing
SBSEFs and market participants to integrate with
existing operational and compliance frameworks.
Any potential differences would require SBSEF
registrants to devote resources toward assessing the
potential gaps and consequences of regulatory
divergence.’’).
125 See supra note 32. As described in further
detail in the discussion of electronic filing systems
and structured data, the Commission will require
all rule and product filings required by Rules 804
through 807 and 816 to be filed in unstructured
format through EFFS, rather than in Inline XBRL
through EDGAR. See infra section XIII.A.
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thereof, and to cite the rules of the
SBSEF that authorize the adoption of
the proposed rule. The SBSEF would be
required to provide an explanation and
analysis of the operation, purpose, and
effect of the proposed rule or rule
amendment and its compliance with
applicable provisions of the SEA,
including the Core Principles relating to
SBSEFs and the Commission’s rules
thereunder, and, as applicable, a
description of the anticipated benefits to
market participants or others, any
potential anticompetitive effects on
market participants or others, and how
the rule fits into the SBSEF’s framework
of regulation.
Additionally, if a proposed rule
affects, directly or indirectly, the
application of any other rule of the
SBSEF, the pertinent text of any such
rule would be required to be set forth
and the anticipated effect described.
The SBSEF would also be required to
provide a brief explanation of any
substantive opposing views expressed to
the SBSEF by governing board or
committee members, members of the
SBSEF, or market participants that were
not incorporated into the rule, or a
statement that no such opposing views
were expressed.
The SBSEF could, as appropriate,
include a request for confidential
treatment as permitted under SEA Rule
24b–2. Finally, the SBSEF would be
required to certify that it posted a notice
of the pending rule with the
Commission and a copy of the
submission, concurrent with the filing
of a submission with the Commission,
on the SBSEF’s website.126
Paragraph (b) of Proposed Rule 806,
modeled on § 40.5(b), would provide
that the Commission shall approve a
new rule or rule amendment unless the
rule or rule amendment is inconsistent
with the SEA or the Commission’s rules
thereunder. Paragraph (c) of Proposed
Rule 806, like § 40.5(c), would provide
that a rule or rule amendment submitted
for Commission approval under Rule
806 shall be deemed approved by the
Commission 45 days after receipt by the
Commission, or at the conclusion of
such extended period as provided under
paragraph (d) of this section, unless the
SBSEF is notified otherwise within the
applicable period, if the submission
complies with the requirements of Rule
806(a) and the SBSEF does not amend
the proposed rule or supplement the
submission, except as requested by the
Commission, during the pendency of
126 Information that the SBSEF seeks to keep
confidential could be redacted from the documents
published on the SBSEF’s website but would have
to be republished consistent with any
determination made pursuant to SEA Rule 24b–2.
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the review period, other than for
correction of typographical errors,
renumbering, or other non-substantive
revisions. Paragraph (c) would also
provide that any amendment or
supplementation not requested by the
Commission would be treated as the
submission of a new filing under Rule
806.
Paragraph (d) of Proposed Rule 806,
modeled on § 40.5(d), would provide
that the Commission may further extend
the review period in paragraph (c) for an
additional 45 days, if the proposed rule
or rule amendment raises novel or
complex issues that require additional
time for review or is of major economic
significance, the submission is
incomplete, or the requestor does not
respond completely to Commission
questions in a timely manner, in which
case the Commission shall notify the
submitting SBSEF within the initial 45day review period and shall briefly
describe the nature of the specific issues
for which additional time for review
shall be required. Paragraph (d) would
also allow an extension to which the
SBSEF agrees in writing.
Paragraph (e) of Proposed Rule 806,
like § 40.5(e), would provide that, at any
time during its review, the Commission
may notify the SBSEF that it will not,
or is unable to, approve the new rule or
rule amendment. This notification
would have to briefly specify the nature
of the issues raised and the specific
provision of the SEA or the
Commission’s rules thereunder,
including the form or content
requirements of Proposed Rule 806,
with which the new rule or rule
amendment is inconsistent or appears to
be inconsistent with the SEA or the
Commission’s rules thereunder.
Paragraph (f) of Proposed Rule 806,
like § 40.5(f), would provide that such a
notification to an SBSEF would not
prevent the SBSEF from subsequently
submitting a revised version of the
proposed rule or rule amendment for
Commission review and approval or
from submitting the new rule or rule
amendment as initially proposed in a
supplemented submission. Paragraph (f)
would further provide that the revised
submission would be reviewed without
prejudice. Finally, paragraph (f) would
provide that such a notification to an
SBSEF of the Commission’s
determination not to approve a
proposed rule or rule amendment shall
be presumptive evidence that the SBSEF
may not truthfully certify the same, or
substantially the same, proposed rule or
rule amendment under Rule 807(a).
Paragraph (g) of Proposed Rule 806,
like § 40.5(g), would provide that,
notwithstanding Rule 806(c), changes to
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a proposed rule or a rule amendment,
including changes to terms and
conditions of a product that are
consistent with the SEA and the
Commission’s rules thereunder, may be
approved by the Commission at such
time and under such conditions as the
Commission shall specify in the written
notification; provided, however, that the
Commission may, at any time, alter or
revoke the applicability of such a notice
to any particular product or rule
amendment.
The Commission received no
comments on Proposed Rule 806 and
the Commission is adopting Rule 806 as
proposed, with the exception of the
proposed Inline XBRL and EDGAR
filing requirements, and with minor
technical modifications, for the reasons
stated in the Proposing Release.127
D. Rule 807—Self-Certification of Rules
Proposed Rule 807 is closely modeled
on § 40.6 of the CFTC’s rules and would
set forth procedures by which an SBSEF
may self-certify changes to its rules.
Paragraph (a) of Proposed Rule 807,
modeled on § 40.6(a), would set forth
the conditions that an SBSEF must
comply with before implementing a rule
or rule amendment via self-certification.
Like § 40.6(a), Proposed Rule 807(a)
would permit an SBSEF to implement a
rule or rule amendment without
obtaining the Commission’s prior
approval under Rule 806, but only if it
‘‘self-certifies’’ the rule or rule
amendment in compliance with the
conditions set forth in Rule 807.
Proposed Rule 807(a) would also permit
an SBSEF to self-certify a rule or rule
amendment that the Commission had
previously approved under Rule 806, or
that the SBSEF had previously selfcertified under Rule 807, but that in the
interim had become a dormant rule (i.e.,
unimplemented for 12 consecutive
calendar months).128
127 See supra note 32. As described in further
detail in the discussion of electronic filing systems
and structured data, the Commission will require
all rule and product filings required by Rules 804
through 807 and 816 to be filed in unstructured
format through EFFS, rather than in Inline XBRL
through EDGAR. See infra section XIII.A.
128 Also, like § 40.6(a), Proposed Rule 807(a)
would include an exception that would allow an
SBSEF to implement a certain kind of rule without
having to comply with the full set of conditions set
forth in paragraphs (a)(1) through (8) of Rule 807,
the details of which are discussed below.
Specifically, the exception would provide that,
when submitting a rule delisting or withdrawing
the certification of a product with no open interest,
an SBSEF would only be required to meet the
conditions of paragraphs (a)(1), (a)(2), and (a)(6) of
Rule 807. The introductory language in paragraph
(a) of Proposed Rule 807 would generally track the
language of § 40.6(a), with slight changes for clarity.
However, Proposed Rule 807(a) would not include
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Paragraph (a)(1) of Proposed Rule 807
would require the SBSEF to file its
submission electronically with the
Commission using the EDGAR system as
an Interactive Data File in accordance
with Rule 405 of Regulation S–T.
Paragraph (a)(2) would require the
SBSEF to provide a certification that the
SBSEF posted a notice of the selfcertification with the Commission and a
copy of the submission, concurrent with
the filing of a submission with the
Commission, on the SBSEF’s website.129
Paragraph (a)(3) would provide that the
Commission must have received the
submission not later than the open of
business on the business day that is 10
business days before the SBSEF’s
implementation of the rule or rule
amendment. Paragraph (a)(4) would
provide that the SBSEF may not
implement the rule or rule amendment
if the Commission has stayed it
pursuant to Rule 807(c).
Paragraph (a)(5) of Proposed Rule 807
would set out procedures for emergency
rule certifications. Paragraph (a)(5)(i)
would require a new rule or rule
amendment that establishes standards
for responding to an emergency 130 to be
submitted pursuant to Rule 807(a).
Paragraph (a)(5)(ii) would provide that a
rule or rule amendment implemented
under procedures of the governing
board to respond to an emergency shall,
if practicable, be filed with the
Commission prior to implementation or,
if not practicable, be filed with the
Commission at the earliest possible time
after implementation, but in no event
more than 24 hours after
implementation. In addition, paragraph
(a)(5)(ii) would provide that any such
submission be subject to the
an equivalent of the reference in § 40.6(a) to
submissions under § 40.10, which concerns only
systemically important derivatives clearing
organizations and thus is not relevant to SBSEFs.
129 Information that the SBSEF seeks to keep
confidential could be redacted from the documents
published on the SBSEF’s website but must be
republished consistent with any determination
made pursuant to SEA Rule 24b–2.
130 See § 40.1(h) (defining ‘‘emergency’’ as ‘‘any
occurrence or circumstance that, in the opinion of
the governing board of a registered entity, or a
person or persons duly authorized to issue such an
opinion on behalf of the governing board of a
registered entity under circumstances and pursuant
to procedures that are specified by rule, requires
immediate action and threatens or may threaten
such things as the fair and orderly trading in, or the
liquidation of or delivery pursuant to, any
agreements, contracts, swaps or transactions or the
timely collection and payment of funds in
connection with clearing and settlement by a
derivatives clearing organization’’). The definition
goes on to list a series of circumstances that are
deemed emergencies under the definition. The
Commission is adopting a definition of
‘‘emergency’’ in Rule 802 that is adapted from
§ 40.1(h).
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certification and stay provisions of
Rules 807(b) and (c), described below.
Paragraph (a)(6) of Proposed Rule 807,
modeled on § 40.6(a)(7), would set out
the required elements for a rule
submission under Rule 807. These
requirements would include a copy of
the submission cover sheet (in the case
of a rule or rule amendment that
responds to an emergency, ‘‘Emergency
Rule Certification’’ should be noted in
the description section of the
submission cover sheet); the text of the
rule (in the case of a rule amendment,
deletions and additions must be
indicated); the date of intended
implementation; a certification by the
SBSEF that the rule complies with the
SEA and the Commission’s rules
thereunder; a concise explanation and
analysis of the operation, purpose, and
effect of the proposed rule or rule
amendment and its compliance with
applicable provisions of the SEA,
including the Core Principles relating to
SBSEFs and the Commission’s rules
thereunder; and a brief explanation of
any substantive opposing views
expressed to the SBSEF by governing
board or committee members, members
of the SBSEF, or market participants,
that were not incorporated into the rule,
or a statement that no such opposing
views were expressed. Paragraph
(a)(6)(vii) would also permit the SBSEF
to include, as appropriate, a request for
confidential treatment pursuant to the
procedures provided in Rule 240.24b–
2.131
Paragraph (a)(7) of Proposed Rule 807,
like § 40.6(a)(8), would require an
SBSEF to provide, if requested by
Commission staff, additional evidence,
information, or data that may be
beneficial to the Commission in
conducting a due diligence assessment
of the filing and the SBSEF’s
compliance with any of the
requirements of the SEA or the
Commission’s rules or policies
thereunder.
Paragraph (b) of Proposed Rule 807,
modeled on § 40.6(b), would provide the
Commission 10 business days to review
the new rule or rule amendment before
it is deemed certified and can be made
effective, unless the Commission
notifies the SBSEF during that tenbusiness-day review period that it
intends to issue a stay of the
certification under Rule 807(c).
131 Section 40.6(a)(7)(vii) directs the submitting
entity to follow the procedures in § 40.8 when
making a request for confidential treatment, which
in turn cross-references § 145.9. As noted
previously, the Commission proposes instead to
direct filers to make any request for confidential
treatment pursuant to SEA Rule 24b–2. See supra
note 51.
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Paragraph (c)(1) of Proposed Rule 807,
modeled on § 40.6(c)(1), would provide
that the Commission may stay the
certification of a new rule or rule
amendment by issuing a notification
informing the SBSEF that the
Commission is staying the certification
on the grounds that it presents novel or
complex issues that require additional
time to analyze, is accompanied by an
inadequate explanation, or is potentially
inconsistent with the SEA or the
Commission’s rules thereunder. In
addition, paragraph (c)(1) affords the
Commission an additional 90 days from
the date of the notification to conduct
the review.
Paragraph (c)(2) of Proposed Rule 807,
modeled on § 40.6(c)(2), would require
the Commission to provide a 30-day
comment period within the 90-day
period in which the stay is in effect. The
Commission would be required to
publish a notice of the 30-day comment
period on the Commission’s internet
website, and comments from the public
could be submitted as specified in that
notice.
Paragraph (c)(3) of Proposed Rule 807,
modeled on § 40.6(c)(3), would provide
that the new rule or rule amendment
subject to the stay shall become
effective, pursuant to the certification, at
the expiration of the 90-day review
period, unless the Commission
withdraws the stay prior to that time, or
the Commission notifies the SBSEF
during the 90-day period that it objects
to the proposed certification on the
grounds that the proposed rule or rule
amendment is inconsistent with the
SEA or the Commission’s rules
thereunder.
Paragraph (d) of Proposed Rule 807,
modeled on § 40.6(d), would provide
that certain kinds of rules or rule
amendments may be put into effect by
an SBSEF without certification to the
Commission if similar enumerated
conditions are met. Some would be
subject to a Weekly Notification of Rule
Amendments, which is closely modeled
on the CFTC notification; others would
not be subject to any notification
requirement.
Under paragraph (d)(2) of Proposed
Rule 807, the following types of rules
could be put into effect by an SBSEF
without self-certification, so long as
they are disclosed on the Weekly
Notification of Rule Amendments:
• Non-substantive revisions.
Corrections of typographical errors,
renumbering, periodic routine updates
to identifying information about the
SBSEF, and other such non-substantive
revisions of a product’s terms and
conditions that have no effect on the
economic characteristics of the product;
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• Fees. Fees or fee changes, other
than fees or fee changes associated with
market making or trading incentive
programs, that total $1.00 or more per
contract, and are established by an
independent third party or are unrelated
to delivery, trading, clearing, or dispute
resolution.
• Survey lists. Changes to lists of
banks, brokers, dealers, or other entities
that provide price or cash market
information to an independent third
party and that are incorporated by
reference as product terms;
• Approved brands. Changes in lists
of approved brands or markings
pursuant to previously certified or
Commission approved standards or
criteria;
• Trading months. The initial listing
of trading months, which may qualify
for implementation without notice,
within the currently established cycle of
trading months; or
• Minimum tick. Reductions in the
minimum price fluctuation (or ‘‘tick’’).
Under paragraph (d)(3)(ii) of Rule 807,
the following types of rules can be put
into effect by an SBSEF without selfcertification and without having to be
disclosed on the Weekly Notification of
Rule Amendments:
• Transfer of membership or
ownership. Procedures and forms for the
purchase, sale, or transfer of
membership or ownership, but not
including qualifications for membership
or ownership, any right or obligation of
membership or ownership, or dues or
assessments;
• Administrative procedures. The
organization and administrative
procedures of governing bodies such as
a governing board, officers, and
committees, but not voting
requirements, governing board, or
committee composition requirements or
procedures, decision-making
procedures, use or disclosure of material
non-public information gained through
the performance of official duties, or
requirements relating to conflicts of
interest;
• Administration. The routine daily
administration, direction, and control of
employees, requirements relating to
gratuity and similar funds, but not
guaranty, reserves, or similar funds;
declaration of holidays; and changes to
facilities housing the market, trading
floor, or trading area;
• Standards of decorum. Standards of
decorum or attire or similar provisions
relating to admission to the floor,
badges, or visitors, but not the
establishment of penalties for violations
of such rules;
• Fees. Fees or fee changes, other
than fees or fee changes associated with
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market making or trading incentive
programs that are less than $1.00 or
relate to matters such as dues, badges,
telecommunication services, booth
space, real-time quotations, historical
information, publications, software
licenses, or other matters that are
administrative in nature.
• Trading months. The initial listing
of trading months which are within the
currently established cycle of trading
months.
One commenter states that the CFTC’s
self-certification process has been relied
upon by CFTC registrants for most
submissions, leaving little that is
reviewed or capable of challenge by
market participants or the CFTC unless
it is inconsistent with the statute or
CFTC regulation.132 This commenter
states that rulebook or contractual
changes can alter protections within
Commission-regulated markets and that
the Commission should be able to object
to any such change it deems
inconsistent with Commission policy,
including considerations of compliance
costs and the impact on consumer
protections, all of which would be best
informed by a requirement for public
comment prior to certification. Under
the CFTC regime, the commenter states,
there is no formal process to allow
market participants to object to a
submission for changes that are
submitted for certification. Decisions to
adopt or modify rules by selfcertification are typically made by the
registrant’s board of directors or a board
committee, this commenter states, with
market participants only learning of the
rule after the registrant has self-certified
the rule or amendment. This commenter
supports an alternative approach in
which the Commission can review all
material rule and contractual changes by
SBSEFs, clearing agencies, SBS data
depositories, and exchanges. This
commenter also recommends that the
Commission adopt a requirement for
public comment for such changes.
Regulation SE will afford the
Commission a sufficient mechanism to
assess new SBSEF rules and rule
amendments for consistency with
section 3D of the SEA, while also
permitting SBSEFs to submit new rules
and rule amendments using a selfcertification process closely aligned
with § 40.6. The CFTC’s procedures are
132 See SIFMA AMG Letter, supra note 18, at 5–
6. Another commenter raised questions specifically
about self-certification in the context of a
determination by an SBSEF that an SBS has been
‘‘made available to trade.’’ See MFA Letter, supra
note 18, at 6. This comment is discussed below in
the context of made-available-to-trade
determinations under Rule 816(a). See infra section
V.F.2.
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well articulated and well understood by
SEFs, and closely harmonizing with
these procedures should yield
comparable regulatory benefits while
minimizing burdens on SBSEFs. It is
likely that certain rules of dually
registered SEF/SBSEFs will apply to
member behavior generally—and not to
one product market (e.g., swaps or SBS)
exclusively—and that these rules will
thus have to be filed with both the SEC
and CFTC. Adding a default comment
period or otherwise altering the
standard so that the Commission
reviews all material rule or contractual
changes by SBSEFs, as requested by one
commenter,133 would significantly alter
the timing of self-certified SBSEF rules
compared to their SEF equivalents. By
contrast, closely harmonizing the SEC’s
filing procedures and standards of
review with the CFTC’s would allow
dually registered entities to submit the
same (or substantially the same) filing to
both agencies for review. Moreover, if
the Commission exercises its authority
to stay the effectiveness of a selfcertified rule and seek public
comment—i.e., with respect to a rule
that is novel, complex, inadequately
explained, or potentially inconsistent
with the SEA or the regulations
thereunder, including Regulation SE—
market participants would be able to
convey their concerns regarding that
rule to the Commission.
The specified types of SBSEF rules or
rule amendments that may be put into
effect under Rule 807(d) without
certification to the Commission are
appropriate because they are limited to
the types of rule changes described
earlier in this section (e.g.,
administration), which do not implicate
significant protections to market
participants, including compliance costs
and customer protection. Therefore, the
Commission has harmonized Rule
807(d) with § 40.6(d) to allow such
filings to be made without selfcertification or Commission review.
Thus, it is not necessary to require
SBSEFs to make a substantially different
type of filing to the SEC than to the
CFTC for the same underlying rule. For
the reasons discussed above, the
Commission is adopting Rule 807 as
proposed, with the exception of the
proposed Inline XBRL and EDGAR
filing requirements, and with minor
technical modifications.134
133 See
SIFMA AMG Letter, supra note 18, at 5–
6.
134 See supra note 32. The Commission has also
moved the word ‘‘and’’ from the end of paragraph
(d)(3)(D) to the end of paragraph (d)(3)(E)(2). As
described in further detail in the discussion of
electronic filing systems and structured data, the
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E. Submission Cover Sheet and
Instructions
In proposed new § 249.2002, the
Commission proposed to require that an
SBSEF use a submission cover sheet in
conjunction with filings submitted
pursuant to Rules 804 through 807, 809,
and 816. The cover sheet and the
instructions therein are modeled on the
cover sheet and instructions used by
SEFs in conjunction with their
analogous filings with the CFTC.135
The same cover sheet and instructions
would be used for a new rule, rule
amendment, or new product filing, with
the SBSEF checking the appropriate box
to indicate which of these types the
filing represents. The SBSEF would also
be required to check boxes to indicate
whether the submission was seeking
approval by the Commission or whether
it was being filed as a certification by
the SBSEF; and to identify the specific
provision in the Commission’s rules
pursuant to which the filing was being
submitted. The submission cover sheet
also includes a box that the SBSEF
would check if it intends to submit a
request for a joint interpretation from
the Commission and the CFTC regarding
whether the product is a swap, an SBS,
or mixed swap pursuant to SEA Rule
3a68–2.136 Finally, the cover sheet
includes a check box by which an
SBSEF can indicate that it is requesting
confidential treatment of materials in
the submission.
The cover sheet divides the rule and
rule amendment filings into two
categories: one for general rules of the
SBSEF and the other for rules relating
to the terms and conditions of a
product. Additional boxes would need
to be checked if a filing under the termsand-conditions category concerned
specifically a determination by the
SBSEF that a particular SBS was now to
be considered ‘‘made available to trade’’
(or ‘‘MAT’’); 137 or if the filing
concerned the delisting of an SBS with
no open interest.138 The cover sheet
Commission will require all rule and product filings
required by Rules 804 through 807 and 816 to be
filed in unstructured format through EFFS, rather
than in Inline XBRL through EDGAR. See infra
section XIII.A.
135 The CFTC cover sheet and instructions, found
in appendix D to part 40 of the CFTC’s rules, are
designed for rule and product filings from a wider
range of registered entities than just SEFs, and thus
include entries that are omitted from the
Commission’s proposed adaptation.
136 Rule 809 provides that a product filing will be
stayed or tolled, as applicable, if such a request for
a joint interpretation is made by the SBSEF, the
SEC, or the CFTC. See infra section IV.G.
137 Rule 809 provides that a product filing will be
stayed or tolled, as applicable, if such a request for
a joint interpretation is made by the SBSEF, the
SEC, or the CFTC. See infra section IV.G.
138 See supra note 128.
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would need to be used in conjunction
with the weekly notifications that
SBSEFs would be required to file
pursuant to Rule 807(d) for certain
changes that do not need to be approved
or certified, as discussed above.
Paragraph (a) of the submission cover
sheet instructions provides that a
properly completed submission cover
sheet must accompany all rule and
product submissions filed electronically
with the Commission by an SBSEF
using the Electronic Form Filing System
(EFFS).139 Per paragraph (a), a properly
completed submission cover sheet
would include: (1) the name and
platform ID of the SBSEF; 140 (2) the
date of the filing; (3) an indication as to
whether the filing is a new rule, rule
amendment, or new product; (4) for rule
filings, the rule number(s) being
adopted or, in the case of rule
amendments, the number of the rule(s)
being modified; and (4) for rule or rule
amendment filings, a description of the
new rule or rule amendment, including
a discussion of its expected impact on
the SBSEF, its members, and the overall
market. The instructions state that the
narrative should describe the substance
of the submission with enough
specificity to characterize all material
aspects of the filing.
139 The Electronic Form Filing System (EFFS) is
a secure, web-based system used for filing Forms
19b–4, 19b–7, and SCI. The system also supports
pre-filings of certain types of Form 19b–4 filings.
EFFS is used for form filing by SROs, including
national securities exchanges, national securities
associations, clearing agencies, and Systems
Compliance Integrity (SCI) entities, including SCI
SROs, SCI alternative trading systems, plan
processors, and exempt clearing agencies subject to
Automation Review Policy. See https://
www.sec.gov/tm/electronic-form-filing-systemresources.
140 ‘‘Platform ID’’ is a term utilized in Regulation
SBSR, 17 CFR 242.900 et seq., and means the
unique identification code assigned to a platform on
which an SBS is executed. See 17 CFR 242.900(w).
The term ‘‘platform’’ includes an SBSEF. See Rule
900(v), 17 CFR 242.900(v). A registered SBSEF is
required by Rule 903(a) of Regulation SBSR, 17 CFR
242.903(a), to use as its platform ID an identifier
issued by an internationally recognized standardssetting system (‘‘IRSS’’) if the IRSS meets
enumerated criteria and has therefore been
recognized by the Commission pursuant to Rule
903(a). This identification requirement stems from
a registered SBSEF’s status as a ‘‘participant’’ of a
registered SBSDR under Rule 900(u), 17 CFR
242.900(u), because the term ‘‘participant’’ includes
a ‘‘platform,’’ as defined in Rule 900(v), 17 CFR
242.900(v), that incurs reporting duties under Rule
901(a), 17 CFR 242.901(a). Currently, the Global
Legal Entity Identifier System (‘‘GLEIS’’) is the only
IRSS that has been recognized by the Commission
under Rule 903(a). See Regulation SBSR—Reporting
and Dissemination of Security-Based Swap
Information, SEA Release No. 74244 (Feb. 11, 2015),
80 FR 14563, 14631–32 (Mar. 19, 2015)
(‘‘Regulation SBSR Adopting Release I’’). Therefore,
Legal Entity Identifiers (‘‘LEIs’’) issued through the
GLEIS are currently the only allowable platform IDs
that may be used by registered SBSEFs.
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Paragraph (b) of the submission cover
sheet instructions states that a
submission must comply with all
applicable filing requirements for
proposed rules, rule amendments, or
products, and that the filing of the
submission cover sheet does not obviate
the SBSEF’s responsibility to comply
with applicable filing requirements.
Paragraph (c) of the submission cover
sheet states that checking the box
marked ‘‘confidential treatment
requested’’ does not obviate the
submitter’s responsibility to comply
with all applicable requirements for
requesting confidential treatment under
SEA Rule 24b–2 and does not substitute
for notice or full compliance with such
requirements.
One commenter states that the
submission cover sheet and instructions
for SBSEF filings should harmonize
with those of the CFTC.141 This
commenter states that entities currently
registered with the CFTC as SEFs will
be able to seamlessly enact the
necessary steps for required SEC filings
because of their familiarity with the
CFTC’s filing process. This commenter
also states that any identifiers regarded
as necessary should be included on the
cover sheet.
The Commission agrees that the use of
a submission cover sheet that is
harmonized with that required for CFTC
filings by SEFs is likely to facilitate the
filing process for SBSEFs that are also
registered as SEFs. For this reason, the
proposed submission coversheet is
harmonized with the CFTC’s, with
differences only in the details specific to
the rules and processes of the SEC. The
Commission contemplates providing for
electronic completion (as well as
submission) of the cover sheet and
attachment of the submissions required
by Rules 804, 805, 806, 807, and 809,
and intends to advise affected persons
regarding its use by public
announcement in advance of the
effective date of these rules.142
For the reasons discussed above, the
Commission is adopting 17 CFR
249.2002 as proposed, but is
renumbering it as 17 CFR 249.1702
under new subpart R (‘‘Forms for
Registration of, and Filings by, SecurityBased Swap Execution Facilities’’), and
is also adopting the submission cover
sheet and instructions as proposed with
the exception of the proposed Inline
141 See Letter from J.T. (May 26, 2022). In section
XIII.B, infra, the Commission discusses the use of
identifiers, such as the LEI.
142 Below in section XIII.A, the Commission
addresses the requirements to use the EDGAR
system and Inline XBRL for submissions.
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XBRL and EDGAR filing
requirements.143
F. Rule 808—Availability of Public
Information
Proposed Rule 808 is closely modeled
on § 40.8 of the CFTC’s rules.144
Proposed Rule 808(a) would provide
that certain parts of an application to
register as an SBSEF would be made
publicly available on the Commission’s
website, unless confidential treatment is
obtained pursuant to SEA Rule 24b–2.
Specifically, Proposed Rule 808(a)
would make the following parts of a
Form SBSEF publicly available: the (i)
transmittal letter and first part of the
application cover sheet; (ii) Exhibit C;
(iii) Exhibit G; (iv) Exhibit L; and (v)
Exhibit M.145
Paragraph (b) of Proposed Rule 808,
adapted from § 40.8(c), would provide
that the Commission shall make
publicly available on its website, unless
confidential treatment is obtained
pursuant to SEA Rule 24b–2,146 an
SBSEF’s filing of new products pursuant
to the self-certification procedures of
Rule 804, new products for Commission
review and approval pursuant to Rule
805, new rules and rule amendments for
Commission review and approval
pursuant to Rule 806, and new rules and
rule amendments pursuant to the selfcertification procedures of Rule 807.
Paragraph (c), adapted from § 40.8(d),
would provide that the terms and
conditions of a product submitted to the
Commission pursuant to any of Rules
804 through 807 shall be made publicly
available at the time of submission
unless confidential treatment is
obtained pursuant to SEA Rule 24b–2.
The Commission received one
comment on Proposed Rule 808. This
143 See
id.
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144 Section
40.8 of the CFTC’s rules is entitled
‘‘Availability of public information.’’
145 Section 40.8(a) does not provide a list of the
exhibits required to be made public, but rather
refers to a general description of items required to
be made public. For purposes of clarity and ease of
reference, however, the Commission proposed to
list the specific corresponding exhibits in Rule 808
that would be made publicly available. Exhibit C
would require a narrative that sets forth the fitness
standards for the governing board and its
composition; Exhibit G would require a copy of the
corporate governance documents for the applicant;
Exhibit L would require a narrative and any other
form of documentation that describes the manner in
which the applicant is able to comply with each
core principle; and Exhibit M would require a copy
of the applicant’s proposed rules and any technical
manuals, guides, or other instructions for members.
146 An application for confidential treatment shall
contain, among other things, a statement of the
grounds of objection referring to, and containing an
analysis of, the applicable exemption(s) from
disclosure under the Freedom of Information Act,
and a justification of the period of time for which
confidential treatment is sought. See 17 CFR
240.24b–2(b)(2)(ii).
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commenter states that the Commission
should not allow requests for
confidential treatment and that these
requests are currently abused and result
in little information being made
available to the public.147 A blanket
prohibition on requesting confidential
treatment would not be appropriate,
however, because each request for
confidential treatment should be
addressed on its particular facts and
circumstances. Moreover, as the
Commission stated in the Proposing
Release, ‘‘it is not necessary or
appropriate to establish and utilize one
set of procedures to handle confidential
treatment requests made by SBSEFs
while utilizing a different set of
procedures for other persons who
request confidential treatment from the
Commission under the SEA.’’ 148 The
Commission anticipates that while
SBSEFs may request confidential
treatment for their filings pursuant to
existing SEA Rule 24–2, the items
enumerated in Rule 808 are not of the
type that typically would constitute
confidential information. Finally, it is
appropriate to adopt a rule that is
adapted from § 40.8, because Rule 808
will apply to submissions made under
Rules 804–807, which are, as discussed
above, also based on provisions of the
CFTC’s rules for SEFs. Therefore, the
Commission is adopting Rule 808 as
proposed.
G. Rule 809—Staying of Certification
and Tolling of Review Period Pending
Jurisdictional Determination
Section 718 of the Dodd-Frank Act,
entitled ‘‘Determining Status of Novel
Derivative Products,’’ sets forth a
mechanism for addressing a situation in
which a person wishes to list or trade
a novel derivative product that may
have elements of both securities and
contracts of sale of a commodity for
future delivery (or options on such
contracts or options on commodities)—
i.e., a situation in which it is unclear
whether the product in question is a
security under the jurisdiction of the
SEC or a future under the jurisdiction of
the CFTC. Section 718(a) provides that
the SEC or the CFTC may request that
the other agency issue a determination
as to the classification of that product,
and section 718(b) provides that the
CFTC and SEC may petition for judicial
review of any such determination.149
147 See
Keeney Letter, supra note 95.
Release, supra note 1, 87 FR at
28880 n.50.
149 Section 40.12 of the CFTC’s rules is entitled
‘‘Staying of certification and tolling of review
period pending jurisdictional determination’’ and
reflects the process described in section 718 of the
Dodd-Frank Act. Section 40.12 provides that if a
148 Proposing
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87173
As described in the Proposing
Release, Proposed Rule 809 is loosely
modeled on § 40.12, but modified to
focus on the products and jurisdictional
issues that are more likely to be relevant
to SBSEFs.150 Paragraph (a) of Proposed
Rule 809, modeled on § 40.12(b), would
provide that a product certification
made by an SBSEF pursuant to Rule 804
shall be stayed, or the review period for
a product that has been submitted for
Commission approval by an SBSEF
pursuant to Rule 805 shall be tolled,
upon request for a joint interpretation of
whether the product is a swap, SBS, or
mixed swap made pursuant to Rule
3a68–2 under the SEA 151 by the SBSEF,
the SEC, or the CFTC. Paragraph (b) is
modeled on § 40.12(b)(1) and would
require the SEC to provide the SBSEF
with a written notice of the stay or
tolling pending issuance of a joint
interpretation by the SEC and CFTC.
Paragraph (c) is modeled on
§ 40.12(b)(2) and would provide that the
stay shall be withdrawn, or the approval
review period shall resume, if a joint
interpretation finding that the SEC has
jurisdiction over the product is issued.
The Commission did not receive any
comments on Proposed Rule 809. While
section 718 of the Dodd-Frank Act
addresses situations where it is unclear
whether a product is a security or a
future, the SEC and the CFTC have
adopted separate rules—SEA Rule
3a68–2 and 17 CFR 1.8, respectively—
governing requests for interpretation
regarding a product that might be an
SBS, a swap, or a mixed swap. It is
appropriate for Regulation SE to include
a mechanism for the staying or tolling
of a filing by an SBSEF when it is
unclear whether the product is a swap
or an SBS, and it would be appropriate
for Rule 809 to reflect the process set
forth in SEA Rule 3a68–2. Tailoring, as
proposed, the scope of Rule 809, in
relation to § 40.12, appropriately
addresses the jurisdictional questions
that are likely to arise from a product
listed by an SBSEF.152 Therefore, the
Commission is adopting Rule 809 as
proposed.
SEF (among other registered entities) certifies,
submits for approval, or otherwise files a proposal
to list or trade such a novel derivative product, the
product certification shall be stayed or the approval
review period shall be tolled until a final
determination order is issued under section 718.
150 As noted in the Proposing Release, an SBSEF
might seek to list a product where it is unclear
whether the product is a swap or an SBS. See
Proposing Release, supra note 1, 87 FR at 28890.
151 17 CFR 240.3a68–2.
152 The objective of Rule 809 is consistent with
the objective of § 40.12: to provide for a stay or
tolling of a product filing where it is unclear
whether the product is under the jurisdiction of the
SEC or the CFTC.
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H. Rule 810—Product Filings by SBSEFs
That Are Not Yet Registered and by
Dormant SBSEFs
Proposed Rule 810 is closely modeled
on § 37.4 of the CFTC’s rules and would
provide a process whereby a not-yetregistered SBSEF or a dormant SBSEF
could submit product filings.
Specifically, Proposed Rule 810 would
provide that an applicant for registration
as an SBSEF may submit an SBS’s terms
and conditions prior to listing the
product as part of its application for
registration and that any such terms and
conditions or rules submitted as part of
an SBSEF’s application for registration
shall be considered for approval by the
Commission at the time the Commission
issues the SBSEF’s order of registration.
Similarly, any SBS terms and conditions
or rules submitted as part of an
application to reinstate the registration
of a dormant SBSEF would be
considered for approval by the
Commission at the time the Commission
approves the reinstatement of
registration of the dormant SBSEF.
The Commission did not receive any
comments on Proposed Rule 810 and is
adopting Rule 810 as proposed, for the
reasons stated in the Proposing Release.
V. Miscellaneous Requirements
Sections 37.5 to 37.12 of the CFTC’s
rules impose miscellaneous
requirements on SEFs, and the
Commission proposed to impose similar
requirements on SBSEFs in Rules 811 to
817 of Regulation SE.
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A. Rule 811—Information Relating to
SBSEF Compliance
1. Harmonization With § 37.5
Paragraphs (a) to (c) of Proposed Rule
811 are modeled on § 37.5, which is
entitled ‘‘Information regarding swap
execution facility compliance.’’
Paragraph (a) of Proposed Rule 811 is
closely modeled on § 37.5(a) and would
provide that, upon the Commission’s
request, an SBSEF shall file with the
Commission information related to its
business as an SBSEF in the form and
manner, and within the timeframe,
specified by the Commission. Paragraph
(b) is closely modeled on § 37.5(b) and
would provide that, upon the
Commission’s request, an SBSEF shall
file with the Commission a written
demonstration, containing supporting
data, information, and documents, that
it is in compliance with one or more
Core Principles or with its other
obligations under the SEA or the
Commission’s rules thereunder, as the
Commission specifies in its request.
Also, under Proposed Rule 811(b), the
SBSEF would be required to file such
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written demonstration in the form and
manner, and within the timeframe,
specified by the Commission.
Paragraph (c)(1) of Proposed Rule 811
is closely modeled on § 37.5(c)(1) and
would provide that an SBSEF shall file
with the Commission a notification of
any transaction involving the direct or
indirect transfer of 50% or more of the
equity interest in the SBSEF. Also,
under Proposed Rule 811(c)(1), the
Commission could, upon receiving such
a notification, request supporting
documentation of the transaction.
Paragraph (c)(2) is closely modeled on
§ 37.5(c)(2) and would provide that the
equity interest transfer notice shall be
filed with the Commission in a form and
manner specified by the Commission at
the earliest possible time, but in no
event later than the open of business 10
business days following the date upon
which the SBSEF enters into a firm
obligation to transfer the equity Interest.
Paragraph (c)(3) is closely modeled on
§ 37.5(c)(3) and would provide that,
notwithstanding the foregoing, if any
aspect of an equity interest transfer
requires an SBSEF to file a rule, the
SBSEF shall comply with the applicable
rule filing requirements of Rule 806 or
Rule 807.
Paragraph (c)(4) of Proposed Rule 811
is closely modeled on § 37.5(c)(4) and
would provide that, upon a transfer of
an equity interest of 50% or more in an
SBSEF, the SBSEF shall file with the
Commission, in a form and manner
specified by the Commission, a
certification that the SBSEF meets all of
the requirements of section 3D of the
SEA and the Commission rules
thereunder, no later than two business
days following the date on which the
equity interest of 50% or more was
acquired.
The Commission did not receive any
comments on Rule 811(a) to (c). It is
appropriate for Regulation SE to include
provisions requiring an SBSEF to
provide the Commission with the
information described above.
Information about an SBSEF’s business
as an SBSEF and transfers of 50% or
more of its equity would promote
understanding of its operations and
ownership, which should facilitate
oversight of the SBSEF. Therefore, the
Commission is clarifying, as proposed,
that, similar to the CFTC, it may request
such information from an SBSEF. In
addition, as anticipated in the Proposing
Release, should questions about
compliance arise, the Commission
should be able to obtain from an SBSEF
supporting data, information, and
documents that the SBSEF is in
compliance with relevant obligations
under the SEA, and the rule provides for
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this. By modeling its proposed
requirements on existing CFTC rules,
the Commission seeks to obtain
comparable regulatory benefits while
imposing only marginal additional
burdens on dually registered entities
that are already subject to similar
obligations.
The Commission is changing the
phrase ‘‘a transfer of an equity interest
of 50 percent or more in a securitybased swap execution facility’’ in
paragraph (c)(4) to ‘‘an equity transfer
described in paragraph (c)(1) of this
section’’ because the text of paragraph
(c)(4) should be modified to parallel the
text of paragraphs (c)(2) and (c)(3). For
these reasons, the Commission is
adopting Rule 811(a) to (c) as proposed,
with the change described to paragraph
(c)(4).
2. Harmonization With § 1.60
Paragraph (d) of Proposed Rule 811 is
not modeled on § 37.5, but rather on
§ 1.60 of the CFTC’s rules, which is
entitled ‘‘Pending legal proceedings.’’
Because it is conceptually similar to
§ 37.5 in that it would require another
type of information relevant to the
regulatory oversight of a SEF, the
Commission proposed to adapt this
provision into Rule 811.153
Paragraph (d)(1) of Proposed Rule 811
is closely modeled on § 1.60(a) and
would provide that an SBSEF shall
submit to the Commission a copy of the
complaint, any dispositive or partially
dispositive decision, any notice of
appeal filed concerning such decision,
and such further documents as the
Commission may thereafter request filed
in any material legal proceeding to
which the SBSEF is a party or to which
its property or assets are subject.
Paragraph (d)(2) is closely modeled on
§ 1.60(c) and would provide that an
SBSEF shall submit to the Commission
a copy of the complaint, any dispositive
or partially dispositive decision, any
notice of appeal filed concerning such
decision, and such further documents as
the Commission may thereafter request
filed in any material legal proceeding
instituted against any officer, director,
or other official of the SBSEF from
conduct in such person’s capacity as an
official of the SBSEF and alleging
violations of the SEA or any rule,
regulation, or order thereunder; the
153 Section 1.60 requires a SEF (among other
entities) to provide the CFTC with copies of any
legal proceeding to which it is a party, or to which
its property or assets is subject. Paragraph (d) of
Rule 811 would adapt paragraphs (a), (c), and (e)
of § 1.60 to apply to SBSEFs. Paragraphs (b) and (d)
of § 1.60 apply to futures commission merchants
and do not appear germane to SEFs or SBSEFs.
Therefore, the Commission is not adapting these
paragraphs into Rule 811(d).
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constitution, bylaws, or rules of the
SBSEF; or the applicable provisions of
state law relating to the duties of
officers, directors, or other officials of
business organizations.
Paragraph (d)(3) of Proposed Rule 811
is loosely modeled on § 1.60(e) and
would provide that documents required
by Rule 811(d) to be submitted to the
Commission shall be submitted
electronically in a form and manner
specified by the Commission within 10
days after the initiation of the legal
proceedings to which they relate, after
the date of issuance, or after receipt by
the SBSEF of the notice of appeal, as the
case may be.
Paragraph (d)(4) of Proposed Rule 811
is closely modeled on the final two
sentences of § 1.60(e) and would
provide that, for purposes of Rule
811(d), a ‘‘material legal proceeding’’
includes but is not limited to actions
involving alleged violations of the SEA
or the Commission rules thereunder,
and that a legal proceeding is not
‘‘material’’ for the purposes of Rule 811
if the proceeding is not in a Federal or
State court or if the Commission is a
party.
The Commission did not receive any
comments on Proposed Rule 811(d) and
is adopting Rule 811(d) as proposed, for
the reasons stated in the Proposing
Release.
B. Rule 812—Enforceability
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Proposed Rule 812 generally is
modeled on § 37.6. Paragraph (a) of Rule
812, which is based on § 37.6(a)(1), and
would provide that a transaction on or
pursuant to the rules of an SBSEF
cannot be invalidated as a result of a
violation by the SBSEF of section 3D of
the SEA or the Commission’s rules
thereunder.154 An SBS executed on an
SBSEF should not be invalidated by the
SBSEF’s violation of any of the
securities laws, given that swaps
executed on SEFs are afforded the same
legal certainty under § 37.6(a).
Paragraph (b) of Proposed Rule 812 is
modeled on the first sentence of
§ 37.6(b), which requires a SEF to
provide each counterparty to a
transaction that is entered into on or
pursuant to the rules of the SEF with a
written record of all of the terms of the
transaction which shall legally
154 The Commission is not adapting into Rule 812
paragraphs (a)(2) and (a)(3) of § 37.6, which provide
that a transaction on a SEF may not be invalidated
by CFTC proceedings that alter or supplement SEF
rules, terms, and conditions, because the
Commission has no authority in the SEA analogous
to the CFTC’s authority under section 8a(7) of the
CEA to conduct such proceedings. See supra note
93 and accompanying text. See also Proposing
Release, supra note 1, 87 FR at 28893 n.90.
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supersede any previous agreement.155
Proposed Rule 812(b) differs, however,
in that it would provide that an SBSEF
shall, as soon as technologically
practicable after the time of execution of
a transaction entered into on or
pursuant to the rules of the facility,
provide a written record to each
counterparty of all of the terms of the
transaction that were agreed to on the
facility, which shall legally supersede
any previous agreement regarding such
terms.
One commenter agrees that Rule 812
should be modeled on § 37.6 and states
that, like § 37.6, Rule 812 should require
the SBSEF to confirm ‘‘all the terms of
the transaction,’’ rather than being
limited, as proposed, to ‘‘all of the terms
that were agreed to on the facility.’’ 156
This commenter states that Rule 812 as
proposed may cause issues with
clearing SBS because SBS clearing
agencies will likely require SBSEFs to
represent that any transaction executed
on the SBSEF is final and irrevocable (as
CFTC-registered clearing agencies
require for SEFs). Since Rule 812 only
requires an SBSEF confirmation to be
limited in scope to ‘‘all of the terms that
were agreed to on the facility,’’ this
commenter states the SBSEF would not
necessarily know any terms agreed upon
by counterparties outside the SBSEF,
and therefore could not represent to the
clearing agency that the transaction is
‘‘final and irrevocable,’’ which would be
a roadblock for straight-through
processing and full adoption of clearing
for SBS.157 This commenter states that,
to address this issue, SBSEFs should
have the ability to prohibit trading
relationship documentation or
enablements for cleared SBS
transactions executed on an SBSEF,
which are prohibited for CFTCregistered SEFs in accordance with the
CFTC’s 2013 Staff Impartial Access
Guidance,158 and that Rule 812 should
require that the SBSEF confirm ‘‘all of
the terms of the transaction.’’ 159
155 Furthermore, under § 37.6(b), the confirmation
of all terms of the transaction must take place at the
same time as execution, provided that specific
customer identifiers for accounts included in
bunched orders need not be included in
confirmations if certain conditions are met.
156 See Bloomberg Letter, supra note 18, at 4, 12–
13.
157 See infra section VI.F (discussing, among
other things, straight-through processing).
158 See CFTC Division of Clearing and Risk,
Division of Market Oversight, and Division of Swap
Dealer and Intermediary Oversight, Guidance on
Application of Certain Commission Regulations to
Swap Execution Facilities (Nov. 14, 2013), available
at https://www.cftc.gov/sites/default/files/idc/
groups/public/@newsroom/documents/file/
dmostaffguidance111413.pdf.
159 See Bloomberg Letter, supra note 18, at 4, 12–
13.
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Another commenter, however, states
that it is not practical or cost effective
for an SBSEF to collect, review, and
store each free-standing agreement
underlying an SBS transaction entered
into between numerous
counterparties.160 This commenter
states that the CFTC has not required
SEFs to comply with the requirements
of 37.6(b) since 2014, when staff noaction relief was issued due to the
impracticability of compliance.161 Thus,
this commenter supports the proposal in
Rule 812 to require an SBSEF to provide
a written record of all the terms of the
transaction that were agreed to on an
SBSEF, which shall legally supersede
any previous agreement regarding such
terms.
It is appropriate to require an SBSEF
to inform counterparties as soon as
technologically practicable after they
have effected a trade on or pursuant to
the rules of the SBSEF, and to provide
them with a written record of the terms
to which they have agreed to on the
SBSEF. With respect to uncleared SBS,
it would be impractical for an SBSEF to
be aware of, or responsible for,
confirming terms of an SBS that were
agreed to off the SBSEF’s trading
platform, such as terms contained in a
credit support agreement between the
two counterparties to an uncleared SBS.
Thus, the Commission is not including
in Rule 812 a requirement that the
SBSEF provide a written record of any
such terms.162
160 See
ICE Letter, supra note 18, at 5.
id. (citing CFTC Division of Market
Oversight, Staff No-Action Position Regarding SEF
Confirmations and Recordkeeping Requirements
under Certain Provisions Included in Regulations
37.6(b) and 45.2, Letter No. 14–108 (Aug. 18, 2014),
available at https://www.cftc.gov/csl/14-108/
download).
162 Section 37.6(b) requires a SEF to provide a
written record of ‘‘all of the terms of the transaction
which shall legally supersede any previous
agreement and serve as a confirmation of the
transaction.’’ In the adopting release for the final
part 37 rules, the CFTC explained that, with respect
to uncleared swaps, a SEF could satisfy this
requirement by incorporating by reference terms set
forth in agreements previously negotiated by the
counterparties, provided that such agreements had
been submitted to the SEF ahead of execution. See
2013 CFTC Final SEF Rules Release, supra note 9,
78 FR at 33491 n.195. The CFTC staff has taken a
no-action position with respect to the confirmation
requirements for uncleared swaps in response to
assertions by industry participants that it is
impracticable for a SEF to satisfy the written
confirmation requirements by incorporating by
reference terms from previously negotiated
agreements between the counterparties if the SEF
must receive copies of such agreements prior to
execution. See CFTC No Action Letter 17–17 (Mar.
24, 2017) (issued by the CFTC’s Division of Market
Oversight). In the no-action letter, the CFTC staff
stated that it was continuing to assess confirmation
requirements, including establishing a permanent
solution to the issues raised. Given these
circumstances, it is appropriate to require an SBSEF
161 See
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In response to the comment that
Proposed Rule 812 may cause issues
with clearing because the rule requires
SBSEFs to confirm only the terms of an
SBS transaction ‘‘that were agreed to on
the facility,’’ additional terms in trading
relationship documents or enablements
are unlikely to hinder the acceptance by
a clearing agency of SBS that are
intended to be cleared or might inhibit
impartial access to trading of cleared
SBS on an SBSEF. First, a cleared SBS
would be a standardized product, the
complete terms of which would be
known to the SBSEF, agreed to by the
counterparties trading that SBS on the
SBSEF, and capable of being confirmed
to the parties in writing by the SBSEF,
as well as represented to the clearing
agency by the SBSEF as ‘‘final and
irrevocable.’’ Thus, all the terms of the
cleared transaction are confirmed when
executed on the SBSEF. And second,
Proposed Rule 819(c) would require that
an SBSEF provide impartial access to its
market and market services,163 and it
would not be consistent with an
SBSEF’s impartial access obligations to
permit members to incorporate
additional terms for a cleared SBS in
trading relationship documentation,
enablement documentation, or
elsewhere, or to otherwise permit
improper discrimination with respect to
trading in cleared SBS against SBSEF
members who have a direct or indirect
clearing relationship with the clearing
agency for a given SBS.
Therefore, for the foregoing reasons,
the Commission is adopting Rule 812 as
proposed.
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C. Rule 813—Prohibited Use of Data
Collected for Regulatory Purposes
Proposed Rule 813 is modeled on
§ 37.7, and would provide that an
SBSEF shall not use, for business or
marketing purposes, any proprietary
data or personal information that it
collects or receives from or on behalf of
any person for the purpose of fulfilling
its regulatory obligations. An SBSEF
would be able to use such data or
information for business or marketing
purposes if the person consents, but the
SBSEF would not be able to condition
to provide counterparties with a written record of
only those terms that are agreed to on the SBSEF.
Additionally, the CFTC recently issued a notice of
proposed rulemaking to adopt a rule codifying the
no-action position, which would enable SEFs to
incorporate such terms by reference in an uncleared
swap confirmation without being required to obtain
the underlying, previously negotiated agreements.
See CFTC, Swap Confirmation Requirements for
Swap Execution Facilities (Notice of Proposed
Rulemaking), 88 FR 58145, 58147 (Aug. 25, 2023).
The CFTC has not yet taken action on this proposal.
163 See infra section VI.B.3 (discussing the
impartial access requirements of Rule 819(c)).
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access to the SBSEF on the person’s
providing such consent. Finally,
Proposed Rule 813 would provide that
an SBSEF, where necessary for
regulatory purposes, may share such
data or information with another SBSEF
or a national securities exchange.
The Commission did not receive any
comments on Proposed Rule 813 and is
adopting Rule 813 as proposed, for the
reasons stated in the Proposing Release.
D. Rule 814—Entity Operating Both a
National Securities Exchange and an
SBSEF
Proposed Rule 814 is modeled on
§ 37.8. Paragraph (a) of Proposed Rule
814 would provide that an entity
intending to operate both a national
securities exchange and an SBSEF shall
separately register the two facilities
pursuant to section 6 of the SEA and
Rule 803 under the SEA. Paragraph (b),
although consistent with § 37.8(b),
draws its specific language from section
3D(c) of the SEA,164 which
contemplates that a single entity may
operate both a national securities
exchange and an SBSEF. Paragraph (b)
of Proposed Rule 814 would provide
that a national securities exchange shall,
to the extent that the exchange also
operates an SBSEF and uses the same
electronic trade execution system for
listing and executing trades of SBS on
or through the exchange and the facility,
identify whether electronic trading of
SBS is taking place on or through the
national securities exchange or the
SBSEF.
Two commenters state that the key
requirements applicable to SBSEFs
should also apply to SBS exchanges to
create a level regulatory environment
and avoid encouraging regulatory
arbitrage.165 One of the commenters
specifically identifies trading protocols,
impartial access, limits on pre-execution
communication, and straight-through
processing as important aspects of
SBSEF regulation that should also apply
to SBS exchanges.166 Another
commenter states that more detailed
rules are needed to address the
separation of SBSEFs from SBS
exchanges in order to avoid the
aggregation of power in the financial
markets and to clearly separate the roles
of an entity operating both an SBSEF
and an SBS exchange.167
The comment suggesting that
requirements for SBSEFs should be
applied to SBS exchanges is outside the
164 15
U.S.C. 78c–4(c).
Citadel Letter, supra note 18, at 17; MFA
Letter, supra note 18, at 14.
166 See Citadel Letter, supra note 18, at 17.
167 See Keeney Letter, supra note 95.
165 See
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scope of this rulemaking, which is
designed to set forth requirements for
SBSEFs, not exchanges.
Additionally, more detailed rules are
not necessary to separate the roles of an
entity operating both an SBSEF and an
SBS exchange. Each entity would be
required to make rule or new product
submissions to the Commission under a
separate set of rules—Rules 804 to 807
for SBSEFs, and Rule 19b–4 for national
securities exchanges—making it clear
which rules will apply on which
platform. Also, Rule 814(b)—which
requires that a national securities
exchange that also operates an SBSEF
identify the platform on which an SBS
transaction occurs—will provide further
clarity to the market about the roles of
an entity operating both an SBSEF and
an SBS exchange. Further, the ability of
an entity to operate both an SBSEF and
an SBS exchange is unlikely to lead to
the aggregation of power in the financial
markets, because allowing for a variety
of SBS trading platforms and ownership
models should promote competition in
the market for SBS trading.
It is appropriate for proposed
Regulation SE to include a rule that
clarifies the registration status of an
entity that operates both an exchange
and an SBSEF, and that broadly
parallels § 37.8. Therefore, for the
reasons discussed above, the
Commission is adopting Rule 814 as
proposed.
E. Rule 815—Methods of Execution for
Required and Permitted Transactions
1. Rule 815(a)
(a) Background
The Dodd-Frank Act provides that if
the Commission makes a mandatory
clearing determination regarding an
SBS, such SBS becomes subject to
mandatory trade execution if at least
one exchange or SBSEF makes the
product ‘‘available to trade.’’ 168 The
Dodd-Frank Act does not require,
however, that all SBS be subject to
mandatory clearing or mandatory trade
execution, and it does not impose any
execution requirements for transactions
in an SBS unless the SBS is subject to
mandatory clearing and it has been
made available to trade. Section 37.9 of
the CFTC’s rules addresses these issues
for SEFs using the concepts of
‘‘Required Transactions’’ and
‘‘Permitted Transactions,’’ and the
Commission proposed Rule 815 of
Regulation SE to adapt § 37.9 for
168 See 15 U.S.C. 78c–3(a)(1) (mandatory clearing
for SBS) and 78c–3(h) (trade execution for SBS). See
also infra section V.F.3 (discussing the six factors
that an SBSEF shall consider, as appropriate, before
making an SBS ‘‘available to trade’’).
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SBSEFs. Rule 815(a)(1) defines
‘‘Required Transaction’’ as ‘‘any
transaction involving a security-based
swap that is subject to the trade
execution requirement in section 3C(h)
of the Act.’’
(b) Methods of Execution for Required
Transactions
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(i) Background
Proposed Rule 815(a)(2) would
require that, except for block trades or
the exceptions described in paragraph
(d) or (e) of the rule and discussed
below,169 the mandatory execution
methods for a Required Transaction
would be either: (a) an order book or (b)
an RFQ system in conjunction with an
order book, and the rule permits the
SBSEF to use any means of interstate
commerce for providing these execution
methods.170
Proposed Rule 815(a)(3) would define
an RFQ system as ‘‘a trading system or
platform in which a market participant
transmits a request for a quote to buy or
sell a specific instrument to no less than
three market participants in the trading
system or platform, to which all such
market participants may respond’’ and
would specify other requirements for an
RFQ system to be recognized as such
under the rule. The three market
participants to which the RFQ is
addressed could not be affiliates of or
controlled by the requester and cannot
be affiliates of or controlled by each
other. The proposed rule would also
provide that an SBSEF that offers an
RFQ system in connection with a
Required Transaction must have the
following functionalities: (i) at the same
time that the requester receives the first
responsive bid or offer, the SBSEF must
communicate to the requester any firm
bid or offer pertaining to the same SBS
resting on any of the SBSEF’s order
books; (ii) the SBSEF must provide the
requester with the ability to execute
against those firm resting bids or offers
along with any responsive orders; and
(iii) the SBSEF must ensure that its
trading protocols provide each of its
members with equal priority in
receiving requests for quotes and in
transmitting and displaying for
execution responsive orders. The
requirements of Proposed Rule 815(a)(3)
are referred to as the ‘‘RFQ-to-3
requirement.’’
169 See
infra section V.E.3.
Rule 815(a)(2)(ii) would provide that
any means of interstate commerce includes, but is
not limited to, the mail, internet, email, and
telephone, provided that the chosen execution
method satisfies the requirements for order books
in 17 CFR 242.800(x) or in paragraph (a)(3) of Rule
815.
170 Proposed
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(ii) Comments on the RFQ-to-3
Requirement
The Commission received comments
on the proposed RFQ-to-3 requirement
in Proposed Rule 815(a)(3).171 One
commenter suggests that the
Commission expand the permitted
modes of SBS execution for swaps
mandated for trading on SBSEFs in
order to provide for a less prescriptive,
more principles-based approach that
balances transparency, competition, and
liquidity through a flexible set of rules
and states that any means of execution
that provides sufficient pre-trade price
transparency and preserves competition
should be available.172 This commenter,
while supporting general harmonization
between the Commission’s and the
CFTC’s rules on trading protocols and
methods of execution, argues that the
Commission’s rule also needs to balance
harmonization with the need to reflect
the unique and sensitive liquidity
conditions that exist in SBS markets.
Stating that an RFQ-to-3 requirement
for Required Transactions that are SBSs
means something completely different
than for swaps, this commenter urges
the Commission to consider a lower
RFQ threshold given the nature of the
SBS market. This commenter states that,
in some cases, for an asset manager to
seek three quotes would effectively
require the asset manager to contact
many of the primary price makers in the
SBS market, as there simply are not the
same number of liquidity providers,
particularly for less liquid, more thinly
traded SBSs, as the number of
participants, the trading volume, and
the depth of market liquidity are very
different in the SBS market. The
commenter suggests that requesting
quotes from two participants, for
example, would allow the asset manager
to retain some control over the
information disseminated about its
interest to the market while preserving
the statute’s ‘‘multiple to multiple’’
definition requirement.173
Another commenter also urges the
Commission to consider an alternative
approach to the proposed RFQ-to-3
requirement, and to provide a ‘‘phasedin compliance’’ with the required
methods of execution, whereby a MAT
SBS product may be executed on an
SBSEF via any method of execution
until such time as it is determined
through notice and comment that an
appropriate level of liquidity exists to
enable an order book or RFQ-to-3
171 See ISDA–SIFMA Letter, supra note 18, at 5–
6; SIFMA AMG Letter, supra note 18, at 8–9.
172 See SIFMA AMG Letter, supra note 18, at 8.
173 See id. at 9.
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87177
system.174 This commenter states that,
considering the lack of liquidity in SBS
products, pre-trade transparency via the
proposed RFQ-to-3 requirement could
negatively impact liquidity provision for
end-users. The commenter states that, if
clients are required to ‘‘show their hand
to three liquidity providers,’’ it may lead
to information leakage and an inability
to hedge the clients’ risks through the
SBS markets.175 The commenter asserts
that this is particularly so given that
there are a relatively small number of
active dealers for many SBS products,
stating that, based on DTCC 176 data on
credit SBS for the top 700 issuers, there
are on average 2.7 dealers, and 400 of
the top 700 issuers have fewer than
three active dealers per month.177
This commenter further argues that an
RFQ-to-3 requirement would be
problematic for SBS equities, where the
current execution processes are very
different from their swaps counterpart.
The commenter states that clients in
SBSs typically ask their preferred dealer
to execute shares in SBS at market price
(or some other pricing structure), the
dealer then purchases the shares
directly for hedging purposes, and the
dealer then executes the swap at the end
of the day with the client at an average
market price.178 The commenter states
that, in this case, the dealer’s interaction
is more akin to a broker than a dealer
counterparty, and that these trading
practices would not be possible on an
RFQ-to-3 or order book system. In
addition, the commenter states that it
has ‘‘compared the credit swaps activity
that occurred on-venue back in 2012
before the CFTC trade execution
requirement kicked in, with the credit
SBS activity that occurs on-venue
today’’ and asserts that the results
suggest ‘‘that the swaps market was
much more ready for the
implementation of the trade execution
requirement than the SBS market is
today.’’ 179 This commenter states that,
‘‘[a]bsent a phased-in implementation
approach, the SBS market could suffer
from significant disruptions.’’ 180
While the Commission acknowledges
that there are differences between the
liquidity in the SBS market and the
174 See
ISDA–SIFMA Letter, supra note 18, at 5–
6.
175 Id.
at 6.
176 ‘‘DTCC’’
refers to the Depository Trust and
Clearing Corporation.
177 See ISDA–SIFMA Letter, supra note 18, at 6.
178 The commenter also stipulates that at the
onset of the relationship, clients will negotiate a
grid with dealers where certain short/long
benchmarks and spreads are agreed for equity
issuers on a jurisdictional or other basis. See ISDA–
SIFMA Letter, supra note 18, at 6.
179 Id.
180 Id.
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swaps market, the process required
before the execution requirement would
apply to an SBS will reduce the risk of
‘‘substantial disruptions.’’ The required
methods of execution would be applied
to an SBS only to the extent that it is
subject to the clearing mandate and has
been ‘‘made available to trade.’’ Before
making an SBS subject to the clearing
mandate, the Commission would be able
to take into account a number of factors,
including the existence of significant
outstanding notional exposures, trading
liquidity, and the adequacy of pricing
data.181
Further, to make an SBS ‘‘available to
trade,’’ an SBSEF would, under
Proposed Rule 816(a)(1),182 have to
make a filing with the Commission
under Rule 806 or Rule 807—both of
which would allow the Commission to
find that a filing was not consistent with
the requirements of the SEA or
Regulation SE.183 Moreover, the
SBSEF’s filing would, under Proposed
Rule 816(b), have to address, as
appropriate, a number of relevant
factors, including whether there are
ready and willing buyers and sellers; the
frequency or size of transactions; the
trading volume; the number and types
of market participants; the bid/ask
spread; and the usual number of resting
firm or indicative bids and offers.
Similarly, a national securities exchange
that wished to make an SBS ‘‘available
to trade’’ would have to file a rule
change under Rule 19b–4,184 and that
proposed rule change would be subject
to Commission review for compliance
with the requirements of the SEA,
which requires that the rules of a
national securities exchange, among
other things, promote just and equitable
principles of trade, remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, protect
investors and the public interest, and
not impose a burden on competition not
necessary or appropriate in furtherance
of the purposes of the SEA.185 Thus,
before an SBS becomes subject to the
trade execution requirement, the
Commission would have had multiple
opportunities to consider the trading
characteristics of that SBS.
181 See SEA section 3C(b)(4)(i), 15 U.S.C. 78c–
3(b)(4)(i). See also SEA section 3C(b)(4)(ii) through
(v), 15 U.S.C. 78c–3(b)(4)(ii) through (v) (discussing
other factors that the Commission would be
required to take into account when making a
mandatory clearing determination).
182 See infra section V.F.2.
183 See supra sections IV.A and B.
184 17 CFR 240.19b–4.
185 See Section 6(b)(5) and (8) of the SEA, 15
U.S.C. 78f(b)(5) and (8).
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Additionally, most, if not all, SBSEFs
are likely to be dually registered with
the CFTC as SEFs, and that most, if not
all, market participants in the SBS
market will be participants in the swaps
market. The Commission remains
concerned that different or additive
requirements—particularly for the key
concept of a ‘‘Required Transaction’’—
could introduce complexity and
confusion if one set of trading protocols
applied to Required Transactions for
swaps but different protocols—different
from ones that have been understood
and utilized for many years—applied to
Required Transactions for SBS
transactions.
Thus, it is not appropriate to modify
the requirement that a qualifying RFQ
system under Proposed Rule 815(c)
transmit a request for a quote to no
fewer than three market participants in
the trading system or platform. The
question whether sufficient liquidity
exists in the market for a given SBS to
trade RFQ-to-3 can be addressed when
the SBS is subject to the clearing
mandate and when a national securities
exchange or SBSEF seeks to make that
SBS available to trade. Until that time,
SBSs would be Permitted Transactions
on SBSEFs and thus could be traded
using other methods of execution, thus
avoiding any potential disruptions to
liquidity in the SBS markets.
(iii) RFQ Functionalities
The Commission also received two
comment letters on the functionalities
required for RFQ systems under
Proposed Rule 815(a)(3).186 Both
commenters suggest that the proposed
rule be amended to require an SBSEF to
communicate any firm bid or offer
pertaining to the same instrument
resting on any of the SBSEF’s trading
systems or protocols, not just firm bids
or offers on the SBSEF’s order book.187
One of the commenters argues that, in
practice, order books continue to be
infrequently used on SEFs that offer
RFQ systems and that, therefore, the
same interaction requirement on SEFs
has had little impact.188 The commenter
cites, for example, that ‘‘request for
stream’’ trading protocols, which allow
liquidity providers to stream firm
prices, are not required to be
186 See Citadel Letter, supra note 18, at 13–14;
MFA Letter, supra note 18, at 8.
187 See Citadel Letter, supra note 18, at 13; MFA
Letter, supra note 18, at 8. Rule 813(a)(3)(i) requires
an SBSEF to communicate to the requester any firm
bid or offer pertaining to the same instrument
resting on any of the SBSEF’s order books.
188 See Citadel Letter, supra note 18, at 13; see
also MFA Letter, supra note 18, at 8 (also
referencing the request-for-stream protocol).
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communicated to clients sending an
RFQ.
This commenter also suggests that the
proposed rule should be modified to
ensure that the RFQ requester has the
ability to execute against all of the
prices provided in connection with an
RFQ on the same screen. The
commenter argues that this will prevent
an SBSEF from requiring the RFQ
requester to click through multiple
screens in order to execute against firm
prices, which, the commenter argues,
serves to disadvantage those prices
versus other prices provided in response
to an RFQ.189 Finally, the commenter
recommends that the requirements of
Rule 815(a)(3) be modified to apply to
all SBS transactions on an SBSEF, not
solely Required Transactions, as they
argued that this will help ensure that
market participants transacting on
SBSEFs are always provided with the
necessary transparency to achieve the
most favorable execution possible.190
The other commenter also urges the
Commission to modify the requirement
to ensure that the SBSEF communicates
to the requester any firm prices
available on the SBSEF, in addition to
resting firm bids or quotes on the
SBSEFs order book(s), and that they
make this functionality available for
Permitted Transactions as well.191 In the
commenter’s view, this approach is
necessary in order to ensure the
availability of quotes for SBS
transactions that will be essential to
maintaining liquidity and promoting
open and equitable participation in the
markets.
As previously noted, given that most
if not all SBSEFs will be dually
registered as SEFs, there is a public
interest in harmonizing its requirements
for trading protocols with those of the
CFTC.192 The commenters’ suggestions
to apply the proposed interaction
requirement to all trading systems and
protocols on the SBSEF would be a
deviation from the CFTC’s requirements
for SEFs that would likely introduce
operational and compliance challenges
created by having different standards.
This would undercut the Commission’s
goal of minimizing operational and
compliance burdens by seeking to
harmonize requirements between SEFs
and SBSEFs. For instance, the
commenters’ suggestions to apply the
order interaction requirement to all
transactions on the SBSEF, not only
Required Transactions, or to require that
firm interest outside the SBSEF’s order
189 See
Citadel Letter, supra note 18, at 13–14.
id. at 14.
191 See MFA Letter, supra note 18, at 8.
192 See supra section I.
190 See
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book be communicated in response to
RFQs, would be a significant deviation
from the CFTC’s method-of-execution
requirements and would have wide
ramifications for the SBS markets,
particularly in view of the liquidity and
information leakage concerns that other
commenters expressed elsewhere
regarding the less liquid and thinly
traded SBS products that may trade on
an SBSEF.193 As a result, applying such
requirements to Permitted Transactions,
which the CFTC does not do, would be
likely to have the undesirable effect of
discouraging market participants from
voluntarily executing Permitted
Transactions on SBSEFs, which would
lessen market transparency and would
not provide greater opportunities for
market participants to interact with
trading interest not subject to the trade
execution requirement. Further, it is not
necessary for the Commission to
mandate the technical details of how the
SBSEF displays responses to RFQs to its
members. Rule 819(c), discussed
below,194 requires SBSEFs to provide all
ECPs and independent software vendors
with impartial access market and market
services, and this requirement is
sufficient to address a situation in
which an SBSEF designed its RFQ
responses to systematically
disadvantage certain market participants
or types of market participants.
(c) Block-Trade Exception
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(i) General Treatment of Block Trades
Under both the CEA and SEA, Core
Principle 2 requires a SEF/SBSEF to
specify trading procedures to be used in
entering and executing orders on the
facility, including block trades.195 The
CFTC implemented this provision by
excepting block trades from the required
execution methods in § 37.9(a)(2).196
Proposed Rule 815(a)(2) would also
exclude block trades from the required
execution methods using language
closely modeled on § 37.9(a)(2).
Specifically, Proposed Rule 815(a)(2)(i)
would apply required methods of
execution to ‘‘[e]ach Required
Transaction that is not a block
trade.’’ 197
Thus, the Commission’s proposal to
include an exception from the required
methods of execution for block trades in
Regulation SE is consistent with the
approach taken by the CFTC. The
193 See
supra note 175 and accompanying text.
194 See infra section VI.B.3.
195 15 U.S.C. 78c–4(d)(2)(C); 7 U.S.C. 7b–
3(f)(2)(C).
196 That rule cross-references § 43.2, which
defines the term ‘‘block trade’’ for purposes of
public dissemination of swap transactions.
197 See Proposed Rule 815(a)(2)(i) (emphasis
added).
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purpose of having a block-trade
exception to the required methods of
execution is to balance the promotion of
price competition and all-to-all trading
against the potential costs to market
participants who wish to trade large
orders. Forcing a market participant
who seeks liquidity to expose a large
order to an order book or to utilize RFQto-3 could cause the market to move
against the liquidity requester before it
can obtain an execution. Under the
CFTC’s rules, a block trade in a product
that is subject to mandatory trade
execution may be traded on-SEF using
flexible means of execution on the SEF’s
non-order-book trading system or
platform, or away from a SEF’s trading
system or platform, provided that it is
executed pursuant to the SEF’s rules
and procedures. As noted above, the
Commission proposed a similar
approach for block trades on SBSEFs,
excepting block trades from the required
execution methods of Proposed Rule
815(a)(2).
The Commission received a number
of comments on its proposal for a block
trade exception. Commenters generally
support the inclusion of a block trade
exception from the Required
Transaction requirement in Rule
815(a)(2).198
One commenter, supporting the
Commission’s harmonization with the
CFTC’s approach to block trades by
providing an exception for those trades,
states that a flexible block execution
regime permits trading of larger-sized
transactions in a manner that
incentivizes dealers to provide liquidity
and capital without creating market
distortions.199 Another commenter
asserts that exempting block trades from
order book and RFQ execution
requirements is critical to the
functioning of the SBS markets,
particularly to execute large trades
without affecting price.200 This
commenter expresses concerns that,
absent such an exception, market
participants would have difficulty
executing, or would be unable to
execute, large bona fide trades, since
they would be required to do so only
through the order book. This would
increase the cost of trading and hedging,
the commenter says, which could
reduce participation in certain markets,
198 See Bloomberg Letter, supra note 18, at 14;
Citadel Letter, supra note 18, at 9–10, ICI Letter,
supra note 18, at 10–13; SIFMA AMG Letter, supra
note 18, at 9–10; ISDA–SIFMA Letter, supra note
18, at 7–9; MFA Letter, supra note 18, at 5–6. Many
of these commenters raised questions about the
proposed size of the block-trade threshold. See infra
section V.E.1(c).
199 See SIFMA AMG Letter, supra note 18, at 10.
200 See MFA Letter, supra note 18, at 5–6.
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87179
resulting in less liquidity and increased
volatility.
Another commenter states that the
proposed exception for block trades
would provide important flexibility for
market participants executing SBS
transactions of a significantly large size,
and that rules that facilitate swap block
trades allow market participants, such
as regulated funds, to engage in large
transactions while mitigating the risks
of information leakage and impairment
of market liquidity.201 Another
commenter also supports the
Commission’s proposal to align closely
its approach to block trades with the
approach taken by the CFTC.202 This
commenter agrees with the Proposing
Release’s assessment that the block
exception to the required methods of
execution balances the promotion of
price competition and all-to-all trading
against the potential costs to the market
participants who wish to trade large
orders, the importance of which they
note is more acute in the SBS market,
which is a smaller and less liquid
market than the swaps market.
The Commission agrees with these
commenters that a block-trade exception
is appropriate, not only to maintain
harmonization with the CFTC regime for
swaps but also to facilitate trading of
SBS. This approach, which is consistent
with the approach of the CFTC for
swaps, will be especially important in
the smaller, less liquid SBS markets if
and when a clearing determination has
been made for one or more SBS. A
block-trade exception for SBSs subject
to the trade-execution requirement,
provided that ‘‘block trade’’ is
appropriately defined for those SBSs,
can help ensure that large trades are not
significantly more difficult and costly to
execute because of the risks posed by
information leakage and the potential
for adverse price movement, which
could significantly impair liquidity in
the markets for those SBSs. Therefore,
the Commission is adopting Rule 815(a)
as proposed, but is, as discussed
immediately below, modifying the
proposal with respect to the definition
of ‘‘block trade’’ in Rule 802.
(ii) Block-Trade Definition for Credit
SBS
The Commission also proposed to
align the regulatory text defining ‘‘block
trade’’ in proposed Regulation SE with
the CFTC’s definition. The proposed
definition in Rule 802 of Regulation SE
was based on the four-pronged
definition found in § 43.2(a), but with
one modification. The third prong of the
201 See
202 See
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CFTC definition characterizes a block
trade in a particular swap as having ‘‘a
notional or principal amount at or above
the appropriate minimum block size
applicable to such swap.’’ 203
For the third prong of the ‘‘block
trade’’ definition, the Commission
proposed that the SBS be based on a
single credit instrument (or issuer of
credit instruments) or a narrow-based
index of credit instruments (or issuers of
credit instruments) having a notional
size of $5 million or greater,204
considered the distribution of
transactions in the single-name CDS
market 205 and took into consideration
that FINRA applies a $5 million cap
when disseminating transaction reports
of economically similar cash debt
securities.206
A number of commenters question the
basis for the proposed $5 million block
threshold size and advocate a variety of
different approaches to establishing the
block size threshold for SBS products,
as alternatives to the proposed $5
million notional size block trade
threshold.207
One commenter presents data that it
argues supports its assertion that the
block threshold for credit SBS should be
recalibrated.208 The commenter
recommends that the Commission first
establish an appropriate methodology to
determine block thresholds based on
current market-wide data. This
commenter states that, otherwise, the
already illiquid SBS market will be
required to comply with an arbitrary,
‘‘one-size-fits-all’’ threshold amount that
fails to consider the unique levels of
market liquidity and risk sensitivity of
various instruments. The commenter
suggests that average daily volume
(‘‘ADV’’) is an appropriate indicator of
liquidity levels because it represents a
measure of how much trading occurs in
a given issuer across the market as a
whole, and that the lower the ADV, the
203 Appendix F to the CFTC’s part 43 divides
swap asset classes into a number of categories and
sets forth a minimum block size threshold to each
category. SBSs are not within the CFTC’s
jurisdiction, so the CFTC had not considered what
an appropriate minimum block size threshold
would be for any SBS asset class. In this respect,
there was no CFTC-defined threshold for the
Commission to harmonize with, so the Commission
proposed to establish a threshold tailored
specifically for the SBS market, see Proposing
Release, supra note 1, 87 FR at 28956, as discussed
below.
204 See Proposing Release, supra note 1, 87 FR at
28896.
205 See id. at 28944.
206 See id. at 28944 n.369.
207 See Citadel Letter, supra note 18, at 9; ICI
Letter, supra note 18, at 10–12; MFA Letter, supra
note 18, at 5–8; SIFMA AMG Letter, supra note 18,
at 10; ISDA–SIFMA Letter, supra note 18, at 7–9.
208 See ISDA–SIFMA Letter, supra note 18, at 7–
9.
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lower the liquidity of the product. Based
on its analysis of ADV data for credit
default swaps (‘‘CDS’’), which it
retrieved from the DTCC Trade
Information Warehouse, the commenter
posits that liquidity in single-name CDS
is significantly lower than in broadbased CDS. Thus, the commenter
argues, it is not appropriate to mirror
the block threshold for credit SBS to the
threshold for debt securities, when there
are clear differences in liquidity levels
within the CDS market itself.
This commenter also asserts that the
data reveal that liquidity in single-name
CDS is disproportionately concentrated
in the most actively traded issuers,
which, the commenter contends,
corroborates its assertion that block
thresholds should be calibrated at a
more granular level in order to reflect
the different liquidity levels of credit
SBS products. The commenter cautions
that, absent a data-based approach to
setting block thresholds for credit SBS
instruments, the proposal runs the risk
that $5 million may be an
inappropriately high threshold for those
products, which may widen bid/offer
spreads, further reduce liquidity, and
force large-sized transactions to be
publicly reported with their full size,
leaving the dealer that ‘‘wins’’ in the
position of risking the market moving
against the dealer before the dealer is
able to adequately lay-off its exposure.
This risk to the dealer, the commenter
asserts, could increase the costs of
transacting with immediacy
substantially, leading to overall
increased costs and time delays in
executing hedges, and adding to or
taking down positions, which would
have a direct impact on clients and endusers, who will ultimately bear the
increased costs and inefficiencies when
forced to split large trades into smaller
sizes for liquidity purposes. The
commenter states that these clients, endusers, and liquidity providers may
decide that it is more economical to exit
the market entirely, given that most of
them do not trade in large volumes of
SBS.209
The same commenter also states that,
because ‘‘the appropriate block
threshold depends on factors such as
liquidity and risk sensitivity[,] which
can change over time, . . . the rules
should provide a formal adjustment
mechanism that would allow market
participants to petition the Commission
to temporarily change block thresholds
based on observed market conditions, or
enable the Commission’s staff to do so,
209 See
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subject to a public comment
process.’’ 210
Several commenters argue for
establishing a range of block trade
threshold sizes, based on the product.211
One commenter recommends that the
Commission delay implementation of
the required execution methods until it
considers its approach to block trades
more comprehensively.212 This
commenter argues that calibrating
appropriate block threshold sizes for
SBSs has significant implications for
market participants from both a pre- and
a post-trade transparency perspective.
With respect to pre-trade transparency,
the commenter states that requiring a
fund to disclose its trading interest in an
SBS of a large notional size to multiple
participants—via an order book or an
RFQ system—would ‘‘enable
opportunistic market participants to
piece together information about the
fund’s holdings or investment strategy
and lead to frontrunning of those
potential trades.’’ 213 With respect to
post-trade transparency, the commenter
states that setting a block trade
threshold that is too high would
unnecessarily limit the ability to report
large-sized SBS transactions on a delay,
which would make it difficult for
liquidity providers to hedge such
positions, leading to higher trading costs
and less efficient trading for funds and
other market participants. The
commenter also states that the
magnitude of these risks depends on,
among other factors, an SBS’s liquidity
profile. The commenter also states that
having a single threshold—across all
applicable SBSs with respect to SBSEF
trading and for any additional future
rulemaking related to post-trade public
reporting—does not adequately account
for varying levels of liquidity across
different categories or types of SBSs.
The commenter recommends that, given
the differences in liquidity across
different SBSs, the Commission should
base its thresholds on more
comprehensive transaction data
obtained pursuant to Regulation SBSR.
The commenter asserts that taking such
a data-driven approach would allow the
Commission to assess the liquidity of
different SBSs based on, for example,
swap term, underlying security, and
other characteristics. The commenter
also argues that this would enable the
Commission, similar to the CFTC, to
formulate different types or categories of
210 Id.
at 9 n.23.
MFA Letter, supra note 18, at 7; ICI Letter,
supra note 18, at 11; SIFMA AMG Letter, supra note
18, at 10.
212 See ICI Letter, supra note 18, at 11–12.
213 Id. at 11.
211 See
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SBSs and propose differing block trade
sizes that are more appropriately
tailored to the liquidity characteristics
of each type or group.
Another commenter states that the
CFTC sets different minimum block
sizes for different categories of swaps
and argues that the Commission should
similarly develop a more structured and
tailored approach.214 The commenter
expresses concerns that setting a
miscalibrated block size will likely limit
the utility of the block trade exception,
thereby preventing many market
participants from executing transactions
on SBSEFs. Another commenter
recommends that the Commission adopt
the CFTC’s approach for block trades
based on a ‘‘67 percent notional amount
calculation.’’ 215 That commenter also
recommends that the Commission
reserve the ability to update block
thresholds on a regular basis to ensure
they remain representative of current
market conditions.216 Another
commenter states that the proposed
block threshold is not a result of any
empirical analysis on the market
conditions for credit SBSs and
suggested that, as the SBS market
develops and grows, it may become
more appropriate for amendments to the
credit SBS threshold.217
The Commission has considered the
comments received and has determined,
for the reasons discussed below, not to
adopt a definition of ‘‘block trade.’’
While the Commission had proposed
the single block threshold for credit SBS
based on its preliminary view that the
block-trade threshold applicable to an
SBS trade should be consistent with any
reporting cap for that SBS trade, and
any reporting cap applicable to the cash
markets for the securities,218 the
Commission acknowledges commenters’
concerns that the proposed $5 million
block-trade threshold for all credit SBSs
would not be sufficiently tailored to the
unique and varying trading and risk
characteristics of the full range of credit
SBS, creating the potential for the
adverse market risks that commenters
point out may arise from having a onesize-fits-all block threshold.
Further, unless and until the
Commission has made a clearing
determination for a given SBS and an
SBSEF or a national securities exchange
has made that SBS ‘‘available to trade,’’
all transactions in that SBS will be
214 See
MFA Letter, supra note 18, at 7.
Citadel Letter, supra note 18, at 9.
216 See id. at 10.
217 See SIFMA AMG Letter, supra note 18, at 10.
218 See 2019 Cross-Border Application of Certain
Security-Based Swap Requirements, SEA Release
No. 87780 (Dec. 18, 2019), 85 FR 6270, 6347 (Feb.
4, 2020) (‘‘2019 Cross-Border Adopting Release’’).
215 See
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Permitted Transactions. On the effective
date of Regulation SE, and until the
Commission has made a clearing
determination for an SBS, no SBSEF or
national securities exchange will be able
to make that SBS ‘‘available to trade.’’
Consequently, there could be no
mandatory trading requirement and thus
there are no transactions to be excepted.
Without a mandatory trading
requirement, a block-trade threshold,
therefore, has no effect on the ability of
market participants to choose their
preferred means of execution for trades
in that SBS. Unless and until the
Commission has made a mandatory
clearing determination regarding an
SBS, it is not necessary to define a
block-trade threshold for SBS, and it
would be appropriate for the
Commission to identify a block-trade
threshold in the future after considering
credit SBS transaction data and credit
SBS markets at that time. In addition,
the Commission agrees with
commenters that additional
consideration of credit SBS transaction
data, including data reported under
Regulation SBSR, would help the
Commission determine the appropriate
block threshold for credit SBS products,
including whether different thresholds
should apply to different types or
groups of SBS. The Commission also
agrees with commenters that the credit
SBS markets are likely to evolve over
time and that analysis of market data
continues to be an important aspect of
setting appropriate thresholds for both
block trades and credit SBS public trade
reporting.219
Therefore, the Commission is not
adopting the proposed definition of
‘‘block trade’’ under Proposed Rule 802,
or any other block-trade threshold.220 In
conjunction with any mandatory
clearing determination by the
219 In adopting Regulation SBSR, the Commission
directed its staff to make reports in connection with
the determination of block thresholds and reporting
delays for security-based swap transaction data. See
17 CFR 242.901 (Appendix) (discussing the studies
for the determination of block thresholds and
reporting delays); see also Regulation SBSR
Adopting Release I, supra note 140, 80 FR at 14625.
The Commission stated that it intends to use these
reports to inform its specification of the criteria for
determining what constitutes a large notional SBS
transaction (i.e., block trade) for particular markets
and contracts; and the appropriate time delay for
reporting large notional SBS transactions to the
public. See 17 CFR 242.901 (Appendix). The reports
for each asset class are to be completed no later
than two years following the initiation of public
dissemination of security-based swap transaction
data by the first registered SDR in that asset class—
in other words, the reports are anticipated to be
complete by Feb. 14, 2024—and then published for
comment in the Federal Register. See id.
220 Because the Commission is not adopting a
definition of ‘‘block trade’’ at this time, it is also
modifying other rules within Regulation SE that
reference block trades. See supra note 41.
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87181
Commission for SBS, or with any
Commission proposal to specify the
criteria for determining what constitutes
a large notional SBS transaction for
particular markets and contracts with
respect to trade reporting, the
Commission will have the opportunity
to engage in rulemaking to propose a
definition of ‘‘block trade’’ for purposes
of Regulation SE—and to solicit public
comment on Commission’s proposal
and its economic analysis of the
proposed definition—before it considers
adopting a definition.
In response to the comment that the
Commission should delay
implementation of the trade execution
requirement until it has considered
block trades more comprehensively,
unless and until the Commission has
made a clearing determination for a
given SBS and an SBSEF or a national
securities exchange has made that SBS
‘‘available to trade,’’ all transactions in
that SBS will be Permitted Transactions.
Thus, it is not necessary to formally
delay the implementation of the trade
execution requirement, because the
Commission will have the opportunity
if and when it makes a clearing
determination for SBS—i.e., before any
SBS transaction becomes a Required
Transaction—to address whether a
block-trade threshold should be set;
what methodology should be used to
determine that threshold; and what that
threshold would be. At that time,
because amending Rule 802 to define
‘‘block trade’’ would entail notice-andcomment rulemaking, market
participants would have the opportunity
to comment on the Commission’s
proposed action.
For the reasons discussed above, the
Commission is not adopting the
definition of ‘‘block trade’’ in Rule 802
as proposed but is instead adding a note
to Rule 802 informing stakeholders the
Commission has not yet adopted a
definition of ‘‘block trade.’’ 221
(iii) Block-Trade Definition for Equity
SBS
In the Proposing Release, the
Commission did not propose a
definition of ‘‘block trade’’ applicable to
equity SBS. Accordingly, no equity SBS
would qualify for the exception to
required means of execution for block
trades in Proposed Rule 815(a)(2).222
221 The Commission has corrected a crossreference from 242.800(x) to 242.802.
222 As discussed in the Proposing Release,
appendix F to part 43 of the CFTC’s rules does not
define a block trade for equity swaps, and
accordingly, no equity swap transaction could
qualify for the exception to the required means of
execution for block trades under § 37.9(a)(2). See
Proposing Release, supra note 1, 87 FR at 28896.
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Several commenters submitted
comment letters on the proposal to
exclude equity swaps from the proposed
block-trade exception.223 One
commenter states that, in its view, the
use of block trades for equity SBS is at
least as necessary as for credit SBS, due
to the need to customize the size of
transactions and to obtain timely and
efficient executions.224 This commenter
asserts that requiring equity SBS trades
to be executed only through the order
book or RFQ system could result in
these trades having ‘‘significant price
impact’’ on SBSEF products, which
would ultimately inhibit the ability of
market participants to efficiently
arrange and execute large, customized
trades that are essential for market
participants’ risk management
activities.225 The commenter also asserts
that this would disincentivize market
participants from using equity SBS for
their legitimate business purposes,
including hedging, which could
increase volatility and reduce liquidity
in equity SBS markets (as well as
underlying equity markets). The
commenter also argues that excluding
equity SBS block trades would
ultimately inhibit capital formation as
an inability to execute blocks in equity
SBS would make it riskier, more
expensive, and more difficult to hedge,
which would in turn inhibit market
participants from participating in
offerings.
This commenter further states that
equity SBS are quite distinct from CFTC
equity swaps in ways that make it more
critical to allow block trades in equity
SBS. Specifically, the commenter states
that since CFTC-regulated equity swaps
are based on broad-based equity indices,
which reflect markets and not
individual issuers, they are used to
assume or hedge exposure to the
relevant market or sector generally. By
contrast, the commenter posits that
equity SBS may reference a single name
and are therefore a preferred tool for
hedging exposure to specific equities,
which makes them essential to capital
formation. The commenter also argues
that markets for SBS on individual
equities will, in many cases, be less
liquid than the markets for broad-based
equity index swaps, further
necessitating the opportunity for block
trades.226
Another commenter also recommends
that the Commission conduct further
223 See MFA Letter, supra note 18, at 6–7; ICI
Letter, supra note 18, at 12–13; ISDA–SIFMA Letter,
supra note 18, at 9; SIFMA AMG Letter, supra note
18, at 10.
224 See MFA Letter, supra note 18, at 6–7.
225 Id. at 6.
226 See MFA Letter, supra note 18, at 6–7.
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analysis before determining block
treatment for equity SBSs.227 That
commenter states that it previously
disagreed with CFTC’s similar approach
with respect to equity swaps. The
commenter argues that the Commission
should undertake additional analysis to
demonstrate that the CFTC’s
justifications for its approach apply
equally to the categories or types of
equity-based swaps specifically under
its jurisdiction, which include, for
example, total return swaps based on a
single security or loan, or a narrowbased security index. The commenter
also recommends that the Commission
determine whether block treatment
would be appropriate for equity-based
SBSs in the pre-trade transparency
context. The commenter argues that
similar to other categories or types of
large-sized SBSs that would qualify for
block treatment, flexible execution with
respect to large-sized, equity-based SBSs
is important to avoid information
leakage regarding a market participant’s
investment strategies.
One commenter suggests that, if there
is the ability to have fungible, singlename total return swaps in equity
products, and they become subject to
mandatory clearing in the future, that
the commenter would expect there to be
appropriately calibrated block size
thresholds that are applied to those
equity-based swaps.228 Another
commenter suggests that if an equity
SBS product becomes subject to
mandatory trade execution, there should
be an appropriate methodology for
establishing equity block thresholds.229
While the Commission acknowledges
commenters’ concerns, the general
concerns expressed about the need for
equity blocks lack specificity or analysis
regarding a particular definition of
‘‘block trade’’ for equity SBS—whether
a specific threshold or a methodology—
that the Commission could adopt.
Commenters’ concerns focus on the
need to customize the size of equity SBS
transactions, to obtain timely and
efficient executions, and to avoid
information leakage. And commenters
state that the lack of a block-trade
exception could result in significant
price impact and inhibit the large,
customized trades essential for risk
management and hedging, which would
discourage hedging, increase volatility
and reduce liquidity in equity SBS
markets (as well as underlying equity
markets), and ultimately inhibit capital
formation and participation in offerings.
227 See
ICI Letter, supra note 18, at 12–13.
SIFMA AMG Letter, supra note 18, at 10.
229 See ISDA–SIFMA Letter, supra note 18, at 9.
228 See
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With respect to the stated need for
certain parties to use an equity SBS
block-trade exception, a relevant
consideration for the Commission in
determining whether to establish a
block-size threshold for equity SBSs, if
and when it makes a clearing
determination for those SBSs, is
whether establishing that block-trade
threshold would have the potential to
create a situation where SBSEFs provide
less transparency than exists in the
underlying cash equity markets or the
listed options markets. An inappropriate
block-trade threshold for equity SBSs
could create incentives for market
participants to favor equity SBS markets
over cash equities or listed options
markets, either of which may be used,
in many cases, to achieve economically
equivalent trading objectives as
strategies using equity SBS, and neither
of which provides for block-trade
reporting delays. If transactions were to
migrate from cash equities or listed
options markets to the SBS market, this
could lead to decreased market
transparency and could potentially
undercut the goal of the Dodd-Frank Act
to bring transparency to the trading of
SBS.230
Additionally, as a general matter, it is
important to harmonize the treatment of
equity SBS with the treatment of equity
swaps. There is no block-trade
exception for equity swaps in the
CFTC’s rules, and the Commission does
not wish to create incentives for market
participants to trade equity SBS over
swaps. And while a commenter states
that equity SBS are quite distinct from
equity swaps, the treatment of equity
SBS transactions should be broadly
consistent with the treatment of
transactions in the cash equities
underlying them to avoid, as discussed
above, creating incentives for market
participants to trade equity SBS instead
of the underlying cash instruments.
For these reasons and those discussed
above regarding credit SBS,231 the
Commission has determined not to
adopt a definition of ‘‘block trade’’ in
Rule 802. Thus, with respect to
commenters’ concerns, until the
Commission has made a clearing
determination with respect to equity
SBS, equity SBS will be able to trade
OTC, just as their underlying cash
equities can trade OTC. Moreover,
before making a clearing determination
for an equity SBS—which would create
230 See Proposing Release, supra note, 87 FR at
28894 (‘‘The legislative history of the Dodd-Frank
Act indicates that exchange trading is a mechanism
to ‘provide pre- and post-trade transparency for end
users, market participants, and regulators.’ ’’ S. Rep.
No. 111–176, at 34 (2010)).
231 See supra section V.E.1(c)(ii).
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the circumstances in which equity SBS
might be MAT and therefore subject to
the trade-execution requirement—the
Commission would have the
opportunity to solicit and consider
additional public comment on the effect
of such a determination, including
comment with respect to the concerns
commenters have raised to date
regarding, among other things, timely
and efficient executions, hedging, and
capital formation.
2. Rule 815(b)
Paragraph (b) of Proposed Rule 815
would require a time delay for certain
orders being entered by a broker or
dealer on an SBSEF’s order book. This
provision would only apply to
situations in which the broker or dealer
is seeking to trade against a customer
order (a ‘‘facilitation cross’’) or to cross
two customer orders (a ‘‘customer
cross’’), following some form of prearrangement or pre-negotiation of such
orders, and where the transaction is a
Required Transaction.232 Under
Proposed Rule 815(b)(1), an SBSEF
would require that the broker or dealer
must expose one of the two orders in
this transaction on the SBSEF order
book for a minimum time period of 15
seconds so that other market
participants have the opportunity to
offer a better price than the broker or
dealer had intended for the cross.
Proposed Rule 815(b)(2) would permit
the SBSEF to adjust the time period of
the required delay based on the SBS’s
liquidity or other product-specific
considerations, provided that the time
delay is a sufficient period of time so
that an order is exposed to the market
and other market participants have a
meaningful opportunity to execute
against the order.
The Commission received comments
on the provisions regarding the
prearrangement or pre-negotiation of
trades in Proposed Rule 815(b).233 One
commenter requests that the
Commission address the extent to which
market participants may utilize ‘‘preexecution communications’’ when
trading on an SBSEF, noting that the
CFTC has specified that such
communications may occur pursuant to
a SEF’s rules that have been certified or
approved by the CFTC.234 This
commenter urges the Commission to
align its rules to those of the CFTC in
this respect, given that pre-execution
232 The Commission has modified the text of Rule
815(b)(1) to specify that the requirements in this
provision only apply with regards to Required
Transactions.
233 See Citadel Letter, supra note 18, at 14–15; ICI
Letter, supra note 18, at 13–14.
234 See ICI Letter, supra note 18, at 13–14.
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communication is a standard market
practice that investment advisers use to
guard against information leakage and
obtain fair pricing for large-sized trades
and packaged transactions, among other
types of transactions, on behalf of funds
and other clients.
