Statement of Cleared Swaps Customer Segregation Requirements and
Funds in Cleared Swaps Customer Accounts under Section 4d(f) of the
Commodity Exchange Act; (4) Statement of Segregation Requirements
and Funds in Segregation for Customers' Dealer Options Accounts; and
(5) Statement of Secured Amounts and Funds Held in Separate Accounts
for Foreign Futures and Foreign Options Customers Pursuant to CFTC
Regulation 30.7. The Commission does not estimate a burden for these
5 sections, since the CFTC already requires FCMs to file these 5
sections on a monthly basis (17 CFR 1.10(b)(1)(i)), and therefore,
the hourly burden is already accounted for in the PRA estimate for
the CFTC's Rule 1.10 (1 CFR 1.10). In addition, the Commission does
not anticipate that FCMs will be required to file both the CFTC's
Form 1-FR-FCM and the Commission's FOCUS Report Part II, as amended.
    \765\ 36 hours x 25 bank SBSDs = 900 hours. These internal hours
likely will be performed by a senior compliance manager.
    \766\ 16 hours per year x 25 bank SBSDs = 400 hours per year.
These internal hours likely will be performed by a senior compliance
manager.
---------------------------------------------------------------------------

    Bank MSBSPs will be required to file new FOCUS Report Part IIC on a
quarterly basis.\767\ New FOCUS Report Part IIC includes three sections
and one schedule applicable to bank MSBSPs.\768\ Bank MSBSPs dually
registered as FCMs will be required to complete five additional
sections, all of which the CFTC already requires FCMs to file as part
of Form 1-FR-FCM.\769\ However, the Commission does not expect any
banks to register with the Commission as MSBSPs and therefore does not
anticipate these requirements to impose an additional burden.\770\
---------------------------------------------------------------------------

    \767\ See paragraph (a)(2) of Rule 18a-7, as adopted.
    \768\ Bank MSBSPs will be required to complete the following
sections and schedules: (1) Balance Sheet (Information as Reported
on FFIEC Form 031--Schedule RC); (2) Regulatory Capital (Information
as Reported on FFIEC Form 031--Schedule RC-R); (3) Income Statement
(Information as Reported on FFIEC Form 031--Schedule RI); and (4)
Schedule 1--Aggregate Security-Based Swap and Swap Positions.
    \769\ Bank MSBSPs also registered as FCMs will be required to
file the following sections: (1) Computation of CFTC Minimum Capital
Requirement; (2) Statement of Segregation Requirements and Funds in
Segregation for Customers Trading on U.S. Commodity Exchanges; (3)
Statement of Cleared Swaps Customer Segregation Requirements and
Funds in Cleared Swaps Customer Accounts under Section 4d(f) of the
Commodity Exchange Act; (4) Statement of Segregation Requirements
and Funds in Segregation for Customers' Dealer Options Accounts; and
(5) Statement of Secured Amounts and Funds Held in Separate Accounts
for Foreign Futures and Foreign Options Customers Pursuant to CFTC
Regulation 30.7. The Commission does not estimate a burden for these
5 sections, since the CFTC already requires FCMs to file these 5
sections on a monthly basis (17 CFR 1.10(b)(1)(i)), and therefore,
the hourly burden is already accounted for in the PRA estimate for
the CFTC's Rule 1.10 (1 CFR 1.10). In addition, the Commission does
not anticipate that FCMs will be required to file both the CFTC's
Form 1-FR-FCM and the Commission's FOCUS Report Part II, as amended.
    \770\ The Commission estimates that the requirement for bank
MSBSPs to file FOCUS Report Part IIC quarterly will impose an
initial burden of 16 hours per firm and an ongoing annual burden of
8 hours per firm.
---------------------------------------------------------------------------

    The Commission received no comments regarding its hour and cost
burden estimates for new Rule 18a-7 and continues to believe they are
appropriate.
4. Amendments to Rule 17a-11 and New Rule 18a-8
    The amendments to Rule 17a-11 and new Rule 18a-8 will impose
collection of information requirements that result in annual burdens
for broker-dealers, SBSDs, MSBSPs, and national securities exchanges
and national securities associations. The Commission estimates that
Rule 17a-11, as amended, will impose the following initial and annual
burdens: \771\
---------------------------------------------------------------------------

    \771\ See paragraphs (f) and (g) of Rule 17a-11, as amended.

------------------------------------------------------------------------
                   Burden                           Annual burden
------------------------------------------------------------------------
New notice of failure to deposit in Rule     Per notice: 1 hour.
 15c3-3(p) account.                          Industry: 100 hours.
New notices filed by exchanges and national  Per notice: 1 hour.
 securities associations.                    Industry: 5 hours.
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
    Total--Amendments to Rule 17a-11.......  Industry: 105 hours.
------------------------------------------------------------------------

    The Commission estimates that new Rule 18a-8 will impose an annual
burden of 4.6 hours per year.
Estimated Hours and Costs of Amendments to Rule 17a-11
    The Commission is adopting paragraph (f) to Rule 17a-11, which will
require broker-dealers engaged in security-based swap activities to
notify the Commission if they fail to make a deposit required under
paragraph (p) of Rule 15c3-3.\772\ Because the burden to calculate the
reserve amount is already accounted for in the PRA estimate for Rule
15c3-3,\773\ the burden imposed by paragraph (f) of Rule 17a-11, as
amended, is the requirement to notify the Commission when the firm
fails to act in accordance with paragraph (p) of Rule 15c3-3. Given the
similarity of this new requirement to the current requirements of Rule
17a-11, the Commission estimates that each required notice will take
one hour to prepare and file.\774\ Based on Commission experience with
the number of notices filed under current Rule 17a-11,\775\ the
Commission estimates that 100 notices will be filed each year under
paragraph (f) of Rule 17a-11, as amended, resulting in an industry-wide
ongoing burden of 100 hours per year.\776\
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    \772\ See paragraph (f) of Rule 17a-11, as amended.
    \773\ See Capital, Margin, and Segregation Adopting Release,
84FR at 43964-67.
    \774\ See Supporting Statement for the Paperwork Reduction Act
Information Collection Submission for Rule 17a-11.
    \775\ See id. (noting that in 2016, the Commission received
approximately 253 notices under Rule 17a-11).
    \776\ 100 notices per year x 1 hour per notice = 100 hours per
year. These internal hours likely will be performed by a compliance
manager.
---------------------------------------------------------------------------

    The Commission is redesignating current paragraph (f) of Rule 17a-
11 as paragraph (g) and requiring a broker-dealer's national securities
exchange or national securities association to notify the Commission if
it learns that the broker-dealer failed to provide a notice required
under any paragraph of Rule 17a-11 (instead of just paragraphs (b)
through (e) of Rule 17a-11 as it currently requires).\777\ Thus, these
entities will be subject to new burdens to file a delinquent broker-
dealer's notices under new paragraph (f) (failure to deposit in Rule
15c3-3(p) account). After considering the similar preexisting Rule 17a-
11 requirement, the Commission estimates that each required notice will
take one hour to prepare and file.\778\ Based on Commission experience
with the number of notices currently filed by these entities, the
Commission estimates that five notices will be filed pursuant to the
amendment to paragraph (g) of Rule 17a-11, as amended, resulting in an
estimated industry-wide ongoing burden of five hours per year.\779\
---------------------------------------------------------------------------

    \777\ See paragraph (g) of Rule 17a-11, as amended.
    \778\ See Supporting Statement for the Paperwork Reduction Act
Information Collection Submission for Rule 17a-11.
    \779\ 5 notices per year x 1 hour per notice = 5 hours per year.
These internal hours likely will be performed by a compliance
manager.
---------------------------------------------------------------------------

    The Commission received no comments regarding its hour and cost
burden estimates for the amendments to Rule 17a-11 and continues to
believe they are appropriate.
Estimated Hours and Costs of New Rule 18a-8
    New Rule 18a-8 will require non-broker-dealer SBSDs and non-broker-
dealer MSBSPs to notify the Commission of certain indicia of their
financial condition.\780\ The Commission estimates that each Rule 18a-8
notice will take approximately 55 minutes to prepare and file, in
contrast to its estimate that a Rule 17a-11 notice will take one hour
to prepare and file,\781\ because stand-alone SBSDs and MSBSPs do not
have a DEA with which to file a copy of the Rule 17a-11 notice and bank
SBSDs and MSBSPs are not required to file the Rule 17a-11 notice with
their prudential regulator.\782\
---------------------------------------------------------------------------

    \780\ See Rule 18a-8, as adopted.
    \781\ See Supporting Statement for the Paperwork Reduction Act
Information Collection Submission for Rule 17a-11.
    \782\ Compare paragraph (h) of Rule 17a-11, as amended, with
paragraph (h) of Rule 18a-8, as adopted.
---------------------------------------------------------------------------

    The Commission estimates that it will receive approximately five
Rule 18a-8 notices per year, based on the substantially smaller pool of
possible respondents, as compared with current Rule 17a-11. Under
current Rule 17a-11, there are approximately 3,582 possible
respondents--3,764 registered broker-dealers, minus approximately 182
broker-dealers registered pursuant to Section 15(b)(11)(A) of the
Exchange Act.\783\ In contrast, the Commission estimates that there
will be 35 non-broker-dealer SBSDs and non-broker-dealer MSBSPs (25
bank SBSDs, 6 stand-alone SBSDs, and 4 stand-alone MSBSPs). Assuming
that each of the 5 Rule 18a-8 notices takes 55 minutes to prepare and
file, the Commission estimates new Rule 18a-8 will result in an
industry-wide ongoing burden of 4.6 hours per year.\784\
---------------------------------------------------------------------------

    \783\ Rule 17a-11 does not apply to a broker-dealer registered
pursuant to Section 15(b)(11)(A) of the Exchange Act that is not a
member of either a national securities exchange or a national
securities association. See paragraph (j) of Rule 17a-11, as
amended. The Commission estimates that there are approximately 3,582
broker-dealers subject to Rule 17a-11 after consulting with SIPC
(3,764 registered broker-dealers--approximately 182 broker-dealers
registered pursuant to Section 15(b)(11)(A) of the Exchange Act =
3,711 Rule 17a-11 respondents).
    \784\ 5 notices per year x (55 minutes per notice / 60 minutes
per hour) = 4.6 hours per year. These internal hours likely will be
performed by a compliance manager.
---------------------------------------------------------------------------

    The Commission received no comments regarding its hour and cost
burden estimates for new Rule 18a-8 and continues to believe they are
appropriate.
5. Amendments to Rule 17a-12
    Rule 17a-12, as amended, will require OTC derivatives dealers to
file FOCUS Report Part II, as amended, instead of FOCUS Report Part
IIB. This is not so much a new burden as a different burden, since in
the absence of this amendment these firms would be required to file
FOCUS Report Part IIB instead. The new lines on FOCUS Report Part II,
as amended, will generally not be applicable to OTC derivatives
dealers. Some new lines on FOCUS Report Part II, as amended, require
similar types of information as FOCUS Report Part IIB, but may be
phrased in a different way.\785\ Other new lines on FOCUS Report Part
II, as amended, may require additional detail regarding information
that was already required to be reported on FOCUS Report Part IIB.\786\
Still other new lines on FOCUS Report Part II, as amended, require
information that the OTC derivative dealers are already required to
calculate pursuant to another Exchange Act rule.\787\ Finally, some new
line items on FOCUS Report Part II, as amended, are not applicable to
OTC derivatives dealers and therefore will not be completed by these
firms.\788\
---------------------------------------------------------------------------

    \785\ Compare, e.g., FOCUS Report Part IIB, Schedule VI--
Aggregate Securities and Commodities Positions, Line 2 (U.S.
Government agency), with FOCUS Report Part II, as amended, Schedule
1--Aggregate Securities, Commodities, and Swaps Positions, Line 2
(U.S. government agency and U.S. government sponsored enterprises).
    \786\ Compare, e.g., FOCUS Report Part IIB, Schedule VI--
Aggregate Securities and Commodities Positions, Line 2 (U.S.
Government agency), with FOCUS Report Part II, as amended, Schedule
1--Aggregate Securities, Commodities, and Swaps Positions, Lines 2A-
2B (requesting a break-out of the portion of U.S. government agency
and U.S. government sponsored enterprises attributable to mortgage-
backed securities and debt securities).
    \787\ See, e.g., FOCUS Report Part II, as amended, Computation
of Minimum Regulatory Capital Requirements (Broker-Dealer), Line 9A
(soliciting the filer's net capital in excess of 120% of the firm's
minimum net capital requirement).
    \788\ See, e.g., FOCUS Report Part II, as amended, Computation
of Minimum Regulatory Capital Requirements (Non-Broker-Dealer SBSD).
---------------------------------------------------------------------------

    Although FOCUS Report Part II, as amended, is partially modeled on
Part

IIB, the initial burden on OTC derivatives dealers is expected to
increase, so that firms can analyze revised FOCUS Report Part II.
However, once firms have analyzed FOCUS Report Part II, as amended, the
amendments to Rule 17a-12 are not expected to change the estimated
ongoing burden imposed by Rule 17a-12. The Commission estimates that
Rule 17a-12, as amended, will impose on each OTC derivative dealers an
initial burden of 20 hours. The Commission estimates that there are 4
respondents, resulting in an estimated industry-wide initial burden of
80 hours.\789\ The Commission estimates that Rule 17a-12, as amended,
will not change the estimated ongoing burden imposed by Rule 17a-12.
---------------------------------------------------------------------------

    \789\ 20 hours x 4 OTC derivatives dealers = 80 hours. These
internal hours likely will be performed by a compliance manager.
---------------------------------------------------------------------------

6. New Rule 18a-9
    New Rule 18a-9, which is modeled on Rule 17a-13, will require
stand-alone SBSDs to establish a securities count program.\790\ As
explained below, the Commission estimates that new Rule 18a-9 will
impose an industry-wide initial burden of 225 hours and an industry-
wide ongoing burden of 900 hours per year.
---------------------------------------------------------------------------

    \790\ See Rule 18a-9, as adopted.
---------------------------------------------------------------------------

    The current approved PRA estimate for Rule 17a-13 estimates a
securities count program imposes an average ongoing cost of 100 hours
per year.\791\ The Commission is using this estimate, and therefore
estimates that new Rule 18a-9 will impose an ongoing annual burden of
100 hours per stand-alone SBSD. The Commission estimates that there are
6 stand-alone SBSDs, resulting in an estimated industry-wide ongoing
burden of 600 hours per year.\792\
---------------------------------------------------------------------------

    \791\ See Commission, Supporting Statement for the Paperwork
Reduction Act Information Collection Submission for Rule 17a-13
(Feb. 28, 2017), available at https://www.reginfo.gov/public/do/DownloadDocument?objectID=7182940.
    \792\ 100 hours per year x 6 stand-alone SBSDs = 600 hours per
year. These internal hours likely will be performed by an operations
specialist.
---------------------------------------------------------------------------

    The Commission also estimates that new Rule 18a-9 will impose an
initial burden of 25 hours per firm. The records required by new Rule
18a-9 should already be recorded by the systems implemented under new
Rules 18a-5 and 18a-6, and accordingly, the resulting initial burden is
largely already accounted for under these rules.\793\ However, the
Commission estimates that the initial cost to establish procedures for
conducting the securities count program, including identifying the
persons involved in the program, will create an initial burden of
approximately 25 hours per stand-alone SBSD, or 150 hours for the
estimated 6 stand-alone SBSDs.\794\
---------------------------------------------------------------------------

    \793\ However, the Commission assumes that stand-alone SBSDs and
MSBSPs do not currently have a securities count program in place.
    \794\ 25 hours x 6 stand-alone SBSDs = 150 hours. These internal
hours likely will be performed by a senior operations manager.
---------------------------------------------------------------------------

    The Commission received no comments regarding its hour and cost
burden estimates for new Rule 18a-9 and continues to believe they are
appropriate.
7. Amendments to Rule 18a-10
    Rule 18a-10, as amended, contains an alternative compliance
mechanism pursuant to which a stand-alone SBSD that is registered as a
swap dealer and predominantly engages in a swaps business may elect to
comply with the recordkeeping and reporting requirements of the CEA and
the CFTC's rules in lieu of complying with Rules 18a-5, 18a-6, 18a-7,
18a-8, and 18a-9.\795\ The Commission estimates that 3 stand-alone
SBSDs will elect to operate under Rule 18a-10. These respondents were
included in the proposing release in other collections of information
(Rule 18a-5, Rule 18a-6, Rule 18a-7, Rule 18a-8, and Rule 18a-9, as
proposed), and have been moved to the information collection for new
Rule 18a-10.\796\
---------------------------------------------------------------------------

    \795\ See Rule 18a-10, as amended.
    \796\ See supra section IV.C.
---------------------------------------------------------------------------

    The Commission estimates the paperwork burden associated with
transmitting to the Commission a copy of the notice required by
paragraph (b)(4) of Rule 18a-10, as amended, to be 5 minutes for a
stand-alone SBSD operating under Rule 18a-10. The Commission further
estimates that it will receive one notice from a single submitting SBSD
per year. The Commission is basing this estimate on the smaller pool of
possible respondents, as compared with new Rule 18a-8.\797\
---------------------------------------------------------------------------

    \797\ See supra section IV.D.4.
---------------------------------------------------------------------------

    Assuming that the single Rule 18a-10 notice takes 5 minutes to
transmit to the Commission, the Commission estimates Rule 18a-10, as
amended, will result in an industry-wide ongoing burden of 0.083 hours
per year.\798\
---------------------------------------------------------------------------

    \798\ 1 notice per year x (5 minutes per notice / 60 minutes per
hour) = 0.0833 hours per year. These internal hours likely will be
performed by a compliance manager.
---------------------------------------------------------------------------

8. Amendments to Rule 3a71-6
    Rule 3a71-6, as amended, will require submission of certain
information to the Commission to the extent foreign SBSDs or MSBSPs
elect to request a substituted compliance determination with respect to
the Title VII recordkeeping and reporting requirements. The Commission
expects that foreign SBSDs and MSBSPs will seek to rely on substituted
compliance upon registration, and that it is likely that the majority
of such requests will be made during the first year following the
effective date of this amendment. Requests will not be necessary with
regard to applicable rules and regulations of a foreign jurisdiction
that have previously been the subject of a substituted compliance
determination in connection with the applicable rules.
    The Commission expects that the majority of substituted compliance
applications will be submitted by foreign authorities, and that very
few substituted compliance requests will come from SBSDs or MSBSPs. For
purposes of this assessment, the Commission estimates that three SBSDs
or MSBSPs will submit such applications in connection with the
Commission's recordkeeping and reporting requirements.\799\ After
consideration of the release adopting Rule 3a71-6, the Commission
estimates that the total paperwork burden incurred by such entities
associated with preparing and submitting a request for a substituted
compliance determination in connection with the recordkeeping and
reporting requirements will be approximately 240 hours, plus $240,000
for the services of outside professionals for all 3 requests.\800\
---------------------------------------------------------------------------

    \799\ See Business Conduct Standards for Security-Based Swap
Dealers and Major Security-Based Swap Participants, 81 FR at 29959.
See also Trade Acknowledgment and Verification of Security-Based
Swap Transactions, 81 FR at 39382; Capital, Margin, and Segregation
Adopting Release, 84 FR at 43960.
    \800\ See Business Conduct Standards for Security-Based Swap
Dealers and Major Security-Based Swap Participants, 81 FR at 30097
(``The Commission estimates that the total one-time paperwork burden
incurred by such entities associated with preparing and submitting a
request for a substituted compliance determination in connection
with the business conduct requirements will be approximately 240
hours, plus $240,000 for the services of outside professionals for
all three requests''). The Commission further stated that in
practice those amounts may overestimate the costs of requests
pursuant to Rule 3a71-6 as adopted, as such requests would solely
address the business conduct requirements, rather than the broader
proposed scope of substituted compliance set forth in the Cross-
Border Proposing Release. See id. at 30097, n. 1583. To the extent
that an SBSD submits substituted compliance requests in connection
with the business conduct requirements, the trade acknowledgment and
verification requirements, the capital and margin requirements, and
the recordkeeping and reporting requirements, the Commission
believes that the paperwork burden associated with the requests
would be greater than that associated with a narrower request, given
the need for more information regarding the comparability of the
relevant rules and the adequacy of the associated supervision and
enforcement practices. In the Commission's view, however, the burden
associated with such a combined request would not exceed the prior
estimate. See Trade Acknowledgment and Verification of Security-
Based Swap Transactions, 81 FR at 39833, n. 258.

---------------------------------------------------------------------------

    The Commission received no comments regarding its hour and cost
burden estimates for Rule 3a71-6, as amended, and continues to believe
they are appropriate.

E. Collection of Information Is Mandatory

    The collections of information pursuant to the rule amendments and
new rules, being adopted, are mandatory, as applicable, for broker-
dealers, SBSDs, MSBSPs, certain third-party custodians, and NSEs and
NSAs. Compliance with the collection of information requirements
associated with Rule 3a71-6, regarding the availability of substituted
compliance, is mandatory for all foreign financial authorities, foreign
SBSDs, or foreign MSBSPs that seek a substituted compliance
determination.

F. Confidentiality

    The broker-dealer and stand-alone SBSD and MSBSP annual reports
filed with the Commission are not confidential, except that if the
statement of financial condition is bound separately from the balance
of the annual reports and each page of the balance of the annual
reports is stamped ``confidential,'' then the balance of the annual
reports shall be deemed confidential to the extent permitted by
law.\801\ Subject to certain exceptions,\802\ if there are material
weaknesses, the accountant's report on the compliance report must be
made available for customers' inspection and, consequently, it will not
be deemed confidential.\803\ Subject to certain exceptions,\804\ a
broker-dealer must furnish to its customers its unaudited financial
statements,\805\ and must provide annually a balance sheet with
appropriate notes prepared in accordance with generally accepted
accounting principles and which must be audited if the broker-dealer is
required to file audited financial statements with the Commission.\806\
---------------------------------------------------------------------------

    \801\ See paragraph (e)(3) of Rule 17a-5, as amended; paragraph
(d)(2) of Rule 18a-7, as adopted.
    \802\ See paragraph (c)(1)(i) through (iii) of Rule 17a-5, as
amended.
    \803\ See paragraph (c)(2)(iv) of Rule 17a-5, as amended.
    \804\ See paragraph (c)(1)(i) through (iii) of Rule 17a-5, as
amended.
    \805\ See paragraph (c)(3) of Rule 17a-5, as amended.
    \806\ See paragraph (c)(2)(i) of Rule 17a-5, as amended.
---------------------------------------------------------------------------

    Stand-alone SBSDs and MSBSPs must also make publicly available on
their websites audited and unaudited financial statements, and also
make these documents available in writing, upon request, to any person
that has a security-based swap account.\807\ A stand-alone SBSD will
also be required to disclose on its website at the same time: (1) A
statement of the amount of the firm's net capital and required net
capital and other information, if applicable, related to the firm's net
capital; \808\ and (2) if, in connection with the firm's most recent
annual reports, the report of the independent public accountant
identifies one or more material weaknesses, a copy of the report.\809\
---------------------------------------------------------------------------

    \807\ See paragraph (b) of Rule 18a-7, as adopted.
    \808\ See paragraph (b)(1)(ii) of Rule 18a-7, as adopted.
    \809\ See paragraphs (b)(1)(iii) of Rule 18a-7, as adopted.
---------------------------------------------------------------------------

    The forms that the Commission has adopted for use by applicants for
registration as SBSDs or MSBSPs provides for applicants to notify the
Commission regarding intended reliance on substituted compliance.\810\
The Commission generally will make requests for substituted compliance
determinations public, subject to requests for confidential treatment
being submitted pursuant to any applicable provisions governing
confidentiality under the Exchange Act.\811\
---------------------------------------------------------------------------

    \810\ See Registration of Security-Based Swap Dealers and Major
Security-Based Swap Participants, 80 FR at 49049.
    \811\ See Application of ``Security-Based Swap Dealer'' and
``Major Security-Based Swap Participant'' Definitions to Cross-
Border Security-Based Swap Activities, Exchange Act Release No.
72372 (June 25, 2014, 79 FR 47278, 47359 (Aug. 12, 2014).
---------------------------------------------------------------------------

    With respect to the other information collected under the rule
amendments and new rules being adopted, the firm can request the
confidential treatment of the information.\812\ If such a confidential
treatment request is made, the Commission anticipates that it will keep
the information confidential subject to the provisions of applicable
law.\813\
---------------------------------------------------------------------------

    \812\ See 17 CFR 200.83. Information regarding requests for
confidential treatment of information submitted to the Commission is
available at http://www.sec.gov/foia/howfo2.htm#privacy.
    \813\ See, e.g., 5 U.S.C. 552 et seq.; 15 U.S.C. 78x (governing
the public availability of information obtained by the
Commission)[email protected] Retention Period for Recordkeeping Requirements
---------------------------------------------------------------------------