Another commenter, arguing that the
Proposing Release and the CFTC rules
are silent with respect to the
permissibility of pre-arrangement on
RFQ systems, urges the Commission to
require SBSEF rulebooks to prohibit the
pre-arrangement of Required
Transactions, arguing that it is
important that pre-trade transparency
and the RFQ-to-3 requirement not be
undermined through bilateral prearrangement of a Required Transaction
followed by a directed RFQ that merely
formalizes the transaction.235
The Commission agrees with the
comment that it should view preexecution communications in a way that
is consistent with CFTC guidance on
this matter.236 The CFTC has viewed
pre-execution communications as
communications between market
participants to discern interest in the
execution of a transaction prior to the
exposure of the market participants’
orders (e.g., price, size, and other terms)
to the market and has stated that such
communications include discussion of
the size, side of market, or price of an
SBS order or a potentially forthcoming
order.237 Consistent with the CFTC’s
approach, the Commission is generally
of the view that the terms ‘‘prenegotiation’’ and ‘‘pre-arrangement’’
within the meaning of Rule 802(b)
should ordinarily be understood to
include all communications between
market participants to discern interest
in the execution of a transaction prior to
the exposure of the market participants’
orders (e.g., price, size, and other terms)
to the market, including discussion of
the size, side of market, or price of an
SBS order, or a potentially forthcoming
order.
Additionally, while the CFTC has
acknowledged that pre-execution
communications may be permitted by a
SEF, it has stated that any SEF that
allows pre-execution communications
must adopt rules regarding such
communications that have been
certified to or approved by the CFTC.238
Consistent with this view, the rulebook
of an SBSEF generally should address,
with clarity, the application of the terms
‘‘pre-arrangement’’ and ‘‘preCitadel Letter, supra note 18, at 15.
ICI Letter, supra note 18, at 13–14.
237 See 2013 CFTC Final SEF Rules Release, supra
note 9, 78 FR at 33503.
238 See id.
87183
negotiation’’ in Rule 802(b) so that
market participants will know what
types of pre-execution communications
are covered by the rule. An SBSEF’s
rules in this regard must, of course, also
comply with the other provisions of the
SEA and the rules thereunder, including
the impartial access requirement of Rule
819(c).239
With respect to the comment that the
Commission should ban prearrangement or pre-negotiation of RFQ
trades on an SBSEF, while the CFTC
regulation is silent regarding the
permissibility of pre-arrangement on
RFQ systems, the CFTC’s adopting
release with respect to its SEF rules
expressly contemplates the permissible
pre-arrangement of trades executed via
RFQ.240 Moreover, the CFTC explained
in its adopting release that it refrained
from requiring a time delay for Required
Transactions entered into RFQ systems
because the requirement to send an RFQ
to three other market participants
already provides pre-trade price
transparency.241 Thus, the CFTC has
acknowledged that pre-arranged
Required Transactions may be
submitted into a SEF’s RFQ system, and
without a time delay.
The Commission recognizes that, as
one of the commenters also states, preexecution communications are a
standard practice for many participants
in the SBS market, and that to prohibit
them entirely would be a major
departure from the CFTC’s approach
and could have significant negative
ramifications on the ability of market
participants to effect their SBS
transactions. Accordingly, and to
maintain harmonization with the
CFTC’s treatment of pre-arrangement
and pre-negotiation of swaps
transactions, the Commission is not
modifying Rule 815(b) to prohibit the
use of pre-arrangement or prenegotiation with respect to SBS
transactions via RFQ or to impose a time
delay before any such SBS can be
executed via RFQ.
One of the commenters also requests
that the Commission require SBSEFs to
provide periodic regulatory reporting
around pre-arranged trading on their
platforms, including reporting the
percentage of pre-arranged orders for
which other SBSEF participants step in
to join the trade, and that it also require
an SBSEF to demonstrate that it offers
a bona fide order book in order for the
SBSEF to permit the execution of prearranged orders (such as a minimum
235 See
236 See
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239 See
infra section VI.B.3.
2013 CFTC Final SEF Rules Release, supra
note 9, 78 FR at 33504.
241 See id.
240 See
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level of trading activity on the order
book or a minimum percentage of prearranged orders where pricing is
improved as a result of other SBSEF
participants stepping in).242
The suggested reporting requirements
or ‘‘bona fide order book’’ standard,
however, would exceed what SEFs are
required to do under the CFTC rules.
The Commission is concerned that
different or additive requirements to the
key concept of an order book, such as
whether that order book is ‘‘bona fide,’’
could introduce complexity and
confusion if one set of trading protocols
applied to Required Transactions for
swaps but different protocols—different
from ones that have been understood
and utilized for many years—applied to
Required Transactions for SBS
transactions. Moreover, the commenter’s
proposed reporting requirements—such
as a minimum percentage of prearranged orders where pricing is
improved as a result of other SBSEF
participants stepping in—appear to be
primarily relevant to an evaluation of a
particular SBSEF has met the standard
for having a ‘‘bona fide’’ order book.
Accordingly, because the added
complexity and costs associated with
imposing the ‘‘bona fide’’ order book
standard have not been justified, it is
not appropriate to adopt the proposed
regulatory reporting requirement
suggested by the commenter with
respect to cross-trading.
For the reasons discussed above, the
Commission is adopting Rule 815(b) as
proposed, with a clarifying change to
the rule text to reiterate that the
requirement applies only to Required
Transactions.243
3. Rule 815(c)
Proposed Rule 815(c) is modeled on
§ 37.9(c) of the CFTC’s rules and would
define a ‘‘Permitted Transaction’’ as a
transaction not involving an SBS that is
subject to the mandatory trade
execution requirement. This rule
provides that an SBSEF may offer any
method of execution for Permitted
Transactions.
The Commission did not receive any
comments on the definition of Permitted
Transactions 244 and is adopting Rule
242 See
Citadel Letter, supra note 18, at 14–15.
heading of the proposed rule text already
indicated that it was a ‘‘Time delay requirement for
Required Transactions on an order book.’’ The rule
text has been modified only to add ‘‘With regard to
Required Transactions,’’ at the beginning of the rule
text, to reiterate the parameters indicated in the title
and to clarify its application.
244 As discussed above, one commenter
recommends that the requirements of Rule 815(a)(3)
be modified to apply to all SBS transactions on an
SBSEF, which would include Permitted
Transactions. See supra note 190 and
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243 The
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815(c) as proposed, for the reasons
discussed in the Proposing Release.
4. Rule 815(d)
Paragraph (d) of § 37.9 provides an
exception for package transactions that
allows for flexible methods of execution
for what would otherwise be Required
Transactions. The Commission
proposed to include similar exceptions
in Proposed Rule 815(d). Proposed Rule
815(d)(1) would define ‘‘package
transaction’’ as two or more component
transactions executed between two or
more counterparties where at least one
component is a Required Transaction,
execution of each component is
contingent upon the execution of all
other components, and the component
transactions are priced or quoted
together as one economic transaction
with simultaneous (or nearsimultaneous) execution of all
components. Proposed Rule 815(d)(2)
would provide that a Required
Transaction that is executed as a
component of a package transaction that
includes a component SBS that is
subject exclusively to the Commission’s
jurisdiction, but is not subject to
mandatory clearing, may be executed on
an SBSEF using any method of
execution as if it were a Permitted
Transaction.
Proposed Rule 815(d)(3) would
provide that a Required Transaction that
is executed as a component of a package
transaction that includes a component
that is not an SBS may be executed on
an SBSEF using any method of
execution as if it were a Permitted
Transaction. Proposed Rule 815(d)(3)
would further state that this general
exception, which allows flexible means
of execution for certain package
transactions, shall not apply to a
Required Transaction that is executed as
a component of a package transaction in
which all other non-SBS components
are U.S. Treasury securities; a Required
Transaction that is executed as a
component of a package transaction in
which all other non-SBS components
are contracts for the purchase or sale of
a commodity for future delivery; a
Required Transaction that is executed as
a component of a package transaction in
which all other non-SBS components
are agency mortgage-backed securities;
or a Required Transaction that is
executed as a component of a package
transaction that includes a component
transaction that is the issuance of a
bond in a primary market.
The Commission received comments
on the proposed exception for packaged
accompanying text (describing and discussing that
comment).
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transactions.245 Several commenters
support the Commission’s proposal.246
One commenter supports the proposal
to harmonize with the CFTC rules, but
suggested modifications to the proposed
rule text.247 First, the commenter
suggests that Rule 815(d)(2) be modified
so that the package-transaction
exception is not available if the other
SBS in the package is either subject to
the clearing requirement or intended to
be cleared. This commenter states that,
because the scope of any future clearing
requirement for SBSs is unclear, there
may be significant trading activity in
packages containing SBSs that are
intended to be cleared, but not subject
to the clearing requirement, and the
commenter states that, for purposes of
the package transaction exception, SBS
that are cleared, whether by mandate or
intention, should be treated the same.
This commenter also recommends that
Rule 815(d)(3) be modified to clarify
that the exception would not apply to
package transactions where all of the
other components are swaps subject to
the CFTC’s trade execution requirement.
The commenter states that this
modification would prevent evasion for
packages containing only SBSs and
swaps that are subject to trade execution
requirements on the Commission and
the CFTC side, respectively.248
Another commenter, while agreeing
that it is appropriate to treat package
transactions differently from outright,
single-legged transactions, suggests that
the Commission take a different
approach from that of the CFTC, stating
that the current state of the CFTC’s rules
reflect the culmination of a phased
implementation approach developed
over time via no-action letters.249 That
commenter argues that it would be
better for the Commission to tailor its
rules for packaged transactions to
address the particular market dynamics
relevant to the SBS market instead of
the swaps market. The commenter
recommends that the Commission build
into the MAT determination process a
framework for identifying what types of
package transactions exist for
prospectively MAT SBS and then
develop tailored rules around the
execution of such transactions.
Rule 815(d) is closely modeled on
§ 37.9(d) and is designed to balance the
goal of promoting transparency in the
245 See Bloomberg Letter, supra note 18, at 14,
Citadel Letter, supra note 18, at 12–13, and ISDA–
SIFMA Letter, supra note 18, at 9–10.
246 See Bloomberg Letter, supra note 18, at 14 and
ISDA–SIFMA Letter, supra note 18, at 9–10.
247 See Citadel Letter, supra note 18, at 12–13.
248 See id.
249 See ISDA–SIFMA Letter, supra note 18, at 9–
10.
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SBS market through required methods
of execution against the market
efficiency of allowing multiple
instruments to trade as a package using
flexible methods of execution.250 As
noted in the Proposing Release, a rule
that was too lenient could subvert the
goal of promoting transparency and
competition through all-to-all trading,
while a rule that was too strict could
cause market participants to break the
package into its individual components,
thereby increasing transaction costs and
reducing the economic purpose and
efficiency of the package transaction.251
The Commission agrees with a
commenter’s suggestions that Proposed
Rule 815(d)(2) and (3) should be
modified to narrow the scope of the
package-transaction exception.
Accordingly, the Commission is
modifying these rules so that neither an
SBS that is intended to be cleared (even
if it is not required to be cleared) nor a
swap subject to a CFTC trade execution
requirement would create an exception
from required methods of execution for
a Required Transaction that is part of
the same package. For purposes of
exempting a Required Transaction in a
package transaction from the required
means of execution, there is no reason
to distinguish mandatorily cleared SBS
from voluntarily cleared SBS, or cleared
swaps from cleared SBS. Therefore, the
Commission is adding the words ‘‘and
is not intended to be cleared’’ to Rule
815(d)(2) so that it covers only a
Required Transaction that is executed as
a component of a package transaction
that includes a component securitybased swap that is subject exclusively to
the Commission’s jurisdiction but is not
subject to the clearing requirement
under section 3C of the SEA and is not
intended to be cleared. And the
Commission is adding new subsection
(iv) to Rule 815(d)(3) to provide that a
Required Transaction in a package
transaction is ineligible to be treated as
a Permitted Transaction if it is ‘‘[a]
Required Transaction that is executed as
a component of a package transaction in
which all other non-SBS components
are swaps that are subject to a trade
execution requirement under the
CFTC’s rules.’’
250 To the extent that counterparties may be
facilitating a package transaction that involves a
‘‘swap,’’ as defined in section 1(a)(47) of the CEA,
7 U.S.C. 1a(47), or any contract for the purchase or
sale of a commodity for future delivery (or option
on such a contract), or any component agreement,
contract, or transaction over which the Commission
does not have exclusive jurisdiction, the
Commission does not opine on whether such
activity complies with other applicable law and
regulations.
251 See Proposing Release, supra note 1, 87 FR at
28896.
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With respect to the suggestion that the
Commission take a different approach
from that of the CFTC and develop
tailored rules for SBS, the packagetransaction rule is not the appropriate
place to recognize the differences
between the swaps and the SBS market.
Rather, the clearing determinations and
MAT determinations will necessarily
consider the trading characteristics of a
given SBS, and both these
determinations will have to be made
before the package transaction exception
would ever potentially be relevant to a
transaction in that SBS.
For the foregoing reasons, the
Commission is adopting Rule 815(d)
with the modifications to paragraph
(d)(2) and (d)(3), as described above.
5. Rule 815(e)
Proposed Rule 815(e) is modeled on
§ 37.9(e), which requires SEFs to
maintain rules and procedures for
resolution of operational and clerical
error trades, which could be for swaps
that otherwise would be subject to
required methods of execution.
Proposed Rule 815(e) would also require
an SBSEF to maintain rules and
procedures that facilitate the resolution
of error trades and sets forth certain
requirements designed to promote
resolution in a fair, transparent, and
consistent manner. Definitions of the
terms ‘‘correcting trade,’’ ‘‘error trade,’’
and ‘‘offsetting trade’’ would be
included in Rule 802 rather than in Rule
815(e).252
The Commission received one
comment letter on this provision.253 The
commenter states that, with respect to a
cleared SBS, correcting an error trade
that was rejected by a clearing agency is
not feasible unless the rejected error
trade is declared by the SBSEF void ab
initio. Otherwise, the commenter states,
the parties might be encumbered by
unresolved obligations related to the
rejected SBS trade, and this might
further prevent a timely and efficient
resolution of the error. For this reason,
the commenter recommends that the
SBSEF should be able to declare void ab
252 See Proposed Rule 802 (defining ‘‘correcting
trade’’ as a trade executed and submitted for
clearing to a registered clearing agency with the
same terms and conditions as an error trade other
than any corrections to any operational or clerical
error and the time of execution); Proposed Rule 802
(defining ‘‘error trade’’ as any trade executed on or
subject to the rules of an SBSEF that contains an
operational or clerical error); Proposed Rule 802
(defining ‘‘offsetting trade’’ as a trade executed and
submitted for clearing to a registered clearing
agency with terms and conditions that
economically reverse an error trade that was
accepted for clearing). These definitions are
modeled on the definitions of the same terms in
§ 37.9(e)(1).
253 See Bloomberg Letter, supra note 18, at 3, 14.
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87185
initio any trade rejected by a clearing
agency.254
The CFTC’s rules for addressing error
trades are well articulated and well
understood by the market, and they
continue to serve as an appropriate
model for the Commission’s rules.
Furthermore, because most if not all
SBSEFs also will be registered with the
CFTC as SEFs, close harmonization in
this regard would allow dually
registered entities to employ the same
procedures for addressing error trades,
whether they arise in the context of
swap trading or SBS trading. Therefore,
the rules for addressing error trades
should not differ between the SBS
regime and the swaps regime. While the
Commission appreciates the difficulties
that might arise in trying to correct an
error trade that has been rejected by a
clearing agency, under Proposed Rule
815(e), an SBSEF would be required to
adopt rules and procedures for
addressing such situations, which it
could do by, among other things,
declaring trades rejected by a clearing
agency as void ab initio, as it would be
required to do for non-error trades that
are rejected for clearing under Rule
815(g). For the foregoing reasons, the
Commission is adopting Rule 815(e) as
proposed.
6. Rule 815(f)
Rule 815(f) is modeled on § 37.9(f),
which addresses counterparty
anonymity and is widely referred to as
the prohibition on ‘‘post-trade name
give-up’’ (‘‘PTNGU’’). Proposed Rule
815(f) would generally prohibit any
person, directly or indirectly (including
through a third-party service provider),
from disclosing the identity of a
counterparty to an SBS that is executed
anonymously on an SBSEF and
intended to be cleared and requires the
SBSEF to establish and maintain rules
to that effect. Furthermore, it provides
that ‘‘executed anonymously’’ as used in
the rule includes an SBS that is prearranged or pre-negotiated
anonymously, including by an SBSEF
participant. Finally, Rule 815(f)
provides that, for a package transaction
that includes a component SBS that is
not intended to be cleared, disclosing
the identity of a counterparty would not
violate the rule.
The Commission received several
comments on Proposed Rule 815(f).255
Most of the commenters support the
254 See
id.
Bloomberg Letter, supra note 18, at 14–15,
Citadel Letter, supra note 18, at 10–12, SIFMA
AMG Letter, supra note 18, at 10–12, WMBAA
Letter, supra note 18, at 5.
255 See
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rule.256 Several commenters state that
they strongly support the proposal
harmonizing with the CFTC rules to
prohibit PTNGU for SBSs executed
anonymously on SBSEFs and that are
intended to be cleared.257 One
commenter asserts that PTNGU has no
legitimate purpose for centrally cleared
financial instruments, since trading
counterparties face the central
clearinghouse and do not have any
credit, operational, or legal exposure to
each other post-trade.258 This
commenter states that PTNGU functions
as a source of uncontrolled information
leakage since a market participant has
no control over who it will be matched
with when executing through a pretrade anonymous trading protocol, such
as an order book. Accordingly, a buyside firm must be comfortable
potentially sharing its trading activity
with every other participant on the
trading venue, including other buy-side
firms before using an anonymous order
book with PTNGU. The commenter
considers this an unattractive
proposition for buy-side firms that
completely undermines the anonymous
nature of the trading protocol and deters
access and participation. The
commenter also argues that PTNGU is a
discriminatory practice that impedes
market participant access to trading
venues by allowing dealers to monitor
whether buy-side firms have started to
transact in anonymous order books and
use this information as a policing
mechanism to deter buy-side access and
participation.259 The commenter also
states that Rule 815(f)(3) 260 is drafted to
prevent evasion by voice brokers. Other
commenters express similar views.261
Another commenter states that if the
Commission prohibits PTNGU, its
256 See Bloomberg Letter, supra note 18, at 14–15,
Citadel Letter, supra note 18, at 10–12, SIFMA
AMG Letter, supra note 18, at 10–12.
257 See Citadel Letter, supra note 18, at 10; SIFMA
AMG Letter, supra note 18, at 10.
258 See Citadel Letter, supra note 18, at 10.
259 See Citadel Letter, supra note 18, at 11. This
commenter also cites news articles relating the
accounts of buy-side firms of dealers contacting
them to get them not to join SEF platforms. See id.
at 11 n.20.
260 Rule 815(f)(3) provides that SBSs that are
‘‘executed anonymously’’ include SBSs that are prearranged or pre-negotiated anonymously, which
would include voice broker trades.
261 See SIFMA AMG Letter, supra note 18, at 10
(stating that PTNGU for anonymously traded
cleared SBSs is unnecessary and does not provide
any advantages to clients, but rather leads to
uncontrolled information leakage); Bloomberg
Letter, supra note 18, at 15 (stating that prohibiting
PTNGU facilitates and promotes trading on SBSEFs
and promotes pre-trade price transparency by
encouraging more participants to bid anonymously,
whereas the practice of requiring disclosure of one
counterparty’s name to the other counterparty
increases the risk of information leakage and can
deter participation by liquidity seekers on SBSEFs).
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policy would mirror the CFTC’s
approach and that certain traders would
be more likely to participate on venues
that offer anonymous execution,
including order book functionality.262
This, in turn, the commenter argues,
could result in deeper liquidity pools on
SBSEFs and promote the development,
innovation, and growth of the SBS
market.263 The commenter asserts that
the Commission’s rules should be
designed to better promote the
development, innovation, and growth of
the swaps market, with the intent of
attracting liquidity formation onto
SBSEFs, in a manner that adds to
efficiency for the market and market
participants.
One commenter also states that
PTNGU was a more important feature of
the market when few swaps were
centrally cleared and market
participants needed to know their
counterparty’s identity to manage the
associated credit risk; however, with the
prevalence of central clearing, the need
for PTNGU is diminished for cleared
swaps.264
A few commenters, while generally
supportive of the rule, suggest some
modifications to it.265 One commenter
argues that Rule 815(f)(4) 266 is
overbroad and may significantly limit
the scope of the prohibition.267
Specifically, this commenter states that
many security-based swaps are
transacted as part of a package
transaction with other instruments (e.g.,
single-name CDS and index CDS). The
commenter argues that, at a minimum,
any exception for package transactions
should only apply to packages that
include a component that is not an SBS
intended to be cleared or a swap that is
intended to be cleared. The commenter
expresses concern that the current
language would appear to exempt
packages containing CFTC-regulated
swaps, even if those instruments should
be subject to an equivalent prohibition
(notwithstanding the working of the
corresponding CFTC exception for
packages). The commenter encourages
the Commission to work with the CFTC
to avoid creating a loophole for common
packages containing swaps and security262 See
SIFMA AMG Letter, supra note 18, at 10.
id. at 11.
264 See Bloomberg Letter, supra note 18, at 15.
265 See Bloomberg Letter, supra note 18, at 15,
Citadel Letter, supra note 18, at 11, WMBAA Letter,
supra note 18, at 5.
266 Rule 815(f)(4) provides that, for a package
transaction that includes a component transaction
that is not an SBS intended to be cleared, disclosing
the identity of a counterparty shall not violate the
other provisions in the rule that prohibit the
disclosure of the identity of a counterparty for SBSs
executed anonymously.
267 See Citadel Letter, supra note 18, at 11.
263 See
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based swaps that are all intended to be
cleared. Furthermore, the commenter
questions the need for Rule 815(f)(4) at
all. The commenter states that, as
proposed, the prohibition on PTNGU
applies only to security-based swaps
that are executed anonymously and
intended to be cleared. The commenter
argues that PTNGU could still be used
for the uncleared security-based swap
leg of a package transaction containing
both a cleared security-based swap and
an uncleared security-based swap, even
without Rule 815(f)(4).
One commenter argues that the
Commission should take an
evolutionary approach to the
prohibition on name give-up, which
initially should apply only to Required
Transactions, and not Permitted
Transactions on an SBSEF where
clearing may not be certain leading up
to or at the time of trade execution.268
This commenter believes that this
approach would encourage liquidity
formation and further development of
less liquid SBSs where an SBSEF
trading mandate is not required.
One commenter suggests that the
Commission augment the rule with a
prohibition on trade-relationship
documentation for SBS that are
intended to be cleared and grant the
SBSEF the ability to void ab initio
trades rejected from clearing to avoid
the necessity of post-trade name
disclosure in case of an error trade.269
The Commission agrees with
commenters that prohibiting post-trade
name give-up for cleared trades is
reasonably necessary to facilitate and
promote trading on SBSEFs, and
Proposed Rule 815(f) would accomplish
these goals.
The Commission disagrees with the
comment that Rule 815(f)(4) is
overbroad and unnecessary. The
Commission finds that Rule 815(f)(4) is
necessary and important to provide
clarity about the application of the
PTNGU prohibition to package
transactions and also to provide
consistency with the CFTC’s approach.
Narrowing the exception in Rule
815(f)(4) as suggested by one commenter
so that it would not apply if a
component of a package transaction
were a cleared swap would cause the
Commission’s approach to PTNGU to
differ from that of the CFTC and create
the potential for different PTNGU rules
to apply to different components of the
same package transaction. That is, if the
Commission modified Rule 815(f)(4) as
the commenter suggests, in the case of
a package transaction comprising an
268 See
269 See
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WMBAA Letter, supra note 18, at 5.
Bloomberg Letter, supra note 18, at 15.
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SBS that is intended to be cleared and
a swap that is intended to be cleared,
Rule 815(f)(4) would prohibit PTNGU,
but § 37.9(f)(4) would permit PTNGU.270
To avoid this situation, the Commission
declines to modify Rule 815(f)(4) as
suggested.
Further, the Commission disagrees
with the comment that the prohibition
on PTNGU should initially apply only
to Required Transactions. The
prohibition on PTNGU is designed to
promote pre-trade price transparency by
encouraging a greater number, and a
more diverse set, of market participants
to anonymously post bids and offers on
regulated markets, and it does so by
preventing the sharing of the names of
counterparties where such sharing is
unnecessary—namely, when a
transaction is cleared. Whether clearing
the transaction is required or voluntary
is not relevant to the purposes of
prohibiting PTNGU. With regards to
trades rejected from clearing, the
prohibition on PTNGU would apply to
all trades that are intended to be cleared,
not just those that are successfully
cleared, so that prohibition would also
apply to a trade that is submitted but
then rejected for clearing. For the
foregoing reasons, the Commission is
adopting Rule 815(f), as proposed, with
minor technical modifications.271
7. Rule 815(g)
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One commenter states that in order to
protect counterparty anonymity in the
event of an SBS that is executed
anonymously and intended to be
cleared, but is nonetheless rejected for
clearing, the SBSEF should declare the
trade void ab initio.272 The commenter
suggests that the Commission augment
the rule to prohibit trade relationship
documentation for SBS that are
intended to be cleared and to grant
SBSEFs the ability to declare trades
rejected from clearing void ab initio in
order to avoid post-trade name
disclosure in the case of a rejected trade.
270 Section 37.9(f)(4) provides, in relevant part,
that ‘‘[f]or a package transaction that includes a
component transaction that is not a swap intended
to be cleared, disclosing the identity of a
counterparty shall not violate’’ the prohibition
against PTNGU. 17 CFR 37.9(f)(4).
271 The Commission has corrected a reference in
paragraph (f)(2) to a ‘‘security-based swap execution
facility’’ to refer instead to a ‘‘security-based swap.’’
The Commission has also changed first instance of
the word ‘‘paragraph’’ in paragraph (f)(4) to
‘‘paragraphs.’’
272 See Bloomberg Letter, supra note 18, at 14–15.
See also Citadel Letter, supra note 18, at 5 (stating
that the CFTC guidance regarding trades that are
void ab initio has eased trading of cleared swaps on
SEFs and ‘‘facilitated the entry of new liquidity
providers that do not have legacy bilateral trading
documentation in place with clients’’).
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The Commission agrees that declaring
such trades void ab initio, which helps
prevent trades rejected from clearing
from effectively becoming bilateral
transactions where the identity of
counterparties might be disclosed. This
approach is also consistent with
practices in the swaps market with
respect to such trades.273 Therefore, the
Commission is amending Rule 815 to
add a new paragraph (g), which
specifies that SBSEFs shall establish
and enforce rules that provide that a
security-based swap that is intended to
be cleared at the time of the transaction,
but is not accepted for clearing at a
registered clearing agency, shall be void
ab initio. In light of new paragraph (g),
the Commission is generally of the view
that it would not be consistent with the
impartial-access requirements of Rule
819(c) for an SBSEF to permit its
members to require bilateral
relationship documentation from their
counterparties with respect to SBS that
are intended to be cleared.274
Consequently, the Commission finds
that it is not necessary to include a
prohibition on trade relationship
documentation in Rule 815 for SBS that
are intended to be cleared.
For the foregoing reasons, the
Commission adopting Rule 815(f)(1)
through (4), with minor technical
modifications,275 and is also adding a
new paragraph (g), as discussed above.
F. Rule 816—Trade Execution
Requirement and Exemptions
Therefrom
Section 3C of the SEA 276 sets out a
procedure whereby an SBS becomes
subject to mandatory clearing. Section
3C(h) of the SEA provides that, if a
transaction involving an SBS is subject
to the mandatory clearing requirement,
the counterparties shall execute the
transaction on an exchange, on an
SBSEF registered under section 3D of
the SEA, or on an SBSEF that is exempt
from registration under section 3D(e) of
the SEA, unless no national securities
exchange or SBSEF makes the SBS
available to trade or the SBS transaction
is subject to an exception from the
clearing requirement under section
3C(g) of the SEA. This obligation under
273 See CFTC, Division of Clearing and Risk and
Division of Market Oversight Staff Guidance on
Swaps Straight-Through Processing (Sept. 26,
2013), available at https://www.cftc.gov/sites/
default/files/idc/groups/public/@newsroom/
documents/file/stpguidance.pdf (‘‘CFTC 2013 STP
Guidance’’).
274 See also infra section VI.B.3.
275 See supra note 271.
276 15 U.S.C. 78c–3.
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87187
section 3C(h) is commonly referred to as
the ‘‘trade execution requirement.’’
Proposed Rule 816 of Regulation SE
establishes procedures for an SBSEF to
make an SBS ‘‘available to trade’’
(assuming it is also subject to the
clearing requirement), thereby activating
the trade execution requirement with
respect to that SBS. Rule 816 also
includes three proposed exemptions
from the trade execution requirement.
Paragraphs (a) through (d) of Rule 816
are modeled on § 37.10 of the CFTC’s
rules and establish a process whereby
an SBS product is MAT by an SBSEF.
An SBSEF may list an SBS that is
subject to mandatory clearing, but
listing the product does not by itself
subject the product to the trade
execution requirement in section 3C(h)
of the SEA. Only if a product that is
subject to mandatory clearing is listed
and a MAT determination has been
made would the SBS then become
subject to the trade execution
requirement. A MAT determination
would have to be made and filed by an
SBSEF pursuant to Rule 816 to trigger
the trade execution requirement, similar
to the MAT process of § 37.10.
1. General Comments on Harmonization
With CFTC MAT Process
Several commenters cite efforts by the
CFTC to review its MAT process as an
indication that the Commission should
take a different approach for making
MAT determinations rather than align
with the CFTC’s current rule.277 One
commenter cites to the findings of the
Market Risk Advisory Committee
(‘‘MRAC’’), an advisory committee that
provided recommendations to the
CFTC, and states that the MRAC and the
CFTC raised concerns regarding the
current MAT process for swaps.278 This
commenter states that reforming the
MAT process was included as an agenda
item in the CFTC 2021 fall rulemaking
agenda and that, for this reason, the
Commission should align the MAT
process for SBS with the
recommendations made by the MRAC
or, in the alternative, coordinate with
the CFTC to ensure that the MAT
process is aligned and conducted in a
manner that allows input from a variety
of stakeholders and the Commission.
Another commenter also urges the
Commission to review the CFTC
MRAC’s recommendations with an eye
towards adopting a more flexible regime
given the unique characteristics of the
277 See Bloomberg Letter, supra note 18, at 15–16;
ISDA–SIFMA Letter, supra note 18, at 5.
278 See Bloomberg Letter, supra note 18, at 15–16.
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SBS market.279 One commenter strongly
recommends that the Commission
refrain from adopting a MAT
determination process that is based on
the existing CFTC process, but rather
coordinate with the CFTC as it
considers potential reforms to improve
its MAT process.280
It is appropriate for Regulation SE to
establish a MAT SBS process that aligns
with the CFTC’s process as closely as
possible. While commenters state that
the CFTC may be considering changes to
its MAT process, the CFTC has not yet
proposed any such changes, so it is not
certain that the CFTC would adopt the
recommendations of the MRAC, either
in whole or in part, or with
modification, or when the CFTC might
act if it does make changes to its MAT
process. Additionally, because no MAT
determination can be made with respect
to an SBS unless and until the
Commission has made a mandatory
clearing determination as to that SBS,
the Commission would have the
opportunity, if and when it makes a
mandatory clearing determination with
respect to an SBS, or category of SBS,
to consider whether changes to the
process for a MAT determination with
respect to that SBS would be
appropriate. Further, in the event that
the CFTC does move forward with
changes to its MAT process, the
Commission will have the opportunity
to reassess its own MAT process and to
consider further harmonization with the
CFTC regime, as appropriate. For the
present, the CFTC’s procedures are well
articulated and well understood by SBS
markets, so closely harmonizing with
these procedures would yield
comparable regulatory benefits while
minimizing burdens on SBSEFs. In
particular, even though the SEF and
SBSEF markets differ in ways that are
relevant to the application of the criteria
for MAT determinations, the criteria
themselves are equally applicable to the
SEF and SBSEF markets. Thus, the
Commission is adopting the rule as
proposed, without any different or
additional criteria that would have to be
considered by an SBSEF in order to
MAT an SBS product.
2. Rule 816(a)
Paragraph (a)(1) of Rule 816 provides
that an SBSEF that makes an SBS
available to trade in accordance with
paragraph (b) of the rule must submit to
the Commission its determination with
respect to that SBS, pursuant to the
procedures under Rule 806 (voluntary
submission for Commission review and
279 See
280 See
ISDA–SIFMA Letter, supra note 18, at 5.
ICI Letter, supra note 18, at 5.
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approval) or Rule 807 (selfcertification).281 Paragraph (a)(2)
provides that an SBSEF that makes an
SBS available to trade must demonstrate
that it lists or offers that SBS for trading
on its trading system or platform.
The Commission received a number
of comments on Rule 816(a).282 Many
commenters raise concerns about an
SBSEF having the sole ability to make
a MAT determination and generally
advocate that the Commission and other
market participants have a greater role
in making MAT determinations.283 One
commenter states that experience with
the existing CFTC regime suggests that
the scope of the trade execution
requirement should not be determined
solely by the SBSEFs.284 This
commenter states that the trade
execution requirement is a key pillar of
the G20 post-crisis reforms and
recommends that the Commission also
be able to propose MAT determinations
for public comment, based on its
independent assessment of the criteria
set forth in Rule 816(b). One commenter
asserts that it has long believed that a
MAT determination should not rest
solely with a single SBSEF.285 This
commenter states that such an approach
risks introducing commercial and other
motives beyond an objective assessment
of the factors set forth in the rule.
Another commenter states that it does
not believe that a trading venue should
be solely responsible for identifying the
types of products that should be subject
to a trade execution requirement.286
Instead, the commenter states that a
Commission-led process is more
appropriate. The commenter argues that
a Commission-led process would ensure
that the views of all relevant market
participants (including SBSEFs) are
considered in making a MAT
determination. In addition, the
commenter asserts that the Commission
is likely to have better access to data
regarding the overall SBS market than
any individual trading venue will have.
The commenter requests that the
Commission provide in Regulation SE
that MAT determinations are to be made
281 See supra sections IV.C (discussing Rule 806)
and IV.D (discussing Rule 807).
282 See Bloomberg Letter, supra note 18, at 15–16;
Citadel Letter, supra note 18, at 15–16; ICI Letter,
supra note 18, at 4–10; ISDA–SIFMA Letter, supra
note 18, at 4–5; MFA Letter, supra note 18, at 9;
SIFMA AMG Letter, supra note 18, at 6–8; WMBAA
Letter, supra note 18, at 5; Tradeweb Letter, supra
note 18, at 3–4.
283 See Citadel Letter, supra note 18, at 15–16; see
Bloomberg Letter, supra note 18, at 15–16; ICI
Letter, supra note 18, at 5–8; ISDA–SIFMA Letter,
supra note 18, at 4–5.
284 See Citadel Letter, supra note 18, at 15–16.
285 See WMBAA Letter, supra note 18, at 5.
286 See Tradeweb Letter, supra note 18, at 3–4.
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by the Commission following a notice
and comment rulemaking process that
takes into account the views of SBSEFs
and other market participants.
Because no MAT determination can
be made for an SBS until the
Commission has made a mandatory
clearing determination for that SBS, the
MAT-determination process is, in that
sense, inherently a Commission-led
process. Moreover, because the SBSEFs
will have direct experience with the
trading of SBSs on SBSEFs, they will be
best positioned make the initial decision
as to whether it is appropriate to submit
a MAT determination for an SBS.
However, the Commission would still
play a primary role in the MAT process,
as it will have the opportunity to review
all SBSEF MAT determinations,
whether they are self-certified or
voluntarily filed for Commission
approval, to determine whether those
determinations are adequately
supported by evidence and consistent
with the SEA and the rules thereunder,
including the six factors to be
considered for MAT determinations
under Rule 816(b), which are discussed
below. In the absence of such evidence,
the Commission can decline to approve
or can stay and then object to a MAT
petition, which will ultimately allow
the Commission to prevent an
inappropriate MAT determination from
taking effect.
Some commenters also recommend
that the MAT process provide other
market participants the ability to
provide comment on any MAT
proposal.287 One commenter proposes
that market participants have a
meaningful opportunity to review and
opine on a petitioning SBSEF’s
proposed MAT determination.288 This
commenter argues that the MAT factors
are intended to measure trading
liquidity that is available and that this
assessment should include the
perspectives of market participants.289
Another commenter also states that it
has long believed that market
participants should have the ability or a
forum to comment on proposed MAT
determinations.290 One commenter
recommends that, in order to support
the MAT process and to guard against
inappropriate MAT determinations, the
Commission permit market participants
and other interested parties to
participate in the MAT analysis by
introducing a public notice and
287 See SIFMA AMG Letter, supra note 18, at 7;
MFA Letter, supra note 18, at 9; ICI Letter, supra
note 18, at 5, 7–8.WMBAA Letter, supra note 18,
at 5.
288 See SIFMA AMG Letter, supra note 18, at 7.
289 See id.
290 See WMBAA Letter, supra note 18, at 5.
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comment period into the MAT
assessment timeline.291 This commenter
states that this would provide market
participants, who would be those most
affected by a MAT determination, with
the opportunity to identify specific
aspects of individual SBS products that
may limit their liquidity, which would
help ensure each MAT determination is
appropriate for the relevant SBS
product. Another commenter states that
one of the shortcomings of the MAT
process is that it puts too much
responsibility in the hands of the
trading platform and does not require,
or even consider, input from market
participants.292 This commenter states
that the implications of this outcome are
even more evident in the context of an
SBS MAT determination, as such a
determination would only be relevant to
a small segment of the global SBS
market, which the commenter states is
much smaller and less liquid than its
swaps counterpart.
One commenter also states that the
proposed approach will give SBSEFs the
sole ability to dictate the scope of
SBSEF trading for market participants
based on the commercial interests of
SBSEFs.293 This commenter
recommends that the Commission
require a 30-day public comment period
for all MAT determinations. The
commenter expresses concern that,
under the proposal, it would be possible
for a MAT determination to become
effective without an opportunity for
public comment and that the MAT
process would be controlled almost
entirely by one segment of the SBS
markets, the SBSEFs. The commenter
states that market participants can
provide the Commission with
invaluable commentary, insights, and
data on the potential effects of proposed
rules, as well as help to ensure that
rules are implemented in a fair and
orderly manner. The commenter asserts
that, because MAT determinations are
data intensive, 30 days would give
market participants sufficient time to
analyze the data presented by the
SBSEF, prepare their own data and
analyses, and comment effectively on
operational and technological
implications. This commenter also
recommends that the Commission
consider creating an advisory board to
provide recommendations both to the
Commission and to SBSEFs on SBSs
that should be added to or removed
from the list of SBSs that are subject to
291 See
292 See
MFA Letter, supra note 18, at 9.
ISDA–SIFMA Letter, supra note 18, at 4–
293 See
ICI Letter, supra note 18, at 5, 7–8.
5.
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the trade execution requirements.294
The commenter states that the advisory
board should have appropriate expertise
and balanced representation, including
from the buy side, sell side, and other
stakeholders. The commenter asserts
that this would help further address
some of their concerns about the MAT
process and ensure that the SBSs made
subject to the trade execution
requirement are only the most liquid.
Furthermore, the commenter argues that
the advisory board could also help the
Commission assess the functioning of
the MAT determination process and of
the overall SBS regulatory framework
and provide recommendations for
improvement.295
Another commenter states that the
process for MAT determinations should
include input from both market
participants and the Commission.296
The commenter states that market
participants may trade on multiple
venues and in multiple jurisdictions
and have a greater or different
perspective from the SBSEF making the
MAT determination. Additionally, the
commenter states that the Commission’s
input should be considered as well.
The Commission will have sufficient
opportunity to assess self-certified MAT
determinations for consistency with the
criteria of Rule 816(b), as well as with
the SEA and the other regulations
thereunder, while also permitting
SBSEFs to use a self-certification
process closely aligned with § 40.6. The
CFTC’s procedures are well articulated
and well understood by SEFs, and
closely harmonizing with these
procedures should yield comparable
regulatory benefits while minimizing
burdens on SBSEFs. Certain MAT
determinations of dually registered SEF/
SBSEFs may apply to SBSs and swaps
that are related and that related MAT
determinations will thus have to be filed
with both the SEC and CFTC. Adding a
default comment period or otherwise
altering the standard so that the
Commission reviews all MAT
determinations by SBSEFs, as
commenters requested, would
significantly alter the timing of selfcertified SBSEF MAT determinations
compared to their SEF equivalents. By
contrast, closely harmonizing the SEC’s
filing procedures and standards of
review with the CFTC’s would allow
dually registered entities to submit
related MAT determinations to both
agencies for review. Moreover, if the
Commission exercises its authority to
stay the effectiveness of a self-certified
294 See
id. at 9–10.
295 See id.
296 See Bloomberg Letter, supra note 18, at 15–16.
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MAT determination and seek public
comment—i.e., with respect to a rule
that is novel, complex, inadequately
explained, or potentially inconsistent
with the SEA or the regulations
thereunder, including Regulation SE—
market participants would be able to
convey their concerns regarding that
rule to the Commission.
For SBS MAT determinations
submitted under the Rule 806 process
that present novel or complex issues or
meet other criteria under Rule 806(d),
the initial 45-day review period for rule
approval submissions may be extended
for an additional 45 days. The
Commission recognizes the importance
of public input regarding any MAT
determination, and not only does Rule
808(b) provide that the Commission
make publicly available on its website
Rule 806 filings, such as an SBSEF’s
MAT filing, but the Commission is also,
as discussed below, delegating to its
staff the authority to make filings under
Rule 806 available on the Commission’s
website, which will expedite the
process of providing interested persons
with the ability to review a MATdetermination filing so that they can
communicate their views to the
Commission. Thus, in either process, if
MAT petitions present novel or complex
issues, the Commission will have
sufficient time to receive and consider
public comment for those submissions.
Further, accepting public comment from
all interested market participants in the
context of a specific MAT determination
would more efficiently aid the
Commission’s review of SBSEF MATdetermination filings than forming a
formal advisory board to offer opinions
on adding or removing SBS from the list
of products that have been MAT.
Several commenters question the
extent of the Commission’s role in the
MAT determination process.297 One
commenter cites the lack of Commission
authority to delay or decline an SBSEF
submission for a MAT determination,
particularly without comment from
market participants, as the basis for its
concerns about the proposed MAT
process.298 Another commenter
recommends that the Commission
enhance its oversight by ensuring that it
has a more meaningful ability to review
and reject MAT determinations, as well
as the ability to initiate determinations
itself as appropriate.299 This commenter
also expresses concern that the
Commission would not have adequate
time to consider, or authority to
297 See SIFMA AMG Letter, supra note 18, at 6;
ICI Letter, supra note 18, at 6–7.
298 See SIFMA AMG Letter, supra note 18, at 6.
299 See ICI Letter, supra note 18, at 5–8.
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challenge, the basis for a MAT
determination. The Commission,
however, does have the authority to
prevent an SBSEF MAT determination
under either Rule 806 or Rule 807 from
taking effect. As noted above, under
Rule 806, the Commission has a 45-day
period to consider a submission under
Rule 806, which could be extended for
another 45 days. The Commission can,
if it finds the determination to be
inconsistent with the SEA or the rules
thereunder, notify the SBSEF that it will
not, or is unable to, approve the new
rule or rule amendment. Under Rule
807, MAT determinations cannot go into
effect for at least 10 business days,
during which the Commission has the
opportunity to determine whether the
determination presents novel or
complex issues, if it is inadequately
explained, or if it is potentially
inconsistent with the SEA or the rules
thereunder. If the Commission
determines that any of these concerns is
present, the Commission can stay the
MAT determination for a 90-day period
for further review. Within those 90 days,
the Commission will have the
opportunity to object to the proposed
certification on the grounds that the
proposed rule or rule amendment is
inconsistent with the SEA or the
Commission’s rules thereunder, thereby
preventing the self-certified MAT
determination from going into effect.
Therefore, the processes for submitting
MAT determinations do afford the
Commission sufficient time and
authority to review and, where
appropriate, decline to approve, or
object to, MAT determinations.
For the reasons discussed above, the
Commission is adopting Rule 816(a) as
proposed.
3. Rule 816(b)
Paragraph (b) of Rule 816 sets forth
six factors that an SBSEF shall consider,
as appropriate, when making a MAT
determination for an SBS product,
which are the same six factors
enumerated in the CFTC rule. Those
factors are: (1) whether there are ready
and willing buyers and sellers; (2) the
frequency or size of transactions; (3) the
trading volume; (4) the number and
types of market participants; (5) the bid/
ask spread; and (6) the usual number of
resting firm or indicative bids and
offers.
The Commission received several
comments on the factors for making a
MAT determination described in Rule
816(b).300 Several commenters express
300 See SIFMA AMG Letter, supra note 18, at 6–
8; ICI Letter, supra note 18, at 5; MFA Letter, supra
note 18, at 9; WMBAA Letter, supra note 18, at 5.
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concern that the factors for
consideration enumerated in Rule
816(b) are not mandatory.301 One
commenter states that the rule requires
that an SBSEF’s submission consider
the factors in the rule, as appropriate,
when making a MAT determination.302
This commenter proposes that all of the
MAT factors must be considered for
mandatory SBSEF trading. This
commenter also urges the Commission
to assess the MAT factors on the basis
of the current trading activity of the
relevant SBSs on the SBSEF against
stringent standards, and in the
aggregate, in order to determine whether
there is proven liquidity on SBSEFs to
support mandatory SBSEF trading. The
commenter also proposes that the
Commission expand the MAT factors to
require evidence demonstrating that the
SBSEF has the requisite infrastructure to
support mandatory SBSEF trading by:
(a) adding an assessment of
technological readiness, and (b)
requiring threshold numbers of SBSEFs
as well as liquidity providers on the
SBSEF transacting in the relevant SBS.
The commenter argues that, while the
expansion of MAT factors may be
viewed as requiring more intervention
and resources by the Commission, the
revised approach will ultimately lead to
a streamlined process, while at the same
time avoiding a potential sacrifice of
liquidity if a particular SBS is mandated
for SBSEF trading prematurely.
One commenter also expresses
concern that the factors in Rule 816(b)
are neither mandatory nor based on
calculated thresholds, and that they
would permit SBSEFs to assert that an
SBS should be MAT even absent
objective evidence of a sufficiently
liquid trading market.303 This
commenter states that this could have
negative consequences for buy-side
participants such as funds—requiring
SBSs with insufficient liquidity to be
traded via order book or an RFQ system,
which would raise a significant risk of
revealing advisers’ sensitive portfolio
management strategies. This commenter
also states that, without requiring
SBSEFs to consider any objective factors
(e.g., threshold levels), it is not clear
how the Commission could ever find
that a MAT determination is
inconsistent with the SEA or the
Commission’s rules. This commenter
recommends that the Commission
enhance the MAT determination factors
301 See SIFMA AMG Letter, supra note 18, at 7–
8; ICI Letter, supra note 18, at 5; WMBAA Letter,
supra note 18, at 5.
302 See SIFMA AMG Letter, supra note 18, at 6–
8.
303 See ICI Letter, supra note 18, at 5–6.
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by: clarifying that all factors must be
evaluated, rather than just one or a
subset; adding as a factor the number of
SBSEFs that list the SBS; requiring that
at least two SBSEFs list the SBS; and
requiring a minimum amount of trading
history (e.g., that an SBS has been listed
for at least 90 days). The commenter
also recommends that the Commission
make the MAT determination factors
more robust by establishing at least
some objective mandatory criteria. The
commenter argues that adopting these
recommendations would provide the
Commission with greater authority to
reject a MAT determination and would
address the conflict raised by an
SBSEF’s commercial incentive to make
an SBS MAT, as well as ensure that
there is enough liquidity in an SBS
before it is subject to a MAT
determination. The commenter urges
that a more robust MAT determination
process is critical to bring consistency to
the SBS market over time, as having
objective standards would avoid MAT
determinations based on subjective
assessments of liquidity that may
change over time.
The Commission’s approach of
requiring the MAT factors to be
considered as appropriate, rather than
mandating the consideration of all the
factors, is consistent with the approach
the CFTC has taken. The CFTC adopted
its approach to provide more flexibility
so that its markets could accommodate
swaps with different trading
characteristics that can be supported in
a centralized trading environment.304
And a similarly flexible approach is
appropriate for the different SBSs that
would be traded on its SBSEFs, as the
appropriate thresholds on any of the
factors may vary depending on the SBS
and over time. Adopting specific
thresholds would create excessive
rigidity at the outset. MAT submissions,
under Rules 806(a)(5) and 807(a)(6),
would be required to contain an
explanation and analysis of the SBSEF’s
determination, including a discussion of
the factors enumerated in the rule, and
how it complies with the SEA and the
Commission’s regulations thereunder.
Rule 816(b) requires SBSEFs to consider
all the factors enumerated in the rule, as
appropriate. However, such
consideration, to be meaningful,
generally should discuss the factors in
the context of the general market,
relative to some outside benchmark.
And the SBSEF would have the burden
of providing support for any assertions
it makes regarding the adequacy of any
of the factors it considers, with
304 See 2013 CFTC Final MAT Rules Release,
supra note 9, 78 FR at 33613.
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reference to some external, objective
standard. The explanations and analyses
provided by the SBSEF generally should
provide adequate justification as to how
all the factors considered apply to the
SBS MAT determination, as well as to
why any factors enumerated in Rule
816(b) that are not addressed are not
relevant. A failure, on the part of the
SBSEF, to address any factors that are
relevant or to adequately support its
assertions would be a basis for the
Commission to find that a MAT
determination is inconsistent with the
SEA and its rules.
One commenter, while supporting
harmonization with the CFTC’s MAT
standards, expresses concern with the
current framework for determining
whether mandatorily cleared SBS
should also be mandated for SBSEF
trading through the MAT process. This
commenter urges that there be a
substantive analysis of whether an SBS
has sufficient liquidity available to
market participants on the SBSEF. The
commenter states that, absent a robust
MAT process requiring the SBSEF to
demonstrate that voluntary exchange
trading has met minimum liquidity and
other standards, an absence of liquidity
for the newly MAT-ed product on the
SBSEF could shut out asset managers
from accessing liquidity for their clients
once OTC trading is prohibited. To this
end, the commenter recommends that
the Commission specify that the MAT
standards are not synonymous with the
clearing requirement standards. The
commenter asserts that its assessment
reflects the fact that necessary market
conditions that make central clearing
appropriate are different from the
necessary market conditions that make
mandatory SBSEF execution
appropriate.305
Another commenter, while generally
supporting the Commission’s approach
to MAT determinations and the six
factors enumerated in the rule, urges the
Commission to take a cautious approach
in its assessment of whether a MAT
determination is appropriate.
Specifically, the commenter
recommends that the Commission
carefully consider each factor,
individually and collectively, in
assessing whether a particular SBS has
sufficient liquidity to support
mandatory SBSEF trading. The
commenter also cautions that the
Commission should avoid broad MAT
categorizations for specific types of SBS
when individual SBS products within
305 See
each category may be more or less
suitable for a MAT designation.306
From the factors enumerated in Rule
816(b), it is clear that additional factors,
beyond the fact that a product is subject
to mandatory clearing, will need to be
considered in determining whether an
SBS is suitable to be MAT, and these
factors are directly relevant to the
liquidity of trading in a given SBS:
whether there are willing buyers and
sellers, the frequency and size of
transactions, the trading volume, the
number and types of market
participants, the bid/ask spread, and the
usual number of resting firm or
indicative bids and offers. Adopting
specific thresholds, however, would be
too rigid an approach to accommodate
the different kinds of SBSs that may be
traded on an SBSEF, particularly at this
early stage. As stated above, the
Commission or its staff will review SBS
products on a case-by-case basis, and for
SBS products presenting novel or
complex issues there will be an
extended period for the Commission to
review the submission and consider
public comments on the
appropriateness of a MAT
determination on a case-by-case basis,
taking into account the facts and
circumstances of the SBS subject to the
determination, including when a filing
seeks to include a broad category of SBS
within a MAT determination.
The Commission has carefully
considered the concerns raised by
commenters regarding the
determination of when an SBS is
appropriate for a MAT determination by
an SBSEF, and the Commission is
adopting Rule 816(b) as proposed. The
Commission appreciates that a MAT
determination for an SBS will be
consequential for market participants,
and that the enumerated factors in Rule
816(b) are important components of an
analysis of whether an SBS is
appropriate for a MAT determination.
Rule 816(b) will require SBSEFs to
consider each of the factors enumerated
in Rule 816(b), as appropriate. As noted
above, a flexible approach to the
enumerated factors will accommodate
the different kinds of SBSs that will be
traded on SBSEFs. While the rule does
not require that every factor be
considered in every case, to the extent
that a factor is relevant and an SBSEF’s
MAT determination submission fails to
sufficiently address that factor, the
Commission would be in a position to
either disapprove the submission, if
made under Rule 806, or stay and
ultimately object to the submission, if
self-certified under Rule 807.
SIFMA AMG Letter, supra note 18, at 6–
306 See
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Furthermore, the rules for filing MAT
determinations require SBSEFs to
provide, among other things, an
explanation and analysis of the
proposed MAT determination,
including a discussion of its compliance
with the SEA, the Core Principles for
SBSEFs, and the Commission’s rules
thereunder. In the case of a MAT
determination, the SBSEF generally
should do more than simply state that
it is consistent with the SEA and the
Commission’s rules thereunder, but
should also provide supporting analysis,
and supporting documentation as
appropriate, for its conclusion. If an
SBSEF fails to provide adequate
explanation or analyses of the MAT
determination, it would be difficult for
the Commission to find that the
determination is consistent with the
SEA and the Commission’s rules
thereunder. Thus, MAT determination
filings generally should be accompanied
with adequate discussion and support
for a MAT determination based on all
relevant factors in Rule 816(b),
including discussion supporting a
conclusion that the SBS product subject
to the MAT determination achieves the
appropriate thresholds for that category
of products. Furthermore, for MAT
determinations presenting novel or
complex issues, there will be an
extended period for the Commission to
solicit and consider public comments
on, among other things, the
appropriateness of the factors
considered.
For the reasons discussed above, the
Commission is adopting Rule 816(b) as
proposed.
4. Rule 816(c)
Paragraph (c) of Rule 816 provides
that, upon a determination that an SBS
has been MAT on an SBSEF or SBS
exchange,307 all other SBSEFs and SBS
exchanges shall comply with the
requirements of section 3C(h) of the
SEA in listing or offering that SBS for
trading.
The Commission received no
comments on Rule 816(c) and the
Commission is adopting Rule 816(c) as
proposed for the reasons stated in the
Proposing Release.
5. Rule 816(d)
Paragraph (d) of Rule 816 provides
that the Commission may issue a
307 An SBS exchange, like all national securities
exchanges, must submit any rule change—including
a rule change to list a new derivative securities
product and/or to MAT an SBS product—pursuant
to SEA Rule 19b–4, 17 CFR 240.19b–4. The
proposed rule text did not establish a new
procedure for SBS exchanges to list or MAT SBS
products. See Proposing Release, 87 FR at 28898
n.107.
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determination that an SBS is no longer
MAT upon determining that no SBSEF
or SBS exchange lists that SBS for
trading.
The Commission received one
comment on Rule 816(d).308 This
commenter recommends that the
Commission modify its proposed
approach to removing an SBS from the
trade execution requirement. The
commenter states that the proposed
approach raises a significant risk that an
SBS may be required to be traded on an
SBSEF merely because it is listed on one
SBSEF, even if there is no liquidity to
sustain trading in that SBS, which could
be detrimental for both buy-side and
sell-side market participants. To ensure
that there is adequate liquidity in MAT
SBSs, the commenter recommends that
the Commission adopt a process for
removing an SBS from the MAT scope
that is similar to the process for making
a MAT determination. The commenter
also urges the Commission, given the
industry’s recent experience with the
COVID–19 crisis, and consistent with
the MRAC Report, to consider the
implications that a temporary outage at
one or more SBSEFs or a major market
disruption would have for SBSs subject
to the trade execution requirement. For
this reason, the commenter recommends
that the Commission consider the
circumstances under which it would
allow for a temporary suspension of the
trade execution requirement and any
possible terms for such a suspension, as
well as any other relief measures the
Commission may be able to provide.309
The commenter’s concern that an SBS
may be required to be traded on an
SBSEF merely because a single SBSEF
has listed that SBS, even if there is no
liquidity to sustain trading in that SBS,
is addressed by the requirements in
Rule 816(b) that must be met by an
SBSEF before it submits a MAT
determination under Rule 806 or Rule
807, as well as by the Commission’s
ability to disapprove, or stay and then
object to, any MAT determination by an
SBSEF. In considering an SBSEF’s MAT
submission, the Commission will
generally consider how many SBSEFs
list and trade a given SBS, as well as the
liquidity and trading characteristics of
that SBS. Further, to the extent market
circumstances change to make a
previous MAT determination unsuitable
for then-prevailing market conditions,
and if the SBSEF that has made a MAT
determination is unwilling to withdraw
that determination, the Commission
would be able to grant exemptive relief
(including on an emergency basis)
308 See
309 See
ICI Letter, supra note 18, at 9.
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pursuant to its authority in section 36 of
the SEA in order to address that
situation.310 For these reasons, the
Commission would have the ability to
address market circumstances that
disrupt the ability of market participants
to trade SBS in compliance with the
trade execution requirement.
Therefore, the Commission is
adopting Rule 816(d) as proposed.
6. Rule 816(e)
Paragraph (e) of Proposed Rule 816
has no analog in § 37.10, but instead is
adapted from 17 CFR 36.1 of the CFTC’s
rules, which sets out certain exemptions
from the trade execution requirement.
The exemptions incorporated into § 36.1
result from the CFTC’s many years of
experience in administering the CEA’s
trade execution requirement.
Paragraph (e)(1) of Rule 816 provides
that an SBS transaction that is executed
as a component of a package transaction
and that also includes a component
transaction that is the issuance of a
bond in a primary market is exempt
from the trade execution requirement in
section 3C(h) of the SEA. In addition,
paragraph (e)(1) provides that, for
purposes of paragraph (e), a package
transaction consists of two or more
component transactions executed
between two or more counterparties
where: at least one component
transaction is subject to the trade
execution requirement in section 3C(h)
of the SEA; execution of each
component transaction is contingent
upon the execution of all other
component transactions; and the
component transactions are priced or
quoted together as one economic
transaction with simultaneous or nearsimultaneous execution of all
components.
Paragraph (e)(2) of Rule 816, which is
adapted from § 36.1(b), provides that
section 3C(h) of the SEA does not apply
to an SBS transaction that qualifies for
an exception 311 under section 3C(g) of
the SEA, or any exemption from the
clearing requirement that is granted by
the Commission, for which the
associated requirements are met.312
Unlike the CFTC, the Commission does
not have a specific rule to cite to
regarding exemptions from the clearing
310 See
15 U.S.C. 78mm.
3C(g) of the SEA is entitled
‘‘Exceptions,’’ not ‘‘Exemptions.’’
312 As with section 2(h)(8) of the CEA, section
3C(h) of the SEA provides that the trade execution
requirement does not apply to SBS that are
excepted from the clearing requirement pursuant to
section 3C(g) of the SEA. However, the Commission
could, like the CFTC, grant exemptions from the
clearing requirement pursuant to other statutory
authority, such as section 36 of the SEA.
311 Section
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requirement, so Rule 816(e)(2) would
refer only generally to such exemptions.
Paragraph (e)(3) of Rule 816, which is
adapted from § 36.1(c), provides that
section 3C(h) of the SEA does not apply
to an SBS transaction that is executed
between counterparties that qualify as
‘‘eligible affiliate counterparties.’’ 313
Counterparties would be ‘‘eligible
affiliate counterparties’’ for purposes of
Rule 816(e)(3) if: (i) one counterparty,
directly or indirectly, holds a majority
ownership interest in the other
counterparty, and the counterparty that
holds the majority interest in the other
counterparty reports its financial
statements on a consolidated basis
under Generally Accepted Accounting
Principles (‘‘GAAP’’) or International
Financial Reporting Standards (‘‘IFRS’’),
and such consolidated financial
statements include the financial results
of the majority-owned counterparty; or
(ii) a third party, directly or indirectly,
holds a majority ownership interest in
both counterparties, and the third party
reports its financial statements on a
consolidated basis under GAAP or IFRS,
and such consolidated financial
statements include the financial results
of both of the counterparties. In
addition, for purposes of Rule 816(e)(3),
a counterparty or third party directly or
indirectly would hold a majority
ownership interest if it directly or
indirectly holds a majority of the equity
securities of an entity, or the right to
receive upon dissolution, or the
contribution of, a majority of the capital
of a partnership.
The Commission received comments
on Rule 816(e).314 One commenter
supports the proposed carve-out for
package transactions.315 Another
commenter, however, states that the
CFTC’s rules for package transactions
were ‘‘developed by the CFTC, initially
via staff no-action relief, after SEFs had
adopted various MAT determinations
and market participants had provided
input to the CFTC regarding the
particular types of package transactions
313 Section 36.1(c) provides that section 2(h)(8) of
the CEA does not apply to a swap transaction that
is executed between counterparties that have
eligible affiliate counterparty status pursuant to
paragraph (a) of § 50.52 of the CFTC’s rules, which
provides an exception from the clearing
requirement for inter-affiliate swaps, subject to
conditions. Counterparties to a swap that have
eligible affiliate counterparty status may rely on the
§ 36.1(c) even if they clear the swap transaction.
Since the Commission does not have an equivalent
to § 50.52 to reference, the Commission is instead
defining the term ‘‘eligible affiliate counterparties’’
directly in Rule 816(e)(3). These definitions are
closely modeled on the equivalent definitions used
in § 50.52, which are incorporated into § 36.1(c).
314 See ISDA–SIFMA Letter, supra note 18, at 9–
10; SIFMA AMG Letter, supra note 18, at 6.
315 See SIFMA AMG Letter, supra note 18, at 6.
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common in the market for the relevant
types of MAT swaps.’’ 316 The
commenter states that it is for this
reason that particular types of package
transactions addressed by the CFTC
generally focus on transactions common
in the interest-rate swaps market, which
make up the majority of MAT swaps. In
addition, the commenter asserts that the
current state of the CFTC’s rules in this
area reflect the culmination of a phased
implementation approach developed
over time via no-action letters. The
commenter argues that, in light of this,
it would be better for the Commission
to tailor its rules for package
transactions to address the particular
market dynamics relevant to the SBS
market instead of those in the swaps
market. The commenter recommends
that the Commission build into the
MAT determination process a
framework for identifying what types of
package transactions exist for
prospective MAT SBS and then develop
tailored rules around the execution of
such transactions.317
The Commission does not agree that
it is necessary to tailor the
Commission’s rules for package
transactions to address the particular
market dynamics relevant to the SBS
market, because no MAT determinations
for SBS have been made, and no MAT
determinations can yet be made because
no SBS are required to be cleared.
Moreover, the Commission does not yet
have a sufficient basis on which to tailor
the rules for package transactions to
address SBS market dynamics, because
the market dynamics relevant to trading
of SBS on SBSEFs have yet to develop.
It would be preferable to address those
dynamics with respect to package
transactions if and when it becomes
necessary or appropriate to do so,
because, at that point, the Commission
and commenters would be better
informed about the nature of trading
various SBS on SBSEFs. In the
meantime, it is desirable for Rule 816(e)
to be harmonized with § 36.1 of the
CFTC’s rules to promote similar
treatment of package trades, whether
they involve SBS or swaps, as this will
facilitate the participation of current
SEF participants on SBSEFs. If, after
SBSEFs have become operational and
MAT determinations have been made,
the Commission observes that the rules
for package transactions are no longer
suitable for the SBS market, the
Commission could consider amending
Rule 816(e) at that time.
316 ISDA–SIFMA
317 See
Letter, supra note 18, at 9.
ISDA–SIFMA Letter, supra note 18, at 9–
10.
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For the reasons discussed above, the
Commission is adopting Rule 816(e) as
proposed.
G. Rule 817—Trade Execution
Compliance Schedule
Proposed Rule 817 is modeled on
§ 37.12 of the CFTC’s rules, which is
designed to inform market participants
of the precise date on which the trade
execution requirement for a particular
product commences.318 Accordingly,
paragraph (a) of Rule 817 provides that
an SBS transaction shall be subject to
the requirements of section 3C(h) of the
SEA upon the later of (1) a
determination by the Commission that
the SBS is required to be cleared as set
forth in section 3C(a) or any later
compliance date that the Commission
may establish as a term or condition of
such determination or following a stay
and review of such determination
pursuant to section 3C(c) of the SEA and
Rule 3Ca–1 thereunder; and (2) 30 days
after the available-to-trade
determination submission or
certification for that SBS is,
respectively, deemed approved under
Rule 806 or deemed certified under Rule
807. Paragraph (b) of Rule 817 also
provides that a counterparty may
voluntarily comply with the trade
execution requirement sooner than
required by paragraph (a).
The Commission received several
comment letters about the sufficiency of
the time period allotted for compliance
with a MAT determination.319 One
commenter encourages the Commission
to provide an extended duration of time
until any MAT determination becomes
effective so that asset managers and
other market participants have adequate
time to make the necessary operational
and market structure arrangements to
accommodate the trade execution
requirement.320 Another commenter
urges the Commission to ensure that all
SBSEFs and market participants have
adequate time to prepare for the
operational and market conditions that
come along with a MAT
determination.321
Some commenters recommend that a
MAT determination not be effective for
318 Rule 3Ca–1 under the SEA provides that the
Commission may determine, following a
submission from a clearing agency, that an SBS (or
a group, category, type, or class of SBS) must be
cleared. This determination could follow a stay of
the clearing requirement for additional review. 17
CFR 240.3Ca–1.
319 See Bloomberg Letter, supra note 18, at 16; ICI
Letter, supra note 18, at 8–9; ISDA–SIFMA Letter,
supra note 18, at 5, SIFMA AMG Letter, supra note
18, at 7; WMBAA Letter, supra note 18, at 5.
320 See SIFMA AMG Letter, supra note 18, at 7.
321 See WMBAA Letter, supra note 18, at 5.
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87193
at least 90 days.322 One commenter
emphasizes that, after a MAT
determination, market participants
should be provided with sufficient time
to comply with any new trade execution
requirement, and that commenter
believes that market participants would
benefit from 90 days to comply.323
Another commenter, citing its
experience with the MAT requirement,
states that it has observed that 30 days
provides insufficient time to adjust
trading protocols and ensure a smooth
transition to trading on SEFs.324 In this
regard, the commenter asks the
Commission to extend the time between
when a MAT determination is made and
when it becomes effective from the
proposed 30 days to 90 days. The
commenter also asserts that this is
consistent with the recommendations of
the CFTC MRAC report that examined
the appropriateness, efficacy, and
sustainability of the MAT process.
Another commenter also cites the
CFTC MRAC’s report in recommending
that the Commission provide 90 days
after a MAT determination is final
before it becomes effective. This
commenter emphasizes that market
participants will need an adequate
compliance period after a mandatory
clearing determination is made and after
the SBS is first made available to trade
on an SBSEF to prepare. The commenter
expresses concern that, under the
proposed approach, if an SBS is made
available to trade fewer than 30 days
before a mandatory clearing
determination, then the SBS would be
subject to mandatory trading on an
SBEF with a less than 30-day
compliance period. This commenter
urges the Commission to clarify that the
scope of eligible SBS for MAT
determination is limited to only those
that have already been determined to be
subject to mandatory clearing. This
commenter also asserts that, even when
an SBS is already subject to mandatory
clearing, the proposed 30-day
compliance period would still be
inadequate given the complex
operational and technological steps that
must be taken to trade a new SBS on an
SBSEF. The commenter states that
market participants such as regulated
funds will need time to onboard to an
SBSEF if necessary, and to further
update their systems, processes, and
procedures to transact via an SBSEF’s
order book or RFQ system.325
322 See Bloomberg Letter, supra note 18, at 16; ICI
Letter, supra note 18, at 8; ISDA–SIFMA Letter,
supra note 18, at 5.
323 See Bloomberg Letter, supra note 18, at 16.
324 See ISDA–SIFMA Letter, supra note 18, at 5.
325 See ICI Letter, supra note 18, at 3, 8.
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The Commission has considered
commenters’ requests for an extended
compliance period for the mandatory
trading requirement once a MAT
determination has been made with
respect to an SBS. The presence of ready
and willing buyers and sellers and the
number and types of market
participants, among other things, are
relevant factors in a MAT determination
under Rule 816(b).326 As noted above,
the extent to which a MAT
determination is likely to be disruptive
to the market for a given SBS is best
addressed in the context of making the
MAT determination, which, as
discussed above, allows for the
Commission oversight of the
determination through its review and
approval or disapproval of a filing under
Rule 806, or through staying and
seeking public comment on a selfcertification under Rule 807.327 Further,
with respect to the suggestion that the
Commission clarify that the scope of
eligible SBS for MAT determination is
limited to only those that have already
been determined to be subject to
mandatory clearing, a MAT
determination filing would not have any
relevance until there are any SBSs
subject to the clearing requirement.
It is not necessary to revise the 30-day
period for compliance with a MAT
determination, because the readiness of
the market to comply with a MAT
determination for a particular SBS
would be relevant to the MAT
determination itself, including the
analysis of the six factors enumerated in
Rule 816(b), and because an analysis of
that readiness would best be undertaken
based on the facts and circumstances
attending a specific MAT determination.
For the reasons discussed above, the
Commission is adopting Rule 817 as
proposed.
VI. Implementation of Core Principles
Section 3D(d) of the SEA 328 sets forth
14 Core Principles with which SBSEFs
must comply. These provisions, with
one exception, correspond to the 15
Core Principles for SEFs set forth in
section 5h(f) of the CEA.329
Core principle title
CEA #
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Compliance with Core Principles .............................................................................................................................
Compliance with Rules ............................................................................................................................................
(Security-Based) Swaps Not Readily Susceptible to Manipulation .........................................................................
Monitoring of Trading and Trade Processing ..........................................................................................................
Ability to Obtain Information ....................................................................................................................................
Position Limits or Accountability ..............................................................................................................................
Financial Integrity of Transactions ...........................................................................................................................
Emergency Authority ...............................................................................................................................................
Timely Publication of Trading Information ...............................................................................................................
Recordkeeping and Reporting .................................................................................................................................
Antitrust Considerations ...........................................................................................................................................
Conflicts of Interest ..................................................................................................................................................
Financial Resources ................................................................................................................................................
System Safeguards .................................................................................................................................................
Designation of Chief Compliance Officer ................................................................................................................
It continues to be appropriate to
closely harmonize with the CFTC rules
that implement the SEF Core Principles,
although there are some instances where
close harmonization is not practicable.
Where there are substantive differences
between an existing CFTC rule and the
SEC rule being adopted, the discussion
below addresses those differences. The
discussion below will also address
where there is not, or at least there is not
intended to be, a difference between the
SEC rule and the analogous existing
CFTC rule.
Part 37 of the CFTC’s rules includes
an appendix B, setting forth ‘‘Guidance
on, and Acceptable Practices in,
Compliance with Core Principles.’’ The
introduction to appendix B provides
that the guidance for the Core Principle
is illustrative only and ‘‘is not intended
to be used as a mandatory checklist.’’ 330
Where the CFTC has included guidance
and/or accepted practices pertaining to
a Core Principle for SEFs, the discussion
326 See
supra section V.F.3.
supra section V.F.2.
328 15 U.S.C. 78c–4(d).
329 Compare 7 U.S.C. 7b–3(f) (enumerating 15
Core Principles for SEFs), with 15 U.S.C. 78c–4(d)
(enumerating 14 Core Principles for SBSEFs). CEA
327 See
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below addresses how (if at all) the
Commission has incorporated the
substance of these statements into
Regulation SE.
A. Rule 818—Core Principle 1—
Compliance With Core Principles
Core Principle 1 331 requires an
SBSEF, to be registered and maintain
registration as an SBSEF, and to comply
with the Core Principles and any
requirement that the Commission may
impose by rule or regulation. Core
Principle 1 also provides that an SBSEF
shall have reasonable discretion in
establishing the manner in which it
complies with the Core Principles.332
Proposed Rule 818, like § 37.100 of the
CFTC’s rules, repeats the relevant
statutory text of the Core Principle.
The Commission received no
comments on Proposed Rule 818 and is
adopting Rule 818 as proposed for the
reasons stated in the Proposing Release.
Core Principle 6 for SEFs (Position Limits or
Accountability) has no analog in the SEA, so the
numbering of the subsequent Core Principles
between the two statutes differs by one.
330 17 CFR appendix-B-to-part-37 1.
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1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
1
2
3
4
5
n/a
6
7
8
9
10
11
12
13
14
B. Rule 819—Core Principle 2—
Compliance With Rules
Core Principle 2 requires an SBSEF to
establish and enforce compliance with
any rule that is established by the
SBSEF, including the terms and
conditions of the SBS that it trades or
processes, and any limitation on access
to the SBSEF.333 It further requires the
SBSEF to establish and enforce trading,
trade processing, and participation rules
that will deter abuses, and to have the
capacity to detect, investigate, and
enforce those rules, including the means
to provide market participants with
impartial access to the market and to
capture information that may be used in
establishing whether rule violations
have occurred. Finally, Core Principle 2
requires an SBSEF to establish rules
governing the operation of the facility,
including rules specifying trading
procedures to be used in entering and
executing orders traded or posted on the
331 Section 3D(d)(1) of the SEA, 15 U.S.C. 78c–
4(d)(1).
332 CEA Core Principle 1 is substantively
identical. See 7 U.S.C. 7b–3(f)(1).
333 Section 3D(d)(2) of the SEA, 15 U.S.C. 78c–
4(d)(2).
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facility, including block trades. Core
Principle 2 for SEFs 334 is substantively
identical, except that it includes an
additional paragraph requiring a SEF to
provide in its rules that, when a swap
dealer or major swap participant enters
into or facilitates a swap that is subject
to the mandatory clearing requirement,
the swap dealer or major swap
participant shall be responsible for
compliance with the trade execution
requirement.335
As described in the Proposing
Release, the Commission modeled Rules
819 (a) through (g) on subpart C of part
37 of the CFTC’s rules,336 and Rules 819
(h) through (k) on other parts of the
CFTC’s rules.337
1. Rule 819(a)—General
Paragraph (a) of Proposed Rule 819,
like § 37.200 of the CFTC’s rules,338
would repeat the statutory text of Core
Principle 2.339 The Commission did not
receive any comments on Proposed Rule
819(a). It is appropriate to repeat the
statutory text of Core Principle 2 in Rule
819(a) and is adopting Rule 819(a) as
proposed, except that it is deleting the
words ‘‘including block trades,’’ in light
of its decision not to adopt a definition
of ‘‘block trade.’’ 340
2. Rule 819(b)—Operation of SecurityBased Swap Execution Facility and
Compliance With Rules
Paragraph (b) of Proposed Rule 819 is
closely modeled on § 37.201 of the
CFTC’s rules,341 and would require an
SBSEF to specify trading procedures
(including for block trades, if offered)
and to establish and impartially enforce
compliance with the rules of the
SBSEF.342 The Commission did not
receive any comments on Proposed Rule
819(b). It is appropriate for an SBSEF to
specify trading procedures and to
establish and impartially enforce
compliance with its rules, and the
Commission is adopting Rule 819(b) as
proposed, except that it is deleting the
words ‘‘including block trades, if
offered,’’ in light of its decision not to
adopt a definition of ‘‘block trade,’’ 343
which will have no effect on the
334 7
U.S.C. 7b–3(f)(2).
7 U.S.C. 7b–3(f)(2)(D).
336 See Proposing Release, supra note 1, 87 FR at
28901–05.
337 See id. at 28905–09.
338 17 CFR 37.200; see also Proposing Release,
supra note 1, 87 FR at 28901.
339 See Proposing Release, supra note 1, 87 FR at
28902.
340 See supra section V.E.1(c).
341 17 CFR 37.201; see also Proposing Release,
supra note 1, 87 FR at 28901.
342 See Proposing Release, supra note 1, 87 FR at
28902.
343 See supra section V.E.1(c).
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335 See
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requirement as compared to the
proposed rule.
3. Rule 819(c)—Access Requirements
Paragraph (c) of Proposed Rule 819 is
closely modeled on § 37.202 of the
CFTC’s rules,344 and would require an
SBSEF, consistent with section
3D(d)(2)(B)(i) of the SEA,345 to provide
any ECP and any independent software
vendor with impartial access to its
market(s) and market services, including
any indicative quote screens or any
similar pricing data displays. An SBSEF
will also be required to establish
nondiscriminatory fee structures for
ECPs and independent software vendors
based on the level of access to or
services provided by the SBSEF. Rule
819 further requires an SBSEF to
establish and impartially enforce rules
governing any decision to allow, deny,
suspend, or permanently bar an ECP’s
access to the SBSEF, including when a
decision is made as part of a
disciplinary or emergency action taken
by the SBSEF.
Several commenters express general
support for the adoption of impartial
access standards for SBSEFs.346 One
commenter specifically supports the
Commission’s close harmonization with
CFTC rules.347
One commenter expresses support for
Proposed Rule 819(c), but states that the
Commission’s proposal does not
provide market participants with
sufficient clarity regarding how
Proposed Rule 819(c) will be interpreted
and applied in practice, and the
commenter encourages the Commission
to provide in the final rule that access
to SBSEFs should be based on
‘‘objective, pre-established’’ criteria, and
that any ECP should be able to
demonstrate financial soundness by
showing that it is a clearing member or
that it has clearing arrangements in
place with a clearing member.348
This commenter states that the CFTC
has provided market participants with
extensive guidance regarding impartial
access and encourages the Commission
to provide similar clarity when
finalizing the SBSEF rules, including
guidance with respect to membership
344 17 CFR 37.202; see also Proposing Release,
supra note 1, 87 FR at 28901.
345 15 U.S.C. 78c–4(d)(2)(B)(i) (‘‘a security-based
swap execution facility shall . . . establish and
enforce trading, trade processing, and participation
rules that will deter abuses and have the capacity
to detect, investigate, and enforcement those rules,
including means . . . to provide market
participants with impartial access to the market’’).
346 See Citadel Letter, supra note 18, at 6–7;
SIFMA AMG Letter, supra note 18, at 4; MFA
Letter, supra note 18, at 10.
347 See MFA Letter, supra note 18, at 10.
348 See Citadel Letter, supra note 18, at 6–7.
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criteria, trading protocols and
functionality, and fee arrangements.
Specifically, this commenter urges the
Commission to provide in the final rule
that an SBSEF may not limit
membership to (i) self-clearing
members; (ii) registered security-based
swap dealers; (iii) banks or liquidity
providers with a minimum amount of
Tier 1 capital; (iv) liquidity providers
that have been ‘‘enabled’’ by, or have
bilateral documentation with, a
minimum number of other liquidity
providers; or (v) liquidity providers
with a minimum amount of transaction
volume.349
This commenter also states that
SBSEFs should not be permitted to
apply trading protocols in a manner that
results in impermissible discrimination
among market participants. Specifically,
the commenter states that SBSEFs
should not allow participants to
selectively restrict their trading with
other SBSEF participants through
‘‘enablement mechanisms’’; that market
participants should be permitted to act
as both liquidity providers and liquidity
takers on an SBSEF; that all SBSEF
participants should be permitted to both
send and receive RFQs (instead of only
designated liquidity providers being
eligible to receive RFQs); and that
SBSEFs should not be permitted to
require participants to have bilateral
documentation in place to trade cleared
security-based swaps, as this could
provide a pretext for some participants
to restrict trading with other
participants. This commenter further
states that SBSEFs should not be
permitted to use fee arrangements to
effect otherwise impermissible
discrimination with respect to access.350
Another commenter also urges the
Commission to incorporate the CFTC’s
impartial access requirement guidance
with respect to SBSEFs, which would
assist market participants in interpreting
how the impartial access rules should
work. Coordination of impartial access
‘‘not only affects an entity operating
both an SEF and SBSEF but also their
clients, many of whom use the same
individual traders to trade both
instrument types.351 One commenter
specifically encourages the Commission
to address the potential use of restrictive
requirements to obtain access to SBSEFs
and to make clear that an SBSEF’s
reasonable discretion in establishing
access criteria must be impartial,
349 See
Citadel Letter, supra note 18, at 6–7.
id.
351 See MFA Letter, supra note 18, at 10.
350 See
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transparent, and applied in a fair and
nondiscriminatory manner.352
One commenter states that the trading
documentation requirement of Rule
15Fi-5 may at times conflict with the
impartial access requirement of
Proposed Rule 819(c) because it is
unlikely that all SBSEF members
trading cleared swaps will have trading
relationship documentation with all
other members trading cleared SBS.353
This commenter encourages the
Commission to adopt the CFTC
guidance regarding enablement
mechanisms and states that such
mechanisms were historically used to
eliminate credit risk, but that no such
risk exists if an SBSEF intended to be
cleared is void ab initio if rejected for
clearing.
The Commission agrees with
commenters that impartial access to an
SBSEF encompasses both impartial
access to membership in an SBSEF and
the ability to fully interact on the
SBSEF’s order book or RFQ system, and
that an SBSEF’s rules must incorporate
impartial criteria for this access. The
Commission expects that most, if not
all, entities that will seek SBSEF
registration with the SEC are or will also
be registered as SEFs with the CFTC and
that ensuring consistency of access to
SBSEFs and SEFs will provide market
participants with greater certainty about
permissible practices regarding access to
these platforms.354 Efforts to undermine
the principle of impartial access may
take myriad forms over time. The text of
Rule 819(c) is consistent with the text of
§ 37.202 of the CFTC’s regulations and
emphasizes the general principal that
access to an SBSEF and its services
must be impartial. The Commission
does not find it necessary to describe
within 819(c) specific practices that
would violate its requirements. For the
purposes of the Commission’s review
process for a denial or limitation of
access or membership that is
inconsistent with Rule 918(c), the
Commission will apply a standard of
review consistent with standards of
review that the Commission uses in
similar contexts.355
The Commission is aware of the CFTC
staff guidance on impartial access
related to § 37.202 of the CFTC’s
352 See
SIFMA AMG Letter, supra note 18, at 4.
Bloomberg Letter, supra note 18, at 3–4.
354 See Proposing Release, supra note 1, 87 FR at
28876.
355 See Rule 819(c)(4). The Commission is
adopting Rule 819(c) with the addition of paragraph
(c)(4). The Commission notes that the CFTC has a
standard of review applicable to its process. See 17
CFR 9.2(c); 17 CFR 9.33(c).
353 See
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regulations.356 The Commission finds it
is appropriate to similarly provide
guidance as to certain criteria or
practices that are inconsistent with Rule
819(c)’s requirement to provide
impartial access. The Commission
agrees that it is inconsistent with
providing impartial access for an SBSEF
to limit membership based on an ECP’s
status, such as by limiting membership
to (1) self-clearing members; (2)
registered security-based swap dealers;
(3) banks or liquidity providers with a
minimum amount of Tier 1 capital; (4)
liquidity providers that have been
‘‘enabled’’ by, or have bilateral
documentation with, a minimum
number of other liquidity providers; or
(5) liquidity providers with a minimum
amount of transaction volume.357
Access to an SBSEF generally should be
determined, for example, on an SBSEF’s
‘‘impartial evaluation of an applicant’s
disciplinary history and financial and
operational soundness against objective,
pre-established criteria.’’ 358 As one
example of such criteria, any ECP
should be able to demonstrate financial
soundness either by showing that it is
a clearing member of a clearing agency
that clears products traded on that
SBSEF or by showing that it has clearing
arrangements in place with such a
clearing member.359
Further, providing impartial access as
required by Proposed Rule 819(c) means
providing all of an SBSEF’s market
participants—dealers and non-dealers
alike—with the ability to fully interact
on the order book or RFQ system as
liquidity providers, liquidity takers, or
both, including viewing, placing, or
responding to all indicative or firm bids
and offers and to place, receive, and
respond to RFQs. Therefore, it would be
incompatible with impartial access for
an SBSEF’s rules to permit mechanisms,
schemes, functionalities, counterparty
filters, or other arrangements that
356 See Division of Clearing and Risk, Division of
Market Oversight and Division of Swap Dealer and
Intermediary Oversight Guidance on Application of
Certain Commission Regulations to Swap Execution
Facilities, CFTC (Nov. 14, 2013), available at
https://www.cftc.gov/sites/default/files/idc/groups/
public/@newsroom/documents/file/
dmostaffguidance111413.pdf.
357 See Citadel Letter, supra note 18, at 6.
Membership requirements based on any
combination of these factors would similarly be
inconsistent with providing impartial access.
358 See 2013 CFTC Final SEF Rules Release, supra
note 9, at 78 FR at 33598 (discussing ‘‘impartial
access’’ to swap execution facilities).
359 See id. Similarly, it is not consistent with
impartial access for an SBSEF to require that an
ECP have clearing arrangements in order to trade
security-based swaps that are not intended to be
cleared. In such a case, the SBSEF’s standards of
financial soundness should be objective and
impartial and should have a relevant relationship
to trading on the SBSEF.
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prevent an SBSEF participant from
interacting or trading with, or viewing
the bids and offers (firm or indicative)
displayed by, any other market
participant on that SBSEF, whether by
means of any condition or restriction on
its ability or authority to display a quote
to any other market participant or to
respond to any quote issued by any
other market participant on that SBSEF
with respect to security-based swap
transactions that are intended to be
cleared.
It is also inconsistent with impartial
access for an SBSEF’s rules to require
bilateral documentation or to permit
bilateral enablements in order to trade
security-based swaps that are intended
to be cleared, because providing for
such documentation or enablements
solely to address occasional trade
rejections by a clearing agency would
undercut the ability of all ECPs to post
or interact with interest on securitybased swaps that are intended to be
cleared, and because such
documentation or enablements are
unnecessary in light of the provisions of
Rule 815(g), which, as discussed supra
section V.E.7, would require an SBSEF’s
rules to provide that a trade that is
intended to be cleared at the time of the
transaction, but is not accepted for
clearing by a registered clearing agency,
is void ab initio. Providing that such
trades are void ab initio also reflects the
economic reality that an uncleared
transaction is significantly different
from a cleared transaction in terms of
the credit risk faced by the
counterparties. Lastly, it is inconsistent
with impartial access for an SBSEF to
employ fee structures that would have
a disproportionate or adverse effect on
certain market participants based on
their status, as described above,360 with
respect to the ability to fully interact on
the order book or RFQ system as
liquidity providers, liquidity takers, or
both, including viewing, placing, or
responding to all indicative or firm bids
and offers and to place, receive, and
respond to RFQs.
With respect to the comment that the
documentation requirements of Rule
15Fi–5 may, at times, conflict with the
impartial access requirement of
Proposed Rule 819(c), no such conflict
exists, because Rule 15Fi–5(a)(1)(ii)
provides that the rule does not apply to
cleared swaps, and Rule 15Fi(a)(1)(iii)
further provides that the rule does not
apply to security-based swap
transactions executed anonymously on
an SBSEF or a national securities
360 See
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4. Rule 819(d)—Rule Enforcement
Program
Paragraph (d) of Proposed Rule 819 is
closely modeled on § 37.203. Paragraph
(d)(1) of Proposed Rule 819 would
require an SBSEF to prohibit abusive
trading practices generally, enumerating
certain practices in particular.362
Paragraph (d)(2) would require an
SBSEF to have arrangements and
resources for effective enforcement of its
rules, including the authority to collect
information and documents on both a
routine and non-routine basis and to
supervise its market to determine
whether a rule violation has occurred.
Paragraph (d)(3) would require an
SBSEF to establish and maintain
sufficient compliance staff and
resources to ensure that it can conduct
effective audit trail reviews, trade
practice surveillance, market
surveillance, and real-time market
monitoring. Paragraph (d)(4) would
require an SBSEF to maintain an
automated trade surveillance system
that meets certain criteria. Paragraph
(d)(5) would require real-time market
monitoring of all trading activity on the
SBSEF. The SBSEF would also be
required to have the authority to adjust
trade prices or cancel trades when
necessary to mitigate market disrupting
events caused by malfunctions in its
system(s) or platform(s) or errors in
orders submitted by members.
Paragraph (d)(6) is modeled on
§ 37.203(f), again using the same
structure and rule text. Like § 37.203(f),
Rule 819(d)(6) addresses investigations
and investigation reports and includes
provisions relating to procedures,
timeliness, the reporting requirements
when a reasonable basis does or does
not exist for finding a violation, and
warning letters.363
361 See 17 CFR 240.15Fi–5(a)(1)(ii) and (iii). Rule
15Fi–5(a)(1)(iii) provides in part that SBSs executed
anonymously on an SEF or a national securities
exchange are exempt from the provisions of Rule
15Fi–5, provided that: (1) the SBSs are intended to
be cleared and are actually submitted for clearing
to a clearing agency; (2) all terms of the SBSs
conform to the rules of the clearing agency; and (3)
upon acceptance of such an SBS by the clearing
agency the original SBS is extinguished; the original
SBS is replaced by equal and opposite SBS with the
clearing agency; and all terms of the SBS conform
to the product specifications of the cleared SBS
established under the clearing agency’s rules. See
17 CFR 240.15Fi–5(a)(1)(iii).
362 To promote uniformity throughout proposed
Regulation SE, it is appropriate to denote all
persons who have a right to participate in an
SBSEF’s market as ‘‘members.’’
363 Rule 819(d)(6)(v) provides that the rules of an
SBSEF may authorize its compliance staff to issue
a warning letter to a person or entity under
investigation or to recommend that a disciplinary
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The Commission did not receive any
comments on Rule 819(d) and is
adopting Rule 819(d) as proposed,
except that, in light of its decision not
to adopt a definition of ‘‘block
trade,’’ 364 the Commission is deleting
the words ‘‘block trades or other types
of’’ from the phrase ‘‘pre-arranged
trading (except for block trades or other
types of transactions approved by or
certified to the Commission pursuant to
§ 242.806 or § 242.807, respectively).’’
While the deletion of this text would
remove an automatic exemption for
block trades from the prohibition
against pre-arranged trading that an
SBSEF’s rules would be required to
include, it is appropriate given that a
definition of block trade has not been
adopted. At such time as the
Commission adopts a definition of block
trade, an SBSEF could submit a rule
change under Rule 806 or Rule 807 to
address trades that meet the definition
of block trade.
5. Rule 819(e)—Regulatory Services
Provided by a Third Party
Paragraph (e) of Proposed Rule 819 is
modeled on § 37.204 and would allow
an SBSEF to contract with a regulatory
services provider. If it does so, the
SBSEF would have to ensure that such
provider has the capacity and resources
necessary to provide timely and
effective regulatory services, retain
sufficient compliance staff to supervise
the quality and effectiveness of the
regulatory services provided on its
behalf, hold regular meetings with the
regulatory service provider, and conduct
periodic reviews of the adequacy and
effectiveness of services provided on its
behalf. The SBSEF would at all times
remain responsible for the performance
of any regulatory services received and
retain exclusive authority in all
substantive decisions made by its
regulatory service provider.
One commenter states that SBSEFs
should be able to use regulatory service
providers and that the types of
regulatory service providers permitted
under Proposed Rule 819(e)(1) are
appropriate.365 Another commenter also
supports the use of regulatory service
providers but believes that the
Commission should include DCMs
among the types of entities permitted to
act as regulatory service providers, as
they are ‘‘uniquely qualified’’ and are
permitted to act as regulatory service
panel take such an action, and that no more than
one warning letter could be issued to the same
person or entity found to have committed the same
rule violation within a rolling 12-month period.
364 See supra section V.E.1(c).
365 See Bloomberg Letter, supra note 18, at 16.
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provider under the CFTC SEF regime.366
This commenter states that DCMs have
well-established regulatory protocols
and are subject to CFTC oversight,
conduct regulatory activities similar to
registered futures associations, have
developed expertise in securities
markets, and are permitted to list
futures on individual stocks and to list
swap contracts for trading.367
The Commission agrees that SBSEFs
should be able to contract with DCMS
for the provision of regulatory services.
As the commenter states, DCMs have
well-established regulatory protocols
and are subject to CFTC oversight, and
they are permitted to act as regulatory
service providers for SEFs.
Additionally, permitting an SBSEF to
use the same regulatory service provider
as an affiliated SEF may create
efficiencies for both the SBSEF and SEF,
while maintaining regulatory oversight
of the entity that is providing the
regulatory services. While the CFTC’s
regulation for SEFs does not contain a
reciprocal provision permitting national
securities exchanges to perform
regulatory services for SEFs,
harmonization in practical terms with
this aspect of the CFTC regime—i.e., so
that DCMs can perform regulatory
services for both SBSEFs and SEFs—is
appropriate in light of the relative size
of the SBSEF market compared to the
swaps market and because most if not
all entities that will seek to register as
SBSEFs are already registered as SEFs.
Significantly, regardless of the type of
entity acting as regulatory service
provider for an SBSEF, the SBSEF will
at all times remain responsible for the
performance of any regulatory services
received and retain exclusive authority
in all substantive decisions made by its
regulatory service provider.
Accordingly, the Commission is
adopting Rule 819(e) as amended to
permit SBSEFs to contract with DCMs
for the provision of services to assist in
complying with the SEA and
Commission rules thereunder, as
approved by the Commission.368
6. Rule 819(f)—Audit Trail
Paragraph (f) of Proposed Rule 819 is
modeled on § 37.205, using the same
paragraph structure and rule text.
Paragraph (f) would require an SBSEF to
366 See
ICE Letter, supra note 18, at 3.
id. at 3–4 (also stating that, for example,
ICE Futures U.S., Inc. is a DCM that provides
regulatory services to SEFs).
368 Specifically, the Commission is adding to Rule
819(e) the language ‘‘a board of trade designated as
a contract market (under section 5 of the
Commodity Exchange Act)’’—in other words, a
DCM—to the list of entities with which an SBSEF
may enter into a contract for the provision of
regulatory services.
367 See
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capture and retain all audit trail data
necessary to detect, investigate, and
prevent customer and market abuses,
and imposes other requirements on the
SBSEF’s audit trail pertaining to the
records that must be kept, electronic
analysis capability, safe-storage
capability, and enforcement of the audit
trail requirements.
The Commission did not receive any
comments on Proposed Rule 819(f). An
audit trail is a crucial component of a
trading venue’s ability to ensure
compliance with its rules. These
requirements should be modeled on the
parallel CFTC regulations regarding
SEFs, as most, if not all, entities that
will register as SBSEFs will be SEFs
registered with the CFTC, and that
consistent requirements will promote a
consistent approach to compliance.
Accordingly, the Commission is
adopting Rule 819(f) as proposed, with
minor technical modifications.369
7. Rule 819(g)—Disciplinary Procedures
and Sanctions
Paragraph (g) of Proposed Rule 819 is
based on § 37.206 of the CFTC’s rules
and generally tracks all of its rule text
but would include additional language
derived from guidance in appendix B of
part 37 of the CFTC’s rules. Converting
the guidance to rule text, and thus
grouping conceptually related items
together, yields the most coherent and
readable ruleset, instead of
incorporating the guidance into a standalone section of the rules. Accordingly,
paragraph (g)(1)(i) of Proposed Rule 819
is taken from § 37.206(a) and would
require an SBSEF to establish and
maintain sufficient enforcement staff
and resources to effectively and
promptly prosecute possible rule
violations within the disciplinary
jurisdiction of the SBSEF. Paragraphs
(g)(1)(ii) through (iv) are taken from the
appendix B guidance and would
provide, respectively, that:
• The enforcement staff of an SBSEF
shall 370 not include members or other
persons whose interests conflict with
their enforcement duties.
• A member of the enforcement staff
shall not operate under the direction or
control of any person or persons with
trading privileges at the SBSEF.
• The enforcement staff of an SBSEF
may operate as part of the SBSEF’s
compliance department.
369 The Commission has corrected a reference to
Core Principle 9 and corrected the phrase
‘‘account(s) owner(s)’’ to read ‘‘account’s owner(s).’’
370 In this bullet and the next bullet, the word
used in the corresponding CFTC guidance was
‘‘should,’’ but the Commission proposed to replace
‘‘should’’ with ‘‘shall’’ in both places to convert the
guidance into an enforceable rule.