    Rule 17a-4, as amended, specifies the required retention periods
for a broker-dealer.\814\ New Rule 18a-6 specifies the required
retention periods for non-broker-dealer SBSDs and non-broker-dealer
MSBSPs.\815\ Many of the required records must be retained for three
years; certain other records must be retained for longer periods.\816\
---------------------------------------------------------------------------

    \814\ See Rule 17a-4, as amended.
    \815\ See Rule 18a-6, as adopted.
    \816\ See Rule 17a-4, as amended; Rule 18a-6, as adopted.
---------------------------------------------------------------------------

V. Economic Analysis

A. Introduction

    The Commission is sensitive to the costs and benefits of its rules.
The following economic analysis presents the costs and benefits--
including the effects on efficiency, competition, and capital
formation--that will result from the new recordkeeping, reporting,
notification, and securities count rules for stand-alone SBSDs, stand-
alone MSBSPs, bank SBSDs, and bank MSBSPs and from the amendments to
Rules 17a-3, 17a-4, 17a-5, 17a-11 and 17a-12 with respect to firms that
are registered as broker-dealers. The costs and benefits of adopting
these new rules and rule amendments are discussed below and have
informed the policy choices described throughout this release.
    As discussed more fully in section II. above, pursuant to Sections
15F and 17(a) of the Exchange Act, the Commission is amending Rules
17a-3, 17a-4, 17a-5, 17a-11, and 17a-12 to establish recordkeeping,
reporting, and notification requirements for broker-dealers, including
broker-dealer SBSDs and MSBSPs to account for their security-based swap
activities. Pursuant to Section 15F of the Exchange Act, the Commission
is adopting new Rules 18a-5 through 18a-9 to establish recordkeeping,
reporting, and notification requirements for stand-alone SBSDs, stand-
alone MSBSPs, bank SBSDs, and bank MSBSPs, and securities count
requirements for stand-alone SBSDs. Further, pursuant to Sections 15F
and 17(a) of the Exchange Act, the Commission is amending FOCUS Report
Part II that consolidates proposed Form SBS and existing FOCUS Report
Parts II, IIB, and II CSE that will be filed by nonbank SBSDs, nonbank
MSBSPs, stand-alone broker-dealers, and stand-alone OTC derivatives
dealers to report financial information. The Commission is adopting
FOCUS Report Part IIC for bank SBSDs and MSBSPs to report their
financial information because these entities will be required to
provide more limited information relative to other SBSDs and MSBSPs.
The Commission believes these rules and rule amendments will help
regulators

determine whether relevant market participants comply with the recently
adopted capital, margin, and segregation requirements.\817\
---------------------------------------------------------------------------

    \817\ See Capital, Margin, and Segregation Adopting Release, 84
FR 43872.
---------------------------------------------------------------------------

    As discussed above, the Commission is establishing limited and full
alternative compliance mechanisms. The limited alternative compliance
mechanism in Rules 17a-3 and 18a-5 will allow an SBSD or MSBSP that
also is registered with the CFTC as a swap dealer or major swap
participant to comply with the requirements to make and keep certain
current trade blotters, customer account ledgers, and stock records
solely with respect to required information regarding security-based
swaps by complying with the requirements of the CEA and the rules
thereunder applicable to swap dealers and major swap participants if
the SBSD or MSBSP meets certain conditions.\818\
---------------------------------------------------------------------------

    \818\ See Rule 17a-3, as amended, and Rule 18a-5, as adopted.
See also discussion in section II.E.1. of this release.
---------------------------------------------------------------------------

    The Commission is amending the full alternative compliance
mechanism in existing Rule 18a-10 that permits certain SBSDs that are
registered as swap dealers and that predominantly engage in a swaps
business to elect to comply with the capital, margin, and segregation
requirements of the CEA and the CFTC's rules in lieu of complying with
the capital, margin, and segregation requirements in Rules 18a-1, 18a-
3, and 18a-4. The amendments to Rule 18a-10 will permit firms that will
operate under Rule 18a-10 to elect to comply with the recordkeeping and
reporting requirements of the CEA and the CFTC's rules in lieu of
complying with Rules 18a-5, 18a-6, 18a-7, 18a-8, and 18a-9.\819\ The
Commission believes the availability of the alternative compliance
mechanisms will promote harmonization with CFTC requirements and reduce
compliance costs for eligible SBSDs and MSBSPs.
---------------------------------------------------------------------------

    \819\ See Rule 18a-10, as amended. See also discussion in
section II.E.2. of this release.
---------------------------------------------------------------------------

    Additionally, as discussed above, the Commission is amending Rule
3a71-6 to provide non-U.S. stand-alone SBSDs and non-U.S. stand-alone
MSBSPs with the potential to utilize substituted compliance with
comparable foreign requirements to satisfy the recordkeeping and
reporting requirements of Section 15F of the Exchange Act and Rules
18a-5, 18a-6, 18a-7, 18a-8 and 18a-9 thereunder.\820\ The Commission
believes that allowing for the possibility of substituted compliance
will help achieve the benefits of the recordkeeping and reporting
requirements being adopted in this document in a manner that avoids the
costs that non-U.S. stand-alone SBSDs and non-U.S. stand-alone MSBSPs
would have to bear due to regulatory duplication or conflict.
---------------------------------------------------------------------------

    \820\ See section II.F.2. of this release.
---------------------------------------------------------------------------

    The sections below present an overview of the security-based swap
market, a discussion of the general costs and benefits of the adopted
recordkeeping and reporting requirements, and a discussion of the costs
and benefits of each amendment and new rule. The Economic Analysis also
includes a discussion of the potential effects of the rule amendments
and new rules on competition, efficiency, and capital formation. Where
possible, the Commission has attempted to quantify the costs, benefits,
and effects on efficiency, competition, and capital formation expected
to result from adopting these rules. At times, however, the Commission
is unable to quantify the economic effects because, as explained in
detail below, it lacks the information necessary to provide a
reasonable estimate, and in those instances, the discussion of the
economic effects of the rule or amendment is qualitative in nature.

B. Baseline of Economic Analysis

    To assess the economic impact of the final rules described in this
release, the Commission employs as a baseline the security-based swap
market as it exists at the time of this release, including applicable
rules that the Commission already has adopted but excluding rules that
the Commission has proposed but not yet finalized. The baseline for
analysis includes the statutory provisions that currently govern the
security-based swap market pursuant to the Dodd-Frank Act and rules
adopted in the Commission's intermediary definitions release,\821\
cross-border release,\822\ SDR registration release,\823\ security-
based swap entity registration release,\824\ Regulation SBSR release
and amendments,\825\ U.S. activity release,\826\ business conduct
release,\827\ and trade acknowledgment release \828\ as these statutes
and final rules--even if compliance is not yet required--are part of
the existing regulatory landscape that market participants expect to
govern their security-based swap activity.
---------------------------------------------------------------------------

    \821\ See Further Definition of ``Swap Dealer,'' ``Security-
Based Swap Dealer,'' ``Major Swap Participant,'' ``Major Security-
Based Swap Participant'' and ``Eligible Contract Participant'', 77
FR 30597.
    \822\ See Application of ``Security-Based Swap Dealer'' and
``Major Security-Based Swap Participant'' Definitions to Cross-
Border Security-Based Swap Activities, 79 FR 47278.
    \823\ See Security-Based Swap Data Repository Registration,
Duties, and Core Principles, Exchange Act Release No. 74246 (Feb.
11, 2015), 80 FR 14438 (Mar. 19, 2015).
    \824\ See Registration Process for Security-Based Swap Dealers
and Major Security-Based Swap Participants, 80 FR 48964.
    \825\ See Regulation SBSR--Reporting and Dissemination of
Security-Based Swap Information, 80 FR 14563. See also Regulation
SBSR--Reporting and Dissemination of Security-Based Swap
Information, 81 FR 53546.
    \826\ 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 of an
Agent; Security-Based Swap Dealer De Minimis Exception, Exchange Act
Release No. 77104 (Feb. 10, 2016), 81 FR 8598 (Feb. 19, 2016).
    \827\ See Business Conduct Standards for Security-Based Swap
Dealers and Major Security-Based Swap Participants, 81 FR 29960.
    \828\ See Trade Acknowledgment and Verification of Security-
Based Swap Transactions, 81 FR 39808.
---------------------------------------------------------------------------

    Additionally, the baseline includes any recordkeeping and reporting
rules currently applicable to participants in the security-based swap
market including applicable rules previously adopted by the
Commission,\829\ but excludes the rules and rule amendments addressed
in this release. With respect to the minor amendments to Rules 17a-3,
17a-4, 17a-5, 17a-11, and 17a-12, the baseline for purposes of this
economic analysis is the current recordkeeping and reporting regime for
broker-dealers under such rules.
---------------------------------------------------------------------------

    \829\ The Commission has temporarily excluded security-based
swaps from the definition of ``security.'' See section III.C. of
this release. Thus, for purposes of the Commission's baseline
analysis for broker-dealers, security-based swap activities will be
excluded.
---------------------------------------------------------------------------

    The following sections provide an overview of aspects of the
security-based swap market that are likely to be most affected by the
amendments being adopted in this document, as well as elements of the
current market structure, such as central clearing and platform
trading, that are likely to determine the scope of transactions that
will be covered by them.
1. Available Data From the Security-Based Swap Market
    The Commission's understanding of the market is informed, in part,
by available data on security-based swap transactions, though the
Commission acknowledges that limitations in the data limit the extent
to which it is possible to quantitatively characterize the market.\830\
Since these data do not

cover the entire market, the Commission has analyzed market activity
using a sample of transactions data that includes only certain segments
of the market. The Commission believes, however, that the data
underlying this analysis provides reasonably comprehensive information
regarding single-name credit default swap (``CDS'') transactions and
the composition of the participants in the single-name CDS market.
---------------------------------------------------------------------------

    \830\ The Commission also relies on qualitative information
regarding market structure and evolving market practices provided by
commenters, both in letters and in meetings with Commission staff,
and knowledge and expertise of Commission staff.
---------------------------------------------------------------------------

    Specifically, the analysis of the current state of the security-
based swap market is based on data obtained from the DTCC Derivatives
Repository Limited Trade Information Warehouse (``TIW''), especially
data regarding the activity of market participants in the single-name
CDS market during the period from 2008 to 2017. Although the definition
of security-based swaps is not limited to single-name CDS,\831\ single-
name CDS contracts make up a majority of security-based swaps, and the
Commission believes that the single-name CDS data are sufficiently
representative of the market to inform our analysis of the current
security-based swap market. According to data published by the Bank for
International Settlements (``BIS''), the global notional amount
outstanding in single-name CDS was approximately $4.6 trillion,\832\ in
multi-name index CDS was approximately $4.4 trillion, and in multi-
name, non-index CDS was approximately $343 billion.\833\ The total
gross market value outstanding in single-name CDS was approximately
$130 billion, and in multi-name CDS instruments was approximately $174
billion.\834\ The global notional amount outstanding in equity forwards
and swaps as of December 2017 was $3.21 trillion, with total gross
market value of $197 billion.\835\
---------------------------------------------------------------------------

    \831\ While other repositories may collect data on transactions
in total return swaps on equity and debt, the Commission does not
currently have access to such data for these products (or other
products that are security-based swaps). Additionally, the
Commission explains below that data related to single-name CDS
provides reasonably comprehensive information for the purpose of
this analysis.
    \832\ The global notional amount outstanding represents the
total face amount used to calculate payments under outstanding
contracts. The gross market value is the cost of replacing all open
contracts at current market prices.
    \833\ See BIS, Semi-annual OTC derivatives statistics at
December 2017, Table 10.1, available at https://www.bis.org/statistics/d10_1.pdf (accessed May 18, 2018).
    \834\ See id.
    \835\ These totals include swaps and security-based swaps, as
well as products that are excluded from the definition of ``swap,''
such as certain equity forwards. See OTC, equity-linked derivatives
statistics, Table D8, available at https://www.bis.org/statistics/d8.pdf (accessed May 18, 2018). For the purposes of this analysis,
the Commission assumes that multi-name index CDS are not narrow-
based index CDS and therefore, do not fall within the security-based
swap definition. See 15 U.S.C. 78c(a)(68)(A); see also Further
Definition of ``Swap,'' ``Security-Based Swap,'' and ``Security-
Based Swap Agreement''; Mixed Swaps; Security-Based Swap Agreement
Recordkeeping, 77 FR 48208. The Commission also assumes that all
instruments reported as equity forwards and swaps are security-based
swaps, potentially resulting in underestimation of the proportion of
the security-based swap market represented by single-name CDS.
Therefore, when measured on the basis of gross notional outstanding
single-name CDS contracts appear to constitute roughly 59% of the
security-based swap market. Although the BIS data reflects the
global OTC derivatives market, and not just the U.S. market, the
Commission has no reason to believe that these ratios differ
significantly in the U.S. market
---------------------------------------------------------------------------

    The Commission further notes that the data available from TIW does
not encompass those CDS transactions that both: (i) Do not involve U.S.
counterparties; \836\ and (ii) are based on non-U.S. reference
entities. Notwithstanding this limitation, the TIW single-name CDS data
should provide sufficient information to permit the Commission to
identify the types of market participants active in the security-based
swap market and the general pattern of dealing within that market.\837\
---------------------------------------------------------------------------

    \836\ Following publication of the Warehouse Trust Guidance on
CDS data access, TIW surveyed market participants, asking for the
physical address associated with each of their accounts (i.e., where
the account is organized as a legal entity). This physical address
is designated the registered office location by TIW. When an account
reports a registered office location, the Commission has assumed
that the registered office location reflects the place of domicile
for the fund or account. When an account does not report a
registered office location, the Commission has assumed that the
settlement country reported by the investment adviser or parent
entity to the fund or account is the place of domicile. Thus, for
purposes of this analysis, the Commission has classified accounts as
``U.S. counterparties'' when they have reported a registered office
location in the United States. The Commission notes, however, that
this classification is not necessarily identical in all cases to the
definition of U.S. person under Rule 3a71-3(a)(4).
    \837\ The challenges the Commission faces in estimating measures
of current market activity stem, in part, from the absence of
comprehensive reporting requirements for security-based swap market
participants. The Commission has adopted rules regarding trade
reporting, data elements, and public reporting for security-based
swaps that are designed to, when fully implemented, provide the
Commission with additional measures of market activity that will
allow us to better understand and monitor activity in the security-
based swap market. See Regulation SBSR--Reporting and Dissemination
of Security-Based Swap Information, 81 FR 53545.
---------------------------------------------------------------------------

2. Security-Based Swap Market: Market Participants and Activity
    The final rules and rule amendments will apply regulatory
requirements to security-based swap market participants. The following
sections provide information about the security-based swap market,
focusing on the subset of participants likely to incur recordkeeping
and reporting requirements as a result of these rules and rule
amendments and the activities that would be subject to these
requirements.
a. Security-Based Swap Dealers
    Security-based swap activity is concentrated in a relatively small
number of dealers, which already represent a small percentage of all
market participants active in the security-based swap market. Based on
an analysis of the 2017 single-name CDS data, the Commission's earlier
estimates of the number of entities likely to register as security-
based swap dealers remain largely unchanged. Of the approximately 50
entities that the Commission estimates might register as security-based
swap dealers, the Commission believes that it is reasonable to expect
22 to be non-U.S. persons.
    Many of these dealers are already subject to other regulatory
frameworks under U.S. law based on their role as intermediaries or on
the volume of their positions in other products, such as swaps. Persons
who will register as SBSDs and MSBSPs are likely also to be engaged in
swap activity, which is subject to regulation by the CFTC.\838\ This
overlap reflects the relationship between single-name CDS contracts,
which are security-based swaps, and index CDS contracts, which may be
swaps or security-based swaps. A single-name CDS contract covers
default events for a single reference entity or reference security.
Index CDS contracts and related products make payouts that are
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 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, prices of these

products depend upon one another,\839\ creating hedging opportunities
across these markets.
---------------------------------------------------------------------------

    \838\ See section II. of this release. See also Application of
Certain Title VII Requirements to 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, Exchange
Act Release No. 74834 (Apr. 29, 2015), 80 FR 27444, 27458 (May 13,
2015); Registration Process for Security-Based Swap Dealers and
Major Security-Based Swap Participants, 80 FR at 49000.
    \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
security-based swaps. See, e.g., George Casella and Roger L. Berger,
Statistical Inference 171 (2002).
---------------------------------------------------------------------------

    These hedging opportunities mean that participants that are active
in one market are likely to be active in the other. Commission staff's
analysis of approximately 4,358 TIW accounts that participated in the
market for single-name CDS in 2017 revealed that approximately 2,936 of
those accounts, or 67%, also participated in the market for index CDS.
Of the accounts that participated in both markets, data regarding
transactions in 2017 suggests that, contingent upon 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 38%; 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 5.4%.
    The CFTC has adopted recordkeeping and reporting requirements that
apply to registered swap dealers. The Commission estimates that
approximately 46 of the 50 expected security-based swap dealers will be
dually registered with the CFTC and therefore be subject to CFTC
requirements.\840\ Accordingly, the recordkeeping baseline for entities
that are currently registered with the CFTC as swap dealers or major
swap participants includes the activities related to compliance with
the CFTC's recordkeeping and reporting requirements for swaps.
---------------------------------------------------------------------------

    \840\ See, e.g., Swap Data Recordkeeping and Reporting
Requirements: Pre-Enactment and Transition Swaps (Final Rule), 77 FR
35200 (June 12, 2012); Swap Dealer and Major Swap Participant
Recordkeeping, Reporting, and Duties Rules, 77 FR 20128 (Apr. 3,
2012).
---------------------------------------------------------------------------

    Additionally, based on an analysis of TIW data and filings with the
Commission, the Commission estimates that 16 market participants that
will register as security-based swap dealers have already registered
with the Commission as broker-dealers and are thus subject to Exchange
Act and FINRA requirements applicable to such entities. As the
Commission discusses below, some registered dealers may also be subject
to similar requirements in one or more foreign jurisdictions.
    Finally, the Commission also notes that it has adopted rules for
the registration of security-based swap dealers and major security-
based swap participants, although market participants are not yet
required to comply with those rules. Thus, there are not yet any
security-based swap dealers or major security-based swap participants
registered with the Commission.
b. Security-Based Swap Market Activity
    As already noted, firms that act as dealers play a central role in
the security-based swap market. Based on an analysis of 2017 single-
name CDS data in TIW, accounts of those firms that are likely to exceed
the security-based swap dealer de minimis thresholds and trigger
registration requirements intermediated transactions with a gross
notional amount of approximately $2.9 trillion, approximately 55% of
which was intermediated by the top five dealer accounts.\841\
---------------------------------------------------------------------------

    \841\ The Commission staff analysis of TIW transaction records
indicates that approximately 99% of single-name CDS price-forming
transactions in 2017 involved an ISDA-recognized dealer.
---------------------------------------------------------------------------

    These dealers transact with hundreds or thousands of
counterparties. Approximately 21% of accounts of firms expected to
register as security-based dealers and observable in TIW have entered
into security-based swaps with over 1,000 unique counterparty accounts
as of year-end 2017.\842\ Another 25% of these accounts transacted with
500 to 1,000 unique counterparty accounts; 29% transacted with 100 to
500 unique accounts; and 25% of these accounts intermediated security-
based swaps with fewer than 100 unique counterparties in 2017. The
median dealer account transacted with 495 unique accounts (with an
average of approximately 570 unique accounts). Non-dealer
counterparties transacted almost exclusively with these dealers. The
median non-dealer counterparty transacted with two dealer accounts
(with an average of approximately three dealer accounts) in 2017.
---------------------------------------------------------------------------

    \842\ Many dealer entities and financial groups transact through
numerous accounts. Given that individual accounts may transact with
hundreds of counterparties, the Commission may infer that entities
and financial groups may transact with at least as many
counterparties as the largest of their accounts.
---------------------------------------------------------------------------

    Figure 2 below describes the percentage of global, notional
transaction volume in North American corporate single-name CDS reported
to TIW between January 2008 and December 2017, separated by whether
transactions are between two ISDA-recognized dealers (interdealer
transactions) or whether a transaction has at least one non-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 72% in 2015 to approximately 40% in
2017. This fall corresponds to the availability of clearing to non-
dealers. Interdealer transactions continue to represent a significant
fraction of trading activity, even as notional volume has declined over
the past ten years,\843\ from more than $6 trillion in 2008 to less
than $700 billion in 2017.\844\
---------------------------------------------------------------------------

    \843\ The start of this decline predates the enactment of the
Dodd-Frank Act and the proposal of rules thereunder, which is
important to note for the purpose of understanding the economic
baseline for this rulemaking.
    \844\ This estimate is lower than the gross notional amount of
$4.6 trillion noted above as it includes only the subset of single-
name CDS referencing North American corporate documentation.

---------------------------------------------------------------------------

[GRAPHIC] [TIFF OMITTED] TR16DE19.001

    The high level of interdealer trading activity reflects the central
position of a small number of 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 single-name
CDS, these dealers appear to enjoy market power as a result of their
small number and the large proportion of order flow that they privately
observe.
    Against this backdrop of declining North American corporate single-
name CDS activity, about half of the trading activity in North American
corporate single-name CDS reflected in the set of data that the
Commission analyzed was between counterparties domiciled in the United
States and counterparties domiciled abroad, as shown in Figure 3 below.
Using the self-reported registered office location of the TIW accounts
as a proxy for domicile, the Commission estimates that only 12% of the
global transaction volume by notional volume between 2008 and 2017 was
between two U.S.-domiciled counterparties, compared to 49% entered into
between one U.S.-domiciled counterparty and a foreign-domiciled
counterparty and 39% entered into between two foreign-domiciled
counterparties.\845\
---------------------------------------------------------------------------

    \845\ 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 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 of an
Agent; Security-Based Swap Dealer De Minimis Exception, 81 FR at
8607, n. 83.
---------------------------------------------------------------------------

    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
shift significantly. Under this approach, the fraction of transactions
entered into between two U.S.-domiciled counterparties increases to
34%, and to 51% for transactions entered into between a U.S.-domiciled
counterparty and a foreign-domiciled counterparty. By contrast, the
proportion of activity between two foreign-domiciled counterparties
drops from 39% to 15%. This change in 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 security-based swap 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 85%) 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 2017 transactions on North American corporate
single-name CDS between two ISDA-recognized dealers and their branches
or affiliates, 94% of transaction notional volume involved at least one
account of an entity with a U.S. parent. The Commission notes, in
addition, that a majority of North American corporate single-name CDS
transactions occur in the interdealer

market or between dealers and foreign non-dealers, with the remaining
portion of the market consisting of transactions between dealers and
U.S.-person non-dealers. Specifically, 60% of North American corporate
single-name CDS transactions involved either two ISDA-recognized
dealers or an ISDA-recognized dealer and a foreign non-dealer.
Approximately 39% of such transactions involved an ISDA-recognized
dealer and a U.S.-person non-dealer.
[GRAPHIC] [TIFF OMITTED] TR16DE19.002

c. Participation of Banks and Broker-Dealers
    A high degree of concentration is equally prevalent in derivatives
activity within the U.S. banking system: According to the OCC, at the
end of the fourth quarter of 2017, derivatives activity in the U.S.
banking system continues to be dominated by a small group of large
financial institutions. Four large commercial banks represent 89.4% of
the total banking industry notional amounts and 85.9% of industry net
current credit exposure.\846\ This concentration largely appears to
reflect the fact that larger entities are well-capitalized and
therefore possess competitive advantages in engaging in dealing
activities by providing potential counterparties with adequate
assurances of financial performance.\847\
---------------------------------------------------------------------------

    \846\ See OCC, Quarterly Report on Bank Trading and Derivatives
Activities, Fourth Quarter 2017(available at https://www.occ.treas.gov/topics/capital-markets/financial-markets/derivatives/pub-derivatives-quarterly-qtr4-2017.pdf).
    \847\ See, e.g., Craig Pirrong, Rocket Science, Default Risk and
The Organization of Derivatives Markets, (Working Paper 17-18,
2006), available at http://www.cba.uh.edu/spirrong/Derivorg1.pdf
(noting that counterparties seek to reduce risk of default by
engaging in credit derivative transactions with well-capitalized
firms). See also Further Definitions of ``Swap Dealer,'' ``Security-
Based Swap Dealer,'' ``Major Swap Participant,'' ``Major Security-
Based Swap Participant'' and ``Eligible Contract Participant,'', 77
FR at 30739-42.
---------------------------------------------------------------------------

    Other than OTC derivatives dealers, which are subject to
significant limitations on their activities, broker-dealers
historically have not participated in a significant way in security-
based swap trading.
---------------------------------------------------------------------------

    \848\ This column reflects the number of participants who are
also trading for their own accounts.