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Paragraph (g)(2) of Rule 819 is
modeled on § 37.206(b) and would
require an SBSEF to establish one or
more disciplinary panels that are
authorized to fulfill their obligations
under Proposed Rule 819. Section
37.206(b) provides that disciplinary
panels must meet the composition
requirements of part 40. To help ensure
fairness and prevent special treatment
or preference of any person or member
and to provide for consistency in the
makeup of members of SBSEF major
disciplinary committees and hearing
panels, the Commission proposed
instead to require the disciplinary
panels established under Proposed Rule
819(g)(2) to meet the composition
requirements of Rule 834(d), which
apply to each major disciplinary
committee and hearing panel of an
SBSEF.371
Paragraphs (g)(3) through (8) of
Proposed Rule 819 have no parallel in
§ 37.206 itself but derive from the
guidance in appendix B pertaining to
§ 37.206, following the paragraph
structure and wording of the guidance
closely. Paragraph (g)(3) would impose
procedural requirements relating to the
notice of charges made to a respondent.
Paragraph (g)(4) would provide that a
respondent has a right to representation.
Paragraph (g)(5) would provide that a
respondent must be given adequate time
to respond to any charges. Paragraph
(g)(6) would state that the rules of an
SBSEF may provide that, if a respondent
admits or fails to deny any of the
charges, a disciplinary panel may find
that the violations alleged in the notice
of charges have been committed.
Paragraph (g)(6) would further state that,
if the SBSEF’s rules so provide, then: (i)
The disciplinary panel may impose a
sanction for each violation found to
have been committed; (ii) The
disciplinary panel shall promptly notify
the respondent in writing of any
sanction to be imposed and shall advise
the respondent that the respondent may
request a hearing on such sanction
within the period of time, which shall
be stated in the notice; and (iii) The
rules of the SBSEF may provide that, if
a respondent fails to request a hearing
within the period of time stated in the
371 Proposed Rule 834(d) would require each
SBSEF and SBS exchange to ensure that its
disciplinary processes preclude any member, or
group or class of its members, from dominating or
exercising disproportionate influence on the
disciplinary process, and that each major
disciplinary committee or hearing panel include
sufficient different groups or classes of its members
so as to ensure fairness and to prevent special
treatment or preference for any person or member
in the conduct of the responsibilities of the
committee or panel. See infra section VIII.
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notice, the respondent will be deemed
to have accepted the sanction.
Paragraph (g)(7) of Proposed Rule 819
would provide that, where a respondent
has requested a hearing on a charge that
is denied, or on a sanction set by the
disciplinary panel, the respondent shall
be given an opportunity for a hearing in
accordance with the rules of the SBSEF.
Paragraph (g)(8) would address
settlement offers.
Paragraph (g)(9) of Proposed Rule 819
returns to the text of § 37.206(c) for
provisions regarding hearings.
Paragraph (g)(9)(i) is modeled on
§ 37.206(c)(1) and would require an
SBSEF to have rules requiring a hearing
to be fair, conducted before members of
the disciplinary panel, and promptly
convened after reasonable notice to the
respondent. The Commission proposed
an additional provision, which derives
from the guidance, that an SBSEF need
not apply the formal rules of evidence
for a hearing; nevertheless, the
procedures for the hearing may not be
so informal as to deny a fair hearing.
Paragraphs (g)(9)(ii) through (vi) of
Proposed Rule 819 are also adapted
from the guidance in appendix B of part
37. Paragraph (g)(9)(ii) would bar a
member of the disciplinary panel for the
hearing from having a financial,
personal, or other direct interest in the
matter under consideration. Paragraph
(g)(9)(iii) would address the
respondent’s access to evidence in the
SBSEF’s possession. Paragraph (g)(9)(iv)
would provide that the SBSEF’s
enforcement and compliance staffs
shall 372 be parties to the hearing, and
the enforcement staff shall present their
case on those charges and sanctions that
are the subject of the hearing. Paragraph
(g)(9)(v) would provide that the
respondent shall be entitled to appear
personally at the hearing, to crossexamine any persons appearing as
witnesses at the hearing, to call
witnesses, and to present such evidence
as may be relevant to the charges.
Paragraph (g)(9)(vi) would provide that
the SBSEF shall require persons within
its jurisdiction who are called as
witnesses to participate in the hearing
and produce evidence.
Paragraph (g)(9)(vii) of Proposed Rule
819 is modeled on the text of
§ 37.206(c)(2) and would require that, if
the respondent has requested a hearing,
a copy of the hearing shall be made and
shall become a part of the record of the
proceeding. Paragraph (g)(9)(vii) would
not require the record to be transcribed
372 The CFTC’s guidance in appendix B that is
adapted into paragraphs (g)(9)(ii) through (vi) of
Proposed Rule 819 uses the word ‘‘should’’ here
and in other similar instances. The Commission
uses the word ‘‘shall’’ in such instances instead.
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unless the transcript is requested by
Commission staff or the respondent, the
decision is appealed pursuant to the
rules of the SBSEF, or the decision is
reviewed by the Commission pursuant
to § 201.442.373 In all other instances, a
summary record of a hearing is
permitted.
Paragraph (g)(10) of Proposed Rule
819 is modeled on § 37.206(d) and
would provide that, promptly following
a hearing conducted in accordance with
the rules of the SBSEF, the disciplinary
panel shall render a written decision
based upon the weight of the evidence
contained in the record of the
proceeding and shall provide a copy to
the respondent. The written decision
must include six enumerated elements,
all of which are closely modeled on
those in § 37.206(d).
Paragraph (g)(11) of Proposed Rule
819 would address emergency
disciplinary actions and is drawn from
the guidance in appendix B of part 37.
It would provide that an SBSEF may
impose a sanction, including
suspension, or take other summary
action against a person or entity subject
to its jurisdiction upon a reasonable
belief that such immediate action is
necessary to protect the best interest of
the market place. Furthermore, any
emergency disciplinary action would
have to be taken in accordance with an
SBSEF’s procedures that provide for
notice (if practicable), rights for
representation in all proceedings, an
opportunity for a hearing as soon as
reasonably practicable, and the
rendering of a written decision
promptly following the hearing based
upon the weight of the evidence
contained in the record. Proposed Rule
819(g)(11) would seek to balance the
need to allow an SBSEF to take
summary action against the need to
afford due process to respondents.374
Paragraph (g)(12) of Proposed Rule
819 also is drawn from the appendix B
guidance and would provide that, if the
rules of the SBSEF permit appeals,375
373 See infra section XIV.E (discussing Rule 442,
which establishes the right to appeal to the
Commission certain actions taken by an SBSEF and
sets out certain procedural matters relating to any
such appeal).
374 Compare Proposed Rule 819(g)(11)(i)
(allowing an SBSEF to impose a sanction, including
suspension, or take other summary action against a
person or entity subject to its jurisdiction upon a
reasonable belief that such immediate action is
necessary to protect the best interest of the market
place), with Proposed Rule 819(g)(11)(ii)(A)
(providing that, if practicable, a respondent should
be served with a notice before the action is taken,
or otherwise at the earliest possible opportunity).
375 Neither § 37.206 nor the associated guidance
from appendix B requires a SEF to allow appeals.
The guidance states, rather, that a SEF’s rules ‘‘may
permit’’ appeals and includes certain procedural
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the SBSEF shall establish an appellate
panel that is authorized to hear appeals.
The composition of the panel would
have to be consistent with Rule
834(d) 376 and could not include any
members of the SBSEF’s compliance
staff or any person involved in
adjudicating any other stage of the same
proceeding. Promptly following the
appeal or review proceeding, the
appellate panel would be required to
issue a written decision and to provide
a copy to the respondent. As to the
Commission’s process of reviewing
disciplinary actions, the Commission
will apply a standard of review
consistent with standards of review that
the Commission uses in similar
contexts.377
Paragraph (g)(13) of Proposed Rule
819 is adapted partly from § 37.206(e)
and partly from the appendix B
guidance. Paragraph (g)(13)(i) is drawn
from § 37.206(e) and would provide that
all disciplinary sanctions imposed by an
SBSEF or its disciplinary panels shall be
commensurate with the violations
committed and shall be clearly
sufficient to deter recidivism or similar
violations by other members. All
disciplinary sanctions, including
sanctions imposed pursuant to an
accepted settlement offer, would have to
take into account the respondent’s
disciplinary history. In the event of
demonstrated customer harm, any
disciplinary sanction would have to
include full customer restitution, except
where the amount of restitution or to
whom it should be provided cannot be
reasonably determined. Paragraph
(g)(13)(i) is adapted from the appendix
B guidance and would allow an SBSEF
to adopt a summary fine schedule for
violations of rules relating to the failure
to timely submit accurate records
required for clearing or verifying each
day’s transactions.
The Commission received no
comments on Proposed Rule 819(g) and,
apart from the addition of paragraph
(g)(14) regarding Commission review,378
is adopting Rule 819(g) as proposed for
the reasons stated in the Proposing
Release.
8. Rule 819(h)—Activities of SecurityBased Swap Execution Facility’s
Employees, Governing Board Members,
Committee Members, and Consultants
Paragraph (h) of Proposed Rule 819
would generally prohibit persons who
are employees of an SBSEF, or who
otherwise might have access to
confidential information because of
their role with the SBSEF, from
improperly utilizing that information.
Proposed Rule 819(h) is modeled on
§ 1.59 of the CFTC’s rules, which
requires a SEF (among other CFTCregulated entities) to place restrictions
on trading by its governing board
members, committee members,
consultants, and employees and to
prohibit any such person from
disclosing any material, non-public
information obtained as a result of their
official duties with the SRO.
Paragraph (h)(2)(i) of Proposed Rule
819 would require an SBSEF to
maintain in effect rules that, at a
minimum, prohibit an employee of the
SBSEF from trading, directly or
indirectly, any ‘‘covered interest.’’
Proposed Rule 819(h)(1)(i) would define
‘‘covered interest’’ to mean, with respect
to an SBSEF: an SBS that trades on the
SBSEF; a security of an issuer that has
issued a security that underlies an SBS
that is listed on the SBSEF; or a
derivative based on a security that falls
within the immediately preceding
prong. The opportunity to observe order
submission and trading in an SBS on an
SBSEF could yield material non-public
information about the future
performance not just of that SBS, but of
all securities issued by that entity.379
Paragraph (h)(2)(ii), modeled on
§ 1.59(b)(1)(ii), would prohibit an
SBSEF employee from disclosing to any
other person any material non-public
information that the employee obtains
as a result of their employment at the
SBSEF, and where the employee has or
should have a reasonable expectation
that the information disclosed may
assist another person in trading any
covered interest. In addition, paragraph
(h)(2)(ii), like § 1.59(b)(1)(ii), would
provide an exception for disclosures
made in the course of an employee’s
duties, or disclosures made to another
SBSEF, court of competent jurisdiction,
or representative of any agency or
department of the Federal or State
requirements only if the rules of a swap execution
facility permit appeals. The Commission adhered to
this permissive approach in the proposal but sought
comment on whether the final rules should require
an SBSEF to create an appeals procedure.
376 See infra section VIII.D.
377 See Rule 819(g)(14); see also supra note 355.
378 See supra note 377 and accompanying text.
379 The single-name CDS market, in particular, is
a market for assessing the creditworthiness of
particular issuers. Non-public information derived
from activity on the SBSEF pertaining to the
market’s assessment of an issuer’s creditworthiness
is likely to be material to the markets for that
issuer’s cash securities as well as to markets for
derivatives based on the issuer’s cash securities
(e.g., single-stock options).
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government acting in their official
capacity.
Paragraph (h)(3) of Proposed Rule
819, modeled on § 1.59(b)(2), would
allow an SBSEF to adopt rules setting
forth circumstances under which
exemptions from the employee trading
prohibition may be granted. In
particular, paragraph (h)(3) would
include the following possible carveouts from the employee trading
prohibition: (1) participation by an
employee in a ‘‘pooled investment
vehicle’’ where the employee has no
direct or indirect control with respect to
transactions executed for or on behalf of
such vehicle; (2) trading by an employee
in a derivative based on such a pooled
investment vehicle; (3) trading by an
employee in a derivative based on an
index in which no covered interest
constitutes more than 10% of the index;
and (4) trading by an employee under
circumstances enumerated in rules
which the SBSEF determines are not
contrary to applicable law, the public
interest, or just and equitable principles
of trade.380
The first and the fourth carve-outs
listed above are comparable to those
listed in § 1.59(b)(2). The Commission
proposed to include the second and
third carve-outs to permit an SBSEF
employee to trade derivatives that
provide indirect exposure to a covered
interest where the exposure to the
covered interest is sufficiently
diluted.381 In such cases, it would be
unlikely that the employee would be
using material non-public information
about the covered interest to gain an
unfair advantage when trading the
derivative. The Commission proposed to
depart from the CFTC definition of
‘‘pooled investment vehicle’’ 382 to
adapt it for the SBS and securities
markets. Rule (h)(1)(ii) defines ‘‘pooled
investment vehicle’’ to mean an
380 The first and the fourth carve-outs listed above
are comparable to those listed in § 1.59(b)(2). The
Commission proposed to include the second and
third carve-outs to permit an SBSEF employee to
trade derivatives that provide indirect exposure to
a covered interest where the exposure to the
covered interest is sufficiently diluted. In such
cases, it would be unlikely that the employee would
be using material non-public information about the
covered interest to gain an unfair advantage when
trading the derivative.
381 See Proposing Release, supra note 1, 87 FR at
28905.
382 See § 1.59(a)(10) (defining ‘‘pooled investment
vehicle’’ to mean ‘‘a trading vehicle organized and
operated as a commodity pool within the meaning
of § 4.10(d) of this chapter, and whose units of
participation have been registered under the
Securities Act of 1933, or a trading vehicle for
which § 4.5 of this chapter makes available relief
from regulation as a commodity pool operator, i.e.,
registered investment companies, insurance
company separate accounts, bank trust funds, and
certain pension plans’’).
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investment company registered under
the Investment Company Act of 1940 in
which no covered interest constitutes
more than 10% of the investment
company’s assets. Thus, under this
definition, if an SBSEF were to list a
single-name CDS on company XYZ, a
‘‘pooled investment vehicle’’ would
include a broad-based mutual fund or
ETF that contains a security issued by
company XYZ, assuming that the XYZ
security does not exceed 10% of the
fund’s holdings. The 10% limit on a
covered interest’s composition of the
fund is designed to permit SBSEF
employees to trade most index-based
mutual funds and ETFs that contain
covered interests, except those where a
component of the fund becomes
sufficiently large that material nonpublic information about an issuer
derived from activity on the SBSEF
could provide an unfair advantage to an
SBSEF employee when trading that
fund.
Finally, under Proposed Rule
819(h)(3)—as with § 1.59(b)(2)—the
exemptions from the trading restrictions
would not be automatically available to
SBSEF employees. Proposed Rule
819(h)(3) would still require the SBSEF
to adopt rules that set forth
circumstances under which exemptions
from the trading prohibition may be
granted. Furthermore, Proposed Rule
819(h)(3), which is modeled on
§ 1.59(b)(2), would state that any
exemption must be administered by the
SBSEF ‘‘on a case-by-case basis.’’
Paragraph (h)(4) of Proposed Rule
819, like § 1.59(d), would address
prohibited conduct not just by
employees of an SBSEF, but also of
governing board members, committee
members, and consultants of the SBSEF.
Paragraph (h)(4)(i)(A) is modeled on
§ 1.59(d)(1)(i) and would prohibit any
employee, governing board member,
committee member, or consultant of the
SBSEF from trading for their own
account, or for or on behalf of any other
account, in any covered interest on the
basis of any material, non-public
information obtained through special
access related to the performance of
their official duties as an employee,
governing board member, committee
member, or consultant. Paragraph
(h)(4)(i)(B), modeled on § 1.59(d)(1)(ii),
would prohibit any employee,
governing board member, committee
member, or consultant of the SBSEF
from disclosing for any purpose
inconsistent with the performance of
their official duties as an employee,
governing board member, committee
member, or consultant any material,
non-public information obtained
through special access related to the
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performance of those duties. Paragraph
(h)(4)(ii), modeled on § 1.59(d)(2),
would provide that no person shall
trade for their own account, or for or on
behalf of any other account, in any
covered interest on the basis of any
material, non-public information that
the person knows was obtained in
violation of paragraph (h)(4) of this
section from an employee, governing
board member, committee member, or
consultant.
The Commission received no
comments on Proposed Rule 819(h) and
is adopting Rule 819(h) as proposed,
with minor technical modifications,383
for the reasons stated in the Proposing
Release.
9. Rule 819(i)—Service on SecurityBased Swap Execution Facility Boards
or Committees by Persons With
Disciplinary Histories
Paragraph (i) of Proposed Rule 819
would bar persons with specified
disciplinary histories from serving on
the governing board or committees of an
SBSEF and would impose certain other
duties on the SBSEF associated with
that fundamental requirement. Rule
819(i) is modeled on § 1.63 of the
CFTC’s rules, which imposes similar
requirements in connection with SEFs
and certain other entities.
Paragraph (i) of Proposed Rule 819 is
closely modeled on § 1.63. Paragraph
(i)(1), like § 1.63(b), would require an
SBSEF to maintain rules 384 that render
a person ineligible to serve on its
disciplinary committees,385 arbitration
383 See
supra note 32.
1.63(b), in relevant part, requires a
SEF to maintain rules that have been submitted to
the CFTC pursuant to section 5c(c) of the CEA and
part 40 of the CFTC’s rules. As noted above, the
Commission proposed to adapt §§ 40.5 (Voluntary
submission of rules for Commission review and
approval) and 40.6 (Self-certification of rules) into
Proposed Rules 806 and 807, respectively.
Therefore, Proposed Rule 819(i)(1) would require an
SBSEF to maintain in effect rules that have been
submitted to the Commission pursuant to Rule 806
or Rule 807.
385 Proposed Rule 802 would define ‘‘disciplinary
committee’’ as any person or committee of persons,
or any subcommittee thereof, that is authorized by
an SBSEF or SBS exchange to issue disciplinary
charges, to conduct disciplinary proceedings, to
settle disciplinary charges, to impose disciplinary
sanctions, or to hear appeals thereof in cases
involving any violation of the rules of the SBSEF
or SBS exchange, except those cases where the
person or committee is authorized summarily to
impose minor penalties for violating rules regarding
decorum, attire, the timely submission of accurate
records for clearing or verifying each day’s
transactions, or other similar activities. The CFTC
rules contain two slightly different definitions of
‘‘disciplinary committee’’ that appear in § 1.63(a)(2)
and § 1.69(a)(1), respectively. Because the definition
in § 1.69(a)(1) is more comprehensive, the
Commission has modeled its definition of
‘‘disciplinary committee’’ on § 1.69(a)(1) rather than
on § 1.63(a)(2). The Commission is locating the
384 Section
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panels, oversight panels,386 or governing
boards if that person falls into any of six
enumerated criteria, all of which are
modeled closely on the criteria in
§ 1.63(b).387 Paragraph (i)(2), modeled
on § 1.63(c), would impose a direct bar
on any person from serving on a
disciplinary committee, arbitration
panel, oversight panel, or governing
board of an SBSEF if that person meets
any of the six criteria enumerated in
Rule 819(i)(1). Paragraph (i)(3), modeled
on § 1.63(d), would require an SBSEF to
submit to the Commission a schedule
listing the rule violations that constitute
disciplinary offenses that would trigger
the bar and, to the extent necessary to
reflect revisions, would have to submit
an amended schedule within 30 days of
the end of each calendar year. The
SBSEF would be required to maintain
and keep current this schedule and post
it on its website so that it is in a public
place designed to provide notice to
members and otherwise ensure its
availability to the general public.
Paragraph (i)(4), like § 1.63(e), would
require an SBSEF to submit to the
Commission within 30 days of the end
of each calendar year a certified list of
any persons who have been removed
from its disciplinary committees,
arbitration panels, oversight panels, or
governing board pursuant to Rule 819(i)
during the prior year. Paragraph (i)(5),
modeled on § 1.63(f), would provide
that, whenever an SBSEF finds by final
decision that a person has committed a
disciplinary offense and that finding
makes the person ineligible to serve on
that SBSEF’s disciplinary committees,
definition in Rule 802, since the term is used by
multiple rules in Regulation SE.
386 Proposed Rule 802 would define ‘‘oversight
panel’’ as any panel, or any subcommittee thereof,
authorized by an SBSEF or SBS exchange to
recommend or establish policies or procedures with
respect to the surveillance, compliance, rule
enforcement, or disciplinary responsibilities of the
SBSEF or SBS exchange. The CFTC’s definitions of
‘‘oversight panel’’ are contained in § 1.63(a)(4) and
§ 1.69(a)(4), respectively. Because the definition in
§ 1.69(a)(4) is more comprehensive, the Commission
has modeled its definition of ‘‘oversight panel’’ on
§ 1.69(a)(4) rather than on § 1.63(a)(4). As with the
definition of ‘‘disciplinary committee,’’ the
Commission is locating the definition of ‘‘oversight
panel’’ in Rule 802, since the term is used by
multiple rules in Regulation SE.
387 Section 1.63(b)(5) provides that one criterion
for the bar would be that the person in question is
subject to or has had imposed on him within the
prior three years a CFTC registration revocation or
suspension in any capacity for any reason, or has
been convicted within the prior three years of any
of the felonies listed in section 8a(2)(D)(ii) through
(iv) of the CEA. Since the SEC is not subject to the
CEA and cannot cross-reference those provisions,
the Commission proposed for the equivalent
criterion in Rule 819(i)(1)(v) that a person would be
barred for having been convicted within the prior
three years of any felony, without limitation on the
type of felony. See Proposing Release, supra note
1, 87 FR at 28907 n.145.
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arbitration panels, oversight panels, or
governing board, the SBSEF shall
inform the Commission of that finding
and the length of the ineligibility, in a
form and manner specified by the
Commission.
Paragraph (i)(6) of Proposed Rule 819
would define the terms ‘‘arbitration
panel,’’ ‘‘disciplinary offense,’’ and
‘‘final decision’’ that are used in Rule
819(i).388 These definitions are closely
modeled on those provided in
§ 1.63(a).389
The Commission received no
comments on Proposed Rule 819(i) and
is adopting Rule 819(i) as proposed,
with minor technical modifications,390
for the reasons stated in the Proposing
Release.
10. Rule 819(j)—Notification of Final
Disciplinary Action Involving Financial
Harm to a Customer
Paragraph (j) of Proposed Rule 819 is
a modified version of § 1.67 of the
CFTC’s rules. Paragraph (j)(1) of
Proposed Rule 819 would be designed
to replicate for SBSEFs the fundamental
duty of § 1.67 and provides that, upon
any final disciplinary action in which
an SBSEF finds that a member has
committed a rule violation that involved
a transaction for a customer, whether
executed or not, and that resulted in
financial harm to the customer, the
SBSEF must promptly provide written
notice of the disciplinary action to the
member. In addition, the SBSEF would
be required to have established a rule
pursuant to Rule 806 or Rule 807 that
requires a member that receives such a
notice to promptly provide that notice
388 Proposed Rule 819(i)(6)(i) would define
‘‘arbitration panel’’ as any person or panel
empowered by an SBSEF to arbitrate disputes
involving the SBSEF’s members or their customers.
Rule 819(i)(6)(ii) defines ‘‘disciplinary offense’’ as:
any violation of the rules of an SBSEF, except a
violation resulting in fines aggregating to less than
$5000 within a calendar year involving decorum or
attire, financial requirements, or reporting or
recordkeeping; any rule violation which involves
fraud, deceit, or conversion or results in a
suspension or expulsion; any violation of the SEA
or the Commission’s rules thereunder; or any failure
to exercise supervisory responsibility when such
failure is itself a violation of either the rules of the
SBSEF, the SEA, or the Commission’s rules
thereunder. Proposed Rule 819(i)(6)(iii) would
define ‘‘final decision’’ as a decision of an SBSEF
which cannot be further appealed within the
SBSEF, is not subject to the stay of the Commission
or a court of competent jurisdiction, and has not
been reversed by the Commission or any court of
competent jurisdiction; or any decision by an
administrative law judge, a court of competent
jurisdiction, or the Commission which has not been
stayed or reversed.
389 Since these terms are used only in Proposed
Rule 819(i) and not elsewhere in Regulation SE, the
Commission has defined them in Proposed Rule
819(i) and not the omnibus definitions rule in
Regulation SE (Proposed Rule 802).
390 See supra note 32.
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to the customer, as disclosed on the
member’s books and records.391
Paragraph (j)(2) would provide that the
written notice must include the
principal facts of the disciplinary action
and a statement that the SBSEF has
found that the member has committed a
rule violation that involved a
transaction for the customer, whether
executed or not, and that resulted in
financial harm to the customer.
Paragraph (j)(3) of Proposed Rule 819
would provide definitions for two terms
used in Rule 819(j). The definition of
‘‘final disciplinary action’’ is closely
modeled on the CFTC’s definition in
§ 1.67(a).392 The definition of
‘‘customer’’ is only loosely modeled on
the definition of ‘‘customer’’ provided
in § 1.3, which includes complexities
deriving from the CEA that are not
necessary or appropriate to adapt into a
rule that applies to SBSEFs.393 The
Commission proposed to define
‘‘customer’’ in Rule 819(j)(3)(i) as a
person that utilizes an agent in
connection with trading on an SBSEF.
The Commission received no
comments on Proposed Rule 819(j) and
is adopting Rule 819(j) as proposed,
with minor technical modifications,394
for the reasons stated in the Proposing
Release.
11. Rule 819(k)—Designation of Agent
for Non-U.S. Member
Paragraph (k) of Proposed Rule 819
would require non-U.S. persons who
trade on an SBSEF to have an agent for
service of process, which could be an
agent of its own choosing or, by default,
the SBSEF. Proposed Rule 819(k) is
modeled on § 15.05(i) of the CFTC’s
rules, which concerns the designation of
agents for foreign persons participating
391 The provision on which Proposed Rule
819(j)(1)(i)(B) is based, § 1.67(b)(1)(ii), requires a
futures commission merchant or other registrant
that receives such a notice to forward it to the
injured customer. Because of differences in the
respective agencies’ statutory authority, the
Commission proposed to require the SBSEF to
establish a rule that requires the relevant member
to forward the notice, not to propose a Commission
rule that would impose such a duty on the member
directly.
392 See Proposed Rule 819(j)(3)(ii) (defining ‘‘final
disciplinary action’’ as any decision by or
settlement with an SBSEF in a disciplinary matter
that cannot be further appealed at the SBSEF, is not
subject to the stay of the Commission or a court of
competent jurisdiction, and has not been reversed
by the Commission or any court of competent
jurisdiction).
393 The definitions of ‘‘customer’’ and ‘‘final
disciplinary action’’ would apply only within
Proposed Rule 819(j), so the Commission has not
included them in the omnibus definitions rule for
proposed Regulation SE (Proposed Rule 802).
394 See supra note 32.
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on ‘‘reporting markets,’’ a category in
the CFTC’s rules that includes SEFs.395
Paragraph (k)(1) of Proposed Rule 819
is modeled on § 15.05(i) and would
provide that an SBSEF that admits a
non-U.S. person as a member shall be
deemed to be the agent of the ‘‘non-U.S.
member’’ 396 with respect to any SBS
executed by the non-U.S. member.
Under Proposed Rule 819(k)(1), service
or delivery of any communication
issued by or on behalf of the
Commission to the SBSEF would
constitute valid and effective service
upon the non-U.S. member. If an SBSEF
is served with a communication issued
by or on behalf of the Commission to a
non-U.S. member, the SBSEF would be
required to transmit the communication
to the non-U.S. member. Paragraph
(k)(2) of Proposed Rule 819 is modeled
on § 15.05(i)(1) and would provide that
it shall be unlawful for an SBSEF to
permit a non-U.S. member to execute
SBS transactions on the facility unless
the SBSEF informs the non-U.S.
member in writing of the requirements
of Rule 819(k).
Paragraph (k)(3) of Proposed Rule 819
is modeled on § 15.05(i)(2) and would
permit a non-U.S. member of an SBSEF
to utilize an agent for service of process
other than the SBSEF. The non-U.S.
member would have to provide a copy
of its agreement with the alternate agent
to the SBSEF, and the SBSEF would
then have to file the agreement with the
Commission, before executing any
transaction on the SBSEF. Paragraph
(k)(4) of Proposed Rule 819, modeled on
§ 15.05(i)(3), would require the non-U.S.
member to notify the Commission if the
agency agreement is no longer in effect.
For an SBSEF to have an effective
regulatory program and thereby comply
with Core Principle 2 (Compliance with
Rules), the SBSEF must have
jurisdiction over all of its members,
including members who are not U.S.
persons. Proposed Rule 819(k) would
further an SBSEF’s ability to ensure
395 A ‘‘reporting market’’ is defined in § 15.00(q)
to mean a DCM or registered entity under section
1a(40) of the CEA. The term ‘‘registered entity’’ as
defined in section 1a(40) of the CEA includes SEFs,
among other entities.
396 ‘‘Non-U.S. member’’ is a defined term in Rule
819(k) that does not appear in § 15.05 of the CFTC’s
rules but which appropriately conveys the meaning
of the CFTC rule for purposes of SBSEFs in
Proposed Rule 819(k). A foreign trader that executes
contracts on a trading platform such as an SBSEF
must be a member of that platform. Therefore, to
promote uniformity throughout Regulation SE, the
Commission is using the term ‘‘member’’ for this
concept. Furthermore, the Commission has defined
the term ‘‘U.S. person’’ for purposes of the crossborder application of its Title VII rules, see Rule
3a71–3(a)(4), § 240.3a71–3(a)(4), and has thus
defined ‘‘non-U.S. member’’ in Rule 802 as ‘‘a
member of a security-based swap execution facility
that is not a U.S. person.’’
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compliance by its non-U.S. members
with its rules by requiring each non-U.S.
member of the SBSEF to have an agent
for service of process, whether an agent
of its own choosing that has been
disclosed to the SBSEF and the
Commission or, as a default, the SBSEF
itself. This would eliminate any
question of how to provide valid notice
to a non-U.S. member of any
proceedings involving potential rule
violations.
The Commission received no
comments on Proposed Rule 819(k) and
is adopting Rule 819(k) as proposed for
the reasons stated in the Proposing
Release.
C. Rule 820—Core Principle 3—SBS Not
Readily Susceptible to Manipulation
Core Principle 3 397 provides that an
SBSEF may permit trading only in SBS
that are not readily susceptible to
manipulation. CEA Core Principle 3 for
SEFs is substantively identical.398
Proposed Rule 820 is modeled after
§ 37.300 of the CFTC’s rules and would
implement Core Principle 3.
The Commission received no
comments on Proposed Rule 820, and is
adopting Rule 820 as proposed for the
reasons stated in the Proposing Release.
D. Rule 821—Core Principle 4—
Monitoring of Trading and Trade
Processing
Core Principle 4 399 requires an SBSEF
to establish and enforce rules or terms
and conditions defining or
specifications detailing: (1) trading
procedures to be used in entering and
executing orders traded on or through
the facilities of the SBSEF; and (2)
procedures for trade processing of SBS
on or through the facilities of the
SBSEF. Core Principle 4 also requires an
SBSEF to monitor trading in SBS to
prevent manipulation, price distortion,
and disruptions of the delivery or cash
settlement process through surveillance,
compliance, and disciplinary practices
and procedures, including methods for
conducting real-time monitoring of
trading and comprehensive and accurate
trade reconstructions. CEA Core
Principle 4 for SEFs 400 is substantively
identical.
Proposed Rule 821 would implement
Core Principle 4 and is closely modeled
on the rules in subpart E of part 37 and
the CFTC’s guidance and acceptable
397 Section 3D(d)(3) of the SEA, 15 U.S.C. 78c–
4(d)(3).
398 See Section 5h(f)(3) of the CEA, 7 U.S.C. 7b–
3(f)(3).
399 Section 3D(d)(4) of the SEA, 15 U.S.C. 78c–
4(d)(4).
400 Section 5h(f)(4) of the CEA, 7 U.S.C. 7b–
3(f)(4).
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practices in appendix B to part 37. As
explained in the Proposing Release,
paragraph (a) of Proposed Rule 821, like
§ 37.400 of the CFTC’s rules,
incorporates the requirements of Core
Principle 4 described above, and the
remaining paragraphs of Proposed Rule
821 are modeled on §§ 37.401 to 37.408
of the CFTC’s rules and also incorporate
guidance and acceptable practices from
appendix B to part 37.401
Paragraph (b) of Proposed Rule 821
would specify an SBSEF’s marketoversight obligations. Paragraph (c) of
Proposed Rule 821 would specify
requirements for an SBSEF’s monitoring
of physical-delivery SBS. Paragraph (d)
of Proposed Rule 821 would specify
additional requirements for cash-settled
SBS. Paragraph (e) of Proposed Rule 821
would specify requirements for an
SBSEF’s ability to obtain information.
Paragraph (f) of Proposed Rule 821
would require an SBSEF to establish
and maintain risk control mechanisms
to prevent and reduce the potential risk
of market disruptions. Paragraph (g) of
Proposed Rule 821 would require an
SBSEF to have the ability to
comprehensively and accurately
reconstruct all trading on its facility and
requires an SBSEF to make all audittrail data and reconstructions available
to the Commission. And paragraph (h)
of Proposed Rule 821 would provide
that an SBSEF shall comply with the
rules in this section through a dedicated
regulatory department or by contracting
with a regulatory service provider
pursuant to Rule 819(e).
The Commission received no
comments on Proposed Rule 821 and is
adopting Rule 821 as proposed for the
reasons stated in the Proposing Release.
E. Rule 822—Core Principle 5—Ability
To Obtain Information
Core Principle 5 402 requires an SBSEF
to establish and enforce rules that will
allow the SBSEF to obtain any necessary
information to perform any of the
functions described in the Core
Principles, provide the information to
the Commission on request, and have
the capacity to carry out such
international information-sharing
agreements as the Commission may
require. CEA Core Principle 5 for
SEFs 403 is substantively identical.
Proposed Rule 822 implements Core
Principle 5 and is substantively
identical to subpart F of part 37.
Paragraph (a) of Proposed Rule 822
401 See Proposing Release, supra note 1, 87 FR at
28910–11.
402 Section 3D(d)(5) of the SEA, 15 U.S.C. 78c–
4(d)(5).
403 Section 5h(f)(5) of the CEA, 7 U.S.C. 7b–
3(f)(5).
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would repeat the statutory text of Core
Principle 5. Paragraph (b), modeled on
§ 37.501, would require that an SBSEF
establish and enforce rules that will
allow the SBSEF to have the ability and
authority to obtain sufficient
information to allow it to fully perform
its operational, risk management,
governance, and regulatory functions
and any requirements under Regulation
SE. Paragraph (c), like § 37.502, would
require an SBSEF to have rules that
allow it to collect information on a
routine basis, allow for the collection of
non-routine data from its members, and
allow for its examination of books and
records kept by members on its
facility.404 Paragraph (d), like § 37.503,
would require that an SBSEF provide
information in its possession to the
Commission upon request, in a form
and manner specified by the
Commission. Finally, paragraph (e), like
§ 37.504, would require an SBSEF to
share information with other regulatory
organizations, data repositories, and
third-party data reporting services as
required by the Commission or as
otherwise necessary and appropriate to
fulfill its regulatory and reporting
responsibilities, and that appropriate
information-sharing agreements can be
established with such entities, or the
Commission can act in conjunction with
the SBSEF to carry out such information
sharing.
The Commission received no
comments on Proposed Rule 822 and is
adopting Rule 822 as proposed for the
reasons stated in the Proposing Release.
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F. Rule 823—Core Principle 6—
Financial Integrity of Transactions
Core Principle 6 sets forth
requirements related to the financial
integrity of transactions that are entered
on or through the facilities of an
SBSEF.405 Specifically, paragraph (a) of
Proposed Rule 823 would require an
SBSEF to establish and enforce rules
and procedures for ensuring the
financial integrity of SBS entered on or
through the facilities of the SBSEF,
including the clearance and settlement
of SBS pursuant to section 3C(a)(1) of
the SEA.406 Paragraph (b) would
provide that transactions required to be
cleared or voluntarily cleared must be
cleared through a registered clearing
404 While § 37.502 of subpart F uses the term
‘‘market participant,’’ Proposed Rule 822 would
substitute the term ‘‘member’’ in these places, since
the rule pertains to market participants who are
acting as members of the SEF/SBSEF. See supra
note 362.
405 Section 3D(d)(6)(A) of the SEA, 15 U.S.C. 78c–
4(d)(6).
406 15 U.S.C. 78c–3(a)(1). See supra note 168 and
accompanying text (discussing mandatory clearing
provisions).
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agency (or an exempt clearing agency).
Paragraph (c) addresses the manner in
which an SBSEF shall provide for the
financial integrity of transactions.
Finally, paragraph (d) would require an
SBSEF to monitor its members to ensure
that they continue to qualify as eligible
contract participants. As described in
the Proposing Release, the Commission
modeled Rule 823 on subpart H of part
37 of the CFTC’s rules,407 which
implements CEA Core Principle 7 for
SEFs.408
1. Rule 823(a)—General
Paragraph (a) of Proposed Rule 823
would repeat the statutory text of SEA
Core Principle 6 in the same manner
that § 37.700 of the CFTC’s rules 409
repeats the statutory language of CEA
Core Principle 7 for SEFs.410 Proposed
Rule 823(a) would require an SBSEF to
establish and enforce rules and
procedures for ensuring the financial
integrity of SBS entered on or through
the facilities of the SBSEF, including the
clearance and settlement of SBS
pursuant to section 3C(a)(1) of the
SEA.411 The Commission did not
receive any comments on Proposed Rule
823(a) and is adopting Rule 823(a) as
proposed for the reasons stated in the
Proposing Release.
2. Rule 823(b)—Required Clearing
Paragraph (b) of Proposed Rule 823 is
closely modeled on § 37.701 of the
CFTC’s rules,412 and it would provide
that transactions executed on or through
an SBSEF that are required to be cleared
under section 3C(a)(1) of the SEA or are
voluntarily cleared by the
counterparties shall be cleared through
a registered clearing agency or a clearing
agency that has obtained an exemption
from clearing agency registration to
provide central counterparty services for
SBS. The Commission did not receive
any comments on Proposed Rule 823(b)
and is adopting Rule 823(b) as proposed
for the reasons stated in the Proposing
Release.
3. Rule 823(c)—General Financial
Integrity
Paragraph (c) of Proposed Rule 823 is
closely modeled on § 37.702 of the
407 See Proposing Release, supra note 1, 87 FR at
28912.
408 Section 5h(f)(7) of the CEA, 7 U.S.C. 7b–
3(f)(7).
409 17 CFR 37.700; see also Proposing Release,
supra note 1, 87 FR at 28912.
410 Section 5h(f)(7) of the CEA, 7 U.S.C. 7b–
3(f)(7).
411 15 U.S.C. 78c–3(a)(1).
412 17 CFR 37.701; see also Proposing Release,
supra note 1, 87 FR at 28912.
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CFTC’s rules,413 and would require an
SBSEF to provide for the financial
integrity of transactions by establishing
minimum financial standards for its
members, which shall at a minimum
require members to be ECPs. Proposed
Rule 823(c) would further require an
SBSEF to provide for the financial
integrity of transactions by ensuring that
the SBSEF, for transactions cleared by a
registered clearing agency, has the
capacity to route transactions to the
registered clearing agency in a manner
acceptable to the clearing agency, and
by coordinating with each registered
clearing agency to which it submits
transactions for clearing in the
development of rules and procedures to
facilitate prompt and efficient
transaction processing.
One commenter characterizes the
CFTC regime as providing detailed
straight-through-processing (‘‘STP’’)
standards for swaps executed on SEFs
that are intended to be cleared but
believes that the Commission’s proposal
lacks such standards.414 The commenter
observes that there is a lack of market
consistency regarding the execution-toclearing workflow for SBS that are
intended to be cleared, which
complicates the trading of cleared SBS.
The commenter highlights ‘‘clearing
submission timeframes’’ and ‘‘clearing
certainty’’ as key issues and discusses
the manner in which the CFTC has
addressed these issues in its rules and
guidance. The commenter states that the
CFTC’s STP standards, including ‘‘preexecution credit checks’’ and ‘‘welldefined submission timeframes,’’ have
been successfully implemented by the
industry since 2013, enhancing the SEF
trading environment. The commenter
argues that the timeframes minimize
delays between execution and clearing
acceptance and increase pre-trade
clearing certainty, decreasing market,
credit, and operational risks for market
participants and clearing agencies, and
broadens the range of trading
counterparties. For these reasons, the
commenter recommends harmonizing
with the CFTC by establishing STP
standards, incorporating relevant CFTC
guidance, and prohibiting breakage
agreements for SBS that are intended to
be cleared.415
Another commenter agrees that
applying the CFTC’s approach to STP
would further harmonize SBSEFs with
SEFs and would provide greater
certainty of execution and clearing,
encourage more clearing, facilitate
413 17 CFR 37.702; see also Proposing Release,
supra note 1, 87 FR at 28912.
414 See Citadel Letter, supra note 18, at 4–6.
415 See id.
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electronic trading, and promote
accessible, competitive markets and
access to best execution.416 Lastly, a
third commenter supports
harmonization and encourages the
Commission to both codify the guidance
in appendix B to part 37 of the CFTC
regulations and the CFTC’s staff
guidance regarding STP.417 The
commenter believes that the STP
requirements have been successfully
implemented by market participants for
nearly a decade, and modifying them
now would introduce significant
market, operational, and credit risk,
along with additional complexity and
cost for market participants.418
As previously stated, harmonization
with the CFTC regime for SEFs is an
important consideration for the
Commission, given that it expects most
registered SBSEFs to also be registered
SEFs. Consistent with this view,
Proposed Rule 823 is largely based on
subpart H of part 37, and the key
language of Rule 823(c)(2) relevant to
STP is substantively identical to
§ 37.702(b). Both provisions require an
SBSEF or SEF to (i) ensure that it has
the capacity to route transactions to the
relevant clearing agency in a manner
acceptable to the clearing agency for
purposes of clearing; and (ii) coordinate
with each relevant clearing agency to
which it submits transactions for
clearing, in the development of rules
and procedures to facilitate prompt and
efficient transaction processing. Rule
249.1701, Exhibit T further requires
SBSEFs to provide ‘‘the name(s) of the
clearing agency(ies) that will clear the
Applicant’s trades, and a representation
that clearing members of that
organization will be guaranteeing such
trades.’’ 419
The Commission generally expects an
SBSEF’s rules and procedures to
demonstrate compliance with these
requirements with respect to SBS that
are intended to be cleared or that would
become subject to a mandatory clearing
requirement in the future. Since SBSEFs
are required to establish rules and
procedures for clearing in coordination
with each relevant clearing agency to
which it submits trades, SBSEFs should
be able to route executed trades to
relevant clearing agencies promptly,
particularly if fully automated systems
are used. Furthermore, if an SBSEF were
to act to purposefully delay clearing
submission in order to favor certain
416 See
MFA Letter, supra note 18, at 12.
SIFMA AMG Letter, supra note 18, at 9.
418 See id.
419 See Form SBSEF (Exhibits Instructions,
Instruction No. 20, Exhibit T); see also supra note
84.
417 See
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market participants over others, that
type of action could be addressed under
the impartial access requirements of
Rule 819(c).420 Lastly, as noted
previously, the Commission is adopting
Rule 815(g), which specifies that
SBSEFs shall establish and enforce rules
that provide that a security-based swap
that is intended to be cleared at the time
of the transaction, but is not accepted
for clearing at a registered clearing
agency, shall be void ab initio. Together,
these provisions should help ensure that
SBSEFs will process trades promptly
and efficiently. These provisions are
also consistent with the CFTC’s staff
guidance related to SEFs. The CFTC
staff guidance also addressed regulatory
requirements related to intermediaries
and clearing organizations that are
beyond the scope of this rulemaking.
For the reasons stated above, the
Commission is adopting Rule 823(c) as
proposed.421
4. Rule 823(d)—Monitoring for
Financial Soundness
Paragraph (d) of Proposed Rule 823 is
closely modeled on § 37.703 of the
CFTC’s rules,422 and it would require an
SBSEF to monitor its members to ensure
that they continue to qualify as ECPs.
The Commission did not receive any
comments on Rule 823(d) and is
adopting Rule 823(d) as proposed for
the reasons stated in the Proposing
Release.
G. Rule 824—Core Principle 7—
Emergency Authority
SEA Core Principle 7 423 requires an
SBSEF to adopt rules to provide for the
exercise of emergency authority, in
consultation or cooperation with the
Commission, as is necessary and
appropriate, including the authority to
liquidate or transfer open positions in
any SBS or to suspend or curtail trading
in an SBS. CEA Core Principle 8 for
SEFs 424 is substantively identical, and
the CFTC implemented Core Principle 8
for SEFs in subpart I of part 37. Section
420 See supra section VI.B.3 (discussing the
impartial access requirements of Proposed Rule
819(c)). For example, if an SBSEF purposefully
delayed clearing submission of only certain market
participants that the SBSEF favors, that would be
contrary to the requirement of Proposed Rule 819(c)
of providing impartial access to market services.
421 While one commenter suggests that the
Commission incorporate guidance from appendix B
to part 37 of the CFTC rules, the appendix does not
contain any guidance or acceptable practices under
Core Principle 7 of section 5h of the CEA—
Financial Integrity of Transactions.
422 17 CFR 37.703; see also Proposing Release,
supra note 1, 87 FR at 28912.
423 Section 3D(d)(7) of the SEA, 15 U.S.C. 78c–
4(d)(7).
424 Section 5h(f)(8) of the CEA, 7 U.S.C. 7b–
3(f)(8).
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37.800 of subpart I repeats the statutory
text of the Core Principle. Section
37.801 provides that a SEF ‘‘may refer’’
to the guidance in appendix B to part 37
‘‘to demonstrate to the Commission
compliance with [Core Principle 8].’’
Proposed Rule 824 would implement
SEA Core Principle 7 and is closely
modeled on subpart I of part 37 and the
guidance for CEA Core Principle 8 in
appendix B to part 37. Paragraph (a) of
Proposed Rule 824 would repeat the
statutory text of the Core Principle.
Paragraph (b) of Proposed Rule 824
would incorporate much of the language
in paragraph (a)(1) of the CFTC’s
guidance on CEA Core Principle 8.
Under paragraph (b), an SBSEF would
be required to adopt rules that are
reasonably designed to:
(1) Allow the SBSEF to intervene as
necessary to maintain markets with fair
and orderly trading and to prevent or
address manipulation or disruptive
trading practices, whether the need for
intervention arises exclusively from the
SBSEF’s market or as part of a
coordinated, cross-market intervention;
(2) Have the flexibility and
independence to address market
emergencies in an effective and timely
manner consistent with the nature of the
emergency, as long as all such actions
taken by the SBSEF are made in good
faith to protect the integrity of the
markets;
(3) Take market actions as may be
directed by the Commission, including,
in situations where an SBS is traded on
more than one platform, emergency
action to liquidate or transfer open
interest as directed, or agreed to, by the
Commission or the Commission’s staff;
(4) Include procedures and guidelines
for decision-making and
implementation of emergency
intervention that avoid conflicts of
interest;
(5) Include alternate lines of
communication and approval
procedures to address emergencies
associated with real-time events;
(6) Allow the SBSEF, to address
perceived market threats, to impose or
modify position limits, impose or
modify price limits, impose or modify
intraday market restrictions, impose
special margin requirements, order the
liquidation or transfer of open positions
in any contract, order the fixing of a
settlement price, extend or shorten the
expiration date or the trading hours,
suspend or curtail trading in any
contract, transfer customer contracts
and the margin, or alter any contract’s
settlement terms or conditions, or, if
applicable, provide for the carrying out
of such actions through its agreements
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with its third-party provider of clearing
or regulatory services.
Paragraph (c) of Proposed Rule 824 is
based on paragraph (a)(2) of the CFTC’s
guidance on CEA Core Principle 8 and
would require an SBSEF to promptly
notify the Commission of its exercise of
emergency action, explaining its
decision-making process, the reasons for
using its emergency authority, and how
conflicts of interest were minimized,
including the extent to which the
SBSEF considered the effect of its
emergency action on the underlying
markets and on markets that are linked
or referenced to the contracts traded on
its facility, including similar markets on
other trading venues. In addition,
Proposed Rule 824(c) would require
information on all regulatory actions
carried out pursuant to an SBSEF’s
emergency authority to be included in a
timely submission of a certified rule
pursuant to Rule 807.
The Commission received no
comments on Proposed Rule 824 and is
adopting Rule 824 as proposed, with
minor technical modifications,425 for
the reasons stated in the Proposing
Release.
H. Rule 825—Core Principle 8—Timely
Publication of Trading Information
SEA Core Principle 8 426 requires an
SBSEF to make public timely
information on price, trading volume,
and other trading data on SBS to the
extent prescribed by the Commission,
and to have the capacity to
electronically capture and transmit and
disseminate trade information with
respect to transactions executed on or
through the facility. CEA Core Principle
9 427 is substantively identical to SEA
Core Principle 8, and the CFTC
implemented CEA Core Principle 9 in
subpart J of part 37.
Proposed Rule 825 would implement
SEA Core Principle 8 and is closely
modeled on subpart J of part 37.
Paragraph (a) of Proposed Rule 825, like
§ 37.900, would repeat the statutory
language of the Core Principle. While
§ 37.901 provides that a SEF shall report
swap transaction data pursuant to parts
43 and 45 of the CFTC’s rules,
paragraph (b) of Proposed Rule 825
would direct SBSEFs to report SBS
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425 The
Commission has corrected a reference to
‘‘exercise of emergency action’’ to read ‘‘exercise of
emergency authority.’’ The Commission has also
made two non-substantive corrections to the text of
Proposed Rule 824. The Commission has replaced
a period with a semicolon at the end of paragraph
(b)(3) and has added the word ‘‘and’’ to the end of
paragraph (b)(5).
426 Section 3D(d)(8) of the SEA, 15 U.S.C. 78c–
4(d)(8).
427 Section 5h(f)(9) of the CEA, 7 U.S.C. 7b–
3(f)(9).
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transaction data in a manner specified
in the SEC’s Regulation SBSR.428
Paragraph (c) of Proposed Rule 825
would require the publication, on an
SBSEF’s website, of a ‘‘Daily Market
Data Report.’’ The data fields that the
Commission proposed to require for the
Daily Market Data Report approximated,
although they were not the same as,
those required by part 16. Under
Proposed Rule 825(c)(1), the Daily
Market Data Report for a business day
would be required to contain the
following information for each tenor of
each SBS traded on that SBSEF during
that business day:
(i) The trade count (including block
trades but excluding error trades,
correcting trades, and offsetting trades);
(ii) The total notional amount traded
(including block trades but excluding
error trades, correcting trades, and
offsetting trades 429);
(iii) The number of block trades;
(iv) The total notional amount of
block trades;
(v) The opening and closing price;
(vi) The price that is used for
settlement purposes, if different from
the closing price; and
(vii) The lowest price of a sale or
offer, whichever is lower, and the
highest price of a sale or bid, whichever
is higher, that the SBSEF reasonably
determines accurately reflects market
conditions. Bids and offers vacated or
withdrawn shall not be used in making
this determination. A bid is vacated if
followed by a higher bid or price and an
offer is vacated if followed by a lower
offer or price.
Paragraph (c)(2) of Proposed Rule 825
would require an SBSEF to provide
certain explanatory information
regarding data presented on the Daily
Market Data Report:
(i) The method used by the SBSEF in
determining nominal prices and
settlement prices; and
(ii) If discretion is used by the SBSEF
in determining the opening and/or
closing ranges or the settlement prices,
an explanation that certain discretion
may be employed by the SBSEF and a
description of the manner in which that
discretion may be employed.
Discretionary authority would have to
428 Section 13(m)(1) of the SEA, 15 U.S.C.
78m(m)(1), authorizes the Commission to make SBS
transaction, volume, and pricing data available to
the public in such form and at such times as the
Commission determines appropriate to enhance
price discovery. The Commission has adopted rules
relating to the reporting and public dissemination
of SBS transaction and pricing data as Regulation
SBSR. Rule 901(a)(1) of Regulation SBSR, 17 CFR
242.901(a)(1), imposes certain reporting duties on
SBSEFs.
429 Each of these terms is defined in Proposed
Rule 802 and also used in Proposed Rule 815.
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be noted explicitly in each case in
which it is applied (for example, by use
of an asterisk or footnote).
Paragraph (c)(3) of Proposed Rule 825
would set out various requirements
regarding the form and manner by
which an SBSEF makes available its
Daily Market Data Report. Paragraph
(c)(3)(i) would require the SBSEF to post
on its website its Daily Market Data
Report in a downloadable and machinereadable format using the most recent
versions of the associated XML schema
and PDF renderer as published on the
Commission’s website. Paragraph
(c)(3)(ii) would require the SBSEF to
make available its Daily Market Data
Report without fees or other charges.
Paragraph (c)(3)(iii) would prohibit the
SBSEF from imposing any
encumbrances on access or usage
restrictions with respect to the Daily
Market Data Report. Paragraph (c)(3)(iv)
would prohibit the SBSEF from
requiring a user to agree to any terms
before being allowed to view or
download the Daily Market Data Report,
such as by waiving any requirements of
Rule 825(c)(3). Paragraph (c)(3)(iv)
would further provide that any such
waiver agreed to by a user would be null
and void.430
Paragraph (c)(4) of Proposed Rule 825
would require the SBSEF to publish the
Daily Market Data Report on its website
no later than the SBSEF’s
commencement of trading on the next
business day after the day to which the
information pertains. Finally, paragraph
(c)(5) would require the SBSEF to keep
each Daily Market Data Report available
on its website in the same location as all
other Daily Market Data Reports for no
less than one year after the date of first
publication.
Several commenters criticized the
Daily Market Data Report required by
Proposed Rule 825.431 One commenter
states that the Daily Market Report
would require inappropriate and
430 The presence of any such waiver requirements
on a click-through screen could chill use of the
Daily Market Data Report, because the user would
be compelled to agree to the waiver even to view
the report. The Commission recognizes that
individual users may not have the time or the
incentive to contest the appropriateness of any such
waiver provisions in order to secure access.
Proposed Rule 825(c)(3)(iv) is designed to assure
such users that, even if an SBSEF were to insist on
the waiver click-through as a condition of access,
users would not in fact be sacrificing their ability
to use the data free of charges and usage restrictions
because the waiver would be null and void.
431 See MFA Letter, supra note 18, at 13; WMBAA
Letter, supra note 18, at 5–6; ISDA–SIFMA Letter,
supra note 18, at 10; Bloomberg Letter, supra note
18, at 5, 17. Eleven commenters supported general
transparency in markets but did not address the
Daily Market Data Report specifically. See, e.g.,
Letter from David Mounts (Oct. 29, 2022); Letter
from Katie K. (Apr. 7, 2022).
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detrimental disclosures that would
undermine the Commission’s goal of
fostering a competitive and efficient
market for SBS trading.432 This
commenter states that there are
significant differences in the
information required to be reported
under the SEC and CFTC regimes. The
commenter states that Proposed Rule
825(c)(1) increases the burden on
SBSEFs compared to SEFs by requiring
additional information regarding sale
and offer prices, as well as qualitative
descriptions of certain data that are
reported.
This commenter further states that the
Commission’s proposal does not address
why the CFTC’s approach would not be
acceptable in the context of SBSEFs and
does not justify the increased
operational costs to SBSEFs (which will
ultimately be passed on to members).
The commenter also states that the
Commission has not considered the
costs and potential for duplicative
requirements in the context of
Regulation SBSR reporting
requirements. The commenter
concludes that, in sum, the Daily Market
Data Report is overly granular and
duplicative, is unnecessary for
transparency purposes, and could
negatively impact the market and
market participants. The commenter
states that the Commission should
therefore remove the Daily Market Data
Report in favor of harmonizing with the
analogous CFTC rules and that, if the
Commission does not eliminate the
Daily Market Data Report requirement
altogether, it should adopt additional
masking protections for trades,
specifically with respect to block trades.
Failure to do so, the commenter states,
would cause inappropriate and
detrimental disclosures and would
‘‘negate the benefits that the rule
purports to achieve by exempting block
trades from clearing [sic]
requirements.’’ 433
Another commenter states that the
requirement for a Daily Market Data
Report is a departure from the otherwise
generally harmonized rule proposal and
risks overly complicating the SBSEF
regime for limited benefit, particularly
with SBS reporting and dissemination
in place through Regulation SBSR.434
The commenter states that the Daily
Market Data Report serves as a
duplicative source of information that
fails to improve price discovery or
liquidity formation, and that the Daily
Market Data Report could negatively
432 See
MFA Letter, supra note 18, at 13.
id. Regulation SE does not address any
exemption from clearing requirements.
434 See WMBAA Letter, supra note 18, at 5–6.
433 See
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impact conditions, particularly for block
trades, especially given the relatively
illiquid SBS market, which has a
relatively small number participants.
This commenter encourages the
Commission to remove the proposed
Daily Market Data Report and review
this issue with the benefit of several
years’ experience with these rules,
particularly once Regulation SBSR is
fully operational.
One commenter states that the Daily
Market Report is not necessary because
the CFTC SEF regulatory framework,
which does not impose such a
requirement, provides sufficient price
transparency.435 This commenter states
that the Commission has not pointed to
any observable issues with the SEF
transparency framework to justify a
need for these reports, and the
commenter states that the daily
publication of information related to
block trade numbers and block notional
amounts, coupled with aggregate pricing
information, would magnify the
problems associated with the ‘‘winner’s
curse.’’ This is particularly concerning,
the commenter states, where a dealer is
unable to fully lay-off its risk from a
block trade within the course of a single
day—a scenario that is extremely likely
considering the thin nature of SBS
markets. Based on the information
published in the report as proposed, the
commenter states, SBSEF participants
may be able to identify a particular
block trade and the likely price point,
and then use that information to upcharge the dealer who is seeking to lay
off the rest of its risk, thus frustrating
the key objective of block trading.
This commenter further states that the
issues it has identified are amplified
even further if the Daily Market Report
does not follow the cap requirements
that apply in the public price
dissemination of data under the
Commission’s trade reporting rule and
related Commission no-action relief.
The commenter states that publication
of uncapped trade sizes could, in certain
cases, reveal the exact notional amount
of a trade to the public, which is not
permitted under the Commission’s SBS
trade reporting rules. The commenter
states that this is especially concerning
given that the proposed Daily Market
Report provides detailed information by
SBS product and tenor. The commenter
states that the Commission should
abandon its proposed Daily Market
Report or, if it does not, require
publication of the proposed report on a
monthly or quarterly basis and make it
subject to the cap size requirements
imposed on SBSDRs. This, the
435 See
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commenter states, would ensure that the
report does not conflict with the
protections afforded to market
participants per the cap size
requirements and under the
Commission’s SBS trade reporting rules
and related relief for SBS.436
Another commenter states that, in its
experience with the reports required
under CFTC part 16, which requires the
compilation of similar information as
the proposed Daily Market Data Report,
the timeline for publication proposed
under Rule 825(c)(4) would be
impractical, if not technologically
impossible.437 This commenter states
that it operates a SEF with trading hours
that run from 00:01 hours to 24:00
hours, Sunday through Friday. The
commenter envisions SBS trading to be
permitted during the same trading hours
and states that the break between the
end of trading one day and the
beginning of trading the next day—one
minute—means that it would likely not
be possible to compile the required
report ‘‘no later than the SBSEF’s
commencement of trading on the next
business day.’’ This commenter
proposes synchronizing Rule 825(c)(4)
with CFTC Rule 16.01(d)(2) to allow
additional time for the publication of
the Daily Market Data Report. With
regard to the content of the report, this
commenter states that the settlement
price required under Rule 825(c)(1)
should be included in the report only to
the extent it is calculated by an SBSEF.
Many of the reporting requirements of
the Daily Market Data Report under
Proposed Rule 825 are closely aligned
with the data required to be disclosed
on a daily basis by SEFs under § 16.01
of the CFTC’s rules. Both rules require
the daily disclosure of: (1) a measure of
trading volume in terms of trades or
contracts; 438 (2) the total notional
volume traded; 439 (3) the notional
amount of block trades; 440 (4) the
opening and closing prices; 441 (5) the
price used for settlement, if different
436 See
id.
Bloomberg Letter, supra note 18, at 5, 17.
438 Compare Proposed Rule 825(c)(1)(i) (trade
count, including block trades but excluding error
trades, correcting trades, and offsetting trades), with
17 CFR 16.01(a)(1)(iii) (trading volume and open
contracts by product type term life of the swap).
439 Compare Proposed Rule 825(c)(1)(ii) (total
notional amount traded, including block trades but
excluding error trades, correcting trades, and
offsetting trades), with 17 CFR 16.01(a)(2)(iv) (total
trading volume in terms of the number of contracts
traded for standard-sized contract or in terms of
notional value for non-standard-sized contracts).
440 Compare Proposed Rule 825(c)(1)(iv) (total
notional amount of block trades), with 17 CFR
16.01(a)(2)(vi) (total volume of block trades
included in the total volume of trading).
441 See Proposed Rule 825(c)(1)(v); 17 CFR
16.01(b)(2)(i).
437 See
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from the closing price; 442 (6) the lowest
price of a sale or offer, whichever is
lower, and the highest price of a sale or
bid, whichever is higher, that the
facility reasonably determines
accurately reflects market conditions; 443
(7) the method used by the facility in
determining nominal prices and
settlement prices, and if discretion is
used in determining the opening or
closing ranges or the settlement prices,
an explanation that certain discretion
may be employed and a description of
the manner in which that discretion
may be employed; 444 and (8) in each
instance in which such discretion was
applied, an explicit notation that
discretion was applied.445
Further, the Commission is modifying
Proposed Rule 825 to resolve the two
differences between the proposed Daily
Market Data Report and the existing
CFTC reporting scheme under § 16.01:
(1) that the Daily Market Data Report
would include the number of block
trades executed; 446 and (2) that the
Daily Market Data Report would be
posted on the SBSEF’s website no later
than the beginning of trading on the
next business day,447 while the
information required by § 16.01 must be
made public no later than the next
business day.448
A number of commenters raised
specific concerns that the disclosures in
the Daily Market Data Report would
hamper the efficient trading of block
trades.449 The Commission agrees that
the additional disclosed data element
for SBSEFs—the number of block
trades—could lead to additional
information leakage while a dealer that
facilitated a block trade might still be
laying off the risk it undertook in
facilitating that trade. Therefore,
consistent with the CFTC’s disclosure
elements under § 16.01, the Commission
is modifying Rule 825(c)(1) as proposed
to delete paragraph (c)(1)(iii), which
requires the disclosure of the number of
block trades, and to renumber the
following paragraphs accordingly. The
442 See Proposed Rule 825(c)(1)(vi); 17 CFR
16.01(b)(2)(ii).
443 See Proposed Rule 825(c)(1)(vii); 17 CFR
16.01(b)(2)(iii).
444 See Proposed Rule 825(c)(2)(i); 17 CFR
16.01(b)(4)(i).
445 See Proposed Rule 825(c)(2)(ii); 17 CFR
16.01(b)(4)(ii).
446 See Proposed Rule 825(c)(1)(iii).
447 See Proposed Rule 825(c)(4).
448 See 17 CFR 16.01(e). The Commission views
the requirement to keep each Daily Market Data
Report on an SBSEF’s website for one year, see
Proposed Rule 825(c)(5), as a small additional
burden for an SBSEF and does not view it as a
significant departure from harmonization with the
CFTC’s SEF regime.
449 See supra notes 433–436 and accompanying
text.
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Commission is also, pursuant to its
determination not to adopt a definition
of ‘‘block trade,’’ 450 deleting the words
‘‘including block trades but’’ from the
text of paragraph (c)(i) and (ii) of Rule
825, and is adding the words ‘‘after such
time as the Commission adopts a
definition of ‘block trade’ ’’ to paragraph
(c)(iii) of Rule 825 (formerly paragraph
(c)(iv) of Proposed Rule 825 451), which
will have no effect on the requirement
as compared to the proposed rule.
The Commission is also modifying
Proposed Rule 825 to address the
comment that an SBSEF that operates
nearly 24 hours a day might not be able
to comply with the requirement to
publish the Daily Market Data Report
before the beginning of trading on the
next business day. Accordingly, the
Commission is modifying Proposed
Rule 825(c)(4) to require the publication
of the Daily Market Data Report ‘‘as
soon as reasonably practicable on the
next business day after the day to which
the information pertains, but in no event
later than 7 a.m. on the next business
day.’’ This modified requirement, while
less stringent than the requirement as
proposed, would differ slightly from the
CFTC’s requirement that such
information must be made public ‘‘no
later than the next business day.’’ 452
Making each trading day’s information
available to market participants before
the beginning of the next trading is
reasonably designed to foster
transparency and efficiency in the
market for SBS.
With these modifications, the
proposed Daily Market Data Report for
SBSEFs is consistent with the required
daily disclosures for SEFs. While one
commenter states that Proposed Rule
825(c)(1) increases the burden on
SBSEFs compared to SEFs, including by
calling for qualitative descriptions of
certain data, the data called for by Rule
825(c)(1), as modified, does not differ
materially from that required to be
published daily under § 16.01. Thus, the
Commission does not agree with the
commenter that the data required under
the Commission approach differs
materially from that required under the
CFTC approach or that the Daily Market
Data Report will result in an unjustified
increase in operational costs.
450 See
supra section V.E.1(c)(ii).
Commission is also correcting the form of
a cross-reference in paragraph (b) to ‘‘Regulation
SBSR’’ to read ‘‘§§ 242.900 through 242.909
(Regulation SBSR).’’
452 See 17 CFR 16.01(e). The Commission views
the requirement to keep each Daily Market Data
Report on an SBSEF’s website for one year, see
Proposed Rule 825(c)(5), as a small additional
burden for an SBSEF and does not view it as a
significant departure from harmonization with the
CFTC’s SEF regime.
451 The
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87207
Further, the Commission does not
agree with commenters that the Daily
Market Data Report would serve as a
duplicative source of information to
reporting under Regulation SBSR and
therefore risks overly complicating the
SBSEF regime for limited benefit,
without benefit to price improvement or
liquidity formation. Regulation SBSR
requires the reporting and public
dissemination of SBS transactions,453
but because the transaction reports for
credit SBS are permitted to be capped
at a notional volume of $5 million,454
market participants would be unable to
glean the information provided by the
Daily Market Data Report—which
would publish daily total notional
volumes based on uncapped transaction
amounts—from the individual reports of
SBS transactions under Regulation
SBSR. Thus, the Daily Market Data
Report would provide market
participants with information about
pricing and trading volume for SBS on
SBSEFs that goes beyond the
information that could be obtained from
SBS transaction reports that are publicly
disseminated pursuant to Regulation
SBSR. And because individual trades
would not be reported—and, with the
modification the Commission is making,
the number of block trades would also
not be reported—a size cap on reporting
volume used to provide summary data
to the market is not necessary or
appropriate. Additionally, with the
respect to the comment that the
settlement price required under
Proposed Rule 825(c)(1) should be
included in the report only to the extent
it is calculated by an SBSEF, the
language of the requirement—‘‘[t]he
price that is used for
settlement. . .’’ 455—means that if no
settlement price is calculated for a given
SBS, that data element does not need to
be reported.
With respect to the means of
publication of the information, while
the means of publishing the Daily
Market Data Report varies from that
specified under the CFTC regime, the
difference is not material. The
Commission proposed that this
information be posted on an SBSEF’s
website in the most recent XML schema
and PDF renderer, without fees or
charges, without any encumbrances on
access or usage, and without requiring
453 See
17 CFR 242.900 et seq.
2019 Cross-Border Adopting Release,
supra note 218, 85 FR at 6347 (providing no-action
relief with respect to Rule 902 of Regulation SBSR,
17 CFR 242.902, for reports of credit SBS
transaction disseminated with a capped size of $5
million).
455 See Proposed Rule 825(c)(1)(vi) (emphasis
added).
454 See
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a user to agree to any terms before
viewing or downloading the report.456
And the CFTC, in addition to requiring
that this information be provided to the
CFTC, requires it be made available to
news media and the general public ‘‘in
a format that readily enables the
consideration of such data.’’ 457
Proposed Rule 825(c)(3) is designed to
promote wide use of the SBS trading
information contained in the Daily
Market Data Report by prohibiting an
SBSEF from imposing any financial,
legal, or operational burdens on that
use, and, as the Commission stated in
the Proposing Release, the prohibition
against an SBSEF imposing any usage
restrictions on its Daily Market Data
Report would necessarily encompass a
prohibition on bulk redistribution of the
Daily Market Data Report or any
information contained therein.458 The
Commission seeks to encourage market
observers to access the Daily Market
Data Report and scrub, reconfigure,
aggregate, analyze, repurpose, or
otherwise add value to the information
contained in the report as they see fit.
For the reasons discussed above, the
Commission is adopting Rule 825 as
modified.459
I. Rule 826—Core Principle 9—
Recordkeeping and Reporting
SEA Core Principle 9 460 sets forth
recordkeeping and reporting obligations
for SBSEFs. Core Principle 9 requires an
SBSEF to maintain records of all
activities relating to the business of the
facility, including a complete audit trail,
in a form and manner acceptable to the
Commission for a period of five years.
The Core Principle further requires an
SBSEF to report to the Commission, in
a form and manner acceptable to the
Commission, such information as the
Commission determines to be necessary
or appropriate for the Commission to
perform its duties. Finally, under Core
Principle 9, the Commission must adopt
data collection and reporting
requirements for SBSEFs that are
comparable to requirements for clearing
agencies and SBS data repositories.461
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456 See
Proposed Rule 825(c)(3).
457 17 CFR 16.01(e).
458 See Proposing Release, supra note 1, 87 FR at
28915.
459 See supra note 32.
460 Section 3D(d)(9) of the SEA, 15 U.S.C. 78c–
4(d)(9).
461 As discussed below in this section, the
Commission is adopting Rule 826 to require an
SBSEF to maintain records of all activities relating
to the business of the SBSEF for a period of not less
than five years. Similarly, Rule 17a–1 under the
SEA, 17 CFR 240.17a–1, requires a clearing agency
to keep and preserve one copy of all documents
made or received in the course of its business and
conduct of its self-regulatory activities for a period
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CEA Core Principle 10 for SEFs,
although it includes an additional
clause not present in the equivalent SEA
Core Principle 9,462 is substantively
identical.
To implement SEA Core Principle 9,
the Commission proposed Rule 826,
which roughly approximates §§ 1.31
and 45.2 of the CFTC’s rules,463 while
also drawing on concepts from the
books and records requirements
applicable to brokers, SEC-registered
SROs, and other SEC-registered
entities.464
Paragraph (a) of Proposed Rule 826
would repeat the statutory text of the
Core Principle. Paragraph (b) would
require an SBSEF to keep full, complete,
and systematic records,465 together with
all pertinent data and memoranda, of all
activities relating to its business with
respect to SBS. Under paragraph (b),
such records would be required to
include, without limitation, the audit
trail information required under Rule
819(f) and all other records that an
SBSEF is required to create or obtain
under Regulation SE.
Paragraph (c) of Proposed Rule 826
would require an SBSEF to keep records
of any SBS from the date of execution
until the termination, maturity,
expiration, transfer, assignment, or
novation date of the transaction, and for
a period of not less than five years, the
first two years in an easily accessible
place, after such date. Paragraph (c) also
would require an SBSEF to keep each
record (other than a record of an SBS
noted in the previous sentence) for a
period of not less than five years, the
of not less than five years. In addition, Rule 13n–
7(b) under the SEA, 17 CFR 240.13n–7(b), requires
an SBS data repository to keep and preserve a copy
of all documents made or received by it in the
course of its business for at least five years.
462 CEA Core Principle 10 includes a clause
stating that a SEF shall keep any records relating
to certain swaps open to inspection and
examination by the SEC. See 7 U.S.C. 7b3(f)(10)(A)(iii).
463 Section 1.31 imposes on ‘‘records entities’’
(which term includes SEFs) various requirements
relating to record retention and production. Section
45.2 imposes various recordkeeping, retention, and
retrieval requirements applicable to SEFs (among
others) to support trade reporting.
464 See infra section XI (discussing in the context
of Proposed Rule 15a–12 that an SBSEF registered
with the Commission is also a registered broker
and, as such, is subject to the SEA’s recordkeeping
and reporting requirements applicable to brokers).
465 While § 1.31(a) defines the terms ‘‘regulatory
records’’ and ‘‘electronic regulatory records’’ and
utilizes them throughout § 1.31, the Commission is
utilizing instead the term ‘‘records,’’ which is
defined in section 3(a)(37) of the SEA, 15 U.S.C.
78c(a)(37). In doing so, the Commission seeks to
avoid any ambiguities or inconsistencies that could
arise by using variants of a term that is defined in
the Commission’s governing statute. The
Commission has included a definition of ‘‘records’’
in Rule 802 that cross-references section 3(a)(37) of
the SEA.
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first two years in an easily accessible
place, from the date on which the record
was created. The five-year retention
requirements would be consistent with
section 3D(d) of the SEA 466 and are
modeled on the requirements for SEFs
in §§ 1.31 and 45.2. The proposed
requirement that the records be kept ‘‘in
an easily accessible place’’ for the first
two years derives from an analogous
requirement in the Commission’s
principal books and records rule for
exchange members, brokers, and
dealers.467
Paragraph (d)(1) of Proposed Rule 826
would require an SBSEF to retain all
records in a form and manner that
ensures the authenticity and reliability
of such records in accordance with the
SEA and the Commission’s rules
thereunder. Paragraph (d)(2) would
require an SBSEF, upon request of any
representative of the Commission, to
promptly 468 furnish to the
representative legible, true, complete,
and current copies of any records
required to be kept and preserved under
Rule 826. Paragraph (d)(3) would
provide that an electronic record shall
be retained in a form and manner that
allows for prompt production at the
request of any representative of the
Commission. Paragraph (d)(3) would
also include provisions modeled on
§ 1.31(c)(2) requiring an SBSEF that
maintains electronic records to establish
appropriate systems and controls that
ensure the authenticity and reliability of
electronic records.
Paragraph (e) of Proposed Rule 826
would provide that all records required
to be kept by an SBSEF pursuant to Rule
826 would be subject to examination by
any representative of the Commission
pursuant to section 17(b) of the SEA,
which is the source of the Commission’s
examination authority for registered
brokers (among other types of registered
entities). Proposed Rule 826(e) is
designed only to remind SBSEFs of this
statutory authority and would not seek
to limit or expand that authority using
the Commission’s powers over SBSEFs
in section 3D of the SEA.
466 See 15 U.S.C. 78c–4(d)(9)(A)(i) (requiring an
SBSEF to ‘‘maintain records of all activities relating
to the business of the facility, including a complete
audit trail, in a form and manner acceptable to the
Commission, for a period of five years’’) (emphasis
added).
467 See Rule 17a–4(b) under the SEA, 17 CFR
240.17a–4(b).
468 In this context, ‘‘prompt’’ or ‘‘promptly’’
means making reasonable efforts to produce records
that are requested by the staff during an
examination without delay. In many cases, it is
likely that an SBSEF could furnish records
immediately or within a few hours of a request, and
it would therefore be required to do so. An SBSEF
generally should produce records within 24 hours
unless there are unusual circumstances.
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Proposed Rule 826 would include a
paragraph (f) that is not modeled on any
provision of § 1.31 or § 45.2, but rather
on § 1.37(c) of the CFTC’s rules, which
would provide: ‘‘Each designated
contract market and swap execution
facility shall keep a record in permanent
form, which shall show the true name,
address, and principal occupation or
business of any foreign trader executing
transactions on the facility or exchange.
In addition, upon request, a designated
contract market or swap execution
facility shall provide to the Commission
information regarding the name of any
person guaranteeing such transactions
or exercising any control over the
trading of such foreign trader.’’
Proposed Rule 826(f) is modeled closely
on § 1.37(c), except that it would use the
term ‘‘non-U.S. member’’ rather than
‘‘foreign trader.’’ 469
The Commission received no
comments on Proposed Rule 826 and is
adopting Rule 826 as proposed, with
minor technical modifications,470 for
the reasons stated in the Proposing
Release.
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J. Rule 827—Core Principle 10—
Antitrust Considerations
SEA Core Principle 10 471 provides
that, unless necessary or appropriate to
achieve the purposes of the SEA, an
SBSEF shall not: (1) adopt any rules or
take any actions that result in any
unreasonable restraint of trade, or (2)
impose any material anticompetitive
burden on trading or clearing. CEA Core
Principle 11 472 is substantively
identical. Proposed Rule 827 would
implement SEA Core Principle 10 and
reiterate the statutory text of the Core
Principle.473
469 Since a ‘‘foreign trader’’ in § 1.37(c) is
executing transactions on the SEF, it must be a
member of the SEF. Because the term ‘‘member’’ is
used elsewhere in the CFTC rules pertaining to
SEFs, the term ‘‘member’’ as used throughout
Regulation SE is defined in Rule 802. The term
‘‘non-U.S. member,’’ also found in Rule 802, is
defined as ‘‘a member of a security-based swap
execution facility that is not a U.S. person.’’
470 See supra note 32.
471 Section 3D(d)(10) of the SEA, 15 U.S.C. 78c–
4(d)(10).
472 Section 5h(f)(11) of the CEA, 7 U.S.C. 7b–
3(f)(11).
473 The Commission has not adapted the guidance
from appendix B pertaining to CEA Core Principle
11 into its rule. As explained in the Proposing
Release, it is not appropriate to adapt this guidance
into a rule that applies to SBSEFs because the SEA
(which applies to SBSEFs) does not have a
provision that is closely comparable to section 15(b)
of the CEA (which applies to SEFs). See Proposing
Release, supra note 1, 87 FR at 28917 n.196.
Furthermore, the guidance pertaining to CEA Core
Principle 10 for SEFs sets out only a general
approach to how the CFTC addresses antitrust
issues applying to SEFs and does not include
provisions that can readily be adapted into rule
text. Id.
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The Commission did not receive any
comments on Proposed Rule 827 and is
adopting Rule 827 as proposed, for the
reasons stated in the Proposing Release.
K. Rule 828—Core Principle 11—
Conflicts of Interest
SEA Core Principle 11 474 requires an
SBSEF to establish and enforce rules to
minimize conflicts of interest in its
decision-making process and to
establish a process for resolving the
conflicts of interest. CEA Core Principle
12 475 is substantively identical, and the
CFTC implemented CEA Core Principle
12 in subpart M of part 37.476
Proposed Rule 828 would implement
SEA Core Principle 11. Paragraph (a) of
Rule 828, like § 37.1200, would repeat
the statutory text of the Core Principle.
Paragraph (b) would direct an SBSEF to
comply with the requirements of Rule
834, which, as discussed below, would
implement section 765 of the DoddFrank Act for both SBSEFs and SBS
exchanges.477
The Commission received no
comments on Proposed Rule 828 and is
adopting Rule 828 as proposed for the
reasons stated in the Proposing Release.
L. Rule 829—Core Principle 12—
Financial Resources
Core Principle 12 478 sets forth certain
requirements related to the financial
resources of an SBSEF. Paragraph (a)(1)
requires an SBSEF to have adequate
financial, operational, and managerial
resources to discharge each
responsibility of the SBSEF, as
determined by the Commission.
Paragraph (a)(2) would provide that the
financial resources of an SBSEF shall be
considered to be adequate if the value
of the financial resources: (i) enables the
organization to meet its financial
obligations to its members and
participants notwithstanding a default
by the member or participant creating
474 Section 3D(d)(11) of the SEA, 15 U.S.C. 78c–
4(d)(11).
475 7 U.S.C. 7b–3(f)(12).
476 Section 37.1200 of subpart M repeats the
statutory text of Core Principle 12. There are no
other provisions in subpart M, nor is there any
guidance or acceptable practices associated with
Core Principle 12 in appendix B to part 37. The
CFTC has proposed additional rules regarding the
mitigation of conflicts of interest but has not
adopted any such rules. See CFTC, Requirements
for Derivatives Clearing Organizations, Designated
Contract Markets, and Swap Execution Facilities
Regarding the Mitigation of Conflicts of Interest, 75
FR 63732 (Oct. 18, 2010); CFTC, Governance
Requirements for Derivatives Clearing
Organizations, Designated Contract Markets, and
Swap Execution Facilities; Additional
Requirements Regarding the Mitigation of Conflicts
of Interest, 76 FR 722 (Jan. 6, 2011).
477 See infra section VIII.
478 Section 3D(d)(12) of the SEA, 15 U.S.C. 78c–
4(d)(12).
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the largest financial exposure for that
organization in extreme but plausible
market conditions; and (ii) exceeds the
amount that would enable the SBSEF to
cover operating costs of the SBSEF for
a one-year period, as calculated on a
rolling basis. Finally, paragraphs (b)
through (g) provide details and
instruction on how to comply with the
requirements of Core Principle 12.
CEA Core Principle 13 for SEFs 479 is
substantively identical to SEA Core
Principle 12 but lacks the clause in
section 3D(d)(12)(B)(i) of the SEA
relating to an SBSEF meeting financial
obligations to members and participants
notwithstanding a default by the
member or participant creating the
largest financial exposure for the SBSEF
in extreme but plausible market
conditions. As described in the
Proposing Release, the Commission
modeled Rule 829 on subpart N of part
37 of the CFTC’s rules,480 which
implements CEA Core Principle 13 for
SEFs.
1. Rule 829(a)—General
Paragraph (a) of Proposed Rule 829
would repeat the statutory text of SEA
Core Principle 12.
One commenter states that the
language in paragraph (a)(2)(i) of
Proposed Rule 829 that requires an
SBSEF to have sufficient financial
resources ‘‘to meet its financial
obligations to its members
notwithstanding a default by a member
creating the largest financial exposure
for that organization in extreme but
plausible market conditions’’ is not
adequate.481 The commenter believes
that an SBSEF should be required to
have resources significantly in excess of
this requirement because, during
financial uncertainties and stress, the
SBSEF would need even greater
resources.482
Another commenter states that the
same provision, paragraph (a)(2)(i) of
Proposed Rule 829, is overly
burdensome and unnecessary.483 The
commenter states that the provision
would add significantly to the amount
of capital required to operate an SBSEF
with little corresponding benefit to the
market. The commenter argues that
trading platforms such as SEFs and
SBSEFs will have credit exposure to a
member in limited circumstances and
479 Section 5h(f)(13) of the CEA, 7 U.S.C. 7b–
3(f)(13).
480 See Proposing Release, supra note 1, 87 FR at
28919.
481 See Letter from Chris Barnard to Commission
at 2 (May 21, 2022) (submitted under cover email
dated June 6, 2022).
482 See id.
483 See Bloomberg Letter, supra note 18, at 8.
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for very limited periods of time.
Therefore, this commenter states,
requiring a trading platform to maintain
capital sufficient to cover the largest
financial exposure of a member trading
on the SBSEF, when the trading
platform will not be called upon to
cover the cost of a default, is
unnecessary and overly burdensome.
The commenter also states that the
provision is not in the parallel CFTC
rule. The commenter suggests
eliminating the provision or, in the
alternative, affirm that satisfying the
financial requirements in Rule 829(b),
relating to having adequate resources to
enable an SBSEF to comply with the
SEA and applicable Commission rules
for one year, would be sufficient to
satisfy the requirements of Rule 829(a)
as well.484
The requirements of Proposed Rule
829(a)(2)(i), which repeats the statutory
text of SEA Core Principle 12, do not
need to be more stringent, as suggested
by the first commenter. The provision
requires an SBSEF to have adequate
resources to ‘‘meet its financial
obligations to its members’’ even in case
of a default by a member creating the
largest financial exposure. By the plain
meaning of its terms, the provision
requires that an SBSEF meet its
financial obligations. The Commission
does not see a benefit to requiring an
SBSEF to have the financial resources
that exceed its obligations. As long as an
SBSEF’s obligations are met, its
members can be made whole with
respect to any obligations of the SBSEF
and the SBSEF can continue to operate.
Therefore, ensuring that an SBSEF can
meet its financial obligations is
sufficient. Furthermore, the provision
itself already envisions ‘‘extreme but
plausible market conditions,’’ analogous
to the ‘‘conditions of financial
uncertainty and stress’’ that the
commenter discusses.
At the same time, Proposed Rule
829(a)(2)(i) should not be eliminated,
and the rules should not be interpreted
in a manner that allows the
requirements of Proposed Rule
829(a)(2)(i) to be satisfied by complying
with Proposed Rule 829(b). First, the
requirement that an SBSEF be able to
cover its financial obligations even
when its largest member defaults is in
the statutory language of the SEA, and
the Commission is not adopting a rule
inconsistent with this requirement. The
statutory language is an appropriate
requirement to impose on SBSEFs
because it seeks to address a plausible
risk caused by the default of a member,
a financial risk that, if an SBSEF has not
484 See
id.
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accounted for it, could endanger the
SBSEF’s ability to continue to operate.
While, the commenter is correct that the
CFTC’s rules do not have a similar
provision, it is also the case that the
CEA does not have a similar provision.
Therefore, while the Commission is, as
explained above, generally striving for
harmonization with the CFTC, the
Commission is not modifying Proposed
Rule 829(a) to remove the requirement
that an SBSEF have adequate resources
to meet its financial obligations to its
members even in case of a default by a
member creating the largest financial
exposure. Second, the Commission will
not affirm that it will, as requested by
a commenter, interpret the rules in a
manner that allows the requirement of
Rule 829(a) to be satisfied by satisfying
the requirements of Rule 829(b). The
scope of Proposed Rule 829(a) and
Proposed Rule 829(b) are different.
Proposed Rule 829(a) would in general
address having adequate financial (and
operational and managerial) resources to
discharge each responsibility of an
SBSEF. Proposed Rule 829(b) would
specifically address the financial (not
operational or managerial) resources
that are necessary to comply with one
type (not each type) of responsibility of
the SBSEF, i.e., compliance with section
3D of the SEA and the applicable
Commission rules. Because Proposed
Rule 829(a) would address topics
beyond the scope of Proposed Rule
829(b), including the topic of a default
by a member creating the largest
financial exposure, the requirements of
Proposed Rule 829(a) cannot be satisfied
by merely satisfying the requirements of
Proposed Rule 829(b).
For the reasons discussed above, the
Commission is adopting Rule 829(a) as
proposed, with a minor technical
modification.485
2. Rule 829(b)—General Requirements
Paragraph (b) of Proposed Rule 829 is
closely modeled on § 37.1301 of the
CFTC’s rules,486 and it requires an
SBSEF to maintain financial resources
that are adequate to enable it to comply
with the SBSEF Core Principles set forth
in the SEA and the Commission rules
for a one-year period, calculated on a
rolling basis.
The Commission did not receive any
comments and is adopting Rule 829(b)
as proposed for the reasons stated in the
Proposing Release.
485 The technical modification removes a stray
parenthesis.
486 17 CFR 37.1301; see also Proposing Release,
supra note 1, 87 FR at 28918.
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3. Rule 829(c)—Types of Financial
Resources
Paragraph (c) of Proposed Rule 829 is
closely modeled on § 37.1302 of the
CFTC’s rules,487 and it describes the
types of financial resources that may
satisfy the requirements of Rule 829(b).
The Commission did not receive any
comments on Proposed Rule 829(c) and
is adopting Rule 829(c) as proposed for
the reasons stated in the Proposing
Release.
4. Rule 829(d)—Liquidity of Financial
Resources
Paragraph (d) of Proposed Rule 829 is
closely modeled on § 37.1303 of the
CFTC’s rules,488 and would provide that
the financial resources allocated by an
SBSEF to meet the financial resources
requirements shall include
unencumbered, liquid financial assets
equal to at least the greater of three
months of projected operating costs or
the projected costs needed to wind
down the SBSEF’s operations. If an
SBSEF lacks sufficient unencumbered,
liquid financial assets, it may satisfy
this obligation by obtaining a committed
line of credit in an amount at least equal
to the deficiency.
The Commission did not receive any
comments on Proposed Rule 829(d) and
is adopting Rule 829(d) as proposed for
the reasons stated in the Proposing
Release.
5. Rule 829(e)—Computation of Costs
To Meet Financial Resources
Requirement
Paragraph (e) of Proposed Rule 829 is
closely modeled on § 37.1304 of the
CFTC’s rules,489 and would require an
SBSEF, each fiscal quarter, to make a
reasonable calculation of its projected
operating costs and wind-down costs in
order to determine its applicable
obligations under Rule 829. Paragraph
(e) would further provide that the
SBSEF shall have reasonable discretion
in determining the methodology used to
compute such amounts, provided that
the Commission may review the
methodology and require changes as
appropriate. Proposed Rule 829(e)
would also append language based on
the CFTC guidance from appendix B to
part 37 concerning the following topics,
all of which relate to computation of
costs: (i) reasonableness of calculating
projected operating costs and what may
be excluded from such calculation; (ii)
487 17 CFR 37.1302; see also Proposing Release,
supra note 1, 87 FR at 28918.
488 17 CFR 37.1303; see also Proposing Release,
supra note 1, 87 FR at 28919.
489 17 CFR 37.1304; see also Proposing Release,
supra note 1, 87 FR at 28919.
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proration of expenses; and (iii)
allocation of expenses among affiliates.
The Commission did not receive any
comments on Proposed Rule 829(e) and
is adopting Rule 829(e) as proposed,
with a minor technical modification for
the reasons stated in the Proposing
Release.490
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6. Rule 829(f)—Valuation of Financial
Resources
Paragraph (f) of Proposed Rule 829 is
closely modeled on § 37.1305 of the
CFTC’s rules,491 and would provide
that, no less than each fiscal quarter, an
SBSEF must compute the current
market value of each financial resource
used to meet its obligations under Rule
829 and that reductions in value to
reflect market and credit risk
(‘‘haircuts’’) shall be applied as
appropriate.
The Commission did not receive any
comments on Proposed Rule 829(f) and
is adopting Rule 829(f) as proposed for
the reasons stated in the Proposing
Release.
7. Rule 829(g)—Reporting to the
Commission
Paragraph (g) of Proposed Rule 829 is
closely modeled on § 37.1306 of the
CFTC’s rules,492 and would address
reporting to the Commission regarding
an SBSEF’s financial resources.
Paragraph (g)(1) would generally
provide that, each fiscal quarter, or at
any time upon Commission request, an
SBSEF shall report the amount of
financial resources necessary to meet
the requirements of Rule 829 and the
market value of each financial resource
available, and shall provide the
Commission with financial statements
prepared in accordance with GAAP.
Paragraph (g)(2) would provide that the
calculations required under Rule 829(g)
shall be made as of the last business day
of the SBSEF’s fiscal quarter. Paragraph
(g)(3) would generally require the
SBSEF to provide the Commission with
sufficient documentation to explain its
methodology for computing its financial
requirements. Paragraph (g)(4) would
generally provide the timing for
submission of reports and supporting
documentation. Paragraph (g)(5) would
require an SBSEF to provide notice to
the Commission no later than 48 hours
after it knows or reasonably should
know that it no longer meets its
obligations under Rule 829(b) and (d).
490 The technical modification corrects an
incorrect internal cross-reference to a paragraph in
the rule.
491 17 CFR 37.1305; see also Proposing Release,
supra note 1, 87 FR at 28919.
492 17 CFR 37.1306; see also Proposing Release,
supra note 1, 87 FR at 28919.
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Paragraph (g)(6) would require the use
of EDGAR to submit reports and
documentation required under Rule
829.
The Commission did not receive any
comments on Proposed Rule 829(g) and
is adopting Rule 829(g) as proposed,
with minor technical modifications, for
the reasons stated in the Proposing
Release.493
M. Rule 830—Core Principle 13—
System Safeguards
Paragraph (A) of SEA Core Principle
13 494 provides that an SBSEF must
establish and maintain a program of risk
analysis and oversight to identify and
minimize sources of operational risk,
through the development of appropriate
controls and procedures, and automated
systems, that are reliable and secure and
that have adequate scalable capacity.
Paragraph (B) requires that an SBSEF
must also establish and maintain
emergency procedures, backup
facilities, and a plan for disaster
recovery that allow for the timely
recovery and resumption of operations;
and the fulfillment of the
responsibilities and obligations of the
SBSEF. Finally, paragraph (C) of SEA
Core Principle 13 requires an SBSEF to
periodically conduct tests to verify that
the backup resources of the SBSEF are
sufficient to ensure continued order
processing and trade matching; price
reporting; market surveillance; and
maintenance of a comprehensive and
accurate audit trail. CEA Core Principle
14 495 is substantively identical to SEA
Core Principle 13, and the CFTC
implemented this Core Principle
through subpart O of part 37, which is
entitled ‘‘System Safeguards.’’
Proposed Rule 830 is closely modeled
on subpart O of part 37 of the CFTC’s
rules, except in one aspect. Subpart O
includes language relating to ‘‘critical
financial markets,’’ 496 which is a
designation applied by the CFTC to
certain of its registrants that would
subject them to more stringent
requirements, although the CFTC has
not yet adopted any such
493 See supra note 32. The Commission has also
changed the word ‘‘paragraph’’ in Rule 829(g)(5) to
the plural form.
494 Section 3D(d)(13)(A) of the SEA, 15 U.S.C.
78c–4(d)(13).
495 Section 5h(f)(14) of the CEA, 7 U.S.C. 7b–
3(f)(14).
496 See § 37.1401(c) (providing that SEFs
determined by the CFTC to be critical financial
markets are subject to more stringent requirements);
§ 37.1401(d); § 37.1401(j) (providing that part 40
governs the obligations of registered entities that the
CFTC has determined to be critical financial
markets, with respect to maintenance and
geographic dispersal of disaster recovery resources
sufficient to meet a same-day recovery time
objective in the event of a wide-scale disruption).
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87211
requirements.497 A similar concept in
the SEC’s rules is ‘‘SCI entity.’’ 498 When
adopting Regulation SCI, the
Commission considered whether it
should apply Regulation SCI to SBSEFs,
among other entities, and determined
not to do so,499 and when proposing
amendments to Regulation SCI in 2023
to, among other things, expand the
definition of ‘‘SCI entity,’’ the
Commission did not propose to include
SBSEFs as SCI entities.500
One commenter states that it has seen
no changes in the SBS market that
should cause the Commission to revisit
its decision not to apply Regulation SCI
to SBSEFs. The commenter states that,
as the Commission has noted, the
greatest operations risk to a dually
registered entity is likely to arise from
the swap business rather than the SBS
business. From this standpoint,
according to the commenter, it is
appropriate for the Commission to align
with the CFTC approach to ensure that
SEFs and SBSEFs alike have adequate
system safeguards and business
continuity protocols that are aligned
with this risk.501
Subpart O is reasonably designed to
promote SEF operational capability, and
that the most appropriate way to
implement SEA Core Principle 13 is to
closely harmonize with the CFTC’s rules
that implement the corresponding Core
Principle. As with SEA Core Principle
12 (Financial resources),502 the
Commission recognizes that the swap
business of a dually registered SEF/
SBSEF is likely to be much larger than
its SBS business. Therefore, the greatest
operational risk to a dually registered
entity is likely to arise from the swap
business rather than the SBS business,
so it would be logical for the SEC to
497 The provisions in subpart O relating to
‘‘critical financial markets’’ reference § 40.9 of the
CFTC’s rules, which is marked as ‘‘Reserved.’’
498 See Rule 1000 of Regulation SCI (defining
‘‘SCI entity’’). In Nov. 2014, the Commission
adopted Regulation Systems Compliance and
Integrity (‘‘SCI’’) to strengthen the technology
infrastructure of the U.S. securities markets, reduce
the occurrence of systems issues in those markets,
improve their resiliency when technological issues
arise, and establish an updated and formalized
regulatory framework, thereby helping to ensure
more effective Commission oversight of such
systems. See Regulation Systems Compliance and
Integrity, SEA Release No. 73639 (Nov. 19, 2014),
79 FR 72252 (Dec. 5, 2014).
499 See id., 79 FR at 72363–64 (reviewing
comments received regarding the potential
application of Regulation SCI to SBSEFs, among
others).
500 See Regulation Systems Compliance and
Integrity, SEA Release No. 97143 (Mar. 15, 2023),
88 FR 23146 (Apr. 14, 2023) (Proposed
Amendments) (File No. S7–07–23).
501 See Bloomberg Letter, supra note 18, at 18.
502 See supra section VI.L (discussing Core
Principle 12).
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defer to the CFTC’s approach for
ensuring that SEFs have adequate
system safeguards and business
continuity protocols. Different or
additive requirements imposed by the
SEC could increase costs for SEF/
SBSEFs while generating benefits that
are marginal at best. The Commission
does not observe any differences in the
SBS market relative to the swaps market
that warrant imposing different or
additive operational capability
requirements on SBSEFs. Additionally,
because SBSEFs are not SCI entities and
the corresponding CFTC rule has not
imposed additional requirements on
critical financial markets, it is not
necessary or appropriate to adapt into
Rule 830 the language of subpart O
applicable to critical financial
markets.503
Therefore, the Commission is
adopting Rule 830 as proposed, with
minor technical modifications.504
N. Rule 831—Core Principle 14—
Designation of Chief Compliance Officer
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SEA Core Principle 14 505 requires
each registered SBSEF to designate a
chief compliance officer (‘‘CCO’’), and
requires the CCO to review the SBSEF’s
compliance with the Core Principles,
resolve conflicts of interest, be
responsible for establishing and
administering policies and procedures
required under the Core Principles,
establish procedures for the remediation
of noncompliance, prepare and sign an
annual report that describes the SBSEF’s
compliance, certify that the report is
accurate and complete, and submit the
report to the Commission. CEA Core
Principle 15 for SEFs 506 is substantively
identical.
Proposed Rule 831 would implement
SEA Core Principle 14 and is closely
modeled on subpart P of part 37, with
two minor substantive exceptions.507
The first relates to disqualification of
the CCO. Section 37.1501(b)(2)(ii) states:
503 While subpart O frequently uses the term
‘‘market participant,’’ Proposed Rule 830 would
substitute the term ‘‘member’’ in these places, since
the rule pertains to market participants who are
engaging as members of the SEF/SBSEF. See supra
note 362.
504 See supra note 32.
505 Section 3D(d)(14) of the SEA, 15 U.S.C. 78c–
4(d)(14).
506 Section 5h(f)(15) of the CEA, 7 U.S.C. 7b–
3(f)(15).
507 In addition, the requirement in Proposed Rule
831 that the CCO’s annual compliance report be
submitted electronically to the Commission, based
on § 37.1501(e)(2), includes an added clause to
provide that the submission must be made using the
EDGAR system and must be provided as an
Interactive Data File in accordance with Rule 405
of Regulation S–T, in conformance with other rules
in Regulation SE requiring electronic submissions.
See Proposed Rule 831(j)(2).
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‘‘No individual disqualified from
registration pursuant to sections 8a(2) or
8a(3) of the [CEA] may serve as a chief
compliance officer.’’ The Commission
proposed instead, in Rule 831(c)(2), that
no individual that would be disqualified
from serving on an SBSEF’s governing
board 508 or committees pursuant to the
criteria set forth in § 242.819(i) may
serve as the CCO. As noted above,509 the
disqualification criteria in Rule 819(i)
are adapted from § 1.63 of the CFTC’s
rules. Second, the Commission adapted
the acceptable practices pertaining to
CEA Core Principle 15 into paragraph
(c) of Proposed Rule 831.510
The Commission received one
comment on Proposed Rule 831. The
commenter states that he fully supports
the intent of the proposed regulations
and believes that the CCO role is the
single most important compliance role
in an SBSEF and that it is critical that
its job description, and the entity’s
rules, structures, and procedures, act to
secure and maintain the CCO’s
independence. For example, the
commenter states, the CCO should have
a single compliance role and no other
competing role or responsibility that
could create conflicts of interest or
threaten its independence. Therefore,
the commenter suggests that the rules
restrict the CCO position from being
held by an attorney who represents the
SBSEF or its board of directors, such as
an in-house or general counsel. The
commenter also states that the
remuneration of the CCO must be
specifically designed in such a way that
avoids potential conflicts of interest
with its compliance role.511
The commenter further states that
although the CCO would normally
report to an executive officer, the CCO
must also have a direct reporting line to
the independent directors, and the CCO
should report to the audit committee at
least yearly. The commenter strongly
recommends amending § 242.831 such
that the authority and sole
responsibility to designate or remove
the CCO, or to materially change its
508 Subpart P uses the term ‘‘board of directors,’’
while the Commission proposed to use the term
‘‘governing board’’ instead throughout proposed
Regulation SE. See Proposing Release, supra note 1,
87 FR at 28877 n.29.
509 See supra section VI.B.9.
510 Proposed Rule 831(c) would provide that, in
determining whether the background and skills of
a potential CCO are appropriate for fulfilling the
responsibilities of the role of the CCO, an SBSEF
would have the discretion to base its determination
on the totality of the qualifications of the potential
CCO, including, but not limited to, compliance
experience, related career experience, training,
potential conflicts of interest, and any other
relevant factors.
511 See Letter from Chris Barnard (May 20, 2022)
(submitted under cover email dated June 6, 2022).
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duties and responsibilities, vests only
with the independent directors and not
with the full board. This would help,
the commenter states, to ensure the
independence of the CCO within the
entity and would possibly mitigate the
need to promulgate rules requiring the
SBSEF to insulate the CCO from undue
pressure and coercion or to address the
potential conflict between and among
compliance interests, commercial
interests and ownership interests of an
SBSEF.512
The CFTC has implemented CEA Core
Principle 14 for SEFs in an appropriate
way, and that closely harmonizing with
subpart P of part 37 would yield
comparable regulatory benefits while
imposing only marginal additional
costs. While the commenter’s
suggestions would support the
independence of the CCO, key
provisions of paragraph (b) of Proposed
Rule 831 would sufficiently protect the
independence and authority of an
SBSEF’s CCO in performing the
required functions. Significantly,
paragraph (b)(1) would require that the
position of CCO carry with it sufficient
authority and resources to fulfill the
position’s duties, and paragraph (b)(2)
would provide that the CCO shall have
supervisory authority over all staff
acting at the CCO’s direction. The
SBSEF remains responsible for
establishing and administering required
policies and procedures.
The Commission also recognizes that
most SBSEFs are likely to be dually
registered SEF/SBSEFs and that the
swaps business of a dually registered
SEF/SBSEF is likely to be much larger
than its SBS business. Therefore, the
greatest compliance risks to a dually
registered entity are likely to arise from
the swap business rather than the SBS
business, and it is thus logical for the
SEC to harmonize with the CFTC’s rules
regarding the CCO. There are strong
economic incentives for a dually
registered entity to appoint the same
individual to serve as the CCO for both
the swap and SBS businesses, and for
the CCO to carry out their functions
under a similar set of rules. Different or
additive requirements imposed by the
SEC could increase costs for SEF/
SBSEFs while generating benefits that
are marginal at best. The Commission
does not observe any differences in the
SBS market relative to the swaps market
that warrant imposing different or
additive CCO requirements on SBSEFs
relating to the CCO.
For the reasons discussed above, the
Commission is adopting Rule 831 as
512 See
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proposed, with minor technical
modifications.513
VII. Cross-Border Rules
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A. Rule 832—Cross-Border Mandatory
Trade Execution
Given the global nature of the SBS
market, where there is frequent
interaction among counterparties
domiciled in different jurisdictions, the
Commission proposed Rule 832 to
address when the trade execution
requirement would apply to a crossborder SBS transaction.514 The
proposed rule would be consistent with
the Commission’s territorial approach to
applying Title VII requirements in other
contexts, where relevant activity need
not occur wholly within the United
States or solely between U.S. persons for
Title VII requirements to apply.515 As
discussed further below, the relevant
activity here is ‘‘to engage in a securitybased swap’’ in whole or in part in the
United States.516
Paragraph (a) of Rule 832 would
provide that the trade execution
requirement set forth in section 3C(h) of
the SEA shall not apply to an SBS
unless at least one counterparty to the
SBS is a ‘‘covered person’’ as defined in
paragraph (b). Paragraph (b) of Rule 832
would define the term ‘‘covered person’’
with respect to a particular securitybased swap, as any person that is: (1) a
U.S. person; 517 (2) a non-U.S. person
whose performance under an SBS is
guaranteed by a U.S. person; or (3) a
non-U.S. person who, in connection
with its SBS dealing activity, uses U.S.
personnel located in a U.S. branch or
office, or personnel of an agent of such
non-U.S. person located in a U.S.
branch or office, to arrange, negotiate, or
execute a transaction. Taken together,
the provisions of Rule 832 apply to
persons who are—consistent with the
relevant statutory provisions added by
Title VII—engaging in SBS in the United
States.
Two commenters express support for
Rule 832 or its subparts. Specifically,
513 See supra note 32. The Commission has also
deleted an extraneous ‘‘and’’ at the end of the text
of Rule 831(a)(1)(v).
514 See supra section V.F (discussing the trade
execution requirement of section 3C(h) of the SEA);
see also Proposing Release, supra note 1, 87 FR at
28922–25 (discussing proposed Rule 832 in more
detail).
515 See Proposing Release, supra note 1, 87 FR at
28922–23.
516 See SEA section 3C(a)(1), 15 U.S.C. 78c–
3(a)(1).
517 Transactions effected through the foreign
branch of a U.S. person would be subject to the
trade execution requirement, as ‘‘a foreign branch
has no separate existence from the U.S. person
itself.’’ See Proposing Release, supra note 1, 87 FR
at 28923.
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one commenter states that inclusion of
paragraphs (b)(2) and (b)(3) in the
proposed rule—where one counterparty
of an SBS transaction is a non-U.S.
person whose performance under an
SBS is guaranteed by a U.S. person
(‘‘guaranteed person transactions’’), and
where one counterparty of an SBS
transaction is a non-U.S. person who, in
connection with its SBS dealing
activity, uses U.S. personnel located in
a U.S. branch or office, or personnel of
an agent of such non-U.S. person
located in a U.S. branch or office, to
arrange, negotiate, or execute a
transaction (‘‘ANE transactions’’),
respectively—are ‘‘appropriately broad
[and] will help prevent attempted
evasion of the trade execution
requirement by ensuring that it will
apply where there is a significant
connection to the U.S., even when
neither counterparty is a U.S.
person.’’ 518
While generally supportive of Rule
832, this commenter believes that, in
addition to guaranteed person
transactions, the rule should also cover
transactions that include a ‘‘de facto
guarantee’’ by a U.S. person, which this
commenter states represents ‘‘an
unspoken but nevertheless powerful
arrangement whereby a parent or other
U.S. person has a virtually irresistible
incentive to cover the losses incurred by
another affiliated entity’’ given the
reputational impact a failure of even a
non-guaranteed affiliate could have.519
Another commenter expresses
support for paragraph (b)(3) of Rule 832
relating to ANE transactions.520 This
commenter agrees that such transactions
fall within the Commission’s
jurisdiction, even if they are booked to
non-U.S. entities, and believes that,
given the Commission’s supervisory
interests and policy objectives, it is
warranted for the Commission to
exercise its jurisdiction over ANE
transactions. This commenter states
that, ‘‘following the CFTC granting noaction relief from the trade execution
requirement for ANE transactions,
interdealer trading activity in EUR
interest rate swaps began to be booked
almost exclusively to non-U.S. entities,
a fact pattern that academic research
found was ‘consistent with (although
not direct proof of) swap dealers
strategically choosing the location of the
desk executing a particular trade in
518 Better
Markets Letter, supra note 18, at 14–15.
at 15–16. This commenter cited Citigroup’s
experience with certain structured investment
vehicles during the 2008 financial crisis, which this
commenter states Citigroup ‘‘chose’’ to bring onto
its balance sheet even though it had no legal
obligation to do so. See id.
520 See Citadel Letter, supra note 18, at 16.
519 Id.
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87213
order to avoid trading in a more
transparent and competitive
setting.’ ’’ 521 The commenter states that
this is ‘‘an outcome to avoid in the SBS
market.’’ 522
Several commenters oppose certain
aspects of Rule 832. One commenter
disagrees with the Commission’s
application of the trade execution
requirement to transactions involving
foreign branches of U.S. persons, as well
as to guaranteed person transactions.523
This commenter believes that
‘‘mandatory trade execution is not
designed to address or mitigate systemic
risk’’ and, thus, it is unnecessary to
extend SBSEF rules to transactions with
non-U.S. counterparties ‘‘where the lack
of such rules would have no ability of
posing risk to the U.S. financial
system.’’ 524 This commenter states that
guaranteed entities (by definition nonU.S. persons) and foreign branches of
U.S. persons are both subject to the laws
and regulations of their home country or
the foreign jurisdictions in which they
and their counterparties operate,
respectively, and the commenter states
that imposing the rule’s mandatory
trading obligations on them in
transactions with non-U.S.
counterparties would result in
duplicative regulation, which would
increase compliance costs and add
complexity and inefficiencies to crossborder trading.525 This commenter also
states that foreign trading venues are
already subject to comprehensive
regulatory oversight in their home
jurisdictions and, based on its
experience with the CFTC’s SEF trading
rules prior to the grant of equivalency to
major foreign trading platforms in
Europe and Asia, ‘‘foreign platforms
will deny access to any entity with any
connection to the United States, no
matter how remote, for fear of being
captured by the SEC’s regime’’ and will
further fragment SBS markets.526
Several commenters also oppose
subjecting ANE transactions to the trade
execution requirement in Rule 832(b)(3).
One commenter believes that ANE
transactions fall outside the
jurisdictional reach of Title VII, and that
521 Id. (citing Benos, E., Payne, R., and Vasios, M.,
Centralized trading, transparency and interest rate
swap market liquidity: evidence from the
implementation of the Dodd-Frank Act, Bank of
England Staff Working Paper, at 30 (May 2018),
available at https://www.bankofengland.co.uk/-/
media/boe/files/working-paper/2018/centralizedtrading-transparency-and-interest-rate-swapmarket-liquidity-update).
522 Id.
523 See ISDA–SIFMA Letter, supra note 18, at 12–
13.
524 Id. at 12.
525 See id. at 13.
526 Id.
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‘‘the location of personnel or agents
within the United States should not
form the basis for extending the
[Commission’s] trading
mandate. . . .’’ 527 This commenter
states that, when assessing the necessity
of extending the extraterritorial reach of
a particular ruleset, ‘‘it is important to
consider the objectives of individual
rulesets’’ and further states that
‘‘platform trading rules are not intended
to address or mitigate risk, and
therefore, the Commission should
exercise more flexibility’’ when
deciding whether these rules should
extend to ANE transactions.528 This
commenter believes that including ANE
transactions ‘‘would bring a random
selection of additional transactions into
scope merely due to some supporting
role played by a U.S. based sales person,
trader or other function caught up in
ANE.’’ 529
Several commenters warn of negative
implications for the SBS market from
applying the trade execution
requirements to ANE transactions.530
One commenter expresses concern
generally about the rule’s ‘‘complexities
and over-broad reach.’’ 531 Another
commenter states that firms and
platforms would be required to make
representations ‘‘that no ANE
touchpoint is present in the U.S. for any
SBS subject to the trading mandate’’ so
as not to run afoul of Rule 832’s
requirements, which this commenter
states would ‘‘require the development
of a costly parallel infrastructure
completely devoid of U.S.
touchpoints. . . .’’ 532 Similarly,
another commenter states that, without
regulatory certainty and clear
jurisdictional boundaries, market
participants may be unsure of which
rules apply to a particular SBS
transaction because ‘‘non-U.S.
counterparties and platform operators
frequently do not know whether a
transaction involves U.S. ANE
activities,’’ which this commenter states
will likely result in confusion among
market participants and platform
operators and may result in some
527 Id.
at 11.
This commenter states that rules related to
mandatory platform execution are intended to
provide counterparties with a sufficient level of pretrade price transparency and that they should be
addressed by the market regulators in the
jurisdiction where the majority of trading activity
is taking place. See id.
529 Id. at 12.
530 See SIFMA AMG Letter, supra note 18, at 11;
Tradeweb Letter, supra note 18, at 3–4; ISDA–
SIFMA Letter, supra note 18, at 11–12.
531 SIFMA AMG Letter, supra note 18, at 11.
532 ISDA–SIFMA Letter, supra note 18, at 12.
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market participants deciding not to
transact in SBS at all.533
These commenters also state that
foreign jurisdictions have adopted
robust regulatory regimes that already
subject non-U.S. persons and foreign
trading venues to comparable and
comprehensive regulations in their
respective jurisdictions.534 These
commenters contrast the Commission’s
proposed approach with the CFTC’s
efforts ‘‘to curtail the U.S.’ approach to
extra-territoriality in light of the
progress made by other jurisdictions in
establishing robust derivatives
regulatory regimes,’’ 535 with one noting
that, in adopting its cross-border rules
for certain swap-market participants in
2020, the CFTC announced that it
would not consider ANE as a relevant
factor in non-U.S. dealers’ swap
transactions.536 Another commenter
asks the Commission to be mindful of
whether CFTC-registered SEFs would be
forced to change their rules in order
comply with the new proposed SBSEF
rules.537
Finally, one commenter requests that
the Commission make more explicit that
the ‘‘covered person’’ definition in Rule
832 is a transaction-based test,538 while
another commenter requests additional
clarity about the application of the
rule.539
The Commission has considered the
comments received for Rule 832 and is
adopting the rule as proposed, with
minor technical modifications.540 As an
initial matter, the Commission disagrees
with those comments suggesting that
Rule 832 may exceed the Commission’s
statutory authority. The trade execution
requirement of section 3C(h)(1) provides
533 Tradeweb
Letter, supra note 18, at 4–5.
id. at 4; ISDA–SIFMA Letter, supra note
18, at 12. See also SIFMA AMG Letter, supra note
18, at 11.
535 ISDA–SIFMA Letter, supra note 18, at 12. See
also Tradeweb Letter, supra note 18, at 4; SIFMA
AMG Letter, supra note 18, at 11. Section VII.B,
infra, discusses the exemptions under Rule 833.
536 ISDA–SIFMA Letter, supra note 18, at 12 n.28.
See also CFTC, Cross-Border Application of the
Registration Thresholds and Certain Requirements
Applicable to Swap Dealers and Major Swap
Participants, 85 FR 56924, 56961–63 (Sept. 14,
2020); CFTC Release No. 8212–20 (July 23, 2020)
(CFTC Withdraws ‘‘ANE’’ Staff Advisory and Issues
New Cross-Border No-Action Relief).
537 SIFMA AMG Letter, supra note 18, at 11.
538 See ISDA–SIFMA Letter, supra note 18, at 11
n.26. Specifically, this commenter appreciates the
Commission’s clarification that the ‘‘covered
person’’ definition is a transaction-based test but
believes that the rule text could be more explicit in
such regard by replacing: in prong (2) of the
definition ‘‘a security-based swap’’ with ‘‘that
security-based swap;’’ and in prong (3) of the
definition ‘‘a transaction’’ with ‘‘that security-based
swap transaction.’’
539 See SIFMA AMG Letter, supra note 18, at 11–
12.
540 See supra note 32.
534 See
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that the Commission’s authority with
respect to trade execution is coextensive with the Commission’s
authority to require SBS clearing under
section 3C(a)(1) of SEA.541 And the
clearing requirement of section 3C(a)(1)
provides for SBS clearing when a person
is ‘‘engage[d] in a security-based swap’’
in the United States.542 Thus, consistent
with the Commission’s territorial
approach and Title VII, the relevant
domestic activity that triggers the
execution requirement is engaging in an
SBS in the United States.
Rule 832 fits comfortably within the
bounds of that statutory authority. A
U.S. person undertaking SBS
transactions within the United States is,
as no commenter disputes, engaging in
an SBS in the United States (irrespective
of whether the counterparty is overseas).
And this is true even if the U.S. person
is undertaking the SBS transaction from
a foreign office. As the Commission has
explained, ‘‘a foreign office has no
separate existence from the U.S. person
itself.’’ 543 It is the U.S. based entity that
has legal and financial responsibility for
the SBS transaction and for the ensuing
obligations that will flow from the
transaction over the life of the SBS.
Thus, it is reasonable to understand the
U.S. entity to have engaged in the
United States in the SBS even if the
initial undertaking (i.e., the SBS
transaction) occurred in the entity’s
foreign office.
For similar reasons, a non-U.S. person
who enters an SBS with another nonU.S. person has nonetheless engaged in
an SBS in the United States (at least in
part) if that SBS arrangement is
guaranteed by a U.S. person. When a
non-U.S. person operates with a
guarantee from a U.S. person for the
non-U.S. person’s performance under an
SBS, the SBS arrangement is
economically equivalent and
substantially identical with a
transaction entered into directly with
the U.S. guarantor. With such an
arrangement, an essential element of the
transaction from the viewpoint of the
541 Section 3C(h)(1) of the SEA (requiring trade
execution ‘‘[w]ith respect to transactions involving
security-based swaps subject to the clearing
requirement of subsection (a)(1)’’ of the SEA).
542 Section 3C(a)(1) of the SEA (‘‘It shall be
unlawful for any person to engage in a securitybased swap unless that person submits such
security-based swap for clearing to a clearing
agency that is registered under this Act or a clearing
agency that is exempt from registration . . . .’’).
543 Proposing Release, supra note 1, 87 FR at
28923 (citing Application of ‘‘Security-Based Swap
Dealer’’ and ‘‘Major Security-Based Swap
Participant’’ Definitions to Cross-Border SecurityBased Swap Activities; Republication, SEA Release
No. 72472 (June 25, 2014), 79 FR 47278, 47289
(Aug. 12, 2014) (‘‘2014 Cross-Border Adopting
Release’’)).
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guaranteed person’s counterparty is the
legal and financial obligations such a
guarantee imposes on the U.S. guarantor
(without which there would be no need
to include the U.S. guarantor) and
brings the U.S. person legally and
financially into the transaction as an
interested party. This economic reality
makes it appropriate to include
guaranteed non-U.S. persons within the
definition of ‘‘covered persons’’ in Rule
832.
Further, the statutory language is, in
the Commission’s view, reasonably
understood to encompass a non-U.S.
person who, in connection with its SBS
dealing activity, uses U.S. personnel
located in a U.S. branch or office, or
personnel of an agent of such non-U.S.
person located in a U.S. branch or
office, to arrange, negotiate, or execute
an SBS transaction. These activities rise
to the level of engaging in an SBS in the
United States. Undertaking critical steps
in an SBS transaction qualifies as
engaging in an SBS in the United States,
no less than placing ultimate legal or
financial responsibility for an SBS with
a person in the United States (as occurs
in the cases discussed above of an SBS
transaction involving either a foreign
office of a U.S. person or a U.S.
guarantor).
The Commission’s assessment of the
relevant domestic activities that
constitute engaging in an SBS is
consistent not only with the statutory
text, but also the statutory objectives
underlying the execution requirement.
These objectives include, among other
things, helping to ensure the financial
stability of U.S. persons engaged in SBS
transactions, the promotion of
transparency in price formation for SBS
transactions that have a nexus to the
U.S. securities markets, and the
prevention of manipulation, price
distortion and disruptions of the
delivery or cash settlement process
within the U.S. market system. Each of
the components of Rule 832 helps to
advance one or more of these statutory
goals and, thus, further supports the
Commission’s reasonable understanding
of what constitutes engaging in an SBS
in the United States.544
544 In the alternative, the Commission relies on
the anti-evasion authority of section 30(c) of the
SEA, 15 U.S.C. 78dd(c), as statutory authority for
Rule 832. Section 30(c) authorizes the Commission
to apply Title VII requirements to persons
transacting a business ‘‘without the jurisdiction of
the United States’’ if they contravene rules that the
Commission has prescribed as ‘‘necessary or
appropriate to prevent the evasion of any
provision’’ of Title VII. For example, without Rule
832(b)(2), U.S. persons could have an incentive to
evade the trade execution requirement by engaging
in SBS via a guaranteed affiliate, while the
economic reality of transactions arising from that
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With that general explanation of how
Rule 832 fits comfortably within our
statutory authority, the Commission will
address the specific comments that were
received on the rule. For the reasons
discussed above, the Commission
disagrees with the comment that Rule
832 should not extend the trade
execution requirement to transactions
involving foreign branches of U.S.
persons or guaranteed person
transactions.545 With respect to the
commenter that believes Rule 832’s
definition of ‘‘covered person’’ should
also cover a transaction that includes a
‘‘de facto guarantee’’ by a U.S.
person,546 the Commission appreciates
that, even for an affiliate that is not a
guaranteed person, a dealer or large
trader might be unwilling to allow such
an affiliate to fail because of the
reputational and other consequences
such a failure might have on its
interactions with potential
counterparties. At the same time, given
the lack of a legal obligation by the ‘‘de
facto guarantor,’’ it is not clear how the
Commission could determine—before
the fact—which ‘‘de facto guarantees’’
exist and which such ‘‘de facto
guarantors’’ should be included, or how
market participants, including
counterparties, would be able to
determine the applicability of
Regulation SE to a transaction
potentially subject to a ‘‘de facto
guarantee.’’ Thus, the Commission is
not including ‘‘de facto guarantee’’
transactions within Rule 832’s
definition of ‘‘covered persons.’’
For the reasons discussed above, as
well as the reasons discussed
immediately below, the Commission
also disagrees with the argument that
the Commission should not extend
SBSEF rules, which include mandatory
trade execution, to transactions with
non-U.S. counterparties (even if they
involve guaranteed persons) where the
lack of such rules would have no ability
of posing risk to the U.S. financial
system.547 While Title VII’s trade
execution requirements do not relate to
systemic risk in precisely the same
manner that certain other Title VII
rules—such as capital, margin, and
segregation requirements for SBSDs and
activity—including the risks these transactions
introduce to the U.S. market—would be no different
in most respects than transactions entered into
directly by U.S. persons. See Proposing Release,
supra note 1, 87 FR at 28923 n.228. And, without
Rule 832(b)(3), non-U.S. persons could retain the
benefits of operating in the United States while
avoiding compliance with the trade execution
requirement. See id. at 28923 n.230.
545 See supra note 523 and accompanying text.
546 See supra note 519 and accompanying text.
547 See supra note 524 and accompanying text.
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87215
MSBSPs,548 post-trade reporting and
public dissemination of SBS
transactions,549 registration and
regulation of SBSDs and MSBSPs,550
among others—the Commission
disagrees with the notion that the trade
execution and other SBSEF
requirements are not important in
addressing and mitigating risk,
including potentially systemic risk, to
the U.S. financial system. The
application of the trade execution
requirement to a cross-border SBS
transaction is not simply a matter of
whether a particular form of execution
(such as RFQ-to-3 or the use of an order
book) is required. Instead, the
application of this requirement to such
a transaction would subject the
transaction to the various requirements
of Regulation SE, many of which relate
to mitigating risks to the counterparties
of the transaction and, ultimately, the
U.S. financial system. The Core
Principles for SBSEFs—which are set
forth in the Dodd-Frank Act 551 and
implemented in the rules of Regulation
SE—seek to, among other things,
provide for transparency in price
formation for SBS,552 impartial access to
SBS trading,553 the financial resources
of SBS trading venues,554 the efficient
submission of eligible SBS transactions
to central clearing,555 and the
prevention of manipulation, price
distortion, and disruptions of the
delivery or cash settlement process.556
With respect to commenters’ views
opposing the inclusion of ANE
transactions in Rule 832,557 the
Commission understands that this
differs from the CFTC’s policy towards
ANE transactions and is cognizant of the
potential complexities and costs that
can arise if market participants are
unsure of which jurisdictions’ rules
apply to a particular SBS transaction.
548 See Capital, Margin, and Segregation Release,
supra note 100.
549 See Regulation SBSR Release, supra note 102.
550 See SBSD and MSBSP Registration Release,
supra note 99.
551 Core Principles of section 3D(d) of the SEA,
15 U.S.C. 78c–4(d).
552 See, e.g., Rule 815 (methods of execution);
Rule 816 (trade execution requirement); Rule 825
(Core Principle 8—timely publication of trading
information).
553 See, e.g., Rule 819(c) (Core Principle 2—access
requirements).
554 See, e.g., Rule 829 (Core Principle 12—
financial resources).
555 See, e.g., Rule 823(c) (Core Principle 6—
financial integrity of transactions).
556 See, e.g., Rule 820 (Core Principle 3—SBS not
readily susceptible to manipulation); Rule 821(Core
Principle 4—monitoring of trading and trade
processing); Rule 823 (Core Principle 6—financial
integrity of transactions).
557 See supra notes 527–537 and accompanying
text.
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The Commission also recognizes
commenters’ views that certain foreign
jurisdictions have adopted ‘‘robust’’
regulatory regimes.558 However, the
purpose of Rule 832 is to ‘‘address when
the . . . trade execution requirement
applies to a cross-border SBS
transaction.’’ 559 Absent an exemption,
the trade execution requirement applies
in cross-border contexts wherever
covered persons are involved in an SBS
transaction, regardless of whether the
relevant foreign jurisdictions have
robust regulatory regimes—such as
those the Commission may consider in
connection with a foreign trading
venue’s application to the Commission
for an exemption from the trade
execution requirement under Rule
833(b).560
In adopting Rule 832, the Commission
has been mindful of its impact on CFTCregistered SEFs and, as a commenter
suggests,561 whether they might be
forced to change their rules because of
the Commission’s ANE approach for
SBSEFs. As discussed below in section
VII.B with respect to applications for
exemptions relating to the trade
execution requirement under Rule
833(b), foreign trading venues that have
already received exemptive relief from
the CFTC for swaps trading where
robust regulatory regimes may exist
with requirements comparable to those
applicable to SBS transactions in the
United States may apply for exemptive
relief under Rule 833(b). If exempted
under Rule 833(b), trading of SBS on
such foreign trading venues would not
require CFTC-registered SEFs to change
their rules.562 Similarly, for SBS
transactions that the Commission
exempts from the trade execution
requirement based on an application
submitted under Rule 833(b), the
concerns expressed by commenters
regarding complexities and costs would
no longer be applicable,563 and
558 See
supra note 534 and accompanying text.
Release, supra note 1, 87 FR at
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559 Proposing
28924.
560 See infra section VII.B (discussing crossborder exemptions under Rule 833, including
exemptions relating to the trade execution
requirement under Rule 833(b)). The Commission
may consider, among other things, the extent to
which the SBS traded in a foreign jurisdiction are
subject to a comparable trade-execution
requirement.
561 See supra note 537 and accompanying text.
562 See infra notes 624–627 and accompanying
text.
563 According to one commenter, these issues no
longer apply in the SBS markets given that the
CFTC resolved it ‘‘when it granted equivalency to
major foreign trading platforms in Europe and
Asia.’’ See supra note 526 and accompanying text.
The CFTC has granted orders of exemptions to
certain markets pursuant to CEA section 5h(g),
which authorizes the CFTC to exempt,
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commenters’ concerns regarding the
Commission’s treatment of ANE
transactions should be allayed as well,
because the effect of such exemptions
would likely result in SBS transactions
in foreign jurisdictions with what may
be considered robust regulatory regimes
being exempt from the Commission’s
trade execution requirement and, in
practice, have similar treatment of
transactions on applicable foreign
trading venues as the CFTC. On the
other hand, if the Commission does not
grant an exemption to such an SBS
transaction, that would mean that the
Commission would not have made a
finding that granting such an exemption
would be in the public interest and
consistent with the protection of
investors, in light of any information
submitted with the application which
the Commission may have considered
regarding comparable requirements in
that foreign jurisdiction. For such SBS
transactions, it would be appropriate for
the trade execution requirements to
apply.
The Commission also disagrees with
the characterization of Rule 832 with
respect to ANE transactions as bringing
‘‘a random selection of additional
transactions into scope’’ and the belief
that the location of personnel in the
United States should not form the basis
for applying the Commission’s trade
execution requirement.564 The mere fact
that an entity has personnel located in
the U.S. does not subject an SBS
transaction to the trade execution
requirement; rather, it is the role such
personnel play in arranging, negotiating,
or executing the transaction that brings
them within the definition of ‘‘covered
person’’ for purposes of Rule 832. ANE
transactions would not be a ‘‘random
selection of additional transactions;’’ 565
instead, it would be appropriate to
apply its carefully considered and
tailored guidance given in other Title
VII requirements for the phrase
‘‘arranged, negotiated, or executed’’ for
the purposes of the application of the
trade execution requirement in the
cross-border context.
Specifically, the Commission has
clarified that Title VII requirements
using an ‘‘arranged, negotiated, or
conditionally or unconditionally, a SEF from
registration under CEA section 5h if the CFTC finds
that the facility is ‘‘subject to comparable,
comprehensive supervision and regulation on a
consolidated basis by . . . the appropriate
governmental authorities in the home country of the
facility.’’ See ‘‘Exemption of Foreign Swap Trading
Facilities from SEF Registration,’’ available at
https://www.cftc.gov/International/
ForeignMarketsandProducts/ExemptSEFs.
564 See supra notes 527 and 529 and
accompanying text.
565 See supra note 564 and accompanying text.
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executed’’ test are not triggered in
certain circumstances where the marketfacing activity of U.S. personnel is ‘‘so
limited that it would not implicate the
regulatory interests underlying the
relevant Title VII requirements.’’ 566
Such instances arise when U.S.
personnel provide ‘‘market color’’ in
connection with SBS transactions,
where such market color is ‘‘limited to
background information regarding
pricing or market conditions associated
with particular instruments or with
markets more generally’’ 567 and when
the U.S. personnel have no client
responsibility 568 and do not receive any
transaction-linked compensation.569
However, market-facing activity by
personnel located in the United States
also would not be ‘‘market color’’ (i.e.,
would be considered to be ‘‘arranged,
negotiated, or executed’’) if such activity
involves: providing recommendations,
such as recommending particular
instruments; providing predictions
regarding potential merits or risks of, or
providing trading ideas or strategies
relating to, a proposed security-based
swap transaction; structuring a
particular SBS transaction; or finalizing
or reaching agreement with respect to
any pricing or non-pricing element,
such as underlier, notional amount or
tenor, that must be resolved to complete
an SBS transaction.570
With this existing guidance that
applies to cross-border ANE
transactions subject to Rule 832,571
declining to apply Title VII
requirements to SBS transactions of
foreign entities that use U.S. personnel
to engage in ANE transactions would
allow such entities to exit the Title VII
regulatory regime without exiting the
U.S. market.572 This is problematic
566 See 2019 Cross-Border Adopting Release,
supra note 218, 85 FR at 6274.
567 Id. at 6275–76. Background information
includes information regarding (1) current or
historic pricing, volatility or market depth, and (2)
trends or predictions regarding pricing, volatility, or
market depth, as well as information related to risk
management. See id. at 6275.
568 No client responsibility would mean that the
U.S. personnel have not been assigned, and do not
otherwise exercise, client responsibility in
connection with the transaction. See id. at 6275–76.
569 Not receiving any transaction-linked
compensation means the U.S. personnel do not
receive compensation based on, or otherwise linked
to, the completion of individual transactions on
which the U.S. personnel provide market color. See
id.
570 See id. at 6275.
571 See supra notes 566–570 and accompanying
text.
572 See Proposing Release, supra note 1, 87 FR at
28923 (citing Regulation SBSR—Reporting and
Dissemination of Security-Based Swap Information,
SEA Release No. 78321 (July 14, 2016), 81 FR
53546, 53591 (Aug. 12, 2016) (‘‘Regulation SBSR
Adopting Release II’’)).
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because, as the Commission stated in
the Proposing Release, ‘‘applying the
trade execution requirement to such
persons is necessary or appropriate as a
prophylactic measure to help prevent
the evasion of the provisions of the SEA
that were added by the Dodd-Frank Act,
and thus help prevent the relevant
purposes of the Dodd-Frank Act from
being undermined. Without this rule,
non-U.S. persons could retain the
benefits of operating in the United
States while avoiding compliance with
the trade execution requirement.’’ 573
Finally, with respect to the request by
one commenter that the Commission
revise the ‘‘covered person’’ definition
in Rule 832 to make more explicit that
it is a transaction-based test,574 the
Commission affirms again that the
definition is intended to apply on a
transaction-by-transaction basis,575 and
views the language in the rule (e.g.,
‘‘with respect to a particular securitybased swap’’) as sufficiently clear in this
regard.576
Accordingly, for the reasons
discussed above, the Commission is
adopting Rule 832 as proposed, with
minor technical modifications.577
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B. Rule 833—Cross-Border Exemptions
for Foreign Trading Venues and
Relating to the Trade Execution
Requirement
As discussed above, Rule 832
specifies when the trade execution
requirement applies to an individual
cross-border SBS transaction. When
covered persons (as defined in Rule 832)
are members of a foreign trading venue
for SBS (a ‘‘foreign SBS trading venue’’)
with respect to SBS transacted on that
venue, whether or not such SBS are
subject to the trade execution
requirement, the foreign SBS trading
venue could be required to register with
573 Proposing Release, supra note 1, 87 FR at
28923 n.230. See also supra note 521 and
accompanying text (providing an example of swap
dealers strategically choosing the location of the
desk executing a particular trade in order to avoid
trading in a more transparent and competitive
setting after no-action relief from the trade
execution requirement for ANE transaction).
574 See supra note 538 and accompanying text.
575 See Proposing Release, supra note 1, 87 FR at
28922 n.221 (‘‘The proposed term ‘covered person’
is designed to apply on a transaction-by-transaction
basis.’’).
576 With respect to the commenter that requested
additional clarity with respect to Rule 832, see
supra note 539 and accompanying text, the
Commission’s discussion of the rule in this section
including, for example, the applicability of existing
guidance with respect to ANE transactions and the
availability of exemptions under Rule 833(b) from
the mandatory trade execution requirement as
discussed in section VII.B below, should provide
market participants with more clarity on when and
to whom the rule’s requirements would apply.
577 See supra notes 32 and 540.
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the Commission as a national securities
exchange or SBSEF 578 or, because the
foreign SBS trading venue would be
facilitating the execution of SBS
between persons, a broker.579
To address the situation of a foreign
SBS trading venue that wishes to avoid
registering with the Commission in one
or more of these capacities, the
Commission proposed Rule 833(a). Rule
833(a), which would specify that a
foreign SBS trading venue can request
that the Commission grant it an
exemption under section 36(a)(1) of the
SEA 580 by submitting, pursuant to SEA
Rule 0–12,581 a complete application for
exemptive relief. Rule 833(a) would also
provide that such an application under
section 36(a)(1) and Rule 0–12, relating
to the status of the foreign SBS trading
venue under the SEA, may state that the
application is also submitted pursuant
to Rule 833(a).582 When such an
application is submitted pursuant to
Rule 833(a), the Commission would
consider the submission as an
application to exempt the foreign SBS
trading venue, with respect to its
providing a market place for SBS, from:
the definition of ‘‘exchange’’ in section
3(a)(1) of the SEA; 583 the definition of
‘‘security-based swap execution facility’’
in section 3(a)(77) of the SEA; 584 the
definition of ‘‘broker’’ in section 3(a)(4)
of the SEA; 585 and section 3D(a)(1) of
the SEA.586 Because a foreign SBS
trading venue for which the
Commission grants an exemptive order
578 See 15 U.S.C. 78c–4(a)(1) (stating that no
person may operate a facility for the trading or
processing of SBS, unless the facility is registered
as an SBSEF or national securities exchange).
579 A ‘‘broker’’ is generally defined as a person
engaged in the business of effecting transactions in
securities for the account of others. See Section
3(a)(4) of the SEA, 15 U.S.C. 78c(a)(4). Section
15(a)(1) of the SEA, 15 U.S.C. 78o(a)(1), generally
provides that it shall be unlawful for any broker to
make use of the mails or any means or
instrumentality of interstate commerce to effect any
transactions in, or to induce or attempt to induce
the purchase or sale of, any security unless such
broker is registered in accordance with SEA section
15(b). See also infra section XI (discussing Rule
15a–12).
580 15 U.S.C. 78mm(a)(1).
581 17 CFR 240.0–12 (setting forth procedures for
filing applications for orders for exemptive relief
under section 36 of the SEA).
582 An application for an exemption under Rule
833(a) could be submitted by a foreign SBS trading
venue itself or by another interested party. For
example, a financial regulatory authority in a
foreign jurisdiction could submit an application
under Rule 833(a) on behalf of one or more SBS
trading venues licensed and regulated in that
jurisdiction.
583 15 U.S.C. 78c(a)(1).
584 15 U.S.C. 78c(a)(77).
585 15 U.S.C. 78c(a)(4).
586 15 U.S.C. 78c–4(a)(1) (stating that no person
may operate a facility for the trading or processing
of SBS, unless the facility is registered as an SBSEF
or national securities exchange).
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87217
under SEA section 36 and Rule
833(a) 587 would be exempt from these
definitions and from section 3D(a)(1) of
the SEA, the foreign SBS trading venue
would not be required to register with
the Commission as a national securities
exchange, SBSEF, or broker, or to
comply with other requirements
applicable to such entities under the
SEA or Commission rules thereunder.588
As with other exemptions issued
pursuant to section 36, to issue a Rule
833(a) exemption, the Commission
would be required to find that the
exemption is necessary or appropriate
in the public interest, and consistent
with the protection of investors.589 As
contemplated in section 36(a)(1), the
Commission may issue a Rule 833(a)
exemption with conditions.
The Commission also proposed Rule
833(b), which would address requests
for exemptive relief relating to the
application of the trade execution
requirement to transactions executed on
a foreign SBS trading venue. Rule
833(b)(2) would provide that, in
considering whether to issue a Rule
833(b) exemption, the Commission may
consider: (i) the extent to which the SBS
traded in the foreign jurisdiction
covered by the request are subject to a
trade execution requirement comparable
to that in section 3C(h) of the SEA and
the Commission’s rules thereunder; (ii)
the extent to which trading venues in
the foreign jurisdiction covered by the
request are subject to regulation and
supervision comparable to that under
the SEA, including section 3D of the
SEA, and the Commission’s rules
thereunder; (iii) whether the foreign
trading venue or venues where covered
587 For the remainder of this discussion, an
exemption under SEA section 36 and Rule 833(a)
will be referred to simply as a ‘‘Rule 833(a)
exemption.’’ In addition, the Commission will use
the term ‘‘trading venue covered by an exemption
order under Rule 833’’ (or a similar formulation)
rather than ‘‘exempt exchange,’’ ‘‘exempt SBSEF’’
or ‘‘exempt broker’’ because, pursuant to an
exemption granted under Rule 833(a), the covered
trading venue would no longer be an exchange,
SBSEF, or broker (as defined by the SEA).
588 However, as discussed further below, the Rule
833(a) exemption is designed to address only
activities related to providing a market place for
SBS. An entity that engages in other SBS-related
activity or any activity involving non-SBS securities
would, with respect to such other SBS-related
activity or any activity involving non-SBS
securities, still be subject to any applicable
requirements to register with the Commission as a
national securities exchange, SBSEF, or broker, or
to comply with other requirements applicable to
such entities under the SEA or Commission rules
thereunder.
589 See 15 U.S.C. 78mm(a)(1). Unlike the CFTC,
which has exemptive authority under section 5h(g)
of the CEA, the Commission would not be required
to find that the foreign trading venue is subject to
comparable, comprehensive supervision and
regulation by a U.S. or foreign regulator.
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persons intend to trade SBS have
received an exemptive order
contemplated by Rule 833(a); and (iv)
any other factor that the Commission
believes is relevant for assessing
whether the exemption is in the public
interest and consistent with the
protection of investors.590
As with other exemptions issued
pursuant to section 36, to issue a Rule
833(b) exemption, the Commission
would be required to find that the
exemption is necessary or appropriate
in the public interest, and consistent
with the protection of investors. As
contemplated by section 36(a)(1), the
Commission may issue a Rule 833(b)
exemption with conditions.
One commenter expresses general
support for the establishment of a rule
granting exemptions for foreign trading
venues and for cross-border trade
execution exemptions, noting that
‘‘difficulties that can arise when the
trade execution requirement applies in
two separate jurisdictions’’ and that ‘‘it
is important for market participants and
trading venues to have regulatory
certainty while maintaining flexibility
in where transactions may be
consummated.’’ 591
Another commenter believes the
Commission’s proposed exemption rule
should be made more robust to prevent
evasion of the SBSEF registration and
trade execution requirements. This
commenter believes that Rule 833 does
not provide meaningful standards for
how the Commission will assess
requests for such exemptions, which
this commenter believes is insufficient,
and provides the Commission with
‘‘unreasonably broad, nearly unlimited,
discretion, in how it assess foreign
swaps regulatory frameworks,’’ which
this commenter believes may result in
the Commission ‘‘facilitating evasion of
Title VII.’’ 592 This commenter states
that the Dodd-Frank Act ‘‘requires that
the SEC must, at the very least . . .
make an affirmative determination that
such an application demonstrates that
the exemption could not be used to
evade those requirements[, which
would] require the SEC [to] make a
credible, comprehensive determination
that the foreign regulatory requirements
applicable to the applicant is actually
written, applied and enforced, are the
same as those that would otherwise
apply to the applicant absent an
exemption.’’ 593
One commenter argues that Rule
833(b)’s requirements are unnecessary if
a foreign trading venue has received an
exemption under Rule 833(a), given that
the Commission would be required to
find that the Rule 833(a) exemption is
‘‘necessary or appropriate in the public
interest and consistent with the
protection of investors,’’ which this
commenter believes ‘‘should be
sufficient for the purposes of trading
SBS on foreign trading venues, even
when the trade execution requirement
applies.’’ 594 Thus, this commenter
requests that the Commission ‘‘remove
the 833(b) exemption and clarify that
. . . if a foreign trading venue has been
granted an 833(a) exemption . . ., a
market participant should be permitted
to trade SBS on that venue.’’ 595
Another commenter does not believe
the exemptions in Rule 833 are
sufficiently clear, and requests that the
Commission consider setting forth
charts or examples to better facilitate
compliance.596
With respect to Rule 833(b)
specifically, several comments appear to
anticipate that, in order for a transaction
on a foreign SBS trading venue to
qualify for the trade execution
exemption under Rule 833(b), the
relevant foreign jurisdiction would have
to require RFQ-to-3 or an order book for
Required Transactions.597 One
commenter states that ‘‘the CFTC,
appropriately in our view, recognized
that there are multiple ways that a
regulator can ensure appropriate pretrade transparency and competition,
such that restricting execution methods
to [central limit order books] and RFQto-3 systems are not the only ways to
achieve these objectives. Failing to
recognize this fact in the course of
making comparability determinations
would incorrectly turn the statutory
comparability standard into a test for
identical rules.’’ 598 Two commenters
state that it would be difficult for many
foreign SBS trading venues to
demonstrate comparability if RFQ-to-3
and an order book were required, with
one stating that ‘‘[f]ew jurisdictions
require RFQ to 3, and some do not
593 Id.
590 For
a more detailed discussion of the items in
Rule 833(b)(2) that the Commission may consider,
see Proposing Release, supra note 1, 87 FR at
28925–26.
591 Bloomberg Letter, supra note 18, at 18.
However, as discussed below in this section VII.B,
this commenter criticizes various aspects of Rule
833.
592 Better Markets Letter, supra note 18, at 16.
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594 Bloomberg
Letter, supra note 18, at 7.
595 Id.
596 See
SIFMA AMG Letter, supra note 18, at 11–
12.
597 See Bloomberg Letter, supra note 18, at 6;
Tradeweb Letter, supra note 18, at 5–6; ISDA–
SIFMA Letter, supra note 18, at 14. See also ICE
Letter, supra note 18, at 4.
598 Tradeweb Letter, supra note 18, at 6.
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require SBS to be traded on an
organized trading venue.’’ 599
Two commenters oppose requiring an
exemption under Rule 833 to depend
upon a ‘‘rule-by-rule’’ comparison or
analysis. One commenter states that this
would be ‘‘unduly burdensome and at
odds with the overall goal of achieving
comparable outcomes.’’ 600 The other
commenter requests that the
Commission adopt ‘‘a more flexible
approach to the recognition of foreign
trading venues—one that relies on
holistic outcomes and governing
principles, rather than a rule-by-rule
analysis.’’ 601
Several commenters believe that Rule
833, as they understand it, would result
in various negative consequences. One
commenter states that covered persons
would not be able to fulfill the trade
execution requirement and that, as a
result, market participants would then
be forced to trade on a limited subset of
venues, disrupting liquidity and
requiring them to expend time and
resources in onboarding to a compliant
trading venue.602 Another commenter
warns that ‘‘the limited liquidity in the
SBS market is not going to withstand
significant disruptions, increased costs,
and market fragmentation, thus making
it more likely for market participants to
exit the SBS markets entirely.’’ 603 This
commenter believes that the
Commission’s approach ‘‘will force
market participants to trade SBS within
the jurisdictional borders of the United
States, restricting access to global
liquidity and thus further diminishing
already thin SBS markets,’’ rather than
‘‘the decision where to trade the most
standardized and liquid swaps [being]
dictated by the available liquidity and
599 Bloomberg Letter, supra note 18, at 6. See also
ICE Letter, supra note 18, at 4 (stating that ‘‘EU and
UK based multilateral trading facilities are not
required under their home country regulation to
ensure that a request-for-quote be sent to three
different recipients or offer a central-limit-orderbook’’ and thus the proposed criteria cannot be
satisfied from the outset); Bloomberg Letter, supra
note 18, at 19 (stating that ‘‘at least three
Bloomberg-affiliated [foreign venues] would seek an
exemption’’ but may be ‘‘effectively barred at the
door by the Proposal’s requirement that securitybased swaps are subject to a trade execution
requirement in the foreign jurisdiction that is
comparable to that in 15 U.S.C. 78c–3(h) and the
Commission’s rules thereunder’’); ISDA–SIFMA
Letter, supra note 18, at 14 (stating that hardly any
(if any at all) foreign trading venues would be able
to enjoy an Exempt SBSEF status and that, as far
as the commenter is aware, none of the CFTC
recognized multilateral trading facilities or
organized trading facilities are required to offer a
central limit order books on their platforms).
600 Bloomberg Letter, supra note 18, at 7.
601 ISDA–SIFMA Letter, supra note 18, at 15.
602 See Bloomberg Letter, supra note 18, at 6–7.
See also Tradeweb Letter, supra note 18, at 6.
603 ISDA–SIFMA Letter, supra note 18, at 15. See
also Tradeweb Letter, supra note 18, at 6.
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prices in global markets.’’ 604 Similarly,
another commenter contrasts the
approach taken under Rule 833 with the
approach the CFTC has taken to exempt
certain foreign SEFs from SEF
registration, and states that Rule 833
would prevent covered persons from
trading SBS on such exempt SEFs and
would impair their ability to manage
risk effectively.605 If covered persons are
no longer able to trade SBS on these
venues, this commenter states, they also
‘‘may not find it feasible to trade other
instruments, such as swaps and foreign
corporate debt, due to the bifurcation of
liquidity that will result.’’ 606 This
commenter states that the ability to
combine trading interest in related
products on the same trading platform
is critical to the effective transfer of risk
within the financial system, and
preventing ‘‘this single pool of liquidity
jeopardizes that risk transfer and
impairs price formation and ultimately
increases systemic risk.’’ 607
These commenters argue that the
Commission should instead align with
the CFTC’s approach to exemptions,
which does not require exempt foreign
SEFs to have order books or to satisfy
the RFQ-to-3 requirement, stating that
the CFTC’s ‘‘flexible, outcomes-based
approach serves market participants
well.’’ 608 One commenter argues for the
Commission to avoid the ‘‘unintended
economic disadvantage if other global
market participants avoid trading with
the managers’ non-US fund clients
solely to avoid being subject to the
Commission’s SBSEF requirements’’
and the significant costs and burdens
that would arise if the two regulatory
approaches produce different outcomes
for swaps and SBS.609 These
commenters state that the CFTC has
‘‘already granted exemptions to a
number of foreign trading venues across
jurisdictions in Europe and Asia,’’ 610
with one commenter stating that the
‘‘CFTC process, while imperfect,
provides a more streamlined and
workable approach for the
Commission.’’ 611
These commenters argue that the
Commission should ‘‘ensure that its
proposed approach to granting
exemption will produce outcomes
604 ISDA–SIFMA
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605 See
Letter, supra note 18, at 14.
ICE Letter, supra note 18, at 4.
606 Id.
607 Id.
at 4–5.
608 Bloomberg
Letter, supra note 18, at 7. See also
ISDA–SIFMA Letter, supra note 18, at 14–15;
Tradeweb Letter, supra note 18, at 6.
609 ICI Letter, supra note 18, at 14.
610 Bloomberg Letter, supra note 18, at 7. See also
ICE Letter, supra note 18, at 4. See also ISDA–
SIFMA Letter, supra note 18, at 14.
611 Bloomberg Letter, supra note 18, at 7.
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similar to those of the CFTC’’ so as to
‘‘further harmonize with the CFTC’s
SEF framework, and promote
consistency and simplicity. . . .’’ 612
Several of these commenters
recommend that the Commission grant
automatic exemptions for trading
venues that are currently exempt under
the CFTC’s rules.613 Some commenters
stated that this approach would be
consistent with the Commission’s
general approach of harmonizing closely
with the CFTC’s SEF rules where
appropriate and also stated that, as there
are no distinctions outside of the United
States between the regulation of swaps
and the regulation of SBS, SBS are
currently traded on foreign venues that
have been recognized by the CFTC.614
Three commenters requested that the
Commission recognize such exemptions
(i.e., CFTC-exempt SEFs as ‘‘exempt’’
SBSEFs) at the adoption of Regulation
SE.615 And one of these three
commenters also requests that, in the
alternative, and ‘‘in order to avoid
duplicative or conflicting regulation
. . . the Commission grant an
exemption from the trade execution
requirement if the SBS transaction at
issue is subject to mandatory trading in
another jurisdiction.’’ 616
The Commission has considered the
comments received for Rule 833 and is
adopting the rule as proposed. As the
Commission stated in the Proposing
Release,617 Rule 833(a) is designed to
address only activities relating to
providing a market place for SBS and
would not extend to trading in any other
type of security or to other activities
with respect to SBS.618 A foreign SBS
trading venue covered by an exemptive
order under Rule 833(a) might offer
trading in other types of securities;
however, the exemptive order would
permit covered persons to trade only
SBS on that trading venue without
causing the trading venue to have to
612 ICI Letter, supra note 18, at 14. See also
Bloomberg Letter, supra note 18, at 7, 18; ISDA–
SIFMA Letter, supra note 18, at 14–15; Tradeweb
Letter, supra note 18, at 6.
613 See Bloomberg Letter, supra note 18, at 7, 18;
ISDA–SIFMA Letter, supra note 18, at 14–15;
Tradeweb Letter, supra note 18, at 6.
614 See Bloomberg Letter, supra note 18, at 18–19;
ISDA–SIFMA Letter, supra note 18, at 14–15.
615 See ICE Letter, supra note 18, at 5; ISDA–
SIFMA Letter, supra note 18, at 15; Tradeweb
Letter, supra note 18, at 6.
616 ISDA–SIFMA Letter, supra note 18, at 15.
617 See Proposing Release, supra note 1, 87 FR at
28924.
618 For example, although a foreign trading venue
covered by a Rule 833(a) exemption would be
exempt from the definition of ‘‘broker,’’ that
exemption would extend only to the operation of
a market place for SBS and would not permit the
foreign trading venue to otherwise act as a
securities broker using U.S. jurisdictional means.
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register with the Commission as a
national securities exchange, SBSEF, or
broker. The exemptive order would not
address any registration obligations that
might arise from any other SBS-related
activity or any activity involving nonSBS securities by the foreign trading
venue.619
The bulk of the comments received
opposing Rule 833 appear to emanate
from commenters’ interpretation—and
misunderstanding—of what would be
required in order to receive a Rule
833(b) exemption. The Commission
proposed Rule 833(b) to address
requests for exemptive relief relating to
the application of the trade execution
requirement under section 3C(h) of the
SEA to transactions executed on a
foreign SBS trading venue. Pursuant to
section 3C(h) of the SEA, an SBS that is
subject to the trade execution
requirement must be executed on an
exchange, on an SBSEF registered under
section 3D of the SEA, or on an SBSEF
that is exempt from registration under
section 3D(e) of the SEA.620 As a result,
a covered person (as defined in Rule
832) would not be permitted to execute
an SBS that is subject to the trade
execution requirement on a foreign SBS
trading venue unless that venue has
registered with the Commission as a
national securities exchange or an
SBSEF, or has received an exemption
under section 3D(e) of the SEA.
Several commenters interpret the rule
and the Commission’s discussion of the
rule in the Proposing Release to mean
that a foreign SBS trading venue must
have RFQ-to-3 and an order book for
Required Transactions in order for
transactions on that venue to qualify for
a Rule 833(b) exemption.621 These
commenters, however, are incorrect in
this understanding of the requirements
for a Rule 833(b) exemption.
First, Rule 833(b)(2) does not contain
a list of items that ‘‘are required,’’ but
rather lists items that the Commission
‘‘may consider’’ when it receives a
619 The Commission also emphasizes that a Rule
833(a) exemption would not have any impact on
section 6(l) of the SEA, 15 U.S.C. 78f(l), which
makes it unlawful for any person to effect a
transaction in an SBS with or for a person that is
not an ECP, unless such transaction is effected on
a national securities exchange registered pursuant
to section 6(b) of the SEA. Because a foreign SBS
trading venue covered by a Rule 833(a) exemption
would not be registered as a national securities
exchange, the foreign SBS trading venue would not
be permitted to effect SBS transactions with or for
a covered person that is not an ECP.
620 Section 3D(e) of the SEA gives the
Commission authority to exempt an SBSEF from
registration if it is subject to comparable,
comprehensive supervision and regulation by the
CFTC. See 15 U.S.C. 78c–4(e).
621 See supra notes 597–599 and accompanying
text.
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request for a Rule 833(b) exemption.622
And second, Rule 833(b)(2)(i) states, in
relevant part, that the Commission may
consider ‘‘the extent to which the
security-based swaps traded in the
foreign jurisdiction covered by the
request are subject to a trade execution
requirement comparable to that in
section 3C(h) of the Act . . . and the
Commission’s rules thereunder.’’
(Emphasis added.) In the Proposing
Release, the Commission described this
requirement by stating that ‘‘a trade
execution requirement in a foreign
jurisdiction would not be comparable to
the trade execution requirement under
the SEA if the foreign jurisdiction’s
rules did not require SBS products
subject to that requirement to be
executed through means comparable to
Required Transactions as described in
Rule 815 (e.g., if the foreign jurisdiction
allowed the use of single-dealer
platforms to discharge any mandatory
trading execution requirement in that
jurisdiction).’’ 623 That is, the
Commission’s proposed rule would not
require foreign SBS trading venues to
have RFQ-to-3 and an order book in
order for the Commission to consider
their SBS executions for an exemption
under Rule 833(b).
While, as commenters correctly state,
for Required Transactions, Rule 815
requires SBS transactions to be executed
through a limit order book or an RFQto-3 system,624 neither the text of Rule
833(b) nor the Commission’s description
of Rule 833(b) states that a limit order
book or an RFQ-to-3 system is required
to receive a Rule 833(b) exemption.625
The phrase ‘‘comparable to’’ does not
carry the same meaning as phrases such
as ‘‘identical to’’ or ‘‘substantially
similar to,’’ and the Commission uses
this phrase with respect to Rule 833(b)
exemptions because SBS transactions
would not be disqualified from
receiving a Rule 833(b) exemption
simply because they were not executed
through a limit order book or an RFQto-3 system. Rather, the Commission
agrees with commenters that there may
be foreign SBS trading venues—many of
which have already received exemptive
relief from the CFTC for swaps
trading 626—that may be appropriate
622 Rule
833(b)(2).
Release, supra note 1, 87 FR at
28925 (emphasis added).
624 See supra section V.E (discussing methods of
execution and Rule 815).
625 In the Proposing Release, the Commission
stated its preliminary belief that ‘‘the use of singledealer platforms to discharge any mandatory
trading execution requirement’’ would not meet the
proposed rule’s requirements. See Proposing
Release, supra note 1, 87 FR at 28925.
626 See www.cftc.gov/International/
ForeignMarketsandProducts/ExemptSEFs (listing
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candidates for exemptive relief, that are
subject to what may be considered
robust regulatory regimes for SBS
trading. With respect to such foreign
SBS trading venues, the Commission
encourages market participants to
submit a request for exemptive relief
under Rule 833(b) if they seek to be
exempt from the Commission’s trade
execution requirement for their SBS
transactions.627
Certain commenters also object that,
in their understanding, a Rule 833(b)
exemption request would require a
‘‘rule-by-rule’’ comparison or
analysis,628 which one commenter
characterized as unduly burdensome.629
In addition to Rule 833(b)(2)(i)
discussed above, another relevant factor
(among others) that the Commission
may consider is whether the trading
venues in the foreign jurisdiction are
subject to regulation and supervision
comparable to that under the SEA,
including section 3D of the SEA and the
Commission’s rules thereunder, which
the Commission described in the
Proposing Release to include being
subject to rules designed to foster
foreign swap trading facilities that the CFTC has
exempted from its SEF registration requirements,
including certain such facilities in the European
Union, Japan, and Singapore). Market practices
continued in this regard without change after the
United Kingdom (‘‘UK’’) withdrew from the
European Union, based upon a CFTC staff no-action
letter addressing certain UK swap trading facilities.
See CFTC Letter No. 22–16 (Dec. 1, 2022), available
at https://www.cftc.gov/csl/22-16/download.
627 Several commenters describe the negative
consequences that would occur because, they
believe, the Commission’s Rule 833(b) exemption
would require foreign jurisdictions to require RFQto-3 and order book methods of execution, which
these commenters believe forecloses many foreign
trading venues from obtaining exemptive relief from
the Commission for their SBS trading even though
they have received similar exemptions from their
CFTC. See supra notes 602–611 and accompanying
text. Similarly, one commenter requests that, in the
alternative, the Commission grant an exemption
from the trade execution requirement if the SBS
transaction at issue is subject to mandatory trading
in another jurisdiction. See supra note 616 and
accompanying text. As the Commission has
explained, Rule 833(b) exemptions are not limited
to those jurisdictions that require RFQ-to-3 and
order books, but rather Rule 833(b)(2)(i) states that
the Commission may consider the extent to which
SBS transactions are subject to a trade execution
requirement comparable to such methods of
execution. Accordingly, SEFs would not be
foreclosed from obtaining exemptive relief from the
Commission for their SBS trading. For this reason,
the Commission also does not agree with the
commenter’s suggested alternative to grant an
exemption from the trade execution requirement if
the SBS transaction at issue is subject to mandatory
trading in another jurisdiction, because exemptive
relief under 833(b) may be applied for in such
instances, which would give the Commission the
opportunity to appropriately consider the
applicable facts and circumstances.
628 See supra notes 600–601 and accompanying
text.
629 See supra note 600 and accompanying text.
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comparable levels of pre- and post-trade
transparency, access, and liquidity.630
An 833(b) exemptive request
generally should include an analysis
that could assist the Commission’s
determination as to whether the
regulation and supervision of a foreign
SBS trading venue in an applicable
foreign jurisdiction is subject to
regulation and supervision comparable
to that under the SEA. Given the central
roles the jurisdiction’s applicable laws,
rules and regulations, as well as a
foreign SBS trading venue’s own rules,
play in such a determination, an
exemptive request generally should
include an analysis of these
requirements. A precise form of any
such analysis—whether it is done as a
‘‘rule-by-rule’’ comparison or through
some other methodology (e.g., in a more
holistic manner)—is not specified by
Rule 833(b), would be at the discretion
of the entity submitting the exemptive
request, and should be provided in
order to help the Commission and its
staff understand what requirements
apply to the foreign SBS trading venue.
With respect to the comments that the
Commission should automatically
provide exemptions for foreign trading
venues that have received a parallel
exemption from the CFTC for their SEF
trading,631 and that the Commission
should do so contemporaneously with
adopting Regulation SE,632 while doing
so would promote consistency,
simplicity, and harmonization with the
CFTC’s SEF rules, such a blanket
exemption would not afford the
Commission the opportunity to
appropriately consider the relevant facts
and circumstances in support of a
finding that an exemption is necessary
or appropriate in the public interest and
consistent with the protection of
investors. However, persons interested
in submitting a request for exemptive
relief should be mindful of the
implementation period that will take
place before Regulation SE’s
requirements take effect, as described in
more detail below.633
With respect to the comment that the
provisions of Rule 833 are not robust
enough,634 the Commission disagrees.
Importantly, in order to issue any
exemption under Rule 833, the
Commission would be required to find
that the exemption is necessary or
630 See Proposed Rule 833(b)(2)(ii) and Proposing
Release, supra note 1, 87 FR at 28925.
631 See supra notes 612–615 and accompanying
text.
632 See supra note 615 and accompanying text.
See also supra note 626.
633 See infra section VIII. See also infra note 787
and accompanying text.
634 See supra note 593 and accompanying text.
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appropriate in the public interest and
consistent with the protection of
investors, and the Commission may
issue the exemptive relief with
conditions. A blanket grant of
exemptive relief would be inconsistent
with carefully considering whether a
specific exemptive request meets the
applicable standard and might lead to a
greater percentage of SBS transactions
being executed beyond the scope of any
U.S. regulatory oversight.
Finally, the Commission disagrees
with the commenter that suggested that
Rule 833(b)’s requirements are
unnecessary if a foreign trading venue
has received an exemption under Rule
833(a).635 The two exemptions under
Rule 833 provide exemptive relief from
different requirements of the SEA and
are also directed at different entities.
Specifically, a Rule 833(a) exemption
provides exemptive relief to a foreign
trading venue that, absent the
exemption, could be required to register
with the Commission as an exchange,
SBSEF, and/or broker if it traded SBS
(regardless of whether such SBS are
subject to the trade execution
requirement). On the other hand, Rule
833(b)’s exemption provides exemptive
relief to the counterparties of an SBS
transaction with respect to the trading
execution requirement in section 3C(h)
of the SEA.636
Accordingly, for the reasons
discussed above, the Commission is
adopting Rule 833 as proposed.
VIII. Rule 834—Implementation of
Section 765 of the Dodd-Frank Act and
Governance of SBSEFs and SBS
Exchanges
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Section 765(a) of the Dodd-Frank
Act 637 provides in relevant part that, to
mitigate conflicts of interest, the
Commission ‘‘shall adopt rules which
may include numerical limits on the
control of, or the voting rights with
respect to’’ any clearing agency that
clears SBS, or on the control of any
SBSEF or SBS exchange by certain bank
holding companies, certain nonbank
financial companies, an affiliate of such
a bank holding company or nonbank
financial company, an SBS dealer, major
SBS participant, or person associated
with an SBS dealer or major SBS
635 See
supra note 595 and accompanying text.
respect to the commenter that requested
additional clarity with respect to Rule 833, see
supra note 596 and accompanying text, the
Commission’s discussion of the exemptions,
including the standard of ‘‘comparable to’’ and the
type of analysis that should be presented, should
provide market participants with more clarity on
how a person could seek exemptive relief.
637 15 U.S.C. 8343.
636 With
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participant.638 Section 765(b) states that
the purpose of the statutory provision is
‘‘to improve the governance of, or to
mitigate systemic risk, promote
competition, or mitigate conflicts of
interest in connection with’’ an SBS
dealer or major SBS participant’s
conduct of business with, a clearing
agency, SBSEF, or SBS exchange and in
which such SBS dealer or major SBS
participant ‘‘has a material debt or
equity investment.’’ Finally, section
765(c) provides in relevant part that, in
adopting rules pursuant to section 765,
the Commission shall consider any
conflicts of interest arising from the
amount of equity owned by a single
investor, the ability to vote, cause the
vote of, or withhold votes entitled to be
cast on any matters by the holders of the
ownership interest.
In 2010, the Commission proposed
Regulation MC to implement section
765.639 In view of the significant
amount of time that had elapsed and the
significant evolution in the swap and
SBS markets since the proposal of
Regulation MC, the Commission
withdrew that proposal,640 and
proposed Rule 834 to implement section
765 of the Dodd-Frank Act with respect
to SBSEFs and SBS exchanges.641
A. Rule 834(a)
Paragraph (a) of Proposed Rule 834
would define terms used in Rule 834.
The Commission received no comments
on of Proposed Rule 834(a) and is
adopting Rule 834(a) as proposed for the
reasons stated in the Proposing Release.
B. Rule 834(b)
Paragraph (b) of Proposed Rule 834
would impose a cap on the size of the
voting rights that an individual member
of an SBSEF or SBS exchange may own
638 The Commission recognizes that promulgating
rules under section 765 alone will not result in a
highly competitive market for SBS. There could be
other ways for anticompetitive forces to impede the
growth of SBS trading on transparent, regulated
platforms other than by misuse of a large voting
interest in the trading venue. For example, a large
SBS dealer or coalition of SBS dealers, even absent
any voting interest in any SBSEF or SBS exchange,
could threaten to move their business elsewhere
unless given an unfair advantage by the trading
venue. A large SBS dealer or coalition of SBS
dealers also could conspire to shut out end users
who sought to trade more actively on these
transparent, regulated venues rather than
continuing to trade in the bilateral OTC markets.
The Commission will be alert to any such
anticompetitive practices and consider appropriate
prophylactic measures. At present, adopting rules
under section 765 is a necessary and appropriate
first step to guard against conflicts of interest
arising on SBSEFs and SBS exchanges. See
Proposing Release, supra note 1, 87 FR at 28930.
639 See Regulation MC Proposal, supra note 21.
640 See Proposing Release, supra note 1, 87 FR at
28874.
641 See id. at 29001–03.
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87221
or direct, barring an SBSEF or SBS
exchange from permitting any of its
members, either alone or together with
any officer, principal, or employee of
the member, to:
(1) Own, directly or indirectly, 20%
or more of any class of voting securities
or of other voting interest in the SBSEF
or SBS exchange; or
(2) Directly or indirectly vote, cause
the voting of, or give any consent or
proxy with respect to the voting of, any
interest that exceeds 20% of the voting
power of any class of securities or of
other ownership interest in the SBSEF
or SBS exchange.
One commenter supports the
Commission’s goal to adopt rules that
aim to achieve better governance and
mitigation of conflicts of interest that
arise out of the operation of SBSEFs, but
the commenter opposes Rule 834
because it believes that the rule would
disrupt the closely harmonized rules
with the CFTC, as the CFTC has not
adopted corresponding provisions for its
SEF registrants. This commenter
recommends that the Commission, like
the CFTC, should focus on board
governance, conflicts of interest, and
antitrust considerations rather than
proscriptive, bright line rules. The
commenter states that the Commission’s
concerns regarding conflicts of interest
‘‘can best be addressed by ensuring
compliance with the SBSEF Core
Principles rather than an additional
regulation,’’ 642 and specifically that the
proposed 20 percent limitation on the
voting interest that may be held by
members of any SBSEF or SBS exchange
‘‘goes beyond what is necessary to
effectively mitigate conflicts of
interest.’’ 643 Rather, this commenter
states, the ownership limit would limit
access to necessary capital and act as
barriers to entry for SBSEFs and SBS
exchanges. The commenter also states
that section 765 of Dodd-Frank does not
require the Commission to restrict the
ability to hold significant ownership
interests in SBSEFs and that the
statutory language instead provides that
the Commission is authorized to adopt
rules upon determining, after review,
that such restrictions are necessary or
appropriate to improve the governance
of SBSEFs or to mitigate systemic risk,
to promote competition, or mitigate
conflicts of interest.644
Another commenter states that that
the proposed 20% voting cap
requirement could potentially thwart
the Commission’s objective to ensure
that only incremental changes would be
642 SIFMA
AMG Letter, supra note 18, at 12.
643 Id.
644 See
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necessary to adopt the SBSEF
framework. The proposed cap, this
commenter states, may require SEFs to
set up an entirely new legal entity with
a different governance structure, making
it more challenging to obtain dual
registration. The commenter also states
that the conflicts of interest rules
implemented by the CFTC, which do
not include a 20% voting cap,
sufficiently address any conflicts of
interest concerns, as SEFs have operated
under those rules for almost 10 years,
and there have been no observable
issues that would warrant such a
regulatory shift.645
One commenter states that it strongly
opposes Rule 834 and that, as written,
Rule 834 would have the effect of
prohibiting certain SBSEF participants
from having common ownership and
control as the SBSEF. An SBSEF, the
commenter states, would likely not be
able to onboard an affiliated introducing
broker, even if the introducing broker
would be subject to the same rules and
practices as an unaffiliated participant.
The commenter states that some CFTCregistered SEFs, including the
commenter’s member firms, have
affiliated introducing-broker
participants that execute their
respective swaps business on their
affiliated SEFs, and the affiliated
transactions make up a majority of the
SEF’s business. The commenter states
that these firms may choose not to
register as an SBSEF and take on the
costs and burdens of being an SBSEF if
they cannot accommodate their
affiliate’s trade execution needs, which
would thwart the goal of developing a
competitive landscape of regulated SBS
market places.646
This commenter further states that it
and many others previously opposed
these hard caps when they were
proposed in 2010, and that—with a
decade of experience operating SEFs
and venues for other financial products,
including Commission regulated
alternative trading systems—the
commenter still believes the rule’s
approach is ‘‘too heavy-handed’’ a way
to solve a problem that has been more
than adequately addressed through less
burdensome measures.647 The
commenter states that the CFTC never
adopted its proposed ownership/
governance prohibition for SEFs, that
the CFTC’s existing conflicts of interest
rules have proven satisfactory, and that,
rather than mandating ownership limits,
the Commission should instead permit
SBSEFs to exercise reasonable
645 See
646 See
ISDA–SIFMA Letter, supra note 18, at 16.
WMBAA Letter, supra note 18, at 2.
647 Id.
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discretion as to its mechanisms for
mitigating conflicts of interest and
should rely instead on the conflict of
interest and antitrust provisions already
embedded in the SBSEF regulatory
regime.648
The Commission has considered the
comments and, as discussed below, is
modifying Proposed Rule 834 to provide
an exemption from the ownership and
voting caps for an SBSEF that has
mitigated the potential conflict of
interest with respect to compliance with
the rules of the SBSEF by entering into
an agreement with a registered futures
association or a national securities
association for the provision of
regulatory services that encompass, at a
minimum, real-time market monitoring,
investigations, and investigation reports.
The 20% cap in Proposed Rule 834(b)
is designed to balance competing policy
interests. On one hand, execution
venues need capital, expertise, and
liquidity to establish and grow.
Historically, market participants who
become members of an execution venue
are a source of all three components,
and any person contributing capital to a
new venture might reasonably expect to
have a voting interest commensurate
with the amount of capital contributed.
Too low a cap, even if imposed in the
name of eliminating conflicts of interest,
could have the unintended effect of
impeding the development of execution
venues for SBS altogether, if market
participants who become members have
no (or substantially limited) ability to
vote their equity interest.
On the other hand, allowing a
member of an SBSEF or SBS exchange
too large a voting interest could
undermine the public policy benefits of
having transparent, fair, and regulated
markets for the trading of SBS. A
member of an SBSEF or SBS exchange
with a sufficiently large voting interest
could exercise undue influence over the
rules and policies applicable to
members, the venue’s access criteria,
decisions regarding access, and
disciplinary matters, among other
things. In particular, members who are
SBS dealers and conduct a significant
amount of business in the bilateral OTC
market have incentives to restrict the
scope of SBS that an SBSEF or SBS
exchange makes eligible for trading.
Trading in a market with robust order
competition and pre-trade transparency
reduces search costs for end users and
liquidity seekers and reduces the
information and bargaining asymmetry
of end users and liquidity seekers
relative to SBS dealers. An SBS dealer
with a large voting interest in an SBSEF
648 See
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or SBS exchange, if it perceived that
trading on the regulated venue was
diminishing the rents obtained from its
bilateral OTC business, might seek to
utilize its voting influence in a number
of ways to degrade the capability of the
regulated venue, thus making the OTC
market by comparison a more attractive
option.
Capping a member’s voting interest at
20% strikes a reasonable balance
between these competing interests,
absent additional measures to ensure
that a member or members with large
voting power could tilt the playing field
in their favor. And the Commission does
not agree with the comment that a more
general focus on board governance,
conflicts of interest, and antitrust
considerations, or on simply ensuring
compliance with the SBSEF Core
Principles,649 is sufficient to address
this concern because, based on its long
experience in regulating the markets on
which the instruments underlying SBS
trade, the ownership and voting
structure of a regulated entity can give
rise to conflicts of interest between the
organization’s business interests and its
regulatory obligations. Further, even if
the CFTC has not to date adopted its
own ownership and governance
prohibitions for SEFs, the appropriate
comparison with respect to ownership
and governance for SBSEFs is national
securities exchanges, because both types
of entities operate markets to which fair
or impartial access requirements
comprehensively apply.650 Therefore,
SBSEFs should be subject to ownership
restrictions that are similar to those in
the rules of national securities
exchanges, as approved by the
Commission, which limit ownership by
any one member and do not permit an
exchange to merely ‘‘exercise reasonable
discretion’’ with respect to its
mechanisms for mitigating conflicts of
interest.
The Commission, however,
appreciates the concerns expressed by
commenters that a cap of 20% on voting
interest in all cases could prevent
would-be SBSEFs from onboarding their
affiliated introducing brokers, and that
the burdens imposed in setting up an
SBSEF that is legally remote from
affiliated introducing brokers may
dissuade current SEFs from registering
as SBSEFs, which would lead to their
ceasing to offer SBS trading on their
649 See
supra note 642.
SEA sections 6(b)(2) and 6(c), 15 U.S.C.
78f(b)(2) and 78f(c). Alternative Trading Systems,
by contrast, are subject to ‘‘fair access’’
requirements only if they meet certain volume
trading thresholds. See Rule 301(b)(5)(i), 17 CFR
242.301(b)(5)(i).
650 See
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platforms.651 Therefore, the Commission
is modifying Rule 834 as proposed to
add new paragraph (b)(3) to provide an
exemption from the 20% cap for an
SBSEF that has entered into an
agreement with a registered futures
association or a national securities
association for the provision of
regulatory services that encompass, at a
minimum, real-time market monitoring
and investigations and investigation
reports.
This exemption, which is conditioned
upon an SBSEF conducting its market
monitoring and investigative activities
through a self-regulatory body that has
broader membership than an individual
SBSEF and that does not operate its own
SBSEF, would mitigate concerns that
members with large ownership shares
might be given preferential treatment
with respect to their compliance with
the SBSEF’s rules. And the exemption
should also, by permitting SBSEFs to
exceed the 20% ownership and voting
cap, serve to facilitate the formation and
registration of SBSEFs, thereby also
facilitating the movement of SBS trading
to venues that are more transparent and
that have affirmative regulatory
obligations.
The Commission acknowledges that
this exemption, because it focuses on
surveillance and compliance functions,
does not directly address concerns
about an SBSEF adopting rules that
hamper impartial access to an SBSEF,
restrict the scope of SBS that might
trade on a given SBSEF, or degrade the
capability of a given SBSEF in ways that
would favor a member’s OTC SBS
business. These concerns, however, can
be addressed in other ways. With
respect to impartial access, the
requirements of Proposed Rule 819(c),
together with the guidance the
Commission has provided regarding the
application of that rule,652 set clear
limits on the ability of an SBSEF to
favor the interest of any members,
including its large members, by unfairly
excluding other market participants.
And competition among SBSEFs will
discourage any individual SBSEF from
declining to list particular SBS or from
degrading the capability of the SBSEF to
favor a member, as trading in the
affected SBS may migrate not to the
OTC market, but to a direct competitor.
Because the Commission has
modified Proposed Rule 834 to provide
for an exemption from the 20%
ownership and voting cap, it is not the
case that, as one commenter states,
existing SEFs would necessarily be
required to set up a new legal entity to
651 See
652 See
supra notes 645–648.
infra section VI.B.3.
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19:22 Dec 14, 2023
operate an SBSEF, making it more
challenging to obtain dual registration
and potentially thwarting the
Commission’s objective to ensure that
only incremental changes would be
necessary to adopt the SBSEF
framework. And although the
Commission’s proposed ownership rule
departs from the CFTC’s rules for SEFs,
which do not include caps on
ownership or voting, the Commission is
also mindful of the trading relationship
between SBS and their underlying
securities—which trade on exchanges
that have a similar 20% ownership and
voting cap as a result of their
Commission-approved rules—and the
Commission wishes to avoid creating a
regulatory incentive for activity to
migrate from trading securities on
national securities exchanges to trading
SBS on SBSEF. For similar reasons, it
would not be appropriate to extend the
exemption in new paragraph (b)(3) of
Proposed Rule 834 to SBS exchanges.
Providing an exemption from the 20%
ownership and voting cap requirements
for SBS exchanges in Proposed Rule
834(b)(1) would result in different
treatment from other national securities
exchanges simply because one set of
exchanges trades SBS, and this is not a
sufficient reason to permit different
ownership structures only for those
exchanges, as this could lead to
regulatory arbitrage by creating
incentives for new exchanges to register
first as SBS exchanges, without the
ownership and voting caps, and then
seek to amend their rulebooks to
commence trading in cash equities. As
it stated in the Proposing Release, the
Commission proposed to apply the 20%
ownership and voting on SBS exchanges
based on its ‘‘long experience with
handling questions of member influence
over national securities exchanges
raised in applications to register with
the Commission on Form 1 and in
governance rule filings made on SEA
Form 19b–4,’’ 653 and SBSEF rules
seeking to manage conflicts of interest
would not by themselves be sufficient to
mitigate conflict-of-interest concerns
when those concerns arise from one or
a few SBS dealers or a major SBS
participants having majority voting
rights in an SBSEF or SBS exchange in
which they are a member.
Finally, the Commission reiterates
that Proposed Rule 834(b) would cover
both direct and indirect voting interests.
The purpose of including indirect
voting interest is to prevent potential
circumvention of the 20% cap if, for
example, a member placed its voting
653 See Proposing Release, supra note 1, 87 FR at
28927 and n.257.
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87223
interest in an SBSEF or SBS exchange
of 20% or more in a shell company or
other affiliate and directed how the
shell company or affiliate casts those
votes. Accordingly, Proposed Rule
834(b) would look through the nonmember entities holding interests in
SBSEFs and SBS exchanges to consider
whether any member could indirectly
control 20% or more of the voting
interest through the non-member entity
having the direct interest. Furthermore,
Proposed Rule 834(b) would look
through the corporate structure of the
SBSEF or SBS exchange to consider
whether any member could indirectly
have 20% or more of the voting interest
in the underlying trading venue. For
example, an SBSEF or SBS exchange
could be wholly owned by a holding
company. In such a case, the voting
restriction in Proposed Rule 834(b)
would apply to the voting interest in the
parent holding company held by a
member of the child SBSEF or SBS
exchange, since a direct voting interest
of 20% or more in the parent would
equate to an indirect voting interest of
20% or more in the child trading venue.
And, similar to its approach to
indirect voting interest, Proposed Rule
834(b) would aggregate the voting
interest of the member itself with the
voting interest held by any officer,
principal, or employee of the member
for purposes of determining compliance
with the 20% cap. Without this
provision, the member—or an officer,
principal, or employee of the member—
could split the voting interest held in
the SBSEF or SBS exchange across
multiple persons who would likely be
voting that interest in concert, thereby
potentially acting as a conflict of
interest. The Commission did not
receive comments on the aggregation-ofinterest aspect of Proposed Rule 834(b).
For these reasons, the Commission is
adopting Rule 834(b) with the
modifications discussed above.
C. Rule 834(c)
Paragraph (c) of Proposed Rule 834
would include requirements designed to
reinforce the 20% cap in paragraph (b).
Paragraph (c) would require the rules of
each SBSEF and SBS exchange to be
reasonably designed, and have an
effective mechanism, to:
(1) Deny effect to the portion of any
voting interest held by a member in
excess of the 20% limitation;
(2) Compel a member who possesses
a voting interest in excess of the 20%
limitation to divest enough of that
voting interest to come within that limit;
and
(3) Obtain information relating to its
ownership and voting interests owned
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or controlled, directly or indirectly, by
its members.
The Commission received no
comments on Proposed Rule 834(c) and
is adopting Rule 834(c) as proposed,
with minor technical modifications,654
for the reasons stated in the Proposing
Release.
D. Rule 834(d)
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Paragraph (d) of Proposed Rule 834 is
designed to mitigate conflicts of interest
in the disciplinary process of an SBSEF
or SBS exchange and would provide as
follows: ‘‘Each security-based swap
execution facility and SBS exchange
shall ensure that its disciplinary
processes preclude any member, or
group or class of its members, from
dominating or exercising
disproportionate influence on the
disciplinary process. Each major
disciplinary committee or hearing panel
thereof shall include sufficient different
groups or classes of its members so as
to ensure fairness and to prevent special
treatment or preference for any person
or member in the conduct of the
responsibilities of the committee or
panel.’’ Paragraph (d) of Proposed Rule
834 would recognize that one way that
a conflict of interest could manifest
itself is in the disciplinary process.
Therefore, the Commission proposed, as
the first sentence of Proposed Rule
834(d), that each SBSEF and SBS
exchange should ‘‘preclude any
member, or group or class of its
members, from dominating or exercising
disproportionate influence on the
disciplinary process.’’
The second sentence of Proposed Rule
834(d) is adapted from § 1.64 of the
CFTC’s rules, which addresses the
composition of various SRO governing
boards and major disciplinary
committees.655 Proposed Rule 834(d)
would reflect the Commission’s belief
that an SBSEF or SBS exchange should
be mindful of its different membership
interests, and how they are represented
on disciplinary committees and hearing
panels in particular matters, to avoid
potential conflicts of interest.
The Commission received no
comments on Proposed Rule 834(d) and
is adopting Rule 834(d) as proposed for
654 The Commission has corrected an internal
cross-reference within Proposed Rule 834.
655 Proposed Rule 834(a)(2) would define ‘‘major
disciplinary committee’’ as a committee of persons
who are authorized by an SBSEF to conduct
disciplinary hearings, to settle disciplinary charges,
to impose disciplinary sanctions, or to hear appeals
thereof in cases involving any violation of the rules
of the SBSEF except those which are related to
decorum or attire, financial requirements, or
reporting or recordkeeping and do not involve
fraud, deceit, or conversion.
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the reasons stated in the Proposing
Release.
E. Rule 834(e)
Paragraph (e) of Proposed Rule 834 is
closely modeled on § 1.64(b). Paragraph
(e)(1)(i) would require each SBSEF and
SBS exchange to ensure that 20% or
more of the persons who are eligible to
vote routinely on matters being
considered by the governing board
(excluding those members who are
eligible to vote only in the case of a tie
vote by the governing board) are persons
who are knowledgeable of SBS trading
or financial regulation, or otherwise
capable of contributing to governing
board deliberations. Paragraphs (e)(1)(ii)
through (v) of Proposed Rule 834 are
based on four of the prongs in
§ 1.64(b)(1)(ii) and would provide that
20% or more of the persons who are
eligible to vote routinely on matters
being considered by the governing board
(excluding those members who are
eligible to vote only in the case of a tie
vote by the governing board) must not
be: members of the SBSEF or SBS
exchange; 656 salaried employees of the
SBSEF or SBS exchange; primarily
performing services for the SBSEF or
SBS exchange in a capacity other than
as a member of the governing board; or
officers, principals, or employees of a
firm which holds a membership at the
SBSEF or SBS exchange, either in its
own name or through an employee on
behalf of the firm.
Paragraph (e)(2) of Proposed Rule 834,
modeled on § 1.64(b)(3), would require
each SBSEF and SBS exchange to
ensure that membership of its governing
board includes a diversity of groups or
classes of its members.
The Commission did not receive
comments on Proposed Rule 834(e) and
is adopting Rule 834(e) as proposed, for
the reasons stated in the Proposing
Release.
F. Rule 834(f)
Paragraph (f) of Proposed Rule 834 is
based closely on § 1.64(d) and would
require each SBSEF and SBS exchange
to submit to the Commission, within 30
days after each governing board
election, a list of the governing board’s
members, the groups or classes of
members that they represent, and how
the composition of the governing board
otherwise meets the requirements of
Rule 834.
656 Proposed Rule 834(e)(1)(ii), read together with
Proposed Rule 834(b), would allow four members
of an SBSEF or SBS exchange to control up to 80%
of the voting interest (assuming that each of the four
holds 20%). Under Proposed Rule 834(e)(1)(ii), at
least 20% of the voting interest would have to be
held by non-members.
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The Commission received no
comments on Proposed Rule 834(f) and
is adopting Rule 834(f) as proposed for
the reasons stated in the Proposing
Release.
G. Rule 834(g)
Paragraph (g) of Proposed Rule 834 is
modeled on § 1.69, which requires an
SRO to further address the avoidance of
conflicts of interest in the execution of
its self-regulatory functions. Proposed
Rule 834(g) closely follows the
paragraph structure and language of
§ 1.69, with a few minor exceptions
(beyond modifying the rule’s
application to SBSEFs and SBS
exchanges, rather than, in the CFTC
original, all SROs). First, paragraph
(g)(1)(i)(A) of Proposed Rule 834 is
based closely on § 1.69(b)(1)(i) and
would set out the types of relationships
with the named party of interest that
would create a conflict of interest for a
member of the governing board,
disciplinary committee, or oversight
panel.657 Second, Proposed Rule
834(g)(1)(ii)(C) is a simplified version of
§ 1.69(b)(2)(iii). Rather than
incorporating the first four prongs of
§ 1.69(b)(2)(iii), which cross-reference
definitions elsewhere in the CFTC’s
rules, Rule 834(g)(1)(ii)(C) would
instead incorporate only the final, catchall prong, which would cover any
positions held by any member of an
SBSEF’s governing board, disciplinary
committees, or oversight committees
that would have been covered under the
other four prongs.658 Third, Proposed
Rule 834(g)(1)(ii)(C) would omit a
requirement in § 1.69(b)(2)(iv) that an
SRO, when making a determination of
whether a conflict of interest exists,
must take into consideration ‘‘[t]he most
recent large trader reports and clearing
records available to the self-regulatory
organization.’’ These types of reports
657 Paragraph (g)(1)(i)(A) of Proposed Rule 834,
however, would incorporate only four of the five
prongs in § 1.69(b)(1)(i). The Commission did not
propose to include a prong about being associated
with a named party of interest through a ‘‘broker
association,’’ as defined in § 156.1 of the CFTC’s
rules, as that concept does not exist under the SEA.
658 Thus, the relevant language in Rule
834(g)(1)(ii)(C) would read, ‘‘Such determination
must include a review of any positions, whether
maintained at that security-based swap execution
facility, SBS exchange, or elsewhere, held in the
member’s personal accounts or the proprietary
accounts of the member’s affiliated firm that the
security-based swap execution facility or SBS
exchange reasonably expects could be affected by
the significant action.’’ Proposed Rule 834(a)(3)
would define a ‘‘member’s affiliated firm’’ as a firm
in which the member is a principal or an employee,
and Proposed Rule 834(a)(5) would define
‘‘significant action’’ to include several types of
actions or rule changes by an SBSEF or SBS
exchange that could be implemented without the
Commission’s prior approval related to addressing
an emergency and certain changes in margin levels.
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may not be as prevalent in the securities
and SBS markets as the swaps market.
The final, catch-all prong in
§ 1.69(b)(2)(iv)—‘‘Any other source of
information that is held by and
reasonably available to the selfregulatory organization’’—would
suffice, and proposed it as Rule
834(g)(1)(ii)(C)(2).
The Commission did not receive
comments on paragraph (g) of Proposed
Rule 834 and is adopting Rule 834(g) as
proposed, for the reasons stated in the
Proposing Release.
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H. Rule 834(h)
Proposed Rule 834(h) would require
each SBSEF and SBS exchange to
maintain in effect various rules that
would be required under Rule 834. An
SBSEF would be required to file these
rules under Rule 806 or Rule 807 of
Regulation SE; an SBS exchange would
be required to file such rules under
existing SEA Rule 19b–4.659 Proposed
Rule 834(h) is loosely modeled on
various provisions in §§ 1.64 and 1.69
providing that the SRO rules required
under those CFTC rules must be filed
with the CFTC pursuant to relevant
provisions of the CEA and the CFTC’s
rules thereunder.
The Commission received no
comments on Proposed Rule 834(h) and
is adopting Rule 834(h) as proposed for
the reasons stated in the Proposing
Release.
IX. Rule 835—Notice to Commission by
SBSEF of Final Disciplinary Action,
Denial or Conditioning of Membership,
or Denial or Limitation of Access
The Commission proposed Rule 835
to require an SBSEF to provide the
Commission notice of a final
disciplinary action, a final action with
respect to a denial or conditioning of
membership, or a final action with
respect to a denial or limitation of
access. Such notice is designed to
ensure that the Commission is kept
aware of significant disciplinary actions,
denials or conditionings of membership,
or denials or limitations on access by
SBSEFs that could be the subject of an
aggrieved person’s request for review by
the Commission. The requirement to
provide notice to the Commission
would also obligate an SBSEF to be
cognizant of, and make records for, each
such instance, and such records would
become a necessary part of the record
should the aggrieved person seek
Commission review of the SBSEF’s
action.
Specifically, paragraph (a) of
Proposed Rule 835 would provide that,
659 17
CFR 240.19b–4.
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if an SBSEF issues a final disciplinary
action against a member, or takes a final
action with respect to a denial or
conditioning of membership, or a final
action with respect to a denial or
limitation of access of a person to any
services offered by the SBSEF, the
SBSEF shall file a notice of such action
with the Commission within 30 days
and serve a copy on the affected person.
Proposed Rule 835(a) would use the
phrase ‘‘final disciplinary action against
a member’’ (emphasis added) because
an SBSEF may utilize its disciplinary
authority under Core Principle 2
(Compliance with Rules) in section 3D
of the SEA 660 only with respect to its
members; but uses the phrase ‘‘denies or
limits access of a person’’ (emphasis
added) because the person whose access
is denied or limited might not be a
member. For example, a person that is
denied membership by an SBSEF would
fall under this category.
Paragraph (b)(1) of Proposed Rule 835
would provide that, for purposes of
paragraph (a), a disciplinary action
would not be considered final unless:
(1) the affected person has sought an
adjudication or hearing with respect to
the matter, or otherwise exhausted their
administrative remedies at the SBSEF;
and (2) the disciplinary action is not a
summary action permitted under Rule
819(g)(13)(ii).661 In addition, paragraph
(b)(2) of Proposed Rule 835 would
provide that, for purposes of paragraph
(a), a disposition of a matter with
respect to a denial or conditioning of
membership, or a denial or limitation of
access, would not be considered final
unless such person has sought an
adjudication or hearing, or otherwise
exhausted their administrative remedies
at the SBSEF with respect to such
matter.
Paragraph (c) of Proposed Rule 835
would provide that the notice required
under Rule 835(a) must include the
name of the member or the associated
person and last known address, as
reflected in the SBSEF’s records, of the
660 15
U.S.C. 78c–4(d)(2).
discussed above, see supra section VI.B.7,
Proposed Rule 819(g)(13)(ii) would permit an
SBSEF to adopt a summary fine schedule for
violations of rules relating to the failure to timely
submit accurate records required for clearing or
verifying each day’s transactions, which may be
summarily imposed against persons within the
SBSEF’s jurisdiction for violating such rules.
Furthermore, an SBSEF’s summary fine schedule
could allow for warning letters to be issued for firsttime violations or violators. If adopted, a summary
fine schedule would be required by Proposed Rule
819(g)(13)(ii) to provide for progressively larger
fines for recurring violations. A summary fine
schedule, if an SBSEF elects to adopt one, would
have to be part of the SBSEF’s rules, and thus
would need to be submitted to the Commission. See
Proposed Rule 819(g)(13)(ii).
661 As
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87225
member or associated person, as well as
the name of the person, committee, or
other organizational unit of the SBSEF
that initiated the disciplinary action or
access restriction. In the case of a final
disciplinary action, the notice would be
required to include a description of the
acts or practices, or omissions to act,
upon which the sanction is based,
including, as appropriate, the specific
rules that the SBSEF has found to have
been violated; a statement describing
the respondent’s answer to the charges;
and a statement of the sanction imposed
and the reasons for such sanction. In the
case of a denial or conditioning of
membership or a denial or limitation of
access, the notice would be required to
include: the financial or operating
difficulty of the prospective member or
member (as the case may be) upon
which the SBSEF determined that the
prospective member or member could
not be permitted to do, or continue to
do, business with safety to investors,
creditors, other members, or the SBSEF;
the pertinent failure to meet
qualification requirements or other
prerequisites for membership or access
and the basis upon which the SBSEF
determined that the person concerned
could not be permitted to have
membership or access with safety to
investors, creditors, other members, or
the SBSEF; or the default of any
delivery of funds or securities to a
clearing agency by the member. Finally,
the notice would be required to include
the effective date of such final
disciplinary action, denials or
conditioning of membership, or denial
or limitation of access, as well as any
other information that the SBSEF may
deem relevant.