    Table 1--The Number and Percentage of Account Holders--by Type--Who Participate in the Security-Based Swap Market Through a Registered Investment
                Adviser, an Unregistered Investment Adviser, or Directly as a Transacting Agent, From November 2006 Through December 2017
--------------------------------------------------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------------------------------------------
Account holders by type                       Number     Represented by a registered
                                                              investment adviser
                                                 Represented by an
                                              unregistered investment
                                                      adviser
                                            Participant is transacting
                                                    agent \848\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Private Funds.............................      3,857           1,973              51%           1,859              48%              25               1%
DFA Special Entities......................      1,319           1,262              96%              37               3%              20               2%
Registered Investment Companies...........      1,159           1,082              93%              73               6%               4               0%
Banks (non-ISDA-recognized dealers).......        349              20               6%               8               2%             321              92%

Insurance Companies.......................        301             196              65%              34              11%              71              24%
ISDA-Recognized Dealers...................         91               0               0%               0               0%              91             100%
Foreign Sovereigns........................         83              63              76%               3               4%              17              20%
Non-Financial Corporations................         75              52              69%               4               5%              19              25%
Finance Companies.........................         20              11              55%               0               0%               9              45%
Other/Unclassified........................      5,883           3,745              64%           1,887              32%             251               4%
                                           -------------------------------------------------------------------------------------------------------------
    All...................................     13,137           8,404              64%           3,905              30%             828               6%
--------------------------------------------------------------------------------------------------------------------------------------------------------

3. Existing Regulation of OTC Derivatives Market Participants and
Broker-Dealers
    As discussed above, the adopted rules and amendments will apply to
various different entities that the Commission anticipates will
register as SBSDs or MSBSPs, including stand-alone firms, banks, and
registered broker-dealers. In addition, the adopted amendments will
also apply to certain stand-alone broker-dealers that do not register
as an SBSD or MSBSP but nonetheless still engage in security-based swap
transactions. For all of these entities, the economic baseline includes
the reports and records these firms currently generate in the ordinary
course of their business and in anticipation of regulatory reporting
requirements, such as Regulation SBSR's requirement for SBSDs and
MSBSPs to report each security-based swap transaction to a registered
SDR \849\ and to establish, maintain, and enforce written policies and
procedures that are designed to ensure compliance with security-based
swap transaction reporting obligations.\850\ Because compliance with
registration rules for SBSDs and MSBSPs is not yet required,\851\
however, there are no entities of any type currently registered as
SBSDs or MSBSPs and the Commission can only arrive at an estimate of
the number and type of these registrants based on an analysis of the
2017 single-name CDS data.\852\
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    \849\ See Regulation SBSR--Reporting and Dissemination of
Security-Based Swap Information, 81 FR 53545. While the Commission
recognizes that SBSDs and MSBSPs are not yet required to comply with
Regulation SBSR, the Commission nevertheless believes that these
firms have invested in reporting infrastructure in anticipation of
future regulatory reporting requirements.
    \850\ See id.
    \851\ See Registration Process for Security-Based Swap Dealers
and Major Security-Based Swap Participants, 80 FR 48964.
    \852\ See section V.B.2.a. of this release for the Commission's
estimates of the potential number of registrants based on an
analysis of the 2017 single-name CDS data.
---------------------------------------------------------------------------

    Below, the Commission summarizes, based on available information,
the current recordkeeping, reporting, notification, and securities
count practices of these various entities, including those practices
that are required by regulation and those that have been independently
adopted by the entities.
a. Stand-Alone SBSDs and MSBSPs
    Certain firms that are neither banks nor broker-dealers that
participate in the market for security-based swaps will register with
the Commission as stand-alone SBSDs and MSBSPs. The Commission believes
that firms engaged in the security-based swap market currently produce,
as part of their ordinary business practices, financial reports such as
a balance sheet and a quarterly and year-end income statement that are
included in the financial reporting requirements the Commission is
adopting in this document. Such firms may not, however, produce annual
audited financial statements, as required under the adopted rules. The
Commission also believes that firms engaged in the security-based swap
business currently maintain records documenting the firms' derivatives
positions to facilitate, among other things, effective risk management.
The Commission expects that these firms maintain these records for the
duration for which they hold a given position and for some period of
time thereafter. Moreover, the Commission believes that firms that
eventually register with the Commission as SBSDs or as MSBSPs will
likely create transaction records to submit to registered SDRs as a
result of their anticipated reporting obligations under Regulation SBSR
and will likely have order management systems in place to record
information that is required to be submitted under Regulation SBSR.
    Given that the Commission has not previously regulated these firms,
the Commission does not have information regarding the recordkeeping
and reporting costs these nonbank and non-broker-dealer firms presently
incur in the ordinary course of business. As noted above, the
Commission believes that these firms, however, maintain some records
documenting their business activities as a matter of routine business
practice and maintain some transaction records in anticipation of their
reporting obligations under Regulation SBSR. Any new costs imposed by
the new rules should be incremental to the costs currently being
incurred by these entities.
b. Bank SBSDs and MSBSPs
    In addition to stand-alone SBSDs and MSBSPs, the Commission expects
certain banks to register as SBSDs and MSBSPs. The economic baseline
for banks that participate in the security-based swap market includes
the existing recordkeeping, record retention, reporting, and
notification requirements that are imposed on banks by their relevant
prudential regulator as well as the reports and records these firms
currently generate in the ordinary course of their business.
    Prudential regulators already subject banks to recordkeeping and
retention requirements.\853\ In addition, banks must file financial
statements and supporting schedules known as ``call reports'' with
their prudential regulator.\854\ The Commission believes that the most
common form of call report for a bank that will register as an SBSD or
MSBSP is FFIEC Form 031.\855\ Like the FOCUS Report, FFIEC Form 031
elicits financial and operational information about a bank, which is
entered into uniquely numbered line

items. A bank must report details about its assets, liabilities, and
equity capital on Schedule RC to FFIEC Form 031.\856\ A bank must also
report details about its regulatory capital on Schedule RC-R to FFIEC
Form 031.\857\ The information elicited on Schedule RC-R is designed to
facilitate an analysis of the bank's regulatory capital. A bank must
report details about its income (loss) and expenses on Schedule RI to
FFIEC Form 031.\858\
---------------------------------------------------------------------------

    \853\ See, e.g., 12 CFR 12.3 (Department of Treasury); 12 CFR
219.21 through 219.24 (FDIC); 12 CFR 344.4 (FDIC).
    \854\ See 12 U.S.C. 324; 12 U.S.C. 1817; 12 U.S.C. 161; 12
U.S.C. 1464.
    \855\ FFIEC Form 031 is filed by banks with domestic and foreign
offices, which the Commission believes will characterize most bank
SBSDs.
    \856\ See FFIEC Form 031, Schedule RC, Balance Sheet, Lines 1-
29. Schedule RC also has a Memoranda section that which elicits
information about bank's external auditors and fiscal year end date.
See FFIEC Form 031, Schedule RC, Balance Sheet, Memoranda, Lines 1-
2.
    \857\ See FFIEC Form 031, Schedule RC-R, Regulatory Capital,
Lines 1-62. Schedule RC-R also has a ``Memoranda'' section that
elicits detail about derivatives. See FFIEC Form 031, Schedule RC-R,
Regulatory Capital, Memoranda, Lines 1-2.
    \858\ See FFIEC Form 031, Schedule RI, Income Statement, Lines
1-14. Schedule RI also has a ``Memoranda'' section that elicits
further detail about income (loss). See FFIEC Form 031, Schedule RI,
Income Statement, Memoranda, Lines 1-14.
---------------------------------------------------------------------------

    The Commission has estimated the cost of the existing
recordkeeping, record retention, reporting, and notification
requirements that are applicable to nationally chartered banks under
existing regulations issued by the OCC. The Commission arrived at the
estimate by examining PRA collections to which national banks are
subject and selecting those that are analogous to the recordkeeping,
record retention, reporting, and notification rules the Commission is
adopting herein.\859\ The Commission then estimated that reporting
burdens generate approximately $79/hour of cost for national banks and
that recordkeeping burdens generate approximately $30/hour of cost for
national banks.\860\ The Commission estimates that national banks
currently incur annual costs of $55,982,398 to comply with the OCC's
financial reporting, notification and recordkeeping rules.\861\ The
OCC's rules generally relate to banking activities, not securities and
security-based swap activities. The Commission thus recognizes that
some of the costs reflected in the OCC's rules may not be analogous to
costs that may be imposed by the Commission's new rules. Nonetheless,
these cost estimates may help provide context and cost ranges with
respect to the nationally chartered banks impacted by the Commission's
new rules.
---------------------------------------------------------------------------

    \859\ PRA collections for OCC-regulated national banks, together
with PRA collections for other Federal regulatory agency rules, are
available at www.reginfo.gov/public/do/PRAMain. Given that different
banks comply with different prudential regulations, the Commission
recognizes that the estimate based on OCC regulations represents one
estimate of the costs imposed on banks by currently applicable
recordkeeping, record retention, reporting and notification
requirements.
    \860\ This assumption is derived from OCC staff's description of
the hourly costs it estimates in connection with Paperwork Reduction
Act burdens. For the purposes of this Economic Analysis, the
Commission assumes that reporting burdens will be performed 5% by
clerical staff at $20 an hour, 10% by managerial or technical staff
at $40 an hour, 55% by senior management at $80 an hour, and 30% by
legal counsel at $100 an hour, which, in the aggregate, equals $79
an hour. The Commission assumes that recordkeeping burdens will be
performed 70% by clerical staff at $20 an hour, 20% by managerial or
technical staff at $40 an hour, and 10% by senior management at $80
an hour, which in the aggregate, equals $30 an hour.
    \861\ The Commission derived the estimates of the hourly burden
associated with these OCC rules from the number of hours approved
for information collection purposes by the OMB. See the chart below
for a representation of the calculation methodology:
---------------------------------------------------------------------------

c. Broker-Dealers, SBSD Broker-Dealers, and MSBSP Broker-Dealers
    As noted above, the Commission expects some broker-dealers to
register as broker-dealer SBSDs or broker-dealer MSBSPs, while other
broker-dealers engaging in security-based swap transactions may be
subject to regulation as stand-alone broker dealers. A broker-dealer
that engages in security-based swap activities is currently subject to
existing regulatory requirements, including capital, margin,
segregation, recordkeeping, reporting, notification, and securities
count requirements.\862\ Specifically, the existing broker-dealer
capital requirements make it relatively costly for broker-dealers to
conduct security-based swap activities in broker-dealers.\863\ Instead
of occurring at broker-dealers, security-based swap dealing activity is
currently mostly concentrated in entities that are affiliated with
broker-dealers, but not in broker-dealers themselves.\864\
---------------------------------------------------------------------------

    \862\ OTC derivatives dealers are a special class of broker-
dealers that are exempt from certain broker-dealer requirements,
including membership in an SRO, regular broker-dealer margin rules,
and application of SIPA. OTC derivatives dealers are subject to
special requirements, including limitations on the scope of their
securities activities, specific internal risk management control
systems, recordkeeping obligations, and reporting responsibilities.
They are also subject to alternative net capital treatment. See 17
CFR 240.15a-1.
    \863\ See Capital, Margin, and Segregation Proposing Release, 77
FR at 70217-257.
    \864\ See ISDA Margin Survey 2015.