The Commission received no
comments on Proposed Rule 835.
Because the language of paragraphs
(b)(1)(i) and (b)(2) should more clearly
state that certain actions by an SBSEF
shall not be ‘‘final’’ unless the affected
person has exhausted their
administrative remedies at the SBSEF,
the Commission is modifying the phrase
‘‘person has sought an adjudication or
hearing, or otherwise exhausted their
administrative remedies’’ in both
paragraphs (b)(1)(i) and (b)(2) so that it
now reads simply, ‘‘person has
exhausted their administrative
remedies,’’ and is adopting Rule 835 as
modified.
X. Amendments to Existing Rule 3a1–1
Under the Sea—Exemptions From the
Definition of ‘‘Exchange’’
An entity that meets the definition of
‘‘security-based swap execution facility’’
would also likely meet the definition of
‘‘exchange’’ set forth in section 3(a)(1) of
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the SEA 662 and the interpretation of
that definition set forth in Rule 3b–16
thereunder.663 Thus, absent an
exemption, an entity needing to register
with the Commission as an SBSEF
would also likely need to register with
the Commission as a national securities
exchange.664 The Commission has
previously stated that it ‘‘believes that
Congress specifically provided a
comprehensive regulatory framework
for SBSEFs in the [SEA], as amended by
the Dodd Frank Act, and therefore that
such entities that are registered as
SBSEFs should not also be required to
register and be regulated as national
securities exchanges.’’ 665
Therefore, the Commission proposed
to exercise its authority under section
36(a)(1) of the SEA 666 to exempt an
SBSEF from the definition of
‘‘exchange’’—and thus the obligation to
register as a national securities
exchange—if it provides a market place
solely for the trading of SBS (and no
securities other than SBS) and has
registered with the Commission as an
SBSEF. To effect this exemption, the
Commission proposed to amend Rule
3a1–1 under the SEA 667 by adding new
paragraph (a)(4).
The proposed amendment would add
new paragraph (a)(4) to existing Rule
3a1–1 to provide that an organization,
association, or group of persons that has
registered with the Commission as an
SBSEF pursuant to Rule 803 and
provides a market place for no securities
other than SBS is exempt from the
definition of ‘‘exchange’’ under section
3(a)(1) of the SEA, and thus would not
be subject to the requirement in section
5 of the SEA to register as a national
securities exchange or obtain a lowvolume exemption.668
662 15
U.S.C. 78c(a)(1).
CFR 240.3b–16. See also supra section III.A
(discussing Rule 803 and the requirements and
procedures for registration, including the overlap
between the definitions of ‘‘exchange’’ and
‘‘security-based swap execution facility’’). See also
infra note 678 and accompanying text (discussing
the Commission’s proposed amendments to Rule
3b–16).
664 See § 3D(a)(1) of the SEA, 15 U.S.C. 78c–
4(a)(1) (‘‘No person may operate a facility for the
trading or processing of security-based swaps,
unless the facility is registered as a security-based
swap execution facility or as a national securities
exchange under this section’’).
665 2011 SBSEF Proposal, supra note 6, 76 FR at
10958.
666 15 U.S.C. 78mm(a)(1).
667 17 CFR 240.3a1–1.
668 An SBSEF that fails to comply with the
condition to the exemption provided under
paragraph (a)(4) of Rule 3a1–1 would no longer
qualify for the exemption and might thus be
operating as an unregistered exchange under the
section 5 of the SEA. 15 U.S.C. 78e. Section 5 also
generally provides that a broker or dealer may not
use any facility of an exchange to effect or report
In addition, the Commission proposed
new paragraph (a)(5) to existing Rule
3a1–1 under the SEA, which would
provide that an organization,
association, or group of persons shall be
exempt from the definition of the term
‘‘exchange’’ if that organization,
association, or group of persons has
registered with the Commission as a
clearing agency pursuant to section 17A
of the SEA and limits its exchange
functions to operation of a trading
session that is designed to further the
accuracy of end-of-day valuations.669 As
noted above, this provision would
codify a series of exemptions that the
Commission has granted over several
years to SBS clearing agencies that
operate ‘‘forced trading’’ sessions.670 As
part of the clearing and risk
management processes, an SBS clearing
agency must establish an end-of-day
valuation for any SBS in which any of
its members has a cleared position.
Certain SBS clearing agencies utilize a
valuation mechanism whereby they
require clearing members to submit
indicative settlement prices for SBS
products, and, to provide an incentive
for accurate submissions, the clearing
agency can require those members to
trade at those quoted prices. The precise
means by which the clearing agency
matches quotes from different clearing
members could cause the clearing
agency to fall within the definition of
‘‘exchange’’ in section 3(a)(1) of the
SEA. The Commission has previously
found that it was necessary or
appropriate in the public interest and
consistent with the protection of
investors to exempt clearing agencies
that engage in this activity from the
definition of ‘‘exchange,’’ 671 and the
Commission proposed to codify this
exemption.672
Finally, the Commission proposed to
amend the introductory language of
paragraph (b) of Rule 3a1–1 to cover
only paragraphs (a)(1) through (a)(3), not
paragraph (a) as a whole.673 The
changed language is designed to clarify
that the revocation provisions would
not apply to organizations, associations,
or groups of persons who fall within
amended Rule 3a1–1(a)(4) or (a)(5).
Thus, even if a registered SBSEF were
to become a substantial market, Rule
3a1–1(b), as proposed to be amended,
would not afford a basis for the
Commission to revoke an SBSEF’s
exemption from the definition of
‘‘exchange’’ under Rule 3a1–1(a)(4),
which would force the SBSEF to register
as a national securities exchange (to
avoid being an unregistered exchange).
The Commission received two
comment letters regarding the proposed
amendments to Rule 3a1–1.674 One
commenter does not support an
exemption for clearing agencies from
the definition of exchange, stating that
the exemption would create a
loophole.675 However, the limited scope
of the exemption—which applies solely
to trades that a clearing agency requires
its members to undertake in support of
the accuracy of the clearing agency’s
end-of-day valuation process—is
sufficiently narrow to prevent use of the
exemption as a loophole allowing
clearing agencies to act as, or on behalf
of exchanges, without sufficient public
reporting. The language of new
paragraph (a)(5) of Rule 3a1–1, however,
should more precisely reflect that the
Commission is codifying exemptive
relief that was provided with respect to
trading sessions to support end-of-day
valuations of SBS,676 and the
Commission is therefore modifying
paragraph (a)(5) to add the words ‘‘of
any transaction in a security unless that exchange
is registered as a national securities exchange or is
exempt from registration by reason of the limited
volume of transactions effected on the exchange.
Brokers and dealers who are members of a
registered SBSEF would not be in violation of
section 5 by effecting or reporting any SBS
transactions on that SBSEF, because an SBSEF that
qualifies for the exemption under Rule 3a1–1(a)(4)
would not be an exchange within the meaning of
section 5.
669 As discussed above, see supra note 37 and
accompanying text, such a trading session is also
referred to as a ‘‘forced-trading session.’’
670 See supra note 37; Proposing Release, supra
note 1, 87 FR at 28878.
671 See id.
672 See Proposing Release, supra note 1, 87 FR at
28878. This exemption would cover only the
forced-trading session of an SBS clearing agency;
any other exchange activity that a clearing agency
might engage in could remain subject to the SEA
provisions and the Commission’s rules thereunder
applying to national securities exchanges or
alternative trading systems.
673 Specifically, the Commission proposed to
amend the introductory language of existing
paragraph (b) of Rule 3a1–1, which states:
‘‘Notwithstanding paragraph (a) of this rule, an
organization, association, or group of persons shall
not be exempt under this rule from the definition
of ‘exchange’ if . . . .’’ Paragraph (b) then sets out
procedural and substantive criteria for the
Commission to revoke an exemption under
paragraph (a) of Rule 3a1–1 if an exchange’s share
of the market in any one of the specified classes of
securities exceeds a defined threshold.
674 See Keeney Letter, supra note 95; ISDA–
SIFMA Letter, supra note 18, at 17.
675 See Keeney Letter, supra note 95 (stating that
the exemption would permit clearing agencies to
‘‘do the bidding of exchanges’’ while being exempt
from reporting requirements).
676 See Proposing Release, supra note 1, 87 FR at
28932 (‘‘This exemption would cover only the
forced-trading session of an SBS clearing agency;
any other exchange activity that a clearing agency
might engage in could remain subject to the SEA
provisions and the Commission’s rules thereunder
applying to exchanges.’’).
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security-based swaps’’ at the end of the
paragraph.
Another commenter supports the
proposed amendments and also
addresses another Commission
rulemaking related to the definition of
‘‘exchange.’’ 677 The Commission has
separately proposed certain
amendments to Rule 3b–16, a rule
which defines certain terms used in the
statutory definition of ‘‘exchange’’
under section 3(a)(1) of the SEA.678 The
commenter states that the Commission
should exempt from the definition of
‘‘exchange’’ any market place that solely
trades SBS, whether or not that market
place is registered as an SBSEF.679 This
commenter states that the Commission
has ‘‘proposed to expand Rule 3b–16
substantially’’ and that this proposal, if
adopted, would ‘‘reverse the previous
relationship between the ‘exchange’
definition (as interpreted in Rule 3b–16)
and the SBSEF definition.’’ 680 This
commenter states that an organization
that makes available certain methods for
parties to interact regarding SBS might
fall within the expanded definition of
exchange but outside the definition of
SBSEF and therefore be required to
register as an exchange because SBSEF
registration would be unavailable.681
The Commission does not agree with
the commenter’s request to extend the
Rule 3a1–1 exemption from the
‘‘exchange’’ definition to any entity that
provides a market place for no securities
other than SBS, regardless of whether
they are registered as an SBSEF.
The purpose of the exemption under
Rule 3a1–1(a)(4) is not to universally
exempt from the definition of
‘‘exchange’’ all entities that provide a
market place for no securities other than
SBS. Rather, given that Congress has
provided a regulatory framework for
SBSEFs through the Dodd Frank Act,
677 See
ISDA–SIFMA Letter, supra note 18, at 17.
Amendments Regarding the Definition of
‘‘Exchange’’ and Alternative Trading Systems
(ATSs) That Trade U.S. Treasury and Agency
Securities, National Market System (NMS) Stocks,
and Other Securities, SEA Release No. 94062 (Jan.
26, 2022), 87 FR 15496 (Mar. 18, 2022) (File No. S7–
02–22) (‘‘Rule 3b–16 Proposal’’). See also
Reopening of Comment Periods for ‘‘Private Fund
Advisers; Documentation of Registered Investment
Adviser Compliance Reviews’’ and ‘‘Amendments
Regarding the Definition of ‘Exchange’ and
Alternative Trading Systems (ATSs) That Trade
U.S. Treasury and Agency Securities, National
Market System (NMS) Stocks, and Other
Securities,’’ SEA Release No. 94868 (May 9, 2022),
87 FR 29059 (May 12, 2022) (S7–02–22);
Supplemental Information and Reopening of
Comment Period for Amendments Regarding the
Definition of ‘‘Exchange,’’ SEA Release No. 97309
(Apr. 14, 2023), 88 FR 29448 (May 5, 2023) (File
No. S7–02–22).
679 See ISDA–SIFMA Letter, supra note 18, at 17.
680 Id.
681 See id.
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the exemption is narrowly designed to
avoid burdening registered SBSEFs with
a second regulatory framework—
namely, registration as national
securities exchanges. Further, creating
that commenter’s suggested exemption
in Rule 3a1–1(a) would create a
regulatory gap in which some entities
that meet the definition of exchange are
registered neither as national securities
exchanges nor as SBSEFs. The language
of new paragraph (a)(4) of Rule 3a1–1,
however, should more closely track the
language and scope of section 3(a)(1) of
the SEA, which uses the term ‘‘market
place or facilities,’’ rather than the term
‘‘market place,’’ 682 and the Commission
is therefore modifying proposed
paragraph (a)(4) of Rule 3a1–1 to replace
the term ‘‘market place’’ with the term
‘‘market place or facilities.’’
Accordingly, for the reasons
discussed above, the Commission is
adopting the amendments to Rule 3a1–
1 with the modifications to paragraphs
(a)(4) and (a)(5) discussed above and
with minor technical modifications.683
XI. Rule 15a–12—SBSEFs as Registered
Brokers; Relief From Certain Broker
Requirements
An SBSEF, by facilitating the
execution of SBS between persons, also
is engaged in the business of effecting
transactions in securities for the account
of others and therefore meets the SEA
definition of ‘‘broker.’’ 684 Absent an
exception or exemption, an SBSEF—in
addition to being subject to the
registration and regulatory requirements
for SBSEFs—would also be required to
register with the Commission as a
broker pursuant to sections 15(a) and
15(b) of the SEA 685 and would be
subject to all regulatory requirements
applicable to brokers.686 For example,
brokers and dealers must comply with
a number of rules that govern their
conduct, including those relating to
customer confirmations and disclosure
682 See
15 U.S.C. 78c(a)(1).
supra note 32.
684 See SEA section 3(a)(4), 15 U.S.C. 78c(a)(4).
685 15 U.S.C. 78o(a) and 78o(b). Section 15(a)(1)
generally provides that, absent an exception or
exemption, a broker or dealer that uses the mails
or any means of interstate commerce to effect
transactions in, or to induce or attempt to induce
the purchase or sale of, any security must register
with the Commission. Section 15(b) generally
provides the manner of registration of brokers and
dealers and other requirements applicable to
registered brokers and dealers.
686 As discussed in note 47, supra, a person that
is acting as a broker solely because it is acting as
an SBSEF is currently exempt from the requirement
to register with the Commission as a broker and the
Commission’s rules under the SEA that apply to
brokers. This exemption will expire upon the
earliest compliance date for the Commission’s final
rules regarding SBSEF registration.
683 See
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of credit terms in margin
transactions.687
The Commission proposed new Rule
15a–12 under the SEA, which would
deem registration with the Commission
as an SBSEF to also constitute
registration as a broker, and which
would exempt a registered SBSEF from
many broker requirements in light of the
SBSEF regulatory regime to which it
would also be subject. The
accommodation provided in Rule 15a–
12, however, would not be available to
an SBSEF that engages in other types of
brokerage activity.
Paragraph (a) of Proposed Rule 15a–
12 would define the term ‘‘SBSEF–B’’ to
mean an SBSEF that does not engage in
any securities activity other than
facilitating the trading of SBS on or
through the SBSEF. Thus, an SBSEF
that acts as agent to SBS counterparties
or that acts in a discretionary manner
with respect to the execution of SBS
transactions, could not avail itself of
Rule 15a–12. Also, if an inter-dealer
broker elects not to separate its interdealer broker functions from its SBSEF
(by, for example, housing them in
separate legal entities), and instead
chooses to operate the SBSEF in the
same legal entity as the inter-dealer
broker, the entity could avail itself of
Rule 15a–12 because it would not be an
SBSEF–B under the rule.
Paragraph (b) of Proposed Rule 15a–
12 would provide that an SBSEF–B, if
it registered as an SBSEF pursuant to
Rule 803, would be deemed also to have
registered with the Commission
pursuant to sections 15(a) and (b) of the
SEA.688
Paragraphs (c) and (d) of Proposed
Rule 15a–12 would set out the scope of
broker requirements from which an
SBSEF–B is exempt and which broker
requirements would continue to apply.
Paragraph (c) would provide that an
SBSEF–B would be exempt from any
provision of the SEA or the
Commission’s rules thereunder
applicable to brokers that by its terms
requires, prohibits, restricts, limits,
conditions, or affects the activities of a
broker, unless such provision specifies
687 See
17 CFR 240.10b–10 and 240.10b–16.
Commission’s proposal would not have
exempted SBSEFs from registration as brokers.
Rather, given the registration and regulatory
requirements that were being proposed for SBSEFs
through Regulation SE, the Commission proposed
for such SBSEFs to be deemed registered as brokers
so as to prevent subjecting those entities to a
second, separate registration process as well as
duplicative additional regulatory requirements. As
discussed in the Proposing Release, an additional
layer of registration processes and duplicative
requirements would not be appropriate or
necessary. See Proposing Release, supra note 1, 87
FR 28933.
688 The
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that it applies to an SBSEF. Paragraph
(d) of Proposed Rule 15a–12 would
provide that, notwithstanding paragraph
(c), an SBSEF–B is still subject to
section 15(b)(4),689 section 15(b)(6),690
and section 17(b) of the SEA.691
Finally, paragraph (e) of Proposed
Rule 15a–12 would exempt an SBSEF–
B from the Securities Investor Protection
Act (‘‘SIPA’’).692 SIPA established the
Securities Investor Protection
Corporation (‘‘SIPC’’), which oversees
the liquidation of member firms that
close when a member firm is bankrupt
or in financial trouble and customer
assets are missing.693 SIPC protection is
funded by assessments made on
member firms.694
Section 2 of SIPA 695 states that,
unless otherwise provided, the SEA
shall apply as if SIPA constituted an
amendment to, and was included as a
section of, the SEA. An SBSEF–B, by
definition, would operate only as an
SBSEF. It would not be equitable to
require an SBSEF–B to become a
member of SIPC and pay SIPC
assessments, because the SBSEF–B
would not have brokerage customers
and would not hold any customer funds
or securities. Accordingly, under section
36(a)(1) of the SEA,696 the Commission
finds that it is necessary or appropriate
in the public interest, and is consistent
with the protection of investors, to
exempt SBSEF–Bs from any
requirement under SIPA, including the
requirement to pay assessments to the
SIPC insurance fund. The Commission
is codifying this exemption as Rule 15a–
12(e).
The Commission received no
comments on Proposed Rule 15a–12 and
is adopting Rule 15a–12 as proposed,
with minor technical modifications,697
for the reasons stated in the Proposing
Release.
689 15
U.S.C. 78o(b)(4).
U.S.C. 78o(b)(6).
691 15 U.S.C. 78q(b).
692 15 U.S.C. 78aaa, et seq.
693 See https://www.sipc.org/about-sipc/sipcmission (‘‘In a liquidation under the Securities
Investor Protection Act, SIPC and the courtappointed Trustee work to return customers’
securities and cash as quickly as possible. Within
limits, SIPC expedites the return of missing
customer property by protecting each customer up
to $500,000 for securities and cash (including a
$250,000 limit for cash only).’’).
694 See 15 U.S.C. 78ddd(d).
695 15 U.S.C. 78bbb.
696 15 U.S.C. 78mm(a)(1) (giving the Commission
exemptive authority, including the ability to
exempt any person or classes of persons from any
provision of the SEA or any rules thereunder, to the
extent that such exemption is necessary or
appropriate in the public interest, and is consistent
with the protection of investors).
697 See supra note 32.
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XII. Termination of Temporary
Exemptions
As discussed above and in the
Proposing Release, after issuing the
2011 SBSEF Proposal,698 the
Commission granted the Temporary
SBSEF Exemptions.699 In relevant part,
Temporary SBSEF Exemptions have:
(1) Allowed an entity that trades SBS
and is not currently registered as a
national securities exchange, or that
cannot yet register as an SBSEF because
final rules for such registration have not
yet been adopted, to continue trading
SBS during this temporary period
without registering as a national
securities exchange or SBSEF; 700
(2) Exempted national securities
exchanges (to the extent that they also
operate an SBSEF and use the same
electronic trade execution system for
listing and executing trades of SBS on
or through the exchange and the facility)
from the requirement to identify
whether electronic trading of those SBS
is taking place on or through the
national securities exchange or the
SBSEF; 701
(3) Exempted any person, other than
a clearing agency acting as a central
counterparty in security-based swaps,
that, solely due to its activities relating
to security-based swaps, would fall
within the definition of exchange and
thus be required to register as an
exchange from the requirement to
register as a national securities exchange
in sections 5 and 6 of the Exchange
Act; 702
(4) Permitted brokers and dealers to
effect transactions in SBS on an
exchange that is operating without
registering as a national securities
exchange in reliance on the exemption
described above; 703
(5) Exempted SBSEFs from the broker
registration requirements of section
15(a)(1) of the SEA; 704 and
(6) Exempted any SBS contract
entered into on or after July 16, 2011,
from being void or considered voidable
698 See
supra note 6.
supra notes 45–47 and accompanying text.
700 See June 2011 Exemptive Order, supra note
46, 76 FR at 36293 (granting temporary exemptive
relief from SEA section 3D(a)(1), 15 U.S.C. 78c–
4(a)(1)).
701 See id. at 36293 (granting temporary
exemptive relief from SEA section 3D, 15 U.S.C.
78c–4).
702 See July 2011 Exemptive Order, supra note 46,
76 FR at 39934.
703 See id.
704 See id.; see also Requirements for SecurityBased Swap Dealers, Major Security-Based Swap
Participants, and Broker-Dealers; Capital Rule for
Certain Security-Based Swap Dealers, SEA Release
No. 87005 (Sept. 19, 2019), 84 FR 68550, 68602
(Dec. 16, 2019) (‘‘Recordkeeping and Reporting
Adopting Release’’).
699 See
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by reason of section 29 of the SEA 705
because any person that is a party to the
SBS contract violated a provision of the
Exchange Act that was amended or
added by subtitle B of Title VII of the
Dodd Frank Act and for which the
Commission has taken the view that
compliance will be triggered by
registration of a person or by adoption
of final rules by the Commission, or for
which the Commission has provided an
exception or exemptive relief herein,
until such date as the Commission
specifies.706
In the Temporary SBSEF Exemptions,
the Commission specified that the
exemptive relief would expire ‘‘on the
earliest compliance date set forth in any
of the final rules regarding registration
of SBSEFs,’’ 707 or in the case of the
relief regarding section 29 of the SEA,
‘‘until such date as the Commission
specifies.’’ 708
Additionally, in 2020, the
Commission adopted Rule 17Ad–24
under the SEA 709 to exempt from the
definition of ‘‘clearing agency’’ in
section 3(a)(23) of the SEA 710 certain
entities, including a registered SBSEF,
that would be deemed to be a clearing
agency solely by reason of (a) functions
performed by such institution as part of
customary dealing activities or
providing facilities for comparison of
data respecting the terms of settlement
of securities transactions effected on
such registered SBSEF, respectively; or
(b) acting on behalf of a clearing agency
or participant therein in connection
with the furnishing by the clearing
agency of services to its participants or
the use of services of the clearing agency
by its participants.711 In adopting the
rule, the Commission explained that an
entity performing such functions that
triggers the requirement to register as a
clearing agency—but that is not yet
registered with the Commission as an
SBSEF—could rely on a temporary
exemption from the requirement to
register as a clearing agency that the
Commission issued in 2011.712 In the
Proposing Release, the Commission
sought public comment on whether it
should ‘‘sunset’’ the 2011 Clearing
Agency Exemption and stated that it
705 15
U.S.C. 78cc(b).
June 2011 Exemptive Order, supra note
46, 76 FR at 36305–06.
707 See id. at 36293; July 2011 Exemptive Order,
supra note 46, 76 FR at 39934.
708 See June 2011 Exemptive Order, supra note
46, 76 FR at 36306.
709 17 CFR 240.17Ad–24.
710 15 U.S.C. 78c(a)(23).
711 See SEA Release No. 90667 (Dec. 16, 2020), 86
FR 7637 (Feb. 1, 2021).
712 See id., 86 FR at 7650; SEA Release No. 64796
(July 1, 2011), 76 FR 39963, 39964 (July 7, 2011)
(‘‘2011 Clearing Agency Exemption’’).
706 See
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preliminarily believed that, if it adopted
a framework for the registration of
SBSEFs, the 2011 Clearing Agency
Exemption would no longer be
necessary because entities carrying out
the functions of SBSEFs would be able
to register with the Commission as such,
thereby falling within the exemption
from the definition of ‘‘clearing agency’’
in existing Rule 17Ad–24.713
The Commission received no
comment regarding the sunsetting of
past exemptive relief for entities
operating as SBSEFs. Upon the
effectiveness of Regulation SE, the
exemptive relief described above would
no longer be necessary, because SBSEFs
will be able to register with the
Commission and will be subject to
regulatory obligations under Regulation
SE. Therefore, the Commission is
sunsetting the exemptive relief
consistent with the compliance
schedule for Regulation SE.714 Thus, the
exemptive relief described above will
terminate 180 days after the Effective
Date of Regulation SE, which will be 60
days after the date of publication in the
Federal Register, except that (1) with
respect to an SBSEF that has filed an
application to register with the
Commission on Form SBSEF within 180
days of the Effective Date of Regulation
SE, as well as trading of SBS on such
an SBSEF, the relief will terminate 240
days after the Effective Date of
Regulation SE; and (2) with respect to
an SBSEF that filed an application to
register on Form SBSEF within 180 days
after the Effective Date of Regulation SE
and whose application on Form SBSEF
is complete for purposes of Rule
803(b)(5) (having responded to requests
by the Commission’s staff for revisions
or amendments) within 240 days after
the effective date, as well as trading of
SBS on such an SBSEF, the exemptive
relief will terminate 30 days after the
Commission acts to approve or deny the
SBSEF’s application on Form SBSEF.
Specifically with respect to the
exemptive relief providing that any SBS
contract entered into on or after July 16,
2011, will not be void or considered
voidable by reason of section 29 of the
SEA 715 because any person that is a
party to the SBS contract violated a
provision of the Exchange Act that was
amended or added by subtitle B of Title
VII of the Dodd Frank Act and for which
the Commission has taken the view that
compliance will be triggered by
registration of a person or by adoption
713 See Proposing Release, supra note 1, 87 FR at
28934.
714 See infra section XVI (discussing compliance
schedule).
715 15 U.S.C. 78cc(b).
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of final rules by the Commission, or for
which the Commission has provided an
exception or exemptive relief herein,
this exemptive relief will continue to
apply to SBS entered into between July
16, 2011, and the date 30 days after the
Commission acts to approve the first
SBSEF registration.
For any entity currently relying on the
2011 Clearing Agency Exemption that
becomes required to register as a
clearing agency, the exemptive relief
will terminate 180 days after the
Effective Date of Regulation SE, which
will be 60 days after the date of
publication in the Federal Register,
except that (1) with respect to an entity
that has filed an application to register
as a clearing agency with the
Commission on Form CA–1 within 180
days of the Effective Date of Regulation
SE, the relief will terminate 240 days
after the Effective Date of Regulation SE;
and (2) with respect to an entity that has
filed an application on Form CA–1
within 180 days after the Effective Date
of Regulation SE and whose application
on Form CA–1 is complete (having
responded to requests by the
Commission’s staff for revisions or
amendments) within 240 days after the
effective date, the exemptive relief will
terminate 30 days after the Commission
acts to approve or disapprove the
application on Form CA–1.
XIII. Electronic Filings Under
Regulation SE
A. Use of Electronic Filing Systems and
Structured Data
Various provisions of proposed
Regulation SE would have required
registered SBSEFs (or SBSEF applicants)
to file specified information
electronically with the Commission
using the EDGAR system in Inline
XBRL, a structured, machine-readable
data language.716 These provisions
include:
• Rule 803(b)(1)(i) and (b)(3),
regarding filings of, and amendments to,
a Form SBSEF application.
• Rules 803(e) and 803(f), regarding
requests to withdraw or vacate an
application for registration.
716 The structured data requirements are generally
consistent with objectives of the recently enacted
Financial Data Transparency Act (‘‘FDTA’’), which
directs the Commission and other financial
regulators of data standards for collections of
information. Such data standards would need to
meet specified criteria relating to openness and
machine-readability and promote interoperability of
financial regulatory data across members of the
Financial Stability Oversight Council. See James M.
Inhofe National Defense Authorization Act for
Fiscal Year 2023, Public Law 117–263, tit. LVIII,
136 Stat. 2395, 3421–39 (Dec. 23, 2022).
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• Rule 804(a)(1), regarding filings for
listing products for trading by
certification.
• Rule 805(a)(1), regarding filings for
voluntary submission of new products
for Commission review and approval.
• Rule 806(a)(1), regarding filings for
voluntary submission of rules for
Commission review and approval.
• Rule 807(a)(1), regarding filings for
self-certification of rules.
• Rule 807(d), regarding filings of
weekly notifications to the Commission
of rules and rule amendments that were
not required to be certified.
• Rule 829(g)(6), regarding
submission to the Commission of
reports related to financial resources
and related documentation.
• Rule 831(j)(2), regarding submission
to the Commission of the annual
compliance report of SBSEF’s CCO.
In addition to including these
requirements in each of the rules listed
above, the Commission proposed to
amend Rule 405 of Regulation S–T to
reflect these requirements.717 The
Commission received comments
specifically regarding the proposed
methods and formats of electronic filing
in Regulation SE discussed above.718
One commenter states that if certain
entities report a portion of needed data
to one regulator (CFTC) and the rest of
the data to a different regulator (SEC),
data consumers will be required to
extract data from two different datasets
to provide a complete picture. The
commenter states that if data reported to
the CFTC is in PDF or HTML format,
and data reported to the SEC is in
machine-readable (XBRL) format, this
will increase the complexity of data
access.719 Another commenter does not
believe that EDGAR is the appropriate
system for these filings. The commenter
believes that requiring the use of
EDGAR will require most filers to retain
a third-party vendor and incur
substantial costs and may have the
potential to deter market participants
from entering this space, noting that a
more appropriate alternative filing
process, the Commission’s Electronic
Form Filing System (EFFS), a secure,
web-based electronic filing application
used to process filings from SROs and
SCI entities, is already available, and its
use would harmonize the filing
approach with SBS exchanges, and
more broadly with the approach taken
by the CFTC. Alternatively, the
717 See Proposing Release, supra note 1, 87 FR at
28872, 28972–73.
718 See Letter from Campbell Pryde, President and
CEO, XBRL US, to Secretary, Commission, at 2
(June 10, 2022) (‘‘XBRL US Letter’’); Bloomberg
Letter, supra note 18, at 20–21.
719 See XBRL US Letter, supra note 718, at 2.
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commenter encourages the Commission
to adopt the process used by the CFTC,
which permits filings (including initial
registration filings, quarterly financial
filings and rulebook filings) to be made
via a dedicated portal in PDF form.720
As discussed in further detail below,
taking into account comments received,
the Commission is requiring SBSEFs to
submit the information related to rule
and product filings under Rules 804 to
807 of Regulation SE in unstructured
format via EFFS in order to alleviate
compliance burdens on SBSEFs.
The Commission has considered the
comments received on the provisions
regarding electronic filing in Regulation
SE discussed above and is adopting
Inline XBRL and EDGAR requirements
for some, but not all, of the disclosures
that Regulation SE will require.
Specifically, Regulation SE will require
SBSEFs to file the information under the
following rules electronically via
EDGAR using Inline XBRL:
• Rule 829, regarding submission to
the Commission of reports related to
financial resources and related
documentation.
• Rule 831, regarding submission to
the Commission of the annual
compliance report of the SBSEF’s CCO.
• Exhibits C through F to Form
SBSEF, regarding governing board
fitness standards and composition;
organizational structure; personnel
qualifications; and staffing
requirements, respectively.
• Exhibits H through L to Form
SBSEF, regarding material pending legal
proceedings; financial information
(except for any copies of agreements
filed with the exhibit); affiliate financial
information; dues, fees, and other
charges for services; and compliance
with Core Principles, respectively.
• Exhibit P through S to Form SBSEF,
regarding disciplinary and enforcement
protocols; operation of trading systems
or platforms; rules prohibiting specific
trade practices; and the maintenance of
trading data, respectively.
For these specific disclosures, the
Commission is adopting as proposed the
requirement that they be made through
EDGAR using Inline XBRL and is
adopting the amendments to Rule 405 as
proposed, with minor technical
modifications.721
For certain other disclosures required
under Regulation SE, in a change from
the proposal, the Commission is
720 See
Bloomberg Letter, supra note 18, at 20–21.
Commission is, in light of its renumbering
of the provisions relating to Form SBSEF, see supra
section III.B, and because Form SBSEF will not
appear in the Code of Federal Regulations,
replacing ‘‘17 CFR 249.2001 of this chapter’’ with
‘‘referenced in 17 CFR 249.1701 of this chapter.’’
721 The
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requiring the use of a custom XML data
language rather than Inline XBRL.
Specifically, Regulation SE will require
SBSEFs to file the following information
electronically via EDGAR using custom
XML:
• Rules 803(e) and 803(f), regarding
requests for withdrawal or vacation
applications.
• The Form SBSEF Cover Sheet.
• Exhibit A to Form SBSEF, regarding
the SBSEF’s ownership information
(except for any copies of agreements
filed along with the Exhibit).
• Exhibit B to Form SBSEF, regarding
the officers, directors, and other control
persons of the SBSEF.
• Exhibit G to Form SBSEF, regarding
organizational documents (except for
copies of organizational documents filed
with the Exhibit).
• Exhibit M to Form SBSEF,
regarding rules and technical manuals
(except for copies of rules and technical
manuals filed with the Exhibit).
• Exhibit N to Form SBSEF, regarding
agreements and contracts (except for
copies of agreements and contracts).
• Exhibit T to Form SBSEF, regarding
clearing agencies.722
The Commission is requiring some
disclosures to be structured in Inline
XBRL, and other disclosures to be
structured in custom XML, because
Inline XBRL is well-suited for certain
types of content—such as financial
statements and extended narrative
discussions—whereas other types of
content can be readily captured using
custom XML data languages that yield
smaller file sizes than Inline XBRL and
thus facilitate more streamlined data
processing. Such custom XML
languages also enable EDGAR to
generate fillable web forms that will
permit SBSEFs to input disclosures into
form fields rather than encode their
disclosures in custom XML themselves,
thus likely easing compliance burdens
on SBSEFs.
Certain Form SBSEF exhibits also
include requirements to attach copies of
existing documents, such as copies of
by-laws, written agreements, and
compliance manuals. The Commission
is requiring SBSEFs to file these copies
of documents as unstructured PDF
attachments to the otherwise structured
Form SBSEF filing.723 Requiring
722 In addition to the custom XML exhibits to
Form SBSEF that will be submitted via EDGAR, the
Commission is also adopting as proposed the
requirement in Rule 825 of Regulation SE that
SBSEFs post Daily Market Data Reports on their
websites using a custom XML schema and a PDF
renderer, both of which the Commission will make
available on its website. See supra section VI.H.
723 In addition to these copies of existing
documents, the Commission is requiring Exhibit U
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SBSEFs to retroactively structure such
existing documents, which were
prepared for purposes outside of
fulfilling the Commission’s disclosure
requirements, could impose compliance
burdens on SBSEFs that may not be
justified in light of the commensurate
informational benefits associated with
having such documents in structured
form. The specific requirements to
include these attached copies are
included in the following provisions of
Regulation SE:
• Exhibit A to Form SBSEF
(specifically, copies of agreements
through which persons may control or
direct the management or policies of the
SBSEF).
• Exhibit G to Form SBSEF
(specifically, copies of the SBSEF’s
organizational documents).
• Exhibit I to Form SBSEF
(specifically, copies of agreements
supporting the SBSEF’s conclusions
regarding the liquidity of its financial
assets).
• Exhibit M to Form SBSEF
(specifically, copies of the SBSEF’s
rules, technical manuals, guides, or
other instructions).
• Exhibit N to Form SBSEF
(specifically, copies of agreements or
contracts that enable the SBSEF’s
compliance with Core Principles).
• Exhibit O to Form SBSEF
(specifically, copies of the SBSEF’s
compliance manual).
To implement the reduced scope of
Inline XBRL requirements for Form
SBSEF compared to the proposed rules,
the Commission is making changes to
the rule text for Form SBSEF, Rule 803
of Regulation SE, and Rule 405 of
Regulation S–T. In the Registration
Instructions to Form SBSEF, rather than
requiring the disclosures on Form
SBSEF to be provided as an Interactive
Data File in accordance with Rule 405
of Regulation S–T as proposed, the final
rule text lists a subset of Form SBSEF
Exhibits that are to be provided as an
Interactive Data File in accordance with
Rule 405 of Regulation S–T, and
clarifies that the Interactive Data File
requirement does not extend to copies
of existing documents.724 In Rule 803 of
to Form SBSEF, which includes any information in
the application that is subject to a confidential
treatment request, to be filed as an unstructured
PDF attachment. The confidential information that
an applicant includes on Exhibit U could be
responsive to disclosure requirements set forth in
multiple other Form SBSEF Exhibits (potentially
spanning multiple different data languages or
formats). As a result, implementing technical
validations on the structuring of the information on
Exhibit U would not be technically feasible.
724 See Registration Instructions to Form SBSEF,
referenced in 17 CFR 249.1701. Rule 405 of
Regulation S–T sets forth the requirements for
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Regulation SE, rather than requiring
SBSEF applicants to file Form SBSEF as
an Interactive Data File in accordance
with Rule 405 of Regulation S–T as
proposed, the final rule text requires
SBSEF applicants to file the information
specified in the Registration Instructions
to Form SBSEF (i.e., the listed Exhibits)
as an Interactive Data File in accordance
with Rule 405 of Regulation S–T.725 In
Rule 405 of Regulation S–T, the final
rule text omits references to
subparagraphs of Rule 803 that were
included within the scope of the
proposed rule text, while retaining the
references to information specified in
the Registration Instructions to Form
SBSEF.726
Requiring use of EDGAR and
structured data languages for certain
disclosures under Regulation SE has
benefits. Requiring SBSEFs to make
required certain filings via EDGAR will
provide the Commission and the public
with a centralized, publicly accessible
electronic database for SBSEF-provided
data in the form that is most accessible
and useful to regulators, market
participants, and the public alike. The
use of EDGAR also enables technical
validation of the disclosures, thus
potentially reducing the incidence of
non-discretionary errors (e.g., the
inclusion of text for a disclosure that
should contain only numbers) in those
Regulation SE disclosures that are filed
via EDGAR. Moreover, requiring
structured data languages for many of
the reported disclosures will make those
disclosures more easily available and
accessible to, and reusable by, market
participants and the Commission for
retrieval, aggregation, and comparison
across different SBSEFs and time
periods, as compared to an unstructured
PDF, HTML, or ASCII format
requirement for those disclosures.727
Interactive Data File submissions. Rule 405(b) of
Regulation SE sets forth the content to be included
within the Interactive Data File, and Rule 405(a)(3)
of Regulation S–T specifies Inline XBRL as the data
language to be used for Interactive Data File
submissions. In a technical change from the
proposed rule text, the Commission is expanding
the group of entities listed within Rule 405(a)(3) of
Regulation S–T to add electronic filers subject to
Regulation SE, reflecting the addition of electronic
filers subject to Regulation SE to Rule 405(b) of
Regulation S–T in the proposed and final rule text.
725 See Rule 803(b)(1)(i) of Regulation SE. We
have made conforming changes to Rules 803(b)(3),
(e), and (f) to narrow the proposed Inline XBRL
requirements for Form SBSEF amendments,
withdrawal requests, and vacation requests. See
Rules 803(b)(3), 803(e), and 803(f) of Regulation SE.
726 See the introductory text, subparagraphs (a)(2),
(a)(4), and (b)(5)(ii), and Note 1 to Rule 405 of
Regulation S–T.
727 See Securities Act Release No. 10514 (June 28,
2018), 83 FR 40846, 40847 (Aug. 16, 2018). Inline
XBRL allows filers to embed XBRL data directly
into an HTML document, eliminating the need to
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Permitting all Regulation SE disclosures
to be filed entirely in PDF, HTML, or
ASCII format, while perhaps simpler for
the SBSEF making the filings, would
reduce the accessibility of information
in the filings to the Commission and to
market participants who will access
these filings through EDGAR. Further,
harmonizing with the CFTC in this
regard by permitting all Regulation SE
filings to be made entirely in PDF
format, as the CFTC does, would not
carry comparable benefits to
harmonization of other aspects of
Regulation SE. The benefits of using
EDGAR and structured data highlighted
above justify the potential
inconvenience to registrants, as well as
to data users, of having to access two
separate databases to extract
information regarding SEC-regulated
SBSEFs and CFTC-regulated SEFs.
As discussed above, in a change from
the proposal, the Commission is
requiring SBSEFs to provide the rule
and product filings required under
Rules 804 through 807and 816 of
Regulation SE through EFFS in an
unstructured format, rather than
providing them through EDGAR in
Inline XBRL. While the information in
SBSEF rule and product filings will not
be machine-readable, the absence of
structuring requirements for rule and
product filings under Regulation SE
(which aligns with the current rule and
product filing process for SROs) 728 will
help contain compliance burdens for
SBSEFs, because SBSEFs will not be
subject to compliance costs associated
with structuring those filings.729 In light
of the significant volume of other
machine-readable data regarding
SBSEFs that will be available to the
market and data users under Regulation
SE, this requirement having a lower
compliance burden justifies the lack of
machine-readability for the information
in rule and product filings required
under Rules 804 through 807 and 816 of
Regulation SE.
To implement the change from the
proposed Inline XBRL and EDGAR
filing requirement to the final
unstructured format and EFFS
requirement for rule and product filings,
the Commission is modifying the rule
text for Rules 804 through 807 of
Regulation SE, the Security-Based Swap
Execution Facility Cover Sheet that the
Commission is adopting as § 249.1702,
and Rule 405 of Regulation S–T. For
Rules 804 through 807, the final rule
text specifies that SBSEFs must file the
tag a copy of the information in a separate XBRL
exhibit. See id., 83 FR at 40851.
728 See supra note 139.
729 See infra section XVII.C.3(f).
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rule and product filings through the
EFFS system, rather than through the
EDGAR system as an Interactive Data
File in accordance with Rule 405 of
Regulation S–T as proposed.730 The
Commission is not making analogous
changes to Rule 816 of Regulation SE,
because Rule 816 instructs SBSEFs to
follow the procedures under Rule 806 or
807 of Regulation SE.731 For the
Security-Based Swap Execution Facility
Cover Sheet, the final rule text specifies
that SBSEFs must file the cover sheet
using the EFFS system, rather than
using the EDGAR system in accordance
with Rule 405 of Regulation S–T as
proposed.732 In Rule 405 of Regulation
S–T, the final rule text omits references
to subparagraphs of Rules 804 through
807 and the Security-Based Swap
Execution Facility Cover Sheet that
were included within the scope of the
proposed rule text.733
B. Use of Identifiers
As discussed above, the Commission
is adopting, as § 249.1702, a submission
cover sheet and instructions that an
SBSEF must use for filings submitted
pursuant to Rules 804 through 807 and
816.
Paragraph (a) of the submission cover
sheet instructions provides that a
properly completed submission cover
sheet must accompany all rule and
product submissions submitted
electronically to the Commission by an
SBSEF.734 Per paragraph (a), a properly
completed submission cover sheet
would include, among other things, the
name and platform ID of the SBSEF.735
Currently, LEIs issued through the
GLEIS are the only allowable platform
IDs that may be used by registered
SBSEFs.736
The Commission received comments
on the use of LEIs, as well as the
potential use of other identifiers in
filings to the Commission under
Regulation SE.737 One commenter
supports the Commission’s effort to
include the LEI for identifying SBSEFs,
stating that the Commission’s decision
to include the LEI creates consistency
and transparency for the identification
730 See Rules 804(a)(1), 805(a)(1), 806(a)(1),
807(a)(1), and 807(d)(1) of Regulation SE.
731 See Rule 816(a)(1) of Regulation SE.
732 See Instruction (a) to the Security-Based Swap
Execution Facility Sheet adopted as § 249.1702.
733 See the introductory text, subparagraphs (a)(2),
(a)(4), and (b)(5)(ii), and Note 1 to Rule 405 of
Regulation S–T.
734 See supra section IV.E.
735 See supra note 140.
736 Id.
737 See Letter from Stephan Wolf, CEO, Global
Legal Entity Identifier Foundation, at 1–2 (June 10,
2022) (‘‘GLEIF Letter’’) at 1–2; Bloomberg Letter,
supra note 18, at 11–12.
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of execution facilities, while also
enabling information sharing across
agencies.738 The commenter points out
that the LEI is the only global standard
for legal entity identification and argues
that by implementing the LEI more
comprehensively the Commission
would set forth a consistent
identification scheme highlighted by the
LEI. The commenter also supports the
inclusion of the Unique Product
Identifier (‘‘UPI’’), which is also an
International Organization for
Standardization (‘‘ISO’’) standard, as
well as the Financial Instrument Global
Identifier (‘‘FIGI’’), an adopted U.S.
standard, arguing that open, nonproprietary data standards, which are
established by voluntary standard
bodies, facilitate the open exchange of
information for regulators.739
Another commenter agrees that
standard identifiers such as LEI, FIGI,
and UPI should be included in an
SBSEF’s other reporting obligations
under Regulation SE. In particular, this
commenter highlights a number of the
potential benefits of FIGI, a unique,
publicly available identifier that covers
financial instruments across asset
classes that arise, expire, and change on
a daily basis. The commenter states that
it developed FIGI to help solve licensing
challenges and shortcomings in data
organizations and governance that
persist in the current regionally based
security identifier numbering
approaches. The commenter states that
one of the benefits of FIGI is that it
enables interoperability between other
identification systems and does not
force the use of a single identification
system, which could lower costs when
interacting between legacy systems,
which may depend upon a single
identifier, and newer systems, which
typically have a more modern
architecture. As a general matter, the
commenter believes that firms should be
permitted to choose among identifiers
and have the flexibility to adopt,
integrate, or switch to other identifiers
as appropriate. According to the
commenter, this would allow firms to
orient decisions around reducing costs
of integration or realizing added benefits
that offset any such integration cost
concerns.740
The Commission has considered the
comments received on the provisions
regarding LEIs and other identifiers. The
Commission is adopting the submission
cover sheet and instructions as
proposed because LEIs issued through
the GLEIS are currently the only
738 See
GLEIF Letter, supra note 737, at 1.
739 See id. at 1–2.
740 See Bloomberg Letter, supra note 18, at 11–12.
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allowable platform IDs that may be used
by registered SBSEFs, and as such it is
appropriate and acceptable for them to
be used on the submission cover sheet.
With respect to other identifiers
discussed by the commenters (i.e., UPI
and FIGI), as well as other identifiers
that may be under development globally
by various entities, because they are not
currently allowable IDs, it would not be
appropriate or acceptable for them to be
used on the submission cover sheet.
XIV. Amendments to Commission’s
Rules of Practice for Appeals of SBSEF
Actions
As noted above,741 SEA Core
Principle 2 directs an SBSEF to exercise
regulatory powers over its market.742
Under Rule 819 of Regulation SE, an
SBSEF could take a variety of
disciplinary actions against a member
that is found to violate the SBSEF’s
rules, including fining the member,
limiting the member’s access, or barring
the member entirely.743 SEA Core
Principle 2 also requires an SBSEF to
establish rules governing access to its
market.744 An SBSEF could apply those
rules in such a way as to limit a person’s
access to the SBSEF or to deny access
entirely without due process.
Recognizing these concerns, in the
Proposing Release, the Commission
proposed a number of amendments to
its Rules of Practice to allow for appeals
for final disciplinary actions taken by an
SBSEF, for denials or conditionings of
membership, and for limitations or
denials of access, noting that the CFTC
has similar procedures with respect to
SEFs.745
The Commission did not receive any
comments on these proposed
amendments to its Rules of Practice.
General principles of due process
necessitate an appeals procedure for
741 See
supra section VI.B.
e.g., 15 U.S.C. 78c–4(d)(2)(A) (directing
an SBSEF to ‘‘establish and enforce compliance’’
with its rules) (emphasis added); 15 U.S.C. 78c–
4(d)(2)(C) (directing an SBSEF to ‘‘establish and
enforce trading, trade processing, and participation
rules that will deter abuses and have the capacity
to detect, investigate, and enforce those rules’’)
(emphasis added).
743 See supra section VI.B. See also Rule 819(c)(3)
(relating to limitations on access, including
suspensions and permanent bars); Rule 819(g)
(relating to disciplinary procedures and sanctions).
744 See 15 U.S.C. 78c–4(d)(2)(A)(ii) (directing an
SBSEF to establish and enforce compliance with
any rule that imposes any limitation on access to
the facility); 15 U.S.C. 78c–4(d)(2)(B)(i) (requiring
an SBSEF to provide market participants with
impartial access to the market).
745 See Proposing Release, supra note 1, 87 FR at
18935–37; See also part 9 of the CFTC’s rules (Rules
Relating to Review of Exchange Disciplinary,
Access Denial or Other Adverse Actions). For
purposes of part 9, the term ‘‘exchange’’ includes
a SEF.
742 See,
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SBSEF members aggrieved by
disciplinary action taken by an SBSEF.
Therefore, the Commission is adopting
the amendments to its Rules of Practice
as proposed, as detailed below, with a
minor modification to Rule 442.
A. Amendment to Rule 101
Existing Rule 101 of the Commission’s
Rules of Practice 746 sets out definitions
for several terms used in the Rules of
Practice. In particular, existing Rule
101(a)(9) defines ‘‘proceeding’’ with
respect to applications of review of
actions by a variety of entities that are
subject to the Commission’s
jurisdiction. The Commission proposed
a new paragraph (a)(9)(ix) of Rule 101
that provides that an application for a
review of a determination (such as a
final disciplinary action or a limitation
or denial of access to any service) by an
SBSEF would be a ‘‘proceeding’’ and
thereby trigger the applicability of the
Rules of Practice.
The Commission received no
comment on the proposed amendment
to Rule 101 and is adopting this
amendment to Rule 101 as proposed.
B. Amendment to Rule 202
Existing Rule 202 of the Commission’s
Rules of Practice 747 permits a party in
certain proceedings before the
Commission to make a motion to specify
certain procedures with respect to such
proceeding. Rule 202(a) excludes certain
types of proceedings, including
enforcement or disciplinary
proceedings, proceedings to review a
determination by an SRO, and
proceedings to review a determination
of the Public Company Accounting
Oversight Board (‘‘PCAOB’’). Because
the Commission proposed new Rules
442 and 443, which set out specific
procedures with respect to proceedings
to review a determination of an
SBSEF,748 the Commission proposed to
revise Rule 202(a) to add these SBSEFrelated proceedings to the list of
exclusions.
The Commission received no
comment on the proposed amendment
to Rule 202 and is adopting this
amendment to Rule 202 as proposed.
C. Amendment to Rule 210
Existing Rule 210 of the Commission’s
Rules of Practice 749 sets out
Commission rules with respect to
parties, limited participants, and amici
curiae in various proceedings before the
Commission. Paragraph (a)(1) of Rule
746 17
CFR 201.101.
CFR 201.202.
748 See infra sections XIV.E and F.
749 17 CFR 201.210.
747 17
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210 states that persons shall not be
granted leave to become a party or nonparty participant on a limited basis in
an enforcement or disciplinary
proceeding, a proceeding to review a
determination by an SRO, or a
proceeding to review a determination by
the PCAOB, except as authorized by
paragraph (c) of Rule 210 (which
permits limited instances in which
persons may participate for Commission
disciplinary and enforcement
proceedings). Because the Commission
proposed new Rules 442 and 443, which
set out specific procedures with respect
to proceedings to review a
determination of an SBSEF,750 the
Commission proposed to revise Rule
210 to exclude proceedings to review a
determination by an SBSEF among the
types of proceedings from which
persons may be granted leave to become
a party or a non-party participant on a
limited basis.
The Commission received no
comment on the proposed amendment
to Rule 210 and is adopting this
amendment to Rule 210 as proposed.
D. Amendment to Rule 401
The Commission proposed to amend
existing Rule 401 of its Rules of Practice
by adding a new paragraph (f).
Paragraph (f)(1) would permit any
person aggrieved by a stay of action by
an SBSEF entered in accordance with
Rule 442(c) to make a motion to lift the
stay. The Commission could also, at any
time, on its own motion determine
whether to lift the automatic stay.
Paragraph (f)(2) would provide that the
Commission may lift a stay summarily,
without notice and opportunity for
hearing. Finally, paragraph (f)(3) would
provide that the Commission may
expedite consideration of a motion to
lift a stay of action by an SBSEF,
consistent with the Commission’s other
responsibilities. Where consideration is
expedited, persons opposing the lifting
of the stay could file a statement in
opposition within two days of service of
the motion requesting lifting of the stay
unless the Commission, by written
order, specifies a different period.
It is appropriate to allow persons
affected by certain stays of action by an
SBSEF the opportunity to make a
motion to request the lifting of the stay.
As discussed below, pursuant to Rule
442, an aggrieved person can file an
application for review with the
Commission with respect to a final
disciplinary action, a final action with
respect to a denial or conditioning of
membership, or a final action with
respect to a denial or limitation of
750 See
infra sections XIV.E and F.
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access. The filing of such an application
would operate as a stay of the SBSEF’s
determination, and because of this
automatic stay procedure, an aggrieved
person or the SBSEF itself should be
afforded a mechanism by which it could
request the Commission to lift the stay,
in addition to the Commission’s ability
under Rule 401(f)(2) to lift a stay
summarily, without notice and
opportunity of hearing.
The Commission received no
comment on Proposed Rule 401(f) and
is adopting Rule 401(f) as proposed.
E. Rule 442—Right to Appeal
Proposed Rule 442 would establish
the right to an appeal to the Commission
of certain final actions taken by an
SBSEF and would set out certain
procedural matters relating to any such
appeal. Paragraph (a) of Rule 442
provides that an application for review
by the Commission may be filed by any
person who is aggrieved by a
determination of an SBSEF with respect
to any: (1) final disciplinary action, as
defined in Rule 835(b)(1); (2) final
action with respect to a denial or
conditioning of membership, as defined
in Rule 835(b)(2); or (3) final action with
respect to a denial or limitation of
access to any service offered by the
SBSEF, as defined in Rule 835(b)(2).
Paragraph (b) of Rule 442 sets forth
the procedure in such cases.
Specifically, an aggrieved person can
file an application for review with the
Commission (pursuant to existing Rule
151) within 30 days after the notice filed
by the SBSEF with the Commission
pursuant to Rule 835 is received by the
aggrieved person, and must serve the
application on the SBSEF at the same
time.751 The Commission is modifying
the text of Rule 442(b) from the proposal
to clarify that the 30-day period for
filing an application for review will not
be extended absent a showing of
extraordinary circumstances and that
Rule 442(b) will be the exclusive
remedy for seeking an extension of the
30-day period. Strict compliance with
filing deadlines facilitates finality and
encourages parties to act timely in
seeking review.
751 Such an application would be required to
identify the SBSEF’s determination complained of,
set forth in summary form a statement of alleged
errors in the action and supporting reasons therefor,
and state an address where the applicant can be
served. The application would be expected not to
exceed two pages in length, and the notice of
appearance required by § 201.102(d) would have to
accompany the application if the applicant is to be
represented by a representative. Any exception to
an action not supported in an opening brief that
complies with § 201.450(b) could, at the discretion
of the Commission, be deemed to have been waived
by the applicant.
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Paragraph (c) of Rule 442 provides
that filing an application for review
with the Commission pursuant to Rule
835(b) would operate as a stay of the
SBSEF’s determination, unless the
Commission otherwise orders either
pursuant to a motion filed in accordance
with Rule 401(f) or upon its own
motion.752
It is appropriate for the filing of an
application for review to operate as an
automatic stay of the SBSEF’s
determination, because that
determination could have the effect of
significantly or even permanently
damaging an aggrieved person’s
business while the Commission was
conducting a review, which could take
substantial time.753 In addition, the
Commission proposed in Rule 401(f) a
procedure whereby a person aggrieved
by such stay, including the SBSEF, can
request that the Commission lift the
stay.754 The rules also contain certain
requirements relating to certification of
the record and service of the index.755
Specifically, within 14 days after receipt
of an application for review, an SBSEF
would be required to certify and file
with the Commission one unredacted
copy of the record upon which it took
the complained-of action. The SBSEF
would be required to file electronically
with the Commission one copy of an
index of the record and serve one copy
of the index on each party, subject to the
requirements in Rule 442(d)(2) relating
to sensitive personal information; if
applicable, these filings would have to
be certified that they have complied
with the requirements relating to
sensitive personal information. These
requirements are appropriate to ensure
that sensitive personal information is
not improperly or inadvertently
disseminated by an SBSEF as part of its
filing of the record relating to the appeal
review.
752 17
CFR 201.442(c).
Commission received one comment
describing the ability of persons aggrieved by
certain actions by an SBSEF to apply for
Commission review as ‘‘some kind of mandatory
arbitration process, overseen by a self governing
regulatory body,’’ and stating that this would not
help retail investors. See Kevin Letter, supra note
95. The review of SBSEF action under Rule 442
would not be arbitration by a self-governing
regulatory body but instead review by the Federal
agency tasked by Congress with regulating SBSEFs.
Further, only ECPs would be eligible to trade SBS
on an SBSEF, and any offer or sale of SBS to ‘‘retail
investors’’ would have to be effected on a national
securities exchange. See SEA section 6(l), 15 U.S.C.
78f(l) (‘‘It shall be unlawful for any person to effect
a transaction in a security-based swap with or for
a person that is not an eligible contract participant,
unless such transaction is effected on a national
securities exchange . . . .’’).
754 See supra section XIV.D.
755 17 CFR 201.442(d) and (e).
753 The
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The Commission received no
comment on Proposed Rule 442 and is
adopting Rule 442 as proposed, with the
modification to Rule 442(b) described
above.
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F. Rule 443—Sua sponte Review by
Commission
New Rule 443 756 provides that the
Commission, on its own initiative, can
order review of any determination by an
SBSEF (which would include a final
disciplinary action, a final action with
respect to a denial or conditioning of
membership, or a final action with
respect to a denial or limitation of
access to any services) that could be
subject to an application for review
pursuant to Rule 442(a) within 40 days
after the SBSEF filed notice thereof.
Rule 443 further provides that the
Commission can, at any time before
issuing its decision, raise or consider
any matter that it deems material,
whether or not raised by the parties. If
it does so, the Commission must, under
Rule 443, give notice to the parties and
an opportunity for supplemental
briefing with respect to issues not
briefed by the parties, where the
Commission believes that such briefing
could significantly aid the decisional
process. It is appropriate that the
Commission have the ability to review
any determination filed by an SBSEF
that could be subject to an application
for review under Rule 442(a), even
without an appeal of that determination
by an aggrieved party, should the
Commission believe that further
consideration is warranted. Therefore,
the rule provides the Commission
authority to obtain additional
information through supplemental
briefings, as needed.
The Commission received no
comment on Proposed Rule 443 and is
adopting Rule 443 as proposed.
G. Amendment to Rule 450
Existing Rule 450 of the Commission’s
Rules of Practice 757 sets out
requirements for briefs filed with the
Commission. Rule 450(a) sets out a
briefing schedule, and paragraph (a)(2)
provides that the briefing schedule
order shall be issued within 21 days, or
such longer time as provided by the
Commission, of receipt by the
Commission of various types of appeals.
The Commission proposed to amend
Rule 450 by adding a new paragraph
(a)(2)(iv) providing that the 21 days
would be triggered by ‘‘[r]eceipt by the
Commission of an Index to the record of
a determination by a security-based
756 17
757 17
CFR 201.443.
CFR 201.450.
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swap execution facility filed pursuant to
§ 201.442(d).’’
The Commission received no
comment on the proposed amendment
to Rule 450 and is adopting this
amendment to Rule 450 as proposed.
The Commission finds, in accordance
with the Administrative Procedure Act
(‘‘APA’’), that these amendments to the
delegations of authority relate solely to
agency organization, procedure, or
practice.761 Accordingly, the APA’s
provisions regarding notice of
H. Amendment to Rule 460
rulemaking and opportunity for public
Existing Rule 460 of the Commission’s comment are not applicable to these
rules. These rules do not substantially
Rules of Practice 758 states that the
affect the rights or obligations of nonCommission shall determine each
agency parties and pertain to increasing
matter on the basis of the record. Rule
460(a) defines the contents of the record efficiency of internal Commission
operations. For the same reasons, the
with respect to various types of action.
provisions of the Small Business
The Commission proposed a new
Regulatory Enforcement Fairness Act
paragraph (a)(4) of Rule 460, which
are not applicable to these rules.762
states that, in a proceeding for a final
Additionally,
the provisions of the
decision before the Commission
763 which
reviewing a determination of an SBSEF, Regulatory Flexibility Act,
apply
only
when
notice
and
comment
the record shall consist of: (i) the record
are required by the APA or other law,
certified by the SBSEF pursuant to
are not applicable to these rules.764 The
§ 201.442(d); (ii) any application for
amendments to these rules do not
review; and (iii) any submissions,
contain any collection of information
moving papers, and briefs filed on
requirements as defined by the
appeal or review.
Paperwork Reduction Act of 1995.765 To
The Commission received no
the extent that these rules relate to
comment on the proposed amendment
agency information collections during
to Rule 460 and is adopting this
the conduct of administrative
amendment to Rule 460 as proposed.
proceedings, they are exempt from
XV. Amendments to Delegations of
review under the PRA. Further, because
Authority in Rule 30–3 and Rule 30–14
these amendments impose no new
burdens on private parties, the
In connection with the adoption of
amendments will not have any impact
Regulation SE, the Commission is
of section
revising its rules delegating authority to on competition for purposes 766
23(a)(2)
of
the
Exchange
Act.
the Director of the Division of Trading
Accordingly, the Commission is
and Markets (‘‘TM Division Director’’)
amending its rules, by adding new
and to the General Counsel in order to
paragraphs (95)–(102) to Rule 30–3, to
delegate authority to take actions
delegate authority to the Division
necessary to carry out the rules under
Director to perform certain actions
Regulation SE and to facilitate the
necessitated by Regulation SE. The
operation of the regulatory structure
Commission is also amending
created in Regulation SE.759 These
paragraphs (4), (5), (7), and (8) of Rule
revisions are intended to conserve
30–14 (17 CFR 200.30–14) to delegate
Commission resources and increase the
authority to the General Counsel to
effectiveness and efficiency of the
perform certain actions in connection
Commission’s process for handling
with Commission review proceedings of
certain processes required by Regulation SBSEF actions. Under these delegations,
SE and for resolving appeals of SBSEF
the Division Director or the General
final actions.760 Congress has authorized Counsel, as applicable, (or, under his or
such delegation by Public Law 87–592,
her direction, such person or persons as
76 Stat. 394, 15 U.S.C. 78d–1(a), which
might be designated from time to time
provides that the Commission ‘‘shall
by the Chairman of the Commission 767)
have the authority to delegate, by
is authorized to perform the actions
published order or rule, any of its
discussed below. Notwithstanding these
functions to . . . an employee or
employee board, including functions
761 5 U.S.C. 553(b)(3)(A).
762 See 5 U.S.C. 804(3)(C) (the term ‘‘rule’’ does
with respect to hearing, determining,
not include ‘‘any rule of agency organization,
ordering, certifying, reporting, or
procedure, or practice that does not substantially
otherwise acting as to any work,
affect the rights or obligations of non-agency
business or matter.’’
parties’’).
763 5
758 17
CFR 201.460.
759 17 CFR 200.30–3.
760 In the Proposing Release, the Commission
stated that it ‘‘may address delegations of its
authority in the adopting release for Regulation
SE.’’ Proposing Release, supra note 1, 87 FR at
28877.
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U.S.C. 60 et seq.
5 U.S.C. 601(2).
765 See 5 CFR 1320.3.
766 15 U.S.C. 78w(a)(2).
767 See 17 CFR 200.30–3 and 17 CFR 200.30–14
(sub-delegation language applicable as a result of
the addition of subparagraphs related to Regulation
SE to the existing rules).
764 See
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delegations, the Division Director or the
General Counsel, as applicable, may
submit any matter he or she believes
appropriate to the Commission.768
Furthermore, any action taken by the
Division Director or the General
Counsel, as applicable, pursuant to
delegated authority would be subject to
Commission review as provided by
Rules 430 and 431 of the Commission’s
Rules of Practice, 17 CFR 201.430–
201.431 and 15 U.S.C. 78d–1(b).
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A. Delegated Authority Related to
SBSEF Registration and Form SBSEF
With respect to certain Commission
actions related to the registration
process for SBSEFs and the review of
Form SBSEF under Rule 803 and Rule
808, the Division Director has delegated
authority: to publish notice on the
Commission’s website of a completed
Form SBSEF and make available on the
Commission’s website certain specified
parts of a Form SBSEF; to notify the
applicant that its application is
incomplete; to request from the
applicant additional information and
documentation necessary; to notify the
applicant that its application is
materially incomplete and to specify the
deficiencies in the application, for
purposes of staying the 180-day period
for Commission review of the Form
SBSEF; and to issue an order vacating
the SBSEF’s registration and to send a
copy of the related request and order of
vacation to all other SBSEFs, SBS
exchanges, and registered clearing
agencies that clear security-based
swaps.769
B. Delegated Authority Related to New
Products Proposed by an SBSEF
With respect to certain Commission
actions related to self-certification of
new products by an SBSEF under Rule
804, the Division Director has delegated
authority: to stay for a period of up to
90 days the effectiveness of a securitybased swap execution facility’s selfcertification of a new product; to
publish notice on the Commission’s
website of a 30-day period for public
comment; and to withdraw the stay or
notify the security-based swap
execution facility that the Commission
objects to the proposed certification.770
With respect to certain Commission
actions related to voluntary submission
of new products by an SBSEF under
Rule 805, the Division Director has
delegated authority: to notify the
submitting SBSEF that a submission for
768 17
CFR 200.30–3(l) and 17 CFR 200.30–14(l).
769 See 17 CFR 200.30–3(a)(95), as adopted
herein.
770 See 17 CFR 200.30–3(a)(96), as adopted
herein.
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a new product does not comply with
paragraph (a) of Rule 805; to make the
SBSEF’s submission publicly available
on the Commission’s website; to extend
by an additional 45 days the period for
consideration of a new product
voluntarily submitted by an SBSEF if
the product raises novel or complex
issues that require additional time to
analyze, and to notify the SBSEF of the
same; to issue an extension of such
longer period as to which the SBSEF
agrees in writing; to approve a proposed
new product and provide notice of the
approval to the SBSEF; to notify the
SBSEF that the Commission will not, or
is unable to, approve the product, and
to specify the nature of the issues raised
and the specific provision of the SEA or
the Commission’s rules thereunder, that
the product violates, appears to violate,
or potentially violates but which cannot
be ascertained from the submission.771
C. Delegated Authority Related to New
Rules or Rule Amendments Proposed by
an SBSEF
With respect to certain Commission
actions related to proposed rules or rule
amendments proposed by an SBSEF
under Rule 806, the Division Director
will have delegated authority: to notify
the submitting SBSEF that a submission
for a new rule or rule amendment does
not comply with paragraph (a) of Rule
806; to make the SBSEF’s submission
publicly available on the Commission’s
website; to extend by an additional 45
days the period for consideration of a
proposed rule or rule amendment
voluntarily submitted by an SBSEF if
the proposed rule or rule amendment
raises novel or complex issues that
require additional time to review or is
of major economic significance, the
submission is incomplete, or the
requester does not respond completely
to the Commission questions in a timely
manner, and to notify the SBSEF of the
same; to issue an extension of such
longer period as to which the SBSEF
agrees in writing; to approve a proposed
rule or rule amendment and provide
notice of the approval to the SBSEF; to
notify the SBSEF that the Commission
will not, or is unable to, approve the
new rule or rule amendment, and to
specify the nature of the issues raised
and the specific provisions of the SEA
or the Commission’s rules thereunder,
including the form or content
requirements of Rule 806, with which
the new rule or rule amendment is
inconsistent or appears to be
inconsistent; and to approve a proposed
rule or a rule amendment, including
771 See 17 CFR 200.30–3(a)(97), as adopted
herein.
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87235
changes to terms and conditions of a
product, on an expedited basis under
such conditions as shall be specified in
the written notification.772
In addition, the Division Director has
delegated authority to undertake certain
Commission actions related to proposed
rules or rule amendments self-certified
by an SBSEF under Rule 807.
Specifically, the Division Director has
delegated authority: to make publicly
available on the Commission’s website a
security-based swap execution facility’s
filing of new rules and rule amendments
pursuant to the self-certification
procedures of Rule 807; to stay for a
period of up to 90 days the effectiveness
of an SBSEF’s self-certification of a new
rule or rule amendment; to publish
notice on the Commission’s website of
a 30-day period for public comment;
and to withdraw the stay or notify the
security-based swap execution facility
that the Commission objects to the
proposed certification.773
D. Delegated Authority Related To
Request for Joint Interpretation
With respect to a request by an
SBSEF, the Commission, or the CFTC,
for a joint interpretation of whether a
proposed product is a swap, securitybased swap, or mixed swap under
existing SEA Rule 3a68–2, as
contemplated by Rule 809, the Division
Director has delegated authority to
provide written notice to an SBSEF of
a stay or tolling pending issuance of a
joint interpretation.774
E. Delegated Authority Related to SBSEF
Submissions Contemplated by Rule 811
With respect to information relating to
SBSEF compliance under Rule 811, the
Division Director has delegated
authority: to request pursuant to Rule
811(a) that an SBSEF file with the
Commission information related to its
business as a security-based swap
execution facility, and to specify the
form, manner, and timeframe for the
filing; to request pursuant to Rule 811(b)
that an SBSEF file with the Commission
a written demonstration that it is in
compliance with one or more Core
Principles or with its other obligations
under the SEA or the Commission’s
rules thereunder and to specify the
form, manner, and timeframe for such a
filing; to specify, pursuant to Rule
811(c)(2), the form and manner of the
notification required pursuant to Rule
811(c)(1) by an SBSEF of any
772 See 17 CFR 200.30–3(a)(98), as adopted
herein.
773 See 17 CFR 200.30–3(a)(99), as adopted
herein.
774 See 17 CFR 200.30–3(a)(100), as adopted
herein.
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transaction involving the direct or
indirect transfer of 50 percent or more
of the equity interest in the securitybased swap execution facility, and to
request supporting documentation of
the transaction; to specify the form and
manner of the certification required
pursuant to Rule 811(c)(4) that an
SBSEF meets all of the requirements of
section 3D of the SEA and the
Commission rules thereunder; and to
specify the form and manner of the
submission by an SBSEF of documents
filed in any material legal proceeding to
which the security-based swap
execution facility is a party or its
property or assets is subject, as specified
in Rule 811(d)(1), or in any material
legal proceeding instituted against any
officer, director, or other official of the
SBSEF from conduct in such person’s
capacity as an official of the SBSEF, as
specified in Rule 811(d)(2), and to
request further documents.775
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F. Delegated Authority Related to
Information Sharing
With respect to certain Commission
actions related to information sharing
under Rule 822, the Division Director
has delegated authority to require that
an SBSEF provide information in its
possession to the Commission and to
specify the form and manner of that
provision, and to require an SBSEF
share information with other regulatory
organizations, data repositories, and
third-party data reporting services as
necessary and appropriate to fulfill the
SBSEF’s regulatory and reporting
responsibilities.776
G. Delegated Authority Related to
Commission Review Proceedings
With respect to Commission review
proceedings for final disciplinary
actions taken by an SBSEF, for denials
or conditionings of membership, and for
limitations or denials of access, the
General Counsel has delegated
authority: to determine that an
application for review has been
abandoned and then to issue an order
dismissing the application; to determine
applications to stay Commission orders
pending appeal of those orders to the
federal courts and to determine
application to vacate such stays; to grant
or deny requests for oral argument
before the Commission; and to
determine whether to lift the automatic
stay of a disciplinary sanction imposed
by an SBSEF.777
775 See 17 CFR 200.30–3(a)(101), as adopted
herein.
776 See 17 CFR 200.30–3(a)(102), as adopted
herein.
777 See 17 CFR 200.30–14(4) through (5) and (7)
through (8), as adopted herein.
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XVI. Compliance Schedule
In the Proposing Release, the
Commission stated that it intended to
include a compliance schedule along
with any final rules, and it sought
public comment to assist it in
developing an appropriate compliance
schedule.778 The Commission received
several comments.
One commenter agrees that SEF
operators can leverage their experience
with SEF registration and operation in
order to comply with any final SBSEF
rules, but states that creating and
maintaining a new platform, regardless
of any similarities to existing systems,
will inevitably require substantial time
and resources to ensure operational,
technical, and regulatory compliance.
This commenter suggests that the
Commission provide a compliance
timeline of at least 12 months following
the effective date of any final rules.779
Another commenter states that, while
substantial harmonization should lower
compliance and operations costs by
allowing SBSEFs and market
participants to use their existing
procedures and systems, it is still
important to allow sufficient lead time
for potential SBSEFs and market
participants to come into compliance
with the new regulatory framework. The
commenter states that existing SEFs will
need to make certain technological
changes to their platform to conform to
the new rules and that additional time
will be required for testing, finalizing a
new rulebook, and putting in place the
requisite agreements with SBSEF
clients. This commenter states that the
Commission should set a compliance
date that is at least 18 months from the
date of effectiveness of any final rule.780
One commenter states that, absent a
phased-in implementation approach,
the SBS market could suffer from
significant disruptions. Therefore, this
commenter states, the Commission
should provide ‘‘phased-in compliance’’
with the required methods of execution,
whereby a MAT SBS product may be
executed on an SBSEF via any method
of execution until such time as it is
determined through notice and
comment that an appropriate level of
liquidity exists to enable an order book
or RFQ-to-3 system. This commenter
states that, when considering the lack of
liquidity in SBS products, pre-trade
price transparency via the proposed
RFQ-to-3 requirement could negatively
affect liquidity provision for end-users
because, if clients are required to show
778 See Proposing Release, supra note 1, 87 FR at
28937.
779 See Tradeweb Letter, supra note 18, at 6–7.
780 See Bloomberg Letter, supra note 18, at 21.
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their hand to three liquidity providers,
it may lead to information leakage and
an inability to hedge their risks through
SBS markets. This is particularly so, the
commenter says, because there are only
a relatively small number of active
dealers for many SBS products.781
This commenter further states that an
RFQ-to-3 requirement would also be
problematic for SBS equities, where
current execution processes are very
different from their swaps counterpart,
and where common trading practices
and counterparty exchanges would not
be possible on an RFQ-to-3 or order
book system. The commenter states that
it has compared the credit swaps
activity that occurred on-venue in 2012
(before the CFTC trade execution
requirement became effective) with the
credit SBS activity that occurs on venue
today. The commenter reports that the
result is that 48.2% of AMRS CDX
trading client volume was on-venue in
2012, while only 4.9% of AMRS SNCDS
trading client volume occurred onvenue in 2022 (up to the date of the
commenter’s letter). The commenter
states that this shows that the swaps
market was much more ready for the
implementation of the trade execution
requirement than the credit SBS market
is today.782
The Commission agrees that some
period of time will be required for
would-be SBSEFs not only to register
with the Commission, but also to create
a new platform; put in place policies,
procedures, and arrangements to ensure
operational, technical and regulatory
compliance; establish its own rules; and
put in place the requisite agreements
with SBSEF clients. The Commission
does not agree, however, with the
comment that a separate, ‘‘phased-in’’
compliance schedule should be put in
place for the required methods of
execution and that the Commission
should engage in future notice and
comment before applying the required
methods of execution to SBS that have
been made available to trade. First, no
SBS are currently subject to a clearing
determination, so it would not be
possible for any SBSEF to make an SBS
available to trade and subject it to the
required methods of execution. Second,
as discussed above, before an SBS
becomes subject to the trade execution
requirement, the Commission would
have had multiple opportunities to
consider the trading characteristics of
the SBS.783 Even after the Commission
has made a clearing determination with
781 See
ISDA–SIFMA Letter, supra note 18, at 6.
id.
783 See supra notes 181–185 and accompanying
text.
782 See
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respect to an SBS, to make that SBS
‘‘available to trade,’’ an SBSEF would,
under Rule 816(a)(1), have to make a
filing with the Commission under Rule
806 or Rule 807—both of which would
allow the Commission to find that a
filing was not consistent with the
requirements of the SEA or Regulation
SE.784 This filing would, under Rule
816(b), have to address, as appropriate,
a number of relevant factors, including
whether there are ready and willing
buyers and sellers; the frequency or size
of transactions; the trading volume; the
number and types of market
participants; the bid/ask spread; and the
usual number of resting firm or
indicative bids and offers. And a
national securities exchange that wished
to make an SBS ‘‘available to trade’’
would have to file a rule change under
Rule 19b–4,785 and that proposed rule
change would be subject to Commission
review for compliance with the
requirements of the SEA. Therefore, the
Commission is not adopting a separate,
‘‘phased-in’’ compliance schedule for
the required methods of execution.
Further, with respect to commenters
who proposed specific timeframes for
implementation (e.g., 12 months or 18
months), the Commission’s proposed
compliance schedule is better designed
to facilitate timely and achievable
implementation of Regulation SE
because it reflects that the entities that
are likely to register as SBSEFs have
been accustomed to operating SBS
trading platforms pursuant to exemptive
relief granted by the Commission.786
Thus, it is appropriate to provide these
entities with a reasonable period of
time—through a compliance schedule
tied to the completion of the steps
required for registration as an SBSEF—
to come into compliance with the
requirements of Regulation SE. Further,
because most, if not all, entities that
seek to register as SBSEFs will be CFTCregistered SEFs—and because the
Commission has sought to harmonize
both the registration form and exhibits
for SBSEFs and the substance of the
rules applicable to SBSEFs with the
CFTC regulations applicable to SEFs—
the entities seeking to register as
SBSEFs will be able to complete the
each of the steps necessary for
registration in the allotted periods.
Therefore, the Commission is
adopting the following compliance
schedule for Regulation SE. The SBSEF
rules shall become effective 60 days
after the date of publication in the
Federal Register (‘‘Effective Date’’).
784 See
supra sections IV.A and B.
CFR 240.19b–4.
786 See supra section XII.
785 17
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Once Regulation SE has become
effective, any entity that meets the
definition of SBSEF may file an
application to register with the
Commission on Form SBSEF at any time
after the Effective Date.787 As discussed
above,788 the Temporary SBSEF
Exemptions will expire 180 days after
the Effective Date for any entity that has
not filed an application to register with
the Commission on Form SBSEF. Thus,
an entity that meets the definition of
SBSEF and engages in such activities
but fails to submit an application on
Form SBSEF by 180 days after the
Effective Date would be in violation of
the registration requirement of Rule 803.
For an entity that has submitted an
application on Form SBSEF by 180 days
after the Effective Date, the exemptive
relief relating to SBSEF registration
would expire 240 days after the
Effective Date, except with respect to an
entity whose application on Form
SBSEF is complete (having responded to
requests by the Commission’s staff for
revisions or amendments) within 240
days of the Effective Date. An entity that
has submitted an application within 180
days of the Effective Date and whose
application is complete within 240 days
of the Effective Date will continue to
benefit from the exemption from
registration until 30 days after the
Commission acts to approve or
disapprove the application on Form
SBSEF.
XVII. Economic Analysis
A. Introduction
To increase the transparency and
oversight of the OTC derivatives
market,789 Title VII of the Dodd-Frank
Act requires the Commission to
undertake a number of rulemakings to
implement the regulatory framework for
SBS that is set forth in the legislation,
including among other things, (1) the
registration and regulation 790 of
SBSEFs; and (2) mitigating conflicts of
interest with respect to SBSEFs, SBS
exchanges, and SBS clearing agencies.
To satisfy these statutory mandates, the
Commission is adopting Regulation SE
and associated forms under section 3D
of the SEA that would create a regime
787 Once Regulation SE has become effective,
applications for exemptions under Rule 833 may
also be submitted. See supra section VII.B
(discussing cross-border exemptions for foreign
trading venues and relating to the trade execution
requirement).
788 See supra section XII (discussing the
rescission of exemptive relief).
789 See Public Law 111–203 Preamble.
790 The regulation of SBSEFs includes, among
other things, requiring SBSEFs to comply with the
Core Principles set forth in section 3D(d) of the
SEA. See supra section VI.
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for the registration and regulation of
SBSEFs and address other issues
relating to SBS execution generally.791
One of the rules being adopted as part
of Regulation SE, Rule 834, implements
section 765 of the Dodd-Frank Act,
which is intended to mitigate conflicts
of interest at SBSEFs and SBS
exchanges. Other rules being adopted as
part of Regulation SE address the crossborder application of the SEA’s trading
venue registration requirements and the
trade execution requirement for SBS.
In addition, the Commission is
amending existing Rule 3a1–1 under the
SEA to exempt, from the SEA definition
of ‘‘exchange,’’ registered SBSEFs that
provide a market place for no securities
other than SBS, and certain registered
clearing agencies. The Commission is
also adopting new Rule 15a–12 under
the SEA that, while affirming that an
SBSEF also would be a broker under the
SEA, would exempt a registered SBSEF
from certain broker requirements. The
Commission is also adopting certain
new rules and amendments to its Rules
of Practice to allow persons who are
aggrieved by certain actions by an
SBSEF to apply for review by the
Commission.
Currently, SBS trade in the OTC
market, rather than on regulated trading
venues. The existing market for SBS is
opaque, with little, if any, pre-trade
transparency. With limited
transparency, the information
asymmetry between liquidity providers
(i.e., SBS dealers) and end users could
be significant. Specifically, liquidity
providers may observe information
about the trading process (e.g., trading
interest, quotes, order flows, and trades)
that end users typically cannot observe.
The SBS market also is decentralized
such that market participants incur
search costs to locate other market
participants in order to trade.
While the SBS market is
decentralized, it also is interconnected
and global in scope.792 SBS dealers can
have hundreds of counterparties,
consisting of end users and other SBS
dealers. Trading venues may serve
hundreds of end user and SBS dealer
participants. SBS transactions arranged,
negotiated, or executed by personnel
located in the U.S. may involve wholly
foreign counterparties. Furthermore,
U.S. persons may choose to trade SBSs
on foreign venues, which are subject to
791 Among other things, the Commission is
adopting Form SBSEF for persons seeking to
register with the Commission as an SBSEF and a
submission cover sheet and instructions to be used
in rule and product filings made by SBSEFs.
792 See also section VII.A supra and XVII.B.2 infra
(discussing the global nature of the SBS market).
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OTC derivatives regulations imposed by
local regulatory authorities.
The adopted rules and amendments
will affect SBSEFs, SBS exchanges,
foreign SBS trading venues, and ECPs
(i.e., SBS dealers and end users).793 In
addition, the adopted rules and
amendments will affect entities that act
as third-party service providers to
SBSEFs.
The Commission is mindful of the
economic effects, including the costs
and benefits, of the adopted rules and
amendments. Section 3(f) of the SEA, 15
U.S.C. 78c(f), directs the Commission,
when engaging in rulemaking where it
is required to consider or determine
whether an action is necessary or
appropriate in the public interest, to
consider, in addition to the protection of
investors, whether the action will
promote efficiency, competition, and
capital formation. In addition, section
23(a)(2) of the SEA, 15 U.S.C. 78w(a)(2),
requires the Commission, when making
rules under the SEA, to consider the
impact that the rules would have on
competition, and prohibits the
Commission from adopting any rule that
would impose a burden on competition
not necessary or appropriate in
furtherance of the purposes of the SEA.
The analysis below addresses the
likely economic effects of the adopted
rules and amendments, including their
anticipated and estimated benefits and
costs and their likely effects on
efficiency, competition, and capital
formation. The Commission also
discusses the potential economic effects
of certain alternatives to the approaches
taken in this release. The Commission
received a number of comments related
to various aspects of the economic
analysis in the Proposing Release. The
Commission has considered and
responds to these comments in the
sections that follow.
B. Economic Baseline
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1. Existing Regulatory Framework
The economic analysis appropriately
considers existing regulatory
requirements, including recently
adopted rules, as part of its economic
baseline against which the costs and
benefits of the adopted rules and
amendments are measured.794 The
793 Only ECPs are eligible to trade on an SBSEF,
and retail investors would have access to an SBS
only after an SBS exchange has filed a proposed
rule change with the Commission under Rule 19b–
4, 17 CFR 240.19b–4, to amend its rules to permit
the listing of a registered SBS, with that proposed
rule change being published for public comment.
See supra note 103.
794 See, e.g., Nasdaq v. SEC, 34 F.4th 1105, 1111–
15 (D.C. Cir. 2022). This approach also follows SEC
staff guidance on economic analysis for rulemaking.
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19:22 Dec 14, 2023
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analysis includes provisions of the SEA,
as amended by the Dodd-Frank Act, that
currently govern the SBS market, and
rules adopted by the Commission
thereunder, including in the
Intermediary Definitions Adopting
Release,795 the Cross-Border Adopting
Release,796 the SDR Rules and Core
Principles Adopting Release,797 the
Regulation SBSR Adopting Release I,798
the Registration Adopting Release,799
the ANE Adopting Release,800 the
Business Conduct Adopting Release,801
the Trade Acknowledgement and
Verification Adopting Release,802 the
Regulation SBSR Adopting Release II,803
the Rule of Practice 194 Adopting
Release,804 the Capital, Margin, and
Segregation Adopting Release,805 the
Recordkeeping and Reporting Adopting
Release,806 the Risk Mitigation Adopting
Release,807 the Cross-Border
Amendments Adopting Release,808 and
the Clearing Exemption Adopting
Release.809 The baseline also includes
the Temporary SBSEF Exemptions 810
and the CFTC rules that apply to CFTCregistered SEFs.
See Staff’s ‘‘Current Guidance on Economic
Analysis in SEC Rulemaking’’ (Mar. 16, 2012),
available at https://www.sec.gov/divisions/riskfin/
rsfi_guidance_econ_analy_secrulemaking.pdf (‘‘The
economic consequences of proposed rules
(potential costs and benefits including effects on
efficiency, competition, and capital formation)
should be measured against a baseline, which is the
best assessment of how the world would look in the
absence of the proposed action.’’); Id. at 7 (‘‘The
baseline includes both the economic attributes of
the relevant market and the existing regulatory
structure.’’). The best assessment of how the world
would look in the absence of the proposed or final
action typically does not include recently proposed
actions, because doing so would improperly assume
the adoption of those proposed actions.
795 See Further Definition of ‘‘Swap Dealer,’’
‘‘Security-Based Swap Dealer,’’ ‘‘Major Swap
Participant,’’ ‘‘Major Security-Based Swap
Participant’’ and ‘‘Eligible Contract Participant,’’
SEA Release No. 66868 (Apr. 27, 2012), 77 FR
30596 (May 23, 2012) (‘‘Intermediary Definitions
Adopting Release’’).
796 See Application of ‘‘Security-Based Swap
Dealer’’ and ‘‘Major Security-Based Swap
Participant’’ Definitions to Cross-Border SecurityBased Swap Activities, SEA Release No. 72472
(June 25, 2014), 79 FR 47278 (Aug. 12, 2014)
(‘‘Cross-Border Adopting Release’’).
797 See Security-Based Swap Data Repository
Registration, Duties, and Core Principles, SEA
Release No. 74246 (Feb. 11, 2015), 80 FR 14438
(Mar. 19, 2015) (‘‘SDR Rules and Core Principles
Adopting Release’’).
798 See Regulation SBSR Adopting Release I,
supra note 140.
799 See Registration Process for Security-Based
Swap Dealers and Major Security-Based Swap
Participants, SEA Release No. 75611 (Aug. 5, 2015),
80 FR 48964 (Aug. 14, 2015) (‘‘Registration
Adopting Release’’).
800 See Security-Based Swap Transactions
Connected with a Non-U.S. Person’s Dealing
Activity That Are Arranged, Negotiated, or
Executed By Personnel Located in a U.S. Branch or
Office or in a U.S. Branch or Office of an Agent;
Security-Based Swap Dealer De Minimis Exception,
SEA Release No. 77104 (Feb. 10, 2016), 81 FR 8598
(Feb. 19, 2016) (‘‘ANE Adopting Release’’).
801 See Business Conduct Standards Release,
supra note 101.
802 See Trade Acknowledgment and Verification
of Security-Based Swap Transactions, SEA Release
No. 78011 (June 8, 2016), 81 FR 39808 (June 17,
2016) (‘‘Trade Acknowledgment and Verification
Adopting Release’’).
803 See Regulation SBSR—Reporting and
Dissemination of Security-Based Swap Information,
SEA Release No. 78321 (July 14, 2016), 81 FR 53546
(Aug. 12, 2016) (‘‘Regulation SBSR Adopting
Release II’’).
Final SBS Entity registration rules
have been adopted and compliance was
required as of November 1, 2021.811 As
of September 28, 2023, there were 51
entities registered with the Commission
as SBS dealers, and no entity registered
as a major SBS participant.812 One
commenter asserts that not all registered
SBS dealers are consistently active in
trading SBS. Trading activity in the SBS
markets tends to be more concentrated
among a subset of such registered SBS
PO 00000
Frm 00084
Fmt 4701
Sfmt 4700
2. Security-Based Swap Data, Market
Participants, Dealing Structures, Levels
of Security-Based Swap Trading
Activity, and Market Participant
Domiciles
804 See Applications by Security-Based Swap
Dealers or Major Security-Based Swap Participants
for Statutorily Disqualified Associated Persons To
Effect or Be Involved in Effecting Security-Based
Swaps, SEA Release No. 84858 (Dec. 19, 2018), 84
FR 4906 (Feb. 19, 2019) (‘‘Rule of Practice 194
Adopting Release’’).
805 See Capital, Margin, and Segregation
Requirements for Security-Based Swap Dealers and
Major Security-Based Swap Participants and Capital
and Segregation Requirements for Broker-Dealers,
SEA Release No. 86175 (June 21, 2019), 84 FR
43872 (Aug. 22, 2019) (‘‘Capital, Margin, and
Segregation Adopting Release’’).
806 See Recordkeeping and Reporting Adopting
Release, supra note 704.
807 See Risk Mitigation Techniques for Uncleared
Security-Based Swaps, SEA Release No. 87782 (Dec.
18, 2019), 85 FR 6359 (Feb. 4, 2020) (‘‘Risk
Mitigation Adopting Release’’).
808 See Cross-Border Application of Certain
Security-Based Swap Requirements, SEA Release
No. 87780 (Dec. 18, 2019), 85 FR 6270 (Feb. 4, 2020)
(‘‘Cross-Border Amendments Adopting Release’’).
809 See Exemption from the Definition of
‘‘Clearing Agency’’ for Certain Activities of
Security-Based Swap Dealers and Security-Based
Swap Execution Facilities, SEA Release No. 90667
(Dec. 16, 2020), 86 FR 7637 (Feb. 1, 2021)
(‘‘Clearing Exemption Adopting Release’’).
810 See supra section III and note 46.
811 See Key Dates for Registration of SecurityBased Swap Dealers and Major Security-Based
Swap Participants, available at https://
www.sec.gov/page/key-dates-registration-securitybased-swap-dealers-and-major-security-basedswap-participants.
812 See List of Registered Security-Based Swap
Dealers and Major Security-Based Swap
Participants, available at https://www.sec.gov/files/
list-sbsds-msbsps-9-28-2023-locked-final.xlsx
(providing the list of registered SBS dealers and
major SBS participants that was updated as of Sept.
28, 2023).
E:\FR\FM\15DER2.SGM
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Federal Register / Vol. 88, No. 240 / Friday, December 15, 2023 / Rules and Regulations
dealers, which increases liquidity
concerns in these markets.813
Market participants such as SBS
dealers and major SBS participants were
required to report security-based swap
transactions to registered security-based
swap data repositories (‘‘SBSDRs’’)
pursuant to Regulation SBSR beginning
on November 8, 2021.814
The Commission uses information
reported pursuant to Regulation SBSR to
two registered SBSDRs—Depository
Trust & Clearing Corporation Data
Repository (‘‘DDR’’) and ICE Trade
Vault (‘‘ITV’’)—to describe the
baseline.815 Table 1 shows that U.S.
security-based swaps market activity is
split across three asset classes: credit,
equity, and interest rate.816 Based on
information reported to DDR, as of
November 25, 2022, there were
approximately 523,000, 3.4 million, and
5,700 active security-based swaps in the
credit, equity, and interest rate asset
classes, respectively. The gross notional
amounts outstanding in the credit,
equity, and interest rate asset classes
were respectively, approximately $2.8,
$3.6, and $0.18 trillion.817 Based on
information reported to ITV, as of
November 25, 2022, there were
approximately 155,000 active credit
security-based swaps with gross
notional amount outstanding of
approximately $1.9 trillion.
Table 1 also shows that U.S. SBS
market participants trade a variety of
security-based swaps in each of the
three asset classes. Based on
information reported to DDR, as of
November 25, 2022, for active credit
security-based swaps, single-name
corporate CDS constitute the largest
product type, with approximately
364,000 active CDS and $1.6 trillion
gross notional amount outstanding. The
second largest active credit securitybased swaps product type consists of
single-name sovereign CDS, with
approximately 94,000 active CDS and
$0.9 trillion gross notional amount
outstanding.
For active equity security-based
swaps, equity portfolio swaps constitute
the largest product type, with
approximately 2.3 million active equity
87239
portfolio swaps and $1.7 trillion gross
notional amount outstanding. The
second largest active equity securitybased swaps product type consists of
equity swaps, with approximately
492,000 active equity swaps and $1.2
trillion gross notional amount
outstanding.818
In the interest rate asset class, exotics
constitute the largest product type, with
approximately $0.1 trillion gross
notional amount and 4,400 active exotic
swaps outstanding.
Based on information reported to ITV,
as of November 25, 2022, active credit
security-based swaps fall into two
product types. Single-name corporate
CDS constitute the largest product type,
with approximately 135,000 active CDS
and $1.3 trillion gross notional amount
outstanding. The second largest active
credit security-based swaps product
type consists of single-name sovereign
CDS, with approximately 20,000 active
CDS and $0.5 trillion gross notional
amount outstanding.
TABLE 1—GROSS NOTIONAL AMOUNT AND ACTIVE SECURITY-BASED SWAPS OUTSTANDING ON NOV. 25, 2022,
CATEGORIZED BY ASSET CLASS AND PRODUCT CLASSIFICATION a
Active
security-based
swap count
SBSDR
Asset class
Product type
DDR .....................
Credit .............................................
Index ..........................................................................
Single-Name: Corporate ............................................
Single-Name: Sovereign ............................................
Total Return Swap b ..................................................
Other c ........................................................................
44,407
1,556,315
900,072
156,849
122,970
2,992
364,465
93,807
49,867
12,081
Total .......................................................................
Portfolio Swap ...........................................................
Swap ..........................................................................
Contract For Difference .............................................
Option ........................................................................
Forward ......................................................................
2,780,613
1,688,672
1,183,279
398,952
6,915
5,663
523,212
2,266,706
491,508
642,965
1,281
1,393
Equity .............................................
813 See
ISDA–SIFMA Letter, supra note 18, at 2
n.5.
ddrumheller on DSK120RN23PROD with RULES2
Gross notional
amount
outstanding
(millions of
USD)
814 See SEC Approves Registration of First
Security-Based Swap Data Repository; Sets the First
Compliance Date for Regulation SBSR, available at
https://www.sec.gov/news/press-release/2021-80.
815 DDR operates as a registered SBSDR for
security-based swap transactions in the credit,
equity, and interest rate derivatives asset classes.
ITV operates as a registered SBSDR for securitybased swap transactions in the credit derivatives
asset class. See Security-Based Swap Data
Repositories; DTCC Data Repository (U.S.) LLC;
Order Approving Application for Registration as a
Security-Based Swap Data Repository, Exchange
Act Release No. 91798 (May 7, 2021), 86 FR 26115
(May 12, 2021); Security-Based Swap Data
Repositories; ICE Trade Vault, LLC; Order
Approving Application for Registration as a
Security-Based Swap Data Repository, Exchange
Act Release No. 92189 (June 16, 2021), 86 FR 32703
(June 22, 2021). The statistics presented herein are
based on the Report on Security-Based Swaps
Pursuant to section 13(m)(2) of the Securities
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19:22 Dec 14, 2023
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Exchange Act of 1934, that the Commission issued
on Mar. 20, 2023 and is available at https://
www.sec.gov/files/report-security-based-swaps032023.pdf (‘‘SBS Report’’).
816 In this release, interest-rate security-based
swaps refer to non-CDS debt security-based swaps,
which are primarily total return swaps that
replicate the payoff of a bond or a narrow index of
bonds, where the buyer usually pays either a fixed
or floating benchmark rate to the seller in exchange
for the total return of the bond or the narrow index
of bonds. These swaps are a subset of over-thecounter derivatives in the interest-rate asset class.
817 Active security-based swaps are those that
have been neither terminated nor reached their
scheduled maturity and are therefore open
positions as of Nov. 25, 2022. Gross notional
amount outstanding represents the total outstanding
notional value of active, market-facing securitybased swaps on Nov. 25, 2022. Security-based
swaps are considered to be ‘‘market-facing’’ when
they are executed at arms-length between third
parties. While a reporting party is only required to
report a transaction to one SBSDR—either DDR or
PO 00000
Frm 00085
Fmt 4701
Sfmt 4700
ITV—some uncleared security-based swaps in DDR
also appear in ITV. As of Nov. 25, 2022, there were
605 active credit security-based swaps in ITV that
were reported as uncleared (0.4% of the 154,903
active credit security-based swaps in ITV). The 605
active credit security-based swaps had a gross
notional outstanding of $4.73 billion (0.3% of the
approximately $1,900 billion gross notional
outstanding of all active credit security-based swaps
in ITV). These statistics provide an upper bound of
the overlap between ITV and DDR and indicate that
the overlap is very limited in scope. See SBS
Report, supra note 815, at 4, 10.
818 An equity swap references a single underlier
while an equity portfolio swap involves a portfolio
wrapper under which multiple swaps can be traded
with operational efficiency. See ISDA, Central
Clearing in the Equity Derivatives Market: An ISDA
Study (June 2014) at 10, available at https://
www.isda.org/a/6PDDE/central-clearing-in-the-eqdmarket-final.pdf; ISDA Taxonomy 2.0—Finalized,
ISDA.org (Sept. 4, 2019), available at https://
www.isda.org/a/o1MTE/ISDA-Taxonomy_EQ-CRFX-IR_v2.0__3-_September_2019-FINAL.xls.
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TABLE 1—GROSS NOTIONAL AMOUNT AND ACTIVE SECURITY-BASED SWAPS OUTSTANDING ON NOV. 25, 2022,
CATEGORIZED BY ASSET CLASS AND PRODUCT CLASSIFICATION a—Continued
SBSDR
Gross notional
amount
outstanding
(millions of
USD)
Active
security-based
swap count
Other d ........................................................................
330,136
41,115
Total .......................................................................
Exotic .........................................................................
Forward ......................................................................
Other e ........................................................................
3,613,617
153,306
23,818
868
3,444,968
4,419
1,164
122
Total .......................................................................
177,992
5,705
Single-Name: Corporate ............................................
Single-Name: Sovereign ............................................
Total .......................................................................
1,348,002
544,414
1,892,416
134,741
20,162
154,903
Asset class
Product type
Interest Rate ..................................
ITV .......................
Credit .............................................
a For cleared security-based swaps in DDR, this table incorporates only one of the two security-based swaps that result from the clearing process. For ITV, this table incorporates all of the cleared security-based swaps.
b As a general matter, total return swaps include non-CDS debt-based security swaps, equity-based security swaps, and mixed swaps.
Counterparties in the total return swaps market use the contracts to obtain exposure, usually leveraged, to the total economic performance of a
security or index and benefit from not having to own the security itself. Market participants, such as mutual funds, hedge funds, and endowments, use total return swaps to obtain exposure in markets where they would face difficulties purchasing or selling the underlying security (e.g.,
a market participant may find it difficult to buy a foreign company’s security or locate a security to sell short) while taking advantage of the capital
efficiencies of not holding the security in their inventories.
c Includes the following products reported to SBSDRs: exotic, index tranche, swaptions, and other single-name (e.g., asset-backed, loan, and
municipal security-based swaps).
d ‘‘Other’’ is a category in the DDR Equity Product ID field. All Product ID categories are listed in the table.
e Includes the following products reported to SBSDRs: inflation, debt option, and cross-currency.
Table 2 shows that both SBS Entities
and non-SBS Entities participate in all
three asset classes in the U.S. securitybased swap market. Based on
information reported to DDR, as of
November 25, 2022, SBS Entities and
non-SBS Entities had, respectively,
entered into approximately 813,000 and
234,000 active credit security-based
swaps.819 The gross notional amounts
outstanding of the active credit securitybased swaps held by SBS Entities and
non-SBS Entities were, respectively,
approximately $4.4 and $1.2 trillion.
In the equity asset class, SBS Entities
and non-SBS Entities had, respectively,
entered into approximately 4.0 million
and 2.9 million active equity securitybased swaps. The gross notional
amounts outstanding of the active
equity security-based swaps held by
SBS Entities and non-SBS Entities were,
respectively, approximately $4.5 and
$2.7 trillion.
In the interest rate asset class, SBS
Entities and non-SBS Entities had,
respectively, entered into approximately
6,200 and 5,200 active interest rate
security-based swaps. The gross
notional amounts outstanding of the
active interest rate security-based swaps
held by SBS Entities and non-SBS
Entities were, respectively,
approximately $0.2 and $0.1 trillion.
Based on information reported to ITV,
as of November 25, 2022, SBS Entities
and non-SBS Entities had, respectively,
entered into approximately 123,000 and
33,000 active credit security-based
swaps. The gross notional amounts
outstanding of the active credit securitybased swaps held by SBS Entities and
non-SBS Entities were, respectively,
approximately $1.6 and $0.3 trillion.
TABLE 2—GROSS NOTIONAL AMOUNT AND ACTIVE SECURITY-BASED SWAPS OUTSTANDING ON NOV. 25, 2022,
CATEGORIZED BY ASSET CLASS AND REGISTRANT TYPE a
SBSDR
Asset class
Registrant type
DDR .....................
Credit .............................................
Total ...........................................................................
SBS Entities ...........................................................
Other ......................................................................
Total ...........................................................................
SBS Entities ...........................................................
Other ......................................................................
Total ...........................................................................
SBS Entities ...........................................................
Other ......................................................................
Total ...........................................................................
SBS Entities ...........................................................
ddrumheller on DSK120RN23PROD with RULES2
Equity .............................................
Interest Rate ..................................
ITV .......................
Credit .............................................
819 For cleared security-based swaps where at
least one counterparty is an SBS Entity, Table 2
reflects the security-based swaps entered into by
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19:22 Dec 14, 2023
Jkt 262001
each of the original counterparties, but does not
include the positions of the clearing agencies
themselves. For uncleared security-based swaps,
PO 00000
Frm 00086
Fmt 4701
Sfmt 4700
Gross notional
amount
outstanding
(millions of
USD)
Active
security-based
swap count
5,561,226
4,403,130
1,158,096
7,227,234
4,490,592
2,736,642
355,984
210,663
145,321
1,897,249
1,632,251
1,046,424
812,647
233,777
6,889,936
4,013,393
2,876,543
11,410
6,214
5,196
155,578
122,831
Table 2 reflects the security-based swaps entered
into by each of the original counterparties. See SBS
Report, supra note 815, at 5.
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87241
TABLE 2—GROSS NOTIONAL AMOUNT AND ACTIVE SECURITY-BASED SWAPS OUTSTANDING ON NOV. 25, 2022,
CATEGORIZED BY ASSET CLASS AND REGISTRANT TYPE a—Continued
SBSDR
Asset class
Registrant type
Other ......................................................................
Gross notional
amount
outstanding
(millions of
USD)
Active
security-based
swap count
264,998
32,747
a For
ddrumheller on DSK120RN23PROD with RULES2
cleared security-based swaps where at least one counterparty is an SBS Entity, Table 2 reflects the security-based swaps entered into by
each of the original counterparties, but does not include the positions of the clearing agencies themselves. For uncleared security-based swaps,
Table 2 reflects the security-based swaps entered into by each of the original counterparties.
In addition to information reported to
registered SBSDRs, the Commission also
uses nonpublic data from the DTCC
Derivatives Repository Limited Trade
Information Warehouse (‘‘DTCC–TIW’’)
to describe the baseline, specifically the
single-name CDS market. DTCC–TIW
provided data regarding the activity of
market participants in the single-name
CDS market during the period from
November 2006 to September 2022.820
The Commission acknowledges that
limitations in the data constrain the
extent to which it is possible to
quantitatively characterize the securitybased swap market.821
Firms that act as SBS dealers 822 play
a central role in the single-name CDS
market. Based on an analysis of singlename CDS data in DTCC–TIW in the 12month period from October 2021 to
September 2022, accounts of registered
SBS dealer firms intermediated
transactions with a gross notional
amount of approximately $1.7 trillion,
with approximately 66% of the gross
notional intermediated by the top five
SBS dealer accounts.
These SBS dealers transact with
hundreds or thousands of
counterparties. One SBS dealer (when
accounts are sorted by number of
counterparties) transacted with over a
thousand counterparty accounts,
consisting of both other SBS dealers and
non-SBS dealers. The next 13% of SBS
dealers each transacted with 500 to
1,000 counterparty accounts; the
following 21% of SBS dealers each
transacted with 100 to 500 counterparty
accounts; and 64% of SBS dealers each
transacted security-based swaps with
fewer than 100 counterparty accounts in
the 12-month period from October 2021
to September 2022. The median number
of counterparty accounts across SBS
dealers is 18 (the mean is approximately
172). Non-SBS dealer counterparties
transacted almost exclusively with these
SBS dealers. The median non-SBS
dealer counterparty transacted with one
SBS dealer account (with an average of
approximately 1.8 SBS dealer accounts)
in the 12-month period from October
2021 to September 2022.
Non-SBS dealer single-name CDS
market participants include, but are not
limited to, investment companies,
pension funds, private funds, sovereign
entities, and industrial companies. The
Commission observes that most users of
CDS that are not SBS dealers do not
engage in trading directly, but trade
through banks, investment advisers, or
other types of firms, which are
collectively referred to as transacting
agents, consistent with DTCC–TIW
terminology.823 Based on an analysis of
DTCC–TIW data, there were 2,397
transacting agents that engaged directly
in trading between November 2006 and
September 2022.824
As shown in Table 3 below,
approximately 79% of these transacting
agents were identified as investment
advisers, of which approximately 40%
(about 32% of all transacting agents)
were registered as investment advisers
under the Investment Advisers Act.825
Although investment advisers were the
vast majority of transacting agents, the
transactions they executed account for
only 15% of all single-name CDS
trading activity reported to DTCC–TIW,
measured by number of transactionsides (each transaction has two
transaction sides, i.e., two transaction
counterparties). The vast majority of
transactions (81.3%) measured by
number of transaction-sides were
executed by ISDA-recognized SBS
dealers.
820 DTCC–TIW provided weekly positions and
monthly transaction files for single-name and
index-based CDS that had been received voluntarily
from market participants. These data cover all
positions and transactions where one of the
counterparties is a U.S. entity or the reference entity
is a U.S. entity, with status as a U.S. entity
determined by DTCC–TIW. In DTCC–TIW, the
Commission observes end of week CDS positions
for all U.S. entities, foreign counterparties to a U.S.
entity, or foreign counterparties trading a CDS
referencing a U.S. underlying entity. The DTCC–
TIW data have limitations. The data do not address
two foreign counterparties with CDS referencing
foreign underlying entities. In addition, the DTCC–
TIW data do not provide any intra-weekly CDS
position information, nor any information on the
underlying security holdings of reference entities.
The Commission had used DTCC–TIW data in prior
rulemakings, most recently in Prohibition Against
Fraud, Manipulation, or Deception in Connection
with Security-Based Swaps; Prohibitions Against
Undue Influence over Chief Compliance Officers,
SEA Release No. 97656 (June 7, 2023), 88 FR 42546
(June 30, 2023).
821 See supra note 820 (discussing DTCC–TIW
data limitations). The Commission also relies on
qualitative information regarding market structure
and evolving market practices provided by
commenters and the knowledge and expertise of
Commission staff.
822 Dealers are generally persons engaged in the
business of buying and selling securities for their
own account, through a broker or otherwise. 15
U.S.C. 78c(a)(5). SEA Rule 3a71–1 defines the term
security-based swap dealer. 17 CFR 240.3a71–1.
823 Transacting agents participate directly in the
single-name CDS market, without relying on an
intermediary, on behalf of their principals. For
example, a university endowment may hold a
position in a single-name CDS that is established by
an investment adviser that transacts on the
endowment’s behalf. In this case, the university
endowment is a principal that uses the investment
adviser as its transacting agent.
824 These 2,397 transacting agents, which are
presented in more detail in Table 3 below, include
all DTCC-defined ‘‘firms’’ shown in DTCC–TIW as
transaction counterparties that report at least one
transaction to DTCC–TIW as of Sep. 2022. The staff
in the Division of Economic and Risk Analysis
classified these transacting agents by matching
names, automatically or manually, to third-party
databases. See, e.g., ANE Adopting Release, 81 FR
8602, at n.43. Manual classification was based in
part on searches of the EDGAR and Bloomberg
databases, the SEC’s Investment Adviser Public
Disclosure database (available at https://
adviserinfo.sec.gov/), and a firm’s public website or
the public website of the account represented by a
firm. The staff also matched names using
International Swaps and Derivatives Association
(ISDA) protocol adherence letters available on the
ISDA website. See ISDA, Small Bang Protocol List
of Adhering Parties, available at https://
www.isda.org/traditional-protocol/small-bangprotocol/adhering-parties/; ISDA, Small Bang
Protocol List of Adhering Parties, https://
www.isda.org/traditional-protocol/big-bangprotocol/adhering-parties/.
825 See 15 U.S.C. 80b–1 through 80b–21. The staff
in the Division of Economic and Risk Analysis
determined whether an entity is an SEC registered
investment adviser using the Investment Adviser
Public Disclosure website. See supra note 824.
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TABLE 3—THE NUMBER OF TRANSACTING AGENTS BY COUNTERPARTY TYPE AND THE FRACTION OF TOTAL TRADING
ACTIVITY, FROM NOV. 2006 THROUGH SEP. 2022, REPRESENTED BY EACH COUNTERPARTY TYPE
Transacting agents
Number
Transaction
share
(percent)
Percent
Investment Advisers ....................................................................................................................
—SEC registered .........................................................................................................................
Banks (non-ISDA-recognized SBS dealers) ................................................................................
Pension Funds .............................................................................................................................
Insurance Companies ..................................................................................................................
ISDA-Recognized SBS Dealers a ................................................................................................
Other b ..........................................................................................................................................
1,891
762
279
31
49
17
130
78.9
31.8
11.6
1.3
2.0
0.7
5.4
15.0
10.0
3.3
0.1
0.2
81.3
0.2
Total ......................................................................................................................................
2,397
100.0
100
a For
the purpose of this analysis, the ISDA-recognized SBS dealers are those identified by ISDA as belonging to the G14 or G16 dealer group
during the period. See, e.g., ISDA, 2010 ISDA Operations Benchmarking Survey (2010), available at https://www.isda.org/a/5eiDE/isda-operations-survey-2010.pdf.
b This category excludes clearing counterparties (CCPs). Same-day cleared trades are recorded in the DTCC dataset as two clearing legs,
each between a CCP (ICE Clear Credit, ICE Clear Europe, and LCH.Clearnet) and the original counterparty in the underlying trade. As these are
not price-forming trades, the counts in the last column of the table are adjusted to reflect the original counterparties, excluding a CCP. Though
original counterparties cannot be paired up to same-day cleared trades, to adjust for same-day clearing each leg against the CCP is counted as
one half of a transaction and the notional amount of the trade is halved as well.
Principal holders of CDS risk
exposure are represented by ‘‘accounts’’
in DTCC–TIW.826 The staff’s analysis of
these accounts in DTCC–TIW shows
that the 2,397 transacting agents
classified in Table 3 represent 16,061
principal risk holders. Table 4 below
classifies these principal risk holders by
their counterparty type and whether
they are represented by a registered or
unregistered investment adviser.827 For
instance, banks in Table 3 allocated
transactions across 375 accounts, of
which 35 were represented by
investment advisers. In the remaining
instances, banks traded for their own
accounts. Meanwhile, ISDA-recognized
SBS dealers in Table 3 allocated
transactions across 104 accounts.
Private funds are the largest type of
account holders that the Commission
was able to classify.828
TABLE 4—THE NUMBER AND PERCENTAGE OF ACCOUNT HOLDERS—BY TYPE—WHO PARTICIPATE IN THE SBS MARKET
THROUGH A REGISTERED INVESTMENT ADVISER, AN UNREGISTERED INVESTMENT ADVISER, OR DIRECTLY AS A
TRANSACTING AGENT, FROM NOV. 2006 THROUGH SEP. 2022
Account holders by type
Number
Represented by a
registered investment
adviser
Represented by an
unregistered investment
adviser
(percent)
(percent)
(percent)
Private Funds ............................................................................
DFA Special Entities .................................................................
Registered Investment Companies ...........................................
Banks (non-ISDA-recognized SBS dealers) .............................
Insurance Companies ...............................................................
ISDA-Recognized SBS Dealers ................................................
Foreign Sovereigns ...................................................................
Non-Financial Corporations ......................................................
Finance Companies ..................................................................
Other/Unclassified .....................................................................
4,816
1,631
1,454
375
356
104
98
129
62
7,036
2,486
1,565
1,367
26
219
0
71
96
46
4,262
52
96
94
7
62
0
72
74
74
61
2,271
44
83
9
49
0
7
10
0
2,477
47
3
6
2
14
0
7
8
0
35
59
22
4
340
88
104
20
23
16
297
1
1
0
91
25
100
20
18
26
4
All ..............................................................................................
16,061
10,138
63
4,950
31
973
6
a This
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Participant is a
transacting agent a
column reflects the number of participants who are also trading for their own accounts.
As depicted in Figure 1 below,
domiciles of new accounts participating
in the single-name CDS market have
shifted over time. It is unclear whether
these shifts represent changes in the
types of participants active in this
market, changes in reporting, or changes
in transaction volumes in CDS
referencing particular underliers. For
example, the percentage of new entrants
that are foreign accounts increased from
24.4% in the first quarter of 2008 to
approximately 53% in the third quarter
of 2022, which might reflect an increase
in participation by foreign account
holders in the single-name CDS market,
though the total number of new entrants
that are foreign accounts decreased from
826 ‘‘Accounts’’ as defined in the DTCC–TIW
context are not equivalent to ‘‘accounts’’ in the
definition of ‘‘U.S. person’’ in SEA Rule 3a71–
3(a)(4)(i)(C). They also do not necessarily represent
separate legal persons. One entity or legal person
might have multiple accounts. For example, a bank
may have one DTCC–TIW account for its U.S.
headquarters and one DTCC–TIW account for one
of its foreign branches.
827 Unregistered investment advisers include all
investment advisers not registered under the
Investment Advisers Act and might include
investment advisers registered with a state or a
foreign authority, as well as investment advisers
that are exempt reporting advisers under section
203(l) or 203(m) of the Investment Advisers Act.
828 Most of the funds that could not be classified
appear to be private funds. For the purposes of this
discussion, ‘‘private fund’’ encompasses various
unregistered investment vehicles, including hedge
funds, private equity funds, and venture capital
funds. There remain over almost 7,000 DTCC–TIW
accounts unclassified by type. Although
unclassified, Commission staff manually reviewed
each account to verify that it was not likely to be
a special entity under SEA Rule 15Fh–2(d) and
instead was likely to be an entity such as a
corporation, an insurance company, or a bank.
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87243
112 in the first quarter of 2008 to 62 in
the third quarter of 2022.829
Additionally, the percentage of the
subset of new entrants that are foreign
accounts managed by U.S. persons
increased from 4.6% in the first quarter
of 2008 to 5.2% in the third quarter of
2022, and the absolute number changed
from 21 to 6, which also might reflect
more specifically the flexibility with
which market participants can
restructure their market participation in
response to regulatory intervention,
competitive pressures, and other
incentives.830 At the same time,
apparent changes in the percentage of
new accounts with foreign domiciles
might also reflect improvements in
reporting by market participants to
DTCC–TIW, an increase in the
percentage of transactions between U.S.
and non-U.S. counterparties, and/or
increased transactions in single-name
CDS on U.S. reference entities by
foreign persons.831
Figure 2 below describes the
percentage of global, notional
transaction volume in North American
corporate single-name CDS reported to
DTCC–TIW between January 2011 and
September 2022, separated by whether
transactions are between two ISDArecognized SBS dealers (‘‘interdealer
transactions’’) or whether a transaction
has at least one non-SBS dealer
counterparty. Figure 2 also shows that
the portion of the notional volume of
North American corporate single-name
CDS represented by interdealer
transactions has remained fairly
constant through 2015, before falling
from approximately 68% in 2015 to
under 40% in 2022. This change
corresponds to the availability of
clearing to non-SBS dealers. Interdealer
transactions continue to represent a
significant fraction of trading activity,
even as notional volume has declined
over the past 12 years,832 from just
829 These estimates were calculated by
Commission staff using DTCC–TIW data.
830 See Charles Levinson, U.S. banks moved
billions in trades beyond the CFTC’s reach, Reuters
(Aug. 21, 2015) (retrieved from Factiva database).
The estimates of 21 and 6 were calculated by
Commission staff using DTCC–TIW data.
831 See supra note 820 (discussing the singlename CDS transactions that are in the DTCC–TIW
data).
832 The start of this decline predates the
enactment of the Dodd-Frank Act and the proposal
of rules thereunder.
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The high level of interdealer trading
activity reflects the central position of a
small number of SBS dealers, each of
which intermediates trades with many
hundreds of counterparties. While the
Commission is unable to quantify the
current level of trading costs for singlename CDS, these SBS dealers appear to
enjoy market power as a result of their
small number and the large proportion
of order flow that they intermediate.
As shown in Figure 3 below, half of
the trading activity in North American
corporate single-name CDS was between
counterparties domiciled in the United
States and counterparties domiciled
abroad. Using the self-reported
registered office location of the DTCC–
TIW accounts as a proxy for domicile,
the Commission estimates that only
13% of the global transaction volume by
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notional volume between January 2008
and September 2022 was between two
U.S.-domiciled counterparties,
compared to 50% entered into between
one U.S.-domiciled counterparty and a
foreign-domiciled counterparty, and
37% entered into between two foreigndomiciled counterparties.833
If the Commission instead considers
the number of cross-border transactions
from the perspective of the domicile of
the corporate group (e.g., by classifying
a foreign bank branch or foreign
subsidiary of a U.S. entity as domiciled
in the United States), the percentages
833 For purposes of this discussion, the
Commission has assumed that the registered office
location reflects the place of domicile for the fund
or account, but this domicile does not necessarily
correspond to the location of an entity’s sales or
trading desk. See ANE Adopting Release, 81 FR at
8607 n.83.
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shift significantly. Under this approach,
the fraction of transactions entered into
between two U.S.-domiciled
counterparties increases to 36% and
remains at 50% for transactions entered
into between a U.S.-domiciled
counterparty and a foreign-domiciled
counterparty.834 By contrast, the
proportion of activity between two
foreign-domiciled counterparties drops
from 37% to 14%. This change in
834 These estimates do not indicate the fraction of
North American corporate single-name CDS
transactions that would be subject to the trade
execution requirement, if it were in force for such
transactions. In particular, if the trade execution
requirement were in force for North American
corporate single-name CDS, a foreign subsidiary of
a U.S. entity transacting in such CDS would only
be subject to the trade execution requirement if the
U.S. parent provides a guarantee to the foreign
subsidiary.
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under $2 trillion in 2011 to less than
$500 billion in 2022.
respective shares based on different
classifications suggests that the activity
of foreign subsidiaries of U.S. firms and
foreign branches of U.S. banks accounts
for a higher percentage of SBS activity
than U.S. subsidiaries of foreign firms
and U.S. branches of foreign banks. It
also demonstrates that financial groups
based in the United States are involved
in an overwhelming majority
(approximately 86%) of all reported
transactions in North American
corporate single-name CDS.
Financial groups based in the United
States are also involved in a majority of
interdealer transactions in North
American corporate single-name CDS.
Of the transactions on North American
corporate single-name CDS between two
ISDA-recognized SBS dealers and their
branches or affiliates over the 12-month
period from October 2021 to September
2022, 80.7% of transaction notional
volume involved at least one account of
an entity with a U.S. parent.835 In
addition, a majority of North American
corporate single-name CDS transactions
occur in the interdealer market or
between SBS dealers and foreign nonSBS dealers, with the remaining portion
of the market consisting of transactions
between SBS dealers and U.S.-person
non-SBS dealers. Specifically, 86% of
North American corporate single-name
CDS transactions involved either two
ISDA-recognized SBS dealers or an
ISDA-recognized SBS dealer and a
foreign non-SBS dealer. Approximately
14% of such transactions involved an
ISDA-recognized SBS dealer and a U.S.person non-SBS dealer.
3. Other Markets and Regulatory
Frameworks
jurisdiction, is slightly smaller than the
index CDS market, which falls under
CFTC jurisdiction.838 For example,
persons who register as SBS dealers and
major SBS participants are likely also to
be engaged in swap activity. In part, this
overlap reflects the relationship
between single-name CDS contracts,
which are SBS, and index CDS
contracts, which may be swaps or SBS.
A single-name CDS contract covers
default events for a single reference
entity or reference security. Index CDS
contracts and related products make
payouts contingent on the default of
index components and allow
participants in these instruments to gain
exposure to the credit risk of the basket
of reference entities that comprise the
index, which is a function of the credit
risk of the index components. A default
event for a reference entity that is an
Proposing Release that the SBS market is a small
fraction of the swap market).
838 As of Nov. 25, 2022, the SBS market had a
gross notional amount outstanding of
approximately $8.5 trillion (see supra section I and
section XVII.B.2, Table 1), while the swap market
(comprising, for purposes of this discussion, swaps
in the interest rate, credit, and foreign-exchange
asset classes) had a gross notional amount
outstanding of approximately $352 trillion. See
supra section I. The gross notional amount
outstanding in single-name CDS (both corporate
and sovereign) was approximately $4.3 trillion (see
supra section XVII.B.2, Table 1), while the gross
notional amount outstanding in index CDS
(including index CDS tranches) was approximately
$4.5 trillion. Data on gross notional amount
outstanding in index CDS is from CFTC Swaps
Report, available at https://www.cftc.gov/
MarketReports/SwapsReports/L3Grossexp.html
(accessed on Sept. 27, 2023).
The numerous financial markets are
integrated, often attracting the same
market participants that trade across
corporate bond, swap, and SBS markets,
among others.836 This is
notwithstanding the fact that the SBS
market is a small fraction of the swap
market 837 and the single-name CDS
market, which falls under SEC
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835 Since the Commission is unable to pair up the
same-day cleared trades, this 80.7% estimate is
based on bilateral trades that were not same-day
cleared in the 12-month period from Oct. 2021 to
Sept. 2022.
836 See Rule 194 Proposing Release, 80 FR at
51711.
837 See ISDA–SIFMA Letter, supra note 18, at 2
(agreeing with the Commission’s statement in the
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index component will result in payoffs
on both single-name CDS written on the
reference entity and index CDS written
on indices that contain the reference
entity. Because of this relationship
between the payoffs of single-name CDS
and index CDS products, the prices of
these products depend upon one
another,839 creating hedging
opportunities across these markets.
These hedging opportunities mean
that participants that are active in one
market are likely to be active in the
other. Commission staff analysis of
approximately 3,829 DTCC–TIW
accounts that participated in the market
for single-name CDS in the 12-month
period from October 2021 to September
2022 revealed that approximately 2,836
of those accounts, or 74%, also
participated in the market for index
CDS. Of the accounts that participated
in both markets, data regarding
transactions in these 12 months suggest
that, conditional on an account
transacting in notional volume of index
CDS in the top third of accounts, the
probability of the same account landing
in the top third of accounts in terms of
single-name CDS notional volume is
approximately 53%; by contrast, the
probability of the same account landing
in the bottom third of accounts in terms
of single-name CDS notional volume is
only 12%. As a result of cross-market
participation, informational efficiency,
pricing, and liquidity may spill over
across markets.840
Of the 51 registered SBS dealers, 44
are dually registered with the CFTC as
swap dealers and are therefore subject to
CFTC requirements for entities
registered with the CFTC as swap
dealers. Further, of the 51 registered
SBS dealers, 30 have a prudential
regulator.
4. Number of Entities That Likely Will
Register as SBSEFs
Entities that will seek to register with
the Commission as SBSEFs are likely to
be SEFs that are active in the index CDS
market. Three commenters are generally
supportive of this belief, stating that the
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839 ‘‘Correlation’’
typically refers to linear
relationships between variables; ‘‘dependence’’
captures a broader set of relationships that may be
more appropriate for certain swaps and SBS. See,
e.g., George Casella & Roger L. Berger, Statistical
Inference 171 (2nd ed. 2002).
840 See Business Conduct Standards Release,
supra note 101, 81 FR at 30108; Christopher L.
Culp, Andria van der Merwe, & Bettina J. Starkle,
Single-name Credit Default Swaps: A Review of the
Empirical Academic Literature 71–85 (ISDA Study,
Sept. 2016), available at https://www.isda.org/a/
KSiDE/single-name-cdsliterature-review-culp-vander-merwe-staerkleisda.pdf; Patrick Augustin, Marti
G. Subrahmanyam, Dragon Y. Tang, & Sarah Q.
Wang, Credit Default Swaps: Past, Present, and
Future, 8 Ann. Rev. Fin. Econ. 175 (2016).
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entities most likely to register as SBSEFs
are those that are already registered with
the CFTC as SEFs.841 No commenters
express disagreement with this belief.
Currently, 24 SEFs are registered with
the CFTC.842 Of these SEFs, seven list
index CDS for trading.843 If these SEFs
were to list single-name CDS or other
SBS for trading, they would be required
to register as SBSEFs with the
Commission. In 2022, index CDS
volume on U.S. SEFs was distributed as
follows: one SEF had the largest share
of index CDS volume (in notional
amount) at $10.6 trillion (68%); one SEF
had the second largest share at $3.4
trillion (22%); and the remaining 10%
of volume was shared among four other
SEFs.844 The number of SBSEF
registrants most likely falls between two
and seven, but there is uncertainty
around the upper end of this estimate.
The likely number of SBSEF registrants
is five.
5. SBS Trading on Platforms
By analyzing SBS transactions
reported to registered SBSDRs,845 the
841 See ICE Letter, supra note 18, at 1–2; ICI
Letter, supra note 18, at 1; Tradeweb Letter, supra
note 18, at 1–2.
842 See CFTC, Swap Execution Facilities
(registered) (retrieved June 28, 2023), available at
https://www.cftc.gov/IndustryOversight/
IndustryFilings/SwapExecutionFacilities?Status=
Registered&Date_From=&Date_To=&Show_All=0.
843 For purposes of this discussion, options on
index CDS and index CDS tranches are included as
part of index CDS. For SEFs that list index CDS for
trading, see BGC Derivative Markets, L.P. Contract
Specifications (Oct. 31, 2022), available at https://
www.bgcsef.com/wp-content/uploads/2022/11/
BGC-SEF-Contract-Specifications_10-31-22.pdf;
Bloomberg SEF LLC Rulebook (Dec. 5, 2022),
available at https://assets.bbhub.io/professional/
sites/10/BSEF-Effective-Rulebook.pdf; GFI Swaps
Exchange: Products & Contract Specifications, GFI
Group, available at https://www.gfigroup.com/
markets/gfi-sef/products/; ICE Swap Trade, LLC,
Swap Execution Facility Rulebook Version: 2.42
(effective May 8, 2023), available at https://
www.theice.com/publicdocs/swap_trade/
Rulebook.pdf; TW SEF LLC, Swap Execution
Facility Rules (effective Jan. 6, 2023), available at
https://www.tradeweb.com/48ceb9/globalassets/
our-businesses/market-regulation/sef-rulebook-jan2023/tw-sef-rulebook-1.6.23.pdf; Tradition SEF,
Appendix B to Tradition SEF Rulebook: Credit
Product Listing, available at https://
www.traditionsef.com/assets/regulatory/RulebookAppendix-B-TSEF-Rulebook-6-02-2023.pdf; tpSEF
Inc., tpSEF Inc. Rulebook Appendix B: tpSEF Inc.
Swap Specifications (effective Mar. 7, 2023),
available at https://www.tullettprebon.com/swap_
execution_facility/documents/tpSEF%20%20Rulebook%20-%20Appendix%20B%20%20Swap%20Specifications.pdf?2023411.
844 Index CDS volume traded on SEFs is from
Futures Industry Association’s SEF Tracker. See
SEF Tracker Historical Volume, FIA, available at
https://www.fia.org/monthly-volume.
845 The estimates presented in this section differ
from those presented in the Proposing Release,
supra note 1, 87 FR at 28946, because of a number
of reasons. First, staff from the Division of
Economic and Risk Analysis derived the estimates
presented herein using reports of SBS transactions
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Commission has estimated the extent of
SBS trading on platforms. Of the new
transactions in credit SBS executed
between November 8, 2021, and
December 2, 2022, 14,163 were executed
on platforms (2% of all new transactions
in credit SBS). During the same period,
329 new transactions in equity SBS
were executed on platforms (less than
0.01% of all new transactions in equity
SBS), while one new transaction in
interest rate SBS was executed on a
platform (0.01% of all new transactions
in interest rate SBS). These observations
suggest that the vast majority of SBS
trading continues to be conducted
bilaterally in the OTC market.
The Commission identified 18
platforms on which new SBS
transactions were executed between
November 8, 2021, and December 2,
2022. Of these 18 platforms, 14 are
foreign SBS trading venues and four are
U.S. SBS trading venues. Of the four
U.S. SBS trading venues, two are CFTCregistered SEFs and two are affiliated
with CFTC-registered SEFs. Of the new
transactions in credit SBS executed
between November 8, 2021, and
December 2, 2022, 710 were executed
on non-U.S. platforms and involved at
least one counterparty that is a U.S.
person or a non-U.S. person whose
performance under the SBS is
guaranteed by a U.S. person (0.1% of all
new transactions in credit SBS). During
the same period, 241 new transactions
in equity SBS were executed on a nonU.S. platform and involved at least one
counterparty that is a U.S. person or a
non-U.S. person whose performance
under the SBS is guaranteed by a U.S.
person (less than 0.01% of all new
transactions in equity SBS
transactions).846
One commenter states that only a
minority of SEFs currently offer trading
in SBS and SEFs that do offer trading in
SBS estimate that they have
approximately 50 or fewer trades per
day in SBS.847 As discussed earlier, the
Commission identified two CFTCregistered SEFs on which new SBS
executed between Nov. 8, 2021, and Dec. 2, 2022,
whereas in the Proposing Release, the staff used
reports of SBS transactions executed between Nov.
8, 2021, and Feb. 28, 2022. Second, the staff
implemented additional filters to the reports of SBS
transactions to (1) more accurately identify and
exclude from the analysis those SBS transactions
that arise from the allocation of an executed
bunched order; (2) exclude potentially erroneous
reports (e.g., SBS transactions with extremely large
or small notional amount or SBS transactions with
improperly sequenced timestamps); (3) identify the
current version of a given report; and (4) exclude
duplicate reports.
846 The one new transaction in interest rate SBS,
discussed earlier in this section, was executed on
a U.S. platform.
847 See ISDA–SIFMA Letter, supra note 18, at 2.
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transactions were executed between
November 8, 2021, and December 2,
2022. During this period, one CFTCregistered SEF had on average 2.4 new
SBS transactions executed per day,
while the other CFTC-registered SEF
had on average 2.8 new SBS
transactions executed per day. These
estimates are broadly consistent with
the commenter’s estimate.
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6. Global Regulatory Efforts
In 2009, the G20 leaders—whose
membership includes the United States,
18 other countries, and the European
Union—addressed global improvements
in the OTC derivatives market. They
expressed their view on a variety of
issues relating to OTC derivatives
contracts.848 In subsequent summits, the
G20 leaders have returned to OTC
derivatives regulatory reform and
reaffirmed their goal of completing such
reform.849
Foreign legislative and regulatory
efforts have generally focused on five
areas: (1) moving standardized OTC
derivatives onto organized trading
platforms; (2) requiring central clearing
of OTC derivatives; (3) requiring posttrade reporting of transaction data to
trade repositories; (4) establishing or
enhancing capital requirements for noncentrally cleared OTC derivatives
transactions; and (5) establishing or
enhancing margin and other risk
mitigation requirements for noncentrally cleared OTC derivatives
transactions. The rules being adopted in
this release concern the registration and
regulation of SBSEFs, a type of
organized trading platform.
As of the end of 2022, platform
trading requirements were in force in 12
foreign jurisdictions while seven
jurisdictions were in the process of
proposing legislation or rules to
implement platform trading
requirements.850 Eight foreign
jurisdictions have made determinations
with respect to the specific OTC
848 See G20, Leaders’ Statement: The Pittsburgh
Summit (Sept. 24–25, 2009) at para. 13.
849 See, e.g., G20, Osaka Summit Declaration
(June 28–29, 2019) at para. 19; Rome Summit
Declaration (Oct. 30–31, 2021) at para. 40.
850 Apart from the 12 foreign jurisdictions, the
United States is considered to have platform trading
requirements in place based on the CFTC’s
implementation of platform trading requirements.
See FSB, OTC Derivatives Market Reforms:
Implementation Progress in 2022 Tables 1 & K (Nov.
7, 2022), available at https://www.fsb.org/wpcontent/uploads/P071122.pdf (describing progress
made towards implementing platform trading
requirements in 2022) and FSB, OTC Derivatives
Market Reforms: 2019 Progress Report on
Implementation Table A (Oct. 15, 2019), available
at https://www.fsb.org/2019/10/otc-derivativesmarket-reforms-2019-progress-report-onimplementation/ (discussing the CFTC’s
implementation of platform trading requirements).
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derivatives that are required to be traded
on platforms.851
7. Trading Models
Unlike the markets for cash equity
securities and listed options, the market
for SBS currently is characterized by
bilateral negotiation in the OTC swap
market; is largely decentralized; has
many non-standardized instruments;
and has many SBS that are not centrally
cleared. The lack of uniform rules
concerning the trading of SBS and the
one-to-one nature of trade negotiation in
SBS has resulted in different models for
the trading of these securities, ranging
from bilateral negotiations carried out
over the telephone, to RFQ systems (e.g.,
single-dealer and multi-dealer RFQ
platforms), request-for-stream protocol,
and limit order books outside the
United States, as more fully described
below. The use of electronic media to
execute transactions in SBS varies
greatly across trading models, with
some models being highly electronic
whereas others rely almost exclusively
on non-electronic means such as the
telephone. The reasons for use of, or
lack of use of, electronic media vary
from such factors as user preference to
limitations in the existing infrastructure
of certain trading platforms. The
description below of the ways in which
SBS may be traded is based in part on
discussions with market participants
and incorporates comments received on
the Proposing Release.
The Commission uses the term
‘‘bilateral negotiation’’ to refer to the
model whereby one party uses the
telephone, email, or other
communications to contact directly a
potential counterparty to negotiate an
SBS transaction. Once the terms are
agreed, the SBS transaction is executed
and the terms are memorialized.852 In a
bilateral negotiation, there might be no
851 These jurisdictions are China (bond forwards;
certain currency forwards, options, and swaps); the
European Union (certain index CDS and certain IRS
denominated in Euro); India (certain overnight
index swaps); Indonesia (equity and commodity
derivative products); Japan (selected Yendenominated IRS); Mexico (certain Pesodenominated IRS); Singapore (certain IRS
denominated in Euro, U.S. dollar, and British
pound); and United Kingdom (certain index CDS
and certain IRS denominated in Euro and certain
IRS denominated in British pound). See FSB, 2019
Progress Report (Table R); FSB, Implementation
Progress in 2022 (footnote 12), supra note 850, and
Financial Conduct Authority, Register of derivatives
subject to the trading obligation under article 28 of
UK MiFIR (July 24, 2023), available at https://
register.fca.org.uk/servlet/
servlet.FileDownload?file=0150X000006gbbG. In its
2022 report, see supra note 850, the FSB noted no
change in status in the implementation of platform
trading requirements since its 2019 report.
852 See, e.g., Trade Acknowledgement and
Verification Adopting Release, supra note 802, 81
FR at 39809.
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87247
pre-trade or post-trade transparency
available to the market because only the
two parties to the transaction are aware
of the terms of the negotiation and the
final terms of the agreement. Further, no
terms of the proposed transaction are
firm until the transaction is executed.
However, reputational costs generally
serve as a deterrent to either party’s
failing to honor any quoted terms.
Dealer-to-customer bilateral negotiation
currently is used for all SBS asset
classes, and particularly for trading in
less liquid SBS, in situations where the
parties prefer a privately negotiated
transaction, such as for a large notional
transaction, or in other circumstances in
which it is not cost-effective for a party
to the trade to use one of the execution
methods described below.
One commenter elaborates on this
model of trading, focusing specifically
on dealer-to-client trading in the SBS
market.853 According to this commenter,
at the moment, dealer-to-client trading
in security-based swaps is largely
opaque and fragmented, with most
executions arising out of one-to-one
private negotiations. When engaging
with clients, liquidity providers
typically provide ‘‘indicative’’ quotes
(as opposed to firm binding quotes),
inviting interested clients to follow-up
bilaterally in order to obtain an
executable price for a specific
instrument.854 Given that these
executable prices are often only then
honored at that exact moment in time,
clients are unable to effectively put
liquidity providers in competition and
have little to no pre-trade transparency
regarding other available prices in the
market.855 Instead clients face the
choice of either accepting the first
executable price received or starting
over with a new one-to-one negotiation,
where pricing could move against the
client as its trading interest is
sequentially disclosed to additional
market participant.856 The commenter
states that this opaque and fragmented
execution process impairs client access
to best execution by denying clients the
ability to effectively compare and
evaluate the quality of prices.857
Another model for the trading of SBS
is the RFQ system. An RFQ system
typically allows market participants to
obtain quotes for a particular SBS by
simultaneously sending messages to one
or more potential respondents (SBS
853 See
Citadel Letter, supra note 18, at 8.
854 Id.
855 Id.
856 Id.
857 Id.
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dealers).858 The initiating participant is
typically required to provide
information related to the request in a
message, which may include the name
of the initiating participant, SBS
identifier, side, and size. SBS dealers
that observe the initiating participant’s
request have the option to respond to
the request with a price quote.859 These
respondents are often, though not
always, pre-selected. The initiating
participant can then select among the
respondents by either accepting one of
multiple responses or rejecting all
responses, usually within a ‘‘good for’’
time period. After the initiating
participant and a respondent agree on
the terms of the trade, the trade will
then proceed to post-trade processing.
RFQ systems provide a certain degree
of pre-trade transparency in that the
initiating participant can observe the
quotes it receives (if any) in response to
its RFQ. The number of quotes received
depends, in part, on the number of
respondents that are invited to
participate in the RFQ. As the
Commission discussed elsewhere,
several factors may influence the
number of respondents that are invited
to participate in an RFQ.860 First, the
RFQ system itself may limit the total
number of respondents that can be
selected for a single RFQ, typically to
five counterparties. This limitation may
encourage SBS dealers to respond to
RFQs, since it reduces the number of
other SBS dealers they would compete
with in any give request session.
Second, the initiating participant may
have an incentive to limit the degree of
information leakage. If the trade the
initiating participant is seeking to
complete with the help of the RFQ is
not completely filled in that one
session, and other participants know
this, quotes the initiating participant
receives elsewhere may be affected,
including in subsequent RFQ sessions.
Third, respondents and initiators both
have an incentive to limit price impact
because of the expense it will add to the
858 See Lynn Riggs, Esen Onur, David Reiffen, and
Haoxiang Zhu, Swap Trading After Dodd-Frank:
Evidence from Index CDS, 137 J. Financial
Economics 857 (2020) (finding that, in the index
CDS market, an initiating participant is more likely
to send RFQs to its relationship dealers, i.e., its
clearing members or dealers with whom it has
traded more actively in the recent past).
859 See id. (finding that, in the index CDS market,
a dealer’s response rate to an RFQ declines with the
number of dealers included in the RFQ).
860 See Amendments to Exchange Act Rule 3b–16
Regarding the Definition of ‘‘Exchange’’; Regulation
ATS for ATSs That Trade U.S. Government
Securities, NMS Stocks, and Other Securities;
Regulation SCI for ATSs That Trade U.S. Treasury
Securities and Agency Securities SEA Release No.
94062 (Jan. 26, 2022), 87 FR 15496 (Mar. 18, 2022)
(‘‘ATS–G Proposal’’), section VIII.B.1.a therein.
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offsetting trade that must follow.
Specifically, an SBS dealer who takes a
position to fill a customer order through
an RFQ will often subsequently offset
that position in the interdealer market.
If a large number of SBS dealers are
invited to participate in an RFQ, this
would lead to widespread knowledge
that the SBS dealer with the winning
bid will now try to offset that position,
which could impact the prices available
to that dealer in the interdealer market.
Two commenters describe the
‘‘request-for-stream’’ trading protocol,
which allows liquidity providers to
stream firm prices on trading platforms
such as those run by SEFs.861 These
firm prices are not required to be
communicated to clients sending an
RFQ on these trading platforms.
A fourth model for the trading of SBS
is a limit order book system or similar
system, which the Commission
understands is not yet in operation for
the trading of SBS in the United
States.862 Today, securities and futures
exchanges in the United States display
a limit order book in which firm bids
and offers are posted for all participants
to see, with the identity of the parties
withheld until a transaction occurs.863
Bids and offers are then matched based
on price-time priority or other
established parameters and trades are
executed accordingly. The quotes on a
limit order book system are firm. In
general, a limit order book system also
provides greater pre-trade transparency
than the models described above,
because participants can view bids and
offers before placing their bids and
offers. However, broadly
communicating trading interest,
particularly about a large trade, might
increase hedging costs, and thus costs to
investors, as reflected in the prices from
the SBS dealers. The system can also
861 See Citadel Letter, supra note 18, at 13; MFA
Letter, supra note 18, at 8. See also supra section
V.E.1(b)(iii). See also Lynn Riggs, Esen Onur, David
Reiffen, and Haoxiang Zhu, Swap Trading After
Dodd-Frank: Evidence from Index CDS, 137 J.
Financial Economics 857 (2020) (documenting that
this trading protocol—also referred to as ‘‘request
for streaming’’—is one of the trading protocols used
in the trading of index CDS on SEFs).
862 With respect to swaps traded on CFTCregistered SEFs, CFTC regulation § 37.9(a) provides
that Required Transactions that are not block trades
must generally be executed via an order book or
RFQ system. CFTC regulations §§ 37.9(d) and (e)
contain exceptions to the § 37.9(a) execution
requirements for certain package transactions and
error trades, respectively. See supra section V.E.
863 Under CFTC rules applicable to the swaps
markets, § 37.9(f) prohibits the practice of post-trade
name give-up for swaps that are executed, prearranged, or pre-negotiated anonymously on or
pursuant to the rules of a SEF and intended to be
cleared, subject to an exception related to certain
package transactions. See supra section V.E
(discussing Rule 815).
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provide post-trade transparency, to the
extent that participants can see the
terms of executed transactions.
The models described above represent
broadly the types of trading of SBS in
the OTC market today. These examples
may not represent every method in
existence today, but the discussion
above is intended to give an overview of
the models without providing the
nuances of each particular type.
C. Benefits and Costs
The Commission’s consideration of
the benefits and costs of the adopted
rules and amendments takes into
account the connection between the
trade execution requirement and the
mandatory clearing requirement
mandated by Congress. Specifically, the
Dodd-Frank Act amended the SEA to
require, among other things, the
following with respect to SBS
transactions: (1) transactions in SBS
must be cleared through a clearing
agency if they are required to be
cleared; 864 and (2) if the SBS is subject
to the clearing requirement, the
transaction must be executed on an
exchange or on an SBSEF registered
under section 3D of the SEA or an
SBSEF exempt from registration under
section 3D(e) of the SEA, unless no
SBSEF or exchange makes such SBS
available for trading or the SBS is
subject to the clearing exception in
section 3C(g) of the SEA.865 The benefits
and costs associated with the trade
execution requirement will not
materialize unless and until the
Commission makes mandatory clearing
determinations, i.e., determining what
SBS transactions must be cleared by a
clearing agency.
The general approach to finalizing
requirements relating to SBS execution
could mitigate costs associated with the
adopted rules and amendments. As
discussed in section I, the Commission’s
approach is to harmonize as closely as
practicable with analogous CFTC rules
for SEFs, unless a reason exists to do
otherwise in a particular area. Based on
the Commission’s belief that SBSEF
registrants likely would be registered
SEFs that have established systems and
policies and procedures to comply with
CFTC rules, the Commission’s general
approach potentially will result in
compliance costs for registered SBSEFs
that are lower than compliance costs
that would have resulted had the
Commission chosen not to harmonize
its approach as closely as practicable
864 See Public Law 111–203, 763(a) (adding
section 3C(a)(1) of the SEA).
865 See id. See also Public Law 111–203, 761(a)
(adding section 3(a)(77) of the SEA to define the
term ‘‘security-based swap execution facility’’).
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with analogous CFTC rules for SEFs.866
Several commenters state that the
Commission’s general approach would
mitigate costs for registered SBSEFs and
SBS market participants.867
In assessing the economic impact of
the adopted rules and amendments, the
Commission considers the broader costs
and benefits associated with the
application of the adopted rules and
amendments, including the costs and
benefits of applying the substantive
Title VII requirements to the trading of
SBS.868 The Commission’s analysis also
considers ‘‘assessment’’ costs—i.e.,
those that arise from current and future
market participants expending resources
to assess how they will be affected by
Regulation SE, and could incur
expenses in making this assessment
even if they ultimately are not subject to
rules for which they made an
assessment.
Many of the benefits and costs
discussed below are difficult to
quantify. These benefits and costs
would depend on how potential SBSEFs
and their prospective members respond
to the adopted rules and amendments.
If potential SBSEFs perceive the costs
associated with operating registered
SBSEFs to be high, such that few or no
entities come forward to register as
SBSEFs, there could be no triggering of
the trade execution requirement, which
depends on MAT determinations made
by registered SBSEFs (or exchanges).
Under this scenario, the future state of
the SBS market likely will not differ
from the current baseline and the
potential costs and benefits discussed
below will not materialize. An
alternative scenario is that prospective
SBSEFs perceive the costs associated
with operating registered SBSEFs to be
high but nevertheless register as SBSEFs
because they expect to be able to pass
on such costs to their members to help
maintain the commercial viability of
operating a registered SBSEF. MAT
determinations by registered SBSEFs
866 In section XVIII infra, for purposes of the PRA,
the Commission estimates burdens applicable to a
stand-alone SBSEF. However, the Commission
anticipates that most if not all SBSEFs will be
dually registered with the CFTC as SEFs, and thus
will already be complying with relevant CFTC rules
that have analogs to rules contained within
Regulation SE. Therefore, the Commission’s burden
estimates may be larger for stand-alone SBSEF than
may exist in practice, considering the effect of
overlapping CFTC rules.
867 See Bloomberg Letter, supra note 18, at 2, 10,
18; ICE Letter, supra note 18, at 2; ISDA–SIFMA
Letter, supra note 18, at 2; SIFMA AMG Letter,
supra note 18, at 5; Tradeweb Letter, supra note 18,
at 1–2.
868 In certain prior Title VII releases, the
Commission had referred to such costs and benefits
as programmatic costs and benefits. See, e.g.,
Regulation SBSR Adopting Release I, supra note
140.
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will move trading of the products
covered by the determinations onto
SBSEFs, which can generate benefits
and costs associated with increased pretrade transparency, in addition to
benefits and costs associated with the
operation of regulated markets. A third
possibility is that entities come forward
to register as SBSEFs because they
perceive the associated costs of
operating SBSEFs to be low in light of
the close harmonization of Regulation
SE with analogous CFTC SEF rules. If
these registered SBSEFs do not make
MAT determinations and thus do not
trigger the trade execution requirement,
the benefits and costs associated with
increased pre-trade transparency likely
will not arise. If SBSEF trading is
limited because of an absence of MAT
determinations, the benefits and costs
associated with the operation of
regulated markets potentially will be
limited as well. A fourth possibility is
that entities do come forward to register
as SBSEFs because they perceive the
associated costs of operating SBSEFs to
be low and these registered SBSEFs
make MAT determinations and trigger
the trade execution requirement. Under
this scenario, the benefits and costs
associated with increased pre-trade
transparency and regulated markets
likely will arise. The Commission does
not have the data to determine which of
the above possibilities will prevail
following the adoption of the rules and
amendments considered herein.
The Commission has attempted to
quantify economic effects where
possible, but much of the discussion of
economic effects is necessarily
qualitative.
1. Overarching Benefits of the Rules and
Amendments
Broadly, the Commission anticipates
that the new rules and amendments may
bring several overarching benefits to the
SBS market.
Improved Transparency. The final
rules would enable the Commission to
obtain information about SBSEFs,
thereby facilitating the Commission’s
oversight of these entities.869
In addition, the requirements relating
to pre-trade transparency would
increase pre-trade transparency in the
869 For example, Rule 826, among other things,
requires an SBSEF to maintain records of its
business activities (including a complete audit trail)
for a period of five years and report to the
Commission such information as the Commission
determines to be necessary or appropriate for
performing the duties of the Commission under the
SEA. See infra this section for a discussion of how
Regulation SE would provide the means for the
Commission to gain better insight into and
oversight of SBSEFs and the SBS market.
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market for SBS.870 Increased pre-trade
price transparency should allow an
increased number of market participants
to better see the trading interest of other
market participants prior to trading,
which should lead to increased price
competition among market
participants.871 The requirements with
respect to pre-trade price transparency
should lead to more efficient pricing in
the SBS market.872
Evidence from the swap market
suggests that an increase in pre-trade
transparency is associated with
improved liquidity and reduced
transaction costs.873 The Commission is
not aware of any difference between the
swap market and the SBS market that
would cause the empirical findings
regarding the impact of pre-trade price
transparency on liquidity and
transaction costs not to carry over into
the SBS market, when implemented.
The Commission is mindful that, under
certain circumstances, pre-trade price
transparency could also discourage the
provision of liquidity by some market
participants.874 However, having two
870 Rules 803(a)(2) and (3) require an SBSEF to
offer, at a minimum, an order book for SBS trading,
subject to certain exceptions related to package
transactions. Rule 815(a) requires SBS transactions
subject to the trade execution requirement to be
executed using either an order book or via an RFQto-3 system. Rule 816 sets forth the process by
which an SBSEF would subject an SBS to the trade
execution requirement. Rule 817 informs market
participants of the date on which the trade
execution requirement for a particular SBS
commences. Rule 832 describes those cross-border
SBS transactions that would be subject to the trade
execution requirement.
871 See, e.g., Ananth Madhavan, Market
Microstructure: A Practitioner’s Guide, 58 Fin.
Analysts J., at 38 (2002) (nondisclosure of pre-trade
price information benefits dealers by reducing price
competition).
872 See, e.g., Ekkehart Boehmer, et al., Lifting the
Veil: An Analysis of Pre-trade Transparency at the
NYSE, 60 J. Fin. 783 (2005) (greater pre-trade price
transparency leads to more efficient pricing).
873 See Evangelos Benos, Richard Payne, and
Michalis Vasios, Centralized Trading,
Transparency, and Interest Rate Swap Market
Liquidity: Evidence from the Implementation of the
Dodd-Frank Act, 55 J. Fin. and Quantitative
Analysis 159 (2020) (finding, among other things,
that imposition of the CFTC’s trade execution
requirement improved the liquidity of IRS that were
subject to the requirement, and that the liquidity
improvement was associated with more intense
competition between swap dealers); Y.C. Loon and
Zhaodong (Ken) Zhong, Does Dodd-Frank Affect
OTC Transaction Costs and Liquidity? Evidence
from Real-Time CDS Trade Reports, 119 J. Fin.
Econ. 645 (2016) (finding that index CDS
transactions executed on SEFs have lower
transaction costs and improved liquidity than index
CDS transactions executed bilaterally).
874 See, e.g., Ananth Madhavan, et al., Should
Securities Markets Be Transparent?, 8 J. Fin.
Markets 265 (2005) (finding that an increase in pretrade price transparency leads to lower liquidity
and higher execution costs, because limit-order
traders are reluctant to submit orders given that
their orders essentially represent free options to
other traders).
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execution methods for Required
Transactions (limit order book and RFQto-3) would provide market participants
with flexibility in the degree of pretrade transparency they wish to employ.
Using RFQ-to-3, a market participant
could choose to reveal its trading
interest to no more than three market
participants; using a limit order book,
the market participant would reveal its
trading interest to all other market
participants that have access to the same
limit order book, which may exceed
three market participants. The flexibility
in the degree of pre-trade transparency
should diminish potential concerns
associated with the exposure of pretrade trading interest.
Two commenters agree that the
proposal would increase transparency
in the SBS market.875 One of these
commenters believes that the
introduction of multilateral trading
protocols would increase pre-trade
transparency and competition, which
should improve liquidity conditions,
reduce transaction costs, and facilitate
execution quality analysis, as clients
will be able to put liquidity providers in
direct competition.876
One commenter believes that
proposed Rule 819(c) would help ensure
that investment advisers to regulated
funds will be able to participate on
SBSEFs, accessing the pricing and other
market information that may be
available on SBSEF, which would
increase transparency in the derivatives
market.877 The Commission agrees that
Rule 819(c), by requiring an SBSEF to
provide any ECP with impartial access
to its market(s) and market services,
would help ensure that ECPs, including
investment advisers, are able to access
pricing and other market information on
SBSEFs thereby increasing transparency
in the SBS market.
Improved oversight of trading.
Regulation SE requires, among other
things, that SBSEFs maintain an audit
trail and automated trade surveillance
system; conduct real-time market
monitoring; establish and enforce rules
for information collection; and comply
with reporting and recordkeeping
requirements.878 These requirements are
designed to provide an SBSEF with
sufficient information to oversee trading
on its market, including detecting and
deterring abusive trading practices.
Additionally, an SBSEF shall permit
trading only in SBS that are not readily
875 See Bloomberg Letter, supra note 18, at 1;
Citadel Letter, supra note 18, at 8.
876 See Citadel Letter, supra note 18, at 8.
877 See ICI Letter, supra note 18, at 11 n.6.
878 See Rules 819, 821, 822, and 826.
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susceptible to manipulation 879 and
adopt rules that are reasonably designed
to allow the SBSEF to intervene as
necessary to maintain markets with fair
and orderly trading and to prevent or
address manipulation or disruptive
trading practices.880
This framework could enhance
investor protection and increase
confidence in a well-regulated market
among SBS market participants, which
could in turn make them more willing
to increase their participation or entice
new participants. An increase in
participation in the SBS market would,
all else being equal, benefit the SBS
market as a whole. Further, to the extent
that market participants utilize SBS to
better manage their risk with respect to
a position in underlying securities or
assets, their participation in the SBS
market could impact their willingness to
participate in the underlying asset
markets. Thus, Regulation SE could
benefit the securities markets overall by
encouraging a more efficient, and
potentially higher, level of capital
investment.
Improved access and competition.
Currently, the SBS market is dominated
by a small group of SBS dealers.881 A
mandatory clearing determination by
the Commission, followed by a MAT
determination by one or more SBSEFs
or exchanges, should help foster greater
competition in the trading of SBS by
promoting greater order interaction and
increasing access to and participation
on SBSEFs. The final rules provide a
framework for allowing a number of
trading venues to register as SBSEFs and
thus more effectively compete for
business in SBS. Furthermore, Rule 827
is designed to promote competition
generally by prohibiting an SBSEF from
adopting any rules or taking any actions
that unreasonably restrain trade or
imposing any material anticompetitive
burden on trading or clearing.
Rule 819(c), among other things,
requires an SBSEF to provide any ECP
with impartial access to its market(s)
and market services. Rule 819(c)(4),
Rule 819(g)(14), along with the new
rules and amendments to the
Commission’s Rules of Practice allow
persons who are aggrieved by a final
disciplinary action, a final action with
respect to a denial or conditioning of
membership, or a final action with
respect to a denial or limitation of
access by an SBSEF to file an
application for review by the
879 See
Rule 820.
Rule 824(b)(1).
881 See supra section XVII.B.2.
880 See
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Commission in a timely manner.882
These rules and amendments are
designed to improve access to, foster
confidence in, and provide for the
oversight of SBSEF functions by
creating a procedure for making appeals
to the Commission.
Taken together, these rules and
amendments should foster greater
access to SBSEFs by SBS market
participants, which in turn could
promote greater participation by
liquidity providers on SBSEFs.
Increased participation on SBSEFs
could increase competition in liquidity
provision and lower trading costs,
which may lead to increased
participation in the SBS market. One
commenter agrees that Rule 819(c), in
particular, would increase competition
in the SBS market. The commenter
further states that the rule would
increase liquidity, efficiency, and
fairness in the SBS market.883 The
Commission agrees that Rule 819(c),
together with the other rules described
earlier, could increase competition in
the SBS market, specifically
competition in liquidity provision as
discussed above. To the extent that
increased competition in liquidity
provision lowers bid-offer spreads and
transaction costs, liquidity and
efficiency in the SBS market would
increase. Rule 819(c), by requiring an
SBSEF to provide any ECP with
impartial access to its market(s) and
market services, would help ensure that
all ECPs will receive the same treatment
with respect to access to the SBSEF’s
market(s) and market services and thus
help to increase fairness in the SBS
market.
Two commenters believe that
Proposed Rule 815(f), which is designed
to prohibit post-trade name give up for
an SBS that is executed anonymously
on an SBSEF and intended to be
cleared, would increase participation on
SBSEFs and in turn increase
competition, liquidity, and
efficiency.884 One of these commenters
also believes the proposed rule would
increase fairness in the SBS markets.885
Rules 815(f) and 815(g) could generate
such beneficial effects. The practice of
post-trade name give-up increases the
risk of information leakage and can
882 See Rules 819(c)(4) and 819(g)(14); Rules 442
and 443; amendments to Rules 101, 202, 210, 401,
450, and 460. Rule 442(b), among other things,
clarifies that the 30-day period for filing an
application for review will not be extended absent
a showing of extraordinary circumstances, which is
intended to encourage parties to act timely in
seeking review.
883 See ICI Letter, supra note 18, at 2.
884 See id.; SIFMA AMG Letter, supra note 18, at
11.
885 See ICI Letter, supra note 18, at 2.
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deter participation by liquidity seekers
on SBSEFs. By prohibiting such a
practice for an SBS that is executed
anonymously on an SBSEF and
intended to be cleared, Rule 815(f)
would reduce the risk of information
leakage and encourage more liquidity
seekers to participate on SBSEFs.
Further, by helping to protect the
anonymity of market participants, Rule
815(f) could encourage a more diverse
set of market participants to transact in
anonymous order books.
Rule 815(g) specifies that SBSEFs
shall establish and enforce rules that
provide that a security-based swap that
is intended to be cleared at the time of
the transaction, but is not accepted for
clearing at a registered clearing agency,
shall be void ab initio. The rule would
ensure that a trade that is rejected for
clearing would not become a bilateral
transaction, in which case the
counterparties would have to divulge
their identities. As such, the rule would
reduce the risk of information leakage
and protect the anonymity of market
participants for SBS that is executed
anonymously and intended to be
cleared, but is nonetheless rejected for
clearing. This in turn could increase
participation on SBSEFs by liquidity
seekers and those wishing to transact in
anonymous order books, similar to Rule
815(f).
Increased participation by liquidity
seekers on SBSEFs could in turn
increase participation by liquidity
providers and promote competition in
liquidity provision. Greater
participation in anonymous order books
also could promote competition in
liquidity provision if erstwhile liquidity
seekers choose to provide liquidity in
competition with SBS dealers in these
order books. To the extent that
increased competition in liquidity
provision lowers bid-offer spreads and
transaction costs, liquidity and
efficiency in the SBS market would
increase.
By helping to protect the anonymity
of those that transact in anonymous
order books, the rule would deprive SBS
dealers of a means of deterring access to
and participation in such order books by
buy-side market participants.886 Thus,
Rule 815(g) could help promote a level
playing field by ensuring that both buyside market participants and dealers can
participate in these order books.
Regulation SE would promote
competition among entities that act as
third-party service providers to SBSEFs.
886 See Citadel Letter, supra note 18, at 11 (stating
that PTNGU, by revealing counterparty identities,
can be used as a policing mechanism by dealers to
deter buy-side access and participation).
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Rule 819(c) would, among other things,
require an SBSEF to provide any
independent software vendor with
impartial access to its market(s) and
market services. The rule would provide
a level playing field to software vendors
with respect to access to SBSEFs and
promote competition among these
vendors as they vie for an SBSEF’s
business. Rule 819(e) would permit an
SBSEF to contract with a registered
futures association, a DCM, a national
securities exchange, a national
securities association, or another SBSEF
for the provision of services to assist in
complying with the SEA and
Commission rules thereunder, as
approved by the Commission. By
permitting an SBSEF to choose from a
range of regulatory services providers,
Rule 819(e) could promote competition
among regulatory services providers. To
the extent that increased competition
among independent software vendors
and regulatory services providers
incentivizes them to offer cheaper,
higher quality services to SBSEFs
thereby lowering their costs, market
participants that are SBSEF members
could benefit to the extent the SBSEFs
pass on the cost savings in the form of
lower fees to their members. Lower fees
for SBSEF members would help reduce
the overall costs of trading on SBSEFs
and increase the efficiency of SBS
trading.
Improved Commission oversight. One
of the goals of the Dodd-Frank Act is to
increase regulatory oversight of SBS
trading relative to the existing OTC SBS
market.887 Regulation SE would provide
the means for the Commission to gain
better insight into and oversight of
SBSEFs and the SBS market by, among
other things, allowing the Commission
to review new rules, rule amendments,
and product listings by SBSEFs 888 and
to obtain other relevant information
from SBSEFs.889
Additionally, Rule 826(b) requires
every SBSEF to keep full, complete, and
systematic records of all activities
relating to its business with respect to
SBS. In addition, Rule 819(f) requires an
SBSEF to capture and retain a full audit
trail of activity on its facility. The
records required to be kept by an SBSEF
would help the Commission to
determine whether an SBSEF is
operating in compliance with the SEA
and the Commission’s rules thereunder.
The audit trail data required to be
captured and retained would facilitate
the ability of the SBSEF and the
Commission to carry out their respective
887 See
Public Law 111–203, Preamble.
Rules 804, 805, 806, and 807.
889 See Rule 811.
obligations under the SEA, by
facilitating the detection of abusive or
manipulative trading activity, allowing
reconstructions of activity on the
SBSEF, and generally understanding the
causes of both specific trading events
and general market activity.
Furthermore, Rule 835 requires an
SBSEF to provide the Commission
notice of a final disciplinary action, a
final action with respect to a denial or
conditioning of membership, or a final
action with respect to a denial or
limitation of access, which facilitates
the Commission’s review of the SBSEF’s
disciplinary process and exercise of its
regulatory powers, providing the
Commission an additional tool to carry
out its oversight responsibilities. Rule
813 provides for Commission oversight
of SBSEFs in their use of information
collected for regulatory purposes and is
designed to deter the misappropriation
or misuse of such information. Rule
824(c) requires an SBSEF to, among
other things, promptly notify the
Commission of its exercise of emergency
authority and provide information
related to the use of that authority. The
registration requirements and related
Form SBSEF, and the CCO’s annual
compliance report, which are further
discussed below, would also help the
Commission with its oversight
responsibilities.
Improved automation. To comply
with Regulation SE’s requirements
relating to recordkeeping and
surveillance, an SBSEF potentially
would need to invest in and develop
automated technology systems to store,
monitor, and communicate a variety of
trading data, including orders, RFQs,
RFQ responses, and quotations.890 The
final rules should promote increased
automation in the SBS market, although
CFTC-registered SEFs that plan to
register as SBSEFs are already deploying
automated systems that could be
supplemented to support an SBS
business. In addition, the automation
and systems development associated
with the regulation of SBSEFs could
provide SBS market participants with
new platforms and tools to execute and
process transactions in SBS more
rapidly and at a lower expense per
transaction. Such increased efficiency
could enable members of the SBSEF to
handle increased volumes of SBS with
greater efficiency and timeliness.
2. Benefits Associated With Specific
Rules
In addition to the broad benefits that
the Commission anticipates as a result
of the rules and amendments adopted in
888 See
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890 See
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this release, individual rules could bring
particular benefits to the SBS market.891
These include the following:
Registration requirements and Form
SBSEF. SBSEF registration is required
under the Dodd-Frank Act.892 Rule
818(a) incorporates the requirement
under the Dodd-Frank Act that an
SBSEF, in order to be registered and
maintain registration, must comply with
the Core Principles in section 3D(d) of
the SEA and the Commission’s rules
thereunder. The registration process
described in Rule 803 implements this
statutory requirement and assists the
Commission in overseeing and
regulating the SBS market. The
information to be provided on Form
SBSEF is designed to enable the
Commission to assess whether an
applicant has the capacity and the
means to perform the duties of an
SBSEF and to comply with the Core
Principles and other requirements
imposed on SBSEFs. Rule 803 is closely
modelled on analogous CFTC
registration requirements for SEFs. The
choice to align the Commission’s
registration requirements for SBSEFs
with the CFTC’s requirements for SEFs
is designed to achieve the
abovementioned benefits while
imposing only marginal costs on SBSEF
registrants, who likely are SEFs. Finally,
Rule 814(a) helps provide regulatory
certainty for an entity that operates both
an exchange and an SBSEF by clarifying
that such an entity is required to
separately register the two facilities
pursuant to section 6 of the SEA and
Rule 803, respectively.
Exemptions (Rule 833, Rule 816(e),
amendments to Rule 3a1–1, and Rule
15a–12). Rule 833 is designed to
preserve access to foreign markets by
‘‘covered persons’’ (as defined in Rule
832). As discussed in section XVII.B.2,
an analysis of SBS transaction data
indicates that certain trades executed on
foreign SBS trading venues involve at
least one counterparty that is a covered
person. Absent the rule, these trading
venues might elect to avoid having
members that are covered persons if
those venues do not wish to register
with the Commission in some capacity
(such as an exchange or SBSEF). In
addition, covered persons will not be
permitted to execute SBS that are
subject to the trade execution
requirement on these venues if the
891 Unless otherwise stated, quantified benefits in
this section are adjusted for CPI inflation using data
published by the Bureau of Labor Statistics. See CPI
Inflation Calculator, U.S. Bureau of Labor Statistics,
available at https://www.bls.gov/data/inflation_
calculator.htm.
892 See SEA section 3D(a)(1), 15 U.S.C. 78c–
4(a)(1).
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venues do not register with the
Commission in some capacity (such as
an exchange or SBSEF) or obtain an
appropriate exemption. This would
limit access to foreign SBS trading
venues by covered persons, potentially
making it harder for them to locate
counterparties and obtain liquidity for
SBS that trade on those venues. This in
turn could increase their trading costs
because they might spend more time
and effort to locate counterparties or
because they have less bargaining power
relative to the remaining pool of
potential counterparties with which
they could trade. To the extent that a
foreign SBS trading venue can obtain a
Rule 833(a) exemption, it could
continue to provide members that are
covered persons with access to and
liquidity on its market. Furthermore, a
Rule 833(b) exemption would allow
covered persons to continue accessing
foreign SBS trading venues to execute
SBS that are subject to the SEA’s trade
execution requirement.
Currently, all trading venues that
trade SBS—whether domestic or
foreign—are exempt from having to
register as a national securities exchange
or SBSEF on account of the SBS trading
business. This exemption expires when
the Commission’s rules for registering
and regulating SBSEFs come into
force.893 Thus, removal of the existing
exemption restores the status quo ante,
where the SEA itself, as amended by the
Dodd-Frank Act, requires entities
meeting the definition of ‘‘securitybased swap execution facility’’ or
‘‘exchange’’ and falling within the
territorial jurisdiction of the SEA to
register with the Commission. By
offering foreign SBS trading venues the
possibility of an exemption from the
definitions of ‘‘security-based swap
execution facility’’ and ‘‘exchange’’ as
well as from section 3D(a)(1) of the SEA,
Rule 833(a) allows foreign SBS trading
venues to operate in conditions similar
to the current baseline (if the
Commission ultimately grants an
exemption under Rule 833(a)).
Paragraph (a)(4) of Rule 3a1–1
provides that an entity that has
registered with the Commission as an
SBSEF and provides a market place for
no securities other than SBS will not fall
within the definition of ‘‘exchange’’ and
thus will not be subject to the
requirement in section 5 of the SEA to
register as a national securities exchange
(or obtain a low-volume exemption).
The benefit of the amendment is to
clarify to prospective SBSEF applicants
that, if they register with the
Commission as SBSEFs, they will not
893 See
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face duplicative registration and
regulatory requirements as exchanges.
In addition, paragraph (a)(5) of Rule
3a1–1 codifies a series of exemptions
that the Commission has granted over
several years to SBS clearing agencies
that operate ‘‘forced trading’’ sessions to
support end-of-day valuations of SBS.
Because the amendment is intended to
codify existing exemptions, any
associated economic effects would be
minimal.
New Rule 15a–12 is designed to
minimize overlapping compliance
burdens for SBSEFs, which are also
brokers under the SEA, that restrict their
activity to engaging in the business of
operating an SBSEF (and no other
broker activities). Absent the rule, such
SBSEFs (defined as ‘‘SBSEF–Bs’’ for
purposes of Rule 15a–12) will need to
register as SBSEFs and be subject to the
SBSEF regulatory regime, in addition to
registering as brokers and being subject
to the broker regulatory regime. Rule
15a–12 allows an SBSEF–B to satisfy the
requirement to register as a broker by
registering as an SBSEF under Rule 803
and exempts an SBSEF–B from SIPA
and other broker requirements, except
for sections 15(b)(4), 15(b)(6), and 17(b)
of the SEA. As a result of the rule,
SBSEF–Bs could avoid incurring
duplicative and unnecessary
compliance burdens. Each SBSEF–B
could save an estimated $345,826 in
initial broker registration costs 894 and
$62,878 in annual ongoing costs of
meeting broker registration
requirements.895 In deriving these
estimates, the Commission assumes that
the activities an SBSEF–B performs to
register and maintain registration as a
broker do not overlap with those that it
performs to register and maintain
registration as an SBSEF–B. If there is
an overlap in such activities, the
estimated cost savings could be smaller.
Each SBSEF–B could save an estimated
$821 in ongoing costs associated with
satisfying broker minimum capital
894 The Commission previously estimated that an
entity would incur costs of $301,400 to register as
a broker-dealer and become a member of a national
securities association. See Cross-Border
Amendments Adopting Release, 85 FR at 6312.
Adjusted for inflation through Dec. 2022, these
costs are $345,826.
895 The Commission previously estimated that an
entity would incur ongoing annual costs of $54,800
to maintain broker-dealer registration and
membership of a national securities association. See
Cross-Border Amendments Adopting Release, 85 FR
6312. Adjusted for inflation through Dec. 2022,
these costs are $62,878. The estimation of ongoing
annual costs is based on the assumption that the
entity would use existing staff to perform the
functions of the registered broker-dealer and would
not incur incremental costs to hire new staff. To the
extent that the entity chooses to hire new staff, the
ongoing annual costs would likely be higher.
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requirements.896 The estimated
aggregate initial and annual ongoing
savings are $1,729,130 and $318,495,
respectively.897
Rule and product filings. Rules 806
and 807 set forth alternative filing
processes for a new rule or rule
amendment of a registered SBSEF, and
Rules 804 and 805 set forth alternative
filing processes for an SBSEF to file an
SBS product that it wishes to list. Rule
810 would address new product filings
by an entity that has applied for SBSEF
registration but has not yet been
registered, or by a dormant SBSEF
seeking reinstatement of its registration.
The self-certification processes of Rules
804 and 807 require SBSEFs to include
a certification that the product, rule, or
rule amendment, as the case may be,
complies with the SEA and Commission
rules thereunder.898 The information to
be provided by the SBSEF under Rules
804, 805, and 810 will further the ability
of the Commission to obtain information
regarding SBS that an SBSEF intends to
list on its market. The rules will assist
the Commission in overseeing and
regulating the trading of SBS and to
help ensure that SBSEFs operate in
compliance with the SEA.
In addition, Rule 806(a)(5), which
requires an SBSEF to explain the
anticipated benefits and potential
anticompetitive effects on market
participants of a proposed new rule or
rule amendment, potentially could help
foster a competitive SBS market because
it could prompt SBSEFs to consider the
positive as well as negative aspects of
their proposed rules or rule
amendments with respect to
competition. Rule 808 is designed to
facilitate the public’s ability to obtain
information from SBSEF applications as
well as rule and product filings. Rule
808(a) specifies the parts of an SBSEF
896 Absent the rule, an SBSEF–B would comply
with the minimum net capital requirement of
$5,000 for a registered broker-dealer because it
would not receive, owe, or hold customer funds or
securities; carry customer accounts; and engage in
certain other activities. See Rule 15c3–1(a)(2)(vi)
under the SEA, 17 CFR 240.15c3–1(a)(2)(vi). The
Commission estimates the cost of capital using the
annual stock returns on a value-weighted portfolio
of financial stocks from 1988 to 2022 (see Kenneth
French, 48 Industry Portfolios, available at https://
mba.tuck.dartmouth.edu/pages/faculty/ken.french/
ftp/48_Industry_Portfolios_CSV.zip (accessed on
May 18, 2023). These returns were averaged to
arrive at an estimate of 16.41%. The cost of capital
= 16.41% × $5,000 = $820.50 or approximately
$821.
897 The Commission estimates the number of
SBSEF–Bs as the number of entities that likely will
register as SBSEFs. See supra section XVII.B.4.
Aggregate initial savings = $345,826 × 5 (number of
SBSEF–Bs) = $1,729,130. Aggregate annual ongoing
savings = ($62,878 + $821) × 5 (number of SBSEFs)
= $318,495.
898 See Rules 804(a)(3)(iv) and 807(a)(6)(iv).
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application that the Commission shall
make publicly available unless
confidential treatment is obtained
pursuant to SEA Rule 24b–2. Rule
808(b) provides that the Commission
shall make an SBSEF’s rule and product
filings publicly available unless
confidential treatment is obtained
pursuant to SEA Rule 24b–2. Rule
808(c) provides that the terms and
conditions of a product submitted to the
Commission pursuant to any of Rules
804 through 807 shall be made publicly
available at the time of submission
unless confidential treatment is
obtained pursuant to SEA Rule 24b–2.
Rule 809 provides a mechanism for
the staying of a product certification or
the tolling of a review period for a filing
by an SBSEF relating to a product while
the appropriate jurisdictional
classification of that product is
determined. The rule is designed to
provide regulatory certainty for SBSEFs
and market participants who may be
interested in trading products whose
classification as an SBS subject to SEC
jurisdiction or a swap subject to CFTC
jurisdiction is unclear. In particular,
Rule 809 would help ensure that
determinations regarding whether the
SEC or CFTC appropriately has
jurisdiction over a product are made
before the product is traded.
The Commission’s election to model
Rules 804 through 810 closely on
analogous rules in part 40 of the CFTC’s
rules that apply to SEFs (and other
registered entities) is designed to
promote efficiency. Utilizing the same
processes for rule and product filings,
with which dually registered SEF/
SBSEFs are familiar, would impose only
minimal burdens on such entities while
obtaining the similar regulatory benefits
as the CFTC rules. In some cases, where
a new rule or rule amendment affects
both the swap and SBS business of a
dually registered entity, the same or a
very similar filing could be made to
each of the CFTC and SEC, in lieu of
having to make different filings to
support the same rule change.
Chief Compliance Officer. Rule 831,
among other things, requires the CCO of
an SBSEF to submit an annual
compliance report to the Commission.
The report will assist the Commission in
carrying out its oversight of the SBSEFs
and the SBS market by providing the
Commission with information about the
compliance activities of SBSEFs.
Furthermore, by requiring an SBSEF to
designate an individual as the CCO and
making the CCO responsible for
ensuring compliance with the SEA and
the Commission’s rules thereunder,
Rule 831 would promote regulatory
compliance on SBSEFs and the SBS
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87253
market generally.899 This in turn would
further the goal of moving SBS trading
away from opaque and unregulated OTC
markets and onto transparent and
regulated markets by promoting
effective regulation of the latter.
Conflicts of Interest. Rule 831, among
other things, requires the CCO to resolve
material conflicts of interest that may
arise in consultation with the governing
board or the senior officers of the
SBSEF.900 Rule 828(a) requires an
SBSEF to establish and enforce rules to
minimize conflicts of interest in its
decision-making process and establish a
process for resolving the conflicts of
interest. Rule 828(b) would require an
SBSEF to comply with the requirements
of Rule 834, which is designed to
implement section 765 of the DoddFrank Act with respect to SBSEFs and
SBS exchanges. Rule 834, among other
things, imposes a 20% cap on the voting
interest held by an individual member
of an SBSEF or SBS exchange, mitigates
conflicts of interest in the disciplinary
process of an SBSEF or SBS exchange,
sets forth certain minimum
requirements for the composition of the
governing board of an SBSEF or SBS
exchange, sets forth reporting
requirements related to governing board
elections, and addresses the avoidance
of conflicts of interest in the execution
of regulatory functions by an SBSEF or
SBS exchange.901
The rules would mitigate conflicts of
interest between an SBSEF or SBS
exchange and its members as discussed
in section VIII. Relative to the bilateral
OTC SBS market, SBSEFs and SBS
exchanges promote competition
between liquidity providers, potentially
forcing them to lower their prices for
supplying liquidity (e.g., narrowing bidask spread) and reducing their profits
from liquidity provision. However, if
SBS dealers or major SBS participants
were able to restrict access to such
venues by, for example, exercising their
voting interest in an SBSEF or SBS
exchange, they could stifle competition
in SBSEFs and SBS exchanges and
preserve their profits from liquidity
provision. Regulation SE, by mitigating
such conflicts of interest could help
ensure access to SBSEFs and SBS
exchanges and in turn increase
competition in liquidity provision and
lower transaction costs. Rules 834(e), (f),
and (g) also may promote good
governance at SBSEFs and SBS
exchanges. To the extent that improved
899 The SBSEF remains responsible for
establishing and administering required policies
and procedures. See supra section VI.N.
900 See Rules 831(a)(2)(iii) and (h)(2).
901 See Rules 834(b) to (g).
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governance result in more effective
oversight by SBSEFs and SBS exchanges
of their markets, market participants
may benefit. These benefits could be
limited to the extent that prospective
SBSEFs and SBS exchanges already
have rules in place that comply with the
rules.
Structured Data Requirements. Rule
825(c)(3) requires an SBSEF to publish
a Daily Market Data Report on its
website without charge or usage
restrictions and in a downloadable and
machine-readable format using the most
recent version of the associated XML
schema and PDF renderer as published
on the Commission’s website.902
Requiring the Daily Market Data Report
to be provided in a structured, machinereadable data language (using a
Commission-created XML schema) will
facilitate the use of the price, trading
volume, and other trading data on the
report by end users such as SBS market
participants and market observers. By
including a structured data requirement,
the information in the report will be
made available in a consistent and
openly accessible manner that will
allow for automatic processing by
software applications, thus enabling
search capabilities and statistical and
comparative analyses across SBSEFs
and date ranges.903 This will ensure that
SBS market participants and market
observers seeking to use the data will
not have to spend time manually
collecting and entering the data into a
format that allows for analysis.
One commenter stated that using
custom XML rather than Inline XBRL
‘‘would essentially require re-creating
what XBRL already offers’’ and that the
use of custom XML ‘‘would result in
added costs for all stakeholders,
reduced efficiencies in adapting to
changes, and the inability to commingle
datasets.’’ 904 The Daily Market Data
Report, which includes the trade count,
the total notional amount traded, and
the opening and closing price, is wellsuited for custom XML as the
information would easily fit within a
table and the use of custom XML would
make the file size of the document
smaller than would be the case with
Inline XBRL, which helps to reduce
operating system overhead. Posting the
Daily Market Data Report would not
impose significant costs to prospective
and actual SBSEFs due to the limited
extent and complexity of the required
902 See
Rule 825(c)(3).
addition, the associated PDF renderer will
provide users with a human-readable document for
those who prefer to review manually individual
reports, while still providing a uniform
presentation.
904 See XBRL US Letter, supra note 718, at 2.
903 In
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data points to be reported, and because
SBSEFs are already required to use
structured data to fulfill their reporting
requirements under Regulation SBSR 905
and therefore would have relevant
systems in place to structure and
publicly disseminate other SBS trading
information.906 While the use of custom
XML will make it more difficult for data
users to aggregate and compare the data
points on the Daily Market Data Report
with data points in other Inline XBRL
datasets in an efficient manner, the
streamlined schema and reduced file
size justify that drawback.
Regulation SE requires SBSEFs to file
disclosures required under various
provisions in the EDGAR system using
structured (machine-readable) data
languages.907 Requiring a centralized
filing location and a machine-readable
data language for these disclosures will
facilitate access, retrieval, analysis, and
comparison of the disclosed information
across different SBSEFs and time
periods by the Commission and the
public, thus potentially augmenting the
informational benefits of the various
disclosure requirements discussed
herein. Also, because EDGAR provides
basic technical validation capabilities,
the use of EDGAR could reduce the
incidence of technical errors (e.g., letters
instead of numbers in a field requiring
only numbers) and thereby improve the
quality of the structured disclosures.
The structured data requirements
under Regulation SE will facilitate
access to the structured information in
the filings, enabling Commission staff to
perform more efficient retrieval,
aggregation, and comparison across
different SBSEFs and time periods, as
compared to an unstructured PDF,
HTML, or ASCII format requirement.
The functionality enabled by a machinereadable data requirement will allow
staff to better utilize the structured
information in Regulation SE filings to
ensure compliance with the SEA and
rules and regulations thereunder
applicable to SBSEFs (e.g., by enabling
efficient staff identification of material
905 See 17 CFR 242.907(a)(2) (requiring
information to be submitted to SDRs in an ‘‘opensource structured data format that is widely used
by participants’’).
906 See infra section XVII.C.3 for a discussion of
the specific content of the Daily Market Data Report
and how it differs from the SBS transaction reports
disseminated under Regulation SBSR.
907 This includes the documents required under:
Rule 803(b)(1)(i) and (3) (filings of, and
amendments to, specified exhibits in a Form SBSEF
application); Rules 803(e) and 803(f) (requests to
withdraw or vacate an application for registration);
Rule 829(g)(6) (submission to the Commission of
reports related to financial resources and related
documentation); and Rule 831(j)(2) (submission to
the Commission of the annual compliance report of
the SBSEF’s CCO). See supra section XIII.A.
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changes to compliance policies or
material non-compliance matters to
gauge the soundness of SBSEF
compliance programs), thus ultimately
furthering the Commission’s mission of
maintaining fair, orderly, and efficient
markets.
In a change from the proposal,
Regulation SE will require some of the
structured disclosures to be filed in
custom XML rather than Inline
XBRL.908 Because both custom XML
and Inline XBRL are structured data
languages that result in machinereadable disclosures, the
aforementioned benefits would apply in
both cases. Inline XBRL specifically
provides the ability to tag detailed facts
within narrative text blocks, and is thus
well-suited to accommodate many
disclosures required under proposed
Regulation SE, several of which require
extended narrative discussions (e.g., the
chief compliance officer’s report
required under Rule 831).909 In
addition, certain required disclosures
consist of financial information (e.g., the
financial statements of the SBSEF
required under Exhibit I to Form
SBSEF), and Inline XBRL is designed
specifically for the accurate capture and
communication of financial
information, among other uses. A
benefit specific to custom XML
disclosures is that EDGAR can create
fillable web forms allowing SBSEFs, at
their option, to input their disclosures
manually and have EDGAR convert
them into the specific custom XML data
language, removing the need for SBSEFs
to structure the disclosures in the
custom XML data language themselves.
This added flexibility may ease
compliance burdens for any SBSEFs
that choose to use the fillable web form.
One commenter noted that an Inline
XBRL requirement for the proposed
disclosures would allow financial
identification and textual data in both a
human- and machine-readable format
consistently in a fashion that would
allow Form SBSEF data to be
commingled with other SEC-reported
datasets.910 While we generally agree
that Inline XBRL provides such benefits
908 The custom XML requirements apply to
information required under Rules 803(e) and (f)
regarding withdrawal or vacation applications; the
Form SBSEF Cover Sheet; and Exhibits A, B, G, M,
N, and T to Form SBSEF. The Inline XBRL
requirements apply to information required under
Rules 829 and 831 regarding financial resources
reports and CCO compliance reports, respectively;
and Exhibits C through F, H through L, and P
through S to Form SBSEF. See supra section XIII.A.
See also supra notes 724–726 and accompanying
text (discussing the final rule text revisions that
implement the reduced scope of Inline XBRL
requirements for Form SBSEF).
909 See Rule 831.
910 See XBRL US Letter, supra note 718, at 2.
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related to data use, the greater
compliance flexibility afforded by
custom XML merits using custom XML
for the specified disclosures.
In another change from the proposal,
where Regulation SE requires copies of
existing documents (e.g., copies of
manuals, contracts, organizational
documents) to be attached to filings,
those copies will be filed as
unstructured PDF attachments.911 The
absence of structuring requirements for
these documents will further reduce
compliance burdens on SBSEFs, and
although the content of those copies
will not be machine-readable, we do not
believe the informational benefits
associated with having such documents
in structured form would be significant
enough to merit requiring SBSEFs to
retroactively structure such existing
documents. In addition, filings related
to new SBSEF rules and products under
Rules 804 through 807 and 816 will be
filed as unstructured documents
through the EFFS system rather than
through EDGAR. As noted by one
commenter, the absence of structuring
requirements for these filings will
similarly reduce compliance burdens on
SBSEFs.912
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3. Costs
Although Regulation SE would
benefit the SBS market, the Commission
recognizes that Regulation SE also
would entail certain costs.913 Some
costs are difficult to precisely quantify
and are discussed below. The
Commission is mindful that any rules it
may adopt with respect to SBSEFs
under the Dodd-Frank Act may impact
the incentives of market participants
with respect to where and how they
trade SBS. If the rules adopted by the
Commission are, or are perceived to be,
too costly for trading venues to comply
with, fewer entities than expected may
seek to register as SBSEFs, which would
not further the goal of moving a greater
percentage of SBS trading from opaque
and unregulated OTC markets to
transparent and regulated trading
911 This includes attached copies of existing
documents required under Exhibits A, G, I, M, N,
and O to Form SBSEF. See supra section XIII.A. See
also supra notes 724–726 and accompanying text
(discussing the final rule text revisions that
implement the reduced scope of Inline XBRL
requirements for Form SBSEF).
912 See Bloomberg Letter, supra note 18, at 20. See
also supra notes 730–733 (discussing the final rule
text revisions that implement the requirement for
SBSEFs to file rule and product filings in
unstructured format using the EFFS system).
913 Unless otherwise stated, quantified costs in
this section are adjusted for CPI inflation using data
published by the Bureau of Labor Statistics. See CPI
Inflation Calculator, U.S. Bureau of Labor Statistics,
available at https://www.bls.gov/data/inflation_
calculator.htm.
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venues. In addition, if the rules for
trading on an SBSEF are perceived as
too burdensome by market participants,
SBS trading may continue in the OTC
market absent a mandatory clearing
determination and a triggering of the
mandatory trade execution requirement,
thus frustrating the goals of the DoddFrank Act.914 Even if the trade
execution requirement is triggered for
an SBS, market participants that wish to
avoid being subject to the requirement
may do so by strategically choosing the
location of the desk executing a trade in
that SBS.915 At the same time, if the
rules relating to SBSEFs are too lenient,
they may have little or no impact on the
market structure and surveillance of the
SBS market relative to the status quo,
which could result in the loss of many
of the benefits discussed above and fail
to achieve the goals of the Dodd-Frank
Act.
In addition, SBS traded on SBSEFs
may be perceived to be subject to
increased costs, monetary and
otherwise. For example, the
requirements related to pre-trade
transparency could cause market
participants to reveal valuable economic
information regarding their trading
interest more broadly than they may
believe would be economically prudent
and could discourage participation in
the SBS market. An additional impact of
pre-trade transparency is perceived
costs associated with front-running, if
customers or SBS dealers are required to
show their trading interest before a trade
is executed. These potential costs of pretrade transparency may change market
participants’ trading strategies, which
could result in them working more
orders or finding ways to attempt to
hide their interest.916 These potential
costs would likely vary based on the
notional size of the SBS transaction and,
in particular, would likely be greater for
market participants engaging in SBS
trades of a larger notional size.917 If
914 See supra section XVII.C (noting that the
benefits and costs associated with the trade
execution requirement would not materialize unless
and until the Commission makes a mandatory
clearing determination).
915 See Citadel Letter, supra note 18, at 16.
916 See, e.g., Ananth Madhavan, Market
Microstructure: A Survey, J. of Fin. Markets, Vol. 3
(2000).
917 The potential costs associated with SBS trades
of a larger notional size could be affected by a
definition of ‘‘block trade’’ that includes a block
trade threshold that market participants could rely
on for the exception from the Required Transaction
requirement in Rule 815(a)(2). As discussed in
section V.E.1(c)(i), supra, a block-trade exception
for SBSs subject to the trade-execution requirement,
provided that ‘‘block trade’’ is appropriately
defined for those SBSs, can help ensure that large
trades are not significantly more difficult and costly
to execute because of the risks posed by information
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market participants view Regulation SE
as too burdensome with respect to pretrade transparency, SBS dealers may be
less willing to supply liquidity for SBS
that trade on SBSEFs or exchanges, thus
adversely affecting liquidity and
competition. However, such effects
could be mitigated by Rules 815(d)(2)
and Rules 815(d)(3) that provide an
exception for certain package
transactions that allows for flexible
methods of execution for what would be
otherwise Required Transactions.918
On the other hand, if the requirements
with respect to pre-trade transparency
bring about only a marginal increase in
pre-trade transparency, the result could
be that there would be no substantive
change from the status quo, including
no benefits of alleviating informational
asymmetries, increasing price
competition, and supplying better
executions beyond the changes in
response to the other requirements of
the Dodd-Frank Act. This actual impact
would depend on the degree of pretrade transparency required and the
characteristics of the trading market.
The rules are intended to provide for
greater pre-trade transparency than
currently exists without requiring pretrade transparency in a manner that
would cause participants to avoid
providing liquidity on SBSEFs.
There would be transaction costs,
such as fees and connectivity costs, that
trading counterparties would incur in
executing or trading SBS subject to the
trade execution requirement on SBSEFs.
Likewise, although unregulated trading
venues exist in today’s OTC derivatives
market, the Commission does not have
information regarding what, if any, fees
and connectivity costs are associated
with transacting on these unregulated
trading venues. In the Proposing
Release, the Commission invited
comment on the likely fees and costs
associated with transacting on SBSEFs
as well as fees and costs associated with
transacting on unregulated trading
venues that exist in today’s OTC
derivatives market. Commenters did not
provide estimates of likely fees and
costs associated with transacting on
SBSEFs or fees and costs associated
with transacting on unregulated trading
venues.
As discussed in section XVII.B,
prospective SBSEF registrants are likely
leakage and the potential for adverse price
movement, which could significantly impair
liquidity in the markets for those SBSs.
918 See Rule 815(d)(2) and Rule 815(d)(3). Neither
an SBS that is intended to be cleared (even if it is
not required to be cleared) nor a swap subject to a
CFTC trade execution requirement would create an
exception from required methods of execution for
a Required Transaction that is part of the same
package.
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to be CFTC-registered SEFs that are
active in the index CDS market. Because
the final rules are harmonized as closely
as practicable with analogous CFTC
rules for SEFs, unless a reason exists to
do otherwise in a particular area, much
of the systems, policies, and procedures
that are used to support SEF trading also
could be used to support SBSEF trading.
The prospective SBSEF registrants
likely would incur marginal costs
associated with listing SBS products on
their venues 919 and making limited
changes to their systems, policies, and
procedures to comply with SEC rules
that differ slightly from analogous CFTC
rules. The Commission estimates the
one-time costs associated with such
changes to systems, policies, and
procedures would range between
$26,393 and $1,583,550 per SBSEF and
between $131,965 and $7,917,750 in the
aggregate, depending on the changes
needed. These cost ranges reflect
significant uncertainties about the
extent of changes that different
registrants might need. The annual
ongoing costs of maintaining the
technology (e.g., ensuring any necessary
technological updates and
improvements are made) and applying
the technology to ongoing compliance
requirements are estimated to be in the
range of $1,055,700 to $2,111,400 per
SBSEF and in the range of $5,278,500 to
$10,557,000 in the aggregate.920
919 See infra section XVII.C.3(c) (discussing the
costs that these entities might incur to list SBS
products).