----------------------------------------------------------------------------------------------------------------
                                                                   Annual hourly   Compensation
                     Reporting/recordkeeping                         industry        rate (per       Estimated
                                                                      burden           hour)        annual cost
----------------------------------------------------------------------------------------------------------------
Interagency Call Report (FFIEC 031 and 041).....................         406,141             $79     $32,085,139
Foreign Branch Call Report (FFIEC 041)..........................           4,651              79         367,429
Country Exposure Report (FFIEC 009).............................           8,384              79         662,336
Exchange Act Disclosures Reported to the OCC....................             523              79          41,317
Recordkeeping Requirements for Securities Transactions..........           6,944              30         208,320
Disclosure of Financial and Other Information...................             669              79          52,851
Interagency Guidance on Asset Securitization Activities.........             778              30          23,340
Advanced Capital Adequacy Framework Reporting...................         137,500              79      10,862,500
Liquidity Risk Report...........................................          43,992              79       3,475,368
General Reporting and Recordkeeping by Savings Associations.....          61,362              30       1,840,860
Notice or Application for Capital Distributions.................             546              79          43,134
Annual Stress Test Rule and Stress Test Reporting Templates.....          73,876              79       5,836,204
Recordkeeping and Disclosure Provisions Associated with Stress            16,120              30         483,600
 Testing Guidance...............................................
                                                                 -----------------------------------------------
    Total Costs.................................................  ..............  ..............      55,982,398
----------------------------------------------------------------------------------------------------------------

    As of December 31, 2018, there were 3,764 broker-dealers registered
with the Commission. The broker-dealers registered with the Commission
vary significantly in terms of their size, business activities, and the
complexity of their operations.\865\ The Commission estimates that as
of December 31, 2018, ten broker-dealers dominated the

broker-dealer industry, holding over half of all the capital held by
broker-dealers.\866\
---------------------------------------------------------------------------

    \865\ See Broker-Dealer Reports, 78 FR at 51967.
    \866\ Using data from FOCUS Reports filed by broker-dealers in
2018, total aggregate capital summed across 3,764 broker-dealer was
$391,515 million of which the ten largest broker-dealers totaled
$206,736 million, or 52.8%. This is consistent with estimates
previous reported by the Commission. See Broker-Dealer Reports, 78
FR at 51968.
---------------------------------------------------------------------------

    Broker-dealers registered with the Commission are currently subject
to recordkeeping, reporting, notification, and securities count
requirements. The baseline for the economic analysis for registered
broker-dealers includes Rules 17a-3, 17a-4, 17a-5, 17a-11, and 17a-12
as they existed prior to these amendments as well as any reports and
records these firms currently generate in the ordinary course of their
business. Below, the Commission discusses the obligations these
existing rules currently place on registered broker-dealers.
i. Existing Rules 17a-3 and 17a-4
    The Commission is adopting amendments to Rules 17a-3 and 17a-4 to
establish additional recordkeeping requirements for broker-dealer
SBSDs, broker-dealer MSBSPs,\867\ and broker-dealers that conduct
security-based swap activities but are not registered as SBSDs.\868\
Under existing Rule 17a-3, broker-dealers must make and keep certain
books and records. The Commission estimates that Rule 17a-3 currently
imposes $218,361,917 of annual costs on broker-dealers.\869\ Rule 17a-4
currently requires that firms preserve the records made and kept under
Rule 17a-3, as well as additional records, including written
agreements, communications relating to its business as such, and
records reflecting inputs into the FOCUS Report. The rule also
establishes retention periods for all records required under Rule 17a-3
and required to be preserved under Rule 17a-4, along with storage media
requirements for those firms that preserve records electronically. The
Commission estimates that current Rule 17a-4 imposes $86,220,558 of
annual costs on broker-dealers.\870\
---------------------------------------------------------------------------

    \867\ See section II.A.2. of this release.
    \868\ The amendments to the recordkeeping and reporting rules
will apply to all broker-dealers that conduct security-based swap
activities. The de minimis exception applies solely to registration
as an SBSD. See 17 CFR 240.3a71-2(a)(1).
    \869\ (2,763,612 hours x $63 per hour national hourly rate for a
compliance clerk) + $44,254,361 in external costs = $218,361,917.
See Commission, Supporting Statement for the Paperwork Reduction Act
Information Collection Submission for Rule 17a-3 (Mar 9, 2017),
available at https://www.reginfo.gov/public/do/DownloadDocument?objectID=72125401.
    \870\ (1,042,866 hours x $63 per hour national hourly rate for a
compliance clerk) + $20,520,000 in external costs = $86,220,058. See
Commission, Supporting Statement for the Paperwork Reduction Act
Information Collection Submission for Rule 17a-4 (Oct. 19, 2016),
available at https://www.reginfo.gov/public/do/DownloadDocument?objectID=68823501.
---------------------------------------------------------------------------

ii. Existing Rule 17a-5
    The existing broker-dealer financial reporting requirements appear
in Rule 17a-5. The baseline for this economic analysis with respect to
the amendments to Rule 17a-5 is the broker-dealer financial reporting
requirements as they exist prior to the amendments being adopted in
this document. The Commission estimates that current Rule 17a-5 imposes
$140,225,396 of annual costs on broker-dealers.\871\
---------------------------------------------------------------------------

    \871\ (353,509 hours x $269 per hour national hourly rate for a
compliance manager) + $45,131,475 in external costs = $140,225,396.
See Supporting Statement for the Paperwork Reduction Act Information
Collection Submission for Rule 17a-5 (May. 26, 2017), available at
https://www.reginfo.gov/public/do/DownloadDocument?objectID=74209001.
---------------------------------------------------------------------------

    Rule 17a-5 has two main elements: (1) Broker-dealers must file
periodic unaudited reports containing information about their financial
and operational condition on a FOCUS Report; and (2) broker-dealers
must annually file financial statements and certain reports and a
report covering the financial statements and reports prepared by an
independent public accountant registered with the PCAOB in accordance
with PCAOB standards.\872\ In addition to these two main elements, a
few other aspects of Rule 17a-5 are described below.
---------------------------------------------------------------------------

    \872\ See id. These requirements are described in more detail
below.
---------------------------------------------------------------------------

a. Periodic Reports
    Broker-dealers periodically report information about their
financial and operational condition on FOCUS Report Part II, Part IIA,
Part IIB, or Part II CSE. Each version of the report is designed for a
particular type of broker-dealer and the information to be reported is
tailored to the type of broker-dealer.\873\
---------------------------------------------------------------------------

    \873\ A broker-dealer that holds customer funds or securities
completes and files FOCUS Report Part II. A broker-dealer that does
not hold customer funds or securities completes and files FOCUS
Report Part IIA. An OTC derivatives dealer completes and files FOCUS
Report Part IIB. An ANC broker-dealer completes and files FOCUS
Report Part II CSE.
---------------------------------------------------------------------------

b. Annual Audited Reports and Related Notifications
    Under paragraphs (d) and (g) of Rule 17a-5, a broker-dealer is
required to, among other things, annually file reports with the
Commission that are audited by a PCAOB-registered independent public
accountant, disclose certain financial information to customers, notify
the Commission of a change of accountant, and notify the Commission of
a change in its fiscal year.\874\ Paragraph (h) of Rule 17a-5 also
requires the independent public accountant to notify the broker-dealer
if the accountant discovers an instance of non-compliance with certain
broker-dealer rules or determines that any material weakness exists.
---------------------------------------------------------------------------

    \874\ Paragraph (n)(2) of Rule 17a-5 requires that the notice
contain a detailed explanation for the reasons for the change and
requires that changes in the filing period for the annual reports be
approved in writing by the broker-dealer's DEA.
---------------------------------------------------------------------------

c. Customer Statements
    Paragraph (c) of Rule 17a-5 requires, among other things, that
certain broker-dealers annually send their customers audited and
unaudited statements regarding their financial condition. Under
paragraph (c)(5), a broker-dealer is exempt from sending the statement
of financial condition to customers if the broker-dealer, among other
things: (1) Sends its customers semi-annual statements relating to the
firm's net capital and, if applicable, the identification of any
material weaknesses; and (2) makes the statement of financial condition
described above available on the broker-dealer's website home page and
maintains a toll-free number that customers can call to request a copy
of the statement.
d. Additional ANC Broker-Dealer Reports
    Paragraph (a)(6) of Rule 17a-5 requires ANC broker-dealers to
periodically file certain reports with the Commission. The reports
contain information related to the ANC broker-dealers' use of internal
models to calculate market and credit risk charges when computing net
capital.
iii. Existing Rule 17a-11
    The existing broker-dealer notice requirements are contained in
Rule 17a-11. The baseline for this economic analysis with respect to
the amendments to Rule 17a-11 is the broker-dealer notification
requirements as they exist today. Rule 17a-11 specifies the
circumstances under which a broker-dealer must notify the Commission
and other securities regulators about its financial or operational
condition, as well as the form that the notice must take. The
Commission estimates that current Rule 17a-11 imposes $90,115 of annual
costs on broker-dealers in the aggregate.\875\
---------------------------------------------------------------------------

    \875\ 335 hours x $269 per hour national hourly rate for a
compliance manager = $90,115. See Supporting Statement for the
Paperwork Reduction Act Information Collection Submission for Rule
17a-11 (Jul. 28, 2017), available at https://www.reginfo.gov/public/do/DownloadDocument?objectID=75553601.

---------------------------------------------------------------------------

a. Failure To Meet Minimum Capital Requirements
    Paragraph (b) of Rule 17a-11 requires a broker-dealer to notify the
Commission if the firm's net capital or, if applicable, tentative net
capital declines below the minimum amount required under Rule 15c3-1.
b. Early Warning of Potential Capital or Model Problem
    Paragraph (b)(2) of Rule 17a-11 requires an OTC derivatives dealer
or an ANC broker-dealer to notify the Commission when its tentative net
capital falls below the minimum required for these types of broker-
dealers. Paragraph (c) of Rule 17a-11 specifies four events that, if
they occur, trigger a requirement that a broker-dealer send notice
promptly (but within twenty-four hours) to the Commission. These
notices are designed to provide the Commission with an ``early
warning'' that the broker-dealer may experience financial
difficulty.\876\ The events triggering the early warning notification
requirements are:
---------------------------------------------------------------------------

    \876\ See Early Warning Rule, Exchange Act Release No. 32586
(July 7, 1993), 58 FR 37655 (July 13, 1993).
---------------------------------------------------------------------------

     The computation of a broker-dealer subject to the
aggregate indebtedness standard of Rule 15c3-1 shows that the firm's
aggregate indebtedness is in excess of 1,200% of its net capital;\877\
---------------------------------------------------------------------------

    \877\ See paragraph (c)(1) of Rule 17a-11. For certain types of
broker-dealers, the minimum net capital requirement is the greater
of a fixed-dollar amount specified in the rule and an amount
determined by applying a 15-to-1 aggregate indebtedness to net
capital ratio. See paragraph (a)(1)(i) of Rule 15c3-1. Consequently,
requiring notification when a broker-dealer has a 12-to-1 aggregate
indebtedness to net capital ratio provides notice before the firm
reaches the minimum 15-to-1 requirement.
---------------------------------------------------------------------------

     The computation of a broker-dealer which has elected to
use the alternative standard of calculating net capital under Rule
15c3-1 shows that the firm's net capital is less than 5% of aggregate
debit items computed in accordance with Exhibit A of Rule 15c3-3;\878\
---------------------------------------------------------------------------

    \878\ See paragraph (c)(2) of Rule 17a-11. For certain types of
broker-dealers, the minimum net capital requirement is the greater
of a fixed-dollar amount specified in the rule and an amount
determined by applying a 2% of aggregate debit items ratio. See
paragraph (a)(1)(i) of Rule 15c3-1. Consequently, requiring
notification when a broker-dealer has net capital equal to 5% of
aggregate debit items provides notice before the firm reaches the 2%
minimum requirement.
---------------------------------------------------------------------------

     A broker-dealer's net capital computation shows that its
total net capital is less than 120% of its required minimum level of
net capital or of its required minimum level of tentative net capital,
in the case of an OTC derivatives dealer;\879\
---------------------------------------------------------------------------

    \879\ See paragraph (c)(2) of Rule 17a-11.
---------------------------------------------------------------------------

     With respect to an OTC derivatives dealer, the occurrence
of the fourth and each subsequent backtesting exception under 17 CFR
240.15c3-1f (appendix F of Rule 15c3-1) during any 250 business days
measurement period.\880\
---------------------------------------------------------------------------

    \880\ See paragraph (c)(4) of Rule 17a-11.
---------------------------------------------------------------------------

c. Failure To Make and Keep Current Books and Records
    Paragraph (d) of Rule 17a-11 requires a broker-dealer that fails to
make and keep current the books and records required under Rule 17a-3
to notify the Commission of this fact on the same day that the failure
arises. The notice must specify the books and records which have not
been made or which are not current. A broker-dealer is required to
report to the Commission within 48 hours of the original notice what
the broker or dealer has done or is doing to correct the situation.
d. Material Weakness
    Paragraph (e) of Rule 17a-11 requires a broker-dealer to provide
notification about a material weakness as that term is defined in Rule
17a-5. Specifically, paragraph (e) provides that, whenever a broker-
dealer discovers or is notified by an independent public accountant of
a material weakness as defined in Rule 17a-5, the broker-dealer must:
(1) Give notice to the Commission within twenty-four hours of the
discovery or notification of the material weakness; and (2) transmit a
report within forty-eight hours of the notice indicating what the
broker-dealer has done or is doing to correct the situation.\881\
---------------------------------------------------------------------------

    \881\ See also Broker-Dealer Reports, 78 FR at 51939 (discussing
amendment of material weakness standard in Rule 17a-5). As discussed
above in section II.B.3.a. of this release, the Commission is using
the concept of material weakness in Rule 18a-7.
---------------------------------------------------------------------------

e. Failure To Make a Required Reserve Deposit
    An additional broker-dealer notification is required under Exchange
Act Rule 15c3-3, rather than Rule 17a-11. Specifically, under paragraph
(i) of Rule 15c3-3, a broker-dealer is required to notify the
Commission and its DEA if it fails to make a required deposit into its
customer reserve account under Rule 15c3-3.
iv. Existing Rule 17a-12
    The Commission is adopting amendments to Rule 17a-12 to require OTC
derivatives dealers to file revised FOCUS Report Part II instead of
FOCUS Report Part IIB as required by current Rule 17a-12.\882\ The
baseline for this economic analysis with respect to amendments to Rule
17a-12 is current Rule 17a-12. The Commission estimates that current
Rule 17a-12 imposes an annual burden of $568,320 in the aggregate.\883\
---------------------------------------------------------------------------

    \882\ See section IV.A.5. of this release.
    \883\ 1,080 hours x $269 per hour national hourly rate for a
compliance manager = $290,520 aggregate compliance costs per year
and $277,800 aggregate reporting costs per year. See Supporting
Statement for the Paperwork Reduction Act Information Collection
Submission for Rule 17a-12/Form X-17A-5 Part IIB (Feb. 5, 2019),
available at https://www.reginfo.gov/public/do/DownloadDocument?objectID=88964601.
---------------------------------------------------------------------------

4. Regulation SBSR
    Regulation SBSR implements requirements for regulatory reporting
and public dissemination of security-based swap transactions set forth
in Title VII of the Dodd-Frank Act. Regulation SBSR assigns the
reporting side \884\ the obligation of reporting primary and secondary
trade information about the transaction to a registered SDR or to the
Commission, in the event that there is no registered SDR to accept the
report.\885\
---------------------------------------------------------------------------

    \884\ Rule 901(a) of Regulation SBSR establishes a reporting
hierarchy that specifies the side that has the duty to report a
security-based swap to a registered SDR. This entity refers to the
``reporting side.'' See Regulation SBSR--Reporting and Dissemination
of Security-Based Swap Information, 80 FR at 14566-67.
    \885\ In addition, any security-based swap that is accepted for
clearing by a registered clearing agency having its principal place
of business in the United States must be reported to a registered
SDR, regardless of the registration status or U.S. person status of
the counterparties and regardless of where the transaction is
executed. See id. at 14568.
---------------------------------------------------------------------------

    Based on historical data the Commission estimated that 300 entities
would be required to report transaction information under Regulation
SBSR,\886\ including all 50 potential registered SBSDs and all 5
potential registered MSBSPs. As a result of the Regulation SBSR
reporting hierarchy, the Commission expected all these SBSDs and MSBSPs
to incur reporting obligations because at least one of these 55
potential registrants appeared on either side of the majority of
security-based swap transactions.\887\
---------------------------------------------------------------------------

    \886\ See id. at 14674.
    \887\ See id.
---------------------------------------------------------------------------

    The Commission believes that SBSDs and MSBSPs will have incurred
three categories of costs to comply with Regulation SBSR. First, they
would likely have had to establish and maintain an internal order
management system (``OMS'') capable of capturing relevant security-
based swap transaction information in order for it to be reported.
Second, they would have had to implement reporting mechanisms.

Third, given that manual processes would likely have been incapable of
capturing and reporting the numerous data elements relating to
security-based swaps required by Regulation SBSR, SBSDs and MSBSPs
would have had to establish an appropriate compliance program and
support for operating any OMS and reporting mechanism capable of
reporting data within the timeframe set forth by Regulation SBSR.\888\
---------------------------------------------------------------------------

    \888\ See id. at 14701.
---------------------------------------------------------------------------

    To the extent that the same or similar information is needed to
comply with the recordkeeping and reporting rules being adopted in this
document, market participants can use the infrastructure already in
place in anticipation of Regulation SBSR to comply with their
recordkeeping and reporting obligations under the current rulemaking.
Consistent with prior releases, the Commission believes that once a
respondent's reporting infrastructure and compliance systems are in
place the marginal burden of reporting transactions would be de minimis
when compared to the costs of putting those systems in place and
maintaining them over time.\889\ Thus the changes implemented in
anticipation of compliance with Regulation SBSR are likely to
substantially reduce certain compliance related burdens emanating from
the recordkeeping, reporting, notification, and securities count rules
and rule amendments being adopted in this document. As a result, the
Commission's estimates of these burdens \890\ should be viewed as an
upper bound of the potential costs of these rules and rule amendments.
---------------------------------------------------------------------------

    \889\ See id. at 14702.
    \890\ See section IV.E. of this release.
---------------------------------------------------------------------------

5. Global Regulatory Efforts
    The global security-based swap market is highly interconnected and
highly concentrated.\891\ This interconnectedness allows U.S. market
participants to use security-based swaps as a tool for sharing
financial and commercial risks and to access liquidity across
jurisdictional boundaries.\892\ However, these opportunities for risk
sharing also represent channels for risk transmission to the U.S.
financial system: Because dealers facilitate the majority of security-
based swap transactions, with bilateral relationships that extend to
potentially thousands of counterparties, deficiencies in SBSD records
and reports may have outcomes that affect a large number of
counterparties and have potentially significant cross-border
implications.\893\
---------------------------------------------------------------------------

    \891\ 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, 81 FR 8598. See also Application of ``Security-
Based Swap Dealer'' and ``Major Security-Based Swap Participant''
Definitions to Cross-Border Security-Based Swap Activities, 79 FR at
47283.
    \892\ 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, 81 FR 8598. See also Application of ``Security-
Based Swap Dealer'' and ``Major Security-Based Swap Participant''
Definitions to Cross-Border Security-Based Swap Activities, 79 FR at
47283.
    \893\ See id.
---------------------------------------------------------------------------

    In 2009, the G20 Leaders--whose membership includes the United
States, 18 other countries, and the European Union (``EU'')--addressed
global improvements in the OTC derivatives markets. They expressed
their view on a variety of issues relating to OTC derivatives
contracts. In subsequent summits, the G20 Leaders have returned to OTC
derivatives regulatory reform and encouraged international consultation
in developing standards for these markets.\894\
---------------------------------------------------------------------------

    \894\ See, e.g., G20 Leaders' Final Declaration para. 24 (Nov.
2011), available at https://g20.org/wp-content/uploads/2014/12/Declaration_eng_Cannes.pdf.
---------------------------------------------------------------------------

    Many SBSDs will likely already be subject to foreign regulation of
their security-based swap activities that are similar to regulations
that may apply to them pursuant to Title VII, even if the relevant
foreign jurisdictions do not classify certain market participants as
``dealers'' for regulatory purposes. Some of these regulations may
duplicate, and in some cases conflict with, certain elements of the
Title VII regulatory framework including the recordkeeping and
reporting rules being adopted in this document.

C. Analysis of the Adopted Program and Alternatives

    In determining appropriate recordkeeping, reporting, notification,
and securities count requirements, the Commission assessed and
considered a number of different costs and benefits, and the
determinations it has made may have a variety of economic consequences
for the relevant firms, markets, and the financial system as a whole.
As an initial matter, the recordkeeping, reporting, notification, and
securities count rules and rule amendments being adopted in this
document represent the manner in which SBSDs and MSBSPs will document,
report, and retain evidence of their compliance with, among other
things, the Commission's capital, margin, and segregation rules. The
Commission believes that these rules, by their nature, will have a more
limited economic impact as compared to the Commission's capital,
margin, and segregation rules.
    With respect to the likely benefits of the adopted rules and
amendments, the recordkeeping, reporting, notification, and securities
count requirements are broadly intended to facilitate effective
oversight of SBSD and MSBSPs. Requiring registered firms to comply with
recordkeeping and reporting rules should help ensure more effective
regulatory oversight. The new rules and rule amendments should further
help the Commission determine whether an SBSD or MSBSP is operating in
compliance with the Exchange Act and the rules thereunder.
    The Commission further believes that the required annual audit of
nonbank SBSDs' and nonbank MSBSPs' financial statements and the public
availability of firms' Statement of Financial Condition will provide
customers and counterparties access to financial information that will
permit them to better assess the financial condition of firms. While it
is difficult to quantify the extent to which lack of information about
the financial conditions of other market participants reduces
willingness to participate in the security-based swap market, the
Commission staff's experience is that market participants' willingness
to engage in activities increases when such participants are better
able to understand the financial condition of other market participants
and counterparties.
    The Commission also recognizes that there will be costs associated
with the new rules and rule amendments. These costs include the costs
of complying with the new rules and rule amendments, for example one-
time and ongoing financial reporting costs, and costs associated with
ongoing record maintenance. To the extent that costs associated with
the new rules and amendments arise from complying with the new
requirements, these costs are discussed below in section V.C.2. of this
release.
    The Commission believes that the new rules and rule amendments will
require improvements in technology to meet minimum standards for
recordkeeping and reporting. SBSDs and MSBSPs that do not have the
technology to store and maintain the information required by the new
rules and rule amendments will likely need to invest in technology.
While investments in new technology will entail costs for SBSDs and
MSBSPs, these technological investments may generate benefits for
financial markets at large by helping