920 In the Proposing Release, the Commission
estimated that the one-time costs associated with
changes to systems, policies, and procedures would
range between $25,000 and $1.5 million per SBSEF,
depending on the changes needed. The Commission
estimated the annual ongoing costs to be between
$1 million and $2 million. See Proposing Release,
supra note 1, 87 FR at 28953. Adjusting for inflation
in 2022, the Commission now estimates that the
one-time costs associated with changes to systems,
policies, and procedures would range between
$25,000 × 1.0557 (CPI inflation adjustment for 2022)
= $26,392.50 or approximately $26,393 and $1.5
million × 1.0557 (CPI inflation adjustment for 2022)
= $1,583,550 per SBSEF, depending on the changes
needed. In the aggregate, the one-time costs
associated with changes to systems, policies, and
procedures would range between $26,393 × 5
SBSEFs = $131,965 and $1,583,550 × 5 SBSEFs =
$7,917,750, depending on the changes needed.
Adjusting for inflation in 2022, the Commission
now estimates the annual ongoing costs per SBSEF
to be between $1 million × 1.0557 (CPI inflation
adjustment for 2022) = $1,055,700 and $2 million
× 1.0557 (CPI inflation adjustment for 2022) =
$2,111,400. In the aggregate, the annual ongoing
costs would be between $1,055,700 × 5 SBSEFs =
$5,278,500 and $2,111,400 × 5 SBSEFs =
$10,557,000. One commenter states that any
potential differences between SEC rules and
analogous CFTC rules would require SBSEF
registrants to devote resources toward assessing the
potential gaps and consequences of regulatory
divergence. See Bloomberg Letter, supra note 18, at
10. Such costs would be part of the one-time costs
associated with changes to systems, policies, and
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Several commenters agree that the
Commission’s general approach to
finalizing requirements relating to SBS
execution would mitigate costs for
registered SBSEFs.921
One commenter is concerned that
Rule 816 as proposed would permit
SBSEFs to make an SBS available to
trade even absent objective evidence of
a sufficiently liquid trading market.922
According to the commenter, requiring
SBS with insufficient liquidity to be
traded via an order book or an RFQ
system would raise a significant risk of
revealing investment advisers’ sensitive
portfolio management strategies.923
Such information leakage could lead to
front-running of funds’ trades and to
other abusive trading practices that
would negatively affect the pricing of
SBS and of other related instruments,
resulting in higher investment costs for
investment advisers’ clients, including
funds and their investors.924 The
Commission agrees that an
inappropriate MAT determination such
as the one described by the commenter
could result in higher investment costs
for investment advisers’ clients by
increasing the risk of information
leakage, front-running, and other
abusive trading practices. Regulation SE
as adopted would address concerns
related to inappropriate MAT
determinations. As discussed in section
V.F.2, the Commission will have the
opportunity to review all SBSEF MAT
determinations, whether they are selfcertified or voluntarily filed for
Commission approval, to consider
whether those determinations are
adequately supported by evidence and
consistent with the SEA and the rules
thereunder, including the six factors to
be considered for MAT determinations
under Rule 816(b).925 In the absence of
such evidence, the Commission can
decline to approve or can stay and then
object to a MAT petition, which will
ultimately allow the Commission to
prevent an inappropriate MAT
determination from taking effect.
procedures. It is possible that SBSEF registrants
might incur additional costs toward assessing the
potential gaps and consequences of regulatory
divergence. In that case, the one-time costs
associated with changes to systems, policies, and
procedures could be higher than the Commission’s
estimates.
921 See supra section XVII.C and note 867.
922 See ICI Letter, supra note 18, at 5.
923 See id. at 6.
924 Id.
925 These six factors are: (1) whether there are
ready and willing buyers and sellers; (2) the
frequency or size of transactions; (3) the trading
volume; (4) the number and types of market
participants; (5) the bid/ask spread; or (6) the usual
number of resting firm or indicative bids and offers.
See Rule 816(b).
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One commenter states that requiring a
fund to disclose its trading interest in an
SBS of a large notional size to multiple
participants—via an order book or an
RFQ system—would enable
opportunistic market participants to
piece together information about the
fund’s holdings or investment strategy
and lead to front-running of those
potential trades.926 The Commission
agrees that requiring a fund to disclose
its trading interest in an SBS of a large
notional size to multiple participants
via an order book or an RFQ system
could impose costs associated with
information leakage and front-running.
However, these costs have to be
considered in light of the benefits of
increased pre-trade transparency:
increased price competition, increased
price efficiency, improved liquidity, and
reduced transaction costs.927 By
adopting two execution methods for
Required Transactions (limit order book
and RFQ-to-3), market participants have
flexibility in the degree of pre-trade
transparency they wish to employ,
which should diminish potential
concerns associated with the exposure
of pre-trade trading interest. Further, a
market participant that wishes to engage
in Permitted Transactions of a large
notional size can choose any method of
execution that is offered by an SBSEF
and is not restricted to using a limit
order book or RFQ-to-3. For these
transactions, any costs associated with
information leakage and front-running
likely would not be different from those
costs that would prevail under the
baseline.
One commenter states that Proposed
Rule 834 would have the effect of
prohibiting certain SBSEF participants
from having common ownership and
control as the SBSEF. The commenter is
concerned that the proposed rule would
prevent prospective SBSEFs that are
CFTC-registered SEFs from onboarding
their affiliated introducing brokers
because doing so would exceed the
ownership and voting caps set forth in
Proposed Rule 834(b).928 Another
commenter is concerned that the rule’s
20% ownership cap would limit access
to capital and act as barriers to entry for
SBSEF and SBS exchanges.929
Observing that the CFTC did not adopt
rules analogous to Proposed Rule 834,
the commenters suggest that the
proposed rule, if adopted, would be a
fundamental departure from the CFTC’s
rules, minimizing many of the other
926 See
ICI Letter, supra note 18, at 11.
supra section XVII.C.1 (discussing the
benefits of increased pre-trade transparency).
928 See WMBAA Letter, supra note 18, at 2.
929 See SIFMA AMG Letter, supra note 18, at 12.
927 See
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benefits of a harmonized regime, and
thwart efforts to smoothly implement
Regulation SE.930 One commenter
further states that some CFTC registered
SEFs, which are prospective SBSEFs,
might have to review their ownership
and governance structure and, possibly,
amend their organization.931
In response to these concerns, the
Commission is adopting Rule 834(b)(3),
which provides an exemption from the
ownership and voting caps for an
SBSEFs that has mitigated the potential
conflict of interest with respect to
compliance with the rules of the SBSEF
by entering into an agreement with a
registered futures association or a
national securities association for the
provision of regulatory services that
encompass, at a minimum, real-time
monitoring under Rule 819(d)(5) and
investigations and investigation reports
under Rule 819(d)(6). This exemption
should address concerns regarding
certain SBSEF participants not being
able to have common ownership and
control as the SBSEF (provided these
appropriate conditions are met); the
onboarding of affiliated introducing
brokers by certain prospective SBSEFs;
access to capital and entry barriers; and
potential disruption or delays to the
implementation of Regulation SE.
With respect to the Daily Market Data
Report required by Proposed Rule 825,
one commenter states that the Daily
Market Data Report would require
inappropriate and detrimental
disclosures that would undermine the
Commission’s goal of fostering a
competitive and efficient market for SBS
trading. This commenter states that
there are significant differences in the
information required to be reported
under the SEC and CFTC regimes. The
commenter states that Proposed Rule
825(c)(1) increases the burden on
SBSEFs compared to SEFs by requiring
additional information regarding sale
and offer prices, as well as qualitative
descriptions of certain data that are
reported.932
This commenter further states that the
Commission’s proposal does not address
why the CFTC’s approach would not be
acceptable in the context of SBSEFs and
does not justify the increased
operational costs to SBSEFs (which will
ultimately be passed on to members).
The commenter also states that the
Commission has not considered the
costs and potential for duplicative
requirements in the context of
Regulation SBSR reporting
requirements. The commenter
930 See
id.; WMBAA Letter, supra note 18, at 3.
WMBAA Letter, supra note 18, at 3.
932 See MFA Letter, supra note 18, at 13.
931 See
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concludes that, in sum, the Daily Market
Data Report is overly granular and
duplicative, is unnecessary for
transparency purposes, and could
negatively impact the market and
market participants. The commenter
states that the Commission should
therefore remove the Daily Market Data
Report in favor of harmonizing with the
analogous CFTC rules and that, if the
Commission does not eliminate the
Daily Market Data Report requirement
altogether, it should adopt additional
masking protections for trades,
specifically with respect to block trades.
Failure to do so, the commenter states,
would cause inappropriate and
detrimental disclosures and would
‘‘negate the benefits that the rule
purports to achieve by exempting block
trades from clearing [sic]
requirements.’’ 933
As discussed in Section IV.H, many of
the reporting requirements of the Daily
Market Data Report under Proposed
Rule 825 are closely aligned with the
data required to be disclosed on a daily
basis by SEFs under § 16.01 of the
CFTC’s rule. Further, the Commission is
modifying Proposed Rule 825 to resolve
the two differences between the
proposed Daily Market Data Report and
the existing CFTC reporting scheme
under § 16.01: (1) that the Daily Market
Data Report would include the number
of block trades executed; 934 and (2) that
the Daily Market Data Report would be
posted on the SBSEF’s website no later
than the beginning of trading on the
next business day,935 while the
information required by § 16.01 must be
made public no later than the next
business day.936
Rule 825(c)(1), as adopted, does not
require the disclosure of the number of
block trades.937 Further, Rule 825(c)(4),
as adopted, requires the publication of
the Daily Market Data Report ‘‘as soon
as reasonably practicable on the next
business day after the day to which the
933 See id. Regulation SE does not address any
exemption from clearing requirements.
934 See Proposed Rule 825(c)(1)(iii).
935 See Proposed Rule 825(c)(4).
936 See 17 CFR 16.01(e). The Commission views
the requirement to keep each Daily Market Data
Report on an SBSEF’s website for one year, see
Proposed Rule 825(c)(5), as a small additional
burden for an SBSEF and does not view it as a
significant departure from harmonization with the
CFTC’s SEF regime.
937 The Commission is also, pursuant to its
determination not to adopt a definition of ‘‘block
trade’’ at this time, deleting the words ‘‘including
block trades but’’ from the text of paragraph (c)(i)
and (ii) of Rule 825, and is adding the words ‘‘after
such time as the Commission adopts a definition of
‘block trade’ ’’ to paragraph (c)(iii) of Rule 825
(formerly paragraph (c)(iv) of Proposed Rule 825)
which will have no effect on the requirement as
compared to the proposed rule. See supra section
VI.H.
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87257
information pertains, but in no event
later than 7 a.m. on the next business
day.’’ With these modifications, the data
called for by Rule 825(c)(1) is consistent
with the required daily disclosures for
SEFs. These modifications should help
address concerns regarding increased
burden on SBSEFs compared to SEFs,
increased operational costs to SBSEFs,
the Daily Market Data Report being
overly granular, and negative impact on
the market and market participants. The
fact that Rule 825(c)(1), as adopted, does
not require the disclosure of the number
of block trades would obviate the need
to adopt masking protections for block
trades and address the commenter’s
concern about inappropriate and
detrimental disclosures that would
adversely affect competition and
efficiency in the SBS market. To the
extent that the disclosure of the number
of block trades prompts market prices to
move against the dealers that facilitated
such block trades thereby raising their
hedging costs, dealers could raise the
price of liquidity provision (e.g., by
widening the bid-ask spread) charged to
market participants, increase transaction
costs, and reduce the efficiency of SBS
trading. To the extent that the cost of
transacting block trades increases,
market participants may choose to exit
the SBS market and trade alternative
securities. This in turn could reduce
participation and competition in the
SBS market. Rule 825(c)(1), by not
requiring the disclosure of the number
of block trades, should mitigate these
potential adverse effects on competition
and efficiency in the SBS market.
With respect to the concern that the
Daily Market Data Report is duplicative
of Regulation SBSR and unnecessary for
transparency purposes, the former
performs a function that is different
from the reporting and public
dissemination of SBS transactions
required by Regulation SBSR.938 The
Daily Market Data Report would
consolidate trading information by
venue and provide useful summary
information about SBS trading on an
SBSEF for all market participants
without requiring them to incur costs to
collect, process, and aggregate
information from individual reports of
SBS transactions that are executed on an
SBSEF and publicly disseminated
pursuant to Regulation SBSR. In
addition, the Daily Market Data Report
provides information regarding trading
on an SBSEF that is not available in the
SBS transaction reports that are publicly
disseminated pursuant to Regulation
SBSR. Among other things, the Daily
Market Data Report would provide the
938 See
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opening and closing price; the price that
is used for settlement purposes, if
different from the closing price; the
lowest price of a sale or offer, whichever
is lower; the highest price of a sale or
bid, whichever is higher; the method
used by the SBSEF in determining
nominal prices and settlement prices;
and a description of the manner in
which discretion is used to determine
the opening and/or closing ranges or the
settlement prices.939 Further, because
the transaction reports for credit SBS are
permitted to be capped at a notional
volume of $5 million,940 market
participants would be unable to glean
the information provided by the Daily
Market Data Report—which would
publish daily total notional volumes
based on uncapped transaction
amounts—from the individual reports of
SBS transactions under Regulation
SBSR. Thus, the Daily Market Data
Report would provide market
participants, at little to no cost, with
information about pricing and trading
volume for SBS on SBSEFs that goes
beyond the information that could be
obtained from SBS transaction reports
that are publicly disseminated pursuant
to Regulation SBSR.
Several commenters are concerned
that Proposed Rule 832(b)(3), which
would apply the trade execution
requirement to ANE transactions, could
create complexities,941 prompt market
participants and platforms to develop
costly infrastructure to avoid engaging
in ANE transactions,942 confuse market
participants and platforms and reduce
market participation.943 One commenter
asks the Commission to be mindful of
whether CFTC-registered SEFs would be
forced to change their rules in order
comply with the new proposed SBSEF
rules.944 With respect to the concern
that CFTC-registered SEFs might be
forced to change their rules because of
the Commission’s ANE approach for
SBSEFs, foreign trading venues that
have already received exemptive relief
from the CFTC for swaps trading where
robust regulatory regimes may exist
with requirements comparable to those
applicable to SBS transactions in the
United States might seek and obtain
exemptive relief under Rule 833(b). If
939 See Rules 825(c)(1)(iv) through (vi) and
825(c)(2).
940 See 2019 Cross-Border Adopting Release,
supra note 218, 85 FR at 6347 (providing no-action
relief with respect to Rule 902 of Regulation SBSR,
17 CFR 242.902, for reports of credit SBS
transaction disseminated with a capped size of $5
million).
941 See SIFMA AMG Letter, supra note 18, at 11.
942 See ISDA–SIFMA Letter, supra note 18, at 12.
943 See Tradeweb Letter, supra note 18, at 4–5.
944 See SIFMA AMG Letter, supra note 18, at 11.
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exempted under Rule 833(b), trading of
SBS on such foreign trading venues
would not require CFTC-registered SEFs
to change their rules.945 Similarly, for
SBS transactions that the Commission
exempts from the trade execution
requirement based on an application
submitted under Rule 833(b), the
concerns expressed by commenters
regarding complexities and costs would
no longer be applicable. The effect of
such exemptions would likely result in
SBS transactions in foreign jurisdictions
with what may be considered robust
regulatory regimes to be exempt from
the Commission’s trade execution
requirement and, in practice, have
similar treatment of transactions on
applicable foreign trading venues as the
CFTC. This should address concerns
about confusion among market
participants and platforms in foreign
jurisdictions; the regulatory certainty
provided by the exemptions should help
to mitigate any adverse effects on
market participation and obviate the
need to develop costly infrastructure to
avoid engaging in ANE transactions.
Several commenters are concerned
that many foreign SBS trading venues
would not be able to obtain a Rule
833(b) exemption because they believe
the rule would require foreign
jurisdictions to require RFQ-to-3 and
order book methods of execution, while
hardly any foreign jurisdictions have
identical requirements, with some
jurisdictions not requiring SBS to be
traded on an organized trading
venue.946 These commenters believe
that the inability of foreign trading
venues to obtain a Rule 833(b)
exemption would result in various
negative consequences: increased costs;
disruption and fragmentation of the SBS
markets; reduced liquidity and
participation in the SBS markets;
impaired risk transfer, risk management,
and price formation; and increased
systemic risk.947
The Commission acknowledges the
concerns raised by commenters, which
appear to emanate from commenters’
interpretation—and misunderstanding—
of what would be required in order to
receive a Rule 833(b) exemption.
Specifically, several commenters
interpret the rule and the Commission’s
discussion of the rule in the Proposing
Release to mean that a foreign SBS
trading venue must have RFQ-to-3 and
945 See
supra notes 624–627 and accompanying
text.
946 See supra note 599; Bloomberg Letter, supra
note 18, at 6, 19; ICE Letter, supra note 18, at 4;
ISDA–SIFMA Letter, supra note 18, at 14; Tradeweb
Letter, supra note 18, at 6.
947 See supra note 602–607 and accompanying
text.
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an order book for Required Transactions
in order for transactions on that venue
to qualify for a Rule 833(b)
exemption.948 As discussed in Section
VII.B, the proposed rule would not
require foreign SBS trading venues to
have RFQ-to-3 and an order book in
order for the Commission to consider
their SBS executions for an exemption
under Rule 833(b). Neither the text of
Rule 833(b) nor the Commission’s
description of Rule 833(b) states that a
limit order book or an RFQ-to-3 system
is required to receive a Rule 833(b)
exemption.949 There may be foreign SBS
trading venues—many of which have
already received exemptive relief from
the CFTC for swaps trading 950—that
may be appropriate candidates for
exemptive relief, that are subject to what
may be considered robust regulatory
regimes for SBS trading. With respect to
such foreign SBS trading venues, the
Commission encourages market
participants to submit a request for
exemptive relief under final Rule 833(b)
if they seek to be exempt from the
Commission’s trade execution
requirement for their SBS transactions.
This discussion should address
concerns about the potential
unavailability of a Rule 833(b)
exemption to SBS foreign trading
venues and the negative consequences
that could arise if SBS foreign trading
venues are unable to obtain a Rule
833(b) exemption.
We detail below cost estimates for
specifics parts of the adopted rules.
Many of these cost estimates are based
on the PRA estimates of costs and
burdens from section XVIII.951
(a) Registration Requirements for
SBSEFs and Form SBSEF
The registration provisions would
impose costs on entities that seek
registration as SBSEFs. The Commission
estimates that initial filings on Form
SBSEF by prospective SBSEFs seeking
to register with the Commission
948 See
supra notes 597–599 and accompanying
text.
949 In the Proposing Release, the Commission
stated its preliminary belief that ‘‘the use of singledealer platforms to discharge any mandatory
trading execution requirement’’ would not meet the
proposed rule’s requirements. See Proposing
Release, supra note 1, 87 FR at 28925.
950 See supra note 626.
951 In section XVIII infra, for purposes of the PRA,
the Commission estimates burdens applicable to a
stand-alone SBSEF. However, most if not all
SBSEFs will be dually registered with the CFTC as
SEFs and thus will already be complying with
relevant CFTC rules that have analogs to rules in
Regulation SE. Therefore, the Commission’s burden
estimates are greater for stand-alone SBSEFs than
may actually take place for those already registered
with the CFTCs because of the effect of the CFTC’s
corresponding rules.
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pursuant to Rule 803 would result in
aggregate initial costs of $100,300 for
prospective SBSEFs.952
(b) Ongoing Compliance With Other
Requirements That Are Similar to the
Remainder of Part 37
As discussed in section XVIII.D.2.b,
the Commission estimates the aggregate
annual paperwork burden for SBSEFs to
comply with all of the SBSEF rules that
have analogs in part 37 to be 1935
hours.953 These burdens are estimated
to impose aggregate ongoing annual
costs of $131,580 on SBSEFs.954
(c) Rule and Product Filing Processes for
SBSEFs
The Commission estimates that the
aggregate ongoing annual costs incurred
by all SBSEFs to prepare and submit
rule and product filings under Rules
804, 805, 806, and 807 (including the
cover sheet) would be $33,000.955
(d) Rules 809, 811, 819, 826, 829, 833,
834, and 835
ddrumheller on DSK120RN23PROD with RULES2
The Commission estimates the
aggregate ongoing annual costs incurred
by SBSEFs to comply with Rule 809
would be $604.956
952 $100,300 = 1,475 burden hours × $68/hour
blended hourly rate. The $68/hour blended hourly
rate is the $59/hour blended hourly rate computed
by the CFTC and adjusted for CPI inflation through
Dec. 2022. The CFTC used the blended hourly wage
to estimate PRA costs associated with part 37. See
infra section XVIII.D.2(a); OMB, Supporting
Statement for New and Revised Information
Collections: Core Principles and Other
Requirements for Swap Execution Facilities, OMB
Control Number 3038–0074, Attachment A (July 7,
2021), available at https://omb.report/icr/2021073038-004/doc/113431800.pdf.
953 See infra section XVIII.D.2(b). This estimate
excludes the paperwork burdens associated with
registration requirements for SBSEFs and Form
SBSEF and provisions of certain rules to be
discussed subsequently.
954 $131,580 = 1,935 burden hours × $68/hour
blended hourly rate. See supra note 952 (derivation
of the $68/hour blended hourly rate).
955 $33,000 = 300 hours × $110/hour blended
hourly rate. The $110/hour blended hourly rate is
the $96.26/hour blended hourly rate computed by
the CFTC and adjusted for CPI inflation through
Dec. 2022. The CFTC used the blended hourly rate
to estimate PRA costs associated with part 40. See
infra section XVIII.D.3(a); OMB, Supporting
Statement for Information Collection Renewal:
OMB Control Number 3038–0093, Attachment A
(July 10, 2020), available at https://omb.report/icr/
202005-3038-001/doc/101274002.pdf. The platform
ID requirement on the submission cover sheet
would not impose burdens for obtaining a platform
ID, because an SBSEF (whether registered or
exempt) is already required under Rule 903(a) of
Regulation SBSR to obtain an LEI to identify itself
as its platform ID. See supra section IV.E and n.140.
956 $604 = 1.25 hours × $483/hour national hourly
rate for an attorney. The per-hour figure for an
attorney is from SIFMA’s Management and
Professional Earnings in the Securities Industry—
2013, as modified by Commission staff to adjust for
inflation (through Dec. 2022) and to account for an
1,800-hour work-year, and multiplied by 5.35 to
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The Commission estimates the
aggregate ongoing annual costs incurred
by SBSEFs to comply with requests for
documents or information pursuant to
Rule 811(d) would be $88.957
The Commission estimates the
aggregate ongoing annual costs incurred
by SBSEFs to comply with Rule 819(i)
would be $27,142.958
The Commission estimates the
aggregate ongoing annual costs incurred
by SBSEFs to comply with Rule 819(j)
would be $1,208.959
The Commission estimates the
aggregate ongoing annual costs incurred
by SBSEFs to update information
required by Rule 826(f) would be
$162.960 The Commission estimates that
interested parties would incur aggregate
one-time costs of $115,920 in the first
year and $77,280 in each subsequent
year to submit exemption requests
under one or both paragraphs of Rule
833.961
The Commission estimates that
SBSEFs and SBS exchanges would incur
aggregate one-time costs of $50,880
associated with drafting and
implementing rules to comply with
Rules 834(b) and (c).962
The Commission estimates that
SBSEFs and SBS exchanges would incur
aggregate ongoing annual costs of $680
to comply with Rules 834(d), 834(e),
and 834(f).963
The Commission estimates that
SBSEFs and SBS exchanges would incur
aggregate one-time costs of $1,088 to
comply with Rule 834(g).964
The Commission estimates that
SBSEFs would incur aggregate ongoing
annual costs of $21,735 to comply with
Rule 835.965
SBSEFs likely would incur costs to
comply with the financial resources
requirement of Rule 829(b). Assuming
that SBSEFs satisfy this requirement by
holding financial resources in the form
of their own capital pursuant to Rule
829(c)(1), the Commission estimates that
SBSEFs would incur an aggregate
annual cost of capital of $35,436.966
account for bonuses, firm size, employee benefits,
and overhead. See infra section XVIII.D.3(b)(ii);
Supporting Statement for the Paperwork Reduction
Act New Information Collection Submission for
Rule 3a68–2 (Interpretation of Swaps, SecurityBased Swaps, and Mixed Swaps) and Rule 3a68–
4(c) (Process for Determining Regulatory Treatment
for Mixed Swaps), OMB Control Number 3235–
0685, Supporting Statement A (Dec. 23, 2021),
available at https://omb.report/icr/202112-3235018/doc/117438500.pdf.
957 $88 = 1.25 hour × $70/hour hourly rate for a
financial manager. The $70/hour hourly rate is the
$65/hour hourly rate computed by the CFTC and
adjusted for CPI inflation through Dec. 2022. The
CFTC used the hourly rate to estimate PRA costs
associated with part 1.6. See infra section
XVIII.D.4(a); OMB, Supporting Statement for New
and Revised Information Collections: OMB Control
Number 3038–0033 (Oct. 29, 2021), available at
https://omb.report/icr/202110-3038-001/doc/
115991000.pdf.
958 $27,142 = 399.15 hours × $68/hour blended
hourly rate. The burdens associated with this rule
are not different from burdens associated with rules
that have part 37 analogs. Thus, it would be
appropriate to apply the $68/hour blended hourly
rate to estimate the paperwork related costs
associated with this rule. See infra section
XVIII.D.4(c). See also supra note 952 (derivation of
the $68/hour blended hourly rate).
959 $1,208 = 2.5 hours × $483/hour national
hourly rate for an attorney. See infra section
XVIII.D.4. See also supra note 956 (derivation of the
national hourly rate for an attorney).
960 $162 = 2 hours × $81/hour national hourly rate
for a compliance clerk. See infra section
XVIII.D.4(f). The per-hour figure for a compliance
clerk is from SIFMA’s Office Salaries in the
Securities Industry—2013, as modified by
Commission staff to adjust for inflation (through
Dec. 2022) and to account for an 1,800-hour workyear, and multiplied by 5.35 to account for bonuses,
firm size, employee benefits, and overhead.
961 First year costs: $115,920 = 240 hours × $483/
hour national hourly rate for an attorney. Costs in
each subsequent year: $77,280 = 160 hours × $483/
hour national hourly rate for an attorney. See infra
section XVIII.D.5(a). See also supra note 956
(derivation of the national hourly rate for an
attorney).
962 $50,880 = 120 hours × $424/hour national
hourly rate for a compliance attorney. The estimate
of 120 burden hours is based on the Commission’s
estimate that five SBSEFs and three SBS exchanges
will incur paperwork burdens associated with Rules
834(b) and (c). See infra section XVIII.D.4(g). The
per-hour figure for a compliance attorney is from
SIFMA’s Management and Professional Earnings in
the Securities Industry—2013, as modified by
Commission staff to adjust for inflation (through
Dec. 2022) and to account for an 1,800-hour workyear, and multiplied by 5.35 to account for bonuses,
firm size, employee benefits, and overhead.
963 $680 = 10 hours × $68/hour blended hourly
rate. Further, the costs incurred by SBSEFs = 5
(number of SBSEFs) × 1.25 hours per SBSEF × $68/
hour blended hourly rate = $425. The burdens
associated with this rule are not different from
burdens associated with rules that have part 37
analogs. Thus, it is appropriate to apply the $68/
hour blended hourly rate to estimate the paperwork
related costs associated with this rule. See infra
section XVIII.D.4(g). See also supra note 952
(derivation of the $68/hour blended hourly rate).
964 $1,088 = 16 hours × $68/hour blended hourly
rate. The burdens associated with this rule are not
different from burdens associated with rules that
have part 37 analogs. Thus, it is appropriate to
apply the $68/hour blended hourly rate to estimate
the paperwork related costs associated with this
rule. See infra section XVIII.D.4(g). See also supra
note 952 (derivation of the $68/hour blended hourly
rate).
965 $21,735 = 45 hours × $483/hour national
hourly rate for an attorney. See infra section
XVIII.D.5(b). See also supra note 956 (derivation of
the national hourly rate for an attorney).
966 The Commission estimates the financial
resources that SBSEFs would need to hold pursuant
to Rule 829(b) as their projected operating costs. See
Rule 829(b). Further, the Commission estimates
SBSEFs’ projected operating costs as the sum of the
aggregate ongoing annual costs incurred by SBSEFs
to comply with Regulation SE. Thus, SBSEFs’
estimated projected operating costs = $131,580
(ongoing compliance with other requirements that
are similar to the remainder of part 37) + $33,000
(rule and product filing processes by SBSEFs) +
$604 (Rule 809) + $88 (Rule 811(d)) + $27,142 (Rule
819(i)) + $1,208 (Rule 819(j)) + $162 (Rule 826(f))
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SBSEFs could lower this cost if their
capital consists of financial assets that
generate a return that would serve to
offset the cost of capital. However, this
cost mitigation is potentially limited by
Rule 829(d), which would require an
SBSEF to include among the financial
resources it holds a certain amount of
unencumbered, liquid financial assets
(i.e., cash and/or highly liquid
securities),967 that tend to generate little
or no return.
ddrumheller on DSK120RN23PROD with RULES2
(e) Assessment Costs
The Commission estimates that 86
entities likely would incur assessment
costs as a result of Rule 832, based on
a staff analysis of counterparties to U.S.
single-name CDS for the 12-month
period from October 2021 to September
2022. Such costs would be related
primarily to the identification of the
counterparty status and origination
location of the transaction to determine
whether the trade execution
requirement would apply. Market
participants would request
representations from their transaction
counterparties to determine the U.S.person status of their counterparties. In
addition, if the transaction is guaranteed
by a U.S. person, the guarantee would
be part of the trading documentation
and, therefore, the existence of the
guarantee would be a readily
ascertainable fact. Similarly, market
participants would be able to rely on
their counterparties’ representations as
to whether a transaction is arranged,
negotiated, or executed by a person
within the United States. Therefore, the
assessment costs associated with Rule
832 should be limited to the costs of
+ $425 (Rules 834(d), (e), and (f)) + $21,735 (Rule
835) = $215,943. Thus, the Commission estimates
that SBSEFs would hold $215,943 in the form of
their own capital to comply with Rule 829(b). The
Commission estimates SBSEFs’ cost of capital to be
16.41%. See supra note 896 (describing how the
cost of capital is estimated). SBSEFs’ aggregate
annual cost of capital = $215,943 × 16.41% =
$35,436. The Commission acknowledges that there
is uncertainty associated with this estimate. The
estimate does not account for the fact that SBSEFs
may use reasonable discretion in determining the
methodologies used to calculate projected operating
costs and wind down costs, pursuant to Rule 829(e).
Depending on how SBSEFs exercise this reasonable
discretion, the resulting methodologies could yield
projected operating costs and in turn, required
financial resources, that may be higher or lower
than the Commission’s estimate.
967 The CFTC’s experience overseeing SEFs
would appear to support the belief that SBSEFs
would hold unencumbered, liquid financial assets
rather than obtain a line of credit to comply with
Rule 829(d). In a previous rulemaking, the CFTC
noted that most SEFs satisfy the liquidity
requirement of § 37.1303 (the analog of Rule 829(d))
through maintaining liquid assets rather than
obtaining a line of credit. See CFTC, Swap
Execution Facilities, 86 FR 9224, 9242 n.247 (Feb.
11, 2021) (‘‘2021 SEF Amendments Adopting
Release’’).
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establishing a compliance policy and
procedure of requesting and collecting
representations from trading
counterparties and maintaining the
collected representations as part of the
market participants’ recordkeeping
procedures. Such assessment costs
would be approximately $19,320 per
entity.968 Requesting and collecting
representations would be part of the
standardized transaction process
reflected in the policies and procedures
regarding SBS transactions and trading
practices and should not result in
separate assessment costs.
The Commission also considers the
likelihood that market participants
could implement systems to keep track
of counterparty status for purposes of
future trading of SBS that are similar to,
if not the same as, the systems
implemented by market participants for
purposes of assessing SBS dealer or
major SBS participant status.
Implementation of such a system would
involve one-time programming costs of
$15,758 per entity.969 Therefore, the
Commission estimates the total one-time
costs per entity associated with Rule
832 could be $35,078 and the aggregate
one-time costs could be $3,016,708.970
To the extent that market participants
have incurred costs relating to similar or
the same assessments with respect to
968 $19,320 = 40 hours × $483/hour national
hourly rate for an attorney. This estimate is based
on an estimated 40 hours of in-house legal or
compliance staff’s time to establish a procedure of
requesting and collecting representations from
trading counterparties, taking into account that
such representations may be built into a form of
standardized trading documentation. See supra
note 956 (derivation of the national hourly rate for
an attorney).
969 This is based on an estimate of the time
required for a programmer analyst to modify the
software to track the covered person status of a
counterparty, including consultation with internal
personnel, and an estimate of the time such
personnel would require to ensure that these
modifications conformed to the definition of
‘‘covered person’’ (as defined in Rule 832). $15,758
= (2 hours × $424/hour national hourly rate for a
compliance attorney) + (4 hours × $360/hour
national hourly rate for a compliance manager) +
(40 hours × $280/hour national hourly rate for a
programmer analyst) + (4 hours × $266/hour
national hourly rate for a senior internal auditor) +
(2 hours × $603/hour rate for a Chief Financial
Officer). The per-hour figures for compliance
attorney, compliance manager, programmer analyst,
and senior internal auditor are from SIFMA’s
Management & Professional Earnings in the
Securities Industry—2013, as modified by
Commission staff to adjust for inflation (through
Dec. 2022) and to account for an 1,800-hour workyear, and multiplied by 5.35 to account for bonuses,
firm size, employee benefits, and overhead. The
hourly rate for a Chief Financial Officer is the $473
hourly rate for the same position used in the CrossBorder Adopting Release (see 78 FR 31140 n.1425)
and adjusted for inflation through Dec. 2022.
970 Total one-time costs per entity = $19,320
(compliance policy and procedure) + $15,758
(systems) = $35,078. Aggregate one-time costs = 86
entities × $35,078 = $3,016,708.
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Frm 00106
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counterparty status and transaction
location for other Title VII requirements,
their assessment costs with respect to
Rule 832 may be less.
(f) Structured Data and Electronic Filing
Costs
As mentioned previously, the
Commission will require many of the
disclosures required under Regulation
SE to be provided via EDGAR in a
structured data language. SBSEFs will
likely incur limited costs to comply
with the proposed requirement in Rule
825(c)(3) to publish Daily Market Data
Reports using the most recent versions
of the associated XML schema and PDF
renderer as published on the
Commission’s website. Because SBSEFs
are required to use structured data to
fulfill their reporting requirements
under Regulation SBSR, the compliance
cost associated with the Rule 825(c)(3)
requirement will be limited to the cost
prospective SBSEF registrants will incur
to update their systems to incorporate
the Commission’s XML schema for
Daily Market Data Reports.971 Such
costs are included among the costs for
prospective SBSEF registrants in making
limited changes to their systems,
policies, and procedures to comply with
proposed SEC rules that differ slightly
from analogous CFTC rules, as
discussed in further detail above.972
With respect to the Inline XBRL
requirements for various disclosures
required under Regulation SE, SBSEFs
will incur initial Inline XBRL
implementation costs (such as the cost
of training in-house staff to prepare
filings in Inline XBRL, and the cost to
license Inline XBRL filing preparation
software from vendors) and ongoing
Inline XBRL compliance burdens that
will result from the tagging
requirements, because prospective
SBSEF registrants are not currently
subject to Inline XBRL requirements.
The custom XML requirements under
Regulation SE will not impose these
costs on SBSEFs, because SBSEFs will
have the option of complying with those
requirements by completing a fillable
web form rather than structuring the
disclosures in custom XML themselves.
Also, as discussed in greater detail
below, the Inline XBRL implementation
costs could be mitigated to some extent,
because six of the seven SEFs that list
index CDS for trading (i.e., the pool of
likely SBSEF applicants) have parent or
affiliate entities that make filings in
Inline XBRL, which raises the
971 See 17 CFR 242.907(a)(2) (requiring
information to be submitted to SDRs in an ‘‘opensource structured data format that is widely used
by participants’’).
972 See supra note 920 and accompanying text.
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possibility that some (if not most)
SBSEFs might be able to take advantage
of the knowledge of Inline XBRL
possessed by their parent or affiliate
entities.
Further, the compliance costs
associated with the structured data
requirements, as adjusted for inflation,
will likely decrease over time. SBSEFs
will likely comply with structuring
requirements more efficiently after
gaining experience over repeated filings,
though such an effect will likely be
diminished for affected entities that
already have experience structuring
similar data in other documents. Thirdparty vendors of structured data
compliance software or services may
decrease the prices of their products
over time; the XBRL compliance costs
reported in the 2018 AICPA survey of
smaller operating companies reflect
such a trend, as they represented a 45%
decline in average cost and a 69%
decline in median cost from 2014.973
In addition to costs associated with
structured data requirements, because
prospective SBSEF registrants are not
currently subject to EDGAR
requirements, hey will incur a one-time
compliance burden of submitting a
Form ID as required by Rule 10(b) of
Regulation S–T.974 The aforementioned
costs are included among the costs for
prospective SBSEF registrants in making
limited changes to their systems,
policies, and procedures to comply with
proposed SEC rules that differ slightly
from analogous CFTC rules, as
discussed in further detail above.975
As noted above, we are requiring
SBSEFs to submit rule and product
filings in unstructured format using
EFFS, rather than structuring the filings
and submitting them via EDGAR.976 As
a result of this change from the
proposal, SBSEFs will not incur the
compliance costs associated with
applying Inline XBRL tags to their rule
and product filings. We agree with one
commenter who noted that an Inline
XBRL requirement would cause SBSEFs
to incur related compliance costs,
although we do not agree that such costs
would be so substantial as to serve as a
potential market entry deterrent, or
would create an unlevel playing field
973 AICPA, XBRL Costs for Small Companies
Have Declined 45% since 2014 (2018), available at
https://us.aicpa.org/content/dam/aicpa/
interestareas/frc/accountingfinancialreporting/xbrl/
downloadabledocuments/xbrl-costs-for-smallcompanies.pdf. This survey was limited to
operating companies, and was conducted before the
transition from XBRL to Inline XBRL and the
implementation of cover page tagging requirements
for periodic reports.
974 See 17 CFR 232.10(b).
975 See supra note 920 and accompanying text.
976 See supra section XVII.C.2.
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whereby national securities exchanges
would have a competitive advantage
over SBSEFs due to these discrepant
costs. Rather, we are requiring rule and
product filings to be filed through EFFS
in unstructured format, because we
believe the alleviation of compliance
burdens resulting from the absence of a
structuring requirement merits the
lesser volume of machine-readable data,
especially in light of the significant
volume of structured SBSEF data
available pursuant to other Regulation
SE provisions.
D. Effects on Efficiency, Competition,
and Capital Formation
The new rules and amendments
would likely affect competition, capital
formation, and efficiency in various
ways discussed below.
1. Competition
As discussed earlier, currently, the
SBS market is dominated by a small
group of SBS dealers.977 A mandatory
clearing determination by the
Commission, followed by a MAT
determination by one or more SBSEFs,
should help foster greater competition
in the trading of SBS by promoting
greater order interaction and increasing
participation on SBSEFs. The final rules
provide a framework for allowing a
number of trading venues to register as
SBSEFs and thus more effectively
compete for business in SBS.
Furthermore, Rule 827 is designed to
promote competition generally by
prohibiting an SBSEF from adopting any
rules or taking any actions that
unreasonably restrain trade or impose
any material anticompetitive burden on
trading or clearing. Additionally, rules
that improve access to SBSEFs by
market participants (e.g., Rule 819(c))
could increase participation and
competition in liquidity provision in the
SBS market.978 Rules that improve
regulatory oversight, market integrity,
and market predictability on SBSEFs
and rules that reduce the risk of trading
disruption on SBSEFs likely would
increase market participants’ confidence
in the soundness of SBSEFs.979 To the
extent that greater confidence in the
soundness of SBSEFs increases
participation by liquidity providers on
SBSEFs, competition in liquidity
provision could increase. To the extent
977 See
supra section XVII.B.2.
supra sections XVII.C.1 (discussing
improved access and competition as an overarching
benefit of the rules and amendments) and XVII.C.2
(discussing how rules that mitigate conflicts of
interest between an SBSEF or SBS exchange and its
members could help ensure access to SBSEFs and
SBS exchanges and in turn increase competition in
liquidity provision and lower transaction costs).
979 See infra section XVII.D.2.
978 See
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that increased competition in liquidity
provision reduces the price of liquidity
provision (e.g., bid-ask spread), market
participants could benefit in terms of
lower transaction costs.
Rules 815(f) and 815(g), by reducing
the risk of information leakage and
protecting market participants’
anonymity for an SBS that is
anonymously executed on an SBSEF
and intended to be cleared, could
increase participation on SBSEFs. This
in turn could increase competition in
liquidity provision, liquidity, and
efficiency in the SBS market.980
Rule 806(a)(5), which requires an
SBSEF to explain the anticipated
benefits and potential anticompetitive
effects on market participants of a
proposed new rule or rule amendment,
potentially could help foster a
competitive SBS market because it
could prompt SBSEFs to consider the
positive as well as negative aspects of
their proposed rules or rule
amendments with respect to
competition.981
As discussed earlier, Rules 819(c) and
819(e) would promote competition
among entities that act as third-party
service providers to SBSEFs. To the
extent that increased competition
among third-party service providers
incentivizes them to offer cheaper,
higher quality services to SBSEFs
thereby lowering their costs, market
participants that are SBSEF members
could benefit if the SBSEFs pass on the
cost savings in the form of lower fees to
their members.982 Lower fees for SBSEF
members would help reduce the overall
costs of trading on SBSEFs and increase
the efficiency of SBS trading.
2. Capital Formation
Regulation SE could promote capital
formation by helping to improve
regulatory oversight, market integrity,
and market predictability. Regulation SE
requires, among other things, that
SBSEFs maintain an audit trail and
automated trade surveillance system;
conduct real-time market monitoring;
establish and enforce rules for
information collection; and comply with
reporting and recordkeeping
requirements. These requirements are
designed to provide an SBSEF with
sufficient information to oversee trading
on its market, including detecting and
980 See supra section XVII.C.1 (discussing
improved access and competition as an overarching
benefit).
981 See supra section XVII.C.2 (discussing benefits
associated with rule and product filings).
982 See supra section XVII.C.1 (discussing
improved access and competition as an overarching
benefit).
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deterring abusive trading practices.983
The audit trail and recordkeeping and
reporting requirements, by providing
the Commission access to information
about SBSEFs, will increase the
Commission’s ability to assess risks in
the SBS market and to oversee the
market, which all else being equal
should reduce the amount of risky or
abusive behavior in the SBS market.984
Further, Rule 831, the requirements
relating to the CCO, would promote
regulatory compliance on SBSEFs and
the SBS market generally.985 In
addition, Regulation SE provides for
various safeguards to help promote
market integrity, including Rule 819(c)
relating to impartial access to the
SBSEF 986 and Rule 830 relating to
systems safeguards. Rule 812(a) would
help to improve predictability in the
market by providing that a transaction
entered into on or pursuant to the rules
of an SBSEF shall not be void, voidable,
subject to rescission, otherwise
invalidated, or rendered unenforceable
as a result of a violation by the SBSEF
of the provisions of section 3D of the
SEA or the Commission’s rules
thereunder. Any resulting increase in
regulatory oversight, market integrity,
and market predictability likely would
increase market participants’ confidence
in the soundness of SBSEFs, which in
turn could spill over into increased
confidence in the soundness of the SBS
market more broadly. Such increased
confidence could lead to the greater use
of SBS, particularly those traded on
SBSEFs, by corporate entities to hedge
their business risks and investors to
hedge their portfolio risks with respect
to positions in underlying securities. To
the extent that corporate entities can
improve their hedging efficiency with
SBS, they may divert resources from
precautionary savings into productive
assets, thereby promoting capital
formation. To the extent that investors
can improve their hedging efficiency
with SBS, they may be more willing to
invest in the underlying securities,
which should facilitate capital raising
and formation by issuers. Therefore, the
adopted rules would help encourage
capital formation.
Also, by reducing the risk of trading
disruptions on SBSEFs, Rules 829 and
830 could increase market participants’
983 See Rules 819, 821, 822, 826 and supra section
XVII.C.1 (discussing improved oversight of trading
by SBSEFs as an overarching benefit of the rules
and amendments).
984 See supra section XVII.C.1 (discussing
improved Commission oversight as an overarching
benefit of the rules and amendments).
985 See supra section XVII.C.2 (discussing the
benefits associated with Rule 831).
986 See supra note 978.
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confidence in the soundness of SBSEFs,
which in turn could lead to the greater
use of SBS traded on SBSEFs thereby
promoting capital formation as
discussed above.
3. Efficiency
The general approach of harmonizing
as closely as practicable with analogous
CFTC rules for SEFs, unless a reason
exists to do otherwise in a particular
area, likely will generate cost
efficiencies and reduced burdens for
SBSEF registrants that likely would be
registered SEFs that have established
systems and policies and procedures to
comply with CFTC rules.987 Further,
increased competition among thirdparty service providers, as a result of
Rules 819(c) and 819(e), could lower
SBSEFs’ costs and bring about greater
efficiency in their operation and SBS
trading.988
The automation and systems
development associated with the
regulation of SBSEFs could provide SBS
market participants with new platforms
and tools to execute and process
transactions in SBS more rapidly and at
a lower expense per transaction. Such
increased efficiency could enable
members of the SBSEF to handle
increased volumes of SBS with greater
efficiency and timeliness.989
The requirements with respect to pretrade price transparency could lead to
more efficient pricing in the SBS
market. The rules are designed to
increase pre-trade price transparency for
SBS, which should aid market
participants in evaluating current
market prices for SBS, thereby
furthering more efficient price
discovery. Increased pre-trade price
transparency, coupled with increased
competition in liquidity provision as
discussed above,990 could decrease the
spread in quoted prices and lead to
higher efficiency in the trading of SBS.
The Commission recognizes the
possibility that pre-trade price
transparency could cause market
987 For example, the Commission’s election to
model Rules 804 through 810 closely on analogous
rules in part 40 of the CFTC’s rules that apply to
SEFs (and other registered entities) would impose
minimal burdens on dually registered SEF/SBSEFs
while obtaining similar regulatory benefits as the
CFTC rules. In some cases, where a new rule or rule
amendment affects both the swap and SBS business
of a dually registered entity, the same or a very
similar filing could be made to each of the CFTC
and SEC, in lieu of having to make different filings
to support the same rule change. See supra section
XVII.C.2 (discussing the benefits associated with
rule and product filings).
988 See supra section XVII.D.1.
989 See supra section XVII.C.1 (discussing
improved automation as an overarching benefit of
the rules and amendments).
990 See supra section XVII.D.1.
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participants to reveal more information
about trading interest than they believe
would be economically desirable. If
market participants consider that pretrade price transparency requirements
are too burdensome and choose not to
participate in the market, market
efficiency could be reduced insofar as
these market participants forgo any
potential economic benefits that may
have resulted from transacting in the
SBS market. However, several factors
mitigate such concerns. First, pursuant
to Rule 815(c)(2), an SBSEF may offer
any execution method for Permitted
Transactions. Thus, a market participant
engaging in a Permitted Transaction
may choose to use an execution method
that reveals the desired, or at least
preferred, amount of information about
trading interest. Second, pursuant to
Rule 815(a)(2), an SBSEF will be
required to offer two execution methods
for Required Transactions (limit order
book and RFQ-to-3). Thus, market
participants have flexibility in the
degree of pre-trade transparency they
wish to employ, which should attenuate
potential concerns associated with
revealing too much information about
trading interest.991 Rules 829 and 830
may reduce the risk of trading
disruptions on SBSEFs that may
otherwise prevent market participants
from impounding information into SBS
prices through market activity (e.g.,
order submission), and thus could
improve the price efficiency in the SBS
market.
E. Reasonable Alternatives
The Commission considered a
number of alternatives when finalizing
the rules and amendments in this
release.
1. Abbreviated Registration Procedures
for CFTC-Registered SEFs
Several commenters suggest that the
Commission provide abbreviated
registration procedures for CFTCregistered SEFs either by using the
Commission’s exemptive authority to
provide a streamlined registration
process for such applicants 992 or by
permitting such applicants to register
utilizing their current documentation
filed pursuant to the requirements of
Form SEF with an accompanying
addendum reflecting only those changes
necessary to fulfill the specific
requirements of proposed Regulation
991 See supra section XVII.C.1 (discussing the
different degrees of pre-trade transparency
associated with limit order book and RFQ-to-3).
992 See SIFMA AMG Letter, supra note 18, at 5;
Bloomberg Letter, supra note 18, at 11; WMBAA
Letter, supra note 18, at 3; ICE Letter, supra note
18, at 5.
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SE, in lieu of filing a new Form
SBSEF.993 Some of these commenters
believe that a streamlined registration
process would ease the burden of new
requirements imposed on potential
dual-registrants, be more efficient, lower
registration costs, encourage the entry of
market participants, and expedite the
establishment and operation of
SBSEFs.994 The Commission
acknowledges that the alternative could
potentially have such beneficial effects.
However, the adopted approach is
preferable to the alternative. As a
general matter, the SBSEF registration
process is intended for all applicants.
While entities that will seek to register
as SBSEFs are likely to be CFTCregistered SEFs,995 the registration
process should nevertheless address the
possibility that some applicants might
not be CFTC-registered SEFs. Requiring
all applicants to follow the same
registration process will provide a level
playing field for all applicants by
avoiding conferring a competitive
advantage on applicants that are CFTCregistered SEFs. This in turn may
encourage the entry of additional market
participants. As discussed in section
III.A.2., the adopted approach supports
consistency in the review by the
Commission and its staff of applications
for registration of SBSEFs and avoids
introducing bias or prejudice into the
Commission’s review. Such consistency
could in turn increase the efficiency of
the review process and help expedite
the establishment and operation of
SBSEFs.
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2. Shorten Review Period for SelfCertified Product Listing
In connection with the ten-businessday review period under Proposed Rule
804(a)(2), two commenters recommend
a shorter review period of one business
day to harmonize with the CFTC’s
approach.996 Alternatively, one of the
commenters suggests a two-businessday review period.997 According to
these commenters, a shorter review
period will allow market operators to
meet participants’ demands to transact
on regulated platforms in a reasonable
period of time; accommodate
participants’ needs to hedge risk in a
timely manner; and increase the
competitive benefit and innovation
incentive to SBSEFs to develop new
products by making it less attractive for
993 See
ICE Letter, supra note 18, at 5.
SIFMA AMG Letter, supra note 18, at 5;
Bloomberg Letter, supra note 18, at 11; WMBAA
Letter, supra note 18, at 3.
995 See supra section XVII.B.4.
996 See WMBAA Letter, supra note 18, at 4; ICE
Letter, supra note 18, at 2.
997 See WMBAA Letter, supra note 18, at 4.
994 See
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3. Incorporate CFTC’s Impartial Access
Requirement Guidance
Several commenters urge the
Commission to incorporate the CFTC’s
impartial access requirement guidance
with respect to access to SBSEFs into
the text of Rule 819. According to these
commenters, such an alternative would
provide market participants with
guidance and clarity regarding how
Proposed Rule 819(c) will be interpreted
and applied in practice. The
commenters believe that the alternative
would increase competition,
transparency, and liquidity in the SBS
markets; lower transaction costs through
increased competition; and result in
greater market-led innovation in the
SBS markets.999 The Commission
acknowledges that the alternative could
have beneficial effects on competition,
transaction costs, transparency,
liquidity, and innovation as the
commenters asserts. However, the
alternative raises several concerns. First,
if, in the future, the CFTC’s impartial
access requirement guidance were to be
modified, the regulatory regime for SEFs
might differ from that for SBSEFs. This
in turn could limit harmonization with
the CFTC’s regulatory regime and
potentially increase compliance burdens
for market participants if they have to
comply with different requirements for
SEFs and SBSEFs.
Second, as discussed in section VI.B.3
above, efforts to undermine the
principle of impartial access may take
myriad forms over time. It is preferable
to emphasize the principle of impartial
access in the rule text as an affirmative
requirement with which to comply. The
adopted approach would incentivize
SBSEFs to constantly review their
practices to ensure compliance with the
principle of impartial access. The
Commission also considered the
alternative of incorporating into the text
of Rule 819 a non-exclusive list of the
means that may violate the principle of
impartial access. This alternative would
raise the same concerns discussed
above.
The adopted approach may
nevertheless generate the beneficial
effects suggested by the commenters.
Rule 819(c) is broad enough to permit
market participants to use the same
practices that they are using pursuant to
the CFTC guidance. Consistent with the
Commission’s belief that prospective
SBSEF registrants are likely to be CFTCregistered SEFs that are active in the
index CDS market,1000 prospective
SBSEF registrants likely will use the
systems, policies, and procedures that
were created to comply with the CFTC
998 In this context, SBSEFs that wish to list
products expeditiously likely will not choose to list
them pursuant to Rule 805, which requires a 45-day
review period that could be extended for an
additional 45 days. See Rules 805(c) and (d).
999 See Bloomberg Letter, supra note 18, at 3, 16;
Citadel Letter, supra note 18, at 6–7; MFA Letter,
supra note 18, at 2, 9–11; SIFMA AMG Letter, supra
note 18, at 4.
1000 See supra section XVII.B.
other SBSEFs to list ‘‘look alike’’
products. In finalizing Rule 804(a)(2),
the Commission has considered the
trade-off between the benefits of a
shorter review period as described by
the commenters and the benefits of
having sufficient time to review a new
product filing and to issue a stay if
warranted. The ten-business-day review
period set forth in final Rule 804(a)(2)
strikes an appropriate balance between
these sets of benefits. To the extent that
the ten-business-day review period
limits market operators’ ability to meet
participants’ demands to transact on
regulated platforms in a reasonable
period of time, that limitation is
appropriate in light of the benefits of
having sufficient time to review a new
product filing and to issue a stay if
warranted. While a shorter review
period may accommodate market
participants’ need to hedge risk in a
timely manner, these market
participants also could hedge their risk
during the ten-business-day review
period, albeit in the OTC SBS market.
The Commission does not believe the
additional hedging benefit, if any,
associated with a shorter review period
is sufficient to justify adopting this
alternative. Rule 804 may not
necessarily limit the competitive benefit
and innovation incentive to SBSEFs to
develop new products. SBSEFs that
wish to list ‘‘look alike’’ products also
will face a ten-business-day review
period if they list such products
pursuant to Rule 804.998 Thus, such
SBSEFs will lag behind the SBSEF that
first lists a given SBS, which could
capture a significant portion, if not
most, of the revenues associated with
the trading of that product. Even if the
10-day review period were to reduce the
first-to-market competitive advantage of
an SBSEF that first lists a given SBS, the
extent of such an advantage may vary
considerably based on other factors in
the SBSEF market. Ultimately, the need
for the Commission to have sufficient
time to review a new product before it
is listed and thereby help ensure it
meets regulatory requirements aimed to
protect investors and support fair and
efficient markets justifies this potential
competitive effect. Accordingly, the
adopted approach is preferable to the
alternative.
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guidance to comply with Rule 819(c) in
order to limit their compliance burdens.
The Commission is adopting Rule
815(g), which specifies that SBSEFs
shall establish and enforce rules that
provide that a security-based swap that
is intended to be cleared at the time of
the transaction, but is not accepted for
clearing at a registered clearing agency,
shall be void ab initio. This rule would
obviate the need for breakage
agreements for SBS that are intended to
be cleared, one of the items prohibited
by the CFTC’s guidance.1001 As
discussed in section XVII.C, Regulation
SE may bring several benefits to the SBS
market including, among other things,
increased competition,1002
transparency, and liquidity; reduced
transaction costs; 1003 and market
innovation in the form of new platforms
and tools to execute and process SBS
transactions more efficiently.1004 In
light of the above, the adopted approach
is preferable to the alternative.
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4. Harmonize With CFTC’s STP
Requirements
In connection with Proposed Rule
823, several commenters recommend
that the Commission harmonize with
CFTC’s STP requirements by
establishing STP standards,
incorporating relevant CFTC guidance,
and prohibiting breakage agreements for
SBS that are intended to be cleared.1005
The commenters suggest the alternative
could reduce market, credit, and
operational risks; facilitate hedging
activity; avoid complexity and costs;
increase competition; promote trading
on SBSEFs and electronic trading; and
increase transparency, liquidity, and
fairness in the SBS markets.1006 The
Commission acknowledges that the
alternative could have beneficial effects
1001 See Division of Clearing and Risk, Division of
Market Oversight and Division of Swap Dealer and
Intermediary Oversight Guidance on Application of
Certain Commission Regulations to Swap Execution
Facilities, CFTC (Nov. 14, 2013), n.3, available at
https://www.cftc.gov/sites/default/files/idc/groups/
public/@newsroom/documents/file/
dmostaffguidance111413.pdf.
1002 See supra sections XVII.C.1 (discussing
improved access and competition as an overarching
benefit of the rules and amendments) and XVII.D.1
(discussing how the new rules and amendments
would likely affect competition).
1003 See supra section XVII.C.1 (discussing
improved transparency, increased liquidity, and
reduced transaction costs as overarching benefits of
the rules and amendments).
1004 See supra section XVII.C.1 (discussing
improved automation as an overarching benefit of
the rules and amendments).
1005 See Citadel Letter, supra note 18, at 6; MFA
Letter, supra note 18, at 11–12; SIFMA AMG Letter,
supra note 18, at 9.
1006 See Citadel Letter, supra note 18, at 5; MFA
Letter, supra note 18, at 12; SIFMA AMG Letter,
supra note 18, at 9.
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as suggested by the commenters.
However, the alternative raises several
concerns. First, if, in the future, the
CFTC’s staff guidance were to be
modified, the regulatory regime for SEFs
might differ from that for SBSEFs. This
in turn could limit harmonization with
the CFTC’s regulatory regime and
potentially increase compliance burdens
for market participants if they have to
comply with different requirements for
SEFs and SBSEFs. Second, the
timeframes for a clearinghouse to accept
or reject a trade for clearing set forth in
the CFTC staff guidance could become
outdated with advances in
technology.1007 If that were to occur,
changing those timeframes would be
more difficult if they were included as
part of Regulation SE, or even as
Commission guidance included as part
of this release. Any delays in changing
those timeframes could mean that
market participants would not be able to
benefit from any reductions in market,
credit, and operational risks associated
with the technological advances that
render obsolete the timeframes set forth
in the CFTC staff guidance.
The adopted approach may
nevertheless generate the beneficial
effects suggested by the commenters. As
discussed in section VI.F.3, Rule 823(c)
is broad enough to permit market
participants to use the same practices
that they are using pursuant to the CFTC
guidance. Consistent with the
Commission’s belief that prospective
SBSEF registrants are likely to be CFTCregistered SEFs that are active in the
index CDS market,1008 prospective
SBSEF registrants likely will use the
systems, policies, and procedures that
were created to comply with the CFTC
guidance to comply with Rule 823(c) in
order to limit their compliance burdens.
Further, to comply with the impartial
access requirements of Rule 819(c),
registered SBSEFs would, among other
things, avoid acts that purposefully
delay clearing submission in order to
favor certain market participants over
others. Lastly, the Commission is
adopting Rule 815(g), which specifies
that SBSEFs shall establish and enforce
rules that provide that a security-based
swap that is intended to be cleared at
the time of the transaction, but is not
accepted for clearing at a registered
clearing agency, shall be void ab initio.
1007 CFTC staff guidance on STP states that
‘‘[derivatives clearing organizations] clearing swaps
that are executed competitively on or subject to the
rules of a . . . SEF and are accepting or rejecting
trades within 10 seconds after submission are
compliant with the timing standard of Regulation
39.12(b)(7).’’ See CFTC 2013 STP Guidance, supra
note 273.
1008 See supra section XVII.B.
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This rule would obviate the need for
breakage agreements for SBS that are
intended to be cleared. Accordingly, the
adopted approach is preferable to the
alternative.
5. No Block Trade Exception
In finalizing Regulation SE, the
Commission considered the alternative
of not adopting a block trade exception
from the Required Transaction
requirement in Rule 815(a)(2) for credit
SBS. This alternative could extend the
benefits of increased pre-trade
transparency 1009 to SBS transactions of
a larger notional size. However, this
alternative would deviate from the
CFTC’s approach to block trades and
thus reduce harmonization with the
CFTC regime for swaps. In addition, as
one commenter expressed, under this
alternative, market participants would
have difficulty executing, or would be
unable to execute, large bona fide
trades, since they would be required to
do so only through the order book. This
would increase the cost of trading and
hedging, the commenter says, which
could reduce participation in certain
markets, resulting in less liquidity and
increased volatility.1010 This commenter
asserts that exempting block trades from
order book and RFQ execution
requirements is critical to the
functioning of the SBS markets,
particularly to execute large trades
without affecting price.1011 Another
commenter states that the proposed
exception for block trades would
provide flexibility for market
participants executing SBS transactions
of a significantly large size and mitigate
the risks of information leakage and
impairment of market liquidity.1012
Another commenter agrees with the
Proposing Release’s assessment that the
block exception to the required methods
of execution balances the promotion of
price competition and all-to-all trading
against the potential costs to the market
participants who wish to trade large
orders, the importance of which they
note is more acute in the SBS market,
which is a smaller and less liquid
market than the swap market.1013
The Commission agrees with
commenters that a block-trade exception
is appropriate for credit SBS, not only
to maintain harmonization with the
CFTC regime for swaps but also to
1009 See supra section XVII.C.1 (discussing that
increased pre-trade transparency could increase
price competition and price efficiency; improve
liquidity; reduce transaction costs; and facilitate
execution quality analysis).
1010 See MFA Letter, supra note 18, at 5–6.
1011 Id.
1012 See ICI Letter, supra note 18, at 10.
1013 See Bloomberg Letter, supra note 18, at 14.
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facilitate trading of credit SBS. This
approach, which is consistent with the
approach of the CFTC for swaps, will be
especially important in the smaller, less
liquid credit SBS markets if and when
a clearing determination has been made
for one or more SBS. A block-trade
exception for credit SBSs subject to the
trade-execution requirement, provided
that ‘‘block trade’’ is appropriately
defined for those SBSs, can help ensure
that large trades are not significantly
more difficult and costly to execute
because of the risks posed by
information leakage and the potential
for adverse price movement, which
could significantly impair liquidity in
the markets for those SBSs.
Accordingly, the adopted approach is
preferable to the alternative.
6. Adopting Proposed Block Trade
Definition Now
In finalizing Regulation SE, the
Commission considered the alternative
of adopting the proposed definition of
‘‘block trade’’ under Rule 802. For the
third prong of the ‘‘block trade’’
definition, the Commission proposed
that the SBS be based on a single credit
instrument (or issuer of credit
instruments) or a narrow-based index of
credit instruments (or issuers of credit
instruments) having a notional size of
$5 million or greater.1014
As discussed earlier,1015 a number of
commenters raise concerns that the
proposed $5 million block-trade
threshold for all credit SBSs would not
be sufficiently tailored to the unique
and varying trading and risk
characteristics of the full range of credit
SBS, creating the potential for the
adverse market risks that commenters
point out may arise from having a onesize-fits-all block threshold.
As discussed above, the Commission
acknowledges these commenters’
concerns. Further, unless and until the
Commission has made a mandatory
clearing determination regarding an
SBS, it is not necessary to define a
block-trade threshold for SBS, and it
would be appropriate for the
Commission to identify a block-trade
threshold in the future after considering
credit SBS transaction data and credit
SBS markets at that time. In addition,
the Commission agrees with
commenters that additional
consideration of credit SBS transaction
data would help the Commission
1014 See Proposing Release, supra note 1, 87 FR
at 28896.
1015 See supra section V.E.1(c)(ii) and Citadel
Letter, supra note 18, at 9; ICI Letter, supra note 18,
at 10–12; MFA Letter, supra note 18, at 5–8; SIFMA
AMG Letter, supra note 18, at 10; ISDA–SIFMA
Letter, supra note 18, at 7–9.
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determine the appropriate block-trade
threshold for credit SBS products,
including whether different thresholds
should apply to different types or
groups of SBS. The Commission also
agrees with commenters that the credit
SBS markets are likely to evolve over
time and that analysis of market data
continues to be an important aspect of
setting appropriate thresholds for both
block trades and credit SBS public trade
reporting.1016
Therefore, as discussed above, the
Commission is not adopting the
proposed definition of ‘‘block trade’’
under Proposed Rule 802, or any other
block-trade threshold. Instead, Rule 802
will include a note that a definition of
‘‘block trade’’ has not yet been adopted.
This would allow the Commission to
identify a block-trade threshold in the
future after considering credit SBS
transaction data and the evolution of the
credit SBS markets. In light of the
above, the adopted approach is
preferable to the alternative.
7. Block Trade Definition for Equity SBS
In finalizing Regulation SE, the
Commission considered the alternative
of adopting a definition of ‘‘block trade’’
applicable to equity SBS. One
commenter suggests that the alternative
would facilitate timely and efficient
executions of equity SBS thereby
supporting risk management activities,
encourage the use of equity SBS for
legitimate business purposes, including
hedging, and facilitate capital
formation.1017 Another commenter
argues that the alternative would avoid
information leakage regarding a market
participant’s investment strategies.1018
The Commission acknowledges that
the alternative could have beneficial
effects as suggested by the commenters.
However, as discussed in section
V.E.1(c)(iii), an inappropriate block
trade threshold for equity SBSs could
create incentives for market participants
to trade equity SBS over cash equities,
listed equity options, and equity swaps.
The Commission is concerned, in
particular, that a shift in trading activity
away from cash equities and listed
equity options towards equity SBS
could generate several adverse effects.
First, such a shift in trading activity
could reduce participation in the cash
equities and listed equity options
markets, including participation by
liquidity providers. Reduced
participation by liquidity providers
could reduce competition in liquidity
provision in these markets, which in
1016 See
supra note 219.
MFA Letter, supra note 18, at 6–7.
1018 See ICI Letter, supra note 18, at 12–13.
1017 See
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turn could increase trading costs and
decrease liquidity. Trading in these
markets could become less efficient
because of increased trading costs and
decreased liquidity. Second, to the
extent that trading becomes more costly
in the cash equities and listed equity
options markets, trading in these
markets could be reduced, which could
impede the incorporation of new
information into the prices of cash
equities and listed equity options
through trading. This in turn could
reduce price efficiency in the cash
equities and listed equity options
markets. Third, decreased liquidity in
the cash equities market could raise the
cost of capital for cash equities,1019
which in turn could discourage firms
from issuing cash equity securities to
finance investment projects and reduce
capital formation.
The adopted approach may
nevertheless generate the beneficial
effects suggested by the commenters.
Regulation SE would increase pre-trade
price transparency and competition in
liquidity provision, which could
decrease the spread in quoted prices
and lead to higher efficiency in the
trading of SBS.1020 In addition, the
automation and systems development
associated with the regulation of
SBSEFs could provide SBS market
participants with new platforms and
tools to execute and process
transactions in SBS more rapidly and at
a lower expense per transaction. Such
increased efficiency could enable
members of the SBSEF to handle
increased volumes of SBS with greater
efficiency and timeliness.1021 Further,
increased competition among thirdparty service providers, as a result of
Rules 819(c) and 819(e), could lower
SBSEFs’ costs and bring about greater
efficiency in their operation and SBS
trading.1022
As discussed in section XVII.D.2,
Regulation SE could improve regulatory
oversight, market integrity, and market
predictability, which could lead to the
greater use of SBS (including equity
SBS) and promote capital formation.
1019 See, e.g., Viral V. Acharya and Lasse Heje
Pedersen, Asset Pricing With Liquidity Risk, 77 J.
Fin. Econ. 375 (2005) and Yakov Amihud,
Illiquidity and Stock Returns: Cross-Section and
Time-Series Effects, 5 J. Fin. Markets 31 (2002)
(suggesting that the expected return of a stock, or
cash equity security, increases as its liquidity
decreases. To the extent that a cash equity security’s
expected return measures the cost of capital
associated with cash equity financing, the cited
research suggests that when a cash equity security’s
liquidity decreases, its cost of capital may
increase.).
1020 See supra section XVII.D.3.
1021 Id.
1022 Id.
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Also, by reducing the risk of trading
disruptions on SBSEFs, Rules 829 and
830 could increase market participants’
confidence in the soundness of SBSEFs,
which in turn could lead to the greater
use of SBS traded on SBSEFs thereby
promoting capital formation.1023
Regulation SE would address
concerns about information leakage in
various ways. First, pursuant to Rule
815(c)(2), an SBSEF may offer any
execution method for Permitted
Transactions. Thus, a market participant
engaging in a Permitted Transaction
(e.g., a large trade in equity SBS) may
choose to use an execution method that
reveals the desired, or at least preferred,
amount of information about trading
interest. Second, pursuant to Rule
815(a)(2), an SBSEF will be required to
offer two execution methods for
Required Transactions (limit order book
and RFQ-to-3). Thus, market
participants have flexibility in the
degree of pre-trade transparency they
wish to employ, which should attenuate
potential concerns associated with
revealing too much information about
trading interest.1024
In addition, until the Commission has
made a clearing determination with
respect to equity SBS, equity SBS will
be able to trade OTC, just as their
underlying cash equities can trade OTC.
Moreover, before making a clearing
determination for an equity SBS—which
would create the circumstances in
which equity SBS might be MAT and
therefore subject to the trade-execution
requirement—the Commission would
have the opportunity to solicit and
consider additional public comment on
the effect of such a determination,
including comment with respect to the
concerns commenters have raised to
date regarding, among other things,
timely and efficient executions,
hedging, and capital formation.
In light of the above, the adopted
approach is preferable to the alternative.
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8. Alternatives to Rule 833
In finalizing Rule 833, the
Commission considered alternative
approaches suggested by commenters.
Four commenters suggest that the
Commission grant automatic
exemptions for foreign trading venues
that are currently exempt under the
CFTC’s rules.1025 One commenter
1023 See
supra section XVII.D.2.
supra sections XVII.D.3 and XVII.C.1
(discussing the different degrees of pre-trade
transparency associated with limit order book and
RFQ-to-3).
1025 See Bloomberg Letter, supra note 18, at 7, 18;
ICE Letter, supra note 18, at 5; ISDA–SIFMA Letter,
supra note 18, at 15; Tradeweb Letter, supra note
18, at 6.
1024 See
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suggests the Commission grant an
exemption from the trade execution
requirement if the SBS transaction at
issue is subject to mandatory trading in
another jurisdiction.1026
With respect to these alternatives, the
Commission is concerned that granting
automatic exemptions would not afford
the Commission the opportunity to
appropriately consider the relevant facts
and circumstances in support of a
finding that an exemption is necessary
or appropriate in the public interest and
consistent with the protection of
investors. Further, to the extent that
there are certain CFTC exempt foreign
trading venues that do not intend to
offer trading in SBS, it is unclear how
the Commission’s granting of an
automatic exemption to these venues
would benefit market participants that
wish to trade SBS on regulated
platforms. In light of the above, the
adopted approach is preferable to these
alternatives.
9. Alternatives From Proposal
The Commission also considered
certain alternatives discussed in the
Proposing Release: (1) not harmonizing
Regulation SE with analogous CFTC
rules; (2) harmonizing the third prong of
the definition of ‘‘block trade’’ with the
third prong of the CFTC definition of
‘‘block trade’’; (3) requiring SBSEFs to
submit the information in the Daily
Market Data Report directly to the
Commission; (4) requiring an exemption
order under Rule 833(a) to apply to a
foreign trading venue only if it traded
SBS and no other types of securities; (5)
applying the revocation provisions of
Rule 3a1–1(b) to SBSEFs and clearing
agencies that are covered by paragraphs
(a)(4) and (a)(5), respectively of Rule
3a1–1; and (6) not exempting SBSEF-Bs
from section 17(a) of the SEA.1027 With
respect to the alternative of not
harmonizing Regulation SE with
analogous CFTC rules, commenters
generally agreed with the Commission’s
approach vis-a`-vis this alternative. The
Commission did not receive comments
addressing the other alternatives and
continues to believe that its approach
with respect to these alternatives is
appropriate, and believes the rules as
adopted are preferable to these
alternatives.
10. Structured Disclosure Alternative
The Commission also considered the
alternative of requiring, as proposed,
Inline XBRL for all SBSEF filings other
than Daily Market Data Reports under
Rule 825. However, limiting the scope
of Inline XBRL requirements under
Regulation SE will ease compliance
burdens for SBSEFs while maintaining
a significant level of machinereadability for SBSEF data available to
market participants and public data
users as well as Commission staff. Some
of the disclosures proposed with Inline
XBRL structuring will still be structured
in the final rule, but with a custom XML
requirement rather than an Inline XBRL
requirement. This will allow SBSEFs to,
at their option, input those disclosures
into fillable web forms rather than
structure the disclosures in the custom
XML data language themselves, thereby
providing greater flexibility to SBSEFs
and potentially easing compliance
burdens. For copies of existing
documents attached to Form SBSEF,
and for rule and product filings that
were proposed with an Inline XBRL
requirement will instead be filed in
unstructured formats. Given the reduced
compliance burdens on SBSEFs
resulting from a more limited scope of
Inline XBRL requirements, the adopted
rules are preferable to the
alternative.1028
XVIII. Paperwork Reduction Act
Certain provisions of the rules in
Regulation SE contain new ‘‘collection
of information’’ requirements within the
meaning of the Paperwork Reduction
Act of 1995 (‘‘PRA’’).1029 The
Commission published a notice
requesting comment on these
collections 1030 and submitted the
proposed collection of information to
the Office of Management and Budget
(‘‘OMB’’) for review in accordance with
44 U.S.C. 3507 and 5 CFR 1320.11. The
title of the new collection of information
is Regulation SE, and OMB Control
Number 3235–0793 has been assigned.
As adopted, Regulation SE creates a
regime for the registration and
regulation of SBSEFs and addresses
other issues relating to SBS execution.
In addition, the Commission is
amending Rule 3a1–1 under the SEA to
exempt a registered SBSEF from the
statutory definition of ‘‘exchange.’’
Furthermore, the Commission is
adopting new Rule 15a–12 under the
SEA that, while affirming that an SBSEF
would also be a broker under the SEA,
would exempt a registered SBSEF from
certain broker requirements under the
SEA.
Regulation SE includes rules
regarding the registration of a
prospective SBSEF on Form SBSEF, the
1026 ISDA–SIFMA
1028 See
1027 See
1029 44
Letter, supra note 18, at 15.
Proposing Release, supra note 1, 87 FR
at 28956–57.
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supra section XVII.C.3(f).
U.S.C. 3501 et seq.
1030 See Proposing Release, 87 FR at 28958–69.
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filing of new or amended rules or new
products with the Commission, and
rules implementing the Core Principles
for SBSEFs under section 3D(d) of the
SEA.1031 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 OMB
control number.
A. Summary of Collection of
Information
The rules and rule amendments
contained in Regulation SE include a
collection of information within the
meaning of the PRA for SBSEFs that are
required to comply with Regulation SE
and file a Form SBSEF with the
Commission for registration as an
SBSEF and, among other things, submit
certain filings to the Commission
pursuant to Rules 804–807 with respect
to new products and proposed rule
changes. In addition, Rule 833 includes
a collection of information within the
meaning of the PRA for persons that
wish to seek an exemption order under
that rule, and Rule 834 includes a
collection of information within the
meaning of the PRA for SBS exchanges
(in addition to SBSEFs). The
Commission generally is adopting
Regulation SE as proposed, except for
certain sections that have been modified
in response to comments received. The
modified Rules that have associated
paperwork burdens are Rules 804, 815,
819, 825, and 834. Each of these
modifications and their impact on the
paperwork burden are described in
more detail below.
Many of the rules that constitute
Regulation SE are modeled after
analogous CFTC rules, with only minor
edits to reflect differences between the
statutory regimes of the two agencies.
Entities that are most likely to register
with the Commission as SBSEFs are
those already registered with the CFTC
as SEFs. Such entities have made
substantial investments in systems,
policies, and procedures to comply with
and adapt to the regulatory system
developed by the CFTC. Harmonization
will allow these dually registered
entities to utilize their existing systems,
policies, and procedures to comply with
the Commission’s SBSEF rules, and SEF
members would likely face only
marginal additional burdens to trade
SBS as well as swaps on those SEF/
SBSEFs. In light of these factors, the
Commission has based many of its
paperwork burden estimates on CFTC
burden estimates calculated for
analogous CFTC rules.
The CFTC estimated PRA burdens by
aggregating the burdens produced by a
group of related rules, as explained
more fully in section XX(D) below. In
most cases, the Commission has
modeled its methodology, assumptions,
and calculations on those used by the
CFTC with respect to its SEF
Paperwork
burden
created?
Rule No. and title
Overview of rule
800—Scope ................................................................................
States that the provisions of this section shall apply to every
SBSEF that is registered or is applying to become registered as an SBSEF under section 3D of the SEA.
Requires an SBSEF to comply with all applicable Commission rules, including any related definitions and cross-referenced sections.
Definitions ..................................................................................
Sets out a process for registering with the Commission as an
SBSEF, including the submission of Form SBSEF.
Procedures by which an SBSEF, via self-certification, may list
a product for trading.
Procedures for voluntary submission of new products for
Commission review and approval.
Procedures for voluntary submission of new rules or rule
amendments for Commission review and approval.
801—Applicable provisions .........................................................
802—Definitions ..........................................................................
803—Requirements and procedures for registration .................
804—Listing products for trading by certification .......................
805—Voluntary submission of new products for Commission
review and approval.
806—Voluntary submission of rules for Commission review
and approval.
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regulations, while making adjustments
that reflect differences between the scale
of the market for swaps relative to the
market for SBS—for example, the
estimated number of SBSEFs, number of
SBS market participants, and number of
SBS transactions—as necessary. The
Commission received no comments on
its proposed PRA methodology,
assumptions, calculations, and
estimates, and such an approach
continues to be appropriate. As noted
above, almost all of the burden
estimates are based on CFTC estimates
that have been approved by OMB. The
CFTC estimates that serve as the basis
for the Commission’s estimates have not
changed since the Proposing Release has
been published, with the exception of
one estimate for Rule 811(d).
Consequently, the Commission
continues to estimate the burdens as
those set forth in the Proposing Release,
except for one adjustment to match a
subsequent adjustment in the CFTC
estimate relevant to Rule 811(d). As
explained in more detail below, for
rules that have been modified that
contain associated paperwork burdens,
the modifications do not result in any
change in paperwork burden.
The following is a summary of the
rules contained in Regulation SE.1032
The paperwork burdens associated with
each rule in Regulation SE are discussed
in section XX(D) below.
1031 15 U.S.C. 78c–4(d). As adopted, Regulation
SE contains 36 separately designated rules (800 to
835, inclusive), which (if adopted) would be located
in 17 CFR 242; a Form SBSEF (with instructions);
and a submission cover sheet (with instructions). If
adopted, the form and the submission cover sheet
would be located in 17 CFR 249.
1032 See supra section II.A (discussing Rule 800);
section II.B (discussing Rule 801); section II.C
(discussing Rule 802); section III.A (discussing the
registration provisions contained in Rule 803);
section III.B (discussing Form SBSEF); section IV.A
(discussing Rule 804); section IV.B (discussing Rule
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805); section IV.C (discussing Rule 806); section
IV.D (discussing Rule 807); section IV.GIV.F
(discussing Rule 808); section IV.G (discussing Rule
809); section IV.H (discussing Rule 810); section
V.A (discussing Rule 811); section V.B (discussing
Rule 812); section V.C (discussing Rule 813);
section V.D (discussing Rule 814); section V.E
(discussing Rule 815); section V.F (discussing Rule
816); section V.G (discussing Rule 817); section
VI.A (discussing Rule 818); section VI.B (discussing
Rule 819); section VI.C (discussing Rule 820);
section VI.D (discussing Rule 821); section VI.E
(discussing Rule 822); section VI.F (discussing Rule
823); section VI.G (discussing Rule 824); section
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No.
No.
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Yes.
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VI.H (discussing Rule 825); section VI.I (discussing
Rule 826); section VI.J (discussing Rule 827);
section VI.K (discussing Rule 828); section VI.L
(discussing Rule 829); section VI.M (discussing
Rule 830); section VI.N (discussing Rule 831);
section VII.A (discussing Rule 832); section VII.B
(discussing Rule 833); section VIII (discussing Rule
834); section IX (discussing the notice required by
Rule 835); section X (discussing amendments to
Rule 3a1–1); section XI (discussing proposed Rule
15a–12); section XIV (discussing new rules and
amendments to the Commission’s Rules of
Practice).
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Overview of rule
807—Self-certification of rules ....................................................
Procedures by which an SBSEF can implement a new rule or
rule amendment via self-certification.
Sets out the information that will be made public with respect
to applications to become an SBSEF as well as filings relating to rules and products.
Provides for a stay of a product certification or tolling of a review period for a product where it is unclear whether the
product should be classified as an SBS under the jurisdiction of the SEC or a swap under the jurisdiction of the
CFTC pending the issuance of a joint interpretation by the
SEC and CFTC clarifying which agency has jurisdiction
over the product.
Provides that an applicant for registration as an SBSEF may
submit for Commission review and approval an SBS’s
terms and conditions or rules prior to listing the product as
part of its application for registration.
Provides that an SBSEF shall submit information to the Commission that the Commission requests, including demonstrations that the SBSEF is in compliance with one or
more Core Principles, notification of a transfer 50% or more
of the equity interest in the SBSEF, and information about
pending legal proceedings.
Provides that a transaction entered into on or pursuant to the
rules of an SBSEF shall not be void, voidable, subject to
rescission, otherwise invalidated, or rendered unenforceable because of a violation by the SBSEF of section 3D of
the SEA or the Commission’s rules thereunder; also requires an SBSEF to provide each counterparty to a transaction on the SBSEF with a written record of all the terms
of the transaction that were agreed to on the SBSEF.
Provides that an SBSEF shall not use for business or marketing purposes any proprietary data or personal information that it collects or receives, from or on behalf of any
person, for the purpose of fulfilling its regulatory obligations, without such person’s consent; also requires the
SBSEF not to condition access to its markets on such consent and provide that the SBSEF may, where necessary for
regulatory purposes, share such data or information with
other registered SBSEFs or exchanges.
Provides that an entity that intends to operate both a national
securities exchange and an SBSEF shall separately register the two facilities pursuant to section 6 of the SEA and
Rule 803, respectively; also provides that a national securities exchange shall, to the extent that the exchange also
operates an SBSEF and uses the same electronic trade
execution system, identify whether electronic trading of
SBS is taking place on or through the national securities
exchange or the SBSEF.
Provides that a Required Transaction must be executed on
an SBSEF through an order book or RFQ system, whereas
a Permitted Transaction can be executed in any manner;
also requires an SBSEF to maintain rules and procedures
that facilitate the resolution of error trades and that an
SBSEF shall not generally disclose the identity of a
counterparty to an SBS that is executed anonymously and
intended to be cleared.
Sets out a process and standards for an SBSEF to MAT an
SBS; also establishes certain exemptions from the trade
execution requirement.
Provides that an SBS transaction shall be required to be executed on an SBS exchange or SBSEF upon the later of a
determination by the Commission that the SBS is required
to be cleared and 30 days after a MAT determination submission or certification for that SBS is approved or certified,
respectively.
Requires a registered SBSEF to comply with the SEA’s Core
Principles for SBSEFs.
808—Availability of public information ........................................
809—Staying of certification and tolling of review period pending jurisdictional determination.
810—Product filings by SBSEFs that are not yet registered
and by dormant SBSEFs.
811—Information relating to SBSEF compliance .......................
812—Enforceability .....................................................................
813—Prohibited use of data collected for regulatory purposes
814—Entity operating both a national securities exchange and
SBSEF.
815—Methods of execution for Required and Permitted Transactions.
816—Trade execution requirement and exemptions therefrom
817—Trade execution compliance schedule ..............................
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Paperwork
burden
created?
Rule No. and title
818—Core Principle 1 (Compliance with Core Principles) .........
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No.
Yes.
Yes.
Yes.
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Overview of rule
819—Core Principle 2 (Compliance with rules) .........................
Requires a registered SBSEF to establish, comply with, and
enforce its own rules—including rules regarding market access; rules governing trading, trade processing, and participation that will deter abuses; rules governing the operation
of the SBSEF; and rules to capture and retain an audit
trail—and have the capacity to detect, investigate, and enforce those rules; also requires an SBSEF to establish
rules that generally prohibit employees from trading any
covered interest or disclosing any material, non-public information obtained as a result of their employment by the
SBSEF; also requires an SBSEF to maintain in effect rules
that render a person ineligible to serve on the SBSEF’s disciplinary committees, arbitration panels, oversight panels,
or governing board who has been found to have committed
enumerated offenses.
Requires an SBSEF to permit trading only in SBS that are
not readily susceptible to manipulation.
Requires an SBSEF to establish and enforce rules detailing
trading and trade processing procedures, and to monitor
trading and market activity to prevent manipulation, price
distortion, and delivery or settlement disruptions; also requires an SBSEF to demonstrate that it has access to sufficient information to assess whether trading on its market or
in the underlying assets or indexes is being used to affect
prices on its market.
Requires an SBSEF to establish and enforce rules that would
allow it to obtain any information necessary to comply with
section 3D of the SEA and to provide that information to
the Commission on request.
Requires an SBSEF to establish and enforce rules for ensuring the financial integrity of SBS on its facility, including the
clearance and settlement of the SBS; also requires that
SBS that are required to be cleared shall be cleared by a
registered clearing agency (or a clearing agency that has
obtained an exemption from clearing agency registration to
provide central counterparty services for SBS), that the
SBSEF provide for minimum financial standards for its
members, and that the SBSEF monitor its members for
compliance with those standards.
Requires an SBSEF to adopt rules to provide for the exercise
of emergency authority, in order for the SBSEF to maintain
fair and orderly trading and prevent or address manipulation or disruptive trading practices.
Requires an SBSEF to make public timely information on
price, trading volume, and other trading data on SBS transactions, as required by Regulation SBSR, and to publish on
its website a Daily Market Data Report.
Sets forth recordkeeping and reporting obligations for
SBSEFs and requires an SBSEF to maintain, for a period
of five years and in a form and manner acceptable to the
Commission, records of all activities relating to the business of the facility, including a complete audit trail,.
Provides that, unless necessary or appropriate to achieve the
purposes of the SEA, an SBSEF shall not adopt any rules
or take any actions that result in any unreasonable restraint
of trade or impose any material anticompetitive burden on
trading or clearing.
Requires an SBSEF to establish and enforce rules to minimize conflicts of interest in its decision-making process and
to establish a process for resolving such conflicts.
Requires an SBSEF to have adequate financial, operational,
and managerial resources to discharge its responsibilities;
would also set forth the standards used to calculate the
adequacy of such resources and require certain reports to
the Commission.
820—Core Principle 3 (SBS not readily susceptible to manipulation).
821—Core Principle 4 (Monitoring of trading and trade processing).
822—Core Principle 5 (Ability to obtain information) .................
823—Core Principle 6 (Financial integrity of transactions) ........
824—Core Principle 7 (Emergency authority) ............................
825—Core Principle 8 (Timely publication of trading information).
826—Core Principle 9 (Recordkeeping and reporting) ..............
827—Core Principle 10 (Antitrust considerations) .....................
828—Core Principle 11 (Conflicts of interest) ............................
829—Core Principle 12 (Financial resources) ............................
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Yes.
Yes.
Yes.
Yes.
Yes.
Yes.
Yes.
Yes.
No.
Yes.
Yes.
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Rule No. and title
Overview of rule
830—Core Principle 13 (System safeguards) ............................
Requires an SBSEF to establish and maintain a program of
automated systems and risk analysis to identify and minimize sources of operational risk, through the development
of appropriate controls and procedures; would also require
an SBSEF to establish and maintain emergency procedures, backup facilities, and a plan for disaster recovery;
conduct periodic tests to verify those resources are sufficient; and notify the Commission promptly of any cyber incidents and material planned changes to the SBSEF’s systems safeguards.
Requires an SBSEF to designate a CCO and set forth regulatory and reporting obligations for the CCO.
Explains when the SEA’s trade execution requirement applies
to a cross-border SBS transaction.
Provides for a process by which the Commission, upon making the requisite findings, could grant exemptions from the
SEA definitions of ‘‘exchange,’’ ‘‘security-based swap execution facility,’’ and ‘‘broker’’ and exempt cross-border SBS
from the SEA’s trade execution requirement.
Provides that each SBSEF and SBS exchange must create
and maintain rules to mitigate conflicts of interest between
SBSEFs and SBS exchanges and their members, including
by prohibiting members from owning 20% or more of the
voting securities of an SBSEF or SBS exchange (with certain exceptions), and from exercising disproportionate influence in disciplinary proceedings; would also require each
SBSEF and SBS exchange to submit to the Commission
after every governing board election a list of each governing board’s members, the groups they represent, and
how the composition of the board complies with the requirements of Rule 834.
Provides that, if an SBSEF issues a final disciplinary action
against a member, denies or conditions membership, or
denies or limits access of a person to any services offered
by the SBSEF, the SBSEF shall file a notice of such action
with the Commission within 30 days and serve a copy on
the affected person.
Exempts from the SEA definition of ‘‘exchange’’ a registered
SBSEF that provides a market place for no securities other
than SBS, and an entity that has registered with the Commission as a clearing agency and limits its exchange functions to operation of a trading session that is designed to
further the accuracy of end-of-day valuations.
Exempts a registered SBSEF from certain broker requirements while affirming that an SBSEF is a broker under the
SEA.
New rules and amendments to the Rules of Practice to allow
persons who are aggrieved by a final disciplinary action, a
denial or conditioning of membership, or a denial or limitation of access by an SBSEF to seek an application for review by the Commission.
Amendments to Commission’s rules delegating authority to
the Division Director and to the General Counsel in order to
delegate authority to take actions necessary to carry out
the rules under Regulation SE and to facilitate the operation of the regulatory structure created in Regulation SE.
831—Core Principle 14 (Designation of CCO) ...........................
832—Cross-border mandatory trade execution .........................
833—Cross-border exemptions ..................................................
834—Mitigation of conflicts of interest of SBSEFs and SBS exchanges.
835—Notice to Commission by SBSEF of final disciplinary action or denial or limitation of access.
3a1–1—proposed amendments ..................................................
15a–12—Exemption for certain SBSEFs from certain broker
requirements.
Rules and amendments to the Commission’s Rules of Practice
Amendments to Delegations of Authority in Rules 30–3 and
30–14.
Yes.
Yes.
No.
Yes.
Yes.
Yes.
No.
No.
No **.
No **.
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** The Commission finds, in accordance with section 553(b)(3)(A) of the Administrative Procedure Act (‘‘APA’’), 5 U.S.C. 553(b)(3)(A), that the
revisions to the Commission’s Rules of Practice, as well as the amendments to the Commission’s delegations of authority to the Director of Trading and Markets pursuant to 17 CFR 200.30–3 and to the General Counsel pursuant to 17 CFR 200.30–14, relate solely to agency organization,
procedure, or practice. They are therefore not subject to the provisions of the APA requiring notice, opportunity for public comment, and publication. To the extent that these rules relate to agency information collections during the conduct of administrative proceedings, they are exempt
from review under the PRA. Notwithstanding this finding, the Commission published certain proposed changes to the Commission’s Rules of
Practice for notice and comment in the Proposing Release but received no specific comments pertaining to them. See supra section XIV.
B. Proposed Use of Information
1. Registration Requirements and Form
SBSEF
Regulation SE imposes various
requirements relating to SBSEF
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registration, which are set forth in Rule
803.1033
1033 See, e.g., Proposed Rule 803(b)(1) (requiring
an entity that wishes to register with the
Commission as an SBSEF to submit a Form SBSEF).
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The information collected pursuant to
these adopted rules will enhance the
ability of the Commission to determine
whether to approve the registration of
an entity as an SBSEF; to monitor and
oversee SBSEFs; to determine whether
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SBSEFs initially comply, and continue
to operate in compliance, with the SEA,
including the Core Principles applicable
to SBSEFs; to carry out its statutorily
mandated oversight functions; and to
maintain accurate and updated
information regarding SBSEFs. Because
the registration information will be
publicly available, except to the extent
that a request for confidential treatment
is granted, it could also be useful to an
SBSEF’s members, other market
participants, other regulators, and the
public generally.
2. Requirements for SBSEFs To
Establish Rules
Various provisions of Regulation SE
require SBSEFs to establish certain
rules, policies, and procedures to
comply with applicable requirements of
the SEA and the Commission’s rules
thereunder.1034 The rules also will help
an SBSEF’s members to understand and
comply with the rules of the SBSEF.
3. Reporting Requirements for SBSEFs
Various provisions of Regulation SE
require SBSEFs and certain other
persons to submit reports or provide
specified information.1035 This
information will generally be used by
the Commission in its oversight of
SBSEFs and the SBS markets; certain of
the information to be collected could be
used by market participants to confirm
their SBS transactions.
4. Recordkeeping Required Under
Regulation SE
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Regulation SE requires an SBSEF to
keep specified records.1036 The audit
trail information required to be
maintained under Regulation SE will
aid the SBSEF in detecting and
deterring fraudulent and manipulative
acts with respect to trading on its
market, as well as help the SBSEF to
fulfill the statutory requirement in Core
Principle 4 that an SBSEF monitor
trading in SBS, including through
comprehensive and accurate trade
reconstructions. In addition,
Commission access to these records will
provide a valuable tool to help the
Commission carry out its oversight
1034 See, e.g., Proposed Rule 819(a)(2) (requiring
an SBSEF to establish and enforce trading, trade
processing, and participation rules).
1035 See, e.g., Proposed Rule 829 (requiring an
SBSEF, quarterly or upon Commission request, to
provide the Commission a report that includes the
amount of financial resources necessary to meet the
requirements of Rule 829).
1036 See Proposed Rule 826 (requiring an SBSEF
to maintain records of all activities relating to the
business of the facility, including a complete audit
trail, and to report information to the Commission
upon request).
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responsibility over SBSEFs and the SBS
markets in general.
5. Timely Publication of Trading
Information Requirement for SBSEFs
Regulation SE imposes certain
publication burdens on SBSEFs in Rule
825.1037
The requirement contained in Rule
825 that an SBSEF have the capacity to
electronically capture, transmit, and
disseminate information on price,
trading volume, and other trading data
on all SBS executed on or through the
SBSEF will assist the SBSEF in carrying
out its regulatory responsibilities under
the SEA and enable the SBSEF to
comply with reasonable requests to
provide information to others.
Furthermore, Rule 825 requires an
SBSEF to publish a Daily Market Data
Report that is designed to provide
market observers with a daily snapshot
of market activity on the SBSEF.
6. Rule Filing and Product Filing
Processes for SBSEFs
Regulation SE establishes various
filing requirements applicable to
SBSEFs. Rules 804 and 805 provide
mechanisms for an SBSEF to submit
filings for new products that it seeks to
list either through a self-certification
process or by voluntarily requesting
Commission approval, respectively.
Rules 806 and 807 require an SBSEF to
submit new rule or rule amendments
either through a self-certification
process or by voluntarily requesting
Commission approval, respectively.
Rule 808 addresses the public
availability of certain information in an
application to register as an SBSEF and
SBSEF filings made under the selfcertification procedures or pursuant to
Commission review and approval. Rule
809 establishes procedures for
addressing a situation where an SBSEF
wishes to list a product and it is unclear
whether that product is an SBS or swap
(i.e., whether it properly falls under the
jurisdiction of the SEC or the CFTC).
Rule 810 provides that an applicant for
registration as an SBSEF may submit for
Commission review and approval an
SBS’s terms and conditions or rules
prior to listing the product as part of its
application for registration.
The information collected under
Rules 804 and 805 will help the
Commission assess whether an SBS
listed by an SBSEF complies with
relevant provisions of the SEA. In
addition, this information will assist the
Commission in overseeing the SBSEF’s
1037 See Proposed Rule 825 (requiring an SBSEF
to make publicly available a ‘‘Daily Market Data
Report’’).
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compliance with its regulatory
obligations generally and to learn about
developments in the SBS product
market. Rules 804 and 805 also provide
a mechanism whereby market
participants, other SBSEFs, other
regulators, and the public generally
could learn what products an SBSEF
intends to list and to obtain information
regarding such products.
The information collected under
Rules 806 and 807 will help the
Commission assess whether a new rule
or rule amendment of an SBSEF
complies with relevant provisions of the
SEA and assist the Commission in
overseeing the SBSEF’s compliance
with its regulatory obligations generally.
Rules 806 and 807 also provide a
mechanism whereby an SBSEF’s
members (and prospective members)
could learn what new rules or rule
amendments the SBSEF intends to
apply in its market.
The information collected under
Rules 809 and 810 will help the
Commission assess an SBSEF’s
compliance with relevant provisions of
the SEA and assist the Commission in
overseeing the SBSEF’s compliance
with its regulatory obligations. This
information also will be useful to the
SBSEF’s members, because they would
be subject to such new or amended rules
or products and thus would have an
interest in learning about those rules or
products. Other market participants,
other SBSEFs, and other regulators, as
well as the public generally, may find
information about proposed new or
amended rules or products useful.
7. Requirements Relating to the CCO
Regulation SE includes Rule 831 that
would set out requirements relating to
an SBSEF’s CCO.
The information that will be collected
under Rule 831 will help ensure
compliance by SBSEFs with relevant
provisions of the SEA and assist the
Commission in overseeing SBSEFs
generally. The Commission could use
the annual compliance report to help it
evaluate whether an SBSEF is carrying
out its statutorily mandated regulatory
obligations and, among other things, to
discern the scope of any denials of
access or refusals to grant access by the
SBSEF and to obtain information on the
status of the SBSEF’s regulatory
compliance program. The SBSEF’s
fourth-quarter financial report will
provide the Commission with important
information on the financial health of
the SBSEF.
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8. Surveillance Systems Requirements
for SBSEFs
The rules that require an SBSEF to
maintain surveillance systems and to
monitor trading 1038 are designed to
promote compliance by an SBSEF with
its obligations under the SEA to oversee
trading on its market, and to prevent
manipulation and other unlawful
activity or disruption of its market.
C. Respondents
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The respondents subject to the
collection of information burdens
associated with Regulation SE are: (1)
SBSEFs (and entities wishing to register
with the Commission as SBSEFs); (2) in
the case of Rule 833, persons that seek
an exemption order under that rule; and
(3) in the case of Rule 834, SBS
exchanges.
Currently there are no registered
SBSEFs. Based on the number of SEFs
registered with the CFTC that trade
index CDS (the closest analog to singlename CDS, which is likely to be the
product most frequently traded on SECregistered SBSEFs), as well as general
industry information, the Commission
preliminarily estimated that five entities
will seek to register as SBSEFs and thus
become subject to the collection of
information requirements of these
rules.1039 The Commission did not
receive comments about its estimate of
the number of SBSEF registrants, and its
initial estimate continues to be
reasonable.
The Commission preliminarily
estimated that three persons would
request exemption orders under one or
both paragraphs of Rule 833.1040 The
CFTC has granted three exemptions
similar to those contemplated by Rule
833,1041 which suggests that the number
of jurisdictions having organized trading
venues for swap and SBS products that
overlap with products traded on similar
venues in the United States is not large.
The Commission did not receive
comments about its estimate of the
number of persons requesting
exemption orders under Rule 833, and
1038 See, e.g., Proposed Rule 819(d)(3) (requiring
an SBSEF to establish and maintain sufficient
compliance staff and resources to ensure that it can
conduct effective audit trail reviews, trade practice
surveillance, market surveillance, and real-time
market monitoring).
1039 See Proposing Release, supra note 1, 87 FR
at 28963.
1040 Id. The Commission anticipates that such
persons could include foreign SBS trading venues,
foreign authorities that license and regulate those
trading venues, or covered persons (as defined in
Rule 832) who are members of such trading venues.
1041 See also supra note 626 (discussing a CFTC
staff no-action letter addressing certain UK swap
trading facilities).
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its initial estimate continues to be
reasonable.
The Commission preliminarily
estimated that three entities will operate
as SBS exchanges.1042 These are likely
to be existing national securities
exchanges that, in the future, seek to list
SBS and thereby become SBS
exchanges. The Commission did not
receive comments about its estimate of
the number of SBS exchanges, and its
initial estimate continues to be
reasonable.
The Commission considered whether
any provision of proposed Regulation
SE would impose any burdens (as
defined in the PRA) on SBSEF members
but received no comments on this point
and continues to estimate that the
provisions of Regulation SE would not
impose PRA burdens on SBSEF
members.
D. Total Annual Reporting and
Recordkeeping Burden
1. Overview
The CFTC, based on its experience in
developing rules for SEFs and regulating
the SEF market, has over the years
developed, refined, and received
approval from OMB for paperwork
burden hours estimates, both for SEF
rules directly as well as for ancillary
rules on which various rules in
Regulation SE are modeled.1043 Those
1042 See Proposing Release, supra note 1, 87 FR
at 28963.
1043 See Core Principles and Other Requirements
for Swap Execution Facilities (May 17, 2013), 78 FR
33476, 33548–49 (June 4, 2013) (Final Rule PRA for
CFTC part 37); Swap Execution Facility
Requirements (Nov. 27, 2020), 85 FR 82313, 82324
(Dec. 18, 2020) (Final Rule PRA for 17 CFR 36.1);
Core Principles and Other Requirements for Swap
Execution Facilities: OMB Control Number 3038–
0074 Supporting Statements (last updated July 26,
2021), available at https://omb.report/omb/30380074 (PRA Supporting Statements for CFTC Core
Principles for SEFs, 17 CFR 36.1); Provisions
Common to Registered Entities (July 19, 2011), 76
FR 44776, 44789–90 (July 27, 2011) (Final Rule PRA
for CFTC part 40); part 40, Provisions Common to
Registered Entities: OMB Control Number 3038–
0093 Supporting Statements (last updated Feb. 4,
2021), available at https://omb.report/omb/30380093 (PRA Supporting Statements for CFTC part 40,
17 CFR 36.1); Notification of Pending Legal
Proceedings: OMB Control Number 3038–0033
Supporting Statements (last updated Oct. 29, 2021),
available at https://omb.report/omb/3038-0033
(PRA Supporting Statements for 17 CFR 1.60(a), (c),
and (e)); Adaptation of Regulations To Incorporate
Swaps (Oct. 16, 2012), 77 FR 66288, 66306–08
(Nov. 2, 2012) (Final Rule PRA for 17 CFR 1.59 and
1.37(c)); Recordkeeping (May 23, 2017), 82 FR
24479, 24485 (May 30, 2017) (Final Rule PRA for
17 CFR 1.31); Adaptation of Regulations to
Incorporate Swaps-Exclusion of Utility OperationsRelated Swaps with Utility Special Entities from De
Minimis Threshold: OMB Control Number 3038–
0090 Supporting Statements (last updated July 1,
2020), available at https://omb.report/omb/30380090 (PRA Supporting Statements for 17 CFR 1.31,
1.37(c), 1.59, and 1.67); Service on Self-Regulatory
Organization Governing Boards or Committees by
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estimates are presented in the form of
aggregate totals for compliance with:
• Part 37 of the CFTC regulations
regarding initial registration
requirements applicable to SEFs;
• Part 37 regarding other
requirements applicable to SEFs,
including the statutory Core Principles;
• Part 40 of the CFTC regulations
regarding requirements applicable to
SEFs (and other CFTC-registered
entities); and
• 17 CFR 1.60(a), 1.60(c), 1.60(e),
36.1, 1.59, 1.63, 1.67, 15.05, 1.37(c),
1.64, and 1.69 regarding requirements
applicable to SEFs (and other CFTCregistered entities).
The rules applicable to SBSEFs are,
with limited exceptions discussed
above, substantively similar to those
applicable to SEFs. Therefore, the
Commission is basing its estimates for
the paperwork burdens for SBSEFs on
the CFTC’s paperwork burden
calculations for analogous rules that
apply to SEFs, which have been
approved by OMB.1044 However, in
certain cases, the paperwork burdens
estimated by the CFTC are scaled down
for SBSEFs to account for the likelihood
that there will be fewer SBSEFs than
SEFs and that the SBS business of
dually registered SEF/SBSEFs is likely
to be smaller than the swap business.
Although there are minor differences
between the CFTC rules and the
Commission rules being adopted, the
Commission does not need to
Persons with Disciplinary Histories (Feb. 27, 1990),
55 FR 7884, 7890 (Mar. 6, 1990) (Final Rule PRA
for 17 CFR 1.63); Final Rule and Rule Amendments
Concerning Composition of Various Self-Regulatory
Organization Governing Boards and Major
Disciplinary Committees (June 29, 1993), 58 FR
37644, 37653 (July 13, 1993) (Final Rule PRA
for§ 1.64); Voting by Interested Members of SelfRegulatory Organization Governing Boards and
Committees (Dec. 23, 1998), 64 FR 16, 22 (Jan. 4,
1999) (Final Rule PRA for 17 CFR 1.69); Rules
Pertaining to Contract Markets and Their Members:
OMB Control Number 3038–0022 Supporting
Statements (last updated Dec. 21, 2010), available
at https://omb.report/omb/3038-0022 (PRA
Supporting Statements for 17 CFR 1.63, 1.64, and
1.69); Swap Data Recordkeeping and Reporting
Requirements (Dec. 20, 2011), 77 FR 2136, 2171–
76 (Jan. 13, 2012) (Final Rule PRA for 17 CFR 45.2);
Swap Data Recordkeeping and Reporting
Requirements: OMB Control Number 3038–0096
Supporting Statements (last updated Mar. 16, 2021),
available at https://omb.report/omb/3038-0096
(PRA Supporting Statements for 17 CFR 45.2);
Repeal of the Exempt Commercial Market and
Exempt Board of Trade Exemptions (Sept. 28,
2015), 80 FR 59575, 59576 (Oct. 2, 2015) (Final Rule
PRA for 17 CFR 15.05).
1044 Rule 835, which requires SBSEFs to file with
the Commission notices of final disciplinary actions
and denials and limitations of access, is not based
on a CFTC rule but rather on an existing
Commission rule that imposes a similar filing
requirement on SROs. Therefore, the Commission is
utilizing the burden estimates in its rulemaking for
SROs to estimate the burdens of this rule for
SBSEFs.
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substantially deviate from the CFTC’s
estimates of aggregated burden hours for
compliance (beyond scaling back the
CFTC’s estimates to account for the
smaller number of SBSEFs, and the
smaller size of the SBS market relative
to the swaps market). These minor
differences between the CFTC’s existing
rules for SEFs and the Commission’s
rules for SBSEFs are prompted, in some
cases, by minor differences between the
statutory provisions that apply to SEFs
under the CEA and the statutory
provisions that apply to SBSEFs under
the SEA, and, in other cases, by
differences between the swaps market
and SBS market. In either case,
however, the Commission anticipates
that the burdens on SBSEFs would be
substantially similar to the burdens set
out in the CFTC estimates, which serve
as the basis for the Commission’s
estimates.1045 Furthermore, basing the
burden estimates for SBSEFs on the
CFTC’s estimates for SEFs would be
more accurate than using burden hours
estimates for any other entity that the
Commission currently regulates (e.g.,
national securities exchanges) because
SBSEFs share many more similarities
with SEFs than they do with any other
SEC-registered entities.
The Commission anticipates that most
if not all entities that seek to register
with the Commission as SBSEFs will
also register, or will already be
registered, with the CFTC as SEFs. With
a few exceptions, the rules being
adopted by the Commission are adapted
from existing rules of the CFTC. With
these rules, the Commission intends to
obtain comparable regulatory benefits as
the CFTC rules while imposing only
marginal additional burdens on SEF/
SBSEFs. However, for purposes of its
PRA analysis, the Commission will
estimate the burdens as if a respondent
were subject only to the Commission’s
rules.1046
1045 When the CFTC adopted the SEF rules in
2013, the CFTC took a similar approach to burden
hours estimation. The CFTC relied on the aggregate
burden hours for three types of entities that it
regulated (DCMs, derivatives transaction execution
facilities, and certain exempt commercial markets)
and applied those burden hours to SEFs
unadjusted, even though there are differences
between the regulations that govern SEFs and those
that govern the other entities. The CFTC noted that
those entities, like SEFs, were subject to certain
statutory Core Principles and rules thereunder, and
that, despite variations in the applicable
regulations, it was still appropriate to use the
average aggregate burden number for those entities
as the estimate for SEFs without adjustment. See
CFTC, Core Principles and Other Requirements for
Swap Execution Facilities, 78 FR at 33548–51.
1046 However, there may be instances in which a
rule would require an SBSEF to generate the same
paperwork that is already being created pursuant to
a CFTC rule. In such cases, compliance with the
existing CFTC requirement would satisfy the SEC
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The burden hours discussed below
represent annual/ongoing burdens, with
three exceptions that represent initial,
one-time burdens: registration burdens
for SBSEFs under Rule 803, exemption
requests regarding foreign SBS trading
venues under Rule 833, and certain
rules under Rules 834(b) and (c).
The Commission requested comments
on its entire proposed approach to
estimating burden hours and received
no comment.1047 The Commission
continues to estimate the burdens at the
levels set forth in the Proposing Release.
Therefore, for any provision that the
Commission is adopting as proposed, it
is not changing its preliminary estimate,
except in one instance to account for an
update in an estimate by the CFTC that
the Commission is using to base its
burden estimates.1048 For any provision
that the Commission is modifying from
the proposal, as discussed in more
detail below, the Commission estimates
that the modification would result in no
change in the burden estimate compared
to the proposal.
2. Aggregate Burdens for Rules Modeled
After CFTC Part 37 Rules
(a) Registration Requirements for
SBSEFs and Form SBSEF
A submission by an entity wishing to
register with the Commission as an
SBSEF would be required to be made on
Form SBSEF, pursuant to Rule 803, on
a one-time basis. The Commission
estimates that five entities initially
would seek to register with the
Commission as SBSEFs. The
Commission estimates the burdens of
Rule 803 and Form SBSEF to be per
respondent and aggregate of 295 and
1,475 hours, respectively. These entities
would incur initial, one-time burdens,
because once an entity is registered as
an SBSEF, its registration obligations are
complete. The Commission’s estimate
regarding the initial burden that an
entity would incur to file a Form SBSEF
is informed by the estimates made by
the CFTC for the completion of Form
SEF and compliance with § 37.3 of the
CFTC regulations (which governs
registration of SEFs). Form SBSEF
requests almost exactly the same
information as required by Form SEF,
and Rule 803 is substantially similar to
§ 37.3. The CFTC has estimated that the
initial compliance burden associated
requirement, and in reality there would be few or
de minimis burdens imposed on dually registered
SEF/SBSEFs.
1047 See Proposing Release, supra note 1, 87 FR
at 28969.
1048 As discussed below, the Commission has
revised its burden estimate for Rule 811(d) due to
a corresponding revision by the CFTC of its
analogous rule.
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87273
with its registration requirements in
§ 37.3 and Form SEF to be 295 hours per
SEF applicant.1049 For purposes of
calculating burden hours, the CFTC
considered the entire SEF application
process to constitute a single
information collection; the Commission
is utilizing the same approach for
SBSEFs. SBSEFs would likely prepare
Form SBSEF internally.
(b) Ongoing Compliance With Other
Requirements That Are Similar to the
Remainder of Part 37
The Commission estimates the
aggregate ongoing annual hour burden
for compliance with all of the SBSEF
rules that have analogs in part 37 to be
1,935 hours.1050 The CFTC has
estimated that the compliance burden
for all of the sections of part 37
combined, other than the initial burden
of 295 hours per SEF for registrationrelated compliance discussed above, to
be an ongoing annual burden of 387
hours per SEF.1051 With the exception
of § 37.600, which implements a CEA
Core Principle for SEFs relating to
position limits that is not present in the
SEA, every other section of part 37 has
an analog in proposed Regulation SE
that is substantively similar.1052
Therefore, the aggregate CFTC estimate
of 387 hours per SEF per year serves as
a reasonable estimate for the annual
hourly burden on each SBSEF.
As noted above, the Commission is
adopting Rule 815 and 819 as proposed,
except that it is: (1) removing the
proposed definition of a ‘‘Block Trade’’,
a term used in Rule 815, from Rule 802
and reserving that definition; (2)
modifying Rule 815(d)(2) and (d)(3) to
1049 See OMB, Supporting Statement for New and
Revised Information Collections: Core Principles
and Other Requirements for Swap Execution
Facilities, OMB Control Number 3038–0074,
Attachment A (July 7, 2021), available at https://
omb.report/icr/202107-3038-004/doc/
113431800.pdf.
1050 1,935 hours = 387 hours (annual burden per
respondent) × 5 (number of respondents).
1051 See OMB, Supporting Statement for New and
Revised Information Collections, OMB Control
Number 3038–0074, at 8 (estimating that on a net
basis the total burden hours imposed on each SEF
will be 387 hours).
1052 As discussed previously, the Commission
proposed to incorporate portions of the CFTC
guidance into certain rules in Regulation SE. The
Commission is now adopting those portions of the
CFTC guidance as proposed into the rules of
Regulation SE. The CFTC guidance clarifies
portions of its rules by suggesting means for
compliance and does not fundamentally alter those
rules. When the CFTC adopted this guidance into
its regulations, it did not alter its burden hours
estimate. See, e.g., 2021 SEF Amendments
Adopting Release. Therefore, no adjustments to the
CFTC estimates, on which the Commission is
basing its own estimates, would be appropriate
despite adapting that guidance into the
Commission’s rules.
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narrow the scope of the packagetransaction exception to the method of
execution requirements of Rule 815; (3)
adding section (g) to Rule 815 to specify
that a security-based swap that is
intended to be cleared at the time of the
transaction, but is not accepted for
clearing at a registered clearing agency,
shall be void ab initio; (4) amending
Rule 819(e) to permit SBSEFs to
contract with DCMs for the provision of
services to assist in complying with the
SEA and Commission rules thereunder,
as approved by the Commission; (5)
adding sections (c)(4) and (g)(14) to Rule
819 to address Commission review of:
(i) denial or limitation of access to any
service or denial or conditioning of
membership by an SBSEF and (ii)
disciplinary sanctions imposed by an
SB SEF; and (6) removing certain
mentions of block trades in various
places throughout Rule 819 because as
mentioned above, a definition of that
term has not been adopted. Although
these changes may have a practical
impact on respondents’ SBS trading
activity, the Commission estimates that
they do not increase or decrease the
burden hours for compliance with the
Core Principles that are similar to the
remainder of part 37. The changes
simply: (1) make modifications to
accommodate reserving the definition
for a block trade; (2) narrow the scope
of an exception relating to packagetransactions; (3) automatically declare
trades intended to be cleared but not
accepted for clearing to be void ab
initio; (4) permit SBSEFs to contract
with DCMs for certain services; and (5)
address Commission review of certain
actions taken by SBSEFs. None of these
changes requires additional recordkeeping or reporting burdens (or results
in a decrease in record-keeping and
reporting obligations). Therefore, the
Commission estimates that the perrespondent or aggregate totals of 387
hours and 1,935 hours, respectively.
In addition, the Commission is
modifying Rule 825 to make changes to
what type of information is required to
be submitted in and timing of
publication of the daily market data
report and to remove certain mentions
of block trades because that term will
not be defined in Regulation SE at this
time. Rule 825 will not require the
disclosure of the number of block trades
and will require publication of the
report as soon as reasonably practicable
on the next business day but no later
than 7 a.m. (rather than before the
beginning of trading) and several
mentions of block trades in Rule 825(c)
have been removed. Not requiring the
disclosure of the number of block trades
Analogous SBSEF Rule #
(387 aggregate burden hours per SBSEF
not including Rule 803 (registration) and certain
other rules not modeled on part 37 rules
(discussed separately in the following sections)
CFTC part 37 section
(387 aggregate burden hours
per SEF not including § 37.3
(registration)
Topic
37.1 .................................................
37.2 .................................................
37.4 .................................................
37.5 .................................................
37.6 .................................................
37.7 .................................................
37.8 .................................................
37.9 .................................................
37.10 ...............................................
37.11 ...............................................
37.12 ...............................................
37.100 .............................................
37.200 through 37.206 ....................
37.300 through 37.301 ....................
37.400 through 37.408 ....................
37.500 through 37.504 ....................
37.600 through 37.601 ....................
Scope .........................................................................
Applicable provisions .................................................
Procedures for listing products ..................................
Compliance ................................................................
Enforceability .............................................................
Prohibited use of data ...............................................
Entities operating as SEFs and DCMs .....................
Methods of execution ................................................
Process to make swaps available for trade ..............
Reserved section .......................................................
Trade execution compliance schedule ......................
CP 1 (compliance with Core Principles) ...................
CP 2 (compliance with rules) ....................................
CP 3 (manipulation) ...................................................
CP 4 (monitoring of trading and trade processing) ...
CP 5 (ability to obtain information) ............................
CP 6 (position limits) .................................................
37.700 through 37.703 ....................
37.800 through 37.801 ....................
37.900 through 37.901 ....................
37.1000 through 37.1001 ................
37.1100 through 37.1101 ................
37.1200 ...........................................
37.1300 through 37.1307 ................
37.1400 through 37.1401 ................
37.1500 through 1501 .....................
Appendix A (Form SEF) ..................
Appendix B ......................................
CP 7 (financial integrity of transactions) ...................
CP 8 (emergency authority) ......................................
CP 9 (publication of trading information) ..................
CP 10 (recordkeeping and reporting) ........................
CP 11 (anti-trust) .......................................................
CP 12 (conflicts of interest) .......................................
CP 13 (financial resources) .......................................
CP 14 (system safeguards) .......................................
CP 15 (CCO) .............................................................
Form SEF ..................................................................
Guidance relating to Core Principles ........................
a The
will have a negligible impact on the
reporting burden of preparing the daily
market data report. Rule 825 requires
the report to contain numerous items.
The Commission estimates that
eliminating block trades from one of the
required items (trade count) will reduce
the hours burden for compiling the
report by a negligible amount. Similarly,
changing the timing of the publication
of the report will have no impact on
burden hours. The Commission
estimates that it will not require a
greater or fewer number of hours to
compile the report as a result of the
change in timing for publication as it is
the same report that is being compiled.
Therefore, the Commission continues to
estimate a per-respondent and aggregate
totals of 387 hours and 1,935 hours,
respectively.
As discussed in more detail below,
certain SBSEF rules being adopted in
Regulation SE are derived from other
parts of the CFTC’s rules (e.g., part 40)
and the burdens for those rules will be
based on the appropriate burden hours
of the corresponding CFTC part. For
reference, the following table lists all
sections of part 37 and the
corresponding SBSEF rule. Please see
above for more detailed descriptions of
a particular SBSEF rule.
800.
801.
810.
811.
812.
813.
814.
815.
816.
not applicable.
817.
818 (CP1).
819 (CP2).
820 (CP3).
821 (CP4).
822 (CP5).
no equivalent requirement in the SEA; CP numbering diverges after this point.
823 (CP6).
824 (CP7).
825 (CP 8).
826 (CP 9).
827 (CP10).
828 (CP 11).
829 (CP 12).
830 (CP 13).
831 (CP 14).
Form SBSEF a.
guidance incorporated throughout rules 818 through
831.
burdens of registering using Form SBSEF are discussed in the previous section.
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3. Aggregate Burdens for Rules Modeled
on CFTC Part 40 Rules
A number of rules contained in
Regulation SE are modeled on rules in
part 40 of the CFTC’s rules, including
§§ 40.2 (Listing products for trading by
certification), 40.3 (Voluntary
submission of new products for
Commission review and approval), 40.5
(Voluntary submission of rules for
Commission review and approval), and
40.6 (Self-certification of rules). The
Commission is adopting Rules 804, 805,
806, and 807—which are closely
modeled on §§ 40.2, 40.3, 40.5, and
40.6, respectively—in order to
harmonize with the procedures that the
CFTC applies to SEFs with respect to
establishing new rules and listing
products. In addition, Rule 808 is
modeled after § 40.8 and provides that
certain information in a Form SBSEF
application or a rule or product filing
would be made publicly available,
unless confidential treatment is
obtained pursuant to Rule 24b–2. Rule
809 is loosely modeled after § 40.12 and
sets forth a mechanism for a tolling of
the period for consideration of a product
pending the issuance by the SEC and
the CFTC of joint interpretation
clarifying which agency has jurisdiction
over the product.
(a) Rule and Product Filing Processes for
SBSEFs
ddrumheller on DSK120RN23PROD with RULES2
Rules 804 and 805 require an SBSEF
to submit filings for new products that
it seeks to list. Under Rules 806 and
807, an SBSEF is required to submit rule
filings for new rules or rule
amendments, including changes to a
product’s terms or conditions. The
Commission’s estimate regarding the
burdens that an SBSEF would incur to
comply with the rule and product filing
processes in Rules 804, 805, 806, and
807 is informed by the estimates made
by the CFTC for compliance with
§§ 40.2, 40.3, 40.5, and 40.6, the burden
hours for which have been approved by
OMB.1053 The Commission is estimating
a total of five SBSEF respondents. The
Commission estimates that the aggregate
ongoing annual hourly burden for all
SBSEFs to prepare and submit rule and
product filings under Rules 804, 805,
1053 See 75 FR 67282 (Nov. 2, 2010) (CFTC
proposal to amend 17 CFR 40.2 through 40.5);
OMB, Supporting Statement for Information
Collection Renewal: OMB Control Number 3038–
0093, Attachment A (July 10, 2020), available at
https://omb.report/icr/202005-3038-001/doc/
101274002.pdf (noting the estimated average
number of hours to burden hours report is 2 hours,
and the number of annual responses from each
entity is 100).
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806, and 807 (including the cover
sheet 1054) would be 300 hours.
Based on the CFTC’s experience with
SEFs, the Commission estimates that on
average an SBSEF would incur an
ongoing annual burden of 2 hours of
work per rule or product filing.
Although the CFTC estimated an
average of 100 responses per year per
respondent,1055 an estimate of 30
responses is appropriate given the more
limited scope of the SBS market, as
opposed to the swaps market. This
would result in a total estimated
ongoing annual burden of 60 hours per
respondent 1056 and 300 hours for all the
respondents annually.1057
As noted above, the Commission is
stating in this release that, where a
respondent is seeking to list a new
category of product of which there
would be multiple specific products
based on different underlying securities,
separate submissions under Rule 804
with respect to each underlying security
would not be required, but the
submission made would have to address
why each of the included underlying
securities meets the relevant standards
required by Regulation SE. ‘‘Blanket’’
certifications—e.g., a single submission
for all equity total return security-based
swaps to be listed—would not meet the
requirements of Rule 804. This
flexibility does not result in any
increase or decrease in estimated
burden hours. Any time savings from
the ability to combine submissions
under Rule 804 is likely to be
substantially, if not fully, offset by the
burden of drafting the explanation of
why each of the included underlying
securities meets the relevant standards
required by Regulation SE. Therefore,
the changes do not increase or decrease
the burden hours for compliance with
the rules pertaining to new product
filings under Rules 804 and 805. Indeed,
as described above, the per-respondent
estimate for the requirements related to
1054 Each of the filings that is required by Rules
804 through 807 would have to include a
submission cover sheet that is modeled on the cover
sheet and instructions used by SEFs in conjunction
with analogous filings with the CFTC, with the
submitting entity checking the appropriate box to
indicate which type of the filing it is making. Any
burden hours attributable to a respondent
completing this cover sheet, which is an integral
part of the filing, are not estimated separately from
the paperwork burden of the substantive filing.
Instead, they are contained within the aggregate
burden hours estimate for rule and product filings
pursuant to Rules 804 through 807, which are based
upon the CFTC’s estimates. See supra note 1053.
1055 See supra note 1053.
1056 60 hours = 30 (number of responses per year
per respondent) × 2 hours (burden per response).
1057 300 hours = 60 hours (annual burden per
respondent pursuant to Rules 804, 805, 806, and
807) × 5 (number of respondents).
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87275
the rule and product filing processes of
60 hours was an estimate informed by
the CFTC’s similar provisions and was
meant to encompass the combined
burdens that an SBSEF would incur to
comply with the rule and product filing
processes in Rules 804, 805, 806, and
807. Therefore, the Commission
continues to estimate the perrespondent and aggregate totals to be 60
hours and 300 hours, respectively.
(b) Burdens Related to Rules Modeled
After Other Part 40 Rules
(i) Rule 802
Certain definitions contained in Rule
802 are modeled after provisions of part
40. These definitions do not result in
any paperwork burden.
(ii) Rule 809
Rule 809 is loosely modeled on
§ 40.12 of the CFTC’s rules and would
apply when an SBSEF wishes to list a
product and it is unclear whether the
product should be classified as an SBS
subject to the jurisdiction of the SEC or
a swap subject to the jurisdiction of the
CFTC. Rule 809 provides that a product
certification made by an SBSEF
pursuant to Rule 804 shall be stayed, or
the review period for a product that has
been submitted for Commission
approval by an SBSEF pursuant to Rule
805 shall be tolled, upon a request,
made pursuant to Rule 3a68–2 under
the SEA 1058 by the SBSEF, the SEC, or
the CFTC, for a joint interpretation of
whether the product is a swap, SBS, or
mixed swap.
Rule 809 itself does not include a
process for determining whether the
SEC or CFTC has jurisdiction over a
product. Rule 809 would enable the SEC
to stay or toll the product filing while
the SEC and CFTC consider a joint
interpretation under existing SEA Rule
3a68–2, the burden hours of which have
already been approved by OMB.1059 The
only burden imposed on an SBSEF
under Rule 809 would be checking a
box on the submission cover sheet when
the SBSEF intends to request a joint
interpretation from the Commission and
the CFTC pursuant to SEA Rule 3a68–
2.1060 The Commission estimates that
1058 17
CFR 240.3a68–2.
recently approved an extension without
change of the collection for Rule 3a68–2. See
Supporting Statement for the Paperwork Reduction
Act New Information Collection Submission for
Rule 3a68–2 (Interpretation of Swaps, SecurityBased Swaps, and Mixed Swaps) and Rule 3a68–
4(c) (Process for Determining Regulatory Treatment
for Mixed Swaps), OMB Control Number 3235–
0685, Supporting Statement A (Dec. 23, 2021),
available at https://omb.report/icr/202112-3235018/doc/117438500.pdf.
1060 See supra section IV.E.
1059 OMB
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each such request would impose a
burden of 0.25 hours. Furthermore, the
Commission estimates that each SBSEF
would make one such request per
year.1061 Accordingly, the aggregate
ongoing annual burden for all SBSEFs to
comply with Rule 809 would be 1.25
hours.1062 This work, should it be
required, is likely to be conducted
internally.
4. Aggregate Burdens for Rules Modeled
After CFTC Rules Other Than Parts 37
and 40
Adopted rules similar to rules of the
CFTC other than part 37 and part 40 are
Rules 811(d), 816(e), 819(h), 819(i),
819(j), 819(k), 826(f), and 834. These
rules generate various categories of
burdens for SBSEFs or market
participants.
ddrumheller on DSK120RN23PROD with RULES2
(a) Rule 811(d)
Section 1.60 of the CFTC’s rules
requires a SEF to provide the CFTC with
copies of any legal proceeding to which
it is a party, or to which its property or
assets is subject.
Paragraph (d) of Rule 811 adapts
paragraphs (a), (c), and (e) of § 1.60 to
apply to SBSEFs. Paragraph (d)(1)
requires an SBSEF to provide the
Commission a copy of the complaint,
any dispositive or partially dispositive
decision, any notice of appeal filed
concerning such decision, and such
further documents as the Commission
may thereafter request filed in any
material legal proceeding to which the
SBSEF is a party or to which its
property or assets are subject. Paragraph
(d)(2) requires an SBSEF to provide
notices of similar actions against any
officer, director, or other official of the
SBSEF from conduct in such person’s
capacity as an official of the SBSEF
alleging violations of certain
enumerated actions.
The Commission estimates that an
SBSEF would provide the information
required by Rule 811(d) once per year,
and that each submission would take
0.25 hours. Thus, the Commission
estimates that the aggregate ongoing
annual burden for all SBSEFs to comply
1061 The establishment of a registration regime
and listing procedures for SBSEFs could affect the
distribution, but likely not the total number, of
requests for joint interpretations under Rule 3a68–
2 of the SEA. SBS products may be developed in
the bilateral market before they are listed on
SBSEFs, and there are incentives to resolving
jurisdictional issues before they can develop
traction in the market. Accordingly, requests for a
joint interpretation under Rule 3a68–2 could occur
before such products are listed by an SBSEF, and
such requests are already considered in the
approved PRA burden estimates for Rule 3a68–2.
1062 1.25 hours = 1 (number of responses per year
per respondent) × 0.25 hours (burden per response)
× 5 (number of respondents).
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with requests for documents or
information pursuant to Rule 811(d)
would be 1.25 hours.1063 The
Commission is basing its estimate on the
CFTC estimate included in its
submission to OMB for § 1.60 of the
CFTC’s rules, for which the CFTC
estimated that each of the 97 entities to
which the rule applies makes, on
average, one submission of documents
to the Commission per year. The CFTC
further estimated that the time required
to prepare one submission is
approximately 0.25 hour, totaling 24.25
hours (97 × 0.25) annually.1064
For PRA purposes, it is reasonable to
apply the CFTC’s approach to Rule
811(d).1065 This work, should it be
required, is likely to be conducted
internally.
(b) Rule 819(h)
Paragraph (h) of Rule 819 generally
prohibits persons who are employees of
an SBSEF, or who otherwise might have
access to confidential information
because of their role with the SBSEF,
from improperly utilizing that
information. Rule 819(h) is modeled on
§ 1.59 of the CFTC’s rules. The
Commission does not estimate that this
rule would result in a paperwork
burden.
(c) Rule 819(i)
Paragraph (i) of Rule 819 bars persons
with specified disciplinary histories
from serving on the governing board or
committees of an SBSEF and impose
certain other duties on the SBSEF
associated with that fundamental
requirement. Rule 819(i) is modeled on
§ 1.63 of the CFTC’s rules.
The Commission estimates that an
SBSEF would provide the information
required by Rule 819(i) once per year,
and that each submission would take
79.83 hours. Thus, the Commission
estimates that the aggregate ongoing
annual burden for all SBSEFs to comply
with Rule 819(i) would be 399.15
1063 1 (number of responses per year per
respondent) × 0.25 hours (burden per response) ×
5 (number of respondents) = 1.25 hour.
1064 See OMB, Supporting Statement for New and
Revised Information Collections: OMB Control
Number 3038–0033 (Oct. 29, 2021), available at
https://omb.report/icr/202110-3038-001/doc/
115991000.pdf.
1065 In its preliminary estimates, the Commission
based its burden hour calculations upon CFTC 2018
submission to OMB. The Commission is now
updating the numbers to reflect numbers from the
2021 submission to OMB. The result is the per
response burden has increased from .2 hours to .25
hours. See OMB, Supporting Statement for New and
Revised Information Collections: OMB Control
Number 3038–0033 (Oct. 29, 2021), available at
https://omb.report/icr/202110-3038-001/doc/
115991000.pdf.
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hours.1066 The Commission is basing
this estimate on the estimate the CFTC
included in its submission to OMB for
its adoption of § 1.63, where the CFTC
estimated that each respondent would
make, on average, one such submission
to the CFTC per year. The CFTC further
estimated that the time required to
prepare one submission is
approximately 79.83 hours.1067
For PRA purposes, it is reasonable to
apply the CFTC’s approach to Rule
819(i), and this work is likely to be
conducted internally.
(d) Rule 819(j)
Paragraph (j) of Rule 819 is modeled
on § 1.67 of the CFTC’s rules. Rule
819(j)(1) provides that, upon any final
disciplinary action in which an SBSEF
finds that a member has committed a
rule violation that involved a
transaction for a customer, whether
executed or not, and that resulted in
financial harm to the customer, the
SBSEF must promptly provide written
notice of the disciplinary action to the
member.
The Commission estimates that an
SBSEF would need 0.5 hours to prepare
a notice and provide it to a member.
This estimate is based on a previous
Commission estimate for the time that it
would take to prepare and submit a
simple notice.1068 The Commission
estimates that these notices would occur
once per year at each SBSEF, resulting
in an aggregate ongoing annual burden
to comply with Rule 819(j) of 2.5
hours.1069 This work, should it be
required, is likely to be conducted
internally.
(e) Rule 819(k)
Paragraph (k) of Rule 819 requires
non-U.S. persons who trade on an
SBSEF to have an agent for service
process, which could be an agent of its
own choosing or, by default, the SBSEF.
1066 1 (number of responses per year per
respondent) × 79.83 hours (burden per response) ×
5 (number of respondents) = 399.15 hours.
1067 See CFTC, Service on Self-Regulatory
Organization Governing Boards or Committees by
Persons with Disciplinary Histories (Feb. 27, 1990),
55 FR 7884, 7890 (Mar. 6, 1990) (final rule PRA for
§ 1.63).
1068 Rule 819(j) does not address any of the
requirements or process concerning taking final
disciplinary actions; it merely requires that a notice
be provided. A provision of Regulation SCI, Rule
1000(b)(4)(i), also requires providing a simple
notice and the Commission estimated that it would
take 0.5 hours to prepare and such a notice. See
Regulation Systems Compliance and Integrity; Final
Rule, SEA Release No. 73639 (Nov. 19, 2014), 79 FR
72251, 72381 (Dec. 5, 2014).
1069 2.5 hours (0.5 hours of in-house counsel time)
× (1 responses per year) × (5 respondents). The once
per year estimate is based on a previous CFTC
estimate included in its submission to OMB for
§ 1.67 along with other rules.
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Rule 819(k) is modeled on provisions of
§ 15.05 of the CFTC’s rules that apply to
SEFs. The Commission does not
estimate that this rule would result in a
paperwork burden.
(f) Rule 826(f)
Rule 826(f) is modeled on § 1.37(c)
and requires an SBSEF to keep a record
in permanent form, which shall show
the true name, address, and principal
occupation or business of any non-U.S.
member that executes transactions on
the SBSEF and must, upon request,
provide to the Commission information
regarding the name of any person
guaranteeing such transactions or
exercising any control over the trading
of such non-U.S. member.
The Commission estimates that each
SBSEF would need to update
information required by Rule 826(f)
once per year and that each submission
would take 0.4 hours. Thus, the
Commission estimates that the aggregate
ongoing annual burden for all SBSEFs to
comply with requests for documents or
information pursuant to Rule 826(f)
would be 2 hours.1070 The Commission
is basing its estimate on the estimate
included by the CFTC in its submission
to OMB regarding § 1.37(c), where the
CFTC estimated that it would take a SEF
0.4 hours to prepare each record in
accordance with § 1.37(c).
For PRA purposes, it is reasonable to
apply the CFTC’s approach to Rule
826(f). This work, should it be required,
is likely to be conducted internally.
ddrumheller on DSK120RN23PROD with RULES2
(g) Rule 834
Rule 834 of Regulation SE implements
section 765 of the Dodd-Frank Act with
respect to SBSEFs and SBS exchanges
and, in addition, adapt certain CFTC
rules that are designed to mitigate
conflicts of interest at SEFs (and other
CFTC-registered entities). Rule 834
provides that each SBSEF and SBS
exchange must create and maintain
rules to mitigate conflicts of interest
between SBSEFs and SBS exchanges
and their members, including by
prohibiting members from owning 20%
or more of the voting rights of an SBSEF
or SBS exchange and from exercising
disproportionate influence in
disciplinary proceedings. Rule 834 also
requires each SBSEF and SBS exchange
to submit to the Commission after every
governing board election a list of each
governing board’s members, the groups
they represent, and how the
composition of the board complies with
the requirements of Rule 834.
1070 1 (number of responses per year per
respondent) × 0.40 hours (burden per response) ×
5 (number of respondents) = 2 hours.
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Establishing such rules and submitting
such lists to the Commission would
result in a paperwork burden for
SBSEFs and SBS exchanges.
The Commission estimates that Rules
834(b) and (c) together would have an
initial, one-time paperwork burden of
15 hours per entity associated with
drafting and implementing any such
rules, for an aggregate one-time
paperwork burden of 120 hours.1071
Rules 834(b) and (c) are substantially
similar to Proposed Rule 702(c) of
Regulation MC.1072 In its PRA analysis
for Proposed Rule 702(c), the
Commission estimated that there would
be a one-time paperwork burden of 15
hours per entity associated with drafting
and implementation of any such rules
by each SBSEF or SBS exchange.1073
While the Commission is modifying
Rule 834(b) to provide an exception to
the 20% restriction mentioned above to
SBSEFs that have entered into an
agreement with a registered futures
association or a national securities
association for the provision of certain
specified regulatory services, the
Commission does not estimate that this
exception would result in a change in
burden hours for compliance with Rule
834(b). The modification does not affect
the information collection under this
rule, as it does not involve any record
keeping, reporting, or third-party
disclosure obligations. Therefore, the
Commission is not altering its estimate
of 15 hours per entity for Rule
834(b).1074
Additionally, the Commission
estimates that Rule 834(d), Rule 834(e),
and Rule 834(f), combined, would result
in an aggregate ongoing annual
paperwork burden of 10 hours.1075
Rules 834(d), (e), and (f) are
substantially similar to Proposed Rule
702(h) in Regulation MC in 2010 1076
and CFTC § 1.64(c)(4), CFTC § 1.64(b),
and CFTC § 1.64(d), respectively. The
Commission is basing its estimate on the
CFTC’s estimate that Rules 1.41(d),1077
1071 1 (number of responses per respondent) × 15
hours (burden per response) × 8 (5 SBSEFs + 3 SBS
exchanges) = 120 hours. Rule 834(a) contains
defined terms and would not result in a paperwork
burden.
1072 Regulation MC Proposal, supra note 21, 75
FR at 65916.
1073 Id.
1074 See supra section VIII.B for discussion of the
20% restriction.
1075 10 hours = 1 (number of responses per
respondent) × 1.25 hours (burden per response) ×
8 (number of SBSEF + SBS exchange respondents).
1076 Regulation MC Proposal, supra note 21, 75
FR at 65932.
1077 While § 1.41(d) created an exemption from
the requirements of section 5a(a)(12)(A) of the CEA
for contract market rules not related to terms and
conditions, the CFTC did not break out the portion
of the burden hours for which this amendment is
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1.63, 1.64, and 1.67 would result in an
average annual paperwork burden of
1.25 hours per response that was
included in its submission to OMB.1078
The Commission estimates that Rule
834(g) would have an aggregate ongoing
annual burden of 16 hours.1079 Rule
834(g) is substantially similar to § 1.69
of the CFTC’s rules, and the
Commission is basing its estimate on the
CFTC’s estimate for § 1.69 of 2 hours per
response that was included in its
submission to OMB.1080
The Commission does not estimate
that Rule 834(h) would result in a
paperwork burden not already included
in the above estimates. Rule 834(h)
incorporates into a single rule the
requirements for an SBSEF to file rules
to comply with Rule 834. As it has
already described the paperwork
burdens of Rules 834(b) through (g), the
Commission does not estimate that Rule
834(h) would result in a separate
paperwork burden not already included
above. Thus, the total aggregate ongoing
annual burden is estimated at 26
hours.1081
5. Miscellaneous Burdens
(a) Rule 833
Rule 833 describes how exemptions
could be obtained for foreign SBS
trading venues from the SEA definitions
of ‘‘exchange,’’ ‘‘security-based swap
execution facility,’’ and ‘‘broker’’ and
how SBS executed on a foreign trading
venue could become exempt from the
SEA’s trade execution requirement.
Based on the CFTC’s experience in the
SEF market,1082 the Commission
estimates that there would be three
requests for an exemption order under
either or both paragraphs (a) and (b) of
Rule 833 in the first year and two
requests in each subsequent year; and
that each submission would require an
initial, one-time burden of 80 hours.
Once an exemption has been granted to
an applicant, no further action would be
required. The Commission estimates the
burden to submit an exemption request
under one or both paragraphs of Rule
833 would be 240 hours in the first
responsible. Therefore, to be conservative, the
Commission is including it in its estimate for the
burden hours of Rules 834(d), (e), and (f).
1078 See 58 FR 37644, 37653.
1079 16 hours = 1 (number of responses per
respondent) × 2 hours (burden per response) × 8
(number of SBSEF + SBS exchange respondents).
1080 See 64 FR at 16, 22.
1081 26 hours = 10 hours (from the second
sentence of Rules 834(d), 834(e), and 834(f)) + 16
hours (from Rule 834(g)) + 0 hours (from Rule
834(h).
1082 See supra text accompanying note 1041.
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year 1083 and 160 hours in each
subsequent year.1084
(b) Rule 835
Rule 835 provides that, if an SBSEF
issues a final disciplinary action against
a member, takes final action with
respect to a denial or conditioning
membership, or takes final action with
respect to a denial or limitation of
access of a person to any services
offered by the SBSEF, the SBSEF shall
file a notice of such action with the
Commission within 30 days and serve a
copy on the affected person.
The Commission estimates that it
would take 0.5 hours to prepare this
notice and provide it to the Commission
and the affected person. This estimate is
based on a previous Commission
estimate for the time that it would take
to prepare and submit a simple
notice.1085 The Commission estimates
that it would take an additional 0.25
hours to create and serve a copy of that
notice on the affected person. The
Commission estimates that these notices
would occur once per month at each
SBSEF, resulting in an aggregate annual
burden to comply with Rule 835 of 45
hours.1086 This work, should it be
required, is likely to be conducted
internally.
6. Total Paperwork Burden Under
Proposed Regulation SE
Based on the foregoing, the
Commission estimates that the total onetime burden for all SBSEFs, persons that
seek an exemption order under Rule
833, and SBS exchanges combined
pursuant to the requirements under
Regulation SE is equal to 1,995 hours.
The Commission estimates that annual
ongoing burden for all SBSEFs, persons
that seek an exemption order under
Rule 833, and SBS exchanges combined
pursuant to the requirements under
Regulation SE is equal to 2,712.15
hours.
SUMMARY OF AGGREGATE BURDEN HOURS
Burden hours
per
respondent
Rule or provision
Registration (Rule 803, Form SBSEF) ...............................
Rules modeled on CFTC part 37 (other than registration)
Rule and product filing processes (Rules 804 through
807).
809 ......................................................................................
811(d) ..................................................................................
819(i) ...................................................................................
819(j) ...................................................................................
826(f) ...................................................................................
833 ......................................................................................
834(b) through (c) ...............................................................
834(d) through (g) ...............................................................
835 ......................................................................................
a Three
Respondents
Total hours
295
387
60
One-Time .............................
Ongoing ................................
Ongoing ................................
5
5
5
1,475
1,935
300
0.25
0.25
79.83
0.5
0.4
80
15
3.25
9
Ongoing ................................
Ongoing ................................
Ongoing ................................
Ongoing ................................
Ongoing ................................
One-Time .............................
One-Time .............................
Ongoing ................................
Ongoing ................................
5
5
5
5
5
a 3 and 2
8
8
5
1.25
1.25
399.15
2.5
2
240 and 160
120
26
45
respondents in the first year and then two each subsequent year.
E. Collection of Information is
Mandatory
not be kept confidential, unless
confidential treatment is requested and
granted by the Commission pursuant to
Rule 24b–2 under the SEA.
XIX. Regulatory Flexibility Certification
The collection of information required
under Regulation SE would generally
G. Retention Period of Recordkeeping
Requirements
Although recordkeeping and retention
requirements have not yet been
established for SBSEFs, the Commission
is authorized to adopt such rules under
section 3D of the SEA. Rule 826 under
Regulation SE implements section
3D(d)(9) of the SEA to require an SBSEF
to maintain records, for a minimum of
five years, of all activities relating to the
business of the SBSEF, including a
complete audit trail.
The Regulatory Flexibility Act
(‘‘RFA’’) 1087 requires Federal agencies,
in promulgating rules, to consider the
impact of those rules on small entities.
Section 603(a) of the Administrative
Procedure Act,1088 as amended by the
RFA, generally requires the Commission
to undertake a final regulatory flexibility
analysis of rules it is adopting, unless
the Commission certifies that the rules
would not have a significant impact on
a substantial number of ‘‘small
entities.’’ 1089 Section 605(b) of the RFA
states that this requirement shall not
apply to any proposed rule or proposed
rule amendment which, if adopted,
1083 240 hours (80 hours of in-house counsel time)
× (3 respondents).
1084 160 hours (80 hours of in-house counsel time)
× (2 respondents). This estimate is informed by Rule
908(c) of the Commission’s Regulation SBSR, which
sets forth the requirements surrounding requests
under which regulatory reporting and public
dissemination of SBS transactions can be satisfied
by complying with the rules of a foreign jurisdiction
rather than the parallel rules applicable in the
United States. The materials necessary to support
such a request under Rule 908(c) are broadly similar
to the materials necessary to support a request for
an exemption order under one or both paragraphs
of Rule 833. The Commission estimated that the
burden of a request under Rule 908(c) would be 80
hours of in-house counsel time; therefore, the
Commission estimates that burden for submitting
documents and information in support of a request
for an exemption order under Rule 833 would be
the same.
1085 A provision of Regulation SCI, Rule
1000(b)(4)(i), also requires providing a simple
notice and the Commission estimated that it would
take 0.5 hours to prepare and such a notice. See
Regulation Systems Compliance and Integrity; Final
Rule, SEA Release No. 73639 (Nov. 19, 2014), 79 FR
72251, 72381 (Dec. 5, 2014).
1086 45 hours (0.75 hours of in-house counsel
time) × (12 responses per year) × (5 respondents).
1087 5 U.S.C. 601 et seq.
1088 5 U.S.C. 603(a).
1089 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 rulemaking, are set forth in Rule 0–
10 under the SEA, 17 CFR 240.0–10. See SEA
Release No. 18452 (Jan. 28, 1982), 47 FR 5215 (Feb.
4, 1982) (File No. AS–305).
The collections of information
imposed on SBSEFs throughout
Regulation SE is mandatory for
registered SBSEFs. The collection of
information with respect to Rule 833 is
mandatory for persons that seek an
exemption order under Rule 833. The
collection of information with respect to
Rule 834 is mandatory for SBS
exchanges.
F. Responses to Collection of
Information Will Not Be Confidential
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would not have a significant economic
impact on a substantial number of small
entities.1090 In the Proposing Release,
the Commission certified, pursuant to
section 605(b) of the RFA, that that the
proposed rules, form, and cover sheet
under Regulation SE and the related
rules and rule amendments, if adopted,
would not have a significant economic
impact on a substantial number of small
entities for purposes of the RFA.1091 The
Commission solicited but did not
receive any comments on the
certification as it related to the entities
impacted by Regulation SE. The
Commission’s analysis of the existing
information relating to entities subject
to Regulation SE, for purposes of the
RFA, is discussed below.
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A. SBSEFs
Most of Regulation SE, and the related
rules and rule amendments, apply to
registered SBSEFs (or entities that are
seeking to register with the Commission
as SBSEFs). In the Dodd-Frank Act,
Congress defined SBSEFs as a new type
of trading venue for SBS and mandated
the registration of these entities. Based
on its understanding of the market, and
review of and consultation with
industry sources, the Commission
estimates that five entities will seek to
register as SBSEFs and thus would be
subject to Regulation SE and the related
rules and rule amendments.
For purposes of Commission
rulemaking in connection with the
FRFA, a small entity includes: (1) when
used with reference to an ‘‘issuer’’ or a
‘‘person,’’ other than an investment
company, an ‘‘issuer’’ or ‘‘person’’ that,
on the last day of its most recent fiscal
year, had total assets of $5 million or
less; 1092 or (2) a broker-dealer with total
capital (net worth plus subordinated
liabilities) of less than $500,000 on the
date in the prior fiscal year as of which
its audited financial statements were
prepared pursuant to Rule 17a–5(d)
under the SEA,1093 or, if not required to
file such statements, a broker-dealer
with total capital (net worth plus
subordinated liabilities) of less than
$500,000 on the last business day of the
preceding fiscal year (or in the time that
it has been in business, if shorter); and
is not affiliated with any person (other
than a natural person) that is not a small
business or small organization.1094
Under the standards adopted by the
Small Business Administration
1090 See
5 U.S.C. 605(b).
Proposing Release, supra note 1, 87 FR
at 28969–70.
1092 See 17 CFR 240.0–10(a).
1093 17 CFR 240.17a–5(d).
1094 See 17 CFR 240.0–10(c).
1091 See
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(‘‘SBA’’), entities in financial
investments and related activities 1095
are considered small entities if they
have $41.5 million or less in annual
receipts.
Most, if not all, SBSEFs would be
large business entities or subsidiaries of
large business entities, and that every
SBSEF (or its parent entity) would have
assets in excess of $5 million (or in the
case of a broker-dealer, total capital of
less than $500,000) and annual receipts
in excess of $41,500,000. Therefore, for
purposes of the RFA none of the
potential SBSEFs would be considered
small entities.
B. Persons Requesting an Exemption
Order Pursuant to Rule 833
Rule 833 describes how foreign SBS
trading venues could become exempt
from the SEA definitions of ‘‘exchange,’’
‘‘security-based swap execution
facility,’’ and ‘‘broker’’ and how SBS
executed on a foreign trading venue
could become exempt from the SEA’s
trade execution requirement. Based on
the fact that the CFTC has granted
similar exemptions with respect to three
foreign jurisdictions,1096 the
Commission estimates that there would
be three requests under one or both
paragraphs of Rule 833 in the first year
and two in each subsequent year. These
requests would likely be submitted by
foreign SBS trading venues, foreign
authorities that license and regulate
those trading venues, or covered
persons (as defined in Rule 832) who
are members of such trading venues.
Based on the Commission’s existing
information about the SBS market, the
Commission estimates that for purposes
of the FRFA no person likely to request
an exemption order pursuant to Rule
833 would be considered a small entity.
The Commission estimates that most, if
not all, of the persons requesting
exemptions would be large business
entities or subsidiaries of large business
entities, and on its own, or through its
parent entity, would have assets in
excess of $5 million (or in the case of
a broker-dealer, total capital of less than
$500,000) and annual receipts in excess
of $41,500,000. Therefore, the
Commission estimates that for purposes
of the RFA they would not be
considered small entities.
C. SBS Exchanges
Certain rules under Regulation SE
apply to SBS exchanges. Currently,
there are no SBS exchanges. However,
the Commission estimates that there
could be up to three entities that would
be considered SBS exchanges and
would thus be subject to certain
requirements of Regulation SE.
For purposes of Commission
rulemaking in connection with the RFA,
a small entity includes, when used with
reference to an exchange, an exchange
that has been exempted from the
reporting requirements of Rule 601 of
Regulation NMS 1097 and is not affiliated
with any person (other than a natural
person) that is not a small business or
small organization.1098 Under the
standards adopted by the SBA, entities
involved in financial investments and
related activities 1099 are considered
small entities if they have $41.5 million
or less in annual receipts.
Based on these definitions and the
Commission’s existing information
about national securities exchanges, for
purposes of the RFA the entities likely
to be considered SBS exchanges would
not be considered small entities. Under
the standard requiring exemption from
the reporting requirements of Rule 601
under the SEA, none of the exchanges
subject to Regulation SE is a ‘‘small
entity’’ for the purposes of the RFA. In
addition, the Commission estimates that
any SBS exchange would have annual
receipts in excess of $41,500,000.
Therefore, for purposes of the RFA, no
potential SBS exchange would be
considered small entities.
D. Certification
For the foregoing reasons, the
Commission certifies, pursuant to
section 605(b) of Title 5 of the U.S.
Code, that the rules, form, and cover
sheet under Regulation SE and the
related rules and rule amendments will
not have a significant economic impact
on a substantial number of small
entities.
XX. Other Matters
If any of the provisions of these rules,
or the application thereof to any person
or circumstance, is held to be invalid,
such invalidity shall not affect other
1097 17
1095 These
entities would include firms involved
in investment banking and securities dealing;
securities brokerage; commodity contracts dealing;
commodity contracts brokerage; securities and
commodity exchanges; portfolio management;
investment advice; trust, fiduciary and custody
activities; miscellaneous intermediation; and
miscellaneous financial investment activities. See
SBA’s Table of Small Business Size Standards,
Subsector 523.
1096 See supra text accompanying note 1041.
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87279
CFR 242.601.
17 CFR 240.0–10(e).
1099 These entities would include firms involved
in investment banking and securities dealing,
securities brokerage, commodity contracts dealing,
commodity contracts brokerage, securities and
commodity exchanges, miscellaneous
intermediation, portfolio management, investment
advice, trust, fiduciary and custody activities, and
miscellaneous financial investment activities. See
SBA’s Table of Small Business Size Standards,
Subsector 523.
1098 See
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provisions or application of such
provisions to other persons or
circumstances that can be given effect
without the invalid provision or
application.
Pursuant to the Congressional Review
Act,1100 the Office of Information and
Regulatory Affairs has designated these
rules as not a ‘‘major rule’’ as defined
by 5 U.S.C. 804(2).
Statutory Authority
Pursuant to the SEA (particularly
sections 3(b), 3C, 3D, and 36 thereof, 15
U.S.C. 78c, 78c–3, 78c–4, and 78mm,
respectively) and the Dodd-Frank Act
(particularly section 765 thereof, 15
U.S.C. 8343), the Commission is
amending §§ 201.101, 201.202, 201.210,
201.401, 201.450, 201.460, 232.405, and
240.3a1–1 of chapter II of title 17 of the
Code of Federal Regulations and is
adopting new §§ 201.442, 201.443,
240.15a–12, and 242.800 through
242.835, as set forth below.
List of Subjects
Organization; Conduct and Ethics;
and Information and Requests.
17 CFR Part 201
Administrative practice and
procedure.
17 CFR Part 232
Administrative practice and
procedure, Confidential business
information, Incorporation by reference,
Reporting and recordkeeping
requirements, Securities.
17 CFR Part 240
Brokers, Dealers, Registration,
Securities.
17 CFR 242 and 249
Brokers, Security-based swap
execution facilities, Reporting and
recordkeeping requirements.
For the reasons stated in the
preamble, the Commission is amending
title 17, chapter II of the Code of the
Federal Regulations as follows:
PART 200—ORGANIZATION;
CONDUCT AND ETHICS;
INFORMATION AND REQUESTS
1. The authority citation for part 200
continues to read as follows:
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■
Authority: 5 U.S.C. 552, 552a, 552b, and
557; 11 U.S.C. 901 and 1109(a); 15 U.S.C.
77c, 77e, 77f, 77g, 77h, 77j, 77o, 77q, 77s,
77u, 77z–3, 77ggg(a), 77hhh, 77sss, 77uuu,
78b, 78c(b), 78d, 78d–1, 78d–2, 78e, 78f, 78g,
78h, 78i, 78k, 78k–1, 78l, 78m, 78n, 78o,
U.S.C. 801 et seq.
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Subpart A—Organization and Program
Management
2. Amend § 200.30–3 by adding
paragraphs (a)(95) through (102) to read
as follows:
■
§ 200.30–3 Delegation of authority to
Director of Division of Trading and Markets.
*
17 CFR Part 200
1100 5
78o–4, 78q, 78q–1, 78w, 78t–1, 78u, 78w,
78ll(d), 78mm, 78eee, 80a–8, 80a–20, 80a–24,
80a–29, 80a–37, 80a–41, 80a–44(a), 80a–
44(b), 80b–3, 80b–4, 80b–5, 80b–9, 80b–10(a),
80b–11, 7202, and 7211 et seq.; 29 U.S.C.
794; 44 U.S.C. 3506 and 3507; Reorganization
Plan No. 10 of 1950 (15 U.S.C. 78d); sec. 8G,
Pub. L. 95–452, 92 Stat. 1101 (5 U.S.C. App.);
sec. 913, Pub. L. 111–203, 124 Stat. 1376,
1827; sec. 3(a), Pub. L. 114–185, 130 Stat.
538; E.O. 11222, 30 FR 6469, 3 CFR, 1964–
1965 Comp., p. 36; E.O. 12356, 47 FR 14874,
3 CFR, 1982 Comp., p. 166; E.O. 12600, 52
FR 23781, 3 CFR, 1987 Comp., p. 235;
Information Security Oversight Office
Directive No. 1, 47 FR 27836; and 5 CFR
735.104 and 5 CFR parts 2634 and 2635,
unless otherwise noted.
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*
*
*
*
(a) * * *
(95) Pursuant to §§ 242.803 and
242.808(a) and (b) of this chapter (Rules
803 and 808(a) and (b)):
(i) To publish notice on the
Commission’s website of a completed
application (‘‘Form SBSEF’’), to register
as a security-based swap execution
facility;
(ii) To make available on the
Commission’s website certain specified
parts of a Form SBSEF;
(iii) To notify the applicant that its
application is incomplete and will not
be deemed to have been submitted for
purposes of the Commission’s review;
(iv) To request from the applicant any
additional information and
documentation necessary to review an
application;
(v) To notify the applicant that its
application is materially incomplete and
to specify the deficiencies in the
application, for purposes of staying the
180-day period for Commission review
of the Form SBSEF; and
(vi) Upon receipt of a request
submitted in good form by a securitybased swap execution facility for
vacation of its registration, to issue an
order vacating the security-based swap
execution facility’s registration and to
send a copy of the request and its order
to all other security-based swap
execution facilities, national securities
exchanges that trade security-based
swaps, and registered clearing agencies
that clear security-based swaps.
(96) Pursuant to §§ 242.804(c)(1) and
(2) and 242.808(b) of this chapter:
(i) To make publicly available on the
Commission’s website a security-based
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swap execution facility’s filing of new
products pursuant to the selfcertification procedures of § 242.804 of
this chapter;
(ii) To stay for a period of up to 90
days the effectiveness of a securitybased swap execution facility’s selfcertification of a new product;
(iii) To publish notice on the
Commission’s website of a 30-day
period for public comment; and
(iv) To withdraw the stay or notify the
security-based swap execution facility
that the Commission objects to the
proposed certification.
(97) Pursuant to §§ 242.805(b) through
(e) and 242.808(b) of this chapter:
(i) To make publicly available on the
Commission’s website a security-based
swap execution facility’s filing of new
products for Commission review and
approval pursuant to § 242.805 of this
chapter (Rule 805);
(ii) To notify the submitting securitybased swap execution facility that a
submission for a new product does not
comply with paragraph (a) of § 242.805
of this chapter (Rule 805);
(iii) To extend by an additional 45
days the period for consideration of a
new product voluntarily submitted by a
security-based swap execution facility
to the Commission for approval, if the
product raises novel or complex issues
that require additional time to analyze,
and to notify the security-based swap
execution facility of the extension
within the initial 45-day review period
and briefly describe the nature of the
specific issue(s) for which additional
time for review is required;
(iv) To extend the period for
consideration of a new product
voluntarily submitted by a securitybased swap execution facility to the
Commission for approval by such longer
period as to which the security-based
swap execution facility agrees in
writing;
(v) To approve a proposed new
product and provide notice of the
approval to the security-based swap
execution facility;
(vi) To notify the security-based swap
execution facility that the Commission
will not, or is unable to, approve the
product, and to specify the nature of the
issues raised and the specific provision
of the Act or the Commission’s rules
thereunder, including the form or
content requirements § 242.805(a) of
this chapter, that the product violates,
appears to violate, or potentially
violates but which cannot be
ascertained from the submission.
(98) Pursuant to §§ 242.806(b) through
(e) and 242.808(b) of this chapter:
(i) To make publicly available on the
Commission’s website a security-based
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swap execution facility’s filing of new
rules and rule amendments for
Commission review and approval
pursuant to § 242.806(a) of this chapter;
(ii) To notify the submitting securitybased swap execution facility that a
submission for a new rule or rule
amendment does not comply with
§ 242.806(a) of this chapter;
(iii) To extend by an additional 45
days the period for consideration of a
new rule or rule amendment voluntarily
submitted by a security-based swap
execution facility to the Commission, if
the proposed rule or rule amendment
raises novel or complex issues that
require additional time to review or is
of major economic significance, the
submission is incomplete, or the
requester does not respond completely
to the Commission questions in a timely
manner, and to notify the security-based
swap execution facility of the extension
within the initial 45-day review period
and briefly describe the nature of the
specific issue(s) for which additional
time for review is required;
(iv) To extend the period for
consideration of a new rule amendment
voluntarily submitted by a securitybased swap execution facility to the
Commission for approval by such longer
period as to which the security-based
swap execution facility agrees in
writing;
(v) To approve a proposed rule or rule
amendment and provide notice of the
approval to the security-based swap
execution facility;
(vi) To notify a security-based swap
execution facility that the Commission
will not, or is unable to, approve the
new rule or rule amendment and to
specify the nature of the issues raised
and the specific provision of the Act or
the Commission’s rules thereunder,
including the form or content
requirements of this section, with which
the new rule or rule amendment is
inconsistent or appears to be
inconsistent with the Act or the
Commission’s rules thereunder,
including the form or content
requirements of Rule 806, with which
the new rule or rule amendment is
inconsistent or appears to be
inconsistent; and
(vii) To approve a proposed rule or a
rule amendment, including changes to
terms and conditions of a product, on an
expedited basis under such conditions
as shall be specified in the written
notification.
(99) Pursuant to §§ 242.807(c) and
242.808(b) of this chapter:
(i) To make publicly available on the
Commission’s website a security-based
swap execution facility’s filing of new
rules and rule amendments pursuant to
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the self-certification procedures of
§ 242.807 of this chapter;
(ii) To stay for a period of up to 90
days the effectiveness of a securitybased swap execution facility’s selfcertification of a new rule or rule
amendment;
(iii) To publish notice on the
Commission’s website of a 30-day
period for public comment; and
(iv) To withdraw the stay or notify the
security-based swap execution facility
that the Commission objects to the
proposed certification.
(100) Pursuant to §§ 242.809 of this
chapter, to provide written notice to a
security-based swap execution facility
of a stay or tolling pending issuance of
a joint interpretation upon request for a
joint interpretation of whether a
proposed product is a swap, securitybased swap, or mixed swap made
pursuant to § 240.3a68–2 of this chapter
by the security-based swap execution
facility, the Commission, or the
Commodity Futures Trading
Commission.
(101) Pursuant to § 242.811 of this
chapter:
(i) To request pursuant § 242.811(a) of
this chapter that a security-based swap
execution facility file with the
Commission information related to its
business as a security-based swap
execution facility, and to specify the
form, manner, and timeframe for the
filing by the security-based swap
execution facility;
(ii) To request pursuant to
§ 242.811(b) of this chapter that a
security-based swap execution facility
file with the Commission a written
demonstration, containing supporting
data, information, and documents, that
it is in compliance with one or more
Core Principles or with its other
obligations under the Act or the
Commission’s rules thereunder, to
specify the Core Principles and other
obligations under the Act or the
Commission’s rules that the securitybased swap execution facility’s filing
must address, and to specify the form,
manner, and timeframe for the securitybased swap execution facility’s filing;
(iii) To specify, pursuant to
§ 242.811(c)(2) of this chapter, the form
and manner of the notification required
pursuant to § 242.811(c)(1) of this
chapter by a security-based swap
execution facility of any transaction
involving the direct or indirect transfer
of 50 percent or more of the equity
interest in the security-based swap
execution facility, and to request
supporting documentation of the
transaction;
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(iv) To specify the form and manner
of the certification required pursuant to
§ 242.811(c)(4) of this chapter; and
(v) To specify the form and manner of
the submission by a security-based swap
execution facility of documents filed in
any material legal proceeding to which
the security-based swap execution
facility is a party or its property or
assets is subject, as specified in
§ 242.811(d)(1) of this chapter, or in any
material legal proceeding instituted
against any officer, director, or other
official of the security-based swap
execution facility from conduct in such
person’s capacity as an official of the
security-based swap execution facility,
as specified in § 242.811(d)(2) of this
chapter, and to request further
documents.
(102) Pursuant to § 242.822 of this
chapter (Rule 822), to require that a
security-based swap execution provide
information in its possession to the
Commission and to specify the form and
manner of that provision, and to require
a security-based swap execution facility
to share information with other
regulation organizations, data
repositories, and third-party data
reporting services as necessary and
appropriate to fulfill the security-based
swap execution facility’s regulatory and
reporting responsibilities.
*
*
*
*
*
■ 3. Amend § 200.30–14 by revising
paragraphs (h)(4), (h)(5), (h)(7), and
(h)(8) to read as follows:
§ 200.30–14 Delegation of authority to the
General Counsel.
*
*
*
*
*
(h) * * *
(4) With respect to proceedings
conducted under sections 19(d), (e), and
(f) of the Securities Exchange Act of
1934, 15 U.S.C. 78s(d), (e), and (f), Title
I of the Sarbanes–Oxley Act of 2002, 15
U.S.C. 7211–7219, and § 201.442 of this
chapter (Rule 442 of the Commission’s
Rules of Practice) to determine that an
application for review under any of
those sections has been abandoned,
under the provisions of’§ 201.420,
§ 201.440, or § 201.442 of this chapter
(Rule 420, Rule 440, or Rule 442 of the
Commission’s Rules of Practice), or
otherwise, and accordingly to issue an
order dismissing the application.
(5) With respect to proceedings
conducted pursuant to the Securities
Exchange Act of 1934, 15 U.S.C. 78a et
seq., the Investment Company Act of
1940, 15 U.S.C. 80a–1 et seq., the
Investment Advisers Act of 1940, 15
U.S.C. 80b–1 et seq., the provisions of
§ 201.102(e) or § 201.442 of this chapter
(Rule 102(e) or Rule 442 of the
Commission’s Rules of Practice), and
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Title I of the Sarbanes–Oxley Act of
2002, 15 U.S.C. 7211–7219, to
determine applications to stay
Commission orders pending appeal of
those orders to the federal courts and to
determine application to vacate such
stays.
*
*
*
*
*
(7) In connection with Commission
review of actions taken by selfregulatory organizations pursuant to
sections 19(d), (e), and (f) of the
Securities Exchange Act of 1934, 15
U.S.C. 78s(d), (e), and (f), by the Public
Company Accounting Oversight Board
pursuant to Title I of the Sarbanes–
Oxley Act of 2002, 15 U.S.C. 7211–7219,
or by a security-based swap execution
facility pursuant to § 201.442 of this
chapter (Rule 442 of the Commission’s
Rules of Practice) to grant or deny
requests for oral argument in accordance
with the provisions of § 201.451 of this
chapter (Rule 451 of the Commission’s
Rules of Practice).
(8) In connection with Commission
review of actions taken by the Public
Company Accounting Oversight Board
pursuant to Title I of the Sarbanes-Oxley
Act of 2002, 15 U.S.C. 7211–7219, or by
a security-based swap execution facility
pursuant to § 201.442 of this chapter
(Rule 442 of the Commission’s Rules of
Practice), to determine whether to lift
the automatic stay of a disciplinary
sanction.
*
*
*
*
*
PART 201—RULES OF PRACTICE
4. The general authority citation for
part 201 continues to read as follows:
■
Authority: 15 U.S.C. 77s, 77sss, 78w, 78x,
80a–37, and 80b–11; 5 U.S.C. 504(c)(1).
*
*
*
*
*
Subpart D—Rules of Practice
5. The authority citation subpart D is
revised to read as follows:
■
Authority: 15 U.S.C. 77f, 77g, 77h, 77h–1,
77j, 77s, 77u, 77sss, 78c(b), 78d–1, 78d–2,
78l, 78m, 78n, 78o(d), 78o–3, 78o–10(b)(6),
78s, 78u–2, 78u–3, 78v, 78w, 80a–8, 80a–9,
80a–37, 80a–38, 80a–39, 80a–40, 80a–41,
80a–44, 80b–3, 80b–9, 80b–11, 80b–12, 7202,
7215, and 7217.
6. Amend § 201.101 by adding
paragraph (a)(9)(ix) to read as follows:
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■
§ 201.101
Definitions.
(a) * * *
(9) * * *
(ix) By the filing, pursuant to
§ 201.442, of an application for review
of a determination of a security-based
swap execution facility;
*
*
*
*
*
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7. Amend § 201.202 by revising
paragraph (a) to read as follows:
■
§ 201.202 Specification of procedures by
parties in certain proceedings.
(a) Motion to specify procedures. In
any proceeding other than an
enforcement or disciplinary proceeding,
a proceeding to review a determination
by a self-regulatory organization
pursuant to §§ 201.420 and 201.421, a
proceeding to review a determination of
the Board pursuant to §§ 201.440 and
201.441, or a proceeding to review a
determination by a security-based swap
execution facility pursuant to
§§ 201.442 and 201.443, a party may, at
any time up to 20 days prior to the start
of a hearing, make a motion to specify
the procedures necessary or appropriate
for the proceeding with particular
reference to:
(1) Whether there should be an initial
decision by a hearing officer;
(2) Whether any interested division of
the Commission may assist in the
preparation of the Commission’s
decision; and
(3) Whether there should be a 30-day
waiting period between the issuance of
the Commission’s order and the date it
is to become effective.
*
*
*
*
*
■ 8. Amend § 201.210 by revising the
paragraph (a) heading, (a)(1), paragraph
(b) heading, (b)(1), and paragraph (c)
introductory text to read as follows:
§ 201.210 Parties, limited participants and
amici curiae.
(a) Parties in an enforcement or
disciplinary proceeding, a proceeding to
review a self- regulatory organization
determination, a proceeding to review a
Board determination, or a proceeding to
review a determination by a securitybased swap execution facility. (1)
Generally. No person shall be granted
leave to become a party or a non-party
participant on a limited basis in an
enforcement or disciplinary proceeding,
a proceeding to review a determination
by a self- regulatory organization
pursuant to §§ 201.420 and 201.421, a
proceeding to review a determination by
the Board pursuant to §§ 201.440 and
201.441, or a proceeding to review a
determination by a security-based swap
execution facility pursuant to
§§ 201.442 and 201.443, except as
authorized by paragraph (c) of this
section.
*
*
*
*
*
(b) Intervention as party. (1)
Generally. In any proceeding, other than
an enforcement proceeding, a
disciplinary proceeding, a proceeding to
review a self-regulatory determination, a
proceeding to review a Board
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determination, or a proceeding to
review a security-based swap execution
facility determination, any person may
seek leave to intervene as a party by
filing a motion setting forth the person’s
interest in the proceeding. No person,
however, shall be admitted as a party to
a proceeding by intervention unless it is
determined that leave to participate
pursuant to paragraph (c) of this section
would be inadequate for the protection
of the person’s interests. In a proceeding
under the Investment Company Act of
1940, any representative of interested
security holders, or any other person
whose participation in the proceeding
may be in the public interest or for the
protection of investors, may be admitted
as a party upon the filing of a written
motion setting forth the person’s interest
in the proceeding.
*
*
*
*
*
(c) Leave to participate on a limited
basis. In any proceeding, other than an
enforcement proceeding, a disciplinary
proceeding, a proceeding to review a
self-regulatory determination, a
proceeding to review a Board
determination, or a proceeding to
review a security-based swap execution
facility determination, any person may
seek leave to participate on a limited
basis as a non-party participant as any
matter affecting the person’s interests:
*
*
*
*
*
■ 9. Amend § 201.401 by adding
paragraph (f) to read as follows:
§ 201.401
Consideration of stays.
*
*
*
*
*
(f) Lifting of stay of action by a
security-based swap execution facility.
(1) Availability. Any person aggrieved
by a stay of action by a security-based
swap execution facility entered in
accordance with § 201.442(c) may make
a motion to lift the stay. The
Commission may, at any time, on its
own motion determine whether to lift
the automatic stay.
(2) Summary action. The Commission
may lift a stay summarily, without
notice and opportunity for hearing.
(3) Expedited consideration. The
Commission may expedite
consideration of a motion to lift a stay
of action by a security-based swap
execution facility, consistent with the
Commission’s other responsibilities.
Where consideration is expedited,
persons opposing the lifting of the stay
may file a statement in opposition
within two days of service of the motion
requesting lifting of the stay unless the
Commission, by written order, shall
specify a different period.
■ 10. Add § 201.442 to read as follows:
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§ 201.442 Appeal of determination by
security-based swap execution facility.
(a) Application for review; when
available. An application for review by
the Commission may be filed by any
person who is aggrieved by a
determination of a security-based swap
execution facility with respect to any:
(1) Final disciplinary action, as
defined in § 240.835(b)(1) of this
chapter;
(2) Final action with respect to a
denial or conditioning of membership,
as defined in § 240.835(b)(2) of this
chapter; or
(3) Final action with respect to a
denial or limitation of access to any
service offered by the security-based
swap execution facility, as defined in
§ 240.835(b)(2) of this chapter.
(b) Procedure. An aggrieved person
may file an application for review with
the Commission pursuant to § 201.151
within 30 days after the notice filed
with the Commission pursuant to
§ 242.835 of this chapter by the securitybased swap execution facility of the
determination is received by the
aggrieved person. The Commission will
not extend this 30-day period, absent a
showing of extraordinary circumstances.
This section is the exclusive remedy for
seeking an extension of the 30-day
period. The aggrieved person shall serve
the application on the security-based
swap execution facility at the same
time. The application shall identify the
determination complained of, set forth
in summary form a statement of alleged
errors in the action and supporting
reasons therefor, and state an address
where the applicant can be served. The
application should not exceed two
pages in length. If the applicant will be
represented by a representative, the
application shall be accompanied by the
notice of appearance required by
§ 201.102(d). Any exception to an action
not supported in an opening brief that
complies with § 201.450(b) may, at the
discretion of the Commission, be
deemed to have been waived by the
applicant.
(c) Stay of determination. Filing an
application for review with the
Commission pursuant to paragraph (b)
of this section operates as a stay of the
security-based swap execution facility’s
determination, unless the Commission
otherwise orders either pursuant to a
motion filed in accordance with
§ 201.401(f) or upon its own motion.
(d) Certification of the record; service
of the index. Within 14 days after
receipt of an application for review, the
security-based swap execution facility
shall certify and file electronically in
the form and manner specified by the
Office of the Secretary one unredacted
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copy of the record upon which it took
the complained-of action.
(1) The security-based swap execution
facility shall file electronically with the
Commission one copy of an index of
such record in the form and manner
specified by the Commission and shall
serve one copy of the index on each
party. If such index contains any
sensitive personal information, as
defined in paragraph (d)(2) of this
section, the security-based swap
execution facility also shall file
electronically with the Commission one
redacted copy of such index, subject to
the requirements of paragraph (d)(2) of
this section.
(2) Sensitive personal information
includes a Social Security number,
taxpayer identification number,
financial account number, credit card or
debit card number, passport number,
driver’s license number, State-issued
identification number, home address
(other than city and State), telephone
number, date of birth (other than year),
names and initials of minor children, as
well as any unnecessary health
information identifiable by individual,
such as an individual’s medical records.
Sensitive personal information shall not
be included in, and must be redacted or
omitted from, all filings.
(i) Exceptions. The following
information may be included and is not
required to be redacted from filings:
(A) The last four digits of a financial
account number, credit card or debit
card number, passport number, driver’s
license number, and State-issued
identification number;
(B) Home addresses and telephone
numbers of parties and persons filing
documents with the Commission; and
(C) Business telephone numbers.
(ii) [Reserved]
(e) Certification. Any filing made
pursuant to this section, other than the
record upon which the action
complained of was taken, must include
a certification that any information
described in paragraph (d)(2) of this
section has been omitted or redacted
from the filing.
■ 11. Add § 201.443 to read as follows:
§ 201.443 Commission consideration of
security-based swap execution facility
determinations.
(a) Commission review other than
pursuant to an application for review.
The Commission may, on its own
initiative, order review of any
determination by a security-based swap
execution facility that could be subject
to an application for review pursuant to
§ 201.442(a) within 40 days after the
security-based swap execution facility
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87283
provided notice to the Commission
thereof.
(b) Supplemental briefing. The
Commission may at any time before
issuing its decision raise or consider any
matter that it deems material, whether
or not raised by the parties. The
Commission will give notice to the
parties and an opportunity for
supplemental briefing with respect to
issues not briefed by the parties where
the Commission believes that such
briefing could significantly aid the
decisional process.
■ 12. Amend § 201.450, by:
■ a. Redesignating paragraphs (a)(2)(iv)
and (a)(2)(v) as paragraphs (a)(2)(v) and
(a)(2)(vi); and
■ b. Adding new paragraph (a)(2)(iv).
The addition reads as follows:
§ 201.450 Briefs filed with the
Commission.
(a) * * *
(2) * * *
(iv) Receipt by the Commission of an
index to the record of a determination
by a security-based swap execution
facility filed pursuant to § 201.442(d).
*
*
*
*
*
■ 13. Amend § 201.460 by adding
paragraph (a)(4) to read as follows:
§ 201.460
Record before the Commission.
*
*
*
*
*
(a) * * *
(4) In a proceeding for final decision
before the Commission reviewing a
determination of a security-based swap
execution facility, the record shall
consist of:
(i) The record certified pursuant to
§ 201.442(d) by the security-based swap
execution facility;
(ii) Any application for review; and
(iii) Any submissions, moving papers,
and briefs filed on appeal or review.
*
*
*
*
*
PART 232—REGULATION S–T—
GENERAL RULES AND REGULATIONS
FOR ELECTRONIC FILINGS
14. The general authority citation for
part 232 continues to read as follows:
■
Authority: 15 U.S.C. 77c, 77f, 77g, 77h,
77j, 77s(a), 77z–3, 77sss(a), 78c(b), 78l, 78m,
78n, 78o(d), 78w(a), 78ll, 80a–6(c), 80a–8,
80a–29, 80a–30, 80a–37, 80b–4, 80b–6a, 80b–
10, 80b–11, 7201 et seq.; and 18 U.S.C. 1350,
unless otherwise noted.
*
*
*
*
*
15. Amend § 232.405 by:
a. Revising the introductory text,
paragraphs (a)(2), (a)(3)(i) introductory
text, (a)(3)(ii), (a)(4), and (b)(5)
introductory text;
■ b. Adding paragraph (b)(5)(ii); and
■ c. Revising Note 1 to § 232.405.
■
■
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The revisions and addition read as
follows:
ddrumheller on DSK120RN23PROD with RULES2
§ 232.405 Interactive Data File
submissions.
This section applies to electronic
filers that submit Interactive Data Files.
Section 229.601(b)(101) of this chapter
(Item 601(b)(101) of Regulation S–K),
General Instruction F of § 249.311 (Form
11–K), paragraph (101) of Part II—
Information Not Required to be
Delivered to Offerees or Purchasers of
Form F–10 (§ 239.40 of this chapter),
§ 240.13a–21 of this chapter (Rule 13a–
21 under the Exchange Act), paragraph
101 of the Instructions as to Exhibits of
Form 20–F (§ 249.220f of this chapter),
paragraph B.(15) of the General
Instructions to Form 40–F (§ 249.240f of
this chapter), paragraph C.(6) of the
General Instructions to Form 6–K
(§ 249.306 of this chapter), § 240.17Ad–
27(d) of this chapter (Rule 17Ad–27(d)
under the Exchange Act), Note D.5 of
§ 240.14a–101 of this chapter (Rule 14a–
101 under the Exchange Act), Item 1 of
§ 240.14c–101 of this chapter (Rule 14c–
101 under the Exchange Act), General
Instruction I of § 249.333 of this chapter
(Form F–SR), General Instruction C.3.(g)
of Form N–1A (§§ 239.15A and 274.11A
of this chapter), General Instruction I of
Form N–2 (§§ 239.14 and 274.11a–1 of
this chapter), General Instruction C.3.(h)
of Form N–3 (§§ 239.17a and 274.11b of
this chapter), General Instruction C.3.(h)
of Form N–4 (§§ 239.17b and 274.11c of
this chapter), General Instruction C.3.(h)
of Form N–6 (§§ 239.17c and 274.11d of
this chapter), General Instruction 2.(l) of
Form N–8B–2 (§ 274.12 of this chapter),
General Instruction 5 of Form S–6
(§ 239.16 of this chapter), General
Instruction C.4 of Form N–CSR
(§§ 249.331 and 274.128 of this chapter),
§§ 242.829 and 831 of this chapter
(Rules 829 and 831 of Regulation SE),
and the Registration Instructions to
Form SBSEF (§ 249.1701 of this chapter)
specify when electronic filers are
required or permitted to submit an
Interactive Data File (§ 232.11), as
further described in note 1 to this
section. This section imposes content,
format, and submission requirements for
an Interactive Data File, but does not
change the substantive content
requirements for the financial and other
disclosures in the Related Official Filing
(§ 232.11).
(a) * * *
(2) Be submitted only by an electronic
filer either required or permitted to
submit an Interactive Data File as
specified by § 229.601(b)(101) of this
chapter (Item 601(b)(101) of Regulation
S–K), Instruction F of Form 11–K
(§ 249.311 of this chapter), paragraph
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(101) of Part II—Information Not
Required to be Delivered to Offerees or
Purchasers of Form F–10 (§ 239.40 of
this chapter), § 240.13a–21 of this
chapter (Rule 13a–21 under the
Exchange Act), paragraph 101 of the
Instructions as to Exhibits of Form 20–
F (§ 249.220f of this chapter), paragraph
B.(15) of the General Instructions to
Form 40–F (§ 249.240f of this chapter),
paragraph C.(6) of the General
Instructions to Form 6–K (§ 249.306 of
this chapter), § 240.17Ad–27(d) of this
chapter (Rule 17Ad–27(d) under the
Exchange Act), Note D.5 of § 240.14a–
101 of this chapter (Rule 14a–101 under
the Exchange Act), Item 1 of § 240.14c–
101 of this chapter (Rule 14c–101 under
the Exchange Act), General Instruction I
to Form F–SR (§ 249.333 of this
chapter), General Instruction C.3.(g) of
Form N–1A (§§ 239.15A and 274.11A of
this chapter), General Instruction I of
Form N–2 (§§ 239.14 and 274.11a–1 of
this chapter), General Instruction C.3.(h)
of Form N–3 (§§ 239.17a and 274.11b of
this chapter), General Instruction C.3.(h)
of Form N–4 (§§ 239.17b and 274.11c of
this chapter), General Instruction C.3.(h)
of Form N–6 (§§ 239.17c and 274.11d of
this chapter), General Instruction 2.(l) of
Form N–8B–2 (§ 274.12 of this chapter),
General Instruction 5 of Form S–6
(§ 239.16 of this chapter), General
Instruction C.4 of Form N–CSR
(§§ 249.331 and 274.128 of this chapter),
§§ 242.829 and 242.831 of this chapter
(Rules 829 and 831 of Regulation SE),
and the Registration Instructions to
Form SBSEF (§ 249.1701 of this
chapter), as applicable;
*
*
*
*
*
(3) * * *
(i) If the electronic filer is not a
management investment company
registered under the Investment
Company Act of 1940 (15 U.S.C. 80a et
seq.), a separate account as defined in
section 2(a)(14) of the Securities Act (15
U.S.C. 77b(a)(14)) registered under the
Investment Company Act of 1940, a
business development company as
defined in section 2(a)(48) of the
Investment Company Act of 1940 (15
U.S.C. 80a–2(a)(48)), a unit investment
trust as defined in Section 4(2) of the
Investment Company Act of 1940 (15
U.S.C. 80a–4), or a clearing agency that
provides a central matching service, or
is subject to §§ 242.800 through 242.835
(Regulation SE), and is not within one
of the categories specified in paragraph
(f)(1)(i) of this section, as partly
embedded into a filing with the
remainder simultaneously submitted as
an exhibit to:
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(ii) If the electronic filer is a
management investment company
registered under the Investment
Company Act of 1940 (15 U.S.C. 80a et
seq.), a separate account (as defined in
section 2(a)(14) of the Securities Act (15
U.S.C. 77b(a)(14)) registered under the
Investment Company Act of 1940, a
business development company as
defined in section 2(a)(48) of the
Investment Company Act of 1940 (15
U.S.C. 80a–2(a)(48)), a unit investment
trust as defined in Section 4(2) of the
Investment Company Act of 1940 (15
U.S.C. 80a–4), or a clearing agency that
provides a central matching service, or
is subject to §§ 242.800 through 242.835
(Regulation SE), and is not within one
of the categories specified in paragraph
(f)(1)(ii) of this section, as partly
embedded into a filing with the
remainder simultaneously submitted as
an exhibit to a filing that contains the
disclosure this section requires to be
tagged; and
(4) Be submitted in accordance with
the EDGAR Filer Manual and, as
applicable, Item 601(b)(101) of
§ 229.601(b)(101) of this chapter
(Regulation S–K), General Instruction F
of Form 11–K (§ 249.311 of this
chapter), paragraph (101) of Part II—
Information Not Required to be
Delivered to Offerees or Purchasers of
Form F–10 (§ 239.40 of this chapter),
§ 240.13a–21 of this chapter (Rule 13a–
21 under the Exchange Act), paragraph
101 of the Instructions as to Exhibits of
Form 20–F (§ 249.220f of this chapter),
paragraph B.(15) of the General
Instructions to Form 40–F (§ 249.240f of
this chapter), paragraph C.(6) of the
General Instructions to Form 6–K
(§ 249.306 of this chapter), § 240.17Ad–
27(d) of this chapter (Rule 17Ad–27(d)
under the Exchange Act), Note D.5 of
§ 240.14a–101 of this chapter (Rule 14a–
101 under the Exchange Act), Item 1 of
§ 240.14c–101 of this chapter (Rule 14c–
101 under the Exchange Act), General
Instruction I to Form F–SR (§ 249.333 of
this chapter), General Instruction C.3.(g)
of Form N–1A (§§ 239.15A and 274.11A
of this chapter), General Instruction I of
Form N–2 (§§ 239.14 and 274.11a–1 of
this chapter), General Instruction C.3.(h)
of Form N–3 (§§ 239.17a and 274.11b of
this chapter), General Instruction C.3.(h)
of Form N–4 (§§ 239.17b and 274.11c of
this chapter), General Instruction C.3.(h)
of Form N–6 (§§ 239.17c and 274.11d of
this chapter), Instruction 2.(l) of Form
N–8B–2 (§ 274.12 of this chapter);
General Instruction 5 of Form S–6
(§ 239.16 of this chapter); General
Instruction C.4 of Form N–CSR
(§§ 249.331 and 274.128 of this chapter),
§§ 242.829 and 831 of this chapter
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(Rules 829 and 831 of Regulation SE),
and the Registration Instructions to
Form SBSEF (§ 249.1701 of this
chapter), as applicable.
(b) * * *
(5) If the electronic filer is a clearing
agency that provides a central matching
service, or is subject to §§ 242.800
through 242.835 (Regulation SE), an
Interactive Data File must consist only
of a complete set of information for all
corresponding data in the Related
Official Filing, no more and no less, as
follows:
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(ii) For electronic filers subject to
Regulation SE, the content of documents
required to be filed electronically under
§§ 242.829 and 242.831 of this chapter
(Rules 829 and 831 of Regulation SE);
and the Registration Instructions to
§ 249.1701 of this chapter (Form
SBSEF), as applicable.
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Note 1 to § 232.405: Section
229.601(b)(101) of this chapter (Item
601(b)(101) of Regulation S–K) specifies the
circumstances under which an Interactive
Data File must be submitted and the
circumstances under which it is permitted to
be submitted, with respect to § 239.11 of this
chapter (Form S–1), § 239.13 of this chapter
(Form S–3), § 239.25 of this chapter (Form S–
4), § 239.18 of this chapter (Form S–11),
§ 239.31 of this chapter (Form F–1), § 239.33
of this chapter (Form F–3), § 239.34 of this
chapter (Form F–4), § 249.310 of this chapter
(Form 10–K), § 249.308a of this chapter
(Form 10–Q), and § 249.308 of this chapter
(Form 8–K). General Instruction F of
§ 249.311 of this chapter (Form 11–K)
specifies the circumstances under which an
Interactive Data File must be submitted, and
the circumstances under which it is
permitted to be submitted, with respect to
Form 11–K. Paragraph (101) of Part II—
Information not Required to be Delivered to
Offerees or Purchasers of § 239.40 of this
chapter (Form F–10) specifies the
circumstances under which an Interactive
Data File must be submitted and the
circumstances under which it is permitted to
be submitted, with respect to Form F–10.
Paragraph 101 of the Instructions as to
Exhibits of § 249.220f of this chapter (Form
20–F) specifies the circumstances under
which an Interactive Data File must be
submitted and the circumstances under
which it is permitted to be submitted, with
respect to Form 20–F. Paragraph B.(15) of the
General Instructions to § 249.240f of this
chapter (Form 40–F) and Paragraph C.(6) of
the General Instructions to § 249.306 of this
chapter (Form 6–K) specify the
circumstances under which an Interactive
Data File must be submitted and the
circumstances under which it is permitted to
be submitted, with respect to § 249.240f of
this chapter (Form 40–F) and § 249.306 of
this chapter (Form 6–K). Section 240.17Ad–
27(d) of this chapter (Rule 17Ad–27(d) under
the Exchange Act) specifies the
circumstances under which an Interactive
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Data File must be submitted with respect the
reports required under Rule 17Ad–27. Note
D.5 of § 240.14a–101 of this chapter
(Schedule 14A) and Item 1 of § 240.14c–101
of this chapter (Schedule 14C) specify the
circumstances under which an Interactive
Data File must be submitted with respect to
Schedules 14A and 14C. Section 240.13a–21
of this chapter (Rule 13a–21 under the
Exchange Act) and General Instruction I to
§ 249.333 of this chapter (Form F–SR) specify
the circumstances under which an Interactive
Data File must be submitted, with respect to
Form F–SR. §§ 242.829 and 242.831 of this
chapter (Rules 829 and 831 of Regulation SE)
and the Registration Instructions to
§ 249.1701 of this chapter (Form SBSEF), as
applicable, specify the circumstances under
which an Interactive Data File must be
submitted with respect to filings made under
Regulation SE.
accuracy of end-of-day valuations of
security-based swaps.
(b) Notwithstanding paragraphs (a)(1)
through (3) of this section, an
organization, association, or group of
persons shall not be exempt under this
section from the definition of
‘‘exchange,’’ if:
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■ 18. Add § 240.15a–12 to read as
follows:
§ 240.3a1–1 Exemption from the definition
of ‘‘Exchange’’ under section 3(a)(1) of the
Act.
PART 242—REGULATIONS M, SHO,
ATS, AC, NMS, SE, AND SBSR, AND
CUSTOMER MARGIN REQUIREMENTS
FOR SECURITY FUTURES
§ 240.15a–12 Exemption for certain
security-based swap execution facilities
from certain broker requirements.
(a) For purposes of this section, an
SBSEF–B means a security-based swap
execution facility that does not engage
in any securities activity other than
facilitating the trading of security-based
PART 240—GENERAL RULES AND
swaps on or through the security-based
REGULATIONS, SECURITIES
swap execution facility.
EXCHANGE ACT OF 1934
(b) An SBSEF–B that registers with
the
Commission pursuant to § 242.803
■ 16. The general authority citation for
of this chapter shall be deemed also to
part 240 continues to read as follows:
have registered with the Commission
Authority: 15 U.S.C. 77c, 77d, 77g, 77j,
pursuant to sections 15(a) and (b) of the
77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn,
Act (15 U.S.C. 78o(a)(1) and (b)).
77sss, 77ttt, 78c, 78c–3, 78c–5, 78d, 78e, 78f,
(c) Except as provided in paragraph
78g, 78i, 78j, 78j–1, 78j–4, 78k, 78k–1, 78l,
(d)
of this section, an SBSEF–B shall be
78m, 78n, 78n–1, 78o, 78o–4, 78o–10, 78p,
78q, 78q–1, 78s, 78u–5, 78w, 78x, 78dd, 78ll, exempt from any provision of the Act or
78mm, 80a–20, 80a–23, 80a–29, 80a–37, 80b– the Commission’s rules thereunder
3, 80b–4, 80b–11, 7201 et seq., and 8302; 7
applicable to brokers that, by its terms,
U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18
requires, prohibits, restricts, limits,
U.S.C. 1350; and Pub. L. 111–203, 939A, 124
conditions, or affects the activities of a
Stat. 1376 (2010); and Pub. L. 112–106, sec.
broker, unless such provision specifies
503 and 602, 126 Stat. 326 (2012), unless
that it applies to a security-based swap
otherwise noted.
execution facility.
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(d) Notwithstanding paragraph (c) of
■ 17. Amend § 240.3a1–1 by:
this section, the following provisions of
■ a. Removing the word ‘‘or’’ from the
the Act and the Commission’s rules
end of paragraph (a)(2);
thereunder shall apply to an SBSEF–B:
■ b. Removing the period from the end
(1) Section 15(b)(4) of the Act (15
of paragraph (a)(3) and adding a
U.S.C. 78o(b)(4));
semicolon in its place;
(2) Section 15(b)(6) of the Act (15
■ c. Adding paragraphs (a)(4) and (5);
U.S.C. 78o(b)(6)); and
and
(3) Section 17(b) of the Act (15 U.S.C.
■ d. Revising paragraph (b) introductory
78q(b)).
text.
The additions and revisions read as
(e) An SBSEF–B shall be exempt from
follows:
the Securities Investor Protection Act.
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(a) * * *
(4) Has registered with