regulators to more effectively track trading and risk exposure in
security-based swaps. Moreover, to the extent that improvements in
technology required by the rule and rule amendments also enable SBSDs
and MSBSPs to more effectively track their trading and risk exposure in
security-based swaps, the cost of these improvements for these entities
may be partially offset.
    In addition, the rules being adopted in this document, in
conjunction with other requirements established under the Dodd-Frank
Act, could have a substantial impact on international commerce and the
relative competitive position of intermediaries operating in multiple
jurisdictions. For example, intermediaries operating in other
jurisdictions could be advantaged relative to U.S. competitors if
corresponding requirements are not established in other jurisdictions
or if the Commission's rules are substantially more stringent and
costly than corresponding requirements in other jurisdictions. This
could affect the ability of intermediaries and other market
participants based in the U.S. to participate in non-U.S. markets and
the propensity of non-U.S.-based intermediaries and other market
participants to participate in U.S. markets or perform market-facing
activities using personnel located in the United States. Accordingly,
the reporting, recordkeeping, notification, and security count
requirements for security-based swaps being adopted in this document
could entail substantial differences in the costs of compliance between
the U.S. and foreign jurisdictions and could therefore have
international implications in terms of the extent of market
participation in U.S. versus non-U.S. jurisdictions.\895\
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    \895\ See Cross-Border Security-Based Swap Activities; Re-
Proposal of Regulation SBSR and Certain Rules and Forms Relating to
Registration of Security-Based Dealers and Major Security-Based Swap
Participants, 78 FR at 31034.
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    In certain instances it is difficult to quantify the potential
benefits and costs of the new rules and rule amendments. For example,
firms that choose to register in some capacity as an SBSD or MSBSP may
not currently be subject to Commission, CFTC, or prudential regulation.
The Commission does not have comprehensive information about such
firms' current recordkeeping, reporting, notification, and securities
count practices with respect to their security-based swap activities
and thus it is difficult to reliably gauge the economic effect of the
new rules and rules amendments on these firms. With regard to entities
that are currently regulated by the Commission and that are likely to
be affected by the rules and rule amendments being adopted in this
document, the Commission staff's experience with broker-dealers under
the existing recordkeeping, reporting, notification, and securities
count rules gives it a better understanding of the compliance-related
costs (such as those related to retaining attorneys, accountants, and
other professionals), and in such cases the Commission has prepared
below a summary of its estimate of these costs.\896\
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    \896\ See section V.C.2. of this release.
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    The benefits and costs of each adopted rule and amendment, as well
as the reasonable alternatives, are discussed in further detail below.
1. Benefits of Recordkeeping, Reporting, Notification, and Securities
Count Requirements
a. Requirements To Make and Keep Records
i. Broker-Dealer SBSDs, Broker-Dealer MSBSPs, and Stand-Alone Broker-
Dealers (Amendments to Rule 17a-3)
    The Commission is amending existing Rule 17a-3 to account for
security-based swap activities of broker-dealers, including broker-
dealer SBSDs and MSBSPs.\897\ The Commission believes that the
amendments to Rule 17a-3 will generate valuable information that will
assist the Commission to improve the regulatory oversight and
documentation of the security-based swap activities of stand-alone
broker-dealers, broker-dealer SBSDs and MSBSPs. For example, requiring
these firms to record the UIC of the counterparties in their security-
based swap transactions will assist the Commission in accurately
determining which parties are involved in the specific security-based
swap transactions and will thereby improve the Commission's analysis of
the firms' credit and counterparty risk exposures as well as assist in
the accurate determination of the firms' aggregate financial exposure
to the related parties.
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    \897\ See, e.g., paragraph (a)(1) of Rule 17a-3, as amended
(addition of information that must be included in security-based
swap purchase and sale blotters). See also section II.A.2. of this
release for a discussion of the specific requirements in the
amendments.
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    As noted above in section II.A.2. of this release, in practice, the
Commission's adoption of a requirement to use UICs for the purposes of
Rules 17a-3 and 18a-5 means that until such time as the Commission
recognizes any other IRSS, registrants will be required to use LEIs as
requested by commenters.\898\ As the Commission noted in the Regulation
SBSR adopting release, requiring the use of UICs will provide a
streamlined way of reporting, disseminating, and interpreting security-
based swap information.\899\ The Commission believes Rules 17a-3 and
18a-5 will require few entities that are not already required to obtain
UICs under Regulation SBSR to obtain UICs.\900\
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    \898\ While the Commission to date has only recognized the GLEIS
as an IRSS, the rules being adopted in this document do not preclude
the use of UICs issued by any other organization that is recognized
as an IRSS in the future.
    \899\ Regulation SBSR--Reporting and Dissemination of Security-
Based Swap Information, 80 FR 14563.
    \900\ See section V.B.4. of this release.
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    The records generated as a result of amendments to Rule 17a-3 will
also constitute an important means of determining compliance of market
participants with securities laws such as the capital, margin, and
segregation rules applicable to SBSDs and MSBSPs. The amendments to
Rule 17a-3 will therefore facilitate more effective oversight and
surveillance of the participants in and the market for security-based
swaps.
ii. Stand-Alone SBSDs, Stand-Alone MSBSPs, Bank SBSDs, and Bank MSBSPs
(New Rule 18a-5)
    The Commission is adopting new Rule 18a-5--which is modeled on Rule
17a-3, as amended--to require stand-alone SBSDs, stand-alone MSBSPs,
bank SBSDs, and bank MSBSPs to make and keep current certain
records.\901\ As with Rule 17a-3, under Rule 18a-5, firms are required
to document specific attributes of their security-based swap
transactions (e.g., the contract price of the security-based swap; the
type of security-based swap; the reference security, index or obligor
etc.). However, not all of the provisions of Rule 17a-3 are being
included as part of Rule 18a-5 because some of Rule 17a-3's provisions
relate to activities that are not expected or permitted of stand-alone
SBSDs and MSBSPs not dually registered as a broker-dealer. Similarly,
and as described above, the new requirements that apply to bank SBSDs
and MSBSPs under new Rule 18a-5 are more limited than the new
requirements that apply to stand-alone SBSDs and MSBSPs under the same
rule because the Commission's authority under Section 15F(f)(1)(B)(i)
of the Exchange Act is limited to activities related to their business
as an SBSD or MSBSP and because banks are already subject to the
existing recordkeeping requirements from prudential regulators who are
responsible for capital, margin, and

other prudential requirements applicable to bank SBSDs and MSBSPs.
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    \901\ See section II.A.2.a. of this release (describing Rule
18a-5, as adopted).
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    The Commission believes that new Rule 18a-5 will provide for
improved regulatory oversight of the security-based swap activities of
stand-alone SBSDs, stand-alone MSBSPs, bank SBSDs, and bank MSBSPs. As
with the records generated by broker-dealer SBSDs and MSBSPs under the
amendments to Rule 17a-3, records generated as a result of new Rule
18a-5 will also constitute an important means of determining compliance
of non-broker-dealer SBSDs and MSBSPs with securities laws such as the
capital, margin, and segregation rules applicable to SBSDs and MSBSPs
and will facilitate the Commission's regulation of the security-based
swap market.\902\
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    \902\ See section V.C.1.a.i. of this release.
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b. Requirements To Preserve Records
i. Broker-Dealer SBSDs, Broker-Dealer MSBSPs, and Stand-Alone Broker-
Dealers (Amendments to Rule 17a-4)
    The Commission is adopting amendments to existing Rule 17a-4--which
contains requirements for broker-dealers subject to Rule 17a-3 to
preserve certain types of records required to be made and kept current
under Rule 17a-3 and prescribes the duration for which and the manner
in which these records must be preserved--to account for the security-
based swap activities of broker-dealers, including broker-dealer SBSDs
and MSBSPs, as well as certain non-substantive amendments.
    For example, and as discussed above,\903\ the Commission is
adopting amendments to certain provisions in paragraph (b) of existing
Rule 17a-4 to account for security-based swap transactions, and is
adopting amendments that require broker-dealers, including broker-
dealer SBSDs and MSBSPs, to preserve certain additional records related
to security-based swap activities. Further, the Commission is amending
the preservation requirement in paragraph (b)(4) of existing Rule 17a-4
to include ``recordings of telephone calls required to be maintained
pursuant to section 15F(g)(1) of the [Exchange] Act.'' The amendment
establishes a requirement to preserve for three years telephone calls
that a covered firm chooses to record to the extent that the calls are
required to be maintained pursuant to Section 15F(g)(1) of the Exchange
Act.
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    \903\ See section II.A.3.a. of this release (discussing
paragraph (b) of Rule 17a-4, as amended).
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    The Commission believes that by keeping current, preserving and
ensuring ready access to the records required under Rule 17a-3, as
amended, the amendments to Rule 17a-4 will support the benefits
emanating from the amendments to Rule 17a-3. These benefits primarily
include improving the Commission's regulatory oversight by ensuring its
ability to monitor and review documentation of the security-based swap
activities of stand-alone broker-dealers, broker-dealer SBSDs and
MSBSPs.
ii. Stand-Alone SBSDs, Stand-Alone MSBSPs, Bank SBSDs, and Bank MSBSPs
(New Rule 18a-6)
    With respect to stand-alone SBSDs, stand-alone MSBSPs, bank SBSDs,
and bank MSBSPs, the Commission is adopting new Rule 18a-6 to establish
record preservation requirements for these categories of potential
registrants. New Rule 18a-6 is modeled on the record preservation
requirements of Rule 17a-4, as amended, but contains modifications to
account for the differences applicable to stand-alone SBSDs, stand-
alone MSBSPs, bank SBSDs and MSBSPs consistent with their anticipated
business activities related to security-based swaps.\904\ Many, but not
all, of the same record preservation requirements that are applicable
to broker-dealer SBSDs and MSBSPs under the amendments to Rule 17a-4
will also apply to stand-alone SBSDs, stand-alone MSBSPs, bank SBSDs,
and bank MSBSPs under new Rule 18a-6. For example, analogous to
paragraph (a) of Rule 17a-4, as amended \905\ paragraph (a) of new Rule
18a-6 requires that certain records required to be created and
maintained under Rule 18a-5 be preserved for a period of not less than
six years, the first two in an easily accessible place.\906\
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    \904\ See section II.A.3.a. of this release (discussing Rule
17a-4, as amended, and Rule 18a-6, as adopted).
    \905\ See id. (discussing Rule 17a-4 record retention
requirements).
    \906\ See id. (discussing requirements for stand-alone SBSDs,
stand-alone MSBSPs, bank SBSDs and MSBSPs to maintain and preserve
records).
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    In response to comments received to the proposing release, the
Commission is modifying Rule 18a-6 to eliminate the requirement that
the electronic storage system preserve records exclusively in a non-
rewriteable and non-erasable format.\907\ The Commission believes that
the removal of these requirements will reduce the likelihood that
stand-alone or banks SBSDs and MSBSPs will need to maintain an extra
set of records, and avoid the associated costs of maintaining those
extra records, in order to comply with the rule.\908\ For SBSDs and
MSBSPs that are also registered with the CFTC as swap dealers and major
swap participants, these modifications to the rule will also eliminate
a potential conflict with the requirements of the CFTC.
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    \907\ See section II.A.3.a. of this release (discussing Rule
18a-6 electronic storage requirements).
    \908\ The costs to implement an electronic storage system to
preserve records in a non-rewriteable and non-erasable format may be
substantial. In April 2018, SIFMA reported the results of anonymous
survey of a group of its members about the costs of implementing
such a system. Of the 25 respondents, 16 firms had implemented such
a system in the previous three years at an average cost of $6
million with several firms reporting costs in excess of $25 million.
See Petition for Rulemaking to Amend Exchange Act Rule 17a-4(f)--
Addendum (available at: https://www.sec.gov/rules/petitions/2018/ptn4-713-addendum.pdf).
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    The Commission believes that by keeping current, preserving, and
ensuring ready access to the records required under new Rule 18a-5, new
Rule 18a-6 will support the benefits stemming from new Rule 18a-5
without increasing the costs associated with keeping records. These
benefits primarily include improving the Commission's regulatory
oversight by ensuring its ability to monitor and review documentation
of the security-based swap activities of non-broker-dealer SBSDs and
MSBSPs.
c. Reporting
    The Commission is adopting amendments to existing Rule 17a-5--which
contains requirements for broker-dealers to file periodic unaudited
reports containing information about their financial and operational
condition and for broker-dealers to file annual financial statements,
certain reports and a report covering these financial statements and
reports prepared by an independent public accountant registered with
the PCAOB in accordance with PCOAB standards \909\--to account for the
security-based swap activities of broker-dealers, including broker-
dealer SBSDs and MSBSPs, as well as certain non-substantive amendments.
Further, the Commission is adopting new Rule 18a-7--which is modeled on
Rule 17a-5, as amended--to establish reporting requirements for stand-
alone SBSDs, SBSDs also registered as OTC derivatives dealers, stand-
alone MSBSPs, bank SBSDs, and bank MSBSPs. The Commission believes that
the economic effects associated with the new reporting requirements
will depend upon the nature of the filings that potential registrants
make today based upon their current registration status (e.g., broker-
dealer vs. non-broker-dealer).
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    \909\ See section II.B.2. of this release (discussing Rule 17a-5
reporting requirements).

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i. Stand-Alone Broker-Dealers (Amendments to Rule 17a-5)
    As described above, under these rules and rule amendments, stand-
alone broker-dealers (including stand-alone OTC derivatives dealers and
stand-alone ANC broker-dealers) that engage in security-based swap
activities but that do not register with the Commission as an SBSD or
MSBSP will be required to complete revised FOCUS Report Part II.\910\
FOCUS Report Part II, as amended, largely retains the structure and
line items of the FOCUS Report Part II that existed prior to these
amendments, but also includes new line items and schedules tailored
specifically to security-based swap activities.\911\ It also largely
elicits the same information as FOCUS Report Parts IIB and II CSE.\912\
Consequently, broker-dealers that filed the FOCUS Report Part II prior
to these amendments, ANC broker-dealers that filed the FOCUS Report
Part II CSE, and OTC derivatives dealers that filed the FOCUS Report
Part IIB will need to enter into the FOCUS Report Part II, as amended,
substantively the same information as was required of them prior to
these amendments.
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    \910\ See id. (discussing broker-dealer SBSDs' and broker-dealer
MSBSPs' use of revised FOCUS Report Part II).
    \911\ See section II.B.1. of this release.
    \912\ See id.
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    The Commission believes that the information elicited from stand-
alone broker-dealers on their security-based swap activities will
assist the Commission and the DEAs of these entities to examine them
more effectively. The reporting requirements for stand-alone broker-
dealers on account of their security-based swap related activities are
also expected to promote transparency of the financial and operational
condition of these entities to the Commission.
ii. Broker-Dealer SBSDs and MSBSPs (Amendments to Rule 17a-5)
    The Commission has designed FOCUS Report Part II, as amended, to
elicit the information that it believes it needs to effectively oversee
the financial condition of broker-dealer SBSDs and MSBSPs. The
Commission has carefully considered FOCUS Report Part II, as amended,
in light of its experience with broker-dealer regulation and in
relation to its new statutory responsibilities under Section 15F of the
Exchange Act. The Commission believes that the information elicited in
FOCUS Report Part II, as amended, will promote compliance of the
relevant regulated entities with Rules 15c3-1 and 15c3-3 and will
assist the Commission, SROs, state securities regulators and the